Offering the best attributes of both the royalty and infrastructure energy market segments.
A transparent value proposition generating low risk with a high return
Topaz was established through its key counterparty, Tourmaline Oil Corp., from whom Topaz acquired its formative royalty and energy infrastructure assets in November 2019. Topaz has identified value drivers for its royalty and energy infrastructure businesses which it believes to be critical success factors for sustainability and profitability. Topaz believes that each business model has unique competitive advantages that encompass each of these value drivers which provides its shareholders with the best attributes of the royalty and infrastructure energy market segments.
The strategic relationship with Tourmaline underpins strong growth prospects due to a proven track record and outlook transparency. Tourmaline is well positioned to be an industry consolidator, providing a pipeline of potential future royalty or infrastructure asset sales to Topaz.
Topaz will pursue acquisitions with high-quality counterparties that have substantial resource and organic growth potential, partnering with high-quality operators to secure long term take-or-pay contracts which generate stable revenues.
Topaz will opportunistically pursue other accretive transactions to broaden its asset base.
Topaz’s infrastructure assets are supported by long-term, fixed fee take-or-pay commitments which provide significant, low-risk dividend coverage. The majority of free cash flow will be used to pay dividends with a long-term payout ratio target of 60 to 90%.
Topaz’s business model is focused on generating free cash flow growth. Its conservative capital structure provides strategic flexibility to advance its growth trajectory, in an opportunity rich environment.
Topaz’s GORR revenue is generated from high-quality counterparties which provide capital deployment outlook transparency.
- Corporations acquire leases and licenses through public auctions to explore for and develop mineral rights owned by the provincial government
- E&P companies pay crown royalties on producing wells as a proportion of production
- Corporations and individuals own mineral rights in perpetuity
- E&P companies pay lessor royalties on producing wells as a proportion of production
- Mineral rights owners do not pay operating or capital expenditures to develop the land
- Working interest owners pay GORR calculated as a contracted proportion of production
- GORR owners do not pay royalties, operating or capital costs
- Survive insolvency of working interest owner
- Expire with undeveloped land or once wells are decommissioned
- Negotiated contracts for a specific volume of production for a pre-determined period of time
- Royalty payments are paid based on profitability of a pre-determined area
- Royalty payee is exposed to operating and capital expenditures
- Acreage is leased from the Crown or a mineral title owner
- Working interest owners bear capital, operating, royalty and decommissioning costs associated with development and production
There are multiple infrastructure models available, but variability increases moving towards operated ownership. Topaz currently owns non-operated facility interests which are underpinned by long-term fixed fee take-or-pay commitments.
- Infrastructure company acquires or constructs “nameplate” infrastructure which can have long construction lead times during which no investment return is generated
- Revenue, overhead, expertise, operating & capital expenditures, legal & environmental obligations are the responsibility of the infrastructure company
- Long-term, fixed processing revenue contracts can be negotiated with any of the customers
- Risk exposure lies in any variable throughput component
- Infrastructure company acquires a non-operated working interest in infrastructure assets
- Revenue, operating and capital expenditures, legal and environmental obligations are the responsibility of the infrastructure company according to their proportionate working interest however no overhead or expertise cost burdens are required
- Long-term, fixed fee/volume processing commitments can be negotiated with any user
- Volume variability on variable throughput component only
- Infrastructure company acquires a non-operated working interest in infrastructure assets and negotiates a long-term, fixed fee/volume processing commitment; fees are paid irrespective of actual throughput volume. Commitments could apply to total or a portion of the proportionate capacity.
- Subsequent to the contract term, infrastructure company retains non-operated working interest ownership and can negotiate new fixed contracts or participate according to their proportionate share
- Infrastructure company acquires a producer’s midstream asset and the producer leases it back for a fixed term; paying a fixed processing/financing fee
- Producer is responsible for operatorship including all overhead, expertise, operating and capital expenditures, legal and environmental obligations
- Upon lease termination, infrastructure company can sell it back or renegotiate a new lease
Topaz Energy Corp.’s wholly owned subsidiaries include:
- Keystone Royalty Corp. (amalgamated with Topaz Energy Corp. April 29, 2022)
- Reserve Royalty Commercial Trust
- Reserve Royalty Limited Partnership
- Reserve Royalty GP Ltd.
- Reserve Royalty GP#2 Ltd.
- Reserve Royalty (Manitoba) LP
- Jarvie Royalty Partnership