Mr. Marty Staples reports

TOPAZ REPORTS FIRST QUARTER 2024 RESULTS, STRONG ROYALTY ACREAGE DEVELOPMENT ACTIVITY AND DECLARES SECOND QUARTER DIVIDEND

Topaz Energy Corp. has provided its first quarter 2024 financial results and confirmed the company's 2024e guidance estimates. Select financial information is outlined herein and should be read in conjunction with Topaz's interim condensed consolidated financial statements, and related management's discussion and analysis (MD&A), as at and for the three months ended March 31, 2024, which are available on SEDAR+ and on Topaz's website.

First quarter 2024 highlights:

• Topaz's undeveloped lands continue to attract a strong, consistent level of development activity. Twelve per cent of the total wells drilled across the WCSB (Western Canadian sedimentary basin) were spudded on Topaz royalty acreage during the first quarter of both 2024 and 2023. Since the beginning of 2021, the total number of gross wells drilled across Topaz's royalty acreage represents 13 per cent of the wells drilled across the WCSB. Over that same time, Topaz's heavy oil royalty production has increased significantly from 50 bbl/d (barrels per day) to 2,877 bbl/d, the majority of which is attributed to growth from the Clearwater play.
• Based on operator drilling plans, nine to 11 rigs will remain active across Topaz's royalty acreage through spring breakup, a record level as spring conditions typically restrict most development activity. Royalty acreage activity is expected to resume with 25 to 29 planned drilling rigs following breakup.
• Topaz generated total revenue and other income of $78.2-million, 54 per cent of which was derived from oil and liquids royalties, 23 per cent from natural gas royalties, and 23 per cent from Topaz's infrastructure portfolio.
• Cash flow of $67.9-million, or 47 cents per diluted share, was generated from 19,192 boe/d (barrels of oil equivalent per day) (30 per cent oil and liquids) average royalty production and 99-per-cent infrastructure asset capacity utilization.
• FCF (free cash flow) of $66.3-million, or 46 cents per diluted share, was allocated to dividends and debt reduction. Topaz paid a 32-cent-per-share first quarter dividend ($1.28 per share annualized), which represents a 6.4-per-cent trailing annualized yield to the Q1 2024 average share price. Topaz reduced net debt $20.5-million, or 6 per cent, during the quarter.
• Topaz confirms its previously announced guidance estimates for 2024e of 18,800 boe/d to 19,600 boe/d royalty production, and $69-million to $71-million of processing revenue and other income.
• For the balance of 2024e, Topaz's dividend is sustainable down to very low commodity prices (one cent per mcf (thousand cubic feet) natural gas and $50 (U.S.) per bbl crude oil).

First quarter 2024 update:

• Financial overview:
  • Topaz generated $78.2-million total revenue and other income, 77 per cent of which came from royalty assets that generated a 99-per-cent operating margin and 23 per cent from infrastructure assets that generated an 89-per-cent operating margin.
  • Cash flow of $67.9-million, or 47 cents per diluted share was lower than the prior quarter, driven by 3 per cent lower commodity pricing, including wider crude oil differentials, and lower royalty production attributed to extreme January weather conditions and Topaz's last scheduled royalty rate reversion. The decrease was offset by a $600,000 higher hedging gain, 12 per cent stronger WCS (Western Canadian Select) differential pricing and 6 per cent lower interest expense.
  • Topaz paid $46.4-million in dividends (68-per-cent payout ratio), and generated $19.9-million of excess FCF, which was allocated to debt repayment.
  • Topaz exited Q1 2024 with $322.3-million of net debt, $20.5-million, or 6 per cent, lower than the end of 2023. As at April 29, 2024, Topaz has $650-million of available credit capacity, which provides financial flexibility for strategic growth opportunities.
• Royalty activity:
  • First quarter average royalty production of 19,192 boe/d (30 per cent oil and liquids) achieved the midpoint of Topaz's 2024e guidance range. The estimated gross operator production across Topaz's royalty acreage in Q1 2024 represented approximately 8 per cent of total WCSB production.
  • During the quarter, operators spudded 145 gross wells (5.0 net) and reactivated six gross wells across Topaz's royalty acreage, compared with 147 gross wells spud (5.0 net) and 10 gross wells reactivated during the prior quarter. At the end of the first quarter, 95 of the 145 gross wells drilled in Q1 2024 had not yet been brought on production, compared with 87 out of 147 at the end of Q4 2023.
  • During Q1 2024, Topaz's total realized royalty production price was $34.55 per boe, 3 per cent lower than the prior quarter, driven by lower crude oil and natural gas liquids market pricing. The majority of Topaz's royalty agreements do not permit standard royalty deductions, which enhances Topaz's commodity exposure and profitability. For Q1 2024, Topaz's realized natural gas price represents 100 per cent of the AECO (Alberta Energy Company) 5A benchmark price and Topaz's realized heavy crude oil price represents 97 per cent of the WCS heavy oil benchmark price.
  • Topaz estimates that operators invested $500-million to $600-million of development capital across the company's royalty acreage in Q1 2024. Drilling activity (145 gross wells spudded) was diversified across Topaz's portfolio as follows: 53 Clearwater, 35 NEBC Montney, 25 Deep Basin, 15 Peace River, six central Alberta and 11 southeastern Saskatchewan/Manitoba. Clearwater drilling activity increased 26 per cent from the prior quarter.
• Infrastructure activity:
  • Topaz generated $17.9-million in processing revenue and other income, which was 4 per cent higher than the prior year. During Q1 2024, Topaz incurred $1.9-million in operating expenses, resulting in an 89-per-cent operating margin. The infrastructure assets generated 99-per-cent utilization and Topaz incurred $1-million in maintenance-related capital expenditures (before capitalized G&A (general and administrative)).
  • Construction of the previously announced Clearwater natural gas gathering infrastructure continues to be advanced by the operator, which has spent $15.3-million toward the project to date, and is expected to be completed by late 2024. Following commissioning, Topaz will finance the final capital costs and generate incremental processing revenue. 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 CO2 (carbon dioxide) emissions in the area and generate approximately $3.7-million in infrastructure processing revenue for Topaz in 2025.
• Dividend:
  • Topaz's board has declared the second quarter 2024 dividend at 32 cents per share, which is expected to be paid on June 28, 2024, to shareholders of record on June 14, 2024. The quarterly cash dividend is designated as an eligible dividend for Canadian income tax purposes. The annualized dividend of $1.28 per share provides a 5.6-per-cent yield to Topaz's current share price.
  • Topaz's 2024 estimated dividend is sustainable down to extremely low commodity prices (one cent per mcf natural gas and $50 (U.S.) per bbl crude oil) due to the company's high-margin, stable-infrastructure income and hedging strategy. 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 approximately 40 per cent of oil and total liquids is protected to a weighted-average floor price of $102.54 per bbl using collar structures to maintain upside price participation.

Guidance outlook:

• 2024e guidance estimates confirmed:
  • Topaz confirms the company's previously announced 2024e guidance estimates, including average annual royalty production of 18,800 boe/d to 19,600 boe/d, and processing revenue and other income between $69-million and $71-million. Topaz's royalty production guidance anticipates operator-financed capital development between $2.2-billion and $2.8-billion, and incorporates the impact of Topaz's last contractually scheduled royalty rate reversion from 4 per cent to 3 per cent, effective Jan. 1, 2024, on approximately 300 MMcf/d (million cubic feet per day) of gross natural gas production (approximately 500 boe/d to Topaz).
  • For 2024e, 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. Based on current commodity pricing, Topaz expects to exit 2024e with net debt between $240-million and $250-million, before consideration of incremental acquisitions or the costs of the Clearwater natural gas gathering infrastructure.

• Dividend sustainability and capital allocation:
  • Topaz's 2024e dividend payout ratio of 64 per cent remains at the lower end of the company's targeted long-term payout of 60 per cent 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's year-end 2024e net debt to EBITDA is estimated at 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-billion, which provides financial flexibility and growth optionality.

Additional information

Additional information about Topaz, including the consolidated financial statements, and MD&A, as at and for the three months ended March 31, 2024, are available on SEDAR+ under the company's profile, and on Topaz's website.

Q1 2024 conference call

Topaz will host a conference call tomorrow, Tuesday, April 30, 2024, starting at 9 a.m. Mountain Time (11 a.m. Eastern Time). To join the conference call without operator assistance, participants can register and enter their phone number on-line to receive an instant automated call back. 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 12063827.

Two thousand twenty-four annual meeting

Topaz will host its annual shareholder meeting on Thursday, May 2, 2024, at 9 a.m. MT (11 a.m. ET) at the Calgary Petroleum Club (now to be held in the McMurray Room) located at 310 5th Ave., SW Calgary, Alta. If you were a shareholder of record of Topaz common shares at the close of business on March 18, 2024, you have received notice of, and are entitled to participate in and vote at this meeting. The company encourages you to vote your common shares and participate in the meeting.

About Topaz Energy Corp.

Topaz Energy 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 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 Energy focuses on top-quartile energy resources and assets best positioned to attract capital to generate sustainable long-term growth and profitability.

The Topaz Energy 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.

We seek Safe Harbor.