Good morning. Welcome everyone to Tamarack Valley Energy Limited's Conference Call and Webcast on Wednesday, May 8, 2024, discussing the recent Q1 2024 results press release. I would like to introduce today's speakers: Mr. Brian Schmidt, President and CEO; Mr. Steve Buytels, Vice President Finance and CFO; Scott Shimek, Vice President of Production and Operations. If you would like to ask a question, please press star, then the number one on your telephone keypad to join the queue. If you would like to withdraw your question, please press star two. Thank you. Mr. Schmidt, you may begin the conference.
Good morning, and thank you, Lester. Welcome everyone to the call to discuss our outstanding first quarter operating financial results. I'm joined today by Steve Buytels, CFO, and Scott Shimek, Vice President Operations. The first quarter of 2024 was highly successful for Tamarack. It was our first full quarter of operating with a transformed asset base, with over 90% of our production coming from our core Clearwater and Charlie Lake assets. During the quarter, production averaged 62,022 boe/d, in line with our prior guidance range.
With efforts focused on our core assets, we established a new high watermark in our Charlie Lake light oil assets, which averaged 16,800 boe/d for the quarter and achieved a record high production of 18,500 boe/d for the month of March. In the quarter, we initialized production of two Charlie Lake wells that have record production, record 30-day oil production, the highest ever in the play. Looking to our heavy oil portfolio, we have seen significant year-over-year growth from our North Clearwater properties, where Q1 2024 volumes of 18,600 barrels of oil per day represented a 41% increase over Q1 2023. This result was clearly delivered through the drill bit.
The success is highlighted by our recent wells in West Marten Hills, where the area C-sand production has increased over 1,800 barrels of oil per day, and the B-sand wells are demonstrated better than forecasted rates with a flatter production profile. Our Marten Hills Development Program realized cost savings of 10% on the latest 8-well pad drilled in Q1. This pad is currently cleaning up and had initial production of over 1,100 barrels of oil per day.
On our South Clearwater assets, we are seeing positive results from the implementation of the fan design. This approach to drilling is strategic in this part of the play given the sands here are thinner, and so it enables us to access more reservoir utilizing less capital, wider spacing intervals, and accesses more reservoir. Ultimately, that transfers translates into higher recoveries, improved capital efficiencies, lower costs, which drive higher economic returns. So far, we have brought on three wells in 2024 with IP30 rates in the 200-245 barrels of oil per day range, with another three wells currently in the process of cleaning up or finished drilling.
The Clearwater enhanced recovery continues to progress aligned with our expectations. At Nipisi, where injection is currently stable at 3,000 barrels per day, we are seeing good initial response and have 18 injectors supporting 12 wells with further injection growth forecasted in the second half of the year. At Marten Hills, the company plans to initiate its first C-sand waterflood pilot in the second half of 2024 to begin development of a stacked waterflood potential in the area exhibiting excellent primary production results to date.
Finally, Tamarack's most prolific producer in Marten Hills, the 102/15-02-075-25W4 , has now produced over 470,000 barrels of oil per day and has seen an increase in oil rate from 110 barrels of oil per day at the start of injection to more than 300 barrels of oil per day in early May, representing nearly a 300% increase. Looking ahead, we remain focused on our core assets. Our strategy includes continuing to increase oil weighting, reducing sustainable capital sustaining capital requirements, and improving pricing margins, as well as implementing projects with multiple payouts. I'll now pass it on to Steve to run through the financial results as well as our outlook.
Thanks, Brian. Having delivered adjusted funds flow of CAD 182 million during the quarter, which was a 15% year-over-year improvement, we were able to generate free funds flow of CAD 53 million through disciplined capital phasing and strong pricing, all while achieving the solid operational performance as Brian just noted, with production coming in ahead of consensus estimates. Reflecting our emphasis on returning capital to shareholders during the quarter, we returned over CAD 46 million in the form of cash dividends and CAD 25.6 million of share buybacks.
This represented a combined return of capital value of approximately CAD 0.08 per share. Looking forward at strip prices, we expect to reach the second tranche of our enhanced return framework in the second half of this year, where we would direct 50% of the quarterly excess funds flow to enhanced returns through buybacks. Our strong financial performance was driven by our increased oil weighting. We were at 86% in Q1 2024 relative to 82% in Q1 of 2023, higher realized price margins where we have been able to leverage improved market access and lower wellhead deductions, which contribute directly to the bottom line.
We also improved our production costs, which were lower on a per barrel basis by 10% year-over-year, and we expect that to continue to improve as we move through the year. Looking to the balance sheet, during the quarter, we were able to repay both our deferred acquisition payment notes and term facility that had been utilized to fund the DeltaStream acquisition in 2022. Subsequent to the quarter, we extended our bank line at CAD 875 million, and at the same time, we were able to add an uncommitted accordion feature providing the ability to access an incremental CAD 125 million of secured debt.
This ensures we maintain financial flexibility without incurring additional standby fees for capacity. I'm going to pass it over to Scott Shimek for an update on our Nipisi production.
Thank you, Steve. The team at Tamarack has worked diligently over the recent weeks to recover volumes at Nipisi that had been shut in as a result of the April 13th Mitsue third-party incident. Our success in rebounding from this unplanned outage is a reflection of the commitment to people in the field and in our head office. To date, we have restored all but 1,050 to 1,250 boe/d. Of these volumes, approximately 60% is natural gas, resulting in only 400-500 barrels of oil currently being offline.
The production recovery to date is the result of the hard work, focus, and creativity of our team and the utilization of various temporary mitigation strategies. These strategies include redirection of gas to an alternate third-party gas plant, gas injection, and storage. Our team continues to explore additional solutions to bring the remaining volumes back online. With respect to the Mitsue facility, based on current available information, the preliminary estimate is to resume normal operations on June 30th.
We would note this estimate is subject to change as further information is received and is subject to a number of variables, including the availability of parts, materials, and third-party contractors. Tamarack estimates that Q2 2024 production will be impacted by approximately 2,300 to 2,700 boe/d, and an annual average 2024 production could be impacted by approximately 575 to 675 boe/d. Reflecting the strong performance of our Q1 2024 program and existing base, Tamarack's budget guidance of 61,000 to 63,000 boe/d remains unchanged despite this unplanned outage and impacts of disposition as the company continues to track with our original budget volumes. I'll pass it over to Brian to wrap up our call.
2024 is off to a solid start for Tamarack despite some temporary operational challenges. We are anticipating strong free funds flow in 2024, and the company is poised for a promising year. I want to thank our employees, board of directors, shareholders, and stakeholders for all your continued support. The one thing of note as well, I want to note Scott's team in getting the Nipisi production back online. I think that's the difference between average companies and great companies, is these guys found a way to accelerate production in a meaningful way. I'll pass it back to the moderator for questions. Thank you.
Thank you, ladies and gentlemen. We will now conduct the question and answer session. If you have a question, please press star followed by the number one on your telephone keypad, and if you wish to cancel your request, please press star two. Please ensure to lift the handset if you're using a speakerphone before pressing any keys. Your first question comes from Jamie Kubik from CIBC. Your line is now open.
Yeah, good morning, and thanks for taking my question. Just wondering if you can talk a bit about the water availability in the Grande Prairie region and how that might impact your Charlie Lake program for the balance of the year. Thanks.
Yeah, so just one thing to comment here is the frac that we do in the Charlie Lake are orders of magnitude smaller. So we're not subject to large water volumes that perhaps, let's say, a Montney operator would be expected to do. These are small fracs just to get past wellbore damage, open things up a little bit, but nowhere near the capacity. So we don't anticipate for those volumes that we're going to have any problems with the volumes that we require for our frac.
Okay, great. Then can you talk a bit about the well performance that you saw in the Charlie Lake wells that you indicated in your press release? Just what drove some of that, and is it repeatable, and things of that nature? Thanks.
Yeah, good question there. Let me comment on the program at all. I think that some of the statements we're saying here that we're overcoming asset dispositions, we're overcoming some downtime, and that's largely due to outperformance not only in Charlie Lake but also in some of the Clearwater performance we're seeing in the form of reduced declines, and there's still some optimization on these wells to go. In Charlie Lake, a lot of people probably aren't aware, but there's a number of different layers in Charlie Lake. There's a lot of varying permeability and porosity, and so the geologists have been pinpointing on what specific areas have the best potential.
In this particular area, we not only have some good perm and porosity there, but it's suspected there was some water injection nearby that banked some oil toward these wells. So we'll see what happens with that. And for Jamie, you may not be aware, we are going to start another water flood in Charlie Lake here, our first, but water flood here in this quarter. So I think it bodes well for that. So a little bit more study work on our part to look at that, but we're certainly proud of those performances. Also, we've got another two wells that we'll be able to report on this quarter that are coming that look quite similar to those two.
Great, thanks. Then maybe a couple more questions here, actually. How do you expect your capital program is going to phase over the next few quarters and what that might mean for free cash flow? Thanks.
Yeah, Steve will take that question.
Yeah, you bet. Thanks, Jamie. So we left our capital guidance unchanged, as you would have seen for the year there. So we did understand and rephase a little bit of Q1 to manage debt and some of the free cash that we talked about. So as we look into the remainder of the year, you'll shift some of that Q1 really probably into Q2 and Q3. So we would see CapEx in that, call it CAD 120-125 million now for Q2. Q3 will be around, again, CAD 120-130 million.
And then Q4 is lighter by design because we will make a decision pending commodity price and the timing of the CSV plant startup. But in the base budget, that would be looking around CAD 40-60 million as we sit here today. But again, in July, we'll be back to the street with the decision on whether we go and pull some capital in for that CSV expansion that we've previously talked about. Does that answer your question?
Yeah, that's good. And then can you talk a bit about the upcoming investor day, just some key topics that you want to address at that and how we should think about that coming up? Thanks.
Yeah, you bet. I think the big thing there is at year-end, you would have all saw us come out with that contingent and prospective report in the Clearwater. So we want to really help, I think, investors understand the duration of our asset portfolio and the inventory, specifically in the Clearwater that we have. The other element is the Clearwater's unique in that we can not only develop it on a primary basis, but you're doing the secondary work or the enhanced oil recovery work really in conjunction with the primary program.
So we want to bring some more light to how that's going to work and really what it means by lowering your declines and your sustaining capital going forward, which in turn should enhance free funds flow and the returns available to shareholders. So that'll be a big part of it. And then you asked some questions around the Charlie Lake. I think that we'll spend more time there letting the technical team walk through what Brian just talked about on how we're targeting to continue to improve our deliverability, our cost efficiencies, and so forth through that play and really bring to light the strength of the inventory, the duration of the inventory, and what that means for investors moving forward.
Okay, that's it for me. Thank you.
Thank you.
Ladies and gentlemen, as a reminder, should you have a question, please press star followed by the number one. There are no further questions at this time. Mr. Brian Schmidt, please go ahead.
I have some questions on the Q&A line. Our first question will be for Mr. Scott Shimek. Do you have any info on the transfer of wells and infrastructure with Mantle?
Yeah, the license transfer application was processed by AER for that. And so that deal was closed prior to that, and with the remaining step being the license transfer applications, which has now been processed.
Thank you. Our next question is for Mr. Steve Buytels. Why haven't we paid down our debt this quarter? Net debt is flat since last quarter.
Yeah, so we talked about we generated just over CAD 53 million of free funds flow in the quarter. And really, what that free funds flow was used for was the CAD 25.5 million or CAD 26 million that I talked about for share buybacks. And then we also had the base dividend for the quarter of about CAD 20 million. So the net debt was flat Q1 over Q4 2023.
As we look forward, though, we see a significant debt repayment through Q2 through Q4 in conjunction with what we forecast for enhanced return and further buybacks. So again, we still see ourselves paying down a significant amount of debt through the year. Q1 was always modeled just given the magnitude of the Q4 enhanced return, which is paid out in Q1 to be larger. And therefore, the debt was always modeled to be flat.
Thank you. Our next question is for Mr. Brian Schmidt. Given the likelihood of water restrictions due to Alberta's ongoing drought conditions, is there any production that could be at risk as we enter the drier months this summer?
Yeah, so basically, all of our waterflood operations and we use basically saline water. That's the same for in the Veteran, all the Clearwater and down in Eyehill. We do use a little bit of freshwater in Penny Pool. That's about 1,000 barrels a day. That won't be shut off. We'll just shut down the water injection if we get curtailed. There'll be a slight impact on the production, but nothing meaningful.
Thank you. Our next question is for Mr. Steve Buytels. Given the free funds flow the company is delivering, when does Tamarack estimate that it will hit the next threshold in the return of capital framework of 50% enhanced returns?
Yeah, as I mentioned in the call, they're at strip pricing currently. We would forecast hitting that next threshold sometime in the second half of the year here.
Thank you. Our next question is for Mr. Brian Schmidt. You mentioned Tamarack recently drilled the strongest Charlie Lake oil wells ever drilled in the play. Was there anything different in the way the wells were drilled? And secondly, has it changed how the company views the type curves in the area?
Yeah, so in that specific area, we'll be moving the type curves up, of course, based on these offsets. I would say that we have been adjusting the frac design on these wells. But I think the overarching result is the geology that we're putting into it right now and picking certain areas there that are high impact.
Thank you. Our next question is for Mr. Brian Schmidt again. As Tamarack's debt continues to material decline, will the company look to any more acquisitions or stay focused on its current core assets?
Yeah, that's a really good question and one we get very often. I want to emphasize that we've come to an end of a specific strategy of portfolio management and enhancement. And this being the first quarter of our assets, we're happy with what we've assembled. There's a lot of use for cash. I would say that M&A is probably the furthest down the road for that use. We have way more inventory than what we have capital. We have waterflood inventory. But the near-term priorities for the company, and you can see the way we're behaving today, is to pay down debt so we can increase the buybacks of our shares. These shares are great value. We're trading well low, and that's the best M&A we can do is our own stock.
Thank you. There are no more questions on the Q&A. We'll pass it back to the moderator.
Thank you. There are no further questions also at this time. Mr. Brian Schmidt, please proceed with your closing remarks.
Well, thanks. I want to thank everybody. Thanks to the shareholders for all the support they've given to us. And I think patience over the last three years as we've adjusted our strategy. I've been in the business a long time. This group of assets and this team is the best it's ever been. And I think you're going to see quarter-on-quarter these assets deliver as we go through. This is the first one where we've been clear, and I think we've got a great path going forward. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for joining. You may now disconnect.