Tamarack Valley Energy’s [stock_market_widget type="inline" template="generic" color="default" assets="TVE.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] recently released results for the fourth quarter and full year 2018 indicate that the company is making the right moves to grow its production in an efficient manner. The Calgary-based company delivered record fourth-quarter production and topped that off with solid growth in its adjusted funds flow profile. Let’s take a closer look at Tamarack’s operational highlights and how the company might fare this year.
Solid 2018 Oil Production Growth Drives Results
Tamarack Valley delivered fourth-quarter production of 24,780 barrels of oil equivalent (BOE) per day, an increase of 9% over the prior-year period. Its full-year production of 24,237 BOE per day was a 20% increase over the same period last year.
More importantly, the increase in Tamarack’s production was achieved at a lower cost, as the company’s net production and transportation expenses per BOE dropped 6% from 2017 levels. This enabled Tamarack to clock adjusted funds flow of C$226.5 million, an increase of 43% over 2017 levels. What’s more, the adjusted funds flow figure was higher than the company’s capital expenditure of C$219.2 million incurred for the year.
The growth in Tamarack’s adjusted funds flow is really impressive considering that the company witnessed an adverse oil pricing environment in the final quarter of the year. Its average realized sales price fell to just C$32.05 per barrel of oil equivalent during the fourth quarter, a decline of 25% compared to the year-ago period’s price of C$42.97 per barrel.
However, 2019 is going to be a difficult year for Tamarack as the company will have to rein in its production in response to the government-mandated cuts in Alberta.
2019 Guidance Heavily Dependent on Oil Prices
Tamarack expects to deliver average production between 23,500 and 24,500 BOE/day this year, which is almost flat when compared to the prior-year period. Additionally, the company anticipates capital expenses in the range of C$170 million-C$180 million for the entire year, a 20% drop over the prior year.
Now, some investors might complain about the lack of growth at Tamarack this year, but a closer look at the guidance suggests that the company is going to perform efficiently. It is calling for a substantial drop in the capital outlay, but at the same time, its production will remain nearly constant over 2018 levels.
Moreover, it won’t be surprising to see Tamarack eventually boost its production as the company assumes an average West Texas Intermediate (WTI) oil price of US$50/barrel and an Edmonton Par price of C$52.33/barrel. As it stands, WTI oil trades at more than $56 per barrel, while the spot prices at Edmonton are also above the company’s forecasted levels.
As such, it won’t be surprising to see Tamarack exceed its production estimate by the end of 2019 if stronger oil prices hold. But if Canadian oil prices go south as a result of the unintended effects of the Alberta-mandated production cuts, Tamarack might have to scale back its outlay thanks to its debt-laden balance sheet.
The company is thin on cash and it will have to reduce its capital expenditures if oil prices crash to avoid taking on debt and maintain positive funds flow, and that will hurt its production profile. As such, Tamarack investors will have to tread with caution as the company’s fortunes could go either way depending on the direction oil prices take.
