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". |