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Tamarack Reducing Costs, Pumps Up Spending

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Tamarack Valley Energy Ltd. has announced its operating and financial results for the first quarter of 2015.

Growth Plan and 2015 Guidance

• Through utilizing the benefits of existing infrastructure and Tamarack's 2015 cost cutting initiatives, operating costs have been reduced by $1.90/boe in Wilson Creek. The Company is also making progress towards achieving its targeted 20% reduction in capital costs to improve on capital efficiencies. Based on current strip pricing, Tamarack is able to achieve its target returns on capital and one year or less payouts on an estimated 116 high quality horizontal drilling locations that are located in the Wilson Creek Cardium trend that Tamarack has been actively drilling since mid-2014. By achieving these improved economics, Tamarack will begin to execute its 2015 growth plan that will include:
• An increase in its capital expenditure budget to between $130-$140 million from $47 million
• Resulting in 2015 estimated production guidance between 8,000-8,200 boe/d (approximately 58-62% oil & NGLs) and an 2015 exit production rate of approximately 10,000 boe/d (approximately 58-62% oil & NGLs)
• Commodity price assumptions: $63.00/bbl Edmonton Par price, $2.60/GJ AECO 

• The Company exceeded its first quarter 2015 production guidance of 8,000 boe/d by averaging 8,092 boe/d. First quarter production increased 5% on an absolute basis as well as on a per share basis from 7,681 boe/d in the previous quarter. The Company achieved this record production while only spending $5.0 million of capital expenditures during the quarter while generating $13.7 million of funds from operations, thereby reducing debt by $8.6 million.

Financial and Operating Highlights

• Delivered record production of 8,092 boe/d (63% oil and NGLs), an increase of 94% (33% per share) compared to 4,182 boe/d (56% oil and NGLs) in Q1/2014. In addition, the Company estimates it has 1,205 boe/d behind pipe in the Wilson Creek /Alder Flats area that could be brought on stream in the second half of 2015 as economic conditions improve.
• Increased funds from operations 2% to $13.7 million ($0.18/share) compared to $13.4 million ($0.25/share) in Q1/2014. On a per share basis funds from operations decreased 30% compared to a 47% decrease in realized commodity prices on a boe basis.
• Achieved operating costs of $12.55/boe, 13% below budgeted operating costs of $14.45/boe and a 5% reduction relative to Q1/2014 operating costs ($13.25/boe) due to a continued focus on operational efficiencies.
• Realized $3.6 million ($5.00/boe) in hedging gains during the first quarter of 2015, supporting a Q1/2015 operating netback of $23.42/boe.
• Total capital expenditures for the quarter were $5.0 million compared to $25.0 million in Q1/2014 as the Company has prudently elected to preserve capital during the first half of 2015 to reduce debt and maintain financial flexibility.
• Reduced net debt by $8.6 million during the quarter to $121.2 million.
• Maintained a disciplined hedging program with an average of 1,450 bbl/d of oil production for the last three quarters of 2015 hedged at an average WTI fixed price of $82.65/bbl (Canadian dollar equivalent) and an average of 1,350 bbls/d of oil production for the first half of 2016 hedged at an average WTI fixed price of $75.10/bbl (Canadian dollar equivalent).

Operations Review

• Tamarack achieved its record production in the first quarter of 2015 despite only spending $5.0 million on capital expenditures and having 280 boe/d of production temporarily shut-in due to third party facility downtime. These strong operating results were due to the continued production performance from the Company's fourth quarter Wilson Creek drilling program. These Wilson Creek wells continue to outperform internal expectations.
• During the first quarter of 2015, Tamarack elected to exercise fiscal prudence with the current commodity price environment in order to preserve the Company's target return on capital. The Company has purposely avoided bringing on new production during this period of lower commodity prices by limiting its drilling program in early 2015. During this economic environment, capital investments generate the lowest rates of returns and can dilute the Company's net asset value. Similar to previous down cycles, there was a lag in service cost reductions during the first quarter of 2015. 

As a result, Tamarack employed the following strategy to deal with this lower commodity price environment:

• shut down non-essential capital spending;
• embark on a methodical approach to cut operating costs to increase netbacks;
• work with service providers to reduce capital costs with a target of a 20% reduction;
• hedge strategically, when prices are at levels that allow for the drilling program to achieve payouts of 1.5 years or better; and
• opportunistically add high quality, quick payback drilling inventory.
• strong>In keeping with this strategy the Company drilled two net Cardium horizontal oil wells in the Wilson Creek area of Alberta in early January 2015, bringing the total to three net Cardium horizontal oil wells that have been drilled but not fracture stimulated or placed on production. Tamarack also has one net horizontal Cardium Alder Flats well that has been shut in since the third quarter of 2014 due to third party facility constraints. On a combined basis, the Company estimates it has 1,205 boe/d behind pipe in the Wilson Creek /Alder Flats area. This behind pipe production will allow Tamarack to significantly increase production as economic conditions continue to improve. With current realized supply cost reductions and US$60/bbl WTI (approximately CND$66/bbl Edmonton Par price) commodity pricing, Tamarack's inventory of Cardium locations realize a payout of less than 1.0 year.
• To date, Tamarack has achieved success thus far in 2015 by reducing operating costs by $1.90/boe compared to its budget largely due to cost reductions in the Wilson Creek area. The Company has also made progress towards achieving its targeted 20% reduction in capital costs which will improve go-forward efficiencies. When considering realized operating cost and capital cost reductions, current hedged volumes, and current strip commodity pricing, Tamarack believes it will be able to bring behind pipe production online with a payout of approximately seven months and target new Wilson Creek drilling inventory with less than one year payout when it resumes its drilling operations during the third quarter of 2015.