Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Peyto Exploration & Development Corp (PEYUF, Financial) generated $155 million of funds from operations and $51 million of earnings despite low gas prices.
- The company's systematic hedging program realized $68 million in gains, contributing significantly to their financial performance.
- Peyto's operating margin of 62% is commendable, especially in a low gas price environment, showcasing efficient business operations.
- The drilling program achieved record average lateral lengths of over 2,300 meters, indicating operational efficiency and potential for increased productivity.
- The newly acquired Repsol lands showed a sustained 30% increase in average well productivity, with costs similar to or slightly cheaper than legacy lands.
Negative Points
- Low gas prices have been a significant challenge, with AECO prices being the lowest since 2019.
- The company had to shut down the sour gas sweetening side of the Edson gas plant due to economic inefficiencies, impacting production.
- There is a potential risk of a rail strike affecting frac sand availability and the ability to move liquids, although the company does not foresee a significant impact.
- Peyto has shut in some production and is managing existing production to minimize exposure to low gas prices, which could affect overall output.
- The company is targeting a year-end exit of 135,000 BOEs a day, contingent on gas prices improving, which introduces uncertainty.
Q & A Highlights
Q: One of your deep basin producers have been seeing capital efficiency benefits as a result of using higher resolution seismic data. Is this something that you've been doing as well? And if not, do you see there be an opportunity here to unlock?
A: We've always used seismic data to help guide us, especially on the fluvial channel systems in the Deep Basin, and for structural reasons. We marry seismic data with well control to make drilling decisions and reduce risk. High-resolution seismic data is not the only tool we use, but it continues to aid us.
Q: There is a looming rail strike that could start in the next week or so. If rail service was out for a week or two, do you see that having an impact on your business in terms of frac sand availability or the ability to move liquids?
A: We don't see an impact on our business from a rail strike. We have enough products and storage for NGLs, and we also have on-site storage. If the strike lasts a long time, we might look at warming up our plants and reducing propane, but we don't foresee a significant impact.
Q: Can you provide some color on managing your capital and building productive capacity? How many wells will you have ready to come on production in a better price environment?
A: We have about 10 drilled and uncompleted wells (DUCs) right now. We will likely bring them on at some rate, but we don't see having a large amount of DUCs. We will manage existing production and new production to test the gathering system and build productive capability for when prices improve.
Q: You've previously talked about maintaining relatively flat production through Q3. Is that still the intention?
A: Yes, we are keeping production flat to minimize exposure to the AECO/Empress market. We will maintain production at a level to deliver our hedged volumes and anything above that to diversified locations. We expect to exit this year at 135,000 BOEs a day, despite taking out some production from the sour unit.
Q: Historically, Peyto has always guided an exit rate. If pricing remained weak, would you update the market on exit volumes?
A: Yes, we would update the market if things were to fall as described. We will provide guidance during our next call in November if necessary.
Q: With respect to cash taxes, your cash tax rate for Q2 versus pretax cash flow was quite light versus Q1. How are you thinking about that average tax rate through the rest of the year?
A: We manage the current tax provision based on our year-to-date standpoint. With soft prices in Q2 and the outlook for Q3, we've lowered our taxable expectation for the full year. Year-to-date, we're about 10% on before-tax cash flow, which is a good range to look at going forward.
Q: Can you provide more color on the Wilrich program mentioned in the press release?
A: The results from the Repsol lands in the Wilrich are worth highlighting, particularly the Sundance Wilrich program. We are seeing some of the best results ever achieved, with early time results nearly 2 times the average 1-mile result from several years ago. We have a lot of inventory in this area and expect to continue driving great results.
Q: Can you elaborate on the sweetening project and its impacts on operating costs and production?
A: The production impact was just under 1,500 BOE that was shut in. We estimate a 5% reduction in operating costs on a full year, equating to about $0.03 per Mcfe for 2025. Some of this will manifest in Q3 and Q4. We expect to see operating cost reductions in the back half of the year, contributing to our 10% reduction target.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
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