By: Jon Costello
Previous Write-Ups
Tamarack Valley Energy Is Outperforming Amid The Carnage
Note: dollar values in this article reference Canadian dollars unless otherwise specified.
I began covering Tamarack Valley Energy (TVE:CA) in December 2023, assigning a buy rating with a $5.00 price target. At the time, the company was executing an acquisition and divestiture program to high-grade its asset portfolio, but the verdict was out on how successful the program would be. I concluded on an optimistic note that:
TVE shares have gotten so cheap that they can do well even if management only executes on its most basic goals, such as paying down debt and increasing share repurchases…TVE’s improving operational performance, long asset life, cash flow torque to oil prices, highly economic assets, falling debt balance, and imminent share repurchases make its shares attractive at their current depressed price of $3.15. These positives offset the primary negative of management’s failure to communicate realistic capital allocation targets.
The main obstacle to improving investor sentiment toward the name was management’s capital allocation strategy. Since the article was published, the company’s stock price has almost doubled, highlighting investors’ growing confidence that management’s strategy is paying off.
Actions announced yesterday further alleviate concerns about capital allocation risk as TVE announced the divestiture of its remaining non-core acreage. The sale, which will generate $112 million in proceeds, focuses the company on its highly economic acreage in the Clearwater and Charlie Lake plays in Alberta, while lowering its operating expenses per barrel, reducing asset retirement obligations by 25%, accelerating net debt reduction, and potentially boosting share repurchases.
Even after their multi-month rally, TVE shares don’t fully discount sustained higher crude prices. I estimate that at $6.00 per share, they're pricing in approximately US$72.50 per barrel WTI, leaving plenty of upside amid higher oil prices and continued operational improvement.