CALGARY, Alberta, March 04, 2020 (GLOBE NEWSWIRE) — Peyto Exploration & Development Corp. (“Peyto” or the “Company”) is pleased to report operating and financial results for the fourth quarter and 2019 fiscal year. A 66% operating margin1 and 27% profit margin2 was achieved in 2019, allowing Peyto to deliver a 4% return on capital employed (“ROCE”) and an 8% return on equity (“ROE”) in the year.
PROFITABILITY = SUSTAINABILITYFree Cashflow – Generated $117 million in free cashflow in 2019 and continued to strengthen the balance sheet with $78 million in net debt reduction.Long Life, Low Decline – The PDP Reserve life index (“RLI”) increased 8% year-over-year to 9.4 years and the base production decline for 2020 is forecast in the independent reserve report at 23%.Annual Earnings per share of $0.81 – 2019 was the 20th consecutive year of profits with annual earnings of $134 million or 27% of revenue. Over the past 21 years, Peyto has invested $6.2 billion of total capital, resulting in $6.3 billion in total Funds from Operations and $2.6 billion in cumulative earnings. The Company has never incurred a write down nor recorded an impairment of its assets.Low Cash Costs of $0.95/Mcfe ($5.69/boe) – Cash costs of $0.87Mcfe, before royalties of $0.08/Mcfe, included operating costs of $0.34/Mcfe, transportation of $0.19/Mcfe, G&A of $0.04/Mcfe and interest expense of $0.30/Mcfe. Total 2019 cash costs continue to be the lowest in the industry and when combined with a realized price of $2.78/Mcfe ($16.65/boe), resulted in a cash netback of $1.83/Mcfe ($10.96/boe) or a 66% operating margin. Annual capital investments were 64% of FFO – Of the total of $323 million of FFO ($1.96/share), $206 million was invested in the drilling of 61 gross (53 net) wells. The new wells contributed 75 mmcf/d of natural gas and 4,700 bbl/d of NGLs (66% pentanes and condensate) by year end at a cost of $12,000/boe/d. While this cost for new production was up from $9,800/boe/d in the previous year, it built a more liquids-rich barrel that captured a 54% higher netback.Liquids production up 13% – Condensate and NGL production averaged 10,922 bbls/d up 13% in 2019 while natural gas production averaged 419 MMcf/d down 15% from 2018. For Q4 2019, natural gas and liquids production was 397 MMcf/d and 11,221 bbls/d. Fourth quarter liquid yields increased 26% year-over-year to 28 bbl/mmcf. Realized liquids prices were 3.7 times that of gas when gas is converted to oil on an energy equivalent basis of 6 mcf equals 1 bbl.Lower Emissions – GHG Emissions Intensity was further reduced in 2019 due to Peyto’s ongoing installation of zero emissions wellsite controllers and pumps, and by pre-connecting new wells to existing gathering systems to eliminate flaring. Since implementation of its comprehensive emissions reduction program in 2014, the Company has achieved a methane flaring and venting intensity reduction of 38% and an overall GHG emissions intensity reduction of 28%.Minimal Future Liabilities – The forecast cost of all Peyto’s future abandonment and reclamation liability (wells, sites, & facilities) is $55 million (NPV5), which represents 1.7% of the $3.3 billion of forecast future value of the total developed reserves3 (NPV5).2019 in Review
The year 2019 marked Peyto’s 21st year of successful operations with the advancement of several key plays across the Company’s Deep Basin lands. Most of the drilling took place in Cardium “sweet-spots” that exhibited higher condensate yields, particularly in the Wildhay area, while at the same time the company completed and tied in its first Montney well. In addition, a prolific Falher channel was discovered in the Ansell area and the first few development wells were brought on production. Peyto also continued to evaluate its South Brazeau acreage and late in the year commenced construction of a 16 km pipeline to connect this area to the Company’s Brazeau gas plant. The Company significantly increased its Deep Basin land position in the year with 130 net sections (equivalent to 3.6 townships of land) purchased at Crown auctions and through private acquisition. The 108 net sections of land purchased at auction was acquired at a record low price of $37/acre.The Average AECO daily natural gas price in Alberta was up 17% from the previous year to $1.67/GJ, while the NYMEX price in the US fell 19% to $2.56/MMBTU. WTI oil price was also down year over year by 13% to $57/bbl. While this lower oil price translated into lower realized natural gas liquids prices, Peyto’s blend of NGLs still sold for significantly more than gas which is why drilling was directed to increasing liquids production. This focus on increasing liquids production and reserves, with PDP liquid reserves up 23% and liquid production up 13%, came at a higher finding and development cost of $1.55/Mcfe ($9.29/boe). The Company plans to keep innovating with its Cardium well design to lower this cost in 2020 while continuing to enjoy the higher netback and value realized from increased liquids production.1. Operating Margin is defined as funds from operations divided by revenue before royalties and marketing but including realized hedging gains/losses.
2. Profit Margin is defined as net earnings for the quarter divided by revenue before royalties and marketing but including realized hedging gains/losses.
3. Total Developed Reserves includes Proved Developed Producing+Probable Additional reserves and Proved Developed Non-Producing+Probable Additional reserves.
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.
(1) Funds from operations (“FFO”) – Management uses FFO to analyze the operating performance of its energy assets. In order to facilitate comparative analysis, FFO is defined throughout this report as earnings before performance-based compensation, non‑cash and non‑recurring expenses. Management believes that FFO is an important parameter to measure the value of an asset when combined with reserve life. FFO is not a measure recognized by Canadian generally accepted accounting principles (“GAAP”) and does not have a standardized meaning prescribed by GAAP. Therefore, FFO, as defined by Peyto, may not be comparable to similar measures presented by other issuers, and investors are cautioned that FFO should not be construed as an alternative to net earnings, cash flow from operating activities or other measures of financial performance calculated in accordance with GAAP. FFO cannot be assured and future dividends may vary.The Peyto Strategy
For the past 21 years, the Peyto strategy has focused 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. This strategy of maximizing returns does not end in the field with just the efficient execution of exploration and production operations but continues on to the head office where the management of corporate costs, including the cost of capital, must be 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 the success Peyto has had deploying this strategy, through the years, is illustrated in the following table.1. Capital costs to develop new producing reserves is the PDP FD&A.
2. Cash costs not including royalties but including Operating costs, Transportation, G&A and Interest.
3. Profit above is defined as the Sales Price, less all cash costs but royalites, 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 45% of the average sales price being retained in profit over the past 21 years. This healthy margin of profit (as shown above), which benefits both royalty owners and shareholders, has been preserved despite a greater than 60% decline in commodity prices from a decade ago. Out of that profit, royalty owners have received approximately 23%, while shareholders, whose capital has been at risk, have received the balance. This margin of profit is what has and will continue to help insulate Peyto and its stakeholders from future volatility in commodity prices.Capital ExpendituresPeyto drilled 61 gross (53 net) horizontal wells in 2019 and completed 59 gross (52 net) wells for a capital investment of $151 million. The Company also invested $20.5 million in the wellsite equipment and pipeline connections to bring these wells on production. Drilling costs per well and on a per-meter basis continued to drop, due to ongoing efficiency gains like pad drilling, while completion costs on a per stage basis were also lower due to increasing stage count efficiencies. An average of 27 frac stages were pumped per well, up from 22 stages in 2018. The table below outlines the past ten years of average horizontal drilling and completion costs.*Peyto’s Montney well is excluded from drilling and completion cost comparison.The $26.5 million invested in facilities and major pipeline projects included $13 million in new pipelines and liquid handling facilities at Wildhay to accommodate the growing Cardium liquids-rich production. New condensate stabilization and storage facilities increased Wildhay’s condensate processing capacity from 1,400 bbl/d to 4,300 bbl/d and site storage from 2,000 bbl to 4,000 bbl. Other projects included the start of construction of the South Brazeau pipeline, Oldman North facility modifications, and pipeline looping projects in the Greater Sundance Area.Peyto had a very successful year of acquiring new lands during 2019 which contributed to the increase in undeveloped drilling locations in the annual reserve evaluation from 1,201 to 1,280 gross locations (630 PU and 405 PA locations). In total, 130 net sections of new lands were acquired at Crown sales and through acquisition. Within the Greater Sundance Area, 58 net sections of new Cardium lands were acquired, helping drive the 18% increase in 2P Cardium inventory to 442 locations. Much of this new land was subsequently evaluated at year end with a 98 square km 3D seismic acquisition which will help to define additional Cardium and Spirit River drilling targets.The following table summarizes the capital investments for the fourth quarter and 2019 fiscal year.ReservesUsing 64% of Funds from Operations, Peyto was successful in effectively holding reserve volumes flat in all categories, however, the significant reduction in commodity price forecasts used by the independent engineering consultants resulted in a negative change in NPV per share. Volumes on a debt adjusted share basis were further impacted by the 46% drop in Peyto share price which was used in the debt adjustment calculation. 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 Insite forecast pricing.
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