Topaz Energy tests waters with $253M IPO

Tourmaline spinoff eyes acquisitions

A new Canadian energy royalty and infrastructure company is testing the appeal of investors in an industry rocked by the pandemic with an initial public offering due next month.

Calgary-based Topaz Energy Corp., a unit of natural gas producer Tourmaline Oil Corp., intends to raise a total of $252.5 million — $217.5 million though the IPO and a further $35 million via a secondary share issue by Tourmaline, according to a draft prospectus filed Thursday.

An over-allotment of shares could see as much as $285 million raised.

The IPO is scheduled for after mid-October with shares priced at $13 to $15, the company said. The listing will be done on the TSX under the symbol TPZ with Peters & Co. Ltd. and Bank of Nova Scotia leading the underwriter syndicate, according to Topaz.

“Topaz's unique, low risk, income-oriented business model supports becoming a financial partner of choice to enable select high quality operators to achieve their growth plans,” the company said in its prospectus.

The company's infrastructure is “underpinned by low cost sustainable exploration and production operations” primarily in natural gas, it said.

Topaz said its cash on hand and links with Tourmaline give it the means for acquisitions in the struggling industry.

“The majority of its free cash flow will be used to pay dividends with a long term payout ratio target of 60 per cent to 90 per cent,” it said.

The IPO is due to be the oilpatch's most significant since AltaGas Canada's public offering two years ago and is a vote of confidence in the struggling industry wracked by pandemic-induced lacklustre demand and low commodity prices, with oil stuck at around US$40 a barrel.

Even so, natural gas prices have risen because warmer-than-expected weather drew on supplies for air conditioning and winter heating needs are approaching.

Topaz, formerly the Exshaw Oil Corp. unit of Tourmaline, was created in Nov., 2019, with an $800-million capitalization.

The deal included interests in two of Tourmaline's gas processing plants and part of its third-party revenue, according to Private Capital Journal.

Topaz has raised $353.8 million over two rounds of equity financing including from Cambridge Global Asset Management, which holds 11.8 per cent, and Calgary-based ARC Financial, which controls five per cent, according to the Journal. Tourmaline retains 63.5 per cent of the company.

Topaz bought 12.5 per cent of the Glacier Gas Plant from Advantage Oil & Gas Ltd. in July for $100 million, a quarter of the Banshee Gas Plant from Tourmaline this month for $52.5 million, and a fourper-cent royalty interest in undeveloped lands near Clearwater, Alta.

“Topaz, as portrayed, has ample liquidity within its treasury to execute further acquisitions and/or structure further agreements,” noted Stifel FirstEnergy analysts Robert Fitzmartyn and Kalvin Baim, said in a note to clients on Sept. 8.

The analysts expect Topaz's 2021 revenue stream to reach $117 million, derived from 67 per cent from royalty income and 33 per cent from midstream assets.

“Our forecast would portray Topaz as leveraged to a sizable EBITDA (earnings before interest, taxation, depreciation and amortization) growth trajectory well above that of most of its peer group, a premise that could be boosted further given a comparably superior balance sheet,” the analysts said.