Q2 2023 Peyto Exploration & Development Corp Earnings Call

Good day and thank you for standing by welcome to the Peyto Q2, 2023 financial results Conference call.

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Today's conference is being recorded I would now like to hand, the conference over to your speaker today at the J P Lesean, President and CEO . Sir. Please go ahead.

Thanks, Chris and good morning, folks and thanks for joining <unk> second quarter results conference call.

I'd 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.

In the room with me today, we have Kathy Turgeon, our chief financial Officer of Riley frame, our VP of engineering.

Carlson, our VP of finance, Todd Burdick, our VP of production.

Eric's younger our VP of land and business development, and Lee Curran, our VP of drilling and completions.

Before I recap the quarter on behalf of the Magic group here I'd like to acknowledge and thank the payroll team as we always do.

Their efforts over the past quarter, including our people in the field for their commitment to payroll for their contribution to the successes that we enjoy.

There's been a lot of talk about the impacts of wildfires in this past quarter and although it did affect Peter's operations with some curtailed production about one 5% and some increased trucking costs I think the team did a great job of really good job redirecting production to the unaffected plants warming up our refrigeration units.

Reduced last week, which remotely operating some of our facilities longer than we normally would and always while maintaining safe operations.

I think this is a really good example of how effective digital strategy is around owning and controlling our infrastructure our production.

This is how we can make these operational adjustments easily and react quickly to these situations so kudos to the team.

April monthly gas prices averaged around $2 22.

Thank you Joe during the quarter, Yes, we received an average price of around $2 72, <unk>, thanks to our mechanical hedging program.

Although our diversification program at our extra Empress service didn't really pay off this past quarter since prices across North America. We're all quite low we still have lots of exposure going forward to some of the premium markets, such as marine and California, insurer and Chicago in the U S Midwest and Eastern Canada.

And we're getting closer to the start of our supply agreement to the Cascade power plant.

The pipelines built and we're finishing up the connection just Eddie generate now and despite the fires and floods, we believe the plants on schedule and we expect to be.

Selling them some gas sometime at the end of this year when when we will expect to receive some premium.

Relative to vehicle forward curve.

On your payrolls Peters gas will be base load supply for this highly efficient 900 megawatt power plant. So it will be supplying it constantly while it's up and running.

Despite lower realized prices and the impact of wildfires on production cost payroll was able to maintain a strong operating margin during the quarter at 70% something we've been consistently delivering over the last two years.

We moderated our capital program throughout Q2, and we only spent $82 million most of that was on wells I think about 88%.

And production is stabilized around 100000, Boe's a day.

The effects of inflation seem to have steadied and we're now seeing some efficiency gains in our longer laterals, we've been increasing lateral lengths over the last year and a half but.

But with inflation happening at the same time, you start to see the gains on a cost per unit length of our cost per stage basis until now.

We remain cautious with our summer drilling program and we're but we're ready to ramp up in the fall assuming prices continued to climb as the forward strip suggests they will.

We've seen some positive movement lately or this past week, but we're really looking for a sustained price support is a trigger.

Meantime, we have some solid hedges on for the winter over 55% of our forecasted gas volumes are healthy.

$4 70.

$4 77, seven mcf, including our diversification cost.

Our next summer is also well hedged for about 45% of our volumes at $3 62.

Mcf.

These are above the current strip.

And when you couple this with exposure to the other exciting markets I mentioned earlier.

It gives people the confidence to maintain the dividend and continue to pay down some debt.

And we can we can and we will react quickly if prices continue to rise as winter approaches.

Coming up this October we're going to celebrate our 25th.

First day, our anniversary I think we're one of a handful of companies that are still standing all this time.

And we stay true to our strategy of offering long term shareholder value even at times when it wasn't the cool thing to do.

And we still believe the gas as the fuel the future and the build out of LNG facilities in both U S and Canada in the near term you will enable us to be a preferential supplier of this field with our low cost long reserve life assets.

Scott.

So I know this is a busy reporting season, so I'll keep it short and sweet at that and maybe we will open up the phone lines for any questions that shareholders might have so Chris can you turn it over to your questions.

Thank you.

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One moment please for all first question.

Okay.

Our first question will come from Chris Thompson of CIBC. Your line is open.

Hey, good morning, everyone. Thanks for taking my question.

First on Cascade J P. You mentioned.

Sounds like projects on schedule on the payroll side so.

This cascade and tend to be up and running then by by January 2024, or whats the status of that project right now.

Yes, I mean this is their project, but our understanding is that the R&D will be ready to go here either at the end of December versus January of 2024. So that's how we're modeling R. R.

Our.

Cash flows here and expectations that it will start up again at.

At that point, we believe theyre relatively undrawn scheduled for that period for sure.

Okay.

Yeah and then.

I just noticed you drilled a couple of them vegan wells that you mentioned in your press release.

There's only a handful of these that you show as being kind of an inventory should we think about there being potential upside to your <unk> opportunity that you.

Continue to explore this play.

Maybe ill.

It's a good question, maybe I'll, Richard Alaska, Riley framework VP of engineering to respond to that one Chris.

Chris Thanks for the question yes.

At the time, we only have a handful of locations booked out here. So we will continue to delineate this play as we go.

Overall, I don't we don't have a massive inventory.

I think the way to sort of think about these locations.

They are very complementary to our current revenue.

Structured.

And with the above average liquids and those great economics.

Sure. It is something that will just continue to feather into our program as we go here so.

Okay.

And then just one last question for me.

How are you thinking about production over the next.

Over the second half of 2023.

I think Chris that we're going to be careful here, we're going to want to see like I said in opening remarks prices continue to.

Move to the upside and if we see that constructive and we're seeing it sort of strip as it played out we will wrap up here, but if not then we'll hold things relatively flat and that means we'll come back to you with it.

New advice around where we're going to land as far as production goes obviously, we don't spend as much capital theaters.

Okay, great. Thank you I'll hand, it back.

Thanks.

Thank you.

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One moment please for our next question.

Our next question will come from Henk to Denver.

Your line is open.

Hey, good morning folks.

Another question regarding.

Your payout ratio of 98% and.

And in light of that how safe you feel your dividends are in the next several quarters. If you could talk to that please.

Sure. Thanks, Matt Good question, Yes, we're fairly comfortable with our dividend level is because remember we as I mentioned earlier, we have hedged a lot of our production out there to give us security.

Around our future.

Future revenues, certainly that coupled with the.

With our low cost.

It gives us confidence certainly prices are in contango, so Pat that materializes, not only will we be able to maintain the dividend will also pay down some debt.

But we're watching this carefully as oil prices.

Prices are important and we're going to we're going to look at our capital program to make sure. It still makes sense under these prices I don't think anybody is paying us too.

To drill wells and bring on a bunch of production and low prices if that makes any sense, we'll just be very cautious and careful with our with our payout ratio in that regard.

Or do you see yourself or you can see.

The company attempting to reduce that ratio, it's from an investor point of view.

Adding a little high.

Yes, we've always actually ran up even higher than 100% in the past.

<unk> paid us doing that maybe in the short term if we have.

Timing of capital is such that.

We spent a little bit extra.

You realize future volumes or future value into <unk>.

Future revenues later, so I could see that maybe only on a short term basis, but not over the long term.

Okay. Thank you for your answers.

Thank you.

Thank you.

And again to ask a question. Please press star one on your phone and wait for your name to be announced standby as we compile the Q&A roster.

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Okay.

I am not seeing any more questions in the queue I would now like to turn the conference back to J P. Lesean for closing remarks.

Okay. Thanks, Yes, I have some other questions that have come in overnight through E mail or through the website. So maybe I'll.

One other question was just around our royalty rates they were down.

A little bit here this past quarter, we had a true up I think.

Our royalty rate our royalties with the government there and maybe Charles you can.

Run us through what we might expect going forward for the rest of the year on crest ship is not a royalty rate. We should expect this year, we're going to go back support.

Yes.

Those two factors impacted our royalties in the second quarter.

First.

The biggest reason why do you think.

Hello, Alberta reference price.

Approximate co. So Nicole is averaging $2 22 on a second.

At $2 32, 5% for the quarter. So I think the reference rates that we were modeling was around $2 15, which would have been down for $3 51st quarter and then secondly, we did get our annual gas cost allowance adjustments in the quarter.

Based on higher costs over the last 12 months.

The crown compensate.

FERC processing gathering can we make it a true up from last year, which lowered our growth rate.

I think going forward I would expect to be around 95% for the rest of the year right. Okay. Thanks, and I guess, that's an important point to make.

With our hedging and those values being higher than <unk> prices, we kind of gain on both sides of that equation don't wait with respect to the fact that we paid less royalties on the on the actual realized prices were getting yes exactly okay.

Maybe one other question for Riley here.

Question around the FLIR channel plays in the release, we talked a bit about that as well as <unk>.

Bacon, which was asked earlier, but.

What are we doing differently on those from these clear channel place.

To provide some context, what about future location counts and things like that.

Maybe you can answer that question.

Yourself.

Part of what we're doing differently I wouldn't say, it's totally different kind of applying what we've learned in other formations.

Due to flat really so under these hydrophilic channels that we haven't necessarily developed.

We've been able to make them.

Horizontals.

So we'll continue to.

Ask that with different areas of medicines continue to.

Inventory from the inventory perspective, I think right now we are.

50, plus locations Thats, a pretty good visibility on that.

It's really the kind of playwear more we drill the more we will be able to develop additional locations. So.

It seems like there's some pretty good legs.

<unk>.

Hey, Good news. Thank you that's great. Okay, let's just any more questions on the phone lines of I know it's been.

Quiet time in summertime.

We'll stop there unless there's more questions on the phone.

I'll turn it back to you Chris.

No question in the queue, but again to raise their hand to ask a question.

One one on your phone.

One moment.

And no questions have come up in the queue, okay well thanks.

Thanks for tuning in folks and we will talk again here in November about our third quarter results.

This concludes today's conference call. Thank you all for participating you may now disconnect have a pleasant day.

Okay.

Okay.

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Okay.

Yes.

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Phil.