Peyto Exploration & Development Corp. (“Peyto” or the
“Company”) is pleased to report operating and financial results for
the fourth quarter and 2021 fiscal year. An improved 66% operating
margin1, combined with a 21% profit margin2, to deliver a 2021
Return on Capital Employed (“ROCE”) of 7% and Return on Equity
(“ROE”) of 10%.
Full Year and Q4 2021
Highlights:
- Funds
From Operations up 121% - Annual Funds from Operations
(“FFO”) rose from $213 million in 2020 to $470 million in 2021 (an
increase of 114% per diluted share), due to higher realized
commodity prices and higher production. Q4 2021 FFO was $166
million ($0.96/diluted share) up 119% from Q4 2020.
- Earnings
of $152 million – Annual earnings of $0.89 per diluted
share, represent a profit margin of 21% and funded $0.13/share of
dividends to shareholders. Fourth quarter 2021 earnings were $72
million, for a 31% profit margin.
- Fourth
Quarter Production up 18% - Annual production increased
14% from 79,577 boe/d to 91,051 boe/d (476 MMcf/d of natural gas
and 11,653 bbl/d of natural gas liquids). Fourth quarter field
production of 98,377 boe/d (524 MMcf/d of natural gas and 11,100
bbl/d of natural gas liquids), was up 18% over Q4 2020, before a
working-interest election relating to a prior period amended fourth
quarter volumes to 97,306 boe/d.
- Total
Cash Costs of $1.25/Mcfe (or $0.88/Mcfe before royalties)
– Full year 2021 cash costs of $0.88/Mcfe before royalties was
equivalent to 2020, and when combined with a realized price of
$3.61/Mcfe ($21.62/boe, inclusive of $5.87/boe hedging loss),
resulted in a cash netback of $2.36/Mcfe ($14.18/boe) or a 66%
operating margin. Q4 2021 cash costs of $0.79Mcfe, before royalties
of $0.53/Mcfe, were 10% lower than Q4 2020 and included operating
costs of $0.32/Mcfe, transportation of $0.23/Mcfe, G&A of
$0.02/Mcfe and interest expense of $0.22/Mcfe resulting in a 70%
operating margin.
-
PDP FD&A Costs down 8% - Proved Developed
Producing (“PDP”) Finding, Development and Acquisition (“FD&A”)
costs of $0.97/Mcfe ($5.84/boe) were down 8% from 2020 and were the
lowest in 19 years.
-
Production Addition Cost of $9,000/boe/d – The
2021 capital investment of $365MM was up 55% from $236 million in
2020, and successfully added 40,300 boe/d of new production for
$9,000/boe/d, while replacing 188% of annual production (62.5
mmboes) with new PDP Reserves. The Q4 2021 capital investment was
$109 million, up 60% from Q4 2020.
- Long
Life, Low Decline Production – Peyto’s base production
decline is forecast in the GLJ report at 28% for 2022, while its
PDP Reserve Life Index (“RLI”) is 9 years, based on Q4 2021 field
production of 98,377 boe/d, which is one of the longest PDP RLIs in
the industry.
- Lower
Emissions – Methane emissions (associated with flaring and
venting) were reduced again in 2021, now down over 55% since 2016.
With a short-term target of 75% reduction by 2023, and a
longer-term potential of utilizing local, identified Carbon Capture
and Storage reservoirs for future CO2 disposal. Peyto will continue
to be an early adopter of proven technologies that maintain its low
cost and environmental leadership in Canada’s natural gas
industry*.
- Minimal
Future Liabilities (ARO) – The forecast cost of all
Peyto’s future Asset Retirement Obligation (abandonment and
reclamation of all wells, sites, & facilities) is $62 million
(NPV5), which represents 1% of the $5.0 billion of forecast future
value of the total developed reserves3 (NPV5).
2021 in ReviewThe year 2021 was
the completion of Peyto’s 23rd year of successful operations and
marked a significant turnaround in production, price realizations
and profitability. A larger capital program funded entirely within
free cashflow grew production and reserves while higher commodity
prices for all the products Peyto produces delivered a significant
increase in funds from operations. Peyto closed two bolt-on
acquisitions which, along with the purchase of 44 sections of new
land in the year, significantly expanded the Company’s inventory of
future drilling locations. Included in one acquisition was an
underutilized gas plant which Peyto expanded and interconnected to
existing gathering systems, resulting in total Company processing
capacity increasing to 875 mmcf/d. Peyto further advanced its
extended reach horizontal well design, which utilized longer
laterals and more frac stages to improve productivity and reserve
capture resulting in reduced payout times. Industry leading low
costs were maintained while FD&A costs were improved, resulting
in improved profitability and a return to historical profit
margins. Greater earnings allowed Peyto to increase its dividend
from $0.01/quarter to $0.05/month in November.
- Operating Margin is defined as funds from operations divided by
revenue before royalties but including realized hedging
gains/losses.
- Profit Margin is defined as Earnings divided by revenue before
royalties but including realized hedging gains/losses.
- Developed Reserves is Total Proved + Probable Additional
Developed Reserves and includes Proved Developed Producing+Probable
Additional reserves and Proved Developed Non-Producing+Probable
Additional reserves.
* Please refer to Peyto’s 2021 Sustainability Report at
http://www.peyto.com/Files/Corporate%20Responsibility/ESG%20Committee/Peyto_2021_ESG_Report_v2.pdfNatural
gas volumes recorded in thousand cubic feet (mcf) are converted to
barrels of oil equivalent (boe) using the ratio of six (6) thousand
cubic feet to one (1) barrel of oil (bbl). Natural gas liquids and
oil volumes in barrel of oil (bbl) are converted to thousand cubic
feet equivalent (Mcfe) using a ratio of one (1) barrel of oil to
six (6) thousand cubic feet. This could be misleading, particularly
if used in isolation as it is based on an energy equivalency
conversion method primarily applied at the burner tip and does not
represent a value equivalency at the wellhead.
|
Three Months Ended Dec 31 |
% |
Twelve Months Ended Dec 31 |
% |
|
2021 |
2020 |
Change |
2021 |
2020 |
|
Change |
Operations |
|
|
|
|
|
|
Production |
|
|
|
|
|
|
Natural gas (mcf/d) |
517,606 |
433,226 |
19% |
476,387 |
409,619 |
|
16% |
Oil & NGLs (bbl/d) |
11,038 |
11,256 |
-2% |
11,653 |
11,308 |
|
3% |
Thousand cubic feet equivalent (mcfe/d @ 1:6) |
583,834 |
500,764 |
17% |
546,303 |
477,464 |
|
14% |
Barrels of oil equivalent (boe/d @ 6:1) |
97,306 |
83,461 |
17% |
91,051 |
79,577 |
|
14% |
Production per million common
shares (boe/d) |
582 |
506 |
15% |
550 |
483 |
|
14% |
Product prices |
|
|
|
|
|
|
Natural gas ($/mcf) |
3.58 |
2.19 |
63% |
2.82 |
1.74 |
|
62% |
Oil & NGLs ($/bbl) |
64.71 |
35.82 |
81% |
53.39 |
31.25 |
|
71% |
Operating expenses
($/mcfe) |
0.32 |
0.31 |
3% |
0.34 |
0.34 |
|
- |
Transportation ($/mcfe) |
0.23 |
0.15 |
53% |
0.21 |
0.17 |
|
24% |
Field netback ($/mcfe)
(3) |
3.34 |
2.07 |
61% |
2.69 |
1.59 |
|
69% |
General & administrative
expenses ($/mcfe) |
0.02 |
0.04 |
-50% |
0.03 |
0.04 |
|
-25% |
Interest expense ($/mcfe) |
0.22 |
0.38 |
-42% |
0.30 |
0.33 |
|
-9% |
Financial ($000,
except per share*) |
|
|
|
|
|
|
Revenue and realized hedging
gains (losses)(1) |
236,360 |
124,524 |
90% |
716,922 |
388,981 |
|
84% |
Royalties |
28,304 |
8,506 |
233% |
73,091 |
22,014 |
|
232% |
Funds from operations(2) |
166,165 |
76,013 |
119% |
469,672 |
212,710 |
|
121% |
Funds from operations per
share – basic(3) |
0.99 |
0.46 |
115% |
2.83 |
1.29 |
|
119% |
Funds from operations per
share - diluted(3) |
0.96 |
0.46 |
109% |
2.76 |
1.29 |
|
114% |
Total dividends |
16,779 |
1,649 |
918% |
21,758 |
14,840 |
|
47% |
Total dividends per
share(3) |
0.10 |
0.01 |
900% |
0.13 |
0.09 |
|
44% |
Payout ratio(3) |
10 |
2 |
400% |
5 |
7 |
|
-29% |
Earnings (loss) |
71,718 |
65,951 |
9% |
152,248 |
(35,555 |
) |
528% |
Earnings (loss) per share-
basic |
0.43 |
0.40 |
7% |
0.92 |
(0.22 |
) |
518% |
Earnings (loss) per share -
diluted |
0.42 |
0.40 |
5% |
0.89 |
(0.22 |
) |
505% |
Capital expenditures |
108,951 |
68,250 |
60% |
365,058 |
235,703 |
|
55% |
Weighted average common shares
outstanding (basic) |
167,546,601 |
164,937,898 |
2% |
166,107,837 |
164,894,920 |
|
1% |
Weighted average common shares
outstanding (diluted) |
172,582,450 |
164,955,645 |
5% |
170,137,599 |
164,895,698 |
|
3% |
|
|
|
|
|
|
|
Net debt (4) |
|
|
|
1,098,748 |
1,176,340 |
|
-7% |
Shareholders' equity |
|
|
|
1,766,006 |
1,677,473 |
|
5% |
Total assets |
|
|
|
3,784,195 |
3,601,057 |
|
5% |
|
|
|
|
|
|
|
(1) excludes revenue from sale of natural gas
volumes from third-parties(2) Non-GAAP measure that does not have
any standardized meaning under IFRS and therefore may not be
comparable to similar measures presented by other entities. The
most directly comparable GAAP measure for funds from operations is
cash flow from operating activities. Refer to the section entitled
"Non-GAAP and Other Financial Measures" contained within this
MD&A. (3) Non-GAAP ratio that does not have any standardized
meaning under IFRS and therefore may not be comparable to similar
measures presented by other entities. Includes a non-GAAP financial
measure component of funds from operations. Refer to the section
entitled "Non-GAAP and Other Financial Measures" contained within
this MD&A for an explanation of composition. (4) Non-GAAP
measure that does not have any standardized meaning under IFRS and
therefore may not be comparable to similar measures presented by
other entities. Refer to the section entitled "Non-GAAP and Other
Financial Measures" contained within this MD&A.
The Peyto Strategy
The Peyto strategy has been one of the most
consistent strategies in the Canadian Energy industry over the last
two decades and has focused simply on maximizing the returns on
shareholders’ capital by investing that capital into the profitable
development of long life, low cost, and low risk natural gas
resource plays. Peyto’s strategy of maximizing returns doesn’t just
focus on the efficient execution of exploration and production
operations in the field but continues to the head office where the
management of corporate costs, including the cost of capital, is
carefully controlled to ensure true returns are ultimately
realized. Alignment of goals between what is good for the Company,
its shareholders, and its employees and what is good for the
environment and all stakeholders is critical to ensuring that the
greatest returns are achieved. Evidence of Peyto’s success
deploying this strategy through the years is illustrated in the
following table.
($/Mcfe) |
2011 |
|
2012 |
|
2013 |
|
2014 |
|
2015 |
|
2016 |
|
2017 |
|
2018 |
|
2019 |
|
2020 |
|
2021 |
|
|
23 YearWt. Avg. |
Sales Price |
$5.47 |
|
$4.21 |
|
$4.43 |
|
$5.04 |
|
$3.83 |
|
$3.18 |
|
$3.39 |
|
$3.27 |
|
$2.78 |
|
$2.23 |
|
$3.60 |
|
|
$4.32 |
All cash
costs but royalties1 |
($0.82) |
|
($0.73) |
|
($0.75) |
|
($0.71) |
|
($0.67) |
|
($0.63) |
|
($0.68) |
|
($0.79) |
|
($0.87) |
|
($0.88) |
|
($0.88) |
|
|
($0.78) |
Capital costs2 |
($2.12) |
|
($2.22) |
|
($2.35) |
|
($2.25) |
|
($1.64) |
|
($1.44) |
|
($1.36) |
|
($1.18) |
|
($1.55) |
|
($1.06) |
|
($0.97) |
|
|
($1.67) |
Financial Benefit3 |
$2.53 |
|
$1.26 |
|
$1.33 |
|
$2.08 |
|
$1.52 |
|
$1.12 |
|
$1.35 |
|
$1.30 |
|
$0.35 |
|
$0.29 |
|
$1.75 |
|
|
$1.87 |
|
46% |
|
30% |
|
30% |
|
41% |
|
40% |
|
35% |
|
40% |
|
40% |
|
13% |
|
13% |
|
49% |
|
|
43% |
Royalty Owners |
$0.53 |
|
$0.32 |
|
$0.31 |
|
$0.37 |
|
$0.14 |
|
$0.13 |
|
$0.15 |
|
$0.13 |
|
$0.08 |
|
$0.13 |
|
$0.37 |
|
|
$0.43 |
Shareholders |
$2.00 |
|
$0.94 |
|
$1.02 |
|
$1.71 |
|
$1.38 |
|
$0.99 |
|
$1.19 |
|
$1.17 |
|
$0.27 |
|
$0.16 |
|
$1.38 |
|
|
$1.44 |
Div./Dist. paid |
$1.24 |
|
$1.04 |
|
$1.01 |
|
$1.05 |
|
$1.11 |
|
$1.01 |
|
$0.97 |
|
$0.59 |
|
$0.22 |
|
$0.08 |
|
$0.11 |
|
|
$1.11 |
- Cash costs not including royalties but including Operating
costs, Transportation, G&A and Interest.
- Capital costs to develop new producing reserves is the PDP
FD&A
- Financial Benefit above is defined as the Sales Price, less all
cash costs but royalties, less the PDP FD&A.Table may not add
due to rounding.
The consistency and repeatability of Peyto’s
operational execution in the field, combined with strict cost
control in all aspects of its business has resulted in 43% of the
average sales price being retained in financial benefit over the
past 23 years. This healthy margin of benefit (as shown above),
which rewards both royalty owners and shareholders, has been
preserved despite a greater than 34% decline in sales price from a
decade ago. Out of that financial benefit, royalty owners have
received approximately 23%, while shareholders, whose capital has
been at risk, have received the balance. This margin of benefit is
what has and will continue to help insulate Peyto and its
stakeholders from future volatility in commodity prices.
Capital Expenditures
Peyto drilled 95 gross (85.6 net) horizontal
wells in 2021 and completed 85 gross (77 net) wells for a capital
investment of $246 million. The Company also invested $25 million
in the wellsite equipment and pipeline connections to bring these
wells on production. Drilling costs per meter rose slightly due to
increased depth and longer average horizontal laterals, while
completion costs per stage were relatively consistent with the past
two years.
|
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
2021 |
Gross Hz Spuds |
52 |
70 |
86 |
99 |
123 |
140 |
126 |
135 |
70 |
61 |
64 |
95 |
Measured Depth (m) |
3,762 |
3,903 |
4,017 |
4,179 |
4,251 |
4,309 |
4,197 |
4,229 |
4,020 |
3,848 |
4,247 |
4,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Drilling ($MM/well) |
$2.76 |
$2.82 |
$2.79 |
$2.72 |
$2.66 |
$2.16 |
$1.82 |
$1.90 |
$1.71 |
$1.62 |
$1.68 |
$1.89 |
$ per meter |
$734 |
$723 |
$694 |
$651 |
$626 |
$501 |
$433 |
$450 |
$425 |
$420 |
$396 |
$424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Completion ($MM/well) |
$1.36 |
$1.68 |
$1.67 |
$1.63 |
$1.70 |
$1.21 |
$0.86 |
$1.00 |
$1.13 |
$1.01* |
$0.94 |
$1.00 |
Hz Length (m) |
1,335 |
1,303 |
1,358 |
1,409 |
1,460 |
1,531 |
1,460 |
1,241 |
1,348 |
1,484 |
1,682 |
1,612 |
$ per Hz Length (m) |
$1,017 |
$1,286 |
$1,231 |
$1,153 |
$1,166 |
$792 |
$587 |
$803 |
$751 |
$679 |
$560 |
$620 |
$ ‘000 per Stage |
$231 |
$246 |
$257 |
$188 |
$168 |
$115 |
$79 |
$81 |
$51 |
$38 |
$36 |
$37 |
*Peyto’s Montney well is excluded from drilling and completion
cost comparison.
Of the 95 wells drilled in the year, over 40%
are now expected to payout their drilling, completion, wellsite
equipment and tie-in capital in less than one year. This is the
most of any year in Peyto’s history.
In January of 2021, Peyto closed two strategic
acquisitions in Cecilia, immediately adjacent to the North of
Peyto’s Greater Sundance core area, which included a 30 mmcf/d gas
plant and interconnected pipelines. The combined acquisition cost
was $35 million and included 114 gross (106 net) producing wells
with stable, very low decline (less than 5%/yr) production of
approximately 2,900 boe/d (95% gas). During 2021, Peyto drilled and
brought onstream 20 gross (20 net) development wells on the
acquired lands and grew production to 15,000 boe/d by year end.
This production growth was accommodated through the expansion of
the Cecilia plant and by routing gas through the interconnected
gathering system to other Peyto plants in the area. The Company’s
2021 year-end reserve report also recognized 35 proved and 29
probable additional future locations on the acquired lands.
Internally, the Company has identified many more. In addition to
the Cecilia acquisitions, Peyto acquired 44 sections of new land at
various 2021 Crown land sales. While no drilling on these lands
occurred in 2021, Peyto has plans to drill 11 new wells in 2022.
Internally, the Company recognizes over 75 future locations on
these lands.
Reserves
Peyto was successful in growing reserve volumes
in all categories. The value of reserves in all categories was up
significantly as commodity price forecasts rebounded. The following
table illustrates the change in reserve volumes and Net Present
Value (“NPV”) of future cash flows, discounted at 5%, before income
tax and using the 3-Consultant average forecast pricing.
|
As at December
312021
2020 |
% Change, per diluted share |
% Change, per debtadjusted diluted share† |
Reserves (BCFe) |
|
|
|
|
Proved Producing |
1,823 |
1,647 |
6% |
6% |
Total Proved |
3,407 |
3,219 |
1% |
1% |
Proved + Probable Additional |
5,421 |
5,006 |
4% |
4% |
|
|
|
|
|
Net Present Value
($millions) Discounted at 5% |
|
|
|
|
Proved Producing |
$3,965 |
$2,778 |
36% |
71% |
Total Proved |
$6,900 |
$4,857 |
36% |
51% |
Proved + Probable Additional |
$10,191 |
$6,992 |
39% |
49% |
†Per diluted share reserves are adjusted for
changes in net debt by converting debt to equity using the Dec 31
share price of $2.92 for 2020 and share price of $9.45 for 2021.
Net Present Values are adjusted for debt by subtracting net debt
from the value prior to calculating per diluted share amounts.Note:
based on the GLJ Ltd Petroleum Consultants (“GLJ”) report effective
December 31, 2021. The GLJ 3-consultant price forecast is available
at www.GLJPC.com.
For more information on Peyto’s reserves, refer
to the Press Release dated February 16, 2022, announcing the Year
End Reserve Report which is available on the website at
www.peyto.com. The complete statement of reserves data and required
reporting in compliance with NI 51-101 will be included in Peyto's
Annual Information Form to be released in March 2022.
Fourth Quarter 2021
Peyto continued a steady drilling pace
throughout the fourth quarter of 2021 with five drilling rigs
operating across the Company’s Deep Basin areas, mostly focused on
the leaner gas formations of the Spirit River (69%) in response to
strong natural gas prices. Total capital of $82 million was
invested in the drilling of 29 gross (26.7 net) wells and the
completion of 27 gross (25.2 net) wells. In addition, $9 million
was invested in wellsite equipment and tie-ins while $14 million
was invested in facility and major pipeline infrastructure
including preparations for the new Chambers gas plant. New land
purchases accounted for $3.4 million in the quarter.
|
Field |
TotalWellsDrilled |
Zone |
Sundance |
Nosehill |
Wildhay |
Ansell/Minehead |
Whitehorse |
Kisku/Kakwa |
Brazeau |
Cardium |
2 |
|
3 |
|
|
|
4 |
9 |
Notikewin |
6 |
|
|
5 |
|
|
4 |
15 |
Falher |
|
|
|
1 |
|
|
|
1 |
Wilrich |
1 |
|
|
|
2 |
|
1 |
4 |
Bluesky |
|
|
|
|
|
|
|
|
Total |
9 |
|
3 |
6 |
2 |
|
9 |
29 |
Production volumes during the fourth quarter
2021 averaged 97,306 boe/d after accounting for a 1,071 boe/d
amendment relating to a prior period due to a recent working
interest election. This working interest election reduced both net
production and net capital, which was accounted for in the fourth
quarter. Actual fourth quarter production, prior to the adjustment,
was 98,377 boe/d comprised of 522 MMcf/d of natural gas, 6,834
bbl/d of condensate and pentanes plus, and 4,489 bbl/d of butane
and propane. Natural gas production was up 21% from Q4 2020, and
condensate and pentanes+ production was up 8%, while propane and
butane production was down 9%. The lower propane and butane
production in the quarter was attributable to a temporary outage at
a major fractionation facility. Overall, the Q4 2021 field
production rate was up 18% from the fourth quarter of 2020.
The Company’s realized price for natural gas in
Q4 2021 was $6.37/Mcf, prior to $1.41 of market diversification
activities and a $1.38/Mcf hedging loss, while its realized liquids
price was $74.69/bbl, prior to a $9.98/bbl hedging loss, which
yielded a combined revenue stream of $4.42/Mcfe. Combined revenue
per unit for Q4 2021 was up 63% from $2.71/Mcfe in Q4 2020 due to
higher commodity prices and despite the $1.42/Mcfe hedging loss.
Total cash costs in Q4 2021 were $1.33/Mcfe ($7.88/boe) up from
$1.06/Mcfe in Q4 2020 due to higher royalty and transportation
charges partially offset by lower G&A and interest costs. The
total Q4 2021 cash cost included royalties of $0.53/Mcfe (40%),
operating costs of $0.32/Mcfe (24%), transportation of $0.23/Mcfe
(18%), interest of $0.22/Mcfe (17%), and G&A of $0.02/Mcfe
(1%). Peyto generated total funds from operations of $166 million
in the quarter, up 118% from $76 million in Q4 2020, or $3.10/Mcfe
($18.60/boe), equating to a 70% operating margin. DD&A charges
of $1.37/Mcfe, along with a provision for current and future
performance-based compensation and income tax, resulted in earnings
of $1.36/Mcfe, or a 31% profit margin. Dividends to shareholders
totaled $0.31/Mcfe.
Marketing
Peyto actively markets all components of its
production stream including natural gas, condensate, pentane,
butane and propane. Natural gas was sold in 2021 at various hubs
including Henry Hub (42%), AECO (32%), Emerson (13%), Malin (8%),
Ventura (4%), and the remaining at Empress (1%), using both
physical fixed price 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 $1.16/Mcf, Peyto realized a before
hedge price of $3.78/mcf ($3.29/GJ) prior to NGTL fuel deductions.
This compares to an AECO Daily (5A) average price of $3.43/GJ and
illustrates that Peyto’s diversification activities in the year
effectively achieved the equivalent of AECO prices (96%) but
insured that Peyto was not subject to any potential AECO price
dislocations for those volumes.
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 year 2021, approximately 76% of Peyto’s gas was
locked in at a fixed price of $2.48/Mcf. Most of those contracts
were established several quarters prior at then market prices that
were lower than the eventual spot prices. For Q4 2021,
approximately 74% of Peyto’s gas was locked in at a fixed price of
$3.21/Mcf. Both full year 2021 and Q4 2021 fixed prices were lower
than AECO Daily (5A) spot prices of $3.95/Mcf and $5.07/Mcf as the
spot price rose rapidly throughout the year after these contracts
were put in place. Since Peyto began this hedging practice in 2003,
the Company has accumulated $457 million in total hedging gain
utilizing this program.
The Company’s liquids are also actively marketed
with condensate being sold on a monthly index differential linked
to West Texas Intermediate (“WTI”) oil prices. Peyto’s NGLs (a
blend of pentanes plus, butane and propane) are fractionated by a
third party in Fort Saskatchewan, Alberta and Peyto markets each
product separately. Pentanes Plus are sold on a monthly index
differential linked to WTI, with some volumes forward sold on fixed
differentials to WTI. Butane is sold as a percent of WTI or a fixed
differential to Mount Belvieu, Texas markets. Propane is sold on a
fixed differential to Conway, Kansas markets. While some products
like Butane and Propane require annual term contracts to ensure
delivery paths and markets are certain, others can be sold on the
daily spot market. Peyto’s realized product prices for 2021,
relative to 2020 and benchmark prices, are shown in the following
table.
Benchmark Commodity Prices at Various
Markets
|
Twelve Months ended December 31 |
|
2021 |
2020 |
AECO 7A monthly ($/GJ) |
3.38 |
2.12 |
AECO 5A daily ($/GJ) |
3.43 |
2.11 |
NYMEX (US$/MMBTU) |
3.84 |
1.99 |
Emerson2 (US$/MMBTU) |
3.47 |
1.84 |
Malin NGI (US$/MMbtu) |
3.97 |
2.05 |
Ventura daily (US$/MMbtu) |
5.96 |
1.85 |
Canadian WTI ($/bbl) |
85.10 |
52.53 |
Conway C3 (US$/bbl) |
43.71 |
18.60 |
CND/USD Exchange rate |
1.25 |
1.34 |
Peyto Realized Natural Gas Price by Market (net of
diversification)
|
Twelve Months ended December 31 |
|
2021 |
2020 |
AECO
monthly (CND$/GJ) |
3.46 |
2.03 |
AECO daily
(CND$/GJ) |
3.41 |
2.13 |
NYMEX
(US$/MMBTU) |
2.41 |
0.84 |
Emerson2
(US$/MMBTU) |
3.15 |
1.06 |
Malin
(US$/MMBTU) |
2.45 |
N/A |
Ventura
(US$/MMBTU) |
4.68 |
0.72 |
|
|
|
Peyto
Realized Commodity Prices |
|
|
Natural gas (CND$/mcf) |
|
4.89 |
2.65 |
Gas marketing diversification activities (CND$/mcf) |
|
(1.16) |
(0.90) |
Gas hedging (CND$/mcf) |
|
(0.91) |
(0.01) |
|
|
|
|
Oil, condensate and C5+ (CND$/bbl) |
|
80.84 |
45.11 |
Butane and propane (CND$/bbl) |
|
34.43 |
12.37 |
Liquid hedging (CND$/bbl) |
|
(8.49) |
0.52 |
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
Activity Update
Subsequent to year end 2021, Peyto successfully
negotiated and closed the purchase of a private junior producer in
the Brazeau River area for $22 million. Included in the acquisition
is 880 boe/d of net production (16 bbl/mmcf of liquids) from 20
gross producing wells (100% working interest), 82 gross (73 net)
sections of sparsely drilled lands containing 352 net
section-equivalents of zone rights (subject to various small
GORRs), and a 100% owned and operated 45 MMcf/d sweet natural gas
plant. The producing property and gas plant are located directly
adjacent to Peyto’s Brazeau core area and will offer significant
operational synergies. Considering Peyto’s success with its Cecilia
purchases in 2021, Peyto is excited to begin capitalizing on the
opportunities in this latest acquisition. The cost of the
acquisition is forecast to be fully recovered in 2022 through a
combination of cashflow from the producing property and a reduction
in corporate cash costs because of business combination
synergies.
This Brazeau River acquisition further bolsters
Peyto’s position in the Greater Brazeau area where Peyto has been
active this winter constructing its second gas plant. The new
Chambers plant will be capable of processing 50 MMcf/d of gas and
2,000 bbl/d of natural gas liquids, with the potential for future
expansion. It will also be the most energy efficient of any of
Peyto’s gas plants, with the lowest emissions intensity achieved by
utilizing advanced waste heat recovery, and both vapour and
fugitive emissions capture systems. All plant equipment is now on
location and crews are busy installing piping, electrical, and
instrumentation systems. When the new Chambers plant is
commissioned at the end of March, Peyto will have the capacity to
process approximately 250 MMcf/d of gas in the greater Brazeau area
amongst its three facilities.
Drilling operations have been continuous since
the summer of 2021, with 5 rigs drilling across the Company’s core
areas. Since the start of 2022, 22 gross (17.4 net) wells have been
drilled, 18 gross (14.3 net) wells have been brought on production,
while 17 gross (13.4 net) wells are waiting on completion and/or
tie-in. Just over half of the wells drilled to date in 2022 have
targeted the liquids rich Cardium formation in the Brazeau,
Chambers, and Wild River areas while the balance of program has
targeted the Notikewin, Falher, and Wilrich formations of the
Spirit River. Peyto will continue to be nimble, selecting drilling
locations from its extensive inventory that take advantage of
current and forecast commodity prices in order to maximize
shareholder returns. The Company’s capital inventory of pipe,
wellsite equipment and facilities that were purchased prior to 2022
will provide security of supply and mitigate inflationary pressures
on capital costs, while the pre-purchased inventory of chemicals
and lubricants will help offset operating cost inflation.
In the heart of Peyto’s Ansell area, Cascade
Power is actively constructing their 900 MW combined cycle, natural
gas fired power plant. Major equipment has arrived on location, and
they are quickly moving towards a 2023 startup which will bring
highly efficient and reliable natural gas powered electricity to
Albertans. Peyto will be directly supplying approximately 60,000
GJ/d of natural gas to this plant from producing wells in the local
area. This proximity of gas supply significantly reduces the
emissions associated with traditional gas powered electricity. Had
this plant been running in 2021, delivering power at the average
Alberta Pool price of $102/MWhr, Peyto would have realized an
equivalent price for its gas significantly in excess of the AECO
average.
2022 Outlook
World events are dramatically affecting global
energy markets so far in 2022. As COVID restrictions lift around
the world, demand for oil and natural gas is rising, putting
pressure on current supplies, and causing prices to rise. This is
compounded by the recent war in Ukraine which is adding further
energy security concerns to commodity markets. To ensure Albertans
and Canadians have reliable access to the energy they need, Peyto
continues to actively develop clean burning natural gas resources
in the most responsible and sustainable way possible.
The Company plans to continue to execute on its
2022 capital program of $350 to $400 million, which involves
running 5 drilling rigs steady throughout the year and expanding
its owned and operated infrastructure base to accommodate growing
production. This activity is expected to consume approximately half
of the available funds from operations with the remainder being
used to fund the dividend and significantly reduce Peyto’s
revolving debt. By the end of 2022, Peyto will be larger,
financially stronger, and even more capable of generating
sustainable returns for shareholders, as it moves forward in the
ever transforming energy industry.
Conference Call and Webcast
A conference call will be held with the senior
management of Peyto to answer questions with respect to the 2021
fourth quarter and full year financial results on Thursday, March
10th, 2022, at 9:00 a.m. Mountain Standard Time (MST), or 11:00
a.m. Eastern Standard Time (EST). To participate, please call
1-844-492-6041 (North America) or 1-478-219-0837 (International).
Shareholders and interested investors are encouraged to ask
questions about Peyto and its most recent results. Questions can be
submitted prior to the call at info@peyto.com. The conference call
can also be accessed through the internet
https://edge.media-server.com/mmc/p/8ypqa8hu.
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
A copy of the fourth quarter report to shareholders, including
the MD&A, audited consolidated financial statements and related
notes, is available at
http://www.peyto.com/Files/Financials/2021/Q42021FS.pdf and at
http://www.peyto.com/Files/Financials/2021/Q42021MDA.pdf and will
be filed at SEDAR, www.sedar.com at a later date.
Darren
Gee |
Jean-Paul
Lachance |
Chief Executive Officer |
President & COO |
March 9, 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 being better in 2022; expectations regarding the
Company's margin of profit; the expectation that Peyto's new
landholdings will yield twice the number of locations as were
drilled in 2021; the Company's drilling and completion program for
2022, including the timing of the drilling program and the
Company's expectation that it will fill the capacity in the Cecilia
gas plant and the timing of the same; the Company's intention to
install zero emissions instrumentation on all new well sites and
the timing of installation; the anticipated effects of installing
zero emissions instrumentation on all new well sites; the
expectation for growing production and increased funds flow beyond
the budgeted capital program for 2022; the Company's intention to
reduce indebtedness and increase dividends; anticipated improvement
of costs and profitability; 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, 2020 under the heading "Risk Factors" and
in Peyto's annual management's discussion and analysis under the
heading "Risk Management".
The Company cautions that the foregoing list of
assumptions, risks and uncertainties is not exhaustive. Readers are
cautioned that the assumptions used in the preparation of such
information, although considered reasonable at the time of
preparation, may prove to be imprecise and, as such, undue reliance
should not be placed on forward-looking statements. Peyto's actual
results, performance or achievement could differ materially from
those expressed in, or implied by, these forward-looking statements
and, accordingly, no assurance can be given that any of the events
anticipated by the forward-looking statements will transpire or
occur, or if any of them do so, what benefits Peyto will derive
there from. The forward-looking statements, including any
future-oriented financial information or financial outlook,
contained in this news release speak only as of the date hereof and
Peyto does not assume any obligation to publicly update or revise
them to reflect new information, future events or circumstances or
otherwise, except as may be required pursuant to applicable
securities laws.
Barrels of Oil Equivalent
To provide a single unit of production for
analytical purposes, natural gas production and reserves volumes
are converted mathematically to equivalent barrels of oil (BOE).
Peyto uses the industry-accepted standard conversion of six
thousand cubic feet of natural gas to one barrel of oil (6 Mcf = 1
bbl). The 6:1 BOE ratio is based on an energy equivalency
conversion method primarily applicable at the burner tip. It does
not represent a value equivalency at the wellhead and is not based
on current prices. While the BOE ratio is useful for comparative
measures and observing trends, it does not accurately reflect
individual product values and might be misleading, particularly if
used in isolation. As well, given that the value ratio, based on
the current price of crude oil to natural gas, is significantly
different from the 6:1 energy equivalency ratio, using a 6:1
conversion ratio may be misleading as an indication of value.
For further information please contact:
Darren GeePhone: (403) 261-6081
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