Tamarack Valley Energy Is Outperforming Amid The Carnage
By: Jon Costello
Note: Dollar values are in Canadian dollars unless specified otherwise.
The carnage in the energy sector has been relentless in recent weeks. Even today, with WTI trading flat on the day, the Canadian E&P ETF, XEG (XEG:CA) fell 1.8%. Few energy stocks have managed to escape it.
Among mid-caps and large-caps, one of the only standouts to do so is Tamarack Valley Energy (TVE:CA). TVE began to outperform in the middle of the year as WTI fell from the US$80s per barrel back into the US$70s. That’s when its operating and financial momentum became impossible for investors to ignore.
Since then, TVE has walloped the XEG, as shown below.
TVE is a prime example of how E&Ps that give investors what they want can outperform, even in an extremely difficult trading environment for E&Ps.
Giving Investors What They Want
TVE gives E&P investors the complete package: steady operational improvement, a high liquids weighting, a high netback, and an extensive inventory of high-quality drilling locations.
The company emerged from a portfolio transformation in 2023 with the disposal of its Cardium acreage for $123 million. That sale narrowed the company’s focus to the Clearwater and Charlie Lake plays in Alberta, which today account for 90% of TVE’s production.
TVE’s transformation is pictured in the following graphic.
Source: TVE 2024 Investor Day, June 24, 2024.
The transformation took TVE’s production from 22,000 boe/d to 66,000 boe/d. It increased TVE’s liquids weighting from 60% to 84% in the third quarter of 2024.
It All Starts with High-Quality Assets
TVE’s crude oil production underwent a positive step change after it acquired Deltastream Energy in September 2022 for $1.425 billion. The acquisition increased TVE’s crude oil production from 29,000 boe/d to 49,000 boe/d. Natural gas and NGLs have remained flat, as shown below.
The Clearwater is one of the hottest plays in Canada, featuring some of the best well economics due to its low cost, multi-zone potential, and the opportunity to enhance oil recovery through waterfloods. TVE’s Deltastream acquisition made it the largest publicly-listed E&P in the play.
TVE boasts a multi-decade Clearwater drilling inventory, underpinned by what management estimates to be a massive 8.7 billion barrels of original oil in place.
Investors considering TVE should know that the company’s claim of a very long drilling inventory is inconsistent with the company’s reserve report. TVE’s proved reserve life, as listed in its 2023 statement of reserves, spans just seven years. The report includes TVE’s entire Clearwater position. The discrepancy between the company’s claim and its reserve estimates stems from the fact that conventional reserves like the Clearwater are booked by reference to a shorter radius around producing wells. By contrast, in unconventional plays, reserves are booked using a longer radius around producing wells.
The upshot of this discrepancy is that TVE’s reserves are far more understated than unconventional reserves, for example, in the Montney and Duvernay. TVE’s significant Clearwater acreage holdings will see oil resources currently considered contingent and prospective converted to proved and probable reserves through continued successful drilling efforts.