CALGARY, AB, May 3, 2021 /CNW/ – Topaz Energy Corp. (TSX: TPZ) (“Topaz” or the “Company”) is pleased to announce that it has entered into a definitive agreement with Reserve Royalty Income Trust (“Reserve Royalty”) for the purchase of its subsidiaries which hold all of the Reserve Royalty assets, for approximately $26.0 million, payable through the issuance of 1,794,886 Topaz shares (the “Reserve Royalty Acquisition”).
Reserve Royalty Acquisition
The Reserve Royalty Acquisition adds a large royalty portfolio consisting of 345,000 gross acres of developed and undeveloped fee mineral title and royalty interest lands diversified across Western Canada, providing high margin, low decline royalty assets and free cash flow growth for Topaz. Reserve Royalty has aggregate corporate tax pools of approximately $100 million and no debt. The Reserve Royalty Acquisition assets generated average royalty production and royalty production revenue of 609 boe/d (141 bbl/d crude oil, 2.2 mmcf/d conventional natural gas and 103 bbl/d natural gas liquids) and $1.6 million, respectively, during the first quarter of 2021 ($6.4 million royalty production revenue on an annualized basis). Recent drilling activity on the Reserve Royalty lands includes two liquids-rich Falher natural gas wells in the Ferrier area which began producing in January 2021. Average gross production in February 2021 from the two wells was approximately 14,000 mcf/d (raw) conventional natural gas in addition to natural gas liquids (free condensate) production.
Charlie Lake Royalty Acquisition Update
Topaz is also pleased to announce that it has entered into a definitive agreement with Tamarack Valley Energy Ltd. (“Tamarack”) for the $32.0 million (cash consideration) royalty acquisition previously announced on April 12, 2021 (“Charlie Lake 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) (“Charlie Lake Royalty Acquisition Lands”). Average production from the Charlie Lake Royalty Acquisition Lands during March 2021 exceeded 13,000 boe/d (approximately 7,410 bbl/d crude oil, 22.6 mmcf/d conventional natural gas and 1,820 bbl/d natural gas liquids). Tamarack estimates it 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.
The Charlie Lake Royalty Acquisition represents a 71% increase to Topaz’s royalty acreage in the greater Peace River High area and advances Topaz’s position as the largest Charlie Lake royalty holder. 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. Wells drilled on the Charlie Lake Royalty Acquisition lands have consistently achieved industry-leading results in the area. Recent drilling results by Anegada Oil Corp., the company to be acquired by Tamarack, include notable production results during March 2021; one well which produced over 900 bbl/d of crude oil and another which produced approximately 700 bbl/d of crude oil. These wells were drilled at some of the longest lateral lengths in the Charlie Lake area to date, at an average length of approximately 4,375 meters.
The Reserve Royalty Acquisition and the Charlie Lake Royalty Acquisition are expected to close during the second quarter of 2021, subject to the satisfaction of customary closing conditions, including in respect of the Charlie Lake Royalty Acquisition Tamarack completing its previously announced acquisition of Anegada Oil Corp.
Topaz Acquisition Benefits
Based on a conservative annual production base of 500 boe/d (approximately 114 bbl/d crude oil, 1.7 mmcf/d conventional natural gas and 100 bbl/d natural gas liquids) from the Reserve Royalty Acquisition which Topaz estimates will be maintained through future drilling; 12,500 boe/d (approximately 7,125 bbl/d crude oil, 21.8 mmcf/d conventional natural gas and 1,750 bbl/d natural gas liquids) from the Charlie Lake Royalty Acquisition which is the midpoint of Tamarack’s future production estimate; and current commodity prices, Topaz estimates the acquisitions on a combined basis provide annualized 2021 EBITDA of $9.1 million which represents $0.06 per share (5% growth) to Topaz. The acquisitions enhance Topaz’s future growth outlook and are consistent with the Company’s strategy to acquire value-enhancing assets that are accretive on a per share basis.
Cumulative Investment Track Record
Since January 1, 2020 Topaz has invested approximately $385.0 million in cumulative royalty and infrastructure acquisitions which Topaz estimates will generate between $41.0 and $43.0 million of annualized EBITDA in 2021 and between $46.0 and $48.0 million in 2022, based on current commodity prices. Topaz’s royalty acquisitions are underpinned by cumulative capital development spending estimated at $500.0 million over the next two years, which supports Topaz’s expectations for EBITDA growth from the royalty acquisitions. Topaz estimates its March 31, 2021 adjusted working capital after accounting for the Charlie Lake Royalty Acquisition will be in excess of $60.0 million which Topaz expects will be invested in additional acquisition growth opportunities.
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.