TOPAZ ANNOUNCES THIRD QUARTER 2024 FINANCIAL RESULTS, RECORD ROYALTY ACREAGE DRILLING ACTIVITY AND CLOSING OF STRATEGIC ROYALTY ACQUISITION

CALGARY, AB, Nov. 4, 2024 /CNW/ - Topaz Energy Corp. (TSX:TPZ) ("Topaz" or the "Company") is pleased to provide third quarter 2024 financial results and provide updated 2024e guidance estimates.  Select financial information is outlined below and should be read in conjunction with Topaz's interim condensed consolidated financial statements ("Consolidated Financial Statements") and related management's discussion and analysis ("MD&A") as at and for the three and nine months ended September 30, 2024, which are available on SEDAR+ at www.sedarplus.ca and on Topaz's website at www.topazenergy.ca.

Highlights

On November 1, 2024, Topaz completed the previously announced acquisition from Tourmaline Oil Corp. ("Tourmaline") of gross overriding royalty interests on approximately 3.0 million gross acres (over 50% undeveloped), across Topaz's NEBC Montney, Alberta Deep Basin and Peace River High core royalty areas for total cash consideration of $278.2 million before customary closing adjustments (the "Strategic Royalty Acquisition")(15). The Strategic Royalty Acquisition increased Topaz's royalty acreage by 50%, including a 38% increase to Topaz's premium Montney rights acreage, and provides 12% immediate royalty production growth as well as 100% alignment to all of Tourmaline's future identified growth projects(15).

On October 22, 2024, Topaz completed the previously announced bought-deal equity financing, at $25.05 per share, whereby Topaz issued 8,050,000 common shares, which includes common shares issued upon the exercise in full of the over-allotment option granted to the underwriters, for gross proceeds of $201.7 million (the "Equity Financing")(15). Concurrent with the closing of the Equity Financing, certain directors, officers, employees and their associates of the Company, purchased a total of 209,177 common shares, at $25.05 per share, on a private placement basis. The aggregate gross proceeds of $206.9 million were used to fund the Strategic Royalty Acquisition(15).

Topaz's undeveloped lands attracted 17%(8) of total WCSB development activity during Q3 2024 (Q2 2024 - 15%(8)), driven by a company record 216 gross wells drilled across Topaz's royalty acreage during the quarter. 49% of the Q3 2024 new wells drilled were in Topaz's high growth royalty areas, NEBC Montney and the Clearwater, which together represent 49% of Topaz's royalty production and 26% of Topaz's royalty acreage(16). Since the beginning of 2023, 43% of all new wells drilled across the Clearwater area in Alberta, and 25% of all new wells drilled across the NEBC Montney area, were on Topaz's royalty acreage(8), where the underlying gross operator production on Topaz's royalty acreage has increased 34% and 6%, respectively(9).

Based on planned operator drilling activity, 29 to 31 drilling rigs are expected to be active across Topaz's royalty acreage through the fourth quarter of 2024(3). The activity includes dedicated drilling rigs contracted by Topaz's strategic partners in addition to estimated, variable activity attributed to Topaz's other operators. Dedicated, Tourmaline-operated drilling rigs across Topaz's royalty acreage have increased from 13 during Q3 2024 to 16 rigs during Q4 2024, driven by Topaz's acreage expansion following completion of the Strategic Royalty Acquisition(15).

During the third quarter, Topaz generated cash flow of $67.0 million ($0.46 per diluted share(2)) and FCF(1) of $64.8 million ($0.44 per diluted share(2)), which was allocated to dividends and debt repayment. Topaz paid $47.8 million in dividends during the third quarter ($1.32 per share annualized, providing a 5.2% yield(10)). During Q3 2024, Topaz reduced net debt(1) by $17.4 million from June 30, 2024.

Third quarter total revenue and other income of $73.6 million ($0.51 per diluted share(2)), was generated from Topaz's income streams as follows: 28% ($20.9 million) from high-margin infrastructure assets; 54% ($39.5 million) from crude and heavy oil royalty revenue; and 18% ($13.1 million) from natural gas & natural gas liquids royalty revenue.

Through 2024e and 2025e, Topaz's dividends and payout ratio remain sustainable down to very low commodity prices ($0.01 per mcf natural gas and US$50.00 per bbl crude oil(3)), attributable to Topaz's financial derivative contracts in place(12), and the high-margin, contracted revenue generated from Topaz's infrastructure portfolio.

Third Quarter 2024 Update

Financial Overview

Topaz generated $73.6 million total revenue and other income, 72% of which from royalty assets that generated a 99% operating margin(1) and 28% from infrastructure assets that generated an 89% operating margin(1). 

During the third quarter, Topaz paid $47.8 million in dividends (71% payout ratio(1)), and generated $17.0 million of Excess FCF(1).  YTD 2024, Topaz paid $140.6 million in dividends (68% payout ratio(1)), and generated $60.0 million of Excess FCF(1).

Topaz exited Q3 2024 with $381.1 million of net debt(1).  Subsequent to Q3 2024, Topaz utilized its existing credit facilities to partially fund the Strategic Royalty Acquisition.  As at November 4, 2024, Topaz has $0.5 billion of available credit capacity(6).

Royalty Activity

Topaz generated Q3 2024 and YTD 2024 average royalty production of 18,712 boe/d(4) (32% oil and liquids), and 18,874 boe/d(4) (32% oil and liquids), respectively, which includes 9% and 11% growth in crude and heavy oil royalty production relative to Q3 2023 and YTD 2023, respectively. 

During the third quarter, operators spud 216 gross wells (7.9 net)(7) and reactivated 1 gross well across Topaz's royalty acreage, compared to 94 gross wells spud (3.8 net)(7) and 7 gross wells reactivated during the prior quarter. 

Topaz estimates that operators invested $0.7 billion to $0.8 billion of development capital across the Company's royalty acreage in Q3 2024(3) ($1.6 billion to $1.8 billion YTD 2024)(3). Third quarter drilling activity (216 gross wells spud(7)) was diversified across Topaz's portfolio as follows: 59 Clearwater, 46 NEBC Montney, 39 Deep Basin, 31 Peace River, 26 Central Alberta and 15 SE Saskatchewan. 

At the end of the third quarter, 129 (60%) of the 216 gross wells drilled during Q3 2024 were not yet brought on production which includes 76 (89%) of the 85 natural gas focused gross wells drilled and not yet brought on production.  The wells are expected to be brought on production during Q4 2024 and into 2025 alongside anticipated egress improvements with the planned commissioning of LNG Canada (Phase I) during 2025, growth in the North American LNG market and acceleration of natural gas-powered electrical generation requirements(3).

Infrastructure Activity

Topaz generated $20.9 million in processing revenue and other income which was 15% higher than both the prior quarter and the prior year, attributed to the Alberta Montney infrastructure acquisition completed during Q2 2024.  During Q3 2024, Topaz incurred $2.2 million in operating expenses, generating an 89% operating margin(1).  The infrastructure assets generated 100% utilization and Topaz incurred $1.5 million in maintenance-related capital expenditures (before capitalized G&A) during Q3 2024. 

The previously announced Clearwater Natural Gas Gathering Infrastructure project is nearly complete and is anticipated to be on-stream by the end of December 2024, upon which Topaz will fund the $26.0 million estimated construction costs(3)(14).  Topaz expects to generate $4.3 million(3)(14) of annual processing revenue beginning January 1, 2025.  The Clearwater Natural Gas Gathering Infrastructure is designed to conserve natural gas across Topaz's existing West Marten Hills royalty acreage and is also expected to increase Topaz's existing royalty production revenue up to $0.5 million in 2025(3)(14).

Dividend 

Topaz's Board approved the Company's quarterly dividend and declared the fourth quarter 2024 dividend at $0.33 per share which is expected to be paid on December 31, 2024, to shareholders of record on December 13, 2024.  The quarterly cash dividend is designated as an "eligible dividend" for Canadian income tax purposes. 

Topaz's 2024 and 2025 estimated dividends are sustainable down to very low commodity prices ($0.01 per mcf natural gas and US$50.00 per bbl crude oil) due to the Company's high-margin, stable infrastructure income and hedging strategy(3)(11).  For Q4 2024, 15,000 GJ/d of natural gas is hedged at a weighted average fixed price of C$3.17 per mcf and for 2025, 22,500 GJ/d is hedged at a weighted average fixed price of C$3.32 per mcf(12).  For Q4 2024 through to Q4 2025, over 1,500 bbl/d of crude oil is hedged at a weighted average floor price of C$95.68 per bbl using collar structures to maintain upside price participation(12).

Guidance Outlook

2024e Guidance Estimates Updated

Topaz has updated the Company's previously announced 2024e guidance estimates, which includes average annual royalty production ranging between 19,100 and 20,000 boe/d(3)(4) and processing revenue and other income between $75.5 and $78.0 million(3).  Topaz's royalty production guidance anticipates operator-funded capital development between $2.2 billion and $2.8 billion(3), and also allows for deferral of certain natural gas completion or tie-in activities in response to natural gas supply and demand dynamics.  Based on current commodity pricing(5), Topaz expects to exit 2024e with net debt(1) between $460.0 and $470.0 million, which includes $79.2 million to fund the Strategic Royalty Acquisition(15) and $26.0 million to fund the Clearwater Natural Gas Gathering Infrastructure(14).

2024e Guidance Estimates(3)(5)(13)

$mm except boe/d

Annual average royalty production (boe/d)(4)

19,100, 20,000

Royalty production natural gas weighting (%)(4)

~69%

Infrastructure processing revenue and other income

$75.5 - $78.0mm

Capital expenditures (excluding acquisitions)

$4.0, $5.0mm

2024e dividend ($1.30 per share)(13ix)

~$191.1mm

Dividend payout ratio(1)

~69%

Year end net debt(1)

$460.0, $470.0mm

Year end net debt to EBITDA(1)

~1.5x

Dividend Sustainability and Capital Allocation 

Topaz's 2024e dividend payout ratio(1) of 69%(3)(13) remains at the lower end of the Company's targeted long-term payout of 60-90% 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(1) is estimated at 1.5 times(3)(5) before consideration of incremental acquisition activity. The Company has a $700.0 million covenant-based unsecured credit facility, expandable to $1.0 billion(6), 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 and nine months ended September 30, 2024 are available on SEDAR+ at www.sedarplus.ca under the Company's profile, and on Topaz's website at www.topazenergy.ca.

Q3 2024 CONFERENCE CALL

Topaz will host a conference call tomorrow, Tuesday, November 5, 2024 starting at 9:00 a.m. MST (11:00 a.m. EST). To join the conference call without operator assistance, participants can register and enter their phone number at  https://emportal.ink/3XUqlDX 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 08125.

ABOUT THE COMPANY

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. ("Tourmaline"), an investment-grade senior Canadian E&P company, and leveraging industry relationships to execute complementary acquisitions from other high-quality energy companies. Topaz focuses on top-quartile energy resources and assets best positioned to attract capital in order to generate sustainable long-term growth and profitability.

Topaz's common shares are listed and posted for trading on the TSX 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.

For further information, please visit the Company's website at  www.topazenergy.ca. Topaz's SEDAR+ filings are available at www.sedarplus.ca.

Selected Financial Information

 For the periods ended($000s) except per share

YTD 2024

YTD 2023

Q3 2024

Q2 2024

Q1 2024

Q4 2023

Q3 2023

   Royalty production revenue

173,192

186,220

52,692

60,162

60,338

64,268

67,629

   Processing revenue

47,539

41,349

18,279

14,754

14,506

14,854

14,381

   Other income(4)

9,488

11,068

2,626

3,490

3,372

3,656

3,762

Total

230,219

238,637

73,597

78,406

78,216

82,778

85,772

Cash expenses:

   Operating

(5,749)

(5,917)

(2,209)

(1,623)

(1,917)

(979)

(955)

   Marketing

(1,004)

(1,084)

(279)

(333)

(392)

(384)

(400)

   General and administrative

(5,326)

(4,882)

(1,730)

(1,626)

(1,970)

(2,028)

(1,490)

   Realized gain (loss) on financial instruments

7,852

8,980

4,716

2,276

860

281

(761)

   Interest expense

(20,526)

(21,820)

(7,123)

(6,544)

(6,859)

(7,279)

(7,495)

Cash flow

205,466

213,914

66,972

70,556

67,938

72,389

74,671

Per basic share(1)(2)

$1.42

$1.48

$0.46

$0.49

$0.47

$0.50

$0.52

Per diluted share(1)(2)

$1.41

$1.48

$0.46

$0.49

$0.47

$0.50

$0.52

Cash from operating activities

211,341

224,153

71,253

68,805

71,283

76,423

65,190

     Per basic share(1)(2)

$1.46

$1.55

$0.49

$0.47

$0.49

$0.53

$0.45

     Per diluted share(1)(2)

$1.45

$1.55

$0.49

$0.47

$0.49

$0.53

$0.45

Net income

41,960

28,009

18,040

17,724

6,196

19,635

10,750

     Per basic share(2)

$0.29

$0.19

$0.12

$0.12

$0.04

$0.14

$0.07

     Per diluted share(2)

$0.29

$0.19

$0.12

$0.12

$0.04

$0.13

$0.07

EBITDA(7)

225,523

235,259

73,984

76,885

74,654

79,552

81,996

     Per basic share(1)(2)

$1.56

$1.63

$0.51

$0.53

$0.52

$0.55

$0.57

     Per diluted share(1)(2)

$1.55

$1.62

$0.51

$0.53

$0.51

$0.55

$0.57

FCF(1)

200,554

210,059

64,789

69,499

66,266

71,676

72,390

     Per basic share(1)(2)

$1.38

$1.45

$0.45

$0.48

$0.46

$0.50

$0.50

     Per diluted share(1)(2)

$1.38

$1.45

$0.44

$0.48

$0.46

$0.49

$0.50

     FCF Margin(1)

87 %

88 %

88 %

89 %

85 %

87 %

84 %

Dividends paid

140,550

131,469

47,827

46,362

46,361

44,847

44,805

     Per share(1)(6)

$0.97

$0.91

$0.33

$0.32

$0.32

$0.31

$0.31