Topaz Energy Q2 Earnings Call Highlights

Topaz Energy (TSE:TPZ) reported higher royalty production, cash flow and free cash flow in the second quarter of 2026, supported by record drilling activity on its Western Canadian Sedimentary Basin acreage and stronger liquids production.

President and Chief Executive Officer Marty Staples said quarterly royalty production rose 9% from a year earlier to 24,233 barrels of oil equivalent per day. Total liquids royalty production reached a record 7,178 barrels per day, up 6% year over year, driven largely by drilling activity on the company’s Clearwater royalty lands.

Topaz generated total revenue and other income of C$111.2 million during the quarter. Liquids royalties accounted for 66% of the total, natural gas royalties contributed 13%, and the infrastructure portfolio represented 21%.

Cash Flow, Infrastructure Results and Dividend

Cash flow totaled C$88.4 million, or C$0.57 per share, an increase of 9% from the prior-year quarter. Free cash flow rose 17% to C$86.6 million, or C$0.56 per share.

The company distributed C$54.2 million in quarterly dividends, equal to C$0.35 per share. Staples said the payout represented a 4.5% trailing annualized dividend yield based on the second-quarter average share price. Topaz produced C$32.4 million of excess free cash flow, which it allocated to a royalty acquisition completed during the quarter.

Its infrastructure operations generated C$20.7 million of processing revenue, up 3% from the second quarter of 2025. Including other income, total processing revenue was C$22.3 million. The infrastructure assets operated at 96% utilization and delivered a 92% operating margin, according to the company.

Record Drilling Activity and Higher Production Outlook

Staples said 160 gross wells, or 6.6 net wells, were drilled across Topaz’s acreage during the second quarter. The activity represented a record 22% share of Western Canadian Sedimentary Basin drilling activity for Topaz.

• 78 wells were drilled in the Clearwater.
• 40 wells were drilled in Northeast British Columbia and the Alberta Montney.
• 22 wells were drilled in the Deep Basin.
• Seven wells were drilled in Peace River.
• Nine wells were drilled in Southeast Saskatchewan.
• Four wells were drilled in Central Alberta.

Topaz said 126 gross wells were brought on production during the quarter. Based on operator drilling plans, the company expects 26 to 31 rigs to remain active across its royalty acreage through the third quarter.

Following the first-half performance and increased activity, Topaz raised its full-year average royalty-production guidance to between 23,900 and 24,300 BOE per day.

Chief Financial Officer Cheree Stephenson said the higher outlook reflected both year-to-date outperformance and changes in operator activity. She said non-core areas had outperformed Topaz’s expectations, while Clearwater volumes continued to exceed expectations. The company also expects more sustained gas production in the second half than it had previously assumed.

Stephenson said Topaz remains cautious in its guidance because it does not control operators’ capital spending. She identified natural gas prices over the coming months, particularly for non-core and drier-gas areas, as a key consideration for the second half.

Royalty Acquisition Adds Core-Area Acreage

On June 30, Topaz completed a C$38.7 million acquisition of 300,000 gross acres in its Northeast British Columbia Montney and Deep Basin core royalty areas. The acquired lands include royalty interests in more than 500 gross future drilling locations, as well as multi-zone liquids-rich natural gas and oil exploration potential and incremental royalty production.

Staples said the company has been proactive in pursuing acquisition opportunities during the past year, noting that some potential transactions can take 12 to 18 months to develop. He said the market had appeared “a little frozen” at the start of the year but has since opened somewhat, as some operators have capital needs.

“Our goal, it’s always to be counter-cyclical in the acquisition strategies,” Staples said. “That was a big reason why we added these 300,000 acres to the portfolio.”

Staples said the Northeast British Columbia portion of the acquisition fits with Topaz’s existing exposure to three developing, liquids-weighted Montney benches. In the Deep Basin, he cited potential development across several zones, including Cardium, Dunvegan, Glauconite and Viking plays. He said much of the tenure is new and has significant remaining term, with development activity expected over the next two to five years.

Capital Activity and Technology Developments

Staples said Topaz expects a portion of capital redirected from Charlie Lake asset dispositions by Tourmaline and Tamarack Valley to benefit its Clearwater royalty lands. He said Tamarack has indicated it would redirect C$75 million from its Charlie Lake disposition toward the Clearwater, and Topaz expects roughly 85% to 90% of that redirected capital to go toward lands on which it holds royalties.

Looking further ahead, Staples pointed to technology changes in the Northeast British Columbia and Alberta Montney, including a shift from ball-drop completion systems to plug-and-perf methods. He said the company has seen higher well rates associated with newer techniques, alongside improvements in drilling practices and completion design.

Stephenson added that capital efficiencies have continued to improve in the Clearwater and Tourmaline’s Northeast British Columbia Montney operations. She said Clearwater maintenance capital requirements have moved closer to 20% of cash flow, compared with prior expectations near 30%, though Topaz does not rely on further declines in those requirements.

Topaz ended the quarter with C$497.4 million of net debt, equal to 1.2 times annualized second-quarter EBITDA. The company now estimates 2026 exit net debt of between C$435 million and C$440 million, excluding any additional acquisitions. Management said it expects to maintain its payout ratio at the lower end of its long-term 60% to 90% target range to preserve flexibility for future acquisitions.

About Topaz Energy (TSE:TPZ)

Topaz Energy 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.

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