Peyto Exploration & Development Corp. (“Peyto” or the
“Company”) is pleased to present its operating and financial
results for the second quarter of the 2022 fiscal year. A 67%
Operating Margin1,2 and a 31% Profit Margin3 in the quarter
delivered a 12% Return on Capital4 and a 17% Return on Equity4, on
a trailing twelve-month basis. Highlights for the quarter included:
- Funds from
operations5 per share up
142%. Generated record $206 million in Funds from
Operations (“FFO”) in Q2 2022 ($1.21/share), up from $82 million in
Q2 2021 ($0.50/share) due to higher commodity price realizations
combined with higher production, despite a $104 million realized
hedging loss in the quarter. FFO in the quarter exceeded capital
expenditures by $98 million. This represented a free cashflow
ratio6 of over 48% of FFO while dividends of $25.5 million in the
quarter represented a dividend payout ratio7 of 12%, and including
capital investments, a total payout ratio7 of 65%.
- Production per share up
14%. Second quarter 2022 production of 103,583 boe/d,
comprised of 541 MMcf/d of natural gas, 7,958 bbl/d of Condensate
and Pentanes, and 5,453 bbl/d of Butane and Propane, was up 17%
from 88,738 boe/d in Q2 2021. Total liquid yields of 24.8 bbl/MMcf,
or 13% of total production, was down from 26.8 bbl/MMcf in Q2 2021
due to an increased focus on leaner gas production.
- Total cash costs of
$1.83/Mcfe (or $0.88/Mcfe ($5.26/boe) excluding
royalties). Industry leading low total cash costs included
$0.95/Mcfe royalties, $0.39/Mcfe operating costs, $0.27/Mcfe
transportation, $0.02/Mcfe G&A and $0.20/Mcfe interest, which
combined with a realized revenue of $5.48/Mcfe to result in a
$3.65/Mcfe ($21.88/boe) cash netback, up 113% from $1.71/Mcfe
($10.23/boe) in Q2 2021. Operating costs per unit for Q2 2022 were
up 11% from $0.35/Mcfe in Q2 2021 due to significantly increased
fuel, power and chemical costs derived from higher oil and natural
gas prices. Interest charges were down from $0.33/Mcfe in Q2 2021
due to reduced debt levels.
- Net debt down 14%.
Net debt was reduced $156 million from Q2 2021 to $991 million in
Q2 2022 which reduced interest charges 39% from $0.33/Mcfe in Q2
2021 to $0.20/Mcfe in Q2 2022.
- Capital investment of $108
million in organic activity. A total of 23 gross (18.6 net
working interest) wells were drilled in the second quarter, 22
gross (17.6 net) wells were completed, and 26 gross (21.3 net)
wells were brought on production. Over the last 12 months new
production additions, inclusive of acquisitions and new facilities,
accounted for approximately 40,200 boe/d at the end of the quarter,
which, when combined with a trailing twelve-month capital
investment of $473 million, equates to an annualized capital
efficiency of $11,600/boe/d. Peyto anticipates full year 2022
capital efficiency to be approximately $10,500/boe/d, up from
$9,000/boe/d in 2021.
- Earnings of $0.56/share,
Dividends of $0.15/share. Earnings of $95 million were
generated in the quarter while dividends of $25 million were paid
to shareholders.
Second Quarter 2022 in Review
Peyto kept all five drilling rigs active in the
Edson area throughout the second quarter despite near record June
rainfalls which significantly hampered completion and pipeline
activity, delaying production additions. Despite the delays,
development plans for the Greater Brazeau and Greater Sundance
areas continued to move forward with delineation of the Cardium
play in Chambers, and Wilrich and Notikewin plays in Sundance. The
successful commissioning of the Chambers gas plant and testing of
its throughput capabilities has further increased the number and
profitability of drilling prospects in this new area. Spot natural
gas and crude oil prices climbed throughout the quarter to decade
highs reflecting global supply shortages. Peyto’s realized prices
and increased production volumes combined for more than a doubling
of revenues and over 150% increase in FFO from Q2 2021, despite a
substantial hedging loss for the quarter. The Company eagerly looks
forward to even further increases in FFO as existing hedges roll
off in the near term. Despite continued supply chain challenges and
cost inflation, Peyto’s operations team was able to maintain
pre-royalty cash costs in line with previous quarters resulting in
a 113% increase in cash netback contributing to the 641% increase
in earnings from Q2 2021.
|
Three Months Ended June 30 |
% |
Six Months Ended June 30 |
% |
|
2022 |
|
2021 |
|
Change |
2022 |
|
2021 |
|
Change |
Operations |
|
|
|
|
|
|
Production |
|
|
|
|
|
|
Natural gas (Mcf/d) |
541,030 |
|
458,696 |
|
18 |
% |
538,360 |
|
457,153 |
|
18 |
% |
NGLs (bbl/d) |
13,411 |
|
12,289 |
|
9 |
% |
12,845 |
|
12,214 |
|
5 |
% |
Thousand cubic feet equivalent (Mcfe/d @ 1:6) |
621,499 |
|
532,430 |
|
17 |
% |
615,431 |
|
530,435 |
|
16 |
% |
Barrels of oil equivalent (boe/d @ 6:1) |
103,583 |
|
88,738 |
|
17 |
% |
102,572 |
|
88,406 |
|
16 |
% |
Production per million common
shares (boe/d) |
610 |
|
537 |
|
14 |
% |
605 |
|
535 |
|
13 |
% |
Product prices |
|
|
|
|
|
|
Natural gas ($/Mcf) |
4.08 |
|
2.06 |
|
98 |
% |
4.08 |
|
2.55 |
|
60 |
% |
NGLs ($/bbl) |
87.80 |
|
48.77 |
|
80 |
% |
84.88 |
|
47.22 |
|
80 |
% |
Operating expenses
($/Mcfe) |
0.39 |
|
0.35 |
|
11 |
% |
0.40 |
|
0.35 |
|
14 |
% |
Transportation ($/Mcfe) |
0.27 |
|
0.22 |
|
23 |
% |
0.27 |
|
0.20 |
|
35 |
% |
Field netback(1) ($/Mcfe) |
3.87 |
|
2.09 |
|
85 |
% |
3.91 |
|
2.48 |
|
58 |
% |
General & administrative
expenses ($/Mcfe) |
0.02 |
|
0.05 |
|
-60 |
% |
0.02 |
|
0.05 |
|
-60 |
% |
Interest expense ($/Mcfe) |
0.20 |
|
0.33 |
|
-39 |
% |
0.21 |
|
0.35 |
|
-40 |
% |
Financial ($000,
except per share) |
|
|
|
|
|
|
Revenue and realized hedging
losses (2) |
307,830 |
|
140,457 |
|
119 |
% |
594,725 |
|
315,784 |
|
88 |
% |
Funds from operations(1) |
205,901 |
|
82,191 |
|
151 |
% |
409,394 |
|
198,901 |
|
106 |
% |
Funds from operations per
share - basic(1) |
1.21 |
|
0.50 |
|
142 |
% |
2.42 |
|
1.20 |
|
102 |
% |
Funds from operations per
share - diluted(1) |
1.18 |
|
0.49 |
|
141 |
% |
2.35 |
|
1.18 |
|
99 |
% |
Total dividends |
25,485 |
|
1,658 |
|
1437 |
% |
50,843 |
|
3,309 |
|
1437 |
% |
Total dividends per share |
0.15 |
|
0.01 |
|
1400 |
% |
0.30 |
|
0.02 |
|
1400 |
% |
Earnings |
94,545 |
|
12,760 |
|
641 |
% |
192,361 |
|
51,260 |
|
275 |
% |
Earnings per share –
basic |
0.56 |
|
0.08 |
|
600 |
% |
1.14 |
|
0.31 |
|
268 |
% |
Earnings per share –
diluted |
0.54 |
|
0.08 |
|
575 |
% |
1.10 |
|
0.30 |
|
267 |
% |
Capital expenditures |
108,089 |
|
57,086 |
|
89 |
% |
251,420 |
|
165,937 |
|
52 |
% |
Corporate acquisition |
- |
|
- |
|
|
22,220 |
|
- |
|
|
Total payout ratio(1) |
65 |
% |
71 |
% |
-9 |
% |
74 |
% |
85 |
% |
-13 |
% |
Weighted average common shares
outstanding - basic |
169,896,849 |
|
165,343,937 |
|
3 |
% |
169,479,830 |
|
165,207,341 |
|
3 |
% |
Weighted average common shares
outstanding - diluted |
175,040,905 |
|
168,635,872 |
|
4 |
% |
174,248,420 |
|
168,110,438 |
|
4 |
% |
|
|
|
|
|
|
|
Net debt(1) |
|
|
|
991,374 |
|
1,147,563 |
|
-14 |
% |
Shareholders' equity |
|
|
|
1,749,725 |
|
1,634,299 |
|
7 |
% |
Total
assets |
|
|
|
3,899,993 |
|
3,662,499 |
|
6 |
% |
(1) This is a Non-GAAP financial measure or ratio. See "non-GAAP
and Other Financial Measures" in this news release and in the Q2
2022 MD&A(2) Excludes revenue from sale of third-party
volumes
Exploration & Development
Second quarter 2022 activity was focused only on
the accessible portions of the Sundance and Brazeau areas due to
limited spring break-up access. Target formations were also less
widespread with only Cardium and Spirit River formations
(Notikewin, Falher and Wilrich) targeted, as summarized in the
following table:
|
Field |
Total WellsDrilled |
Zone |
Sundance |
Nosehill |
Wildhay |
Ansell |
Whitehorse |
Kisku/Kakwa |
Brazeau |
|
Belly River |
|
|
|
|
|
|
|
|
Cardium |
|
|
|
|
|
|
6 |
6 |
Notikewin |
3 |
|
3 |
|
|
|
|
6 |
Falher |
|
|
|
|
|
|
|
|
Wilrich |
5 |
2 |
|
|
|
|
4 |
11 |
Bluesky |
|
|
|
|
|
|
|
|
Total |
8 |
2 |
3 |
|
|
|
10 |
23 |
Drilling costs per meter rose this past quarter
as both wet surface conditions and deeper formations in the Brazeau
area increased costs from Q1 2022. Inflation in services and
materials were responsible for the balance of the cost increase
from 2021. Peyto’s strategic alignment with specific service
providers ensured services were available in a timely manner and
helped to offset the extremely tight materials and labor market.
The Company continued to pursue Extended Reach Horizontal (“ERH”)
wells in the quarter as evidenced by the increase in average
measured depth. As well, increased stage count and frac size, in
order to enhance productivity, contributed to higher year over year
completion costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
2014 |
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
2021 |
2022Q1 |
2022Q2 |
Gross Hz Spuds |
99 |
123 |
140 |
126 |
135 |
70 |
61 |
64 |
95 |
29 |
23 |
Measured Depth (m) |
4,179 |
4,251 |
4,309 |
4,197 |
4,229 |
4,020 |
3,848 |
4,247 |
4,453 |
4,291 |
4,571 |
|
|
|
|
|
|
|
|
|
|
|
|
Drilling ($MM/well) |
$2.72 |
$2.66 |
$2.16 |
$1.82 |
$1.90 |
$1.71 |
$1.62 |
$1.68 |
$1.89 |
$2.13 |
$2.56 |
$
per meter |
$651 |
$626 |
$501 |
$433 |
$450 |
$425 |
$420 |
$396 |
$424 |
$496 |
$560 |
|
|
|
|
|
|
|
|
|
|
|
|
Completion ($MM/well) |
$1.63 |
$1.70 |
$1.21 |
$0.86 |
$1.00 |
$1.13 |
$1.01* |
$0.94 |
$1.00 |
$1.22 |
$1.16 |
Hz Length (m) |
1,409 |
1,460 |
1,531 |
1,460 |
1,241 |
1,348 |
1,484 |
1,682 |
1,612 |
1,529 |
1,602 |
$
per Hz Length (m) |
$1,153 |
$1,166 |
$792 |
$587 |
$803 |
$835 |
$679 |
$560 |
$620 |
$801 |
$727 |
$ ‘000 per Stage |
$188 |
$168 |
$115 |
$79 |
$81 |
$51 |
$38 |
$36 |
$37 |
$44 |
$40 |
*excluding Peyto’s Wildhay Montney well.
Capital Expenditures
During the second quarter of 2022, Peyto
invested $45 million on drilling (41%), $25 million on completions
(23%), $10 million on wellsite equipment and tie-ins (9%), and $21
million on facilities and major pipeline projects (19%). Final
construction of the new Chambers gas plant accounted for $6
million, while major pipeline projects in the Chambers and Cecilia
areas accounted for $8 million of the total $21 million. An
additional $6 million was spent acquiring 24 sections of new crown
land, along with $1 million for new seismic, for a total capital
investment of $108 million.
Peyto pre-purchased critical equipment and
supplies during the quarter to maintain continuous operations and
stay ahead of inflation in materials and equipment, as well as
current supply chain challenges. The Company has secured 15 km of
new pipe, 10 wellsite separators and 40 Scada/electronic control
packages for new wellsites and tie ins which added $2 million to
capital inventory.
First half 2022 capital investments included a
significant acquisition, of $22.2 million, and capital inventory
transfer of equipment for the Chambers plant, of $20.6 million,
that was not originally in Peyto’s capital budget. Similar such
expenditures are not anticipated in the second half of the year.
Capital expenditures for the balance of 2022 are anticipated to be
predominantly well related investments in drilling, completions,
wellsite equipment and tie-ins.
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 2022 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 continue to fall as more expensive basis deals are replaced
with current lower cost basis deals.
During Q2 2022, Peyto sold 30% of its natural
gas at Henry Hub, 26% at AECO, 34% at Emerson, 7% at Malin, and the
remaining 3% at Ventura. Approximately 44% of AECO sales were at
Daily prices while 56% were at Monthly prices. Net of
diversification activities of CND$0.65/Mcf (US$0.47/MMBTU), Peyto
realized a natural gas price of $5.82/Mcf before commodity risk
management reduced this price by $1.74/Mcf, to $4.08/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 2022 for an average price of $134.57/bbl, which is up 75% from
$76.92/bbl in Q2 2021, and as compared to Canadian WTI oil price
that averaged $138.44/bbl. The $3.87/bbl differential from light
oil price was down from $4.18/bbl in Q2 2021. Butane and propane
volumes were sold in combination at an average price of $57.03/bbl,
or 41% of light oil price, up 121% from the $25.76/bbl in Q2 2021,
due to continued demand increases and lower NGL supplies. Liquid
hedging losses, reduced the combined realized liquids price of
$103.04/bbl by $15.24/bbl.
In general, Peyto’s commodity risk management
program is designed to smooth out the short-term fluctuations in
the price of natural gas and natural gas liquids through future
sales. This smoothing gives greater predictability of cashflows for
the purposes of capital planning and dividend payments. The future
sales are meant to be methodical and consistent to avoid
speculation. In general, this approach will show hedging losses
when short term prices climb and hedging gains when short term
prices fall.
Peyto’s realized price by product and relative
to benchmark prices is shown in the following table.
Benchmark Commodity Prices at Various
Markets
|
Three Months ended June 30 |
|
2021 |
2022 |
AECO 7A monthly ($/GJ) |
2.70 |
5.95 |
AECO 5A daily ($/GJ) |
2.93 |
6.86 |
NYMEX (US$/MMBTU) |
2.88 |
7.39 |
Emerson2 (US$/MMBTU) |
2.70 |
6.59 |
Malin (US$/MMbtu) |
2.75 |
6.74 |
Ventura daily (US$/MMbtu) |
2.73 |
7.04 |
Canadian WTI ($/bbl) |
81.10 |
138.44 |
Conway C3 (US$/bbl) |
35.01 |
51.14 |
CND/USD Exchange rate |
1.228 |
1.277 |
Peyto Realized Commodity Price by Market (net of
diversification)
|
|
|
Three Months ended June 30 |
|
2021 |
2022 |
AECO monthly (CND$/GJ) |
2.70 |
5.95 |
AECO daily (CND$/GJ) |
2.88 |
6.97 |
NYMEX (US$/MMBTU) |
1.47 |
3.44 |
Emerson2 (US$/MMBTU) |
2.15 |
3.39 |
Malin (US$/MMBTU) |
2.11 |
6.15 |
Ventura (US$/MMBTU) |
1.59 |
5.75 |
Peyto Realized Commodity Prices |
|
|
Natural gas (CND$/mcf) |
3.24 |
6.47 |
Gas marketing diversification activities (CND$/mcf) |
(0.85) |
(0.65) |
Gas hedging (CND$/mcf) |
(0.33) |
(1.74) |
|
|
|
Oil, condensate and C5+ ($/bbl) |
76.92 |
134.57 |
Butane and propane ($/bbl) |
25.76 |
57.03 |
Liquid hedging ($/bbl) |
(7.18) |
(15.24) |
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 2022 was $6.47/Mcf, prior to $0.65/Mcf of market diversification
activities and a $1.74/Mcf hedging loss, while its realized liquids
price was $103.04/bbl, before a $15.24/bbl hedging loss, which
yielded a combined revenue stream of $5.48/Mcfe (including
$0.02/Mcfe of net third party sales). This net sales price was 88%
higher than the $2.92/Mcfe realized in Q2 2021. Cash costs of
$1.83/Mcfe were higher than the $1.21/Mcfe in Q2 2021 due to
increased royalties and transportation costs but offset by lower
interest costs. Net of royalties, Peyto’s controllable cash costs
have remained relatively consistent, averaging $0.88/Mcfe for the
past 3.5 years. These same costs are expected to fall going forward
as interest cost fall with reduced debt levels. When the total cash
costs of $1.83/Mcfe were deducted from realized revenues of
$5.48/Mcfe, it resulted in a cash netback of $3.65/Mcfe or a 67%
operating margin. Historical cash costs and operating margins are
shown in the following table:
|
2019 |
|
2020 |
|
2021 |
|
2022 |
($/Mcfe) |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Revenue |
3.20 |
|
2.60 |
|
2.50 |
|
2.76 |
|
2.30 |
|
1.73 |
|
2.15 |
|
2.71 |
|
3.70 |
|
2.92 |
|
3.33 |
|
4.42 |
|
5.25 |
|
5.48(1) |
Royalties |
0.14 |
|
0.01 |
|
0.03 |
|
0.12 |
|
0.12 |
|
0.06 |
|
0.14 |
|
0.18 |
|
0.29 |
|
0.26 |
|
0.36 |
|
0.53 |
|
0.60 |
|
0.95 |
Op
Costs |
0.35 |
|
0.34 |
|
0.31 |
|
0.34 |
|
0.39 |
|
0.36 |
|
0.32 |
|
0.31 |
|
0.36 |
|
0.35 |
|
0.35 |
|
0.32 |
|
0.41 |
|
0.39 |
Transportation |
0.19 |
|
0.19 |
|
0.19 |
|
0.19 |
|
0.19 |
|
0.17 |
|
0.16 |
|
0.15 |
|
0.17 |
|
0.22 |
|
0.23 |
|
0.23 |
|
0.28 |
|
0.27 |
G&A |
0.06 |
|
0.05 |
|
0.05 |
|
0.02 |
|
0.04 |
|
0.04 |
|
0.04 |
|
0.04 |
|
0.04 |
|
0.05 |
|
0.02 |
|
0.02 |
|
0.03 |
|
0.02 |
Interest |
0.28 |
|
0.30 |
|
0.31 |
|
0.31 |
|
0.29 |
|
0.33 |
|
0.35 |
|
0.38 |
|
0.38 |
|
0.33 |
|
0.26 |
|
0.22 |
|
0.21 |
|
0.20 |
Cash
cost pre-royalty |
0.88 |
|
0.88 |
|
0.86 |
|
0.86 |
|
0.91 |
|
0.90 |
|
0.87 |
|
0.88 |
|
0.95 |
|
0.95 |
|
0.86 |
|
0.79 |
|
0.93 |
|
0.88 |
Total Cash Costs |
1.02 |
|
0.89 |
|
0.89 |
|
0.98 |
|
1.03 |
|
0.96 |
|
1.01 |
|
1.06 |
|
1.24 |
|
1.21 |
|
1.22 |
|
1.32 |
|
1.53 |
|
1.83 |
Netback |
2.18 |
|
1.71 |
|
1.61 |
|
1.78 |
|
1.27 |
|
0.77 |
|
1.14 |
|
1.65 |
|
2.46 |
|
1.71 |
|
2.11 |
|
3.10 |
|
3.72 |
|
3.65 |
Operating Margin |
68% |
|
66% |
|
64% |
|
65% |
|
55% |
|
45% |
|
53% |
|
61% |
|
67% |
|
59% |
|
63% |
|
70% |
|
71% |
|
67% |
(1) includes $0.02/Mcfe of net third party sales in Q2 2022.
Depletion, depreciation, and amortization
charges of $1.31/Mcfe, along with a provision for deferred tax and
stock-based compensation payments resulted in earnings of
$1.67/Mcfe, or a 31% profit margin. Dividends to shareholders
totaled $0.45/Mcfe.
Activity Update
Surface conditions in Peyto’s core areas are
improving since the heavy rains in June, allowing Peyto to begin
catching up on completion and tie in activity through July and
August. To date in Q3 2022, Peyto has completed 9 gross (7.8 net)
wells and tied in 12 gross (9.2 net) wells. Despite clearing some
of the backlog, 11 gross (9.6 net) wells remain to be completed and
tied in. In addition, Peyto has yet to complete pipeline expansions
on several identified gathering system bottlenecks to fully realize
new production volumes. The average working interest of wells
brought on in the second quarter was 75%, lower than the typical
95%, which reduced the net impact of the five drilling rigs,
however the average working interest is expected to increase to the
more typical 95-100% throughout the remainder of the year. These
lower working interest locations were more proximal to the plant
site which helped achieve the initial critical mass to justify
construction.
Peyto’s Greater Brazeau area continues to grow
with the integration of both the new Chambers gas plant and the
Aurora gas plant acquired earlier this year. The Company now
expects this entire area to exceed 35,000 boe/d production by year
end with significant additional growth potential. The total
processing capacity of the three Peyto owned and operated gas
plants is approximately 250 MMcf/d which allows for gross
production growth to 45,000 boe/d in the future without the need
for additional expansion. Peyto plans to keep 2 drilling rigs
active in this area for the foreseeable future in support of these
growth plans.
Over the past year, Peyto has assembled an
additional 21 sections of Spirit River rights in the Minehead area
of Alberta to expand previous land holdings in nearby Whitehorse.
The total land position in this area now sits at 72 sections of
100% working interest land. The success of the ERH program in the
Sundance and Brazeau areas, along with recent long-lateral tests in
Whitehorse, gives Peyto the confidence to apply this design to
develop the Minehead lands. The Company’s internal estimates
suggest over 120 future Wilrich locations on the undeveloped land
with additional shallow targets in the Viking, Notikewin, and
Falher formations analogous to Peyto’s core areas in Sundance and
Brazeau. Pending continued success in the delineation program in
Minehead later this year, and into 2023, Peyto anticipates
construction of a new sweet gas processing plant capable of
handling 50 MMcf/d in the second half of 2023. The plant will be
situated immediately adjacent to the NGTL mainline system where an
existing meter station of the same capacity already exists. Like
the recent Chambers plant commissioned earlier this year, Peyto
will utilize surplus compressors and refrigeration equipment
already owned by the company and ready to deploy. This will save on
new equipment purchases and mitigate delivery delays. Under current
pricing scenarios the ERH well design should allow development of
this new play with similar high returns and short payout times as
in Peyto’s other core areas.
Management Team Addition
Peyto is pleased to announce the addition of
Tavis Carlson, as Vice President of Finance, to the Company’s
management team. Mr. Carlson was previously the CFO, VP Finance and
Corporate Secretary with Altura Energy Inc., and will join current
Controller Crissy Rafoss and CFO Kathy Turgeon to further
strengthen Peyto’s finance team.
Outlook
The outlook for natural gas prices for the
balance of 2022 and beyond remains extremely bullish. NYMEX natural
gas prices that rallied throughout Q2 to over $9 USD/MMBTU and fell
back in July have again recovered in early August. The futures
curve has strengthened similarly. This commodity strength is
ensuring Peyto can deliver on its strategy for the year which
originally envisioned deploying approximately 50% of funds flow
into capital projects while generating approximately 50% as free
cashflow. A large portion of Peyto earnings generated this year is
still planned to be retained to retire debt and strengthen the
Company’s balance sheet, while a smaller portion is to be returned
to shareholders in dividends. Then, with the balance sheet much
stronger, Peyto can look to shift that allocation going forward to
less debt repayment and greater dividends.
The resource opportunities Peyto has in
inventory continue to grow. Recent success at land sales has added
additional drilling locations and Peyto anticipates, with a
significant amount of land expiring in the Deep Basin over the next
few years, there will be even more opportunities to pursue
organically. The Company looks to expand its drilling inventory in
time to allow for material future growth in reserves and production
into expanded basin egress.
Conference Call and Webcast
A conference call will be held with senior
management of Peyto to answer questions with respect to the
Company’s Q2 2022 results on Thursday, August 11, 2022, at 9:00
a.m. Mountain Time (MT), or 11:00 a.m. Eastern Time (ET).
Access to the webcast can be found at:
https://edge.media-server.com/mmc/p/g2dndf3u. To
participate in the call, please register for the event at:
https://register.vevent.com/register/BI08c18e4e066946439537bd45654c766d.
Participants will be issued a dial in number and PIN to join the
conference call and ask questions. Alternatively, questions can be
submitted prior to the call at info@peyto.com. The conference call
will be archived on the Peyto Exploration & Development website
at www.peyto.com.
Management’s Discussion and
Analysis/Financial Statements
A copy of the second quarter report to shareholders, including
the MD&A, unaudited financial statements and related notes, is
available at
http://www.peyto.com/Files/Financials/2022/Q22022FS.pdf and at
http://www.peyto.com/Files/Financials/2022/Q22022MDA.pdf and will
be filed at SEDAR, www.sedar.com at a later date.
|
|
Jean-Paul Lachance |
Darren Gee |
President and Chief Operating Officer |
Chief Executive Officer |
August 10, 2022 |
|
|
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: the forecast costs of
future abandonment and reclamation liability; expectations
regarding future drilling inventory; the future outlook for
commodity prices; expectations regarding the Company's margin of
profit; the Company's drilling and completion program for 2022,
including the timing of the drilling program; the Company's plan
for pipeline expansions in the third quarter for full realization
of recent drilling success; the Company’s expectation that the
average working interest of wells brought on production will
increase to 95-100% throughout the remainder of the year; the
Company’s expectation the Greater Brazeau area will exceed 35,000
boe/d production by year end with significant growth potential
growth to 45,000 boe/d in the future without the need for
additional expansion; Peyto plans to keep 2 drilling rigs active in
the Greater Brazeau area for the foreseeable future in support of
these growth plans; Peyto’s plan to construct a new sweet gas
processing plant in the Minehead area capable of handling 50 MMcf/d
in the second half of 2023; the Company’s expectation that ERH well
design should allow development of the new Minehead play with
similar high returns and short payout times as in Peyto’s other
core areas; the expectation for deploying approximately 50% of
funds flow into capital projects while generating approximately 50%
as free cashflow; the Company's intention to reduce indebtedness
and increase dividends; anticipated improvement of costs and
profitability; 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, 2021 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-GAAP and Other Financial
Measures
Throughout this press release, Peyto employs
certain measures to analyze financial performance, financial
position, and cash flow. These non-GAAP and other financial
measures do not have any standardized meaning prescribed under IFRS
and therefore may not be comparable to similar measures presented
by other entities. The non-GAAP and other financial measures should
not be considered to be more meaningful than GAAP measures which
are determined in accordance with IFRS, such as net income (loss),
cash flow from operating activities, and cash flow used in
investing activities, as indicators of Peyto’s performance.
Non-GAAP Financial Measures
Funds from Operations"Funds
from operations" is a non-GAAP measure which represents cash flows
from operating activities before changes in non-cash operating
working capital and provision for future performance-based
compensation. Management considers funds from operations and per
share calculations of funds from operations to be key measures as
they demonstrate the Company’s ability to generate the cash
necessary to pay dividends, repay debt and make capital
investments. Management believes that by excluding the temporary
impact of changes in non-cash operating working capital, funds from
operations provides a useful measure of Peyto’s ability to generate
cash that is not subject to short-term movements in operating
working capital. The most directly comparable GAAP measure is cash
flows from operating activities.
|
Three Months ended June 30 |
Six Months ended June 30 |
($000) |
2022 |
2021 |
2022 |
2021 |
Cash flows
from operating activities |
220,580 |
85,914 |
406,371 |
205,666 |
Change in non-cash
working capital |
(17,179) |
(3,723) |
523 |
(6,765) |
Performance based compensation |
2,500 |
- |
2,500 |
- |
Funds from operations |
205,901 |
82,191 |
409,394 |
198,901 |
Free Funds FlowPeyto uses free
funds flow as an indicator of the efficiency and liquidity of
Peyto’s business, measuring its funds after capital investment
available to manage debt levels, pay dividends, and return capital
to shareholders through activities such as share repurchases. Peyto
calculates free funds flow as funds from operations generated
during the period less additions to property, plant and equipment,
included in cash flow from investing activities in the statement of
cash flows. By removing the impact of current period additions to
property, plant and equipment from funds from operations,
Management monitors its free funds flow to inform its capital
allocation decisions. The most directly comparable GAAP measure to
free funds flow is cash from operating activities. The following
table details the calculation of free funds flow and the
reconciliation from cash flow from operating activities to free
funds flow.
|
Three Months ended June 30 |
Six Months ended June 30 |
($000) |
2022 |
2021 |
2022 |
2021 |
Cash flows from operating activities |
220,580 |
85,914 |
406,371 |
205,666 |
Change in non-cash working
capital |
(17,179) |
(3,723) |
523 |
(6,765) |
Performance based compensation |
2,500 |
- |
2,500 |
- |
Funds from operations |
205,901 |
82,191 |
409,394 |
198,901 |
Additions to property, plant and
equipment |
(108,089) |
(57,086) |
(251,420) |
(165,937) |
Free funds flow |
97,812 |
25,105 |
157,974 |
32,964 |
Net Debt "Net debt" is a
non-GAAP financial measure that is the sum of long-term debt and
working capital excluding the current financial derivative
instruments and current portion of lease obligations. It is used by
management to analyze the financial position and leverage of the
Company. Net debt is reconciled to long-term debt which is the most
directly comparable GAAP measure.
($000) |
As atJune 30, 2022 |
|
As atDecember 31, 2021 |
|
As atJune 30, 2021 |
|
Long-term debt |
976,544 |
|
1,065,712 |
|
1,140,000 |
|
Current assets |
(221,456) |
|
(144,370) |
|
(89,687) |
|
Current liabilities |
479,777 |
|
239,620 |
|
209,740 |
|
Financial derivative instruments |
(242,247) |
|
(61,091) |
|
(111,326) |
|
Current portion of lease obligation |
(1,244) |
|
(1,123) |
|
(1,164) |
|
Net debt |
991,374 |
|
1,098,748 |
|
1,147,563 |
|
Non-GAAP Financial Ratios
Funds from Operations per
SharePeyto presents funds from operations per share by
dividing funds from operations by the Company's diluted or basic
weighted average common shares outstanding. "Funds from operations"
is a non-GAAP financial measure. Management believes that funds
from operations per share provides investors an indicator of funds
generated from the business that could be allocated to each
shareholder's equity position.
Netback per MCFE and
BOE"Netback" is a non-GAAP measure that represents the
profit margin associated with the production and sale of petroleum
and natural gas. Peyto computes "field netback per Mcfe" as
commodity sales from production less royalties, operating, and
transportation expense divided by production and "cash netback" as
"field netback" less interest and general and administration
expense divided by production. Netbacks are per unit of production
measures used to assess Peyto’s performance and efficiency. The
primary factors that produce Peyto’s strong netbacks and high
margins are a low-cost structure and the high heat content of its
natural gas that results in higher commodity prices.
|
Three Months ended June 30 |
Six Months ended June 30 |
($/Mcfe) |
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Gross Sale Price |
7.30 |
|
3.37 |
|
6.76 |
|
3.80 |
|
Realized hedging gain (loss) |
(1.84) |
|
(0.45) |
|
(1.41) |
|
(0.49) |
|
Net
Sale Price |
5.46 |
|
2.92 |
|
5.35 |
|
3.31 |
|
Net third party sales |
0.02 |
|
- |
|
0.01 |
|
- |
|
Less: Royalties |
0.95 |
|
0.26 |
|
0.78 |
|
0.28 |
|
Operating costs |
0.39 |
|
0.35 |
|
0.40 |
|
0.35 |
|
Transportation |
0.27 |
|
0.22 |
|
0.27 |
|
0.20 |
|
Field netback |
3.87 |
|
2.09 |
|
3.91 |
|
2.48 |
|
General and administrative |
0.02 |
|
0.05 |
|
0.02 |
|
0.05 |
|
Interest on long-term debt |
0.20 |
|
0.33 |
|
0.21 |
|
0.35 |
|
Cash netback ($/Mcfe) |
3.65 |
|
1.71 |
|
3.68 |
|
2.08 |
|
Cash netback ($/boe) |
21.88 |
|
10.23 |
|
22.09 |
|
12.48 |
|
Return on EquityPeyto
calculates ROE, expressed as a percentage, as Earnings divided by
the Equity. Peyto uses ROE as a measure of long-term financial
performance, to measure how effectively Management utilizes the
capital it has been provided by shareholders and to demonstrate to
shareholders the returns generated over the long term.
Return on Capital Peyto
calculates ROC, expressed as a percentage, as EBIT divided by Total
Assets less Current Liabilities per the Financial Statements. Peyto
uses ROC as a measure of long-term financial performance, to
measure how effectively Management utilizes the capital (debt and
equity) it has been provided and to demonstrate to shareholders the
returns generated over the long term.
Total Payout Ratio
"Total payout ratio" is a non-GAAP measure which
is calculated as the sum of dividends declared plus additions to
property, plant and equipment, 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.
|
Three Months ended June 30 |
Six Months ended June 30 |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Total dividends declared ($000) |
25,485 |
|
1,658 |
|
50,843 |
|
3,309 |
|
Additions to property, plant and equipment ($000) |
108,089 |
|
57,086 |
|
251,420 |
|
165,937 |
|
Total payout ($000) |
133,574 |
|
58,744 |
|
302,263 |
|
169,246 |
|
Funds from operations ($000) |
205,902 |
|
82,191 |
|
409,394 |
|
198,901 |
|
Total payout ratio (%) |
65% |
|
71% |
|
74% |
|
85% |
|
Operating Margin Operating
Margin is a non-GAAP financial ratio defined as funds from
operations divided by revenue before royalties but including
realized hedging gains/losses.
Profit Margin Profit Margin is
a non-GAAP financial ratio defined as net earnings for the quarter
divided by revenue before royalties but including realized hedging
gains/losses.
Free Cash flow Ratio Free Cash
Flow Ratio is a non-GAAP financial ratio defined as Free Funds Flow
for the quarter divided by Funds From Operations for the quarter.
Management monitors its Free Cash Flow Ratio to inform its capital
allocation decisions.
Payout ratioPayout ratio is a
non-GAAP measure which is calculated as dividends declared divided
by funds from operations. This ratio represents the percentage of
dividends that is funded by cashflow. Management uses this measure,
among others, to assess the sustainability of Peyto’s dividend.
1 This press release contains certain non-GAAP
and other financial measures to analyze financial performance,
financial position, and cash flow including, but not limited to
"operating margin", "profit margin", "return on capital", "return
on equity", "netback", "funds from operations", and "net debt".
These non-GAAP and other financial measures do not have any
standardized meaning prescribed under IFRS and therefore may not be
comparable to similar measures presented by other entities. The
non-GAAP and other financial measures should not be considered to
be more meaningful than GAAP measures which are determined in
accordance with IFRS, such as earnings, cash flow from operating
activities, and cash flow used in investing activities, as
indicators of Peyto’s performance. See "Non-GAAP and Other
Financial Measures" included at the end of this press release and
in Peyto's most recently filed MD&A for an explanation of these
financial measures and reconciliation to the most directly
comparable financial measure under IFRS.2 Operating Margin is a
non-GAAP financial ratio defined as funds from operations divided
by revenue before royalties but including realized hedging
gains/losses.3 Profit Margin is a non-GAAP financial ratio defined
as net earnings for the quarter divided by revenue before royalties
but including realized hedging gains/losses.4 Return on capital and
return on equity are non-GAAP financial ratios. See "non-GAAP and
Other Financial Measures" in this news release and in the Q2 2022
MD&A.5 Funds from operations is a non-GAAP financial measure.
See "non-GAAP and Other Financial Measures" in this news release
and in the Q2 2022 MD&A.6 Free cashflow ratio is a non-GAAP
financial measure. See "non-GAAP and Other Financial Measures" in
this news release.7 Dividend and Total Payout ratio are non-GAAP
financial measures. See "non-GAAP and Other Financial Measures" in
this news release.
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