Topaz Energy Corp. Announces First Quarter 2021 Financial Results Which Includes 66% Revenue and EBITDA Growth, Declares $0.2...

CALGARY, AB, May 6, 2021 /CNW/ - Topaz Energy Corp. (TSX: TPZ) ("Topaz" or the "Company") is pleased to announce financial results for the three months ended March 31, 2021 and increased 2021 guidance estimates to incorporate recent acquisition activity.

Through a combination of organic growth, accretive acquisitions and stable EBITDA⁽²⁾ generated from Topaz's infrastructure assets, Topaz's total revenue and other income⁽¹⁾ grew 66% from the prior year. Topaz's low cost, high margin business enabled Topaz's first quarter EBITDA⁽²⁾ to correspondingly grow 66% from the prior year.  During the first quarter Topaz paid $0.20 per share in dividends representing a payout ratio⁽²⁾ of 65%, which has compressed from a 77% payout ratio⁽²⁾ in the first quarter of 2020.

During the first quarter of 2021 Topaz continued to execute its growth strategy, investing $144.0 million to acquire 765,000 gross acres of high margin gross overriding royalty interests in the Deep Basin and Clearwater areas of Alberta.  The acquisitions provide over 1,200 boe/d of annual average royalty production in 2021 and are supported by capital development for further growth.  Recent drilling results on the acquired royalty acreage have outperformed peers as well as Topaz's expectations.  Topaz also invested $12.0 million in infrastructure assets during the first quarter, acquiring a non-operated working interest in pipeline connected water management and conservation facilities secured by a 15 year fixed take or pay contract through which Topaz will earn $27.8 million in fixed processing revenue over the 15 year term. 

Since January 1, 2020 Topaz has invested approximately $386.0 million in cumulative royalty and infrastructure acquisitions which Topaz estimates will generate between $41.0 and $43.0 million of annualized EBITDA⁽²⁾ in 2021 and between $46.0 and $48.0 million in 2022, based on current commodity prices⁽⁵⁾.  Topaz's royalty acquisitions are underpinned by cumulative capital development spending estimated at $500.0 million over the next two years, which supports Topaz's future royalty production growth expectations.  Topaz's $300.0 million credit facility is undrawn and its March 31, 2021 adjusted working capital (after accounting for the royalty acquisition announced April 12, 2021) is estimated at $63.0 million.  Near term, Topaz's growth strategy is to utilize its cash as well as leverage of up to 1x its 2021 estimated EBITDA⁽²⁾⁽⁵⁾ range of $136.0 to 138.0 million to invest in additional acquisition growth opportunities.

Highlights of Topaz's financial results as at and for the three months ended March 31, 2021 ("Q1 2021") and March 31, 2020 ("Q1 2020"), significant transactions completed subsequent to March 31, 2021 ("Subsequent Period") and increased guidance estimates for 2021 are presented below:

Financial performance

• Generated 66% higher total revenue and other income⁽¹⁾ in Q1 2021 ($37.8 million) compared to Q1 2020 ($22.8 million) which was driven by 13% average royalty production volume growth, 75% higher processing revenue and a 55% increase in natural gas (AECO) pricing.
  
  
• Generated 66% higher EBITDA⁽²⁾ in Q1 2021 ($34.6 million) compared to Q1 2020 ($20.8 million).  Topaz realized an EBITDA margin⁽²⁾ of 92% and 91% in Q1 2021 and Q1 2020, respectively.

Royalty activity update

• Topaz's average royalty production⁽⁴⁾ of 11,743 boe/d in Q1 2021 grew 13% from 10,378 boe/d in Q1 2020.  Royalty production revenue of $24.2 million in Q1 2021 grew 67% from $14.5 million in Q1 2020 which is attributed to gross overriding royalty acquisitions, volume growth attributed to Topaz's existing royalty assets and improved commodity pricing (55% increase in natural gas (AECO) and 26% increase in crude oil (NYMEX WTI)).
  
  
• During Q1 2021, 79 gross wells were spud on Topaz's royalty acreage (68 gross wells on acreage operated by Tourmaline Oil Corp. ("Tourmaline") and 11 gross wells on Topaz's greater Clearwater acreage) and 70 gross wells were brought on production which represents a 93% increase in capital activity relative to Q1 2020, when 41 gross wells were spud on Topaz's royalty acreage (all operated by Tourmaline).

Infrastructure activity update

• During Q1 2021, Topaz generated $10.5 million, or 75% higher processing revenue attributed to its non-operated ownership in processing facilities compared to Q1 2020 ($6.0 million).  During Q1 2021 and Q1 2020, average daily utilization of Topaz's net natural gas processing capacity was 99% and 100%, respectively (73% and 59% of which is contracted under fixed take-or-pay, respectively).
  
  
• During Q1 2021, Topaz earned $3.1 million, or 35% higher other income ($3.0 million attributed to its contracted interest in third party infrastructure income and $0.1 million of interest income) compared to Q1 2020 ($2.3 million and $nil, respectively). 

Dividends paid

• The Company paid dividends of $22.5 million ($0.20 per share) in Q1 2021 representing a payout ratio⁽²⁾ of 65% compared to $16.0 million dividends paid in Q1 2020 representing a payout ratio⁽²⁾ of 77%.  On May 6, 2021, Topaz's Board declared its 2021 second quarter dividend of $0.20 per share which is expected to be paid on June 30, 2021 to shareholders of record on June 15, 2021.  This quarterly cash dividend is designated as an "eligible dividend" for Canadian income tax purposes.

Accretive growth transactions

• Topaz completed $156.0 million of acquisitions during Q1 2021 including:
  
   
• the January 1, 2021 acquisition, from Tourmaline, of a newly created gross overriding royalty interest on 720,000 gross acres of developed and undeveloped lands in the Alberta Deep Basin, for total cash consideration of $130.0 million ("Deep Basin Royalty Acquisition").  The Deep Basin Royalty Acquisition increased Topaz's existing Deep Basin royalty acreage by approximately 50%.  Tourmaline's Deep Basin production reached a record of over 260,000 boe/d (20% crude oil and natural gas liquids) in early April 2021 which was driven by stronger than anticipated performance on the Deep Basin Royalty Acquisition lands including a three-well pad yielding a combined 30-day IP rate of 6,090 boe/d (37% crude oil and natural gas liquids) and a two-well pad yielding a combined 30-day IP rate of 5,137 boe/d (22% crude oil and natural gas liquids).  Tourmaline has achieved significant capital cost reductions on the Deep Basin Royalty Acquisition lands relative to the assets' former operator, which directly benefits Topaz as the development capital allocated to the acreage can be directed to a greater number of wells drilled;
  
  
• the acquisition of a non-operated working interest in pipeline connected water management and conservation facilities ("Water Infrastructure Acquisition) for cash consideration of $12.0 million which is underpinned by a 15-year fixed take-or-pay commitment; and
  
  
• the acquisition of a newly created gross overriding royalty on approximately 45,000 acres of developed and undeveloped land in the greater Clearwater area, including a multi-year $60.0 million capital development commitment, for cash consideration of $13.7 million. 
  
  
• Topaz entered into definitive agreements during the Subsequent Period to acquire two separate royalty acquisitions for cumulative proceeds of $58.0 million, both of which are expected to close later in the second quarter:
  
  
• The previously announced acquisition from Tamarack Valley Energy Ltd., of a newly created gross overriding royalty on approximately 300,000 gross acres of developed and undeveloped lands in the Peace River High area of Alberta which are focused on Charlie Lake light oil development for cash consideration of $32.0 million ("Charlie Lake Royalty Acquisition");
  
  
• The acquisition from Reserve Royalty Income Trust ("Reserve Royalty") of its subsidiaries which hold all of the Reserve Royalty assets for approximately $26.0 million, payable through the issuance of 1,794,886 Topaz shares (the "Reserve Royalty Acquisition").  The Reserve Royalty Acquisitions adds a large royalty portfolio consisting of 345,000 gross acres of developed and undeveloped fee mineral title and royalty interest lands diversified across Western Canada, providing high margin, low decline royalty assets and free cash flow growth for Topaz.  

Environmental stewardship

• Topaz does not conduct oil and gas operations therefore is not responsible for the emissions or abandonment obligations associated with oil and gas operations.  Topaz is committed to up-holding and improving its environmental profile, and does so using disciplined ESG-integrated investment criteria through alignment with operators focused on strong environmental stewardship which has been demonstrated through Topaz's acquisitions:
  
  
  
• The majority of Topaz's natural gas royalty assets are operated by Tourmaline, who recently entered into a joint venture with Trican Well Service Ltd. to construct and utilize Canada's first low-emission fracturing fleet.  The new technology is anticipated to provide a reduction in emissions while reducing fuel costs.  In addition, Tourmaline continues to expand its water management and diesel displacement initiatives which reduce emissions, capital and logistics costs and freshwater usage.  Tourmaline received an 'A' rating in the MSCI Global ESG Performance Ranking for its sustainability and environmental initiatives.
  
  
• The Water Infrastructure Acquisition assets enable reduced freshwater use in completion activity and the pipeline connectivity of the assets enable reduced trucking emissions and costs. 
  
  
• The Charlie Lake Royalty Acquisition's underlying oil and gas assets have well established infrastructure which includes emission management infrastructure, resulting in a high rate of gas conservation and providing for low emissions intensity.
  
  
• Topaz owns a non-operated 12.5% working interest in the Advantage Oil & Gas Ltd. ("Advantage") operated Glacier natural gas processing facility ("Glacier").  Advantage, using technology owned by its subsidiary Entropy Inc., recently announced plans to deploy new carbon capture and storage technology at Glacier which is expected to reduce carbon emissions and compliance obligations attributable to Glacier.  Topaz and Advantage continue to discuss ways to expand their strategic partnership as Advantage and Entropy solidify their technology deployment strategy.

Funded for growth

• Topaz ended Q1 2021 with adjusted working capital⁽²⁾ of $94.6 million and its $300.0 million credit facility was undrawn.

Increased 2021 Guidance Estimates⁽⁵⁾

• Topaz's 2021 outlook is supported by the Company's confidence in Tourmaline's continued focus on developing Topaz's royalty acreage.  As at March 31, 2021 Topaz owns gross overriding royalty interests on approximately 90% of Tourmaline's acreage and overall Tourmaline expects to grow its production 3% to 5% per year in conjunction with their five year capital plan which directs over $1.0 billion per year of capital primarily to development drilling activity.  In addition, Topaz's royalty acquisitions are underpinned by capital development commitments which further support Topaz's future royalty production growth expectations.
  
  
• Topaz's 2021 guidance estimates, increased to reflect the Charlie Lake Royalty Acquisition and the Reserve Royalty Acquisition, are presented in the table below.  Topaz's estimates exclude any future acquisitions or deployment of capital pursuant to its growth strategy.

 

$mm except boe/d	March 17, 2021 Previous Guidance Estimates	May 6, 2021 Increased Guidance Estimates	Change in Estimates increase/(decrease)
Annual average royalty production (boe/d)(4)	11,600 – 11,800	12,000 – 12,200	3%(7)
Processing revenue and other income	50.8	51.7	2%
EBITDA(2)	128.0 - 130.6	136.0 – 138.0	6%(7)
Annual dividends ($0.80 per share)	90.1(6)	91.2(6)	1%
Exit adjusted working capital(2)	119.2 - 121.8	94.0 – 96.0	(22%)(7)
Capital expenditures (excluding acquisitions)	1.0 – 2.0	1.0 – 2.0	-
Commodity price assumptions
AECO 5A (CAD$/mcf)	$2.77	$2.93	6%
NYMEX WTI (US$/bbl)	$60.41	$59.76	(1)%
US$/CAD$ foreign exchange	0.78	0.79	1%

(1)	Comprised of royalty production revenue, processing revenue and other income.
(2)	Refer to "Non-GAAP Financial Measures."
(3)	Includes wells drilled during the current and previous periods on Topaz royalty acreage.
(4)	Refer to "Supplemental Information Regarding Product Types."
(5)	Refer to "Forward Looking Statements."
(6)	Estimated based on 114.4 million shares outstanding (proforma Corporate Royalty Acquisition).  The Company's dividend payments remain subject to Board approval.
(7)	Estimated using the midpoint of the 2021 annual average royalty production estimates.

Selected Financial Information

For the periods ended		Mar. 31, 2021	Dec. 31, 2020	Sept. 30, 2020	Jun. 30, 2020	Mar. 31, 2020
($000s) except per share		Three months	Three months	Three months	Three months	Three months
Royalty production revenue		24,179	17,611	14,826	11,935	14,514
Processing revenue		10,471	10,305	9,188	5,296	5,968
Other income(4)		3,117	2,783	2,384	2,789	2,277
Total		37,767	30,699	26,398	20,020	22,759
Cash expenses:
Operating		(972)	(1,643)	(691)	(1,016)	(855)
Marketing		(237)	(176)	(201)	(122)	(90)
General and administrative		(1,266)	(673)	(1,030)	(1,249)	(994)
Realized loss on financial instruments		(581)	(744)	(506)	(188)	─
Interest expense		(160)	(484)	(76)	(60)	─
Cash flow(1)		34,551	26,979	23,894	17,385	20,820
Per basic share(2)		$0.31	$0.25	$0.26	$0.22	$0.26
Cash from operating activities		29,563	32,887	12,571	24,234	13,950
Per basic share(2)		$0.26	$0.31	$0.13	$0.30	$0.17
Net income (loss)		5,356	8,382	(2,935)	(1,125)	(1,234)
Per basic and diluted share(2)		$0.05	$0.08	$(0.03)	$(0.01)	$(0.02)
EBITDA(1)		34,566	27,126	23,922	17,445	20,820
EBITDA margin(1)		92%	88%	91%	87%	91%
Dividends paid		22,521	22,489	18,642	16,000	16,000
Per basic share(2)		$0.20	$0.20	$0.20	$0.20	$0.20
Payout ratio(1)		65%	83%	78%	92%	77%
Capital expenditures		561	472	513	159	112
Acquisitions		156,034	17,963	153,500	─	─
Weighted average shares – basic(3)		112,512	106,839	93,126	80,257	80,000
Average Royalty Production
Natural gas (mcf/d)(5)		64,729	57,621	55,400	55,056	57,672
Light and medium crude oil (bbl/d)(5)		285	192	195	231	216
Heavy crude oil (bbl/d)(5)		50	─	─	─	─
Natural gas liquids (bbl/d)(5)(6)		620	540	542	484	550
Total (boe/d)		11,743	10,335	9,970	9,891	10,378
Realized Commodity Prices
Natural gas ($/mcf)(5)		$3.13	$2.65	$2.26	$2.00	$2.05
Light and medium crude oil ($/bbl)(5)		$64.66	$48.90	$48.66	$26.14	$46.35
Heavy crude oil ($/bbl)(5)		$54.34	─	─	─	─
Natural gas liquids ($/bbl)(5)(6)		$72.11	$54.09	$49.27	$30.61	$56.35
Total ($/boe)		$22.88	$18.52	$16.16	$13.26	$15.37
Benchmark Pricing
Natural Gas
AECO 5A (CAD$/mcf)		$3.17	$2.65	$2.25	$2.00	$2.04
Crude oil
NYMEX WTI (USD$/bbl)		$58.14	$42.70	$40.92	$28.00	$46.17
Edmonton Par (CAD$/bbl)		$68.98	$49.21	$49.06	$30.24	$51.89
WCS differential (USD$/bbl)		$12.42	$9.10	$9.05	$11.43	$20.19
Natural gas liquids
Edmonton Condensate (CAD$/bbl)		$74.98	$55.95	$51.71	$31.74	$66.45
CAD$/USD$		$0.7899	$0.7678	$0.7507	$0.7220	$0.7443
Selected statement of financial position results ($000s) except share amounts		At Mar. 31, 2021	At Dec. 31, 2020	At Sept. 30, 2020	At Jun. 30, 2020	At Mar. 31, 2020
Total assets		997,715	1,008,546	794,787	793,323	679,858
Working capital		94,221	237,675	21,844	148,745	25,620
Adjusted working capital(1)		94,607	238,268	23,917	149,180	25,475
Net debt (cash)(1)		(94,607)	(238,268)	(17,082)	(149,180)	(25,475)
Common shares outstanding(3)		112,607	112,449	93,208	91,690	80,000

(1)	Refer to "Non-GAAP Financial Measures".
(2)	Calculated using basic or diluted weighted average shares outstanding.
(3)	Shown in thousand shares outstanding.
(4)	Other income of $3.1 million for Q1 2021 includes interest income of $0.1 million (Q1 2020 - $nil, Q2 2020 - $nil, Q3 2020 - $0.01 million, Q4 2020 - $0.3 million).
(5)	Refer to "Supplemental Information Regarding Product Types."
(6)	Natural gas liquids is primarily comprised of condensate; Topaz does not have any material royalty interests in other natural gas liquids.

Cash from Operating Activities, Cash Flow and Net Income (Loss)

During Q1 2021 and Q1 2020, Topaz generated $29.6 million and $14.0 million, respectively, of cash from operating activities. Cash flow⁽¹⁾ for the same periods was $34.6 million and $20.8 million, respectively. The Company generated EBITDA⁽¹⁾ of $34.6 million and $20.8 million, realizing an EBITDA margin⁽¹⁾ of 92% and 91%, for Q1 2021 and Q1 2020, respectively. The Company had net income of $5.4 million in Q1 2021 compared to net loss of $1.2 million in Q1 2020. The difference is attributed to higher revenue and other income, including higher commodity prices.  

($000s) except per share amounts			Three months ended Mar. 31, 2021	Three months ended Mar. 31, 2020
Cash from operating activities			29,563	13,950
Per basic share(2)			$0.26	$0.17
Cash flow(1)			34,551	20,820
Per basic share(2)			$0.31	$0.26
EBITDA(1)			34,566	20,820
EBITDA margin(1)			92%	91%
Net income (loss)			5,356	­(1,234)
Per basic and diluted share(2)			$0.05	$(0.02)

(1)	Refer to "Non-GAAP Financial Measures".
(2)	Calculated using basic or diluted weighted average shares outstanding.

Royalty
Royalty production revenue
The Company's royalty production revenue is determined pursuant to the terms of its royalty agreements. The commodity prices for natural gas, light and medium crude oil, heavy crude oil and natural gas liquids (which is primarily comprised of condensate as Topaz does not currently have any material royalty interests in other natural gas liquids) are based on market index prices in the month of production and Topaz's royalty contracts do not permit transportation or quality deductions.  The royalty production volumes are currently marketed with the respective royalty payor's production volume and revenue is generally received two months after the natural gas, crude oil and natural gas liquids volumes are produced.  The Company can elect to take its share of the royalty production volume in kind, if desired.

Royalty production revenue during Q1 2021 and Q1 2020 was $24.2 million and $14.5 million, respectively. Topaz realized commodity prices consistent with the respective market index for each commodity produced as shown in the table below.

Royalty production
Topaz's average royalty production for Q1 2021 and Q1 2020 was 11,743 boe/d and 10,378 boe/d, respectively and was 92% weighted to natural gas. Topaz generates royalty revenue on existing production and may generate royalty revenue on future development of the royalty lands. 

Royalty acreage activity
During Q1 2021, 79 gross wells were spud on Topaz's royalty acreage (68 gross wells on acreage operated by Tourmaline and 11 gross wells on Topaz's greater Clearwater acreage) and 70 gross wells were brought on production (30 gross wells drilled during Q1 2021 and 40 gross wells drilling during prior periods) which represents a 93% increase in capital activity relative to Q1 2020, when 41 gross wells were spud on Topaz's royalty acreage (all operated by Tourmaline).  Topaz expects the additional wells drilled but not completed by March 31, 2021 will be brought on production during the remainder of 2021. 

		Three months ended Mar. 31, 2021	Three months ended Mar. 31, 2020
Royalty production revenue
Natural gas(3)		18,251	10,783
Light and medium crude oil(3)		1,661	912
Heavy crude oil(3)		244	─
Natural gas liquids(3)(4)		4,023	2,819
Total		24,179	14,514
Average royalty production
Natural gas (mcf/d)(3)		64,729	57,672
Light and medium crude oil (bbl/d)(3)		285	216
Heavy crude oil (bbl/d)(3)		50	─
Natural gas liquids (bbl/d)(3)(4)		620	550
Total (boe/d)		11,743	10,378
Realized royalty production prices
Natural gas ($/mcf)(3)		$3.13	$2.05
Light and medium crude oil (C$/bbl)(3)		$64.66	$46.35
Heavy crude oil ($/bbl)(3)		$54.34	─
Natural gas liquids (C$/bbl)(3)(4)		$72.11	$56.35
Total ($/boe)		$22.88	$15.37
Benchmark Pricing
Natural gas
AECO 5A (CAD$/mcf)		$3.17	$2.04
Crude oil
NYMEX WTI (USD$/bbl)		$58.14	$46.17
Edmonton Par (CAD$/bbl)		$68.98	$51.89
WCS differential (USD$/bbl)		$12.42	$20.19
Natural gas liquids
Edmonton Condensate (CAD$/bbl)		$74.98	$66.45
CAD$/USD$		$0.7899	$0.7443
Royalty Acreage Activity(1)
Gross wells spud during the period		79	41
Gross wells spud and brought on production(2)		30	37
Total gross wells brought on production during the period(5)		70	37

(1)	Refers to the number of wells spud or brought on production, as indicated, by the working interest owners (operators). Topaz does not directly conduct upstream petroleum and natural gas exploration and development operations.
(2)	Refers to wells brought on production which were spud within the respective period; does not take into consideration wells spud during previous periods.
(3)	Refer to "Supplemental Information Regarding Product Types."
(4)	Natural gas liquids is primarily comprised of condensate.
(5)	Includes wells drilled during the current and previous periods on Topaz royalty acreage.

Infrastructure
Processing revenue 
The Company's processing revenue is generated through its non-operated ownership in processing facilities.  The facilities provide processing services to customers on a fee-for-service basis. Certain fees include fixed take-or-pay arrangements under long-term commercial arrangements. 

During Q1 2021 and Q1 2020, Topaz generated $10.5 million and $6.0 million, respectively, of processing revenue attributed to its non-operated ownership in processing facilities.  Average daily utilization during Q1 2021 and Q1 2020 of Topaz's net natural gas processing capacity was 99% and 100%, respectively, which is attributed to the significant utilization of Topaz's net processing capacity (73% and 59% of which is contracted under fixed take-or-pay for Q1 2021 and Q1 2020, respectively).

Other income
The Company generates income by way of a contracted interest in third party revenue generated through fee-for-service processing contracts with no underlying facility ownership, including but not limited to, processing, compression and water handling revenue, generated at multiple facilities owned by Tourmaline pursuant to the respective third party fee handling agreements. These facilities include natural gas processing plants, crude oil batteries, pipelines, water disposal facilities, compressor stations and other miscellaneous facilities associated with the handling of crude oil, natural gas and natural gas liquids. The facilities are located across all three of Tourmaline's core operating areas and are operated by Tourmaline. Topaz does not have an ownership interest in the underlying assets.

During Q1 2021 and Q1 2020, Topaz generated other income of $3.1 million and $2.3 million, respectively. Other income of $3.1 million for Q1 2021 includes interest income of $0.1 million. There was $nil interest income in Q1 2020.

($000s)		Three months ended Mar. 31, 2021	Three months ended Mar. 31, 2020
Processing revenue		10,471	5,968
Other income(2)		3,117	2,277
Total		13,588	8,245
Infrastructure utilization activity
Natural gas processing facilities(1):
Ownership capacity under fixed take-or-pay contract		125,000	50,000
Variable ownership capacity		48,548	35,500
Total ownership capacity		173,548	85,500
Total throughput volume		171,992	85,429
Total utilization (%)		99%	100%

(1)	Weighted average daily rate (Topaz net ownership mcf/d) for the periods presented.
(2)	Other income of $3.1 million for Q1 2021 includes interest income of $0.1 million. There was $nil interest income in Q1 2020.

Additional information

Additional information about Topaz, including the financial statements and management's discussion and analysis for the year ended December 31, 2020 as well as the Company's 2020 Annual Information Form are available electronically under the Company's profile on SEDAR, www.sedar.com, and on Topaz's website, www.topazenergy.ca.

Q1 2021 CONFERENCE CALL
Topaz will host a conference call tomorrow, May 7, 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 79413805.

2021 ANNUAL & SPECIAL MEETING
Topaz will host its 2021 Annual & Special Meeting of Shareholders virtually at https://web.lumiagm.com/265325039 on June 23, 2021 at 10:00 a.m. MST (11:00 a.m. EST). 

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: Topaz's future growth outlook and strategic plans; the anticipated capital expenditure plans and production increases relating to completed and planned acquisitions; the timing for the closing of acquisitions; social and governance initiatives; expected production increases and capital commitments on the royalty lands; estimated levels of 2021 EBITDA and year-end net debt (cash);  the near term growth strategy to utilize cash as well as leverage to invest in additional acquisition growth opportunities and the level of such leverage; the future declaration and payment of dividends and the timing and amount thereof; the forecasts described under the heading "Increased 2021 Guidance Estimates" above, including annual average royalty production, processing revenue and other income, EBITDA, annual dividends, exit adjusted working capital, and capital expenditures (excluding acquisitions) for 2021; other expected benefits from acquisitions 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 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 and free cash flow per share 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, 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.

FINANCIAL OUTLOOK

Also included in this news release are estimates of the Company's EBITDA range and revenue for the year ending December 31, 2021 and range of year-end adjusted working capital for 2021, 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 "Revised 2021 Guidance Estimates" above and are based on the following key assumptions: Topaz's estimated capital expenditures (excluding acquisitions) of $1.0 to $2.0 million in 2021; the working interest owners' anticipated 2021 capital plans attributable to Topaz's royalty lands; 2021 estimated average annual royalty production range of 12,000 to 12,200 boe/d; 2021 average infrastructure ownership capacity utilization of 100%; 2021 third party income of $10.0 million; December 31, 2021 exit adjusted working capital range between $94.0 and $96.0 million and 2021 average commodity prices of: $2.93/mcf (AECO 5A natural gas), US$59.76/bbl (NYMEX WTI), US$12.50/bbl (WCS oil differential), US$4.33/bbl (MSW oil differential) and US$/CAD$ foreign exchange 0.79. To the extent such estimates constitute financial outlooks, they were approved by management and the board of directors of Topaz on May 6, 2021 and are included to provide readers with an understanding of the estimated EBITDA for the year ending December 31, 2021 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" and "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.

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.

INITIAL PRODUCTION (IP) RATES

Any references in this news release to initial production (IP) rates are useful in confirming the presence of hydrocarbons; however such rates are not determinative of the rates at which such wells will continue production and decline thereafter and are not necessarily indicative of long-term performance or ultimate recovery.  While encouraging, readers are cautioned not to place reliance on such rates in calculating the aggregate production.  Such rates are based on field estimates and may be based on limited data available at the time.

General

See also "Forward-Looking Statements", and "Non-GAAP Financial Measures" in the most recently filed Management's Discussion and Analysis.

SUPPLEMENTAL INFORMATION REGARDING PRODUCT TYPES

This news release includes references to guidance estimates for 2021 average daily production. The following table is intended to provide supplemental information about the product type composition for each of the production figures that are provided in this news release:

For the periods ended	Three months ended March 31, 2020	Three months ended March 31, 2021	March 17, 2021 Previous Guidance Estimates	May 6, 2021 Revised Guidance Estimates
Average daily production
Light and Medium crude oil (bbl/d)	216	285	199	350
Heavy crude oil (bbl/d)	─	50	76	79
Conventional Natural Gas (mcf/d)	37,520	41,839	42,468	43,608
Shale Gas (mcf/d)	20,152	22,890	22,008	22,008
Natural Gas Liquids(1) (bbl/d)	550	620	679	735
Total (boe/d)	10,378	11,743	11,700(2)	12,100(2)

(1)	Natural Gas Liquids is primarily comprised of condensate.
(2)	Estimated using the midpoint of the estimated 2021 average annual royalty production range.

 

SOURCE Topaz Energy Corp

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