TOPAZ ENERGY CORP. ANNOUNCES STRATEGIC CORE AREA ROYALTY ACQUISITION AND BOUGHT DEAL EQUITY FINANCING
Canada NewsWire
CALGARY, AB, Oct. 1, 2024
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ACQUISITION IMMEDIATELY PROVIDES 50% ROYALTY ACREAGE, 12% ROYALTY PRODUCTION AND 8% ROYALTY REVENUE GROWTH
CALGARY, AB, Oct. 1, 2024 /CNW/ - Topaz Energy Corp. (TSX: TPZ) ("Topaz" or the "Company") is pleased to announce that further to its growth strategy of acquiring low-risk, premium royalty interests, the Company has entered into definitive agreements with Tourmaline Oil Corp. ("Tourmaline") to acquire gross overriding royalty interests on approximately 3.0 million gross acres, over 50% undeveloped, in its NEBC Montney, Alberta Deep Basin and Peace River High core royalty areas (the "Strategic Acquisition Lands") for total cash consideration of $278.2 million, before customary closing adjustments (the "Strategic Acquisition"). Topaz will fund the Strategic Acquisition, which is scheduled to close November 1, 2024, through a $175.4 million bought deal equity financing (the "Equity Financing") and Topaz's existing credit facilities.
Acquisition Highlights
-- Strategic acquisition of complementary, developed and undeveloped, liquids-rich natural gas and crude oil royalty assets in Topaz's core areas that attract reliable, commodity price-resilient capital activity, well poised for growth alongside North American LNG market development. -- The Strategic Acquisition increases Topaz's royalty acreage by 50% (3.0 million gross acres, over 50% undeveloped) across existing core royalty areas, including a 38% increase in Topaz's premium Montney rights royalty acreage.(6) -- The Strategic Acquisition enables Topaz to expand its core royalty acreage and growth optionality during an opportunistic time in the natural gas commodity cycle, in advance of anticipated egress improvements with the planned commissioning of LNG Canada (Phase I) during 2025, growth in the North American LNG market and acceleration of natural gas-powered electrical generation requirements. -- Topaz holds financial hedging contracts that provide superior commodity pricing relative to current commodity price forecasts, including 22,500 GJ/d of natural gas for FY 2025 at a weighted average fixed price of C$3.15/GJ (C$3.32/Mcf) and 1,500 bbl/d of crude oil for FY 2025, at a weighted average floor price of C$95.68 per bbl.(13) -- Strategic alignment with Tourmaline (BBB High), Canada's largest and most active natural gas producer, further enhancing Topaz's future growth outlook. -- Pro forma the Strategic Acquisition, Topaz will hold royalty interests over nearly all of Tourmaline's acreage and hold royalty interests in each of Tourmaline's identified future growth projects across a premium undeveloped acreage portfolio. -- Over 1.0 billion boe of externally and independently evaluated proved and probable ("2P") operator working interest reserves were assigned to theStrategic Acquisition Lands, effective December 31, 2023.(7) Tourmaline has identified over 2,200 gross future drilling locations(8) across the Strategic Acquisition Lands. -- Enhanced scale, future long-term growth, outlook optionality and embedded upside potential. -- The gross average production from the Strategic Acquisition Lands during H1 2024 was 77.2 Mboe/d(3) (17% crude oil and condensate). Topaz estimates 2,251 boe/d(4) (15% crude oil and condensate) of royalty production and $9.7 million royalty revenue would have been generated during H1 2024 ($19.4 million royalty revenue on an annualized basis), representing 12% royalty production growth and 8% royalty revenue growth relative to Topaz's H1 2024 financial results.(1)(4) -- Topaz expects the Strategic Acquisition will generate between 2,450 and 2,650 boe/d (15% crudeoil and condensate) average royalty production in 2025, representing $25.4 to $27.5 million royalty revenue to Topaz.(1)(5) -- Topaz has increased its 2024e annual average royalty production guidance estimate range to 19,100 - 20,000 boe/d(1)(2) (70% natural gas) from 18,800 -- 19,600 boe/d(2) (70% natural gas) to reflect the incremental royalty production volume attributed to the Strategic Acquisition for November and December 2024. -- The Strategic Acquisition does not require Topaz to add any additional G&A resources or costs and increases the Company's existing tax pools of $1.6 billion(12) by 17% ($0.3 billion). -- Together with the Equity Financing, Topaz estimates that the Strategic Acquisition provides immediate and increasing future accretion on cash flow per share, free cash flow per share, and transaction consideration metrics.(1) Strategic Rationale
The Strategic Acquisition Lands were acquired by Tourmaline over the past two years, all of which significantly enhance Tourmaline's scale, undeveloped reserve base and growth project optionality as they capitalize on cost, egress and margin synergies. For Topaz, NEBC Montney, Alberta Deep Basin and Peace River High are core royalty areas, situated in resource-rich areas of the WCSB that attract commodity price-resilient capital activity. Together, these areas received 48%(9) of the operator funded drilling activity across Topaz's acreage during H1 2023 that increased to 51%(9) during H1 2024, overall attracting a meaningful share (7%) of industry drilling activity across the WCSB.(10)
The NEBC Montney is a core growth area for Topaz, where the underlying production across Topaz's royalty acreage increased 6% during H1 2024 relative to H1 2023 as Tourmaline continues to execute Phase I developmentof its Conroy/North Montney growth project. Across Topaz's NEBC Montney royalty acreage, Tourmaline's average drilling activity represented 24% of total NEBC Montney drilling activity between Q1 2023 and Q2 2024.(11) Montney well performance in NEBC continues to improve as Tourmaline continues to lengthen horizontal wells and refine Montney completion techniques in advance of acceleration of growth that is scheduled for the second half of Tourmaline's current five year development plan, when stronger intra-basin natural gas pricing is anticipated. The Strategic Acquisition enables Topaz to expand its core royalty acreage and growth optionality during an opportunistic time in the natural gas commodity cycle.
Overview of the Strategic Acquisition Lands - British Columbia
Pursuant to the Strategic Acquisition, Topaz will acquire a newly created gross overriding royalty interest of 3% on natural gas and 2.5% on crude oil and condensate production across approximately 0.6 million gross acres of developed and undeveloped lands in British Columbia (including 0.3 million gross acres of Montney rights, increasing Topaz's Montney royalty acreage by 38% to 1.1 million gross acres). Tourmaline predominantly acquired the lands through the October 2024 acquisition of Crew Energy Inc. ("Crew"), in addition to crown land and other acquisitions. Tourmaline has identified over 850(8) future drilling locations across the Strategic Acquisition Lands in British Columbia. The Crew assets are immediately adjacent to Tourmaline's existing South Montney operated complex and provide a significant future growth opportunity in the Groundbirch area, where regulatory approval is in place to construct an electrified deep cut gas processing facility. The Groundbirch area has the potential to approximately double the existing Crew production base of approximately 30 Mboe/d.(1)(14)
Overview of the Strategic Acquisition Lands - Alberta
Pursuant to the Strategic Acquisition, Topaz will acquire a newly created gross overriding royalty interest of 3% on natural gas and 2.5% on crude oil and condensate production across approximately 1.9 million gross acres of developed and undeveloped lands in Alberta, in addition to 0.5 million gross acres across other areas in Canada. Tourmaline acquired the lands through the November 2023 acquisition of Bonavista Energy Corp. ("Bonavista") and through other asset and incremental working interestacquisitions over the past two years. Tourmaline has identified approximately 1,400(8) future drilling locations across the Strategic Acquisition Lands in Alberta. The Bonavista assets generate lower decline production and are a natural extension of Topaz's existing Deep Basin royalty acreage where Tourmaline is the largest producer. The Deep Basin is Alberta's largest interconnected natural gas field that features well delineated, multi-zone, stacked pay. Tourmaline's 2024 drilling program across the Bonavista lands has achieved strong performance, in particular, along the Glauconite trend that continues in the southern Deep Basin. Despite reduced capital investment in response to the current natural gas price environment, production levels have exceeded expectations as a result of recent drilling results significantly outperforming historical trends. In addition, Tourmaline successfully drilled the first monobore well design for the Glauconite and expects that this design will reduce future drilling costs. Other Alberta acreage includes new crown land and other asset or working interest acquisitions completed by Tourmaline that complements Topaz's existing Deep Basin and Peace River High royalty acreage. The Strategic Acquisition Lands in Alberta provide
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