TPZ Topaz Energy Corp

CALGARY, AB, Feb. 24, 2025 /CNW/ - Topaz Energy Corp. (TSX: TPZ) ("Topaz" or the "Company") is pleased to provide fourth quarter and annual 2024 financial results and announce the Company's 2025 guidance estimates. Select financial information is outlined below and should be read in conjunction with Topaz's consolidated financial statements and related management's discussion and analysis ("MD&A") as at and for the three months and year ended December 31, 2024, which are available on SEDAR+ at www.sedarplus.ca and on Topaz's website at www.topazenergy.ca.

Overview

• 2024 marked another transformational year for Topaz.  In total, $430.6 million of acquisitions were completed which expanded the Company's asset portfolio and further increased Topaz's long-term option-value, providing:
  • 38% higher annual processing revenue⁽⁶⁾, 11% higher year end royalty production⁽⁶⁾, 52% higher year end royalty acreage⁽⁷⁾; and $0.4 billion of incremental tax pools which extended Topaz's cash tax horizon^(20v).
    
    
• Topaz's year end 2024 total proved plus probable developed reserves of 59.5 mmboe⁽¹¹⁾ increased 23% from year end 2023 (48.4 mmboe).  2024 operator-funded activities across Topaz's royalty acreage added 10.5 mmboe of proved plus probable developed reserves, which generated a new company record of 1.5 times reserves replacement⁽¹¹⁾ (2.6 times including acquisitions)⁽¹¹⁾ of the Company's 2024 royalty reserve production (7.0 mmboe). 
  
  
• Looking back over the past four years, organic operator-funded development and strategic acquisitions have generated significant per share compound annual growth ("4-year CAGR") to Topaz:
  • 4% 4-year CAGR of infrastructure revenue⁽⁸⁾, 12% 4-year CAGR of developed royalty reserves⁽⁹⁾, and 19% 4-year CAGR of undeveloped royalty acreage⁽⁷⁾, the inherent value of which is demonstrated by dedicated operator-funded capital (increased from $1.0 billion in 2020 to $2.5 billion in 2024) and reserve replacement (increased from 1.1 times in 2020 to 1.5 times in 2024)⁽¹¹⁾.
    
    
• Q4 2024 royalty production averaged 20,279 boe/d⁽⁴⁾, 8% higher than Q3 2024.   Year-end 2024 royalty production of 21,391 boe/d increased 14% from 2023⁽¹³⁾, or 7% per diluted share⁽¹³⁾, driven by 13% higher liquids royalty production and 14% higher natural gas royalty production (primarily attributed to acquisitions).
  
  
• Q4 2024 processing revenue and other income also achieved a new company record of $21.9 million ($87.6 million annualized), 19% higher than Q4 2023.  The infrastructure portfolio generated 100% utilization and a 93% operating margin⁽¹⁾ during Q4 2024.
  
  
• Generated Q4 2024 cash flow of $73.9 million and an 87% free cash flow (FCF) margin⁽¹⁾, providing $71.4 million FCF⁽¹⁾.  Cash flow of $0.49 and FCF⁽¹⁾ of $0.47 per diluted share⁽²⁾ each increased 7% from Q3 2024.
  
  
• Paid $191.2 million in dividends through 2024 (68% payout ratio)⁽¹⁾, which included two dividend increases that grew Topaz's dividend 7% since year-end 2023. Topaz's 2025 estimated dividend of $1.32 per share⁽¹⁷⁾ is sustainable down to low commodity prices ($0.01 per mcf natural gas and US$55.00 per bbl crude oil)^(3)(20). 
  
  
• 2024 royalty acreage drilling activity increased 9% from the prior year (630 gross wells (23.2 net)⁽¹²⁾ and an estimated $2.5 billion of operator-funded capital spending), representing a meaningful 15% of the 2024 total rig releases across the WCSB⁽¹⁴⁾.  In total, 646 gross wells⁽¹²⁾ were brought on production during 2024 which includes 51 well reactivations and incremental drilling activity attributed to royalty acquisitions, demonstrating Topaz's alignment across Tourmaline's expanded land base.

Guidance Outlook

2025 Guidance Estimates

• Topaz announces its 2025 guidance estimates of 21,000 to 23,000 boe/d⁽³⁾⁽⁴⁾ average royalty production and $88.0 to $92.0 million⁽³⁾ of annual processing revenue and other income.  Based on estimated commodity pricing⁽⁵⁾, Topaz expects to exit 2025 with net debt to EBITDA⁽¹⁾ of 1.2x⁽³⁾ and generate a 63%⁽³⁾ payout ratio⁽¹⁾ which remains at the lower end of the Company's targeted long-term payout of 60-90% to maintain financial flexibility for acquisitions  and to provide further dividend increases.

• Topaz's royalty production guidance anticipates operator-funded capital development between $2.2 billion and $2.8 billion⁽³⁾. The Company's 2025 royalty production guidance range purposefully remains flexible and allows for operators to adjust capital spending in response to near-term supply/demand and commodity price factors in the WCSB.
  
  
• Based on the Company's year-end 2024 corporate tax pools of $1.8 billion^(20v) and current commodity pricing⁽⁵⁾, Topaz expects to exit 2025 with net debt⁽¹⁾ between $415.0 and $435.0 million before consideration of incremental acquisitions^(3)(20iv). The Company has a $700.0 million covenant-based unsecured credit facility, expandable to $1.0 billion⁽¹⁰⁾, which provides financial flexibility and growth optionality.

Dividend

• Topaz has paid $5.27 per share in dividends to its shareholders since the inaugural dividend during the first quarter of 2020 to December 31, 2024. The sustainability of Topaz's 2025e dividend down to $0.01 per mcf natural gas and US$55.00 per bbl crude oil⁽³⁾ is attributable to: (i) the Company's high-margin, stable infrastructure revenue which represents 44% of the 2025e dividend⁽³⁾; (ii) hedging strategy and financial derivative contracts in place⁽¹⁸⁾; (iii) the quality and financial strength of Topaz's asset portfolio and strategic partners which mitigates risk of reduced development activity; and (iv) the Company's diversified commodity mix (approximately 70% natural gas and 30% total liquids)⁽³⁾ and resulting royalty revenue composition (approximately 40% natural gas and 60% total liquids)⁽³⁾⁽⁵⁾.
  
  
• Topaz's Board has declared the first quarter 2025 dividend at $0.33 per share which is expected to be paid on March 31, 2025, to shareholders of record on March 14, 2025. The quarterly cash dividend is designated as an "eligible dividend" for Canadian income tax purposes and the annualized dividend of $1.32 per share^(3)(17) provides a 5.1% yield to Topaz's current share price⁽¹⁶⁾.

Fourth Quarter 2024 Update

Financial & Reserves Overview

• Generated royalty production revenue of $60.2 million ($32.29 per boe) during Q4 2024 and $233.4 million ($33.17 per boe) during 2024 which represented 73% and 75% of Topaz's total revenue and other income in Q4 2024 and 2024, respectively.  Topaz's infrastructure assets contributed 27% ($21.9 million) and 25% ($79.0 million) of total revenue and other income in Q4 2024 and 2024, respectively.
  
  
• Topaz's Q4 2024 cash flow of $73.9 million ($0.49 per diluted share)⁽²⁾ was 7% higher than Q3 2024 attributed to 8% higher royalty production, 5% higher total realized commodity pricing and 5% higher processing revenue and other income.
  
  
• Topaz paid a Q4 2024 dividend of $0.33 per share ($50.6 million), which represents a 69% payout ratio⁽¹⁾ and a 4.8% trailing annualized yield to the fourth quarter average share price⁽¹⁵⁾. 
  
  
• Generated $20.8 million of Excess FCF⁽¹⁾ during Q4 2024 which was allocated to acquisition growth.  Topaz completed $331.4 of acquisitions during the fourth quarter, part of which was funded through an October 2024 equity financing which generated $206.9 million of gross proceeds.
  
  
• Topaz exited 2024 with $492.0 million of net debt⁽¹⁾, representing 1.5x net debt to annualized Q4 2024 EBITDA⁽¹⁾. As at February 24, 2025, Topaz has approximately $0.5 billion of available credit capacity⁽¹⁰⁾ which provides financial flexibility for strategic growth opportunities.
  
  
• Topaz's year end 2024 total proved plus probable developed reserves of 59.5 mmboe⁽¹¹⁾ increased 23% from year end 2023 (48.4 mmboe), which includes the impact of 2024 royalty production volume of 7.0 mmboe⁽⁷⁾.  Royalty acquisitions contributed 7.6 mmboe and drilling additions, improved recoveries and technical revisions contributed 10.5 mmboe to year end 2024 total proved plus probable developed reserves⁽¹¹⁾. 

Royalty Activity, Natural Gas Pricing & Hedging

• Royalty production averaged 20,279 boe/d⁽⁴⁾ in Q4 2024, 8% higher than Q3 2024 and 4% higher than Q4 2023.  Topaz's total oil and liquids royalty production achieved another record high in Q4 2024, averaging 6,290 bbl/d⁽⁴⁾.
  
  
• Fourth quarter drilling activity (175 gross wells spud)⁽¹²⁾ was diversified across Topaz's portfolio as follows: 57 Clearwater, 33 NEBC Montney, 42 Deep Basin, 16 Peace River, 6 Central Alberta and 21 SE Saskatchewan/Manitoba.  In 2024, 55% of the gross wells spud across Topaz's royalty acreage were in the Clearwater and NEBC Montney, Topaz's high-growth royalty areas.  Since the beginning of 2023, 44% of all new wells drilled across the Clearwater area in Alberta, and 26% of all new wells drilled across the NEBC Montney area, were on Topaz's royalty acreage⁽¹⁴⁾, where Topaz's average royalty production has increased 34% and 11%, respectively⁽¹³⁾.
  
  
• Based on planned operator drilling activity, Topaz expects that the current 30 - 32 active drilling rigs on its royalty acreage will be maintained through the first quarter of 2025⁽³⁾.
  
  
• During 2024, Topaz realized an $11.5 million natural gas hedging gain ($0.40 per mcf)⁽¹⁹⁾.  95% of Topaz's AECO-denominated natural gas royalty production receives an AECO 5A benchmark price whereby Topaz does not pay NGTL transportation costs (estimated at $0.32 per mcf)⁽¹⁹⁾.  Topaz's 2024 realized AECO-denominated natural gas price, including hedging and net of marketing expense, was $1.85 per mcf which represents a 62% higher price relative to a comparable "AECO realized price" of $1.14 per mcf⁽¹⁹⁾.
  
  
• Based on Topaz's 2025 midpoint royalty production estimate, 29% of natural gas is hedged at a weighted average fixed price of C$3.04 per mcf and 31% of oil and total liquids is hedged at a weighted average floor price of C$97.51 per bbl, with collar structures in place to provide upside price participation⁽¹⁸⁾. 

Infrastructure Activity

• During Q4 2024, Topaz generated $21.9 million in processing revenue and other income which was 5% higher than Q3 2024.  In Q4 2024, Topaz incurred $1.6 million in operating expenses resulting in a 93% operating margin⁽¹⁾.  During the quarter, the infrastructure assets generated 100% utilization and Topaz incurred $2.1 million in maintenance-related capital expenditures (before capitalized G&A). 

Acquisition Activity

• During 2024, Topaz completed $430.6 million of royalty and infrastructure acquisitions as follows:
  
  
  • Royalty interests across 3.0 million gross acres (over 50% undeveloped) in Topaz's core NEBC Montney, Alberta Deep Basin and Peace River operating areas, for total cash consideration of $302.1 million.  The proved plus probable developed reserves of 7.6 mmboe attributed to the royalty acquisitions represents a 15% increase to Topaz's year end 2024 total reserve volume, which does not include any reserves attributed to future undeveloped locations⁽⁶⁾.
    
    
  • Infrastructure assets including a 50% non-operated working interest in a natural gas processing and associated condensate handling facility in the Alberta Montney, and a 99% non-operated working interest in a natural gas gathering system in the Clearwater, for total cash consideration of $128.5 million.  The assets are supported by long-term fixed take-or-pay commitments and are estimated to generate over $19.0 million in processing revenue during 2025.
    
    
• On February 3, 2025, Topaz announced an acquisition in the Alberta Montney that includes a newly created gross overriding royalty interest over 0.1 million gross acres ("Royalty Interest") and a 35% interest in a 40 MMcf/d natural gas processing facility ("Facility Interest") for total cash consideration of $43.0 million.  The Royalty Interest was acquired on January 31, 2025 and is supported by a contractual commitment that requires the operator to direct a minimum of $50.0 million of capital to the undeveloped acreage by the end of 2026. The Facility Interest is fully supported by a 15-year fixed take-or-pay contractual commitment during which Topaz is not responsible for operating or maintenance costs. The purchase price for the Facility Interest will be funded through Topaz's existing credit facility upon the final commissioning of the Facility Interest (targeted for completion mid-2025) and the satisfaction of customary closing conditions.

Q4 2024 CONFERENCE CALL

Topaz will host a conference call tomorrow, Tuesday, February 25, 2025 starting at 6:30 a.m. MST (8:30 a.m. EST). To join the conference call without operator assistance, participants can register and enter their phone number at https://emportal.ink/4e5ytHj to receive an instant automated call back. Alternatively, participants can join by calling a live operator at 1-888-510-2154 (North American toll free). The conference call ID is 24903.

ABOUT THE COMPANY

Topaz is a unique royalty and infrastructure energy company focused on generating free cash flow growth and paying reliable and sustainable dividends to its shareholders, through its strategic relationship with Canada's largest and most active natural gas producer, Tourmaline Oil Corp. ("Tourmaline"), an investment-grade senior Canadian E&P company, and leveraging industry relationships to execute complementary acquisitions from other high-quality energy companies. Topaz focuses on top-quartile energy resources and assets best positioned to attract capital in order to generate sustainable long-term growth and profitability.

Topaz's common shares are listed and posted for trading on the TSX under the trading symbol "TPZ" and it is included in the S&P/TSX Composite Index. This is the headline index for Canada and is the principal benchmark measure for the Canadian equity markets, represented by the largest companies on the TSX.

Additional information

Additional information about Topaz, including the consolidated financial statements and management's discussion and analysis as at and for the three and twelve months ended December 31, 2024 are available on SEDAR+ at www.sedarplus.ca under the Company's profile, and on Topaz's website, www.topazenergy.ca.

NOTE REFERENCES

This news release refers to financial reporting periods in abbreviated form as follows: "Q4 2024" refers to the three months ended December 31, 2024; "Q3 2024" refers to the three months ended September 30, 2024; "Q4 2023" refers to the three months ended December 31, 2023; "2024" refers to the year ended December 31, 2024; and "2023" refers to the year ended December 31, 2023.  In addition, "2025e" refers to estimated amounts or results for the year ending December 31, 2025.

FORWARD-LOOKING STATEMENTS

This news release contains forward-looking statements and forward-looking information (collectively, "forward-looking statements") that relate to the Company's current expectations and views of future events. These forward-looking statements relate to future events or the Company's future performance. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as "will likely result", "are expected to", "expects", "will continue", "is anticipated", "anticipates", "believes", "estimated", "intends", "plans", "forecast", "projection", "strategy", "objective" and "outlook") are not historical facts and may be forward-looking statements and may involve estimates, assumptions and uncertainties which could cause actual results or outcomes to differ materially from those expressed in such forward-looking statements. No assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this news release should not be unduly relied upon. These statements speak only as of the date of this news release. In particular and without limitation, this news release contains forward-looking statements pertaining to the following: Topaz's future growth outlook, guidance and strategic plans; estimated annual average royalty production for 2025; estimated processing revenue and other income for 2025; anticipated exit 2025 net debt levels and 2025 net debt to EBITDA levels; dividend amounts, dividend increases (including the intention to increase dividends) and the estimated dividend payout ratio; the sustainability of the dividend and the rationale for such sustainability; the maintenance of financial flexibility for strategic growth opportunities; the anticipated capital expenditure and drilling plans; the number of drilling rigs to be active on Topaz's royalty acreage during the first quarter of 2025; the future declaration and payment of dividends and the timing and amount thereof; the timing for the completion of the acquisition of the Facility Interest including the commissioning of the Facility Interest; the forecasts described under the headings "Fourth Quarter 2024 Update" and "Guidance Outlook" (including under the sub-heading "Dividend") and the assumptions and estimates described under the heading "Note References" above; expected benefits from acquisitions including enhancing Topaz's future growth outlook and the plans to maintain a low payout ratio in order to retain Excess FCF for acquisitions and further dividend increases; and the Company's business as described under the heading "About the Company" above.

Forward‐looking statements are based on a number of assumptions including those highlighted in this news release including future commodity prices, capital expenditures, infrastructure ownership capacity utilization and operator development plans, and is subject to a number of risks and uncertainties, many of which are beyond the Company's control, which could cause actual results and events to differ materially from those that are disclosed in or implied by such forward‐looking statements.

Such risks and uncertainties include, but are not limited to, potential political, geopolitical and economic instability; trade policy, barriers, disputes or wars (including new tariffs or changes to existing international trade arrangements); the failure to complete acquisitions on the terms or on the timing announced or at all and the failure to realize some or all of the anticipated benefits of acquisitions including estimated royalty production, royalty production revenue and FCF per share growth, and the factors discussed in the Company's most recently filed Management's Discussion and Analysis (See "Forward-Looking Statements" therein), 2024 Annual Information Form (See "Risk Factors" and "Forward-Looking Statements" therein) and other reports on file with applicable securities regulatory authorities and may be accessed through the SEDAR+ website (www.sedarplus.ca) or Topaz's website (www.topazenergy.ca).

Statements relating to "reserves" are also deemed to be forward looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and that the reserves can be profitably produced in the future.

Without limitation of the foregoing, future dividend payments, if any, and the level thereof is uncertain, as the Company's dividend policy and the funds available for the payment of dividends from time to time is dependent upon, among other things, FCF, financial requirements  for the Company's operations and the execution of its growth strategy, fluctuations in working capital and the timing and amount of capital expenditures, debt service requirements and other factors  beyond the Company's control. Further, the ability of Topaz to pay dividends will be subject to applicable laws (including the satisfaction of the solvency test contained in applicable corporate legislation) and contractual restrictions contained in the instruments governing its indebtedness, including its credit facility.

Topaz does not undertake any obligation to update such forward‐looking statements, whether as a result of new information, future events or otherwise, except as expressly required by applicable law.

FINANCIAL OUTLOOK

Also included in this news release are estimates of the average royalty production range and processing revenue and other income range for the year ending December 31, 2025 and range of year-end exit net debt and net debt to EBITDA for 2025, which are based on, among other things, the various assumptions as to production levels and capital expenditures and other assumptions disclosed in this news release including under the heading "Guidance Outlook" and "Note References" above and are based on the following key assumptions: Topaz's estimated capital expenditures (excluding acquisitions) of $5.0 to $7.0 million in 2025; the Company's tax pool balances at year-end 2024 and the resulting future tax horizon; the working interest owners' anticipated 2025 capital plans attributable to Topaz's undeveloped royalty lands; estimated average annual royalty production range of 21,000 to 23,000 boe/d in 2025; 2025 average infrastructure ownership capacity utilization of 95%; estimated timing of completion and commissioning of the Alberta Montney infrastructure acquisition mid-2025; December 31, 2025 exit net debt range between $415.0 and $435.0 million, 2025 average commodity prices of: $2.25/mcf (AECO 5A), US$70.00/bbl (NYMEX WTI), US$14.50/bbl (WCS oil differential), US$3.30/bbl (MSW oil differential) and US$/CAD$ foreign exchange 0.70. 

To the extent such estimates constitute financial outlooks, they were approved by management and the board of directors of Topaz on February 24, 2025 and are included to provide readers with an understanding of the estimated revenue, net debt and the other metrics described above for the year ending December 31, 2025 based on the assumptions described herein and readers are cautioned that the information may not be appropriate for other purposes.

NON-GAAP AND OTHER FINANCIAL MEASURES

Certain financial terms and measures contained in this news release are "specified financial measures" (as such term is defined in National Instrument 52-112 - Non-GAAP and Other Financial Measures Disclosure ("NI 52-112")). The specified financial measures referred to in this news release are comprised of "non-GAAP financial measures", "capital management measures" and "supplementary financial measures" (as such terms are defined in NI 52-112). These measures are defined, qualified, and where required, reconciled with the nearest GAAP measure below.

Non-GAAP Measures and Ratios
The non-GAAP financial measure used herein does not have a standardized meaning prescribed by GAAP. Accordingly, the Company's use of this term may not be comparable to similarly defined measures presented by other companies. Investors are cautioned that the non-GAAP financial measure should not be considered in isolation nor as an alternative to net income (loss) or other financial information determined in accordance with GAAP, as an indication of the Company's performance.

Non-GAAP Financial Measures 
This news release makes reference to the terms "adjusted net income", "acquisitions, excluding decommissioning obligations" and "operating margin", which are considered non-GAAP financial measures under NI 52-112; defined as a financial measure disclosed by an issuer that depicts the historical or expected future financial performance, financial position, or cash flow of an entity, and is not disclosed in the financial statements of the issuer.

Other Financial Measures
Capital management measures
Capital management measures are defined as financial measures disclosed by an issuer that are intended to enable an individual to evaluate the entity's objectives, policies and processes for managing the entity's capital, are not a component of a line item or a line item on the primary financial statements, and which are disclosed in the notes to the financial statements. The Company's capital management measures disclosed in the Company's consolidated financial statements as at and for the year ended December 31, 2024 include adjusted working capital, net debt (cash), free cash flow (FCF) and Excess FCF.

Supplementary financial measures
This news release makes reference to the terms "adjusted net income per basic or diluted share", "cash flow per basic or diluted share", "FCF per basic or diluted share", "EBITDA per basic or diluted share", "FCF margin", "operating margin percentage" and "payout ratio" which are all considered supplementary financial measures under NI 52-112; defined as a financial measure disclosed by an issuer that is, or is intended to be, disclosed on a periodic basis to depict the historical or expected future financial performance, financial position or cash flow of an entity, is not disclosed in the financial statements of the issuer, and is not a non-GAAP financial measure or non-GAAP financial ratio.

The following terms are financial measures as defined under the Company's Syndicated Credit Facility, presented in the Company's consolidated financial statements as at and for the year ended December 31, 2024: (i) consolidated senior debt, (ii) total debt, (iii) EBITDA and (iv) capitalization.

Cash flow, FCF, FCF margin, and Excess FCF
Management uses cash flow, FCF, FCF margin and Excess FCF for its own performance measures and to provide investors with a measurement of the Company's efficiency and its ability to generate the cash necessary to fund or increase dividends, fund future growth opportunities and/or to repay debt; and furthermore, uses per share metrics to provide investors with a measure of the proportion attributable to the basic or diluted weighted average common shares outstanding.

Cash flow is a GAAP measure which is derived of cash from operating activities excluding the change in non-cash working capital and is presented in the consolidated statements of cash flows.  FCF is a capital management measure presented in the notes to the consolidated financial statements and is defined as cash flow, less capital expenditures.  The supplementary financial measure "FCF margin", is defined as FCF divided by total revenue and other income (expressed as a percentage of total revenue and other income).  The capital management measure "Excess FCF", is defined as FCF less dividends paid.  The supplementary financial measures "cash flow per basic or diluted share" and "FCF per basic or diluted share" are calculated by dividing cash flow and FCF, respectively, by the basic or diluted weighted average common shares outstanding during the period.

A summary of the reconciliation from cash from operating activities (per the consolidated statements of cash flows) to cash flow (per the consolidated statements of cash flows), cash flow per basic or diluted share, FCF, Excess FCF, FCF per basic or diluted share and FCF margin is set forth below:

Adjusted net income
Management used adjusted net income for its own performance measure and to provide investors with a measurement of the Company's net income prior to the non-cash effect of unrealized gains and losses on financial instruments. Adjusted net income is calculated as net income per the consolidated statement of net income and comprehensive income, less unrealized gains (losses) on financial instruments. The supplementary financial measures "adjusted net income per basic or diluted share" is calculated by dividing adjusted net income by the basic or diluted weighted average common shares outstanding during the period. 

A summary of the reconciliation from net income to adjusted net income and adjusted net income per basic and diluted share is set forth below:

Operating margin and operating margin percentage
Operating margin (infrastructure assets) is a non-GAAP financial measure derived from processing revenue and other income, less operating expenses. Operating margin percentage (infrastructure assets) is a supplemental financial measure, calculated as operating margin (infrastructure assets), expressed as a percentage of total processing revenue and other income. Operating margin (royalty assets) is a non-GAAP financial measure derived from royalty production revenue, less marketing expenses. Operating margin percentage (royalty assets) is a supplemental financial measure, calculated as operating margin (royalty assets), expressed as a percentage of total royalty production revenue. Operating margin and operating margin percentage are used by management to analyze the profitability of its infrastructure assets and royalty assets.  A summary of the reconciliation of operating margin and operating margin percentage is set forth below:

Operating margin and operating margin percentage (infrastructure assets)

Adjusted working capital and net debt (cash)
Management uses the terms "adjusted working capital" and "net debt (cash)" to measure the Company's liquidity position and capital flexibility, as such these terms are considered capital management measures. "Adjusted working capital" is calculated as current assets less current liabilities, adjusted for financial instruments and work in progress capital costs.  "Net debt (cash)" is calculated as total debt outstanding less adjusted working capital.

A summary of the reconciliation from working capital, to adjusted working capital and net debt (cash) is set forth below:

EBITDA and EBITDA per basic or diluted share
EBITDA, as defined under the Company's Syndicated Credit Facility and disclosed in note 9 of the Company's consolidated financial statements as at and for the year ended December 31, 2024, is considered by the Company as a capital management measure which is used to evaluate the Company's operating performance, and provides investors with a measurement of the Company's cash generated from its operations, before consideration of interest income or expense.  "EBITDA" is calculated as consolidated net income or loss from continuing operations, excluding extraordinary items, plus interest expense, income taxes, and adjusted for non-cash items and gains or losses on dispositions.

EBITDA per basic or diluted share is a supplementary financial measure that is calculated by dividing EBITDA by the basic or diluted weighted average common shares outstanding during the period and provides investors with a measure of the proportion of EBITDA attributed to the basic or diluted weighted average common shares outstanding.

A summary of the reconciliation of net income (per the consolidated statements of net income and comprehensive income), to EBITDA, is set forth below:

Payout ratio
"Payout ratio", a supplementary financial measure, represents dividends paid, expressed as a percentage of cash flow and provides investors with a measure of the percentage of cash flow that was used during the period to fund dividend payments. Payout ratio is calculated as cash flow divided by dividends paid.

A summary of the reconciliation from cash flow to payout ratio is set forth below:

Acquisitions, excluding decommissioning obligations
"Acquisitions, excluding decommissioning obligations", is considered a non-GAAP financial measure, and is calculated as: acquisitions (per the consolidated statements of cash flows) plus non-cash acquisitions but excluding non-cash decommissioning obligations.

A summary of the reconciliation from acquisitions (per the consolidated statements of cash flow) to acquisitions, excluding decommissioning obligations is set forth below:

BOE EQUIVALENCY

Per barrel of oil equivalent amounts have been calculated using a conversion rate of six thousand cubic feet of natural gas to one barrel of oil equivalent (6:1).  Barrel of oil equivalents (boe) may be misleading, particularly if used in isolation.  A boe conversion ratio of 6 mcf:1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.  In addition, as the value ratio between natural gas and crude oil based on the current prices of natural gas and crude oil is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.

OIL AND GAS METRICS

This news release contains certain oil and gas metrics which do not have standardized meanings or standard methods of calculation and therefore such measures may not be comparable to similar measures used by other companies and should not be used to make comparisons. Such metrics have been included in this news release to provide readers with additional measures to evaluate the Company's performance; however, such measures are not reliable indicators of the Company's future performance and future performance may not compare to the Company's performance in previous periods and therefore such metrics should not be unduly relied upon.

INFORMATION REGARDING PUBLIC ISSUER COUNTERPARTIES

Certain information contained in this news release relating to the Company's public issuer counterparties which include Tourmaline and others, and the nature of their respective businesses is taken from and based solely upon information published by such issuers. The Company has not independently verified the accuracy or completeness of any such information.

CREDIT RATINGS

This news release makes reference to Tourmaline's credit rating. Credit ratings are intended to provide investors with an independent measure of credit quality of an issue of securities. Credit ratings are not recommendations to purchase, hold or sell securities and do not address the market price or suitability of a specific security for a particular investor. There is no assurance that any rating will remain in effect for any given period of time or that any rating will not be revised or withdrawn entirely by a rating agency in the future if, in its judgment, circumstances so warrant.

SUPPLEMENTAL INFORMATION REGARDING PRODUCT TYPES

This news release includes references to actual and estimated average royalty production. The following table is intended to provide supplemental information about the product type composition for each of the production figures that are provided in this news release:

SOURCE Topaz Energy Corp