Topaz Energy Corp Reports Record Growth and Dividend Increase

Topaz Energy Corp ((TSE:TPZ)) has held its Q1 earnings call. Read on for the main highlights of the call.

Topaz Energy Corp’s recent earnings call conveyed an optimistic outlook, underscored by impressive growth in royalty production and drilling activities. The company reported record-setting figures and a strategic increase in dividends, despite minor setbacks in heavy oil volumes and a backlog of uncompleted wells. Overall, Topaz demonstrated a robust financial performance and a commitment to a sustainable dividend strategy.

Record Royalty Production and Drilling Activity

Topaz Energy Corp achieved new milestones in royalty production, reaching 22,400 BOE per day. This marks a 10% increase from the previous quarter and a 17% rise from the same period last year. The company also set a new quarterly record by spudding 218 gross wells, which accounted for 19% of the Western Canadian Sedimentary Basin’s drilling activity, up from 12% in the previous year.

Dividend Increase and Strong Cash Flow

The Board of Topaz approved a 3% quarterly dividend increase to $0.34 per share, reflecting the company’s strong financial health. Topaz generated $92.2 million in total revenue, with cash flow of $81.7 million and free cash flow of $80.8 million. Notably, the free cash flow margin improved from 85% to 88%.

Processing Revenue Record

Topaz set a new company record for first-quarter processing revenue and other income, reaching $23.5 million. This figure represents a 7% increase from the previous quarter, showcasing the company’s ability to enhance its revenue streams.

Sustainable Dividend Strategy

Topaz’s dividend strategy remains robust and sustainable, even in challenging market conditions. The company is well-positioned to maintain its dividends down to $0 AECO and $55 WTI U.S., thanks to fixed revenue from infrastructure and hedging contracts.

Heavy Oil Volume Fluctuations

The company experienced some fluctuations in heavy oil volumes, with a noted decrease compared to the fourth quarter due to compliance revenue adjustments. However, core operators Tamarack and Headwater continued to show growth, mitigating some of the impacts.

Uncompleted Wells Inventory

Topaz faces a backlog of uncompleted wells, with 72% of new wells drilled during the quarter still pending completion. This backlog has impacted immediate production volume growth, although it represents potential future output.

Forward-Looking Guidance

Looking ahead, Topaz Energy Corp has reaffirmed its 2025 guidance, projecting average well production between 21,000 to 23,000 BOE per day. The company anticipates processing revenue and other income to be between $88 million to $92 million. Additionally, the year-end net debt to EBITDA is expected to be 1.2x, with a dividend yield of 5.9% based on current share prices and a payout ratio of 66%.

In summary, Topaz Energy Corp’s earnings call highlighted a positive sentiment with record achievements in royalty production and drilling activities. The company’s strategic dividend increase and robust financial performance underscore its commitment to sustainable growth. Despite some challenges, Topaz remains well-positioned for future success, as reflected in its forward-looking guidance.