Peyto Exploration & Development Corp. (“Peyto” or the
“Company”) is pleased to present its operating and financial
results for the second quarter of the 2021 fiscal year. A 59%
Operating Margin (1) and a 9% Profit Margin (2) in the quarter
delivered a 6% Return on Capital and a 6% Return on Equity, on a
trailing twelve-month basis. Highlights for the quarter included:
- Funds from operations per
share up 149%. Generated $82 million in Funds from
Operations (“FFO”) in Q2 2021 ($0.50/share), up from $33 million in
Q2 2020 ($0.20/share) due to higher commodity price realizations
combined with higher production, despite a $22 million realized
hedging loss in the quarter. FFO in the quarter exceeded capital
expenditures by $25 million. This represents a free cashflow ratio
of over 30% of FFO while dividends of $1.7 million in the quarter
represent a payout ratio of 2%.
- Production per share up
13%. Second quarter 2021 production of 88,738 boe/d,
comprised of 459 MMcf/d of natural gas, 7,253 bbl/d of Condensate
and Pentanes, and 5,036 bbl/d of Butane and Propane, was up 14%
from 78,097 boe/d in Q2 2020. Total liquid yields of 26.8 bbl/MMcf,
or 14% of total production, was down from 27.7 bbl/MMcf in Q2 2020
due to an increased focus on leaner gas production.
- Total cash costs of
$1.21/Mcfe (or $0.95/Mcfe ($5.69/boe) excluding
royalties). Industry leading low total cash costs included
$0.26/Mcfe royalties, $0.35/Mcfe operating costs, $0.22/Mcfe
transportation, $0.05/Mcfe G&A and $0.33/Mcfe interest, which
combined with a realized price of $2.92/Mcfe to result in a
$1.71/Mcfe ($10.23/boe) cash netback, up 120% from $0.77/Mcfe
($4.65/boe) in Q2 2020. Operating costs per unit for Q2 2021 were
similar to the $0.36/Mcfe in Q1 2021 and Q2 2020 despite
significantly increased power prices and government fees, taxes and
levies. Interest charges were down from $0.38/Mcfe in Q1 2021 due
to lower interest rates and reduced debt levels.
- Capital investment of $57
million in organic activity. A total of 15 gross (13.4 net
working interest) wells were drilled in the second quarter, 14
gross (13.3 net) wells were completed, and 14 gross (13.3 net)
wells were brought on production. Over the last 12 months new
production additions, inclusive of acquisitions, accounted for
approximately 30,000 boe/d at the end of the quarter, which, when
combined with a trailing twelve-month capital investment of $296
million, equates to an annualized capital efficiency of
$9,900/boe/d. Peyto anticipates full year 2021 capital efficiency
will be less than $9,000/boe/d.
- Earnings of $0.08/share,
Dividends of $0.01/share. Earnings of $12.8 million were
generated in the quarter while dividends of $1.7 million were paid
to shareholders.
Second Quarter 2021 in ReviewPeyto was active
with four drilling rigs in Q2 2021 until the end of April when
spring breakup required the shutdown of two of the rigs. The two
remaining rigs continued drilling from pre-constructed pad sites
right through to the end of the quarter. Startup of the two
remaining rigs was delayed until late June due to upgrades to rig
equipment to make them more efficient, which delayed some expected
activity in the quarter. Completion activity was possible during
approximately half the days in the quarter which resulted in
production for the quarter averaging the same as Q1 2021, despite
an extremely hot week in June that significantly affected
compressor efficiency across Peyto’s facilities. AECO natural gas
prices rose 59% throughout the quarter from $2.57/GJ at the start
of April to $4.19/GJ by the end June, reflecting increased power
demand due to the hot weather. Peyto’s unhedged realized natural
gas price for the quarter was up 57% from Q2 2020, before hedging
and market diversification costs, while its unhedged realized oil
and NGL price was up 189%. Combined, Peyto’s realized revenue after
hedging losses and market diversification costs was up 69% from
$1.73/Mcfe in Q2 2020 to $2.92/Mcfe in Q2 2021 driving the 149%
increase in FFO per share. Cash costs before royalties were held
constant from the prior year period other than a $0.05/Mcfe
increase in transportation tolls, resulting in a 120% improvement
in cash netback. Finally, Peyto was pleased to release its
inaugural ESG report in the quarter, highlighting its industry
leading environmental, social and governance performance. This
report, which is more comprehensive than the previous
Sustainability report, can be found on Peyto’s website at
www.peyto.com.
1. Operating Margin is defined as funds from operations divided
by revenue before royalties but including realized hedging
gains/losses.2. Profit Margin is defined as net earnings for the
quarter divided by revenue before royalties but including realized
hedging gains/losses.Natural gas volumes recorded in thousand cubic
feet (mcf) are converted to barrels of oil equivalent (boe) using
the ratio of six (6) thousand cubic feet to one (1) barrel of oil
(bbl). Natural gas liquids and oil volumes in barrel of oil (bbl)
are converted to thousand cubic feet equivalent (Mcfe) using a
ratio of one (1) barrel of oil to six (6) thousand cubic feet. This
could be misleading, particularly if used in isolation as it is
based on an energy equivalency conversion method primarily applied
at the burner tip and does not represent a value equivalency at the
wellhead.
|
Three Months Ended June 30 |
% |
Six Months Ended June 30 |
% |
|
2021 |
2020 |
Change |
2021 |
2020 |
Change |
Operations |
|
|
|
|
|
|
Production |
|
|
|
|
|
|
Natural gas (mcf/d) |
458,696 |
401,825 |
|
14 |
% |
457,153 |
401,699 |
|
14 |
% |
Oil & NGLs (bbl/d) |
12,289 |
11,126 |
|
10 |
% |
12,214 |
11,356 |
|
8 |
% |
Thousand cubic feet equivalent (mcfe/d @ 1:6) |
532,430 |
468,583 |
|
14 |
% |
530,435 |
469,833 |
|
13 |
% |
Barrels of oil equivalent (boe/d @ 6:1) |
88,738 |
78,097 |
|
14 |
% |
88,406 |
78,306 |
|
13 |
% |
Production per million common
shares (boe/d)* |
537 |
474 |
|
13 |
% |
535 |
475 |
|
13 |
% |
Product prices |
|
|
|
|
|
|
Natural gas ($/mcf) |
2.06 |
1.44 |
|
431 |
% |
2.55 |
1.54 |
|
66 |
% |
Oil & NGLs ($/bbl) |
48.77 |
21.07 |
|
131 |
% |
47.22 |
29.06 |
|
62 |
% |
Operating expenses
($/mcfe) |
0.35 |
0.36 |
|
-3 |
% |
0.35 |
0.38 |
|
-8 |
% |
Transportation ($/mcfe) |
0.22 |
0.17 |
|
29 |
% |
0.20 |
0.18 |
|
11 |
% |
Field netback ($/mcfe) |
2.09 |
1.14 |
|
83 |
% |
2.48 |
1.37 |
|
81 |
% |
General & administrative
expenses ($/mcfe) |
0.05 |
0.04 |
|
25 |
% |
0.05 |
0.04 |
|
25 |
% |
Interest expense ($/mcfe) |
0.33 |
0.33 |
|
- |
|
0.35 |
0.31 |
|
13 |
% |
Financial ($000,
except per share*) |
|
|
|
|
|
|
Revenue and realized hedging
gains (losses) 1 |
140,457 |
73,883 |
|
90 |
% |
315,784 |
171,605 |
|
84 |
% |
Royalties |
12,730 |
2,705 |
|
371 |
% |
26,799 |
7,641 |
|
251 |
% |
Funds from operations |
82,191 |
33,012 |
|
149 |
% |
198,901 |
87,525 |
|
127 |
% |
Funds from operations per
share |
0.50 |
0.20 |
|
149 |
% |
1.20 |
0.53 |
|
126 |
% |
Total dividends |
1,658 |
1,649 |
|
1 |
% |
3,309 |
11,541 |
|
-71 |
% |
Total dividends per share |
0.01 |
0.01 |
|
- |
|
0.02 |
0.07 |
|
-71 |
% |
Payout ratio |
2 |
5 |
|
-60 |
% |
2 |
13 |
|
-85 |
% |
Earnings (loss) |
12,760 |
(22,538 |
) |
100 |
% |
51,260 |
(90,221 |
) |
157 |
% |
Earnings (loss) per diluted
share |
0.08 |
(0.14 |
) |
100 |
% |
0.31 |
(0.55 |
) |
156 |
% |
Capital expenditures |
57,086 |
37,299 |
|
53 |
% |
165,937 |
105,886 |
|
57 |
% |
Weighted average common shares
outstanding |
165,343,937 |
164,874,175 |
|
- |
|
165,207,341 |
164,874,175 |
|
- |
|
As of June
30 |
|
|
|
|
|
|
Net debt |
|
|
|
1,147,563 |
1,172,590 |
|
-2 |
% |
Shareholders' equity |
|
|
|
1,634,299 |
1,616,230 |
|
1 |
% |
Total assets |
|
|
|
3,662,499 |
3,481,028 |
|
5 |
% |
1excludes revenue from sale of third party
volumes |
|
|
|
|
|
|
|
Three Months Ended June 30 |
Six Months Ended June 30 |
($000 except per share) |
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Cash flows from operating activities |
85,914 |
|
36,254 |
|
205,666 |
|
102,095 |
|
Change in non-cash working
capital |
(3,723 |
) |
(3,242 |
) |
(6,765 |
) |
(14,570 |
) |
Funds from operations |
82,191 |
|
33,012 |
|
198,901 |
|
87,525 |
|
Funds from operations per share |
0.50 |
|
0.20 |
|
1.20 |
|
0.53 |
|
(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 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 |
|
|
1 |
|
|
|
2 |
3 |
Notikewin |
|
2 |
1 |
|
|
|
1 |
4 |
Falher |
|
|
1 |
|
|
|
|
1 |
Wilrich |
|
5 |
|
1 |
|
|
1 |
7 |
Bluesky |
|
|
|
|
|
|
|
|
Total |
|
7 |
3 |
1 |
|
|
4 |
15 |
Drilling costs per meter and completion costs
per stage continued to fall as Peyto drilled another 5 Extended
Reach Horizontal (“ERH”) wells in the quarter. The 5 wells averaged
over 5,600 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, while the lower per
meter costs help offset any service cost inflation.
|
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
2021Q1 |
2021 Q2 |
Gross Hz Spuds |
86 |
99 |
123 |
140 |
126 |
135 |
70 |
61 |
64 |
27 |
15 |
Measured Depth (m) |
4,017 |
4,179 |
4,251 |
4,309 |
4,197 |
4,229 |
4,020 |
3,848 |
4,247 |
4,413 |
4,796 |
|
|
|
|
|
|
|
|
|
|
|
|
Drilling ($MM/well) |
$2.79 |
$2.72 |
$2.66 |
$2.16 |
$1.82 |
$1.90 |
$1.71 |
$1.62 |
$1.68 |
$1.65 |
$1.86 |
$
per meter |
$694 |
$651 |
$626 |
$501 |
$433 |
$450 |
$425 |
$420 |
$396 |
$374 |
$387 |
|
|
|
|
|
|
|
|
|
|
|
|
Completion ($MM/well) |
$1.67 |
$1.63 |
$1.70 |
$1.21 |
$0.86 |
$1.00 |
$1.13 |
$1.01* |
$0.94 |
$0.96 |
$0.93 |
Hz Length (m) |
1,358 |
1,409 |
1,460 |
1,531 |
1,460 |
1,241 |
1,348 |
1,484 |
1,682 |
1,573 |
1,646 |
$
per Hz Length (m) |
$1,231 |
$1,153 |
$1,166 |
$792 |
$587 |
$803 |
$835 |
$679 |
$560 |
$608 |
$562 |
$ ‘000 per Stage |
$257 |
$188 |
$168 |
$115 |
$79 |
$81 |
$51 |
$38 |
$36 |
$33 |
$29 |
*excluding Peyto’s Wildhay Montney well.
Capital Expenditures
During the second quarter of 2021, Peyto
invested $28 million on drilling, $15 million on completions, $4
million on wellsite equipment and tie-ins, $8 million on facilities
and major pipeline projects, and $2 million acquiring new lands and
seismic, for a total organic capital investment of $57 million. In
addition, Peyto purchased 80 ultra low emissions wellsite packages
and 30 km of new pipe which added $5.4 million to capital
inventory. This equipment, which will serve new drilling until the
summer of 2022, was ordered early to avoid cost inflation.
As stated above, Peyto invested $8 million in
facilities and major pipeline projects to continue to build out its
midstream assets. This included condensate stabilization at its
Brazeau gas plant, pipeline expansion work in Brazeau, Cecilia and
Wildhay areas, and additional Methane emissions reduction projects
at individual wellsites across the Greater Sundance area.
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 Q2 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 Q2 2021, Peyto sold 52% of its natural
gas at Henry Hub, 28% at AECO, 8% at Emerson, 8% at Malin, and the
remaining 4% at Ventura. Approximately 50% of AECO sales were at
Daily prices while 50% were at Monthly prices. Net of
diversification activities of CND$1.29/Mcf (US$1.01/MMBTU), Peyto
realized a natural gas price of $2.39/Mcf before commodity risk
management reduced this price by $0.33/Mcf, to $2.06/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
like Butane and Propane 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
Q2 2021 for an average price of $76.92/bbl, which is up 177% from
$27.73/bbl in Q2 2020, and as compared to Canadian WTI oil price
that averaged $81.10/bbl. The $4.18/bbl differential from light oil
price was down from $10.69/bbl in the previous year due to reduced
condensate differentials from stronger post-COVID demand. Butane
and propane volumes were sold in combination at an average price of
$25.76/bbl, or 32% of light oil price, up 121% from the $11.65/bbl
in Q2 2020, again due to post-COVID demand increase.
In general, Peyto’s commodity risk management
program is designed to smooth out the short-term fluctuations in
the price of natural gas and natural gas liquids through future
sales. This smoothing gives greater predictability of cashflows for
the purposes of capital planning and dividend payments. The future
sales are meant to be methodical and consistent to avoid
speculation. In general, this approach will show hedging losses
when short term prices climb and hedging gains when short term
prices fall.
Peyto’s realized price by product and relative
to benchmark prices is shown in the following table.
Benchmark Commodity Prices at Various
Markets
|
Three Months ended June 30 |
|
2021 |
2020 |
AECO 7A monthly ($/GJ) |
2.70 |
1.81 |
AECO 5A daily ($/GJ) |
2.93 |
1.89 |
NYMEX (US$/MMBTU) |
2.88 |
1.65 |
Emerson2 (US$/MMBTU) |
2.70 |
1.60 |
Malin (US$/MMbtu) |
2.75 |
1.52 |
Ventura daily (US$/MMbtu) |
2.73 |
1.58 |
Canadian WTI ($/bbl) |
81.10 |
38.42 |
Conway C3 (US$/bbl) |
35.01 |
17.25 |
CND/USD Exchange rate |
1.228 |
1.386 |
Peyto Realized Commodity Price by Market (net of
diversification)
|
Three Months ended March 31 |
|
2021 |
2020 |
AECO monthly (CND$/GJ) |
2.70 |
1.82 |
AECO daily (CND$/GJ) |
2.88 |
1.89 |
NYMEX (US$/MMBTU) |
1.47 |
0.68 |
Emerson2 (US$/MMBTU) |
2.15 |
0.91 |
Malin (US$/MMBTU) |
2.11 |
- |
Ventura (US$/MMBTU) |
1.59 |
0.51 |
Peyto Realized Commodity Prices |
|
|
Natural gas (CND$/mcf) |
3.68 |
2.35 |
Gas marketing diversification activities (CND$/mcf) |
(1.29) |
(0.94) |
Gas hedging (CND$/mcf) |
(0.33) |
0.03 |
|
|
|
Oil, condensate and C5+ ($/bbl) |
76.92 |
27.73 |
Butane and propane ($/bbl) |
25.76 |
11.65 |
Liquid hedging ($/bbl) |
(7.18) |
1.73 |
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
Q2 2021 was $3.68/Mcf, prior to $1.29/Mcf of market diversification
activities and a $0.33/Mcf hedging loss, while its realized liquids
price was $55.95/bbl, before a $7.18/bbl hedging loss, which
yielded a combined revenue stream of $2.92/Mcfe. This net sales
price was 69% higher than the $1.73/Mcfe realized in Q2 2020. Cash
costs of $1.21/Mcfe were higher than the $0.96/Mcfe in Q2 2020
principally due to increased royalties. Cash costs are forecast to
return to traditional levels, with lower interest expenses as Peyto
reduces indebtedness, and lower per unit transportation and
operating costs as production volumes rise. When the total cash
costs of $1.21/Mcfe were deducted from realized revenues of
$2.92/Mcfe, it resulted in a cash netback of $1.71/Mcfe or a 59%
operating margin. Historical cash costs and operating margins are
shown in the following table:
|
2018 |
2019 |
2020 |
2021 |
($/Mcfe) |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
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 |
2.92 |
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 |
0.26 |
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 |
0.35 |
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 |
0.22 |
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 |
0.05 |
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 |
0.33 |
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 |
1.21 |
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 |
1.71 |
Operating Margin |
74% |
72% |
71% |
69% |
68% |
66% |
64% |
65% |
55% |
45% |
53% |
61% |
67% |
59% |
Depletion, depreciation, and amortization
charges of $1.28/Mcfe, along with a provision for deferred tax and
stock-based compensation payments resulted in earnings of
$0.26/Mcfe, or a 9% profit margin. Dividends to shareholders
totaled $0.03/Mcfe.
Activity Update
Since the end of the quarter, the Company has
drilled 10 gross (9.6 net) wells, completed 11 gross (9.8 net)
wells, and brought onstream 9 gross (7.8 net) new wells. Six gross
(6 net) wells are drilled and awaiting completion. To catch up from
second quarter 2021 drilling delays, Peyto contracted a 5th
drilling rig which began operations at the start of August.
Development results from this rig are also expected to contribute
additional gas production to take advantage of strong winter
natural gas prices. Drilling will continue to focus on the many
Deep Basin horizons across Peyto’s greater Sundance area, including
its Cecilia acquisition, and in its Brazeau area. The Company is
still targeting year end exit production of 100,000 boe/d.
Recent success on the acquired Cecilia lands has
grown production from 2,900 boe/d to over 7,000 boe/d. Pipeline
interconnections are allowing area production to be diverted to the
Cecilia gas plant, Wildhay gas plant or Oldman gas plants where
over 100 MMcf/d of available capacity exists. These
interconnections will provide processing flexibility for unexpected
outages and during facility turnarounds.
Additional success in Peyto’s south Brazeau
area, called Chambers, has prompted the Company to design a new,
sweet, gas processing plant for this area. Currently, production
travels 36 km north through various pipelines before being
processed at the Peyto Brazeau gas plant which is less
hydraulically and environmentally efficient. This new Chambers gas
plant is designed for 50 MMcf/d of gas processing and 2,000 bbls/d
of condensate stabilization, with expansion capability to 100
MMcf/d and 4,000 bbls/d. Most of the equipment for the new plant
will be sourced from existing surplus inventory with some minor
equipment being repurposed from existing gas plants. The location
of the new gas plant will be directly adjacent to NGTL’s mainline
pipeline system. Peyto envisions this new, state of the art
facility will include the latest low emissions technology,
employing compressor vent gas capture and BTEX vapour recovery
units, waste heat recovery, and zero emissions controllers and
instrumentation. The existing gathering system will interconnect
both the Brazeau and Chambers gas plants providing additional
flexibility. Construction of the new plant will begin in the fall
of 2021 with commissioning in Q1 2022. Peyto estimates 140
temporary, and 5 full time jobs will be created with this
investment.
Outlook
Commodity prices, particularly natural gas
futures, have improved significantly since the last quarter. On
March 31, 2021, AECO calendar strip prices were $2.37, $2.22, $2.22
and $2.33/GJ for 2022 through 2025. Today that same strip is $3.29,
$2.75, $2.56, and $2.59/GJ. These better prices provide enhanced
returns on Peyto’s current and future drilling prospects while at
the same time significantly increasing Peyto’s free cashflow which
can be used to further reduce indebtedness and improve the
Company’s balance sheet. Peyto currently forecasts, at the current
capital investment rate and strip prices, enough free cashflow can
be generated over the next 4 years to leave the Company debt
free.
The Peyto strategy of investing cashflows into
internally developed, organic drilling projects remains the same
after 22 successful years. The Company continues to focus on
controlling costs, operating its assets, investing in the necessary
infrastructure, maximizing efficiency and profitability, and
reducing its environmental impact. As the world returns to normal
post the pandemic, the Company is encouraged that demand for its
products are forecast to continue to grow. Combining Peyto’s long
life, high quality assets with increasing demand can only result in
improved profitability, further debt reduction and, when
appropriate, increased dividends.
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 Q2 2021 results on Thursday, August 12, 2021, at 9:00
a.m. Mountain Time (MT), or 11:00 a.m. Eastern Time (ET). 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/op9i8y4w. The
conference call will be archived on the Peyto Exploration &
Development website at www.peyto.com.
Management’s Discussion and
Analysis/Financial Statements
A copy of the first quarter report to shareholders, including
the MD&A, unaudited financial statements and related notes, is
available at
http://www.peyto.com/Files/Financials/2021/Q22021FS.pdf and at
http://www.peyto.com/Files/Financials/2021/Q22021MDA.pdf and will
be filed at SEDAR, www.sedar.com at a later date.
Darren GeePresident and CEOAugust 11, 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
2021, 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 June 30, 2021.
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