Topaz Energy Aktie

Good morning. My name is Hannah, and I will be your conference operator today. At this time, I would like to welcome everyone to the Topaz Energy Corp. Second Quarter 2026 Results Conference Call. [Operator Instructions]

Thank you. Mr. Scott Kirker, you may begin your conference.

Thank you, Hannah, and welcome, everyone, to our discussion of Topaz Energy Corp.'s results as of June 30, 2026. My name is Scott Kirker, and I'm the General Counsel for Topaz.

Before we get started, I refer you to the advisories on forward-looking statements contained in the news release as well as the advisories contained in the Topaz AIF and its MD&A available on SEDAR and on the Topaz website. I also draw your attention to the material factors and assumptions in those advisories.

I'm here with Marty Staples, Topaz President and Chief Executive Officer; and Cheree Stephenson, Vice President, Finance and Chief Financial Officer. They will start by speaking to some of the highlights of the last quarter and the year so far. After the remarks, we will be open for questions.

Marty, Cheree, go ahead.

Thank you, Scott. Good morning, everyone. Topaz had a strong second quarter, marked by a record share of quarterly drilling activity in the WCSB, record liquids royalty production and a core area tuck-in acquisition.

Topaz's second quarter royalty production was 24,233 BOE per day and increased 9% over the prior year. Q2 2026 royalty production included record total liquids production of 7,178 barrels per day, 6% higher than prior year, driven by strong operator drilling activity on our Clearwater royalty acreage.

Topaz generated total second quarter revenue and other income of $111.2 million, 66% from total liquids royalties, 13% from natural gas royalties and 21% from our infrastructure portfolio. Processing revenue of $20.7 million increased 3% from Q2 2025 with total processing revenue and other income of $22.3 million, while the infrastructure assets generated 96% utilization in the quarter, providing a 92% operating margin.

Drilling activity on our acreage was strong with 160 gross wells or 6.6 net wells drilled in Q2, representing the highest quarterly share of WCSB drilling activity in the company's history at 22%. Activity was diversified across our portfolio with 78 wells in the Clearwater, 40 in Northeast BC and Alberta Montney, 22 in the Deep Basin, 7 in Peace River, 9 in Southeast Saskatchewan and 4 in Central Alberta.

Our growth plays in the Clearwater and Northeast BC continue to attract a meaningful share of activity with 69% and 45% of the total spuds in each respective area occurring on the royalty lands.

During Q2 2026, 126 total gross wells were brought on production, and based on operator drilling plans, we expect that 26 to 31 drilling rigs will remain active across our royalty acreage through the third quarter.

Topaz generated second quarter total revenue and other income of $111.2 million. Cash flow of $88.4 million or $0.57 per share increased 9% over the prior year, while free cash flow of $86.6 million or $0.56 per share increased 17% over the prior year.

Topaz distributed $54.2 million in quarterly dividends at $0.35 per share during Q2, representing a 4.5% trailing annualized dividend yield to the second quarter average share price and generated $32.4 million of excess free cash flow, which was allocated to our core area tuck-in royalty acquisition during the quarter.

On June 30, 2026, Topaz completed a $38.7 million acquisition of 300,000 gross acres across Topaz's Northeast BC Montney and Deep Basin core royalty areas. The acquisition lands featured acquired royalty interest in over 500 gross future drilling locations, multi-zone liquid-rich natural gas and oil-focused exploration upside optionality and incremental royalty production.

After the acquisition, Topaz exited the second quarter with $497.4 million of net debt, equating to 1.2x net debt to Q2 2026 annualized EBITDA.

Reflecting the strong performance and increased activity we've seen through the first half of 2026, Topaz has increased its annual average royalty production guidance to a range of 23,900 BOE per day to 24,300 BOE per day.

Based on updated estimates, including the second quarter royalty acquisition, Topaz's 2026 exit net debt is now estimated between $435 million and $440 million before consideration of incremental acquisition.

Topaz expects to maintain a payout ratio at the lower end of the 60% to 90% long-term targeted range, providing financial flexibility for future acquisition growth.

We're pleased to answer any questions at this time.

Operator, back to you.

[Operator Instructions] Your first question comes from Patrick O'Rourke of ATB Cormark.

I guess just first on the improvement to guidance. How much of that is sort of predicated on outperformance year-to-date? And how much of that would you say is sort of evaluating a bit of a strategic shift from some of the underlying royalty payers to what seems like higher growth rates and better capital structures here?

Patrick, it's Cheree. So I'd say it's probably a mix of both. We definitely saw outperformance. And I would say the surprise was partially from some of our noncore areas where we don't have as much transparency into growth. And so those sort of outperformed. And the Clearwater continues to outperform our expectations. And so through the second half, we see sustained gas production, whereas we probably had some more risking baked into the model previously, and then we are seeing outperformance on those Clearwater volumes. So it's a bit of a mix of both.

And just to add to that, Patrick, we did see that disposition of the Charlie Lake by both Tourmaline and Tamarack Valley. And I think from Tamarack's release, one of the benefits you would have seen out of that is they're redirecting $75 million of that disposition in the Charlie Lake back to the Clearwater. And so that's an added benefit to our overall portfolio. Although we probably won't see all of the $75 million, we do expect about 85% to 90% of that directed capital go back into the Clearwater lands we have a royalty on.

And I guess next week, we might get a sort of a better view on Canadian Natural strategy on those Charlie Lake assets.

Yes. I think we kind of model it at worst-case scenario as maintenance capital right now. And we have -- we do think that there's probably 20 to 25 wells across that part of the basin where CNRL operates. I'm not saying that we'll see all of that capital, but we will see a portion of it.

Yes. And just moving over to sort of the acquisition strategy. Maybe how you see the landscape right now. We've had a lot of volatility here, obviously, with crude prices. We've got backwardation. I'm assuming sellers want the front end and buyers want the back end of the curve. But where do you sort of see the opportunities right now for the stated acquisition strategy?

Yes. We've been very proactive throughout the last 12 months from an acquisition strategy. So we have been putting ideas out there for different operators. And some of these ideas take 12 to 18 months to transpire. Start of the year, we would have felt it was a little frozen, but it feels like that's opened up a little bit. There is some capital needs for some of these operators. Think about our goal. It's always to be countercyclical on acquisition strategies, and that was why -- a big reason why we added these 300,000 acres to the portfolio. We thought we could be countercyclical on liquids-weighted natural gas, and that's exactly what we did.

Your next question comes from Jeremy McCrea of BMO Capital Markets.

Curious, when you look at -- and this is a bit of a follow-up to Patrick's question here, too. A year from now, where do you think we're going to see more of the surprises here in terms of production growth? I'm sure you see a lot of different things happening in the basin. And where is that one piece of new production or technology that's being added that doesn't quite make the headlines quite yet, but likely could be something bigger down the road here?

Yes. Jeremy, thanks for the question. So we've seen a lot of technological shifts inside our portfolio. I mean, I think the biggest one to make note of is something that you've highlighted in your notes. And that's the step change from ball drop system to plug and perf inside Northeast BC Montney and into the Alberta, Montney as well.

And so we've seen bigger rate come out of a lot of these wells. The operators are trying some new techniques and some of this technological advancement that they're seeing. And it's not just on completion design. I think they're just getting better at drilling mud weight, all sorts of advancements in the technological aspect of it. There is some small exploration going on. I think Headwater released earlier this week -- or last week, sorry, that they've now expanded their Grand Rapids play to 30 sections. They've only developed 3 of those sections right now.

Tamarack has some complementary Grand Rapids, we think that we can add to that as well. And so the Clearwater is really the gift that keeps on giving. Clearwater East Sand has happened or is being developed there as well as the Grand Rapids. So always big wins there. And as this development continues to happen and sees waterflooded it, I think Headwater highlighted they want to have 75% of the Grand Rapids water -- underwater flood by the end of the year. These are all added benefits to our overall portfolio.

Yes. I would just add to the capital efficiencies just keep getting better and better. We're seeing and feeling that on Tourmaline's Northeast BC Montney. And you can see their focus in that area, especially post Charlie Lake divestiture. And with the Clearwater, the declines keep coming down. So before we were raising 30% of cash flow being allocated for maintenance capital, and it's getting closer to 20%.

So those keep just being enhanced and improved, and we don't rely on any of those continuing to trend downward. And then the other thing I'd say is at some point in time, just some of these exploration plays that Tourmaline has within their portfolio, that's some oil windows within the fund we just acquired that adds to existing. So just things like that at the margin and strong commodity prices, you're going to continue to see some of that exploration.

Your next question comes from Jamie Kubik of CIBC.

Just I guess, a bit more on the guidance increase similar to the previous questions. But just hoping to get a bit more color on any caution you might be taking in the second half of the year. I mean year-to-date production is at 24,400 BOEs a day for Topaz. You're guiding to 24,100 at the midpoint. Is there [ something ] in the second half that gives you pause in what operators are up to at this point? And can you just touch on the conservatism in that number?

I figured you'd ask this question, Jamie. And the response is we think of our guidance like we think of the dividend and always up and to the right. So we don't control the capital, so we'll always be a little bit cautious, but we just want a framework out there that we know we have really good line of sight to exceeding. And so we are thinking of it at the high end of that range, but it could be incrementally positive.

I'd say the biggest risk or caveat is just gas through the next couple of months before we get into a more winter season and particularly in some of those noncore, more dry gas type areas. But overall, I think you can just see it as we're super confident in the increased guide and hope to continue to increase it, but don't want to get ahead of ourselves given we don't control the capital.

Okay. Fair enough. And just with respect to the acquisition, can you talk a little bit more about what has you excited about it, the value paid relative to previous acquisitions and things of that nature or industry?

Yes. I mean let's start in Northeast BC. We think we have -- we know we have 3 benches of development there, liquids-weighted Montney development. And so as we see Northeast BC to continue to grow and develop, this was a natural fit for us to add to our portfolio. Through the Deep Basin, there's a number of different zones starting kind of up into the northwestern part of that.

We've got a Cardium play that we're pretty excited about that will be liquids weighted, a Duvernay play that will be liquids weighted as that kind of expense further south. Lots of really good things in the block channels that we've been able to identify. There's a Viking play there as well. And so the majority of this is new tenure that has lots of term left on it. And so over the next 2 to 5 years, we expect a real interesting and exciting development plan that's going to take place through our operator that we haven't named yet.

I would add, too, there is some of an acreage that has existing working interest. And so a good strategy for any operators to consolidate all that interest before they really apply the capital towards it. So we are looking forward to some of those really liquid-rich areas that are going to see some capital near term.

There are no further questions at this time. I will now turn the call over to Mr. Marty Staples. Please continue.

Thanks very much, everyone, for attending the Q2 conference call. Look forward to talking to you in Q3.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Good morning. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the Topaz Energy Corp. First Quarter 2026 Results Conference Call. [Operator Instructions] Thank you. Mr. Staples, you may begin your conference.

Thank you, John. Good morning, everyone, and welcome to our discussion of Topaz Energy Corp.'s results as at and for the period ended March 31, 2026. My name is Marty Staples, and I'm the President and CEO of Topaz. With me today is Cheree Stephenson, CFO and VP Finance.

Before we get started, I refer you to the advisories on forward-looking statements contained in the news release as well as the advisories contained in the Topaz annual information form and within our MD&A available on SEDAR and our website. I also draw your attention to the material factors and assumptions in those advisories. We will start this morning by speaking to some recent and first quarter 2026 highlights. After these opening remarks, we will open for questions.

Topaz had a strong first quarter marked by record royalty production on our acreage, and our Board has approved a 3% dividend increase to $0.35 per share or $1.40 per share annualized, marking our 10th quarterly dividend increase and a 75% dividend per share growth since inception.

Topaz's first quarter royalty production was 24,609 boe per day and increased 10% over the prior year. Q1 2026 royalty production included record natural gas production of 105.7 million cubic feet per day, 11% higher than prior year and record total liquids production of 6,998 barrels per day, 7% higher than the prior year.

Topaz generated total first quarter revenue and other income of $94.6 million, 55% from total liquids royalties, 20% from natural gas royalties and 25% from our infrastructure portfolio. Processing revenue of $21 million increased 7% from Q1 2025 with total processing revenue and other income generated in the quarter of $23.4 million. The infrastructure assets generated 98% utilization in the quarter, providing a 92% operating margin.

During the quarter, Topaz also invested $2.4 million in modification projects on 2 jointly owned natural gas processing facilities in exchange for a proportionate increase to take-or-pay fixed fee processing arrangements.

Drilling activity on our acreage remains strong with 138 gross wells drilled and 4 gross wells reactivated with 55% of drilling activity directed into oil-focused plays. Activity was diversified across our portfolio with 48 wells in the Clearwater, 31 in Northeast BC and Alberta Montney, 23 in the Deep Basin, 13 in Central Alberta, 11 in Southeast Saskatchewan and 8 in the Peace River.

During Q1 2026, 130 total gross wells were brought on production. And as at March 31, another 86 gross wells were drilled but not yet completed. Based on operator drilling plans, we expect 15 to 18 rigs will remain active across our royalty acreage through spring breakup, following which activity is expected to resume to 22 to 27 drilling rigs.

Topaz generated first quarter total revenue and other income of $94.6 million, cash flow of $80.1 million or $0.52 per share and free cash flow of $78.7 million or $0.51 per share. Topaz distributed $52.6 million in quarterly dividends, $0.34 per share during Q1, representing a 4.6% trailing annualized dividend yield to the first quarter average share price and generated $26.1 million of excess free cash flow, which was allocated primarily to debt reduction.

Topaz exited the first quarter with $492 million of net debt, representing a 5% reduction from December 31, 2025. We have continued our strategy to grow the dividend alongside sustainable revenue growth within the business. Our quarterly dividend has been increased to $0.35 per share, representing $1.40 per share on an annualized basis or a 4.5% yield to our current share price. Since inception, we have returned approximately $1 billion in dividends, which represents over 20% of our current market capitalization.

We have reconfirmed our previously announced 2026 guidance and do now expect annual average royalty production of 23,900 boe at the upper end of the range, driven by strong oil-focused activity while allowing for prudent natural gas-focused capital discipline. Based on updated estimates, including the second quarter dividend increase, Topaz's 2026 exit net debt is now estimated at $407 million, which represents a 4% reduction from our prior guidance before consideration of incremental acquisitions.

Topaz expects to maintain a payout ratio at the lower end of the 60% to 90% long-term targeted range, providing financial flexibility for acquisition growth. Our 2026 dividend remains sustainable below $0.01 per Mcf of AECO and USD 55 WTI, attributed to the high-margin, stable infrastructure revenue, which represents 43% of the 2026 increased dividend, our hedging strategy and financial derivative contracts in place, lower decline royalty production supported by secondary recovery and our diversification between oil and natural gas-focused undeveloped royalty acreage. As a reminder, our 2026 Annual Shareholder Meeting will be held this Friday, May 8, at 9:00 a.m. at the Calgary Petroleum Club.

At this time, we're pleased to answer any questions. Back to you, operator.

[Operator Instructions] We now have our first question, and this comes from the line of Michael Harvey from RBC Capital Markets.

So a couple of questions. I guess the first one, just any takeaways on the types of newer, just kind of more exploration style plays as we kind of go through the second half from your counterparties. Usually when you get higher prices, folks will step out a bit more in terms of exploration. You kind of mentioned the Belly River, but anything else worth mentioning there would be good.

And then second one, maybe just for Cheree, just on hedging. The book looks pretty light for 2027. Lots of moving parts in there, obviously. Just wondering kind of what the strategy is as we move into the back half.

We always kind of hear about the exploration plays after we release. I mean, Tourmaline holding the majority of our acreage. We'll probably disclose some things later today. I know they've been working pretty aggressively on just different exploration ideas and not sure if they're ready to expose any of those yet as I think they're still trying to do some land acquisitions around that. But as you highlighted, the Belly River has been some big upside inside our portfolio. We saw 9 wells drilled on that this quarter. That's a combination of Highwood, Tourmaline and Obsidian. So a big surprise in some of those. We had some fairly high oil rate wells inside the Belly River complex that we never underwrote those ideas when we were buying a lot of this acreage. So a surprise to the upside for sure.

I think we've talked at length about the Grand Rapids and Headwater and both Tamarack have highlighted how important that's been to their portfolio. We think that the Grand Rapids data could add up to 10,000 barrels a day of incremental gross production. Net production to us is pretty high, and we have a 7% royalty on the Headwater lands and 5% on the majority of the Tamarack land. So big upside there. And I think that's the big benefit is we see a lot of these producers through the portfolio that are out there doing exploration and it's no additional cost to Topaz. So always for the upside to us when they do exploration projects.

I think one thing to note as well is some of the disclosure Tamarack put out this morning and Headwater put out last week is the injection rates in 2025 have tripled. They plan to double those injection rates in '26. Similarly, Headwater was targeting 60% of total oil production being supported by waterflood, and it's going to be 70% by 2028. So that's big upside for Topaz. And then as I mentioned before, we did not underwrite a lot of that in our portfolio. So that's added upside to the overall complex.

And on the hedging, Mike, so we're about 7% hedged on both liquids and gas for 2027 currently. So definitely, we'll look to add more opportunistically. So the way we're thinking about it is maybe some wider costless collars on the oil side. And we kind of think of $3 gas as ideal. So we're not going to panic hedge. We're definitely going to layer some in as we see opportunities arise. And the -- basically target we're always looking towards is where can that dividend be fully funded at that $0 AECO, $55 WTI. That's kind of our threshold that we're trying to insulate.

[Operator Instructions] And the next question comes from Jamie Kubik from CIBC.

Can you just talk a bit around the spud activity that you saw on your acreage during the quarter? It looked like it was down considerably year-on-year and how that might translate into what we see from a production perspective in future quarters?

Sure, Jamie. So I think the most important wells to look at is in that spud activity. And keep in mind, it is spud and not rig release. So there is some timing when you think about larger well pads. But the most important are definitely the Montney and Clearwater. We think those are the best resource, the best returns. And so when we look at those, they haven't changed nearly as much. In fact, I would say the trending slightly downward on Clearwater is a sign of that improving capital efficiency, same thing for the Montney, because we're still seeing great results out of both of those plays, even with a slightly lower count.

And the other thing year-over-year, like the biggest 3 areas that we saw a reduction were Deep Basin, Southeast Saskatchewan and Peace River. Peace River, where we obviously saw some assets change hands, so that would have stalled some activity. Southeast Saskatchewan, those could be portions of wells not necessarily owning the full mineral beneath. And so we're overall not too fussed on the Deep Basin. It could be some drier gas. The other thing to note is year-over-year, we had a 3.3% average royalty rate last year, this quarter, 3.7%. So fewer wells, but higher royalty rates.

So overall, we're not too fussed, especially with the strong performance in Q1. We do naturally expect our production to be sort of U-shaped through the year with Q1 and Q4 being the peak and Q2, Q3 being the function of spring breakup and then maybe some deferred activity or responses to natural gas pricing. So overall, feel very strongly. As we mentioned in the press release, we're pointing to the high end of our guidance range. So kind of held the oil production at that high end based on pricing. And obviously, there's a bit of flex within the gas, but we kind of made up for it in Q1.

Yes, Jamie, we've been talking to a few shareholders. In fact, I was out with this shareholder, Mona, last night, and she had mentioned that one of the comments just around natural gas-driven activity and if certain producers are going to reduce activity. And I think it's a good sign for us overall, like if we can save those molecules for better prices, we don't mind seeing that. So I think it's a positive overall.

Okay. And can you talk a bit about the gas processing plant modifications that Topaz participated in during Q1? And sort of what does that mean for future revenue upside from these assets? And is there more things like this to do?

Yes. Good question, too. And so we have seen some acceleration in 2 of our Montney projects, one within the Pouce Coupe area, one in Musreau, participated in both those expansions. I think in the Musreau area, our producer, Whitecap and operator Whitecap has produced some wells that are just fantastic. They're outperforming type well curve. And so they just needed more capacity in that facility. We have the option, not the obligation to participate and keep our pro rata share in place, and we did that. And so it will translate to locked-in fees from that participation.

Similarly, same deal on the Pouce Coupe facility where we participate alongside Logan, just have been drilling some fantastic wells up there, found a new zone in the Montney. And so this translates really well to us. Not only do we increase capacity, but we also increase in the Pouce Coupe area for sure, our royalty production as well.

[Operator Instructions] It seems like there are no further questions that came through. I will now hand the call back over to Mr. Staples for any closing remarks. Please go ahead, sir.

Yes. I appreciate everyone joining the call today and look forward to hearing and seeing you guys for Q2. Thanks very much.

Thank you. This concludes our conference call for today. Thank you all for participating. You may now disconnect.

Good morning. My name is Ludy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Topaz Energy Corp. Fourth Quarter and 2025 Results Conference Call. [Operator Instructions] Thank you.

Mr. Staples, you may begin your conference.

Thank you, Ludy, and welcome, everyone, to our discussion of Topaz Energy Corp. results as at and for the period ended December 31, 2025. My name is Marty Staples, and I'm the President and CEO of Topaz. With me today is Cheree Stephenson, CFO and VP Finance.

Before we get started, I refer you to the advisories on forward-looking statements contained in the news release as well as the advisories contained in the Topaz annual information form and within our MD&A available on SEDAR and our website. I also draw your attention to the material factors and assumptions in those advisories.

We will start this morning by speaking to some of the recent and fourth quarter 2025 highlights. After these opening remarks, we will be open for questions.

2025 marked another year of impressive growth for Topaz, highlighted by a 17% increase to royalty production, 20% higher infrastructure revenue and a 10% increase to our year-end 2025 reserves. Topaz's fourth quarter royalty production averaged 23,400 boe per day and increased 15% from the prior year, which was driven by record oil and liquids production of 6,900 barrels per day in the quarter. Full year 2025 royalty production of 22,400 boe per day increased 17% over 2024, which was driven by 11% higher liquids production and 19% higher natural gas production.

In 2025, we saw an estimated $2.8 billion of operated capital invested on our acreage, which led to a record 694 gross wells drilled, or 25.3 net, which is 10% higher than 2024 and represents a meaningful record 17% share of total Western Canadian Sedimentary Basin 2025 drilling activity. We also saw a 22% increase in total wells brought onstream in 2025 over 2024.

This operator-funded development was demonstrated through our annual reserve report, which evaluates Topaz's proved developed producing and probable developed reserves before any future undeveloped locations Topaz's year-end 2025 total proved plus probable reserve of 55.7 million boe increased 10% from 2024 driven by 50% and 10% growth in the Clearwater and Northeast BC Montney.

Operator-funded drilling extensions and improved recovery generated 11.9 million boe of additions, which replaced our 2025 royalty production volume of 8.2 million boe by a peer-leading 1.5x at no cost to Topaz.

In the Clearwater specifically, operator-funded activity replaced royalty production by 3x in 2025. Over the past 2 years, we have seen our Clearwater reserve life index double as a result of waterflood performance that continues to enhance heavy oil recovery.

During the quarter, drilling activity on our acreage remained strong as 190 gross wells, 6.8 net, were drilled and 17 gross wells were reactivated. In total, 248 gross wells were brought on production during Q4 2025, which represents a 7% increase over Q4 2024. Based on our operator drilling plans, we expect that the current 27 to 30 active drilling rigs on our royalty acreage will be maintained through the first quarter of 2026.

In Q4, topaz generated royalty production revenue of $62.5 million, representing 72% of Topaz's total revenue with 28% or $24.2 million contributed by our infrastructure assets. Topaz generated fourth quarter cash flow of $80.6 million or $0.52 per share, 6% higher than Q4 2024, and free cash flow of $79.7 million or $0.52 per share, which increased 11% from Q4 2024.

Our Q4 2025 net income of $32.7 million was 64% higher than Q4 2024 driven by 15% higher royalty production, 10% higher processing revenue and other income, 4% lower cash expenses and a 47% higher realized hedging gain. During 2025, Topaz realized a $19.8 million hedging gain driven by a $15.1 million natural gas hedging gain equivalent to $0.44 per Mcf.

Topaz distributed $52.4 million of dividends at $0.34 per share during the quarter, which represented a 65% payout ratio and a 5.1% trailing annualized yield to the fourth quarter average share price. Through the full year, topaz paid $207.7 million in dividends at a 66% payout ratio, which represents a 4% increase on a per share basis over 2024. Since our inaugural dividend during the first quarter of 2020, Topaz has paid $6.62 per share in dividends.

We have announced our 2026 guidance estimates of 23,500 to 23,900 boe per day of average royalty production and $92 million to $94 million of processing revenue and other income. Topaz expects to exit 2026 with net debt-to-EBITDA of 1.2x and generate a 68% payout ratio, which remains sustainable through the end of 2026 at $0 AECO and USD 55 WTI attributed to the fixed revenue provided by our infrastructure portfolio and hedging contracts in place, which are available in our most recently filed MD&A, as well as the quality and strength of our diversified asset portfolio.

At this time, we're pleased to answer any questions. Back to you, operator.

[Operator Instructions] Your first question comes from the line of Jeremy McCrea with BMO Capital Markets.

Marty, quick questions here on M&A. Can you describe what the market looks like now versus where it has been in the last couple of years? And why -- like part of your growth has been through M&A, and what makes you confident that you could see a lot of deals potentially this year? And just kind of a bit of a follow-up here. Where do you think those deals may occur actually?

Yes. Jeremy, thank you for the question. I think like most years, it seems like it starts out fairly soft until the quarters get done. People understand what maybe their budgets might look like. We did complete a deal in the latter part of December in 2025, smaller deal, $8 million on a fee royalty acquisition. Have seen some leasing on that acquisition already so we're pretty confident that there's probably more to do there. It was about 30,000 acres of land kind of right in the heart of the Duvernay play.

Overall, we're very proactive on deals right now. I think what kind of we see into Q1, Q2 is probably some reactive ideas where maybe some bank-led processes start to kind of appear. And so overall, I think we're going to continue to be active this year. On most years, we look at about $2 billion in opportunities. We've been very active already in 2026 looking at some different opportunities.

And we're fairly agnostic to whether it's infrastructure or royalty opportunities. I think the win for us has been a combination of both of them. So we'll continue to look where we can be useful. And if we see some capital cuts start to happen into Q1, we think that there's probably some opportunity on the infrastructure side. But like I said, we're open to either sides of those M&A opportunities.

[Operator Instructions] We do have our next question coming from the line of Jamie Kubik with CIBC.

Can you just talk a little bit about the reserves and the changes that you saw this year? How much more is there left to be booked on the waterflood improvements in the Clearwater? And how much was, I guess, derived from just delineation in that play? Can you just talk about some of the shifts on that side, Marty?

Jamie, it's Cheree. I'll take this one. Marty can chime in. But we definitely saw some significant bookings. We do think that within the Clearwater specifically, there was some catch-up from prior as the reserve evaluators really now have enough years of data in order to sort of acknowledge and back up the waterflood results.

I wouldn't say they booked what they're seeing in full effect. There's still some room for further adds and reflection of the results to date. But we were definitely pleased with the recognition and the performance of the assets. Obviously, our reserve report is a bit limited as it does not include undeveloped future locations. So we don't get the full effect of what's going on with the waterflood.

But we do believe there is incremental value attributed to what's been done to date for future years. And we do see the operators continuing to extend more and more of their budgets into the waterflood because it's working as we expect to see, maybe not quite this type of effect, that 50% increase within our Clearwater reserves next year, but definitely something that's in excess and positive.

As a takeaway, when we think of our reserve book and the reserve replacement we were able to achieve this year, it was about 1.5x on the entire portfolio. Within Clearwater specifically, it was at 3x reserve replacement. And over the last 2 years, we've seen a doubling of the reserve life index. So 3 years went to 6 years. And remember, again, that's just the developed wedge of the reserves.

If you think about our two main operators, Headwater and Tamarack, coming out with some very positive revisions to, I would say, the 2P numbers in excess of 50% on both of them, it really paints a nice road map for us for the future.

And so I think you saw Headwater around 52% on a 2P reserve uptick. And then this morning, Tamarack came out with 56%, replacing 534% of production. That looks really positive for Topaz. And so we're excited to see those results and get an indication of what the future brings for our future bookings.

[Operator Instructions] And we currently have no further questions at this time. I would like to turn it back to Mr. Staples for closing remarks.

Thanks, everyone. Great 2025. And look forward to chatting with you on the Q1 call in May. Take care.

Thank you, presenters. And ladies and gentlemen, this now concludes today's conference call. Thank you all for joining. You may now disconnect.

Good morning. My name is Sergio, and I will be your conference operator today. At this time, I would like to welcome everyone to the Topaz Energy Corp. Third Quarter 2025 Results Conference Call. [Operator Instructions]

I will now turn the call over to Mr. Scott Kirker. You may begin your conference.

Thank you, Sergio, and welcome, everyone, to our discussion of Topaz Energy Corp.'s results as at September 30, 2025, which the 3 and 9 months ended September 30, 2025 and 2024. My name is Scott Kirker, and I'm the General Counsel for Topaz.

Before we get started, I refer you to the advisories on forward-looking statements contained in the news release as well as the advisories contained in the Topaz annual information form and the MD&A available on SEDAR and on the Topaz website. I also draw your attention to the material factors and assumptions in those advisories.

I'm here with Marty Staples, Topaz President and Chief Executive Officer; and Cheree Stephenson, Vice President, Finance, and Chief Financial Officer. They will start by speaking to some of the highlights of the last quarter and of the year so far. After their remarks, they will be open for questions. Marty, Cheree, please go ahead.

Thanks, Scott. Good morning, everyone. Topaz had a strong third quarter, marked by royalty production growth, infrastructure processing revenue growth and record Clearwater royalty production volumes.

Topaz's third quarter royalty production was 21,600 BOE per day and increased 15% from the prior year. Q3 2025 royalty production included record heavy oil production of 3,400 barrels per day, 17% higher natural gas royalty production and an 11% increase in total oil and liquids royalty production over the prior year.

Topaz generated total third quarter revenue of $76.4 million, 49% from crude and heavy oil royalties, 20% from natural gas and NGL royalties and 31% from our infrastructure portfolio with full processing revenue and other income of $24.2 million, which increased 16% over the prior year.

Topaz's infrastructure assets generated a 99% average daily utilization in the quarter. We estimate that operators invested between $500 million and $600 million of development capital across our acreage in Q3, with total operator spending across our royalty lands year-to-date between $2 billion to $2.1 billion.

During the quarter, drilling activity on our acreage remains strong at a 161 gross wells, 6.3 net were drilled and 12 gross wells were reactivated with 52% of the drilling activity coming from the Montney and Clearwater operating areas.

During Q3, 184 total gross wells were brought on production. And as at September 30, 94 gross wells were drilled but not yet completed, which represents approximately 58% of the Q3 2025 new wells drilled. Based on operator drilling plans, we expect that the current 27 to 31 active drilling rigs on our royalty acreage will be maintained through the fourth quarter of 2025.

Topaz generated third quarter total revenue of $76.4 million and cash flow of $74.8 million or $0.49 per share and free cash flow of $73 million or $0.47 per share, both of which increased 7% per share over the prior year.

Our Q3 2025 free cash flow margin of 95% also increased from 88% last year due to lower operating costs, a 24% reduction to our effective borrowing rate under the company's credit facility and an $8.7 million hedging gain realized during the quarter. Topaz's third quarter realized a hedging gain of $8.7 million includes a $7.1 million gain on natural gas-based financial derivative contracts, which represents a 144% premium to Topaz's third quarter realized gas price.

For the fourth quarter of 2025, approximately 30% of Topaz's natural gas growth production is hedged at a weighted average fixed price of CAD 3.06 per Mcf and approximately 30% of oil and total liquids royalty production is hedged at a weighted average floor price of CAD 97.64 per barrel. Topaz distributed net $52.3 million in quarterly dividends, $0.34 per share during Q3, which represents a 5.4% trailing annualized dividend yield to the third quarter average share price.

During the quarter, Topaz completed its previously announced Northeast BC Montney tuck-in royalty acquisition from Tourmaline for $71.7 million. This acquisition provides a new royalty interest on approximately 134,000 gross acres, of which over 65% is undeveloped and includes 410 future Tier 1 Montney drilling locations. This acquisition fully aligns Topaz to each of Tourmaline's future growth projects under their multiyear Northeast BC Montney build out plan.

We have reconfirmed our 2025 guidance estimate ranges and expect to exit 2025 with net debt between $500 million and $510 million or net debt to EBITDA of 1.5x, while generating a payout ratio at the lower end of the 60% to 90% long-term targeted range, which provides financial flexibility for acquisition growth.

At this time, we're pleased to answer any questions. Back to you, Sergio.

[Operator Instructions] Your first question comes from Josef Schachter from Schachter Energy Research.

My normal question, can you talk about what the M&A landscape looks like right now, especially with E&P companies being stretched with these low commodity prices. Is there more opportunity now in the infrastructure area, either for facilities that are in great shape and then you could be a partner there or in projects that are in the pipeline that once they're completed, then you can be in the deals at that point?

Josef, we continue to see a lot of opportunity inside the M&A landscape. In Western Canada right now, there's a significant amount of assets for sale. We just saw a couple of those close over the last month that have been publicly announced. And we always continue to look for ways to participate, but don't feel like we need to participate in every single opportunity that's available.

And so we'll be interested to see where we fit in some of these potential acquisitions. We have kept our payout at the lower end of the ratio, and that's by design. We want to use our excess free cash flow if it's available first. And as you saw us do kind of in the latter part of the quarter, we did use some debt to facilitate a deal with Tourmaline for $71.7 million. So we'll continue to be interested. And if there's something that fits, we'll try to be reactive to that.

And then from a royalty infrastructure weighted opportunity set, I think there's opportunities on both sides. And we've proven that over the year. At the start of the year, we did a deal with Logan Energy, where it was a royalty infrastructure hybrid deal, and we completed a deal just recently that was a pure royalty deal. So we'll look to be kind of opportunistic on both sides of that.

Okay. Some of my clients have asked me if you're going to -- how does the royalty structure work with an NCIB? Is that something that if you saw the stock was trading below what you consider your fair value, would that be somewhere where you could allocate capital?

Josef, yes. So we've definitely looked at an NCIB, and we definitely like the thought of it. There's definitely a good reason and a rationale to reinvest back into our own portfolio as per se. But with liquidity and Tourmaline shareholdings, we have sort of pinpointed that as something we do once Tourmaline sold down a bit further. So at this time, we've decided to stick with the dividend strategy and not confuse that messaging, but it's definitely something that we continue to evaluate for future as liquidity continues to improve.

[Operator Instructions] There are no further questions at this time. You can proceed.

Thanks, everyone. Look forward to talking to you in Q4. Have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.