Good morning, welcome everybody to th e Tamarack Vall
ey Energy conference call and webcast on Thursday, July 27, 2023, discussing the recent Q2 2023 results 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'd 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, then Two. Thank you. Mr. Schmidt, you may now begin your conference.
Good morning. Thank you, Daryl. I welcome everyone to the call to discuss our Q2 operating financial highlights. I am here this morning with Steve Buytels, VP Finance and CFO. The Q2 remained focused on developing Tamarack's core areas by drilling 24 wells in the Clearwater and Charlie Lake, with wells significantly outperforming expectations, plus adding strategic infrastructure that will drive lower operating costs and transportation costs, enhancing corporate free funds flow in the second half of 2023. Tamarack's dominant position in the Clearwater and Charlie Lake plays are the foundation of our long-term strategic plan, which is underpinned by leading low sustaining free funds flow breakeven in North America's most economic oil plays. Tamarack has significantly expanded the Clearwater and Charlie Lake infrastructure footprint year to date.
I'm excited to share with you that we have completed the construction and commissioning of our owned and operated 15 million standard cubic feet a day Wembley gas plant, which will process associated natural gas from the company's highly economic and core Charlie Lake play. The plant was commissioned on budget and brought on stream June 9th, 2023, three weeks ahead of schedule. Secondly, as development continues to expand across Tamarack's Clearwater lands, the company is investing in gas conservation and recently acquired strategic natural gas infrastructure at West Martin Hills. This facility offers the potential to become a conservation hub for the area and is expected to initially conserve 6 million standard cubic feet per day of natural gas, commencing Q1 2024.
The expansion of this facility is underway and expected to support long-term regional development of the Clearwater Play, while also delivering line of sight to lowering Tamarack's emissions intensity. Lastly, Nipisi Terminal and Pipeline Project continues to track on time, affording enhanced netback realizations through blending cost benefits and reduced transportation expense. In addition, Tamarack is working with third parties to establish a new Clearwater heavy oil benchmark, which could provide improved pricing over time. West Martin Hills results continue to exceed the company's expectations. Recent activity has Tamarack producing 3,750 barrels of oil per day in June, from 13 wells on 2 pads, in highlighting the highly prolific nature of the Clearwater program. Expansion of the Nipisi waterflood is ongoing, with successful 13, 9-19 pilot...
13 and 19 pilot, which continues to produce at 390 barrels of oil per day, having delivered cumulative production of over 190,000 barrels of oil to date. Water injection rates at Nipisi averaged 2,100 barrels per day in June. Completion of the centralized water facility at the 15 and 22 battery in Q4 2023 will support the ongoing ramp of total injection exiting the year. At Martin Hills, Tamarack has more than doubled the rate of the 15 to 2 injectors since acquiring Deltas tream in Q4 2022. Current injection is demonstrating a positive result as the offsetting producer are now at 30% or 50 barrels higher than the production rates prior to increasing injection. Tamarack's first W pattern well conversion has been online since May and shows very encouraging injectivity.
Moving to Charlie Lake, production averaged 15,000 barrels of oil per day, representing 22% of the corporate production for the period. Benefiting from early commissioning of the Wembley plant, recent production, Charlie Lake, is achieving rates of approximately 17,000 BOE per day. This compares to rates of 12,500 BOE per day at the announcement Q2 2021, underscoring Tamarack's ability to successfully deliver on organic development, secure access and egress and ownership of key infrastructure, while executing on and integrating strategic acquisitions to become a dominant Charlie Lake producer. Corporately, production for the Q2 averaged 66,738 BOE per day, which represents a 52% year-over-year increase.
A successful Q2 drilling program was partially offset by the company's loss of about 1,500 BOE per day of production, owing to direct and indirect impacts of the Alberta wildfire situation and unplanned third-party outages. Production impacts were largely restricted prior to June 30th, with H2 production expected to average 68,000 BOE -70,000 BOE per day. I'll now pass it on to Steve Buytels to run through the financial results, as well as our outlook for the remainder of the year.
Thank you, Brian. Q2 Adjusted Funds Flow came in at approximately CAD 157 million, with free funds flow of CAD 39 million. Looking ahead strengthening of the WCS differentials, coupled with the completion of our infrastructure initiatives that Brian alluded to, will contribute to a stronger forecasted netback through the back half of the year and over our 5-year plan. From a capital perspective, we spent CAD 118 million during the quarter, including the drilling, completion, and equipping of 19 Clearwater wells and 5 Charlie Lake wells.
The enhanced scale and scope of our Clearwater operations has led to greater capital efficiencies, offsetting the increase in unit cost inflation that occurred through 2022 and delivering costs not seen since the Q1 of 2022. We spent approximately CAD 20 million in the Q2 on strategic infrastructure, including costs associated with the Wembley plant and the Nipisi pipeline terminal.
These two initiatives have the potential to reduce the company's free funds flow breakeven by approximately $1-$1.10 per barrel US WTI, and are key to enhancing free funds flow generation within the context of Tamarack's five-year plan and return of capital framework. We also published the 2023 Annual Sustainability Report, highlighting Tamarack's commitment to environmental, social, and governance principles and sustainable practices during the year. Subsequent to the quarter, we entered into a definitive agreement for the sale of a minority interest in the Wembley gas plant and a gross overriding royalty on select Charlie Lake properties for a total consideration of $39.5 million. Following the closing of the sale, Tamarack will continue to be the operator of the Wembley gas plant and will retain full access to 100% of the capacity.
In terms of outlook, Tamarack continues to focus on managing or maximizing free funds flow for debt repayment and enhancing shareholder returns as debt thresholds are met. Second half 2023 free funds flow is expected to increase given the tighter WCS differentials, increased operating netback realizations through our infrastructure initiatives, resulting in lower OpEx and transportation expense, along with lower capital expenditures relative to the first half of 2023. Our capital budget range remains unchanged at CAD 425 million-CAD 475 million. We maintain our prior 2023 production guidance range of 67,000 BOE -71,000 BOE a day. The production guidance includes the impacts of the wildfires through the Q2, is expected to be offset through the second half of the year by strong performance from our Clearwater and Charlie Lake programs.
I will pass it back to Brian for some closing comments before we open it up to questions.
While the first half of 2023 saw significant investments in the Clearwater and Charlie Lake infrastructure to ensure development, thereby, we will reduce our cost structure. We'll continue to expand across the company's core areas. Capital balance for 2023, second half will be more focused on the drill bit. The company anticipates delivering increased free funds flow and material debt reduction exiting the year, reflecting a higher second half 2023 production and a narrowing of WCS differentials. I would like to thank our employees, the board of the directors, and shareholders and stakeholders for all your continued support. I'll pass it back to the moderator for questions. Thank you.
Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press star followed by 1 on your touchtone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be polled in the order they were received. Should you wish to decline from the polling process, please press the star followed by the two. If you are using a speakerphone, please lift the handset first before pressing any keys. Once again, if you have a question, it's star, then one. Standing by for questions.
Ladies and gentlemen, our first question for today, is: Do you have any updates on the 8,000 barrels per day Cardium sale, and what type of pricing are you looking for here to make a deal?
Yes, thank you, and great question. Update on the sale would be, you know, we're in the middle of that process here. Currently, we would expect bids to come in sort of through mid-August to late August. In terms of, you know, the ranges on pricing and so forth, you know, we won't get into that. I think the key here is the commodity price strength over the past month or so should help there. You know, we'll have to see how the bids come in and then, you know, the financing risk elements around some of those. Again, let's kind of target a mid-end of August timeframe in terms of when the bids will be due.
Our next question is for Steve Buytels again. Given the positive free funds flow outlook for TVE, what made the infrastructure/GORR disposition attractive at the current time?
Yeah. What we got to look at here in terms of the infrastructure, you know, when we look at our cost of capital relative to the infrastructure company's cost of capital, it makes sense to crystallize that. We own and control 100% of the throughput on that plant in doing so. We're not giving up anything from an operating standpoint there. It is a little bit convoluted as there was a GORR element to it, and the GORR was, you know, really, there's two pieces. There's some new Charlie Lake lands, and then an amendment to one of the Clearwater GORRs or existing GORRs. Again, we won't get into much more there, but.
Again, in an effort to ensure that we're maximizing our free funds flow, our debt repayment here, through the back half of 2023. Strategically, this was always something we were looking at to ensure we maintained, 100% of that throughput, but could look at crystallizing some of the differences in cost of capital in an accretive manner, with respect to the plant.
Our next question is for Brian Schmidt. Do you expect continued or even better capital efficiencies as a result of scale and scope in the Clearwater?
Yeah, I think, that we had good results with in the first half is increasing our focus on pad drilling. This is actually dropping some costs here that we've got with our existing operations and that we're forecasting going forward. The other thing that we're trying is a fan well design in Jarvie, and we expect that to bring in some good results, not just in lower costs, but actually an increased profitability through reservoir access.
Our next question is for Brian Schmidt again. Has the successful completion and startup of the Wembley plant relieved your Charlie Lake egress challenges? Will it change your capital programs in the coming years from the current 8-year plan?
Yeah. On the, the whole story about the, the Grande Prairie area is getting control of your infrastructure. We were relying on a number of shorter-term contracts that were due to expire. This plant takes. You know, we're able to cancel a number of those contracts and put that volume through our own operated plant. Therefore, we think we can increase reliability and drop some costs. Moreover, we still have the sour side of the Charlie Lake, and we've committed to some gas processing that'll come on in early 2025 that will handle that part of it. Slowly and surely, we are getting into more secure contracts on our processing, and we continue to take egress out of that area as well.
The fact is that we have way more, much more inventory past the eight years, that we can't handle. We'll continue to look for processing opportunities and egress opportunities going forward to expand.
Our next question is for Steve Buytels. How does the CAD 39.5 million disposition announced this morning affect the timing of your plans for return of capital plan? Is an enhanced return a possibility in the next 12 months?
When we look at that CAD thirty-nine and a half million, you know, on a standalone basis, that debt obviously accelerates that debt repayment and gets us closer to the initial threshold. You know, when we look at strip as of today or, you know, over the past week here in the move, coupled with that, you know, I think we'd be getting close into, you know, into that Q4, Q1 time frame, where we potentially could get to a spot where we would trigger that first event. However, you know, we are working on... You heard the question on, you know, the disposition of some non-core assets and some other initiatives here.
Our goal and our priority continues to be on accelerating debt repayment to get to those enhanced return thresholds as quickly as we can in a profitable manner. Again, that is the ultimate goal here, and accelerating that enhanced return timing is top of mind.
Our next question is for Brian Schmidt. When do you expect to start utilizing fan/fishbone designs in your Clearwater program?
We'll have wells drilling here in the second half that will test that concept. In fact, in the Q3 . We're pretty excited about it, but, you know, generally, I expect that well to come in as we progged. I don't see much risk on that well. I think if that goes, we will be changing a number of well designs on future drills in the Jarvie area, South Clearwater area.
Our next question is for Steve Buytels. Have the current market changes adjusted your short-term risk management/hedging tactics?
We obviously have a systematic program to our risk management and hedging. We're always moving out through 6 months to 1 year out to ensure we protect our funds flow and our committed capital requirements or debt servicing requirements. The nice thing here with the move in price is we've been able to not only use collars and nice wide collars to make sure we capture price appreciation to the upside to enhance and accelerate debt repayment and cash flow. Also, bring our floors up to ensure even higher floor protection as we look out through Q4 and into the first half of 2024.
Thank you. Ladies and gentlemen, we have no more questions, so we will turn it back over to the moderator.
Are we going to close out the call, or do you want to reprompt for questions?
We'll close out the call.
Thank you, ladies and gentlemen. This now concludes today's conference. Thank you for participating. You may now disconnect.