CALGARY, AB – Topaz Energy Corp. (TSX: TPZ) (“Topaz” or the “Company”) is pleased to announce that in continuing with its profitable and accretive acquisition growth strategy, it has entered into definitive agreements with Deltastream Energy Corporation (“Deltastream”), a privately held pure-play Clearwater Canadian oil producer, for the purchase of a newly created 5% gross overriding royalty on all current and future oil production from Deltastream’s entire Clearwater acreage in Alberta (the “Royalty Lands”), for total cash consideration of $265.3 million (the “Strategic Acquisition”).
The Royalty Lands represent one of the largest unencumbered asset bases in the Clearwater. The Strategic Acquisition will be funded through Topaz’s existing credit facility and is expected to close on September 29, 2022, subject to satisfaction of customary closing conditions. In light of the Strategic Acquisition, Topaz is pleased to announce a 7% increase to the Company’s quarterly dividend which represents the fifth dividend increase to date (50% on a cumulative basis) and provides a current dividend yield of 6%.(1)
- Deltastream’s Clearwater acreage (100% operated; 70% undeveloped) is concentrated in well-delineated core areas spanning the Marten Hills, Nipisi and Canal operating regions and will increase Topaz’s existing Clearwater royalty acreage by 26%. The Clearwater resource play is characterized as amongst the best in class, fastest growing oil play in the WCSB due to technological advancements over the past few years that have enhanced multi-zone drilling opportunities. Based on Deltastream’s internal estimates, the underlying resource attributed to the Royalty Lands amasses over four billion barrels of exploitable original oil in place. The heavy grade of oil produced in the Clearwater is highly conducive to enhanced recovery upside techniques. Deltastream, along with other area operators, continue to invest their attention and development capital toward these techniques which aim to provide significant upside opportunity through increased production recovery rates and extended life of the resource inventory.
- The Clearwater resource play has one of the lowest environmental footprints and provides better inflation protection among North American oil plays, attributed to pipeline connected, multi-well pad developments that do not use significant fresh water as fracture stimulation operations are not required (reducing costs and mitigating service availability risk). In addition, the multi-well pad development techniques reduce surface disturbance.
- Deltastream generated average heavy oil production of 16,685 bbl/d from the assets pertaining to the Strategic Acquisition during the second quarter of 2022 which would have generated 834 bbl/d(4) of heavy oil royalty production and $34.9 million(4) in annualized royalty revenue to Topaz, had the new overriding royalty been in place during that time. The representative second quarter royalty production implies 70% growth relative to Topaz’s 1,191 bbl/d average heavy oil royalty production and 5% growth relative to Topaz’s 16,676 boe/d(6) average total royalty production, during the same time period. Deltastream’s recent development activity has generated growth to approximately 19,000 bbl/d of average heavy oil production during the month of July. Topaz expects that Deltastream’s undeveloped acreage will continue to attract commodity-resilient development capital and further grow to a range of 24,000 to 25,000 bbl/d of heavy oil by 2024(3) attributed to lower capital costs driving superior economics; well-established area infrastructure; and upside opportunity through enhanced oil recovery and tertiary recovery schemes.
- Immediately following close of the Strategic Acquisition, Topaz estimates its Clearwater royalty production will exceed 2,000 boe/d(7) and Topaz will have royalty interests across nearly 700,000 gross acres in the greater Clearwater area. The pro forma acreage position is strategically concentrated in the core areas of the Clearwater, Marten Hills, Nipisi and Jarvie, which provides considerable scale and well delineated upside opportunity attributable to further development by the working interest operators of the acreage.
- Topaz estimates its 2022 exit net debt(2) will be between $370.0 and $380.0 million(3,5) and the Company’s net debt to Q4 2022 annualized EBITDA(2) will be approximately 0.9x(3,5). Topaz plans to provide updated 2022 guidance estimates subsequent to the close of the Strategic Acquisition, together with the Company’s third quarter financial results on November 1, 2022.
- The dividend increase to $1.20 per share, (paid $0.30 per share on a quarterly basis), demonstrates Topaz’s strategy to continue to provide modest and sustainable dividend increases alongside strategic growth and will commence for the fourth quarter of 2022 dividend.(3) In regard to the Company’s previously announced third quarter dividend of $0.28 per share, in honor of the National Day for Truth and Reconciliation, the dividend will be paid September 29, 2022.
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.
Topaz is a unique royalty and infrastructure energy company focused on generating free cash flow (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.
For further information, please visit the Company’s website www.topazenergy.ca. Topaz’s SEDAR filings are available at www.sedar.com.
NOTE REFERENCES |
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1. |
Current dividend yield of 6% calculated as the annualized fourth quarter 2022 dividend of $1.20 per share divided by Topaz’s September 9, 2022 closing price on the TSX of $20.20 per share. |
2. |
See “Non-GAAP and Other Financial Measures”. |
3. |
See “Forward-Looking Statements”. |
4. |
Represents 5% of Deltastream’s second quarter 2022 average heavy oil production to demonstrate the royalty production that would have been generated had the Strategic Acquisition been completed and in effect on April 1, 2022. Estimated historic annualized royalty revenue is calculated using Deltastream’s realized heavy oil price and transportation related expenses for the three months ended June 30, 2022. |
5. |
Based on a recent forward commodity price forecast and inclusive of the Strategic Acquisition, but before giving effect to any additional future acquisition activity. |
6. |
See “Supplemental Information Regarding Product Types”. |
7. |
Comprised of approximately 1,830 bbl/d of heavy oil, 90 bbl/d of crude oil, 450 mcf/d of natural gas and 5 bbl/d of natural gas liquids. |