The Keystone Royalty Acquisition adds a large and diversified Western Canadian royalty portfolio consisting of over 480,000 gross acres of royalty lands (“Keystone Royalty Assets”) which includes (i) current royalty production of approximately 450 boe/d (83% liquids)(1); (ii) over 310,000 gross acres of fee mineral title lands; and (iii) complementary seismic assets. The Keystone Royalty Assets, primarily located in Southeast Saskatchewan, provide low base decline, oil-focused production and include royalty interest ownership in a number of unitized production areas, including the Weyburn Unit, in which Topaz owns an existing 5% royalty interest. Keystone Royalty has federal tax pools of over $25.0 million, positive working capital and no debt. Pro forma, Topaz will have over $1.8 billion of consolidated federal tax pools, approximately $500.0 million of which are non-capital losses. Topaz’s tax profile enhances its shareholder return proposition and provides the Company additional flexibility to expand its future dividends.
Topaz expects to generate approximately $17.0 million of annualized royalty revenue in 2022 from the Keystone Royalty Assets, based on current strip pricing(3).
- Average fee mineral title royalty rate of approximately 18%;
- Drilling activity over the past three months includes 10 gross wells which are expected to provide near term production growth;
- 70% of the acreage is undeveloped; across which Topaz has identified a significant number of future unbooked drilling locations;
- Resilient historical drilling activity through low commodity price cycles; development and future drilling is expected to be economic at crude oil pricing as low as US$40/bbl WTI; and
- In 2021, over 60% of the royalty revenue was generated from six high quality Canadian public E&P companies including Canadian Natural Resources, Crescent Point Energy, Enerplus, Saturn Oil & Gas, Vermillion Energy and Whitecap Resources.
“The Keystone Royalty Acquisition contributes predominantly fee mineral title royalty interests which provide Topaz with incremental exposure to higher WCSB drilling activity; complements the high-quality gross overriding royalty portfolio Topaz has established through its strategic partnerships; and the transaction structure enables Topaz to retain its significant Excess FCF(2) for further M&A growth in 2022,” said Marty Staples, President and CEO of Topaz. “In addition to FCF(2) per share accretion, the Keystone Royalty Acquisition provides future option value through increased leasing opportunities; technological advancements in drilling techniques; and potential exposure to future enhanced oil recovery projects and exploitation of other minerals such as potash, helium and lithium, in each case at no additional cost to Topaz.”
Approximately 56% of the shares of Keystone are beneficially owned or controlled by Craig Lothian, the President, CEO and a director of Keystone who commented, “We believe that the integration of Keystone by a well-capitalized, growth-oriented public royalty entity provides our shareholders with an incredible opportunity to realize additional long-term value, both from the former Keystone assets and from the significant royalty and infrastructure assets of Topaz.” National Bank Financial Inc. acted as the financial advisor to Keystone for the transaction.
Topaz plans to release its first quarter 2022 results and revised 2022 guidance estimates on Tuesday, May 3, 2022 after markets close.
Topaz is a unique royalty and infrastructure energy company focused on generating FCF(2) growth and paying reliable and sustainable dividends to its shareholders, through its strategic relationship with Canada’s largest and most active natural gas producer, 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. Topaz focuses on top quartile energy resources and assets best positioned to attract capital in order to generate sustainable long-term growth and profitability.
The Topaz royalty and energy infrastructure revenue streams are generated primarily from assets operated by natural gas producers with some of the lowest greenhouse gas emissions intensity in the Canadian senior upstream sector, including Tourmaline, which has received awards for environmental sustainability and conservation efforts. Certain of these producers have set long-term emissions reduction targets and continue to invest in technology to improve environmental sustainability.
Topaz’s common shares are listed and posted for trading on the TSX under the trading symbol “TPZ” and it is included in the S&P/TSX Composite Index. This is the headline index for Canada and is the principal benchmark measure for the Canadian equity markets, represented by the largest companies on the TSX.
(1) Comprised of 318 bbl/d of crude oil, 57 bbl/d of natural gas liquids and 449 mcf/d of natural gas production for the month ended December 31, 2021.
This news release contains forward-looking statements and forward-looking information (collectively, “forward-looking statements”) that relate to the Company’s current expectations and views of future events. These forward-looking statements relate to future events or the Company’s future performance. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as “will likely result”, “are expected to”, “expects”, “will continue”, “is anticipated”, “anticipates”, “believes”, “estimated”, “intends”, “plans”, “forecast”, “projection”, “strategy”, “objective” and “outlook”) are not historical facts and may be forward-looking statements and may involve estimates, assumptions and uncertainties which could cause actual results or outcomes to differ materially from those expressed in such forward-looking statements. No assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this news release should not be unduly relied upon. These statements speak only as of the date of this news release. In particular and without limitation, this news release contains forward-looking statements pertaining to the following: the commercial terms and timing of closing of the Keystone Royalty Acquisition; anticipated increases in production and revenue from the Keystone Royalty Acquisition and other expected benefits from the Keystone Royalty Acquisition including the pro forma tax profile and potential enhancement of Topaz’s shareholder return proposition and providing the Company additional flexibility to expand its future dividends, FCF per share accretion and providing future option value and the cost of such value through increased leasing opportunities, technological advancements in drilling techniques and potential exposure to future enhanced oil recovery projects and exploitation of other minerals such as potash, helium and lithium; the anticipated timing for the release of financial results and guidance; and the Company’s business as described under the heading “About the Company” above. Forward‐looking information is based on a number of assumptions including those highlighted in this news release and is subject to a number of risks and uncertainties, many of which are beyond the Company’s control, which could cause actual results and events to differ materially from those that are disclosed in or implied by such forward‐looking information. Such risks and uncertainties include, but are not limited to, the failure to complete the Keystone Royalty Acquisition or other acquisitions on the terms or on the timing announced or at all and the failure to realize some or all of the anticipated benefits of these and other acquisitions including estimated royalty production, royalty production revenue and FCF per share growth, and the factors discussed in the Company’s recently filed Management’s Discussion and Analysis (See “Forward-Looking Statements” therein), Annual Information Form (See “Risk Factors” and “Forward-Looking Statements” therein) and other reports on file with applicable securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com) or Topaz’s website (www.topazenergy.ca). Topaz does not undertake any obligation to update such forward‐looking information, whether as a result of new information, future events or otherwise, except as expressly required by applicable law.
Certain financial terms and measures contained in this news release are “specified financial measures” (as such term is defined in National Instrument 52-112 – Non-GAAP and Other Financial Measures Disclosure (“NI 52-112”)). The specified financial measures referred to in this news release are comprised of “capital management measures” (as such term is defined in NI 52-112). Capital management measures are defined as financial measures disclosed by an issuer that are intended to enable an individual to evaluate the entity’s objectives, policies and processes for managing the entity’s capital, are not a component of a line item or a line item on the primary financial statements, and which are disclosed in the notes to the financial statements. The Company’s capital management measures disclosed in the notes to the Company’s consolidated financial statements as at and for the year ended December 31, 2021 includes free cash flow (FCF) and Excess FCF. Management uses FCF and Excess FCF for its own performance measures and to provide investors with a measurement of the Company’s efficiency and its ability to generate the cash necessary to fund or increase dividends, fund future growth opportunities and/or to repay debt; and furthermore, uses per share metrics to provide investors with a measure of the proportion attributable to the basic or diluted weighted average common shares outstanding. FCF is a capital management measure presented in the notes to the consolidated financial statements and is defined as cash flow, less capital expenditures. Excess FCF is defined as FCF less dividends paid.
Per barrel of oil equivalent amounts have been calculated using a conversion rate of six thousand cubic feet of natural gas to one barrel of oil equivalent (6:1). Barrel of oil equivalents (boe) may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf:1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In addition, as the value ratio between natural gas and crude oil based on the current prices of natural gas and crude oil is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.
This news release contains certain oil and gas metrics which do not have standardized meanings or standard methods of calculation and therefore such measures may not be comparable to similar measures used by other companies and should not be used to make comparisons. Such metrics have been included in this document to provide readers with additional measures to evaluate the Company’s performance; however, such measures are not reliable indicators of the Company’s future performance and future performance may not compare to the Company’s performance in previous periods and therefore such metrics should not be unduly relied upon.
This news release makes reference to future unbooked drilling locations. Unbooked drilling locations have been identified by management as an estimation of multi-year drilling activities based on evaluation of applicable geologic, seismic, engineering, production and reserves information. There is no certainty that unbooked drilling locations will be drilled and if drilled there is no certainty that such locations will result in additional oil and gas reserves, resources or production. The drilling locations on which wells will actually be drilled, including the number and timing thereof is ultimately dependent upon the availability of funding, regulatory approvals, seasonal restrictions, oil and natural gas prices, costs, actual drilling results, additional reservoir information that is obtained and other factors. While a certain number of the unbooked drilling locations have been derisked by drilling of existing wells in relative close proximity to such unbooked drilling locations, the majority of other unbooked drilling locations are farther away from existing wells where management has less information about the characteristics of the reservoir and therefore there is more uncertainty whether wells will be drilled in such locations and if drilled, there is more uncertainty that such wells will result in additional oil and gas reserves, resources or productio.