/NOT FOR DISTRIBUTION TO U.S. NEWS WIRE
SERVICES OR DISSEMINATION IN THE UNITED
STATES/
CALGARY, AB, May 18, 2021 /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, premium
growth royalty interests complemented by stable infrastructure
revenue to generate free cash flow(1) growth, it has
entered into definitive agreements with Tourmaline Oil Corp.
("Tourmaline") for the purchase of gross overriding royalty
interests on approximately 535,000 gross acres in the NEBC Montney
and working interest ownership in Tourmaline's Gundy infrastructure which is supported by a
ten year fixed take-or-pay commitment, for total cash consideration
of $245.0 million (the "NEBC Montney
Acquisition"); and purchased from Cenovus Energy Inc. ("Cenovus"),
its existing gross overriding royalty interests on approximately
192,000 gross acres in the Marten Hills Clearwater area of
Alberta operated by Headwater
Exploration Inc. ("Headwater") for total cash consideration of
$102.0 million (the "Clearwater
Acquisition"). The NEBC Montney Acquisition and the
Clearwater Acquisition are, together, the "Strategic
Acquisitions".
The aggregate cash consideration payable in connection with the
Strategic Acquisitions of $347.0
million will be funded through a $175.0 million bought deal equity financing
("Equity Financing") and Topaz's existing cash on hand and credit
facilities.
Acquisition Highlights
- Increased royalty position in amongst the fastest
growing, most economic crude oil and natural gas plays in
North America
-
- 134% increase to Topaz's NEBC Montney royalty lands
(Montney rights) to 503,000 gross
acres
- 89% increase to Clearwater
royalty lands (Clearwater rights)
to 366,800 gross acres
- Well capitalized, amongst the best-in-class industry
operators positioned to deliver long-term growth
-
- Tourmaline's production from the NEBC Montney Acquisition lands
is expected to grow from approximately 22,600 boe/d(2)
currently to over 100,000 boe/d by 2030(9)
- Headwater's production from the Clearwater Acquisition lands is
expected to grow from approximately 4,600 bbl/d(2) of
crude oil currently to a sustainable production base of 13,000 –
14,000 bbl/d(5)
- Expanded long-term contracted infrastructure portfolio with
a new take-or-pay contract
-
- Non-operated 10% working interest in Tourmaline's newly built,
leading-edge, anchor Montney
infrastructure in Gundy at which
capacity is currently being doubled to 400 MMcf/d(6)
(the "Gundy Facility Complex")
- o $10.2 million fixed annual
infrastructure EBITDA(1) pursuant to a ten-year fixed take-or-pay
from an investment grade senior Canadian E&P company which
provides 32% growth to Topaz's existing long-term fixed take-or-pay
revenue portfolio
- Enhanced EBITDA,(1) long-term free cash
flow(1) growth profile and increased
dividend
-
- Before consideration of Tourmaline and Headwater's remaining
2021 capital development activity, the Strategic Acquisitions
provide $24.9 million March 2021 annualized EBITDA(3)(4);
which represents 18% growth to Topaz Q1 2021 annualized
EBITDA(3)(4) and together with the Equity Financing,
provide 6% free cash flow per share growth(3)(4)
- 5% dividend increase to $0.84 per
share annually with a 2021 estimated payout ratio(1)
within the lower end of Topaz's targeted range of 60-90%
- Strong pro forma balance sheet provides financial
flexibility to continue acquisition strategy
-
- Q1 2021 proforma net debt(4) of $77.4 million (0.5x pro forma net
debt(4) to 2021 annualized adjusted pro forma
EBITDA(3)(4))
- Over $200 million in liquidity
available on existing $300 million
credit facility
- Complementary to Topaz's ESG-integrated investment
strategy
-
- Tourmaline has amongst the lowest net emissions of senior
Canadian producers
- Headwater has a high-quality Clearwater acreage position and expects to
minimize its environmental footprint with pipeline connected
multi-well pad development
Topaz Acquisition Benefits
Topaz believes the Strategic Acquisitions provide a
strategic opportunity to partner with Tourmaline and
Headwater, each of whom are well capitalized and proven, amongst
the best-in-class, industry operators. The Strategic
Acquisitions are expected to deliver near and long-term growth for
Topaz consisting of fixed annual infrastructure
EBITDA(1) of $10.2 million
for ten years and no capital expenditure requirements beyond
Topaz's working interest share of maintenance capital; royalty
production revenue from current production of approximately 27,200
boe/d(2) (38% crude oil and natural gas
liquids); and long-term growth in conjunction with the
acceleration of Tourmaline and Headwater's future capital
development. The Strategic Acquisitions are expected to provide
Topaz with $24.9 million March 2021 annualized
EBITDA(3)(4) which represents 18% growth to Topaz
Q1 2021 annualized EBITDA(3)(4); and together with
the Equity Financing, provide 6% free cash flow per share
growth(3)(4). Topaz estimates it will derive
further acquisition benefits as Tourmaline and Headwater execute
their planned future capital development activities.
Strategic Rationale
NEBC Montney
The
NEBC Montney is well known as the most prolific liquids-rich
natural gas resource in Western
Canada due to its vast geographic coverage and significant
reserve potential. According to Canada's Energy Regulator, B.C. natural gas
production continues to increase at a faster rate than other
Canadian natural gas production; 2020 average annual B.C. natural
gas production of 5.4 Bcf/d more than doubled from 2.6 Bcf/d in
2005; and development of tight gas in the Montney is the primary factor behind B.C.'s
gas production doubling between 2006 and 2018(7).
Topaz estimates that the B.C. Montney is expected to provide the largest
natural gas production growth in the WCSB over the next decade.
In recent years, leading industry
participants have made significant multi-year capital investments
which continue to unlock the resource potential of the NEBC Montney
including: (1) LNG Canada's $40
billion LNG export project which is expected to come online
by the mid-2020s; require approximately 1.9 Bcf/d of natural gas
supply; and if expanded would require up to 4 Bcf/d of natural gas
supply ("LNG Canada"); (2) TC Energy's Coastal GasLink natural gas
pipeline project which is anticipated to deliver natural gas across
Northern B.C. to LNG Canada; (3) TC Energy's recently completed
North Montney Mainline, a $1.1
billion extension of the NGTL system in the North Montney; and (4) Enbridge's significant
pipeline expansion of the northern section of its critical pipeline
infrastructure in B.C.
Alberta Clearwater
The Clearwater play in Alberta ranks amongst the most economic and
fastest growing oil plays in the WCSB. It is characterized by
strong economic and environmental characteristics including low
well costs, moderate initial decline profiles, competitive
netbacks, decreased land usage through the use of multi-leg
drilling, and minimal water and no sand requirements as the
completion operations do not require fracture stimulation. The
total recoverable resource in the Alberta Clearwater continues to
expand with success from exploration drilling and the play is well
suited for future enhanced oil recovery projects.
Overview of the Acquired Assets
NEBC Montney Royalty Assets
Pursuant to the NEBC Montney Acquisition, Topaz will acquire a
newly created gross overriding royalty interest on shale gas, crude
oil, and condensate production on approximately 535,000 gross acres
of developed and undeveloped lands (288,000 gross acres of
Montney rights) which Tourmaline
has acquired over the past year pursuant to its NEBC Montney
consolidation strategy. The gross overriding royalty interest to be
acquired by Topaz is: i) 4% on shale gas production until
December 31, 2022 and 3% thereafter;
and ii) 2.5% on crude oil and condensate production. Tourmaline has
identified approximately 1,700 gross future drilling locations on
the underlying lands. The NEBC Montney Acquisition Montney
royalty lands will increase Topaz's existing, 215,000 gross acres
of contiguous NEBC Montney royalty lands by 134%.
NEBC Montney growth
strategy
The NEBC Montney Acquisition
assets' current production is approximately 22,600
boe/d(2) (25% crude oil and natural gas
liquids). Tourmaline expects that over the next five years,
its North Montney growth will
shift to the greater Conroy area where it envisages development of
a separate new operated complex ultimately producing at similar
levels to its Gundy core complex,
which is currently producing over 60,000 boe/d(2) which
Tourmaline has grown through development drilling.
During the winter of 2020,
Tourmaline drilled a five-well pad in its 2020-acquired
Laprise-Conroy area of NEBC, which tested at a combined final rate
of 46 MMcf/d of shale gas and 3,970 bbl/d of natural gas liquids
(primarily condensate) after three day per well flow
tests(8).
NEBC Montney Infrastructure Assets
Topaz will also acquire a non-operated 10% working interest in
the Gundy Facility Complex pursuant to the NEBC Montney
Acquisition. The Gundy Facility Complex is Tourmaline's
newest natural gas plant; is situated in close proximity to both TC
Energy's North Montney Mainline and Enbridge's recent T-North
expansion; will be capable of 400 MMcf/d of natural gas processing
capacity; and has an operating life in excess of 40 years well
supported by underlying Montney
reserves. Under the terms of the acquisition of the Gundy Facility
Complex, Topaz will not be responsible for capital costs related to
the expansion and has negotiated a ten-year fixed take-or-pay
commitment, from Tourmaline, during which Topaz will earn a fixed
fee of $0.70 per Mcf for 100% of its
40 MMcf/d working interest capacity which will generate
$10.2 million of annual fixed
infrastructure EBITDA(1) as Topaz will not be
responsible for operating costs during the ten-year term.
Topaz estimates its working interest share of maintenance
capital expenditures related to the Gundy Facility Complex will not
significantly change its current annual capital expenditure
profile(10). Tourmaline anticipates its Gundy
Facility Complex will continue to maintain the full utilization it
has realized to date given its position as the anchor to
Tourmaline's North Montney
infrastructure.
Alberta Clearwater Royalty Assets
Pursuant to the Clearwater Acquisition, Topaz will acquire
Cenovus' existing gross overriding royalty interest on conventional
natural gas, crude oil, and natural gas liquids production on
approximately 192,000 gross acres of developed and undeveloped
lands in the Marten Hills Clearwater area of Alberta (172,800 gross acres of Clearwater rights) which are operated by
Headwater. The Clearwater Acquisition royalty lands will
increase Topaz's existing, 194,000 gross acres of greater
Clearwater royalty lands by
89%.
Alberta Clearwater growth strategy
In conjunction with the Q4 2020
acquisition of the Marten Hills assets from Cenovus, Headwater
entered into a $100.0 million capital
development commitment, of which approximately $37.5 million has been spent to March 31, 2021. Headwater's crude oil
production from the Clearwater Acquisition assets in March 2021 was approximately 4,600
bbl/d(2) of crude oil and Headwater estimates that its
Clearwater crude oil production
will grow to a sustainable production base of 13,000 – 14,000
bbl/d.(5) Headwater's 2021 guidance includes
capital spending of $105.0 to
$110.0 million on these lands.
During Q1 2021, Headwater drilled 12, 8-leg multi-lateral
producing wells, 5 horizontal water injection wells, 2 source water
wells and 1 stratigraphic test; and commenced initial waterflood
injection in April 2021. Headwater has also begun
construction on a natural gas plant, jointly-owned with another
area operator, that is expected to be commissioned in July 2021 which will enable gas conservation from
its production in the area.
The Clearwater Acquisition royalty
lands include a significant amount of exploration lands.
Prior to its divestiture to Headwater, Cenovus drilled seven
exploration wells and recent industry activity continues to
delineate the exploration lands with wells being drilled and
licensed on offsetting lands. Headwater is currently planning to
drill additional exploration wells in 2021 and 2022 to further
delineate the exploration lands.
Dividend Increase
Topaz will be increasing its dividend 5% to $0.84 per share annually commencing with its
third quarter 2021 dividend. This increased dividend represents a
2021 estimated payout ratio(1) within the lower end of
Topaz's targeted range of 60-90%.
Equity Financing
Topaz has entered into an agreement with a syndicate of
underwriters co-led by Peters & Co. Limited and BMO Capital
Markets (the "Underwriters"), pursuant to which the Underwriters
have agreed to purchase for resale to the public, on a bought-deal
basis, 12.3 million common shares ("Common Shares") of Topaz
at a price of $14.25 per Common Share
for gross proceeds of approximately $175.0
million. The Underwriters will have an option to purchase up
to an additional 15% of the Common Shares issued under the Equity
Financing at a price of $14.25 per
Common Share to cover over-allotments exercisable and for market
stabilization purposes in whole or in part at any time until 30
days after the closing.
The Common Shares issued pursuant to the Equity Financing will
be distributed by way of a short form prospectus in all provinces
of Canada and may also be placed
privately in the United States to
Qualified Institutional Buyers (as defined under Rule 144A under
the United States Securities Act of 1933, as amended (the "U.S.
Securities Act")) pursuant to the exemption provided by Rule 144A
under the U.S. Securities Act, and may be distributed outside
Canada and the United States on a basis which does not
require the qualification or registration of any of the Company's
securities under domestic or foreign securities laws. The Common
Shares have not been and will not be registered under the U.S.
Securities Act, and this news release does not constitute an offer
of securities for sale in the United States. The Common
Shares may not be offered or sold in the
United States absent registration or an exemption from
registration.
Completion of the Equity Financing is subject to customary
closing conditions, including the receipt of all necessary
regulatory approvals, including the approval of the Toronto Stock
Exchange. Closing of the Equity Financing is expected to occur on
June 8, 2021. Closing of the
Equity Financing is not conditional on the closing of the Strategic
Acquisitions. In the event that the Strategic Acquisitions do
not close, the net proceeds from the Equity Financing will be used
to fund future acquisitions and for internal working capital
purposes.
In conjunction with the Equity Financing, certain officers,
directors and employees of Topaz and their associates intend to
purchase up to 0.2 million Common Shares at a price of
$14.25 per Common Share on a private
placement basis.
Topaz Acquisition Funding
Topaz will fund the Strategic Acquisitions through the
$175.0 million Equity Financing and
Topaz's existing cash on hand and credit facilities. The
Clearwater Acquisition closed May 18,
2021. The NEBC Montney Acquisition is expected to close on or
about July 1, 2021 and is subject to
customary closing conditions as set forth in the definitive
agreements, including the accuracy of representations and
warranties and the performance of covenants. Topaz estimates
its Q1 2021 proforma net debt(4) will be $77.4 million which represents 0.5x pro forma net
debt(4) to Q1 2021 annualized adjusted pro forma
EBITDA(3)(4).
Advisors
Peters & Co. Limited is acting as financial advisor to Topaz
with respect to the Clearwater Acquisition. Burnet, Duckworth &
Palmer LLP is acting as counsel with respect to the NEBC Montney
Acquisition, Clearwater Acquisition and the Equity Financing.
Notes:
|
(1)
|
Refer to "Non-GAAP
Financial Measures."
|
(2)
|
Refer to
"Supplemental Information Regarding Product
Types."
|
(3)
|
Refer to
"Annualized Adjusted Pro Forma EBITDA, Free Cash Flow and Free
Cash Flow per Share."
|
(4)
|
Refer to "Adjusted
Pro Forma Non-GAAP Financial Measures."
|
(5)
|
Source: "Headwater
Exploration Inc. May 2021 corporate presentation."
|
(6)
|
Source:
"Tourmaline Oil Corp. May 18, 2021 news release."
|
(7)
|
Source: Canada Energy
Regulator website "CER – Provincial and Territorial
Energy Profiles - British Columbia
(cer-rec.gc.ca)."
|
(8)
|
Source:
"Tourmaline Oil Corp. May 5, 2021 news release."
|
(9)
|
Source:
Tourmaline internal estimates related to the NEBC Montney
Acquisition lands which are incorporated within Tourmaline's
greater B.C. Montney development growth plans as disclosed in
Tourmaline's May 2021 corporate presentation.
|
(10)
|
Topaz owns royalty
interests and non-operated interests in infrastructure
assets. Topaz's capital expenditures (excluding acquisitions)
are limited to its working interest share of maintenance capital
related to its infrastructure assets. During the three months
ended December 31, 2020 and March 31, 2021, Topaz's total capital
expenditures (excluding acquisitions) were $0.5 million and $0.6
million, respectively.
|
ADDITIONAL INFORMATION
Additional information about Topaz, including the financial
statements and management's discussion and analysis for the year
ended December 31, 2020 and the three
months ended March 31, 2021 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.
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 benefits to be
derived from the NEBC Montney Acquisition and the Clearwater
Acquisition; the timing for the completion of the NEBC Montney
Acquisition; the statements relating to the Equity Financing
including the size of the Equity Financing, the use of proceeds
under the Equity Financing, the expected participation of insiders
in the concurrent private placement, the anticipated closing of the
Equity Financing and concurrent private placement, the receipt of
all regulatory approvals for the Equity Financing including the
approval of the Toronto Stock Exchange; the environmental benefits
associated with the acquisitions; expected production increases and
capital commitments on the royalty lands; estimated levels of
EBITDA,(1) free cash flow(1) and net
debt(1); the future dividend increase and declaration
and payment of dividends and the timing and amount
thereof; the information described under the heading
"Annualized Adjusted Pro Forma EBITDA, Free Cash Flow and Free Cash
Flow per Share(3)(4)" below; other expected benefits
from the NEBC Montney Acquisition and the Clearwater Acquisition
including enhancing Topaz's future growth outlook and providing
value enhancing assets; 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 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,(1) 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.
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 the terms "EBITDA",
"cash flow", "free cash flow," "free cash flow per share," "payout
ratio", "adjusted working capital" and "net debt" 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," "cash flow", "free cash
flow," "free cash flow per share," "payout ratio", "adjusted
working capital" and "net debt" 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)
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, 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. "Cash flow"
is cash from (used in) operations before changes in non-cash
working capital. "Free cash flow" is defined as cash flow
less capital expenditures. "Free cash flow per share" is
defined as free cash flow divided by the weighted average common
shares outstanding during the respective period. "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" is total debt outstanding less adjusted working
capital.
ADJUSTED PRO FORMA NON-GAAP FINANCIAL MEASURES
References are made in this news release to the terms "adjusted
pro forma EBITDA," "annualized adjusted pro forma EBITDA,"
"annualized adjusted pro forma free cash flow," "annualized
adjusted pro forma free cash flow per share," "pro forma net debt"
and "pro forma net debt to annualized adjusted pro forma EBITDA"
which are presented by management to estimate the financial impact
attributed to the Strategic Acquisitions, before consideration of
future development by Tourmaline or Headwater, relative to Topaz's
existing assets. These adjusted pro forma measures 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.
"Adjusted pro forma EBITDA," "adjusted pro forma free cash flow"
and "adjusted pro forma free cash flow" are used in the table below
under the heading "Annualized Adjusted Pro Forma EBITDA, Free Cash
Flow and Free Cash Flow per Share" to represent an estimate of the
pro forma EBITDA and free cash flow that would have been generated
by the Strategic Acquisitions, had the interests, assets and the
underlying contracts been in place and owned by Topaz, using the
most recent production information available (March 2021) and Tourmaline's estimated annual
maintenance capital budget in respect of the Gundy Facility
Complex; and by Topaz, based upon the actual financial results for
the three months ended March 31,
2021. "Annualized adjusted pro forma EBITDA," "annualized
adjusted pro forma free cash flow" and "annualized adjusted pro
forma free cash flow per share" are used in the table below under
the heading "Annualized Adjusted Pro Forma EBITDA, Free Cash Flow
and Free Cash Flow per Share" to represent the estimated pro forma
EBITDA, free cash flow and free cash flow per share for the
Strategic Acquisitions and Topaz, as defined above, on an
annualized basis.
"Pro forma net debt" for purposes of this news release,
estimates Topaz's net debt as at March 31,
2021 pro forma the Strategic Acquisitions and Equity
Financing, being $77.4 million, as
follows: Topaz's adjusted working capital as at March 31, 2021 of $94.6
million less the total cash consideration of $347.0 million attributed to the Strategic
Acquisitions plus $175.0 million
estimated gross proceeds from the Equity Financing (prior to the
effect of the exercise of the underwriters' over-allotment option
or shares issued pursuant to the private placement).
"Pro forma net debt to annualized adjusted pro forma EBITDA" for
purposes of this news releases, estimates Topaz's leverage ratio
pro forma the Strategic Acquisitions and Equity Financing, being
0.5x, as follows: pro forma net debt as at March 31, 2021 of $77.4
million divided by 2021 annualized adjusted pro forma EBITDA
of $163.2 million.
"Annualized adjusted pro forma free cash flow per share growth"
for purposes of this news release, calculates the percentage change
in estimated pro forma free cash flow per share attributed to the
Strategic Acquisitions and the Equity Financing, of $1.28 per share, relative to Topaz's
annualized free cash flow per share for the three months ended
March 31, 2021 of $1.21 per share; based on assumptions which
include the annualized March 2021
adjusted pro forma free cash flow attributed to the Strategic
Acquisitions, the shares to be issued as described in "Equity
Financing" (prior to the effect of the exercise of the
underwriters' over-allotment option or shares issued pursuant to
the private placement), Topaz's current estimated annual borrowing
rate applied to the pro forma net debt of $77.4 million (described above) and Topaz's
working interest share of Tourmaline's estimated annual maintenance
capital budget in respect of the Gundy Facility Complex of
$0.1 million.
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.
DRILLING LOCATIONS
This news release discloses Tourmaline's drilling locations, on
or before April 15, 2021, in four
categories: (i) proved undeveloped locations; (ii) probable
undeveloped locations; (iii) unbooked locations; and (iv) an
aggregate total of (i), (ii) and (iii). Of the 1,677 (gross)
locations on the NEBC Montney Acquisition royalty lands, 222 are
proved undeveloped locations, 212 are probable undeveloped
locations and 1,243 are unbooked locations. Proved undeveloped
locations and probable undeveloped locations are booked and derived
from Tourmaline's consolidated independent reserve report as of
December 31, 2020 or internally
estimated by a qualified reservoir engineer on or before
April 15, 2021, and account for
drilling locations that have associated proved and/or probable
reserves, as applicable. Unbooked locations are internal estimates
based on Tourmaline's prospective acreage and an assumption as to
the number of wells that can be drilled per section based on
industry practice. Unbooked locations do not have attributed
reserves or resources (including contingent and prospective).
Unbooked locations have been identified by Tourmaline management as
an estimation of Tourmaline's multi-year drilling activities based
on evaluation of applicable geologic, seismic, engineering,
production and reserves information. There is no certainty that
Tourmaline will drill all unbooked drilling locations and if
drilled there is no certainty that such locations will result in
additional oil and gas reserves, resources or production. The
drilling locations on which Tourmaline will actually drill wells,
including the number and timing thereof is ultimately dependent
upon the availability of funding, regulatory approvals, seasonal
restrictions, crude oil and natural gas prices, costs, actual
drilling results, additional reservoir information that is obtained
and other factors.
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.
MARKET, INDEPENDENT THIRD-PARTY AND INDUSTRY DATA
Certain market, independent third-party and industry data
contained in this news release is based upon information from
government or other independent industry publications and reports
or based on estimates derived from such publications and reports.
Government and industry publications and reports generally indicate
that they have obtained their information from sources believed to
be reliable, but the Company has not conducted its own independent
verification of such information. This news release also includes
certain data, including production, well count estimates, capital
expenditures and other operational results, derived from public
filings made by independent third parties. While the Company
believes this data to be reliable, market and industry data is
subject to variations and cannot be verified with complete
certainty due to limits on the availability and reliability of raw
data, the voluntary nature of the data gathering process and other
limitations and uncertainties inherent in any statistical survey.
The Company has not independently verified any of the data from
independent third-party sources referred to in this news release or
ascertained the underlying assumptions relied upon by such
sources.
INFORMATION REGARDING PUBLIC-ISSUER COUNTERPARTIES
Certain information contained in this news release relating to
the Company's public issuer counterparties which include Tourmaline
and Headwater and the nature of their respective businesses is
taken from and based solely upon information published by such
issuers. The Company has not independently verified the accuracy or
completeness of any such information.
SUPPLEMENTAL INFORMATION REGARDING PRODUCT TYPES
This news release includes references to average daily
production estimates for the month ended March 31, 2021. 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
month ended
|
NEBC
Montney Acquisition
March 31,
2021
|
Clearwater Acquisition
March 31,
2021
|
Strategic Acquisitions
March 31,
2021
|
Average daily
production
|
|
|
|
Light
and Medium crude oil (bbl/d)
|
7
|
─
|
7
|
Heavy crude oil
(bbl/d)
|
─
|
4,598
|
4,598
|
Shale Gas
(Mcf/d)
|
101,111
|
─
|
101,111
|
Natural Gas Liquids
(bbl/d)
|
5,730
|
─
|
5,730
|
Total
(boe/d)
|
22,589
|
4,598
|
27,187
|
|
Tourmaline Gundy
core complex
|
Tourmaline's average
daily production from its Gundy core complex during the three
months ended March 31, 2021 was 254 MMcf/d shale gas and 18,130
bbl/d of natural gas liquids.
|
ANNUALIZED ADJUSTED PRO FORMA EBITDA, FREE CASH FLOW AND FREE
CASH FLOW PER SHARE
The following summary has been prepared by the Company to
provide management's best estimate of the annualized adjusted pro
forma EBITDA,(6) free cash flow(6) and free
cash flow per share(6) that would be generated by the
Strategic Acquisitions relative to Topaz's existing assets,
before consideration of future development by Tourmaline or
Headwater, and incorporating the shares to be issued pursuant to
the Equity Financing (prior to the effect of the exercise of the
underwriters' over-allotment option or shares issued pursuant to
the private placement). The Company's assumptions in
preparing the foregoing analysis are set out in the notes below the
table. While these adjustments are estimates only, the Company
believes that the table below represents reasonable estimates of
the changes attributable to the Strategic Acquisitions and the
Equity Financing, relative to Topaz's existing assets and shares
outstanding.
|
|
|
|
|
|
|
(unaudited)
($000s except per
share amounts)
|
|
Q1
2021
Topaz Energy
Corp.
Annualized(1)
|
|
March
2021
Strategic Acquisitions
Annualized
Adjusted
Pro
Forma(2)
|
|
2021
Topaz Energy
Corp.
Annualized
Adjusted
Pro Forma(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty production
revenue
|
|
$96,716
|
|
$14,550
|
|
$111,266
|
Processing
revenue
|
|
41,884
|
|
10,416
|
|
52,300
|
Other
income(5)
|
|
11,888
|
|
─
|
|
11,888
|
|
|
150,488
|
|
24,966
|
|
175,454
|
Expenses
|
|
|
|
|
|
|
Operating
expense
|
|
3,888
|
|
─
|
|
3,888
|
Marketing
expense
|
|
948
|
|
78
|
|
1,026
|
Realized loss on
financial instruments
|
|
2,324
|
|
─
|
|
2,324
|
General and
administrative expense
|
|
5,064
|
|
─
|
|
5,064
|
|
|
12,224
|
|
78
|
|
12,302
|
Annualized
Adjusted Pro Forma EBITDA(6)
|
|
138,264
|
|
24,888
|
|
163,152
|
Less: net interest
expense(9)
|
|
(60)
|
|
(1,316)
|
|
(1,376)
|
Annualized
Adjusted Pro Forma Cash
Flow(6)
|
|
138,204
|
|
23,572
|
|
161,776
|
Less: capital
expenditures(10)
|
|
(2,244)
|
|
(100)
|
|
(2,344)
|
Annualized
Adjusted Pro Forma Free
Cash
Flow
|
|
$135,960
|
|
$23,472
|
|
$159,432
|
Annualized
Adjusted Pro Forma Free
Cash Flow Per
Share ($ per share)(7)
|
|
|
|
|
|
$1.28
|
|
|
|
|
|
|
|
Notes:
|
(1)
|
"Q1 2021 Topaz
Energy Corp. Annualized" refers to the actual financial
results of Topaz Energy Corp. for the three months ended March 31,
2021, adjusted to reflect an annualized basis (multiplied by four)
as presented in the table below. Topaz's actual financial
results for the three months ended March 31, 2021 do not include
acquisitions announced by Topaz which are scheduled to close
subsequent to March 31, 2021.
|
(unaudited)
($000s
except per share amounts)
|
|
Q1
2021
Topaz
Energy
Corp.
|
|
Q1
2021
Topaz
Energy
Corp.
Annualized
|
|
|
|
|
|
Royalty production
revenue
|
|
$24,179
|
|
$96,716
|
Processing
revenue
|
|
10,471
|
|
41,884
|
Other
income(6)
|
|
2,972
|
|
11,888
|
|
|
37,622
|
|
150,488
|
Expenses
|
|
|
|
|
Operating
expense
|
|
972
|
|
3,888
|
Marketing
expense
|
|
237
|
|
948
|
Realized loss on
financial instruments
|
|
581
|
|
2,324
|
General and
administrative expense
|
|
1,266
|
|
5,064
|
|
|
3,056
|
|
12,224
|
Adjusted Pro Forma
EBITDA(6)
|
|
34,566
|
|
138,264
|
Less: net interest
expense(9)
|
|
(15)
|
|
(60)
|
Adjusted Pro Forma
Cash Flow(6)
|
|
34,551
|
|
138,204
|
Less: capital
expenditures(10)
|
|
(561)
|
|
(2,244)
|
Adjusted Pro Forma
Free Cash Flow(6)
|
|
$33,990
|
|
$135,960
|
Adjusted Pro Forma
Free Cash Flow Per
Share ($ per
share)(8)
|
|
$0.30
|
|
$1.21
|
|
|
(2)
|
"March 2021
Strategic Acquisitions Annualized Adjusted Pro Forma" was
calculated, in respect of the Strategic Acquisitions, using the
most recent production information available (March 2021) and the
terms of the infrastructure take-or-pay contract. Management
estimated the pro forma EBITDA, free cash flow and free cash flow
per share to Topaz had the interests, assets and the underlying
contracts been in place and owned by Topaz during the said
month. Management then calculated an annualized basis
(multiplied by 12). The following assumptions were used which
are presented in the table below:
|
|
a.
|
NEBC Montney
Acquisition During the month of March 2021, royalty assets'
average production of 22,589 boe/d (refer to "Supplemental
Information Regarding Product Types"), realized commodity
prices in accordance with the agreements of: C$2.72/Mcf (AECO 5A);
C$2.70/Mcf (Westcoast Station 2); C$72.89/bbl (Edmonton light
crude); and C$85.74/bbl (Edmonton condensate); and a 1% marketing
fee to Tourmaline in respect of marketing the royalty production on
Topaz's behalf. During the month of March 2021, the fixed
take-or-pay contract (40,000 Mcf/d at a fixed fee of $0.70/Mcf)
would have generated $0.9 million and Topaz is not responsible for
operating expenses.
|
|
b.
|
Clearwater
Acquisition During the month of March 2021, royalty assets'
average production of 4,598 bbl/d of heavy crude oil and the
realized commodity price in accordance with the agreement of:
C$56.89/bbl (Western Canadian Select heavy oil net of
transportation and quality adjustments).
|
|
c.
|
Interest
expense Topaz's current estimated annual borrowing rate
applied to the pro forma net debt of $77.4 million as described in
"Adjusted Pro Forma Non-GAAP Financial Measures."
|
|
d.
|
Capital
expenditures Topaz's working interest share of Tourmaline's
estimated annual maintenance capital budget in respect of the Gundy
Facility Complex being $0.1 million per year net to
Topaz.
|
(unaudited)
($000s except per
share amounts)
|
|
March
2021
NEBC
Montney
Acquisition
Adjusted
Pro
Forma
|
|
March
2021
Clearwater
Acquisition
Adjusted
Pro
Forma
|
|
March
2021
Strategic
Acquisitions
Adjusted
Pro
Forma
|
|
March
2021
Strategic
Acquisitions
Annualized
Adjusted
Pro
Forma
|
|
|
|
|
|
|
|
|
|
Royalty
production revenue
|
|
$645
|
|
$567
|
|
$1,212
|
|
$14,550
|
Processing revenue
|
|
868
|
|
─
|
|
868
|
|
10,416
|
|
|
1,513
|
|
567
|
|
2,080
|
|
24,966
|
Expenses
|
|
|
|
|
|
|
|
|
Operating
expense
|
|
─
|
|
─
|
|
─
|
|
─
|
Marketing
expense
|
|
6
|
|
─
|
|
6
|
|
78
|
|
|
6
|
|
─
|
|
6
|
|
78
|
Adjusted Pro Forma
EBITDA(6)
|
|
$1,507
|
|
$567
|
|
$2,074
|
|
$24,888
|
Less: interest
expense
|
|
|
|
|
|
|
|
(1,316)
|
Adjusted Pro Forma
Cash Flow(6)
|
|
|
|
|
|
|
|
23,572
|
Less: capital
expenditures
|
|
|
|
|
|
|
|
(100)
|
Adjusted Pro Forma
Free Cash Flow(6)
|
|
|
|
|
|
|
|
$23,472
|
|
|
(3)
|
"2021 Topaz Energy
Corp. Annualized Adjusted Pro Forma" refers to the sum of
"Q1 2021 Topaz Energy Corp. Annualized" and "March 2021
Strategic Acquisitions Annualized Adjusted Pro Forma" which the
Company believes represents a reasonable estimate of the annualized
adjusted pro forma EBITDA,(6) free cash
flow,(6) and free cash flow per
share(6)attributable to Topaz pro forma the Strategic
Acquisitions, based upon the most recent production information
available in respect of the Strategic Acquisitions, before any
further capital deployment by Tourmaline or Headwater with respect
to the acquired royalty lands and incorporating the shares to be
issued pursuant to the Equity Financing.
|
(4)
|
Refer to "Non-GAAP
Financial Measures."
|
(5)
|
Excludes interest
income.
|
(6)
|
Refer to "Adjusted
Pro Forma Non-GAAP Financial Measures."
|
(7)
|
Based on Topaz's
basic common shares outstanding as at March 31, 2021 of 112.6
million plus 12.3 million shares expected to be issued pursuant to
the Equity Financing (prior to the effect of any exercise of the
underwriters' over-allotment option or shares issued pursuant to
the private placement), for total pro forma common shares
outstanding as at March 31, 2021 of 124.9 million.
|
(8)
|
Based on Topaz's
weighted average basic common shares outstanding for the three
months ended March 31, 2021 of 112.5 million.
|
(9)
|
Interest expense net
of interest income.
|
(10)
|
Capital expenditures
excluding acquisitions.
|
General
See also "Forward-Looking Statements" and "Non-GAAP Financial
Measures" in the most recently filed Management's Discussion and
Analysis.
SOURCE Topaz Energy Corp