CALGARY, AB, July 29, 2021 /CNW/ - Topaz Energy Corp.
(TSX: TPZ) ("Topaz" or the "Company") is pleased to announce
financial results for the second quarter of 2021 and increased 2021
guidance estimates incorporating acquisition activity.
Capital allocation strategy
- Topaz's hybrid royalty and infrastructure business provides
transparent, embedded & self-funded growth and balanced
commodity exposure. Through execution of the Company's
acquisition growth strategy, Topaz has doubled its second quarter
total revenue and other income(1) from the prior year
with a corresponding increase of over 2.0 times on both
EBITDA(2) and FCF(2). On a per share
basis, Topaz's FCF(2) increased 52% from $0.21 per share in Q2 2020 to $0.32 per share in Q2 2021 and Topaz estimates it
will generate 2021 FCF(2)(5) of $1.41 per share which represents 45% growth from
2020 ($0.97 per share).
- Since its first quarter of full operations (Q1 2020) Topaz has
paid a stable quarterly dividend of $0.20 per share which was recently increased by
5% to $0.21 per share. Topaz's
increased 2021 guidance provides for approximately $173.0 million of FCF(2)(5), and
Topaz's indicative 2021 dividend of $102.0
million is supported through stable infrastructure
FCF(2) (53%(5)) with the balance supported at
commodity prices of C$1.50/mcf AECO
and US$45/bbl WTI. Topaz
estimates it will generate $71.0
million in excess FCF(2)(5) in 2021. Given
the continued opportunity-rich M&A environment, Topaz's primary
capital allocation focus is to pursue accretive growth acquisitions
and Topaz will continue to review its dividend with a targeted
payout range of 60 – 90%.
Acquisition strategy
- Since January 1, 2020 Topaz has
invested approximately $878.0 million
in cumulative royalty and infrastructure acquisitions which Topaz
estimates will generate $95.0 million
of FCF(2)(5) in 2022, representing an 11% FCF
yield(2)(5). Topaz's royalty acquisitions are
underpinned by committed operator capital and combined with its
formative royalty assets, Topaz estimates its 2020 to 2023 compound
annual royalty production growth rate to be 17%(5) which
provides embedded future growth with no further capital investment
required by Topaz.
- Following the August 1, 2021
close of Topaz's recently announced NEBC Montney royalty
acquisition comprised of 296,000 gross acres of developed and
undeveloped land and approximately 50,000 boe/d of liquids-rich
natural gas production, Topaz will own royalty interests on
substantially all of Tourmaline's acreage. Topaz is well
poised for growth as Tourmaline has shifted its focus to
optimization of organic growth opportunities given its significant
consolidation initiatives have been completed.
- Topaz will focus on accretive acquisitions with third parties
operating high quality, economically resilient growth assets as
well as continue to evaluate other opportunities in order to
further diversify its investment portfolio. Topaz's
acquisition growth strategy is to utilize its excess
FCF(2) as well as available borrowing capacity
through its $300.0 million syndicated
credit facility while maintaining a net debt (cash) to EBITDA
(2)(5) ratio approximating 1.0 times.
Highlights of Topaz's financial results as at and for the three
and six months ended June 30, 2021 as
compared to the three and six months ended June 30, 2020 ("Q2 2021," "YTD 2021," "Q2 2020"
and "YTD 2020," respectively), as well as significant transactions
completed subsequent to June 30, 2021
("Subsequent Period") are presented below:
Financial performance
- Total revenue and other income(1) of $41.0 million for Q2 2021 was double the
$20.0 million generated in Q2
2020. The significant increase was driven by 24% royalty
production volume growth, 99% higher processing revenue and a 56%
increase in natural gas (AECO) pricing.
- Generated 84% higher total revenue and other
income(1) in YTD 2021 ($78.7
million) compared to YTD 2020 ($42.8
million) which was driven by 18% royalty production volume
growth, 87% higher processing revenue and a 55% increase in natural
gas (AECO) pricing.
- Generated more than 2.0 times higher EBITDA(2) and
FCF(2) in Q2 2021 ($37.3
million and $37.2 million
respectively) compared to Q2 2020 ($17.4
million and $17.2 million
respectively) which represented an EBITDA margin(2) of
91% and 87% during the respective periods. On a per share
basis, second quarter FCF(2) grew 52% from 2020 to
2021. For the six month periods ended June 30, EBITDA(2) and
FCF(2) both grew 88%, from $38.3 million and $37.9
million respectively in 2020 to $71.9
million and $71.2 million,
respectively in 2021.
Royalty activity update
- Topaz's average royalty production(4) of 12,265
boe/d during Q2 2021 grew 24% from 9,891 boe/d during Q2
2020. Royalty production revenue of $27.4 million during Q2 2021 was 2.3 times higher
than the $11.9 million generated
during Q2 2020.
- Topaz's average royalty production(4) of 12,005
boe/d YTD 2021 grew 18% from 10,134 boe/d during YTD 2020. Royalty
production revenue of $51.6 million
YTD 2021 grew 95% from $26.4 million
YTD 2020. The increased production volume and royalty production
revenues are attributed to gross overriding royalty acquisitions,
volume growth attributed to Topaz's existing royalty assets and
improved commodity pricing (55% increase in natural gas (AECO) and
70% increase in crude oil (NYMEX WTI)).
- During Q2 2021, 70 gross wells(6) were spud on
Topaz's royalty acreage (42 gross wells on acreage operated by
Tourmaline and 28 gross wells on acreage operated by other Topaz
counterparties) and 50 gross wells were brought on
production(3) which represents a 2.7 times increase in
drilling activity relative to Q2 2020, when 26 gross wells were
spud on Topaz's royalty acreage (all operated by Tourmaline).
- During YTD 2021, 149 gross wells(6) were spud on
Topaz's royalty acreage (110 gross wells on acreage operated by
Tourmaline and 39 gross wells on acreage operated by other Topaz
counterparties) and 120 gross wells were brought on
production(3) which represents a 2.2 times increase in
drilling activity relative to YTD 2020, when 67 gross wells were
spud on Topaz's royalty acreage (all operated by Tourmaline).
Infrastructure activity update
- During Q2 2021, Topaz generated $10.6
million processing revenue attributed to its non-operated
ownership in processing facilities which is 2.0 times higher than
Q2 2020 ($5.3 million). During
Q2 2021 and Q2 2020, average daily utilization of Topaz's net
natural gas processing capacity was 98% and 100%, respectively (75%
and 58% of which is contracted under fixed take-or-pay,
respectively).
- During YTD 2021, Topaz generated $21.0
million processing revenue attributed to its non-operated
ownership in processing facilities which is 1.9 times higher than
YTD 2020 ($11.3 million). During YTD
2021 and YTD 2020, average daily utilization of Topaz's net natural
gas processing capacity was 98% and 100%, respectively (74% and 58%
of which was contracted under fixed take-or-pay,
respectively).
- During Q2 2021, Topaz earned $2.9
million, or 4% higher other income ($2.8 million attributed to its contracted
interest in third party infrastructure income and $0.1 million of interest income) compared to Q2
2020 ($2.8 million attributed to
contracted interest in third party infrastructure income and $nil
of interest income).
- During YTD 2021, Topaz earned $6.1
million, or 20% higher other income ($5.8 million attributed to its contracted
interest in third party infrastructure income and $0.3 million of interest income) compared to YTD
2020 ($5.1 million and $nil,
respectively).
Dividends paid
- The Company paid dividends of $25.7
million ($0.20 per share) in
Q2 2021 representing a payout ratio(2) of 69% compared
to $16.0 million dividends paid in Q2
2020 representing a payout ratio(2) of 92%. On
July 29, 2021, Topaz's Board declared
its 2021 third quarter dividend of $0.21 per share which is expected to be paid on
September 30, 2021 to shareholders of
record on September 15, 2021.
This quarterly cash dividend is designated as an "eligible
dividend" for Canadian income tax purposes.
Accretive growth transactions
- During the six months ended June 30,
2021, Topaz completed $316.5
million of acquisitions (all of which were previously
announced):
-
- cumulative acquisitions of gross overriding royalty interests
on developed and undeveloped land as follows:
-
- 720,000 gross acres in the Alberta Deep Basin, for total cash
consideration of $130.0 million;
- 237,600 gross acres in the greater Clearwater area for total cash consideration
of $116.5 million which includes
multi-year cumulative capital development commitments of
$122.5 million; and
- 300,000 gross acres in the Peace River High area (focused on
Charlie Lake rights) for total
cash consideration of $32.0 million
which includes a multi-year capital development commitment of
$60.0 million;
- the acquisition of a non-operated working interest in pipeline
connected water management and conservation facilities for cash
consideration of $12.0 million which
is underpinned by a 15-year fixed take-or-pay commitment; and
- the corporate acquisition of Reserve Royalty Commercial Trust,
and its subsidiaries, which hold the Reserve Royalty assets, for
total consideration of $27.3 million
which was payable through the issuance of 1,794,886 common shares
of Topaz, valued at $14.485 per
common share and a working capital adjustment of $1.3 million which was paid in cash.
- During the Subsequent Period, Topaz completed a royalty and
infrastructure acquisition and entered into definitive agreements
to acquire additional royalty assets (both of which were previously
announced), for cumulative proceeds of $390.0 million:
-
- on July 1, 2021 Topaz closed the
acquisition from Tourmaline of a newly created gross overriding
royalty on approximately 535,000 gross acres of developed and
undeveloped lands in the NEBC Montney play area and working
interest ownership in Tourmaline's Gundy infrastructure ("NEBC Montney Royalty
and Infrastructure Acquisition"), which is supported by a ten year
fixed take-or-pay commitment, for total cash consideration of
$245.0 million; and
- on July 15, 2021 Topaz entered
into definitive agreements to acquire a newly created gross
overriding royalty from Tourmaline on approximately 296,000 gross
acres of developed and undeveloped land in the NEBC Montney play
area, for total cash consideration of $145.0
million, before closing adjustments ("NEBC Montney Black
Swan/Birch Royalty Acquisition"). The acquisition is scheduled to
close on August 1, 2021, subject to
satisfaction of customary closing conditions.
Capital resources
- On June 8, 2021, Topaz completed
a bought deal equity financing (the "Equity Financing') and
concurrent private placement whereby Topaz issued a total of 14.3
million common shares at a price of $14.25 per common share which includes the
exercise in full of the over-allotment option granted to the
underwriters. Aggregate gross proceeds to the Company of
$203.8 million were used to fund
acquisitions. The Equity Financing resulted in Tourmaline's
equity ownership in Topaz reducing from 51% to 45%.
- Topaz ended Q2 2021 with net debt (cash)(2) of
($167.5) million. On
July 1, 2021 Topaz paid $245.0 million cash pursuant to the NEBC Montney
Royalty and Infrastructure Acquisition following which Topaz had
net debt (cash)(2) of $77.4
million.
Increased 2021 Guidance Estimates(5)
- Topaz's 2021 outlook is supported by a significant amount of
committed operator capital attributed to Topaz's royalty lands and
its stable infrastructure revenue portfolio.
- Topaz's 2021 guidance estimates to incorporate the NEBC Montney
Black Swan/Birch Royalty Acquisition scheduled to close
August 1, 2021 provides for an
11% increase in 2021 estimated EBITDA. Topaz's estimates
exclude any future acquisitions or deployment of capital pursuant
to its growth strategy.
$mm except
boe/d
|
June 8, 2021
Previous
Guidance Estimates
|
July 29, 2021
Increased
Guidance Estimates
|
Change in
Estimates
increase/(decrease)
|
Annual average
royalty production (boe/d)(4)
|
12,800 –
13,000
|
13,550 –
13,750
|
6%(8)
|
Processing revenue
and other income
|
57.3
|
57.3
|
Nil
|
EBITDA(2)
|
158.0 –
160.0
|
175.0 –
177.0
|
11%(8)
|
Dividend
|
102.0
|
102.0(7)
|
Nil
|
Exit net
debt(2)
|
44.0 –
46.0
|
174.0 –
176.0
|
2.9x(8)
|
Capital expenditures
(excluding acquisitions)
|
1.0 – 2.0
|
1.0 – 2.0
|
Nil
|
Commodity price
assumptions
|
|
|
|
AECO 5A
(CAD$/mcf)
|
$3.10
|
$3.48
|
12%
|
NYMEX WTI
(US$/bbl)
|
$64.11
|
$66.16
|
3%
|
US$/CAD$ foreign
exchange
|
0.82
|
0.81
|
1%
|
(1)
|
Comprised of royalty
production revenue, processing revenue and other income.
|
(2)
|
Refer to "Non-GAAP
Financial Measures."
|
(3)
|
Includes wells
drilled during the current and previous periods on Topaz royalty
acreage.
|
(4)
|
Refer to
"Supplemental Information Regarding Product Types."
|
(5)
|
Refer to "Forward
Looking Statements" and "Financial Outlook."
|
(6)
|
Includes injection
wells.
|
(7)
|
Estimated based on
128.7 million shares outstanding. The Company's dividend
payments remain subject to Board approval.
|
(8)
|
Estimated using the
midpoint of the 2021 annual average royalty production
estimates.
|
Selected Financial
Information
|
For the periods
ended ($000s) except per share
|
June 30, 2021
Six Months
|
June 30, 2021
Three months
|
Mar. 31, 2021
Three months
|
Dec. 31, 2020
Three months
|
Sept. 30, 2020
Three months
|
June 30, 2020
Three months
|
Royalty production
revenue
|
51,627
|
27,448
|
24,179
|
17,611
|
14,826
|
11,935
|
Processing
revenue
|
21,033
|
10,562
|
10,471
|
10,305
|
9,188
|
5,296
|
Other
income(4)
|
6,060
|
2,943
|
3,117
|
2,783
|
2,384
|
2,789
|
Total
|
78,720
|
40,953
|
37,767
|
30,699
|
26,398
|
20,020
|
Cash
expenses:
|
|
|
|
|
|
|
Operating
|
(2,061)
|
(1,089)
|
(972)
|
(1,643)
|
(691)
|
(1,016)
|
Marketing
|
(493)
|
(256)
|
(237)
|
(176)
|
(201)
|
(122)
|
General and
administrative
|
(2,292)
|
(1,026)
|
(1,266)
|
(673)
|
(1,030)
|
(1,249)
|
Realized loss on
financial instruments
|
(1,728)
|
(1,147)
|
(581)
|
(744)
|
(506)
|
(188)
|
Interest
expense
|
(380)
|
(220)
|
(160)
|
(484)
|
(76)
|
(60)
|
Cash
flow(1)
|
71,766
|
37,215
|
34,551
|
26,979
|
23,894
|
17,385
|
Per basic
share(2)
|
$0.63
|
$0.32
|
$0.31
|
$0.25
|
$0.26
|
$0.22
|
Cash from operating
activities
|
66,466
|
36,903
|
29,563
|
32,887
|
12,571
|
24,234
|
Per basic
share(2)
|
$0.58
|
$0.32
|
$0.26
|
$0.31
|
$0.13
|
$0.30
|
Net income
(loss)
|
6,274
|
918
|
5,356
|
8,382
|
(2,935)
|
(1,125)
|
Per basic and diluted
share(2)
|
$0.05
|
$0.01
|
$0.05
|
$0.08
|
($0.03)
|
($0.01)
|
EBITDA(1)
|
71,874
|
37,308
|
34,566
|
27,126
|
23,922
|
17,445
|
EBITDA
margin(1)
|
91%
|
91%
|
92%
|
88%
|
91%
|
87%
|
FCF(1)
|
71,222
|
37,232
|
33,990
|
26,507
|
23,381
|
17,226
|
Per basic
share(2)
|
$0.62
|
$0.32
|
$0.30
|
$0.25
|
$0.25
|
$0.21
|
Dividends
paid
|
48,269
|
25,748
|
22,521
|
22,489
|
18,642
|
16,000
|
Per basic
share(2)
|
$0.40
|
$0.20
|
$0.20
|
$0.20
|
$0.20
|
$0.20
|
Payout
ratio(1)
|
67%
|
69%
|
65%
|
83%
|
78%
|
92%
|
Capital
expenditures
|
544
|
(17)
|
561
|
472
|
513
|
159
|
Acquisitions(6)
|
316,526
|
160,492
|
156,034
|
17,963
|
153,500
|
─
|
Weighted average
shares – basic(3)
|
114,689
|
116,842
|
112,512
|
106,839
|
93,126
|
80,257
|
Average Royalty
Production
|
|
|
|
|
|
|
Natural gas
(mcf/d)(5)
|
65,230
|
65,725
|
64,729
|
57,621
|
55,400
|
55,056
|
Light and medium crude
oil (bbl/d)(5)
|
313
|
340
|
285
|
192
|
195
|
231
|
Heavy crude oil
(bbl/d)(5)
|
177
|
303
|
50
|
─
|
─
|
─
|
Natural gas liquids
(bbl/d)(5)
|
644
|
668
|
620
|
540
|
542
|
484
|
Total
(boe/d)
|
12,005
|
12,265
|
11,743
|
10,335
|
9,970
|
9,891
|
Realized Commodity
Prices
|
|
|
|
|
|
|
Natural gas
($/mcf)(5)
|
$3.12
|
$3.11
|
$3.13
|
$2.65
|
$2.26
|
$2.00
|
Light and medium crude
oil ($/bbl)(5)
|
$71.37
|
$76.94
|
$64.66
|
$48.90
|
$48.66
|
$26.14
|
Heavy crude oil
($/bbl)(5)
|
$60.59
|
$61.61
|
$54.34
|
─
|
─
|
─
|
Natural gas liquids
($/bbl)(5)
|
$75.66
|
$78.91
|
$72.11
|
$54.09
|
$49.27
|
$30.61
|
Total
($/boe)
|
$23.76
|
$24.59
|
$22.88
|
$18.52
|
$16.16
|
$13.26
|
Benchmark
Pricing
|
|
|
|
|
|
|
Natural
Gas
|
|
|
|
|
|
|
AECO 5A
(CAD$/mcf)
|
$3.14
|
$3.11
|
$3.17
|
$2.65
|
$2.25
|
$2.00
|
Crude oil
|
|
|
|
|
|
|
NYMEX WTI
(USD$/bbl)
|
$62.52
|
$66.10
|
$58.14
|
$42.70
|
$40.92
|
$28.00
|
Edmonton Par
(CAD$/bbl)
|
$73.06
|
$76.39
|
$68.98
|
$49.21
|
$49.06
|
$30.24
|
WCS differential
(USD$/bbl)
|
$11.96
|
$11.51
|
$12.42
|
$9.10
|
$9.05
|
$11.43
|
Natural gas
liquids
|
|
|
|
|
|
|
Edmonton Condensate
(CAD$/bbl)
|
$77.57
|
$79.67
|
$74.98
|
$55.95
|
$51.71
|
$31.74
|
CAD$/USD$
|
$0.8023
|
$0.8142
|
$0.7899
|
$0.7678
|
$0.7507
|
$0.7220
|
Selected statement of financial position results ($000s)
except share amounts
|
At June 30
2021
|
At Mar. 31
2021
|
At Dec. 31
2020
|
At Sept. 30
2020
|
At June 30
2020
|
Total
assets
|
|
1,305,741
|
997,715
|
1,008,546
|
794,787
|
793,323
|
Working
capital
|
|
266,272
|
94,221
|
237,675
|
21,844
|
148,745
|
Adjusted working
capital(1)
|
|
270,611
|
94,607
|
238,268
|
23,917
|
149,180
|
Net debt
(cash)(1)
|
|
(167,540)
|
(94,607)
|
(238,268)
|
(17,082)
|
(149,180)
|
Common shares
outstanding(3)
|
|
128,736
|
112,607
|
112,449
|
93,208
|
91,690
|
(1)
|
Refer to "Non-GAAP
Financial Measures."
|
(2)
|
Calculated using
basic or diluted weighted average shares outstanding.
|
(3)
|
Shown in thousand
shares outstanding.
|
(4)
|
Other income of $6.1
million for YTD 2021 includes interest income of $0.3 million (Q2
2021 - $0.1 million; Q1 2021 - $0.1 million; Q4 2020 - $0.3
million; Q3 2020 - $0.01 million; and Q2 2020 - $nil).
|
(5)
|
Refer to
"Supplemental Information Regarding Product Types."
|
(6)
|
Excluding non-cash
ARO.
|
Cash from Operating Activities, Cash Flow, FCF and Net Income
(Loss)
During Q2 2021 and Q2 2020, Topaz generated $36.9 million and $24.2
million, respectively, of cash from operating activities.
Cash flow(1) for the same periods was $37.2 million and $17.4
million, respectively. The Company generated
EBITDA(1) of $37.3 million
and $17.4 million, realizing an
EBITDA margin(1) of 91% and 87%, for Q2 2021 and Q2
2020, respectively. The Company had net income of $0.9 million in Q2 2021 compared to a net loss of
$1.1 million in Q2 2020. The
difference is attributed to higher revenue and other income,
including higher commodity prices.
During YTD 2021 and YTD 2020, Topaz generated $66.5 million and $38.2
million, respectively, of cash from operating activities.
Cash flow(1) for the same periods was $71.8 million and $38.2
million, respectively. The Company generated
EBITDA(1) of $71.9 million
and $38.3 million, realizing an
EBITDA margin(1) of 91% and 89%, for YTD 2021 and YTD
2020, respectively. The Company had net income of $6.3 million YTD 2021 compared to a net loss of
$2.4 million YTD 2020. The difference
is attributed to higher revenue and other income, including higher
commodity prices.
|
Three
months
|
Six
months
|
($000s) except per
share amounts
|
June 30,
2021
|
June 30,
2020
|
June 30,
2021
|
June 30,
2020
|
Cash from operating
activities
|
36,903
|
24,234
|
66,466
|
38,184
|
Per basic
share(2)
|
$0.32
|
$0.30
|
$0.58
|
$0.48
|
Cash
flow(1)
|
37,215
|
17,385
|
71,766
|
38,205
|
Per basic
share(2)
|
$0.32
|
$0.22
|
$0.63
|
$0.48
|
EBITDA(1)
|
37,308
|
17,445
|
71,874
|
38,265
|
EBITDA
margin(1)
|
91%
|
87%
|
91%
|
89%
|
FCF(1)
|
37,232
|
17,266
|
71,222
|
37,934
|
Per basic
share(2)
|
$0.32
|
$0.21
|
$0.62
|
$0.47
|
Net income
(loss)
|
918
|
(1,125)
|
6,274
|
(2,359)
|
Per basic and diluted
share(2)
|
$0.01
|
($0.01)
|
$0.05
|
($0.03)
|
(1) Refer to "Non-GAAP
Financial Measures".
|
|
|
|
|
(2) Calculated using
basic or diluted weighted average shares outstanding.
|
|
|
|
|
Royalty
Royalty production revenue
The Company's
royalty production revenue is determined pursuant to the terms of
its royalty agreements. The commodity prices for natural gas, light
and medium crude oil, heavy crude oil and natural gas liquids
(which is primarily comprised of condensate) are primarily based on
market index prices in the month of production. The majority of
Topaz's royalty contracts do not permit transportation or quality
deductions. The royalty production volumes are currently
marketed with the respective royalty payor's production volume and
revenue is generally received two months after the
natural gas, crude oil, heavy crude oil and natural gas liquids
volumes are produced. The Company can elect to take its share
of the royalty production volume in kind, if desired.
Royalty production revenue during Q2 2021 and Q2 2020 was
$27.4 million and $11.9 million, respectively. During YTD 2021
royalty production revenue was $51.6
million, compared to $26.4
million during YTD 2020.
Royalty production
Topaz's average royalty
production(1) for Q2 2021 and Q2 2020 was 12,265 boe/d
(89% natural gas weighted) and 9,891 boe/d (93% natural gas
weighted), respectively. During YTD 2021 Topaz's average royalty
production(1) was 12,005 boe/d (91% natural gas
weighted) compared to 10,134 boe/d (93% natural gas weighted)
during YTD 2020. Topaz generates royalty revenue on existing
production and may generate royalty revenue on future development
of the royalty lands.
The increased production volume and royalty revenues are
attributed to gross overriding royalty acquisitions, volume growth
attributed to Topaz's existing royalty assets and improved
commodity pricing.
Royalty acreage activity
During Q2 2021, 70
gross wells(3) were spud on Topaz's royalty acreage (42
gross wells on acreage operated by Tourmaline and 28 gross wells on
acreage operated by other Topaz counterparties) and 50 gross wells
were brought on production(2) (19 gross wells drilled
during Q2 2021 and 31 gross wells drilled during prior periods)
which represents a 2.7 times increase in drilling activity relative
to Q2 2020, when 26 gross wells were spud on Topaz's royalty
acreage (all operated by Tourmaline).
During YTD 2021, 149 gross wells(3) were spud on
Topaz's royalty acreage (110 gross wells on acreage operated by
Tourmaline and 39 gross wells on acreage operated by other Topaz
counterparties) and 120 gross wells were brought on
production(2) (80 gross wells drilled during YTD
2021 and 40 gross wells drilled during prior periods) which
represents a 2.2 times increase in drilling activity relative to
YTD 2020, when 67 gross wells were spud on Topaz's royalty acreage
(all operated by Tourmaline).
Topaz expects the additional wells drilled but not completed by
June 30, 2021 will be brought on
production during the remainder of 2021.
(1)
|
Refer to
"Supplemental Information Regarding Product Types."
|
(2)
|
Includes wells
drilled during the current and previous periods on Topaz royalty
acreage.
|
(3)
|
Includes injection
wells.
|
|
Three
months
|
Six
months
|
|
June 30,
2021
|
June 30,
2020
|
June 30,
2021
|
June 30,
2020
|
Royalty production
revenue
|
|
|
|
|
Natural
gas(3)
|
18,575
|
10,037
|
36,826
|
20,820
|
Light and medium crude
oil(3)
|
2,382
|
549
|
4,043
|
1,460
|
Heavy crude
oil(3)
|
1,697
|
─
|
1,941
|
─
|
Natural gas
liquids(3)
|
4,794
|
1,349
|
8,817
|
4,169
|
Total
|
27,448
|
11,935
|
51,627
|
26,449
|
Average royalty
production
|
|
|
|
|
Natural gas
(mcf/d)(3)
|
65,725
|
55,056
|
65,230
|
56,364
|
Light and medium crude
oil (bbl/d)(3)
|
340
|
231
|
313
|
224
|
Heavy crude oil
(bbl/d)(3)
|
303
|
─
|
177
|
─
|
Natural gas liquids
(bbl/d)(3)
|
668
|
484
|
644
|
516
|
Total
(boe/d)
|
12,265
|
9,891
|
12,005
|
10,134
|
|
|
|
|
|
Realized royalty
production prices
|
|
|
|
|
Natural gas
($/mcf)(3)
|
$3.11
|
$2.00
|
$3.12
|
$2.03
|
Light and medium crude
oil (C$/bbl)(3)
|
$76.94
|
$26.14
|
$71.37
|
$35.92
|
Heavy crude oil
($/bbl)(3)
|
$61.61
|
─
|
$60.59
|
─
|
Natural gas liquids
(C$/bbl)(3)
|
$78.91
|
$30.61
|
$75.66
|
$44.30
|
Total
($/boe)
|
$24.59
|
$13.26
|
$23.76
|
$14.42
|
Benchmark
Pricing
|
|
|
|
|
Natural
gas
|
|
|
|
|
AECO 5A
(CAD$/mcf)
|
$3.11
|
$2.00
|
$3.14
|
$2.02
|
Crude oil
|
|
|
|
|
NYMEX WTI
(USD$/bbl)
|
$66.10
|
$28.00
|
$62.52
|
$36.82
|
Edmonton Par
(CAD$/bbl)
|
$76.39
|
$30.24
|
$73.06
|
$40.89
|
WCS differential
(USD$/bbl)
|
$11.51
|
$11.43
|
$11.96
|
$15.81
|
Natural gas
liquids
|
|
|
|
|
Edmonton Condensate
(CAD$/bbl)
|
$79.67
|
$31.74
|
$77.57
|
$45.55
|
CAD$/USD$
|
$0.8142
|
$0.7220
|
$0.8023
|
$0.7335
|
Royalty Acreage
Activity(1)
|
|
|
|
|
Gross wells spud
during the period
|
70
|
26
|
149
|
67
|
Gross wells spud and
brought on production(2)
|
19
|
25
|
80
|
62
|
Total gross wells
brought on production during the period(4)
|
50
|
25
|
120
|
62
|
(1) Refers to the number
of wells (including injection wells) spud or brought on production,
as indicated, by the working interest owners
(operators).
|
(2) Refers to wells
brought on production which were spud within the respective period;
does not take into consideration wells spud during previous
periods.
|
(3) Refer to
"Supplemental Information Regarding Product Types."
|
(4) Includes wells
drilled during the current and previous periods on Topaz royalty
acreage.
|
Infrastructure
Processing
revenue
The Company's processing revenue is
generated through its non-operated ownership in processing
facilities. The facilities provide processing services to
customers on a fee-for-service basis. Certain fees include fixed
take-or-pay arrangements under long-term commercial
arrangements.
During Q2 2021 and Q2 2020, Topaz generated $10.6 million and $5.3
million, respectively of processing revenue attributed to
its non-operated ownership in processing facilities. Average
daily utilization during Q2 2021 and Q2 2020 of Topaz's net natural
gas processing capacity was 98% and 100%, respectively, which is
attributed to the significant utilization of Topaz's net processing
capacity (75% and 58% of which is contracted under fixed
take-or-pay for Q2 2021 and Q2 2020, respectively).
During YTD 2021 and YTD 2020, Topaz generated $21.0 million and $11.3
million, respectively of processing revenue attributed to
its non-operated ownership in processing facilities. Average daily
utilization during YTD 2021 and YTD 2020 of Topaz's net natural gas
processing capacity was 98% and 100%, respectively, which is
attributed to the significant utilization of Topaz's net processing
capacity (74% and 58% of which is contracted under fixed
take-or-pay for YTD 2021 and YTD 2020, respectively).
The increased processing revenues are attributed to
infrastructure acquisitions that occurred during the second half of
2020.
Other income
The Company generates income by
way of a contracted interest in third party revenue generated
through fee-for-service processing contracts with no underlying
facility ownership, including but not limited to, processing,
compression and water handling revenue, generated at multiple
facilities owned by Tourmaline pursuant to the respective third
party fee handling agreements. These facilities include natural gas
processing plants, crude oil batteries, pipelines, water disposal
facilities, compressor stations and other miscellaneous facilities
associated with the handling of crude oil, natural gas and natural
gas liquids. The facilities are located across all three of
Tourmaline's core operating areas and are operated by Tourmaline.
Topaz does not have an ownership interest in the underlying
assets.
During Q2 2021 and Q2 2020, Topaz generated other income of
$2.9 million and $2.8 million, respectively. Other income of
$2.9 million for Q2 2021 includes
interest income of $0.1 million.
There was $nil interest income in Q2 2020. During YTD 2021
and YTD 2020, Topaz generated other income of $6.1 million and $5.1
million, respectively. Other income of $6.1 million for YTD 2021 includes interest
income of $0.3 million. There was
$nil interest income during YTD 2020.
|
Three
months
|
Six
months
|
($000s)
|
June 30,
2021
|
June 30,
2020
|
June 30,
2021
|
June 30,
2020
|
Processing
revenue
|
10,562
|
5,296
|
21,033
|
11,264
|
Other
income
|
2,943
|
2,789
|
6,060
|
5,066
|
Total
|
13,505
|
8,085
|
27,093
|
16,330
|
Infrastructure
utilization activity
|
|
|
|
|
Natural gas
processing facilities(1):
|
|
|
|
|
Ownership capacity
under fixed take-or-pay contract
|
125,000
|
50,000
|
125,000
|
50,000
|
Variable ownership
capacity
|
44,409
|
35,500
|
46,172
|
35,500
|
Total
ownership capacity
|
169,409
|
85,500
|
171,172
|
85,500
|
Total
throughput volume
|
165,588
|
85,500
|
168,477
|
85,500
|
Total utilization (%)
|
98%
|
100%
|
98%
|
100%
|
(1) Weighted average
daily rate (Topaz net ownership mcf/d) for the periods
presented.
|
|
Additional information
Additional information about Topaz, including the financial
statements and management's discussion and analysis for the year
ended December 31, 2020 as well as
the Company's 2020 Annual Information Form are available
electronically under the Company's profile on SEDAR, www.sedar.com,
and on Topaz's website, www.topazenergy.ca.
Q2 2021 CONFERENCE CALL
Topaz will host a conference
call tomorrow, Friday, July 30, 2021
starting at 9:00 a.m. MST
(11:00 a.m. EST). To participate in
the conference call, please dial 1-888-664-6392 (North American
toll free) a few minutes prior to the call. Conference ID is
14446806.
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. For further information, please visit the
Company's website www.topazenergy.ca.
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 timing for the
closing of acquisitions; social and governance initiatives;
expected production increases and capital commitments on the
royalty lands; estimated levels of 2021 EBITDA, FCF and year-end
net debt (cash); estimated 2020 to 2023 compound annual
royalty production growth rates and the expectation that such
growth rates provide embedded future growth with no further capital
investment required by Topaz; the near term growth strategy to
utilize excess FCF as well as leverage to invest in additional
acquisition growth opportunities and the level of such leverage;
the future declaration and payment of dividends and the timing and
amount thereof; the forecasts described under the heading
"Increased 2021 Guidance Estimates" above, including annual average
royalty production, processing revenue and other income, EBITDA,
FCF, annual dividends, exit net debt (cash), and capital
expenditures (excluding acquisitions) for 2021; other expected
benefits from acquisitions including enhancing Topaz's future
growth outlook and providing value enhancing assets that are
accretive on a per share basis; 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 and free
cash flow 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).
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, 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.
FINANCIAL OUTLOOK
Also included in this news release are estimates of the
Company's EBITDA range and revenue for the year ending December 31, 2021 and range of year-end exit net
debt for 2021, which are based on, among other things, the various
assumptions as to production levels and capital expenditures and
other assumptions disclosed in this news release including under
the heading "Increased 2021 Guidance Estimates" above and are based
on the following key assumptions: Topaz's estimated capital
expenditures (excluding acquisitions) of $1.0 to $2.0
million in 2021; the working interest owners' anticipated
2021 capital plans attributable to Topaz's royalty lands; 2021
estimated average annual royalty production range of 13,550 to
13,750 boe/d; 2021 average infrastructure ownership capacity
utilization of 100%; 2021 third party income of $10.0 million; December
31, 2021 exit net debt range between $174.0 and $176.0
million, 2021 average commodity prices of: $3.48/mcf (AECO 5A natural gas), US$66.16/bbl (NYMEX WTI), US$12.85/bbl (WCS oil differential), US$4.09/bbl (MSW oil differential) and US$/CAD$
foreign exchange 0.81, and 2022 average commodity prices of:
$3.13/mcf (AECO 5A natural gas),
US$65.10/bbl (NYMEX WTI),
US$12.85/bbl (WCS oil differential),
US$4.65/bbl (MSW oil differential)
and US$/CAD$ foreign exchange 0.82. To the extent such
estimates constitute financial outlooks, they were approved by
management and the board of directors of Topaz on July 29, 2021 and are included to provide readers
with an understanding of the estimated EBITDA for the year ending
December 31, 2021 based on the
assumptions described herein and readers are cautioned that the
information may not be appropriate for other purposes.
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 "FCF (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 "FCF (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 "cash flow,"
"cash flow per basic share," "FCF (free cash flow)," FCF per basic
share," "FCF Yield," "excess FCF," "EBITDA", "EBITDA margin",
"payout ratio", "working capital", "adjusted working capital" and
"net debt (cash)", 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 "cash flow," "cash flow per basic share,"
"FCF (free cash flow)," "FCF per basic share," "FCF Yield," "excess
FCF," "EBITDA," "EBITDA margin," "payout ratio", "working capital,"
"adjusted working capital" and "net debt (cash)" 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, "cash flow" is defined as cash from (used
in) operations before changes in non-cash working capital and "cash
flow per basic share" is calculated using the weighted average
basic shares outstanding for the period. "FCF (free cash
flow)" is defined as cash flow less capital expenditures (excluding
acquisitions) and "FCF per basic share" is calculated using the
weighted average basic shares outstanding for the period. "FCF
Yield" is the asset's free cash flow divided by the purchase
consideration, and "excess FCF" is free cash flow less
dividends. "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 margin" is defined as EBITDA divided by
total revenue and other income (expressed as a percentage of total
revenue and other income). "Payout ratio" is dividends paid
expressed as a percentage of cash flow. "Working capital" is
current assets less current liabilities. "Adjusted working
capital" is current assets less current liabilities, adjusted for
financial instruments and "net debt (cash)" 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.
GENERAL
See also "Forward-Looking Statements", and "Non-GAAP Financial
Measures" in the most recently filed Management's Discussion and
Analysis.
SUPPLEMENTAL INFORMATION REGARDING PRODUCT TYPES
This news release includes references to guidance estimates for
2021 average daily production. 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 periods
ended
|
Three months
June 30, 2021
|
Three months
June 30, 2020
|
|
Six months
June 30, 2021
|
Six months
June 30, 2020
|
Average daily
production
|
|
|
|
|
|
Light and
Medium crude oil (bbl/d)
|
340
|
231
|
|
313
|
223
|
Heavy
crude oil (bbl/d)
|
303
|
─
|
|
177
|
─
|
Conventional Natural Gas (mcf/d)
|
41,535
|
34,399
|
|
41,689
|
35,959
|
Shale Gas
(mcf/d)
|
24,190
|
20,657
|
|
23,540
|
20,405
|
Natural
Gas Liquids (bbl/d)
|
668
|
484
|
|
644
|
517
|
Total
(boe/d)
|
12,265
|
9,891
|
|
12,005
|
10,134
|
For the
year
|
Topaz June 8,
2021
Royalty Production
Estimate(1) 2021e
|
Topaz July 29,
2021
Royalty Production
Estimate(1) 2021e
|
Average daily
production
|
|
|
Light and Medium crude
oil (bbl/d)
|
372
|
386
|
Heavy crude oil
(bbl/d)
|
397
|
395
|
Conventional natural
gas (Mcf/d)
|
43,859
|
44,035
|
Shale Gas
(Mcf/d)
|
24,221
|
28,246
|
Natural
Gas Liquids (bbl/d)
|
785
|
822
|
Total
(boe/d)
|
12,900
|
13,650
|
(1)
|
Estimated
using the midpoint of the estimated 2021 average annual royalty
production range.
|
SOURCE Topaz Energy Corp.