Topaz Energy Corp. Announces Third Quarter 2020 Financial Results, Declares Quarterly Dividend and Provides 2021 Guidance

CALGARY, AB, Nov. 10, 2020 /CNW/ - Topaz Energy Corp. (TSX: TPZ) ("Topaz" or the "Company") is pleased to announce financial results for the three and nine months ended September 30, 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.

Guidance

(million except boe/d)	Quarter ended Dec. 31, 2020	Year ended Dec. 31, 2020	Year ended Dec. 31, 2021	2021 Growth
Average royalty production (boe/d)	10,100	10,100	11,500 – 11,600	14 – 15%
Processing revenue and other income^(3)	$7.6	$20.7	$30.3	46%
EBITDA^(2)	$27.0	$89.0	$123.0	38%

^(1)	Comprised of royalty production revenue, processing revenue and other income.
^(2)	Refer to "Non-GAAP Financial Measures".
^(3)	Includes fixed processing revenue under long-term take-or-pay commitments of: Q4 2020 - $7.6 million (60%); FY 2020 - $20.7 million (51%); and FY 2021 - $30.3 million (61%).

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).

FINANCIAL INFORMATION

For the periods ended	Sept. 30, 2020	Sept. 30, 2020	June 30, 2020	Mar. 31, 2020
($000s) except per share	Nine months	Three months	Three months	Three months
Revenue:
Royalty production revenue	41,275	14,826	11,935	14,514
Processing revenue	20,452	9,188	5,296	5,968
Other income^(4)	7,450	2,384	2,789	2,277
Total	69,177	26,398	20,020	22,759
Cash expenses:
Operating	(2,562)	(691)	(1,016)	(855)
Marketing	(413)	(201)	(122)	(90)
General and administrative	(3,273)	(1,030)	(1,249)	(994)
Realized loss on financial instruments	(694)	(506)	(188)	─
Interest expense	(136)	(76)	(60)	─
Cash flow^(1)	62,099	23,894	17,385	20,820
Per share^(2)	$0.73	$0.26	$0.22	$0.26
Cash from operating activities	50,755	12,571	24,234	13,950
Per share^(2)	$0.60	$0.13	$0.30	$0.17
Net loss	(5,294)	(2,935)	(1,125)	(1,234)
Per basic and diluted share^(2)	$(0.06)	$(0.03)	$(0.01)	$(0.02)
EBITDA^(1)	62,187	23,922	17,445	20,820
EBITDA margin^(1)	90%	91%	87%	91%
Dividends paid	50,642	18,642	16,000	16,000
Per share^(2)	$0.60	$0.20	$0.20	$0.20
Payout ratio^(1)	82%	78%	92%	77%
Weighted average shares outstanding^(3)	84,493	93,126	80,257	80,000
Capital expenditures	784	513	159	112
Acquisitions	153,500	153,500	─	─
Average Royalty Production
Natural gas (mcf/d)	56,040	55,400	55,056	57,672
Oil and condensate (bbl/d)	739	737	715	766
Total (boe/d)	10,079	9,970	9,891	10,378
Realized Royalty Production Prices
Natural gas ($/mcf)	$2.10	2.26	$2.00	$2.05
Oil ($/bbl)	$39.81	48.66	$26.14	$46.35
Condensate ($/bbl)	$46.02	49.27	$30.61	$56.35
Benchmark Pricing
Natural Gas
AECO 5A (CAD$/mcf)	$2.10	$2.25	$2.00	$2.04
Oil and condensate
NYMEX WTI (USD$/bbl)	$38.21	$40.92	$28.00	$46.17
Edmonton Par (CAD$/bbl)	$43.66	$49.06	$30.24	$51.89
Edmonton Condensate (CAD$/bbl)	$47.64	$51.71	$31.74	$66.45
CAD$/USD$	$0.7393	$0.7507	$0.7220	$0.7443
($000s)		At Sept. 30, 2020	At June 30, 2020	At Mar. 31, 2020
Total assets		794,787	793,323	679,858
Working capital		21,844	148,745	25,620
Adjusted working capital^(1)		23,917	149,180	25,475
Net debt (cash)^(1)		17,082	149,180	25,475
Common shares outstanding^(3)		93,208	91,690	80,000

^(1)	Refer to "Non-GAAP Financial Measures"
^(2)	Calculated using weighted average shares outstanding
^(3)	(000) shares
^(4)	Includes interest income of $0.05 million for the three and nine months ended September 30, 2020

MD&A and Financial Statements

Topaz's financial statements and management's discussion and analysis for the three and nine-months ended September 30, 2020 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: the forecasts described under the heading "Guidance" above; planned funding for the Royalty Acquisition; expected increases in production from the Royalty Acquisition lands and expansion of Tourmaline's capital plan over the next two years; estimated royalty production, royalty production revenue and free cash flow per share growth from the Royalty Acquisition lands in 2021 and 2022; expected closing date of the Royalty Acquisition; other expected benefits from the Royalty Acquisition 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 the Royalty Acquisition on the terms or on the timing announced  or at all and the failure to realize some or all of the anticipated benefits of the Royalty Acquisition including estimated royalty production, royalty production revenue and free cash flow per share growth , and the factors discussed under "Notice to Investors – Forward-Looking Information" and "Risk Factors" in the supplemented PREP prospectus dated October 19, 2020. 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 processing revenue and other income and EBITDA for the quarter and year ending December 31, 2020 and the year ending December 31, 2021 and the royalty production revenue and free cash flow per share growth to be generated from the Royalty Acquisition in 2021 and 2022, respectively, 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 "Guidance" above and with respect to the royalty production revenue and free cash flow per share growth to be generated from the Royalty Acquisition, the following assumptions: a natural gas price of $2.99/mcf in 2021 and $2.68/mcf in 2022; an average light oil (MSW and PSO) price of $46.53CAD/bbl in 2021 and $46.15CAD/bbl in 2022; a condensate price of $52.10CAD/bbl in 2021 and $50.93CAD/bbl in 2022; a currency exchange rate of $0.76 (US/CAD) in 2021 and 2022; and 109,939,065 Company common shares outstanding. To the extent such estimates constitute financial outlooks, they were approved by management and the board of directors of Topaz on November 10, 2020 and are included to provide readers with an understanding of the royalty production revenue and free cash flow per share growth to be generated from the Royalty Acquisition in 2021 and 2022 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",  "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.

SOURCE Topaz Energy Corp

Topaz Energy Corp., Marty Staples, President and Chief Executive Officer, [phone]; Cheree Stephenson, VP Finance and CFO, [phone]

Related Links

https://topazenergy.ca/