Peyto Exploration & Development Corp. (“Peyto” or the
“Company”) is pleased to present its operating and financial
results for the first quarter of the 2021 fiscal year. A 67%
Operating Margin (1) and a 22% Profit Margin (2) in the quarter
delivered a 4% Return on Capital and a 4% Return on Equity, on a
trailing twelve-month basis. Highlights for the quarter included:
- Production per share up
12%. First quarter 2021 production of 88,070 boe/d,
comprised of 456 MMcf/d of natural gas, 7,018 bbl/d of Condensate
and Pentanes, and 5,120 bbl/d of Butane and Propane, was up from
78,514 boe/d in Q1 2020. Total liquid yields of 27 bbl/MMcf, or
13.8% of total production, was down from 29 bbl/MMcf in Q1 2020 due
to an increased focus on leaner gas Spirit River plays and the
acquired Cecilia production (effective January 1, 2021).
- Funds from operations per
share up 115%. Generated $117 million in Funds from
Operations (“FFO”) in Q1 2021 ($0.71/share), up from $55 million in
Q1 2020 ($0.33/share) due to higher commodity price realizations
combined with higher production. FFO in the quarter exceeded the
combination of capital expenditures ($73 million), acquisitions
($36 million), and dividends ($1.6 million), by $6 million
resulting in a total payout ratio of 95%.
- Total cash costs of
$1.24/Mcfe (or $0.95/Mcfe ($5.67/boe) excluding
royalties). Industry leading low total cash costs included
$0.29/Mcfe royalties, $0.36/Mcfe operating costs, $0.17/Mcfe
transportation, $0.04/Mcfe G&A and $0.38/Mcfe interest, which
combined with a realized price of $3.70/Mcfe and resulted in a
$2.46/Mcfe ($14.81/boe) cash netback, up 94% from $1.27/Mcfe
($7.63/boe) in Q1 2020. Operating costs per unit for Q1 2021 were
down 8% from Q1 2020 largely due to increased volumes and higher
facility utilizations, while royalties were up due to higher
commodity prices. Interest charges were also up 31% because of
higher stamping fees negotiated as part of the temporary covenant
provisions.
- Capital investment of $73
million in organic activity. A total of 27 gross (22.5 net
working interest) wells were drilled in the first quarter, 21 gross
(17 net) wells were completed, and 20 gross (16.7 net) wells were
brought on production. In addition, two acquisitions totaling $35.6
million (effective January 1, 2021) were closed in the quarter.
Over the last 12 months new production additions, inclusive of
acquisitions, accounted for approximately 34,000 boe/d at the end
of the quarter, which, when combined with a trailing twelve-month
capital investment of $276 million, equates to an annualized
capital efficiency of $8,100/boe/d.
- Earnings of $0.23/share,
Dividends of $0.01/share. Earnings of $38.5 million were
generated in the quarter while dividends of $1.6 million were paid
to shareholders. During the quarter, Peyto earned $0.35 for every
dollar of capital invested. Over the Company’s 22 ½ year history, a
cumulative $2.6 billion has been earned for a total of $6.5 billion
of capital invested, or $0.40 for every dollar invested.
First Quarter 2021 in
ReviewPeyto enjoyed an active first quarter despite the
continued impacts and constraints of the global COVID-19 pandemic.
The Company maintained its vigilant focus on safety and
successfully conducted a full winter drilling and completions
program while also fully integrating two property acquisitions,
including taking over operations of its 10th owned and operated
natural gas processing plant. Total Company owned and operated
plant processing capacity now stands at approximately 875 MMcf/d
making Peyto the 11th largest Canadian gas processing company.
Despite the severe cold weather experienced in February, Peyto was
able to grow production 6% from 86,000 boe/d at the start of the
year to 91,000 boe/d by the end of the first quarter using 93% of
funds from operations. This growth improved facility utilization
and helped lower per unit fixed costs. The much-improved commodity
prices contributed to a more than doubling of funds from operations
over Q1 2020, despite the temporary higher market diversification
costs which resulted in an 11% discount to AECO daily natural gas
prices. As market diversification costs continue to fall moving
forward, Peyto’s realized natural gas prices are expected to once
again match or beat AECO spot prices further improving funds from
operations. Excess free cashflow in the quarter was used to reduce
indebtedness which, combined with higher cashflow, allowed Peyto to
achieve its debt to EBITDA target earlier than originally forecast.
Strong operational execution combined with industry leading low
costs resulted in a 22% profit margin.
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 |
% |
|
2021 |
|
2020 |
|
Change |
Operations |
|
|
|
Production |
|
|
|
Natural gas (mcf/d) |
455,593 |
|
401,572 |
|
13 |
% |
Oil & NGLs (bbl/d) |
12,138 |
|
11,585 |
|
5 |
% |
Thousand cubic feet equivalent (mcfe/d @ 1:6) |
528,419 |
|
471,083 |
|
12 |
% |
Barrels of oil equivalent (boe/d @ 6:1) |
88,070 |
|
78,514 |
|
12 |
% |
Production per million common
shares (boe/d) * |
534 |
|
476 |
|
12 |
% |
Product prices |
|
|
|
Natural gas ($/mcf) |
3.06 |
|
1.63 |
|
88 |
% |
Oil & NGLs ($/bbl) |
45.63 |
|
36.73 |
|
24 |
% |
Operating expenses
($/mcfe) |
0.36 |
|
0.39 |
|
-8 |
% |
Transportation ($/mcfe) |
0.17 |
|
0.19 |
|
-11 |
% |
Field netback ($/mcfe) |
2.88 |
|
1.58 |
|
82 |
% |
General & administrative
expenses ($/mcfe) |
0.04 |
|
0.04 |
|
- |
Interest expense ($/mcfe) |
0.38 |
|
0.29 |
|
31 |
% |
Financial ($000,
except per share*) |
|
|
|
Revenue and realized hedging
gains (losses) 1 |
175,327 |
|
97,723 |
|
79 |
% |
Royalties |
14,069 |
|
4,936 |
|
185 |
% |
Funds from operations |
116,709 |
|
54,513 |
|
114 |
% |
Funds from operations per
share |
0.71 |
|
0.33 |
|
115 |
% |
Total dividends |
1,651 |
|
9,892 |
|
-83 |
% |
Total dividends per share |
0.01 |
|
0.06 |
|
-83 |
% |
Earnings (loss) |
38,500 |
|
(67,684) |
|
157 |
% |
Earnings per diluted
share |
0.23 |
|
(0.41) |
|
156 |
% |
Capital expenditures |
108,851 |
|
68,587 |
|
59 |
% |
Total payout ratio (%) |
95% |
|
144% |
|
-34 |
% |
Weighted average common shares
outstanding |
165,069,227 |
|
164,874,175 |
|
- |
As at March
31 |
|
|
|
Net debt |
1,169,414 |
|
1,166,781 |
|
- |
Shareholders' equity |
1,699,771 |
|
1,640,707 |
|
4 |
% |
Total assets |
3,661,029 |
|
3,514,524 |
|
4 |
% |
1excludes revenue from sale of third-party
volumes |
|
|
|
|
Three Months Ended March 31 |
($000 except per share) |
2021 |
|
2020 |
|
Cash flows from operating activities |
119,752 |
|
65,841 |
|
Change in non-cash working
capital |
(3,043 |
) |
(11,328 |
) |
Change in
provision for performance-based compensation |
- |
|
- |
|
Funds from operations |
116,709 |
|
54,513 |
|
Funds from operations per share |
0.71 |
|
0.33 |
|
(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 2021 activity was spread across
the multiple stacked Cretaceous formations and throughout Peyto’s
Deep Basin core areas as shown in the following table:
|
Field |
Total Wells Drilled |
Zone |
Sundance |
Nosehill |
Wildhay |
Ansell |
Whitehorse |
Kisku/Kakwa |
Brazeau |
Belly River |
|
|
|
|
|
|
|
|
Cardium |
|
|
9 |
|
|
|
4 |
13 |
Notikewin |
|
5 |
|
|
|
|
1 |
6 |
Falher |
|
|
2 |
|
|
|
|
2 |
Wilrich |
|
2 |
|
2 |
1 |
|
1 |
6 |
Bluesky |
|
|
|
|
|
|
|
|
Total |
|
7 |
11 |
2 |
1 |
|
6 |
27 |
Drilling costs per meter and completion costs
per stage continued to fall as Peyto drilled 7 Extended Reach
Horizontal (“ERH”) wells in the quarter. These 7 wells averaged
over 5,500 meters of total measured depth with average horizontal
laterals in excess of 2,500 meters. These ERH wells allow Peyto to
access more reservoir and develop more reserves per wellbore, thus
minimizing both cost and environmental impact.
|
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
2021Q1 |
Gross Hz Spuds |
70 |
86 |
99 |
123 |
140 |
126 |
135 |
70 |
61 |
64 |
27 |
Measured Depth (m) |
3,903 |
4,017 |
4,179 |
4,251 |
4,309 |
4,197 |
4,229 |
4,020 |
3,848 |
4,247 |
4,413 |
|
|
|
|
|
|
|
|
|
|
|
|
Drilling ($MM/well) |
$2.82 |
$2.79 |
$2.72 |
$2.66 |
$2.16 |
$1.82 |
$1.90 |
$1.71 |
$1.62 |
$1.68 |
$1,65 |
$ per meter |
$723 |
$694 |
$651 |
$626 |
$501 |
$433 |
$450 |
$425 |
$420 |
$396 |
$374 |
|
|
|
|
|
|
|
|
|
|
|
|
Completion ($MM/well) |
$1.68 |
$1.67 |
$1.63 |
$1.70 |
$1.21 |
$0.86 |
$1.00 |
$1.13 |
$1.01* |
$0.94 |
$0.96 |
Hz Length (m) |
1,303 |
1,358 |
1,409 |
1,460 |
1,531 |
1,460 |
1,241 |
1,348 |
1,484 |
1,682 |
1,573 |
$ per Hz Length (m) |
$1,286 |
$1,231 |
$1,153 |
$1,166 |
$792 |
$587 |
$803 |
$835 |
$679 |
$560 |
$608 |
$ ‘000
per Stage |
$246 |
$257 |
$188 |
$168 |
$115 |
$79 |
$81 |
$51 |
$38 |
$36 |
$33 |
*excluding Peyto’s Wildhay Montney well.
Capital Expenditures
During the first quarter of 2021, Peyto invested
$33.5 million on drilling, $18.2 million on completions, $4.8
million on wellsite equipment and tie-ins, $15.6 million on
facilities and major pipeline projects, and $1.1 million acquiring
new lands and seismic, for a total organic capital investment of
$73 million. In addition, Peyto closed two acquisitions in the
Cecilia area for a total of $35.6 million. Combined total capital
expenditures in the quarter were $109 million.
Pipeline looping in the South Brazeau (Chambers)
area accounted for approximately $8 million of the major pipeline
projects in the quarter. Additional loop lines in the Swanson and
Wildhay areas, as well as compressor upgrades in both areas,
accounted for the remainder. The initial construction of the South
Brazeau (Chambers) pipeline in 2020 and the recent doubling of this
gathering system capacity has allowed production from the Chambers
area to grow from 1,000 boe/d to 11,000 boe/d over the last 15
months.
The combined acquisitions, which closed in the
first quarter of 2021 and with an effective date of January 1,
2021, included 114 gross (106 net) producing wells with stable,
ultra-low decline (less than 5%/yr) production of approximately
2,900 boe/d (95% natural gas). Also included were 54 gross sections
of land (81% working interest) in which the Company has internally
identified over 100 future drilling prospects. Approximately 17
square kilometers of 3D and 684 km of 2D seismic were included that
cover the acquired lands. Peyto has subsequently purchased 167
square km of additional 3D over the lands to have complete coverage
for horizontal development. Acquired infrastructure consisted of
115 km of gathering system and a 30 MMcf/d, 100% working interest,
gas plant with approximately 50% available capacity.
Commodity Prices
Peyto actively marketed all components of its
production stream in the quarter including natural gas, condensate,
pentane, butane and propane. Natural gas was sold in Q1 2021 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 or monthly 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.
Peyto expects that the cost of market diversification activities
will decrease significantly over the next two years as older basis
deals expire and are replaced by new, lower cost basis deals.
During Q1 2021, Peyto sold 40% of its natural
gas off Henry Hub, 40% at AECO, 8% at Emerson, 8% at Malin, and the
remaining 4% at Ventura. Approximately 41% of AECO sales were at
Daily prices while 59% were at Monthly prices. Net of
diversification activities of CND$1.04/Mcf (US$0.79/MMBTU), Peyto
realized a natural gas price of $3.48/Mcf before commodity risk
management reduced this price by $0.42/Mcf, to $3.06/Mcf.
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 and markets
are certain, others can be sold on the daily spot market.
Condensate and Pentane Plus volumes were sold in
Q1 2021 for an average price of $68.57/bbl, which is up 24% from
$55.30/bbl in Q1 2020, and as compared to Canadian WTI oil price
that averaged $73.22/bbl. The $4.65/bbl differential from light oil
price was down from $6.35/bbl in the previous year due to reduced
condensate differentials. Butane and propane volumes were sold in
combination at an average price of $30.89/bbl, or 45% of light oil
price, up significantly from the $5.09/bbl in Q1 2020, mostly due
to stronger Propane prices resulting from cold weather demand and
improved Butane price differentials.
In general, Peyto’s commodity risk management
program is designed to smooth out the short-term fluctuations in
the price of natural gas and natural gas liquids through future
sales. This smoothing gives greater predictability of cashflows for
the purposes of capital planning and dividend payments. The future
sales are meant to be methodical and consistent to avoid
speculation. In general, this approach will show hedging losses
when short term prices climb and hedging gains when short term
prices fall.
Peyto’s realized price by product and relative
to benchmark prices is shown in the following table.
Benchmark Commodity Prices at Various
Markets
|
Three Months ended March 31 |
|
2021 |
2020 |
AECO 7A monthly ($/GJ) |
2.77 |
2.03 |
AECO 5A daily ($/GJ) |
2.99 |
1.93 |
NYMEX (US$/MMBTU) |
3.38 |
1.88 |
Emerson2 (US$/MMBTU) |
2.91 |
1.75 |
Malin (US$/MMbtu) |
3.03 |
2.27 |
Ventura daily (US$/MMbtu) |
11.86 |
1.72 |
Canadian WTI ($/bbl) |
73.22 |
61.65 |
Conway C3 (US$/bbl) |
38.40 |
14.33 |
CND/USD Exchange rate |
1.266 |
1.345 |
Peyto Realized Commodity Price by Market (net of
diversification)
|
Three Months ended March 31 |
|
2021 |
2020 |
AECO
monthly (CND$/GJ) |
2.78 |
2.06 |
AECO
daily (CND$/GJ) |
2.92 |
1.97 |
NYMEX
(US$/MMBTU) |
2.07 |
0.58 |
Emerson2 (US$/MMBTU) |
2.22 |
1.05 |
Malin
(US$/MMBTU) |
2.42 |
- |
Ventura
(US$/MMBTU) |
10.76 |
0.60 |
Peyto Realized Commodity Prices |
|
|
Natural gas (CND$/mcf) |
4.52 |
2.59 |
Gas marketing diversification activities (CND$/mcf) |
(1.04) |
(0.88) |
Gas hedging (CND$/mcf) |
(0.42) |
(0.08) |
|
|
|
Oil, condensate and C5+ ($/bbl) |
68.57 |
55.30 |
Butane and propane ($/bbl) |
30.89 |
5.09 |
Liquid hedging ($/bbl) |
(7.21) |
2.77 |
Peyto realized natural gas prices are at NIT,
prior to fuel. Peyto gas has an average heating value of approx.
1.15GJ/Mcf.Liquids prices are Peyto realized prices in Canadian
dollars adjusted for fractionation, transportation, and market
differentials.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
Financial Results
The Company’s realized price for natural gas in
Q1 2021 was $4.52/Mcf, prior to $1.04/Mcf of market diversification
activities and a $0.42/Mcf hedging loss, while its realized liquids
price was $52.84/bbl, before a $7.21/bbl hedging loss, which
yielded a combined revenue stream of $3.70/Mcfe. This net sales
price was 61% higher than the $2.30/Mcfe realized in Q1 2020. Cash
costs of $1.24/Mcfe, included royalties of $0.29/Mcfe, operating
costs of $0.36/Mcfe, transportation costs of $0.17/Mcfe, G&A of
$0.04/Mcfe and interest costs of $0.38/Mcfe. Cash costs per unit of
production, excluding royalties, were $0.95/Mcfe, up from
$0.91/Mcfe in Q1 2020 due to increased interest charges, offset by
decreased operating costs and transportation. As Peyto’s trailing
twelve-month debt to EBITDA ratio is now below 3.5, the Company
expects interest rates for the balance of the year to fall,
bringing cash costs back in line with historical averages.
When the total cash costs of $1.24/Mcfe were
deducted from realized revenues of $3.70/Mcfe, it resulted in a
cash netback of $2.46/Mcfe or a 67% operating margin. Historical
cash costs and operating margins are shown in the following
table:
|
2018 |
2019 |
2020 |
2021 |
($/Mcfe) |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Revenue |
3.54 |
3.20 |
3.27 |
3.03 |
3.20 |
2.60 |
2.50 |
2.76 |
2.30 |
1.73 |
2.15 |
2.71 |
3.70 |
Royalties |
0.17 |
0.10 |
0.14 |
0.12 |
0.14 |
0.01 |
0.03 |
0.12 |
0.12 |
0.06 |
0.14 |
0.18 |
0.29 |
Op
Costs |
0.29 |
0.30 |
0.31 |
0.33 |
0.35 |
0.34 |
0.31 |
0.34 |
0.39 |
0.36 |
0.32 |
0.31 |
0.36 |
Transportation |
0.13 |
0.18 |
0.19 |
0.19 |
0.19 |
0.19 |
0.19 |
0.19 |
0.19 |
0.17 |
0.16 |
0.15 |
0.17 |
G&A |
0.08 |
0.05 |
0.03 |
0.04 |
0.06 |
0.05 |
0.05 |
0.02 |
0.04 |
0.04 |
0.04 |
0.04 |
0.04 |
Interest |
0.24 |
0.26 |
0.27 |
0.27 |
0.28 |
0.30 |
0.31 |
0.31 |
0.29 |
0.33 |
0.35 |
0.38 |
0.38 |
Cash Costs |
0.91 |
0.89 |
0.94 |
0.95 |
1.02 |
0.89 |
0.89 |
0.98 |
1.03 |
0.96 |
1.01 |
1.06 |
1.24 |
Netback |
2.63 |
2.31 |
2.33 |
2.08 |
2.18 |
1.71 |
1.61 |
1.78 |
1.27 |
0.77 |
1.14 |
1.65 |
2.46 |
Operating Margin |
74% |
72% |
71% |
69% |
68% |
66% |
64% |
65% |
55% |
45% |
53% |
61% |
67% |
Depletion, depreciation, and amortization
charges of $1.37/Mcfe, along with a provision for deferred tax and
stock-based compensation payments resulted in earnings of
$0.81/Mcfe, or a 22% profit margin. Dividends to shareholders
totaled $0.03/Mcfe.
Emission Reductions
The Company continued to execute on its methane
emissions reduction program during the first quarter 2021 by
removing and retrofitting pressure and level controllers with
low-bleed alternatives. In addition, Peyto has ordered its first
batch of fully electric measurement skids to be installed on new
wells. Peyto expects that all remaining high-bleed controllers will
be converted over, or removed, by the end of the third quarter. The
first quarter emissions reduction projects are expected to result
in annual savings of 17,000 tonnes of CO2eq/yr, or the equivalent
of taking 3,700 cars off the road. These types of projects ensure
that Peyto will achieve its sustainability target of a 50%
reduction in the 2016 vented and flared emissions intensity level
by year end 2021 while at the same time, creating go-forward value
for shareholders.
Activity Update
Peyto currently has 2 rigs drilling on pad sites
that utilize existing Company infrastructure (roads, leases,
pipelines, etc.) to limit exposure to third party road bans or
restrictions during spring breakup. One rig is drilling ERH wells
in Sundance while the other is drilling liquids rich Cardium and
ERH Spirit River prospects in Brazeau. The Company continues to
work closely with service providers and is taking additional
precautions to ensure the health and safety of all workers during
this latest wave of the COVID-19 pandemic.
The Peyto technical team has recently conducted
an internal evaluation of the Company’s successful 2020 drilling
program which yielded above average returns and record capital
efficiency. A portion of that success was the result of longer
horizontal laterals and improved stimulation intensity. This work
has translated into a new ERH well design for 2021 for several of
Peyto’s Deep Basin plays. For 2021, approximately 25% of the
drilling program will utilize this new design.
Since the end of the quarter, the Company has
drilled 6 gross (5.3 net) wells, completed 8 gross (8 net) wells,
and brought onstream 8 gross (8 net) new wells. Three gross (2.3
net) wells await completion later in the quarter after breakup. The
most recent wells brought onstream include four liquids rich
Cardium wells in Brazeau and Wild River, two prolific Notikewin
wells in Sundance and Brazeau, and two ERH Wilrich wells in
Sundance.
In April, the Company completed and brought on
production the first well drilled on lands acquired through the
Cecilia acquisition. This well was connected to Peyto’s Oldman
plant and along with production optimization efforts, increased
production from the acquired assets from 2,900 boe/d to over 4,300
boe/d. Continued drilling on the acquired lands is planned for
immediately after breakup which is expected to fill the remaining
unutilized plant capacity at Cecilia before the end of the third
quarter.
Peyto has continued to diversify its natural gas
markets with significantly lower cost basis deals. In Q1 2021,
Peyto added a total of 12,490,000 MMBTU of AECO to Henry Hub basis
deals, over various periods between April 2021 and December 2023,
at an average cost of US$0.70/MMBTU. This compares to Peyto’s Q1
2021 average AECO to Henry Hub basis cost of US$1.31/MMBTU. In
addition, in April Peyto added 40,000 MMBTU/d of AECO to Dawn basis
deals, for the period November 2022 to October 2024, or 29,240,000
MMBTU, for US$0.63/MMBTU. This compares to the equivalent Long Term
Fixed Price (“LTFP”) toll of US$0.87/MMBTU (AECO to Dawn, inclusive
of fuel).
Details of Peyto’s ongoing marketing and
diversification efforts are updated periodically and available on
Peyto’s website at:
http://www.peyto.com/Files/Operations/Marketing/hedges.pdf.
Outlook
The outlook for natural gas prices continues to
improve for Peyto. The combination of falling market
diversification costs and rising North American natural gas prices,
driven by reduced supply from tempered industry investment combined
with strong global demand, is translating into a forecast of higher
realized natural gas prices. This has the effect of improving
Peyto’s cashflow and balance sheet as well as increasing the value
of its developed reserves. The Company’s long producing reserve
life allows for exposure to this improving price environment which
should enable Peyto to increase its return of capital to investors
in the form of further debt reduction and, when appropriate,
increased dividends.
At the same time, Peyto continues to obtain
additional Deep Basin opportunities to invest capital and deliver
profits for shareholders. Consolidation in the Canadian natural gas
industry and in the Alberta Deep Basin has resulted in less
competition for opportunities in Peyto’s traditional core areas.
With its large infrastructure network of pipelines and gas plants,
Peyto can generate superior returns on its remaining undeveloped
resources. Peyto’s continuously improving environmental performance
will assist it in meeting the stricter standards set by investors
and stakeholders while its innovation in resource extraction
continues to lower cost and improve profitability. With post
pandemic optimism, Peyto looks forward to a bright future of
renewed financial strength and growth.
Conference Call and Webcast
A conference call will be held with the senior
management of Peyto to answer questions with respect to the
Company’s Q1 2021 results on Thursday, May 13, 2021, 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/yk2rygg6. The
conference call will be archived on the Peyto Exploration &
Development website at www.peyto.com.
Annual General Meeting
Peyto has scheduled its Annual General Meeting
of Shareholders for 3:00 p.m. on Thursday, May 13, 2021. Peyto was
hopeful that Alberta would be emerging from the COVID-19 pandemic
which would allow for an in-person meeting of its shareholders.
Currently, however, the Public Health Agency of Canada and Alberta
Health Services is strongly advising against indoor gatherings of
any kind. Therefore, considering this advice and in order to reduce
potential risks to the health and safety of its shareholders,
employees and other stakeholders, Peyto is strongly urging
shareholders and others to remain at home and NOT attend the
meeting in person. Attendance in person will be restricted to
essential personnel and registered shareholders and duly appointed
proxyholders and, moreover, may be further restricted to comply
with applicable regulations and protocols regarding public
gatherings. Guests will not be permitted and there will be no
presentation or reception following the formal portion of the
meeting.
The Company reserves the right to refuse
admission to any registered shareholders or duly appointed
proxyholder seeking to attend the meeting in person, but whom the
Company believes may pose a health risk or whose admission would
violate applicable public health laws, policies, or emergency
orders in place at the time of the meeting. Any registered
shareholders and duly appointed proxyholders who are admitted to
the meeting will be asked to physically distance themselves from
others.
Health and safety remain Peyto's highest
priority. The Company will continue to monitor the ongoing COVID-19
pandemic and will be adhering to all federal and provincial
restrictions and recommendations in place regarding public
gatherings. 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. A video recording of the
presentation by management will be available by the end of May
2021.
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/2021/Q12021FS.pdf and at
http://www.peyto.com/Files/Financials/2021/Q12021MDA.pdf and will
be filed at SEDAR, www.sedar.com at a later date.
Darren GeePresident and CEOMay 12, 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 that as the Company's
market diversification costs continue to fall moving forward,
Peyto’s realized natural gas prices are expected to once again
match or beat AECO spot prices further improving funds from
operation; Peyto's expectation that the cost of market
diversification activities will decrease significantly over the
next two years as older basis deals expire and are replaced by new,
lower cost basis deals; matters with respect to Peyto's expected
emission reductions, including anticipated benefits of the same;
matters set forth under the heading "Outlook" herein and matters
with respect to the anticipated date, timing and location of
Peyto's AGM; ; 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, 2020 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.
Drilling Locations
This news release discloses drilling locations
or targets with respect to the Company's assets, all of which are
unbooked locations. Unbooked locations are internal estimates based
on the Company's prospective acreage and an assumption as to the
number of wells that can be drilled per section based on industry
practice and internal review. Unbooked locations do not have
attributed reserves or resources. Unbooked locations have been
identified by management as an estimation of our multi-year
drilling activities based on evaluation of applicable geologic,
seismic, engineering, production, and reserves information. There
is no certainty that the Company will drill any unbooked drilling
locations and if drilled there is no certainty that such locations
will result in additional oil and gas reserves, resources, or
production. The drilling locations on which the Company actually
drill wells will ultimately depend upon the availability of
capital, receipt of regulatory approvals, seasonal restrictions,
oil and natural gas prices, costs, actual drilling results,
additional reservoir information that is obtained and other
factors. While certain of the unbooked drilling locations may have
been derisked by drilling existing wells in relatively close
proximity to such unbooked drilling locations, management has less
certainty whether wells will be drilled in such locations and if
drilled there is more uncertainty that such wells will result in
additional oil and gas reserves, resources or production.
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, total payout ratio 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. Total payout ratio is a non-GAAP measure which is
calculated as the sum of dividends declared plus capital
expenditures, divided by funds from operations. This ratio
represents the percentage of the capital expenditures and dividends
that is funded by cashflow. Management uses this measure, among
others, to assess the sustainability of Peyto’s dividend and
capital program. Net debt is a non-GAAP measure that is the sum of
long-term debt and working capital excluding the current financial
derivative instruments and current provision for future
performance-based compensation. It is used by management to analyze
the financial position and leverage of the Company. EBITDA, as used
herein, refers to Peyto's trailing twelve-month net income before
non-cash items, interest, and income taxes, and is a non-GAAP
measure used in connection with Peyto’s financial covenants in its
revolving credit facility agreement. 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 certain of these measures
to the most applicable GAAP measurement, where applicable, can be
found in Peyto's management's discussion and analysis for the three
months ended March 31, 2021.
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