Peyto Exploration & Development Q3 2026 Earnings Results & Report

Peyto Exploration & Development EPS Results

• Actual EPS: C$0.50
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A
• EPS Beat Rate: 1 of last 6 quarters

Peyto Exploration & Development Revenue Results

• Actual Revenue: C$400.75 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Peyto Exploration & Development (TSE:PEY) Corp (Peyto Exploration & Development) is an oil and gas company that involves in the exploration and development of natural gas. The company acquires, explores, develops and produces crude oil and unconventional natural gas reserves.

Peyto Exploration & Development Q3 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Third-quarter production rose 10% year over year, while liquids grew 20%. Management reported improved Cardium well results and an 11% reduction in drilling and completion cost per meter on the recent Sundance pad, and said longer laterals and more intensive stimulation could support further gains.
• Positive Sentiment: Peyto realized CAD 3.50/Mcf for gas, more than double the quarter’s average AECO monthly price, with diversification adding about CAD 1/Mcf net of costs and hedges adding CAD 0.82/Mcf. The company also added future Ontario gas service that begins in November 2028.
• Positive Sentiment: Funds from operations were CAD 221 million, or CAD 1.06 per share, and Peyto paid down about CAD 24 million of net debt, keeping debt below 1x trailing-12-month EBITDA. Management plans to raise the monthly dividend to CAD 0.13 per share, citing revenue protection from hedges and diversification.
• Neutral Sentiment: For 2027, the board approved a preliminary CAD 475–525 million capital budget, with management targeting an exit rate of about 157,000 BOE/d and a liquids share approaching 15%. Management expects liquids to grow faster than gas, while cautioning that production growth on a BOE basis may be lower than anticipated; the budget will be confirmed in February.
• Negative Sentiment: Management noted that Wildhay Cardium wells have steeper declines than Brazeau wells, attributing this to tighter reservoir rock. It also said 2026 Wilrich well returns were below the corporate average, though it intends to keep the formation in the drilling program.

Presentation

[Operator]

Good day, and thank you for standing by. Welcome to Peyto's third quarter 2026 financial results conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please advise that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, JP Lachance, President and CEO. Please go ahead.

[JP Lachance, President and CEO at Peyto]

Thanks, Marvin. Good morning, folks, and thanks for joining Peyto's third quarter 2026 conference call. Before we begin, I would like to remind everybody that all statements made by the company during this call are subject to the same forward-looking disclaimer and advisory set forth in the company's news release issued yesterday. Here in the room with me, I have the entire management team, including Riley Frame, our Chief Operating Officer, Tavis Carlson, our CFO, Lee Curran, our VP of Drilling and Completions, Todd Burdick, our VP of Production, Derick Czember, our VP of Land and Business Development, Mike Collens, our VP of Marketing, Crissy Rafoss, our VP of Finance, and Mike Rees, our VP of Geoscience.

[JP Lachance, President and CEO at Peyto]

Before we discuss the quarter, on behalf of the management group, as always, I would like to thank the entire Peyto team, both here in the office and in the field, for their contributions to another big quarter. They should be proud of their achievements, keeping Peyto a super-efficient operator. We were back rolling with four rigs after breakup, but wet weather that continued into July really slowed down other activities for a while. We continued drilling great wells across all core areas in multiple horizons, but with a real focus on the Cardium species that gives us more liquids than the other formations. We added some more service to our diversification portfolio to Eastern Canada, and we continued to add future drilling inventory through more land purchases, all getting a great price for our gas and continuing to pay down more debt.

[JP Lachance, President and CEO at Peyto]

Let's dive into some details, starting with operations first. Production was up year-over-year by 10% or 7% per share, but most importantly, liquid production was higher by 20%, led by recent Cardium drilling and increased NGL recoveries. Production was down a little from Q2, but that is just the typical lag that we see due to lower capital activities through breakup. Despite the wet weather at the start of the summer, Peyto invested CAD 100 million in well-related capital. We continued to drill some great wells up and down the abundant Deep Basin stack, but we are particularly pleased with the latest Cardium wells in the Wildhay area of Sundance. We completed and brought on a three-well pad that was designed to test elements of what we have been successfully doing down in Brazeau.

[JP Lachance, President and CEO at Peyto]

Although one well was called short due to encountering some natural fracturing, the other two wells were drilled 50% longer than previous wells in the area. These wells have delivered improved performance over prior programs and reduced cost per meter of 11%. There is a slide in the corporate presentation that I would encourage you to review, which highlights the changes and shows the superior performance. These wells exhibit initial rates of 6 million cubic feet a day of gas, with about 55-90 barrels per million of liquids. Their initial gas rates are not as prolific as our Spirit River wells, but obviously, they generate better returns with the dichotomy between oil and gas prices today.

[JP Lachance, President and CEO at Peyto]

Meanwhile, in Brazeau, we continued to follow up on prior success and drilled three more wells in the quarter that have been brought on stream recently and continue to validate our new drilling recipe down in that area. In both these areas, we believe there is further room for improvement, which is important because we have a large portion slated for the 2027 capital program, but also because we have a large portion of our undeveloped book reserves attributed to this species. Peyto also invested CAD 23.5 million in facility projects. That included major pipelines, plant optimizations, and some maintenance work during the quarter, including a turnaround at the Swanson gas plant. The balance of the capital, about CAD 1 million, was used to capture another 10 sections of land through Crown sales.

[JP Lachance, President and CEO at Peyto]

That brings our new lands purchased, like Crown sales and deals so far this year, to a total of 63 net sections at an average cost of CAD 157 per acre, which cheaply adds to our unbooked drilling inventory. Switching to financials, controllable cash costs in Q2, that is operating, transport, interest, and G&A, totaled CAD 1.02 per Mcfe. That is down again from last year and Q2. That more or less gets us to our target to reduce controllable costs by 10% from last year. This is driven by savings in operating, transport, and interest costs. We will try to hold onto that in Q4, and I am certain the Peyto team will remain tenacious. Flipping to revenue, another strong quarter where our realized price for gas was CAD 3.50 an Mcf, which is over double the average AECO monthly for the quarter.

[JP Lachance, President and CEO at Peyto]

Once again, Peyto's strong diversification portfolio contributed a value of CAD 1 per Mcf, that is net of costs, while our systematic hedges added another CAD 0.82 per Mcf to what would have been CAD 1.68 per Mcf if our gas had just received the AECO monthly price. Cumulative hedge gains since inception are up to CAD 848 million, suggesting our disciplined program is working. Over the last three years, Peyto hedge gains have added about CAD 1 per Mcf to our realized gas price, while the diversity program has added about CAD 0.80 per Mcf net of costs. Speaking of diversification, on the heels of our recent 50,000 MMBtu deal with Centrica for TTF-based gas supply in Q2.

[JP Lachance, President and CEO at Peyto]

Peyto added another 80,000 GJ/d, so about 70 million cubic feet a day of service to Ontario, where we fetch Parkway pricing via the TC Mainline, which starts in November 2028. This adds to our future diversifications, our non-AECO portfolio, to get it up over 500 million cubic feet a day, which we can hedge or we can let float depending on where the market goes. Combine the low cost, the increase in liquids, the great pricing, at least relative to AECO, meant we generated CAD 221 million in funds from operations, or CAD 1.06 a share, adjusted earnings of CAD 105 million, or CAD 0.50 a share, and we put up another strong operating margin in Q3 of 71%. On top of that, we paid down about CAD 24 million in net debt, and it keeps us under our 1x debt to trailing 12-month EBITDA.

[JP Lachance, President and CEO at Peyto]

As we look forward, we are comfortable with another increase to our monthly dividend this year, bringing it up to CAD 0.13 per share per month. That is the second bump this year and represents an 18% increase over last year. Despite doomsday El Niño threats in the short term, we feel very comfortable with this increase since our revenue remains well protected for the rest of the year and through 2027, with just over 400 million cubic feet a day of gas hedged at CAD 3.32 an Mcf for 2027, with very little exposure to the AECO market. When you combine with our liquid hedges, that secures CAD 690 million for 2027. This, along with our industry-leading cash costs, market diversification, increase in liquids, and our long-life reserves, gives investors confidence in the stability of that dividend for the future.

[JP Lachance, President and CEO at Peyto]

Speaking of the future, the board has approved a preliminary capital budget for next year between CAD 475 million to CAD 525 million, which is up slightly over prior years, simply because we have grown the business. But the capital efficiencies we expect to attain remain the same, CAD 10,000-CAD 11,000 per flowing BOE production adds by December 2027. And with our estimated decline between 26%-28%, that should equate to an exit of approximately 157,000 BOE/d at the midpoint of all those numbers, with an increased liquid share by year-end approaching 15%. And this increase in liquids we expect to come from the large Cardium focus that we have for next year, following up on the successes I mentioned earlier. In fact, over one-third of the drilling program will target this species.

[JP Lachance, President and CEO at Peyto]

All in all, we expect liquids will grow faster than gas in 2027, and that is the important takeaway here. Our production growth on a BOE per day basis may not be as high as anticipated, but the increase in liquids mix will generate more cash flow, which is really all that matters. Of course, we will remain flexible on capital spending, but also on the species mix should the business environment change. And of course, we will confirm the capital budget in February with our reserve report release. On the macro, there is lots to get excited about for the future of natural gas in Canada with LNG export demand growth, the continued interest in data center power demand, and prospect of future gas required to fuel oil sands expansion. I think for the first time in a long time, we have governments all around us that support the business.

[JP Lachance, President and CEO at Peyto]

The feds recently announced the Productivity Mega Deduction, which should be meaningful to companies, assuming it gets passed. Regardless, Peyto's strategy remains the same. Control the things that we can control while mitigating the risks on the things we don't. That's commodities. We believe that's a winning recipe that provides long-term returns to shareholders, and it brings some calm in a volatile commodity market. Okay, I imagine there's some questions, Marvin, so perhaps we can go to the phones if there's anybody waiting. If not, we can switch to some stuff that came in overnight. Either way.

[Operator]

I will conduct the question and answer session. As a reminder to ask a question, you'll need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Travis Wood of NBC Capital Markets. Your line's now open.

[Travis Wood, Analyst at NBC Capital Markets]

Yeah. Good morning, guys. Question, I think, is going to be for Riley, but could you just share some of the details around what's driving the outperformance and the nuances within the completions at Brazeau and how that can be fully leveraged, or what from that Brazeau program you're leveraging into the Sundance Cardium for the remainder of this year into next year?

[Riley Frame, COO at Peyto]

Yeah, you bet. Thanks, Travis. Yeah, so in Brazeau, we've kind of evolved that design over a period of a couple years now, where we started off with a more conventional open hole ball drop into a cemented system, and then into now what we're doing is a coil shiftable system. That's really allowed us to maintain a stimulation intensity while we've been able to drill these wells longer, rather than limiting out on sort of how many balls we can drop through an open hole system. That's obviously translated into a higher stimulation intensity, roughly 20% higher. It's longer laterals, roughly 75% longer than what we've done in the past. Those two things have really added up to where we're seeing this improved performance, as well as this improved per unit cost that we're getting per meter of lateral that we're drilling.

[Riley Frame, COO at Peyto]

As we pivot to the Sundance Cardium, we are trying to apply what we can of that. The first pad that we completed there, we sort of stuck with what we knew, if you want to call it that. We did an open hole ball drop system, so we drilled those wells to a length that was conducive to using an open hole system. As we go forward, I think, we basically were kind of completing those wells at the same time that we were testing the coil system in Brazeau. We have since gained quite a bit of confidence in that system and feel like that would be an appropriate system to take to Sundance, which kind of unleashes another level of being able to go longer. As we step forward in Sundance here, I think we will see these wells get pushed out over 2,500 m.

[Riley Frame, COO at Peyto]

We will be able to maintain that stimulation intensity by virtue of using the coil system. As we push forward here, I think, what we are seeing today is sort of that 11% reduction in D&C cost per meters horizontal, could move even further north, to say 15%-20% and improvement in performance as we step out to almost two times as long as we drilled historically in that area. I think all that will add up to some continued improved results from both the performance and cost perspective as we step forward with the Sundance program.

[Travis Wood, Analyst at NBC Capital Markets]

Okay. Appreciate the color, Riley. I will turn it back.

[JP Lachance, President and CEO at Peyto]

Just to sum up there, this is not rocket science. Others are doing this. This is not something brand new to Peyto. We are just refining it a little bit to make sure it works within our system. Simple as that. Another question.

[Travis Wood, Analyst at NBC Capital Markets]

Yeah. Well, I guess just as you say that, JP, you mentioned it's not rocket science, but the rate of change in that well performance suggests otherwise. Is it in that rate of change then from kind of status quo to the Brazeau completion move to show that shift in the curve, was that three-well pad, have you been able to isolate? Was part of it just the structure of the rock on that particular pad, or do you think it's all driven by that change of completion from Brazeau into Sundance?

[Riley Frame, COO at Peyto]

Yeah. I think it's a combination of things. There's obviously a reservoir component to it, for sure, but there is, I think, a fairly material component that is driven by us drilling 50% longer and then increasing our stimulation intensity by roughly 20% as well.

[Travis Wood, Analyst at NBC Capital Markets]

Okay.

[Riley Frame, COO at Peyto]

Yeah.

[Travis Wood, Analyst at NBC Capital Markets]

Yeah. Okay, perfect. Thanks, guys.

[JP Lachance, President and CEO at Peyto]

Thank you.

[Riley Frame, COO at Peyto]

Thanks.

[Operator]

Thank you. One moment for our next question. Again, as a reminder to ask a question, you will need to press star one one on your telephone. Our next question comes from the line of Chris Thompson of CIBC. Your line is now open.

[Chris Thompson, Analyst at CIBC]

Yeah. Good morning. Thanks for taking my question. JP, I will start on the budget. I actually get to the same numbers as you on an exit rate of 157 for next year, and that would imply an exit rate of 150 for this year. If I draw a straight line between those two, would have you averaging 153 and a half on the year, and that is where the street is as of this morning. Just wanted to clarify that is the right way to be thinking about your production for 2027?

[JP Lachance, President and CEO at Peyto]

Yeah. I mean, you got the numbers, the start and end point correct, but as everybody, I think, should know better that the way Peyto has had it happen this quarter and last quarter, production tends to fall a little bit through the middle of the year, and then we ramp up at the back half of the year. It is not so much the increase in rig counts or anything like that. It is more just the nature of the beast when we are talking about bringing new production on the front end of the year. It declines a little bit as we cannot keep the activity going during breakup. Naturally, Q2 and Q3 have a fall-off effect on the production. I think we have been pretty good at modeling that behavior in our slides.

[JP Lachance, President and CEO at Peyto]

It shows that in our sort of future slides, in slide 24 particularly, where we show that sort of dip. It is pretty common for us to do that. I think I would caution you not to draw a straight line from start to finish and actually show that little dip in the middle that we typically have almost every year of production.

[Chris Thompson, Analyst at CIBC]

Okay. Yeah. Got it. Thank you for that color. Just on the Cardium well design discussion on your Sundance slide, wanted to ask you guys about the steeper decline rate exhibited by those 2026 wells compared to the average prior. Is there a reason behind that, compared to Brazeau? It looks like those declines are actually pretty parallel to the previous vintages. What's driving the difference between those two areas there?

[JP Lachance, President and CEO at Peyto]

Go ahead, Riley.

[Riley Frame, COO at Peyto]

Yeah. I mean, the rock is very different between those two areas. I think what you do see in the Wildhay area is that the reservoir probably is a little bit tighter up there. I think that has manifested in slightly steeper declines. As we have increased that stimulation intensity, we get that upfront pop, but those wells will come off just a little bit harder than what we see in Brazeau.

[Chris Thompson, Analyst at CIBC]

Okay. That's good to know. Just on the Wilrich, your 2026 Wilrich returns, they averaged 20%, and all the wells looked like they were below the corporate average of 52% on the year. In the context of 2027, why include Wilrich in the 2027 budget at all, if returns are just so weak compared to your other species?

[JP Lachance, President and CEO at Peyto]

One of the things you got to remember about the Wilrich is that it's a formation that exists pretty much across our land base everywhere, and it provides us with information as we drill down into it. Although it doesn't get its due of some of the returns from the other formations, particularly the Notikewin, we get that look on the way down. It's always been a staple of our program, right? We can't drill all of our best wells all at once, or we end up overloading a system, for example, or we end up having too much risk on one species. This is another risk-mitigating tool that we have, and that's on the way we develop our drilling program. We also can't be on top of each other when we're drilling wells either.

[JP Lachance, President and CEO at Peyto]

That becomes issues around frac communications and while we're drilling, all kinds of things like that. The Wilrich will always be a staple of our diet. We continue to push hard on trying to improve its economics through length, through intensity, whatever it takes to do that. It doesn't always work out, but it's always going to be a steady part of our diet because it's deep and we get to see the other things that are on the way down. Does that make sense?

[Chris Thompson, Analyst at CIBC]

Yeah. No, that's fair. I guess, just sticking on the Wilrich, but maybe this applies to any of these. Your slide 19, IRRs at CAD 3 a GJ compared to your slide 22, half-cycle IRR at CAD 3 a GJ. The Wilrich, you show there 82% versus actual. I'm trying to understand, why is there a difference between the IRRs you're showing on slide 19 versus the IRRs that you talk about as being in your inventory?

[JP Lachance, President and CEO at Peyto]

One big difference actually on the slide on 22, they're half-cycle numbers, just to be able to compare apples to apples across. The other ones are full cycle, so that does have an impact on the numbers for sure. This is what we aspire to do on the slide on slide 22. This is what we think we can do. This is what we have in our program. But we don't hide the realities of what the outcomes are in slide 19, of course, right? That's really the difference, I guess. Yeah, that's it.

[Chris Thompson, Analyst at CIBC]

But the difference, the outcome on 19, because from what I can see, it's the same price deck, right? Is it just that the drill costs came in higher than expected in the portfolio, or rates were different, or just what's the color behind the delta there?

[JP Lachance, President and CEO at Peyto]

The CAD 1.3 million is added to each of those wells in the slide 19 that gives you the full cycle. It's a substantial amount of incremental capital, first of all. You can't lose sight of that. I would say, the other element here is, of course, we don't know going into a program that we're going to be selective on the wells we intend to drill, so they might have a slightly higher IRR expectation, which is what we see on slide 22 than what we actually get on slide 19. The reality is that slide 19 shows a pretty good rate of return, full cycle. I think that's the thing to take away from this.

[Chris Thompson, Analyst at CIBC]

Yeah. No, understood. Thanks for the color. I'll hand it back.

[JP Lachance, President and CEO at Peyto]

Okay, thanks.

[Operator]

Thank you. I'm showing no further questions at this time. I'll now turn it back to J.P Lachance for closing remarks.

[JP Lachance, President and CEO at Peyto]

Okay, thanks for joining us. I have nothing more to add to this other than we'll see you next year, or maybe sooner. Thank you.

[Operator]

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Participants

Analysts

• JP Lachance, President and CEO at Peyto
• Travis Wood, Analyst at NBC Capital Markets
• Riley Frame, COO at Peyto
• Chris Thompson, Analyst at CIBC