Release Date: November 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Topaz Energy Corp (TPZEF, Financial) completed a strategic acquisition from Term Oil Corp, increasing its royalty acreage by 50% and aligning with future growth projects.
- The company saw a 9% and 11% growth in crude and heavy oil royalty production, respectively, in Q3 2024.
- Topaz Energy Corp (TPZEF) achieved a record 216 gross wells drilled on its undeveloped royalty lands, representing 17% of total wells drilled across the WCSB.
- The company's infrastructure assets realized 100% capacity utilization in Q3, generating an 89% operating margin.
- Topaz Energy Corp (TPZEF) distributed $47.8 million in quarterly dividends, representing a 5.2% dividend yield on an annualized basis.
Negative Points
- 60% of the 216 total new wells drilled in Q3 were not yet brought on production, indicating potential delays in realizing revenue from these wells.
- The company expects to end 2024 with net debt ranging between $64 million and $70 million, which includes debt attributed to recent acquisitions.
- Topaz Energy Corp (TPZEF) plans to maintain a leverage target of up to two times for acquisition growth, which could increase financial risk.
- The company anticipates a small amount of cash tax in 2025, with more significant cash taxes expected from 2026 onward.
- Topaz Energy Corp (TPZEF) is cautious about dividend increases in the near term, opting to absorb recent acquisition impacts before considering further hikes.
Q & A Highlights
Q: Can you provide insights on future additions to the infrastructure portfolio and the level of competition in the marketplace? Also, any updates on dividend increases?
A: Marty Staples, President and CEO, explained that Topaz is focused on both royalty and infrastructure, having evaluated $1.8 billion in opportunities and transacted on $400 million. They are selective, prioritizing newer facilities with lower emissions. Regarding dividends, they review them quarterly and plan to align increases with corporate growth, potentially around 5-6% annually.
Q: What is Topaz's strategy for managing debt levels, and how does it relate to potential dividend increases?
A: Cheree Stephenson, CFO, stated that Topaz aims to maintain leverage between one to two times debt to cash flow, especially for growth acquisitions. They anticipate debt compression from 1.5 times to 0.9 by the end of 2025, allowing flexibility for acquisitions. Dividend increases are considered based on cash flow, credit capacity, and inherent business growth.
Q: When will Topaz provide guidance for 2025, and what production range should be expected?
A: Marty Staples indicated that guidance will likely be provided in January 2025, following updates from operators and gas price evaluations. Cheree Stephenson added that a conservative production range for 2025 would be around 22,000 barrels per day, depending on operator plans and gas prices.
Q: Can you elaborate on the water flood initiatives in the Clearwater and their impact on future volumes?
A: Marty Staples highlighted that 20% of Topaz's Clearwater acreage is under water flood, leading to lower decline rates and higher recovery factors. This initiative effectively doubles the recovery factor, providing significant benefits in terms of reserve life and resource access. Cheree Stephenson added that 65% of production under water flood is stabilizing, with 35% uplift from higher recovery rates.
Q: When does Topaz expect to become cash taxable, and what are the projected tax rates?
A: Cheree Stephenson noted that a small amount of tax will be incurred in 2025, with more significant cash taxes starting in 2026. They anticipate about 10 years of a 50% reduced corporate tax rate, approximately 12%.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
