Topaz Energy Corp. has entered into a non binding agreement with Tamarack Valley Energy Ltd. ("Tamarack") for the purchase of a newly created gross overriding royalty interest underpinned by a multi-year minimum capital development commitment for total purchase consideration of $13.7 million (the "Royalty Acquisition").
The Royalty Acquisition demonstrates Topaz's strategy of generating free cash flow growth while enabling Tamarack to advance its own growth.
Pursuant to the Royalty Acquisition, Topaz will acquire a newly created 4% gross overriding royalty interest on predominantly crude oil production on approximately 45,000 acres of developed and undeveloped lands in the greater Clearwater area of Alberta ("Clearwater"). In addition, Tamarack will provide a three year capital development commitment. Topaz will fund the Royalty Acquisition from its available cash on hand.
Current production from the Royalty Acquisition lands is approximately 550 bbl/d which includes 500 bbl/d of Nipisi Slave Point, low decline light to medium crude oil which is currently under waterflood. In addition, there are two Clearwater crude oil wells currently being brought on production and one well being drilled. The Royalty Acquisition is expected to close on or before March 31, 2021 unless amended by mutual agreement of the parties, subject to entering into definitive agreements and satisfaction of customary closing conditions including Tamarack completing the acquisitions it announced on March 5, 2021.
Strategic Rationale
The Clearwater ranks amongst the strongest and fastest growing oil plays in the WCSB and is characterized by appealing economic and environmental characteristics including low well costs, high quality large OOIP resource, moderate initial decline profiles, competitive netbacks, decreased land usage with the use of multi-leg drilling, and minimal water and no sand requirements as the completion operations do not require fracture stimulation. The total recoverable resource in the Clearwater continues to expand with success from exploration drilling and the play is well suited for waterflood or enhanced oil recovery projects.
Topaz Acquisition Benefits
The Royalty Acquisition provides Topaz a 32% increase to its existing Clearwater royalty acreage and Topaz estimates, based on its 2021 guidance provided on November 4, 2020, the Royalty Acquisition is accretive on a free cash flow per share basis in 2021.
