Topaz Energy reported higher royalty production, cash flow and free cash flow in the second quarter of 2026, as the Canadian oil and gas royalty company continued to execute its acquisition strategy and raised its full-year production outlook.
Free cash flow margin for Q2 2026 according to the company's slides.
Quarterly royalty production rose 9% from a year earlier to 24,233 barrels of oil equivalent per day. Total liquids royalty production reached a record 7,178 barrels per day, up 6% year over year.
Topaz generated total revenue and other income of C$111.2 million during the quarter. Liquids royalties accounted for 66% of total revenue, natural gas royalties 13%, and the infrastructure portfolio represented 21%.
Cash flow totaled C$88.4 million, or C$0.57 per share, an increase of 9% from the prior-year quarter. Free cash flow rose 17% to C$86.6 million, or C$0.56 per share.
Topaz distributed C$54.2 million in quarterly dividends, equal to C$0.35 per share. The payout represented a 4.5% trailing annualized dividend yield based on the second-quarter average share price.
The company produced C$32.4 million of excess free cash flow, which it allocated to a royalty acquisition. Topaz completed a C$38.7 million acquisition of 300,000 gross acres in its Northeast British Columbia Montney and Deep Basin core royalty areas. The acquired lands include royalty interests in more than 500 gross future drilling locations.
President and Chief Executive Officer Marty Staples said: "Our goal, it's always to be counter-cyclical in the acquisition strategies." Staples said the company has been proactive in pursuing acquisition opportunities during the past year and noted that some potential transactions can take 12 to 18 months to develop. He added that the market had appeared "a little frozen" at the start of the year but has since opened somewhat.
Staples said Topaz expects a portion of capital redirected from Charlie Lake asset dispositions by Tourmaline and Tamarack Valley to benefit its Clearwater royalty lands. Tamarack indicated it would redirect C$75 million from its Charlie Lake disposition toward the Clearwater, and Topaz expects roughly 85% to 90% of that redirected capital to go toward lands on which it holds royalties.
Chief Financial Officer Cheree Stephenson said the higher outlook reflected both year-to-date outperformance and changes in operator activity. She said non-core areas had outperformed expectations, while Clearwater volumes continued to exceed expectations. Stephenson noted that Clearwater maintenance capital requirements have moved closer to 20% of cash flow, compared with prior expectations near 30%.
Topaz ended the quarter with C$497.4 million of net debt, equal to 1.2 times annualized second-quarter EBITDA. The company now estimates 2026 exit net debt of between C$435 million and C$440 million, excluding any additional acquisitions. Management said it expects to maintain its payout ratio at the lower end of its long-term 60% to 90% target range.
Topaz raised its full-year average royalty-production guidance to between 23,900 and 24,300 BOE per day. The company's slides indicate 4-7% royalty growth and show that its royalty model drives 23% returns.