CALGARY, AB, June 8, 2021 /CNW/ - Topaz Energy Corp. (TSX:
TPZ) ("Topaz" or the "Company") is pleased to provide an
acquisition activity update and increased 2021 guidance estimates
to incorporate the Clearwater and
NEBC Montney acquisitions announced May 18,
2021.
Acquisition Activity Update
Reserve Royalty
On May 31, 2021, Topaz completed its
previously announced (May 3, 2021)
acquisition from Reserve Royalty Income Trust ("Reserve Royalty")
of its subsidiaries which hold all of the Reserve Royalty assets,
for $26.0 million, which was paid
through the issuance of 1,794,886 Topaz shares ("Reserve Royalty
Acquisition") plus customary closing adjustments paid in
cash. The subsidiaries acquired from Reserve Royalty have
aggregate corporate tax pools of approximately $100.0 million and no debt. 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.
The Reserve Royalty Acquisition assets produced 609
boe/d(1) of royalty production in the first quarter of
2021.
Charlie Lake Royalty
On June 1, 2021, Topaz completed its previously
announced (April 12, 2021) royalty
acquisition from Tamarack Valley Energy Ltd. ("Tamarack") for total
cash consideration of $32.0 million
("Charlie Lake Royalty Acquisition"). Pursuant to the Charlie Lake
Royalty Acquisition, Topaz acquired 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). The Charlie Lake Royalty
Acquisition assets are currently producing approximately 12,500
boe/d, includes a $60.0 million
capital commitment over the next two years and Tamarack plans to
maintain a production base of 12,000 to 13,000 boe/d.
Clearwater (Marten
Hills) Royalty
On May 18,
2021, Topaz completed its previously announced (May 18, 2021) acquisition from Cenovus Energy
Inc. of its existing gross overriding royalty interests on
approximately 192,000 gross acres in the Marten Hills Clearwater
area of Alberta operated by
Headwater Exploration Inc. ("Headwater") for total cash
consideration of $102.0 million
("Clearwater Acquisition"). The Clearwater Acquisition
includes a remaining capital commitment of $62.5 million by December
31, 2022 and Headwater's production from the Clearwater
Acquisition lands is expected to grow from approximately 4,600
bbl/d of crude oil currently to a sustainable production base of
13,000 – 14,000 bbl/d.
NEBC Montney Royalty and
Infrastructure
On May 18,
2021, Topaz announced that it had entered into definitive
agreements with Tourmaline Oil Corp. ("Tourmaline"), for the
purchase of gross overriding royalty interests on approximately
535,000 gross acres in the NEBC Montney and working interest
ownership in Tourmaline's Gundy
infrastructure which is supported by a ten-year fixed take-or-pay
commitment, for total cash consideration of $245.0 million ("NEBC Montney
Acquisition"). The NEBC Montney Acquisition is scheduled to
close July 1, 2021, will increase
Topaz's existing Tourmaline-operated NEBC Montney royalty acreage
by 134% and the assets' current production of approximately 22,600
boe/d(4) is expected to grow to over 100,000
boe/d(5) by mid-decade. Tourmaline has publicly
stated that over the next five years, its North Montney growth will shift to the greater
Conroy area where it plans to develop a separate new operated
complex ultimately producing at similar levels to its Gundy core complex and Tourmaline's NEBC
Montney production is well poised for significant future growth
alongside the commissioning of future LNG projects.
Acquisition Benefits
The cumulative recent acquisitions enhance Topaz's near and
long-term free cash flow profile, are immediately accretive to 2021
per share metrics and are highly accretive to 2022 per share
metrics, including 11% on both EBITDA(6)(8) and free
cash flow(6)(8) and 10% on royalty
production(8). Upon close of the NEBC Montney
Acquisition, Topaz will own gross overriding royalty interests on
approximately 4.3 million gross acres which represents 45%
growth.
Increased 2021 Guidance Estimates(8)
Topaz's 2021 guidance estimates, increased to reflect the
Clearwater Acquisition and the NEBC Montney Acquisition, are
presented in the table below. Topaz's estimates exclude any
future acquisitions or deployment of capital pursuant to its growth
strategy and Topaz's outlook is supported by our confidence in
Tourmaline's continued focus on moderate growth across its
production base and significant growth of its NEBC Montney
production; as well as contractual capital commitments underpinning
our other strategic royalty acquisitions.
To date, Topaz has generated 78% EBITDA(6)(8)(10)
growth over 2020 which represents 32% on a per share basis
inclusive of the equity financing which closed earlier today, and
Topaz estimates it will exit 2021 with net debt(6)(8) of
$45.0 million (0.3x net debt / 2021e
EBITDA(6)(8)) leaving over $250.0
million of capacity available on its $300.0 syndicated credit facility. Topaz's
estimated 2021 dividend of $102.0
million(8), which reflects the recently announced
increase of 5% to $0.84 per share,
represents a payout ratio(6)(8) of 64%, well within
Topaz's targeted range of 60 to 90%.
$mm except
boe/d
|
May 6, 2021
Guidance
Estimates
|
June 8, 2021
Increased
Guidance Estimates
|
Change in
Estimates
increase/(decrease)
|
Annual average
royalty production (boe/d)(7)
|
12,000 –
12,200
|
12,800 –
13,000
|
7%(10)
|
Processing revenue
and other income
|
51.7
|
57.3
|
11%
|
EBITDA(6)
|
136.0 –
138.0
|
158.0 –
160.0
|
16%(10)
|
Annual dividends
($0.84 per share)
|
91.2
|
102.0(9)
|
12%
|
Exit adjusted working
capital/(net debt)(6)
|
94.0 –
96.0
|
(44.0) –
(46.0)
|
$140mm(10)
|
Capital expenditures
(excluding acquisitions)
|
1.0 – 2.0
|
1.0 – 2.0
|
-
|
Commodity price
assumptions
|
|
|
|
AECO 5A
(CAD$/mcf)
|
$2.93
|
$3.10
|
6%
|
NYMEX WTI
(US$/bbl)
|
$59.76
|
$64.11
|
7%
|
US$/CAD$ foreign
exchange
|
0.79
|
0.82
|
4%
|
(1)
|
Comprised of 7,410
bbl/d crude oil, 22.6 mmcf/d conventional natural gas and 1,820
bbl/d natural gas liquids.
|
(2)
|
Comprised of 7,100
bbl/d crude oil, 21.0 mmcf/d conventional natural gas and 1,900
bbl/d natural gas liquids.
|
(3)
|
Comprised of 6,550 –
7,200 bbl/d crude oil, 21.0 – 22.8 mmcf/d conventional natural gas
and 1,950 – 2,000 bbl/d natural gas liquids.
|
(4)
|
Comprised of 7 bbl/d
crude oil, 101.1 mmcf/d shale gas and 5,730 bbl/d natural gas
liquids.
|
(5)
|
Comprised of
approximately 31 bbl/d crude oil, 447.3 mmcf/d shale gas and 25,419
bbl/d natural gas liquids.
|
(6)
|
Refer to "Non-GAAP
Financial Measures."
|
(7)
|
Refer to
"Supplemental Information Regarding Product Types."
|
(8)
|
Refer to
"Forward-Looking Statements."
|
(9)
|
Estimated based on
128.7 million shares outstanding (includes Reserve Royalty
Acquisition and equity financing which closed June 8, 2021).
The Company's dividend payments remain subject to Board approval.
Refer to "Forward-Looking Statements".
|
(10)
|
Estimated using the
midpoint of the 2021 annual average royalty production estimates.
Refer to "Supplemental Information Regarding Product
Types".
|
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.
FORWARD-LOOKING STATEMENTS
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: Topaz's future growth outlook and strategic plans; the
anticipated capital expenditure plans and production increases
relating to completed and planned acquisitions; the benefits to be
derived from the Reserve Royalty Acquisition, Charlie Lake Royalty
Acquisition, NEBC Montney Acquisition and the Clearwater
Acquisition (collectively, the "Acquisitions"); the environmental
benefits associated with the Acquisitions; expected production
increases and capital commitments on the royalty lands; estimated
levels of EBITDA,(6) free cash flow(6) and
net debt(6); future dividend levels and declaration and
payment of dividends and the timing and amount thereof; the
information described under the heading "Increased 2021 Guidance
Estimates" above; other expected benefits from the Acquisitions
including enhancing Topaz's future growth outlook and providing
value enhancing assets including the information described under
the heading "Acquisition Benefits" above; 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 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 acquisitions including
estimated royalty production, royalty production revenue 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).
Statements relating to "reserves" are also deemed to be forward
looking information, as they involve the implied assessment, based
on certain estimates and assumptions, that the reserves described
exist in the quantities predicted or estimated and that the
reserves can be profitably produced in the future.
Without limitation of the foregoing, future dividend payments,
if any, and the level thereof is uncertain, as the Company's
dividend policy and the funds available for the payment of
dividends from time to time is dependent upon, among other things,
free cash flow(6), financial requirements for the
Company's operations and the execution of its growth strategy,
fluctuations in working capital and the timing and amount of
capital expenditures, debt service requirements and other
factors beyond the Company's control. Further, the ability of
Topaz to pay dividends will be subject to applicable laws
(including the satisfaction of the solvency test contained in
applicable corporate legislation) and contractual restrictions
contained in the instruments governing its indebtedness, including
its credit facility.
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.
NON-GAAP FINANCIAL MEASURES
In addition to using financial measures prescribed by
International Financial Reporting Standards ("IFRS" or "GAAP"),
references are made in this news release to "free cash flow", which
is a measure that does not have any standardized meaning as
prescribed by IFRS. Management uses this term for its own
performance measures and to provide shareholders and potential
investors with a measurement of the Company's efficiency and its
ability to generate the cash necessary to fund dividends and a
portion of its future growth expenditures or to repay debt.
Accordingly, investors are cautioned that this non-GAAP financial
measure may not be comparable to similarly defined measures
presented by other entities and should not be considered in
isolation nor as an alternative to net income (loss) from
continuing operations or other financial information determined in
accordance with GAAP as an indication of the Company's performance.
References to "free cash flow" are to the amount of cash estimated
to be available for dividends to shareholders in accordance with
the Company's dividend policy and is defined as cash flow less
capital expenditures, where "cash flow" is defined as cash from
(used in) operations before changes in non-cash working
capital.
This news release also makes reference to the terms "EBITDA,"
"EBITDA per share," "cash flow," "free cash flow," "free cash flow
per share," "adjusted working capital," and "net debt" which are
not recognized measures under GAAP, and do not have a standardized
meaning prescribed by GAAP. Accordingly, the Company's use of these
terms may not be comparable to similarly defined measures presented
by other companies. Management uses the terms "EBITDA," "free cash
flow," "adjusted working capital," and "net debt" for its own
performance measures and to provide shareholders and potential
investors with a measurement of the Company's efficiency and its
ability to generate the cash necessary to fund dividends and a
portion of its future growth expenditures or to repay debt.
Accordingly, investors are cautioned that the non-GAAP financial
measures should not be considered in isolation nor as an
alternative to net income (loss) from continuing operations or
other financial information determined in accordance with GAAP as
an indication of the Company's performance.
For these purposes, "EBITDA" is net income or loss from
continuing operations, excluding extraordinary items, plus interest
expense, income taxes and the capital portion of any finance lease
received, and adjusted for non-cash items including depletion and
depreciation and share-based compensation and gains or losses on
dispositions. "EBITDA per share" is defined as EBITDA divided
by the weighted average common shares outstanding during the
respective period. "Cash flow" is cash from (used in) operations
before changes in non-cash working capital. "Free cash flow"
is defined as cash flow less capital expenditures. "Free cash
flow per share" is defined as free cash flow divided by the
weighted average common shares outstanding during the respective
period. "Adjusted working capital" is current assets
less current liabilities, adjusted for financial instruments and
"net debt" is total debt outstanding less adjusted working
capital.
BOE EQUIVALENCY
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.
OIL AND GAS METRICS
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.
MARKET, INDEPENDENT THIRD-PARTY AND INDUSTRY DATA
Certain market, independent third-party and industry data
contained in this news release is based upon information from
government or other independent industry publications and reports
or based on estimates derived from such publications and reports.
Government and industry publications and reports generally indicate
that they have obtained their information from sources believed to
be reliable, but the Company has not conducted its own independent
verification of such information. This news release also includes
certain data, including production, well count estimates, capital
expenditures and other operational results, derived from public
filings made by independent third parties. While the Company
believes this data to be reliable, market and industry data is
subject to variations and cannot be verified with complete
certainty due to limits on the availability and reliability of raw
data, the voluntary nature of the data gathering process and other
limitations and uncertainties inherent in any statistical survey.
The Company has not independently verified any of the data from
independent third-party sources referred to in this news release or
ascertained the underlying assumptions relied upon by such
sources.
INFORMATION REGARDING PUBLIC-ISSUER COUNTERPARTIES
Certain information contained in this news release relating to
the Company's public issuer counterparties which include
Tourmaline, Tamarack and Headwater and the nature of their
respective businesses is taken from and based solely upon
information published by such issuers. The Company has not
independently verified the accuracy or completeness of any such
information.
SUPPLEMENTAL INFORMATION REGARDING PRODUCT TYPES
This news release includes references to estimated average daily
production estimates for the year ended December 31, 2021. The following table is
intended to provide supplemental information about the product type
composition for each of the production figures that are provided in
this news release:
For the
year
|
Topaz May 6, 2021
Royalty
Production Estimate
(Midpoint)
2021e
|
Topaz June 8, 2021
Royalty
Production Estimate
(Midpoint)
2021e
|
Average daily
production
|
|
|
Light and Medium crude
oil (bbl/d)
|
350
|
372
|
Heavy crude oil
(bbl/d)
|
79
|
397
|
Conventional natural
gas (Mcf/d)
|
43,608
|
43,859
|
Shale Gas
(Mcf/d)
|
22,008
|
24,221
|
Natural Gas Liquids
(bbl/d)
|
735
|
785
|
Total
(boe/d)
|
12,100
|
12,900
|
General
See also "Forward-Looking Statements" and "Non-GAAP Financial
Measures" in the most recently filed Management's Discussion and
Analysis.
SOURCE Topaz Energy Corp.