CALGARY, AB, March 31, 2022 /CNW/ - Topaz Energy Corp. (TSX: TPZ) ("Topaz" or the "Company") is pleased to announce that it has entered into a definitive agreement with Keystone Royalty Corp. ("Keystone Royalty") for the purchase of its outstanding common shares, for $85.0 million, payable through the issuance of 4,187,193 Topaz shares (the "Keystone Royalty Acquisition"). The Keystone Royalty Acquisition is expected to close during the second quarter of 2022, subject to the satisfaction of customary closing conditions.
Keystone Royalty Acquisition
The Keystone Royalty Acquisition adds a large and diversified Western Canadian royalty portfolio consisting of over 480,000 gross acres of royalty lands ("Keystone Royalty Assets") which includes (i) current royalty production of approximately 450 boe/d (83% liquids)(1); (ii) over 310,000 gross acres of fee mineral title lands; and (iii) complementary seismic assets. The Keystone Royalty Assets, primarily located in Southeast Saskatchewan, provide low base decline, oil-focused production and include royalty interest ownership in a number of unitized production areas, including the Weyburn Unit, in which Topaz owns an existing 5% royalty interest. Keystone Royalty has federal tax pools of over $25.0 million, positive working capital and no debt. Pro forma, Topaz will have over $1.8 billion of consolidated federal tax pools, approximately $500.0 million of which are non-capital losses. Topaz's tax profile enhances its shareholder return proposition and provides the Company additional flexibility to expand its future dividends.
Topaz expects to generate approximately $17.0 million of annualized royalty revenue in 2022 from the Keystone Royalty Assets, based on current strip pricing(3).
Keystone Royalty Acquisition Attributes
- Average fee mineral title royalty rate of approximately 18%;
- Drilling activity over the past three months includes 10 gross wells which are expected to provide near term production growth;
- 70% of the acreage is undeveloped; across which Topaz has identified a significant number of future unbooked drilling locations;
- Resilient historical drilling activity through low commodity price cycles; development and future drilling is expected to be economic at crude oil pricing as low as US$40/bbl WTI; and
- In 2021, over 60% of the royalty revenue was generated from six high quality Canadian public E&P companies including Canadian Natural Resources, Crescent Point Energy, Enerplus, Saturn Oil & Gas, Vermillion Energy and Whitecap Resources.
"The Keystone Royalty Acquisition contributes predominantly fee mineral title royalty interests which provide Topaz with incremental exposure to higher WCSB drilling activity; complements the high-quality gross overriding royalty portfolio Topaz has established through its strategic partnerships; and the transaction structure enables Topaz to retain its significant Excess FCF(2) for further M&A growth in 2022," said Marty Staples, President and CEO of Topaz. "In addition to FCF(2) per share accretion, the Keystone Royalty Acquisition provides future option value through increased leasing opportunities; technological advancements in drilling techniques; and potential exposure to future enhanced oil recovery projects and exploitation of other minerals such as potash, helium and lithium, in each case at no additional cost to Topaz."
Approximately 56% of the shares of Keystone are beneficially owned or controlled by Craig Lothian, the President, CEO and a director of Keystone who commented, "We believe that the integration of Keystone by a well-capitalized, growth-oriented public royalty entity provides our shareholders with an incredible opportunity to realize additional long-term value, both from the former Keystone assets and from the significant royalty and infrastructure assets of Topaz." National Bank Financial Inc. acted as the financial advisor to Keystone for the transaction.
First Quarter 2022 Results and Revised 2022 Guidance Estimates
Topaz plans to release its first quarter 2022 results and revised 2022 guidance estimates on Tuesday, May 3, 2022 after markets close.
ABOUT THE COMPANY
Topaz is a unique royalty and infrastructure energy company focused on generating 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.
Notes:
| | (1) Comprised of 318 bbl/d of crude oil, 57 bbl/d of natural gas liquids and 449 mcf/d of natural gas production for the month ended December 31, 2021.
(2) Refer to "Non-GAAP and Other Financial Measures."
(3) Represents estimated annualized 2022 royalty revenue to be generated subsequent to the targeted closing date of April 30, 2022, assuming estimated average royalty production of 450 boe/d (comprised of 318 bbl/d of crude oil, 57 bbl/d of natural gas liquids and 449 mcf/d of natural gas) and average commodity prices as follows: crude oil (WTI) US$100.61/bbl; natural gas (AECO) C$4.88/GJ; MSW crude oil differential US$2.37/bbl; and FX US$/C$ 0.79. |