Transaction details. TPZ has acquired a 50% non-operating working interest in the Whitecap Resources Inc. (WCP-T; SP; Jason Bouvier covered) 05-09 Musreau facility for $100M. The facility includes 43 mmcf/d of natural gas compression and 12.5 mbbl/d of condensate stabilization capacity (~20 mboe/d sales capacity). The deal includes a 10-year take-or-or pay commitment, followed by a seven-year preferential capacity dedication (e.g., TPZ’s capacity gets filled first). WCP is currently producing ~14 mboe/d through the facility and plans to ramp to capacity by year-end 2024. TPZ estimates $13M to $14M of annualized revenue from the arrangement, with no opex or capex requirements over the 17-year contractual term. Based on these parameters, the deal comes at ~7.4x EBITDA (TPZ trades at ~11x ‘25E EBITDA), with an ~11% IRR over the 17-year contract and continued ownership thereafter).
Today's Globe and Mail:
"National Bank Financial analyst Dan Payne sees Topaz Energy Corp.’s (
) $100-million infrastructure deal with Whitecap Resources Inc. (
) as a “very much an on-strategy acquisition for the company, with a number of strategic tailwinds, and the accretion of which should serve to maintain the positive momentum of shareholder value and its associated equity performance.”
Before the bell on Tuesday, Calgary-based Topaz announced the cash agreement, which centres on a 50-per-cent non-operated working interest in Whitecap’s newly commissioned natural gas and condensate facility in the Musreau area of the Alberta Montney.
“Implied transaction metrics of the transaction are forecast at around 7.0-7.5 times; these are accretive metrics, expanding its cash flow per share and FCF per share by approximately 4-5 per cent, respectively. Its infrastructure take-or-pay revenue expands by 20 per cent to a 26-per-cent proportional weighting (from 22 per cent), and which now covers nearly half of its dividend payout (from 1/3rd),” he said. “The acquisition is expected to be funded through its existing free cash and balance sheet, with leverage metrics expanding to about 1.1 times D/EBITDA at year-end (from prior 0.8 times).”
Mr. Payne thinks the acquired assets diversifies Topaz’s “regional exposure in to the high-impact Montney liquids fairway (from its preexisting TOU assets in the area that are predominantly Deep Basin oriented assets), while maintains the quality-bias of its assets (long-duration, new & high-utilization assets assigned to a quality counterparty).”
“Perhaps more importantly, the acquisition proves its proactivity in the A&D market, expanding its non-TOU infrastructure assets in an opportunistic fashion in association with one of its pre-existing (and similarly proactive) counterparties – that positive alignment of interests throughout being a significant strategic advantage,” he added.
Reiterating his “outperform” recommendation for Topaz shares, Mr. Payne raised his target by $1 to $28.50. The average target on the Street is $28.25.
“Recall, its dividend payout remains at the low-end of its target range (with upside to its cash yield to come as execution persists over the long-term), and peer comps (9.4-per-cent aggregate FCF yield vs. prevailing 10.1 per cent) suggest a near-term re-rate towards $26 is prospective,” he said.
Other analysts making target adjustments include:
* RBC’s Robert Kwan to $28 from $27 with an “outperform” rating.
“Topaz’s acquisition of interest in Whitecap’s Musreau facility is in line with strategy, and adds an additional plank of infrastructure (and incremental 13-14-per-cent yield) to the portfolio. We remain constructive on the story,” said Mr. Kwan.
* CIBC’s Jamie Kubik to $27 from $26 with an “outperformer” rating.
* Canaccord Genuity’s Mike Mueller to $29 from $28.50 with a “buy” rating.
* Jefferies’ Anthony Linton to $27 from $25 with a “buy” rating.