Topaz Announces Strategic Water Infrastructure Acquisition in the Alberta Montney

Source: 1/25/2021, Location: North America

Topaz Energy Corp. has entered into a strategic alliance with a private midstream water company ("Co-Venturer"), and together, entered into definitive agreements to each acquire a working interest in certain water infrastructure assets from an E&P producer ("Producer") along with a long-term fixed take-or-pay water disposal agreement whereby the Producer retains operatorship and obtains committed access to cost efficient and environmentally responsible water disposal, sourcing and storage (the "Water Infrastructure Acquisition"). The Water Infrastructure Acquisition provides capital to the Producer and demonstrates Topaz's growth strategy to provide free cash flow growth and diversification for Topaz.

Pursuant to the Water Infrastructure Acquisition, Topaz, together with its Co-Venturer, will acquire a 99% non-operated working interest in pipeline connected disposal facilities along with water storage reservoirs in one of the most prolific areas of the Alberta Montney for total cash consideration of $24 million (Topaz's 50% share of $12 million was funded from its available cash on hand). Topaz and its Co-Venturer also entered into an option agreement ("Option Agreement") which provides an option to invest up to an additional $20 million in future expansions in exchange for a pre-determined economic return through an incremental long-term fixed take-or-pay commitment.

Strategic Rationale
The Alberta Montney has well defined, prolific economic resources which provide high quality, long life, liquids-rich natural gas reserves and the Montney is considered one of Canada's most economic liquids-rich-natural gas plays. Topaz believes the Water Infrastructure Acquisition demonstrates the Producer's commitment to enhancing sustainability and environmental stewardship by reducing trucking and logistics costs and reducing freshwater used for completion activity.

Topaz Acquisition Benefits
Pursuant to the Water Infrastructure Acquisition, Topaz will generate $27.8 million total gross processing revenue over the 15 year term and Topaz will not be responsible for operating expenses. Incremental net processing revenue generated from third party utilization of the facilities could generate incremental return to Topaz. Topaz estimates, based on its 2021 guidance provided on November 4, 2020, the Water Infrastructure Acquisition is accretive on a free cash flow per share basis in 2021.

Topaz Activity Update
There are currently 12 active drilling rigs on the Company's royalty lands operated by Tourmaline Oil Corp. ("Tourmaline") which includes two drilling rigs on the royalty lands Topaz acquired in the Deep Basin area of Alberta on January 4, 2021.

There are currently two active drilling rigs on the Company's royalty lands in the Clearwater area of Alberta operated by Tamarack Valley Energy Ltd.

Topaz has acquired a 4% gross overriding royalty on approximately 11,000 gross acres in the greater Clearwater area of Alberta, pursuant to an area of mutual interest agreement, with a private operator for cash consideration of approximately $0.45 million.

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