TPZ Topaz Energy Corp

CALGARY, AB, Sept. 12, 2022 /CNW/ - Topaz Energy Corp. (TSX: TPZ) ("Topaz" or the "Company") is pleased to announce that in continuing with its profitable and accretive acquisition growth strategy, it has entered into definitive agreements with Deltastream Energy Corporation ("Deltastream"), a privately held pure-play Clearwater Canadian oil producer, for the purchase of a newly created 5% gross overriding royalty on all current and future oil production from Deltastream's entire Clearwater acreage in Alberta (the "Royalty Lands"), for total cash consideration of $265.3 million (the "Strategic Acquisition"). 

The Royalty Lands represent one of the largest unencumbered asset bases in the Clearwater. The Strategic Acquisition will be funded through Topaz's existing credit facility and is expected to close on September 29, 2022, subject to satisfaction of customary closing conditions. In light of the Strategic Acquisition, Topaz is pleased to announce a 7% increase to the Company's quarterly dividend which represents the fifth dividend increase to date (50% on a cumulative basis) and provides a current dividend yield of 6%.⁽¹⁾  

• Deltastream's Clearwater acreage (100% operated; 70% undeveloped) is concentrated in well-delineated core areas spanning the Marten Hills, Nipisi and Canal operating regions and will increase Topaz's existing Clearwater royalty acreage by 26%. The Clearwater resource play is characterized as amongst the best in class, fastest growing oil play in the WCSB due to technological advancements over the past few years that have enhanced multi-zone drilling opportunities. Based on Deltastream's internal estimates, the underlying resource attributed to the Royalty Lands amasses over four billion barrels of exploitable original oil in place. The heavy grade of oil produced in the Clearwater is highly conducive to enhanced recovery upside techniques. Deltastream, along with other area operators, continue to invest their attention and development capital toward these techniques which aim to provide significant upside opportunity through increased production recovery rates and extended life of the resource inventory.
  
  
• The Clearwater resource play has one of the lowest environmental footprints and provides better inflation protection among North American oil plays, attributed to pipeline connected, multi-well pad developments that do not use significant fresh water as fracture stimulation operations are not required (reducing costs and mitigating service availability risk). In addition, the multi-well pad development techniques reduce surface disturbance.
  
  
• Deltastream generated average heavy oil production of 16,685 bbl/d from the assets pertaining to the Strategic Acquisition during the second quarter of 2022 which would have generated 834 bbl/d⁽⁴⁾ of heavy oil royalty production and $34.9 million⁽⁴⁾ in annualized royalty revenue to Topaz, had the new overriding royalty been in place during that time. The representative second quarter royalty production implies 70% growth relative to Topaz's 1,191 bbl/d average heavy oil royalty production and 5% growth relative to Topaz's 16,676 boe/d⁽⁶⁾ average total royalty production, during the same time period. Deltastream's recent development activity has generated growth to approximately 19,000 bbl/d of average heavy oil production during the month of July. Topaz expects that Deltastream's undeveloped acreage will continue to attract commodity-resilient development capital and further grow to a range of 24,000 to 25,000 bbl/d of heavy oil by 2024⁽³⁾ attributed to lower capital costs driving superior economics; well-established area infrastructure; and upside opportunity through enhanced oil recovery and tertiary recovery schemes.
  
  
• Immediately following close of the Strategic Acquisition, Topaz estimates its Clearwater royalty production will exceed 2,000 boe/d⁽⁷⁾ and Topaz will have royalty interests across nearly 700,000 gross acres in the greater Clearwater area. The pro forma acreage position is strategically concentrated in the core areas of the Clearwater, Marten Hills, Nipisi and Jarvie, which provides considerable scale and well delineated upside opportunity attributable to further development by the working interest operators of the acreage.

• Topaz estimates its 2022 exit net debt⁽²⁾ will be between $370.0 and $380.0 million^(3,5) and the Company's net debt to Q4 2022 annualized EBITDA⁽²⁾ will be approximately 0.9x^(3,5).  Topaz plans to provide updated 2022 guidance estimates subsequent to the close of the Strategic Acquisition, together with the Company's third quarter financial results on November 1, 2022.
• The dividend increase to $1.20 per share, (paid $0.30 per share on a quarterly basis), demonstrates Topaz's strategy to continue to provide modest and sustainable dividend increases alongside strategic growth and will commence for the fourth quarter of 2022 dividend.⁽³⁾  In regard to the Company's previously announced third quarter dividend of $0.28 per share, in honor of the National Day for Truth and Reconciliation, the dividend will be paid September 29, 2022.  

Additional information about Topaz is available on SEDAR at www.sedar.com under the Company's profile, and on Topaz's website, www.topazenergy.ca.

Topaz is a unique royalty and infrastructure energy company focused on generating free cash flow (FCF)⁽²⁾ growth and paying reliable and sustainable dividends to its shareholders, through its strategic relationship with Canada's largest and most active natural gas producer, 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. Topaz focuses on top quartile energy resources and assets best positioned to attract capital in order to generate sustainable long-term growth and profitability.

The Topaz royalty and energy infrastructure revenue streams are generated primarily from assets operated by natural gas producers with some of the lowest greenhouse gas emissions intensity in the Canadian senior upstream sector, including Tourmaline, which has received awards for environmental sustainability and conservation efforts. Certain of these producers have set long-term emissions reduction targets and continue to invest in technology to improve environmental sustainability.

Topaz's common shares are listed and posted for trading on the TSX under the trading symbol "TPZ" and it is included in the S&P/TSX Composite Index. This is the headline index for Canada and is the principal benchmark measure for the Canadian equity markets, represented by the largest companies on the TSX.

For further information, please visit the Company's website  www.topazenergy.ca. Topaz's SEDAR filings are available at www.sedar.com.

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 funding of the Strategic Acquisition and the timing for closing of the Strategic Acquisition; internal resource estimates pertaining to the Royalty Lands; the benefits of the Clearwater resource play; the expectation that Delatstream's undeveloped acreage will continue to attract commodity-resilient development capital and provide for further production growth by 2024 attributed to lower capital costs driving superior economics, well-established area infrastructure, and upside opportunity through enhanced oil recovery and tertiary recovery schemes; estimated 2022 exit net debt range and estimated net debt to Q4 2022 annualized EBITDA; the timing to provide updated 2022 guidance estimates; the future declaration and payment of dividends and the timing and amount thereof; the forecasts described under the heading "Strategic Acquisition" and "2022 Guidance and Dividend Update"; and the Company's business as described under the heading "About the Company" above.

Forward‐looking statements are 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 statements.

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 and production revenue, and the factors discussed in the Company's recently filed Management's Discussion and Analysis (See "Forward-Looking Statements" therein), 2021 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" and "resources" are also deemed to be forward looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves and resources described exist in the quantities predicted or estimated and that the reserves and resources 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, FCF, 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 statements, whether as a result of new information, future events or otherwise, except as expressly required by applicable law.

Also included in this news release are estimates of the Company's 2022 exit net debt range and net debt to Q4 2022 annualized EBITDA, 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 "2022 Guidance and Dividend Update " above and are based on the following key assumptions: Topaz's guidance estimates and underlying assumptions previously disclosed in the Company's July 27, 2022 news release, incorporating the effect of the Strategic Acquisition as follows: purchase consideration of $265.3 million funded using available credit capacity; estimated Q4 2022 average royalty production to be generated from the Royalty Lands subsequent to close of the Strategic Acquisition of 950 bbl/d of heavy oil; and and average commodity prices of US$90.00/bbl (NYMEX WTI), US$18.00/bbl (WCS oil differential), and US$/CAD$ foreign exchange 0.77.

To the extent such estimates constitute financial outlooks, they were approved by management and the board of directors of Topaz on September 12, 2022 and are included to provide readers with an understanding of the estimated 2022 exit net debt range and net debt to Q4 2022 annualized EBITDA based on the assumptions described herein and readers are cautioned that the information may not be appropriate for other purposes.

Certain financial terms and measures contained in this news release are "specified financial measures" (as such term is defined in National Instrument 52-112 - Non-GAAP and Other Financial Measures Disclosure ("NI 52-112")). The specified financial measures referred to in this news release are comprised of "non-GAAP financial measures", "capital management measures" and "supplementary financial measures" (as such terms are defined in NI 52-112). These measures are defined, qualified, and where required, reconciled with the nearest GAAP measure in Topaz's most recently filed Management's Discussion and Analysis.

The non-GAAP financial measures 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. 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.  

Capital management measures

Capital management measures are defined as financial measures disclosed by an issuer that are intended to enable an individual to evaluate the entity's objectives, policies and processes for managing the entity's capital, are not a component of a line item or a line item on the primary financial statements, and which are disclosed in the notes to Topaz's most recently filed consolidated financial statements. The Company's capital management measures as disclosed in the notes to the Interim Consolidated Financial Statements include adjusted working capital, net debt (cash) and free cash flow (FCF).

Supplementary financial measures

The following terms are financial measures as defined under the Company's Syndicated Credit Facility, presented in the notes to Topaz's most recently filed consolidated financial statements: (i) consolidated senior debt, (ii) total debt, (iii) EBITDA and (iv) capitalization.

For additional information, refer to "Non-GAAP and Other Financial Measures" in Topaz's most recently filed Management's Discussion and Analysis which may be accessed through the SEDAR website (www.sedar.com) or Topaz's website (www.topazenergy.ca).

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.

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.

In particular, this news release makes reference to original oil in place ("OOIP") which means discovered petroleum initially in place ("DPIIP"). DPIIP is derived by Deltastream's internal Qualified Reserve Evaluators ("QRE") and prepared in accordance with National Instrument 51-101 and the Canadian Oil and Gas Evaluations Handbook ("COGEH"). DPIIP, as defined in COGEH, is that quantity of petroleum that is estimated, as of a given date, to be contained in known accumulations prior to production. The recoverable portion of DPIIP includes production, reserves and resources other than reserves (ROTR). OOIP/DPIIP and potential recovery rate estimates are based on current recovery technologies. There is significant uncertainty as to the ultimate recoverability and commercial viability of any of the resource associated with OOIP/DPIIP, and as such a recovery project cannot be defined for a volume of OOIP/DPIIP at this time. "Internally estimated" means an estimate that is derived by Deltastream's internal QRE's and prepared in accordance with National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities. All internal estimates contained in this new release have been prepared effective as of Jan 1, 2021.

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.

See also "Advisories and Forward-Looking Statements" and "Non-GAAP and Other Financial Measures" in the most recently filed Management's Discussion and Analysis. 

This news release includes references to Topaz's average royalty production for the three months ended June 30, 2022. 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:

SOURCE Topaz Energy Corp