Topaz Energy Corp.

Good morning. My name is Joanna and I will be your conference operator today. At this time, I would like to welcome everyone to the Topaz Energy Corp First Quarter 2024 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. Thank you, Mr. Kruger. You may begin your conference.

Thank you, operator, and welcome everyone to our discussion of Topaz Energy Corps results as of March 31, 2024, and for the three months ended March 31, 2024, and 2023. My name is Scott Kruger, 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 Forum and the Topaz MD&A available on CDAR and on our website. I also draw your attention to the material factors and assumptions in those advisories. I'm here with Marty Staples, Topaz's President and Chief Executive Officer, and Sheree Stevenson, Vice President, Finance, and Chief Financial Officer. We'll start by speaking to some of the highlights of the last quarter in the year so far, and after their remarks, we'll open to questions. Marty, Sheree, go ahead, please.

Thank you, Scott. Good day, everyone. Topaz had a strong first quarter marked by royalty production that achieved the midpoint of our 2024 guidance range and infrastructure revenue that is on track to achieve the high end of our 2024 guidance range. The value of our royalty portfolio continues to be demonstrated through the strong, reliable level of operator development drilling across our acreage. During the first quarter, 145 gross wells were drilled on our undeveloped royalty lands. which represents 12% of the total wells drilled across the WCSB. During Q1 of last year, our Royalty acreage saw the same level of activity, 12% of wells spud across the WCSB. The total wells drilled across Topaz's Royalty acreage from Q1 2021 to Q1 2024 represents 13% of total drilling activity across the Western Canadian Sedimentary Basin. Over that same time, through operator-funded development and strategic diversification, Topaz's heavy oil royalty production has increased significantly from 50 barrels a day to 2,877 barrels a day, predominantly through our clearwater royalty assets. And Topaz's total oil and liquid royalty production has increased six-fold from 955 barrels a day to 5,780 barrels per day. Based on operator drilling plans, 9 to 11 rigs will remain active across the Royalty Acreage through spring breakup, a record level for Topaz as spring conditions typically limit development activity. 25 to 29 drilling rigs are expected to be active across the Royalty Acreage following spring breakup. From a financial perspective, Topaz generated first quarter revenue and other income of $78.2 million. In Q1, 54% of our revenue was from oil and liquids royalty revenue, 23% from natural gas royalty revenue, and 23% from Topaz's infrastructure asset. First quarter cash flow was $67.9 million, or $0.47 per basic and diluted share. We distributed 68% of cash flow to shareholders through our dividend, which represented a 6.4% trailing yield to the average share price during the first quarter. Our first quarter dividend was 3% higher than the prior quarter and represents the company's seventh dividend increase or 60% dividend growth to date. For Q1, we generated $19.9 million of excess free cash flow and reduced debt by 6%. We remain disciplined on our investment strategy and continue to evaluate a number of opportunities. The operator of our Clearwater natural gas gathering infrastructure has completed approximately half of the construction. Topaz will fund the project once the infrastructure is commissioned, which is targeted for late 2024. This infrastructure is expected to gather natural gas on our existing royalty acreage in addition to generate long-term fixed processing fees. Topaz's first quarter average royalty reduction of 19.2 thousand B.O.E. per day was 30% oil and liquids and increased 2% from Q1 2023. Operators spot 145 gross wells and reactivated six gross wells on our acreage during the first quarter. Drilling was diversified across the portfolio as follows. 53 Clearwater, 35 Northeast BC Montney, 25 Deep Basin, 15 Peace River, 6 Central Alberta, and 11 Southeast Saskatchewan slash Manitoba. We estimate that our operators spent between half a billion and 0.6 billion in development capital across our acreage during this quarter. First quarter royalty revenue of 60.3 million represented 77% of Q1 total revenue and generated a 99% operating margin. First quarter infrastructure revenue of 17.9 million represented 23% of Q1 revenue. Our infrastructure assets realized 99% capacity utilization and generated an 89% operating margin. During Q1 2024, Topaz's total realized relative production price was $34.55 per BOE. For Q1 2024, Topaz realized natural gas price represents 100% of the AECO 5A benchmark and Topaz realized heavy crude oil price represents 97% of the WCS crude oil benchmark price. Topaz's 2024 dividend is supported by Topaz's infrastructure revenue and hedging strategy and is sustainable to commodity prices of $0.01 per mcf natural gas and $50 US per barrel crude oil. For 2024, 18% of natural gas is hedged at a weighted average price of $3.17 per mcf Canadian. And 40% of oil and liquid is hedged at a weighted average floor price of $102.54 Canadian per barrel, using collar structures to maintain upside participation. We reconfirmed our 2024 guidance ranges of 18.8 to 19.6 thousand BOE per day of royalty production and 69 to 71 million of infrastructure processing revenue and other income. Based on current commodity pricing and before acquisitions, Topaz expects to end 2024 with net debt of 0.8 times net debt to EBITDA. The 2024 dividend represents a 64% payout ratio based on recent commodity price forecast, which maintains financial flexibility to allocate excess free cash flow growth or further dividend increases. I'm pleased to answer any questions at this time. Back to you, operator.