A Member of Pat McKeough’s Inner Circle asked for his advice on Tamarack Valley, a junior oil and gas company active in Western Canada.
Pat likes the company’s cheap valuation and its relatively solid dividend, but warns the company needs higher oil and gas prices to make this most of its ambitious acquisitions.
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Tamarack Valley Energy Ltd. (Symbol TVE on Toronto; www.tamarackvalley.ca) is an oil and gas exploration and production firm in Western Canada. The company focuses on Alberta and Saskatchewan, and its output is 76% oil and 24% gas.
In the three months ended September 30, 2022, Tamarack’s average daily production rose 5.4%, to 43,476 barrels of oil equivalent per day from 41,256.
The company’s cash flow in the latest quarter jumped 60.0%, to $0.40 a share from $0.25. The rise reflects much higher natural gas and oil prices as well as the increased output.
Tamarack’s long-term debt stands at $287.4 million, or a low 13.1% of its current market cap of $2.2 billion.
Inner Circle: Higher prices are needed to boost Tamarack Valley’s operations
The company continues to grow through acquisitions. For example, on October 13, 2022, it completed the purchase of Deltastream Energy for $1.425 billion. Deltastream, a privately held oil producer, operates exclusively in Alberta’s Clearwater oil area.
The acquisition should be a good fit for Tamarack. It solidifies its position in the Clearwater, one of the best-producing oil areas in North America. The acquisition added about 19,500 barrels of oil to Tamarack’s daily output and also includes over 500 highly prospective drilling sites.
Like all energy producers, Tamarack will need oil and gas prices to move even higher for it to keep reporting rising cash flow. Meanwhile, the shares trade at 2.4 times cash flow per share based on the latest quarter. That makes them reasonably cheap for investors looking to profit from a continued energy rebound.
With the Deltastream acquisition, Tamarack raised its monthly dividend by 25.0%, to $0.0125 from $0.01. The shares now yield 4.6%.
Recommendation in Pat’s Inner Circle: Tamarack Valley Energy Ltd. is a buy.