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Topaz Energy Third Quarter 2020 Results

Share Print Bookmark    |    Tuesday,November 10,2020

Highlights:

• Generated total revenue and other income⁽¹⁾ of $26.4 million and $69.2 million for the three and nine months ended September 30, 2020, respectively;
• Generated EBITDA⁽²⁾ of $23.9 million and $62.2 million, realizing an EBITDA margin⁽²⁾ of 91% and 90%, for the three and nine months ended September 30, 2020, respectively;
• Paid dividends of $18.6 million ($0.20 per share) and $50.6 million ($0.60 per share), representing a payout ratio⁽²⁾ of 78% and 82%, for the three and nine months ended September 30, 2020, respectively;
• On November 10, 2020, declared its fourth quarter dividend of $0.20 per share which is payable on December 31, 2020 to shareholders of record on December 15, 2020. This quarterly cash dividend is designated as an “eligible dividend” for Canadian income tax purposes;
• On June 29, 2020 and July 6, 2020, Topaz completed a private placement consisting of 13.2 million common shares for gross proceeds of $145.3 million;
• Completed $153.5 million of acquisitions during the third quarter of 2020 including an infrastructure acquisition from an arm’s length third party on July 2, 2020 for $100.0 million; an infrastructure acquisition from Tourmaline Oil Corp. (“Tourmaline”) on September 1, 2020 for $52.5 million; and acquisition of a newly created gross overriding royalty interest on undeveloped land from an arm’s length third party on September 1, 2020 whereby a portion of the consideration is held in escrow subject to the fulfillment of a two-well drilling commitment by the vendor;
• On October 26, 2020, Topaz completed its initial public offering and its common shares now trade on the Toronto Stock Exchange under the symbol “TPZ”. The offering consisted of a treasury offering by the Company and a secondary offering by its majority shareholder, Tourmaline, of an aggregate of 17.7 million common shares for gross proceeds to the Company and Tourmaline of approximately $217.5 million and $13.0 million, respectively. On November 9, 2020, the underwriters exercised the over-allotment option in full, and purchased 2.5 million common shares at $13.00 per share, for gross proceeds to the Company of $32.6 million;
• On November 4, 2020, Topaz entered into a definitive agreement for the purchase of additional royalty assets from Tourmaline (the “Royalty Acquisition”). Pursuant to the Royalty Acquisition, Topaz will acquire a newly created 2% gross overriding royalty interest on natural gas production until December 31, 2021; with a 3% gross overriding royalty interest on natural gas thereafter, and a 2.5% gross overriding royalty interest on crude oil and condensate production from 720,000 gross acres of developed and undeveloped lands to be acquired by Tourmaline in the Alberta Deep Basin (“Deep Basin”), which is contiguous with Topaz’s existing Deep Basin royalty interest acreage, for total cash consideration of $130 million. Topaz will fund the Royalty Acquisition from its available cash on hand. The Royalty Acquisition is expected to close on January 1, 2021, subject to satisfaction of customary closing conditions including Tourmaline completing a corporate acquisition it announced on November 4, 2020. Topaz estimates that, based on Tourmaline’s estimated capital plan attributable to the Royalty Acquisition lands, the Royalty Acquisition will provide royalty production growth of 12% in 2021, and 24% in 2022. Topaz estimates that, based on current forward commodity prices and Tourmaline’s estimated capital plan attributable to the Royalty Acquisition lands, the Royalty Acquisition is expected to generate royalty production revenue of approximately $9.3 million and $13.0 million in 2021 and 2022, respectively, and free cash flow growth on a per share basis, of over 7% and 12% in 2021 and 2022, respectively. The Royalty Acquisition enhances Topaz’s future growth outlook and is consistent with its strategy to acquire value-enhancing assets that are accretive on a per share basis;
• As at November 10, 2020, Topaz has 112.4 million common shares outstanding, no debt, an undrawn $125.0 million credit facility and approximately $258.0 million of cash and working capital which Topaz expects to use for royalty and infrastructure acquisitions.

The foregoing guidance estimates are based on the following key assumptions:

• Successful completion of the Royalty Acquisition;
• Tourmaline’s anticipated 2020-2021 capital plan attributable to Topaz’s royalty lands;
• Infrastructure throughput volume consistent with average actual throughput during the nine months ended September 30, 2020;
• Q4 2020 commodity price assumptions: natural gas price of $2.92/mcf, light oil (PSO) price of $44.50CAD/bbl, condensate price of $50.50CAD/bbl and an exchange rate estimated at $0.76 (US/CAD);
• 2021 commodity price assumptions: natural gas price of $2.99/mcf, average light oil (MSW and PSO) price of $46.53CAD/bbl, condensate price of $52.10CAD/bbl and an exchange rate estimated at $0.76 (US/CAD).