The following message was updated on 5/3/2021 2:17:24 PM.
TDW on TOPAZ news
Event Acquires Private Royalty Company with TPZ Shares Impact: POSITIVE Acquires Reserve Royalty Income Trust For $26mm (~1.798 mm TPZ Shares): Topaz entered an agreement to acquire Reserve Royalties in an all stock transaction (Reserve had no debt). Reserve adds 345,000 gross acres of royalty interest lands, 609 BOE/d (23% Oil, 17% NGLs, 60% gas) of Q1 production, and $100 million in tax pools. The assets generated $1.6 million in revenue in Q1 ($6.4 annualized). Our View: ■ Purchase Appears to be at a Material Discount to 1P NPV10% Using LowerThan-Current Pricing: We understand that GLJ assigned the 1P reserves associated with the assets a value of ~$33 million. We note this is likely based on GLJ's January's commodity price assumptions of 2021E WTI US$48/bbl and US $2.75/mcf HH, which are below current near-term futures prices. ■ Accretive to CF Given Low CF-Based Valuation Multiple: Based on our commodity price assumptions, we forecast the transaction was completed at 2022E CF multiple of ~5x (versus Topaz's current valuation of ~13x). Despite the fact that this transaction was small relative to Topaz's ~$1.6B market cap, it is 2% accretive to our 2022E CFPS forecast. ■ Play Exposure and Operators Diversified (Albeit Mixed): Based on our understanding, the largest proportion of Reserve's revenue (~30%) comes from WCS-linked medium gravity crude at Wainwright where Cardinal (CJ-T, Not Covered) operates. This is followed by conventional Saskatchewan oil production at ~15% of revenue (operated by VET-T), and Deep Basin gas and oil (TOU-T, BTE-T, and others) comprising the remainder revenue. In our view, the WCSlinked and SK oil plays/players are not likely to provide growth, but this may be offset by the Deep Basin assets. TD Investment Conclusion Topaz remains unique relative to its energy royalty peers. Its non-commodity linked mid-stream revenue sources offer stable CF to support a dividend, while its partiallyhedged natural gas and, more recent, crude oil GORRs provide exposure to potential upward movement in the longer-end of the futures curve. Beyond the attractive organic business, Topaz's ample liquidity position makes it well-positioned.