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 Apr 30, 2024 9:05am

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Post# 36014389

Scotia increases target 10% to $33

Topaz Energy Corp.

TPZ-T: C$23.10
Target: C$33.00
Rating: Sector Outperform

Q1/24 Ahead on Gas Price Realizations and Midstream Flows; Unique Revenue Mix Provides a Tailwind

OUR TAKE: Positive. TPZ delivered strong Q1/24 results on the back of higher-than-expected natural gas price realizations and strong midstream throughput. The company reiterated its 2024 guidance and appears well positioned to manage through the low natural gas price environment. TPZ’s unique mix of stable midstream revenue and high margin royalty production revenue — bolstered by strong heavy oil production growth from the Clearwater and improving WCS differentials — provides a bridge over troubled AECO prices ahead of differentials tightening after LNG Canada comes online (see Exhibit 1). We believe this unique (and ultra high margin) revenue mix enables TPZ to comfortably fund its dividend, while leaving the majority of its royalty production open to benefit from improving Western Canadian commodity price dynamics. 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

Q1/24 ahead on gas price realizations and midstream flows. Production of ~19.2 mboe/d (70% natural gas) was in line with consensus with a slightly higher natural gas weighting. Upstream and total revenue came in ~2% ahead of expectations (natural gas price realizations of $2.51/mmBtu were 30¢ ahead of consensus) resulting in EBITDA, AFF, and FCF beating the Street by 2% to 3%. During Q1/24, TPZ realized 99% utilization from its natural gas processing assets (~222.6 mmcf/d throughput), and 145 gross (5.0 net) wells spud and 122 gross wells placed on production on its royalty acreage. 95 gross wells spud during the quarter were carried into Q2/24. The company spent ~$1.7M on maintenance capex (and capitalized G&A) during the quarter, while ~$11.7M was spent on the Clearwater natural gas gathering project ($15.3M to date). TPZ will fund the final cost of the project (estimated at <$25M) at completion in late 2024, with annual run rate midstream revenue from the project estimated at $3.7M (subject to adjustments based on the final cost of the project). See Exhibit 1 for detailed results vs. expectations. (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 ~64% and year-end net debt of $240M to $250M. TPZ expects nine to 11 rigs to be active on its royalty lands during spring break-up, increasing to 25 to 29 thereafter (Neutral).