Peyto Exploration & Development Q3 Earnings Call Highlights

Key Points

• Peyto generated CAD 221 million in funds from operations and CAD 105 million in adjusted earnings in Q3, while production rose 10% year over year and liquids output increased 20%. Net debt fell by about CAD 24 million.
• Stronger gas marketing and hedges supported a realized gas price of CAD 3.50 per thousand cubic feet, more than double the average AECO monthly price. Peyto also raised its monthly dividend to CAD 0.13 per share.
• The board approved a preliminary 2027 capital budget of CAD 475 million to CAD 525 million, targeting exit production of about 157,000 boe/d with liquids nearing 15% of the mix. More than one-third of planned drilling will target the Cardium.

Peyto Exploration & Development TSE: PEY reported higher year-over-year production and increased its monthly dividend after a third quarter in which stronger liquids output, gas marketing and hedges helped support cash generation.

The natural gas producer generated CAD 221 million in funds from operations, or CAD 1.06 per share, and adjusted earnings of CAD 105 million, or CAD 0.50 per share, President and CEO JP Lachance said on the company’s earnings call. Its operating margin was 71%, and it reduced net debt by about CAD 24 million.

Production rose 10% from a year earlier, or 7% on a per-share basis, while liquids production increased 20%. Lachance attributed the liquids growth to recent Cardium drilling and increased natural gas liquids recoveries. Production was lower than in the second quarter, which he described as a typical lag following reduced capital activity during breakup.

Cardium Wells Drive Liquids Growth

Peyto invested CAD 100 million in well-related capital during the quarter, despite wet weather that slowed some activities into July. Lachance highlighted a three-well Cardium pad in the Wildhay area of Sundance, where two wells were drilled 50% longer than previous wells in the area. The third was cut short after encountering natural fractures.

The wells showed improved performance compared with prior programs and an 11% reduction in cost per meter, Lachance said. Their initial rates were about 6 million cubic feet of gas a day, with roughly 55 to 90 barrels of liquids per million cubic feet. Peyto also drilled three wells in Brazeau that have recently been brought on stream.

Chief Operating Officer Riley Frame said Peyto’s evolving completion design in Brazeau has enabled longer wells while maintaining stimulation intensity. He said the company has gained confidence in a coil-shiftable system used there and sees an opportunity to apply it in Sundance.

Frame said future Sundance wells could extend beyond 2,500 meters, with the reduction in drilling and completion cost per horizontal meter potentially reaching 15% to 20%. He also cautioned that reservoir differences play a role in well performance. The Wildhay reservoir is probably tighter than Brazeau’s, he said, contributing to slightly steeper declines after the initial production increase.

Peyto also spent CAD 23.5 million on facilities, including pipelines, plant optimization and maintenance. About CAD 1 million went toward 10 sections of land acquired through Crown sales. The company has purchased 63 net sections through Crown sales and deals so far this year, at an average CAD 157 per acre, Lachance said.

Gas Pricing and Dividend

Peyto realized CAD 3.50 per thousand cubic feet for its gas in the quarter, more than double the average AECO monthly price, according to Lachance. He said the company’s market diversification portfolio contributed CAD 1 per thousand cubic feet net of costs, while hedges added CAD 0.82.

The company added 80,000 gigajoules a day of service to Ontario, equivalent to roughly 70 million cubic feet a day, beginning in November 2028. Lachance said that brings Peyto’s future non-AECO diversification portfolio to more than 500 million cubic feet a day.

Peyto increased its monthly dividend to CAD 0.13 per share, its second increase this year and 18% above last year’s level. Lachance said the company has hedged just over 400 million cubic feet a day of 2027 gas production at CAD 3.32 per thousand cubic feet. Together with liquids hedges, those positions secure CAD 690 million for 2027, he said.

Preliminary 2027 Budget

Peyto’s board approved a preliminary 2027 capital budget of CAD 475 million to CAD 525 million. At the midpoint of its assumptions, the company expects to exit 2027 producing approximately 157,000 barrels of oil equivalent per day, with liquids approaching 15% of the mix.

More than one-third of next year’s drilling program will target the Cardium, Lachance said. He expects liquids production to grow faster than gas and said the richer mix should generate more cash flow. The company plans to confirm its budget in February alongside its reserves report.

Asked whether investors should model production as a straight line between the beginning and end of 2027, Lachance cautioned that Peyto typically sees production dip in the middle of the year as activity slows during breakup, before ramping up in the second half.

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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