Topaz Energy Corp TPZEF

Primary Symbol: T.TPZ

Energy Oil & Gas E&P

Topaz Energy Corp. is a Canada-based royalty and infrastructure energy company. The Company is primarily focused on developing its business by acquiring and developing relationship with natural gas producers, such as Tourmaline Oil Corp. It owns gross overriding royalty (GORR) interests on approximately 5.3 million acres of land located throughout the prolific natural gas plays in the Western Canadian Sedimentary Basin (WCSB). The Company has royalty interests in the Clearwater and Charlie Lake operating areas of Alberta, as well as working interest in a sweet natural gas processing facility and associated crude oil battery in the Wembley area. It has GORR interests on over 380 thousand acres of land located in the Clearwater area in Alberta. Its assets are located throughout Canada's resource plays, such as the NEBC Montney, Alberta Deep Basin, Central Alberta, Peace River High area of British Columbia/Alberta, Alberta Clearwater, Saskatchewan Weyburn and Manitoba.

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Topaz Energy Corp

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Post by Westcoastenergyon Mar 06, 2024 11:02am

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Post# 35918058

Positive Scotiabank Report

Target $30. That would be terrific.

Topaz Energy Corp.

TPZ-T: C$20.35
Target: C$30.00
Rating: Sector Outperform

Strong Royalty Production Drives Q4/23 Beat; Dividend Growth Continues

OUR TAKE: Positive. TPZ delivered strong Q4/23 results, with beats across the board (production, midstream, EBITDA, cash flows). The company increased its base dividend by ~3% to $0.32/share/quarter (~6.3% yield on just 65% of 2024E FCF [strip]). TPZ reiterated its 2024 guidance and appears well positioned to manage through the low natural gas price environment (see Exhibit 1 for sensitivities to our forecasts). Moreover, we expect the company’s heavy oil production (>15% of Q4/23 volumes) to benefit from tighter WCS differentials after TMX comes online. We continue to see TPZ as the top royalty / income stream name in the sector given its: (1) top-tier free cash flow conversion profile; (2) strong asset base / counterparties; and (3) attractive dividend yield and growth potential.

KEY POINTS

Strong royalty production drives Q4/23 beat. Production of ~19.6 mboe/d (69% natural gas) came in ~3% ahead of consensus, with a slightly higher liquids cut, driving a ~7% upstream revenue beat. Midstream and other revenue came in ~6% ahead of the street on strong gas plant throughput. EBITDA beat expectations by ~10%, while AFF and FCF both came in ~9% ahead. During Q4/23, TPZ realized 100% utilization from its natural gas processing assets (~224.2 mmcf/d throughput), and 147 gross (5.0 net) wells spud and 169 gross (5.8 net) wells placed on production on its royalty acreage. 87 gross (2.2 net) wells spud during the quarter were carried into Q1/24. During Q4/23, TPZ agreed to invest $26.3M for a new 7% GORR on 20,000 acres of royalty lands and a 99% working interest in a new natural gas gathering system (expected online in 2025; will increase the company’s revenues by $4.2M; backed by long-term take-or-pay) and invested $2.5M for its share of the Glacier processing plant expansion. See Exhibit 2 for more details and comparative metrics. (Positive)

Dividend growth continues. TPZ declared a $0.32/share dividend for Q1/24 — a ~3% q/q increase and 7% y/y increase (~12% CAGR since 2020). The dividend will be paid on March 28, 2024, to shareholders of record on March 15, 2024. (Positive)

2024 guidance confirmed. TPZ reiterated its 2024 capex and royalty production guidance at $4M to $5M and 18.8 mboe/d to 19.6 mboe/d (70% natural gas), respectively. The company expects midstream and other income to come in at $69M to $71M, resulting in a dividend payout ratio of ~65% and year-end net debt of $245M to $255M. (Neutral)