Peyto Exploration & Development Corp. ("Peyto" or the
"Company") is pleased to report operating and financial results for
the first quarter of 2023. A 71% operating margin1,2, combined with
a 32% profit margin3 in the quarter delivered a return on capital
employed ("ROCE"4) of 14% and return on equity ("ROE"4) of 17%, on
a trailing 12-month basis. Additional highlights included:
- Strong
Funds from Operations5 of
$1.02/diluted share – Generated $180 million in funds from
operations ("FFO") in Q1 2023, despite lower realized commodity
prices, and current income tax of $19 million ($nil in Q1
2022).
- Free
Funds Flow6 of $58
million – Free funds flow totaled $58 million in Q1 2023,
down from $60 million in Q1 2022 due to lower realized commodity
prices and current income tax, partially offset by lower total
capital expenditures.
- Total
Cash Costs7 of $1.52/Mcfe (or
$0.99/Mcfe before royalties) – Quarterly cash costs of
$0.99/Mcfe, before royalties of $0.53/Mcfe, were 6% higher than Q1
2022 due to inflationary pressures on costs. Q1 operating costs of
$0.50/Mcfe, transportation of $0.24/Mcfe, G&A of $0.03/Mcfe and
interest expense of $0.22/Mcfe resulted in a 71% operating margin.
Peyto continues to have the lowest cash costs in the Canadian
natural gas industry.
- Total
Capital Expenditures8 of $122
million – A total of 19 gross wells (17.6 net) were
drilled in the first quarter, 14 gross wells (13.2 net) were
completed, and 14 gross wells (13.3 net) were brought on
production. Facilities and pipeline projects totaled $32 million in
the quarter and included $13 million for the construction of the 23
km large diameter pipeline that directly connects Peyto's Swanson
gas plant to the Cascade power plant.
- Net
debt9 down 18% – Net
debt was reduced by $186 million from Q1 2022 to $878 million.
Interest costs increased 5% from $0.21/Mcfe in Q1 2022 to
$0.22/Mcfe in Q1 2023, while the average Bank of Canada rate
increased from 0.33% in Q1 2022 to 4.33% in Q1 2023. Net debt has
now fallen for 10 consecutive quarters.
- Earnings
of $0.51/share, Dividends of $0.33/share ($0.11/month) –
Earnings of $90 million were generated in the quarter while
dividends of $58 million were paid to shareholders.
- Strong
Track Record of Shareholder Returns – Over the past 10
quarters, Peyto has increased production from 78,200 boe/d to
102,900 boe/d, returned $183.5 million of dividends to
shareholders, while reducing net debt by $300
million.
First Quarter 2023 in Review
Peyto was active with four drilling rigs
operating in the first quarter, as well as pipeline and
infrastructure projects including well optimization programs and
the construction of a 23 km pipeline that directly connects Peyto's
Swanson gas plant to the Cascade power plant. Production volumes
were 1% higher in the quarter compared to Q1 2022, however, FFO
decreased to $179 million from $204 million in Q1 2022, due to a
decline in realized commodity prices and a current tax provision in
the quarter of $19 million ($nil in Q1 2022). Natural
gas prices were particularly volatile in the quarter with many
benchmarks decreasing sharply from the Q1 2022 averages. The
average daily Henry Hub price was down 42% and the average daily
AECO price was down 32% in the quarter compared to the first
quarter of 2022. The average daily Malin price, however, was 235%
higher as a result of supply shortages in California. So, while
Peyto benefited from NYMEX hedging gains, the Company’s Malin
hedges resulted in hedging losses. Going forward, Peyto has 40,000
MMBtu/d of unhedged exposure to Malin prices which are expected to
remain volatile. Operating costs increased to $0.50/Mcfe in the
quarter from $0.41/Mcfe in Q1 2022 due to increased plant and well
maintenance, and inflationary pressures on insurance, power,
trucking, fuels, and lubricants. The first quarter of each year
typically represents the high-water mark for operating costs due to
increased expenses in cold weather conditions, and operating costs
are expected to taper down through 2023. Despite the significant
and rapid drop in natural gas prices in the first quarter, Peyto's
profit margin of 32% remained strong and drove quarterly earnings
of $90 million, allowing the Company to declare $58 million in
dividends to shareholders.
________________________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",
"free funds flow", "total cash costs", 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. See "non-GAAP and Other Financial Measures" in
this news release.3 Profit Margin is a non-GAAP financial ratio.
See "non-GAAP and Other Financial Measures" in this news release.4
Return on capital employed and return on equity are non-GAAP
financial ratios. See "non-GAAP and Other Financial Measures" in
this news release and in the Q1 2023 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 Q1 2023
MD&A.6 Free funds flow is a non-GAAP financial measure. See
"non-GAAP and Other Financial Measures" in this news release and in
the Q1 2023 MD&A.7 Total cash costs is a non-GAAP financial
ratio defined as the sum of royalties, operating expenses,
transportation expenses, G&A and interest, on a per Mcfe basis.
See "non-GAAP and Other Financial Measures" in this news release.8
Total capital expenditures is a non-GAAP financial measure. See
"non-GAAP and Other Financial Measures" in this news release and in
the Q1 2023 MD&A.9 Net debt is a non-GAAP financial measure.
See "non-GAAP and Other Financial Measures" in this news release
and in the Q1 2023 MD&A.
|
Three Months Ended Mar 31 |
% |
|
|
2023 |
|
2022 |
|
Change |
|
Operations |
|
|
|
Production |
|
|
|
Natural gas (Mcf/d) |
544,278 |
|
535,660 |
|
2 |
% |
NGLs (bbl/d) |
12,205 |
|
12,273 |
|
-1 |
% |
Thousand cubic feet equivalent (Mcfe/d @ 1:6) |
617,509 |
|
609,295 |
|
1 |
% |
Barrels of oil equivalent (boe/d @ 6:1) |
102,918 |
|
101,549 |
|
1 |
% |
Production per million common
shares (boe/d) |
589 |
|
601 |
|
-2 |
% |
Product prices (after
hedging) |
|
|
|
Natural gas ($/Mcf) |
3.91 |
|
4.08 |
|
-4 |
% |
NGLs ($/bbl) |
79.03 |
|
81.66 |
|
-3 |
% |
Operating expenses
($/Mcfe) |
0.50 |
|
0.41 |
|
22 |
% |
Transportation ($/Mcfe) |
0.24 |
|
0.28 |
|
-14 |
% |
Field netback(1) ($/Mcfe) |
3.82 |
|
3.96 |
|
-4 |
% |
General & administrative
expenses ($/Mcfe) |
0.03 |
|
0.03 |
|
- |
Interest expense ($/Mcfe) |
0.22 |
|
0.21 |
|
5 |
% |
Financial ($000,
except per share) |
|
|
|
Revenue and realized hedging
losses (2) |
278,332 |
|
286,894 |
|
-3 |
% |
Funds from operations(1) |
179,817 |
|
203,492 |
|
-12 |
% |
Funds from operations per
share - basic(1) |
1.03 |
|
1.20 |
|
-14 |
% |
Funds from operations per
share - diluted(1) |
1.02 |
|
1.17 |
|
-13 |
% |
Total dividends declared |
57,677 |
|
25,358 |
|
127 |
% |
Total dividends declared per
share |
0.33 |
|
0.15 |
|
120 |
% |
Earnings |
89,937 |
|
97,816 |
|
-8 |
% |
Earnings per share –
basic |
0.51 |
|
0.58 |
|
-12 |
% |
Earnings per share –
diluted |
0.51 |
|
0.56 |
|
-9 |
% |
Total capital
expenditures(1) |
121,802 |
|
143,331 |
|
-15 |
% |
Corporate acquisition |
- |
|
22,220 |
|
-100 |
% |
Total payout ratio(1) |
100% |
|
83% |
|
20 |
% |
Weighted average common shares
outstanding - basic |
174,778,048 |
|
169,058,178 |
|
3 |
% |
Weighted average common shares
outstanding - diluted |
176,570,311 |
|
173,320,559 |
|
2 |
% |
|
|
|
|
Net debt(1) |
877,827 |
|
1,064,086 |
|
-18 |
% |
Shareholders' equity |
2,305,076 |
|
1,633,557 |
|
41 |
% |
Total
assets |
4,119,135 |
|
3,852,410 |
|
7 |
% |
(1) This is a Non-GAAP financial measure or ratio. See
"non-GAAP and Other Financial Measures" in this news release and in
the Q1 2023 MD&A(2) Excludes revenue from sale of
third-party volumes
Exploration & Development
The bulk of first quarter 2023 activity was
spread out amongst the existing core areas of Greater Sundance and
Greater Brazeau. Additionally, three wells were drilled in the
Minehead/Whitehorse region as part of a delineation and farm-in
program to earn certain offsetting lands. Target formations were
also widespread, as summarized in the following table.
|
Zone |
|
Area |
Cardium |
Dunvegan |
Notikewin |
Falher |
Wilrich |
Bluesky |
Total |
Greater Sundance Area |
- |
- |
2 |
5 |
- |
- |
7 |
Greater Brazeau Area |
1 |
- |
5 |
- |
3 |
- |
9 |
Minehead/Whitehorse |
- |
- |
- |
- |
3 |
- |
3 |
Total |
1 |
- |
7 |
5 |
6 |
- |
19 |
Average measured depth drilled increased 11% in
the quarter compared to fourth quarter of 2022 as Peyto drilled the
longest average wells in the Company’s history. The pursuit of
extended reach horizontal (“ERH”) wells resulted in lower costs per
meter drilled as compared to the previous quarter. Although
inflationary pressures have eased on drilling operations,
completion costs per meter and per stage were up 5% and 13%,
respectively, due to service rate increases as compared to the
previous quarter.
|
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
2021 |
2022 |
2022 Q1 |
2022 Q2 |
2022 Q3 |
2022Q4 |
2023Q1 |
Gross Hz Spuds |
140 |
126 |
135 |
70 |
61 |
64 |
95 |
95 |
29 |
23 |
23 |
20 |
19 |
Measured
Depth (m) |
4,309 |
4,197 |
4,229 |
4,020 |
3,848 |
4,247 |
4,453 |
4,611 |
4,291 |
4,571 |
4,994 |
4692 |
5,198 |
Drilling
($MM/well) |
$2.16 |
$1.82 |
$1.90 |
$1.71 |
$1.62 |
$1.68 |
$1.89 |
$2.56 |
$2.13 |
$2.56 |
$2.90 |
$2.80 |
$3.05 |
$ per
meter |
$501 |
$433 |
$450 |
$425 |
$420 |
$396 |
$424 |
$555 |
$496 |
$560 |
$580 |
$596 |
$587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Completion ($MM/well) |
$1.21 |
$0.86 |
$1.00 |
$1.13 |
$1.01* |
$0.94 |
$1.00 |
$1.35 |
$1.22 |
$1.16 |
$1.49 |
1.58 |
$1.73 |
Hz
Length (m) |
1,531 |
1,460 |
1,241 |
1,348 |
1,484 |
1,682 |
1,612 |
1,661 |
1,529 |
1,602 |
1,654 |
1870 |
1,947 |
$ per Hz
Length (m) |
$792 |
$587 |
$803 |
$751 |
$679 |
$560 |
$620 |
$813 |
$801 |
$727 |
$902 |
$845 |
$888 |
$ ‘000 per Stage |
$115 |
$79 |
$81 |
$51 |
$38 |
$36 |
$37 |
$47 |
$44 |
$40 |
$51 |
$52 |
$59 |
*Peyto’s Montney well is excluded from drilling and completion
cost comparison.
Capital Expenditures
During the first quarter of 2023, Peyto drilled
19 gross (17.6 net) wells, completed 14 gross (13.2 net) wells, and
brought 14 gross (13.3 net) wells on production for drilling,
completions, equipping and tie-in capital of $89 million.
Facilities and major pipeline projects included $12.9 million for
the construction of the 23 km large diameter pipeline that directly
connects the Company's Swanson gas plant to the Cascade power plant
near the town of Edson, Alberta, and $18.8 million for other
infrastructure projects, including debottlenecking pipeline
projects in the Sundance and Brazeau areas. Land and seismic
investments totaled $1.3 million in the quarter.
Commodity Prices
Peyto's natural gas was sold in Q1 2023 at
various hubs including AECO, Empress, Malin, Dawn, 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 financial and
physical swaps at those hubs. In Q1 2023, net of
diversification activities of $0.62/Mcf, Peyto realized a natural
gas price of $5.35/Mcf before natural gas hedging losses reduced
this price to $3.91/Mcf. Peyto’s natural gas hedging activity
resulted in a realized loss of $1.44/Mcf, due mainly to high Malin
prices in the quarter, averaging US$18.98/MMBtu, partially offset
by realized gains on NYMEX hedges. Peyto's Malin hedges ended on
March 31, 2023 and the Company has floating price exposure on its
Malin contract through to October 31, 2024 as noted below in the
"Marketing Update" section of this news release.
Condensate and pentanes volumes were sold in Q1
2023 for an average price of $103.06/bbl, which is down 18% from
$125.81/bbl in Q1 2022 and Peyto realized a marginal premium over
the Q1 2023 Canadian WTI oil price of $102.90/bbl. Butane and
propane volumes were sold in combination at an average price of
$39.20/bbl, or 38% of light oil price, down 26% from $52.68/bbl in
Q1 2022, due to increased NGL supplies. NGL hedging gains increased
the combined realized NGL price of $76.15/bbl by $2.88/bbl to
$79.03 in Q1 2023.
Peyto’s realized prices for the three months
ended March 31, 2023 and 2022 and are shown in the following
table.
Peyto Realized
Commodity Prices |
Three Months Ended March 31 |
|
2023 |
|
2022 |
|
Natural gas ($/Mcf) |
5.97 |
|
5.52 |
|
Diversification activities ($/Mcf) |
(0.62) |
|
(0.66) |
|
Realized natural gas price – before hedging ($/Mcf) |
5.35 |
|
4.86 |
|
Gas
hedging loss ($/Mcf) |
(1.44) |
|
(0.78) |
|
Realized natural gas price – after hedging and diversification
($/Mcf) |
3.91 |
|
4.08 |
|
|
|
|
Condensate and Pentanes
Plus(1) ($/bbl) |
103.06 |
|
125.81 |
|
Other
Natural gas liquids(1) ($/bbl) |
39.20 |
|
52.68 |
|
NGL price – before hedging ($/bbl) |
76.15 |
|
95.90 |
|
NGL
hedging gain (loss) ($/bbl) |
2.88 |
|
(14.24) |
|
Realized NGL price – after hedging ($/bbl) |
79.03 |
|
81.66 |
|
Peyto gas has an average heating value of
approx. 1.15GJ/Mcf.1Liquids prices are Peyto realized prices in
Canadian dollars adjusted for fractionation, transportation, and
market differentials.
Financial Results
The Company’s realized price for natural gas in
Q1 2023 was $5.97/Mcf, prior to $0.62/Mcf of market diversification
activities and a $1.44/Mcf hedging loss, while its realized liquids
price was $76.15/bbl, before a $2.88/bbl hedging gain, which
yielded a combined revenue stream of $5.10/Mcfe (including
$0.09/Mcfe of other income). This net sales price was 3% lower than
the $5.25/Mcfe realized in Q1 2022. Total cash costs of $1.52/Mcfe
were consistent with the $1.53/Mcfe in Q1 2022 as increased
operating costs were offset by royalties. Peyto's cash netback (net
sales price plus other income plus realized gain on foreign
exchange less total cash costs), was $3.58/Mcfe driving a 71%
operating margin. Historical cash costs and operating margins are
shown in the following table:
|
2020 |
2021 |
2022 |
2023 |
($/Mcfe) |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Revenue (1) |
2.30 |
1.73 |
2.15 |
2.71 |
3.70 |
2.92 |
3.33 |
4.42 |
5.25 |
5.48 |
5.01 |
5.74 |
5.10 |
Royalties |
0.12 |
0.06 |
0.14 |
0.18 |
0.29 |
0.26 |
0.36 |
0.53 |
0.60 |
0.95 |
0.70 |
0.72 |
0.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Op
Costs |
0.39 |
0.36 |
0.32 |
0.31 |
0.36 |
0.35 |
0.35 |
0.32 |
0.41 |
0.39 |
0.38 |
0.41 |
0.50 |
Transportation |
0.19 |
0.17 |
0.16 |
0.15 |
0.17 |
0.22 |
0.23 |
0.23 |
0.28 |
0.27 |
0.26 |
0.22 |
0.24 |
G&A |
0.04 |
0.04 |
0.04 |
0.04 |
0.04 |
0.05 |
0.02 |
0.02 |
0.03 |
0.02 |
0.02 |
0.02 |
0.03 |
Interest |
0.29 |
0.33 |
0.35 |
0.38 |
0.38 |
0.33 |
0.26 |
0.22 |
0.21 |
0.20 |
0.21 |
0.21 |
0.22 |
Cash
cost pre-royalty |
0.91 |
0.90 |
0.87 |
0.88 |
0.95 |
0.95 |
0.86 |
0.79 |
0.93 |
0.88 |
0.87 |
0.86 |
0.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash Costs |
1.03 |
0.96 |
1.01 |
1.06 |
1.24 |
1.21 |
1.22 |
1.32 |
1.53 |
1.83 |
1.57 |
1.58 |
1.52 |
Netback |
1.27 |
0.77 |
1.14 |
1.65 |
2.46 |
1.71 |
2.11 |
3.10 |
3.72 |
3.65 |
3.44 |
4.16 |
3.58 |
Operating Margin |
55% |
45% |
53% |
61% |
67% |
59% |
63% |
70% |
71% |
67% |
69% |
72% |
71% |
(1) Revenue includes other income, net third party sales
and realized gains on foreign exchange.
Depletion, depreciation, and amortization
charges of $1.39/Mcfe, along with provisions for current tax,
deferred tax and stock-based compensation payments resulted in
earnings of $1.62/Mcfe, or a 32% profit margin. Dividends to
shareholders totaled $1.04/Mcfe.
Marketing Update
HedgingIn 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 currently has 317,977 Mcf/d fixed with
financial hedges for April 1, 2023 to December 31, 2023 at
$4.49/Mcf. The Company's current financial commodity hedges and
foreign exchange forward contracts are summarized below:
Natural
gas(1) |
Units |
Q2 2023 |
Q3 2023 |
Q4 2023 |
2024 |
2025 |
AECO (7A & 5A) |
GJ/d |
247,500 |
247,500 |
134,783 |
82,288 |
63,534 |
NYMEX |
MMBtu/d |
130,000 |
130,000 |
183,043 |
119,454 |
- |
Total volume(2) |
Mcf/d |
334,487 |
334,487 |
285,137 |
181,148 |
55,247 |
Average
Price(3) |
$/Mcf |
4.19 |
4.19 |
5.20 |
5.33 |
4.47 |
(1) |
Includes financial hedges only. Fixed-price physical and basis
contracts are excluded. See the "Marketing" section in Peyto's Q1
2023 MD&A for additional information on hedge contracts and
prices. |
(2) |
1MMBtu = 1.0551GJ and Peyto's gas
has an average heating value of approx. 1.15GJ/Mcf. |
(3) |
Average price is calculated using
a weighted average of notional volumes and prices, converted to
$/Mcf. USD contracts are converted at 1.335 CAD/USD FX rate. |
NGLs |
Units |
Q2 2023 |
Q3 2023 |
Q4 2023 |
2024 |
2025 |
WTI CAD |
|
|
|
|
|
|
Fixed price swaps |
Bbl/d |
3,700 |
2,700 |
1,500 |
199 |
- |
Average Price |
$/Bbl |
108.47 |
105.46 |
103.37 |
100.74 |
- |
WTI CAD |
|
|
|
|
|
|
Collars |
Bbl/d |
- |
500 |
500 |
124 |
- |
Put |
$/Bbl |
- |
95.00 |
90.00 |
90.00 |
- |
Call |
$/Bbl |
- |
115.25 |
116.25 |
110.20 |
- |
Foreign Exchange Forwards |
Units |
Q2 2023 |
Q3 2023 |
Q4 2023 |
H1 2024 |
H2 2024 |
Amount |
USD |
$30 million |
$30 million |
$30 million |
$60 million |
- |
Exchange Rate |
CAD/USD |
1.3601 |
1.3601 |
1.3601 |
1.350 |
- |
Diversification
The Company's natural gas sales are diversified
with exposure to hubs other than AECO, including Henry Hub,
Ventura, Emerson 2, Empress, Malin, Dawn and Chicago. On April 1,
2023, Peyto’s firm delivery service to the Empress hub increased by
150,000 GJ per day upon completion of the NGTL 2021 expansion
program. Empress service provides Peyto access to the TC Energy
Canadian Mainline and the option to sell gas outside of the AECO
market. As a result, Peyto has no exposure to AECO prices for the
rest of 2023 and, accounting for projected volume growth, limited
exposure in 2024. Peyto anticipates that AECO prices will remain
weak due to elevated gas supply in western Canada coupled with
substantial NGTL system maintenance planned during summer.
Peyto's construction of the 23 km Cascade
pipeline is now finished with just connection work remaining at
both ends of the line. The Cascade power plant is a highly
efficient 900-megawatt combined cycle power plant and is expected
to start operations in late 2023. Peyto will supply 60,000 GJ/d
(approximately 10% of current gas production) under a 15-year gas
supply agreement to this plant.
Details of Peyto’s ongoing marketing and diversification efforts
are available on Peyto’s website at:
https://www.peyto.com/Files/Operations/Marketing/Marketing_May_2023.pdf
Activity Update
Since the end of the quarter Peyto has reduced
activity to three rigs as part of the current breakup plan.
Activity will remain focused in the Chambers area of Brazeau as
well as Greater Sundance where road and lease conditions are
suitable, and a high level of operational efficiency can be
maintained. Since the end of the quarter, 5 gross (4.4 net) wells
have been drilled, 8 gross (7.4 net) wells have been brought on
production, and 7 gross (6.7 net) wells are waiting on completion
and/or tie-in. Peyto’s efforts to maximize value by extending
lateral length has continued through the first part of the year
with average lateral lengths approaching 2,000 meters. Results from
these wells continue to meet or exceed expectations, particularly
in the underdeveloped Falher channels that Peyto has been targeting
recently. Development continues for the assets acquired in 2022 in
Brazeau with Peyto drilling 8 gross (8 net) wells since acquiring
these lands and growing production from 500 to 6,000 boe/d. This
activity, in conjunction with the sales line and gathering line
modifications made at the Aurora plant earlier this year, has
allowed for maximum utilization of the Aurora facility.
The remainder of this year’s drilling program focuses on a species
mix that generates the best overall returns, however, this program
will remain flexible and could pivot toward a higher liquids rich
content, such as the Cardium, where the Company could deploy the
ERH design to improve efficiencies. Peyto's projections of returns
continue to be strong, with a forecasted full-cycle internal rate
of return of approximately 40% for 2023 based on current strip
pricing, year-to-date results, and current drilling plans for the
remainder of the year.
Peyto recently installed and commissioned its
first waste heat recovery ("WHR") system at Chambers which will
reduce fuel usage and emissions. The project is currently in the
evaluation phase but economic success of the WHR system in Chambers
will drive additional application across Peyto’s vast plant
processing capacity, further reducing Peyto’s fuel usage and
emissions.
Alberta Wildfires
Peyto has been fortunate that although many of
the wildfires have been proximal, they have not directly impacted
the Company’s major infrastructure. However, on May 5th, Peyto shut
down two gas plants in the Brazeau area as a precautionary measure.
The Company was able to mitigate the temporary production losses by
redirecting some volumes to other plants through Peyto’s integrated
gathering system. Peyto also adjusted refrigeration processes to
minimize liquid production while third party trucking and pipeline
services were suspended. Start-up of the Brazeau plant has already
begun, however, sustained production will depend on continued
access into the area and the ability to truck and transfer out
liquids. At this time, the Company believes the production impact
for the second quarter will be a reduction between 1,000 to 2,000
boe/d, however, the situation continues to be dynamic.
Peyto’s drilling and completion operations have
continued throughout most of this period, however, they will remain
flexible providing access into areas, oilfield services, and safe
work conditions remain. The Peyto team remains ready to respond to
changing conditions to keep the Company’s personnel and equipment
safe.
Outlook
The long-term outlook for natural gas remains
positive with increasing demand in North America and around the
world. Future build out of LNG export projects in Canada and the US
should play a major role in supplying clean, reliable natural gas
to many nations currently limited to dirtier fuels. Peyto’s low
cost, long reserve life, low emission assets are well-positioned in
the Deep Basin and the Company can react quickly to increasing
market demand. Peyto’s strategic diversification to gas markets
across North America provides excellent exposure to premium
seasonal markets such as Malin in California and Ventura in Chicago
while reducing the risk of selling into potential dislocated
markets like AECO.
The Company’s capital plan to spend $425-$475
million in 2023 is specifically designed to be flexible in the back
half of the year to adjust to changing commodity prices and
economic conditions. In the meantime, Peyto will target the lower
range of the capital guidance while the Company’s systematic
hedging and market diversification programs help secure revenues
for future dividends and continued strengthening of the balance
sheet.
Conference Call and Webcast
A conference call will be held with senior
management of Peyto to answer questions with respect to the
Company’s Q1 2023 results on Thursday, May 11, 2023, 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/gco3uorv.To
participate in the call, please register for the event at:
https://register.vevent.com/register/BId0d75796da4a4f139ddf7bc23372835a.
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.
Annual General Meeting
Peyto’s Annual General Meeting of Shareholders
is scheduled for 3:00 p.m. on Wednesday, May 17, 2023, at the Eau
Claire Tower, +15 level, 600 – 3rd Avenue SW, Calgary, Alberta.
Shareholders who do not wish to attend are encouraged to visit the
Peyto website at www.peyto.com where there is a wealth of
information designed to inform and educate investors and where a
copy of the AGM presentation will be posted.
Management’s Discussion and Analysis and
Financial Statements
A copy of the first quarter report to
shareholders, including the MD&A, unaudited consolidated
financial statements and related notes, is available
at https://www.peyto.com/Files/Financials/2023/Q12023FS.pdf
and at https://www.peyto.com/Files/Financials/2023/Q12023MDA.pdf
and will be filed at SEDAR, www.sedar.com at a later date.
Jean-Paul
Lachance President
& Chief Executive
Officer May
10, 2023Phone: (403) 261-6081
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 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: management's
assessment of Peyto's future plans and operations; expectation that
Malin prices will remain volatile; expectation that operating costs
will taper down through 2023; the 2023 capital expenditure program;
project economics including internal rate of return; the
commencement date of the Cascade Power Plant; success of the WHR
system resulting in additional applications across Peyto’s plant
processing capacity, further reducing Peyto’s fuel usage and
emissions; expectations regarding future drilling plans and
inventory; expectations that the Alberta wildfire production impact
for the second quarter will be a reduction between 1,000 to 2,000
boe/d; the timing of Peyto's annual general meeting; and the
Company's overall strategy and focus.
The forward-looking statements contained herein
are subject to numerous known and unknown risks and uncertainties
that may cause Peyto's actual financial results, performance or
achievement in future periods to differ materially from those
expressed in, or implied by, these forward-looking statements,
including but not limited to, risks associated with: continued
changes and volatility in general global economic conditions
including, without limitations, the economic conditions in North
America and public health concerns (including the impact of the
COVID-19 pandemic); continued fluctuations and volatility in
commodity prices, foreign exchange or interest rates; continued
stock market volatility; imprecision of reserves estimates;
competition from other industry participants; failure to secure
required equipment; increased competition; the lack of availability
of qualified operating or management personnel; environmental
risks; changes in laws and regulations including, without
limitation, the adoption of new environmental and tax laws and
regulations and changes in how they are interpreted and enforced;
the results of exploration and development drilling and related
activities; and the ability to access sufficient capital from
internal and external sources. In addition, to the extent that any
forward-looking statements presented herein constitutes
future-oriented financial information or financial outlook, as
defined by applicable securities legislation, such information has
been approved by management of Peyto and has been presented to
provide management's expectations used for budgeting and planning
purposes and for providing clarity with respect to Peyto's
strategic direction based on the assumptions presented herein and
readers are cautioned that this information may not be appropriate
for any other purpose. Readers are encouraged to review the
material risks discussed in Peyto's annual information form for the
year ended December 31, 2022 under the heading "Risk Factors" and
in Peyto's annual management's discussion and analysis under the
heading "Risk Factors".
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.
Thousand Cubic Feet Equivalent
(Mcfe)
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.
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 March 31 |
($000) |
2023 |
2022 |
Cash flows from operating activities |
183,606 |
185,790 |
Change in non-cash working capital |
(3,789) |
17,702 |
Decommissioning expenditures |
- |
- |
Performance based compensation |
- |
- |
Funds from operations |
179,817 |
203,492 |
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 March 31 |
($000) |
2023 |
2022 |
Cash flows from operating activities |
183,606 |
185,790 |
Change in non-cash working capital |
(3,789) |
17,702 |
Decommissioning expenditures |
- |
- |
Performance based compensation |
- |
- |
Funds from operations |
179,817 |
203,492 |
Total capital expenditures |
(121,802) |
(143,331) |
Free funds flow |
58,015 |
60,161 |
Total Capital Expenditures
Peyto uses the term total capital expenditures
as a measure of capital investment in exploration and production
activity, as well as property acquisitions and divestitures, and
such spending is compared to the Company's annual budgeted capital
expenditures. The most directly comparable GAAP measure for total
capital expenditures is cash flow used in investing activities. The
following table details the calculation of cash flow used in
investing activities to total capital expenditures.
|
Three Months Ended March 31 |
($000) |
2023 |
2022 |
Cash flows
used in investing activities |
126,250 |
142,076 |
Change in prepaid
capital |
(163) |
16,773 |
Corporate
acquisitions |
- |
(22,220) |
Change
in non-cash working capital relating to investing activities |
(4,285) |
6,702 |
Total capital expenditures |
121,802 |
143,331 |
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 and current
portion of decommissioning provision. 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.
($000) |
As at March 31, 2023 |
As at December 31, 2022 |
As at March 31, 2022 |
Long-term debt |
734,132 |
759,176 |
1,039,984 |
Current assets |
(270,430) |
(218,550) |
(172,058) |
Current liabilities |
283,023 |
471,858 |
492,187 |
Financial derivative instruments |
133,899 |
(126,081) |
(294,794) |
Current portion of lease obligation |
(1,276) |
(1,266) |
(1,233) |
Decommissioning provision - current |
(1,521) |
- |
- |
Net debt |
877,827 |
885,137 |
1,064,086 |
Non-GAAP Financial Ratios
Funds from Operations per
SharePeyto presents funds from operations per share by
dividing funds from operations by the Company's diluted or basic
weighted average common shares outstanding. "Funds from operations"
is a non-GAAP financial measure. Management believes that funds
from operations per share provides investors an indicator of funds
generated from the business that could be allocated to each
shareholder's equity position.
Netback per MCFE and
BOE"Netback" is a non-GAAP measure that represents the
profit margin associated with the production and sale of petroleum
and natural gas. Peyto computes "field netback per Mcfe" as
commodity sales from production, plus net third party sales, if
any, plus other income, less royalties, operating, and
transportation expense divided by production. "Cash netback" is
calculated as "field netback" less interest, less general and
administration expense and plus or minus realized gain (loss) on
foreign exchange, divided by production. Netbacks are per unit of
production measures used to assess Peyto’s performance and
efficiency. The primary factors that produce Peyto’s strong
netbacks and high margins are a low-cost structure and the high
heat content of its natural gas that results in higher commodity
prices.
|
Three Months Ended March 31 |
($/Mcfe) |
2023 |
2022 |
Gross Sale Price |
6.22 |
6.22 |
Realized hedging loss |
(1.21) |
(0.97) |
Net Sale Price |
5.01 |
5.25 |
Net third party sales |
- |
- |
Other income |
0.08 |
- |
Royalties |
(0.53) |
(0.60) |
Operating costs |
(0.50) |
(0.41) |
Transportation |
(0.24) |
(0.28) |
Field netback(1) |
3.82 |
3.96 |
Net general and
administrative |
(0.03) |
(0.03) |
Interest on long-term
debt |
(0.22) |
(0.21) |
Realized gain on foreign exchange |
0.01 |
- |
Cash netback(1) ($/Mcfe) |
3.58 |
3.72 |
Cash
netback(1) ($/boe) |
21.47 |
22.31 |
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 EmployedPeyto
calculates ROCE, expressed as a percentage, as EBIT divided by
Total Assets less Current Liabilities per the Financial Statements.
Peyto uses ROCE 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 March 31 |
($000, except total payout ratio) |
2023 |
2022 |
Total dividends declared |
57,678 |
25,358 |
Total capital expenditures |
121,802 |
143,331 |
Total payout |
179,480 |
168,689 |
Funds from operations |
179,817 |
203,492 |
Total payout ratio (%) |
100% |
83% |
Operating Margin Operating
Margin is a non-GAAP financial ratio defined as funds from
operations, before current tax, divided by revenue before royalties
but including realized hedging gains/losses and third-party sales
net of purchases.
Profit Margin Profit Margin is
a non-GAAP financial ratio defined as net earnings divided by
revenue before royalties but including realized hedging
gains/losses and third-party sales net of purchases.
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.
Total Cash CostsTotal cash
costs is a non-GAAP financial ratio defined as the sum of
royalties, operating expenses, transportation expenses, G&A and
interest, on a per Mcfe basis. Peyto uses total cash costs to
assess operating margin and profit margin.
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