CALGARY, AB, May 6, 2021 /CNW/ - Topaz Energy Corp. (TSX:
TPZ) ("Topaz" or the "Company") is pleased to announce financial
results for the three months ended March 31,
2021 and increased 2021 guidance estimates to incorporate
recent acquisition activity.
Through a combination of organic growth, accretive acquisitions
and stable EBITDA(2) generated from Topaz's
infrastructure assets, Topaz's total revenue and other
income(1) grew 66% from the prior year. Topaz's low
cost, high margin business enabled Topaz's first quarter
EBITDA(2) to correspondingly grow 66% from the prior
year. During the first quarter Topaz paid $0.20 per share in dividends representing a
payout ratio(2) of 65%, which has compressed from a 77%
payout ratio(2) in the first quarter of 2020.
During the first quarter of 2021 Topaz continued to execute its
growth strategy, investing $144.0
million to acquire 765,000 gross acres of high margin gross
overriding royalty interests in the Deep Basin and Clearwater areas of Alberta. The
acquisitions provide over 1,200 boe/d of annual average royalty
production in 2021 and are supported by capital development for
further growth. Recent drilling results on the acquired
royalty acreage have outperformed peers as well as Topaz's
expectations. Topaz also invested $12.0 million in infrastructure assets during the
first quarter, acquiring a non-operated working interest in
pipeline connected water management and conservation facilities
secured by a 15 year fixed take or pay contract through which Topaz
will earn $27.8 million in fixed
processing revenue over the 15 year term.
Since January 1, 2020 Topaz has
invested approximately $386.0 million
in cumulative royalty and infrastructure acquisitions which Topaz
estimates will generate between $41.0
and $43.0 million of annualized
EBITDA(2) in 2021 and between $46.0 and $48.0
million in 2022, based on current commodity
prices(5). Topaz's royalty acquisitions are
underpinned by cumulative capital development spending estimated at
$500.0 million over the next two
years, which supports Topaz's future royalty production growth
expectations. Topaz's $300.0
million credit facility is undrawn and its March 31, 2021 adjusted working capital (after
accounting for the royalty acquisition announced April 12, 2021) is estimated at $63.0 million. Near term, Topaz's growth
strategy is to utilize its cash as well as leverage of up to 1x its
2021 estimated EBITDA(2)(5) range of $136.0 to 138.0 million to invest in additional
acquisition growth opportunities.
Highlights of Topaz's financial results as at and for the three
months ended March 31, 2021 ("Q1
2021") and March 31, 2020 ("Q1
2020"), significant transactions completed subsequent to
March 31, 2021 ("Subsequent Period")
and increased guidance estimates for 2021 are presented below:
Financial performance
- Generated 66% higher total revenue and other
income(1) in Q1 2021 ($37.8
million) compared to Q1 2020 ($22.8
million) which was driven by 13% average royalty production
volume growth, 75% higher processing revenue and a 55% increase in
natural gas (AECO) pricing.
- Generated 66% higher EBITDA(2) in Q1 2021
($34.6 million) compared to Q1 2020
($20.8 million). Topaz realized
an EBITDA margin(2) of 92% and 91% in Q1 2021 and Q1
2020, respectively.
Royalty activity update
- Topaz's average royalty production(4) of 11,743
boe/d in Q1 2021 grew 13% from 10,378 boe/d in Q1 2020.
Royalty production revenue of $24.2
million in Q1 2021 grew 67% from $14.5 million in Q1 2020 which is attributed to
gross overriding royalty acquisitions, volume growth attributed to
Topaz's existing royalty assets and improved commodity pricing (55%
increase in natural gas (AECO) and 26% increase in crude oil (NYMEX
WTI)).
- During Q1 2021, 79 gross wells were spud on Topaz's royalty
acreage (68 gross wells on acreage operated by Tourmaline Oil Corp.
("Tourmaline") and 11 gross wells on Topaz's greater Clearwater acreage) and 70 gross wells were
brought on production which represents a 93% increase in capital
activity relative to Q1 2020, when 41 gross wells were spud on
Topaz's royalty acreage (all operated by Tourmaline).
Infrastructure activity update
- During Q1 2021, Topaz generated $10.5
million, or 75% higher processing revenue attributed to its
non-operated ownership in processing facilities compared to Q1 2020
($6.0 million). During Q1 2021
and Q1 2020, average daily utilization of Topaz's net natural gas
processing capacity was 99% and 100%, respectively (73% and 59% of
which is contracted under fixed take-or-pay, respectively).
- During Q1 2021, Topaz earned $3.1
million, or 35% higher other income ($3.0 million attributed to its contracted
interest in third party infrastructure income and $0.1 million of interest income) compared to Q1
2020 ($2.3 million and $nil,
respectively).
Dividends paid
- The Company paid dividends of $22.5
million ($0.20 per share) in
Q1 2021 representing a payout ratio(2) of 65% compared
to $16.0 million dividends paid in Q1
2020 representing a payout ratio(2) of 77%. On
May 6, 2021, Topaz's Board declared
its 2021 second quarter dividend of $0.20 per share which is expected to be paid on
June 30, 2021 to shareholders of
record on June 15, 2021. This
quarterly cash dividend is designated as an "eligible dividend" for
Canadian income tax purposes.
Accretive growth transactions
- Topaz completed $156.0 million of
acquisitions during Q1 2021 including:
-
- the January 1, 2021 acquisition,
from Tourmaline, of a newly created gross overriding royalty
interest on 720,000 gross acres of developed and undeveloped lands
in the Alberta Deep Basin, for total cash consideration of
$130.0 million ("Deep Basin Royalty
Acquisition"). The Deep Basin Royalty Acquisition increased
Topaz's existing Deep Basin royalty acreage by approximately
50%. Tourmaline's Deep Basin production reached a record of
over 260,000 boe/d (20% crude oil and natural gas liquids) in early
April 2021 which was driven by
stronger than anticipated performance on the Deep Basin Royalty
Acquisition lands including a three-well pad yielding a combined
30-day IP rate of 6,090 boe/d (37% crude oil and natural gas
liquids) and a two-well pad yielding a combined 30-day IP rate of
5,137 boe/d (22% crude oil and natural gas liquids).
Tourmaline has achieved significant capital cost reductions on the
Deep Basin Royalty Acquisition lands relative to the assets' former
operator, which directly benefits Topaz as the development capital
allocated to the acreage can be directed to a greater number of
wells drilled;
- the acquisition of a non-operated working interest in pipeline
connected water management and conservation facilities ("Water
Infrastructure Acquisition) for cash consideration of $12.0 million which is underpinned by a 15-year
fixed take-or-pay commitment; and
- the acquisition of a newly created gross overriding royalty on
approximately 45,000 acres of developed and undeveloped land in the
greater Clearwater area, including
a multi-year $60.0 million capital
development commitment, for cash consideration of $13.7 million.
- Topaz entered into definitive agreements during the Subsequent
Period to acquire two separate royalty acquisitions for cumulative
proceeds of $58.0 million, both of
which are expected to close later in the second quarter:
-
- The previously announced acquisition from Tamarack Valley
Energy Ltd., of a newly created gross overriding royalty on
approximately 300,000 gross acres of developed and undeveloped
lands in the Peace River High area of Alberta which are focused on Charlie Lake light oil development for cash
consideration of $32.0 million
("Charlie Lake Royalty Acquisition");
- The acquisition from Reserve Royalty Income Trust ("Reserve
Royalty") of its subsidiaries which hold all of the Reserve Royalty
assets for approximately $26.0
million, payable through the issuance of 1,794,886 Topaz
shares (the "Reserve Royalty Acquisition"). The Reserve
Royalty Acquisitions adds a large royalty portfolio consisting of
345,000 gross acres of developed and undeveloped fee mineral title
and royalty interest lands diversified across Western Canada, providing high margin, low
decline royalty assets and free cash flow growth for Topaz.
Environmental stewardship
- Topaz does not conduct oil and gas operations therefore is not
responsible for the emissions or abandonment obligations associated
with oil and gas operations. Topaz is committed to up-holding
and improving its environmental profile, and does so using
disciplined ESG-integrated investment criteria through alignment
with operators focused on strong environmental stewardship which
has been demonstrated through Topaz's acquisitions:
-
- The majority of Topaz's natural gas royalty assets are operated
by Tourmaline, who recently entered into a joint venture with
Trican Well Service Ltd. to construct and utilize Canada's first low-emission fracturing
fleet. The new technology is anticipated to provide a
reduction in emissions while reducing fuel costs. In
addition, Tourmaline continues to expand its water management and
diesel displacement initiatives which reduce emissions, capital and
logistics costs and freshwater usage. Tourmaline received an
'A' rating in the MSCI Global ESG Performance Ranking for its
sustainability and environmental initiatives.
- The Water Infrastructure Acquisition assets enable reduced
freshwater use in completion activity and the pipeline connectivity
of the assets enable reduced trucking emissions and
costs.
- The Charlie Lake Royalty Acquisition's underlying oil and gas
assets have well established infrastructure which includes emission
management infrastructure, resulting in a high rate of gas
conservation and providing for low emissions intensity.
- Topaz owns a non-operated 12.5% working interest in the
Advantage Oil & Gas Ltd. ("Advantage") operated Glacier natural
gas processing facility ("Glacier"). Advantage, using
technology owned by its subsidiary Entropy Inc., recently announced
plans to deploy new carbon capture and storage technology at
Glacier which is expected to reduce carbon emissions and compliance
obligations attributable to Glacier. Topaz and Advantage
continue to discuss ways to expand their strategic partnership as
Advantage and Entropy solidify their technology deployment
strategy.
Funded for growth
- Topaz ended Q1 2021 with adjusted working capital(2)
of $94.6 million and its $300.0 million credit facility was undrawn.
Increased 2021 Guidance Estimates(5)
- Topaz's 2021 outlook is supported by the Company's confidence
in Tourmaline's continued focus on developing Topaz's royalty
acreage. As at March 31, 2021
Topaz owns gross overriding royalty interests on approximately 90%
of Tourmaline's acreage and overall Tourmaline expects to grow its
production 3% to 5% per year in conjunction with their five year
capital plan which directs over $1.0
billion per year of capital primarily to development
drilling activity. In addition, Topaz's royalty acquisitions
are underpinned by capital development commitments which further
support Topaz's future royalty production growth expectations.
- Topaz's 2021 guidance estimates, increased to reflect the
Charlie Lake Royalty Acquisition and the Reserve Royalty
Acquisition, are presented in the table below. Topaz's
estimates exclude any future acquisitions or deployment of capital
pursuant to its growth strategy.
$mm except
boe/d
|
March 17, 2021
Previous
Guidance Estimates
|
May 6, 2021
Increased
Guidance Estimates
|
Change in
Estimates
increase/(decrease)
|
Annual average
royalty production (boe/d)(4)
|
11,600 –
11,800
|
12,000 –
12,200
|
3%(7)
|
Processing revenue
and other income
|
50.8
|
51.7
|
2%
|
EBITDA(2)
|
128.0 -
130.6
|
136.0 –
138.0
|
6%(7)
|
Annual dividends
($0.80 per share)
|
90.1(6)
|
91.2(6)
|
1%
|
Exit adjusted working
capital(2)
|
119.2 -
121.8
|
94.0 –
96.0
|
(22%)(7)
|
Capital expenditures
(excluding acquisitions)
|
1.0 – 2.0
|
1.0 – 2.0
|
-
|
Commodity price
assumptions
|
|
|
|
AECO 5A
(CAD$/mcf)
|
$2.77
|
$2.93
|
6%
|
NYMEX WTI
(US$/bbl)
|
$60.41
|
$59.76
|
(1)%
|
US$/CAD$ foreign
exchange
|
0.78
|
0.79
|
1%
|
(1)
|
Comprised of royalty
production revenue, processing revenue and other income.
|
(2)
|
Refer to "Non-GAAP
Financial Measures."
|
(3)
|
Includes wells
drilled during the current and previous periods on Topaz royalty
acreage.
|
(4)
|
Refer to
"Supplemental Information Regarding Product Types."
|
(5)
|
Refer to "Forward
Looking Statements."
|
(6)
|
Estimated based on
114.4 million shares outstanding (proforma Corporate Royalty
Acquisition). The Company's dividend payments remain subject
to Board approval.
|
(7)
|
Estimated using the
midpoint of the 2021 annual average royalty production
estimates.
|
Selected Financial Information
For the periods
ended
|
Mar.
31, 2021
|
Dec. 31,
2020
|
Sept. 30,
2020
|
Jun. 30,
2020
|
Mar. 31,
2020
|
($000s) except per
share
|
Three
months
|
Three
months
|
Three
months
|
Three
months
|
Three
months
|
Royalty production
revenue
|
24,179
|
17,611
|
14,826
|
11,935
|
14,514
|
Processing
revenue
|
10,471
|
10,305
|
9,188
|
5,296
|
5,968
|
Other
income(4)
|
3,117
|
2,783
|
2,384
|
2,789
|
2,277
|
Total
|
37,767
|
30,699
|
26,398
|
20,020
|
22,759
|
Cash
expenses:
|
|
|
|
|
|
Operating
|
(972)
|
(1,643)
|
(691)
|
(1,016)
|
(855)
|
Marketing
|
(237)
|
(176)
|
(201)
|
(122)
|
(90)
|
General and
administrative
|
(1,266)
|
(673)
|
(1,030)
|
(1,249)
|
(994)
|
Realized loss on
financial instruments
|
(581)
|
(744)
|
(506)
|
(188)
|
─
|
Interest
expense
|
(160)
|
(484)
|
(76)
|
(60)
|
─
|
Cash
flow(1)
|
34,551
|
26,979
|
23,894
|
17,385
|
20,820
|
Per basic
share(2)
|
$0.31
|
$0.25
|
$0.26
|
$0.22
|
$0.26
|
Cash from operating
activities
|
29,563
|
32,887
|
12,571
|
24,234
|
13,950
|
Per basic
share(2)
|
$0.26
|
$0.31
|
$0.13
|
$0.30
|
$0.17
|
Net income
(loss)
|
5,356
|
8,382
|
(2,935)
|
(1,125)
|
(1,234)
|
Per basic and diluted
share(2)
|
$0.05
|
$0.08
|
$(0.03)
|
$(0.01)
|
$(0.02)
|
EBITDA(1)
|
34,566
|
27,126
|
23,922
|
17,445
|
20,820
|
EBITDA
margin(1)
|
92%
|
88%
|
91%
|
87%
|
91%
|
Dividends
paid
|
22,521
|
22,489
|
18,642
|
16,000
|
16,000
|
Per basic
share(2)
|
$0.20
|
$0.20
|
$0.20
|
$0.20
|
$0.20
|
Payout
ratio(1)
|
65%
|
83%
|
78%
|
92%
|
77%
|
Capital
expenditures
|
561
|
472
|
513
|
159
|
112
|
Acquisitions
|
156,034
|
17,963
|
153,500
|
─
|
─
|
Weighted average
shares – basic(3)
|
112,512
|
106,839
|
93,126
|
80,257
|
80,000
|
Average Royalty
Production
|
|
|
|
|
|
Natural gas
(mcf/d)(5)
|
64,729
|
57,621
|
55,400
|
55,056
|
57,672
|
Light and medium crude
oil (bbl/d)(5)
|
285
|
192
|
195
|
231
|
216
|
Heavy crude oil
(bbl/d)(5)
|
50
|
─
|
─
|
─
|
─
|
Natural gas liquids
(bbl/d)(5)(6)
|
620
|
540
|
542
|
484
|
550
|
Total
(boe/d)
|
11,743
|
10,335
|
9,970
|
9,891
|
10,378
|
Realized Commodity
Prices
|
|
|
|
|
|
Natural gas
($/mcf)(5)
|
$3.13
|
$2.65
|
$2.26
|
$2.00
|
$2.05
|
Light and medium crude
oil ($/bbl)(5)
|
$64.66
|
$48.90
|
$48.66
|
$26.14
|
$46.35
|
Heavy crude oil
($/bbl)(5)
|
$54.34
|
─
|
─
|
─
|
─
|
Natural gas liquids
($/bbl)(5)(6)
|
$72.11
|
$54.09
|
$49.27
|
$30.61
|
$56.35
|
Total
($/boe)
|
$22.88
|
$18.52
|
$16.16
|
$13.26
|
$15.37
|
Benchmark
Pricing
|
|
|
|
|
|
Natural
Gas
|
|
|
|
|
|
AECO 5A
(CAD$/mcf)
|
$3.17
|
$2.65
|
$2.25
|
$2.00
|
$2.04
|
Crude oil
|
|
|
|
|
|
NYMEX WTI
(USD$/bbl)
|
$58.14
|
$42.70
|
$40.92
|
$28.00
|
$46.17
|
Edmonton Par
(CAD$/bbl)
|
$68.98
|
$49.21
|
$49.06
|
$30.24
|
$51.89
|
WCS differential
(USD$/bbl)
|
$12.42
|
$9.10
|
$9.05
|
$11.43
|
$20.19
|
Natural gas
liquids
|
|
|
|
|
|
Edmonton Condensate
(CAD$/bbl)
|
$74.98
|
$55.95
|
$51.71
|
$31.74
|
$66.45
|
CAD$/USD$
|
$0.7899
|
$0.7678
|
$0.7507
|
$0.7220
|
$0.7443
|
Selected statement
of financial position results
($000s) except share
amounts
|
At
Mar. 31, 2021
|
At Dec. 31,
2020
|
At Sept. 30,
2020
|
At Jun. 30,
2020
|
At Mar. 31,
2020
|
Total
assets
|
997,715
|
1,008,546
|
794,787
|
793,323
|
679,858
|
Working
capital
|
94,221
|
237,675
|
21,844
|
148,745
|
25,620
|
Adjusted working
capital(1)
|
94,607
|
238,268
|
23,917
|
149,180
|
25,475
|
Net debt
(cash)(1)
|
(94,607)
|
(238,268)
|
(17,082)
|
(149,180)
|
(25,475)
|
Common shares
outstanding(3)
|
112,607
|
112,449
|
93,208
|
91,690
|
80,000
|
|
|
|
|
|
|
|
(1)
|
Refer to "Non-GAAP
Financial Measures".
|
(2)
|
Calculated using
basic or diluted weighted average shares outstanding.
|
(3)
|
Shown in thousand
shares outstanding.
|
(4)
|
Other income of $3.1
million for Q1 2021 includes interest income of $0.1 million (Q1
2020 - $nil, Q2 2020 - $nil, Q3 2020 - $0.01 million, Q4 2020 -
$0.3 million).
|
(5)
|
Refer to
"Supplemental Information Regarding Product Types."
|
(6)
|
Natural gas liquids
is primarily comprised of condensate; Topaz does not have any
material royalty interests in other natural gas liquids.
|
Cash from Operating Activities, Cash Flow and Net Income
(Loss)
During Q1 2021 and Q1 2020, Topaz generated $29.6 million and $14.0
million, respectively, of cash from operating activities.
Cash flow(1) for the same periods was $34.6 million and $20.8
million, respectively. The Company generated
EBITDA(1) of $34.6 million
and $20.8 million, realizing an
EBITDA margin(1) of 92% and 91%, for Q1 2021 and Q1
2020, respectively. The Company had net income of $5.4 million in Q1 2021 compared to net loss of
$1.2 million in Q1 2020. The
difference is attributed to higher revenue and other income,
including higher commodity prices.
($000s) except per
share amounts
|
|
|
Three
months
ended
Mar. 31,
2021
|
Three months
ended
Mar. 31,
2020
|
Cash from operating
activities
|
|
|
29,563
|
13,950
|
Per basic
share(2)
|
|
|
$0.26
|
$0.17
|
Cash
flow(1)
|
|
|
34,551
|
20,820
|
Per basic
share(2)
|
|
|
$0.31
|
$0.26
|
EBITDA(1)
|
|
|
34,566
|
20,820
|
EBITDA
margin(1)
|
|
|
92%
|
91%
|
Net income
(loss)
|
|
|
5,356
|
(1,234)
|
Per basic and diluted
share(2)
|
|
|
$0.05
|
$(0.02)
|
(1)
|
Refer to "Non-GAAP
Financial Measures".
|
(2)
|
Calculated using
basic or diluted weighted average shares outstanding.
|
Royalty
Royalty production revenue
The Company's royalty production revenue is determined pursuant to
the terms of its royalty agreements. The commodity prices for
natural gas, light and medium crude oil, heavy crude oil and
natural gas liquids (which is primarily comprised of condensate as
Topaz does not currently have any material royalty interests in
other natural gas liquids) are based on market index prices in the
month of production and Topaz's royalty contracts do not permit
transportation or quality deductions. The royalty production
volumes are currently marketed with the respective royalty payor's
production volume and revenue is generally received two
months after the natural gas, crude oil and natural gas liquids
volumes are produced. The Company can elect to take its share
of the royalty production volume in kind, if desired.
Royalty production revenue during Q1 2021 and Q1 2020 was
$24.2 million and $14.5 million, respectively. Topaz realized
commodity prices consistent with the respective market index for
each commodity produced as shown in the table below.
Royalty production
Topaz's average royalty
production for Q1 2021 and Q1 2020 was 11,743 boe/d and 10,378
boe/d, respectively and was 92% weighted to natural gas. Topaz
generates royalty revenue on existing production and may generate
royalty revenue on future development of the royalty
lands.
Royalty acreage activity
During Q1 2021, 79
gross wells were spud on Topaz's royalty acreage (68 gross wells on
acreage operated by Tourmaline and 11 gross wells on Topaz's
greater Clearwater acreage) and 70
gross wells were brought on production (30 gross wells drilled
during Q1 2021 and 40 gross wells drilling during prior periods)
which represents a 93% increase in capital activity relative to Q1
2020, when 41 gross wells were spud on Topaz's royalty acreage (all
operated by Tourmaline). Topaz expects the additional wells
drilled but not completed by March 31,
2021 will be brought on production during the remainder of
2021.
|
|
Three
months
ended
Mar. 31,
2021
|
Three
months
ended
Mar. 31,
2020
|
Royalty production
revenue
|
|
|
|
Natural
gas(3)
|
|
18,251
|
10,783
|
Light and medium crude
oil(3)
|
|
1,661
|
912
|
Heavy crude
oil(3)
|
|
244
|
─
|
Natural gas
liquids(3)(4)
|
|
4,023
|
2,819
|
Total
|
|
24,179
|
14,514
|
Average royalty
production
|
|
|
|
Natural gas
(mcf/d)(3)
|
|
64,729
|
57,672
|
Light and medium crude
oil (bbl/d)(3)
|
|
285
|
216
|
Heavy crude oil
(bbl/d)(3)
|
|
50
|
─
|
Natural
gas liquids (bbl/d)(3)(4)
|
|
620
|
550
|
Total
(boe/d)
|
|
11,743
|
10,378
|
Realized royalty
production prices
|
|
|
|
Natural gas
($/mcf)(3)
|
|
$3.13
|
$2.05
|
Light and medium crude
oil (C$/bbl)(3)
|
|
$64.66
|
$46.35
|
Heavy crude oil
($/bbl)(3)
|
|
$54.34
|
─
|
Natural gas liquids
(C$/bbl)(3)(4)
|
|
$72.11
|
$56.35
|
Total
($/boe)
|
|
$22.88
|
$15.37
|
Benchmark
Pricing
|
|
|
|
Natural
gas
|
|
|
|
AECO 5A
(CAD$/mcf)
|
|
$3.17
|
$2.04
|
Crude oil
|
|
|
|
NYMEX WTI
(USD$/bbl)
|
|
$58.14
|
$46.17
|
Edmonton Par
(CAD$/bbl)
|
|
$68.98
|
$51.89
|
WCS differential
(USD$/bbl)
|
|
$12.42
|
$20.19
|
Natural gas
liquids
|
|
|
|
Edmonton Condensate
(CAD$/bbl)
|
|
$74.98
|
$66.45
|
CAD$/USD$
|
|
$0.7899
|
$0.7443
|
Royalty Acreage
Activity(1)
|
|
|
|
Gross wells spud
during the period
|
|
79
|
41
|
Gross wells spud and
brought on production(2)
|
|
30
|
37
|
Total gross wells
brought on production during the period(5)
|
|
70
|
37
|
(1)
|
Refers to the number
of wells spud or brought on production, as indicated, by the
working interest owners (operators). Topaz does not directly
conduct upstream petroleum and natural gas exploration and
development operations.
|
(2)
|
Refers to wells
brought on production which were spud within the respective period;
does not take into consideration wells spud during previous
periods.
|
(3)
|
Refer to
"Supplemental Information Regarding Product Types."
|
(4)
|
Natural gas liquids
is primarily comprised of condensate.
|
(5)
|
Includes wells
drilled during the current and previous periods on Topaz royalty
acreage.
|
Infrastructure
Processing
revenue
The Company's processing revenue
is generated through its non-operated ownership in processing
facilities. The facilities provide processing services to
customers on a fee-for-service basis. Certain fees include fixed
take-or-pay arrangements under long-term commercial
arrangements.
During Q1 2021 and Q1 2020, Topaz generated $10.5 million and $6.0
million, respectively, of processing revenue attributed to
its non-operated ownership in processing facilities. Average
daily utilization during Q1 2021 and Q1 2020 of Topaz's net natural
gas processing capacity was 99% and 100%, respectively, which is
attributed to the significant utilization of Topaz's net processing
capacity (73% and 59% of which is contracted under fixed
take-or-pay for Q1 2021 and Q1 2020, respectively).
Other income
The Company generates income by
way of a contracted interest in third party revenue generated
through fee-for-service processing contracts with no underlying
facility ownership, including but not limited to, processing,
compression and water handling revenue, generated at multiple
facilities owned by Tourmaline pursuant to the respective third
party fee handling agreements. These facilities include natural gas
processing plants, crude oil batteries, pipelines, water disposal
facilities, compressor stations and other miscellaneous facilities
associated with the handling of crude oil, natural gas and natural
gas liquids. The facilities are located across all three of
Tourmaline's core operating areas and are operated by Tourmaline.
Topaz does not have an ownership interest in the underlying
assets.
During Q1 2021 and Q1 2020, Topaz generated other income of
$3.1 million and $2.3 million, respectively. Other income of
$3.1 million for Q1 2021 includes
interest income of $0.1 million.
There was $nil interest income in Q1 2020.
($000s)
|
|
Three
months ended Mar. 31, 2021
|
Three
months ended Mar. 31, 2020
|
Processing
revenue
|
|
10,471
|
5,968
|
Other
income(2)
|
|
3,117
|
2,277
|
Total
|
|
13,588
|
8,245
|
Infrastructure
utilization activity
|
|
|
|
Natural gas
processing facilities(1):
|
|
|
|
Ownership capacity
under fixed take-or-pay contract
|
|
125,000
|
50,000
|
Variable ownership
capacity
|
|
48,548
|
35,500
|
Total ownership
capacity
|
|
173,548
|
85,500
|
Total throughput
volume
|
|
171,992
|
85,429
|
Total
utilization (%)
|
|
99%
|
100%
|
(1)
|
Weighted average
daily rate (Topaz net ownership mcf/d) for the periods
presented.
|
(2)
|
Other income of $3.1
million for Q1 2021 includes interest income of $0.1 million. There
was $nil interest income in Q1 2020.
|
Additional information
Additional information about Topaz, including the financial
statements and management's discussion and analysis for the year
ended December 31, 2020 as well as
the Company's 2020 Annual Information Form are available
electronically under the Company's profile on SEDAR, www.sedar.com,
and on Topaz's website, www.topazenergy.ca.
Q1 2021 CONFERENCE CALL
Topaz will host a conference
call tomorrow, May 7, 2021 starting
at 9:00 a.m. MST (11:00 a.m. EST). To participate in the conference
call, please dial 1-888-664-6392 (North American toll free) a few
minutes prior to the call. Conference ID is 79413805.
2021 ANNUAL & SPECIAL MEETING
Topaz will host its
2021 Annual & Special Meeting of Shareholders virtually at
https://web.lumiagm.com/265325039 on June
23, 2021 at 10:00 a.m. MST
(11:00 a.m. EST).
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: Topaz's future growth outlook and strategic plans; the
anticipated capital expenditure plans and production increases
relating to completed and planned acquisitions; the timing for the
closing of acquisitions; social and governance initiatives;
expected production increases and capital commitments on the
royalty lands; estimated levels of 2021 EBITDA and year-end net
debt (cash); the near term growth strategy to utilize cash as
well as leverage to invest in additional acquisition growth
opportunities and the level of such leverage; the future
declaration and payment of dividends and the timing and amount
thereof; the forecasts described under the heading "Increased
2021 Guidance Estimates" above, including annual average royalty
production, processing revenue and other income, EBITDA, annual
dividends, exit adjusted working capital, and capital expenditures
(excluding acquisitions) for 2021; other expected benefits from
acquisitions 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 acquisitions on the terms or on
the timing announced or at all and the failure to realize
some or all of the anticipated benefits of acquisitions including
estimated royalty production, royalty production revenue and free
cash flow per share growth, and the factors discussed in the
Company's recently filed Management's Discussion and Analysis (See
"Forward-Looking Statements" therein), Annual Information Form (See
"Risk Factors" and "Forward-Looking Statements" therein) and other
reports on file with applicable securities regulatory authorities
and may be accessed through the SEDAR website (www.sedar.com) or
Topaz's website (www.topazenergy.ca).
Statements relating to "reserves" are also deemed to be forward
looking information, as they involve the implied assessment, based
on certain estimates and assumptions, that the reserves described
exist in the quantities predicted or estimated and that the
reserves can be profitably produced in the future.
Without limitation of the foregoing, future dividend payments,
if any, and the level thereof is uncertain, as the Company's
dividend policy and the funds available for the payment of
dividends from time to time is dependent upon, among other things,
free cash flow, financial requirements for the Company's
operations and the execution of its growth strategy, fluctuations
in working capital and the timing and amount of capital
expenditures, debt service requirements and other factors
beyond the Company's control. Further, the ability of Topaz to pay
dividends will be subject to applicable laws (including the
satisfaction of the solvency test contained in applicable corporate
legislation) and contractual restrictions contained in the
instruments governing its indebtedness, including its credit
facility.
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 EBITDA range and revenue for the year ending December 31, 2021 and range of year-end adjusted
working capital for 2021, 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 "Revised 2021 Guidance Estimates" above
and are based on the following key assumptions: Topaz's estimated
capital expenditures (excluding acquisitions) of $1.0 to $2.0
million in 2021; the working interest owners' anticipated
2021 capital plans attributable to Topaz's royalty lands; 2021
estimated average annual royalty production range of 12,000 to
12,200 boe/d; 2021 average infrastructure ownership capacity
utilization of 100%; 2021 third party income of $10.0 million; December
31, 2021 exit adjusted working capital range between
$94.0 and $96.0 million and 2021 average commodity prices
of: $2.93/mcf (AECO 5A natural gas),
US$59.76/bbl (NYMEX WTI),
US$12.50/bbl (WCS oil differential),
US$4.33/bbl (MSW oil differential)
and US$/CAD$ foreign exchange 0.79. To the extent such estimates
constitute financial outlooks, they were approved by management and
the board of directors of Topaz on May 6,
2021 and are included to provide readers with an
understanding of the estimated EBITDA for the year ending
December 31, 2021 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" and "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.
OIL AND GAS METRICS
This news release contains certain oil and gas metrics which do
not have standardized meanings or standard methods of calculation
and therefore such measures may not be comparable to similar
measures used by other companies and should not be used to make
comparisons. Such metrics have been included in this document to
provide readers with additional measures to evaluate the Company's
performance; however, such measures are not reliable indicators of
the Company's future performance and future performance may not
compare to the Company's performance in previous periods and
therefore such metrics should not be unduly relied upon.
INITIAL PRODUCTION (IP) RATES
Any references in this news release to initial production (IP)
rates are useful in confirming the presence of hydrocarbons;
however such rates are not determinative of the rates at which such
wells will continue production and decline thereafter and are not
necessarily indicative of long-term performance or ultimate
recovery. While encouraging, readers are cautioned not to
place reliance on such rates in calculating the aggregate
production. Such rates are based on field estimates and may
be based on limited data available at the time.
General
See also "Forward-Looking Statements", and "Non-GAAP Financial
Measures" in the most recently filed Management's Discussion and
Analysis.
SUPPLEMENTAL INFORMATION REGARDING PRODUCT TYPES
This news release includes references to guidance estimates for
2021 average daily production. The following table is intended to
provide supplemental information about the product type composition
for each of the production figures that are provided in this news
release:
For the
periods ended
|
Three months
ended
March 31, 2020
|
Three months
ended
March 31, 2021
|
March 17, 2021
Previous Guidance
Estimates
|
May 6, 2021
Revised Guidance
Estimates
|
Average daily
production
|
|
|
|
|
Light and Medium crude
oil (bbl/d)
|
216
|
285
|
199
|
350
|
Heavy crude oil
(bbl/d)
|
─
|
50
|
76
|
79
|
Conventional Natural
Gas (mcf/d)
|
37,520
|
41,839
|
42,468
|
43,608
|
Shale Gas
(mcf/d)
|
20,152
|
22,890
|
22,008
|
22,008
|
Natural Gas
Liquids(1) (bbl/d)
|
550
|
620
|
679
|
735
|
Total
(boe/d)
|
10,378
|
11,743
|
11,700(2)
|
12,100(2)
|
(1)
|
Natural Gas Liquids
is primarily comprised of condensate.
|
(2)
|
Estimated using the
midpoint of the estimated 2021 average annual royalty production
range.
|
SOURCE Topaz Energy Corp