Peyto Exploration & Development Corp. (“Peyto” or the
“Company”) is pleased to present its operating and financial
results for the third quarter of the 2019 fiscal year. A 64%
Operating Margin(1) and a 6% Profit Margin(2) in the quarter,
delivered a 4% return on capital employed (ROCE) and a 9% return on
equity (ROE), on a trailing twelve month basis. Additional
highlights included:
- Condensate and C5+ production up 17%.
Condensate and Pentanes production increased from 5,175 bbl/d in Q3
2018 to 6,041 bbl/d in Q3 2019 contributing to total liquid
production of 10,650 bbl/d. Total NGL yields increased from 20
bbl/mmcf to 27 bbl/mmcf over that same period due to the continued
focus on Peyto’s liquids rich Cardium play. Total liquids
production in Q3 2019 was up 16% year over year, while natural gas
production was down 13% to 396 mmcf/d. Consistent with the second
quarter, periods of low or negative AECO natural gas price in the
quarter, resulted in lean gas production being curtailed while
liquids rich gas production remained on. Total Q3 2019 production
of 76,707 boe/d was down 6% from Q2 2019 due to the restricted
capital program and lean gas curtailment.
- Funds from operations of $0.41/share.
Generated $68 million in Funds from Operations (“FFO”) in Q3 2019
down from $76 million in Q2 2019 and $110 million in Q3 2018 due to
lower commodity prices and lower gas production levels. FFO ($68
million) exceeded both capital expenditures ($37 million) and
dividend payments ($10 million) in the quarter by $22 million, or
$84 million year to date, resulting in reduced debt levels. This is
the seventh quarter of reduced capital investment with cumulative
free cashflow (FFO-Capex-Dividend) of $207 million during this
period. At the same time, Peyto’s producing reserve life, a measure
of its sustainability, has increased at a rate of 25% per year
while its base production decline rate has fallen.
- Total cash costs of $0.89/Mcfe (or $0.86/Mcfe
($5.17/boe) excluding royalties). Industry leading total
cash costs, included $0.03/Mcfe royalties, $0.31/Mcfe operating
costs, $0.19/Mcfe transportation, $0.05/Mcfe G&A and $0.31/Mcfe
interest, which combined with a realized price of $2.50/Mcfe,
resulted in a $1.61/Mcfe ($9.34/boe) cash netback, down 31% from
$2.33/Mcfe in Q3 2018.
- Capital investment of $36.6 million. A total
of 13 gross wells (10.5 net) were drilled in the third quarter, 10
gross wells (6.5 net) were completed, and 14 gross wells (10.5 net)
were brought on production.
- Earnings of $0.04/share, dividends of
$0.06/share. Earnings of $6 million were generated in the
quarter, while 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 59th
consecutive quarter of earnings.
Third Quarter 2019 in Review
Operations in the third quarter continued to be
plagued by extremely wet surface conditions that hampered drilling
rig and frac equipment movement and delayed pipeline installations.
Despite these hinderances, Peyto was still able to advance its
liquids rich Cardium drilling program. Well results and drilling
and completion costs continued to improve throughout the quarter.
Most of the activity was concentrated in the Wildhay area where
Peyto has the highest condensate yields. The average Cardium well
in Wildhay is recovering approximately 25,000 bbls of condensate in
its first 6 months of production while costs for the total Cardium
drilling program to date are 10% lower than last year, at $2.25
million per well. Natural gas prices in Alberta plunged in the
quarter to some of the lowest prices in the past 30 years as
restricted access to storage prevented supplies from finding a
market. Despite the Company’s market diversification efforts this
still resulted in some of the lowest realized natural gas prices in
Peyto’s 20 year history. Late in the quarter, however, and with the
help of the Alberta government, an industry agreement to revise
NGTL service priorities during future summer periods was
successfully negotiated. This had an immediate impact on AECO
natural gas prices and should help prevent the recurrence of such a
disconnected Alberta gas market over the next few years while NGTL
continues to build out its capacity to handle basin growth. Despite
the commodity price weakness in the quarter, Peyto’s industry
leading low costs still delivered a 68% operating margin, strong
earnings and returns which reinforced the strength of the Peyto
business model. To the end of Q3 2019, Peyto has accumulated
over $2.6 billion in earnings on a $6.1 billion cumulative capital
investment, or one of the highest ratios of profit to capital in
the industry.
1. Operating Margin is defined as funds from operations divided
by revenue before royalties but including realized hedging
gains/losses. 2. Profit Margin is defined as net earnings
for the quarter divided by revenue before royalties but including
realized hedging gains/losses.Natural gas volumes recorded in
thousand cubic feet (mcf) are converted to barrels of oil
equivalent (boe) using the ratio of six (6) thousand cubic feet to
one (1) barrel of oil (bbl). Natural gas liquids and oil
volumes in barrel of oil (bbl) are converted to thousand cubic feet
equivalent (Mcfe) using a ratio of one (1) barrel of oil to six (6)
thousand cubic feet. This could be misleading, particularly
if used in isolation as it is based on an energy equivalency
conversion method primarily applied at the burner tip and does not
represent a value equivalency at the wellhead.
|
Three Months Ended Sep 30 |
% |
Nine Months Ended Sep 30 |
% |
|
2019 |
2018 |
Change |
2019 |
2018 |
Change |
Operations |
|
|
|
|
|
|
Production |
|
|
|
|
|
|
Natural gas
(mcf/d) |
396,343 |
456,197 |
-13 |
% |
426,648 |
505,760 |
-16 |
% |
Oil & NGLs (bbl/d) |
10,650 |
9,209 |
16 |
% |
10,821 |
9,496 |
14 |
% |
Thousand cubic feet equivalent (mcfe/d @ 1:6) |
460,243 |
511,453 |
-10 |
% |
491,572 |
562,733 |
-13 |
% |
Barrels of oil equivalent (boe/d @ 6:1) |
76,707 |
85,242 |
-10 |
% |
81,929 |
93,789 |
-13 |
% |
Production per million common shares (boe/d)* |
465 |
517 |
-10 |
% |
497 |
569 |
-13 |
% |
Product prices |
|
|
|
|
|
|
Natural gas ($/mcf) |
1.84 |
2.43 |
-24 |
% |
2.07 |
2.57 |
-19 |
% |
Oil & NGLs ($/bbl) |
39.65 |
61.04 |
-35 |
% |
44.87 |
61.41 |
-27 |
% |
Operating expenses ($/mcfe) |
0.31 |
0.31 |
- |
|
0.34 |
0.30 |
13 |
% |
Transportation ($/mcfe) |
0.19 |
0.19 |
- |
|
0.19 |
0.17 |
12 |
% |
Field netback ($/mcfe) |
1.97 |
2.63 |
-25 |
% |
2.19 |
2.74 |
-20 |
% |
General & administrative expenses ($/mcfe) |
0.05 |
0.03 |
67 |
% |
0.05 |
0.05 |
- |
|
Interest expense ($/mcfe) |
0.31 |
0.27 |
15 |
% |
0.30 |
0.25 |
20 |
% |
Financial ($000, except per share*) |
|
|
|
|
|
|
Revenue |
105,944 |
153,589 |
-31 |
% |
373,130 |
513,797 |
-27 |
% |
Royalties |
1,440 |
6,399 |
-77 |
% |
8,350 |
20,822 |
-60 |
% |
Funds from operations |
68,106 |
109,549 |
-38 |
% |
247,157 |
374,105 |
-34 |
% |
Funds from operations per share |
0.41 |
0.66 |
-38 |
% |
1.50 |
2.27 |
-34 |
% |
Total dividends |
9,892 |
29,677 |
-67 |
% |
29,677 |
89,032 |
-67 |
% |
Total dividends per share |
0.06 |
0.18 |
-67 |
% |
0.18 |
0.54 |
-67 |
% |
Payout ratio |
15 |
27 |
-44 |
% |
12 |
24 |
-50 |
% |
Earnings |
6,275 |
29,506 |
-79 |
% |
130,003 |
78,146 |
66 |
% |
Earnings per diluted share |
0.04 |
0.18 |
-78 |
% |
0.79 |
0.65 |
22 |
% |
Capital expenditures |
36,574 |
69,716 |
-48 |
% |
133,080 |
120,148 |
11 |
% |
Weighted average common shares outstanding |
164,874,175 |
164,874,175 |
- |
|
164,874,175 |
164,874,175 |
- |
|
As at September 30 |
|
|
|
|
|
|
Net debt |
|
|
|
1,133,869 |
1,167,672 |
-3 |
% |
Shareholders' equity |
|
|
|
1,721,158 |
1,647,059 |
4 |
% |
Total assets |
|
|
|
3,587,612 |
3,584,530 |
- |
|
*all per share amounts using weighted average
common shares outstanding |
|
|
|
|
|
Three Months Ended Sep 30 |
Nine Months Ended Sep 30 |
($000
except per share) |
2019 |
2018 |
|
2019 |
2018 |
|
Cash flows from operating
activities |
64,913 |
123,019 |
|
241,993 |
383,920 |
|
Change in non-cash working
capital |
3,193 |
(14,658 |
) |
2,873 |
(13,176 |
) |
Change in provision for
performance based compensation |
- |
1,188 |
|
- |
3,361 |
|
Performance based
compensation |
- |
- |
|
2,291 |
- |
|
Funds from operations |
68,106 |
109,549 |
|
247,157 |
374,105 |
|
Funds
from operations per share |
0.41 |
0.66 |
|
1.50 |
2.27 |
|
(1) Funds from operations (“FFO”) - Management
uses FFO to analyze the operating performance of its energy
assets. In order to facilitate comparative analysis, FFO is
defined throughout this report as earnings before performance based
compensation, non‑cash and non‑recurring expenses. Management
believes that FFO is an important parameter to measure the value of
an asset when combined with reserve life. FFO is not a
measure recognized by Canadian generally accepted accounting
principles ("GAAP") and does not have a standardized meaning
prescribed by GAAP. Therefore, FFO, as defined by Peyto, may
not be comparable to similar measures presented by other issuers,
and investors are cautioned that FFO 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. FFO cannot be assured and future dividends may
vary.
Exploration & Development
Third quarter 2019 activity was again focused
almost exclusively on the Company’s liquids-rich Cardium play with
11 wells drilled in the Wildhay area and one in the Sundance area.
There was also one Falher well drilled in the Ansell area. The
Company continues to drive down costs, as illustrated in the
following table.
|
|
2012 |
|
2013 |
|
2014 |
|
2015 |
|
2016 |
|
2017 |
|
2018 |
2019 Q1 |
2019 Q2 |
2019 Q3 |
Gross Hz Spuds |
|
86 |
|
99 |
|
123 |
|
140 |
|
126 |
|
135 |
|
70 |
|
15 |
|
8 |
|
13 |
Measured Depth (m) |
|
4,017 |
|
4,179 |
|
4,251 |
|
4,309 |
|
4,197 |
|
4,229 |
|
4,020 |
|
3,853 |
|
3,847 |
|
3,755 |
|
|
|
|
|
|
|
|
|
|
|
Drilling ($MM/well) |
$ |
2.79 |
$ |
2.72 |
$ |
2.66 |
$ |
2.16 |
$ |
1.82 |
$ |
1.90 |
$ |
1.71 |
$ |
1.54 |
$ |
1.554 |
$ |
1,398 |
$
per meter |
$ |
694 |
$ |
651 |
$ |
626 |
$ |
501 |
$ |
433 |
$ |
450 |
$ |
425 |
$ |
400 |
$ |
404 |
$ |
372 |
|
|
|
|
|
|
|
|
|
|
|
Completion ($MM/well) |
$ |
1.67 |
$ |
1.63 |
$ |
1.70 |
$ |
1.21 |
$ |
0.86 |
$ |
1.00 |
$ |
1.13 |
$ |
1.15 |
$1.123* |
$ |
873 |
Hz Length (m) |
|
1,358 |
|
1,409 |
|
1,460 |
|
1,531 |
|
1,460 |
|
1,241 |
|
1,348 |
|
1,528 |
|
1,578 |
|
1,374 |
$
per Hz Length (m) |
$ |
1,231 |
$ |
1,153 |
$ |
1,166 |
$ |
792 |
$ |
587 |
$ |
803 |
$ |
835 |
$ |
751 |
$ |
712 |
$ |
635 |
$ ‘000 per Stage |
$ |
257 |
$ |
188 |
$ |
168 |
$ |
115 |
$ |
79 |
$ |
81 |
$ |
51 |
$ |
46 |
$ |
37 |
$ |
29 |
*Peyto’s Montney well is excluded from drilling and completion
cost comparison.
Capital Expenditures
Peyto invested $14.4 million on drilling, $10.0
million on completions, $3.2 million on wellsite equipment and
tie-ins, $7.9 million on facilities and major pipeline projects,
and $1.1 million acquiring new lands and seismic, for total capital
investments of $36.6 million in Q3 2019.
The $7.9 million invested in facilities and
major pipeline projects included $4.0 million for final
installation of a major pipeline expansion in the Wildhay area as
well as $1.3 million for the expansion of liquids stabilization at
the Wildhay gas plant to accommodate the additional condensate
production from both Cardium and Montney drilling activity.
Commodity Prices
Average Monthly AECO natural gas price was
$0.99/GJ in Q3 2019, down from $1.11/GJ in the previous quarter and
from $1.28/GJ in the prior year period. Meanwhile, the average
Daily AECO gas price was $0.86/GJ in Q3 2019, down from $0.98/GJ in
the previous quarter, and down from $1.13/GJ in the prior year
period. Historically, monthly prices have outperformed daily
prices, and this was also the case in the third quarter. Peyto
typically hedges the majority of the AECO exposed production using
fixed price swaps settled against the monthly price which is why
such a large portion of Peyto’s unhedged gas received the monthly
price.
Peyto’s natural gas sales for the quarter were
split approximately 37% to Henry Hub, 14% to Eastern Canadian/US
markets, 41% to AECO Monthly and 7% to AECO Daily prices. These
marketing efforts resulted in AECO equivalent prices of $1.93/mcf,
$1.46/mcf, $1.13/mcf and $1.08/mcf respectively after adjusting for
heat content, and physical or synthetic transportation charges.
Combined, these prices resulted in an average price of $1.47/mcf
before hedging gains of $0.37/mcf.
In the third 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 raw gas stream. As a result, Peyto realized a
blended oil and natural gas liquids price of $39.65/bbl, which
represented 53% of the $74.55/bbl average Canadian WTI price. This
results from the combination of 57% of liquids comprised of
condensate and pentanes and 43% comprised of propane and butane,
each realizing a blended price of $67.76/bbl and $2.79/bbl,
respectively.
Financial Results
Approximately 41%, or $0.87/Mcfe, of Peyto’s
unhedged revenue came from its associated natural gas liquids sales
while 59%, or $1.26/Mcfe, came from natural gas. Natural gas and
oil hedging activity contributed $0.37/Mcfe for total revenue of
$2.50/Mcfe. Liquids production represented 14% of total production
but 37% of unhedged revenue. Revenue from the liquids production
covered all cash costs. Total cash costs, when deducted from
realized revenues of $2.50/Mcfe, resulted in a cash netback of
$1.61/Mcfe or a 64% operating margin. Depletion, depreciation and
amortization charges of $1.37/Mcfe, along with a provision for the
market-based bonus resulted in earnings of $0.15/Mcfe, or an 6%
profit margin. Dividends of $0.23/Mcfe were paid to
shareholders.
Historical cash costs and operating margins are
shown in the following table.
|
2016 |
|
2017 |
|
2018 |
|
2019 |
|
($/Mcfe) |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Q3 |
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 |
|
2.50 |
|
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 |
|
0.03 |
|
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 |
|
0.31 |
|
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 |
|
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 |
|
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 |
|
0.31 |
|
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 |
|
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 |
|
1.61 |
|
Operating Margin |
78 |
% |
73 |
% |
76 |
% |
76 |
% |
74 |
% |
75 |
% |
76 |
% |
76 |
% |
74 |
% |
72 |
% |
71 |
% |
69 |
% |
68 |
% |
66 |
% |
64 |
% |
Natural Gas Marketing
Peyto continues to pursue a market
diversification strategy for future sales of natural gas, propane,
butane, pentanes and condensate. Natural gas diversification
efforts have resulted in approximately 180 MMcf/d being directed to
the US market in 2020, 70 MMcf/d directed to Eastern Canadian
market and the remainder directed to the local market in Alberta.
Beyond 2020, Peyto has secured additional access to Eastern
Canadian markets.
While all liquids production is currently
marketed within Alberta, the Company is considering broadening its
market access as new LPG export projects come to fruition. A real
time summary of Peyto’s market diversification portfolio and future
hedges is available on Peyto’s website at:
http://www.peyto.com/Files/Operations/Marketing/hedges.pdf
Activity Update
During the month of October, Peyto spud 8 gross,
(7.1 net) wells and completed and brought onstream 7 gross (5.5
net) Cardium wells. Natural gas prices since the end of the quarter
have been strengthening as early winter weather descends on Western
Canada. The AECO spot price averaged $2.14/GJ in October, up from
$0.51/GJ in September, while November prices are expected to
average over $2.40/GJ. As a result, Peyto has started up 2
additional drilling rigs, one in Sundance and one in Brazeau,
focused on higher deliverability Spirit River formations. These 2
additional rigs are anticipated to add significant lean gas volumes
by December which will take advantage of the current improvement in
natural gas prices and the strengthening winter gas price
sentiment.
Also, during October a third party midstream
fractionation facility in Fort Saskatchewan, Alberta experienced a
failure in one of its distillation towers leading to a reduction in
available capacity and an apportionment of producers’ LPG supply
mix to the facility. The resultant loss in production to Peyto over
the month of October was approximately 1,000 boe/d. To mitigate the
impact on cash flow, Peyto has shut in its Oldman deep cut plant
and warmed up all Company refrigeration plants to put more of the
LPG mix into the gas phase which is now benefiting from higher gas
prices. The tower is being repaired and it is expected to be back
online by the end of November.
2020 Budget
The recent strength in, and significantly
improved outlook for, AECO natural gas prices, combined with the
success of Peyto’s most recent Cardium drilling program has
provided the confidence to continue with Peyto’s strategic
three-year plan as announced in January of this year. Consistent
with that plan, Peyto’s Board of Directors is reviewing a go
forward capital program that invests more free cashflow into
resource development opportunities. While specifics of the 2020
budget are not yet finalized, a capital program of $250 to $300
million, funded entirely from free cashflow, would add
25,000-30,000 boe/d, based on historic on-stream metrics, which
would more than offset the annual forecast of 23% base decline on
2019 exit production of 81,000-83,000 boe/d. The exact 2019 exit
production and subsequent base decline will depend on year end
tie-in timing. As always, Peyto will ensure any capital plans will
be nimble with the ability to react to changes in commodity prices
and the global economic environment, both of which continue to be
volatile and uncertain. Peyto remains committed to pursuing only
those investments that can achieve the maximum possible returns
regardless of timing or production outcomes. Peyto also expects
that with future commodity price strength, the Company will
continue to reduce indebtedness. By pursuing a capital program that
grows EBITDA rather than just reduce debt, Peyto will strengthen
its balance sheet going forward.
Management Addition
Peyto is very pleased to announce that Mr. Scott
Robinson, will be re-joining the Peyto management team in the role
of Vice President, Business Development. Scott was previously
Peyto’s Chief Operating Officer before embarking on a brief period
of semi-retirement. During that period Scott continued to help
advance many of Peyto’s new ventures including the Big Sunny
storage scheme, participation in the Rockies LNG consortium,
in-field fractionation and LPG export opportunities, deep cut
facility projects, and natural gas power generation markets. In
this new role, Scott will be leading a technical team looking at
new resource development opportunities within and beyond Peyto’s
traditional Deep Basin core areas.
Outlook
The Canadian natural gas market has changed
throughout 2019 from one of over supply and lack of take away
capacity to one of undersupply and increasing take away capacity.
Based on industry projections for reduced drilling activity, Peyto
expects this trend will continue in 2020. When combined with a new
temporary supply management program that allows gas storage to once
again function effectively, the result is a domestic natural gas
market that is better connected to the greater North American
market. All of this has translated into higher natural gas prices
going forward for Canadian natural gas producers.
While a higher commodity price has traditionally
resulted in increased capital investment and greater production,
there remains a liquidity issue in the industry which has reduced
access to external capital, meaning capital investments will
generally continue to be limited to internally generated cashflows.
This discipline should prevent the industry from overwhelming
demand with growth in new supply and negatively impacting the
commodity price recovery.
The Canadian energy industry today has been
changing its focus from one of growth to a pursuit of profit. For
Peyto, no change is needed as this has been the sole focus of the
Company over the past 20 years. A disciplined, counter-cyclical,
profit driven strategy has motivated Peyto from day one and remains
the focus today.
Peyto continues to execute on its three-year
strategic plan as announced earlier this year. The reduced capital
programs in 2018 and 2019 have preserved drilling inventory and
reserves for the price recovery that is now underway. The plan to
ramp up capital investment in 2020 and 2021 as commodity prices
improve is continuing to solidify. As expected, Peyto’s proved
producing reserve life has continued to increase and is expected to
approach 10 years by the end of 2019 as annual base production
declines have fallen to almost 20% from 40% three years ago. This
will provide a solid platform for growth in the future as less
capital will be required to offset base declines. As always, Peyto
will only invest shareholder capital if sufficient full cycle
returns can be achieved.
Conference Call and Webcast
A conference call will be held with the senior
management of Peyto to answer questions with respect to the 2019
third quarter financial results on Thursday, November 7th, 2019, at
9:00 a.m. Mountain Standard Time (MST), or 11:00 a.m. Eastern
Standard Time (EST). 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/a3gno5dm. 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 third quarter report to shareholders, including
the MD&A, unaudited financial statements and related notes, is
available at
http://www.peyto.com/Files/Financials/2019/Q32019FS.pdf and at
http://www.peyto.com/Files/Financials/2019/Q32019MDA.pdf and will
be filed at SEDAR, www.sedar.com at a later date.
Darren GeePresident and CEOPhone: (403)
261-6081Fax: (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
continued impact of the industry agreement to revise NGTL service
priorities during future summer periods; the Company's continued
ability to drive down costs of its exploration and development
activities; 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, Spirit River and Montney evaluation; the
expectation that the two new drilling rigs in Sundance and Brazeau
will add significant lean gas volumes by December 2019; the
anticipated timing for the distillation tower at a third party
midstream fractionation facility to be back online; the continued
confidence in the Company's strategic three year plan; 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; future resource opportunities for the Company;
future supply source opportunities for the Company and potential
LNG export projects the Company may become involved with; Peyto’s
preliminary 2020 budget and new production estimates for year-end
2019, including the Company’s expected increased capital program
for 2020; the Company's expectation that future commodity prices
will remain strong and the Company will be able to continue to
reduce indebtedness; the expectation that the Company will be able
to strengthen its balance sheet and grow EBITDA; the expectation
that the trend of undersupply and increasing take away capacity in
the Canadian natural gas market will continue in 2020; the
expectation that external capital will generally continue to be
limited; Peyto's expectation that less capital will be required to
offset base declines; expectations for exit production for 2019;
pricing expectations for the future, including average AECO spot
pricing for November 2019; 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 EquivalentTo
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 nine months
ended September 30, 2019.
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