Peyto Delivers Strong Second Quarter Results

CALGARY, Alberta, Aug. 09, 2023 (GLOBE NEWSWIRE) -- Peyto Exploration & Development Corp. ("Peyto" or the "Company") is pleased to report operating and financial results for the second quarter of 2023. A 70% operating margin^1,2, combined with a 26% profit margin³ in the quarter delivered a return on capital employed ("ROCE"⁴) of 13% and return on equity ("ROE"⁴) of 15%, on a trailing 12-month basis. Additional highlights included:

• Funds from Operations⁵ of $0.81/diluted share – Generated $142 million in funds from operations ("FFO") in Q2 2023, down 31% from Q2 2022 despite a 71% decline in the Henry Hub daily average gas price and current income tax of $11.6 million ($nil in Q2 2022).
• Free Funds Flow⁶ of $60 million – Free funds flow totaled $60 million in Q2 2023, down from $98 million in Q2 2022 due to lower realized commodity prices and current income tax, which was partially offset by lower total capital expenditures.
• Total Cash Costs⁷ of $1.21/Mcfe (or $1.03/Mcfe before royalties) – Quarterly cash costs of $1.03/Mcfe, before royalties of $0.18/Mcfe, were 17% higher than Q2 2022 due to inflationary pressures on costs and additional transportation service. Q2 operating costs of $0.47/Mcfe, transportation of $0.29/Mcfe, G&A of $0.05/Mcfe and interest expense of $0.22/Mcfe resulted in a 70% operating margin. Peyto continues to have the lowest cash costs in the Canadian natural gas industry.
• Total Capital Expenditures⁸ of $82 million – Total capital expenditures decreased 24% compared to the second quarter of 2022 as Peyto curtailed activity in response to the decline in natural gas prices. A total of 15 gross wells (13.7 net) were drilled, 16 gross wells (14.5 net) were completed, and 14 gross wells (13.1 net) were brought on production. The Company’s drilling and completion costs per meter decreased 3% and 7%, respectively, from efficiency gains and the moderating of inflation.
• Net debt⁹ down 12% – Net debt was reduced by $122 million from Q2 2022 to $870 million. Interest costs increased 10% from $0.20/Mcfe in Q2 2022 to $0.22/Mcfe in Q2 2023, while the average Bank of Canada rate increased from 1.09% in Q2 2022 to 4.56% in Q2 2023. Net debt has fallen for 11 consecutive quarters.
• Earnings of $0.33/share, Dividends of $0.33/share ($0.11/month) – Earnings of $57 million were generated in the quarter while dividends of $58 million were paid to shareholders.
• Strong Track Record of Shareholder Returns – Over the past 11 quarters, Peyto has increased production from 78,200 boe/d to 98,777 boe/d, returned $241.2 million of dividends to shareholders, while reducing net debt by over $300 million.
  

Second Quarter 2023 in Review

Production volumes averaged 98,777 boe/d in the quarter, 5% lower than Q2 2022 due to the reduced capital expenditure program, coupled with the impact from Alberta wildfires in May and June. In response to the wildfires in Alberta, Peyto briefly shut-in two gas plants in the Brazeau area as a safety precaution and modified plant refrigeration processes to accommodate trucking restrictions due to road closures, which reduced production by approximately 1,500 boe/d in the quarter. Natural gas prices continued to fall in the quarter with Henry Hub daily averaging US$2.12/MMBtu, and AECO daily averaging $2.32/GJ, down 71% and 66%, respectively, from Q2 2022. Peyto's mechanistic hedging program helped deliver strong funds from operations, totaling $142.4 million in the quarter and down only 31% from the second quarter of 2022. Realized hedging gains totaled $47.8 million in the quarter and the Company remains well hedged for the second half of 2023 and 2024 as detailed in the marketing section below. Operating costs totaled $0.47/Mcfe in the quarter, up from $0.39/Mcfe in Q2 2022, due to inflationary pressures on operating expenses. Operating expenses have stabilized and are down 6% from the first quarter of 2023. Peyto's transportation costs increased to $0.29/Mcfe in the quarter from $0.24/Mcfe in Q1 2023 due to the addition of 150,000 GJ per day of Empress delivery service, which provides the Company access to the TC Energy Canadian Mainline and the option to sell gas outside of the AECO market. The Company's operating margin and profit margin were 70% and 26%, respectively, despite low gas prices and the impacts of wildfires. Earnings totaled $57.4 million and $57.7 million in dividends were paid to shareholders in the quarter.

(1) This is a Non-GAAP financial measure or ratio. See "non-GAAP and Other Financial Measures" in this news release and in the Q2 2023 MD&A
(2) Excludes revenue from sale of third-party volumes

Exploration & Development

The second quarter 2023 activity was spread out amongst the existing core areas of Greater Sundance and Greater Brazeau. Target formations were also widespread, as summarized in the following table.

Peyto’s average drilling and completion costs decreased in the second quarter both on an aggregate and on a per unit basis. Drilling cost per meter was reduced by 3% while completion cost per meter and cost per stage were reduced by 7% and 19%, respectively. Inflationary costs have stabilized and efficiencies in operations can now be recognized as the Company continues to drill extended reach horizontal “ERH” wells to maximize reservoir contact with each well.