Pursuant to the Royalty Acquisition, Topaz will acquire a newly created gross overriding royalty interest on natural gas, crude oil, and condensate production on over 720,000 gross acres of Tourmaline’s developed and undeveloped lands in the Alberta Deep Basin (“Deep Basin”), which is contiguous with Topaz’s existing Deep Basin royalty interest acreage, for total cash consideration of $130 million. Topaz will fund the Royalty Acquisition from its available cash on hand.
The Royalty Acquisition is expected to close on January 1, 2021, subject to satisfaction of customary closing conditions including Tourmaline completing a corporate acquisition it announced today.
In the Deep Basin, Tourmaline is the largest producer with 2020 average production estimated at approximately 163,000-168,000 boe/d and since inception, has drilled over 800 gross natural gas wells, with six drilling rigs currently active. Topaz currently owns gross overriding royalty interests on all of Tourmaline’s Deep Basin acreage and the Royalty Acquisition provides a 31% increase to Topaz’s total gross royalty interest acreage and a meaningful expansion of drilling location inventory on its royalty lands. The Deep Basin has well defined, prolific economic resources which provide high quality, long life, liquids rich natural gas reserves with strong estimated ultimate reserve recoveries. In the Deep Basin, an active development program, expansive infrastructure network combined with extensive management and technical experience, have enabled Tourmaline to achieve industry leading cost efficiency and a strong track record of free cash flow generation. Current production from the Royalty Acquisition lands is estimated at 76,000 boe/d which Tourmaline expects will increase to 85,000 boe/d over the next two years in conjunction with an estimated $300 million expansion of its capital plan over the next two years.
Topaz Acquisition Benefits
Pursuant to the Royalty Acquisition, Topaz will acquire a 2% gross overriding royalty interest on natural gas production until December 31, 2021; with a 3% gross overriding royalty interest on natural gas thereafter; and a 2.5% gross overriding royalty interest on crude oil and condensate production from the lands. Topaz estimates that, based on Tourmaline’s estimated capital plan attributable to the Royalty Acquisition lands, the Royalty Acquisition will provide royalty production growth of 12% in 2021, and 24% in 2022. Topaz estimates that, based on current forward commodity prices and Tourmaline’s estimated capital plan attributable to the Royalty Acquisition lands, the Royalty Acquisition will generate royalty production revenue of approximately $9.3 million and $13.0 million in 2021 and 2022, respectively, and free cash flow growth on a per share basis, of over 7% and 12% in 2021 and 2022, respectively. The Royalty Acquisition enhances Topaz’s future growth outlook and is consistent with its strategy to acquire value-enhancing assets that are accretive on a per share basis.
ABOUT THE COMPANY
Topaz is a unique royalty and energy infrastructure company focused on generating free cash flow growth and paying reliable and sustainable dividends to its shareholders, through its strategic relationship with one of Canada’s largest natural gas producers, Tourmaline, an investment grade senior Canadian E&P company, and leveraging industry relationships to execute complementary acquisitions from other high-quality energy companies, while maintaining its commitment to environmental, social and governance best practices.