Mr. Marty Staples reports

TOPAZ ANNOUNCES SECOND QUARTER 2023 FINANCIAL RESULTS, DECLARES INCREASED THIRD QUARTER DIVIDEND AND CLOSING OF TUCK-IN CORE AREA ACQUISITION

Topaz Energy Corp. has released its financial results for the second quarter of 2023, and has made a four-cent-per-share increase to its annual dividend, which is attributed to the sustainable growth of the company's revenue streams. Select financial information is outlined below and should be read in conjunction with Topaz's interim consolidated financial statements and related management's discussion and analysis (MD&A) as at and for the three and six months ended June 30, 2023, which are available on SEDAR+ and on Topaz's website.

Second quarter 2023 highlights:

• Generated Q2 2023 revenue and other income of $74.7-million (52 cents per basic and diluted share), comprising $57.7-million (77 per cent) of royalty production revenue and $17.0-million (23 per cent) of infrastructure processing revenue and other income;
• Generated cash flow of $67.5-million (47 cents per basic and diluted share), free cash flow (FCF) of $66.4-million (46 cents per basic and diluted share) and an FCF margine of 89 per cent;
• Royalty production averaged 18,411 boe/d (barrels of oil equivalent per day) in Q2 2023 and 18,647 boe/d YTD (year to date) 2023 despite production curtailments during the second quarter attributed to planned maintenance and unplanned shut-ins due to wildfires in Alberta and British Columbia;
• Topaz's full-year 2023 royalty production guidance of 18,300 to 18,800 boe/d remains unchanged and Topaz estimates its 2023 processing revenue and other income will increase 6 per cent from its previous annual estimate of $65.0-million;
• Paid a 30-cent-per-share dividend during the second quarter ($1.20 per share annualized), which represents a 6.0-per-cent trailing annualized yield to the second quarter average share price. On July 31, 2023, Topaz's board approved a quarterly dividend increase to 31 cents per share, effective for the third quarter dividend payment;
• Reduced net debt $53.5-million (13 per cent) during the first half of 2023;
• On July 31, 2023, Topaz completed a $39.5-million tuck-in acquisition of infrastructure and royalty assets in its core Charlie Lake and Clearwater operating areas, which is expected to provide $6.0-million of annual revenue before consideration of future royalty acreage development.

Second quarter 2023 update

Alberta and British Columbia wildfire impacts:

• Intermittently during the second quarter, wildfires throughout Alberta and British Columbia required certain Topaz and third party infrastructure to be shut in and also restricted completion operations of certain operator development activity. Topaz estimates the wildfire-related issues reduced second quarter average royalty production of 18,411 boe/d by 300 to 350 boe/d (approximately 2 per cent), reduced Topaz's infrastructure throughput utilization from 99 per cent to 98 per cent, resulting in $200,000 lower Q2 2023 processing revenue, and contributed to fewer gross wells brought on production following drilling operations. However, no significant asset damage, production loss or injuries were reported due to strong safety protocols, exemplary personnel effort and risk-mitigating design of the respective operations. Topaz will continue to monitor wildfire impacts as wildfires and planned facility maintenance may continue to impact Topaz through the third quarter.

2023 guidance update:

• Topaz's 2023 annual royalty production guidance estimate of between 18,300 and 18,800 boe/d remains unchanged, and Topaz's 2023 estimated processing revenue and other income are expected to increase 6 per cent from $65.0-million to $69.0-million, based on year-to-date financial results, certain inflationary processing fee increases, higher estimated third party fees and recent acquisition activity. Based on current commodity pricing, Topaz expects to exit 2023 with net debt of approximately $340.0-million, a 16-per-cent decrease from exit 2022.

Financial overview:

• During Q2 2023, Topaz generated cash flow of $67.5-million (47 cents per basic and diluted share). Relative to the prior quarter, Q2 2023 AECO (5A) pricing was 24 per cent lower and NYMEX WTI (West Texas Intermediate) was 3 per cent lower.
• During the second quarter, Topaz paid $43.4-million in dividends, a payout ratio of 64 per cent, and generated $23.0-million of excess FCF (16 cents per basic and diluted share), which was used to replenish credit capacity.
• Topaz exited Q2 2023 with $352.4-million of net debt, $24.1-million (6 per cent) lower than Q1 2023 and $53.5-million (13 per cent) lower than YE (year-end) 2022. As at July 31, 2023, Topaz has approximately $600.0-million of available credit capacity, which provides financial flexibility for strategic growth opportunities.

Royalty activity:

• Topaz's Q2 2023 royalty production increased 10 per cent from the prior year to 18,411 boe/d (including record total liquids royalty production of 5,484 bbl/d (barrels per day)). During the second quarter, operators remained active across Topaz's royalty acreage and 106 gross wells (4.5 net) were spudded, a 4-per-cent increase in gross wells spud from the prior year. YTD 2023, 270 gross wells (10.8 net) were spudded, representing a 13-per-cent increase in gross wells spudded from the prior year. Through Q2 2023, completion activity was restricted by wildfires and seasonal conditions relative to the prior year. During Q2 2023, 68 gross wells (2.8 net) of the 106 gross wells spudded during the quarter were not yet brought on production (Q2 2022 -- 48 gross wells (1.4 net) of 102 gross wells, respectively).
• Average realized commodity prices (before hedging) for the second quarter were $2.38 (Canadian per mcf (thousand cubic feet) for natural gas, $90.61 (Canadian) per bbl (barrel) for crude oil and $81.90 (Canadian) for total liquids, generating $57.7-million of royalty revenue. In addition, Topaz realized a $4.9-million gain on financial instruments in Q2 2023. On a royalty production basis, the realized hedging gain increased the company's cash flow by $2.95 per boe.
• Second quarter drilling activity (106 gross wells spud) was diversified across Topaz's portfolio as follows: 51 Clearwater, 31 NEBC Montney, 11 Peace River, one west-central Alberta and 12 southeast Saskatchewan/Manitoba. YTD 2023, 167 of the 270 gross wells spudded (62 per cent) across Topaz's royalty acreage were in the Clearwater and NEBC Montney, Topaz's high-growth areas. Average YTD 2023 royalty production from these combined areas has increased 21 per cent from YTD 2022.
• Topaz continues to see a reliable and meaningful share of WCSB (Western Canadian sedimentary basin) production and drilling activity across its royalty portfolio. Through the first half of 2023, the operator working interest production across Topaz's royalty acreage represented approximately 8 per cent of total WCSB production and, during the first half of 2023, the 270 gross wells spudded across Topaz's acreage represented approximately 14 per cent of the total rig releases across the WCSB. Based on planned operator drilling activity, Topaz expects to maintain the current 26 to 28 active drilling rigs on its royalty acreage through the third quarter.

Infrastructure activity:

• Generated $17.0-million in processing revenue and other income, 2 per cent lower than the prior quarter due to planned and unplanned (wildfire-related) downtime. The infrastructure assets generated 98 per cent utilization and an operating margin of 82 per cent during the second quarter. Processing revenue and other income were 5 per cent higher than Q2 2022, attributed to higher third party income and incremental fixed revenue generated from Topaz's water infrastructure assets;
• Topaz's contractual arrangements only require Topaz to pay its working interest share of operating expenses on approximately 50 per cent of its natural gas processing capacity ownership. In Q2 2023, Topaz incurred $3.0-million in operating expenses, which increased $1.1-million from Q1 2023 due to planned facility turnaround maintenance and includes costs initially forecast as capital maintenance expenditures.

Acquisition activity:

• During the second quarter, Topaz incurred $500,000 in minor acquisition costs attributed to undeveloped royalty acreage. On July 31, 2023, Topaz completed its previously announced tuck-in royalty and infrastructure acquisition for total consideration of $39.5-million, before customary closing adjustments (the tuck-in acquisition). The tuck-in acquisition provides a 49.9-per-cent non-operated working interest in a newly constructed and commissioned 15 mmcf/d (million cubic feet per day) sweet natural gas processing facility and associated 1,500 bbl/d crude oil battery in the Wembley area (the facility interests) in addition to certain gross overriding royalty interests on over 17,000 gross acres within the Charlie Lake and Clearwater operating areas in Alberta (the royalty interests). Topaz estimates the facility interests and royalty interests will provide approximately $6.0-million of annual revenue to Topaz, supported by 100-per-cent, 15-year fixed take-or-pay natural gas and crude oil processing agreements during which Topaz is not responsible for its ownership share of operating or maintenance costs. The tuck-in acquisition was financed through Topaz's existing credit facility.

Dividend:

• Topaz's board has approved a one-cent-per-share quarterly dividend increase and declared the third quarter 2023 dividend at 31 cents per share, which is expected to be paid on Sept. 29, 2023, to shareholders of record on Sept. 15, 2023. The increased annual dividend of $1.24 per share provides a 5.8-per-cent yield to Topaz's current share price and the increase is attributed to the sustainable growth of the company's revenue streams. The quarterly cash dividend is designated as an eligible dividend for Canadian income tax purposes.
• Topaz's 2023 dividend is sustainable down to low commodity prices due to the company's low-cost, inflation-protected business structure as well as financial derivative contracts to mitigate price volatility. Topaz's estimated 2023 dividend payout ratio of approximately 63 per cent remains at the low end of the company's targeted long-term payout ratio of 60 to 90 per cent in order to retain excess FCF for self-financed M&A (merger and acquisition) growth and further dividend increases.

Additional information

Additional information about Topaz, including the interim consolidated financial statements and management's discussion and analysis (MD&A) as at and for the three and six months ended June 30, 2023, are available on SEDAR+ under the company's profile and on Topaz's website.

Q2 2023 conference call

Topaz will host a conference call tomorrow, Tuesday, Aug. 1, 2023, starting at 9 a.m. MST (11 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. The conference ID is 76435486.

Topaz is a unique royalty and infrastructure energy company focused on generating FCF 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 Oil Corp., an investment-grade senior Canadian E&P (exploration and production) 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 Toronto Stock Exchange 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.

Note references

This news release refers to financial reporting periods in abbreviated form as follows. Q2 2023 refers to the three months ended June 30, 2023. Q1 2023 refers to the three months ended March 31, 2023. YE 2022 refers to the year ended Dec. 31, 2022. Q2 2022 refers to the three months ended June 30, 2022. YTD 2023 refers to the six months ended June 30, 2023.

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