The next presentation will be Topaz Energy Corporation. The ticker is TPZ, and we're pleased to have Marty Staples, President and CEO, as well as Cheree Stephenson, CFO, with us today. For those in the audience, if you have a question, please type it into the Q&A section at the bottom of your screen, and we'll get to as many questions as we can at the end of the presentation. With that, I'll turn it over to Marty and Cheree. Please go ahead.
Good day, and thanks, Kyle. Appreciate the time today. We're gonna spend a few minutes just going over what Topaz is, the strategy of Topaz, why we were formed, and some of the key assets that Topaz has inside its portfolio. Topaz was started in 2019, really a unique time to start a company. We ended up IPO-ing the company in 2020. We were one of 77 companies that IPO'd in 2020 in Canada. The only energy company that did IPO, to our knowledge, in Canada in 2020, so real difficult, I think, time. We were battling not only negative oil prices, but also a lockdown in the world because of COVID. Saying that, I think it became the most opportunistic time ever for Topaz to do something like that.
When we IPO'd in October of 2020, we were seeing around CAD 89 million of EBITDA. Now we kind of fast-forward to 2024. We've done over CAD 2.3 billion in acquisitions, grown our business to a CAD 3.6 billion market cap, CAD 4 billion enterprise value. I've increased our dividend eight times since IPO, so a 65-cent increase to the dividend, and have been able to place ourselves in some of the most prolific areas inside Western Canadian Sedimentary Basin. Our business is a little bit unique. We have a infrastructure slash royalty hybrid business. 70% of our revenue is generated from our royalty business. The other third, 25%, is inside our infrastructure business. The key to that 25% of our infrastructure business, it does cover 50% of our dividend.
All of our infrastructure is under long-term take-or-pay contracts on the seven facilities we own in, the one pipeline, and two water infrastructure, pieces of business. One thing I will say is, across our infrastructure, we have 99% utilization inside our business. And so very well covered and utilized, and then with the long-term take-or-pay contracts, insulates our dividend very well. Topaz also is predominantly a gas royalty, so 70% of our production is natural gas. We're tied to the largest producer of natural gas in Canada, being Tourmaline. And then we have six other very well-known public companies, being Whitecap, Tamarack Valley, Headwater, NuVista, Advantage, and Strathcona. As it sits today, we will be about CAD 90 million of EBITDA inside our infrastructure business by the end of the year.
And then the balance of that will be royalty production. From a balance sheet perspective, very healthy. We have about 1.1 times debt to cash flow on a CAD 1 billion credit facility, so have a lot of ability for further M&A. Just to talk through our assets, we are the largest royalty holder in Northeast BC. We have 1.1 million acres. Lots of running room to develop Northeast BC, really early innings, I think, of development out there. It is one of our growth projects. Additionally, we are the largest Clearwater producer inside the Clearwater, which is the most economic oil play in North America. Do see, as well, lots of running room inside that.
Have very moderate growth areas inside the Peace River High, which we're the largest contiguous royalty owner inside the Peace River High, also the Deep Basin, and significant upside in Central Alberta and Southeast Saskatchewan. Infrastructure-wise, most of our infrastructure is contained into the Deep Basin Montney area of Alberta, with one gas plant that exists inside Northeast BC as well, so lots of variability there. I did talk about the dividend. We have increased that eight times since IPO. It's a 65% increase to the dividend. It's always growing alongside Topaz growth. As I mentioned before, there is some growth areas we like to talk about. We always like to kind of highlight why own Topaz. We have a very extensive land base. We're exposed to six million acres of land.
On the royalty side of our business, 60% of that is undeveloped. We see 21,000 locations inside our portfolio, so decades of inventory and high-quality inventory to match that. Last year in Western Canada, there was CAD 26.4 billion spent, and Topaz attracted CAD 2.4 billion of that capital. So roughly 9% of the capital spent in Western Canada went on to Topaz royalty lands. And from a drilling perspective, we kind of consistently see 29-31 rigs active on our royalty lands. That's about 13%-14% of the Canadian fleet that continues to operate on Topaz royalty lands. So, lots of upside inside Topaz. We do see 30%-40% production growth over the next five years.
That equates to CAD 100 million of new EBITDA inside Topaz without us doing anything outside the M&A space, and so that's organic growth. We do get pretty excited about that. When you can talk about 30%-40% growth over five years by sitting back and just waiting for it, that's a great spot to be. Saying that, we will continue to be active. We recently did a transaction with Whitecap, where we bought a 50% working interest in their gas plant in Musreau . It's under a long-term take-or-pay contract of 10 years that extends to seventeen. Very excited about that. As I've mentioned before, that really insulates our dividend business. It's about 25% of our revenue, but we'll cover up to 50% of our dividend.
We do layer on some hedging inside our complex. About 20% of our natural gas is hedged to the end of 2026, and around 30% of our oil is hedged into 2025. And so that's at CAD 102, and 3.17 an Mcf, 3.17 a GJ, 3.40 an Mcf, inside our gas complex. So very well-insulated dividend, and that is because we're attracted to some of the best plays, we think, in North America. Just talking about the growth areas again, obviously Northeast BC Clearwater, we like to highlight those two areas. The stable areas being Deep Basin, Peace River High, Central Alberta, Southeast Saskatchewan, and then some very hard margin infrastructure on top of that. Do you wanna go through this?
Sure. So on the infrastructure side, it is very differentiated from a typical midstream company. A typical midstream company would own a facility, maybe have a take or pay on a portion of the volume, and worry about trying to fill that variable capacity and cover costs. So from our perspective, we take a non-operated working interest in a piece of a facility, and that's entirely contracted. So of our portfolio, we have 89% fixed under long-term take or pay. We only pay our share of operating expense or maintenance capital on a small portion of our assets. So what that translates to is an 80% cash flow margin, whereas in comparison, the five largest midstream companies in Canada, their average cash flow margin would be about 25%. So it's basically a fixed financing structure.
We treat it more like a fixed royalty, as opposed to, more variability in that income stream. From a financial perspective, so we have grown significantly over the last four years. We've nearly quadrupled our EBITDA, all the while maintaining less than 1.5 times debt to cash flow. As Marty mentioned, we currently have about 1.1 times debt to cash flow that compresses to just over half a turn at the end of next year, absent of any further acquisitions. That is within a CAD 1 billion credit facility, that's currently drawn below CAD 400 million, so lots of excess credit capacity, and do take a modest leverage strategy.
Marty did mention the hedging, and what that does translate into when you pair it with the infrastructure fixed revenue is dividend coverage down to $0 AECO, $55 WTI, and that translates to an 80% payout ratio, so still flexibility for commodity price volatility, and that is demonstrated on this slide. We have a very high free cash flow margin business. We have very low G&A. We have very concentrated approach to our royalties, where we're trying to partner with royalties and cover all or majority of all of their acreage in order to translate their capital spending to our royalty acreage. It's a bit more of the Diamondback Viper approach, rather than a traditional royalty portfolio, which owns land and is waiting for operators to come and identify and develop that land.
So within our financial stack on the far left, we have about five million a year of OpEx, five million a year of maintenance capital. So that's just on a portion of those infrastructure assets. The balance we pay zero on. And then we have our royalty revenue, infrastructure revenue, and offsetting that, we have a G&A and interest. So basically at the $0 AECO, $55 WTI, that translates to a 77% payout ratio. Obviously, increased commodity prices compresses that payout ratio and provides strong upside without the attributed costs relative to a producer. And from a performance standpoint, you know, we've spoken about the top two graphs in this, the growth. The most important one on this slide would be our return on invested capital.
We've been very disciplined in our approach, taking a countercyclical acquisition strategy through 2020, 2021, when commodity prices were quite low. In 2023, we kind of sat back on an acquisition standpoint and waited for the commodity cycle to change, and so we only did CAD 66 million of acquisitions last year. Overall, since inception of the company, we've generated 19% average return on invested capital, and that is because of that countercyclical approach, where we're not banking on commodity staying at a certain level, and upside commodity price just helps those economics.
So we talked about the quality that we like to invest in, and if you look at this slide, I think it speaks for itself. 85% of our wells drilled in 2023 were in areas that pay out in less than a year, and for the producer over 75% IRR. Why we like that type of play inside our portfolio is even in lower commodity cycles, i.e., gas right now, we still continue to see activity because the economics of these plays are so impactful to the operator. We do have lands outside that 85%, but at lower commodity cycles, obviously, we see lower activity.
So our focus has always been find the best quality we can, both on a royalty and infrastructure basis, and we can ensure that, capital's gonna continue to get driven up that type of asset. So, pretty fortunate to be part of these assets that we're in right now. Wanna touch on the Northeast BC. It's one of our growth areas, and we'll just talk about the growth areas. We have 1.1 million acres inside Northeast BC. This really is gonna be the fuel that feeds LNG Canada go forward. Although, Tourmaline is not a direct, participant in LNG Canada, we do think that there is a shortage of gas.
Right now, producers that own part of that facility are around 1.5 Bcf, and 2.1 Bcf will be required, and so they end up buying that off grid, and Tourmaline has the largest position we believe undeveloped inside the Northeast BC complex that will help feedstock some of that LNG capacity. Tourmaline does have aggressive plans inside Northeast BC. When they start ramping this project up, it'll grow two times faster than Topaz, so we do see a lot of growth for decades to come inside the Northeast BC complex. We touched on the Clearwater, absolutely fantastic growth that we've seen since 2021. You can see on our slide deck that was about 20-25% growth per year. We have 3,000 barrels a day of royalty production.
20% of that is under waterflood, which is really impactful from us. It's doubled the recovery factor that we were able to achieve from the Clearwater, and so when you can take recovery factor from 5% to 10%, it's like hitting the play twice, but the second time you don't pay for it, so completely impactful for Topaz. We do think that seven and a half billion barrels of oil in place out of the eight and a half billion barrels of oil in place we've mapped are floodable, so big benefit when you can get to play twice. Deep Basin, 13,000 locations mapped over the Deep Basin. For us, this is the gift that keeps on giving, multi-stack zone.
We have a royalty over this entire complex, 2.2 million acres of land, with very active producers on top, of the main one being Tourmaline. We have three facilities that you can see on here, just went to our fourth, being the Musreau gas plant with Whitecap, and so very kind of picked on purpose area for us. Peace River High, same thing, two operators in here, Tourmaline, Tamarack Valley, almost a million acres of land inside here. We have two water infrastructure facilities inside this as well, and one of our partners, Advantage, has a 12.5% gas plant inside this complex that helps produce the Alberta Montney dry gas. Not to be kind of ignored, Southeast Saskatchewan has been an important fee area for us.
Continue to see, I think, very steady leasing out there. We also have a Southeast Saskatchewan CO2 flood at Weyburn, in Weyburn, that Whitecap operates. It's a, it's a CO2 flood. They put CO2 into the ground. On the back end comes a very light oil. We have a 5% gross overriding royalty on the Weyburn Unit, so been very impactful for us. It essentially creates a carbon negative gross overriding royalty as well. I think from kind of a overall standpoint, we believe Topaz has a lot of advantages. Not only do we grow at the 4%-7% organically, but we also have financial flexibility to continue to invest in M&A. We've shown a very sustainable, reliable dividend.
We've been able to increase eight times or 65%, and we believe this is a very inflation-protected business, being that we don't spend a lot of capital, but we see a lot of revenue back into the system and do like sharing that with our shareholders. So I think at this time, Kyle, if there's any questions, please let us know.
All right. We actually have a number of questions that are already submitted, but for anybody else who's listening in, feel free to submit those with the Q&A button at the bottom of your screen, and we'll try and get through as many as we can. So I know one of the operators that you touched on is Tourmaline, but maybe in addition to that, can you talk about who the other big operators are on your royalty acreage? And then maybe the follow-up, just an update on activity, kind of what you're seeing, from drilling and leasing and just overall activity on your acreage.
Yeah, for sure. So I think what I'd like to highlight first is we talked about Tourmaline, and so Northeast BC is completely Tourmaline. They operate the entire 1.1 million acres. I'll shift to the Clearwater. We have two operators of significance out there, number one being Headwater. They're about a 21,000-barrel, pure play, Clearwater player. They have explored outside of that, but we have a royalty on about 90-95% of their acreage. It's a 7% gross overriding royalty. They've been very active. They've grown the business from essentially 3,000 BOE to around 21,000, with goals to get to 24,000, so continue to be active. They were the first real data that we got back on a waterflood.
They have seven thousand barrels a day of sustainable oil production, very low declines, about a 2%-4% decline inside that complex, so very encouraged to be partnered with that group. In fact, the royalty deal that we did with them will pay out in February of next year, so just under four years to pay out the purchase of a royalty company, and a high-quality royalty company at that. That was based on some of the countercyclicity that we would have purchased. It was in June of 2021 that we did this deal, so kind of think about sub-$50 WTI, and we've always talked about how important it is in a royalty company to be countercyclical. The second partner inside this is Tamarack Valley.
Really started participating with them in December of 2020, have grown that business with and alongside them. They're now the largest public royalty producer inside the Clearwater at 43,000 barrels. Been a great partnership. We continue to expand where we can with them. We also have a partnership in Charlie Lake, which I'll get to next, but they drill anywhere from 3-4 rigs kind of steadily on this royalty land. So very big growth area for us with two really high-quality operators. Talked about the Deep Basin. The only other producer you'll see in here besides Tourmaline is Whitecap. We talked about the recent acquisition we made in the Whitecap Musreau gas condensate facility on the north end of this map sheet. So that is more about a processing complex. We are utilized for our service already.
That keeps us 100% utilization, but by the end of the year, they do believe that that facility will be fully utilized, and then Whitecap will use all the volume that go through that. This is where it kind of brings up some partnerships right now, so Tourmaline, Tamarack operate the royalty lands. It's a Charlie Lake play. We've been very impressed with both operators and the growth that they've been able to achieve. We have two water facilities, kind of in blue at the bottom of this, NuVista and Strathcona, and then I mentioned Advantage. We have a 12.5% interest in their 400 million a day gas plant in the Wembley Glacier area.
So, on top of that, we also do have a facility attached with Tamarack Valley, newly built last June, on budget and ahead of schedule, and so we have an ownership inside that as well. This is a real scramble of different operators. It makes up about, I would say, 8%-10% of our portfolio. Other than the Whitecap partnership in Southeast Saskatchewan on the Weyburn Unit, we have a lot of small producers that would lease land over 600,000 acres that we have inside our portfolio. But I would say the nice thing about Topaz is the seven public companies that I talked about generate 90% of our revenue. So very easy to identify who's paying us and audit kind of in a very timely fashion if any of the payments are incorrect.
Anything you'd add to that, Cheree?
No, that's a great, great summary.
Okay, great. So we have a few questions that are coming in about inorganic growth and M&A opportunities. So I might just combine a few of these for the sake of time. But you obviously have a lot of inventory on your acreage remaining, but maybe just talk about from a high level of, you know, how you think about M&A opportunities, what you're looking for, kind of the appetite there. And then, secondly, you know, is there any interest or desire to get mineral and royalty assets in the United States?
So I'm gonna just back up for a second, because tenure is treated a little bit different in the U.S. than it is in Canada. In the U.S., 80% of the acres across the country would be fee owned or mineral title owned by an individual or corporation. The other 20% would be state or federally owned. It's the exact opposite in Canada, 80% would be government or Crown owned, the other 20% would be mineral fee owned. And so for us, a lot of the fee, which you would see kind of in our southeast quadrant, Central Alberta quadrant, would be fee acreage. It doesn't really see a lot of activity comparative to the rest of the basin.
What happened through the downturn is we were able to access parts of the basin that have never had encumbrances put on them before, and so we were manufacturing royalties on government land, essentially with producers, and so they pay a certain amount to the government, usually 22.5%, and we would put anywhere from 2%-7% royalty on top of that, so the real upside for us is to continue to participate on Crown acreage, where an operator's leased it, and they have a use of funds, and what we're seeing right now is similar to the U.S., the commodity prices is challenged, particularly on the gas side, and so I think there's a countercyclical opportunity that exists inside the gas space right now.
We think there's an opportunity inside the infrastructure space, and we're probably only $5 away from oil, making a lot of sense, too, to start getting aggressive on trying to acquire, so yeah, there is opportunity. We're trying to maintain the quality that we have inside our portfolio, which has always been top of mind, and going back to slide 12 that we talked about, where we continue to see activity in lower commodity cycles, 85% of our wells being drilled in areas that pay out in less than a year. That's where we want to plant our capital, so sometimes you need the industry to kind of have a countercyclical time for us to be useful. Anything you'd add to that?
Yeah, I would say, you know, our M&A strategy is balanced between reactionary to marketed processes and, you know, outbound, where we're planting seeds and ideas on producers' minds and demonstrating how we can provide that form of capital to help with strategic acquisitions or, you know, taking non-productive capital out of their capital budgets to enable them to focus all their capital dollars on drilling and completions for higher rates of return. So it's a combination of inward and outward, essentially, and we're just looking to utilize our excess free cash flow, some amount of leverage, in order to maintain some growth without over-encumbering our balance sheet.
Excellent. And switching over to the infrastructure side, it's my understanding that you know closed the Alberta Montney acquisition in the second quarter, and I believe there's an expectation that you'll reach nameplate capacity by the end of the year. Do you see any opportunities for expanding or growing that facility?
One thing I would start with on that acquisition is we did buy a 50% working interest. It is non-operated, and within our piece, it's kind of like what I was speaking to when I was comparing to the midstream companies. But our piece is essentially contracted, so that even at our 50% working interest, our take-or-pay is 100% filled, and we have a guaranteed rate of return in the priority of allocation of volumes in that contract. So the overall facility could be running at 60% utilization, and our contract is 100% satisfied. So we see it as a fixed revenue stream as opposed to, you know, dependent on the facility being 100% utilized in order for us to generate our contracted return.
Incremental growth would be if they expand the facility and we participate alongside, which we have a right to do, or, you know, Whitecap wants to build another facility to service another area. But for this particular acquisition of CAD 100 million, we generate between 13 and 14 million per year. It does escalate annually to the tune of 2%, up until year ten, and that inflated fee is held flat for the remaining seven-year term. So we see it as a fixed financial revenue stream, and incremental growth would be incremental acquisitions or expansions of that facility as per se.
Yeah, and as from an opportunity standpoint, we do see opportunity inside the basin. I think it's gonna have to be timely. These don't happen overnight. You've got to like, the Musreau deal took about 18 months to start and finish, and we do always have some irons in the fire to, I think, look for the next opportunity with a producer of our kind of quality.
Got it. And maybe following on with that, can you elaborate more broadly on your plans to grow the infrastructure business and, you know, what the deal market for those assets looks like?
Yeah, we've increased our infrastructure assets by 80% since IPO, and so we have seen a significant amount of growth inside our business. In fact, we will eclipse the original offering that we would have done on our deal to IPO the company, where CAD 89 million of EBITDA will be CAD 90 million of EBITDA just on our infrastructure business alone. So, we love the idea of adding more infrastructure, the insulation of the dividend, the fixed income stream that continues to participate for decades. And why I say decades is because once we believe the take-or-pay contracts have expired, we can recontract this. We're attached to some of the best inventory in the basin. All of our facilities are less than 10 years old, and they're with high-quality counterparties.
And so we don't run the risk of one of these parties becoming insolvent. We think they're all going concerns.
Great. And another question that came in, "Do you see any political risk associated with the current environmental concerns?
We see upside to change in policy with potential new government, but we think that the Canadian producers have a very stringent environmental requirement, and that's the policies and regulations they've lived by for years. So we see it sort of status quo, but we see upside if there is a shift to a bit more of a conservative government in Canada.
One thing that I want to come back to is your, your shareholder returns. I know you've highlighted that you've increased the dividend numerous times, and then you also had the slide showing kind of the sensitivity and the support from various commodity prices. But is there, like, an algorithm or the way that you think about how you grow the dividend or anything that's like that, that you're able to share?
Yeah, so we definitely view the dividend as an output of the business, and we do want to continue to grow it as a function of growth within the company. That will never be commodity price driven, because as we all know, commodities are cyclical. So, you know, as our organic royalty production growth grows, which we see through our operators as 4-7% per year, we do want to grow the dividend either as a function of that or incremental infrastructure, because we see that revenue profile of about CAD 90 million per year as being relatively flat. So the infrastructure growth would be acquisition-based. So we look at it, you know, we have a long-term payout ratio range target of 60-90%.
It's currently about 65% on current commodity prices, but with some commodity price risk, that would be probably around 75%. So we don't ever want commodity to negatively impact the dividend. Therefore, we're comfortable staying on the lower end of the payout ratio so that we have that excess free cash flow for further M&A growth. And from the standpoint we're at currently, with the good dividend coverage, we continue to grow the dividend as an output of the business, as we see royalty production growth or incremental M&A.
Great. Well, it looks like we're getting close to the end of our time. So Marty and Cheree, I want to thank you for your time today. Excuse me, but also leave it with you for any closing remarks.
Yeah, I think we've kind of sat down and talked to a lot of investors over the last three years, and what investors are looking for right now are compounding business that have supportive income streams. You know, as interest rates continue to drop down a little bit, I think Topaz is a good place for investors to park their cash. Very sustainable, solid business tied to the largest gas producer in Canada. On top of that, very diversified outside of just Musreau, where we've got very high-quality producers. So Topaz, we think, is the royalty name to go to for a compounding income return investor.
All right, great. Well, thank you again for your time this morning. I hope everyone enjoys the rest of the conference and has a great day.
Thank you.
Thanks, Kyle. Appreciate it.