GuruFocus -
- Funds from Operations: $154 million for the third quarter.
- Cash Costs: $1.44 per Mcfe, down from the second quarter.
- Operating Margin: 64% for the quarter.
- Production Increase: Doubled production from Repsol (BME:REP) lands from 23,000 to 46,000 BOEs a day.
- New Private Notes Issued: $75 million at 5.64% for a 10-year term.
- Monthly Production High: Averaged 130,000 BOEs a day in October.
- Capital Guidance: $450 million for the year, with a preliminary budget of $450 million to $500 million for 2025.
- Hedged Revenue for Next (LON:NXT) Year: Close to $800 million fixed.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Peyto Exploration (TSX:PEY) & Development Corp (PEYUF) successfully executed a major turnaround at the Edson gas plant, showcasing strong operational efficiency and safety.
- The company managed to deliver $154 million of funds from operations despite low AECO prices, thanks to disciplined hedging and low-cost operations.
- Peyto achieved a 25% improvement in well productivity without increasing drilling and completion costs, indicating enhanced capital efficiency.
- The company doubled production from acquired Repsol lands within a year, demonstrating effective integration and operational execution.
- Peyto secured a new $75 million private note at a favorable interest rate, reflecting strong lender confidence in the company's business plan.
- Daily AECO prices averaged a low $0.65 GJ, impacting revenue potential despite hedging strategies.
- Operating costs increased slightly due to production curtailment and non-capitalized turnaround costs at the Edson gas plant.
- The company faced higher government-related costs, including unexpected increases in property taxes and the orphan well levy.
- Peyto's net debt remained neutral year-to-date, with capital expenditures and dividends exceeding free funds flow in the third quarter.
- The company anticipates a higher production decline rate of 26% to 28% next year, requiring significant new production to offset.
A: JP Lachance, President and CEO, explained that the discovery was due to extensive drilling in the area, particularly at the well-rich level, which provided valuable information. The combination of seismic data and actual well results helped identify new plays. The successful drilling program on the Repsol lands also allowed Peyto to test new prospects that were previously uncertain.
Q: Can you provide more details on the cadence of production growth throughout the year?
A: JP Lachance noted that the decline rate would be higher next year due to new production coming online at year-end. Typically, production remains flat or slightly declines in the first half of the year due to higher initial declines. The company runs a steady program to manage this, with most production ramp-up occurring in the third and fourth quarters.
Q: Given Peyto's hedging strategy, is there a scenario where you might delay planned production additions in 2025?
A: JP Lachance stated that the business plan has been tested against low commodity prices, down to $1 or $1.50 at AECO. Even in such scenarios, Peyto expects to hit the lower end of its guidance and continue to grow and pay down debt. With 70% of production hedged for next summer, significant changes to the plan are unlikely unless prices drop further.
Q: How does the Cascade power supply contract benefit Peyto, and is it reflected in the realized gas price?
A: JP Lachance confirmed that the benefits of the Cascade contract are reflected in Peyto's realized gas price. Although specific contract details are confidential, the contract's impact was included in the Q3 results and will continue to be part of the realized price moving forward.
Q: How is Peyto progressing against the production targets outlined at the time of the Repsol acquisition?
A: JP Lachance mentioned that Peyto is on track to meet its production targets, although it might take an additional year to reach 160,000 BOE/day due to spending at the lower end of guidance. The company is pleased with the acquisition's outcomes and expects growth in the 5% to 10% range moving forward.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.