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Good morning. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Topaz Energy Corp. First Quarter 202 Results Conference Call. [Operator Instructions]
Thank you. Mr. Scott Kirker, you may begin your conference.
Thank you, Michelle, and welcome, everyone, to our discussion of Topaz Energy Corp.'s results as at and for the 3 months ended March 31, 2022 and 2021. My name is Scott Kirker, and I'm the General Counsel for Topaz.
Before we get started, I refer you to the advisories on forward-looking statements contained in the news release as well as the advisories contained in the Topaz annual information form and our MD&A available on SEDAR and on our website. I also draw your attention to the material factors and assumptions in those advisories.
I'm here with Marty Staples, Topaz' President and Chief Executive Officer; and Cheree Stephenson, Vice President of Finance and Chief Financial Officer. We will start by speaking to some of the highlights of the last quarter and our year so far. And after these opening remarks, we will be open for questions.
Marty, should we go ahead?
Yes. Thanks, Scott. Good morning, and thank you for attending the Q1 conference call for Topaz Energy. What a great start to 2022, Topaz' financial results through the last 2 years have demonstrated a successful business strategy. We're pleased to see investors generating returns and being rewarded with a strong sustainable dividend that we have increased 30% to date, alongside Topaz' growth.
Q1 was an exciting quarter for Topaz. During the quarter, we continued to see strong production results and generated material liquids-weighted royalty production growth. Our first quarter total liquids royalty production of approximately 3,600 barrels a day was a 277% increase relative to the prior year. Our royalty acquisition strategy has been focused on low-decline, highly economic oil plays to complement our best-in-class, liquids-rich, natural gas-focused assets.
Average first quarter royalty production of 16,122 BOE per day was stronger than our expectations and the production profiles we've underwritten in our economics. We continue to see our operators delivering industry-leading results amongst area top wells. In the Q1 news release, we have provided a breakdown of the production by resource focus and a snapshot of the returns demonstrated by our Q1 results. Topaz shareholders have truly benefited by the recent commodity price strength as the majority of our royalty transactions were completed at an opportune time in the commodity price cycle at significantly lower prices.
During Q1 2022, 137 gross wells, approximately 6 net wells, were spud on our royalty acreage, 65 of which were brought on production. The remaining wells are expected to be brought on production subsequent to the first quarter. During Q1 2022, a total of 140 gross wells were brought on production, which is consistent with the prior quarter with 142 gross wells. Spring break-up conditions have reduced drilling activity. However, 8 drilling rigs currently remain active on our royalty acreage. And we expect that 4 to 5 of these will remain active through breakup. We expect to have 20 to 24 rigs active on our royalty acreage following breakup.
During Q1 2022, average daily utilization of Topaz' net natural gas processing capacity was 99%, slightly higher than the prior quarter. During Q1 2022, Topaz generated $15.6 million of total infrastructure income, which was consistent with the prior quarter. Our record Q1 cash flow of $74.2 million is over 2x higher than the prior year and on a per share basis is 6% higher than last quarter. The exceptional financial performance is attributed to successful execution of the company's acquisition growth strategy and the strength of the partnerships we've established.
In Q1, Topaz generated a 91% free cash flow margin, which was 2% higher than Q4 2021 and demonstrates our insulation from direct cost inflation. In addition to not being responsible for the capital costs attributed to the exploration and drilling, Topaz has superior inflationary protection as our infrastructure capital expenditures are limited to modest levels of maintenance expenditures only. Certain infrastructure contracts have inflation adjustment mechanisms in them. And we will have limited exposure to rising interest costs due to the moderate leverage position Topaz holds. Topaz closed the Keystone Royalty acquisition on April 29, 2022. Topaz now owns 400,000 acres of fee mineral title land, over 70% undeveloped, which provides incremental exposure to higher drilling activity and complements the high-quality additional GORR acreage that is over 50% undeveloped we have established through strategic partnerships and committed operator capital. Many of the top Saskatchewan wells drilled in April were on or near Keystone land. And we have seen strong recent drilling and leasing activity on acquired lands.
We've increased our 2022 guidance to reflect the Keystone acquisition and higher commodity prices. Our guidance is estimated using pricing of $5 per Mcf AECO and USD 90 per barrel WTI and royalty to production ranging between 16,500 and 16,700 BOE per day to provide for $318 million of EBITDA, which is $370 million on a recent strip price forecast. For our full year guidance, we've allowed $160 million of total dividends, which follows through on our strategy of continuing to provide dividend increases alongside future growth.
On our guidance pricing, we would retain $145 million of excess free cash flow, which will be directed towards M&A growth as we continue to see an ample number of strong investment opportunities. Consistent with our IPO messaging, we believe we can continue to repeat transactions with existing counterparties as well as add new high-quality partners.
Based on these estimates, our year-end 2022 net debt to cash flow will be approximately 0.3x before any further acquisitions. And we have up to $700 million of credit capacity, so plenty of financial flexibility for the right growth opportunities.
A Happy Mother's Day weekend to everyone, and please feel free to ask any questions at this time.
[Operator Instructions] Your first question comes from Aaron Bilkoski, TD.
You talked a little bit about free cash flow-based acquisitions in your comments. But could you talk a little bit about what you're seeing in the M&A market? And I guess, I'd be curious, are you seeing more opportunity on upstream royalties or in the infrastructure side of the business?
Yes. And thanks for the question. Obviously, I think everyone is pretty aware of all the opportunities that are available inside the basin right now. We're seeing a mixture of both, both royalty and infrastructure opportunity. That's why we didn't choose to increase the dividend at this point in time. I do think that there's an opportunity for some of this excess free cash flow to participate in some of these growth opportunities.
We do think that the infrastructure component, we are going to -- we're aiming to have a deal or two completed by the end of this year. They just take a little bit of time to kind of get done. And I think we need to wait and see what happens with some of these opportunities available with the operators that we are trying to align with.
Your next question comes from Josef Schachter, Schachter Energy Research.
And congratulations again on a great result. Two questions for me. First, in the quarter, your liquids volumes, of course, went up from Q4 and significantly above Q1 of last year. But your natural gas volumes were 75 million a day from 84.4 million in Q4. Were there any facilities issues during the quarter? And do you expect any turnarounds during Q2, Q3 that will affect your natural gas production data?
Josef, it's Cheree. So we did not have any restrictions or facility change or anything, but what we did have is the scheduled Tourmaline contractual GORR changes. So essentially from the formative deal from November 2019, that gas GORR stepped down from 4% to 3%. That was always scheduled in. And then offsetting that was the Deep Basin GORR which was the acquisition related to Modern and Jupiter. So that stepped up from 2% to 3%.
So now essentially, the vast majority of our GORR internal acreage is at 3%. There's no significant other step changes. But we did know that was coming. The total net effect was about 1,600 BOEs per day that was offset by that 600 BOE per day of growth from other operators. So we did expect that gas volume to come down. And that was the only reason for that.
And then further to your second -- pardon me, sorry?
And should we model in kind of flat numbers from here?
You know what, for Tourmaline, we see for the balance of the year, them growing about 3% to 5%. Our guidance has about 3.6%. That's sort of consistent with our 5-year plan.
Okay. Yes. And the second part of your question was just around turnarounds. The facilities were in, the majority of the turnarounds have already been done. So we do not expect any downtime on the facilities that we're a part of. And I think that was reflected in the 99% utilization saw for the last quarter.
There will be some NGTL maintenance that gets done through the summer. But we do anticipate that it will be normal course of business with our facilities. And because we have the long-term take-or-pay contracts associated with them whether the plants are running or not, we still see volumes -- or the revenue from the volumes being attributed back to the Topaz balance sheet.
Okay, super. And following on Aaron's question about opportunities on the M&A side, in the past, you've kind of given comments about the number of data rooms that are available for you to go into. And are you seeing more of those, less of those? Are the deals bigger that you're looking at now, as you mentioned the reason for holding off on a dividend move? Can you give any -- shed any light there of interest?
Yes. It's a real unique mix right now, anywhere from quite small to quite large. And so we are seeing a big quantum of different opportunities available both on the royalty and infrastructure side. And yes, the data rooms are continuing to be -- and we're not going into every single data room either. But yes, it seems like it's quite plentiful right now.
Good. That's it for me. And again, congratulations on a good quarter.
Yes. Thanks, Josef, have a great day.
[Operator Instructions] Your next question comes from Patrick O'Rourke, ATB Markets.
You sort of have already answered this question a couple of times. And I was going to ask with respect to the dividend payout ratio being sort of below the target range. It sounds like the focus remains on M&A. I'm just curious, you're talking about upstream, you're talking about infrastructure.
Now that we have a bit of a line of sight in terms of some of the carbon capture investment tax credits, and in the next couple of months to come, will be the respective fuel standards. How active are the opportunity sets in terms of carbon capture and, call it, new energy or transition opportunities that there for you right now in the pipeline?
Yes. We're definitely starting to see more of those opportunities. The issue that we're having to participate right now is there's still a little bit of idea flow, not pure businesses yet. And so we're trying to invest in businesses, not ideas, something that we're walking into, not running into. So I think if there's some more knowledge gained -- and I get the investment tax, the ITC, the new rules and regulations around that is very -- well, it is advantageous for some of these projects to get built out.
But I think we need to understand what inflation or costs need to be built into some of these projects when actual true commissioning is on some of these projects. And that's still a little bit of a question mark. So stay tuned. We do hope to facilitate or participate in some of these types of projects. But we really need to understand timing and costs before we sign up to a full-scale opportunity.
Okay. And as you kind of sit here and free cash flow off and whittle away at the debt, you're increasing the liquidity, does that mean that the scale and the scope of the potential upside for larger transactions is continuing to increase for Topaz here?
We're not -- yes, I think we're in an opportunity now or in a position now where we can participate in larger transactions. As per script, we mentioned we have $370 million of EBITDA. Keep in mind, October 2020, when we IPO-ed this company, it was $89 million of EBITDA. So we've grown it by 4x. And so it's a different company than it was in October 2020. And I think we can look a little bit above the stock bracket we used to look in.
Saying that, we're not shying away from smaller transactions either. And you think about a lot of the core business we built, particularly through the Clearwater, was built by smaller transactions. But it was just adding a bunch of the sum of all parts together to get to a larger-scale size. And last year this time, we were 50 barrels a day of royalty production in the Clearwater. Now we're sitting at close to 1,100 barrels a day of royalty production in the Clearwater.
Your next question comes from Scott Taylor, Pembroke Management.
From the outside, kind of puzzling that there's so much to look at, given that the prices for oil and gas are so good. Is there any way you can just expand on why companies have these data rooms going? Is it principally that they want to reduce their bank exposure debt? Or are there some other general factors that you could comment on that will give us a little better understanding as to why there are so many potential opportunities?
Yes. I think, number one, there's some consolidation that still needs to happen in the basin. And so you're seeing different entities exit the space and certain companies wanting to get larger. The second part of that is private equity has been sitting in this space for quite some time, some of them up to 10 years. And at these prices, they're looking at an exit strategy. And I think it's a good time to do that.
On the flip side, from the -- particularly on the producer side, I think they're still looking for forms of capital. The multiple expansion has not happened inside this sector yet. So if you look at the multiples that some of the companies are trading at are 2.5 to 3x in Canada in some cases. And I think they're not in a position where they want to go raise a bunch of equity. Debt is still relatively expensive. And so they're using us as another form of capital to help facilitate some of these transactions.
There are no further questions at this time. I will now turn it back to Mr. Staples. Please go ahead.
All right. Well, thank you, everyone, and look forward to catching up with all of you next quarter.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and ask that you please disconnect your lines.
Thank you.