Topaz Energy Corp. Announces Strategic Acquisition of Additional Montney Royalty Assets in NEBC which Provides 8% Per Share Growth to 2022 Free Cash Flow

CALGARY, AB, July 15, 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 royalty interests 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 296,000 gross acres in the NEBC Montney play area, for total cash consideration of $145.0 million (the "NEBC Montney Royalty Acquisition"), which will be funded through Topaz's existing credit facilities. The NEBC Montney Royalty Acquisition lands were recently acquired by Tourmaline pursuant to its ongoing NEBC consolidation strategy, including the acquisition of privately owned Black Swan Energy as well as developed and undeveloped acreage from Paramount Resources in the Birch area of the North Montney trend.  Upon close of the acquisition, Topaz will own royalty interests on 100% of Tourmaline's NEBC Montney acreage.

NEBC Montney Royalty Acquisition

Pursuant to the NEBC Montney Royalty Acquisition, Topaz will acquire a newly created gross overriding royalty interest on natural gas, crude oil, and condensate production on approximately 296,000 gross acres of Tourmaline's developed and undeveloped lands in the NEBC Montney play area, which will increase Topaz's existing, contiguous NEBC Montney royalty acreage by 53%.  The gross overriding royalty interest to be acquired by Topaz is: i) 4% on natural gas production until December 31, 2023 and 3% thereafter; and ii) 2.5% on crude oil and condensate production.

The NEBC Royalty Acquisition is expected to close on August 3, 2021, subject to satisfaction of customary closing conditions.  

Strategic Rationale

The NEBC Montney Royalty Acquisition assets' current production is approximately 50,000 boe/d⁽³⁾ (19% natural gas liquids) which is expected to increase to approximately 60,000 boe/d⁽⁴⁾ in 2022 upon completion of deep cut facility enhancements which are currently underway.  Tourmaline has identified over 1,700 gross future drilling locations on the underlying lands. 

Acquisition Benefits

The NEBC Montney Royalty Acquisition is expected to increase Topaz's 2022 average royalty production by over 1,800 boe/d⁽⁵⁾, enhances Topaz's near and long-term free cash flow profile and is accretive to Topaz's 2022 per share metrics, including 8% on both EBITDA⁽¹⁾⁽²⁾ and free cash flow⁽¹⁾⁽²⁾ and 14% on royalty production⁽²⁾.  Topaz estimates its pro forma 2021 exit net debt / EBITDA⁽¹⁾⁽²⁾ to be approximately 1.2x and its 2021 estimated payout ratio⁽¹⁾⁽²⁾ to be 58%, slightly below its 60 to 90% target range.  Upon closing of the NEBC Royalty Acquisition, Topaz will own royalty interests on approximately 770,000 gross acres in the NEBC Montney play area, from which production is expected to average approximately 175,000 boe/d during 2022 and Tourmaline is well positioned to accelerate growth over the next decade in order to provide critical supply for future LNG export. 

NEBC Montney (Laprise/Conroy/Gundy) Royalty and Infrastructure Acquisition Update

On July 1, 2021, Topaz completed its previously announced (May 18, 2021) acquisition from Tourmaline, for the purchase of gross overriding royalty interests on approximately 535,000 gross acres (288,000 gross acres of Montney rights) in the Laprise/Conroy North Montney play area of NEBC 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.

Second Quarter 2021 Results and Updated 2021 Guidance

Topaz plans to release its second quarter 2021 results and updated 2021 guidance estimates on Thursday, July 29, 2021 after markets close. Topaz will host a conference call on Friday, July 30, 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 14446806.

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.

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 Royalty Acquisition; expected production increases and capital commitments on the royalty lands; estimated levels of EBITDA,⁽¹⁾ free cash flow⁽¹⁾ and net debt / EBITDA⁽¹⁾; future dividend levels and declaration and payment of dividends and the timing and amount thereof; other expected benefits from the NEBC Montney Royalty Acquisition including enhancing Topaz's future growth outlook and providing value enhancing assets including the information described under the heading "NEBC Montney Royalty Acquisition - Acquisition Benefits" above; 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⁽⁶⁾, 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 "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 per share," "cash flow," "free cash flow," "free cash flow per share," "payout ratio," "adjusted working capital," "net debt," "net debt / EBITDA" and "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," "free cash flow," "adjusted working capital," "net debt" and "net debt / EBITDA" 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 per share" is defined as EBITDA divided by the weighted average common shares outstanding during the respective period. "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.  "Adjusted working capital" is current assets less current liabilities, adjusted for financial instruments and "net debt" is total debt outstanding less adjusted working capital.  "Net debt / EBITDA" is year ending net debt divided by the trailing twelve month EBITDA during the respective year. 

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.  

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 the nature of its business is taken from and based solely upon information published by Tourmaline. The Company has not independently verified the accuracy or completeness of any such information.

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.