Post by
savyinvestor333 on Oct 27, 2021 7:09am
Scotia New Target $27.00 a $3.00 bump
Topaz Energy Corp. Off Restriction: Weyburn Unit GORR Addition is a Big Win
OUR TAKE: Positive.
We are off restriction on TPZ following the close of the company's $177.4M equity offering (including over-allotment and private placement). The proceeds from the offering will be used to help fund TPZ's $188M acquisition of a 5% gross overriding royalty (GORR) on the Weyburn Unit working interest production of Whitecap Resources Inc. (WCP-T; SP) and the Q3/21 acquisitions of newly created GORRs on 496,000 gross acres in Alberta for $49.9M. We see the deals as ~12% accretive to TPZ's 2022 and 2023 EBITDA, ~3.5% accretive to the company's free cash flow per share for the same periods, and ~5% accretive to our upstream Sum of the Assets (SOA) NAVPS estimate. We continue to see TPZ as the top royalty / income stream name in the sector given its: (1) strong upstream and midstream asset base; (2) top-tier free cash flow conversion profile and dividend growth potential (demonstrated by 20% y/y growth through Q4/21); and (3) emerging position as the financial partner of choice for quality E&Ps in a capital constrained market. We maintain our Sector Outperform rating and are increasing our Target Price to $27 per share on the accretion from the acquisitions and our updated commodity price forecasts.
KEY POINTS Weyburn and other GORR acquisitions. TPZ has acquired a 5% GORR on WCP's Weyburn Unit working interest production for $188M. We estimate the purchase metrics at ~9.6x 2022 EBITDA (US$70/bbl WTI) and ~$43/bbl for proved plus probable producing reserves (see Exhibit 2). During Q3/21 TPZ also acquired newly created GORRs ranging from 2% to 4% on ~496,000 gross acres in the Clearwater, Provost, Lloydminster, and West Central Alberta areas for $49.9M (with a $70M drilling commitment from the vendor). We estimate the purchase metrics at ~4.5x 2022 EBITDA (US$70/bbl WTI) or ~$106,667/boe/d. Based on the timing and geography of the non-Weyburn assets, we believe the majority of the GORRs are likely related to West Lake Energy Corp.’s (private) recently announced acquisition of Bolder Energy Ltd. (private) and sale of newly created GORR interests. On a blended basis, we calculate the deal metrics at ~7.7x 2022 EBITDA (US$70/bbl WTI) and ~$203,200/boe, and we estimate ~5% accretion to our SOA NAVPS based on the addition of producing royalty production and drilling inventory in the Weyburn Unit Midale play, the Provost and Lloydminster heavy oil plays, and the Brazeau Belly River play (see Exhibit 11).