Good morning. Welcome everyone to the Tamarack Valley Energy Ltd webcast on January 13 , 2022 discussing this morning's press release. I would like to introduce today's speakers, Mr. Brian Schmidt, President and CEO, and Mr. Steve Buytels, Vice President, Finance and CFO. If you do have any questions, please type them in the Q&A field provided. Mr. Schmidt, you may begin your conference.
Good morning. I'm joined here today with Steve Buytels, VP, Finance and CFO. We are pleased to announce our 2022 corporate budget, along with our updated five-year plan and declaration of our inaugural dividend. We will continue to focus on building our commitment on delivering sustainable and responsible free funds flow growth. Our 2022 program is designed to provide an optimal balance of investment across our asset base with Clearwater as our growth driver, free funds flow maximization of the quick payout Charlie Lake, and decline mitigation across our waterflood portfolio in Veteran and Eyehill. We've also updated our five-year pro forma Crestwynd acquisition, which generates robust free funds flow greater than $1.1 billion at $55 barrels WTI, and greater than $2.1 billion at $70 per barrel WTI. I'll pass it over to Steve to walk through our budget highlights.
Thanks, Brian. Our 2022 budget contemplates spending CAD 250 million-CAD 270 million pro forma of the Crestwynd Clearwater acquisition, which includes the drilling of 126 gross or 116.3 net wells corporately, and is funded through less than 50% of our adjusted funds flow at budget pricing of U.S. $70 WTI and CAD 3 per GJ AECO for 2022. This level of capital investment will generate a production range of between 45,000-46,000, representing approximately 4% growth on a year-over-year basis. We expect to generate CAD 250 million-CAD 300 million of free cash flow, which will be debt-directed towards funding the base dividend, further debt reduction, and the potential for enhanced return of capital through buybacks and/or special dividends.
Our updated five-year plan is underpinned by significant free cash flow of greater than $1.1 billion at $55 WTI and greater than $2.1 billion at $70 WTI. The plan contemplates a production range of 46,000-49,000 BOE a day, which represents approximately 2%-3% annual growth on average on annual capital of $220-$270 million, representing 40%-50% of adjusted funds flow. This provides significant optionality for returning capital to shareholders over the course of the plan as we forecast to be debt-free in 2023, assuming the $70 WTI price scenario. I will turn it back over to Brian for some additional detail on the budget breakdown.
We plan to direct about 40% of our capital program to the Clearwater, where we are forecast to average 12,000 BOE per day of production, with the plan to bring on 83 net wells. As part of the investment, we'll direct approximately CAD 25 million to the Nipisi waterflood program. 30% of our capital will be allocated to Charlie Lake, where we plan to drill 14 net wells with an additional two drilling uncompleted to be brought on this year. We look to maximize free funds, free cash flow from this quick payout asset and keep production to 12,000-13,000 range, consistent with our prior guidance. We will further direct 15% of our program to Eyehill and Veteran waterfloods with a two-rig program plan.
In total, including the waterflood investment in Clearwater, we'll be allocating 20%-25% of our entire capital program to EOR initiatives to manage declines for the company going forward. Finally, we expect to direct approximately 10% of our program to exploration and to continue to expand our portfolio opportunities with 5% of our budget allocated to ESG initiatives, including our abandon and reclamation programs, as well as further gas conservation projects in the Clearwater play. With that, I will conclude by thanking our employees, shareholders, and other stakeholders for their support over the last year. I look forward to continuing our high-quality assets to create shareholder value in a sustainable and responsible way. Thank you. I'll turn it back to the moderator for questions.
Our first question is for Brian Schmidt. On your map, it shows Crestwynd having a waterflood pilot in Jarvie. Do we have any results on that yet?
I think, now we're just looking at the results they've got in Jarvie. We did not build any future plans in there and didn't pay for any waterflood secondary in Jarvie. Similar to other Clearwater plays, we'll be looking at that going forward. We'll probably be using some of our results that we gain in Nipisi, our Nipisi program to you know, see how we can expand that across the other Clearwaters.
Thank you. Our next question is for Steve Buytels. Given a partial quarter of the Crestwynd, where do you expect production to land Q1 2022?
You bet. Just given the timing of, you know, our Clearwater program, and then obviously, the closing of the acquisition, you know, we see the first quarter really being as the lowest quarter for us, production-wise, and then ramping up through the year, we see it probably in and around about 41,000-41,500 BOE a day. Like I said, you know, when we kick off our Clearwater program, you know, it takes about, you know, a good few weeks to a month to get up to those peak rates. You know, anything we're doing here in January, you're not really seeing into February, so you're only getting, you know, a couple months of that. The real impact of that program comes through into April.
The same thing just with some timing through some of the Charlie Lake completions. You know, when we look at our layout of, you know, our production for the year, you know, like I say, your Q1 is gonna, you know, be 41,000-41,500. We step up into that 46,000-47,000 barrel a day range for the remainder of the year pro forma Crestwynd.
The next question is also for Steve Buytels. In the current commodity environment, when do you expect to reach your debt target of CAD 325 million-CAD 375 million?
Yeah, you bet. At the budget pricing of $70, we'd see that, you know, in the third quarter, flat or call it second half of the year, you know. When we look at current strip, which would be, you know, average for the year, about $75, you know, you would see that accelerate to, you know, early third quarter, you know, where we'd see that start to come through. You know, it is dependent, obviously here, we see some good strength in pricing, but, let's call it, you know, second half to be conservative.
The next question is also for Steve Buytels. Is the 160-170 BOE in tax, cash taxes?
Yeah. That's about what it would get to for the year here. Obviously, that's gonna be dependent on commodity prices, but assuming the $70 per barrel WTI pricing and CAD 3 AECO, we would be about CAD 1.60-CAD 1.70 in cash tax.
Thank you. Our next question is for Brian Schmidt. Spur has a polymer pilot case, pilot close to us in Nipisi. Any indication yet on whether it's working?
Yeah. In doing our designs, of course, we you know extracted public data from the Spur asset. We see that waterflood is working. You know, Spur itself has acknowledged that it's working as well. That's quite encouraging and gives us a lot of confidence in what we're doing in Nipisi. Our Nipisi on the west side is very amenable to waterflooding because of the lighter crude that it has. We're looking forward to commencing injection here in the first quarter on that.
Thank you. The next question is for Steve Buytels. What quantum of free cash do you anticipate being generated in the Charlie Lake?
Yeah. You know, we see, you know, in the budget here, like we say, about 30% of our program being allocated there. On strip pricing here today, you know, we'd see about, you know, CAD 100 million, give or take, maybe even a little bit more of free cash flow coming out of the Charlie Lake. You know, that's really a function of keeping that production in that 12,000-13,000 BOE a day range that Brian referred to, which is consistent with the prior guidance that we've given. We probably more like, you know, average closer to the high end of that for the year.
You know, the quick payout nature of those wells, you know, at strip here being, you know, call it two-three months, you know, really allows us to maximize that free cash, corporately out of that program.
Our next question is for Brian Schmidt. What formations or fields are contemplated for exploration?
Well, I think the most you know likely scenario is a lot of it will be you know focused in the Clearwater and expanding our reach there. We'll also be doing some work in the Charlie Lake. Mainly it's gonna be around our core areas. In the waterflood, I guess you wouldn't call it traditional exploration, but we are also looking for waterflood opportunities that are away from our you know similar to our existing assets, but then we can expand our operations.
Thank you. Our next question is for Steve Buytels. How much production is hedged and for how long and at what price?
Yeah. When you look at us corporately, and we'll have an updated slide here in the deck up shortly on the website. When we look at it, we'd be about 50% of our oil volumes protected for the year. One thing I wanna make sure, you know, we're clear on is we use structures for the most part that, you know, put a floor in. You know, we would average between $55-$70 floor pricing protection. All of the structures we have allow for significant participation to upside pricing.
you know, we really use a combination of what I would say are straight outrights, and also enhanced collars that, you know, we may pay, and budget for using a bit of a premium to get, enhanced calls that we can sell on the upside, i.e., in the $95-$100 range to protect, you know, the risk that goes both ways here. you know, a good example when you guys see the updated hedging slide, you know, you'll see on, you know, back in the fall when we had the run-up into the mid-$80s, we were able to actually restrike some of our Q1 puts, from $55 upwards to $68-$70 dollar floors. Just ensuring that we lock in a minimum level of cash flow for the quarter.
You'll see us do that through the year, you know, as we optimize, you know, the price strength, but also ensure that we continue to bring that forward pricing up to deliver on the cash flow that, you know, we're illustrating here and ensuring that we can, you know, look to return some of that enhanced portion of the return on capital to shareholders.
Our next question is for Steve Buytels. The Five-Year Plan generates significant free cash flow. Do you see the opportunity to enhance the growth?
I think when we look at the Five-Year Plan, we look at it really from a total return standpoint. You know, as Brian highlighted, you know, the numbers at $55-$70 oil are quite significant, you know, pushing over $2 billion on what would be more of a current price debt, which would have us you know debt-free through 2023. You know, we do have the opportunity, given we have a quite significant subset of inventory past the Five-Year Plan that we could bring in and accelerate that. Again, we look to balance that free cash flow use between debt repayment, you know, return on capital, and then that element of growth.
The growth can also take on, you know, subsets of M&A like we, you know, just did through that Crestwynd acquisition.
Our next question is for Brian Schmidt. Tamarack has really emerged as the leader in ESG. Can you comment on the gas conservation projects?
Yeah, I think one thing we're very proud of is our GHG emissions per BOE. We're in top quartile relative to our peers on that. It's through a lot of hard work. We've, as you know, when we acquired a number of the Clearwater assets, the gas was not gathered. It was being vented or flared on site. We've invested in 2021 about CAD 10 million in gas collection systems. I think that's gonna continue here in 2022. With the acquisition of Crestwynd, we'll be working on gas gathering in that part of the world as well.
We should be, you know, after you get these all collected, we should be, you know, in top quartile on those assets in terms of GHG emissions.
Thank you very much. There are no more questions.
Ladies and gentlemen, this concludes your conference call for today. We thank you very much for participating and ask that you please disconnect your lines.