CALGARY, AB, Nov. 10, 2020 /CNW/ - Topaz Energy Corp.
(TSX: TPZ) ("Topaz" or the "Company") is pleased to announce
financial results for the three and nine months ended September 30, 2020.
Highlights
- Generated total revenue and other income(1) of
$26.4 million and $69.2 million for the three and nine months ended
September 30, 2020, respectively;
- Generated EBITDA(2) of $23.9
million and $62.2 million,
realizing an EBITDA margin(2) of 91% and 90%, for the
three and nine months ended September 30,
2020, respectively;
- Paid dividends of $18.6 million
($0.20 per share) and $50.6 million ($0.60 per share), representing a payout
ratio(2) of 78% and 82%, for the three and nine months
ended September 30, 2020,
respectively;
- On November 10, 2020, declared
its fourth quarter dividend of $0.20
per share which is payable on December 31,
2020 to shareholders of record on December 15, 2020. This quarterly cash dividend
is designated as an "eligible dividend" for Canadian income tax
purposes;
- On June 29, 2020 and July 6, 2020, Topaz completed a private placement
consisting of 13.2 million common shares for gross proceeds of
$145.3 million;
- Completed $153.5 million of
acquisitions during the third quarter of 2020 including an
infrastructure acquisition from an arm's length third party on
July 2, 2020 for $100.0 million; an infrastructure acquisition
from Tourmaline Oil Corp. ("Tourmaline") on September 1, 2020 for $52.5 million; and acquisition of a newly created
gross overriding royalty interest on undeveloped land from an arm's
length third party on September 1,
2020 whereby a portion of the consideration is held in
escrow subject to the fulfillment of a two-well drilling commitment
by the vendor;
- On October 26, 2020, Topaz
completed its initial public offering and its common shares now
trade on the Toronto Stock Exchange under the symbol "TPZ". The
offering consisted of a treasury offering by the Company and a
secondary offering by its majority shareholder, Tourmaline, of an
aggregate of 17.7 million common shares for gross proceeds to the
Company and Tourmaline of approximately $217.5 million and $13.0
million, respectively. On November 9,
2020, the underwriters exercised the over-allotment option
in full, and purchased 2.5 million common shares at $13.00 per share, for gross proceeds to the
Company of $32.6 million;
- On November 4, 2020, Topaz
entered into a definitive agreement for the purchase of additional
royalty assets from Tourmaline (the "Royalty Acquisition").
Pursuant to the Royalty Acquisition, Topaz will acquire a newly
created 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 720,000 gross acres of developed
and undeveloped lands to be acquired by Tourmaline 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 on November 4, 2020. 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 is expected to 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;
- As at November 10, 2020, Topaz
has 112.4 million common shares outstanding, no debt, an undrawn
$125.0 million credit facility and
approximately $258.0 million of cash
and working capital which Topaz expects to use for royalty and
infrastructure acquisitions.
Guidance
(million except
boe/d)
|
Quarter ended
Dec. 31, 2020
|
Year
ended
Dec. 31,
2020
|
Year
ended
Dec. 31,
2021
|
2021
Growth
|
|
|
|
|
|
Average royalty
production (boe/d)
|
10,100
|
10,100
|
11,500 –
11,600
|
14 –
15%
|
Processing revenue
and other income(3)
|
$7.6
|
$20.7
|
$30.3
|
46%
|
EBITDA(2)
|
$27.0
|
$89.0
|
$123.0
|
38%
|
(1)
|
Comprised of royalty
production revenue, processing revenue and other income.
|
(2)
|
Refer to "Non-GAAP
Financial Measures".
|
(3)
|
Includes fixed
processing revenue under long-term take-or-pay commitments of: Q4
2020 - $7.6 million (60%); FY 2020 - $20.7 million (51%); and FY
2021 - $30.3 million (61%).
|
The foregoing guidance estimates are based on the following key
assumptions:
- Successful completion of the Royalty Acquisition;
- Tourmaline's anticipated 2020-2021 capital plan attributable to
Topaz's royalty lands;
- Infrastructure throughput volume consistent with average actual
throughput during the nine months ended September 30, 2020;
- Q4 2020 commodity price assumptions: natural gas price of
$2.92/mcf, light oil (PSO) price of
$44.50CAD/bbl, condensate price of $50.50CAD/bbl and
an exchange rate estimated at $0.76
(US/CAD);
- 2021 commodity price assumptions: natural gas price of
$2.99/mcf, average light oil (MSW and
PSO) price of $46.53CAD/bbl, condensate price of $52.10CAD/bbl and
an exchange rate estimated at $0.76
(US/CAD).
FINANCIAL INFORMATION
For the
periods ended
|
Sept. 30,
2020
|
Sept. 30,
2020
|
June 30,
2020
|
Mar. 31,
2020
|
($000s) except per
share
|
Nine
months
|
Three
months
|
Three
months
|
Three
months
|
|
|
|
|
|
Revenue:
|
|
|
|
|
Royalty
production revenue
|
41,275
|
14,826
|
11,935
|
14,514
|
Processing revenue
|
20,452
|
9,188
|
5,296
|
5,968
|
Other
income(4)
|
7,450
|
2,384
|
2,789
|
2,277
|
Total
|
69,177
|
26,398
|
20,020
|
22,759
|
Cash
expenses:
|
|
|
|
|
Operating
|
(2,562)
|
(691)
|
(1,016)
|
(855)
|
Marketing
|
(413)
|
(201)
|
(122)
|
(90)
|
General
and administrative
|
(3,273)
|
(1,030)
|
(1,249)
|
(994)
|
Realized
loss on financial instruments
|
(694)
|
(506)
|
(188)
|
─
|
Interest
expense
|
(136)
|
(76)
|
(60)
|
─
|
Cash
flow(1)
|
62,099
|
23,894
|
17,385
|
20,820
|
Per
share(2)
|
$0.73
|
$0.26
|
$0.22
|
$0.26
|
|
|
|
|
|
Cash from operating
activities
|
50,755
|
12,571
|
24,234
|
13,950
|
Per
share(2)
|
$0.60
|
$0.13
|
$0.30
|
$0.17
|
Net loss
|
(5,294)
|
(2,935)
|
(1,125)
|
(1,234)
|
Per
basic and diluted share(2)
|
$(0.06)
|
$(0.03)
|
$(0.01)
|
$(0.02)
|
EBITDA(1)
|
62,187
|
23,922
|
17,445
|
20,820
|
EBITDA
margin(1)
|
90%
|
91%
|
87%
|
91%
|
|
|
|
|
|
Dividends
paid
|
50,642
|
18,642
|
16,000
|
16,000
|
Per
share(2)
|
$0.60
|
$0.20
|
$0.20
|
$0.20
|
Payout
ratio(1)
|
82%
|
78%
|
92%
|
77%
|
|
|
|
|
|
Weighted average
shares outstanding(3)
|
84,493
|
93,126
|
80,257
|
80,000
|
|
|
|
|
|
Capital
expenditures
|
784
|
513
|
159
|
112
|
Acquisitions
|
153,500
|
153,500
|
─
|
─
|
|
|
|
|
|
Average Royalty
Production
|
|
|
|
|
Natural
gas (mcf/d)
|
56,040
|
55,400
|
55,056
|
57,672
|
Oil and
condensate (bbl/d)
|
739
|
737
|
715
|
766
|
Total
(boe/d)
|
10,079
|
9,970
|
9,891
|
10,378
|
|
|
|
|
|
Realized Royalty
Production Prices
|
|
|
|
|
Natural
gas ($/mcf)
|
$2.10
|
2.26
|
$2.00
|
$2.05
|
Oil
($/bbl)
|
$39.81
|
48.66
|
$26.14
|
$46.35
|
Condensate ($/bbl)
|
$46.02
|
49.27
|
$30.61
|
$56.35
|
|
|
|
|
|
Benchmark
Pricing
|
|
|
|
|
Natural
Gas
|
|
|
|
|
AECO 5A
(CAD$/mcf)
|
$2.10
|
$2.25
|
$2.00
|
$2.04
|
Oil and
condensate
|
|
|
|
|
NYMEX
WTI (USD$/bbl)
|
$38.21
|
$40.92
|
$28.00
|
$46.17
|
Edmonton
Par (CAD$/bbl)
|
$43.66
|
$49.06
|
$30.24
|
$51.89
|
Edmonton
Condensate (CAD$/bbl)
|
$47.64
|
$51.71
|
$31.74
|
$66.45
|
CAD$/USD$
|
$0.7393
|
$0.7507
|
$0.7220
|
$0.7443
|
|
|
|
|
|
($000s)
|
|
At Sept. 30,
2020
|
At June 30,
2020
|
At Mar.
31,
2020
|
Total
assets
|
|
794,787
|
793,323
|
679,858
|
Working
capital
|
|
21,844
|
148,745
|
25,620
|
Adjusted working
capital(1)
|
|
23,917
|
149,180
|
25,475
|
Net debt
(cash)(1)
|
|
17,082
|
149,180
|
25,475
|
Common shares
outstanding(3)
|
|
93,208
|
91,690
|
80,000
|
(1)
|
Refer to "Non-GAAP
Financial Measures"
|
(2)
|
Calculated using
weighted average shares outstanding
|
(3)
|
(000)
shares
|
(4)
|
Includes interest
income of $0.05 million for the three and nine months ended
September 30, 2020
|
MD&A and Financial Statements
Topaz's financial statements and management's discussion and
analysis for the three and nine-months ended September 30, 2020 are available electronically
under the Company's profile on SEDAR, www.sedar.com, and on Topaz's
website, www.topazenergy.ca.
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. For
further information, please visit the Company's website
www.topazenergy.ca.
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: the forecasts described under the heading "Guidance"
above; 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 including those highlighted in this news release 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
Company's processing revenue and other income and EBITDA for the
quarter and year ending December 31,
2020 and the year ending December 31,
2021 and 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 under the heading "Guidance" above and with respect to
the royalty production revenue and free cash flow per share growth
to be generated from the Royalty Acquisition, 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
109,939,065 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 10, 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.
This news release also makes reference to the terms "EBITDA",
"EBITDA margin," "payout ratio," "working capital", "adjusted
working capital", "net debt (cash),", which are not
recognized measures under GAAP, and do not have a standardized
meaning prescribed by GAAP. Accordingly, the Company's use of these
terms may not be comparable to similarly defined measures presented
by other companies. Management uses the terms "EBITDA," "EBITDA
margin," "payout ratio," "working capital," "adjusted working
capital," and "net debt (cash)" 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 the non-GAAP financial measures 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.
For these purposes, "EBITDA" is net income or loss from
continuing operations, excluding extraordinary items, plus interest
expense, income taxes and the capital portion of any finance lease
received, and adjusted for non-cash items including depletion and
depreciation and share-based compensation and gains or losses on
dispositions. "EBITDA margin" is defined as EBITDA divided by
total revenue and other income (expressed as a percentage of total
revenue and other income). "Payout ratio" is dividends paid
expressed as a percentage of cash flow. "Working capital" is
current assets less current liabilities. "Adjusted working
capital" is current assets less current liabilities, adjusted for
financial instruments and "net debt (cash)" is total debt
outstanding less adjusted 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