Peyto Exploration & Development Corp. (“Peyto” or the
“Company”) presents its operating and financial results for the
second quarter of the 2020 fiscal year. The economic impact of the
COVID-19 pandemic on world energy demand and consequently North
American commodity prices was considerable in the quarter, and
while Peyto’s industry leading costs structure helped shield some
of the financial impact, the Company still experienced the lowest
realized commodity prices and operating margins in its 21 year
history. Today, the future outlook for realized commodity prices is
substantially better than those experienced in the second quarter.
Results for the quarter included:
- Funds from operations of $0.20/share.
Generated $33 million in Funds From Operations (“FFO”) in Q2 2020,
down from $76 million in Q2 2019 due to 33% lower commodity prices
and 4% lower production levels. Trailing twelve month FFO ($232
million) exceeded capital expenditures ($216 million) by $16
million.
- Production held constant. Natural gas
production was constant from Q1 2020 at 402 MMcf/d but down 5% from
a year ago, while Condensate and NGL production was consistent with
both the previous quarter and a year ago at 11,126 bbl/d. Liquid
yields were 27.7 bbl/MMcf, down slightly from 28.8 bbl/MMcf in Q1
2020 due to a focus on leaner gas targets, but were still up from
26.3 bbl/MMcf in Q2 2019. Total liquids production was comprised of
6,536 bbls/d of Condensate and Pentanes+, and 4,590 bbls/d of
Propane and Butane. Total Q2 2020 production of 78,097 boe/d was
down slightly from the previous quarter production of 78,514 boe/d
and down 4% from 81,496 boe/d recorded in Q2 2019.
- Total cash costs of $0.96/Mcfe ($0.90/Mcfe or
($5.37/boe) excluding royalties). Industry leading total
cash costs, included $0.06/Mcfe royalties, $0.36/Mcfe operating
costs, $0.17/Mcfe transportation, $0.04/Mcfe G&A and $0.33/Mcfe
interest, combined with a realized price of $1.73/Mcfe, and
resulted in a $0.77/Mcfe ($4.65/boe) cash netback, down 55% from
$1.71/Mcfe ($10.24/boe) in Q2 2019. Operating costs per unit for Q2
2020 were up 6% from Q2 2019 largely due to increased road and
lease maintenance from the wet spring weather.
- Capital investment of $37 million. A total of
12 gross wells (11 net) were drilled in the second quarter, 8 gross
wells (7.5 net) were completed, and 9 gross wells (8.5 net) were
brought on production. Over the last 12 months the 67 gross (58.35
net) wells brought on production accounted for approximately 19,000
boe/d at the end of the quarter, which, when combined with a
trailing twelve month capital investment of $216 million, equates
to an annualized capital efficiency of $11,400/boe/d. Peyto
anticipates the 2020 full year capital efficiency will be
approximately $9,000/boe/d based on the cost savings experienced in
the first half of 2020.
- Dividends of $0.01/share, Loss of $0.14/share.
Dividends of $1.6 million were paid to shareholders during the
quarter while a loss of $22.5 million was recorded.
Second Quarter 2020 in
ReviewPeyto maintained an active second quarter with two
drilling rigs running throughout the quarter drilling from
pre-constructed pad sites. Despite heavy rainfall in June which
restricted access to several sites, completion and tie in
operations were still achieved on several wells. This allowed
production declines to be offset with new volumes but for
approximately half the capital investment of the first quarter,
illustrating continuously improving capital efficiency. As always,
the safety of Peyto’s employees and field contractors was of
critical importance, particularly during the second quarter as
Alberta’s COVID-19 cases peaked in mid-April. Drilling operations
were split equally between the Sundance and Brazeau core areas on
both the more liquids rich Cardium formation and the drier gas
Spirit River formations. North American hydrocarbon consumption
reached a low during the quarter due to pandemic isolation
requirements and related demand destruction which caused commodity
prices to plummet, particularly West Texas Intermediate oil price
which traded negative on April 20, 2020. Industrial demand for
natural gas was also impacted as manufacturing was shut down.
Globally, natural gas consumption fell and LNG export cargoes were
cancelled which put pressure on North American prices. Peyto’s
unhedged, realized natural gas and liquids prices were down 21% and
53%, respectively, significantly impacting realized revenues.
Despite total cash costs of less than $1/Mcfe, FFO was down 40%
from the previous quarter and 57% from Q2 2019. Peyto maintained
its industry leading cash costs during the quarter which helped to
maintain Operating Margins of 45%. The Company successfully revised
its credit and note purchase agreements for temporary relief from
financial covenants and looks forward to significantly improving
financial performance in the quarters ahead.
- Operating Margin is defined as
funds from operations divided by revenue before royalties but
including realized hedging gains/losses.
- Profit Margin is defined as net
earnings for the quarter divided by revenue before royalties but
including realized hedging gains/losses.Natural gas volumes
recorded in thousand cubic feet (mcf) are converted to barrels of
oil equivalent (boe) using the ratio of six (6) thousand cubic feet
to one (1) barrel of oil (bbl). Natural gas liquids and oil
volumes in barrel of oil (bbl) are converted to thousand cubic feet
equivalent (Mcfe) using a ratio of one (1) barrel of oil to six (6)
thousand cubic feet. This could be misleading, particularly
if used in isolation as it is based on an energy equivalency
conversion method primarily applied at the burner tip and does not
represent a value equivalency at the wellhead.
|
Three Months Ended June 30 |
% |
Six Months Ended June 30 |
% |
|
2020 |
2019 |
Change |
2020 |
2019 |
Change |
Operations |
|
|
|
|
|
|
Production |
|
|
|
|
|
|
Natural gas (mcf/d) |
401,825 |
|
422,320 |
-5% |
401,699 |
|
442,052 |
-9% |
Oil & NGLs (bbl/d) |
11,126 |
|
11,110 |
- |
11,356 |
|
10,907 |
4% |
Thousand cubic feet equivalent (mcfe/d @ 1:6) |
468,583 |
|
488,977 |
-4% |
469,833 |
|
507,496 |
-7% |
Barrels of oil equivalent (boe/d @ 6:1) |
78,097 |
|
81,496 |
-4% |
78,306 |
|
84,583 |
-7% |
Production per million common shares (boe/d)* |
474 |
|
494 |
-4% |
475 |
|
513 |
-7% |
Product prices |
|
|
|
|
|
|
Natural gas ($/mcf) |
1.44 |
|
1.83 |
-21% |
1.54 |
|
2.17 |
-29% |
Oil & NGLs ($/bbl) |
21.07 |
|
44.70 |
-53% |
29.06 |
|
47.47 |
-39% |
Operating expenses ($/mcfe) |
0.36 |
|
0.34 |
6%% |
0.37 |
|
0.34 |
9% |
Transportation ($/mcfe) |
0.17 |
|
0.19 |
-11% |
0.18 |
|
0.19 |
-5% |
Field netback ($/mcfe) |
1.14 |
|
2.06 |
-45% |
1.36 |
|
2.30 |
-40% |
General & administrative expenses ($/mcfe) |
0.04 |
|
0.05 |
-20% |
0.04 |
|
0.06 |
-33% |
Interest expense ($/mcfe) |
0.33 |
|
0.30 |
10% |
0.31 |
|
0.29 |
7% |
Financial ($000, except per share*) |
|
|
|
|
|
|
Revenue and realized hedging gains (losses)
1 |
73,883 |
|
115,526 |
-36% |
171,605 |
|
267,185 |
-36% |
Royalties |
2,705 |
|
237 |
1041% |
7,641 |
|
6,910 |
11% |
Funds from operations |
33,012 |
|
75,971 |
-57% |
87,525 |
|
179,050 |
-51% |
Funds from operations per share |
0.20 |
|
0.46 |
-57% |
0.53 |
|
1.09 |
-51% |
Total dividends |
1,649 |
|
9,892 |
-83% |
11,541 |
|
19,785 |
-42% |
Total dividends per share |
0.01 |
|
0.06 |
-83% |
0.07 |
|
0.12 |
-42% |
Payout ratio |
5 |
|
13 |
-62% |
13 |
|
11 |
18% |
Earnings (loss) |
(22,538 |
) |
98,757 |
-123% |
(90,221 |
) |
123,727 |
-173% |
Earnings (loss) per diluted share |
(0.14 |
) |
0.59 |
-123% |
(0.55 |
) |
0.75 |
-173% |
Capital expenditures |
37,299 |
|
34,112 |
9% |
105,886 |
|
96,507 |
10% |
Weighted average common shares outstanding |
164,874,175 |
|
164,874,175 |
- |
164,874,175 |
|
164,874,175 |
- |
As at June 30 |
|
|
|
|
|
|
Net debt |
|
|
|
1,172,590 |
|
1,156,565 |
1% |
Shareholders' equity |
|
|
|
1,616,230 |
|
1,743,942 |
-7% |
Total assets |
|
|
|
3,481,028 |
|
3,621,782 |
-4% |
1excludes revenue from sale of
third party volumes |
|
|
|
|
|
|
|
Three Months Ended June 30 |
Six Months Ended June 30 |
($000 except per share) |
2020 |
|
2019 |
|
2020 |
|
2019 |
|
Cash flows from operating activities |
36,254 |
|
85,569 |
|
102,095 |
|
177,081 |
|
Change in non-cash working
capital |
(3,242 |
) |
(9,383 |
) |
(14,570 |
) |
(322 |
) |
Change in provision for
performance based compensation |
- |
|
(215 |
) |
- |
|
- |
|
Performance based
compensation |
- |
|
- |
|
- |
|
2,291 |
|
Funds from operations |
33,012 |
|
75,971 |
|
87,525 |
|
179,050 |
|
Funds
from operations per share |
0.20 |
|
0.46 |
|
0.53 |
|
1.09 |
|
(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 2020 activity was split between
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 |
Cardium |
2 |
|
|
|
|
|
4 |
6 |
Notikewin |
|
|
|
|
|
|
1 |
1 |
Falher |
|
|
|
|
|
|
|
|
Wilrich |
|
3 |
|
2 |
|
|
|
5 |
Bluesky |
|
|
|
|
|
|
|
|
Total |
2 |
3 |
|
2 |
|
|
5 |
12 |
Drilling costs for the second quarter of 2020
were 10% lower on a per meter basis, even with half the wells being
drilled in the more expensive Brazeau area where wellsite access is
more remote and drilling more challenging. The lower average was
due to three, newly designed, extended reach horizontal Wilrich
wells drilled in the Nosehill area, where estimated drilling costs
were $340/m. These new well designs ranged in length from 2,400m to
2,700m and allowed for an increased number of frac stages which are
expected to translate into higher productivity and reserve capture.
Completion costs on a $/m of horizontal lateral and $/frac stage
were also lower as Peyto continues to work with suppliers to find
efficiency gains and cost savings.
|
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
2018 |
2019 |
2020 Q1 |
2020 Q2 |
Gross Hz Spuds |
70 |
86 |
99 |
123 |
140 |
126 |
135 |
70 |
61 |
17 |
12 |
Measured
Depth (m) |
3,903 |
4,017 |
4,179 |
4,251 |
4,309 |
4,197 |
4,229 |
4,020 |
3,848 |
4,069 |
4,335 |
|
|
|
|
|
|
|
|
|
|
|
|
Drilling
($MM/well) |
$2.82 |
$2.79 |
$2.72 |
$2.66 |
$2.16 |
$1.82 |
$1.90 |
$1.71 |
$1.62 |
$1.75 |
$1,69 |
$ per
meter |
$723 |
$694 |
$651 |
$626 |
$501 |
$433 |
$450 |
$425 |
$420 |
$430 |
$390 |
|
|
|
|
|
|
|
|
|
|
|
|
Completion ($MM/well) |
$1.68 |
$1.67 |
$1.63 |
$1.70 |
$1.21 |
$0.86 |
$1.00 |
$1.13 |
$1.01* |
$0.98 |
$0.97 |
Hz
Length (m) |
1,303 |
1,358 |
1,409 |
1,460 |
1,531 |
1,460 |
1,241 |
1,348 |
1,484 |
1,563 |
1,587 |
$ per Hz
Length (m) |
$1,286 |
$1,231 |
$1,153 |
$1,166 |
$792 |
$587 |
$803 |
$835 |
$679 |
$624 |
$610 |
$ ‘000 per Stage |
$246 |
$257 |
$188 |
$168 |
$115 |
$79 |
$81 |
$51 |
$38 |
$38 |
$37 |
*excluding Peyto’s Wildhay Montney well. |
Capital Expenditures
During the second quarter of 2020, Peyto
invested $20.4 million on drilling, $9.0 million on completions,
$2.8 million on wellsite equipment and tie-ins, $3.8 million on
facilities and major pipeline projects, and $1.3 million acquiring
new land and seismic, for total capital investments of $37.3
million.
The $3.8 million invested in new facilities and
major pipeline projects in the quarter included the installation of
condensate storage and upgrades to existing compressors, as well as
preliminary work on the pipeline directly connecting Peyto’s sales
gas to the Cascade Power Plant. No new land was purchased as sales
were suspended by the Crown due to a deteriorating 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, 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 marketing arrangements (either physical or short
term synthetic) to those markets. This gas market diversification
cost represents the total marketing and synthetic transportation
cost, not just the difference between those markets and an AECO
equivalent price.
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 Q2 2020 Peyto sold 34% of its natural gas
at AECO, 9% at Emerson, 5% at Ventura, and 52% at Henry Hub.
Benchmark prices, Peyto realized prices, and aggregate gas
marketing diversification costs are shown below. Moving forward,
the Company expects to continue to market more of its gas at hubs
outside of AECO but expects that market diversification costs will
diminish.
Benchmark Commodity Prices
|
Three Months ended June 30 |
|
2020 |
2019 |
AECO 7A monthly ($/GJ) |
1.81 |
1.11 |
AECO 5A daily ($/GJ) |
1.89 |
0.98 |
Emerson2 (US$/MMBTU) |
1.60 |
2.12 |
NYMEX (US$/MMbtu) |
1.65 |
2.52 |
Ventura daily (US$/MMbtu) |
1.58 |
2.20 |
Canadian WTI ($/bbl) |
48.94 |
80.02 |
Conway C3 (US$/bbl) |
17.25 |
20.47 |
Q2 2020 average CND/USD exchange rate of
1.3859.
Peyto Realized Commodity Prices by
Component
|
Three Months ended June 30 |
|
2020 |
2019 |
Natural gas ($/mcf) |
2.35 |
2.33 |
Gas marketing diversification
activities ($/mcf) |
(0.94) |
(0.76) |
Gas hedging ($/mcf) |
0.03 |
0.26 |
Oil, condensate and C5+
($/bbl) |
27.73 |
73.20 |
Butane and propane ($/bbl) |
11.65 |
5.63 |
Oil and NGL hedging ($/bbl) |
1.73 |
1.67 |
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 28%, or $0.46/Mcfe, of Peyto’s
unhedged revenue came from its associated natural gas liquids sales
while 72%, or $1.20/Mcfe, is attributable to natural gas sales.
Natural gas and liquids hedging activity contributed $0.07/Mcfe to
total revenue of $1.73/Mcfe. Cash costs of $0.96/Mcfe, included
royalties of $0.06/Mcfe, operating costs of $0.36/Mcfe,
transportation costs of $0.17/Mcfe, G&A of $0.04/Mcfe and
interest costs of $0.33/Mcfe. Cash costs per unit of production
were higher than Q2 2019 due to increased royalties and interest
charges. For the balance of the year, Peyto intends to offset
higher interest charges resulting from the amended credit facility
with lower per unit operating and transportation costs resulting
from a focused cost reduction program.
When the total cash costs of $0.96/Mcfe were
deducted from realized revenues of $1.73/Mcfe, it resulted in a
cash netback of $0.77/Mcfe or a 45% operating margin. Historical
cash costs and operating margins are shown in the following
table:
|
2017 |
2018 |
2019 |
2020 |
($/Mcfe) |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
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 |
1.73 |
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 |
0.06 |
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 |
0.36 |
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 |
0.17 |
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 |
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 |
0.33 |
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 |
0.96 |
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 |
0.77 |
Operating Margin |
74% |
75% |
76% |
76% |
74% |
72% |
71% |
69% |
68% |
66% |
64% |
65% |
55% |
45% |
Depletion, depreciation, and amortization
charges of $1.40/Mcfe, along with a provision for deferred tax and
stock-based compensation payments reduced the cash netback to a
loss of $0.53/Mcfe ($0.14/share). Dividends of $0.04/Mcfe
($0.01/share) were paid to shareholders in the quarter. No
impairment charges were recorded in the quarter.
Activity Update
Peyto currently has 4 drilling rigs contracted
that continue to be focused in the Greater Sundance and Brazeau
core areas. These 4 drilling rigs are operating intermittently and
are capable of drilling 40% more wells than what is planned for
2020. Peyto expects they will be at full utilization in 2021 with
an expanded capital program. Keeping these 4 rigs and their
respective crews active now will ensure efficiency gains are
maintained as Peyto increases its pace of activity, which is
critically important considering the damage this current activity
downturn is having on the oilfield services sector.
Since the end of the quarter, the Company has
drilled 10 gross (8.5 net) wells, completed 7 gross (7 net) wells
and brought onstream 6 gross (6 net) new wells. The wet summer
weather has caused a backlog of completions with 10 gross (8.5 net)
wells drilled but awaiting completion in August. While only 7 gross
(6.5 net) new wells were brought on from May 1 to July 31, Peyto is
planning on bringing on 18 gross (16.5 net) new wells in August and
September. Current production is 78,000 boe/d.
At the start of August, Peyto commissioned its
first water disposal well and facility which will serve the Greater
Sundance Area. The Company expects to save between $2 million and
$3 million in annual operating expense by avoiding third party
disposal costs and reducing trucking activity.
Outlook
Looking forward, the Company is encouraged by
the outlook for North American natural gas. Anemic drilling
activity, shrinking supplies and increasing consumption has set the
stage for significantly improved commodity prices. The spot and
futures contracts for natural gas have already begun to reflect
this improvement, with spot NYMEX up 50% and the 2021 futures price
up 10% from a month ago.
Peyto’s producing reserve life continues to grow
and base production declines continue to moderate creating a
concrete platform for future growth and profitability. The
Company’s internal forecasts using these current futures prices
indicate Peyto could see a significant year over year increase to
its 2021 funds flow that will increase the capital available for
investment. Such an additional investment would, at current capital
efficiencies, result in growing production that would be coupled
with lower per unit operating costs, transportation costs and
interest costs, all substantially increasing operating margins.
Markedly higher funds flow also means Peyto’s ratio of net debt to
cashflow would shrink to a very manageable level going forward.
Peyto’s industry leading low-cost structure
comes from an ever-vigilant focus on minimizing waste and
increasing efficiency across its operations. The Company has
redoubled these efforts and expects to realize additional operating
cost savings in the areas of road use, water disposal, municipal
taxes, AER fees, chemical costs, power consumption, and manpower
costs. The current head office staff of 51 full time employees is
fully capable of executing the growing capital programs expected in
2021 and 2022 which will translate into lower per unit G&A
costs.
While this potential future is encouraging,
Peyto will continue to remain nimble to changing market dynamics
with a constant focus on strengthening its balance sheet while
funding its increasing capital program and dividend from growing
cashflows.
Conference Call and Webcast
A conference call will be held with the senior
management of Peyto to answer questions with respect to the 2020
second quarter financial results on Thursday, August 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/pcanrfjo. 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/2020/Q22020FS.pdf and at
http://www.peyto.com/Files/Financials/2020/Q22020MDA.pdf and will
be filed at SEDAR, www.sedar.com at a later date.
Darren Gee |
President and CEO |
August 12, 2020 |
Phone: |
(403)
261-6081 |
Fax: |
(403) 451-4100 |
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 future outlook
for realized commodity prices being better in the future than in
the second quarter of 2020; the expectation that financial
performance will significantly improve in the upcoming quarters;
the expectation that the Company will continue to market more of
its gas at hubs outside of AECO; the expectation that market
diversification costs will diminish; 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 intention to
offset higher interest charges under its credit facility with lower
per unit operation and transportation costs resulting from a
focused cost reduction program; the expectation that the four
drilling rigs will be at full utilization in 2021 with an expanded
capital program; the Company’s drilling and completion program for
the remainder of 2020, including the timing of bringing on new
wells in August and September 2020; the anticipated cost savings as
a result of the newly commission water disposal well and facility;
the anticipated additional cost savings to be realized in the
balance of the year; the expectation for growing capital programs
in 2021 and 2022; the expectation for producing reserve life to
continue to grow and base production declines continue for future
growth and profitability; the Company's ability to continue to be
nimble and flexible in adjusting its program for 2020 as required;
2020 capital efficiency; 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 June 30, 2020.
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