Tamarack Valley Energy Ltd. (TVE) Earnings Call Transcript & Summary

Good morning. Welcome, everyone, to the Tamarack Valley Energy Limited Conference Call and Webcast on Tuesday, July 28, 2026, discussing the recent Q2 2026 results press release. I would like to introduce today's speakers, Mr. Brian Schmidt, Founder and CEO; Mr. Steve Buytels, President and Kevin Johnson, CFO. [Operator Instructions] Mr. Schmidt, you may begin your conference.

Thank you, Sylvie. Good morning, and welcome, everyone, joining this morning to discuss our operating and financial results for the second quarter of 2026. My name is Brian Schmidt. I'm the CEO and Founder of Tamarack Valley Energy. And today, I'm joined by Steve Buytels, President; and Kevin Johnston, CFO. We are proud to report our Q2 results, which delivered record cash flows accompanied by robust production and shareholder returns. Our results are underpinned by strong operational execution and bolstered by elevated commodity prices in the quarter with global conflicts giving -- driving higher demand for responsibly sourced and reliable Canadian group. . We continue to build upon our operational momentum in the Clearwater. We are delivering efficient production growth through the drill bit, and we continue to observe strong reservoir response from the ongoing waterflood expansion across our core fields. We are on track to grow our Clearwater production by over 15% year-over-year and raised our exit water rate injection volumes by 75%, setting a stage for '27 and beyond. This quarter included the previously announced divestment of our Charting Lake assets for over $800 million. This transaction reflects the culmination of a tremendous portfolio transformation over the last 5 years. Looking ahead, the transaction has positioned Tamarack extremely well for success. We are now a pure-play Clearwater operator with run rate production of over 54,000 BOEs per day, net cash on the balance sheet of $130 million and decades of low-cost, high-margin oil inventory. Kevin Johnston, our CFO, will now discuss our Q2 financial highlights.

Thank you, Brian. Clearwater production growth and strong operating netbacks drove record adjusted funds flow of $255 million for the second quarter or $0.53 per share. This was a 29% increase compared to the same period last year. Net of our capital program, Tamarack delivered $155 million of free funds flow in Q2. Year-to-date, the company has generated free funds flow of $280 million or $0.58 per share. We continue to boost per share returns with our accretive share buyback program. We repurchased 6.5 million shares in the second quarter and 11 million year-to-date. Since the commencement of the program in January 2024, a we have now reduced the common share float by 15% at an average price of $5.39 per share. Combining the buybacks with our dividends, Tamarack returned over $165 million to shareholders through the first half of the year. We declared a third quarter dividend of $0.05 per share payable on September 30, following the Charlie Lake divestiture, our dividend was increased by 25% and now equates to an annual distribution of $0.20 per share. Strength continues to be a core focus for Tamarack. We have recently redeemed our remaining 2027 senior and extended our credit facility with a 4-year term maturing in 2030. A portion of the proceeds from the Charlie Lake sale were utilized to repay everything drawn on our credit facility. We have now eliminated our net debt position and have exited the second quarter with over $500 million of cash on hand and undrawn credit capacity of $875 million. Steve Buytels, our President, will provide an update on our Clearwater assets and outlook for the remainder of the year.

Thanks, Kevin. Execution of our first half capital investment program was largely in line with our original 2026 budget plans and was predominantly focused on primary development activities. We drilled 42 horizontals in the Clearwater Fairway utilizing a 4-rig program. First half activities also included groundwork for waterflood expansion plans in the back half of 2026. As Brian noted, we exited the quarter producing over 54,000 BOE per day from the Clearwater and are well on track with our full year production guidance. Current waterflood injection volumes are approximately 45,000 barrels a day, and we now estimate that 8,500 barrels per day of our oil production is from waterflood uplift which represents 16% of our Q2 Clearwater production. By early August, we will be ramping up to approximately 50,000 barrels a day of injection and are on track to achieve our 2026 exit guidance of 70,000 barrels per day. As you are aware, this year's injection is next year's production. Tamarack is observing prolific waterflood response from injection patterns commissioned in the prior year. And Martin Hills, the production under waterflood is back to 88% of the historical primary peak from more than 5 years ago and continues to trend higher. These waterflood barrels were added at a finding and development cost of less than $1 per barrel. In West Martin, Waterflood response is establishing new production highs beyond historical primary production peaks in both the B and C Clearwater sands. Strong, consistent results from these 2 areas have provided significant momentum in the reduction of our corporate decline and future sustaining reinvestment needs. Following the Charlie Lake divestiture and in response to the higher near-term commodity prices, we elected to accelerate more growth of our high-margin Clearwater barrels in the back half of the year. Compared with our original budget, we are now spending an additional $75 million in the Clearwater, which is balanced between primary and secondary waterflood activities. Approximately half of this capital expansion reflects the reallocation of the Charlie Lake capital that was previously scheduled in the back half of the year. All told, we are now targeting a full year capital program of up to $450 million. We continue to be excited about our prospective lands at Pelican and SEAL and have expanded our delineation program to include 3 wells in the Pelican area targeting both Clearwater and Wabasca formation prospects. Further to this, we continue to advance our enhanced oil recovery scheme simulation in both areas. And in addition to that, are currently executing 2 waterflood pilots in the South Clearwater Fairway. Success in these areas would reflect a meaningful opportunity for us to bring forward incremental value into our 5-year plan. Waterflood continues to be the recovery technology of choice across the main Clearwater fairway, supported by strong production response and very attractive economics. Targeted evaluation of alternative recovery technologies, including thermal, is being focused on areas with different fluid and reservoir parameters where other recovery mechanisms may be effective. We are applying a nimble capital allocation strategy to our business. We had originally set a 2026 budget utilizing an assumed USD 60 WTI price. With higher commodity prices and cash flows, we are dedicating more capital for growth. We remain opportunistic with significant optionality and balance sheet strength to maximize the total return to shareholders. Net of our expanded capital investment program, we expect the majority of our free funds flow generated in 2026 to be returned to shareholders in the form of share buybacks, further compounding our per share value creation. Brian Schmidt will now deliver the closing comments on the call.

Thank you, Steve. In addition, we're pleased to announce the appointment of Scott Shimek to Chief Operating Officer. Scott joined Tamarack 5 years ago as Vice President, Production Operations; and he begins -- brings significant experience from the energy industry, having is integrated and diverse technical knowledge into various leadership roles. We also wish to thank the federal and provincial government for recent developments with respect to ongoing support for major projects in Canada, including the egress solutions out of the Western Canadian sedimentary basin, which will benefit all Canadians and protect our sovereignty. . This creates a positive visits environment that reduces egress risk and enhances the business environment. Beyond our capital allocation strategies that Steve spoke about, I want shareholders to know that we remain centered on the day-to-day business and acceleration of the vast inventory of opportunities in front of us. We are committed to precise operational execution, technical rigor and innovation. We continue to chase higher margins through our improved capital efficiencies, lower cost and higher price realizations. Putting all these together, we believe we can continue to achieve our mission of maximizing long-term sustainable value for our shareholders. Thank you. I'll now turn it back to you, Sylvie, for questions.

[Operator Instructions] Your first question will be from Patrick O'Rourke at ATB Cormark Capital Markets.

Maybe first, congrats to Scott on the promotion to the COO role. I guess just on the waterflood here. I think Q1, you noted 24% of production under waterflood exit targets around 38. Where do you ultimately -- what percentage of that overall Clearwater production do you ultimately see being under waterflood as you roll out the strategy here? .

Patrick, yes, it's Steve here. on the 5-year plan that we came out with and updated on the back of that Charlie Lake sale, we see that being north of 50%, approaching closer to 60% through the 5 years. But what I would say is we'll continue to refine that as we go here and we'll look to in conjunction with our 2027 budget update that. I think just with the positive results we're seeing in the incremental capital, there is a chance that, that could be higher. And ultimately, when we look at it, we put a new little update in the presentation where we talk about our sustaining investment needs moving to sub-20% of our cash flow at a $75 commodity price. So when we think about it, I do think there is the opportunity to accelerate more of that production being under flood. And as such, that should result in more margin and more free funds flow really coming through the business in that plan.

Okay. And I was going to ask on success case at Pelican and Seal, but I think I'll leave that for someone else to maybe shift here, just given the comment you just made. You've obviously got a lot of free cash flow, low sustaining capital I'm curious where you see the optimal capital structure for this business. And I think about in excess of $100 million in positive net debt on the balance sheet, how do you think about releasing that to investors?

Yes. And that's a good question. I'll start and then if anybody wants to add. But having cash on the balance sheet has never been optimal in our view in terms of your cap stack, the cost of debt, especially after tax is cheap, and we have significant returns, obviously in our portfolio that we can bring forward. That being said, we're going to be a little bit patient here to just better understand the market. Again, I talked about the waterflood opportunities in front of us. You brought up Pelican and Seal. We do want to bring that forward and the teams are working rigorously here on technical simulations in terms of what that looks like with respect to potential waterflood, perhaps polymer in certain circumstances and then, in some cases, even some of these similar opportunities. So we'll sit back here. But ultimately, we do want to put that cash to work. And we likely will put the cash to work, but we'll do it in a very disciplined manner. And again, it's all about how do we bring forward more of this value that's sitting both in the plan currently with the waterflood, but also not in the plan currently that could be upside to that plan in Pelican and Seal and -- and even places like the South Clearwater, we're piloting that waterflood as we speak. Any other?

Next question will be from Jamie Somerville at ROTH Capital.

I'll be happy to ask the question on Pelican and Seal. What's the timing we're likely to see initial results and an operations update on that in Q4? Or is that something that will just be more likely to see conclusive results from with the year-end reserves update.