Topaz Energy Q1 2026 Earnings Report

Topaz Energy EPS Results

• Actual EPS: C$0.25
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Topaz Energy Revenue Results

• Actual Revenue: $88.66 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Topaz Energy Announcement Details

• Quarter: Q1 2026
• Date: 5/5/2026
• Time: After Market Closes
• Conference Call Date: Wednesday, May 6, 2026
• Conference Call Time: 11:00AM ET

Topaz Energy (TSE:TPZ) Corp is a 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 Canada's natural gas producers, and leveraging industry relationships to execute complementary acquisitions from other high-quality energy companies, while maintaining its commitment to environmental, social and governance practices. It generates revenue from the Royalty Assets, which generate the company's Royalty Production Revenue; and the Infrastructure Assets, which generate the company's Processing Revenue and Other Income.

Topaz Energy Q1 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Dividend raised to CAD 0.35/sh (CAD 1.40 annualized) — the 10th consecutive quarterly increase (75% growth since inception); company says the dividend is sustainable below CAD 0.01/Mcf AECO and US$55 WTI and will target the lower end of a 60–90% long‑term payout range.
• Positive Sentiment: Record Q1 royalty production of 24,609 BOE/d (up 10% YoY), including record gas (105.7 MMcf/d, +11% YoY) and record liquids (6,998 bbl/d, +7% YoY), driven by strong oil‑focused activity and exploration upside (e.g., Belly River, Grand Rapids, Headwater).
• Positive Sentiment: Strong cash generation and deleveraging — Q1 revenue and other income CAD 94.6m, cash flow CAD 80.1m (CAD 0.52/sh), free cash flow CAD 78.7m; paid CAD 52.6m in dividends and reduced net debt to CAD 492m (5% q/q), with excess free cash largely used for debt paydown.
• Positive Sentiment: High-margin, stable infrastructure performance — 98% utilization and a 92% operating margin in Q1; invested CAD 2.4m in two jointly owned gas processing expansions to secure proportionate take‑or‑pay processing fees and incremental capacity/royalty upside.
• Negative Sentiment: Limited hedging for 2027 (~7% hedged) leaves the company exposed to commodity price volatility; management plans opportunistic layering (wider costless collars) but is not fully hedged yet.

Presentation

[Operator]

Good morning. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the Topaz Energy Corp First Quarter 2026 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then one on your telephone keypad. If you would like to withdraw your question, please press star followed by two.

[Operator]

Thank you. Mr. Staples, you may begin your conference.

[Marty Staples, President and CEO at Topaz Energy]

Thank you, John. Good morning, everyone, and welcome to our discussion of Topaz Energy Corp's results as at and for the period ended March 31, 2026. My name is Marty Staples, and I am the President and CEO of Topaz. With me today is Cheree Stephenson, CFO and VP Finance. Before we get started, I refer you to the advisories on forward-looking statements contained in the news release, as well as the advisories contained in the Topaz annual information form and within our MD&A available on SEDAR and our website. I also draw your attention to the material factors and assumptions in those advisories. We will start this morning by speaking to some recent and first quarter 2026 highlights. After these opening remarks, we will look for questions.

[Marty Staples, President and CEO at Topaz Energy]

Topaz had a strong first quarter marked by record royalty production on our acreage. Our board has approved a 3% dividend increase to CAD 0.35 per share or CAD 1.40 per share annualized, marking our 10th quarterly dividend increase and a 75% dividend per share growth since inception. Topaz first quarter royalty production was 24,609 BOE per day and increased 10% over the prior year. Q1 2026 royalty production included record natural gas production of 105.7 million cubic feet per day, 11% higher than the prior year, and record total liquids production of 6,998 bbl/d, 7% higher than the prior year.

[Marty Staples, President and CEO at Topaz Energy]

Topaz generated total first quarter revenue and other income of CAD 94.6 million, 55% from total liquids royalties, 20% from natural gas royalties, and 25% from our infrastructure portfolio. Processing revenue of CAD 21 million increased 7% from Q1 2025, with total processing revenue and other income generated in the quarter of CAD 23.4 million. The infrastructure assets generated 98% utilization in the quarter, providing a 92% operating margin. During the quarter, Topaz also invested CAD 2.4 million in modification projects on two jointly owned natural gas processing facilities in exchange for a proportionate increase to take or pay fixed fee processing arrangements. Drilling activity on our acreage remains strong with 138 gross wells drilled and four gross wells reactivated, with 55% of drilling activity directed into oil-focused plays.

[Marty Staples, President and CEO at Topaz Energy]

Activity was diversified across our portfolio with 48 wells in the Clearwater, 31 in Northeast BC and Alberta Montney, 23 in the Deep Basin, 13 in Central Alberta, 11 in Southeast Saskatchewan, and eight in the Peace River. During Q1 2026, 130 total gross wells were brought on production, and as at March 31, another 86 gross wells were drilled but not yet completed. Based on operator drilling plans, we expect 15-18 rigs will remain active across our royalty acreage through spring breakup, following which activity is expected to resume to 22-27 drilling rigs. Topaz generated first quarter total revenue and other income of CAD 94.6 million, cash flow of CAD 80.1 million or CAD 0.52 per share, and free cash flow of CAD 78.7 million or CAD 0.51 per share.

[Marty Staples, President and CEO at Topaz Energy]

Topaz distributed CAD 52.6 million in quarterly dividends, CAD 0.34 per share during Q1, representing a 4.6% trailing annualized dividend yield to the first quarter average share price and generated CAD 26.1 million of excess free cash flow, which was allocated primarily to debt reduction. Topaz exited the first quarter with CAD 492 million of net debt, representing a 5% reduction from December 31, 2025. We have continued our strategy to grow the dividend alongside sustainable revenue growth within the business. Our quarterly dividend has been increased CAD 0.35 per share, representing CAD 1.40 per share on an annualized basis or a 4.5% yield to our current share price.

[Marty Staples, President and CEO at Topaz Energy]

Since inception, we have returned approximately CAD 1 billion in dividends, which represents over 20% of our current market capitalization. We have reconfirmed our previously announced 2026 guidance and do now expect annual average royalty production of 23,900 BOE at the upper end of the range, driven by strong oil-focused activity while allowing for prudent natural gas-focused capital discipline. Based on updated estimates, including the second quarter dividend increase, Topaz 2026 exit net debt is now estimated at CAD 407 million, which represents a 4% reduction from our prior guidance before consideration of incremental acquisitions. Topaz expects to maintain a payout ratio at the lower end of the 60%-90% long-term targeted range, providing financial flexibility for acquisition growth.

[Marty Staples, President and CEO at Topaz Energy]

Our 2026 dividend remains sustainable below CAD 0.01 per Mcf of AECO and $55 US WTI, attributed to the high margin, stable infrastructure revenue, which represents 43% of the 2026 increased dividend. Our hedging strategy and financial derivative contracts in place, lower decline royalty production supported by secondary recovery and our diversification between oil and natural gas-focused undeveloped royalty acreage. As a reminder, our 2026 Annual Shareholder Meeting will be held this Friday, May 8 at 9:00 A.M. at the Calgary Petroleum Club.

[Marty Staples, President and CEO at Topaz Energy]

At this time, we're pleased to answer any questions. Back to you, operator.

[Operator]

Yes, sir. Thank you. Ladies and gentlemen, we will now begin the question and answer session. As a reminder, for those who want to ask a question, simply press star followed by the number one on your telephone keypad. Once again, star and one if you wish to ask a question. Please stand by while we compile the Q&A roster. Thank you for waiting. We now have our first question. This comes from the line of Michael Harvey from RBC Capital Markets. Your line is now open. Please go ahead and ask your question.

[Michael Harvey, Managing Director at RBC Capital Markets]

Yeah, sure. Good morning. A couple questions. I guess the first one, just any takeaways on the types of newer, just kind of more exploration style plays as we kind of go through the second half from your counterparties. Usually when you get higher prices, folks will step out a bit more in terms of exploration. You kind of mentioned the Belly River, but, anything else worth mentioning there would be good. Second one maybe just for Cheree, just on hedging. You know, the book looks pretty light for 2027. Lots of moving parts in there, obviously. Just wondering kind of what the strategy is, as we move into the back half.

[Marty Staples, President and CEO at Topaz Energy]

Yeah. Good morning, Mike. Thanks. You know, we always kind of hear about the exploration plays after we release. I mean, Tourmaline holding the majority of our acreage will probably disclose some things later today. I know they've been working pretty aggressively on just different exploration ideas, and not sure if they're ready to expose any of those yet, as I think they're still trying to do some land acquisitions around that. As you highlighted, the Belly River's been some big upside inside our portfolio. We saw nine wells drilled on that this quarter. That's a combination of Highwood, Tourmaline, and Obsidian. Big surprise in some of those. We had some fairly high oil rate wells inside the Belly River complex that, you know, we never underwrote those ideas when we were buying a lot of this acreage.

[Marty Staples, President and CEO at Topaz Energy]

A surprise to the upside for sure. I think we've talked at length about the Grand Rapids and Headwater and both Tamarack have highlighted how important that's been to their portfolio. We think that the Grand Rapids data could add up to 10,000 bbl/d of incremental gross production. You know, net production to us is pretty high, and we have a 7% royalty on the Headwater lands and a 5% on the majority of the Tamarack lands. Big upside there, and I think that's the big benefit is we see a lot of these producers through the portfolio that are out there doing exploration, and it's no additional cost to Topaz. Always for the upside to us when they do exploration projects.

[Marty Staples, President and CEO at Topaz Energy]

I think one thing to note as well is some of the disclosure Tamarack put out this morning and Headwater put out last week is the injection rates in 2025 have tripled. They plan to double those injection rates in 2026. Similarly, Headwater is targeting 60% of total oil production being supported by waterflood, and it's gonna be 70% by 2028. That's big upside for Topaz. As I mentioned before, we did not underwrite a lot of that in our portfolio. That's added upside to the overall complex.

[Cheree Stephenson, VP Finance and CFO at Topaz Energy]

On the hedging, Mike, we're about 7% hedged on both liquids and gas for 2027 currently. Definitely we'll look to add more opportunistically. The way we're thinking about it is maybe some wider costless collars on the oil side. You know, we kind of think of CAD 3 gas as ideal. We're not gonna panic hedge. We're definitely gonna layer some in as we see opportunities arise. You know, the basic target we're always looking towards is where can that dividend be fully funded at that CAD 0 AECO or $55 WTI? That's kind of our you know arbitrary threshold that we're trying to insulate.

[Michael Harvey, Managing Director at RBC Capital Markets]

That's great. Thanks for the color, guys.

[Marty Staples, President and CEO at Topaz Energy]

Thanks, Mike.

[Operator]

Thank you. Once again, for those who want to ask a question, please press star followed by one on your telephone keypad. The next question comes from Jamie Kubik from CIBC. Your line is now open. Please go ahead.

[Jamie Kubik, Director of Equity Research at CIBC]

Yep. Good morning, and thanks for taking my question. Can you just talk a bit around the spud activity that you saw on your acreage during the quarter? It looked like it was down considerably year-on-year and how that might translate into what we see from a production perspective in future quarters. Thanks.

[Cheree Stephenson, VP Finance and CFO at Topaz Energy]

Sure, Jamie. So I think the most important wells to look at within that spud activity, and keep in mind, it is spud and not rig release, so there is some timing when you think about larger well pads. The most important are definitely the Montney and Clearwater. We think those are the best resource, the best returns. When we look at those, they haven't changed nearly as much. In fact, I would say, you know, the trending slightly down around Clearwater is a sign of that improving capital efficiency. Same thing for the Montney because we're still seeing great results out of both of those plays, even with the slightly lower counts. The other thing year-over-year, like the biggest three areas that we saw a reduction were Deep Basin, Southeast Saskatchewan, and Peace River.

[Cheree Stephenson, VP Finance and CFO at Topaz Energy]

The Peace River, we obviously saw some assets change hands, so that would have stalled some activity. Southeast Saskatchewan, you know, those could be portions of wells, not necessarily owning the full mineral beneath. We're overall not too fussed. On the Deep Basin, it could be some drier gas. The other thing to note is year-over-year, we had a 3.3% average royalty rate last year; this quarter, 3.7%. You know, fewer wells, but higher royalty rates. Overall, we're not too fussed, especially with the strong performance in Q1. We do naturally expect our production to be sort of U-shaped through the year with Q1 and Q4 being the peak, and Q2, Q3 being a function of spring breakup and then, maybe some deferred activity or responses to natural gas pricing.

[Cheree Stephenson, VP Finance and CFO at Topaz Energy]

Overall, feel very strongly, as we mentioned in the press release, we're pointing to the high end of our guidance range. Kinda held the oil production at that high end based on pricing. Obviously, there's a bit of flex within the gas, but we kinda made up for it in Q1.

[Marty Staples, President and CEO at Topaz Energy]

Yeah, Jamie, we've been talking to a few shareholders. In fact, I was out with this shareholder, Mona, last night, and she had mentioned that one of the comments just around natural gas-driven activity. If certain producers are gonna reduce activity. I think it's a good sign for us overall, like, if we can save those molecules for better prices, we don't mind seeing that. I think it's a positive overall.

[Jamie Kubik, Director of Equity Research at CIBC]

Okay, thanks. Can you talk a bit about the gas processing plant modifications that Topaz participated in during Q1 and what you know sort of what does that mean for future revenue upside from these assets? Is there more things like this to do? Thanks.

[Marty Staples, President and CEO at Topaz Energy]

Yeah. A good question, too. We have seen some acceleration in two of our Montney projects, one with, in the Pouce Coupe area, one in Musreau. Participated in both those expansions. I think in the Musreau area, our producer, Whitecap, and operator Whitecap has produced some wells that are just fantastic. They're outperforming type well curve. They just needed more capacity in that facility. We have the option, not the obligation, to participate and keep our pro rata share in place, and we did that. It will translate to locked-in fees from that participation.

[Marty Staples, President and CEO at Topaz Energy]

Similarly, same deal on the Pouce Coupe facility where we participate alongside Logan. Just have been drilling some fantastic wells up there, found a new zone in the Montney. This translates really well to us. Not only do we increase capacity, but we also increase in the Pouce Coupe area for sure our royalty production as well.

[Jamie Kubik, Director of Equity Research at CIBC]

Okay, thanks for that. I'll hand it back.

[Marty Staples, President and CEO at Topaz Energy]

Appreciate it, Jamie. Thank you.

[Operator]

Thank you. Once again, for those who want to ask a question, just press star and one on your telephone keypad. It seems like there are no further questions that came through. I will now hand the call back over to Mr. Staples for any closing remarks. Please go ahead, sir.

[Marty Staples, President and CEO at Topaz Energy]

Yeah, appreciate everyone joining the call today and look forward to hearing and seeing you guys for Q2. Thanks very much.

[Operator]

Thank you. This concludes our conference call for today. Thank you all for participating. You may now disconnect.

Participants

Executives

• Cheree Stephenson, VP Finance and CFO
• Marty Staples, President and CEO

Analysts

• Jamie Kubik, Director of Equity Research at CIBC
• Michael Harvey, Managing Director at RBC Capital Markets