Peyto Exploration & Development Corp. (TSX: PEY) ("Peyto"
or the "Company") is pleased to present the results and in-depth
analysis of its independent reserve report effective December 31,
2024. The evaluation encompassed 100% of Peyto’s reserves and was
conducted by GLJ Ltd. ("GLJ"). The year 2024 marks the Company’s
26th year of successful reserves development.
Peyto’s 2024 capital program marks the first
full year of drilling high-quality inventory acquired in the Repsol
Canada Limited Partnership transaction. Combined with drilling of
high-graded locations on Peyto's legacy assets, the Company
delivered several new reserves records in 2024.
2024 HIGHLIGHTS
-
The Company’s 2024 drilling program developed a record 457 BCFe1
(76.2 MMboe2) of new Proved Developed Producing ("PDP") reserves at
a Finding, Development and Acquisition ("FD&A"3) cost of
$1.00/Mcfe ($6.01/boe). The Company’s continuous focus on finding
and developing reserves at low costs has generated a five-year
average PDP FD&A of $1.13/Mcfe.
-
The Peyto team delivered record production in December of 2024 of
136 Mboe/d (721 MMcf/d gas, 15,708 bbl/d NGLs), generating an exit
rate capital efficiency4 of $9,700/boe/d, one of the best in
Company history.
-
The Company’s systematic hedging program and market diversification
strategy, along with Peyto’s low operating cost structure, were
able to deliver an average field netback5 of $3.26/Mcfe
($19.59/boe). This resulted in a 3.3 times recycle ratio6 (2.1
times on an unhedged basis), the highest on record over the last 20
years, despite the lowest annual AECO natural gas price during the
same period.
-
The 2024 drilling program produced a record average PDP
reserves-per-well booking in the Company’s history at 6.0 Bcfe, up
from 4.3 Bcfe in 2023.
-
Peyto invested $458 million in capital7 in 2024, using 64% of funds
from operations8 ("FFO"), while returning a record $258 million in
dividends to shareholders.
-
In 2024, the Company drilled 58 wells previously booked as proved
and probable undeveloped reserves. Peyto converted these locations
to developed reserves at a record low finding cost of $0.66/Mcfe,
26% lower than the 2023 reserve report assignments. Peyto’s history
of converting reserves at or below booked values provides
confidence in the remaining future undeveloped reserves and the
associated capital requirements.
-
The before tax, 10% discounted, net present value9 ("BT NPV10") of
the Company’s reserves are $4.9 billion, $7.1 billion, and $9.6
billion on a PDP, Total Proved ("TP"), and Total Proved plus
Probable ("P+P") basis, respectively. The Peyto capital program
generated a 16% increase in PDP reserves value over last year,
despite the decrease in forecasted prices used by GLJ in this
year's report.
-
Peyto replaced 166%, 199% and 239% of annual production with new
PDP, TP, and P+P reserves, respectively.
- Peyto delivered reserves growth
across all categories in 2024 from its successful drilling program.
PDP reserves increased 7% to 474 MMboe, TP reserves increased 5% to
876 MMboe, and P+P reserves increased 5% to 1,367 MMboe. On a per
share basis, reserves increased 5%, 3%, and 3% for PDP, TP, and
P+P, respectively. Since inception, the Company has generated a 20%
compound annual growth rate ("CAGR"10) on a PDP reserves per share
basis.
-
FD&A costs, including the change in Future Development Capital
("FDC"), for TP and P+P reserve categories were $0.90/Mcfe
($5.38/boe) and $0.61/Mcfe ($3.67/boe), which represents a 37% and
a 50% reduction from 2023, respectively.
-
The Reserve Life Index11 ("RLI") for the PDP remains unchanged at
10 years despite an 11% increase in year-over-year fourth quarter
production. TP and P+P reserves RLI remain strong at 18 and 28
years, respectively, supported by the Company’s industry leading
cash costs. Peyto’s PDP reserve life is one of the longest in the
industry.
-
Total Company reserve values (BT NPV10) for PDP, TP, and P+P
reserves on a debt adjusted basis implies $17.81/share,
$28.79/share, and $41.52/share, respectively, using the 3
Consultant Average ("3CA") price forecast (GLJ, McDaniel, and
Sproule).
2025 CAPITAL BUDGET
The Board of Directors of Peyto has approved a
2025 capital budget of $450–$500 million. The capital program is
projected to add between 43,000 and 48,000 boe/d of new production
by year end and more than offset the Company’s estimated 27%
decline in base production. The Company expects to utilize four
drilling rigs to drill 70–80 net horizontal wells, representing
approximately 80% of the 2025 budget. The remaining capital is
planned for optimization and maintenance projects for Peyto’s 15
operating gas plants and extensive gathering system
infrastructure.
Peyto’s active hedging program has secured
prices for approximately 473 MMcf/d of natural gas for 2025 at an
average price over $4/Mcf, and when combined with the Company’s
liquids hedges, provides revenue certainty of over $800 million,
reflecting one of the highest levels of price protection in the
industry. This revenue more than covers the expected capital
program and dividends to shareholders for the year. Peyto’s strong
hedge book, market diversification and industry leading cash costs
supports the continued development of high-quality inventory
despite current low AECO natural gas prices.
While the threat of U.S. tariffs continues to
weigh on the industry and the country, management believes Peyto’s
commodity hedges and natural gas diversification contracts will not
be directly impacted. The majority of Peyto’s market
diversification arrangements that have US hub pricing exposure are
physically delivered in Canada and not the US.
Additionally, most of the supplies used in the Company’s operations
are sourced domestically, which should also limit any effects from
counter tariffs that might be imposed by the Government of Canada.
As always, Peyto will remain flexible and responsive to the
business environment as it unfolds through 2025.
HISTORICAL PERSPECTIVE
Over the past 26 years, Peyto has acquired,
explored and discovered 11.2 TCFe of Alberta Deep Basin natural gas
and associated liquids, of which 59% has now been developed12.
Peyto 26-year cumulative production*: |
2.97 |
TCFe |
Total Proved + Probable Developed reserves*: |
3.61 |
TCFe |
Total Developed natural gas and
liquids*: |
6.57 |
TCFe |
Total Proved + Probable Undeveloped reserves*: |
4.60 |
TCFe |
Total acquired, explored for and
discovered*:* As at December 31, 2024 |
11.17 |
TCFe |
Each year the Company invests in the discovery
of new reserves and the efficient and profitable development of
existing reserves into high netback natural gas and NGL production
for the purpose of generating the maximum possible return on
capital for its shareholders.
In those 26 years, a total of $8.9 billion was
invested in the Canadian economy in the acquisition and development
of 6.6 TCFe of total developed natural gas and associated liquids
at an average cost of $1.34/Mcfe, while a weighted average field
netback3 of $3.45/Mcfe delivered $9.2 billion in FFO, $3.1 billion
in dividends and distributions to shareholders, and resulted in a
cumulative recycle ratio4 of 2.6 times. Royalty payments made to
Alberta during this time have totaled over $1.3 billion.
Based on the December 31, 2024 evaluation, the
debt adjusted, Net Present Value of the Company’s remaining Total
Proved plus Probable reserves ("P+P NPV", 10% discount, less debt)
was $42/share, comprised of $24/share of developed reserves and
$18/share of undeveloped reserves. This includes a provision for
all abandonment liability for wells, well sites, pipelines, and
facilities for which Peyto has ownership and responsibility.
2024 RESERVES REPORT AND ANALYSIS
The following table summarizes Peyto’s reserves
and the discounted Net Present Value of future cash flows, before
income tax, using the 3 Consultant Average price forecast (GLJ,
McDaniel, and Sproule), at January 1, 2025.
|
|
|
|
|
Before Tax Net Present Value ($millions) |
|
|
|
|
|
Discounted at |
Reserve Category |
Gas(BCF) |
Oil &NGL(mstb) |
BCFe(6:1) |
MMboe(6:1) |
0% |
5% |
8% |
10% |
Proved Developed Producing |
2,435 |
67,968 |
2,843 |
474 |
$10,183 |
$6,693 |
$5,471 |
$4,879 |
Proved Non-producing |
49 |
1,049 |
55 |
9 |
$183 |
$110 |
$85 |
$73 |
Proved Undeveloped |
2,029 |
54,594 |
2,357 |
393 |
$6,814 |
$3,548 |
$2,560 |
$2,099 |
Total Proved |
4,513 |
123,611 |
5,255 |
876 |
$17,179 |
$10,351 |
$8,116 |
$7,051 |
Probable |
2,552 |
65,826 |
2,947 |
491 |
$11,705 |
$4,793 |
$3,185 |
$2,519 |
Total Proved + Probable |
7,065 |
189,437 |
8,202 |
1,367 |
$28,885 |
$15,143 |
$11,302 |
$9,569 |
Note: Based on the GLJ report effective December
31, 2024. Tables may not add due to rounding.
ANALYSIS FOR PEYTO
SHAREHOLDERS
One of the guiding principles at Peyto is "to
tell you the business facts that we would want to know if our
positions were reversed". Therefore, each year Peyto provides an
extensive analysis of the independent reserve evaluation that goes
far beyond industry norms to answer the most important questions
for shareholders:
-
Base Reserves – How did the "base reserves" that were on production
at the time of the last reserve report perform during the year, and
how did any change in commodity price forecast affect their
value?
-
Value Creation – How much value did the 2024 capital investments
create, both in current producing reserves and in undeveloped
potential? Has the Peyto team earned the right to continue
investing shareholders’ capital?
-
Growth and Income – Are the projected cash flows capable of funding
the growing number of undeveloped opportunities and a sustainable
dividend stream to shareholders, without sacrificing Peyto’s
financial flexibility or allowing for the timely repayment of any
debt used?
-
Risk Assessment – What are the risks associated with the assessment
of Peyto’s reserves and the risk of recovering future cashflows
from the forecast production streams?
1. Base
Reserves
Peyto’s existing PDP reserves at the start of
2024 (the base reserves) were evaluated and adjusted for 2024
production as well as any technical or economic revisions resulting
from the additional twelve months of production and commodity price
data. As part of GLJ’s independent engineering analysis, all base
2,968 producing reserve entities (zones/wells) were evaluated.
These base producing wells and zones represent a total gross
Estimated Ultimate Recoverable ("EUR") volume of 9.1TCF (remaining
PDP+PA reserves plus all cumulative production to date), which is
2% higher than the prior year estimate. As a result, Peyto is
pleased to report that its total base reserves continue to meet
expectations, which provides confidence in the prediction of future
recoveries.
The commodity price forecast used by GLJ in this
year’s evaluation is lower than last year for both natural gas and
natural gas liquids, which has had the effect of decreasing the Net
Present Value of all reserve categories. For example, 2023’s PDP
reserves decreased $268 million (10% of the debt adjusted 2023
NPV10) due to the difference in commodity price forecasts. Despite
the decrease in value due to lower prices, record PDP additions
from Peyto's 2024 drilling program resulted in a 16% increase in
the PDP BT NPV10 over 2023. The 3CA price forecast used in the
evaluation is available on GLJ’s website at www.gljpc.com
For 2025, Peyto estimates a total base decline
rate of approximately 27% from the monthly average production in
December 2024 of 136 Mboe/d. The historical base decline rates and
capital programs are shown in the following table:
|
|
2016 |
|
2017 |
|
2018 |
|
2019 |
|
2020 |
|
2021 |
|
2022 |
|
2023 |
|
2024 |
2025F |
Base Decline (%/yr)* |
|
40% |
|
37% |
|
35% |
|
29% |
|
23% |
|
27% |
|
30% |
|
29% |
|
27%** |
27% |
Capital Expenditures ($MM) |
|
$469 |
|
$521 |
|
$232 |
|
$206 |
|
$236 |
|
$365 |
|
$529 |
|
$413 |
|
$458 |
$475 |
*The base decline represents the aggregate
annual decline of all wells on production at the end of the
previous year.**2024 base decline adjusted to account for
voluntarily shut-in volumes associated with uneconomic ethane
production as well as the shut-down of sour gas production as Edson
Gas Plant.
2. Value
Creation/Reconciliation
During 2024, Peyto invested a total of $458
million in organic activity to evaluate exploration lands, expand
its pipeline gathering network, and drill, complete and tie-in 77
gross (75.3 net) wells. In keeping with Peyto’s strategy of
maximizing shareholder returns, an evaluation of the economic
outcome of this investment activity is necessary to determine, on a
go-forward basis, the best use of shareholders’ capital. Not only
does this look back analysis give shareholders a detailed report
card on the capital that was invested, but it also helps illustrate
the potential returns that can be generated from similar
undeveloped future opportunities.
Exploration, Development, and
Acquisition Activity
Of the total capital invested in exploration and
development activities (excluding acquisitions) in 2024,
approximately 1% was spent acquiring lands and seismic, 16% on
pipeline and facility projects, and the remaining 83% was spent on
drilling, completing, and connecting existing and new reserves.
This capital program delivered an incremental 47,300 boe/d, after
adjustments for base production backout and voluntary shut-ins,
generating a capital efficiency of $9,700/boe/d. Of the 77 gross
wells drilled, 58 or 75%, were previously identified as undeveloped
reserves in last year’s reserve report (47 Proved, 11 Probable
locations). The remaining 19 wells were new locations developed in
the year, on both existing and acquired lands, and were not
recognized in last year’s report.
The undeveloped reserves at year-end 2023
originally booked to the 58 drilled locations, referred to above,
totaled 305 BCFe (5.3 BCFe/well) of Proved plus Probable
Undeveloped reserves for a forecast capital investment of $270
million ($0.89/Mcfe). In actuality, 441 BCFe (7.6 BCFe/well) were
developed for $289 million of capital on these wells during 2024,
resulting in a conversion cost of $0.66/Mcfe or a 26% improvement
over what was previously forecast. Peyto continued to increase
average horizonal lengths through 2024 which had the result of
increasing total capital spent but also significantly improving
year-over-year finding costs with greater reserve recoveries.
Additionally, the results generated from both Peyto legacy lands
and Repsol acquired lands have outperformed expectations throughout
the year.
The following table illustrates the Company’s
historical performance in converting predicted future undeveloped
locations into producing wells and demonstrates that, other than
the rapid inflation experienced in 2022, Peyto has typically
converted more reserves at a lower cost than was forecast.
ReserveYear |
TotalDrills |
BookedLocationsConverted |
Booked/Total |
Forecast Outcome |
ForecastCost perUnit |
Actual Outcome |
ActualCost perUnit |
Actual/ForecastCost perUnit |
|
gross wells |
gross wells |
|
BCFe |
Capex* $MM |
$/Mcfe |
BCFe |
Capex* $MM |
$/Mcfe |
|
2015 |
140 |
103 |
74 |
% |
307 |
$ |
456 |
$ |
1.49 |
348 |
$ |
385 |
$ |
1.11 |
-26 |
% |
2016 |
128 |
82 |
64 |
% |
254 |
$ |
297 |
$ |
1.17 |
254 |
$ |
246 |
$ |
0.97 |
-17 |
% |
2017 |
142 |
97 |
68 |
% |
298 |
$ |
295 |
$ |
0.99 |
321 |
$ |
305 |
$ |
0.95 |
-4 |
% |
2018 |
70 |
37 |
53 |
% |
104 |
$ |
115 |
$ |
1.10 |
120 |
$ |
118 |
$ |
0.98 |
-11 |
% |
2019 |
61 |
39 |
64 |
% |
129 |
$ |
111 |
$ |
0.86 |
123 |
$ |
109 |
$ |
0.88 |
+2 |
% |
2020 |
64 |
52 |
81 |
% |
172 |
$ |
158 |
$ |
0.92 |
165 |
$ |
135 |
$ |
0.82 |
-11 |
% |
2021 |
95 |
61 |
64 |
% |
221 |
$ |
193 |
$ |
0.87 |
227 |
$ |
192 |
$ |
0.84 |
-3 |
% |
2022 |
95 |
79 |
83 |
% |
331 |
$ |
268 |
$ |
0.81 |
333 |
$ |
320 |
$ |
0.96 |
+19 |
% |
2023 |
72 |
44 |
61 |
% |
171 |
$ |
159 |
$ |
0.93 |
236 |
$ |
196 |
$ |
0.83 |
-11 |
% |
2024 |
77 |
58 |
75 |
% |
305 |
$ |
270 |
$ |
0.89 |
441 |
$ |
289 |
$ |
0.66 |
-26 |
% |
Total |
944 |
652 |
69 |
% |
2,292 |
$ |
2,322 |
$ |
1.01 |
2,568 |
$ |
2,295 |
$ |
0.89 |
-12 |
% |
*Capex represents only well related capital for
drilling, completion, equipping and tie-in
This annual analysis of reserves that are
converted from undeveloped to developed provides confidence in the
validity of the remaining future undeveloped reserves and the
associated capital requirements. This helps Peyto predict future
reserve recoveries and capital requirements and reduces the risk
associated with valuing future undeveloped locations.
Value Reconciliation
In order to measure the success of all capital
invested in 2024, it is necessary to quantify the total amount of
value created during the year and compare that to the total amount
of capital invested. Each year, Peyto runs last year’s reserve
evaluation with this year’s price forecast to remove the change in
value attributable to commodity prices. This approach isolates the
value created by the Peyto team from the value created (or lost) by
those changes outside of their control (ie. Commodity prices).
Since capital investments can be funded from a combination of cash
flow, debt and equity, it is necessary to know the change in debt
and the change in shares outstanding to see if the change in value
is truly accretive to shareholders.
At year-end 2024, Peyto’s estimated net debt13
decreased by approximately 0.7% or $10 million from December 31,
2023, while the number of shares outstanding increased by 2%, due
to the Company's stock option program, to 197.8 million shares. In
calculating the change in debt, the Company included all capital
expenditures, and the total fixed and performance-based
compensation paid out for the year. Although these estimates are
believed to be accurate, they remain unaudited at this time and may
be subject to change.
Based on this reconciliation of changes in BT
NPV0, the Peyto team was able to create $1.9 billion of PDP, $2.4
billion of TP, and $3.6 billion of P+P undiscounted reserve value,
with $458 million of capital investment. The ratio of capital
expenditures to value creation is what Peyto refers to as the NPV0
recycle ratio4, which is simply the undiscounted value addition,
resulting from the capital program and acquisition, divided by the
capital and acquisition investment. For 2024, the PDP NPV0 recycle
ratio is 4.1, which means for each dollar invested, the Peyto team
was able to create 4.1 new dollars of undiscounted PDP reserve
value.
The historic NPV0 recycle ratios are presented
in the following table.
|
|
2015 |
|
2016 |
|
2017 |
|
2018 |
|
2019 |
|
2020 |
|
2021 |
|
2022 |
|
2023 |
2024 |
10 yrWt.Avg. |
Capital Investment ($MM) |
|
$594 |
|
$469 |
|
$521 |
|
$232 |
|
206 |
|
$236 |
|
$365 |
|
$529 |
|
$1,112 |
$458 |
NPV0 Recycle
Ratio |
|
|
|
|
|
|
|
|
|
|
|
Proved
Developed Producing |
|
2.3 |
|
2.9 |
|
2.3 |
|
4.6 |
|
1.8 |
|
3.5 |
|
5.2 |
|
3.6 |
|
2.0 |
4.1 |
3.0 |
Total Proved |
|
3.3 |
|
4.2 |
|
3.2 |
|
11.7 |
|
5.5 |
|
6.9 |
|
5.5 |
|
4.0 |
|
4.4 |
5.3 |
4.8 |
Total Proved + Probable |
|
5.0 |
|
7.3 |
|
4.0 |
|
15.1 |
|
9.2 |
|
6.5 |
|
11.5 |
|
3.8 |
|
7.8 |
7.9 |
7.2 |
*NPV0 (net present value) recycle ratio is
calculated by dividing the undiscounted NPV of reserves added in
the year by the total capital cost for the period (eg. 2024 Proved
Developed Producing $1,857/$458) =4.1).
3. Growth and
Income
Over the past 22 years, Peyto has paid a total
of $22.63/share to shareholders in the form of distributions and
dividends. Peyto’s objective, as a dividend paying, growth-oriented
corporation, is to profitably grow the resources which generate
sustainable income (dividends) for shareholders. For income to be
sustainable and grow, Peyto must profitably find and develop more
reserves. Simply increasing production from the existing reserves
will not make that income more sustainable. RLI, or a reserve to
production ratio, provides a measure of this long-term
sustainability.
During 2024, the Company’s capital program was
successful in replacing 166% of annual production with new PDP
reserves, resulting in 7% growth. Fourth quarter production
increased 11%, from 120 Mboe/d (623 MMcf/d gas, 16,175 bbl/d NGLs)
to 133 Mboe/d (708 MMcf/d gas, 15,409 bbl/d NGLs). The change in
both PDP reserves and fourth quarter production held the PDP RLI
(ratio of the two) flat at 10 years. For comparative purposes, the
TP and P+P RLI were 18 and 28 years, respectively. Management
believes that the most meaningful method to evaluate the current
reserve life is by dividing the PDP reserves by the actual fourth
quarter annualized production. This way production is being
compared to producing reserves as opposed to producing plus
non-producing reserves.
The following table highlights the Company’s historical RLI.
|
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
2021 |
2022 |
2023 |
2024 |
Proved Developed Producing |
7 |
7 |
7 |
9 |
9 |
9 |
9 |
9 |
10 |
10 |
Total Proved |
11 |
11 |
11 |
16 |
19 |
18 |
16 |
15 |
19 |
18 |
Total
Proved + Probable |
17 |
18 |
18 |
25 |
29 |
27 |
25 |
24 |
30 |
28 |
Future Undeveloped
Opportunities
Every year Peyto finds and develops new drilling
inventory that GLJ reviews to create a forecast of future
development activity. Their forecast is by no means a complete
assessment of Peyto’s current opportunities, nor is Peyto content
to just sit back and harvest these current opportunities. Each year
the results from the drilling and acquisition activity spawn
additional offsetting locations both on currently owned lands and
lands Peyto does not yet own but attempts to acquire.
As of December 31, 2024, the future drilling
locations recognized in the reserve report totaled 1,604 gross
(1,293 net). This is down slightly from the previous year of 1,616
(1,292 net) as a result of optimization of future locations. Of
these future locations, 1,056 (66%) are categorized as Proven
Undeveloped by the independent reserve evaluators, while 548 (34%)
are Probable Undeveloped locations. The net reserves associated
with the undeveloped locations (not including existing uphole
zones) totals 4.6 TCFe (3.6 BCFe/well) consisting of 3.96 TCF of
natural gas and 106 MMbbls of NGLs, while the capital required to
develop them is estimated at $5.7 billion or $1.23/Mcfe. This
development is forecast to create Before Tax Net Present Value of
$4.0 billion (at 10% discount rate, inclusive of profit after
capital recovery and future abandonment liability) or $18 per share
(debt adjusted) of incremental value at the 3CA commodity price
forecast.
The undiscounted forecast for Net Operating
Income for the TP and P+P reserves over the future development
capital schedule, as contained in the evaluator’s report, totals
$8.9 billion and $15.8 billion, respectively, more than sufficient
to fund the future development capital shown in the table below,
ensuring those reserve additions are accretive to shareholders.
|
Future Development Capital |
|
TP Reserves |
P+P Reserves |
Year |
Undisc., ($Millions) |
Undisc., ($Millions) |
2025 |
493 |
496 |
2026 |
483 |
498 |
2027 |
423 |
559 |
2028 |
533 |
602 |
2029 |
575 |
603 |
2030 |
542 |
598 |
2031 |
338 |
597 |
2032 |
- |
601 |
Thereafter |
- |
1,154 |
Total |
3,386 |
5,707 |
4. Risk
Assessment
Effectively 100% of Peyto’s natural gas and
natural gas liquid reserves exist in low permeability (tight),
sandstone reservoirs in the Alberta Deep Basin. In almost all
cases, the volumetric capacity of these sandstone reservoirs can be
determined using traditional geological and reservoir engineering
methods, which, when complimented by production performance data,
increases the certainty of the reserve estimates. In the majority
of Peyto’s core areas, continuous drilling activity has further
refined the geologic and geometric definition of these reservoirs
to a higher level of certainty.
In addition, these Deep Basin sandstone
reservoirs do not contain mobile water, nor are they supported by
active aquifers. Mobile water traditionally increases the risk
associated with reservoir recovery by impeding the flow of
hydrocarbons through the reservoir and up the wellbore. Water
production, separation and disposal processes also increase
operating costs which shortens the economic life of producing
wells, further contributing to reduced recovery. As many of these
traditional reserves determination and recovery risks are not
present in Peyto’s Deep Basin reservoirs, Management has a higher
level of confidence in its reserves and their ultimate
recovery.
Peyto’s high operating margins have meant that
forecasts of net operating income are less affected by commodity
price volatility than in most traditional reserve evaluations. As a
result, the predicted economic life of Peyto’s producing wells is
less sensitive to changes in commodity prices. These high operating
margins are achieved through the Company’s high level of ownership
and control of all levels of production operations, through a
concentrated geographic asset base, and by striving to be the
lowest cost producer in the industry.
Peyto attempts to further reduce the risk of
predicted operating incomes with an active market diversification
and hedging program that is designed, over time, to smooth out the
volatility in both Alberta and US natural gas markets through a
series of frequent transactions which is like "dollar cost
averaging" the future gas price.
Finally, Peyto is the operator of over 96% of
its producing wells, which fits with the Company’s own and control
strategy. As of December 31, 2024, Peyto owned a total of 2,819 net
wells of which over 90% are on production today and most are
expected to produce for decades to come. Despite the Company’s very
low non-producing well count, Peyto has an active well retirement
program where 14 net wells were abandoned in 2024. For
perspective, the current existing developed reserves have a
forecast value of $5.6 billion (NPV10 of the PDP + PA and PDNP +
PA), while the cost to abandon and reclaim all wells, well sites,
pipelines, and facilities is estimated at $80 million using the
same 10% discount rate for future costs. Peyto’s future abandonment
and reclamation costs are substantially within the province of
Alberta and are estimated in a manner that is consistent with
Alberta Energy Regulator ("AER") Directive 11 and other
Alberta-based exploration and production companies. Peyto plans to
spend approximately $10 million on abandonment and reclamation
activities in 2025 which exceeds the mandatory spending
requirements as set out by the AER for the period.
PERFORMANCE RATIOS
The following table highlights annual
performance ratios for the last decade. These can be used for
comparative purposes, but it is cautioned that on their own they do
not measure investment success.
|
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|
2018 |
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
Proved Developed Producing |
|
|
|
|
|
|
|
|
|
|
FD&A ($/Mcfe) |
|
$1.00 |
|
|
$1.21 |
|
|
$1.41 |
|
|
$0.97 |
|
|
$1.06 |
|
|
$1.55 |
|
|
$1.18 |
|
|
$1.36 |
|
|
$1.44 |
|
|
$1.64 |
|
RLI (yrs) |
|
10 |
|
|
10 |
|
|
9 |
|
|
9 |
|
|
9 |
|
|
9 |
|
|
9 |
|
|
7 |
|
|
7 |
|
|
7 |
|
Recycle Ratio |
|
3.3 |
|
|
2.9 |
|
|
2.8 |
|
|
2.8 |
|
|
1.5 |
|
|
1.4 |
|
|
2.3 |
|
|
2.1 |
|
|
1.8 |
|
|
2.0 |
|
Reserve Replacement |
|
166 |
% |
|
400 |
% |
|
165 |
% |
|
188 |
% |
|
127 |
% |
|
75 |
% |
|
98 |
% |
|
171 |
% |
|
153 |
% |
|
193 |
% |
Total Proved |
|
|
|
|
|
|
|
|
|
|
FD&A including the change in FDC ($/Mcfe) |
|
$0.90 |
|
|
$1.43 |
|
|
$1.75 |
|
|
$1.10 |
|
|
$0.20 |
|
|
$1.41 |
|
|
$1.21 |
|
|
$1.39 |
|
|
$1.01 |
|
|
$0.72 |
|
RLI (yrs) |
|
18 |
|
|
19 |
|
|
15 |
|
|
16 |
|
|
18 |
|
|
19 |
|
|
16 |
|
|
11 |
|
|
11 |
|
|
11 |
|
Recycle Ratio |
|
3.6 |
|
|
2.5 |
|
|
2.3 |
|
|
2.4 |
|
|
8.0 |
|
|
1.5 |
|
|
2.2 |
|
|
2.0 |
|
|
2.6 |
|
|
4.5 |
|
Reserve Replacement |
|
199 |
% |
|
727 |
% |
|
159 |
% |
|
194 |
% |
|
132 |
% |
|
137 |
% |
|
294 |
% |
|
225 |
% |
|
183 |
% |
|
188 |
% |
Future Development Capital ($ millions) |
|
$3,386 |
|
|
$3,352 |
|
|
$2,081 |
|
|
$1,979 |
|
|
$1,917 |
|
|
$2,107 |
|
|
$1,971 |
|
|
$1,488 |
|
|
$1,305 |
|
|
$1,381 |
|
Total Proved + Probable |
|
|
|
|
|
|
|
|
|
|
FD&A including the change in FDC ($/Mcfe) |
|
$0.61 |
|
|
$1.22 |
|
|
$2.03 |
|
|
$1.09 |
|
|
($0.01 |
) |
|
$1.25 |
|
|
1.02 |
|
|
$1.49 |
|
|
$0.62 |
|
|
$0.54 |
|
RLI (yrs) |
|
28 |
|
|
30 |
|
|
24 |
|
|
25 |
|
|
27 |
|
|
29 |
|
|
25 |
|
|
18 |
|
|
18 |
|
|
17 |
|
Recycle Ratio |
|
5.3 |
|
|
2.9 |
|
|
1.9 |
|
|
2.5 |
|
|
N/A |
|
|
1.7 |
|
|
2.6 |
|
|
1.9 |
|
|
4.2 |
|
|
6.1 |
|
Reserve Replacement |
|
239 |
% |
|
1077 |
% |
|
167 |
% |
|
308 |
% |
|
167 |
% |
|
140 |
% |
|
342 |
% |
|
279 |
% |
|
283 |
% |
|
287 |
% |
Future Development Capital ($millions) |
|
$5,707 |
|
|
$5,764 |
|
|
$3,855 |
|
|
$3,612 |
|
|
$3,308 |
|
|
$3,547 |
|
|
$3,445 |
|
|
$2,978 |
|
|
$2,563 |
|
|
$2,657 |
|
See Non-GAAP Financial Ratios in the Advisories
section of this news release for details on the calculation of the
above metrics.
RESERVES COMMITTEE
Peyto has a reserves committee, comprised of a
majority of independent board members, that reviews the
qualifications and appointment of the independent reserve
evaluators. The committee also reviews the procedures for providing
information to the evaluators. All booked reserves are based upon
annual evaluations by the independent qualified reserve evaluators
conducted in accordance with the COGE (Canadian Oil and Gas
Evaluation) Handbook and National Instrument 51-101. The
evaluations are conducted using all available geological and
engineering data. The reserves committee has reviewed the reserves
information and approved the reserve report.
GENERAL
A complete filing of the Statement of Reserves
(form 51-101F1), Report on Reserves (form 51-101F2), and Report of
Management and Directors on Oil and Gas Disclosure (form 51-101F3)
will be available in the Annual Information Form to be filed by the
end of March 2025. Shareholders are encouraged to actively visit
Peyto’s website located at www.peyto.com. For further information,
please contact Jean-Paul Lachance, President and Chief Executive
Officer of Peyto at (403) 261-6081.
ADVISORIES
Unaudited Financial
Information
Certain financial and operating information
included in this news release including, without limitation,
exploration and development expenditures, acquisitions, field
netbacks, funds from operations, net debt, FD&A costs, Finding
& Development costs excluding acquisitions, acquisition costs,
and recycle ratio, are based on estimated unaudited financial
results for the year ended December 31, 2024, and are subject to
the same limitations as discussed under Forward Looking Information
set out below. These estimated amounts may change upon the
completion of audited financial statements for the year ended
December 31, 2024 and changes could be material.
Information Regarding Disclosure on Oil
and Gas Reserves
Some values set forth in the tables above may
not add due to rounding. It should not be assumed that the
estimates of future net revenues presented in the tables above
represent the fair market value of the reserves. There is no
assurance that the forecast prices and costs assumptions will be
attained, and variances could be material. The aggregate of the
exploration and development costs incurred in the most recent
financial year and the change during that year in estimated future
development costs generally will not reflect total finding and
development costs related to reserves additions for that year.
Forward-Looking Information
This news release contains certain
forward–looking information and statements within the meaning of
applicable securities laws. The use of any of the words "expect",
"anticipate", "continue", "estimate", "may", "will", "project",
"should", "believe", "plans", "intends" and similar expressions are
intended to identify forward-looking information or statements. In
particular, but without limiting the foregoing, this news release
contains forward-looking information and statements pertaining to
the following: management's assessment of Peyto's future plans and
operations, including the 2025 capital expenditure program, the
volumes and estimated value of Peyto's reserves, the life of
Peyto's reserves, production estimates, project economics including
NPV, netback and recycle ratio, the ability to enhance value of
reserves for shareholders and ensure the reserves generate the
maximum possible return; management's belief that Peyto’s commodity
hedges and the majority of the Company’s natural gas
diversification contracts will not be impacted directly by
potential tariffs imposed by the U.S.; and management's assessment
of limited impact from counter tariffs that might be imposed by
Canada on U.S. imports. Forward-looking statements or
information are based on a number of material factors, expectations
or assumptions of Peyto which have been used to develop such
statements and information, but which may prove to be incorrect.
Although Peyto believes that the expectations reflected in such
forward-looking statements or information are reasonable, undue
reliance should not be placed on forward-looking information and
statements because Peyto can give no assurance that such
expectations will prove to be correct. In addition to other factors
and assumptions which may be identified herein, assumptions have
been made regarding, the impact of increasing competition, the
timely receipt of any required regulatory approvals, the ability of
Peyto to obtain qualified staff, equipment and services in a timely
and cost efficient manner, drilling results, field production rates
and decline rates, the ability to replace and expand reserves
through development and exploration, future commodity prices,
currency, exchange and interest rates, regulatory framework
regarding royalties, taxes, tariffs and environmental matters and
the ability of Peyto to successfully market its oil and natural gas
products. By their nature, forward-looking information and
statements are subject to numerous risks and uncertainties, some of
which are beyond these parties' control, including the impact of
general economic conditions, industry conditions, volatility of
commodity prices, currency fluctuations, imprecision of reserve
estimates, environmental risks, competition from other industry
participants, the lack of availability of qualified personnel or
management, stock market volatility and ability to access
sufficient capital from internal and external sources. 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 information and
statements will transpire or occur, or if any of them do so, what
benefits that Peyto will derive therefrom. The forward-looking
information and statements contained in this news release speak
only as of the date of this news release, and Peyto does not assume
any obligation to publicly update or revise any of the included
forward-looking statements or information, whether as a result of
new information, future events or otherwise, except as may be
required by applicable securities laws.
This news release contains information,
including in respect of Peyto's 2025 capital program, which may
constitute future oriented financial information or a financial
outlook. Such information was approved by the Board of Directors of
Peyto on February 20, 2025, and such information is included herein
to provide readers with an understanding of the Company's
anticipated capital expenditures for 2025. Readers are cautioned
that the information may not be appropriate for other purposes.
Barrels of Oil EquivalentBoes
may be misleading, particularly if used in isolation. A boe
conversion ratio of 6 Mcf:1 bbl is based on an energy equivalency
conversion method primarily applicable at the burner tip and does
not represent a value equivalency at the wellhead. Given that the
value ratio based on the current price of crude oil as compared to
natural gas is significantly different from the energy equivalency
of 6:1, utilizing a conversion on a 6:1 basis may be misleading as
an indication of value.
Drilling LocationsThis news
release discloses drilling locations in three categories: (i)
proved locations; (ii) probable locations; and (iii) unbooked
locations. Proved locations and probable locations are derived from
the independent engineering evaluation of Peyto's oil, NGLs and
natural gas interests prepared by GLJ dated February 20, 2025 and
effective December 31, 2024 (the "Peyto Report"). Unbooked
locations are internal estimates based on prospective acreage and
an assumption as to the number of wells that can be drilled per
section based on industry practice and internal review. Unbooked
locations do not have attributed reserves. Unbooked
locations have been identified by management as an estimation of
Peyto's multi‐year drilling activities based on evaluation of
applicable geologic, seismic, engineering, production and reserves
information. There is no certainty that Peyto will drill all
unbooked drilling locations and if drilled there is no certainty
that such locations will result in additional oil and gas reserves
or production. The drilling locations on which Peyto actually drill
wells will ultimately depend upon the availability of capital,
regulatory approvals, seasonal restrictions, oil and natural gas
prices, costs, actual drilling results, additional reservoir
information that is obtained and other factors. While certain of
the unbooked drilling locations have been de-risked by drilling
existing wells in relative close proximity to such unbooked
drilling locations, some of the other unbooked drilling locations
are further away from existing wells where management has less
information about the characteristics of the reservoir and
therefore there is more uncertainty whether wells will be drilled
in such locations, and if drilled there is more uncertainty that
such wells will result in additional oil and gas reserves or
production.
Non-GAAP and Other Financial
Measures
Throughout this news release, Peyto employs
certain specified financial measures to analyze financial and
operating performance, financial position, and cash flow. 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. Such metrics have
been included by Peyto to give readers additional measures to
evaluate the Peyto's performance; however, such measures are not
reliable indicators of the future performance of Peyto and future
performance may not compare to the performance in previous periods
and therefore such metrics should not be unduly relied upon.
Non-GAAP Financial Measures
Funds from Operations"Funds
from operations" is a non-GAAP measure which represents cash flows
from operating activities before changes in non-cash operating
working capital and provision for future performance-based
compensation. Management considers funds from operations and per
share calculations of funds from operations to be key measures as
they demonstrate the Company’s ability to generate the cash
necessary to pay dividends, repay debt and make capital
investments. Management believes that by excluding the temporary
impact of changes in non-cash operating working capital, funds from
operations provides a useful measure of Peyto’s ability to generate
cash that is not subject to short-term movements in operating
working capital. The most directly comparable GAAP measure is cash
flows from operating activities.
Capital ExpendituresPeyto uses
the term capital expenditures as a measure of capital investment in
exploration and production activity, as well as property
acquisitions and divestitures, and such spending is compared to the
Company's annual budgeted capital expenditures. The most directly
comparable GAAP measure for total capital expenditures is cash flow
used in investing activities.
Net Debt"Net debt" is a
non-GAAP financial measure that is the sum of long-term debt and
working capital excluding the current financial derivative
instruments and current portion of lease obligations. It is used by
management to analyze the financial position and leverage of the
Company. Net debt is reconciled to long-term debt which is the most
directly comparable GAAP measure.
Non-GAAP Financial Ratios
Netback per MCFE"Netback" is a
non-GAAP measure that represents the profit margin associated with
the production and sale of petroleum and natural gas. Peyto
computes "field netback per Mcfe" as commodity sales from
production, plus net third party sales, if any, plus other income,
less royalties, operating, and transportation expense divided by
production.
Finding, Development and Acquisition
CostsFD&A (finding, development and acquisition) costs
are used as a measure of capital efficiency and are calculated by
dividing the capital costs for the period, plus acquisition costs
and including the change in undiscounted FDC, by the change in the
reserves, incorporating revisions and production, for the same
period (eg. 2024 Total Proved ($458MM+$0MM+$33MM)/(
875.9Mboe-830.5Mboe+45.8Mboe) = $5.38/boe or $0.90/Mcfe).
Finding and Development
CostsF&D (finding and development) costs are used as a
measure of capital efficiency and are calculated by dividing the
capital costs for the period, including the change in undiscounted
FDC, by the change in the reserves, incorporating revisions and
production, for the same period.
Reserve Life IndexThe RLI is
calculated by dividing the reserves (in boes) in each category by
the annualized Q4 average production rate in boe/year (eg. 2024
Proved Developed Producing 473,834Mboe/(133Mboe/d x366) =9.7).
Peyto believes that the most accurate way to evaluate the current
reserve life is by dividing the proved developed producing reserves
by the annualized actual fourth quarter average production. In
Peyto’s opinion, for comparative purposes, the proved developed
producing reserve life provides the best measure of
sustainability.
NPV0
Recycle RatioThe NPV0 Recycle Ratio is the ratio
of capital expenditures to value creation, which is simply the
undiscounted value addition, resulting from the capital program and
acquisition, divided by the capital and acquisition investment.
Recycle RatioThe Recycle Ratio
is calculated by dividing the field netback per boe, by the
FD&A costs for the period (eg. 2024 Proved Developed Producing
$19.59/boe/$6.01/boe=3.3). The recycle ratio compares the netback
from existing reserves to the cost of finding new reserves and may
not accurately indicate investment success unless the replacement
reserves are of equivalent quality as the produced reserves.
Reserve Replacement RatioThe
reserve replacement ratio is determined by dividing the yearly
change in reserves before production by the actual annual
production for the year (eg. 2024 Total Proved
(875.9Mboe-830.5Mboe+45.8Mboe )/45.8Mboe =199%).
Compound Annual Growth RateThe
compound annual growth rate (CAGR) is the annualized average rate
of PDP reserves growth from 1998 to 2024, assuming growth takes
place at an exponentially compounded rate.
Capital EfficiencyCapital
Efficiency refers to how efficiently the Company utilizes its
capital investment to generate production. It is calculated by
dividing the capital costs for the period, plus acquisition costs,
by December production volumes added from the 2024 capital program
(eg. 2024 capital efficiency ($458MM)/( 47,300 boe/d) = $9,700 per
boe/d).
The Toronto Stock Exchange has neither approved
nor disapproved the information contained
herein.___________________________________
1 BCF and TCF refers to billions and trillions of cubic feet,
respectively2 MMboe refers to million barrels of oil equivalent3
F&D and FD&A are non-GAAP financial ratios. See "non-GAAP
and Other Financial Measures" in this news release4 Capital
efficiency is a non-GAAP financial ratio. See "non-GAAP and Other
Financial Measures" in this news release5 Field netback operations
is a non-GAAP financial ratio. See "non-GAAP and Other Financial
Measures" in this news release 6 Recycle ratio and NPV Recycle
Ratio are non-GAAP financial ratios. See "non-GAAP and Other
Financial Measures" in this news release7 Capital expenditures is a
non-GAAP financial measure. See "non-GAAP and Other Financial
Measures" in this news release8 Funds from operations is a non-GAAP
financial measure. See "non-GAAP and Other Financial Measures" in
this news release9 It should not be assumed that the estimates of
future net revenues (NPVs) represent the fair market value of the
reserves 10 Compound annual growth rate (CAGR) is a non-GAAP
financial ratio. See "non-GAAP and Other Financial Measures" in
this news release 11 RLI is a non-GAAP financial ratio. See
"non-GAAP and Other Financial Measures" in this news release12
Developed Reserves is Total Proved + Probable Developed Reserves
and includes Proved + Probable Developed Producing reserves and
Proved + Probable Developed Non-Producing reserves13 Net debt is a
non-GAAP financial measure. See "non-GAAP and Other Financial
Measures" in this news release
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