Topaz Energy Corp.

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 Corporation second quarter 2026 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 the star followed by the number two. Thank you. Mr. Scott Kerker, 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 Kerker, and I'm the General Counsel for Topaz. Before we get started, I'd refer you to the advisories on the forward-looking statements contained in the news release as well as the advisories contained in the Topaz AIF and its MD&A available on CDAR and on the Topaz website. I hope to draw your attention to the material factors and assumptions in those advisories. I'm here with Marty Staples, Topaz President, the 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 of the year so far. After the remarks, we will be open for questions. Marty, should we 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, records liquid drill production, and a core area tuck-in acquisition. Topaz's second quarter of realty 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 the total second quarter revenue, another 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, and Jordan 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 Montane, 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 Acres through the third quarter. 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. Total cash 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 realty 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 money and deep basin core realty areas. The acquisition lands featured acquired royalty interest in over 500 gross future drilling locations, multi-zone, liquid-risk natural gas and oil-focused exploration outside optionality, and incremental royalty production. After the acquisition, Tokaj exited the second quarter with $497.4 million of net debt, equating to 1.2 times net debt to Q2 2026 annualized EBITDA. Reflecting the strong performance and increased activity as seen through the first half of 2026, Topaz has increased its annual average royalty reduction 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 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 target range, providing financial flexibility for future acquisition growth. We're pleased to answer any questions at this time. Operator, pass you.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press the star followed by the number one on your touchstone phone. You will hear a prompt that your hand has been raised. If you wish to decline from the polling process, please press the star followed by the number two. If you're using a speakerphone, please lift the handset before pressing N keys. Your first question comes from Patrick O'Rourke of ATV Coremark. Please go ahead.

Hey, good morning, guys, and thank you for taking my question. 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?

Hi, Patrick and Cheree. Yeah, 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 non-quorum 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 just to add to that, Patrick, we did see that disposition of the Charter Lake that 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 to go back into the Clearwater lands we have a royalty on.

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

Yeah, I think we kind of model it at worst-case scenario as maintenance capital right now, and 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.

Yeah. 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 this data acquisition strategy?

Yeah, 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, you know, some of these These ideas take 12 to 18 months to transpire. In the 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. You know, think about our goal. It's always to be counter-cyclical in acquisition strategies, and that was a big reason why we added these 300,000 acres to the portfolio. We thought we could be counter-cyclical on liquid-weighted natural gas, and that's exactly what we did.

Okay, perfect. Thank you.

Thanks, Patrick.

Your next question comes from Jeremy Macrae of BMO Capital Markets. Please go ahead.

Hi, Marty and Cheree. I'm 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 to do down the road here.

Yeah, good morning Jeremy and 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 highlighted in your notes. 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, you know, we've seen bigger rates 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 mudweights. 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 three 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. The Clearwater East End has happened or is being developed there as well as the Grand Rapids. So all these big wins there, and as this development continues to happen and sees water flooded, I think Headwaters highlighted they want to have 75% of the Grand Rapids underwater flood by the end of the year. These are all added benefits to our overall portfolio.

Yeah, I would just add, too, you know, good capital efficiencies just keep getting better and better. We're seeing and feeling that on the sort of eternally northeast beach in Vermont, and you can see their focus in that area especially post-Charlotte Lake Divestiture. And with the Clearwater, you know, 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 turn downward. And then the other thing I'd say is at some point in time, just some of these Your next question comes from Jamie Kubik of CIBC. Please go ahead.

Yeah, good morning, and thanks for taking my question. 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 viewings a day for SOPAZ. You're guiding to 24,100 at the midpoint. Is there and then in the second half it gives you pause in what operators are up to at this point and can you just touch on the conservatism in that number? Thanks.

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 opting to the right. So we don't control the capital, so we'll always be a little bit cautious, but we just want, you know, a framework out there that we know we have a good line of sight to exceeding and so, you know, 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 what does gas do the next couple months before we get into a more winter season and particularly some of those non-core, more drier 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, both the previous acquisitions and things of that nature or industry? Thanks.

Yeah, I mean, let's start in Northeast BC. We think we have, we know we have three benches of development there, liquid-weighted. 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 Eighth 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. We liquid-weighted a Dunbagan play that will be liquid-weighted as that kind of expands further south. lots of really good things in the Glock 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 two to five 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 the acres that has existing working interest and so are 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.

Okay, great. That's all for me. Thank you. Thanks, Jeannie.

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.