Tamarack Valley Talks Q2 Results

Tamarack Valley Energy Ltd. reported its Q2 2019 results.

Highlights:

• Production averaged 24,090 boe/d (63% oil and NGL weighting), 4% higher than the previous quarter, and reflected the Company’s compliance with the production curtailment order imposed by the Government of Alberta that came into effect on January 1, 2019 (the “Curtailment Order”). Tamarack adjusted the timing of its capital investment and activity in order to comply with the Curtailment Order.

• Total adjusted operating field netback (see “Non-IFRS Measures”) in Q2/19 was $57.9 million ($0.26/share basic and $0.25/share diluted), 1% higher than the $57.5 million generated in Q1/19 ($0.25/share basic and diluted).

• Operating netback (see “Non-IFRS Measures”) of $29.14/boe in Q2/19 was 3% lower than the Q1/19 netback of $30.11/boe primarily due to a higher realized commodity hedging loss in the second quarter compared to the previous quarter.

• Net production and transportation expenses in Q2/19 were 3% lower at $10.12/boe compared to $10.48/boe in Q2/18 primarily due to increased production from the lower-cost Veteran area and a reduction in transportation expenses for oil produced at Veteran as a result of the recently commissioned pipeline in the

Provost area of Alberta

• Invested $25.9 million in the quarter, with 61% directed to drill, complete and equip five (5.0 net) Viking oil wells, as well as complete and bring on production 18 (17.7 net) Viking oil wells and two (2.0 net) Cardium oil wells that were drilled in late Q1/19. The Company drilled five (5.0 net) Viking oil wells and four (3.5 net) Cardium oil wells that will be brought on production in Q3/19, as well as two (2.0 net) wells at Veteran that will be used for injection and water sourcing to further contribute to the Company’s waterflood program in the area.

• Completed a $4.8 million Viking oil acquisition in the Veteran/Consort area of Alberta, adding 130 bbls/d and 9.4 net sections of undeveloped Viking land.

• The Company increased its syndicated revolving credit facility by 20% to $350 million from $290 million during the second quarter.

Second Quarter Review

Through Q2/19, Tamarack remained focused on efficient and responsible development of its high-quality light oil weighted asset base, successfully navigated prevailing volatile commodity price and operating conditions, while continuing to protect the balance sheet and enhance per share metrics. The Company’s Q2/19 production averaged 24,090 boe/d (63% oil and NGL weighting), a 4% increase over the previous quarter, due to the positive impact of 18 Viking oil wells and two Cardium oil wells coming on-stream through the period which were drilled and awaiting completion at the end of the first quarter. Tamarack’s first half average production of 23,622 boe/d (63% oil and NGL weighting) was within the guidance range of 23,500 boe/d to 23,750 boe/d despite the ongoing Curtailment Order and uncertain market conditions. By adjusting the timing of its drilling and completions activity, the Company was able to rely on expected base production declines rather than shut-in wells to remain below the production limits imposed by the Curtailment Order.

Tamarack invested approximately $25.9 million in capital expenditures during Q2/19, which was more than fully funded by the $57.9 million of adjusted operating field netback generated during the period. Similarly, in the first half of 2019, capital expenditures totaled $97.1 million and were below the $115.4 million of adjusted operating field netback, continuing the Company’s trend to date in 2019 of underspending funds being generated. The intentional allocation of the Company’s Q2/19 capital expenditures ensured compliance with the Curtailment Order and resulted in Tamarack’s oil and NGL weighting averaging 63% compared to 64% in the previous quarter.

During the second quarter, the Company drilled, completed and equipped 5.0 net Viking oil wells and also completed and brought on production 18 (17.7 net) Viking oil wells and 2.0 net Cardium oil wells that were drilled in late Q1/19. Tamarack also drilled 5.0 net Viking oil wells and four (3.5 net) Cardium oil wells that will be brought on production in Q3/19 and continued to advance the Company’s waterflood program in the Veteran area, drilling one net water source and one net water injection well. Encouraging results from the Veteran waterflood to date support Tamarack’s intention to continue directing capital to this project.

Tamarack’s Q2/19 operating netback averaged $29.14/boe, only 5% lower than Q2/18 despite a 9% reduction in average realized sales prices due to weaker benchmark liquids prices. The Company’s operating netback was supported by a 3% reduction in net production and transportation expenses from $10.48/boe in Q2/18 to $10.12/boe in Q2/19. This reduction was related to increased production from the lower-cost Veteran area and lower transportation expenses for oil produced at Veteran associated with the recently commissioned Provost Pipeline. Tamarack’s operating netback also reflects a 17% reduction in royalty expense per boe and a 53% reduction in realized commodity hedging loss per boe year-over-year. As a result, the Company recorded Q2/19 total adjusted operating field netbacks of $57.9 million ($0.26/share basic and $0.25/share diluted), 1% higher than Q2/18.

During the second quarter bank renewal process, the Company increased its revolving credit facility in the amount of $320 million and a $30 million operating facility (collectively, the “Facility”) with a syndicate of lenders. The Facility, totaling $350 million, lasts for a 365-day period and will be subject to its next 365-day extension by May 31, 2020. If not extended on May 31, 2020, the Facility will cease to revolve and all outstanding balances will become repayable one year from that date. At June 30, 2019, $186.9 million was drawn on the Facility. There are no financial covenants governing this Facility. The accordion feature that was added to the lending agreement in the fourth quarter of 2018 allows Tamarack to increase the revolving credit facility portion to $370 million, for a total Facility of $400 million, upon exercise and syndicate approval. The accordion feature bears no fees, including standby, until exercised. As at June 30, 2019, the accordion feature had not been exercised.

Operational Execution Supports Long-Term Fundamentals

As a result of its second quarter capital activities, Tamarack successfully added 1,672 boe/d in Veteran (77% oil and NGL), 1,367 boe/d in Wilson Creek/Alder Flats (67% oil and NGL) and 77 boe/d in Penny (97% oil and NGL). A $4.8 million Viking oil acquisition in the Veteran/Consort area of Alberta that was completed in the second quarter further enhanced Tamarack’s acreage position while adding 130 boe/d and 9.4 net sections of undeveloped lands adjacent to the Company’s existing acreage.

In addition, the Company directed capital to the continued development of its waterflood program in Veteran, Alberta. The waterflood project is designed to improve oil recoveries, reduce corporate decline rates and increase production rates while utilizing Tamarack’s existing and owned infrastructure. During the quarter, the Company had nine active water injector wells which contributed to waterflood injection volumes of 11,000 bbls/d during the second quarter. Tamarack remains committed to enhancing its sustainability and anticipates positive impacts on decline rates and reserve bookings will be realized commencing in 2020. Given the compelling initial results realized to date, coupled with the expectation that the Curtailment Order will remain in place through the balance of 2019, Tamarack intends to reallocate a portion of its 2019 drilling capital to the waterflood, as outlined below.

During the second quarter, Tamarack received approval from the Toronto Stock Exchange to renew its normal course issuer bid (“NCIB”) under the same terms. In the first half of the year, Tamarack invested $2.2 million to purchase and cancel 926,900 of its common shares (“Common Shares”) under the NCIB program. Over and above the NCIB program, during Q2/19 the Company directed $1.25 million to purchase 498,700 Common Shares in the open market which are held in trust by Tamarack’s trustee and used to settle restricted share units (“RSUs”) upon future exercises. The NCIB program and open market purchases support the Company’s commitment to generating per share value and provide management with an instrument that can be employed when there is a perceived misalignment between the Company’s prevailing share price and the underlying current and future potential value of its assets. In addition, these programs help to offset the dilutive impact that may be associated with the exercise and settlement of options, RSUs and performance share units issued under Tamarack’s stock-based compensation programs. As at June 30, 2019, Tamarack’s trustee held a total of 1,027,694 Common Shares in trust.

Tamarack’s net debt (see “Non-IFRS Measures”), including working capital deficiency but excluding the fair value of financial instruments and lease liabilities, totaled $195.9 million as at June 30, 2019, a reduction of approximately 11% relative to the end of the previous quarter. Tamarack’s Q2/19 net debt to annualized adjusted operating field netback ratio (see “Non-IFRS Measures”) was 0.8 times.

2019 Outlook Assuming Curtailment Order Remains Intact

In light of ongoing uncertainty with respect to the general operating environment in Western Canada, Tamarack is constantly assessing capital allocation decisions with the view to optimizing balance sheet strength and per share metrics while complying with the Curtailment Order. Based on the assumption that the Curtailment Order will be extended to the end of 2019, Tamarack will continue to adjust the timing and allocation of its capital expenditure program to ensure ongoing compliance. The Company’s original 2019 capital expenditure budget of $170 to $180 million (excluding tuck-in acquisitions) forecast the drilling of 125 net wells, including Viking wells in Alberta and Saskatchewan, Cardium oil wells in Wilson Creek and oil wells in Penny. The Company continues to expect that 2019 capital will be fully funded by total adjusted operating field netback based on current strip WTI prices.

Although total capital levels for 2019 remain unchanged, Tamarack has adjusted its planned capital activities, including reducing its forecast drilling count to approximately 117 net wells. In addition, the Company intends to redirect drilling capital from its Alberta Viking area to the Saskatchewan Viking play, where associated natural gas rates are slightly higher. As a result, exit production will reflect a modestly lower oil and NGL weighting (62% to 65%). Despite this meaningful capital reallocation, Tamarack continues to forecast average annual production within the original guidance range, with exit production anticipated to be at the lower end of the guidance range of 25,500 boe/d, and the upper end slightly tightened to 25,750 boe/d assuming the Curtailment Order is sustained through the second half of 2019 and legacy production performance continues.

In light of the Veteran waterflood results to date, the Company has shifted a portion of its second half 2019 drilling capital to the waterflood program. Approximately $5 to $7 million of capital that was earmarked for Viking drills under the original budget will be directed to the Veteran waterflood adding an additional six Veteran injector wells.

This shift will increase the total number of injector wells at Veteran from 21 to 27 and add three incremental new water source wells by year end. The decision to reallocate capital in the second half of 2019 supports the Company’s long-term sustainability and demonstrates the outperformance of its legacy production volumes given reduced drilling with no change to production guidance ranges.

Due to Tamarack’s success in accumulating an inventory of Viking and Cardium locations that payout in 1.5 years or less at current commodity prices, the Company expects to be fully self-funding in 2019 and estimates it will achieve a 3% to 5% increase in debt-adjusted production per share in Q4/19 compared to Q4/18. Based on current strip prices, Tamarack’s 2019 capital program is forecast to generate approximately $40 million to $50 million of adjusted operating field netback over and above budgeted capital expenditures (excluding tuck-in acquisitions), which can be directed to further asset enhancements through acquisition or incremental share buy-backs under its active NCIB program. Without the shift in capital to the waterflood, the excess adjusted operating field netback would have been even higher.

The Company’s capital allocation strategy over the past several years has remained consistent with the objective of achieving sustainability at low oil prices, while generating debt-adjusted production per share growth. With approximately 30% of its 2019 production protected with hedges including a US$60.00/bbl WTI put option and another approximately 3% protected by fixed price contracts at US$64.60/bbl, Tamarack remains well positioned to withstand further crude oil price volatility.

Assuming the Curtailment Order remains in effect through the second half of 2019, Tamarack’s 2019 guidance and assumptions are reaffirmed below.

• Annual average production between 23,500 boe/d and 24,500 boe/d (64% to 66% oil and NGL), with 2019 exit production estimated between 25,500 boe/d and 25,750 boe/d (62% and 65% oil and NGL).

• Capital expenditures between $170 million and $180 million.

• Estimated year end 2019 net debt to Q4 annualized adjusted operating field netback ratio of approximately 1.0 times with an estimated $100 million of liquidity on existing credit facilities.

• Average 2019 commodity price assumptions of WTI US$50.00/bbl, Edmonton Par C$52.33/bbl, WTI / Edmonton Par differential of US$10.75/bbl, AECO $1.31/GJ and a Canadian/US dollar exchange rate of $0.75.

Tamarack’s strategy remains focused on preserving balance sheet strength and remaining flexible with capital spending in the face of continued commodity price and crude oil price differential volatility.

Promotion of New VP of Corporate Planning and Business Development

Tamarack is pleased to announce the promotion of Martin Malek to the position of Vice President, Corporate Planning and Business Development. Mr. Malek has been with Tamarack since 2014 as the Manager of Business Development. He graduated from the University of Calgary with a BSc in Chemical Engineering and spent the first nine years of his career with Apache in both the Calgary and Midland, Texas offices as a reservoir engineer. Mr. Malek is a member of the Association of Professional Engineers and Geoscientists (APEGA).