Peyto Returns To Profitability With Q4 2020 Results
CALGARY, Alberta, March 03, 2021 (GLOBE NEWSWIRE) — Peyto Exploration & Development Corp. (“Peyto” or the “Company”) today reports operating and financial results for the fourth quarter and 2020 fiscal year. A 55% operating margin1 combined with record low $2.07/Mcfe total supply cost (PDP FD&A plus Total Cash Costs) helped the Company endure the lowest realized commodity prices in Company history. Annual Return on capital employed (“ROCE”) and Return on equity (“ROE”) were 0% and -2%, respectively, despite fourth quarter earnings of $66 million or $0.40/share.
Full Year and Q4 2020 Highlights:Low Cash Costs of $1.01/Mcfe (or $0.88/Mcfe before royalties) – Full year 2020 total cash costs of $1.01/Mcfe continue to be the lowest in the industry and when combined with a realized price of $2.23/Mcfe ($13.38/boe), resulted in a cash netback of $1.22/Mcfe ($7.30/boe) or a 55% operating margin. Fourth quarter cash costs of $0.88Mcfe, before royalties of $0.18/Mcfe, included operating costs of $0.31/Mcfe, transportation of $0.15/Mcfe, G&A of $0.04/Mcfe and interest expense of $0.38/Mcfe. Low PDP FD&A Costs – Proved Developed Producing (“PDP”) Finding, Development and Acquisition (“FD&A”) cost of $1.06/Mcfe ($6.36/boe) was the lowest in 18 years and is reflective of a continuous decrease in drilling time, combined with higher reserve recoveries from longer horizontal laterals and more intensive fracture treatments.Lowest Production Addition Cost – While annual capital investments of $236MM were 111% of the $213MM in Funds from Operations (“FFO”), they successfully replaced 127% of annual production with new PDP Reserves. In the year, a total of 64 gross (61 net) wells were drilled, 71 gross (67 net) wells completed, and 72 gross (67 net) wells brought on-stream. This activity added 26,500 boe/d of new production at year end at the lowest total cost, $8,900/boe/d, in Company history. The Q4 2020 capital investment was $68 million and involved drilling 17 gross (17 net) wells.Long Life, Low Decline Production – Peyto’s base production decline is forecast in the InSite report at 25% for 2021, while its PDP Reserve Life Index (“RLI”) is 9 years, based on Q4 2020 production of 83,461 boe/d, which is one of the longest PDP RLIs in the industry.Lower Emissions – Methane (particularly flared and vented) emissions were reduced again in 2020, now down over 40% since 2016. With approximately half of the emissions intensity and lower environmental impact (emissions and land/water use per unit of production) of the rest of the natural gas production and processing industry in Canada, Peyto’s reserves are extracted with far less overall environmental impact*.Minimal Future Liabilities – The forecast cost of all Peyto’s future abandonment and reclamation liability (wells, sites, & facilities) is $44 million (NPV5), which represents 1% of the $3.3 billion of forecast future value of the total developed reserves3(NPV5).
2020 in Review
The year 2020 marked Peyto’s 22nd year of successful operations with impressive execution in drilling and completion operations and overall cost control across the organization, all while managing through the impact of the COVID-19 pandemic. Development drilling focused on several different horizons across Peyto’s Deep Basin lands while extensions in horizontal lateral length and increased stimulation intensity improved productivity and reserve recovery. A gathering system expansion at the end of 2019 allowed the South Brazeau lands to be more aggressively developed yielding excellent results, while two strategic acquisitions were successfully negotiated late in 2020 to follow up a multi-zone, development drilling program in North Sundance. These acquisitions are expected to add twice as much future drilling inventory as was harvested in the year, which helped offset the lack of Crown land purchases resulting from the 7.5-month suspension of Alberta Crown land sales. Peyto’s facility and infrastructure ownership continued to provide reduced full cycle cost and enhanced profitability to current and future reserves development. Unfortunately, the COVID-19 pandemic and its resulting effect on global hydrocarbon demand severely impacted commodity prices in the year. This resulted in a realized combined natural gas and liquids price of just $2.23/Mcfe, which is the lowest in Peyto’s 22-year history. Despite posting a $0.40/share profit in the fourth quarter of 2020, the Company recorded its first annual loss in 21 years ($0.22/share loss). Thankfully, the effect of the COVID-19 pandemic appears to be coming to an end and commodity prices have significantly improved, setting the stage for a much brighter future in 2021.1. Operating Margin is defined as funds from operations divided by revenue before royalties and marketing but including realized hedging gains/losses.
* Please refer to Peyto’s 2020 Sustainability Report at http://www.peyto.com/Files/Corporate/2020SustainabilityReport.pdf
Natural gas volumes recorded in thousand cubic feet (mcf) are converted to barrels of oil equivalent (boe) using the ratio of six (6) thousand cubic feet to one (1) barrel of oil (bbl). Natural gas liquids and oil volumes in barrel of oil (bbl) are converted to thousand cubic feet equivalent (Mcfe) using a ratio of one (1) barrel of oil to six (6) thousand cubic feet. This could be misleading, particularly if used in isolation as it is based on an energy equivalency conversion method primarily applied at the burner tip and does not represent a value equivalency at the wellhead.
