Mr. Marty Staples reports

TOPAZ CONTINUES TO DELIVER RELIABLE, HIGH-MARGIN REVENUE & SIGNIFICANT OPERATOR-FUNDED RESERVE REPLACEMENT AND ANNOUNCES DIVIDEND INCREASE

Topaz Energy Corp. has provided fourth quarter and annual 2023 financial results, and has confirmed the company's 2024 guidance estimates. Select financial information is outlined herein and should be read in conjunction with Topaz's consolidated financial statements and related management's discussion and analysis as at and for the year ended Dec. 31, 2023, which are available on SEDAR+ and on Topaz's website.

Highlights:

• Generated Q4 2023 cash flow of $72.4-million or 50 cents per diluted share, and free cash flow of $71.7-million or 49 cents per diluted share, providing an 87-per-cent FCF margin; during 2023, Topaz generated cash flow and FCF of $286.3-million and $281.7-million, $1.97 and $1.94 on a per diluted share, respectively, and an 88-per-cent FCF margin;
• Q4 2023 royalty production averaged 19,555 barrels of oil equivalent per day, 5 per cent higher than third quarter 2023 and 7 per cent higher than Q4 2022; 2023 royalty production averaged 18,853 boe/d, an 11-per-cent increase from 2022, and exceeded Topaz's 2023 midpoint guidance estimate by 2 per cent despite certain production curtailments during 2023 due to wildfires;
• During the year, operators spudded 577 gross wells (21.5 net) across Topaz's royalty acreage, a 2-per-cent increase from 2022, which represents approximately 14 per cent of the 2023 total rig releases across the Western Canadian sedimentary basin; Topaz estimates that operators invested $2.4-billion of development capital across the company's royalty acreage in 2023;
• Generated royalty production revenue of $64.3-million ($35.72 per boe) during Q4 2023 and $250.5-million ($36.40 per boe) during 2023, which represented 78 per cent of Topaz's total revenue and other income;
• Topaz's infrastructure assets contributed 22 per cent of total revenue and other income in Q4 2023 and 2023; during Q4 2023, Topaz generated $18.5-million in processing revenue and other income, realizing 100-per-cent utilization and a 95-per-cent operating margin; during 2023, Topaz generated $70.9-million in processing revenue and other income (realizing 99-per-cent utilization and a 90-per-cent operating margin) providing 8-per-cent revenue growth from 2022;
• Paid a 31-cent-per-share dividend during Q4 2023 ($1.24 per share annualized), which represents a 62-per-cent payout ratio and a 6.1-per-cent trailing annualized yield to the fourth quarter average share price; to Dec. 31, 2023, Topaz has paid $3.97 per share in dividends to its shareholders since the inaugural dividend during the first quarter of 2020; on March 4, 2024, Topaz's board approved a 3.2-per-cent dividend increase and declared the first quarter 2024 dividend at 32 cents per share; this marks the company's seventh dividend increase since inception and 7-per-cent per-share growth since the first quarter of 2023;
• Topaz confirms its 2024 royalty production guidance at 18,800 to 19,600 barrels of oil equivalent per day, and estimates 2024 processing revenue and other income between $69.0-million and $71.0-million; Topaz's 2024 estimated dividend is sustainable down to low commodity prices (50 cents per thousand cubic feet natural gas and $55 (U.S.) per barrel crude oil) due to the company's high-margin, stable infrastructure income and hedging contracts in place; based on Topaz's 2024 midpoint royalty production estimate, 18 per cent of natural gas is hedged at a weighted-average fixed price of $3.17 per Mcf, and 30 per cent of oil and total liquids is hedged at a weighted-average floor price of $103.25 per barrel, with collar structures in place to provide upside price participation;
• During 2023, Topaz allocated FCF to dividend payments of $176.3-million, acquisitions of $46.4-million and debt repayment of $63.1-million (16-per-cent net debt reduction from year-end 2022);
• During 2023, Topaz generated 10-per-cent production per-share growth from the prior year. Operator-financed development across Topaz's royalty acreage added 8.7 million boe of proven plus probable developed reserves (excluding technical revisions or pricing factors), which represent 1.3 times replacement of Topaz's 6.9 MMboe of royalty reserves produced in 2023. At Dec. 31, 2023, the before-tax net present value of total proven plus probable developed reserves, discounted at 10 per cent, was $1.5-billion, consistent with 2022, despite lower forecast commodity price assumptions;
• Released Topaz's 2022 sustainability report, which highlights the company's commitment to deliver superior, sustainable investment returns to shareholders through its sustainable investment strategy and by fostering a strong and committed work force, mitigating climate-related risk, and upholding strong corporate governance and ethics.

Fourth quarter 2023 update

Financial overview:

• During Q4 2023, Topaz generated $82.8-million total revenue and other income, 78 per cent from royalty production revenue that generated a 99-per-cent operating margin and 22 per cent from its infrastructure assets that generated a 95-per-cent operating margin.
• Topaz's Q4 2023 cash flow of $72.4-million (50 cents per diluted share) was 3 per cent lower than Q3 2023 due to a 10-per-cent decrease in realized royalty production pricing offset by 3-per-cent-higher processing revenue, 5-per-cent-higher royalty production and 3-per-cent-lower total cash costs. During Q4 2023, Topaz generated an 87-per-cent FCF margin, compared with 84 per cent during Q3 2023.
• During the fourth quarter, Topaz paid $44.8-million in dividends, representing a 62-per-cent payout ratio, and generated $26.8-million of excess FCF, which was allocated to acquisition growth and debt reduction.
• Topaz exited 2023 with $342.7-million of net debt, $63.1-million (16 per cent) lower than exit 2022. As at March 4, 2024, Topaz has $650.0-million of available credit capacity, which provides financial flexibility for strategic growth opportunities.

Royalty activity:

• Royalty production averaged 19,555 boe/d in Q4 2023, 5 per cent higher than Q3 2023 and 7 per cent higher than Q4 2022. Topaz's total oil and liquids royalty production achieved another record high in Q4 2023, averaging 6,027 bbl/d, and Topaz generated $64.3-million of total royalty production revenue during the quarter. The estimated gross operator production across Topaz's royalty acreage in Q4 2023 represented approximately 9 per cent of total WCSB production.
• During Q4 2023, Topaz's total realized royalty production price was $35.72 per boe. A significant portion of Topaz's production royalties receive benchmark market pricing, whereby no quality differentials, transportation or processing charges are deducted from the royalty price paid to Topaz, irrespective of actual costs incurred by the operator. During Q4 2023, Topaz's natural gas realized price was $2.28 per Mcf. For heavy oil, Topaz realized $75.12 per bbl. In Q4 2023, 70 per cent of Topaz's natural gas liquids royalty production was condensate, which attracts premium pricing and contributed to the company's natural gas liquids realized price of $93.46 per bbl.
• During Q4 2023, operators spudded 147 gross wells (5.0 net), 87 (2.2 net) of which were not yet brought on production at the end of the quarter. Inclusive of wells drilled during previous periods, 169 gross wells (5.8 net) were brought on production during Q4 2023.
• Fourth quarter drilling activity (147 gross wells spudded) was diversified across Topaz's portfolio as follows: 42 Clearwater, 38 northeastern B.C. Montney, 38 Deep basin, 10 Peace River, five central Alberta and 14 southeastern Saskatchewan/Manitoba. In 2023, 352 of the 577 gross wells spudded (61 per cent) across Topaz's royalty acreage were in the Clearwater and NEBC Montney, Topaz's high-growth areas. Average 2023 royalty production from these two areas has increased 20 per cent relative to 2022.
• Based on planned operator drilling activity, Topaz expects that the current 24 to 28 active drilling rigs on its royalty acreage will be maintained through the first quarter of 2024.

Infrastructure activity:

• During Q4 2023, Topaz generated $18.5-million in processing revenue and other income, which were 2 per cent higher than Q3 2023. In Q4 2023, Topaz incurred $1.0-million in operating expenses, resulting in a 95-per-cent operating margin. During the quarter, the infrastructure assets generated 100-per-cent utilization, and Topaz incurred $100,000 in maintenance-related capital expenditures (before capitalized general and administrative).

Acquisition activity:

• As previously announced, Topaz entered into definitive agreements during Q4 2023 for a $26.3-million investment with a Canadian energy producer for a new 7-per-cent gross overriding royalty and supporting capital commitment on approximately 20,000 gross acres in the West Nipisi area and a 99-per-cent working interest in a planned natural gas gathering system that is supported by a long-term fixed take-or-pay and cumulative volume commitment. The operator is currently drilling the commitment well on the new Clearwater royalty lands, and construction is under way on the new Clearwater natural gas gathering infrastructure, which is expected to be completed late 2024. The Clearwater natural gas gathering infrastructure is designed to conserve natural gas across Topaz's existing West Marten Hills royalty acreage and is expected to increase Topaz's existing royalty production revenue up to $500,000 in 2025, meaningfully reduce carbon dioxide emissions in the area and generate approximately $3.7-million in infrastructure processing revenue for Topaz in 2025.
• During the fourth quarter, Topaz invested $2.5-million for its working interest share of costs invested to expand the Glacier facility, which increased Topaz's natural gas processing capacity and provides incremental fixed take-or-pay fees to Topaz.

Dividend:

• Topaz's board has declared the first quarter 2024 dividend at 32 cents per share, which is expected to be paid on March 28, 2024, to shareholders of record on March 15, 2024. The quarterly cash dividend is designated as an eligible dividend for Canadian income tax purposes, and the annualized dividend of $1.28 per share provides a 6.4-per-cent yield to Topaz's current share price.

Guidance outlook

2024 guidance estimates confirmed:

• Topaz confirms the company's previously announced 2024 guidance estimates, including average annual royalty production of 18,800 to 19,600 boe/d and processing revenue and other income between $69.0-million and $71.0-million. Topaz's royalty production guidance anticipates operator-financed capital development between $2.2-billion and $2.8-billion and incorporates the impact of a contractually scheduled royalty rate change from 4 per cent to 3 per cent, effective Jan. 1, 2024, on approximately 300 million cubic feet per day of gross natural gas production (approximately 500 boe/d to Topaz).
• For 2024, the royalty production guidance range purposefully remains flexible and allows for operators to adjust capital spending in response to near-term supply/demand and resulting commodity price factors in the WCSB. Topaz's asset portfolio is diversified amongst oil and liquids-rich natural-gas-focused plays, and is concentrated on the most commodity-price-resilient activity areas due in part to strategic partners' infrastructure assets and low-cost structures, which further support Topaz's guidance estimates. Based on current commodity pricing, Topaz expects to exit 2024 with net debt between $245.0-million and $255.0-million before consideration of incremental acquisitions or the Clearwater natural gas gathering infrastructure.

Dividend sustainability and capital allocation:

• Topaz's 2024 estimated dividend is sustainable down to low commodity prices (50 cents per Mcf Alberta Energy Company and $55 (U.S.) West Texas Intermediate). The reliability of the dividend is attributable to: (i) high-margin, stable infrastructure revenue, which represents approximately 38 per cent of the 2024 estimated dividend; (ii) hedging and natural gas price diversification strategy, including financial derivative contracts in place that provide a fixed price of $3.17 per Mcf for 18 per cent of natural gas, 7 per cent of Topaz's natural gas diversified to New York Mercantile Exchange pricing at an AECO basis differential of 42 U.S. cents per million British thermal units, and average crude oil floor pricing of $103.25 per bbl for 30 per cent of total liquids; (iii) the quality and financial strength of Topaz's asset portfolio and strategic partners which mitigate risk of reduced development activity; and (iv) the company's diversified commodity mix (69 per cent natural gas and 31 per cent total liquids) and resulting royalty revenue composition (approximately 35 per cent natural gas and 65 per cent total liquids.
• Topaz's estimated 2024 dividend payout ratio of 65 per cent remains at the lower end of the company's targeted long-term payout of 60 to 90 per cent to maintain financial flexibility for acquisition growth opportunities. Topaz's strategy is to continue to provide further dividend increases alongside sustainable organic and acquisition growth.
• Topaz estimates its year-end 2024 net debt to earnings before interest, taxes, depreciation and amortization will be approximately 0.8 times before consideration of acquisition activity or 0.9 times following the commissioning and estimated costs attributed to the Clearwater natural gas gathering infrastructure. The company has a $700-million covenant-based unsecured credit facility, expandable to $1.0-billion, which provides financial flexibility and growth optionality.

Additional information

Additional information about Topaz, including the consolidated financial statements and management's discussion and analysis as at and for the three and 12 months ended Dec. 31, 2023, is available on SEDAR+ under the company's profile and on Topaz's website.

Q4 2023 conference call

Topaz will host a conference call tomorrow, Tuesday, March 5, 2024, starting at 9 a.m. MST (11 a.m. EST). To join the conference call without operator assistance, participants can register and enter their phone number to receive an instant automated callback. Alternatively, participants can join by calling a live operator at 416-764-8659 or 1-888-664-6392 (North American toll-free). The conference call ID is 66142057.

2024 annual meeting

Topaz will host its annual shareholder meeting on Thursday, May 2, 2024, starting at 9 a.m. MST (11 a.m. EST) in the Forester room at the Calgary Petroleum Club. If you are a shareholder on record of Topaz common shares at the close of business on April 18, 2024, you are entitled to receive notice of, participate in and vote at this meeting. Topaz encourages you to vote your common shares and participate in the meeting.

About Topaz Energy Corp.

Topaz is a unique royalty and infrastructure energy company focused on generating free cash flow 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 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 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 emission 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 emission 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 Topaz 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.

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