Q1 2025 Topaz Energy Corp Earnings Call
Kelsey: Good morning, everybody. My name is Kelsey and I will be your conference operator for today. At this time, I would like to welcome everyone to the Topaz Energy Court, first quarter 2025 Results Conference Call.
Kelsey: All lines have been placed on mute to prevent any background noise and after this because remarks there will be a question and answer session. If you'd like to ask a question during this time, simply press star then the number one on your telephone keypad.
Speaker Change: If you'd like to withdraw your question, please press the star followed by the two. Thank you. Mr. Staples, you may begin your conference.
Speaker Change: Thank you. And welcome everyone to our discussion of Topaz Energy Corpse Results as that and for the period ended March 31st, 2025.
Marty Staples: My name is Marty Staples and I am President and CEO of Topaz with me today as Sheree Stephenson, CFO and VP Finance.
Marty Staples: 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 MDNA available in Cedar and our Web site.
Marty Staples: I also draw your attention to the material factors and assumptions and those advisories. We'll start this morning by speaking to some recent and first quarter 2025 highlights. After these open remarks, we'll be open for questions.
Marty Staples: Topaz had a strong first quarter marked by several new records, achieved, including royalty production, quarterly drilling activity in our lands, on our lands and infrastructure revenue.
Marty Staples: Our board has approved a 3% quarterly dividend, increased to 34 cents per share.
Marty Staples: Marking our ninth dividend increase and 70% dividend per share growth since inception.
Marty Staples: Topaz's first quarter royalty production was 22.4,000 BLE per day and increased 10% from the prior quarter and 17% higher than the prior year. Natural gas production increased 13% and total liquids production increased 4% from the prior quarter.
Marty Staples: Topaz's first quarter royalty revenue of 68.7 million represented 75% of total revenue and generated a 99% operating margin. While first quarter processing revenue and other income achieved a new company record of 23.5 million, which was 7% higher than the prior quarter.
Marty Staples: During the first quarter, operators split a new quarterly record of 218 gross walls, 7.3 net. Across our royalty acreage, representing 19% of the western Canadian sedimentary basin drilling activity, which increased significantly from 12% in the first quarter of last year.
Marty Staples: Drillian Activity was diversified across our portfolio with 50 in the deep basin, 49 in the Montany, 46 in the Clearwater, 37 in Southeast Saskatchewan in Manitoba, 27 in Peace River, and nine across Central Alberta.
Marty Staples: During the quarter, 191 total gross walls were brought on production, which increased 57% from the prior year.
Marty Staples: We remain extremely confident in the price resiliency of the place and the quality of the operators that make up our portfolio with approximately 93% of our current royalty production volumes generator from five well-capitalized operators.
Marty Staples: Based on operator drilling plans, 14-16 rigs will remain active across a relative acreage through a spring break up, a record level for Topaz, and expect this will increase to 28-30 rigs through the second quarter.
Marty Staples: Topaz generated first quarter total revenue of 92.2 million, cash flow of 81.7 million, and free cash flow of 80.8 million. Our free cash flow margin increased from 85% to 88% for the first quarter.
Marty Staples: Casulo of 53 cents per share, and free Casulo of 52 cents per share both increased 13% from prior year.
Speaker Change: Topaz distributed 50.7 million quarterly dividends, during Q1 representing a 5.2 percent trillion annualized dividend yield to the first quarter average share price.
Speaker Change: In January to $30.1 million of excess free cash flow, part of which was allocated to fund the Alberta-Monti royalty acquisition, which was completed in January .
Speaker Change: Based on our revenue growth, our dividend has been increased, which represents $1.36 per share on an annualized basis or a 5.9% yield to our current share price.
Speaker Change: We have reconfirmed our 2025 guidance ranges for 21,000 to 23,000 views per day of average rail production and 88 to 92 million of processing revenue and other income.
Speaker Change: Topaz expects to exit 2025 with net debt to EBITDA at 1.2 times and generate a 66% payout ratio.
Speaker Change: As a reminder, our 2025 dividend remains sustainable down to $0.50 and $55.00 WTIUS.
Speaker Change: Attributed to the fixed revenue provided by our infrastructure portfolio and our hedging contracts in place, which are available in our most recently filed MDNA. We're pleased to answer any questions at this time, but to you, operator.
Thank you.
Speaker Change: Ladies and gentlemen, we'll now begin the question and their session. Should you have a question, please press the star followed by the one on your touch to on phone. You will hear prompt that your hand has been raised.
Speaker Change: Should you wish to decline from the polling process, please press the star followed by the tube. And if I get in it, and again, if you are using your speaker phone, please let the handset be for a prep-pressing and a geese. One moment please for your first question.
Speaker Change: If your first question comes from Michael Harvey from RBC Capital Market, please go ahead.
Michael Harvey: Yeah, sure. Good morning, guys. Just a couple of, I guess, more broader questions. First, I think you did read or read the guide, of course, but just be interested in your personal views on how you think activity levels could change throughout the balance of the year and kind of into early next just given that.
Speaker Change: oil and gas are doing two different things on the commodity level and then the second one just any broader thoughts on the E&D market, availability of deals and just a bit of spreads and any just broad thoughts on how you see that market playing out through the balance of the year as it relates to Topaz be helpful.
Yeah, thanks Mike, appreciate that.
Speaker Change: I mentioned in the release that we saw record drilling through breakup of 14 to 16 rigs currently sitting at 16 rigs through breakup. Last year we were kind of peaked out around nine camel breaks.
So this is kind of...
Speaker Change: Barry increased activity from what we would have seen last year.
Speaker Change: We haven't seen any operator direct different drilling plans to the land, so we do without any guidance from, I guess, the biggest operator between Termaline.
Speaker Change: See any change to that. It looks like the drilling is going to continue. And of Q4 last year we did see some drilling and some docs kind of created but through Q1 we saw a lot of those ducks.
Actually, Convert to Completions.
Speaker Change: So we did see some inventory build happen. Probably too soon to tell if maintenance programs do get cut, although I mean.
Speaker Change: Top oil prices usually make good gas prices and we do see a gas thesis building here so I think that's the the benefit to our portfolio the diversification the quality and when we've historically seen lower activity we we seem to track capital back to our royalty lines so.
to try to acquire at this point in time.
Speaker Change: Say not. I mean, we did do the Logan D.L. in January . We do expect the facility that we purchased 35% on to be on stream.
Speaker Change: this quarter they're doing a great job with their right now Logan for finalizing that facility.
Speaker Change: But we're okay to sit back and wait for the right thing to come along. If there is some weakness inside market, I think our capital becomes more precious and more needed by operators. So being patient for a quarter or two, and if this price commodity stays light, I think it's actually a benefit for an entity like Topaz.
Appreciate it. Thanks, guys.
Thank you.
Thank you. Your next question comes from Jeremy McCrea from BMO. Please go ahead.
Speaker Change: Hey, Marty. Just a bit more on your A&D question here. When you're looking at these different transactions, are you more inclined to pick up more infrastructures here at these levels, or is an orgy belief, you know, for the rest of the year, you're probably going to see more, you know, all the gas rights that come available.
Speaker Change: Yeah, I mean, we get this question quite often, Jeremy, and thanks for it. I would say we're indifferent. We look at both infrastructure reality. We look where we can to do a hybrid deal. I think that's what sets us apart from our competitors. So, let's get started.
Speaker Change: But, you know, in the things we've been looking at, it's about half and half right now from an infrastructure relative standpoint. So we are looking at both parts of that complex and I would say we're pretty agnostic as to which one we do. It's just got out of the right return and the right quality for Topaz to transact on.
Topaz. Thanks.
Thanks Jeremy.
Speaker Change: Thank you. And again, as a reminder, if you do have a question, please press star 1. And your next question comes from Jamie Kubik from CIBC. Please go ahead.
Jamie Kubik: Good morning and thanks for taking my question. Just curious on the performance in the portfolio through the quarter. Look like some strong performance in your light oil volumes.
Jamie Kubik: and heavy oil volumes down a little bit. Can you just talk a little bit around the makeup of what the drivers were on this side from a portfolio perspective? Thanks.
Speaker Change: Yeah, I'll maybe make a quick comment here and then, and then Cheree can jump in, but you know one thing in particular we saw in the Clearwater was a lot of producers shift.
Shree: into some injection wells and so although we did see some of their volume up I think they're trying to focus on NPV versus IRR which is actually a benefit for us because areas like headwater that's a realty that we've completely paid out already so if we can get.
Shree: reserves for longer. That's a great news story. You're getting better recovery.
Tree: More reserves and lower decline. It's exactly what we want to see in a recipe, but I think maybe all volumes there, Tom Racken had a lot of both been doing a great job. I think Cheree can probably add some more color to those volumes though.
Tree: for sure. Hi, Jamie. So on the light oil side, but for sure saw some strong performance in the Charlie Lake that would have been coming from Tamarack and also some wells out in Southeast Saskatchewan on dark D-land. So those are volumes.
Tree: We don't necessarily have as much line of state on and as much romance on within the
Tree: and then on the heavy oil side, we did see strong performance from both Tamarack and Head
Tree: They made up the vast majority of the Q1 heavy oil. There was some additional sensors and compliance revenue recovered in Q4 from other operators, so that's why.
It looks directly like Q4 vs Q1.
Tree: is lower, but the overall growth camera I had bought her from the last couple quarters has been five and six percent respectively. So still it's a really strong performance from those core operators and then just some additional sort of noise within the portal for corner analysis.
Speaker Change: I see, okay, that makes sense and then maybe just a quick follow on you talked about.
72% of new wells drilled at the end of
Speaker Change: Q125 during the quarter were drilled but not yet completed. Can you just talk a bit about is this a sort of normal rate for you and how you expect volumes to trend on the back of something like that?
Speaker Change: Yes, so we still see a good solid backlog of inventory from termlings, so we saw them get through a lot of completions this quarter, but you know a lot of the welds they drill through the quarter are still yet uncompleted.
Speaker Change: So we see a really strong, you know, inventory built up. We expect, you know, given how it's shaping up this gas thesis and a bit weaker oil on the oil side, that term lane will remain super active and, you know, we can't predict precisely the cadence.
Marty Staples: But to expect it was emulated like last year from a trailing retrospective in that 2030 would be sort of an earmark for the remainder of the year. But as Marty mentioned, maybe a bit too soon to say, but we do expect to see you know with this gas price environment. We're in.
Marty Staples: Stronger walking to synactivity relative to last year as far as the conditions go. When you see some of the scale of these pads that isn't uncommon though Jamie I mean they're drilling.
Marty Staples: these multi-superpads right now and so you're going to see all the drilling activity take place first and completions happen after and so when you're talking about cycle time of
Marty Staples: You know, 80% of your time is spent drilling and 20% of your time is spent completions and those aren't exact percentages, but just kind of use
That is some high level numbers.
Marty Staples: You are going to see some ducks kind of build up over time and so I think when we saw one of our main operators termiling running 18 rigs on a lot of pad development that is something that can be expected. Thank you.
Okay, that's a good color. That's all for me. Thank you.
Thank you, Jeremy.
Thank you, and there are no further questions at this time. Mr Staples, you may continue.
Speaker Change: Hey, thanks, sir. Everyone, and look forward to talking to you in Q2. Take care.
Speaker Change: Ladies and gentlemen, this does conclude your conference call for today. You thank you very much for your participation and you may now disconnect. Have a great day.