CALGARY, Alberta, March 07, 2024 (GLOBE NEWSWIRE) — Peyto Exploration & Development Corp. (“Peyto” or the “Company”) is pleased to report operating and financial results for the fourth quarter and 2023 fiscal year.
Full Year and Q4 2023 Highlights:
As previously announced, Peyto closed the acquisition of Repsol Canada Energy Partnership (the “Repsol Acquisition”) for cash consideration of $699 million, including post-closing adjustments. The acquisition provided Peyto with over 800 low-risk, high-quality drilling locations1 and synergistic infrastructure to allow for the optimization of production and costs in the Greater Sundance area.
Delivered $200 million in funds from operations2,3 (“FFO”), or $1.05/diluted share, and $85 million of free funds flow4 in the quarter. Annual FFO totaled $670 million or $3.72/diluted share, the third highest FFO/share in Peyto’s 25-year history. Free funds flow totaled $258 million in 2023.
The Company’s disciplined hedging and diversification program in 2023 protected revenues from the sharp decline in benchmark natural gas prices. The 2023 average daily prices for AECO and Henry Hub decreased 50% and 60%, respectively, from 2022, while Peyto’s realized natural gas price, including hedging gains, was only 13% lower. The Company exited 2023 with a strong hedge position, which currently protects approximately 70% and 56% of forecast gas production for 2024 and 2025, respectively. The securing of future revenues supports the sustainability of the Company’s dividends and capital program along with debt repayment.
Peyto generated earnings of $88 million, or $0.46/diluted share, in the quarter and $293 million, or $1.62/diluted share, in 2023. Approximately 82% of earnings, or $239 million ($1.32/share) were returned to shareholders as dividends.
As previously announced, Peyto increased reserves by 35%, 41%, and 40% in the Proved Developed Producing (“PDP”), Total Proved (“TP”), and Total Proved plus Probable (“P+P”) reserves categories, respectively. Low PDP Finding, Development and Acquisition (“FD&A”) costs of $1.21/Mcfe and average field netback of $3.51/Mcfe in 2023 resulted in 2.9 times recycle ratio. Refer to more details in the February 15, 2024 press release.
Fourth quarter production volumes averaged 120,002 boe/d (623.0 MMcf/d of natural gas, 16,175 bbls/d of NGLs), a 14% increase year-over-year as a result of the Repsol Acquisition which was partially offset by lower production additions due to the moderation of Peyto’s capital program in response to low commodity prices. Annual production averaged 104,948 during 2023.
Quarterly cash costs5 totaled $1.57/Mcfe, including royalties of $0.30/Mcfe, operating costs of $0.55/Mcfe, transportation of $0.26/Mcfe, G&A of $0.06/Mcfe and interest expense of $0.40/Mcfe. These costs include approximately $0.09/mcfe of non-recurring financing and integration costs associated with the Repsol Acquisition. Peyto’s operating costs increased over prior quarters due to the higher cost structure of the Repsol facilities. The Company expects to reduce these costs with continued optimization and increased utilization of the acquired gas processing plants. Despite this increase, Peyto continues to have the lowest cash costs in the Canadian natural gas industry.
Total capital expenditures6 were $115 million in the quarter. Peyto drilled 19 wells (18.4 net), completed 22 wells (20.8 net), and brought 24 wells (22.5 net) on production. The Company spent a total of $413 million on capital expenditures during 2023, $12 million lower than previous guidance.
Peyto delivered a 70% operating margin7 and a 28% profit margin8, resulting in a 9% return on capital employed9 (“ROCE”) and a 11% return on equity8 (“ROE”), on a trailing 12-month basis.
1 See “Drilling Locations” in this news release for further information.
2 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.
3 Funds from operations is a non-GAAP financial measure. See “non-GAAP and Other Financial Measures” in this news release and in the Q4 2023 MD&A.
4 Free funds flow is a non-GAAP financial measure. See “non-GAAP and Other Financial Measures” in this news release and in the Q4 2023 MD&A.
5 Cash costs is a non-GAAP financial measure. See “non-GAAP and Other Financial Measures” in this news release.
6 Total capital expenditures is a non-GAAP financial measure. See “non-GAAP and Other Financial Measures” in this news release and in the Q4 2023 MD&A.
7 Operating Margin is a non-GAAP financial ratio. See “non-GAAP and Other Financial Measures” in this news release.
8 Profit Margin is a non-GAAP financial ratio. See “non-GAAP and Other Financial Measures” in this news release.
9 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 10 the Q4 2023 MD&A.
Finding and development cost is a non-GAAP financial ratio. See “non-GAAP and Other Financial Measures” in this news release.
Three Months Ended Dec 31
%
Year Ended Dec 31
%
2023
2022
Change
2023
2022
Change
Operations
Production
Natural gas (Mcf/d)
622,963
552,627
13
%
553,745
543,590
2
%
NGLs (bbl/d)
16,175
12,840
26
%
12,657
12,949
-2
%
Thousand cubic feet equivalent (Mcfe/d @ 1:6)
720,014
629,667
14
%
629,686
621,286
1
%
Barrels of oil equivalent (boe/d @ 6:1)
120,002
104,944
14
%
104,948
103,548
1
%
Production per million common shares (boe/d)
631
608
4
%
587
606
-3
%
Product prices
Realized natural gas price – after hedging and diversification ($/Mcf)
3.87
4.62
-16
%
3.57
4.12
-13
%
Realized NGL price – after hedging ($/bbl)
64.32
75.95
-15
%
70.22
80.39
-13
%
Operating expenses ($/Mcfe)
0.55
0.41
34
%
0.49
0.39
26
%
Transportation ($/Mcfe)
0.26
0.22
18
%
0.27
0.26
4
%
Field netback(1) ($/Mcfe)
3.73
4.39
-15
%
3.51
3.96
-11
%
General & administrative expenses ($/Mcfe)
0.06
0.02
200
%
0.05
0.02
150
%
Interest expense ($/Mcfe)
0.40
0.21
90
%
0.29
0.21
38
%
Financial ($000, except per share)
Natural gas and NGL sales including realized hedging gains (losses)(2)
317,246
324,614
-2
%
1,046,925
1,198,999
-13
%
Funds from operations(1)
200,319
220,815
-9
%
670,471
827,596
-19
%
Funds from operations per share – basic(1)
1.05
1.28
-18
%
3.75
4.85
-23
%
Funds from operations per share – diluted(1)
1.05
1.26
-17
%
3.72
4.73
-21
%
Total dividends
63,811
25,908
146
%
239,006
102,437
133
%
Total dividends per share
0.33
0.15
120
%
1.32
0.60
120
%
Earnings
87,795
113,441
-23
%
292,635
390,663
-25
%
Earnings per share – basic
0.46
0.66
-30
%
1.64
2.29
-28
%
Earnings per share – diluted
0.46
0.64
-28
%
1.62
2.23
-27
%
Total capital expenditures(1)
115,218
115,040
0
%
412,919
506,860
-19
%
Corporate acquisition
699,358
–
699,358
22,220
3047
%
Total payout ratio(1)
89
%
64
%
39
%
97
%
74
%
31
%
Weighted average common shares outstanding – basic
190,196,093
172,726,293
10
%
178,894,013
170,739,471
5
%
Weighted average common shares outstanding – diluted
191,271,677
175,892,139
9
%
180,311,890
175,040,978
3
%
Net debt(1)
1,362,777
885,137
54
%
Shareholders’ equity
2,714,943
2,061,666
32
%
Total assets
5,909,642
4,012,523
47
%
(1) This is a Non-GAAP financial measure or ratio. See “non-GAAP and Other Financial Measures” in this news release and in the Q4 2023 MD&A
(2) Excludes revenue from sale of third-party volumes
2023 in Review
The year 2023 was the completion of Peyto’s 25th year of successful operations. The Company delivered funds from operations of $670 million and earnings of $293 million in the year, allowing Peyto to return $239 million of dividends to shareholders. Peyto moderated capital investment in the first half of the year in response to lower commodity prices and focused activities in the Greater Sundance and Brazeau areas. The Company increased activities in the second half of 2023 in response to improved commodity prices and completed the acquisition of Repsol’s remaining western Canadian assets. The Repsol Acquisition included approximately 23,000 boe/d of low-decline production, 455,000 net acres of mineral land and interests in 5 operated gas plants in the Alberta Deep Basin, directly adjacent to the Company’s Greater Sundance area. The acquisition was motivated by the internal identification of over 800 low-risk, high impact, undrilled locations, the synergies with Peyto’s lands and facilities, and the Company’s extensive knowledge of the area. Peyto immediately began drilling on the newly acquired lands after closing on October 17, 2023, and brought on 8 high quality wells by year-end. Operating and profit margins were strong in 2023 at 70% and 28%, respectively, despite the significant drop in benchmark gas prices which were offset by the Company’s disciplined hedging and diversification program.
Capital Expenditures
Peyto drilled 72 gross (67.8 net) horizontal wells in 2023 and completed 71 gross (66.8 net) wells for a capital investment of $302 million. The activity includes 1 gross (1 net) well drilled but not completed by Repsol prior to the closing of the acquisition. The Company also invested $31 million to bring 72 gross (67.8 net) wells on production using ultra-low emissions electric wellsite equipment. Drilling costs per meter were up 5% from 2022 while completion costs per meter were down 4%. The Company continued to increase the number of extended reach horizontal wells drilled in 2023, resulting in a 19% increase in average horizontal length from 2022. The combination of longer average horizontal wells and the change in species mix year over year resulted in a 25% increase in per well recovery, on a Proved Developed Producing (“PDP”) basis, as per the Company’s most recent reserves report.
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Gross Hz Spuds
86
99
123
140
126
135
70
61
64
95
95
72
Measured Depth (m)
4,017
4,179
4,251
4,309
4,197
4,229
4,020
3,848
4,247
4,453
4,611
4891
Drilling ($MM/well)
$2.79
$2.72
$2.66
$2.16
$1.82
$1.90
$1.71
$1.62
$1.68
$1.89
$2.56
$2.85
$ per meter
$694
$651
$626
$501
$433
$450
$425
$420
$396
$424
$555
$582
Completion ($MM/well)
$1.67
$1.63
$1.70
$1.21
$0.86
$1.00
$1.13
$1.01*
$0.94
$1.00
$1.35
$1.54
Hz Length (m)
1,358
1,409
1,460
1,531
1,460
1,241
1,348
1,484
1,682
1,612
1,661
1969
$ per Hz Length (m)
$1,231
$1,153
$1,166
$792
$587
$803
$751
$679
$560
$620
$813
$781
$ ‘000 per Stage
$257
$188
$168
$115
$79
$81
$51
$38
$36
$37
$47
$52
*Peyto’s Montney well is excluded from drilling and completion cost comparison.
Facilities and pipeline expenditures in 2023 totaled $64 million and included a 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. Peyto is ready to supply gas to the 900 MWh Cascade power plant, once it is fully operational, which is expected in the second quarter of 2024. Additionally, several significant pipeline projects were completed to both optimize gathering and sales in both the Greater Sundance and Greater Brazeau area.
Peyto continued to be active pursuing high quality opportunities at land sales as well as through swaps, purchases, farm-ins etc. In total, the Company spent $4.6 million to acquire 22 net sections of land across the Company’s core areas. The Company also completed a $10 million, large scale seismic purchase as part of the Repsol Acquisition that provided 3,520 square kilometers of coverage over the newly acquired lands. The purchase price represents …