Tortoise Power & Energy Infrastructure Fund, Inc. Q2 FY2026 earnings call

Operational Activity

• Q2 2026 saw 160 gross wells (6.6 net wells) drilled across Topaz's royalty acreage, the highest quarterly share of WCSB drilling activity in company history at 22%
• Activity was diversified across regions: 78 wells in Clearwater, 40 in Northeast BC and Alberta Montane, 22 in the Deep Basin, 7 in Peace River, 9 in Southeast Saskatchewan, 4 in Central Alberta
• 69% of total Clearwater spuds and 45% of total Northeast BC spuds occurred on Topaz's royalty lands; 126 gross wells were brought on production during the quarter
• Completed a $38.7 million tuck-in acquisition of 300,000 gross acres across Topaz's core Northeast BC Montney and Deep Basin areas, adding over 500 gross future drilling locations with multi-zone, liquid-focused exploration optionality

Financial Performance

• Distributed $54.2 million in quarterly dividends ($0.35 per share), representing a 4.5% trailing annualized dividend yield relative to Q2 average share price
• Generated $32.4 million in excess free cash flow, which was allocated to the core area tuck-in acquisition
• Ended Q2 2026 with $497.4 million in net debt, equal to 1.2x net debt to annualized Q2 2026 EBITDA
• Maintains a long-term target payout ratio range of 60% to 90%, and expects to remain at the lower end of this range to preserve financial flexibility for future acquisitions

1. Total liquids royalties: Generated 66% of Q2 2026 total revenue and other income, with a record production of 7,178 barrels per day (up 6% year-over-year).
2. Natural gas royalties: Contributed 13% of Q2 2026 total revenue and other income.
3. Infrastructure portfolio: Contributed 21% of Q2 2026 total revenue and other income. Processing revenue hit $20.7 million (up 3% year-over-year), total processing and other income reached $22.3 million. The segment achieved 96% asset utilization and a 92% operating margin in the quarter.

Overall company Q2 2026 results: Total revenue and other income of $111.2 million; average royalty production of 24,233 BOE per day (up 9% year-over-year); cash flow of $88.4 million ($0.57 per share, up 9% year-over-year); free cash flow of $86.6 million ($0.56 per share, up 17% year-over-year).

• Upgraded 2026 annual average royalty production guidance to a range of 23,900 BOE per day to 24,300 BOE per day, reflecting stronger-than-expected first half 2026 performance and the incremental production from the Q2 2026 royalty acquisition
• 2026 year-end net debt is now estimated between $435 million and $440 million, before accounting for any incremental future acquisitions
• Management expects 26 to 31 drilling rigs to remain active across Topaz's royalty acres through the third quarter of 2026
• Management intentionally set guidance at a conservative range, with internal expectations for performance near the upper end of the range and potential for incremental positive upside, while retaining caution given Topaz does not control operator capital spending

• Weak natural gas pricing in the near term (before the winter heating season) could negatively impact activity levels in non-core, drier gas-focused areas of Topaz's portfolio
• Acquisition activity depends on capital needs of third-party operators and market conditions, which can introduce extended timelines and execution uncertainty
• Production guidance depends on operator drilling plans and capital allocation decisions, which are outside of Topaz's direct control
• Commodity price volatility and backwardation in crude markets create misalignment between seller and buyer valuation expectations for potential acquisitions

Q: What portions of the 2026 production guidance upgrade come from year-to-date outperformance vs. strategic shifts by underlying royalty payers? / A: The upgrade is a mix of both factors. Topaz saw unexpected outperformance from less transparent non-core areas, and the Clearwater play continues to exceed internal expectations. Additionally, after disposing of Charlie Lake assets, Tourmaline and Tamarack Valley are redirecting ~$75 million in disposition proceeds to Clearwater development, with 85% to 90% of this capital set to flow to Topaz royalty-bearing Clearwater lands.

Q: What is the current acquisition landscape outlook, and what is Topaz's current acquisition strategy? / A: The acquisition market was muted at the start of 2026 but has opened up recently as some operators have capital needs. Topaz maintains a deliberate counter-cyclical acquisition strategy, and the recent 300,000-acre acquisition aligns with this approach, adding liquid-weighted natural gas exposure at an attractive valuation. Acquisition opportunities often take 12 to 18 months to progress from initial outreach to closing.

Q: Where could unexpected upside production growth appear over the next year, driven by under-the-radar technological or play development? / A: Key underreported advancements include a shift from ball drop systems to plug and perf completion designs in the Northeast BC and Alberta Montney, paired with improvements in drilling mud weights and other operational efficiencies that are driving higher well output. Additionally, the emerging Grand Rapids play (adjacent to the Clearwater) is expanding, with operators targeting water flood development that will add long-term production upside, and Clearwater decline rates have continued to fall, reducing required maintenance capital from 30% to ~20% of cash flow.

Q: Why is the 2026 annual guidance midpoint lower than year-to-date production, and what cautionary factors are incorporated? / A: Topaz intentionally builds conservatism into all guidance because it does not control third-party operator capital spending, and prefers to set a framework management is confident it can exceed. While internal expectations are for performance near the top of the guidance range with potential incremental upside, the primary near-term risk is soft natural gas pricing that could reduce activity in dry gas-focused non-core areas.