CALGARY, AB, July 27, 2022 /CNW/ – Topaz Energy Corp. (TSX: TPZ) (“Topaz” or the “Company”) is pleased to announce that in furtherance of its acquisition growth strategy, it has entered into definitive agreements with Tourmaline Oil Corp. (“Tourmaline”) for the purchase of newly created gross overriding royalty interests on approximately 0.2 million gross acres of developed and undeveloped land in the Peace River and Deep Basin play areas of Alberta, for total cash consideration of $52.0 million (the “Strategic Acquisition”). The Strategic Acquisition is expected to close in September 2022, subject to satisfaction of customary closing conditions including Tourmaline completing a recently announced corporate acquisition. In light of the acquisition and expanded capital development plans by certain of Topaz’s strategic partners, Topaz has increased its 2022 guidance estimates.
Strategic Acquisition
- Tourmaline is the largest and amongst the most active operators in the Peace River and Deep Basin. Topaz currently owns gross overriding royalty interests on nearly all of Tourmaline’s existing Peace River and Deep Basin acreage; the Strategic Acquisition increases Topaz’s royalty acreage in these areas by 7% with opportunistic, contiguous acreage and provides strategic alignment in the deployment of Tourmaline’s annual capital investment.
- Tourmaline’s assets to be acquired in Peace River provide complementary processing and transportation infrastructure and pooling of prospective lands; enabling increased takeaway capacity and facilitation of longer horizontal lateral length drilling to enhance economic performance.
- The Deep Basin is a core asset within Topaz’s existing portfolio. Topaz currently owns royalty interests in 2.2 million gross acres in the Deep Basin (38% of total acreage), which provide low-risk development and well-established egress infrastructure, including three natural gas processing facilities in which Topaz holds joint ownership with Tourmaline. The Deep Basin acreage to be acquired by Topaz adds a combination of new and increased working interest in existing royalty interests which were acquired by Tourmaline through swaps, acquisitions and crown land sales over the past year.
- Pursuant to the Strategic Acquisition, Topaz will acquire a 3% gross overriding royalty interest on natural gas production and a 2.5% gross overriding royalty interest on crude oil and condensate production, which is expected to provide meaningful expansion of drilling location inventory on the Company’s royalty lands.
- Based on realized commodity prices and average production of 323 boe/d(6) for the five months ended May 31, 2022, the Strategic Acquisition would have generated $7.0 million in annualized royalty production revenue to Topaz, had the royalty been in place January 1, 2022. Topaz estimates that the Strategic Acquisition will generate royalty production revenue of $7.0 to $9.0 million in 2023(2,4), and free cash flow(1) growth on a per share basis.
- Tourmaline plans to fund a portion of its recently announced corporate acquisition with six million Topaz shares, which would reduce Tourmaline’s ownership in Topaz to 31.4%. The reduction in Tourmaline-held shares will expand Topaz’s free-trading share float and provide new and existing shareholders with enhanced trading liquidity which is in-line with Topaz’s strategic objectives.
Increased 2022 Guidance Estimates
Topaz has increased its 2022 guidance estimates to incorporate the Strategic Acquisition (effective September 2022) and expanded capital development plans by certain of Topaz’s strategic partners, resulting in estimated 2022 annual average royalty production between 16,650 and 16,850 boe/d. Based on commodity pricing of $5.00/mcf AECO and US$90/bbl WTI for the remainder of the year, Topaz’s estimated 2022 EBITDA(1) range has increased to $345.0 to $347.0 million. After payment of 2022 estimated dividends of $154.0 million (45% payout ratio(1)), Topaz expects to generate $174.0 to $178.0 million of Excess FCF(1), exiting 2022 with net debt(1) estimated to range between $114.0 and $118.0 million, before giving effect to incremental acquisitions.
Increased 2022 Guidance Estimates(3)(7) C$5.00/mcf AECO / US$90.00/bbl WTI / 0.77 US/CAD FX $mm except boe/d |
|
Annual average royalty production (boe/d)(4) |
16,650 – 16,850 |
Royalty production natural gas weighting(4) |
~76% |
EBITDA(1) |
$345 – $347 |
Capital expenditures (excluding acquisitions)(1) |
$3 – $4 |
Excess FCF(1) (after interest & dividends) |
$174 – $178 |
Dividends(5) |
$154 |
Dividend payout ratio(1) |
45 % |
Year end 2022 net debt (before M&A)(1) |
$114 – $118 |
Year end 2022 net debt to cash flow (before M&A)(1) |
0.3x |
Additional information
Additional information about Topaz is available on SEDAR at www.sedar.com under the Company’s profile, and on Topaz’s website, www.topazenergy.ca.
ABOUT THE COMPANY
Topaz is a unique royalty and infrastructure energy company focused on generating FCF(1) 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.
For further information, please visit the Company’s website www.topazenergy.ca. Topaz’s SEDAR filings are available at www.sedar.com.
NOTE REFERENCES
1. See “Non-GAAP and Other Financial Measures”. |
2. See “Forward-Looking Statements”. |
3. See “Supplemental Information Regarding Product Types”. |
4. Based on commodity pricing of $5.00/mcf AECO and US$90 WTI and Tourmaline’s expected capital plans. |
5. Topaz’s dividends remain subject to board of director approval. |
6. Comprised of 1,415 mcf/d of conventional natural gas, 12 bbl/d of natural gas liquids and 80 bbl/d of crude oil. |
7. Management’s assumptions underlying the Company’s updated 2022 guidance estimates as disclosed in the Company’s July 26, 2022 news release with revisions noted below: |
i. Estimated average annual royalty production between 16,650 and 16,850 boe/d in 2022. |