CALGARY, AB, Nov. 4, 2020 /CNW/ - Topaz Energy Corp. (TSX:
TPZ) ("Topaz" or the "Company") is pleased to announce that in
furtherance of its growth strategy of acquiring low-risk, stable
and predictable revenue from its high-quality strategic partners it
has entered into a definitive agreement with Tourmaline Oil Corp.
("Tourmaline") for the purchase of additional royalty assets (the
"Royalty Acquisition"). The Royalty Acquisition provides free cash
flow growth and enhanced sustainability for Topaz while enabling
Tourmaline to advance its own growth.
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Pursuant to the Royalty Acquisition, Topaz will acquire a newly
created gross overriding royalty interest on natural gas, crude
oil, and condensate production on over 720,000 gross acres of
Tourmaline's developed and undeveloped lands in the Alberta Deep
Basin ("Deep Basin"), which is contiguous with Topaz's existing
Deep Basin royalty interest acreage, for total cash consideration
of $130 million. Topaz will fund the
Royalty Acquisition from its available cash on hand.
The Royalty Acquisition is expected to close on January 1, 2021, subject to satisfaction of
customary closing conditions including Tourmaline completing a
corporate acquisition it announced today.
Strategic Rationale
In the Deep Basin, Tourmaline is the largest producer with 2020
average production estimated at approximately 163,000-168,000 boe/d
and since inception, has drilled over 800 gross natural gas wells,
with six drilling rigs currently active. Topaz currently owns
gross overriding royalty interests on all of Tourmaline's Deep
Basin acreage and the Royalty Acquisition provides a 31% increase
to Topaz's total gross royalty interest acreage and a meaningful
expansion of drilling location inventory on its royalty
lands. The Deep Basin has well defined, prolific economic
resources which provide high quality, long life, liquids rich
natural gas reserves with strong estimated ultimate reserve
recoveries. In the Deep Basin, an active development program,
expansive infrastructure network combined with extensive management
and technical experience, have enabled Tourmaline to achieve
industry leading cost efficiency and a strong track record of free
cash flow generation. Current production from the Royalty
Acquisition lands is estimated at 76,000 boe/d which Tourmaline
expects will increase to 85,000 boe/d over the next two years in
conjunction with an estimated $300
million expansion of its capital plan over the next two
years.
Topaz Acquisition Benefits
Pursuant to the Royalty Acquisition, Topaz will acquire a 2%
gross overriding royalty interest on natural gas production until
December 31, 2021; with a 3% gross
overriding royalty interest on natural gas thereafter; and a 2.5%
gross overriding royalty interest on crude oil and condensate
production from the lands. Topaz estimates that, based on
Tourmaline's estimated capital plan attributable to the Royalty
Acquisition lands, the Royalty Acquisition will provide royalty
production growth of 12% in 2021, and 24% in 2022. Topaz
estimates that, based on current forward commodity prices and
Tourmaline's estimated capital plan attributable to the Royalty
Acquisition lands, the Royalty Acquisition will generate royalty
production revenue of approximately $9.3
million and $13.0 million in
2021 and 2022, respectively, and free cash flow growth on a per
share basis, of over 7% and 12% in 2021 and 2022,
respectively. The Royalty Acquisition enhances Topaz's future
growth outlook and is consistent with its strategy to acquire
value-enhancing assets that are accretive on a per share basis.
ABOUT THE COMPANY
Topaz is a unique royalty and energy infrastructure company
focused on generating free cash flow growth and paying reliable and
sustainable dividends to its shareholders, through its strategic
relationship with one of Canada's
largest natural gas producers, Tourmaline, an investment grade
senior Canadian E&P company, and leveraging industry
relationships to execute complementary acquisitions from other
high-quality energy companies, while maintaining its commitment to
environmental, social and governance best practices.
FORWARD-LOOKING STATEMENTS
This news release contains forward-looking statements and
forward-looking information (collectively, "forward-looking
statements") that relate to the Company's current expectations and
views of future events. These forward-looking statements relate to
future events or the Company's future performance. Any statements
that express, or involve discussions as to, expectations, beliefs,
plans, objectives, assumptions or future events or performance
(often, but not always, through the use of words or phrases such as
"will likely result", "are expected to", "expects", "will
continue", "is anticipated", "anticipates", "believes",
"estimated", "intends", "plans", "forecast", "projection",
"strategy", "objective" and "outlook") are not historical facts and
may be forward-looking statements and may involve estimates,
assumptions and uncertainties which could cause actual results or
outcomes to differ materially from those expressed in such
forward-looking statements. No assurance can be given that these
expectations will prove to be correct and such forward-looking
statements included in this news release should not be unduly
relied upon. These statements speak only as of the date of this
news release. In particular and without limitation, this news
release contains forward-looking statements pertaining to the
following: planned funding for the Royalty Acquisition; expected
increases in production from the Royalty Acquisition lands and
expansion of Tourmaline's capital plan over the next two years;
estimated royalty production, royalty production revenue and free
cash flow per share growth from the Royalty Acquisition lands in
2021 and 2022; expected closing date of the Royalty Acquisition;
other expected benefits from the Royalty Acquisition including
enhancing Topaz's future growth outlook and providing value
enhancing assets that are accretive on a per share basis; and the
Company's business as described under the heading "About the
Company" above. Forward–looking information is based on a number of
assumptions and is subject to a number of risks and uncertainties,
many of which are beyond the Company's control, which could cause
actual results and events to differ materially from those that are
disclosed in or implied by such forward–looking information. Such
risks and uncertainties include, but are not limited to,
the failure to complete the Royalty Acquisition on the terms
or on the timing announced or at all and the failure to
realize some or all of the anticipated benefits of the Royalty
Acquisition including estimated royalty production, royalty
production revenue and free cash flow per share growth, and the
factors discussed under "Notice to Investors – Forward-Looking
Information" and "Risk Factors" in the supplemented PREP prospectus
dated October 19, 2020. Topaz does
not undertake any obligation to update such forward–looking
information, whether as a result of new information, future events
or otherwise, except as expressly required by applicable law.
FINANCIAL OUTLOOK
Also included in this news release are estimates of the royalty
production revenue and free cash flow per share growth to be
generated from the Royalty Acquisition in 2021 and 2022,
respectively, which are based on, among other things, the various
assumptions as to production levels and capital expenditures and
other assumptions disclosed in this news release including the
following assumptions: a natural gas price of $2.99/mcf in 2021 and $2.68/mcf in 2022; an average light oil (MSW and
PSO) price of $46.53CAD/bbl in 2021 and $46.15CAD/bbl in
2022; a condensate price of $52.10CAD/bbl in
2021 and $50.93CAD/bbl in 2022; a currency exchange rate of
$0.76 (US/CAD) in 2021 and 2022; and
109,939,296 Company common shares outstanding. To the extent such
estimates constitute financial outlooks, they were approved by
management and the board of directors of Topaz on November 4, 2020 and are included to provide
readers with an understanding of the royalty production revenue and
free cash flow per share growth to be generated from the Royalty
Acquisition in 2021 and 2022 based on the assumptions described
herein and readers are cautioned that the information may not be
appropriate for other purposes.
Non-GAAP Financial Measures
In addition to using financial measures prescribed by
International Financial Reporting Standards ("IFRS" or "GAAP"),
references are made in this news release to "free cash flow", which
is a measure that does not have any standardized meaning as
prescribed by IFRS. Management uses this term for its own
performance measures and to provide shareholders and potential
investors with a measurement of the Company's efficiency and its
ability to generate the cash necessary to fund dividends and a
portion of its future growth expenditures or to repay debt.
Accordingly, investors are cautioned that this non-GAAP financial
measure may not be comparable to similarly defined measures
presented by other entities and should not be considered in
isolation nor as an alternative to net income (loss) from
continuing operations or other financial information determined in
accordance with GAAP as an indication of the Company's
performance. References to "free cash flow" are to the amount
of cash estimated to be available for dividends to shareholders in
accordance with the Company's dividend policy and is defined as
cash flow less capital expenditures, where "cash flow" is defined
as cash from (used in) operations before changes in non-cash
working capital.
BOE EQUIVALENCY
Per barrel of oil equivalent amounts have been calculated using
a conversion rate of six thousand cubic feet of natural gas to one
barrel of oil equivalent (6:1). Barrel of oil equivalents
(boe) may be misleading, particularly if used in isolation. A
boe conversion ratio of 6 mcf:1 bbl is based on an energy
equivalency conversion method primarily applicable at the burner
tip and does not represent a value equivalency at the wellhead.
In addition, as the value ratio between natural gas and crude
oil based on the current prices of natural gas and crude oil is
significantly different from the energy equivalency of 6:1,
utilizing a conversion on a 6:1 basis may be misleading as an
indication of value.
SOURCE Topaz Energy Corp