/NOT FOR DISTRIBUTION TO U.S. NEWS WIRE
SERVICES OR DISSEMINATION IN THE UNITED
STATES/
CALGARY, AB, Oct. 5, 2021 /CNW/ - Topaz Energy Corp. (TSX:
TPZ) ("Topaz" or the "Company") is pleased to announce that it has
entered into a purchase and sale agreement with Whitecap Resources
Inc. ("Whitecap") to acquire a newly-created 5% gross overriding
royalty interest on Whitecap's working interest in the Weyburn Unit
(the "Unit") for $188.0
million(2) in cash ("Weyburn Royalty
Acquisition"). The Weyburn Royalty Acquisition will be funded
through a $131.7 million bought deal
equity financing ("Equity Financing") and Topaz's existing credit
facilities.
Complementary Royalty Acquisitions
During the third quarter, Topaz completed complementary royalty
acquisitions(5) for aggregate cash consideration of
$49.9 million(2) (the
"Complementary Royalty Acquisitions"). Pursuant to the
Complementary Royalty Acquisitions, the Company has acquired
newly-created gross overriding royalties on approximately 496,000
gross acres of developed and undeveloped acreage across the greater
Clearwater, Provost, Lloydminster and West Central areas in
Alberta which are supported by
aggregate contractual capital development commitments of
$70.0 million.
Topaz Acquisition Benefits
The total cash consideration paid and payable by Topaz pursuant
to the Complementary Royalty Acquisitions and the Weyburn Royalty
Acquisition (together, the "Strategic Acquisitions") is
$237.9 million. Topaz believes the
Strategic Acquisitions further enhance its royalty portfolio,
providing commodity diversification, enhanced scale and embedded
growth. The Strategic Acquisitions' current working interest
production is approximately 29,600 boe/d(6) (95% crude
oil and natural gas liquids) upon which Topaz acquired
newly-created gross overriding royalties ranging from 2% to
5%. The Strategic Acquisitions further demonstrate Topaz's
acquisition growth strategy and are expected to provide
$30.8 million Estimated Annualized
EBITDA(6) to Topaz.
14% Dividend Increase
Topaz has achieved significant free cash flow(1)
growth since its inception in November
2019, and is pleased to announce that its Board has approved
a 14% dividend increase which results in a $0.24 per share quarterly dividend commencing in
the fourth quarter of 2021; the Company's second dividend increase
to date in 2021.
Highlights of the Weyburn Royalty Acquisition
- Adds complementary low decline, reliable free cash
flow(1) generating assets to enhance Topaz's existing
high-quality royalty portfolio
-
- The Unit is a self-sustaining, low (3%) base decline rate
operation that generates strong free cash flow(1) even
in a low commodity price environment with production levels that
can be maintained with relatively minimal capital investment
- To date, the Unit has produced approximately 540 million
barrels out of an original oil in place estimate of 2.3 billion
barrels(3). At current production levels, the Unit has a
proved plus probable developed producing reserve life index of 17
years and a proved plus probable reserve life index of more than 24
years(3)
- The Unit has effectively captured over 36 million tonnes of
CO2(4) over the past 20 years; the technical
reliability of which has become internationally recognized
- Well capitalized, amongst the best-in-class, ESG-attentive
operator positioned to deliver long-term value
-
- Whitecap is one of the largest, most active oil operators in
the WCSB and sequesters more greenhouse gas emissions
(CO2) than it produces which results in "negative" net
corporate CO2 emissions(7)
- The Unit's strong capital efficiencies attract a reliable
allocation of Whitecap's annual maintenance capital
- Strategic growth execution which illustrates Topaz's
ESG-integrated investment strategy and provides an enhanced free
cash flow per share(1) Topaz growth profile
-
- High-quality commodity and counterparty diversification
enhances long-term value for Topaz shareholders
- Strong near-term, low-decline royalty production growth enables
methodical, sustainable dividend increases and further shareholder
returns
Overview of the Weyburn Royalty Acquisition
The Unit, discovered in the 1950's and currently operated by
Whitecap (who holds a 65.33% working interest), is a conventional
unitized oil field under carbon dioxide ("CO2") enhanced
oil recovery encompassing approximately 53,360 acres located in
southeast Saskatchewan. The Unit
is the largest anthropogenic carbon capture, utilization and
storage ("CCUS") project in the world; is expected to continue to
sequester carbon at a rate of approximately 2 million tonnes per
year; and is internationally recognized as one of the most
successful developments of its kind from a technical, economic and
environmental perspective. The captured CO2 acts
like a solvent to enhance oil recoverability as it flushes
otherwise unrecoverable oil from pores in the rock. Whitecap
has long-term contracts in place whereby it acquires
pipeline-connected CO2 from the coal-fired Boundary Dam
Power Station in Estevan,
Saskatchewan and a coal gasification project in North Dakota; which avoids the release of the
majority of their CO2 generation. Significant
expansion opportunities remain to expand the Weyburn
CO2 flood and further mitigate a low (3%) base
decline rate and low greenhouse gas ("GHG") emissions
intensity.
Equity Financing
Topaz has entered into an agreement with a syndicate of
underwriters co-led by Peters & Co. Limited and National Bank
Financial Inc. (the "Underwriters"), pursuant to which the
Underwriters have agreed to purchase for resale to the public, on a
bought-deal basis, 7.7 million common shares ("Common Shares") of
Topaz at a price of $17.10 per Common
Share for gross proceeds of approximately $131.7 million. The Underwriters will have an
option to purchase up to an additional 15% of the Common Shares
issued under the Equity Financing at a price of $17.10 per Common Share to cover over-allotments
exercisable and for market stabilization purposes in whole or in
part at any time until 30 days after the closing.
Completion of the Equity Financing is subject to customary
closing conditions, including the receipt of all necessary
regulatory approvals, including the approval of the Toronto Stock
Exchange. Closing of the Equity Financing is expected to occur on
or before October 26, 2021.
Closing of the Equity Financing is not conditional on the closing
of the Weyburn Royalty Acquisition. In the event that the
Weyburn Royalty Acquisition does not close, the net proceeds from
the Equity Financing will be used to fund future acquisitions and
for internal working capital purposes.
In conjunction with the Equity Financing, certain officers,
directors and employees of Topaz and their associates intend to
purchase a minimum of 145,000 Common Shares at a price of
$17.10 per Common Share on a private
placement basis.
The Common Shares issued pursuant to the Equity Financing will
be distributed by way of a short form prospectus in all provinces
of Canada and may also be placed
privately in the United States to
Qualified Institutional Buyers (as defined under Rule 144A under
the United States Securities Act of 1933, as amended (the "U.S.
Securities Act")) pursuant to the exemption provided by Rule 144A
under the U.S. Securities Act, and may be distributed outside
Canada and the United States on a basis which does not
require the qualification or registration of any of the Company's
securities under domestic or foreign securities laws. The Common
Shares have not been and will not be registered under the U.S.
Securities Act, and this news release does not constitute an offer
of securities for sale in the United States. The Common
Shares may not be offered or sold in the
United States absent registration or an exemption from
registration.
No securities regulatory authority has either approved or
disapproved of the contents of this news release. This news release
shall not constitute an offer to sell or the solicitation of an
offer to buy nor shall there be any sale of the securities in any
State in which such offer, solicitation or sale would be
unlawful.
Topaz Acquisition Funding
Topaz will fund the Weyburn Royalty Acquisition through the
$131.7 million Equity Financing and
Topaz's existing credit facilities, which is expected to close
concurrently with the Equity Financing on or before October 26, 2021, and is subject to customary
closing conditions as set forth in the definitive agreements,
including the accuracy of representations and warranties and the
performance of covenants.
Third Quarter 2021 Results and 2022 Guidance
Estimates
Topaz plans to release its third quarter 2021 results and 2022
guidance estimates on Thursday, November 4,
2021 after markets close. Topaz will host a conference call
on Friday, November 5, 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 49622828.
Additional information
Additional information about Topaz, including the financial
statements and management's discussion and analysis for the three
and six months ended June 30, 2021 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.
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 Oil Corp., 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.
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|
(1)
|
Refer to "Non-GAAP
Financial Measures."
|
(2)
|
Subject to customary
closing adjustments.
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(3)
|
Reserve estimates
according to Whitecap's independent reserve evaluation by McDaniel
& Associates ("McDaniel") effective December 31,
2020.
|
(4)
|
Estimates provided by
the Unit operator, Whitecap Resources Inc.
|
(5)
|
Excludes previously
announced transactions which closed during the third quarter of
2021 as follows: on July 1, 2021 Topaz closed the $245.0 million
acquisition from Tourmaline Oil Corp. ("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; and on August 1, 2021 Topaz closed the $145.0
million acquisition of 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.
|
(6)
|
Refer to
"Estimated Annualized EBITDA Non-GAAP Financial Measure,"
"Supplemental Information Regarding Product Types" and
"Forward-Looking Statements."
|
(7)
|
After accounting for
Whitecap's scope 1 & 2 emissions.
|
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 Strategic Acquisitions, including ESG benefits;
the timing for the completion of the Weyburn Royalty Acquisition;
the geological characteristics of the Unit including the CCUS,
reserve life index, GHG emissions intensity and capital
efficiencies; the statements relating to the Equity Financing
including the size of the Equity Financing, the use of proceeds
under the Equity Financing, the expected participation of insiders
in the concurrent private placement, the anticipated closing of the
Equity Financing and concurrent private placement, the receipt of
all regulatory approvals for the Equity Financing including the
approval of the Toronto Stock Exchange; the environmental benefits
associated with the Strategic Acquisitions; expected production
increases and capital commitments on the royalty lands; estimated
levels of EBITDA,(1) (including Estimated Annualized
EBITDA) and free cash flow(1); the future dividend
increase and declaration and payment of dividends and the timing
and amount thereof; the information described under the
heading "Estimated Annualized EBITDA NON-GAAP FINANCIAL
MEASURE" below; other expected benefits from the Weyburn Royalty
Acquisition and the Complementary Acquisitions including enhancing
Topaz's existing high-quality royalty portfolio and providing
complementary low decline, reliable free cash flow generating
assets; 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" and "resources" 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 or resources 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,(1) financial requirements for the
Company's operations and the execution of its acquisition 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 the terms "EBITDA",
"cash flow", "free cash flow," and "free cash flow per share," "
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," "cash flow", "free cash
flow," and "free cash flow per share," 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)
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, excluding
extraordinary items, plus interest expense, income taxes, and
adjusted for non-cash items including depletion and depreciation
and share-based compensation and gains or losses on dispositions.
"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.
ESTIMATED ANNUALIZED EBITDA NON-GAAP FINANCIAL
MEASURE
References are made in this news release to the term "Estimated
Annualized EBITDA," which is presented by management to estimate
the financial impact attributed to the Strategic Acquisitions,
before consideration of future development by Whitecap or the
operators of the Complementary Acquisitions' assets. This
estimate is not a recognized measure under GAAP, and does not have
a standardized meaning prescribed by GAAP. Accordingly, the
Company's use of this term may not be comparable to similarly
defined measures presented by other companies.
"Estimated Annualized EBITDA" was calculated using management's
best estimate of the working interest production attributable to
the Strategic Acquisitions (see "Supplemental Information
Regarding Product Types"); the Company's respective gross
overriding royalty percentage attributable to the Weyburn Royalty
Acquisition of 5% and the respective Complementary Acquisitions of
2% and 4%; and the most recent (September
2021) monthly commodity prices as follows: crude oil US$WTI
$71.54; Western Canadian Select
differential US$13.48; Mixed Sweet
Blend (Edm) differential US$3.36;
AECO natural gas C$3.73/mcf; and
product quality differentials and transportation deductions
consistent with historical realizations. "Estimated
Annualized EBITDA" was calculated on a monthly basis; annualized by
multiplying by 12.
FINANCIAL OUTLOOKS
Also included in this news release are estimates of Topaz's 2021
Estimated Annualized EBITDA, which is based on, among other things,
the various assumptions as to working interest production levels,
capital expenditures, annual cash flows and other assumptions
disclosed in this news release. To the extent such estimate
constitutes a financial outlook, it was approved by management and
the Board of Directors of Topaz on October
5, 2021 and are included to provide readers with an
understanding of Topaz's anticipated Estimated Annualized EBITDA
based on the capital expenditure, production and other assumptions
described herein and readers are cautioned that the information may
not be appropriate for other purposes.
SUPPLEMENTAL INFORMATION REGARDING PRODUCT TYPES
This news release includes references to the current production
of the Strategic Acquisitions on a combined basis which is the
average daily working interest production from each of the Weyburn
Royalty Acquisition and the Complementary Royalty Acquisitions for
the five days ending October 2,
2021. The following table is intended to provide supplemental
information about the product type composition for the working
interest production figure that is provided in this news
release:
Average daily
working interest production
for the five days ending October 2, 2021
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Weyburn
Royalty
Acquisition(1)
|
Complementary
Royalty
Acquisitions(2)
|
Strategic
Acquisitions
Estimated Average Daily
Production
|
Light and Medium crude
oil (bbl/d)
|
13,500
|
1,408
|
14,908
|
Heavy crude oil
(bbl/d)
|
─
|
12,439
|
12,439
|
Conventional Natural
Gas (Mcf/d)
|
─
|
8,968
|
8,968
|
Natural Gas Liquids
(bbl/d)
|
563
|
252
|
815
|
Total
(boe/d)
|
14,063
|
15,594
|
29,657
|
|
(1) Average daily working interest
production for the month of May 2021 was 14,350 bbl/d (comprised of
13,973 bbl/d of crude oil and 377 bbl/d of NGLs) prior to downtime
attributed to compressor maintenance activity which was completed
on September 30, 2021; thereafter production returned to previous
production rates.
|
(2) Reflects recent drilling results
but does not take into consideration future development anticipated
by the assets' operators pursuant to aggregate contractual capital
development commitments of $70.0 million.
|
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.
Original oil in place ("OOIP") means discovered petroleum
initially in place ("DPIIP"). DPIIP is derived by Whitecap's
independent qualified reserve evaluators ("QRE") and prepared in
accordance with National Instrument 51-101 - Standards of
Disclosure for Oil and Gas Activities and the Canadian Oil and
Gas Evaluations Handbook ("COGEH"). DPIIP, as defined in COGEH, is
that quantity of petroleum that is estimated, as of a given date,
to be contained in known accumulations prior to production. The
recoverable portion of DPIIP includes production, reserves and
resources other than reserves (ROTR). OOIP/DPIIP and potential
recovery rate estimates are based on current recovery technologies.
There is significant uncertainty as to the ultimate recoverability
and commercial viability of any of the resource associated with
OOIP/DPIIP, and as such a recovery project cannot be defined for a
volume of OOIP/DPIIP at this time. All reserve and resource
estimates contained in this news release have been prepared by
McDaniel effective as of December 31,
2020.
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.