Topaz Energy Corp. 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.
