Peyto Exploration & Development Corp. (“Peyto” or the
“Company”) is pleased to present its operating and financial
results for the second quarter of the 2019 fiscal year. A 66%
Operating Margin(1) and a 85% Profit Margin(2) in the quarter,
including a one-time deferred income tax recovery, delivered a 5%
return on capital employed (ROCE) and a 10% return on equity (ROE),
on a trailing twelve month basis. Additional highlights included:
- Condensate and C5+
production doubled. Condensate and Pentanes production
increased from 3,234 bbl/d in Q2 2018 to 6,420 bbl/d in Q2 2019
contributing to total liquid production of 11,110 bbl/d. NGL yields
of 26 bbl/mmcf in Q2 2019, were up from 19 bbl/mmcf, due to the
continued focus on Peyto’s liquids rich Cardium play. Total liquids
production in Q2 2019 was up 20% year over year, while natural gas
production was down 14% to 422 mmcf/d. During periods of low or
negative AECO natural gas price in the quarter, lean gas production
was curtailed while liquids rich production remained on. Total Q2
2019 production of 81,496 boe/d was down 7% from Q1 2019 due to the
reduced capital program and lean gas curtailment.
- Funds from operations of
$0.46/share. Generated $76 million in Funds From
Operations (“FFO”) in Q2 2019 down from $103 million in Q1 2019 and
$116 million in Q2 2018 due to lower commodity prices and lower
production levels. FFO exceeded both capital expenditures ($34
million) and dividend payments ($10 million) in the quarter by $32
million, or $63 million year to date, resulting in reduced debt
levels. This is the sixth quarter of reduced capital investment
with cumulative free cashflow (FFO-Capex-Dividend) of $185 million.
At the same time, Peyto’s producing reserve life, or a measure of
its sustainability, has increased at a rate of 25% per year.
- Total cash costs of
$0.89/mcfe (or $0.88/mcfe ($5.30/boe) excluding
royalties). Industry leading total cash costs, included
$0.01/mcfe royalties, $0.34/mcfe operating costs, $0.19/mcfe
transportation, $0.05/mcfe G&A and $0.30/mcfe interest, which
combined with a realized price of $2.60/mcfe, resulted in a
$1.71/mcfe ($10.24/boe) cash netback, down 26% from $2.31/mcfe in
Q2 2018.
- Capital investment of $34
million. A total of 8 gross wells (6 net) were drilled in
the second quarter, 9 gross wells (9 net) were completed, and 6
gross wells (6 net) were brought on production.
- Earnings of $0.59/share,
dividends of $0.06/share. Earnings of $99 million were
generated in the quarter, which included an $85 million deferred
income tax recovery due to a reduction in the Alberta provincial
income tax rate. Dividends of $10 million were paid to
shareholders. The Company has never incurred a write down nor
recorded an impairment of its assets and this quarter represents
Peyto’s 58th consecutive quarter of earnings.
Second Quarter 2019 in
ReviewPeyto continued to focus on development of its
liquids-rich Cardium play in the second quarter, despite the
slowdown due to spring breakup and extremely wet surface conditions
in June. Several Cardium “sweet spots” have been discovered with
Peyto’s new targeting technique which are exceeding expectations
and providing robust returns despite a prolonged period of weaker
commodity prices. In addition, Peyto completed, and subsequent to
quarter end, tied-in it’s first Montney horizontal well. This well
is producing to Peyto’s Wildhay gas plant and continues to clean up
as completion fluids are recovered. The Company expects to prove up
future development in this play with additional production history.
Peyto continued to add new land in the quarter, purchasing 31
sections (19,840 acres) at Crown sales for an average purchase
price of $24/acre. The Company internally identifies 50 working
interest Cardium and Spirit River locations on these newly acquired
lands but notes no reserves or resources have yet been
independently assigned. Alberta natural gas prices continued to be
extremely weak and volatile during the quarter with AECO daily
price averaging $0.98/GJ. Peyto’s market diversification and
hedging activity resulted in 46% of Peyto’s natural gas being
pre-sold for the quarter, and 49% was exported to markets outside
of Alberta, leaving just 11% exposed to the Alberta spot market.
This helped strengthen the Company’s revenues and when combined
with industry leading cash costs, resulted in strong netbacks and
earnings. To the end of Q2 2019, Peyto has accumulated over $2.5
billion in earnings on a $6.0 billion cumulative capital
investment.
1. Operating Margin is defined as funds from
operations divided by revenue before royalties but including
realized hedging gains/losses.2. Profit Margin is defined as net
earnings for the quarter divided by revenue before royalties but
including realized hedging gains/losses.Natural gas volumes
recorded in thousand cubic feet (mcf) are converted to barrels of
oil equivalent (boe) using the ratio of six (6) thousand cubic feet
to one (1) barrel of oil (bbl). Natural gas liquids and oil volumes
in barrel of oil (bbl) are converted to thousand cubic feet
equivalent (mcfe) using a ratio of one (1) barrel of oil to six (6)
thousand cubic feet. This could be misleading, particularly if used
in isolation as it is based on an energy equivalency conversion
method primarily applied at the burner tip and does not represent a
value equivalency at the wellhead.
|
Three Months Ended June 30 |
% |
Six Months Ended June 30 |
% |
|
2019 |
2018 |
Change |
2019 |
2018 |
Change |
Operations |
|
|
|
|
|
|
Production |
|
|
|
|
|
|
Natural gas (mcf/d) |
422,320 |
493,821 |
-14 |
% |
442,052 |
530,952 |
-17 |
% |
Oil & NGLs (bbl/d) |
11,110 |
9,243 |
20 |
% |
10,907 |
9,641 |
13 |
% |
Thousand cubic feet equivalent (mcfe/d @ 1:6) |
488,977 |
549,281 |
-11 |
% |
507,496 |
549,281 |
-8 |
% |
Barrels of oil equivalent (boe/d @ 6:1) |
81,496 |
91,547 |
-11 |
% |
84,583 |
98,133 |
-14 |
% |
Production per million common shares (boe/d) |
494 |
555 |
-11 |
% |
513 |
595 |
-14 |
% |
Product prices |
|
|
|
|
|
|
Natural gas ($/mcf) |
1.83 |
2.37 |
-23 |
% |
2.17 |
2.63 |
-17 |
% |
Oil & NGLs ($/bbl) |
44.70 |
63.64 |
-30 |
% |
47.47 |
61.58 |
-23 |
% |
Operating expenses ($/mcfe) |
0.34 |
0.30 |
13 |
% |
0.34 |
0.29 |
17 |
% |
Transportation ($/mcfe) |
0.19 |
0.18 |
6 |
% |
0.19 |
0.16 |
19 |
% |
Field netback ($/mcfe) |
2.06 |
2.62 |
-21 |
% |
2.30 |
2.79 |
-18 |
% |
General & administrative expenses ($/mcfe) |
0.05 |
0.05 |
- |
|
0.06 |
0.06 |
- |
|
Interest expense ($/mcfe) |
0.30 |
0.26 |
15 |
% |
0.29 |
0.25 |
16 |
% |
Financial ($000, except per share) |
|
|
|
|
|
|
Revenue |
115,526 |
159,811 |
-28 |
% |
267,185 |
360,208 |
-26 |
% |
Royalties |
237 |
4,879 |
-95 |
% |
6,910 |
14,422 |
-52 |
% |
Funds from operations |
75,971 |
115,571 |
-34 |
% |
179,050 |
264,557 |
-32 |
% |
Funds from operations per share |
0.46 |
0.70 |
-34 |
% |
1.09 |
1.60 |
-32 |
% |
Total dividends |
9,892 |
29,677 |
-67 |
% |
19,784 |
59,354 |
-67 |
% |
Total dividends per share |
0.06 |
0.18 |
-67 |
% |
0.12 |
0.36 |
-67 |
% |
Payout ratio |
13 |
26 |
-50 |
% |
11 |
22 |
-50 |
% |
Earnings |
98,757 |
30,397 |
225 |
% |
123,727 |
78,146 |
60 |
% |
Earnings per diluted share |
0.59 |
0.18 |
225 |
% |
0.75 |
0.47 |
60 |
% |
Capital expenditures |
34,112 |
14,978 |
128 |
% |
96,507 |
50,432 |
91 |
% |
Weighted average common shares outstanding |
164,874,175 |
164,874,175 |
- |
|
164,874,175 |
164,874,175 |
- |
|
As at June 30 |
|
|
|
|
|
|
Net debt |
|
|
|
1,156,565 |
1,178,294 |
-2 |
% |
Shareholders' equity |
|
|
|
1,743,943 |
1,671,045 |
4 |
% |
Total assets |
|
|
|
3,621,782 |
3,626,895 |
- |
% |
|
Three Months Ended June 30 |
Six Months Ended June 30 |
($000 except per share) |
2019 |
|
2018 |
|
2019 |
|
2018 |
Cash flows from operating
activities |
85,569 |
|
116,906 |
|
177,081 |
|
260,900 |
Change in non-cash working capital |
(9,383 |
) |
(2,429 |
) |
(322 |
) |
1,485 |
Change in provision for performance-based compensation |
(215 |
) |
1,094 |
|
- |
|
2,172 |
Performance based
compensation |
- |
|
- |
|
2,291 |
|
- |
Funds from operations |
75,971 |
|
115,571 |
|
179,050 |
|
264,557 |
Funds
from operations per share |
0.46 |
|
0.70 |
|
1.09 |
|
1.60 |
(1) Funds from operations - Management uses funds from operations
to analyze the operating performance of its energy assets. In order
to facilitate comparative analysis, funds from operations is
defined throughout this report as earnings before performance based
compensation, non‑cash and non‑recurring expenses. Management
believes that funds from operations is an important parameter to
measure the value of an asset when combined with reserve life.
Funds from operations is not a measure recognized by Canadian
generally accepted accounting principles ("GAAP") and does not have
a standardized meaning prescribed by GAAP. Therefore, funds from
operations, as defined by Peyto, may not be comparable to similar
measures presented by other issuers, and investors are cautioned
that funds from operations should not be construed as an
alternative to net earnings, cash flow from operating activities or
other measures of financial performance calculated in accordance
with GAAP. Funds from operations cannot be assured and future
dividends may vary. |
Exploration &
Development
Second quarter 2019 activity was focused
exclusively on the Company’s liquids-rich Cardium play with 6 wells
drilled in the Wildhay area, one in the Sundance area and one in
Brazeau. The Company continues to drive down costs with its
preferred Cardium drilling and completion design, as illustrated in
the following table.
|
|
2011 |
|
2012 |
|
2013 |
|
2014 |
|
2015 |
|
2016 |
|
2017 |
|
2018 |
2019 Q1 |
2019 Q2 |
Gross Hz Spuds |
|
70 |
|
86 |
|
99 |
|
123 |
|
140 |
|
126 |
|
135 |
|
70 |
|
15 |
|
8 |
Measured Depth (m) |
|
3,903 |
|
4,017 |
|
4,179 |
|
4,251 |
|
4,309 |
|
4,197 |
|
4,229 |
|
4,020 |
|
3,853 |
|
3,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drilling ($MM/well) |
$ |
2.82 |
$ |
2.79 |
$ |
2.72 |
$ |
2.66 |
$ |
2.16 |
$ |
1.82 |
$ |
1.90 |
$ |
1.71 |
$ |
1.54 |
$ |
1.554 |
$
per meter |
$ |
723 |
$ |
694 |
$ |
651 |
$ |
626 |
$ |
501 |
$ |
433 |
$ |
450 |
$ |
425 |
$ |
400 |
$ |
404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Completion ($MM/well) |
$ |
1.68 |
$ |
1.67 |
$ |
1.63 |
$ |
1.70 |
$ |
1.21 |
$ |
0.86 |
$ |
1.00 |
$ |
1.13 |
$ |
1.15 |
|
$1.123* |
Hz Length (m) |
|
1,303 |
|
1,358 |
|
1,409 |
|
1,460 |
|
1,531 |
|
1,460 |
|
1,241 |
|
1,348 |
|
1,528 |
|
1,578 |
$
per Hz Length (m) |
$ |
1,286 |
$ |
1,231 |
$ |
1,153 |
$ |
1,166 |
$ |
792 |
$ |
587 |
$ |
803 |
$ |
835 |
$ |
751 |
$ |
712 |
$ ‘000 per Stage |
$ |
246 |
$ |
257 |
$ |
188 |
$ |
168 |
$ |
115 |
$ |
79 |
$ |
81 |
$ |
51 |
$ |
46 |
$ |
37 |
*Peyto’s Montney
well is excluded from drilling and completion cost comparison. |
Capital Expenditures
During the second quarter of 2019, Peyto
invested $11.2 million on drilling, $13.6 million on completions,
$2.9 million on wellsite equipment and tie-ins, $5.0 million on
facilities and major pipeline projects, and $1.4 million acquiring
new lands and seismic, for total capital investments of $34.1
million.
The $5.0 million on facilities and major
pipeline projects included initial progress on a Wildhay pipeline
corridor and Wildhay plant liquids stabilization equipment to
handle the significant increase in Cardium and Montney production.
Additional projects included equipment for a salt-water disposal
well in Oldman as well as for upgraded equipment installed during
the Swanson and Brazeau plant turnarounds.
Over the last 12 months, 75 gross (71 net) wells
have been brought on production for a total trailing twelve month
capital investment of $278 million. Pending pipeline
debottlenecking and elimination of lean gas curtailments, Peyto
anticipates the 2019 full year capital efficiency will be
approximately $10,000-$12,000/boe/d
Commodity Prices
Average Monthly AECO natural gas price was
$1.11/GJ in Q2 2019, down from $1.84/GJ in the previous quarter but
up from $0.97/GJ in the prior year period. Meanwhile, the average
Daily AECO gas price was $0.98/GJ in Q2 2019, down from $2.49/GJ in
the previous quarter, and down from $1.12/GJ in the prior year
period. Historically, monthly prices have outperformed daily prices
and this was the case in the second quarter. Peyto typically hedges
the majority of the AECO exposed production using fixed price swaps
settled against the monthly price which is why a larger portion of
Peyto’s unhedged gas received the monthly price.
Peyto’s natural gas sales for the quarter were
split 35% to Henry Hub, 14% to Eastern Canadian/US markets, 35% to
AECO Monthly and 17% to AECO Daily prices. These marketing efforts
resulted in AECO equivalent prices of $1.97/mcf, $1.87/mcf,
$1.27/mcf and $1.18/mcf respectively after adjusting for heat
content, and physical or synthetic transportation charges.
Combined, these prices resulted in $1.57/mcf before hedging gains
of $0.26/mcf.
In the second quarter of 2019, NGL prices,
relative to natural gas prices, continued to justify the operation
of Peyto’s Oldman deep cut plant which extracts more propane and
butane from the gas stream. As a result, Peyto realized a blended
oil and natural gas liquids price of $44.70/bbl, which represented
56% of the $80.02/bbl average Canadian WTI price. This results from
the combination of 58% of liquids comprised of condensate and
pentanes and 42% comprised of propane and butane, each realizing a
blended price of $73.20/bbl and $5.63/bbl, respectively.
Financial Results
Approximately 42%, or $0.98/mcfe, of Peyto’s
unhedged revenue came from its associated natural gas liquids sales
while 58%, or $1.35/mcfe, came from natural gas. Natural gas and
oil hedging activity contributed $0.27/mcfe for total revenue of
$2.60/mcfe. Liquids production represented 14% of total production
but 38% of revenue which covered all cash costs. Cash costs per
unit of production were lower than the previous three quarters
mainly due to reduced royalties from the annual Gas Cost Allowance
recovery. Total cash costs, when deducted from realized revenues of
$2.60/mcfe, resulted in a cash netback of $1.71/mcfe or a 66%
operating margin. Historical cash costs and operating margins are
shown in the following table.
|
2016 |
2017 |
2018 |
2019 |
($/mcfe) |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Revenue |
3.24 |
|
2.92 |
|
3.16 |
|
3.38 |
|
3.44 |
|
3.36 |
|
3.24 |
|
3.50 |
|
3.54 |
|
3.20 |
|
3.27 |
|
3.03 |
|
3.20 |
|
2.60 |
|
Royalties |
0.13 |
|
0.10 |
|
0.12 |
|
0.18 |
|
0.19 |
|
0.17 |
|
0.09 |
|
0.15 |
|
0.17 |
|
0.10 |
|
0.14 |
|
0.12 |
|
0.14 |
|
0.01 |
|
Op Costs |
0.23 |
|
0.26 |
|
0.25 |
|
0.26 |
|
0.29 |
|
0.24 |
|
0.26 |
|
0.28 |
|
0.29 |
|
0.30 |
|
0.31 |
|
0.33 |
|
0.35 |
|
0.34 |
|
Transportation |
0.16 |
|
0.17 |
|
0.16 |
|
0.16 |
|
0.17 |
|
0.18 |
|
0.17 |
|
0.16 |
|
0.13 |
|
0.18 |
|
0.19 |
|
0.19 |
|
0.19 |
|
0.19 |
|
G&A |
0.03 |
|
0.06 |
|
0.04 |
|
0.03 |
|
0.04 |
|
0.05 |
|
0.03 |
|
0.03 |
|
0.08 |
|
0.05 |
|
0.03 |
|
0.04 |
|
0.06 |
|
0.05 |
|
Interest |
0.17 |
|
0.21 |
|
0.19 |
|
0.18 |
|
0.20 |
|
0.21 |
|
0.21 |
|
0.21 |
|
0.24 |
|
0.26 |
|
0.27 |
|
0.27 |
|
0.28 |
|
0.30 |
|
Cash Costs |
0.72 |
|
0.80 |
|
0.76 |
|
0.81 |
|
0.89 |
|
0.85 |
|
0.76 |
|
0.83 |
|
0.91 |
|
0.89 |
|
0.94 |
|
0.95 |
|
1.02 |
|
0.89 |
|
Netback |
2.52 |
|
2.12 |
|
2.40 |
|
2.57 |
|
2.55 |
|
2.51 |
|
2.48 |
|
2.67 |
|
2.63 |
|
2.31 |
|
2.33 |
|
2.08 |
|
2.18 |
|
1.71 |
|
Operating Margin |
78 |
% |
73 |
% |
76 |
% |
76 |
% |
74 |
% |
75 |
% |
76 |
% |
76 |
% |
74 |
% |
72 |
% |
71 |
% |
69 |
% |
68 |
% |
66 |
% |
Depletion, depreciation and amortization charges
of $1.36/mcfe, along with market based bonus payments and a
one-time recovery of deferred tax resulted in earnings of
$2.22/mcfe, or an 85% profit margin. Dividends of $0.22/mcfe were
paid to shareholders.
Natural Gas Marketing
Peyto has made substantial progress on its
market diversification strategy during the last quarter and
subsequent to quarter end. Most significantly, Peyto has contracted
an additional 157 mmcf/d of Empress firm delivery service starting
in November of 2020. This service can be paired with additional
TransCanada mainline service to markets in eastern Canada and
northeastern United States and is in addition to the existing 144
mmcf/d of November 2021 firm service Peyto had already contracted.
Combined with synthetic transportation, via AECO to NYMEX basis
deals, and existing AECO hedges, Peyto has increased total marketed
gas volumes to 348 mmcf/d on average in 2020 and 441 mmcf/d in
2021, significantly reducing exposure to future AECO price
volatility.
For a real time summary of Peyto’s market
diversification portfolio and future hedges refer to Peyto’s
website at:
http://www.peyto.com/Files/Operations/Marketing/hedges.pdf
Activity Update
Unprecedented wet weather in June and most of
July slowed Peyto’s activity in the field with road bans, over land
flooding, and road washouts in the Company’s Deep Basin core areas.
Peyto was able to drill some wells on pads but the movement of
drilling rigs, completion and tie-in equipment, and major
facilities were disrupted during this time. Although conditions are
still very wet, the Company has been able to get back drilling
again and since the end of the quarter has spud 4 wells and managed
to get 6 fracs completed in the past week to catch-up the summer
program. Only 4 wells were brought on production since early May to
the end of July. In the past week, the Company has tied in 3 gross
(2 net) wells and currently has 3 gross (2 net) wells awaiting
completion while an additional 4 gross (3 net) more wells are
competed but awaiting tie-in.
The pipeline debottlenecking of the Wildhay gas
gathering system was completed in late July despite the wet
conditions while the plant liquid capacity project was delayed
until early August due to road bans. Gathering system pressures
have subsequently dropped and wells have responded positively.
Further production optimization work will continue in this area to
recover full productive capability. This infrastructure investment
will also serve to provide for future Cardium and Montney
development beyond 2019.
Since the end of the second quarter, Peyto has
purchased an additional 1,920 acres (3 sections) of new land
bringing total lands purchased in 2019 to 60,160 acres or 94
sections. Out of the 94 sections, 73 sections contained Cardium
rights adjacent to Peyto’s infrastructure. Land purchases year to
date have averaged $39/acre relative to total Alberta land sale
averages of $65/acre.
Volatile natural gas prices have continued since
quarter end, with July daily AECO prices ranging from $0.18 to
$2.28/GJ. Peyto has at times, throughout the month of July and into
August, shut in dry gas production to preserve value for
shareholders. Meanwhile, the Company continues to work
collaboratively with the Government of Alberta and NGTL on plans to
manage supply and pipeline capacity to bring stability to the AECO
market.
New Ventures
Peyto continues to monitor market conditions for
the timely development of its natural gas storage scheme and
additional deep cut facility installations. Currently depressed NGL
prices, combined with uncertainty regarding the future outlook for
seasonal AECO natural gas price swings, particularly in light of
the Government of Alberta supply management initiatives, makes
evaluating capital investments in these areas more challenging. In
the meantime, the Company will continue to have discussions with
potential capital partners to further enhance Peyto’s vertical
integration strategy.
Board Addition
Peyto is pleased to announce the election of Mr.
John Rossall to Peyto’s Board of Directors at this year’s annual
general meeting in May. Mr. Rossall was most recently the Executive
Director, North America of Repsol SA and prior to that President
and CEO of ProspEx Resources Ltd., an oil and gas company listed on
the TSX. An engineer by background, John has spent much of his
career involved with various successful companies who’s focus was
the development of Alberta’s Deep Basin resource plays including
Repsol, Talisman, ProspEx, Burlington and Canadian Hunter.
Outlook
Globally, demand for natural gas is growing
faster than for any other fuel and countries around the world are
rapidly switching to more natural gas in an effort to transition to
lower carbon energy economies. Here in North America, demand for
natural gas also continues to grow, increasing 30% in the last
decade and almost 10% last year alone. So far, the United States
has satisfied this demand growth with additional supply, primarily
from several new unconventional shale gas plays that now contribute
close to 70% of total North American gas supply. This supply growth
has grown so dramatically that now the US is able to export gas in
the form of LNG to other energy hungry countries.
Western Canada has a tremendous opportunity to
participate in growing North American and world markets with its
large, proven, and economic resources in the Alberta Deep Basin and
BC Montney plays. Currently, TC Energy is underway with a
three-year plan (2019-2021) to expand the North American market
access for these resources which will allow for over 3 BCF/d of
additional market connectivity and an opportunity for the western
Canadian natural gas industry to realize full market prices. Beyond
that, LNG Canada and other proposed LNG projects off the BC west
coast will enable Canada to also be an LNG exporter and a global
supplier of some of the cleanest, and most responsibly developed
natural gas in the world.
Peyto has the opportunity to play a major role
in this exciting new natural gas market and Management is
strategically positioning the Company with new resource
opportunities, key vertically integrated infrastructure investments
and diversified market access. While the industry waits for this
new market access to materialize, Peyto has strategically slowed
its capital investment in drilling and developing new production,
choosing instead to strengthen its balance sheet and preserve and
expand its resource opportunities. By reducing its capital
investment program, Peyto’s existing producing reserves will
stabilize and become more sustainable with ever lower decline rates
and an increasing reserve life, providing a solid platform for
growth in shareholder value in the future.
Conference Call and Webcast
A conference call will be held with the senior
management of Peyto to answer questions with respect to the 2019
second quarter financial results on Thursday, August 8th, 2019, at
9:00 a.m. Mountain Daylight Time (MDT), or 11:00 a.m. Eastern
Daylight Time (EDT). To participate, please call 1-844-492-6041
(North America) or 1-478-219-0837 (International). Shareholders and
interested investors are encouraged to ask questions about Peyto
and its most recent results. Questions can be submitted prior to
the call at info@peyto.com. The conference call can also be
accessed through the internet:
https://edge.media-server.com/mmc/p/7bge4s3c. The conference call
will be archived on the Peyto Exploration & Development website
at www.peyto.com.
Management’s Discussion and
Analysis/Financial Statements
A copy of the second quarter report to shareholders, including
the MD&A, unaudited financial statements and related notes, is
available at
http://www.peyto.com/Files/Financials/2019/Q22019FS.pdf and at
http://www.peyto.com/Files/Financials/2019/Q22019MDA.pdf and will
be filed at SEDAR, www.sedar.com at a later date.
Darren Gee |
President and CEO |
August 7, 2019 |
Phone: |
(403) 261-6081 |
Fax: |
(403) 451-4100 |
Forward-Looking StatementsThis
news release contains certain forward-looking statements or
information ("forward-looking statements") as defined by applicable
securities laws that involve substantial known and unknown risks
and uncertainties, many of which are beyond Peyto's control. These
statements relate to future events or the Company's future
performance. All statements other than statements of historical
fact may be forward-looking statements. The use of any of the words
"plan", "expect", "prospective", "project", "intend", "believe",
"should", "anticipate", "estimate", or other similar words or
statements that certain events "may" or "will" occur are intended
to identify forward-looking statements. The projections, estimates
and beliefs contained in such forward-looking statements are based
on management's estimates, opinions, and assumptions at the time
the statements were made, including assumptions relating to: the
impact of economic conditions in North America and globally;
industry conditions; changes in laws and regulations including,
without limitation, the adoption of new environmental laws and
regulations and changes in how they are interpreted and enforced;
increased competition; the availability of qualified operating or
management personnel; fluctuations in commodity prices, foreign
exchange or interest rates; stock market volatility and
fluctuations in market valuations of companies with respect to
announced transactions and the final valuations thereof; results of
exploration and testing activities; and the ability to obtain
required approvals and extensions from regulatory authorities.
Management of the Company believes the expectations reflected in
those forward-looking statements are reasonable, but no assurances
can be given that any of the events anticipated by the
forward-looking statements will transpire or occur, or if any of
them do so, what benefits that Peyto will derive from them. As
such, undue reliance should not be placed on forward-looking
statements. Forward-looking statements contained herein include,
but are not limited to, statements regarding: the anticipated 2019
annual capital efficiency; the amount of gas volumes expected to be
exposed to US based pricing in 2019 and 2020; the timing for the
Company’s analysis of the production results from its Cardium and
Montney evaluation; expectations regarding future drilling and
completion costs; the Company's natural gas marketing
diversification strategy; Peyto's hedging program; the Company’s
drilling and completion program for the remainder of 2019; timing
expectations for an investment decision on Peyto’s Swanson plant
deep cut conversion and other deep cut projects; future supply
source opportunities for the Company and potential LNG export
projects the Company may become involved with; Peyto’s 2019 budget
and new production estimates for year-end 2019, including the
Company’s expected capital program for 2019; expectations for exit
production for 2019; pricing expectations for the winter and summer
seasons; and the Company’s overall strategy and focus.
The forward-looking statements contained herein
are subject to numerous known and unknown risks and uncertainties
that may cause Peyto's actual financial results, performance or
achievement in future periods to differ materially from those
expressed in, or implied by, these forward-looking statements,
including but not limited to, risks associated with: imprecision of
reserves estimates; competition from other industry participants;
failure to secure required equipment; changes in general global
economic conditions including, without limitations, the economic
conditions in North America; increased competition; the lack of
availability of qualified operating or management personnel;
fluctuations in commodity prices, foreign exchange or interest
rates; environmental risks; changes in laws and regulations
including, without limitation, the adoption of new environmental
and tax laws and regulations and changes in how they are
interpreted and enforced; the results of exploration and
development drilling and related activities; the ability to access
sufficient capital from internal and external sources; and stock
market volatility. In addition, to the extent that any
forward-looking statements presented herein constitutes
future-oriented financial information or financial outlook, as
defined by applicable securities legislation, such information has
been approved by management of Peyto and has been presented to
provide management's expectations used for budgeting and planning
purposes and for providing clarity with respect to Peyto's
strategic direction based on the assumptions presented herein and
readers are cautioned that this information may not be appropriate
for any other purpose. Readers are encouraged to review the
material risks discussed in Peyto's annual information form for the
year ended December 31, 2018 under the heading "Risk Factors" and
in Peyto's annual management's discussion and analysis under the
heading "Risk Management".
The Company cautions that the foregoing list of
assumptions, risks and uncertainties is not exhaustive. Readers are
cautioned that the assumptions used in the preparation of such
information, although considered reasonable at the time of
preparation, may prove to be imprecise and, as such, undue reliance
should not be placed on forward-looking statements. Peyto's actual
results, performance or achievement could differ materially from
those expressed in, or implied by, these forward-looking statements
and, accordingly, no assurance can be given that any of the events
anticipated by the forward-looking statements will transpire or
occur, or if any of them do so, what benefits Peyto will derive
there from. The forward-looking statements, including any
future-oriented financial information or financial outlook,
contained in this news release speak only as of the date hereof and
Peyto does not assume any obligation to publicly update or revise
them to reflect new information, future events or circumstances or
otherwise, except as may be required pursuant to applicable
securities laws.
Barrels of Oil Equivalent
To provide a single unit of production for
analytical purposes, natural gas production and reserves volumes
are converted mathematically to equivalent barrels of oil (BOE).
Peyto uses the industry-accepted standard conversion of six
thousand cubic feet of natural gas to one barrel of oil (6 mcf = 1
bbl). The 6:1 BOE ratio is based on an energy equivalency
conversion method primarily applicable at the burner tip. It does
not represent a value equivalency at the wellhead and is not based
on current prices. While the BOE ratio is useful for comparative
measures and observing trends, it does not accurately reflect
individual product values and might be misleading, particularly if
used in isolation. As well, given that the value ratio, based on
the current price of crude oil to natural gas, is significantly
different from the 6:1 energy equivalency ratio, using a 6:1
conversion ratio may be misleading as an indication of value.
Non-IFRS Measurements
Within this news release references are made to
terms commonly used in the oil and gas industry. Funds from
operations, funds from operations per share and netbacks do not
have any standardized meaning under IFRS and previous GAAP and are
referred to as non-IFRS measures. Funds from operations are
described in footnote 1 to the first table on page 2 of this news
release. Netbacks are a non-IFRS measure that represents the profit
margin associated with the production and sale of petroleum and
natural gas. Netbacks are per unit of production measures used to
assess Peyto's performance and efficiency. The primary factors that
produce Peyto's strong netbacks and high margins are a low cost
structure and the high heat content of its natural gas that results
in higher commodity prices. The Company's calculation of the
non-IFRS measures included herein may differ from the calculation
of similar measures by other issuers. Therefore, the Company's
non-IFRS measures may not be comparable to other similar measures
used by other issuers. Non-IFRS measures should only be used in
conjunction with the Company's annual audited and interim financial
statements. A reconciliation of these measures can be found in
Peyto's management's discussion and analysis for the three and six
months ended June 30, 2019.
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