CALGARY, Alberta – Peyto Exploration & Development Corp. (“Peyto” or the “Company”) is pleased to present its operating and financial results for the first quarter of the 2022 fiscal year. A 71% Operating Margin1,2 and a 34% Profit Margin3 in the quarter delivered an 9% Return on Capital4 and a 13% Return on Equity5, on a trailing twelve-month basis. Highlights for the quarter included:
- Funds from operations6 per share up 69%. Funds from Operations (“FFO”) were a Company record $203 million after hedging losses of $53 million in the quarter. Per diluted share FFO were $1.17, up 65% from $0.71 in Q1 2021. FFO in the quarter exceeded capital expenditures and acquisitions, leaving $38 million for dividends and debt reduction.
- Production per share up 13%. First quarter 2022 production of 101,549 boe/d, comprised of 536 MMcf/d of natural gas, 7,253 bbl/d of Condensate and Pentanes, and 5,020 bbl/d of Butane and Propane, was up 15% (10% per diluted share) from 88,070 boe/d in Q1 2021. Total liquid yields of 23 bbl/MMcf, or 12% of total production, was down from 27 bbl/MMcf in Q1 2021 due to an increased focus on leaner Spirit River plays and acquired production (as discussed below).
- Total cash costs of $1.53/Mcfe (or $0.93/Mcfe ($5.57/boe) excluding royalties). Industry leading low total cash costs included $0.60/Mcfe royalties, $0.41/Mcfe operating costs, $0.28/Mcfe transportation, $0.03/Mcfe G&A and $0.21/Mcfe interest, which combined with a realized price of $5.25/Mcfe to result in a $3.72/Mcfe ($22.31/boe) cash netback, up 51% from $2.46/Mcfe ($14.81/boe) in Q1 2021. Total cash costs excluding royalties were 2% lower than Q1 2021.
- Capital investment of $143 million in organic activity. A total of 29 gross wells (78% Working Interest, “WI”) were drilled in the first quarter, 30 gross wells (82% WI) were completed, and 27 gross wells (83% WI) were brought on production. In addition, a small private Company in the Brazeau area was acquired for $22 million and a new 50 MMcf/d gas plant was constructed in the Chambers area. Capital efficiency over the last 12 months was $10,000/boe/d.
- Earnings of $0.58/share, Dividends of $0.15/share. Earnings of $98 million were generated in the quarter while dividends of $25 million were paid to shareholders.
First Quarter 2022 in Review
Peyto increased its pace of capital investment in Q1 2022, drilling and connecting more gas wells and constructing a 50 MMcf/d novel, low emissions gas plant in the Chambers area. In addition, Peyto closed a strategic corporate acquisition in the Greater Brazeau area which added a 100% owned, operated and underutilized 45 MMcf/d sweet natural gas plant, 73 net sections of undeveloped lands (each section offering up to 5 target formations, therefore equivalent to over 350 net sections of deep basin rights), 880 boe/d of production from 20 net wells, along with many other operational and financial synergies. Also in the quarter, Peyto successfully drilled its longest Extended Reach Horizontal (“ERH”) well at over 6,000 m MD (Measured Depth). Production for the quarter, which was up 15% from the previous year, held relatively constant throughout the quarter as much of the drilling and new plant increases came on in April 2022. The combination of low total cash costs, higher production and higher realized commodity prices resulted in an industry leading operating margin and record funds from operations, despite the hedge losses. As previously placed hedges roll off, Peyto will begin enjoying the full effect of the higher commodity prices. A return to historic profit margins drove near record quarterly earnings of $98 million.
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 (loss), 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.
2Operating Margin is a non-GAAP financial ratio defined as funds from operations divided by revenue before royalties but including realized hedging gains/losses.
3Profit 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 is a non-GAAP financial ratio. See “non-GAAP and Other Financial Measures” in this news release and in the Q1 2022 MD&A.
5Return on equity capital is a non-GAAP financial ratio. See “non-GAAP and Other Financial Measures” in this news release and in the Q1 2022 MD&A
6 Funds from operations is a non-GAAP financial measure. See “non-GAAP and Other Financial Measures” in this news release and in the Q1 2022 MD&A.
|Three Months Ended Mar 31||%|
|Natural gas (mcf/d)||535,660||455,593||18%|
|Thousand cubic feet equivalent (mcfe/d @ 1:6)||609,295||528,419||15%|
|Barrels of oil equivalent (boe/d @ 6:1)||101,549||88,070||15%|
|Production per million common shares (boe/d)||601||534||13%|
|Natural gas ($/mcf)||4.08||3.06||33%|
|Operating expenses ($/mcfe)||0.41||0.36||14%|
|Field netback ($/mcfe)(2)||3.96||2.87||38%|
|General & administrative expenses ($/mcfe)||0.03||0.04||-25%|
|Interest expense ($/mcfe)||0.21||0.38||-45%|
|Financial ($000, except per share*)|
|Revenue and realized hedging gains (losses)(1)||286,894||175,327||64%|
|Funds from operations(2)||203,492||116,709||74%|
|Funds from operations per share – basic(2)||1.20||0.71||69%|
|Funds from operations per share – diluted(2)||1.17||0.71||65%|
|Total dividends per share(2)||0.15||0.01||1400%|
|Total payout ratio(2)||83%||95%||-13%|
|Earnings per share- basic||0.58||0.23||152%|
|Earnings per share – diluted||0.56||0.23||143%|
|Weighted average common shares outstanding (basic)||169,058,178||165,069,227||2%|
|Weighted average common shares outstanding (diluted)||173,320,559||165,069,227||5%|
(1) excludes revenue from sale of natural gas volumes from third-parties
(2) This is a Non-GAAP financial measure or ratio. See “non-GAAP and Other Financial Measures” in this news release and in the Q1 2022 MD&A.
Exploration & Development
Most of the drilling activity in the quarter was focused in the Brazeau area in support of the new Chambers gas plant and on the Cardium formation to take advantage of higher condensate prices driven by higher oil prices. Drilling activity detail by area and formation is shown in the following table:
Peyto drilled 3 ERH wells in the quarter, drilling its longest ever at 6,070 m MD with a horizontal lateral of 3,136 m. The Company has now drilled 19 ERH wells into the Cardium, Notikewin, Falher and Wilrich formations that all have greater than 2,500 m horizontal laterals. These wells will continue to be evaluated to determine how much economic benefit, in addition to the environmental benefit, this enhanced well design can deliver in Peyto’s various Deep Basin resource plays.
Q1 2022 drilling and completion cost on a per meter drilled and per stage completed basis were up over 2021 mostly due to the high percentage of Cardium wells in the first quarter. As the drilling program progresses to more ERH wells over the balance of the year, drilling and completion metrics are expected to improve, despite continued inflationary pressures.
|Gross Hz Spuds||86||99||123||140||126||135||70||61||64||95||29|
|Measured Depth (m)||4,017||4,179||4,251||4,309||4,197||4,229||4,020||3,848||4,247||4,453||4,291|
|$ per meter||$694||$651||$626||$501||$433||$450||$425||$420||$396||$424||$496|
|Hz Length (m)||1,358||1,409||1,460||1,531||1,460||1,241||1,348||1,484||1,682||1,612||1,529|
|$ per Hz Length (m)||$1,231||$1,153||$1,166||$792||$587||$803||$835||$679||$560||$620||$801|
|$ ‘000 per Stage||$257||$188||$168||$115||$79||$81||$51||$38||$36||$37||$44|
*excluding Peyto’s Wildhay Montney well.
During the first quarter of 2022, Peyto invested $52 million on drilling, $33 million on completions, $10 million on wellsite equipment and tie-ins, $47 million on facilities and major pipeline projects, $1 million on seismic and $22 million on the corporate acquisition of a private junior producer. Of the $47 million on facilities, the new Chambers plant accounted for $32 million, including $17 million transferred from capital inventory. Other major pipeline projects included $8 million in Greater Brazeau pipeline infrastructure, $3 million in additional Swanson pipeline and gathering infrastructure, and $2 million in optimization and methane reduction initiatives.
Peyto actively markets all components of its production stream including natural gas, condensate, pentane, butane and propane. Natural gas was sold in Q1 2022 at various hubs including Emerson (35%), AECO (30%), Henry Hub (20%), Malin (7%), Empress (5%), and Ventura (3%) using both physical transportation and basis transactions (diversification activities) to access those hubs. 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. Net of diversification activities of $1.17/Mcf, Peyto realized a before hedge price of $4.23/GJ prior to NGTL fuel deductions. This compares to an AECO Daily (5A) average price of $4.49/GJ.
Peyto also 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 the first quarter of 2022, approximately 69% of Peyto’s gas was locked in at a fixed price of $3.82/Mcf. Most of those contracts were established several quarters prior at then market prices that were lower than the first quarter spot prices. Since Peyto began this hedging practice in 2003, the Company has accumulated $404 million in total hedging gain utilizing this program.
The Company’s liquids are also actively marketed with condensate being sold on a monthly index differential linked to West Texas Intermediate (“WTI”) oil prices. Peyto’s NGLs (a blend of pentanes plus, butane and propane) are fractionated by a third party in Fort Saskatchewan, Alberta and Peyto markets each product separately. Pentanes Plus are sold on a monthly index differential linked to WTI, with some volumes forward sold on fixed differentials to WTI. Butane is sold as a percent of WTI or a fixed differential to Mount Belvieu, Texas markets. Propane is sold on a fixed differential to Conway, Kansas markets. While some products like Butane and Propane require annual term contracts to ensure delivery paths and markets are certain, others can be sold on the daily spot market. Peyto’s realized product prices for Q1 2022, relative to 2021 and benchmark prices, are shown in the following table.
Benchmark Commodity Prices at Various Markets
|Three Months ended March 31|
|AECO 7A monthly ($/GJ)||4.35||2.77|
|AECO 5A daily ($/GJ)||4.49||2.99|
|Malin NGI (US$/MMbtu)||5.66||3.03|
|Ventura daily (US$/MMbtu)||4.47||11.86|
|Canadian WTI ($/bbl)||119.40||73.22|
|Conway C3 (US$/bbl)||54.03||38.40|
|CND/USD Exchange rate||1.266||1.266|
Peyto Realized Natural Gas Price by Market (net of diversification)
|Three Months ended March 31|
|AECO 7A monthly (CND$/GJ)||4.35||2.78|
|AECO 5A daily (CND$/GJ)||4.48||2.91|
|Peyto Realized Commodity Prices|
|Natural gas (CND$/mcf)||6.03||4.52|
|Gas marketing diversification activities (CND$/mcf)||(1.17)||(1.04)|
|Gas hedging (CND$/mcf)||(0.78)||(0.42)|
|Condensate and C5+ (CND$/bbl)||125.81||68.57|
|Butane and propane (CND$/bbl)||52.68||30.89|
|Liquid hedging (CND$/bbl)||(14.24)||(7.21)|
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:
The Company’s realized price for natural gas in Q1 2022 was $6.03/Mcf, prior to $1.17/Mcf of market diversification activities and a $0.78/Mcf hedging loss, while its realized liquids price was $95.90/bbl, before a $14.24/bbl hedging loss, which yielded a combined revenue stream of $5.25/Mcfe. This net sales price was 42% higher than the $3.70/Mcfe realized in Q1 2021. Cash costs of $1.53/Mcfe were 23% higher than the $1.24/Mcfe in Q1 2021 due to a $0.31/Mcfe increase in royalties to 11% of realized revenue. Royalty payments to Alberta were higher in the quarter due to improved commodity prices. Peyto expects that Company royalty rates will continue to range between 10-15% even with the higher forecasted commodity prices due to the large portion of mature, low decline production that receives a lower royalty rate due to lower productivity, combined with a large portion of production from new wells that receive an initial royalty rate of 5%. When the total cash costs of $1.53/Mcfe were deducted from realized revenues of $5.25/Mcfe, it resulted in a cash netback of $3.72/Mcfe or a 71% operating margin. Historical cash costs and operating margins are shown in the following table:
|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) This is a Non-GAAP measure or ratio. See “non-GAAP and Other Financial Measures” in this news release and in the Q1 2022 MD&A.
Depletion, depreciation, and amortization charges of $1.33/Mcfe, along with a provision for deferred tax and stock-based compensation payments resulted in earnings of $1.78/Mcfe, or a 34% profit margin. Dividends to shareholders totaled $0.46/Mcfe.
Peyto has remained active since the end of the quarter with 5 rigs running which has resulted in 11 wells drilled (62% WI), 13 completed (73% WI) and 9 wells (75% WI) brought onstream. In addition, 8 wells (75% WI) remain drilled but not yet tied in. Typically, the Company operates a moderate program during the wet spring breakup period but this year plans to continue drilling with 4 rigs, weather permitting, to take advantage of strong gas prices and greater service availability. This plan will accelerate Peyto’s annual capital program into the first half of the year allowing for an option to increase the annual capital budget later in the year.
In early April, Peyto commissioned and started up its Chambers Gas plant in the Greater Brazeau core area and corporate production has averaged 106,000 boe/d since that time. This low emissions facility, located adjacent to the NGTL gathering system, has been outperforming capacity expectations and is currently processing 65 MMcf/d of gas and 2,400 bbl/d of NGLs from a successful Chambers development program of Cardium, Notikewin, and Wilrich wells. Plans for expansion are already being assessed as the Company has 2 rigs operating in the area. This is the Company’s 12th gas processing plant and brings the total processing capacity for the Greater Brazeau area up to 250 MMcf/d and the total corporate processing capacity close to 1 BCF/d.
Global geopolitical events have combined with historically low natural gas inventory levels to create decade high commodity prices for all the products Peyto develops and sells. Despite the severe backwardation in future commodity prices, new capital investments have some of the most attractive returns the Company has ever experienced. These events, combined with Peyto’s low cost, high margin production are expected to continue to deliver record cashflows allowing the Company to reduce the closing debt level this year to below the projected funds flow. This will allow Peyto to focus on increasing returns to shareholders.
With the globalization of natural gas from North American LNG export expansion, Peyto will be well positioned to participate in solving the world’s ongoing need for energy security, affordability and reliability with responsibly developed production from environmentally conscientious jurisdictions.
Conference Call and Webcast
A conference call will be held with the senior management of Peyto to answer questions with respect to the Company’s Q1 2022 results on Thursday, May 12, 2022, 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 firstname.lastname@example.org. The conference call can also be accessed through the internet https://edge.media-server.com/mmc/ndciz42i. 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 Thursday, May 12, 2022, 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. A monthly President’s Report can also be found on the website which follows the progress of the capital program and the ensuing production growth, along with video and audio commentary from Peyto’s senior management.
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/2022/Q12022FS.pdf and at http://www.peyto.com/Files/Financials/2022/Q12022MDA.pdf and will be filed at SEDAR, www.sedar.com at a later date.
|Darren Gee||Jean-Paul Lachance|
|Chief Executive Officer||President and Chief Operating Officer|
|May 11, 2022|