Ticker Symbol: TVE-T
TAMARACK VALLEY ENERGY
FINANCIAL HIGHLIGHTS
TVE Q1/23 RESULTS & ANALYSIS
Tamarack has grown by making three expensive and aggressive acquisitions in 2022 spending $1.44B in the Clearwater area. Under our SER Quality Scoring system we have downgraded TVE to a C – a challenged entity due to the high debt load after its acquisitions in 2022. Debt is now up to $1.37B from $556M at the end of Q1/22. The share count has exploded as well rising from 226.2M shares during 2020 to 556.8M shares currently. We are concerned that management is size-focused versus being able to grow internally and is betting the company that the Clearwater play area is all high quality land and that commodity prices will stay high. That gamble if it works, would allow them to pay down their large debt load quickly. I am not so convinced this gamble will work. Production in Q1/23 rose to 67,938 boe/d from 64,344 boe/d in Q4/22 and from 41,335 boe/d in Q1/22. Cash flow from operations in Q1/23 came in at $60M or $0.11 per share versus $133M or $0.32 per share in Q1/22 due to lower commodity prices. We are forecasting production to average 68,000 boe/d with capex of between $450M and for cash flow to come in at $474M or $0.85 per share. This is down from $805M for cash flow or $1.75 per share in 2022.
Balance of Evidence
POSITIVES
- TVE initiated a monthly dividend of $0.0125 or $0.15 annually. This may be at risk if their expectation of debt reduction and free funds flow does not occur.
- Insiders are decent shareholders with the CEO, Brian Schmidt, owning 5.1M shares.
ISSUES OF CONCERN
- TVE keeps on making acquisitions every year and seems to focus on how great the new deal is. Deals done in prior years that they raved about at the time don’t get ongoing recognition. We are not fans of their building up heavy oil production (34,399 b/d in Q1/23 up from only 319 b/d in Q4/20). The are focused on the Clearwater play and are selling prior core areas to fund this popular investor play. They sold Viking assets and other assets for $77M last year. We suspect that all the land purchased may not be Tier 1, as they assume.
- TVE has a very low PDP reserve life index (RLI) at 3.2 years thus justifying a lower cash flow multiple versus other oil focused entities with longer RLIs. This puts them on a very tough treadmill to replace production.
- Debt went up $92M in Q1/23 from year-end 2022 levels.
Corporate Snapshot
Source: Tamarack Valley Investor Presentation May 2023
Largest Public Clearwater Producer
Source: Tamarack Valley Investor Presentation May 2023
Tamarack Valley Energy – Weekly
Source: stockcharts May 25, 2023
Tamarack Valley Energy – Monthly
Source: stockcharts May 25, 2023
Valuation Comparison
Source: Corporate Reports & SER Forecasts
Conclusion: Avoid
- The stock trades above our 2022 NAV of $1.37 per share and around Q1/23 book value at $3.86 per share. TVE has traded for many years at 2.0x cash flow or less and traded around or below 1.0x book value in each of the past five years. TVE could decline materially as it has too high a debt load and a high decline rate and low PDP RLI (3.2 years) We look for the stock to decline to below $2.00 per share before it could be considered reasonably priced. Given its high debt load and high decline rates we would avoid the stock for now. If you haven’t bought this stock don’t, if you own it you should be aware of the associated risks.