Peyto Exploration & Development Corp. (“Peyto” or the
“Company”) (TSX: PEY) herein presents its operating and
financial results for the first quarter of the 2020 fiscal year.
The unprecedented global pandemic which disrupted world energy
demand, in combination with an untimely market share price war
amongst certain OPEC+ members, led to severe commodity price
volatility in the quarter. Peyto’s industry leading costs structure
allowed it to preserve a 55% Operating Margin(1) however both
Profit Margin(2), Return on Capital (0%) and Return on Equity (2%)
were eroded due to a further 30% drop in realized commodity prices.
Highlights for the quarter included:
- Funds from operations of $0.33/share.
Generated $55 million in Funds from operations (“FFO”) in Q1 2020,
down from $103 million in Q1 2019 due to lower commodity prices and
lower production levels. Trailing twelve month FFO ($275 million)
exceeded both capital expenditures ($213 million) and dividend
payments ($40 million) by $22 million resulting in reduced levels
of net debt when compared to a year ago.
- Liquids yield increased 24%. Condensate and
NGL yields increased from 23 bbl/mmcf in Q1 2019 to 29 bbl/mmcf in
Q1 2020, resulting from a focus on development of Peyto’s liquids
rich Cardium play. Total liquids production of 11,585 bbl/d in Q1
2020 was the highest in Company history comprised of 6,662 bbls/d
of Condensate and Pentanes+, and 4,923 bbls/d of Propane and
Butane. Natural gas production was down 13% to 402 mmcf/d as Peyto
replaced declining dry gas with significantly higher liquids-rich
gas. Total Q1 2020 production of 78,514 boe/d was up slightly from
the previous quarter production of 77,457 boe/d but down 10% from
87,703 boe/d recorded in Q1 2019.
- Total cash costs of $1.03/Mcfe (or $0.91/Mcfe
($5.46/boe) excluding royalties). Industry leading total
cash costs, included $0.12/Mcfe royalties, $0.39/Mcfe operating
costs, $0.19/Mcfe transportation, $0.04/Mcfe G&A and $0.29/Mcfe
interest, combined with a realized price of $2.30/Mcfe, resulted in
a $1.27/Mcfe ($7.63/boe) cash netback, down 42% from $2.18/Mcfe
($13.06/boe) in Q1 2019. Operating costs per unit for Q1 2020 were
up 15% from Q1 2019 largely due increased power costs, and
stockpiling of chemicals and equipment in preparation for
anticipated COVID-19 supply chain disruptions.
- Capital investment of $69 million. A total of
17 gross wells (14.3 net) were drilled in the first quarter, 19
gross wells (18 net) were completed, and 20 gross wells (18 net)
were brought on production. Over the last 12 months the 64 gross
(55.9 net) wells brought on production accounted for approximately
18,000 boe/d at the end of the quarter, which, when combined with a
trailing twelve month capital investment of $213 million, equates
to an annualized capital efficiency of $11,800/boe/d. Peyto
anticipates the 2020 full year capital efficiency will be less than
$9,500/boe/d.
- Dividends of $0.06/share, Loss of $0.41/share.
Dividends of $9.9 million were paid to shareholders during the
quarter. This is the first quarterly loss posted since Q4 2004 and
is largely due to the confluence of global events occurring in the
first quarter of the year resulting in a first ever, non-cash
impairment of $80 million.
First Quarter 2020 in ReviewPreparation for and
reaction to the sweeping global pandemic dominated the first
quarter of 2020. As Peyto and its hydrocarbon production was deemed
an essential and critical provincial service during this time, to
provide reliable heat and fuel for electrical generation, all
attention was turned to the Company’s business continuity plans in
order to ensure the safety and security of Peyto’s employees and
field contractors. Peyto’s Working Remotely and Working Alone
policies ensured production operations continued without
interruption, while at the same time, strategic alliances with
select service providers ensured drilling, completion and pipeline
operations continued safely throughout the quarter. Drilling and
completion operations were focused primarily in the Greater
Sundance and Brazeau River areas, on both the Cardium and Spirit
River formations. Peyto completed the construction of a 17 km
pipeline project in the quarter, connecting a new area called
Chambers to Peyto’s Brazeau gas plant. This enabled the existing
production that was being processed in third party facilities to be
redirected into the Company’s operated gas plant, as well as the
connection of several new wells that were drilled in the quarter.
As Peyto now controls over 33 prospective sections of land in the
Chambers area, this pipeline will be a strategic piece of
infrastructure for future opportunities. A lack of winter heating
demand in North American natural gas markets caused natural gas
prices to weaken throughout the quarter, which combined with the
rapid drop in oil and natural gas liquid prices resulted in the
lowest realized revenue per Mcfe in the Company’s 21 year history
and despite Peyto’s low cash costs, still translated into the
lowest ever cash netback at $1.27/mcfe ($7.63/boe).
1. Operating Margin is defined as funds from operations divided
by revenue before royalties but including realized hedging
gains/losses. 2. Profit Margin is defined as net earnings for the
quarter divided by revenue before royalties but including realized
hedging gains/losses.Natural gas volumes recorded in thousand cubic
feet (mcf) are converted to barrels of oil equivalent (boe) using
the ratio of six (6) thousand cubic feet to one (1) barrel of oil
(bbl). Natural gas liquids and oil volumes in barrel of oil
(bbl) are converted to thousand cubic feet equivalent (Mcfe) using
a ratio of one (1) barrel of oil to six (6) thousand cubic
feet. This could be misleading, particularly if used in
isolation as it is based on an energy equivalency conversion method
primarily applied at the burner tip and does not represent a value
equivalency at the wellhead.
|
|
|
Three Months Ended March 31 |
% |
|
|
|
|
2020 |
|
2019 |
Change |
Operations |
|
|
|
|
|
|
Production |
|
|
|
|
|
|
Natural
gas (mcf/d) |
|
|
|
401,572 |
|
462,003 |
-13 |
% |
Oil & NGLs (bbl/d) |
|
|
|
11,585 |
|
10,703 |
8 |
% |
Thousand cubic feet equivalent (mcfe/d @ 1:6) |
|
|
|
471,083 |
|
526,220 |
-10 |
% |
Barrels of oil equivalent (boe/d @ 6:1) |
|
|
|
78,514 |
|
87,703 |
-10 |
% |
Production per million common shares (boe/d) |
|
|
|
476 |
|
532 |
-11 |
% |
Product prices |
|
|
|
|
|
|
Natural gas ($/mcf) |
|
|
|
1.63 |
|
2.48 |
-34 |
% |
Oil & NGLs ($/bbl) |
|
|
|
36.73 |
|
50.37 |
-27 |
% |
Operating expenses ($/mcfe) |
|
|
|
0.39 |
|
0.35 |
11 |
% |
Transportation ($/mcfe) |
|
|
|
0.19 |
|
0.19 |
- |
|
Field netback ($/mcfe) |
|
|
|
1.60 |
|
2.52 |
-37 |
% |
General & administrative expenses ($/mcfe) |
|
|
|
0.04 |
|
0.06 |
-33 |
% |
Interest expense ($/mcfe) |
|
|
|
0.29 |
|
0.28 |
4 |
% |
Financial ($000, except per share) |
|
|
|
|
|
|
Revenue and realized hedging gains (losses) 1 |
|
|
|
97,723 |
|
151,660 |
-36 |
% |
Royalties |
|
|
|
4,936 |
|
6,673 |
-26 |
% |
Funds from operations |
|
|
|
54,513 |
|
103,078 |
-47 |
% |
Funds from operations per share |
|
|
|
0.33 |
|
0.63 |
-48 |
% |
Total dividends |
|
|
|
9,892 |
|
9,892 |
- |
|
Total dividends per share |
|
|
|
0.06 |
|
0.06 |
- |
|
Payout ratio |
|
|
|
18 |
|
10 |
80 |
% |
Earnings (loss) |
|
|
|
(67,684 |
) |
24,970 |
-371 |
% |
Earnings per diluted share |
|
|
|
(0.41 |
) |
0.15 |
-373 |
% |
Capital expenditures |
|
|
|
68,587 |
|
62,395 |
10 |
% |
Weighted average common shares outstanding |
|
|
|
164,874,175 |
|
164,874,175 |
- |
|
As at March 31 |
|
|
|
|
|
|
Net debt |
|
|
|
1,166,781 |
|
1,188,810 |
-2 |
% |
Shareholders' equity |
|
|
|
1,640,707 |
|
1,654,076 |
-1 |
% |
Total assets |
|
|
|
3,514,524 |
|
3,654,039 |
-4 |
% |
1excludes revenue from sale of third party
volumes |
|
|
|
|
|
|
Three Months Ended March 31 |
($000 except per share) |
|
|
2020 |
|
2019 |
Cash flows from operating
activities |
|
|
65,841 |
|
91,511 |
Change in non-cash
working capital |
|
|
(11,328 |
) |
9,061 |
Change in
provision for performance-based compensation |
|
- |
|
215 |
Performance
based compensation |
|
- |
|
2,291 |
Funds from operations |
|
|
54,513 |
|
103,078 |
Funds
from operations per share |
|
|
0.33 |
|
0.63 |
(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
First quarter 2020 activity was focused
exclusively in the Greater Sundance and Brazeau River areas on the
Cardium and Spirit River plays as shown in the following table:
|
Field |
Total Wells Drilled |
Zone |
Sundance |
Nosehill |
Wildhay |
Ansell |
Whitehorse |
Kisku/Kakwa |
Brazeau |
Belly River |
|
|
|
|
|
|
|
|
Cardium |
3 |
|
6 |
|
|
|
1 |
10 |
Notikewin |
|
|
|
1 |
|
|
2 |
3 |
Falher |
|
|
|
|
|
|
|
|
Wilrich |
2 |
2 |
|
|
|
|
|
4 |
Bluesky |
|
|
|
|
|
|
|
|
Total |
5 |
2 |
6 |
1 |
|
|
3 |
17 |
Drilling costs for the first quarter of 2020
were slightly higher on a per meter basis due to an increased
weighting of deeper formations in the Brazeau area while completion
costs continued to fall, despite the longer lateral and increased
frac stage count as illustrated in the following table.
|
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
2018 |
2019 |
2020 Q1 |
Gross Hz Spuds |
52 |
70 |
86 |
99 |
123 |
140 |
126 |
135 |
70 |
61 |
17 |
Measured Depth (m) |
3,762 |
3,903 |
4,017 |
4,179 |
4,251 |
4,309 |
4,197 |
4,229 |
4,020 |
3,848 |
4,069 |
|
|
|
|
|
|
|
|
|
|
|
|
Drilling ($MM/well) |
$2.76 |
$2.82 |
$2.79 |
$2.72 |
$2.66 |
$2.16 |
$1.82 |
$1.90 |
$1.71 |
$1.62 |
$1.75 |
$
per meter |
$734 |
$723 |
$694 |
$651 |
$626 |
$501 |
$433 |
$450 |
$425 |
$420 |
$430 |
|
|
|
|
|
|
|
|
|
|
|
|
Completion ($MM/well) |
$1.36 |
$1.68 |
$1.67 |
$1.63 |
$1.70 |
$1.21 |
$0.86 |
$1.00 |
$1.13 |
$1.01* |
$975 |
Hz Length (m) |
1,335 |
1,303 |
1,358 |
1,409 |
1,460 |
1,531 |
1,460 |
1,241 |
1,348 |
1,484 |
1,563 |
$
per Hz Length (m) |
$1,017 |
$1,286 |
$1,231 |
$1,153 |
$1,166 |
$792 |
$587 |
$803 |
$835 |
$679 |
$624 |
$ ‘000 per Stage |
$231 |
$246 |
$257 |
$188 |
$168 |
$115 |
$79 |
$81 |
$51 |
$38 |
$38 |
*excluding Peyto’s Wildhay Montney well.
Capital Expenditures
During the first quarter of 2020, Peyto invested
$27.7 million on drilling, $19.4 million on completions, $7 million
on wellsite equipment and tie-ins, $10.2 million on facilities and
major pipeline projects, and $4.3 million acquiring new lands and
seismic, for total capital investments of $68.6 million.
The $10.2 million invested in new facilities and
major pipeline projects in the quarter included the $7 million, 17
km, 8 inch pipeline connecting the Chambers (South Brazeau) area to
the Brazeau River gas plant. Other facility capital included
wellsite conversions to reduce emissions and reduce operating costs
as well as upgrades to wellsite automation and monitoring systems.
Only one new section of land was purchased in the quarter and after
the quarter end, all new land sales were suspended by the Crown due
to the deteriorated Alberta business environment.
Commodity Prices
Peyto actively marketed all components of its
production stream in the quarter including natural gas, condensate,
pentane, butane and propane. Peyto’s market diversification
activity resulted in natural gas being sold at various hubs
including AECO, Dawn, Ventura, Emerson 2 and Henry Hub using both
physical fixed price and temporary basis transactions to access
those locations. Natural gas prices were left to float on daily
pricing or locked in using fixed price swaps at those hubs and
Peyto’s realized price was benchmarked against those local prices,
then adjusted for transportation (either physical or short term
synthetic) to those markets.
The Company’s liquids were also actively
marketed with condensate being sold on a monthly index differential
linked to West Texas Intermediate (“WTI”) oil prices. Peyto’s NGLs
(a blend of pentanes plus, butane and propane) are fractionated by
a third party in Fort Saskatchewan, Alberta but Peyto markets each
product separately. Pentanes Plus were sold on a monthly index
differential linked to WTI, with some volumes forward sold on fixed
differentials to WTI. Butane was sold as a percent of WTI or a
fixed differential to the Mount Belvieu, Texas market. Propane was
sold on a fixed differential to the Conway, Kansas market. While
some products were sold pursuant to annual term contracts to ensure
delivery paths remain open, others were marketed on the daily spot
market.
During Q1 2020 Peyto sold 63% of its natural gas
at AECO, 9% at Emerson, 5% at Ventura, and 23% at Henry Hub.
Benchmark prices, Peyto realized prices, and aggregate gas
marketing diversification costs are shown below.
Benchmark Commodity Prices
|
Three Months ended March 31 |
|
2020 |
2019 |
AECO 7A monthly ($/GJ) |
2.03 |
1.84 |
AECO 5A daily ($/GJ) |
1.93 |
2.49 |
Empress daily (US$/MMBTU) |
1.76 |
2.95 |
NYMEX (US$/MMbtu) |
1.88 |
2.89 |
Ventura
daily (US$/MMbtu) |
1.72 |
3.14 |
Dawn daily (US$/MMbtu) |
1.76 |
2.92 |
Canadian WTI ($/bbl) |
61.65 |
72.98 |
Conway C3 (US$/bbl) |
14.33 |
24.32 |
Q1 2020 average CND/USD exchange rate of
1.3449.
Peyto Realized Commodity Prices by
Component
|
Three Months ended March 31 |
|
2020 |
2019 |
Natural gas ($/mcf) |
2.59 |
2.48 |
Gas marketing diversification activities ($/mcf) |
(0.88) |
(0.12) |
Gas hedging ($/mcf) |
(0.08) |
0.12 |
|
|
|
Oil, condensate and C5+ ($/bbl) |
57.34 |
64.28 |
Oil hedging ($/bbl) |
2.77 |
3.52 |
Butane and propane ($/bbl) |
5.09 |
21.58 |
Liquids prices are Peyto realized prices in
Canadian dollars adjusted for fractionation, transportation and
market differentials.Peyto natural gas has an average heating value
of approximately 1.15 GJ/mcfDetails of Peyto’s ongoing marketing
and diversification efforts are available on Peyto’s website
at:http://www.peyto.com/Files/Operations/Marketing/hedges.pdf
Financial Results
Approximately 36%, or $0.84/Mcfe, of Peyto’s
unhedged revenue came from its associated natural gas liquids sales
while 64%, or $1.46/Mcfe, is attributable to natural gas sales.
Natural gas and liquid hedging activity did not contribute to a
material change in total revenue of $2.30/Mcfe. Cash costs of
$1.03/Mcfe, included royalties of $0.12/Mcfe, operating costs of
$0.39/Mcfe, transportation costs of $0.19/Mcfe, G&A of
$0.04/Mcfe and interest costs of $0.29/Mcfe. Cash costs per unit of
production were similar to Q1 2019 despite the increase in
operating costs that resulted from a stockpiling of chemicals and
maintenance equipment. For the balance of the year, Peyto expects
lower per unit operating costs from optimized road use, lower water
disposal costs, lower chemical and lubricating oil prices,
optimized power consumption as well as lower municipal tax and AER
fees.
When the total cash costs of $1.03/Mcfe were
deducted from realized revenues of $2.30/Mcfe, it resulted in a
cash netback of $1.27/Mcfe or a 55% operating margin. Historical
cash costs and operating margins are shown in the following
table.
|
2017 |
2018 |
2019 |
2020 |
($/Mcfe) |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Revenue |
3.44 |
3.36 |
3.24 |
3.50 |
3.54 |
3.20 |
3.27 |
3.03 |
3.20 |
2.60 |
2.50 |
2.76 |
2.30 |
Royalties |
0.19 |
0.17 |
0.09 |
0.15 |
0.17 |
0.10 |
0.14 |
0.12 |
0.14 |
0.01 |
0.03 |
0.12 |
0.12 |
Op Costs |
0.29 |
0.24 |
0.26 |
0.28 |
0.29 |
0.30 |
0.31 |
0.33 |
0.35 |
0.34 |
0.31 |
0.34 |
0.39 |
Transportation |
0.17 |
0.18 |
0.17 |
0.16 |
0.13 |
0.18 |
0.19 |
0.19 |
0.19 |
0.19 |
0.19 |
0.19 |
0.19 |
G&A |
0.04 |
0.05 |
0.03 |
0.03 |
0.08 |
0.05 |
0.03 |
0.04 |
0.06 |
0.05 |
0.05 |
0.02 |
0.04 |
Interest |
0.20 |
0.21 |
0.21 |
0.21 |
0.24 |
0.26 |
0.27 |
0.27 |
0.28 |
0.30 |
0.31 |
0.31 |
0.29 |
Cash Costs |
0.89 |
0.85 |
0.76 |
0.83 |
0.91 |
0.89 |
0.94 |
0.95 |
1.02 |
0.89 |
0.89 |
0.98 |
1.03 |
Netback |
2.55 |
2.51 |
2.48 |
2.67 |
2.63 |
2.31 |
2.33 |
2.08 |
2.18 |
1.71 |
1.61 |
1.78 |
1.27 |
Operating Margin |
74% |
75% |
76% |
76% |
74% |
72% |
71% |
69% |
68% |
66% |
64% |
65% |
55% |
Depletion, depreciation, amortization and
impairment charges of $3.28/Mcfe, along with a provision for
deferred tax and stock-based compensation payments reduced the cash
netback to a loss of $1.58/Mcfe. Dividends of $0.23/Mcfe were paid
to shareholders in the quarter.
Due to a significantly reduced independent
reserve engineer price forecast, attributable to the exceptional
commodity price volatility experienced in the first quarter, the
carrying value of Peyto’s reserve assets was reduced and a non-cash
impairment expense of $80 million was recognized. The impairment
has no impact on funds from operations and is expected to reverse
in the future should commodity futures recover.
Activity Update
Peyto currently has 2 rigs drilling on pad sites
that utilize existing Company infrastructure in order to limit
exposure to third party road bans or restrictions during spring
breakup. Both rigs have quickly shifted their focus to leaner
natural gas prospects to take advantage of improving gas prices,
with one rig operating in the Brazeau area and the other focused in
Greater Sundance. The Company continues to work closely with
service providers and is taking additional precautions to ensure
the health and safety of all workers during the COVID-19
pandemic.
Since the end of the quarter, the Company has
drilled 6 gross (3.9 net) wells, completed 3 gross (3 net) wells,
and brought onstream 4 gross (4 net) new wells. The 6 new wells
drilled will be completed later in the quarter after breakup. The
most recent wells brought onstream include several Notikewin
discoveries in the Chambers and Edson areas that have greatly
exceeded Management expectations. Peyto is planning to add two
additional drilling rigs in the second half of 2020 as natural gas
prices improve. These two rigs will continue focus on leaner
natural gas prospects within the Company’s portfolio.
At the end of April, the Company installed
80,000 barrels of tank storage capacity in the Sundance and Brazeau
areas to serve Peyto’s associated condensate production in the
event there are supply disruptions or negative price realizations
for this product. This should ensure that Peyto’s natural gas and
other associated NGL production will not be shut in if condensate
demand is materially impacted by heavy oil curtailments/shut
ins.
Outlook
While the 2020 capital program to date has
exceeded expectation for results and costs, Peyto anticipates that
an additional 10-15% cost savings will be further realized in the
balance of the year due to much reduced industry activity. Peyto
will continue to be nimble and flexible, as evidenced by the
recently reduced capital program and reduced dividend and may
adjust its program for changing commodity prices and in order to
match the capital program to forecast funds flow.
In order to preserve financial flexibility in
the event commodity prices continue to remain weak, Peyto is
currently in discussions with its syndicate of lenders and term
debt noteholders for temporary relief from its financial covenants
as they are defined in its revolving unsecured credit facility and
note purchase agreements. Pending results from these discussions,
the Company believes it will have sufficient funds from operations
and credit capacity to execute the remainder of its revised 2020
capital program of $200 to $250 million. Peyto is also reviewing
all government programs which may provide additional relief and
liquidity during this highly volatile and challenging period to
determine if they may be available to Peyto.
Peyto is encouraged by the recent oil supply
response that is taking associated gas out of the market and
strengthening current and future natural gas prices at both AECO
and Henry Hub. While the Company has over 50% of natural gas sales
hedged for the next two quarters, all future natural gas production
remains extremely exposed to this increasing natural gas price with
less than 5% of all producing reserves currently pre-sold.
Conference Call and Webcast
A conference call will be held with the senior
management of Peyto to answer questions with respect to the 2020
first quarter financial results on Wednesday, May 13th, 2020, 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/jfmqq7kz. 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 first quarter report to shareholders, including
the MD&A, unaudited financial statements and related notes, is
available at
http://www.peyto.com/Files/Financials/2020/Q12020FS.pdf and
at http://www.peyto.com/Files/Financials/2020/Q12020MDA.pdf and
will be filed at SEDAR, www.sedar.com at a later date.
Darren GeePresident and CEOMay 12, 2020
Cautionary Statements
Forward-Looking Statements
This 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:
macro-economic conditions, including public health concerns
(including the impact of the COVID-19 pandemic) and other
geopolitical risks, the condition of the global economy and,
specifically, the condition of the crude oil and natural gas
industry including the collapse of global crude oil prices, other
commodity prices and the decrease in global demand for crude oil in
2020, and the ongoing significant volatility in world markets;
other 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 other 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
supply chain disruptions as a result of the COVID-19 pandemic; 2020
annual capital efficiency; the expectation that the Company's new
pipeline project will be a strategic piece of infrastructure for
future opportunities; the shift in focus of the Company's rigs to
leaner natural gas prospects; the continued need for precautions to
be taken to ensure the health and safety of all workers during the
COVID-19 pandemic; the Company’s drilling and completion program
for the remainder of 2020, including the timing of completion of
the six new wells drilled after breakup and the plans to add two
additional drilling rigs in the second half of 2020; the benefits
of the Company's newly installed tank storage capacity in the
Sundance and Brazeau areas; the anticipated additional cost savings
to be realized in the balance of the year; the Company's ability to
continue to be nimble and flexible in adjusting its program for
2020 as required; the Company's discussions regarding revisions to
its financial covenants with respect to its credit facility and
outstanding notes; Peyto's belief that it has sufficient funds from
operations and credit capacity to execute the remainder of its
revised 2020 capital program; potential government program
availability; Peyto's hedging program; 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: continued
changes and volatility in general global economic conditions
including, without limitations, the economic conditions in North
America and public health concerns (including the impact of the
COVID-19 pandemic); continued fluctuations and volatility in
commodity prices, foreign exchange or interest rates; continued
stock market volatility; imprecision of reserves estimates;
competition from other industry participants; failure to secure
required equipment; increased competition; the lack of availability
of qualified operating or management personnel; 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; and the ability to access sufficient capital from
internal and external sources. 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, 2019 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 months ended March 31, 2020.
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