Peyto Exploration & Development Corp. (“Peyto” or the
“Company") (TSX: PEY) announces today an operational update,
amended credit and note purchase agreements, and reaffirms its 2020
capital guidance supported by the Company’s sustainable business
model.
The COVID-19 pandemic has had an unprecedented
impact on near term hydrocarbon demand and placed a considerable
economic burden on a struggling Canadian energy industry. Lower
commodity prices, decreased liquidity and increased cost of capital
has significantly reduced investment in new drilling not only in
Canada but across North America. This reduced activity should
eventually result in declines in production and rising commodity
prices. While Peyto will ultimately benefit from those rising
commodity prices, in the near term, the Company’s business is
sustained by its long life, low cost natural gas assets that
deliver industry leading operating margins.
Operational Update
Spring breakup conditions were unusually wet in
the Edson area due to the above average winter snowfall and colder
temperatures that drove frost deeper into the ground. Despite these
challenges, Peyto was able to drill 11 new wells (10.3 net),
complete 8 wells (7.5 net) and bring on production 9 wells (8.5
net) so far in the second quarter. In addition, the Company has 5
wells (4.3 net) drilled and awaiting completion. The Company
expects to drill 29 gross wells (27.5 net) in the first half of
2020. Current production is consistent with the first quarter at
approximately 78,500 boe/d.
New drilling in 2020 has added approximately 65
mmcf/d of natural gas and 1,700 bbls/d of natural gas liquids which
continues to demonstrate a significant improvement in capital
efficiency and which is expected to translate into a lower
sustaining capital requirement going forward. Both drilling costs
per meter and completion costs per stage in the second quarter have
averaged 10% less than the first quarter of 2020, despite wet
breakup conditions which add to cost, and Peyto targets a further
10-15% cost savings in the balance of the year. These combined
savings are expected to directly translate into reduced cost to add
new production and reserves.
Amended Credit Facility and Note
Purchase Agreements
On June 29, 2020, Peyto finalized an agreement
with its syndicate of lenders and term debt note holders to revise
its credit and note purchase agreements and to reduce the size of
its credit facility. The credit facility and long term notes are
now secured by a floating debenture on Peyto’s assets and the $1.3
billion extendible revolving credit facility has been reduced to
$950 million. This amended facility provides Peyto with adequate
liquidity to execute its three-year strategic business plan while
minimizing the increased cost of the unutilized credit capacity. On
March 31, 2020, Peyto had drawn $715 million on its credit facility
and had $415 million of long-term notes leaving it with significant
liquidity.
In addition, Peyto has received relief from its
previous financial covenants with new senior and total debt to
EBITDA financial covenants ranging throughout the relief period
from 3.5:1 up to 5.25:1, for senior debt, and 4:1 up to 5.75:1, for
total debt. The total stamping fee under the credit facility will
range between 200 basis points and 600 basis points on Canadian
dollar bankers’ acceptance and US dollar LIBOR borrowings. Undrawn
portions of the facility are subject to a standby fee in the range
of 50 basis points to 150 basis points. An increase in the interest
rate on the notes will range from 85 basis points and 285 basis
points depending on the senior debt financial covenant. Peyto’s
revolving credit facility has a stated term date of October 13,
2022 while the first long term note, of $50 million, is due on
September 30, 2022. Peyto is pleased to report that all ten banks
in its syndicate as well as the four note holders have continued
their support of the Company and its go forward business model.
This new agreement allows the Company to move forward with
confidence and certainty over the next 2 years.
Capital Guidance
The Company is approximately halfway through its
2020 capital program, which is expected to range between $200 and
$250 million. This capital program is now expected to result in
45-60 wells drilled, completed, and brought onstream. In addition,
the capital program will expand Peyto’s 2,000 km gas gathering
pipeline network, provide meaningful additional gas supply for its
845 mmcf/d processing facilities, and add to the Company’s database
of 2,160 square miles of 3D seismic - twice that of Peyto’s land
base.
As the capital required to hold Peyto at current
production levels is now reduced, due to improved capital
efficiency, the remaining free cashflow is expected to result in
increasing production. Moving forward into 2021 and 2022, as base
production declines are forecast to continue to moderate, the
sustaining capital that is required for this current level of
production is forecast to fall to $180 and $165 million,
respectively. It should be noted that Peyto’s proved producing
reserves are expected to continue to grow when production is held
constant. As realized commodity prices strengthen, free cashflow is
expected to significantly increase, resulting in increased growth
capital or debt reduction.
Outlook
Peyto’s unique asset base is a concentrated
collection of lands, resources and infrastructure that continues to
deliver an industry leading cost structure and operating margin
while offering vertical integration along the value chain. Although
accelerated development and growth of this asset is being deferred
for the short term, over the medium to longer term, as market
condition improve, this asset base will provide a stable platform
for growth and improved returns for shareholders. The Company’s
current three-year plan provides for a strategic path forward
through a period of significant commodity price volatility, but
immense opportunity. Peyto will continue to remain poised to
capitalize on these opportunities while at the same time will be
nimble to changing market dynamics with both the financial and
operational flexibility to ramp up activity quickly and take
advantage of attractive investment opportunities that may arise.
The Peyto team, while small and efficient, has demonstrated the
capability to execute up to three times the current capital
program.
In the near term, shareholders can remain
confident that a continued attention to financial flexibility and a
disciplined, returns focused approach to all future capital
investments will preserve and enhance total shareholder value. A
pre-recorded annual general meeting presentation is now available
on the Company’s website. To learn more about what makes Peyto one
of North America’s most exciting energy companies visit
www.peyto.com.
Darren GeePresident and CEOJune 29, 2020(403)
261-6081
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
declines in production and rise in commodity prices as a result of
reduced industry activity; the benefits to Peyto from rising
commodity prices; the Company’s drilling and completion program for
the remainder of 2020, including the plans to drill an additional
29 gross wells; the anticipated benefits from new drilling in 2020,
including improvement to capital efficiency and lower sustaining
capital requirements; the anticipated benefits of the Company's
amended credit facility and note purchase agreements; 2020 annual
capital efficiency; 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 expectations regarding its 2020 capital
program, including the number of wells to be drilled, completed and
brought on stream and the anticipated expansion of the Company's
gas gathering pipeline network; the expected results of the
Company's remaining free cashflow; expectations regarding
sustaining capital requirements; expectations regarding the
Company's asset base and its ability to provide a stable platform
for growth and returns over time; Peyto's expectation for its three
year plan; 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;
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.
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