Peyto Exploration & Development Corp. (“Peyto” or the
“Company”) today reports operating and financial results for the
fourth quarter and 2020 fiscal year. A 55% operating margin1
combined with record low $2.07/Mcfe total supply cost (PDP FD&A
plus Total Cash Costs) helped the Company endure the lowest
realized commodity prices in Company history. Annual Return on
capital employed (“ROCE”) and Return on equity (“ROE”) were 0% and
-2%, respectively, despite fourth quarter earnings of $66 million
or $0.40/share.
Full Year and Q4 2020
Highlights:
- Low Cash Costs of
$1.01/Mcfe (or $0.88/Mcfe before royalties) – Full year
2020 total cash costs of $1.01/Mcfe continue to be the lowest in
the industry and when combined with a realized price of $2.23/Mcfe
($13.38/boe), resulted in a cash netback of $1.22/Mcfe ($7.30/boe)
or a 55% operating margin. Fourth quarter cash costs of $0.88Mcfe,
before royalties of $0.18/Mcfe, included operating costs of
$0.31/Mcfe, transportation of $0.15/Mcfe, G&A of $0.04/Mcfe and
interest expense of $0.38/Mcfe.
-
Low PDP FD&A Costs – Proved Developed
Producing (“PDP”) Finding, Development and Acquisition (“FD&A”)
cost of $1.06/Mcfe ($6.36/boe) was the lowest in 18 years and is
reflective of a continuous decrease in drilling time, combined with
higher reserve recoveries from longer horizontal laterals and more
intensive fracture treatments.
- Lowest Production Addition
Cost – While annual capital investments of $236MM were
111% of the $213MM in Funds from Operations (“FFO”), they
successfully replaced 127% of annual production with new PDP
Reserves. In the year, a total of 64 gross (61 net) wells were
drilled, 71 gross (67 net) wells completed, and 72 gross (67 net)
wells brought on-stream. This activity added 26,500 boe/d of new
production at year end at the lowest total cost, $8,900/boe/d, in
Company history. The Q4 2020 capital investment was $68 million and
involved drilling 17 gross (17 net) wells.
- Long Life, Low Decline Production – Peyto’s
base production decline is forecast in the InSite report at 25% for
2021, while its PDP Reserve Life Index (“RLI”) is 9 years, based on
Q4 2020 production of 83,461 boe/d, which is one of the longest PDP
RLIs in the industry.
- Lower Emissions – Methane (particularly flared
and vented) emissions were reduced again in 2020, now down over 40%
since 2016. With approximately half of the emissions intensity and
lower environmental impact (emissions and land/water use per unit
of production) of the rest of the natural gas production and
processing industry in Canada, Peyto’s reserves are extracted with
far less overall environmental impact*.
- Minimal Future
Liabilities – The forecast cost of all Peyto’s future
abandonment and reclamation liability (wells, sites, &
facilities) is $44 million (NPV5), which represents 1% of the $3.3
billion of forecast future value of the total developed reserves3
(NPV5).
2020 in ReviewThe year 2020 marked Peyto’s 22nd
year of successful operations with impressive execution in drilling
and completion operations and overall cost control across the
organization, all while managing through the impact of the COVID-19
pandemic. Development drilling focused on several different
horizons across Peyto’s Deep Basin lands while extensions in
horizontal lateral length and increased stimulation intensity
improved productivity and reserve recovery. A gathering system
expansion at the end of 2019 allowed the South Brazeau lands to be
more aggressively developed yielding excellent results, while two
strategic acquisitions were successfully negotiated late in 2020 to
follow up a multi-zone, development drilling program in North
Sundance. These acquisitions are expected to add twice as much
future drilling inventory as was harvested in the year, which
helped offset the lack of Crown land purchases resulting from the
7.5-month suspension of Alberta Crown land sales. Peyto’s facility
and infrastructure ownership continued to provide reduced full
cycle cost and enhanced profitability to current and future
reserves development. Unfortunately, the COVID-19 pandemic and its
resulting effect on global hydrocarbon demand severely impacted
commodity prices in the year. This resulted in a realized combined
natural gas and liquids price of just $2.23/Mcfe, which is the
lowest in Peyto’s 22-year history. Despite posting a $0.40/share
profit in the fourth quarter of 2020, the Company recorded its
first annual loss in 21 years ($0.22/share loss). Thankfully, the
effect of the COVID-19 pandemic appears to be coming to an end and
commodity prices have significantly improved, setting the stage for
a much brighter future in 2021.
1. Operating Margin is defined as funds from operations divided
by revenue before royalties and marketing but including realized
hedging gains/losses.* Please refer to Peyto’s 2020
Sustainability Report at
http://www.peyto.com/Files/Corporate/2020SustainabilityReport.pdfNatural
gas volumes recorded in thousand cubic feet (mcf) are converted to
barrels of oil equivalent (boe) using the ratio of six (6) thousand
cubic feet to one (1) barrel of oil (bbl). Natural gas liquids and
oil volumes in barrel of oil (bbl) are converted to thousand cubic
feet equivalent (Mcfe) using a ratio of one (1) barrel of oil to
six (6) thousand cubic feet. This could be misleading, particularly
if used in isolation as it is based on an energy equivalency
conversion method primarily applied at the burner tip and does not
represent a value equivalency at the wellhead.
|
Three Months Ended Dec 31 |
% |
Twelve Months Ended Dec 31 |
% |
|
2020 |
2019 |
Change |
2020 |
|
2019 |
Change |
Operations |
|
|
|
|
|
|
Production |
|
|
|
|
|
|
Natural gas (mcf/d) |
433,226 |
397,419 |
9 |
% |
409,619 |
|
419,281 |
-2 |
% |
Oil & NGLs (bbl/d) |
11,256 |
11,221 |
- |
% |
11,308 |
|
10,922 |
4 |
% |
Thousand cubic feet equivalent
(mcfe/d @ 1:6) |
500,764 |
464,745 |
8 |
% |
477,464 |
|
484,810 |
-2 |
% |
Barrels of oil equivalent
(boe/d @ 6:1) |
83,461 |
77,457 |
8 |
% |
79,577 |
|
80,802 |
-2 |
% |
Production per million common
shares (boe/d)* |
506 |
470 |
8 |
% |
483 |
|
490 |
-1 |
% |
Product prices |
|
|
|
|
|
|
Natural gas ($/mcf) |
2.19 |
1.96 |
12 |
% |
1.74 |
|
2.04 |
-15 |
% |
Oil & NGLs ($/bbl) |
35.82 |
43.85 |
-18 |
% |
31.25 |
|
44.61 |
-30 |
% |
Operating expenses
($/mcfe) |
0.31 |
0.34 |
-9 |
% |
0.34 |
|
0.34 |
- |
% |
Transportation ($/mcfe) |
0.15 |
0.19 |
-21 |
% |
0.17 |
|
0.19 |
-11 |
% |
Field netback ($/mcfe) |
2.07 |
2.11 |
-2 |
% |
1.59 |
|
2.17 |
-27 |
% |
General & administrative
expenses ($/mcfe) |
0.04 |
0.02 |
100 |
% |
0.04 |
|
0.04 |
- |
% |
Interest expense ($/mcfe) |
0.38 |
0.31 |
23 |
% |
0.33 |
|
0.30 |
10 |
% |
Financial ($000,
except per share*) |
|
|
|
|
|
|
Revenue and realized hedging
gains (losses) 1 |
124,524 |
116,691 |
7 |
% |
388,981 |
|
489,822 |
-21 |
% |
Royalties |
8,506 |
5,303 |
60 |
% |
22,014 |
|
13,653 |
61 |
% |
Funds from operations |
76,013 |
75,974 |
- |
% |
212,710 |
|
323,131 |
-34 |
% |
Funds from operations per
share |
0.46 |
0.46 |
- |
% |
1.29 |
|
1.96 |
-34 |
% |
Total dividends |
1,649 |
9,892 |
-83 |
% |
14,840 |
|
39,570 |
-62 |
% |
Total dividends per share |
0.01 |
0.06 |
-83 |
% |
0.09 |
|
0.24 |
-63 |
% |
Payout ratio |
2 |
13 |
-85 |
% |
7 |
|
12 |
-42 |
% |
Earnings (loss) |
65,951 |
3,492 |
1,789 |
% |
(35,555 |
) |
133,495 |
-127 |
% |
Earnings (loss) per diluted
share |
0.40 |
0.02 |
1,900 |
% |
(0.22 |
) |
0.81 |
-127 |
% |
Capital expenditures |
68,250 |
73,351 |
-7 |
% |
235,703 |
|
206,431 |
14 |
% |
Weighted average common shares
outstanding |
164,937,898 |
164,874,175 |
- |
|
164,894,920 |
|
164,874,175 |
- |
|
As at December
31 |
|
|
|
|
|
|
Net debt |
|
|
|
1,176,340 |
|
1,146,659 |
3 |
% |
Shareholders' equity |
|
|
|
1,677,473 |
|
1,713,917 |
-2 |
% |
Total assets |
|
|
|
3,601,057 |
|
3,597,180 |
- |
% |
1excludes revenue from sale of third-party
volumes |
|
|
|
|
|
|
Three Months Ended Dec 31 |
Twelve Months Ended Dec 31 |
($000 except per share) |
2020 |
2019 |
2020 |
2019 |
Cash flows from operating activities |
52,884 |
74,943 |
203,053 |
316,936 |
Change in non-cash working capital |
23,129 |
1,031 |
9,657 |
3,904 |
Performance based
compensation |
- |
- |
- |
2,291 |
Funds from operations |
76,013 |
75,974 |
212,710 |
323,131 |
Funds from operations per share |
0.46 |
0.46 |
1.29 |
1.96 |
(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.
The Peyto Strategy
For the past 22 years, the Peyto strategy has
focused on maximizing the returns on shareholders’ capital by
investing that capital into the profitable development of long
life, low cost, and low risk natural gas resource plays. This
strategy of maximizing returns does not end in the field with just
the efficient execution of exploration and production operations
but continues on to the head office where the management of
corporate costs, including the cost of capital, must be controlled
to ensure true returns are ultimately realized. Alignment of goals
between what is good for the Company, its shareholders and its
employees and what is good for the environment and all stakeholders
is critical to ensuring that the greatest returns are achieved.
Evidence of Peyto’s success deploying this strategy through the
years is illustrated in the following table.
($/Mcfe) |
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
2015 |
|
|
2016 |
|
|
2017 |
|
|
2018 |
|
|
2019 |
|
|
2020 |
|
|
22 Year Wt. Avg. |
Sales Price |
$ |
6.15 |
|
$ |
5.47 |
|
$ |
4.21 |
|
$ |
4.43 |
|
$ |
5.04 |
|
$ |
3.83 |
|
$ |
3.18 |
|
$ |
3.39 |
|
$ |
3.27 |
|
$ |
2.78 |
|
$ |
2.23 |
|
|
$ |
4.38 |
|
All cash
costs but royalties1 |
($ |
0.99 |
) |
($ |
0.82 |
) |
($ |
0.73 |
) |
($ |
0.75 |
) |
($ |
0.71 |
) |
($ |
0.67 |
) |
($ |
0.63 |
) |
($ |
0.68 |
) |
($ |
0.79 |
) |
($ |
0.87 |
) |
($ |
0.88 |
) |
|
($ |
0.77 |
) |
Capital costs2 |
($ |
2.10 |
) |
($ |
2.12 |
) |
($ |
2.22 |
) |
($ |
2.35 |
) |
($ |
2.25 |
) |
($ |
1.64 |
) |
($ |
1.44 |
) |
($ |
1.36 |
) |
($ |
1.18 |
) |
($ |
1.55 |
) |
($ |
1.06 |
) |
|
($ |
1.74 |
) |
Financial Benefit3 |
$ |
3.06 |
|
$ |
2.53 |
|
$ |
1.26 |
|
$ |
1.33 |
|
$ |
2.08 |
|
$ |
1.52 |
|
$ |
1.12 |
|
$ |
1.35 |
|
$ |
1.30 |
|
$ |
0.35 |
|
$ |
0.29 |
|
|
$ |
1.87 |
|
|
|
50 |
% |
|
46 |
% |
|
30 |
% |
|
30 |
% |
|
41 |
% |
|
40 |
% |
|
35 |
% |
|
40 |
% |
|
40 |
% |
|
13 |
% |
|
13 |
% |
|
|
43 |
% |
Royalty Owners |
$ |
0.64 |
|
$ |
0.53 |
|
$ |
0.32 |
|
$ |
0.31 |
|
$ |
0.37 |
|
$ |
0.14 |
|
$ |
0.13 |
|
$ |
0.15 |
|
$ |
0.13 |
|
$ |
0.08 |
|
$ |
0.13 |
|
|
$ |
0.44 |
|
Shareholders |
$ |
2.42 |
|
$ |
2.00 |
|
$ |
0.94 |
|
$ |
1.02 |
|
$ |
1.71 |
|
$ |
1.38 |
|
$ |
0.99 |
|
$ |
1.19 |
|
$ |
1.17 |
|
$ |
0.27 |
|
$ |
0.16 |
|
|
$ |
1.43 |
|
Div./Dist. paid |
$ |
3.37 |
|
$ |
1.24 |
|
$ |
1.04 |
|
$ |
1.01 |
|
$ |
1.05 |
|
$ |
1.11 |
|
$ |
1.01 |
|
$ |
0.97 |
|
$ |
0.59 |
|
$ |
0.22 |
|
$ |
0.08 |
|
|
$ |
1.39 |
|
1. Cash costs not including royalties but including
Operating costs, Transportation, G&A and Interest.2.
Capital costs to develop new producing reserves is the PDP
FD&A3. Financial Benefit above is defined as the Sales
Price, less all cash costs but royalties, less the PDP
FD&A.Table may not add due to rounding.
The consistency and repeatability of Peyto’s
operational execution in the field, combined with strict cost
control in all aspects of its business has resulted in 43% of the
average sales price being retained in financial benefit over the
past 22 years. This healthy margin of benefit (as shown above),
which rewards both royalty owners and shareholders, has been
preserved despite a greater than 60% decline in commodity prices
from a decade ago. Out of that financial benefit, royalty owners
have received approximately 24%, while shareholders, whose capital
has been at risk, have received the balance. This margin of benefit
is what has and will continue to help insulate Peyto and its
stakeholders from future volatility in commodity prices.
Capital Expenditures
Peyto drilled 64 gross (61 net) horizontal wells
in 2020 and completed 71 gross (67 net) wells for a capital
investment of $175.6 million. The Company also invested $23.2
million in the wellsite equipment and pipeline connections to bring
these wells on production. Drilling speed continued to increase
which lowered the drilling cost on a per meter basis and despite
13% longer horizontal laterals on average and higher fracture
intensity, total completion costs were lower. On a per meter basis
completion costs were down 18% and per stage costs were down
5%.
|
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
2014 |
|
2015 |
|
2016 |
|
2017 |
|
2018 |
|
2019 |
|
2020 |
Gross Hz Spuds |
|
52 |
|
70 |
|
86 |
|
99 |
|
123 |
|
140 |
|
126 |
|
135 |
|
70 |
|
61 |
|
64 |
Measured Depth (m) |
|
3,762 |
|
3,903 |
|
4,017 |
|
4,179 |
|
4,251 |
|
4,309 |
|
4,197 |
|
4,229 |
|
4,020 |
|
3,848 |
|
4,247 |
|
|
|
|
|
|
|
|
|
|
|
|
Drilling ($MM/well) |
$ |
2.76 |
$ |
2.82 |
$ |
2.79 |
$ |
2.72 |
$ |
2.66 |
$ |
2.16 |
$ |
1.82 |
$ |
1.90 |
$ |
1.71 |
$ |
1.62 |
$ |
1.68 |
$ per meter |
$ |
734 |
$ |
723 |
$ |
694 |
$ |
651 |
$ |
626 |
$ |
501 |
$ |
433 |
$ |
450 |
$ |
425 |
$ |
420 |
$ |
396 |
|
|
|
|
|
|
|
|
|
|
|
|
Completion ($MM/well) |
$ |
1.36 |
$ |
1.68 |
$ |
1.67 |
$ |
1.63 |
$ |
1.70 |
$ |
1.21 |
$ |
0.86 |
$ |
1.00 |
$ |
1.13 |
$1.01* |
$ |
0.94 |
Hz Length (m) |
|
1,335 |
|
1,303 |
|
1,358 |
|
1,409 |
|
1,460 |
|
1,531 |
|
1,460 |
|
1,241 |
|
1,348 |
|
1,484 |
|
1,682 |
$ per Hz Length (m) |
$ |
1,017 |
$ |
1,286 |
$ |
1,231 |
$ |
1,153 |
$ |
1,166 |
$ |
792 |
$ |
587 |
$ |
803 |
$ |
751 |
$ |
679 |
$ |
560 |
$ ‘000 per Stage |
$ |
231 |
$ |
246 |
$ |
257 |
$ |
188 |
$ |
168 |
$ |
115 |
$ |
79 |
$ |
81 |
$ |
51 |
$ |
38 |
$ |
36 |
*Peyto’s Montney well is excluded from drilling and completion
cost comparison.
The $26 million invested in facilities and major
pipeline projects included $10 million in compression upgrades,
saltwater disposal facilities, and condensate storage, as well as
$10 million in pipeline infrastructure projects in the South
Brazeau, Swanson, Wildhay and Nosehill areas. The remaining capital
was invested in wellsite upgrades and separator consolidations as
part of Peyto’s methane emissions reduction initiative and
municipal tax optimization initiative.
While Alberta Crown land sales were suspended
for most of the year (April 2nd through November 17th) due to the
COVID-19 pandemic, Peyto was able to successfully negotiate two
acquisitions at the end of the year (effective date January 1,
2021) to add approximately 54 sections of multi-zone Deep Basin
rights (81% average working interest). This increases Peyto’s land
holdings by approximately 5% and is expected to yield at least
twice the number of locations as were drilled in 2020.
The following table summarizes the capital
investments for the fourth quarter and 2020 fiscal year.
|
Three Months ended December 31 |
Twelve Months ended December 31 |
($000) |
2020 |
2019 |
2020 |
2019 |
|
Land |
0 |
186 |
100 |
2,716 |
|
Seismic |
1,702 |
1,600 |
7,905 |
4,588 |
|
Drilling |
29,031 |
36,325 |
105,091 |
86,053 |
|
Completions |
22,080 |
21,125 |
70,521 |
64,973 |
|
Equipping &
Tie-ins |
7,321 |
9,317 |
23,162 |
20,505 |
|
Facilities &
Pipelines |
7,045 |
4,798 |
26,053 |
26,540 |
|
Acquisitions |
1,071 |
0 |
2,871 |
1,071 |
|
Dispositions |
0 |
0 |
0 |
(15 |
) |
Total Capital Expenditures |
68,250 |
73,351 |
235,703 |
206,431 |
|
Reserves
Peyto was successful in growing reserve volumes
and values in all categories. Volumes on a debt adjusted share
basis were negatively impacted by the 23% drop in Peyto share price
which was used in the debt adjustment calculation. The following
table illustrates the change in reserve volumes and Net Present
Value (“NPV”) of future cash flows, discounted at 5%, before income
tax and using InSite forecast pricing.
|
As at December |
% Change per share |
% Change, per debt |
|
2020 |
2019 |
|
adjusted share† |
Reserves (BCFe) |
|
|
|
|
Proved Producing |
|
1,647 |
|
1,600 |
3 |
% |
-15 |
% |
Total Proved |
|
3,219 |
|
3,164 |
2 |
% |
-16 |
% |
Proved + Probable Additional |
|
5,006 |
|
4,888 |
2 |
% |
-16 |
% |
|
|
|
|
|
Net Present Value
($millions) Discounted at 5% |
|
|
|
|
Proved Producing |
$ |
2,778 |
$ |
2,622 |
6 |
% |
9 |
% |
Total Proved |
$ |
4,857 |
$ |
4,514 |
8 |
% |
9 |
% |
Proved + Probable Additional |
$ |
6,992 |
$ |
6,818 |
3 |
% |
3 |
% |
†Per share reserves are adjusted for changes in
net debt by converting debt to equity using the Dec 31 share price
of $3.80 for 2019 and share price of $2.92 for 2020. Net Present
Values are adjusted for debt by subtracting net debt from the value
prior to calculating per share amounts.Note: based on the InSite
Petroleum Consultants (“InSite”) report effective December 31,
2020. The InSite price forecast is available at
www.InSitepc.com.
For more information on Peyto’s reserves, refer
to the Press Release dated February 17, 2021 announcing the Year
End Reserve Report which is available on the website at
www.peyto.com. The complete statement of reserves data and required
reporting in compliance with NI 51-101 will be included in Peyto's
Annual Information Form to be released in March 2021.
Fourth Quarter 2020
Peyto continued a steady drilling pace through
the fourth quarter of 2020, shutting down only for the period from
Christmas to New Year. Activity was spread out over the Greater
Sundance and Brazeau areas and amongst four Cretaceous horizons.
Total capital of $51 million was invested in the drilling of 17
gross (17 net) wells and the completion of 18 gross (18 net) wells.
In addition, $7 million was invested in wellsite equipment and
tie-ins while $7 million was invested in facility upgrades and
major pipeline infrastructure. New seismic accounted for $1.7
million in the quarter and there were no lands acquired at Crown
sales.
|
Field |
TotalWellsDrilled |
Zone |
Sundance |
Nosehill |
Wildhay |
Ansell/Minehead |
Whitehorse |
Kisku/Kakwa |
Brazeau |
Belly River |
|
|
|
|
|
|
|
|
Cardium |
1 |
|
3 |
|
|
|
3 |
7 |
Notikewin |
|
|
|
3 |
|
|
|
3 |
Falher |
|
|
|
|
|
|
|
|
Wilrich |
2 |
2 |
|
|
|
|
1 |
5 |
Bluesky |
2 |
|
|
|
|
|
|
2 |
Montney |
|
|
|
|
|
|
|
|
Total |
5 |
2 |
3 |
3 |
|
|
4 |
17 |
Production during the fourth quarter 2020
averaged 83,461 boe/d comprised of 433 MMcf/d of natural gas, 6,336
bbls/d of oil, condensate and pentanes+, and 4,920 bbls/d of
propane and butane. Total liquids of 11,256 bbls/d made up 13.5% of
total production or 26 bbl/mmcf. Fourth quarter 2020 production was
up 8% from 77,457 boe/d in Q4 2019. Stronger propane prices
justified the operation of Peyto’s Oldman deep cut plant during the
quarter which contributed to the higher NGL production in the
quarter.
The Company’s realized price for natural gas in
Q4 2020 was $3.23/Mcf, prior to $1.01 of market diversification
activities and a $0.03/Mcf hedging loss, while its realized liquids
price was $36.45/bbl, including a $0.63/bbl hedging loss, which
yielded a combined revenue stream of $2.71/Mcfe. This net sales
price was 2% lower than the $2.76/Mcfe realized in Q4 2019. Total
cash costs in Q4 2020 were $1.06/Mcfe ($6.36/boe) up from
$0.98/Mcfe in Q4 2019 due to higher per unit interest and royalty
charges, offset by lower operating and transportation costs. The
total Q4 2020 cash cost included royalties of $0.18/Mcfe, operating
costs of $0.31/Mcfe, transportation of $0.15/Mcfe, G&A of
$0.04/Mcfe and interest of $0.38/Mcfe. Peyto generated total funds
from operations of $76 million in the quarter, or $1.65/Mcfe,
equating to a 61% operating margin. DD&A charges of $1.34/Mcfe,
along with a provision for current and future performance-based
compensation and income tax, resulted in earnings of $0.18/Mcfe, or
an 7% profit margin, prior to the reversal of the impairment (in
its entirety) incurred in Q1 2020. Inclusive of that reversal, Q4
2020 earnings of $66 million equated to $1.43/Mcfe. Dividends to
shareholders totaled $0.04/Mcfe.
Marketing
Peyto actively markets all components of its
production stream including natural gas, condensate, pentane,
butane and propane. Natural gas was sold in 2020 at various hubs
including AECO, Malin, Ventura, Emerson 2 and Henry Hub using both
physical fixed price and basis transactions to access those
locations (diversification activities). 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 is benchmarked against
those local prices, then adjusted for transportation (either
physical or synthetic) to those markets. The Company’s liquids are
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 and
Peyto markets each product separately. Pentanes Plus are sold on a
monthly index differential linked to WTI, with some volumes forward
sold on fixed differentials to WTI. Butane is sold as a percent of
WTI or a fixed differential to Mount Belvieu, Texas markets.
Propane is sold on a fixed differential to Conway, Kansas markets.
While some products require annual term contracts to ensure
delivery paths remain open, others can be marketed on the daily
spot market.
During 2020 Peyto sold 44% of its natural gas at
Henry Hub, 41% at AECO, 9% at Emerson, 5% at Ventura, and the
remaining 1% at Malin. Net of diversification activities of
$1.01/Mcf, Peyto realized a before hedge price of $1.75/mcf.
Hedging activity reduced this price by $0.01/mcf, to $1.74/mcf.
Peyto expects that the cost of market diversification activities
will decrease significantly over the next two years as older basis
deals expire.
Condensate and Pentane Plus volumes were sold in
2020 for an average price of $44.04/bbl, before hedging effects of
$1.07/bbl, which is down from $69.22 in 2019, and as compared to
Canadian WTI oil price that averaged $52.53/bbl. This lower oil
price was driven by the impact of the COVID-19 pandemic on reduced
global oil demand and global prices. The $8.49/bbl differential
from light oil price was up from $6.46/bbl in the previous year.
Butane and propane volumes were sold in combination at an average
price of $12.37/bbl, below their typical price between 25-50% of
light oil price, mostly due to lower Propane prices resulting from
a surplus of supply which overwhelmed the North American market for
much of the year. Peyto’s realized price by product and relative to
benchmark prices is shown in the following table.
Benchmark Commodity Prices
|
Three Months ended December 31 |
Twelve Months ended December 31 |
|
2020 |
2019 |
2020 |
2019 |
AECO 7A monthly ($/GJ) |
2.62 |
2.21 |
2.12 |
1.54 |
AECO 5A daily ($/GJ) |
2.50 |
2.35 |
2.11 |
1.67 |
NYMEX (US$/MMbtu) |
2.47 |
2.41 |
1.99 |
2.53 |
Emerson2 (US$/MMbtu) |
2.23 |
2.59 |
1.84 |
2.43 |
Malin (US$/MMbtu) |
2.88 |
2.69 |
2.05 |
2.78 |
Ventura daily (US$/MMbtu) |
2.30 |
2.64 |
1.85 |
2.47 |
Canadian WTI ($/bbl) |
55.53 |
75.18 |
52.53 |
75.68 |
Conway C3 (US$/bbl) |
23.29 |
19.73 |
18.60 |
19.91 |
Q4 2020 average CND/USD exchange rate of
1.303
Commodity Prices
|
Three Months ended December 31 |
Twelve Months ended December 31 |
($CAD) |
2020 |
|
2019 |
|
2020 |
|
2019 |
|
Oil & natural gas liquids
($/bbl) |
36.45 |
|
43.12 |
|
30.73 |
|
42.59 |
|
Hedging – Oil & NGL ($/bbl) |
(0.63 |
) |
0.73 |
|
0.52 |
|
2.02 |
|
Oil & NGL – after hedging ($/bbl) |
35.82 |
|
43.85 |
|
31.25 |
|
44.61 |
|
|
|
|
|
|
Natural gas ($/mcf) |
3.23 |
|
3.00 |
|
2.65 |
|
2.51 |
|
Diversification activities
($/mcf) |
(1.01 |
) |
(0.80 |
) |
(0.90 |
) |
(0.60 |
) |
Hedging – gas ($/mcf) |
(0.03 |
) |
(0.24 |
) |
(0.01 |
) |
0.13 |
|
Natural gas – after hedging ($/mcf) |
2.19 |
|
1.96 |
|
1.74 |
|
2.04 |
|
|
|
|
|
|
Total Hedging ($/mcfe) |
(0.04 |
) |
(0.19 |
) |
(0.00 |
) |
0.16 |
|
Total Hedging ($/boe) |
(0.25 |
) |
(1.11 |
) |
(0.00 |
) |
0.96 |
|
Liquids prices are Peyto realized prices in Canadian dollars
adjusted for fractionation and transportation.
Details of Peyto’s ongoing marketing and
diversification efforts are available on Peyto’s website at
http://www.peyto.com/Files/Operations/Marketing/hedges.pdf
Activity Update
Peyto began the new year with 4 rigs running
steady, drilling multi-well pads in the Greater Sundance and
Brazeau core areas. The Company intends to run 4 drilling rigs
throughout 2021 including 2 rigs during breakup, one in Sundance
and one in Brazeau. Since the end of the fourth quarter of 2020,
the Company has spud 19 gross (15.2 net) wells, completed, and
brought on production 9 gross (6.9 net) wells, while 9 gross (8.1
net) wells await completion and/or tie-in.
Following up on a successful 2020 drilling
campaign, Peyto continued its focus on increasing horizontal
lateral lengths and stimulation intensity in Q1 2021. Two Falher
Extended Reach Horizontal (“ERH”) wells were drilled to over 2,500
meters long in the Sundance area while two additional ERHs will be
spud prior to spring breakup in the Whitehorse and Brazeau
areas.
The Company has purchased additional 3D seismic
over the lands recently acquired in the Cecilia area and has 8
wells slotted in the drilling program at different phases of
readiness with the first well expected to spud before breakup.
Peyto’s plan is to grow gas production in the Cecilia area and
direct that growth between the 15 mmcf/d of excess capacity in the
Cecilia gas plant and the 100 mmcf/d of excess capacity in Peyto’s
Oldman and Oldman North gas plants.
Environment, Social and Governance
(“ESG”)
Peyto continued to enhance its ESG standing in
2020 with stronger environmental performance and improved corporate
governance. On the environmental front, Peyto continued to reduce
its GHG emissions intensity across its operations, in particular
its methane flaring and venting. During 2020, in-field testing of a
new, zero emissions controller was completed and starting in Q3 of
2021 Peyto will be installing zero emissions instrumentation on all
new well sites. This will eliminate another source of vented
methane emissions and further reduce Peyto’s GHG emissions
intensity. The Company also continued to reduce its land and fresh
water use with additional pad drilling and smaller wellsite
footprints, as well as water recycling and hydraulic fracture
optimization efforts.
The Board of Directors of Peyto has created an
ESG committee, chaired by Mr. John Rossall, to provide oversight on
all ESG matters. The mandate and responsibilities of the ESG
committee will include the review, approval and/or recommendation
to management of the Company and/or the Board policies and
priorities related to ESG and sustainability matters, including but
not limited to the following: Climate and Energy; Indigenous Rights
and Relationships; Stakeholder Engagement; Community Investment;
and Community and Landowner Awareness on Pipeline Safety.
For additional information on Peyto’s
environmental initiatives and committee responsibilities, please
refer to Peyto’s 2020 Sustainability Report and policies under the
Corporate Responsibility section at www.peyto.com and stay tuned
for Peyto’s inaugural and more comprehensive ESG report due out in
2021.
2021 Outlook
The year 2021 is forecast to be a turnaround
year for Peyto and Management is optimistic that recently improved
commodity prices and diminishing gas market diversification costs
can combine with growing production to substantially increase funds
flow, well beyond the budgeted capital program of $325-$350
million. This free cashflow, when realized, will be initially used
to reduce indebtedness, and subsequently strengthen Peyto’s balance
sheet while the Company continues to consider its ability to
increase dividends to shareholders.
The success of the 2020 development drilling
program has continued into 2021 and the Company is excited about
the prospect of improving both costs and profitability even
further, as well as setting new records for efficiency and
environmental performance. The Peyto team is rich in experience
with over two decades of success developing the vast resources in
Alberta’s Deep Basin. With just 53 full time employees, Peyto
retains the benefits of a small Company that allow it to be nimble
to volatile market conditions, all while staying focused on the
bottom line and the Company’s core strategy – maximizing full cycle
returns for shareholders.
Conference Call and Webcast
A conference call will be held with the senior
management of Peyto to answer questions with respect to the 2020
fourth quarter and full year financial results on Thursday, March
4th, 2021, 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/zdyerevr.
The conference call will be archived on the Peyto Exploration &
Development website at www.peyto.com.
Annual General Meeting
Peyto’s Annual General Meeting of Shareholders
is scheduled for 3:00 p.m. on Thursday, May 13, 2021. At this time,
the Public Health Agency of Canada and Alberta Health Services
prohibit indoor gatherings of any kind and while current plans are
subject to change, the Company is again encouraging registered
shareholders and duly appointed proxyholders to NOT attempt to
attend the meeting in person. Instead, the Corporation encourages
shareholders to vote their common shares prior to the meeting
following the instructions set out in the form of proxy or voting
instruction form received by such shareholders. Shareholders are
invited to monitor Peyto's website at www.peyto.com for any updates
and are encouraged to visit the Peyto website often where there is
a wealth of information designed to inform and educate investors. A
monthly President’s Report can also be found on the website which
follows the progress of the capital program and the ensuing
production growth, along with video and audio commentary from
Peyto’s senior management.
Management’s Discussion and
Analysis
A copy of the fourth quarter report to shareholders, including
the MD&A, audited consolidated financial statements and related
notes, is available at
http://www.peyto.com/Files/Financials/2020/Q42020FS.pdf and at
http://www.peyto.com/Files/Financials/2020/Q42020MDA.pdf and will
be filed at SEDAR, www.sedar.com at a later date.
Darren GeePresident and CEOMarch 3, 2021Phone: (403)
261-6081Fax: (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 forecast costs of
future abandonment and reclamation liability; expectations
regarding future drilling inventory; the future outlook for
commodity prices being better in 2021; expectations regarding the
Company's margin of profit; the expectation that Peyto's new
landholdings will yield twice the number of locations as were
drilled in 2020; the Company's drilling and completion program for
2021, including the timing of the drilling program and the
Company's expectation that it will fill the capacity in the Cecilia
gas plant and the timing of the same; the Company's intention to
install zero emissions instrumentation on all new well sites and
the timing of installation; the anticipated effects of installing
zero emissions instrumentation on all new well sites; the
expectation for growing production and increased funds flow beyond
the budgeted capital program for 2021; the Company's intention to
reduce indebtedness and increase dividends; anticipated improvement
of costs and profitability; the timing of Peyto's annual general
meeting; 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.
Peyto Exploration and De... (TSX:PEY)
Historical Stock Chart
From Jun 2024 to Jul 2024
Peyto Exploration and De... (TSX:PEY)
Historical Stock Chart
From Jul 2023 to Jul 2024