Tamarack Valley Energy Ltd. has entered into two separate agreements to acquire assets in the Provost and Nipisi areas of Alberta. The Acquisitions include approximately 2,800 boe/d of low decline (~16%) oil weighted assets under waterflood, along with approximately 38,400 net acres in the Clearwater play of Alberta (the “Assets”) for a total purchase price of approximately $135.3 million, net of proceeds from two newly created gross overriding royalties (“GORR”) on the Clearwater and Slave Point Nipisi assets, subject to certain closing adjustments. The completion of the Acquisitions is subject to customary regulatory approvals.
The Acquisitions will be funded through a $55.0 million bought deal equity financing, Tamarack's proforma credit facilities at closing of $325.0 million and $13.7 million in proceeds from the sale of the newly created GORR.
Brian Schmidt, President & CEO of Tamarack said “The Acquisitions supplement Tamarack's existing position in the Clearwater fairway and are consistent with our returns focused strategy to enhance the sustainability and resiliency of the Company’s free adjusted funds flow(1) profile with low decline oil production, long reserve life and economic oil weighted drilling inventory. Pro forma the Acquisitions and financing, Tamarack is well capitalized and strongly positioned to efficiently execute our development plan.”
Acquisition Highlights
• Increases Tamarack’s exposure to assets under waterflood and reduces corporate decline rate
o Approximately 2,250 boe/d(2) of Provost Sparky (“Eyehill”) low decline medium oil under waterflood with four (4.0 net) Sparky primary horizontal wells expected to be on production in March. Tamarack has identified 12 net primary and 29 net waterflood conversion patterns in the area. This medium oil asset is in close proximity to Tamarack’s existing Veteran assets and can benefit from operational efficiencies.
o Approximately 500 boe/d(3) of Nipisi Slave Point low decline light oil under waterflood and an additional 50 boe/d of Nipisi Clearwater oil(4) with two additional Clearwater oil wells currently being brought on production and one well being drilled. Tamarack’s 15-24 Clearwater well, offsetting a portion of the acquired Clearwater lands, produced at an average rate of 278 bbl/d in the month of February.
o Tamarack estimates that its pro forma 2021 corporate decline rate will be reduced to a range of 21 to 23%.
• Complements Tamarack’s Clearwater position in the Greater Nipisi area
o 38,400 net acres of land in the Clearwater with 100 development locations over approximately 39 net sections along with 21 net sections of exploratory acreage.
o Light oil production from the Slave Point provides an opportunity to realize further synergies through blending opportunities with the heavier oil production from the Clearwater
o Internal assessments have identified a portion of the Nipisi Clearwater area as a focus for near term waterflood development due to the geological and oil fluid characteristics
• Enhances Tamarack’s free adjusted funds flow(5) profile
o Tamarack's pro forma 2021 guidance reflects a $20 million increase in free adjusted funds flow
o Increased inventory of economic, low capital cost drilling inventory (~$1.0 to ~$1.2 million per well) in the Sparky and Clearwater oil plays
• Attractive metrics and positive environmental, social and governance (ESG) contributions
o Existing production of ~2,800 boe/d has a low decline (~16%) and a significant oil and natural gas liquids (“NGL”) weighting (~86%)
o Production base supports an annualized operating field netback(5) of ~$35 million (~$35 per boe) and annualized free adjusted funds flow(5) of $25 million
o Attractive environmental asset profile with minimal asset retirement obligation (“ARO”) of $10.8MM (undiscounted, uninflated).
• Financing structure preserves Tamarack’s strong balance sheet
o Equity financing and concurrent GORR disposition allows Tamarack to maintain significant liquidity under its expected proforma credit facilities of $325 million at closing
o Pro forma the Acquisitions, Tamarack will maintain a strong 2021 year-end net debt to trailing annual adjusted funds flow ratio(5) of less than 1.0x
Overview of the Acquisitions
Tamarack has entered into an asset purchase agreement with a publicly-traded oil and gas company (the “Vendor”), pursuant to which the Company will acquire the Vendor’s working interest in the Nipisi and Provost assets for cash consideration of $106 million with an effective date of February 1, 2021 (the “Asset Acquisition”).
Tamarack has signed a letter of intent and binding exclusivity agreement with Woodcote Petroleum Inc. (“Woodcote”) pursuant to which, subject to the execution of a definitive agreement, the Company will acquire all of the issued and outstanding shares of Woodcote, a private company with a 100% operated working interest in Greater Nipisi (the “Corporate Acquisition”) for aggregate consideration of $43 million comprised of $32 million in cash and $11 million in common shares to be issued at a deemed price of $ 2.25/share.
The Acquisitions are expected to close on or about March 25, 2021 subject to certain regulatory and other approvals and the satisfaction or waiver of customary closing conditions.
In conjunction with the Acquisitions, Tamarack has entered into two separate agreements to sell a gross overriding royalty (GORR) on the Clearwater and Slave Point Nipisi portion of the Assets for gross proceeds of $13.7 million.
Equity Financing
Tamarack has entered into an agreement with a syndicate of underwriters led by National Bank Financial Inc. and Peters & Co. Limited (the "Underwriters"), pursuant to which the Underwriters have agreed to purchase for resale to the public, on a bought-deal basis, 24.45 million common shares ("Common Shares") of Tamarack at a price of $2.25 per Common Share for gross proceeds of approximately $55.0 million (the "Offering"). The Underwriters will have an option to purchase up to an additional 15% of the Common Shares issued under the Offering at a price of $2.25 per Common Share to cover over-allotments exercisable in whole or in part at any time until 30 days after the closing.
The Common Shares issued pursuant to the Offering will be distributed by way of a short form prospectus in all provinces of Canada (excluding Québec) and may also be placed privately in the United States to Qualified Institutional Buyers (as defined under Rule 144A under the United States Securities Act of 1933, as amended (the "U.S. Securities Act")) pursuant to an exemption under Rule 144A, and may be distributed outside Canada and the United States on a basis which does not require the qualification or registration of any of the Company's securities under domestic or foreign securities laws. Completion of the Offering is subject to customary closing conditions, including the receipt of all necessary regulatory approvals, including the approval of the TSX. Closing of the Offering is expected to occur on March 25, 2021.
Board of Directors Appointment
Tamarack is pleased to announce the appointment of Mr. John Rooney to its Board of Directors. Mr. Rooney is a Calgary-based entrepreneurial executive with a technical background in finance and is Chairman of Kara Technologies Inc, an organization dedicated to the development of next generation technology for the economic production of low emissions fuels. Prior thereto, Mr. Rooney founded and ran a number of public oil and gas companies including: Northern Blizzard Resources Inc. (Chairman & CEO); Tusk Energy Corporation (CEO); Zenas Energy Inc. (President & CEO); Blizzard Energy Inc. (President & CEO); and Equatorial Energy Inc. (multiple executive roles).
In addition to his strong working knowledge of the oil and gas industry, Mr. Rooney brings exceptional value to the Tamarack Board of Directors through his more than 20 years of public, private and not-for-profit directorships. He also brings a unique stakeholder and sustainability perspective from his five years as director with Export Development Canada and his current role with Kara Technologies. Mr. Rooney is a Chartered Accountant and a Chartered Business Valuator.
Advisors
Peters & Co. Limited is acting as financial advisor to Tamarack with respect to the Asset Acquisition and strategic advisor with respect to the Corporate Acquisition.
National Bank Financial Inc. is acting as financial advisor to Tamarack with respect to the GORR and the Corporate Acquisition.
ATB and CIBC are acting as strategic advisors to Tamarack with respect to the Asset Acquisition.
Stikeman Elliott LLP is acting as counsel to Tamarack with respect to the Acquisitions, the GORR and the Financing.
