CALGARY, AB – Topaz Energy Corp. (TSX: TPZ) (“Topaz” or the “Company”) is pleased to announce that it has entered into a non binding agreement with Tamarack Valley Energy Ltd. (“Tamarack”) for the purchase of a newly created gross overriding royalty interest in the Peace River High area of Alberta for total purchase consideration of $32.0 million (the “Royalty Acquisition”). The Royalty Acquisition provides free cash flow growth and enhanced financial sustainability for Topaz while enabling Tamarack to advance its own growth.
Pursuant to the Royalty Acquisition, Topaz will acquire a newly created 2% gross overriding royalty interest on crude oil, conventional natural gas and natural gas liquids from approximately 300,000 gross acres of Tamarack’s developed and undeveloped lands which are focused on Charlie Lake light oil development (approximately 210,000 gross acres) (“Royalty Acquisition Lands”). Average production from the Royalty Acquisition Lands during March 2021 exceeded 13,000 boe/d (71% crude oil and natural gas liquids) which Topaz expects Tamarack will maintain between 12,000 and 13,000 boe/d through future capital development and is supported by a $60 million minimum capital development commitment. Topaz will fund the Royalty Acquisition from its available cash on hand.
The Royalty Acquisition is expected to close in June 2021, subject to entering into definitive agreements and satisfaction of customary closing conditions including Tamarack completing a corporate acquisition it announced today.
The Royalty Acquisition Lands are contiguous with Topaz’s existing 420,000 gross royalty acres in the Peace River High area (operated by Tourmaline Oil Corp. (“Tourmaline”)) and the Royalty Acquisition represents a 71% increase to Topaz’s royalty acreage in the Peace River High area and advances its position as the largest Charlie Lake royalty holder in the area. The Charlie Lake light oil play ranks amongst the most economic light oil plays in North America, is situated in an active development area with well-established production and egress infrastructure and is considered to be economically resilient to crude oil prices as low as US$30 WTI. Topaz’s Peace River High area royalty acreage is operated by producers who demonstrate active environmental stewardship and the assets have strong liability management ratings given the relatively low asset retirement obligations attributed to the assets.
Topaz Acquisition Benefits
Topaz estimates that, based on the midpoint of the estimated future production range (12,500 boe/d; 71% crude oil and natural gas liquids), current commodity prices which are expected to enable Tamarack to generate significant free cash flow and the $60 million minimum capital development commitment, Topaz will generate average annualized royalty production of 250 boe/d in 2021 and 2022 which represents 2% royalty production growth to Topaz. Based on current forward commodity prices and Tamarack’s estimated capital plans attributable to the Royalty Acquisition Lands, Topaz estimates that the Royalty Acquisition will generate annualized royalty production revenue of approximately $4.4 million and $4.0 million in 2021 and 2022, respectively, and annualized free cash flow growth on a per share basis, of 4% in 2021 and 2022. 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.