Peyto Exploration & Development TSE: PEY reported record first-quarter 2026 production, funds from operations and earnings, as management said stronger pricing, low costs and market diversification supported debt reduction and a dividend increase.
President and CEO JP Lachance said the company spent CAD 150 million during the quarter while reducing debt by another CAD 89 million. Since the company’s Repsol acquisition in October 2023, Peyto has reduced debt by CAD 275 million, he said.
“Peyto’s bigger, stronger, and financially fitter than ever, which means we feel it’s time to give a little more back to shareholders with an increase to the dividend,” Lachance said.
Production Reaches Record Levels
Peyto averaged 147,500 barrels of oil equivalent per day in the quarter, with production reaching an all-time high of 148,000 BOE per day, Lachance said. Average production was up 10% from the same period last year, or 7% on a per-share basis.
The company ran five rigs during the quarter across its core areas and drilled 23 wells across formations ranging from the Cardium to the Bluesky. Peyto invested CAD 121 million in well-related costs, including drilling, completing, equipping and tying in wells.
Lachance said the average performance of those wells is tracking closely with results from the past two years. He highlighted recent Cardium wells in Brazeau, where Peyto applied a drilling and completion strategy used last year in the Chambers area.
According to Lachance, the company drilled deeper in what it calls the “bioturbated zone” to increase drilling rates and rate of penetration, while completing longer horizontal wells with more stages. He said gas rates improved, and wellhead liquids rose to initial production rates of about 500 to 600 barrels per day.
Peyto also invested CAD 26 million in production operations projects, including strategic pipelines and plant equipment and maintenance intended to support development, optimize production and improve reliability. The company used the balance of its capital spending to acquire another 41 gross sections of land through direct purchases and Crown sales at an average cost of about CAD 200 per acre.
Funds From Operations and Earnings Set Records
Peyto reported record funds from operations of CAD 293 million, or CAD 1.41 per share, and record earnings of CAD 171 million, or CAD 0.82 per share, Lachance said. He also cited an operating margin of 77% and a profit margin of 39%, which he described as the highest in the past 10 years.
Cash costs totaled CAD 1.28 per Mcfe in the quarter, down 10% from the same period last year. Lachance attributed the decline to lower interest costs from reduced debt and lower rates, as well as lower royalties and slightly lower operating costs.
Lachance said Peyto still expects to reduce controllable costs — operating, transportation, interest and general and administrative expenses — by 10% this year compared with last year’s annual average, equal to about CAD 0.10 per Mcfe.
On the revenue side, Peyto realized a gas price of CAD 4.69 per Mcf, 73% above the AECO monthly average of CAD 2.71 per Mcf after adjusting for average heat content, Lachance said. He attributed the premium to a CAD 0.37 per Mcf hedge gain and CAD 1.61 per Mcf of diversification value. That diversification came from exposure to markets including Chicago, Ventura, Dawn, Parkway and Emerson during cold winter weather events.
Dividend Raised as Debt Target Reached
Peyto said it has reached its soft leverage target of one times debt to trailing 12-month EBITDA earlier than expected. Lachance said the company is now comfortable returning more free cash flow to investors and has announced a dividend increase of CAD 0.01 per share per month, representing a 9% increase.
Responding to a question from RBC analyst Michael Harvey about dividend methodology, Lachance said the company views dividends as being sourced from earnings but also considers balance sheet strength and sustainability.
“We’ll be careful as we move forward to make sure that’s sustainable,” Lachance said, adding that at current strip prices Peyto still expects to reduce debt further by year-end.
Lachance said Peyto has secured CAD 715 million of revenue for the balance of 2026, from the second through fourth quarters, and another CAD 510 million for 2027. He said the company’s hedge position and market diversification support confidence in the dividend’s sustainability.
NGL Agreement Expected to Lift Liquids Mix
Subsequent to the quarter, Peyto redirected about 75 million cubic feet per day of gas to a third party to increase recovery of propane, butane and C5+ liquids. Lachance said the arrangement is expected to add 1,000 to 1,500 barrels per day at a time when liquids pricing is stronger, without increasing operating costs.
Todd Burdick, vice president of production, said any liquid ethane is returned to Peyto as gas and that “there’s no ethane in the deal” for Peyto. He said the arrangement, combined with a more liquids-focused drilling program, should increase Peyto’s overall liquids content by at least one percentage point.
Asked by CIBC analyst Chris Thompson about modeling implications, Lachance said it would be prudent to increase the company’s liquids percentage by 1% and that Peyto would gain more clarity as the year progresses.
2026 Capital Plan Maintained
Peyto remains committed to investing between CAD 450 million and CAD 500 million this year and drilling 70 to 80 net wells, Lachance said. The company has slowed activity during breakup and was down to two rigs at the time of the call, with plans to resume activity as weather permits.
Lachance said Peyto expects to run four to five rigs for the balance of the year. Four rigs would likely put the company near the midpoint of guidance, while five rigs would move it toward the high end. He said Peyto could add a fifth rig later in the year depending on commodity prices and to prepare for the first quarter of next year.
The company has also adjusted its drilling program toward more liquids-rich targets, including the Cardium and Falher, Lachance said. He added that Peyto is “well protected” through the summer, with about 70% of its gas volumes fixed at prices just under CAD 4 per Mcf and limited exposure to spot AECO pricing.
On service costs, Lee Curran, vice president of drilling and completions, said Peyto is seeing fuel surcharges, but they are being more than offset by reductions in areas such as tubulars and rig rates, along with efficiency gains. Burdick said some operating costs, including chemicals, trucking and lubricating oils, are exposed to oil-related inflation and could rise slightly in the second quarter.
Lachance said Peyto remains constructive on natural gas, citing LNG development in Canada and the United States, local power demand from data centers and the broader need for secure and reliable energy. He said the company will continue using hedging and market diversification to manage commodity price volatility while focusing on cost control and execution.
About Peyto Exploration & Development TSE: PEY
Peyto Exploration & Development 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.
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