Topaz Energy (TSE:TPZ) outlined higher royalty production, infrastructure revenue growth, and a larger reserve base during its fourth-quarter and full-year 2025 results conference call, with management also pointing to continued drilling activity on its acreage and an active posture toward acquisitions in 2026.
Production growth and operator activity
President and CEO Marty Staples said 2025 was “another year of impressive growth,” highlighted by a 17% increase in royalty production, 20% higher infrastructure revenue, and a 10% increase in year-end reserves.
Staples emphasized operator-funded development across Topaz’s acreage. In 2025, the company estimated that CAD 2.8 billion of operated capital was invested on its lands, resulting in 694 gross wells drilled (25.3 net), a 10% increase from 2024. He said this represented a record 17% share of total Western Canadian Sedimentary Basin drilling activity for the year. Topaz also saw a 22% increase in total wells brought on stream in 2025 versus 2024.
During the fourth quarter, activity remained strong, with 190 gross wells (6.8 net) drilled and 17 gross wells reactivated. A total of 248 gross wells were brought on production in Q4 2025, up 7% from Q4 2024. Based on operator drilling plans, management expects the current 27 to 30 active drilling rigs on Topaz’s royalty acreage to be maintained through the first quarter of 2026.
Reserves and Clearwater waterflood impacts
Topaz reported year-end 2025 total proved plus probable (2P) reserves of 55.7 million Boe, a 10% increase from 2024. Staples said growth was driven by 50% and 10% increases in the Clearwater and Northeast BC Montney, respectively.
Management highlighted reserve replacement achieved through operator-funded drilling extensions and improved recovery. According to Staples, Topaz recorded 11.9 million Boe of reserve additions, replacing 2025 royalty production volumes of 8.2 million Boe by 1.5 times, “at no cost to Topaz.” In the Clearwater, operator-funded activity replaced royalty production by three times in 2025.
On the Q&A portion of the call, CFO and VP Finance Sri Stevenson (referred to as “Cheree” on the call) said the company believes there was “some catch-up from prior” in Clearwater reserve bookings as evaluators now have enough years of data to recognize waterflood results. Stevenson said the waterflood impact has not been fully reflected, adding that the reserve report is limited because it does not include undeveloped future locations, meaning Topaz does not “get the full effect” of waterflood activity.
Stevenson said Topaz expects operators to continue allocating more budget to the waterflood given its performance, though she suggested the company may not see another 50% increase in Clearwater reserves next year. She reiterated that over the last two years Topaz’s Clearwater Reserve Life Index has doubled—from three years to six years—based on the developed portion of the reserves.
Quarterly financial results and hedging
In the fourth quarter, Topaz generated royalty production revenue of CAD 62.5 million, representing 72% of total revenue. Infrastructure assets contributed 28% of total revenue, or CAD 24.2 million.
Topaz reported fourth-quarter cash flow of CAD 80.6 million, or CAD 0.52 per share, up 6% from Q4 2024. Free cash flow totaled CAD 79.7 million, or CAD 0.52 per share, an 11% increase from the prior-year quarter.
Net income for Q4 2025 was CAD 32.7 million, up 64% year over year. Management attributed the increase to higher royalty production, higher processing revenue and other income, lower cash expenses, and a higher realized hedging gain.
For full-year 2025, Topaz realized a CAD 19.8 million hedging gain, driven by a CAD 15.1 million natural gas hedging gain that management described as equivalent to CAD 0.44 per Mcf.
Dividend and 2026 guidance
Topaz distributed CAD 52.4 million of dividends in the fourth quarter, or CAD 0.34 per share. Management said this represented a 65% payout ratio and a 5.1% trailing annualized yield based on the fourth-quarter average share price.
For the full year, Topaz paid CAD 207.7 million in dividends at a 66% payout ratio, which management said represented a 4% increase on a per-share basis compared with 2024. Staples also noted that since Topaz’s inaugural dividend in the first quarter of 2020, the company has paid CAD 6.62 per share in dividends.
Looking ahead, Topaz issued 2026 guidance for average royalty production of 23,500 to 23,900 Boe/d and processing revenue and other income of CAD 92 million to CAD 94 million. Management also said it expects to exit 2026 with net debt-to-EBITDA of 1.2 times and generate a 68% payout ratio, which it characterized as sustainable through the end of 2026 at CAD 0 AECO and $55 U.S. WTI, citing fixed revenue from infrastructure and hedging contracts along with portfolio diversification.
M&A outlook: “active this year”
Asked about the mergers and acquisitions environment, Staples said the market often starts “fairly soft” early in the year as budgets become clearer. He noted Topaz completed a smaller, sub-CAD 8 million fee royalty acquisition in late December 2025, covering about 30,000 acres in the Duvernay play, and said the company has already seen some leasing activity tied to that acquisition.
Staples said Topaz remains proactive and typically reviews about CAD 2 billion in opportunities, adding the company is “fairly agnostic” about whether deals are infrastructure or royalty-focused. He said Topaz could see more bank-led processes emerge in the first half of the year and suggested that if capital cuts occur in Q1, it could create opportunities on the infrastructure side.
Staples closed the call by calling 2025 a “great” year and said the company looks forward to updating investors on its first-quarter results in May.
About Topaz Energy (TSE:TPZ)
Topaz Energy Corp is a royalty and energy infrastructure company focused on generating free cash flow growth and paying reliable and sustainable dividends to its shareholders, through its strategic relationship with Canada’s natural gas producers, and leveraging industry relationships to execute complementary acquisitions from other high-quality energy companies, while maintaining its commitment to environmental, social and governance practices. It generates revenue from the Royalty Assets, which generate the company’s Royalty Production Revenue; and the Infrastructure Assets, which generate the company’s Processing Revenue and Other Income.
