Good morning. Welcome, everyone, to Tamarack Valley Energy Limited conference call and webcast on Thursday, February 28, 2024. Discussing the recent Q4 2023 results press release, I would like to introduce today's speakers, Mr. Steve Buytels, CFO, Mr. Kevin Screen, COO, and Mr. Ben Stoodley, Vice President, Engineering. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad to join the queue. If you would like to withdraw your question, please press the star followed by the number two. Thank you. Mr. Buytels, you may begin your conference.
Good morning, and thank you, Rudy. Welcome everyone to the call to discuss our year-end operating and financial results. Brian Schmidt is currently presenting at an industry conference. Today, I'm joined this morning by Kevin Screen, Chief Operating Officer, and Mr. Ben Stoodley, Vice President, Engineering. Tamarack completed its strategic transformation in 2023, integrating the three corporate Clearwater transactions that closed in 2022, and divesting our non-core West Central Alberta Cardium assets. The success of our transformation is highlighted by the significant value generation we continue to see from the assets acquired pursuant to the CAD 1.4 billion acquisition of Deltastream Energy Corp that closed in October of 2022.
Tamarack has grown production on these assets by 29%, delivered approximately CAD 230 million of free NOI in 2023 off the assets, and incremental to that, the 2023 year-end 2P PV10 of the assets has increased to over CAD 1.8 billion. Overall, this transaction continues to exceed our expectations while providing long-term development visibility for the company. Most importantly, in 2023, we delivered on key commitments to our shareholders. We improved our balance sheet, whereby we paid down CAD 373 million of debt, equal to approximately CAD 0.67 per share. We exited the year with net debt of CAD 984 million. We improved our overall cost structure and focused on margin enhancement. This includes a 16% savings in operating costs per BOE year-over-year.
In addition to that, we continue to drive better wellhead realizations through our marketing efforts on our heavy oil. We've added reserves to the drill bit at a highly competitive, competitive cost, with PDP F&D costs of approximately CAD 16.49/BOE, driving a recycle ratio of 2.6 x. We achieved our goal to get to our enhanced return of capital threshold for shareholders. We delivered on our commitments with buybacks that commenced in January. As of February 23, 2024, Tamarack has repurchased approximately 3.9 million shares for CAD 12.3 million to date. Our plan will be to continue to use our NCIB here with respect to our return of capital threshold.
As we highlighted in our corporate presentation this morning, the enhanced return that is available to for shareholders here, which will be done through buyback, equated to approximately CAD 28 million in Q4. I will now turn it over to Kevin for an update on operations and some key accomplishments in the field with regards to our Indigenous engagement. Kevin?
Thanks, Steve. Our oil weighting continues to increase relative to total production, reflecting the focus and high-quality nature of our asset base. Including NGLs, Tamarack's Q4 2023 oil and liquids weighting was 85%. This highlights a significant increase in recent years in comparison to Q4 2021, when liquids represented 69% of total production. A few of the specific drivers on our operating cost improvements include our scale of operations and geographic concentration, our field efficiency gained through ongoing multi-well pad development, and increased volumes flowing through company-owned infrastructure. On February 22nd, Tamarack held a celebration event in the commemoration success of our recent Clearwater Infrastructure Limited Partnership. In 2023, we entered into a series of agreements with 12 First Nation and Métis communities to establish the CIP, enhancing both the long-term relationships with Indigenous communities.
As a result of this transaction, Tamarack received gross proceeds of CAD 146 million and a 15% working interest in the CIP assets, while retaining full operatorship and access to 100% of Tamarack's existing midstream capacity. As part of this, Tamarack's 2023 capital included CAD 21 million of gas conservation projects sanctioned with the CIP, which was incremental to our development program. Overall, when we look at Tamarack's 2023 capital program, we were also able to take advantage of both favorable field conditions and service pricing to accelerate approximately CAD 20 million of planned 2024 spending into Q4 2023. Overall, our development capital of CAD 475 million was in line with guidance, and total spending of CAD 516 million reflected the CIP gas conservation project and the accelerated 2024 capital.
I'd like to touch on a few operational highlights at this point. We continue to see success through development of our Charlie Lake assets, where our recent 11- 11 pad development delivered IP 30 rates of approximately 1,400 BOE a day per well. We continue to build our footprint in this play, adding both reserves and ongoing development efficiencies. In the Clearwater, development of our assets is advancing across the play with success at Marten Hills and Nipisi through both the B and C sands.
Oil production from North Clearwater assets averaged approximately 19,000 BOE a day, exiting in 2023, representing a year-on-year increase of approximately 40%. Tamarack continues to leverage our waterflood experience, with water injection volumes expected to more than triple at Marten Hills and Nipisi during 2024. At this point, I'd like to hand it on to Ben Stoodley to comment on our reserves.
Thanks, Kevin. Tamarack's capital program and successful integration of the Clearwater assets acquired in 2022 delivered a very strong year with respect to reserves. Prior to the consideration of net dispositions completed in 2023, the company realized material reserves growth and strong production replacement metrics in all categories. PDP reserves grew 15%, and the added volumes replaced 137% of 2023 produced volumes. Total proved reserves grew 18%, and the added volumes replaced 189% of 2023 production. Total proved plus probable reserves grew 13% and replaced 214% of 2023 production. Focused execution and operational efficiency resulted in PDP reserves being added at an attractive finding and development cost of CAD 16.49 per barrel of oil equivalent.
Coupled with an annual operating netback of CAD 42.47 per BOE, a PDP recycle ratio of 2.6 was achieved, demonstrating the profitability of our highly economic oil play. In the Charlie Lake, the company continues to expand its inventory and extend well lateral length through optimization and additions to our land position. This contributed to 4% year-over-year growth, reserves growth, and 147% production replacement in the asset on a total proved plus probable basis. In the Clearwater, we realized significant reserves growth in 2023 while integrating the Deltastream assets into the company. The company's Clearwater assets delivered reserves growth of 43% and 28% for total proved and total proved plus probable reserves, respectively. The total 2P increase replaced 279% of 2023 Clearwater production, demonstrating the sustainability of the assets.
Clearwater reserves growth was driven by excellent results in both the B and C sands in the West Marten Hills area and expansion of the waterflood in both Nipisi and Marten Hills. At year-end 2022, only 3% of the company's total 2P reserves were associated with waterflood. At year-end 2023, this has grown to 12%, which is indicative of the expansion of the waterflood program this year and substantial runway that remains as we continue to invest in secondary recovery. Now I'll provide some information regarding contingent prospective resources. With the integration of the three Clearwater consolidating transactions from 2022 completed, the company retained McDaniel & Associates to evaluate the contingent prospective resource of the company's Clearwater assets.
The resource report indicates Tamarack's Clearwater heavy oil assets have a best estimate of unrisked contingent resources of 89.5 million barrels and unrisked prospective resources of 118.4 million barrels. Inventory attributed to the company's Clearwater assets within the report totals 592 net contingent and 1,182 net prospective drilling locations. Those locations are over and above the company's 381 net total 2P locations included in the year-end reserves valuation. The resulting identified Clearwater inventory now exceeds 2,100 locations. The contingent prospective resource evaluation validates our internal view of the depth of inventory, exceptional runway for both primary and secondary recovery, and ultimately, the long-term sustainability of the assets. With that, I pass it back to Steve to discuss guidance.
Thank you, Ben. As Kevin mentioned, we were able to, due to favorable weather conditions, accelerate approximately CAD 20 million of our dedicated first half 2024 budget into Q4 of 2023. We wanna ensure that, you know, we highlight to shareholders here and investors that CAD 20 million will serve as a reduction to our, capital spend, in 2024. And as a result, we've updated our capital, our base capital budget to CAD 390 million-CAD 440 million.
In addition to this, 2024 carbon tax expense guidance has been reduced from CAD 1-CAD 1.50 per BOE down to CAD 0.50-CAD 1 per BOE, and that really owes to the investment in the last couple of years that the company has made in gas conservation projects, along with the CIP partnership that Kevin talked about earlier. It is important to note that our production guidance range remains unchanged, and we look forward to continuing to drive enhanced margin in the business through 2024. All told, when we look at the 2024 capital reduction in conjunction with the carbon tax reduction, we will see an increase in free funds flow by approximately CAD 30 million-CAD 35 million, which will serve to accelerate additional enhanced return throughout 2024 to shareholders.
In conclusion, when we look at our three-year transition that we embarked on, you know, we look at the significant transactions that we've been able to integrate and build out in the Clearwater. We look at the repositioning of the core portfolio with the disposition in 2023 of our West Central Cardium assets. We're now set to deliver on our core portfolio and enhanced play types and economics moving through 2024. With that, we would like to thank our employees, our stakeholders, and our shareholders for their continued support. I'm gonna turn it back to the operator. Thank you.
Ladies and gentlemen, we will now conduct a question and answer session. If you have a question, please press the star followed by the number one on your telephone keypad. You will hear a three-tone prompt acknowledging your request. If you would like to cancel your request, please press the star followed by the number two. Please ensure you leave the handset if you're using a speakerphone before pressing any keys. While the analysts join the queue with questions, Tamarack will answer the questions entered by stakeholders in the Q&A field.
Thank you, Rudy. Our first question is for Mr. Ben Stoodley. What was the reason for moving the evaluation of Clearwater Reserves to McDaniel?
Thanks, Dakota. We had retained McDaniel to provide some consulting services supporting the Clearwater Infrastructure Partnership transaction. Following that, we had decided to proceed with contingent and prospective resources study, and we wanted continuity with the reserve book through that process.
Thank you, Ben. Our next question is for Mr. Steve Buytels. Is the sale of any more assets being considered to shore up the balance sheet? When does the company see being debt-free?
Yeah, thank you, and great question. We're always looking at obviously our portfolio and ensuring that, you know, what we have here is going to compete for capital and obviously enhances the margin in the business. So, you know, the way I'd look at it is our larger key repositioning of the portfolio is complete. There are, you know, maybe some small parts of the portfolio that we continue to look to rationalize, and yes, that, you know, that would serve to continue to pay down debt. But, you know, when we look at, you know, the question of being debt-free, you know, we have a plan here, a five-year plan that, you know, would see approximately CAD 2 billion of free funds flow generation over that five years.
You know, so, you know, as we look at that, you know, we could be there within that timeframe. However, you know, we do see debt as being a part of our capital structure moving forward to help leverage returns, but we would like to get that, you know, debt down to what we see as our floor at about CAD 500 million, which really represents about 1x debt to funds flow at, you know, a $45 USD WTI price.
Thank you, Steve. Our next question is for Mr. Ben Stoodley. Does the contingent resource and prospective resource include waterflood?
Yes, it does.
Thank you. Our next question is for Mr. Kevin Screen. It looks like the ARO is excluded from the latest guidance. What is that figure in 2024, roughly?
So we're budgeting about CAD 13 million to spend on ARO projects in 2024. And, with the success of our ARO program to date, over time, we'll be reducing that number. Sorry, the CAD 12 million, CAD 13 million that we're spending in 2024 represents a 50% increase over and above our regulatory required spend.
Thank you, Kevin. Our next question is for Mr. Ben Stoodley. How many wells do you expect to bring on production in the Clearwater and Charlie Lake in 2024?
Yeah, in the Charlie Lake, we're gonna bring on about 10 net wells. We have some part joint venture wells as well, so 13 gross wells. In the Clearwater, across the areas, we'll be drilling about 23 net wells in Marten Hills, 69 net wells in Nipisi and West Marten Hills. That includes 15 water injectors and 15 wells in the Southern Clearwater.
Thank you, Ben. Our next question is for Mr. Kevin Screen. What is the water situation in your Charlie Lake and Clearwater assets? Is there sufficient water availability for fracking operations in the Charlie Lake and for waterfloods in the Clearwater?
So those are great questions. In the Clearwater, our waterflood is based on non-potable water, so we're using saline source that we acquire from both the Grand Rapids and Clearwater zones. So no concerns about availability for current or future waterflood expansions in the Clearwater. On the Charlie Lake side, obviously, freshwater is a concern. One of the advantages that Tamarack has is our completion design for our Charlie Lake wells is crosslink polymer, which is uses substantially less water than folks that are using slick water, typically in the Montney. So our volumes are much smaller, and as Ben mentioned, we've only got about 13 wells planned, so we don't foresee a water availability concern for our 2024 Charlie Lake drilling program.
Thank you. Our next question is for Mr. Steve Buytels. Should we expect TVE to further contract volumes in the Nipisi pipeline in 2024?
Yeah, we don't, you know, we don't comment on those specific things publicly, but what we would say is just given the success and growth of the Clearwater, you know, we will look to continue to find ways to enhance margins there, and a lot of that will be through, you know, bringing that production to market through pipe. So all of those options are on the table, and, you know, I could see us doing more there, given there is room on that pipe. But again, you know, we won't get too specific at this time.
Thank you. Our next question is for Mr. Kevin Screen. Can you speak to ongoing opportunities in Marten Hills and how costs are evolving there?
So as we, as we discussed, we're continuing to develop our Marten Hills asset. One of the things we're actually in the process of here in Q1 and through Q2 is construction of a large gathering both emulsion and gas gathering line that will allow us to reduce our transportation expense for many pads that are currently trucked. So that's just one example of, you know, our scale of the operation and the opportunities that we can bring to bear.
Thank you, Kevin. Our next question is for Mr. Steve Buytels. The plan for asset acquisition basically complete to the point management is satisfied with inventory depth?
Yeah, that, that's a very good question. So the way we look at it is, yes, the transformation of the company with respect to moving into the Clearwater and the Charlie Lake is complete. We do not see the need for additional acquisitions or major acquisitions in the company. And as Ben highlighted earlier, we've got significant resource and inventory depth in the Clearwater and in the Charlie Lake. So you know, we're as a management team here, we are content with what we have for years and years and years of development moving forward.
Thank you, Steve. Our next question is for Steve Buytels again. You had previously spoken to an accelerated CSV budget. Can you provide an update on this?
Yeah, thanks. Another great question. So, we talked about the potential with our budget in December of spending CAD 40 million-CAD 50 million in the second half of 2024 with respect to the CSV gas plant being commissioned later this year. The way we're looking at that right now is that that capital spend is gonna be really flexible on our side. You know, a few things will go into play there. You know, one, commodity price. Gas prices obviously are in a very tough spot right now. Two, you know, we'll use discretion in terms of how much. It could be nothing, and it could be, but there could be something.
We gave a range there, depending on, you know, again, commodity, what we wanna do, internally with respect to the allocation of capital. But I think it is also worth noting the UDCs with that gas plant for us around the take or pays are very small. And we do have other production that we would be swinging into that plant as it is, as part of our development plan. So we don't see any need to rush there, and, you know, we'll really manage and monitor commodity price and then the capital, outlook of the company to ensure we're balancing, you know, obviously the growth of the company long term from that standpoint, but also ensuring that we're delivering on our commitment to shareholders, for enhanced returns here, in 2024.
Thank you. Our next question is for Mr. Ben Stoodley. Tamarack noted a new contingent resource study showing significant Clearwater resources. How should investors think about the pace of converting resource to fund flows?
I think all the contingent prospective resources will follow behind what we've got identified as reserves from a pace. Our current five-year plan has us providing modest growth within the five years. That's largely in some of our active assets, such as the Clearwater. But I would say the contingent prospective resources provide long life runway at that growth rate, and in the interim, it'll be largely focused on the reserves booked.
Thank you, Ben. Our next question will be for Ben Stoodley again. What is the reserve life now?
Based on our 2023 exit rate, our current reserve life index on a 2P basis is about 10 years.
Thank you. Our next question will be for Steve Buytels. You've lowered the capital spending outlook to reflect some acceleration into 2023. Given the volatility in commodity prices, can you speak to your ability to respond to price signals?
Yeah, thanks. We alluded a little bit to this on the CSV capital too. Again, commodity price will dictate a lot, a lot of our decisions there, and we do retain a significant amount of flexibility in our budget's guidance for 2024, specific to our capital. So again, we see opportunity where we have, you know, the ability probably to take out, if need be, another CAD 20 million-CAD 25 million, that would have no real impact to that production guidance that we've set out. However, you know, that would impact some longer term initiatives around some de-risk and delineation on some of our assets or certain infrastructure build out that supports future development. So, you know, again, we'll look to balance those through the year.
I think it is important to highlight, you know, differentials here as we move into Q2 will come in significantly, both on the heavy oil side, but also the light oil side. We'll see, you know, some significant tailwinds. So, you know, as we look out there on the price of our barrels that we're gonna be selling in the market, you are gonna see a pretty good step change moving forward. So I think that's something to keep in mind. But again, we'll monitor our capital spend with respect to our funds flow outlook for the year, and again, balancing our shareholder returns.
Thank you, Steve. Our last question, for Steve Buytels. What are management's views on hedging into the future?
That's a great question. I think if you look in our corporate presentation or in our press release, you know, we do highlight that we have a significant amount of our volume hedged, approximately 50%, corporately here through 2024, and that really doesn't change for us. The way we look at risk management would be, you know, we have a commitment with our base dividend of about CAD 80 million a year, and we have a commitment to sustain our business, and we've talked about that sustaining capital number of about CAD 330 million.
So, you know, what we look to do there is really solve for price and for that amount of capital or committed outflow that we need to ensure that we can sustain our business with and deliver on our commitments to our shareholders. So that will always continue to be near and dear to management's hearts, if you will, and that risk management or hedging process will continue to move forward. And again, as debt levels come down, maybe, you know, the view on how much you have to protect could come down with it. But for now, that is the strategy that we embark on here year-on-year.
Thank you, Steve. We have another question for Mr. Kevin Screen. Can you please comment on the ways in which you are presently achieving efficiencies at Charlie Lake?
Great question. I would say there's a few key ways that we're managing our efficiencies there. One is with our expansion of egress capacity that allows us to drill more multi-well pad wells, which of course, drilling multiple wells in a pad, both drilling and completions, allows us to realize some capital efficiencies. And then the addition of well length, and we addressed that in our press release, noting that we got, you know, 46% of our PPP locations exceed two and a half miles, and so longer wells results in just fewer well count ultimately and increased efficiency. So those are some of the key things that we've done.
Thank you, Kevin. We will now turn the call back to the moderator to read the analyst questions.
Thank you, and there are no questions at this time, and this concludes today's conference call and webcast. Thank you for participating. You may now disconnect.