TPZ Topaz Energy Corp

CALGARY, AB, March 1, 2022 /CNW/ - Topaz Energy Corp. (TSX: TPZ) ("Topaz" or the "Company") is pleased to provide fourth quarter and annual 2021 financial results, announce an 8% increase to its quarterly dividend and affirm the Company's 2022 guidance estimates.  Select financial information is outlined below and should be read in conjunction with Topaz's consolidated financial statements and related management's discussion and analysis ("MD&A") as at and for the year ended December 31, 2021, which are available on SEDAR at www.sedar.com and on Topaz's website at www.topazenergy.ca.

Fourth Quarter 2021 Highlights

• In Q4 2021, Topaz's assets generated record cash flow and free cash flow (FCF)⁽¹⁾ of $68 million and $67 million, respectively. Cash flow and FCF⁽¹⁾ were 34% and 35%, respectively, higher than the prior quarter; and each 153% higher than the prior year. On a per share basis, Q4 2021 FCF⁽¹⁾ of $0.49 per share⁽¹⁾⁽²⁾ increased 96% from Q4 2020 ($0.25 per share).
• Topaz's Board has approved an 8% increase to the Company's quarterly dividend which increases the annual dividend from $0.96 to $1.04 per share, and represents the third dividend increase since the inaugural quarterly dividend was set at $0.20 per share in Q1 2020; representing a 30% cumulative increase to date.
• Record Q4 2021 average royalty production of 17,213 boe/d⁽⁴⁾ was 14% higher than the prior quarter and 67% higher than Q4 2020.  Topaz's oil-focused royalty acquisition strategy has generated Q4 2021 total liquids royalty production of 3,143 bbl/d⁽⁴⁾, a 48% increase relative to the prior quarter and a 329% increase relative to Q4 2020.
• Topaz closed the acquisition of a newly-created 5% gross overriding royalty interest on Whitecap Resources' working interest in the Weyburn Unit for $188 million in cash, which Topaz estimates will provide a return on invested capital⁽¹⁾ of 14% in 2022, based on estimated 2022 FCF⁽¹⁾ of $26 million⁽¹¹⁾.
• Topaz was added to the S&P/TSX Composite Index, the headline index for Canada represented by the largest companies on the Toronto Stock Exchange, in December 2021.
• Expanded the Company's credit facility from $400 million to $700 million⁽⁵⁾ and extended the term to December 2025.  At December 31, 2021 Topaz had net debt⁽¹⁾ of $234 million, or 0.8x net debt to Q4 2021 annualized cash flow⁽¹⁾.

2021 Annual Highlights

• 2021 cash flow and FCF⁽¹⁾ of $191 million and $188 million, respectively, were each 114% higher than 2020 ($89 million and $88 million, respectively).  On a per share basis⁽¹⁾⁽²⁾, 2021 FCF⁽¹⁾ of $1.52 per share was 57% higher than 2020 ($0.97 per share).
• Topaz's 2021 total annual average royalty production of 14,103 boe/d⁽⁴⁾ increased 39% relative to 2020, which includes a 157% increase, to 1,892 bbl/d⁽⁴⁾ of total liquids annual average royalty production. 
• Topaz invested $945 million in royalty and infrastructure acquisitions, excluding decommissioning obligations⁽¹⁾ during 2021 which increased Topaz's gross royalty acreage 77% and natural gas processing capacity 23%; diversified the Company's infrastructure portfolio through the acquisition of water conservation facilities under a 15 year 100% fixed take or pay, and doubled its corporate tax pools to $1.8 billion which extends the Company's long-term cash tax coverage⁽³⁾.  On current strip pricing⁽³⁾, the cumulative 2021 acquisitions, excluding decommissioning obligations⁽¹⁾ are estimated to generate a return on invested capital⁽¹⁾ of 16% in 2022 based on the acquired assets' estimated FCF⁽¹⁾ of $149 million⁽¹²⁾.
• At December 31, 2021, the before-tax net present value of total proved plus probable reserves, discounted at 10 per cent⁽⁶⁾, increased 92% to $1.1 billion (2020 – $592 million). 
• Through strategic partnerships, Topaz has enhanced or established material royalty positions and reliable infrastructure revenue streams in the most economic plays across the WCSB. Topaz's asset portfolio provides embedded organic growth which requires no additional capital by Topaz, as well as significant Excess FCF⁽¹⁾ for self-funded M&A growth after distributions of $1.04 per share (2022 estimated payout ratio⁽¹⁾ 55%).

Fourth Quarter 2021 Update

Royalty Production, Revenue & Activity Growth

• Topaz's acquisitions have added strategic partnerships with prominent Canadian public E&P operators including Headwater Exploration, NuVista Energy and Whitecap Resources to the Company's existing portfolio which includes Tourmaline, Tamarack Valley and Advantage Energy.  Topaz has additional upside optionality through private operators and its diversified royalty portfolio acquired via the Reserve Royalty acquisition.
• Topaz holds 5.3 million gross royalty acres (over 50% undeveloped) in the most economic plays in the WCSB including the NEBC Montney liquids-rich natural gas resource play and the oil-focused Clearwater, Charlie Lake, Provost and West Central areas in Alberta and Weyburn, Saskatchewan resource plays.  The strategically acquired royalty interests provide organic growth as they are supported by committed operator-funded development capital.
• During the fourth quarter, the working interest operators on Topaz's royalty acreage continued active development; 143 gross wells were spud⁽⁷⁾ and 142 gross wells were brought on production⁽⁸⁾. This represents a 3% increase in capital activity relative to the prior quarter, when 139 gross wells were spud on Topaz's royalty acreage.
• Topaz's Q4 2021 royalty production was 82% weighted to natural gas⁽⁴⁾, the price of which has significantly increased over the course of 2021 due to moderated supply growth combined with increasing natural gas demand.  The average AECO (5A) benchmark for Q4 2021 of C$4.66 per mcf was 76% higher than Q4 2020.  
• Based on planned operator drilling actvity, Topaz expects to have 20 to 24 drilling rigs active on its royalty acreage for the balance of the first quarter of 2022, with activity to resume subsequent to spring break-up⁽³⁾.

Infrastructure Revenue Stability

• Topaz's processing revenue provides stable income which supports the Company's dividend, as 78% of Topaz's 215 MMcf/d net natural gas processing capacity is contracted under long term fixed take-or-pay and the Company's variable processing capacity receives priority fill and services high-activity areas.  During Q4 2021, average daily utilization of Topaz's net natural gas processing capacity was 97%, consistent with the prior quarter.  During Q4 2021, Topaz generated $16 million of processing revenue and other income compared to $17 million generated in the prior quarter.

Significant Reserves Growth

• At December 31, 2021, the before-tax net present value of total proved plus probable reserves, discounted at 10 per cent⁽⁶⁾, increased 92% to $1.1 billion (2020 – $592 million); including $400 million attributed to Topaz's infrastructure assets, which increased 29% from year end 2020 ($310 million). The increased infrastructure economic value is primarily attributed to the ownership interest acquisitions in the Gundy NEBC Montney facility and water infrastructure facilities for aggregate economic value (discounted at 10 percent) of $85 million.
• Proved plus probable reserve volume⁽⁶⁾ totaled 42 mmboe as at December 31, 2021, up 81% from 23 mmboe as at December 31, 2020. As a royalty entity not responsible for capital development, Topaz's reserve report only includes developed properties (developed producing and developed non-producing) and does not include any future development capital attributed to undeveloped royalty acreage. Topaz's acquisition growth generated 18 mmboe of proved plus probable reserves, and operator development on Topaz's royalty acreage generated 6 mmboe of additions which exceeded Topaz's 5 mmboe of 2021 royalty production by 20%.

Reliable & Sustainable Dividend Increase

• Topaz's Board has approved an 8% increase to the Company's quarterly dividend and declared the first quarter 2022 dividend at $0.26 per share which is expected to be paid on March 31, 2022 to shareholders of record on March 15, 2022.  The quarterly cash dividend is designated as an "eligible dividend" for Canadian income tax purposes.  

• Topaz's estimated 2022 dividend payout ratio⁽¹⁾ of 55%⁽³⁾ remains below the Company's targeted long-term payout of 60-90% in order to retain Excess FCF⁽¹⁾ for self-funded M&A growth given the broad range of opportunities Topaz continues to identify.
• Topaz's estimated 2022 dividend of $145 million⁽⁹⁾ is well supported whereby over 40% of the 2022 dividend is covered by the Company's stable infrastructure income. To further insulate the Company's dividend and Excess FCF⁽¹⁾ available for M&A growth opportunities, Topaz has entered into certain financial derivative contracts focused on mitigating natural gas price volatility during the summer months which historically have been more susceptible to pipeline maintenance interruptions. Topaz's risk management contracts include 25,000 GJ/d contracted April to October 2022 at a weighted average price of $3.73/GJ ($3.94/mcf) which represents approximately 30%⁽³⁾ of Topaz's respective natural gas royalty production⁽¹⁰⁾.

2021 EBITDA and Guidance Lookback

• In 2021, Topaz generated EBITDA⁽¹⁾ of $194 million which was 117% higher than 2020 EBITDA⁽¹⁾ of $89 million.  Relative to Topaz's November 2021 guidance update, Q4 2021 average royalty production was 3% higher than the midpoint Q4 estimate which contributed to 2021 average annual royalty production of 14,103 boe/d exceeding the 2021 guidance range of 13,800 – 14,000 boe/d; and Q4 2021 total processing revenue and other income was 4% higher than estimated due to higher third party processing activity.

2022 Guidance Estimates

• Topaz affirms its 2022 EBITDA⁽¹⁾⁽³⁾ guidance range between $269 and $271 million, the midpoint of which represents 39% growth over 2021; which is based on internal estimates⁽¹³⁾ including commodity prices of C$4.00/mcf for natural gas (AECO) and US$75.00/bbl WTI for crude oil; and average annual royalty production of 16,200 boe/d⁽⁴⁾ (midpoint), which represents 15% growth over 2021.

Capital Allocation Strategy & Financial Flexibility

• Topaz continues to identify a number of acquisition growth opportunities and expects to allocate the majority of its 2022 Excess FCF⁽¹⁾ toward M&A growth and to provide future dividend increases alongside further sustainable growth.  Topaz's 2022 guidance estimate provides for $115 million of Excess FCF⁽¹⁾⁽³⁾ after paying its 2022 dividend of $145 million⁽³⁾⁽⁹⁾.
• Topaz estimates its year end 2022 net debt to cash flow⁽¹⁾⁽³⁾ will be approximately 0.4x before any further acquisition activity and the Company has a $500 million covenant based unsecured credit facility, expandable to $700 million⁽¹⁾, which provides financial flexibility and growth optionality. 

Sustainability Targets & Commitments

• Topaz looks forward to publishing its 2021 Sustainability Report which will include reporting on the Company's progress toward multi-year sustainability commitments and targets established together with Topaz's Board, in the areas of:
• Climate change management;
• Responsible water management;
• Corporate governance;
• Community investment;
• Diversity and inclusion;
• ESG integrated investing; and
• Executive compensation.

Additional information

Additional information about Topaz, including the consolidated financial statements and management's discussion and analysis as at and for the year ended December 31, 2021 as well as the Company's 2021 Annual Information Form are available on SEDAR at www.sedar.com under the Company's profile, and on Topaz's website, www.topazenergy.ca.

Q4 2021 CONFERENCE CALL

Topaz will host a conference call tomorrow, Wednesday, March 2, 2022 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 40291211.

ABOUT THE COMPANY

Topaz is a unique royalty and infrastructure energy company focused on generating FCF⁽¹⁾ growth and paying reliable and sustainable dividends to its shareholders, through its strategic relationship with Canada's largest and most active natural gas producer, 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. Topaz focuses on top quartile energy resources and assets best positioned to attract capital in order to generate sustainable long-term growth and profitability.

The Topaz royalty and energy infrastructure revenue streams are generated primarily from assets operated by natural gas producers with some of the lowest greenhouse gas emissions intensity in the Canadian senior upstream sector, including Tourmaline, which has received awards for environmental sustainability and conservation efforts. Certain of these producers have set long-term emissions reduction targets and continue to invest in technology to improve environmental sustainability.

Topaz's common shares are listed and posted for trading on the TSX under the trading symbol "TPZ" and it is included in the S&P/TSX Composite Index. This is the headline index for Canada and is the principal benchmark measure for the Canadian equity markets, represented by the largest companies on the TSX.

For further information, please visit the Company's website  www.topazenergy.ca.  Topaz's SEDAR filings are available at www.sedar.com.

NOTE REFERENCES

This news release refers to financial reporting periods in abbreviated form as follows: "Q4 2021" refers to the three months ended December 31, 2021; "prior quarter" refers to the three months ended September 30, 2021; "Q4 2020" refers to the three months ended December 31, 2020; "2021" refers to the year ended December 31, 2021; and "2020" refers to the year ended December 31, 2020.

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; environment, social and governance initiatives; expected production increases and capital commitments on the royalty lands; estimated levels of 2022 dividend payments, EBITDA, FCF, Excess FCF, dividend payout ratio, return on invested capital and year-end net debt; the number of drilling rigs to be active on Topaz's royalty acreage during 2022 and beyond; the future declaration and payment of dividends and the timing and amount thereof; the forecasts described under the heading "Fourth Quarter 2021 Update" above including under the sub-headings "2022 Guidance Estimates", "Capital Allocation Strategy & Financial Flexibility" and "Sustainability Targets & Commitments", including annual average royalty production, processing revenue and other income, EBITDA, FCF, Excess FCF, annual dividends, exit net debt, and capital expenditures (excluding acquisitions) for 2022; other expected benefits from acquisitions including enhancing Topaz's future growth outlook and plans to allocate capital toward accretive growth acquisitions and sustainable dividend increases; and the Company's business as described under the heading "About the Company" above.

Forward–looking statements are 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 statements.

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 FCF per share growth, and the factors discussed in the Company's recently filed Management's Discussion and Analysis (See "Forward-Looking Statements" therein), 2021 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 statements, 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, FCF, 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 statements, 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 average royalty production range for the year ending December 31, 2022 and range of year-end exit net debt and net debt to cash flow for 2022, 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 "Fourth Quarter 2021 Update - 2022 Guidance Estimates" above and are based on the following key assumptions: Topaz's estimated capital expenditures (excluding acquisitions) of $2 to $3 million in 2022; the working interest owners' anticipated 2022 capital plans attributable to Topaz's undeveloped royalty lands; estimated average annual royalty production range of 16,100 to 16,300 boe/d in 2022; 2022 average infrastructure ownership capacity utilization of 95%; December 31, 2022 exit net debt range between $110 and $115 million, 2022 average commodity prices of: $4.00/mcf (AECO 5A), US$75.00/bbl (NYMEX WTI), US$13.00/bbl (WCS oil differential), US$3.50/bbl (MSW oil differential) and US$/CAD$ foreign exchange 0.785. 

To the extent such estimates constitute financial outlooks, they were approved by management and the board of directors of Topaz on March 1, 2022 and are included to provide readers with an understanding of the estimated EBITDA and net debt for the year ending December 31, 2022 based on the assumptions described herein and readers are cautioned that the information may not be appropriate for other purposes.

NON-GAAP AND OTHER FINANCIAL MEASURES

Certain financial terms and measures contained in this news release are "specified financial measures" (as such term is defined in National Instrument 52-112 - Non-GAAP and Other Financial Measures Disclosure ("NI 52-112")). The specified financial measures referred to in this news release are comprised of "non-GAAP financial measures", "non-GAAP ratios", "capital management measures" and "supplementary financial measures" (as such terms are defined in NI 52-112). These measures are defined, qualified, and where required, reconciled with the nearest GAAP measure below.

Non-GAAP Measures and Ratios

The non-GAAP financial measures and non-GAAP ratio used herein 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. Investors are cautioned that the non-GAAP financial measures and ratio should not be considered in isolation nor as an alternative to net income (loss) or other financial information determined in accordance with GAAP, as an indication of the Company's performance.  

Non-GAAP Financial Measures

This news release makes reference to the terms "Excess FCF" and "acquisitions, excluding decommissioning obligations", which are considered non-GAAP financial measures under NI 52-112; defined as financial measures disclosed by an issuer that depict the historical or expected future financial performance, financial position, or cash flow of an entity, and are not disclosed in the financial statements of the issuer.

Non-GAAP Ratios

This news release makes reference to the term "return on invested capital" which is considered a non-GAAP ratio under NI 52-112; defined as a financial measure disclosed by an issuer that is in the form of a ratio, fraction, percentage or similar presentation, has a non-GAAP financial measure as one or more of its components, and is not disclosed in the primary financial statements of the entity.

Other Financial Measures

Capital management measures

Capital management measures are defined as financial measures disclosed by an issuer that are intended to enable an individual to evaluate the entity's objectives, policies and processes for managing the entity's capital, are not a component of a line item or a line item on the primary financial statements, and which are disclosed in the notes to the financial statements. The Company's capital management measures disclosed in the notes to the Company's Consolidated Financial Statements as at and for the year ended December 31, 2021 include adjusted working capital, net debt (cash) and FCF.

Supplementary financial measures

This news release makes reference to the terms "cash flow per basic or diluted share", "FCF per basic or diluted share", "EBITDA per basic or diluted share", "FCF margin" and "payout ratio" which are all considered supplementary financial measures under NI 52-112; defined as a financial measure disclosed by an issuer that is, or is intended to be, disclosed on a periodic basis to depict the historical or expected future financial performance, financial position or cash flow of an entity, is not disclosed in the financial statements of the issuer, and is not a non-GAAP financial measure or non-GAAP ratio.

The following terms are financial measures as defined under the Company's Syndicated Credit Facility, presented in note 9 to the Company's Consolidated Financial Statements as at and for the year ended December 31, 2021: (i) consolidated senior debt, (ii) total debt, (iii) EBITDA and (iv) capitalization.

Cash flow, FCF, FCF margin, and Excess FCF

Management uses cash flow, FCF, FCF margin and Excess FCF for its own performance measures and to provide investors with a measurement of the Company's efficiency and its ability to generate the cash necessary to fund or increase dividends, fund future growth opportunities and/or to repay debt; and furthermore, uses per share metrics to provide investors with a measure of the proportion attributable to the basic or diluted weighted average common shares outstanding. 

Cash flow is a GAAP measure which is derived of cash from operating activities excluding the change in non-cash working capital and is presented in the consolidated statements of cash flows.  FCF is a capital management measure presented in the notes to the consolidated financial statements and is defined as cash flow, less capital expenditures.  The supplementary financial measure "FCF margin", is defined as FCF divided by total revenue and other income (expressed as a percentage of total revenue and other income).  The non-GAAP financial measure "Excess FCF", is defined as FCF less dividends paid.  The supplementary financial measures "cash flow per basic or diluted share" and "FCF per basic or diluted share" are calculated by dividing cash flow and FCF, respectively, by the basic or diluted weighted average common shares outstanding during the period. 

A summary of the reconciliation from cash from operating activities (per the consolidated statements of cash flows) to cash flow (per the consolidated statements of cash flows), cash flow per basic or diluted share, FCF, Excess FCF, FCF per basic or diluted share and FCF margin is set forth below:

Adjusted working capital and net debt (cash)
Management uses the terms "adjusted working capital" and "net debt (cash)" to measure the Company's liquidity position and capital flexibility, as such these terms are considered capital management measures. "Adjusted working capital" is calculated as current assets less current liabilities, adjusted for financial instruments.  "Net debt (cash)" is calculated as total debt outstanding less adjusted working capital.

A summary of the reconciliation from working capital, to adjusted working capital and net debt (cash) is set forth below:

EBITDA and EBITDA per basic or diluted share
EBITDA, as defined under the Company's Syndicated Credit Facility and disclosed in note 9 of the Company's Consolidated Financial Statements as at and for the year ended December 31, 2021, is considered by the Company as a capital management measure which is used to evaluate the Company's operating performance, and provides investors with a measurement of the Company's cash generated from its operations, before consideration of interest income or expense.  "EBITDA" is calculated as consolidated net income or loss from continuing operations, excluding extraordinary items, plus interest expense, income taxes, and adjusted for non-cash items and gains or losses on dispositions. 

EBITDA per basic or diluted share is a supplementary financial measure that is calculated by dividing EBITDA by the basic or diluted weighted average common shares outstanding during the period and provides investors with a measure of the proportion of EBITDA attributed to the basic or diluted weighted average common shares outstanding.

A summary of the reconciliation of net income (per the consolidated statements of net income and comprehensive income), to EBITDA, is set forth below:

Payout ratio
"Payout ratio", a supplementary financial measure, represents dividends paid, expressed as a percentage of cash flow and provides investors with a measure of the percentage of cash flow that was used during the period to fund dividend payments. Payout ratio is calculated as cash flow divided by dividends paid.

A summary of the reconciliation from cash flow to payout ratio is set forth below:

Acquisitions, excluding decommissioning obligations
"Acquisitions, excluding decommissioning obligations", is considered a non-GAAP financial measure, and is calculated as: acquisitions (per the consolidated statements of cash flows) plus non-cash acquisitions but excluding non-cash decommissioning obligations.

A summary of the reconciliation from acquisitions (per the consolidated statements of cash flow) to acquisitions, excluding decommissioning obligations is set forth below:

Return on invested capital
"Return on invested capital", a non-GAAP ratio, represents estimated FCF, expressed as a percentage of acquisitions, excluding decommissioning obligations. This non-GAAP ratio provides investors with a measure of the return on investment attributed to consideration paid for acquisitions.

Management's estimate of the FCF expected to be generated from the Weyburn Unit gross overriding royalty acquisition completed during the fourth quarter of 2021 (as described above in "Note Reference 11") of $26 million, divided by the cash consideration paid of $188 million, results in a 2022 return on invested capital of 14%.

Management's estimate of the FCF expected to be generated from the acquisitions completed during 2021 (as described above in "Note Reference 12") of $149 million, divided by 2021 acquisitions, excluding decommissioning obligations presented in the table above of $945 million, results in a 2022 return on invested capital of 16%.

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.

General

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

SUPPLEMENTAL INFORMATION REGARDING PRODUCT TYPES

This news release includes references to actual and 2022 estimated average royalty 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:

SOURCE Topaz Energy Corp