Tamarack Valley Energy ($TVE.TO, $TNEYF) quick update

Is it worth holding after its run in 2024?

Since I originally wrote about Tamarack here on January 2, Tamarack has gone up a bit over 45%, including dividends. It’s natural to ask, is it still worth holding? This is not investment advice (!), but here are a few of my thoughts.

* Tamarack’s wells seem to be producing as well as outlined in my earlier note. They pay back the capital expended in a very short time frame, even at 2024’s oil prices.

* Tamarack’s secondary oil recovery, through water flooding, seems to be going very well. While the initial oil extraction pays back the capital quickly, the decline rate in oil production is high. The decline rate in the secondary or enhanced oil recovery via waterflooding is slower and less capital intensive.

* My understanding is that Tamarack can continue to drill new inventory for 20 years and that enhanced oil recovery can continue for decades more. Although most oil will likely never be recovered, there are over 8 billion barrels of original oil in place in Tamarack lands.

* While cash generation depends upon oil prices, Tamarack will probably generate over 10% in something like free cash flow in the medium term at today’s share price. There is a nice confluence of events that’s likely to happen around 2026, assuming current capital expenditures, the current or mildly rising share price, and oil prices similar to 2024: oil production should increase as more enhanced recovery kicks in, debt gets paid down, and share buybacks start compounding. A crash in oil prices or unexpected production problems could make that less rosy, of course. A quick rise in Tamarack shares could make the ultimate 2026 share price lower than the optimistic scenario since Tamarack wouldn’t be able to buy back shares at highly accretive prices.

* Tamarack management and directors continued to buy shares on the open market in 2024, a positive sign that the value was there as well as enhancing alignment of interests with outside shareholders.

* I’m a generalist investor and not an engineer nor specialist. All this could be wrong. Do you own due diligence.

* While the opportunity isn’t as great as on January 2, execution risk is less now. Each month that goes by without an oil price crash makes Tamarack a less vulnerable company. The TMX pipeline expansion to the Pacific Ocean terminal helps support the Canadian oil prices, including reducing the WCS and WTI differential. I understand that the incoming US administration has said that they support the previously proposed Keystone XL pipeline, which would help Canadian oil prices as well as the US’s long-term energy security – as well as improving the environment by importing cleaner Canadian oil rather than from dirtier sources, and improving US security by importing heavy oil from a friend rather than foe.

* A few other names that I like in the Canadian oil and gas space are: (1) Athabasca and MEG, two Steam-Assisted Gravity Drainage (SAGD) oil sands producers with ~30 years of low decline inventory; (2) ARC Resources (ARX), a large natural gas producer in Alberta with a lot of natural gas liquids (NGL) production – the natural gas liquids are needed to dilute the thick oil produced from the oil sands in order to transport it via pipeline; and (3) if you’re looking for something to generate ongoing income, consider looking at the royalty company Topaz Energy.

* IMO none of these five companies is super cheap now, but none strike me as expensive. I currently only own Tamarack, but that could change at any time.

* As I’m looking for my investments to provide resources in order to live off of, somewhat of a “neutral” position for me is about 5% of my assets. Oil and gas goes into so many everyday expenses, including food, transportation, housing, and goods and services. All of those things are influenced by the price of oil and gas and will for at least quite a few decades. An ownership interest in oil and gas assets seems like prudent risk management as well as a decent investment at today’s prices.

* Not investment advice. I’d love to hear any comments below or directly. Happy investing!