Peyto Exploration & Development Corp. (“Peyto” or the
“Company”) (
PEY – TSX) is pleased to present its
operating and financial results for the third quarter of the 2021
fiscal year. A 63% Operating Margin (1) and a 18% Profit Margin (2)
in the quarter delivered an 8% Return on Capital and a 9% Return on
Equity, on a trailing twelve-month basis. Highlights for the
quarter included:
- Funds from operations per
share up 110%. Funds from Operations (“FFO”) were $105
million after hedging losses of $72 million in the quarter. Per
share FFO were $0.63, up from $0.30 in Q3 2020. FFO in the quarter
exceeded capital expenditures by $14 million. Over the past 12
months Peyto has generated $380 million in FFO, while allocating
$324 million to capital expenditures.
- Production per share up
14%. Third quarter 2021 production of 89,998 boe/d,
comprised of 473 MMcf/d of natural gas, 6,685 bbl/d of Condensate
and Pentanes, and 4,479 bbl/d of Butane and Propane, was up 15%
(14% per share) from 78,210 boe/d in Q3 2020. Total liquid yields
of 23.6 bbl/MMcf, or 12% of total production, was down from 28.0
bbl/MMcf in Q3 2020 due to an increased focus on leaner Spirit
River plays.
- Total cash costs of
$1.22/Mcfe (or $0.86/Mcfe ($5.14/boe) excluding
royalties). Industry leading low total cash costs included
$0.36/Mcfe royalties, $0.35/Mcfe operating costs, $0.23/Mcfe
transportation, $0.02/Mcfe G&A and $0.26/Mcfe interest, which
combined with a realized price of $3.33/Mcfe to result in a
$2.11/Mcfe ($12.68/boe) cash netback, up 86% from $1.14/Mcfe
($6.83/boe) in Q3 2020. Operating costs per unit for Q3 2021 were
consistent with Q1 and Q2 2021 despite rising power prices, higher
chemical costs and maintenance costs associated with 10 plant
turnarounds. Interest charges were down 26% from $0.35/Mcfe in Q3
2020 due to lower interest rates and reduced debt levels.
- Capital investment of $90
million in organic activity. A total of 24 gross wells
(93% Working Interest, “WI”) were drilled in the third quarter, 22
gross wells (93% WI) were completed, and 21 gross wells (94% WI)
were brought on production. Over the last 12 months new production
additions, inclusive of acquisitions, accounted for approximately
40,100 boe/d at the end of the quarter, which, when combined with a
trailing twelve-month capital investment of $324 million, equates
to a record annualized capital efficiency of $8,100/boe/d.
- Earnings of $0.18/share,
Dividends of $0.01/share. Earnings of $29.3 million were
generated in the quarter while dividends of $1.7 million were paid
to shareholders. The Board of Directors of Peyto is pleased to
increase the dividend to $0.05/share on a monthly basis to
shareholders of record as of November 30, 2021, paid on December
15, 2021.
Third Quarter 2021 in ReviewA
steady stream of drilling and completion activity throughout the
quarter, utilizing the five drilling rigs active in Peyto’s Deep
Basin core areas, resulted in continuous production growth from
86,500 boe/d at the start of July to 94,000 boe/d by the end of
September. Superior operational execution, combined with improved
well results, delivered record capital efficiency throughout the
period. AECO daily natural gas prices, while substantially higher,
were extremely volatile with recorded highs of $4.80/GJ and lows of
$1.02/GJ. This was the result of insufficient access to EGAT
storage reservoirs during periods of NGTL restrictions. Despite the
volatility, AECO daily prices averaged $3.41/GJ in Q3 2021, up 161%
from $2.12/GJ in Q3 2020. Peyto’s unhedged natural gas price for
the quarter was $3.39/GJ, which is evidence of its improving market
diversification program. The Company’s methodical hedging program
resulted in predictable after-hedge commodity prices that trailed
the rapidly rising spot prices. Peyto’s realized revenues were up
77% from Q3 2020, which combined with total cash costs, yielded
operating margins of 63%. Lower depletion rates driven by better
finding and development costs resulted in improved earnings and a
profit margin of 18%. Peyto’s ESG working group was active
throughout the quarter advancing several initiatives to improve the
Company’s ongoing sustainability and industry leading environmental
performance.
- Operating Margin is defined as
funds from operations divided by revenue before royalties but
including realized hedging gains/losses.
- Profit Margin is defined as net
earnings for the quarter divided by revenue before royalties but
including realized hedging gains/losses.
Natural gas volumes recorded in thousand cubic
feet (mcf) are converted to barrels of oil equivalent (boe) using
the ratio of six (6) thousand cubic feet to one (1) barrel of oil
(bbl). Natural gas liquids and oil volumes in barrel of oil (bbl)
are converted to thousand cubic feet equivalent (Mcfe) using a
ratio of one (1) barrel of oil to six (6) thousand cubic feet. This
could be misleading, particularly if used in isolation as it is
based on an energy equivalency conversion method primarily applied
at the burner tip and does not represent a value equivalency at the
wellhead.
|
Three Months Ended Sep 30 |
% |
Nine Months Ended Sep 30 |
% |
|
2021 |
2020 |
Change |
2021 |
2020 |
Change |
Operations |
|
|
|
|
|
|
Production |
|
|
|
|
|
|
Natural gas (mcf/d) |
473,008 |
401,680 |
|
18 |
% |
462,496 |
401,692 |
|
15 |
% |
Oil & NGLs (bbl/d) |
11,164 |
11,263 |
|
-1 |
% |
11,860 |
11,325 |
|
5 |
% |
Thousand cubic feet equivalent (mcfe/d @ 1:6) |
539,990 |
469,259 |
|
15 |
% |
533,655 |
469,640 |
|
14 |
% |
Barrels of oil equivalent (boe/d @ 6:1) |
89,998 |
78,210 |
|
15 |
% |
88,943 |
78,273 |
|
14 |
% |
Production per million common shares (boe/d)* |
541 |
474 |
|
14 |
% |
537 |
475 |
|
13 |
% |
Product prices |
|
|
|
|
|
|
Natural gas ($/mcf) |
2.48 |
1.64 |
|
51 |
% |
2.53 |
1.57 |
|
61 |
% |
Oil & NGLs ($/bbl) |
55.47 |
31.08 |
|
78 |
% |
49.84 |
29.73 |
|
68 |
% |
Operating expenses ($/mcfe) |
0.35 |
0.32 |
|
9 |
% |
0.35 |
0.36 |
|
-3 |
% |
Transportation ($/mcfe) |
0.23 |
0.16 |
|
44 |
% |
0.20 |
0.17 |
|
18 |
% |
Field
netback ($/mcfe) |
2.39 |
1.53 |
|
56 |
% |
2.45 |
1.42 |
|
73 |
% |
General & administrative expenses ($/mcfe) |
0.02 |
0.04 |
|
-50 |
% |
0.04 |
0.04 |
|
- |
|
Interest expense ($/mcfe) |
0.26 |
0.35 |
|
-26 |
% |
0.32 |
0.32 |
|
- |
|
Financial ($000, except per share*) |
|
|
|
|
|
|
Revenue and realized hedging gains (losses) 1 |
164,777 |
92,853 |
|
77 |
% |
480,561 |
264,457 |
|
82 |
% |
Royalties |
17,985 |
5,867 |
|
207 |
% |
44,786 |
13,508 |
|
232 |
% |
Funds
from operations |
104,608 |
49,173 |
|
113 |
% |
303,509 |
136,697 |
|
122 |
% |
Funds from operations per share – basic |
0.63 |
0.30 |
|
110 |
% |
1.83 |
0.83 |
|
120 |
% |
Funds from operations per share – diluted |
0.62 |
0.30 |
|
110 |
% |
1.80 |
0.83 |
|
120 |
% |
Total
dividends |
1,671 |
1,649 |
|
1 |
% |
4,979 |
13,191 |
|
-62 |
% |
Total
dividends per share |
0.01 |
0.01 |
|
- |
|
0.03 |
0.08 |
|
-63 |
% |
Earnings (loss) |
29,271 |
(11,285 |
) |
359 |
% |
80,529 |
(101,506 |
) |
179 |
% |
Earnings (loss) per share – basic |
0.18 |
(0.07 |
) |
359 |
% |
0.49 |
(0.62 |
) |
179 |
% |
Earnings (loss) per share – diluted |
0.17 |
(0.07 |
) |
343 |
% |
0.48 |
(0.62 |
) |
177 |
% |
Capital expenditures |
90,170 |
61,568 |
|
46 |
% |
256,107 |
167,454 |
|
53 |
% |
Weighted average common shares outstanding |
166,440,704 |
164,892,979 |
|
1 |
% |
165,622,980 |
164,880,489 |
|
- |
|
As at September 30 |
|
|
|
|
|
|
Net
debt |
|
|
|
1,131,600 |
1,183,754 |
|
-4 |
% |
Shareholders' equity |
|
|
|
1,574,058 |
1,573,825 |
|
- |
|
Total
assets |
|
|
|
3,735,545 |
3,515,148 |
|
6 |
% |
1excludes revenue from sale of third party
volumes |
|
|
|
|
|
|
|
Three Months Ended Sep 30 |
Nine Months Ended Sep 30 |
($000 except per share) |
2021 |
2020 |
2021 |
|
2020 |
|
Cash flows from operating activities |
101,982 |
48,074 |
307,648 |
|
150,169 |
|
Change in non-cash working
capital |
2,626 |
1,099 |
(4,139 |
) |
(13,472 |
) |
Funds from operations |
104,608 |
49,173 |
303,509 |
|
136,697 |
|
Funds from operations per share – basic |
0.63 |
0.30 |
1.83 |
|
0.83 |
|
Funds from operations per share - diluted |
0.63 |
0.30 |
1.83 |
|
0.83 |
|
|
|
|
|
|
|
|
(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
As a result of significantly higher natural gas
prices, third quarter 2021 activity was focused on the leaner,
Spirit River formations throughout Peyto’s Deep Basin core areas as
shown in the following table:
|
Field |
Total Wells Drilled |
Zone |
Sundance |
Nosehill |
Wildhay |
Ansell |
Cecilia |
Kisku/Kakwa |
Brazeau |
Belly River |
|
|
|
|
|
|
|
|
Cardium |
2 |
|
|
|
|
|
1 |
3 |
Notikewin |
3 |
1 |
2 |
1 |
1 |
|
2 |
10 |
Falher |
|
1 |
|
1 |
1 |
|
|
3 |
Wilrich |
2 |
3 |
|
2 |
|
|
1 |
8 |
Bluesky |
|
|
|
|
|
|
|
|
Total |
7 |
5 |
2 |
4 |
2 |
|
4 |
24 |
|
|
|
|
|
|
|
|
|
Peyto continued to drill longer horizontal
laterals in the quarter to access greater reservoir volume and
develop more reserves per wellbore, which has the combined benefit
of minimizing costs and environmental impact. Drilling cost per
meter and completion costs per stage so far in 2021 are consistent
with that of 2020. Supply chain issues and labor challenges due to
the COVID pandemic have pressured service costs which Peyto has
successfully offset with improved well results.
|
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
2021Q1-Q3 |
Gross Hz Spuds |
|
86 |
|
99 |
|
123 |
|
140 |
|
126 |
|
135 |
|
70 |
|
61 |
|
64 |
|
66 |
Measured
Depth (m) |
|
4,017 |
|
4,179 |
|
4,251 |
|
4,309 |
|
4,197 |
|
4,229 |
|
4,020 |
|
3,848 |
|
4,247 |
|
4,553 |
|
|
|
|
|
|
|
|
|
|
|
Drilling
($MM/well) |
$ |
2.79 |
$ |
2.72 |
$ |
2.66 |
$ |
2.16 |
$ |
1.82 |
$ |
1.90 |
$ |
1.71 |
$ |
1.62 |
$ |
1.68 |
$ |
1.83 |
$ per
meter |
$ |
694 |
$ |
651 |
$ |
626 |
$ |
501 |
$ |
433 |
$ |
450 |
$ |
425 |
$ |
420 |
$ |
396 |
$ |
402 |
|
|
|
|
|
|
|
|
|
|
|
Completion ($MM/well) |
$ |
1.67 |
$ |
1.63 |
$ |
1.70 |
$ |
1.21 |
$ |
0.86 |
$ |
1.00 |
$ |
1.13 |
$1.01* |
$ |
0.94 |
$ |
1.00 |
Hz
Length (m) |
|
1,358 |
|
1,409 |
|
1,460 |
|
1,531 |
|
1,460 |
|
1,241 |
|
1,348 |
|
1,484 |
|
1,682 |
|
1,696 |
$ per Hz
Length (m) |
$ |
1,231 |
$ |
1,153 |
$ |
1,166 |
$ |
792 |
$ |
587 |
$ |
803 |
$ |
835 |
$ |
679 |
$ |
560 |
$ |
593 |
$ ‘000 per Stage |
$ |
257 |
$ |
188 |
$ |
168 |
$ |
115 |
$ |
79 |
$ |
81 |
$ |
51 |
$ |
38 |
$ |
36 |
$ |
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*excluding Peyto’s Wildhay Montney well.
Capital Expenditures
During the third quarter of 2021, Peyto invested
$43 million on drilling, $26 million on completions, $7 million on
wellsite equipment and tie-ins, $12 million on facilities and major
pipeline projects, and $2 million acquiring new lands and seismic,
for a total organic capital investment of $90 million. Pipeline
projects in the Cecilia, Wildhay, Sundance and Brazeau areas
accounted for $5 million of the $12 million of major pipeline and
facility investments, while new condensate stabilization facilities
at Brazeau and compressor equipment upgrades at the various plant
turnarounds accounted for $6 million.
Environment, Social,
Governance
Peyto’s ESG working group was active in the
third quarter, advancing scientific studies across the Company’s
business and operations in search of opportunities to enhance
Peyto’s environmental performance.
The Company recently completed an inhouse study
of the porous saline reservoirs in and around its Greater Sundance
Area for potential Carbon Capture and Underground Storage (“CCUS”)
of CO2 emissions from Peyto’s operations. Preliminary results from
this study concluded that, based on Peyto’s existing and future
forecasted emissions, the Company expects to have access to enough
storage capacity for all future CO2 disposal requirements. Facility
requirements to enable such capture and injection include
compressor exhaust gas CO2 extraction, CO2 purification, CO2
compression and pipeline transport, and the drilling and completion
of suitable injection wells. While current government policy,
taxation levels, carbon credit systems, and facility designs and
technologies are rapidly evolving, Peyto envisions a future whereby
a large proportion of its CO2 emissions are captured and injected.
The Company is actively contributing to and participating in the
Government of Alberta’s ongoing input solicitation for ideas and
suggestions on policy as well as expressions of interest in
instituting specific CCUS schemes.
Peyto’s ESG working group has also been active
in the design and testing of an inline pipeline turbine generator
to provide emissions-free power at remote Peyto wellsites. The
first field trials of this new equipment began in September 2021
and while no final conclusions have been reached, Peyto is
encouraged this type of research and development will lead to
further reductions in vented Methane emissions.
As a result of Peyto’s Methane emissions
reduction program so far, 2016 total Methane emissions of 378,275
tCO2e/yr will have been reduced by over 50% to approximately
175,000 tCO2e/yr by the end of 2021. The Company has set a further
target to reduce the vented and flared methane emissions intensity
by 75% from 2016 levels by 2023.
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 Q3 2021 at
various hubs including Henry Hub (51%), AECO (29%), Malin (8%),
Emerson (8%), and Ventura (4%), using both physical fixed price and
basis transactions (diversification activities) to access those
locations. 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. Going forward, Peyto expects that the
cost of market diversification activities will begin to yield
superior gas prices to that of a disconnected AECO market.
Peyto employs a methodical commodity risk
management program that 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 orderly and consistent
to avoid speculation, much like “dollar cost averaging” the future
prices. In general, this approach will show hedging losses when
short term prices climb and hedging gains when short term prices
fall. For Q3 2021, approximately 81% of Peyto’s gas was locked in
at a fixed price of $2.04/Mcf. Most of those contracts were
established several quarters prior at then market prices that were
lower than the eventual spot prices. For Q4 2021, approximately 73%
of Peyto’s gas is locked in at a fixed price of $3.16/Mcf, and for
Q1 2022, approximately 71% of Peyto’s gas is locked in at a fixed
price of $3.71/Mcf. This dramatic rise in fixed prices mirrors that
of the spot price rise which occurred earlier.
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
Q3 2021 for an unhedged average price of $83.60/bbl, which is
almost double the $42.09/bbl in Q3 2020, and as compared to
Canadian WTI light oil price that averaged $88.92/bbl. The
$5.32/bbl differential from light oil price was similar to the
$5.41/bbl in the previous year. Butane and propane volumes were
sold in combination at an average price of $37.97/bbl, or 43% of
light oil price, up 141% from the $15.76/bbl in Q3 2020, due to
post-COVID demand increase. Hedging of Canadian WTI light oil
price, as a proxy for Condensate and Pentanes Plus prices, resulted
in a loss of $9.82/bbl on a combined volume basis. Peyto’s realized
price by product and relative to benchmark prices is shown in the
following table.
Benchmark Commodity Prices at Various
Markets
|
Three Months ended September 30 |
|
2021 |
|
2020 |
|
AECO 7A monthly ($/GJ) |
3.36 |
|
2.04 |
|
AECO 5A daily ($/GJ) |
3.41 |
|
2.12 |
|
NYMEX (US$/MMBTU) |
4.28 |
|
1.95 |
|
Emerson2 (US$/MMBTU) |
3.71 |
|
1.78 |
|
Malin NGI (US$/MMbtu) |
4.12 |
|
1.90 |
|
Ventura daily (US$/MMbtu) |
4.02 |
|
1.80 |
|
Canadian WTI ($/bbl) |
88.92 |
|
54.50 |
|
Conway C3 (US$/bbl) |
49.02 |
|
19.54 |
|
CND/USD Exchange rate |
1.26 |
|
1.332 |
|
|
|
|
|
|
Peyto Realized Natural Gas Price by Market (net of
diversification)
|
Three Months ended September 30 |
|
2021 |
2020 |
AECO monthly (CND$/GJ) |
3.36 |
|
2.03 |
|
AECO
daily (CND$/GJ) |
3.28 |
|
2.13 |
|
NYMEX
(US$/MMBTU) |
2.87 |
|
0.84 |
|
Emerson2 (US$/MMBTU) |
3.18 |
|
1.06 |
|
Malin
(US$/MMBTU) |
2.12 |
|
N/A |
|
Ventura
(US$/MMBTU) |
2.89 |
|
0.72 |
|
|
|
|
Peyto Realized
Commodity Prices |
|
|
Natural gas (CND$/mcf) |
5.20 |
|
2.62 |
|
Gas marketing diversification activities (CND$/mcf) |
(1.30 |
) |
(1.01 |
) |
Gas hedging (CND$/mcf) |
(1.42 |
) |
0.03 |
|
Realized natural gas price (CND$/mcf) |
2.48 |
|
1.64 |
|
|
|
|
|
|
Oil, condensate and C5+ (CND$/bbl) |
83.60 |
|
42.09 |
|
Butane and propane (CND$/bbl) |
37.97 |
|
15.76 |
|
Liquid hedging (CND$/bbl) |
(9.82 |
) |
(1.78 |
) |
Realized Oil & NGL price (CND$/bbl) |
55.47 |
|
31.08 |
|
|
|
|
|
|
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
Q3 2021 was $5.20/Mcf, prior to $1.30/Mcf of market diversification
activities and a $1.42/Mcf hedging loss, while its realized liquids
price was $65.29/bbl, before a $9.82/bbl hedging loss, which
yielded a combined revenue stream of $3.33/Mcfe. This net sales
price was 55% higher than the $2.15/Mcfe realized in Q3 2020. Cash
costs of $1.22/Mcfe were 21% higher than the $1.01/Mcfe in Q3 2020
due to a $0.22/Mcfe increase in royalties. When the total cash
costs of $1.22/Mcfe were deducted from realized revenues of
$3.33/Mcfe, it resulted in a cash netback of $2.11/Mcfe or a 63%
operating margin. Historical cash costs and operating margins are
shown in the following table:
|
2018 |
2019 |
2020 |
2021 |
($/Mcfe) |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Q3 |
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 |
|
3.33 |
|
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 |
|
0.36 |
|
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 |
|
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 |
|
0.23 |
|
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 |
|
0.02 |
|
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 |
|
0.26 |
|
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 |
|
1.22 |
|
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 |
|
2.11 |
|
Operating Margin |
74 |
% |
72 |
% |
71 |
% |
69 |
% |
68 |
% |
66 |
% |
64 |
% |
65 |
% |
55 |
% |
45 |
% |
53 |
% |
61 |
% |
67 |
% |
59 |
% |
63 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depletion, depreciation, and amortization
charges of $1.25/Mcfe, along with a provision for deferred tax and
stock-based compensation payments resulted in earnings of
$0.60/Mcfe, or a 18% profit margin. Dividends to shareholders
totaled $0.03/Mcfe.
Activity Update
Since the end of the quarter, the Company has
drilled 9 wells (80% WI), completed 11 wells (95% WI) wells, and
brought onstream 11 new wells (95% WI). Eight additional wells (84%
WI) are currently drilled and awaiting completion and tie-in.
Recent drilling success has yielded higher productivity than
expected which is driving Internal Rate of Return (BT IRR)
estimates for this year’s capital program to over 100%. Several of
this year’s new wells have already reached payout on their initial
capital investment. Peyto expects to bring another 17 wells (91%
WI) on production before the end of the year, driving exit
production beyond 100,000 boe/d and delivering much needed natural
gas supply for this coming winter.
In the Company’s Chambers area in South Brazeau,
Peyto has prepared the site for its new 50 MMcf/d gas plant with
foundations set and equipment delivery expected to begin by year
end. Installation and commissioning of this new facility is
expected by the end of Q1 2022. This new plant will be Peyto’s most
environmentally efficient plant to date, deploying a new waste heat
recovery technology to reduce the need for natural gas fired
utility heat along with zero emissions controls and instrumentation
systems. Much of the equipment for this new plant will be deployed
from existing capital inventory, which successfully avoids supply
chain delays, and is already reflected in Peyto’s net debt. A
second drilling rig will be transferred into the Chambers area this
winter which will develop sufficient production to more than fill
the new plant prior to startup. As usual, this plant is designed
with modular components for easy expansion and to maximize
utilization which is key to minimizing per unit operating
costs.
In Peyto’s Cecilia area, recent drilling success
has filled all 30 MMcf/d of available compression at the acquired
plant. An additional compressor will be added in the fourth quarter
to take advantage of optimized capacity in the refrigeration
process.
Issuance of Private placement of senior
secured Notes
Peyto is pleased to announce that it has priced
an issuance of USD$40 million of senior secured notes. The notes
will have a coupon rate of 3.98% and mature in October 2028. The
notes have been issued by way of a private placement pursuant to a
note purchase agreement and rank equally with Peyto's obligations
under its bank facility and existing note purchase and private
shelf agreement. Interest will be paid semi-annually in arrears.
Proceeds from the notes have been used to prepay the CND$50
million, 4.88% notes due September 6, 2022. Closing of the private
placement occurred October 29, 2021. The senior notes have not been
and will not be registered under the U.S. Securities Act of 1933,
as amended, and may not be offered or sold in the United States
absent registration or an applicable exemption from registration
requirements.
Amended and Extended Credit
Facility
On November 5, 2021, the Company finalized an
agreement with its syndicate of lenders and term debt note holders
to amend and extend its $950 million senior secured covenant-based
credit facility and note purchase agreements. This new facility has
a maturity date of October 13, 2023, is made up of a $40 million
working capital tranche, a $910 million production line, and is
available on a revolving basis. Borrowings under the facility bear
interest at Canadian bank prime or US base rate, or, at Peyto’s
option, Canadian dollar bankers’ acceptances or US dollar LIBOR
loan rates, plus applicable margin and stamping fees. The total
stamping fees range between 175 basis points and 365 basis points
on Canadian dollar bankers’ acceptance and US dollar LIBOR
borrowings. The undrawn portion of the facility is subject to a
standby fee in the range of 35 to 73 basis points.
2022 Preliminary Budget
Substantial well performance improvements,
combined with superior operational execution over the past twelve
months has allowed Peyto to add new production at a record low cost
of approximately $8,000/boe/d. When combined with significantly
improved commodity prices, this efficiency is delivering record
returns on invested capital and justifies a similar capital program
for 2022. While specifics of the 2022 budget are still being
finalized, a capital program of $350-$400 million is being
contemplated, inclusive of a conservative 15% provision for cost
inflation, which is estimated to add approximately 37,000 to 42,000
boe/d of new production by the end of the year. This volume
addition would be more than sufficient to offset the annual
forecast decline of 28% on anticipated 2021 exit production of
100,000 boe/d. Exact 2021 exit production and subsequent base
decline will depend on timing of year-end activity.
The proposed 2022 capital program would require
all five currently operating drilling rigs to execute continuous
operations across Peyto’s deep basin core areas and is projected to
be funded from less than half of Peyto’s total cashflow, leaving
significant free cashflow available for debt reduction and dividend
payments. As always, Peyto will ensure any capital plans will be
nimble with the ability to react to changes in commodity prices and
the global economic environment, both of which continue to be
volatile and uncertain.
Monthly Dividend Reinstated
Over the past 12 months, Peyto has returned to
its historic levels of profitability, with cumulative earnings of
$147 million on capital expenditures of $324 million or $0.45 of
profit per dollar invested. This is similar to Peyto’s entire
history of $2.633 billion of cumulative earnings for a total
capital investment of $6.657 billion. At current commodity prices,
Peyto is forecasting this earnings ratio will grow significantly
over the fourth quarter 2021 and throughout 2022. As a result, the
Board of Directors of Peyto is please to approve a monthly dividend
of $0.05/share starting in November 2021 for shareholders of record
as of November 30, 2021 (ex-dividend date November 29, 2021), and
paid on December 15, 2021.
Executive Leadership
Appointment
The Board of Directors of Peyto is also pleased
to announce the appointment of Mr. Jean-Paul Lachance to the
position of President, in addition to his current role as the Chief
Operating Officer of Peyto. Jean-Paul, “JP”, has been an integral
part of Peyto’s leadership team for over 10 years, coordinating the
profitable investment of over $4.5 billion of shareholders’ capital
all while helping navigate Peyto through the volatile North
American natural gas industry. Mr. Lachance, who was appointed
Chief Operating Officer in 2018, brings to the role a deep
technical understanding of the industry, a good perspective on the
risks and pitfalls inherent in the business, and a single-minded
focus on profitability. Mr. Lachance will continue to report to Mr.
Darren Gee, Chief Executive Officer.
The Peyto senior management team, consisting of
the following individuals, will continue to develop strategic
direction, provide leadership, and execute on the Corporation's
Deep Basin resource developments:
Darren Gee
(CEO)Jean-Paul Lachance (President and COO)Kathy Turgeon (VP of
Finance and CFO)Scott Robinson (VP Business Development)Dave Thomas
(VP Exploration)Lee Curran (VP Drilling and Completions)Todd
Burdick (VP Production) Derick Czember (VP Land)
Outlook
Short term hydrocarbon prices, both globally and
domestically, continue to rise as post-pandemic consumption
increases against a backdrop of constrained supply caused by a
continued lack of investment. As winter approaches, natural gas
prices in North America are rising to levels not seen since 2008.
These higher prices, combined with Peyto’s growing production, will
continue to drive enhanced returns for shareholders.
Peyto expects to crystalize those returns for
shareholders, first in the form of material debt reduction and then
with dividend payments that will reflect rising earnings. This
prediction of increased shareholder returns includes a forecast of
future commodity prices that is currently in backwardation. Peyto’s
deep inventory of drilling prospects, extensive infrastructure
asset with available capacity, track record of superior operational
execution, and enhanced environmental performance will ensure
continued success for the next chapter in Peyto’s unique story.
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 Q3 2021 results on Wednesday, November 10, 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/5i7fdtgk. 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/Q32021FS.pdf and at
http://www.peyto.com/Files/Financials/2021/Q32021MDA.pdf and will
be filed at SEDAR, www.sedar.com at a later date.
Darren GeeChief Executive OfficerNovember 9, 2021 |
|
Jean-Paul LachancePresident and Chief Operating Officer |
|
|
|
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, 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 September 30, 2021.
For further information please contact:
Darren GeePresident and Chief Executive OfficerPhone: (403)
261-6081Fax: (403) 451-4100
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