Q3 2023 Peyto Exploration & Development Corp Earnings Call
Thank you for standing by and welcome to pesos third quarter 'twenty to 'twenty three financial results Conference call. At this time, all participants are in a listen only mode.
After the speaker 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 to remove yourself from the question queue. You May Press Star one one again.
Now I'd like to hand, the call over to President and CEO J P. The shops. Please go ahead.
Thanks, Latif and good morning folks and thanks for joining periods third 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.
With me today in the room, we have Kathy Turgeon, our chief Financial Officer, Rodney frame, our VP of engineering.
<unk>, our VP of finance.
Rick RVP in production.
Remember, our VP of land and business development, and Lee Curran, our VP of drilling and completions.
Before we discuss the quarter on behalf of the management team I'd like to acknowledge and thank Pedro team as we always do for their efforts over the past quarter, including our people in the field for their commitment to payroll.
I mean that sincerely as a lot of people are working extra hard these days to integrate the recently acquired repsol assets.
It was a very busy quarter appeal.
Not so much.
Our capital program, which was relatively quiet as we continued with our careful approach to spending given commodity prices were still down significantly as compared to last summer.
Must be 70 price averaged $2 26, Giga joule and Nymex was around $2 53.
<unk> for the quarter, but our systematic hedging our diversification portfolio helped us maintain cash flow, while our capital program kept us flat production over Q2.
Cash costs of $1 five per Mcf, excluding royalties were up slightly from Q2, but when you factor out the <unk> per Mcf, we paid for some partial financing fees incurred from the acquisition you were actually slightly lower collecting typical lower summer operating costs, but also that we've seen inflation effects moderate.
Obviously, we've been very busy doing some exciting things over the.
Other than the drilling program, we have over this last quarter.
Another tuck in deal and I call the repsol deal that because it really fits with our strategy to acquire assets really adjacent to our own operations to come with lots of upside and operated facilities.
October 17th we closed the Repsol acquisition and when you consider the bids within shortly after our last call in August that was pretty fast.
But because it closed in Q4, there's no production of revenue contribution from this deal in our Q3 results aside from that initial biopsy costs.
Larry.
Really excited about the opportunities here, we see over 800 high quality drilling locations right now, but I expect once we get drilling starting to more like we usually do.
For us, it's like going into a time warp since many of the great opportunities we pursued in the past in our own minds are right next door.
All right next door to these are now available again on repsol assets.
Sure.
Francis at this time, we get to use our latest drilling techniques that we've been refining over the years like our extended reach horizontals and increases in stimulation intensity. So that means the wells should be that much better.
And as I said in the monthly report just published the real work begins now and we've already begun Julien we have two rigs running on the Repsol lands and we expect to drill seven more wells by the end of the year set of wells towards the end of the year.
That coupled with our two rigs will help drive exit production to somewhere between $1 26 to 128000, Boe's a day, depending on hook up timing.
And while much of our staff is busy integrating data with systems into pay to our operations teams also busy working up field optimization project, which I'll get tied to expand upon later.
The field synergies with the pedal with payroll was greater Sundance.
Fantastic.
I'd encourage you to look at the slides in our corporate presentation, you can see the overlay the plants and the gathering system that picture says it all.
Yes ill control and operate one five Bcf a day for one four Bcf.
Ccs.
Our processing capacity in the deep basin.
We're also we also released our preliminary budget for 2024, which targets between $450 million $150 million $500 million capital spending, which should grow up to around $1 35 to 140 Boe's a day by the end of the year next year and that plan has a combination of activities.
For newly acquired Repsol assets in our own legacy lands, where we plan to drill around or between <unk>, 75% to 80, yes horizontals.
On top of that we expect to spend about $10 million on closure activities to stay ahead of our abandonment and reclamation obligations.
We believe our plan to grow over the next two years is well timed with the expansion of LNG takeaway capacity, both from LNG, Canada, which is getting built and the projects in the U S.
In the meantime, we expect gas prices to remain volatile. So we've protected our revenues with a robust hedging program, 68% of our forecasted gas volumes are fixed for 2024, 56% for 2025, it prices around $4 in Mcf.
This is quite a bit higher than the strip for 2024.
We calculate that not only can we support the dividend and the capital program that we've got contemplated in our plants, but also pay down debt such that we should be under one time, some one times debt to EBITDA trailing EBITDA.
Sometime in 2025 under the current strip.
Well beyond our hedges.
Exposure for the for the winter this winter and into 2024 is some premium gas markets like Dawn Melinda in California, and U S. Midwest.
And of course, we also have our supply contract to the chassis power plant for 60000, GJ today, which has been delayed slightly but should be up and running in Q1 of 2024, and we're all connected and ready to go in there.
We also released our annual sustainability report as part of the QC release, and you can find it on our website.
We continue to hold the view that our focus on operational excellence nationally keeps our cost down but also serves to emit less methane use less wire are smaller.
Surface footprint.
<unk> facility utilization as high as possible.
This report covers the year ending 2022. So it doesn't include the newly acquired Repsol assets.
Of course next year, we'll reevaluate the targets based on these combined assets.
Before I close my opening remarks here I would like to congratulate Riley on his promotion to COO and Thomas to his promotion to CFO that will take place.
Early next year.
You guys are excited as I am to begin next chapter of payroll and.
And thank you Kathy for 20 years of dedication to Pedro as you move forward to retirement in 2024.
But before we go to the phones the teeth.
Todd maybe expand upon a little bit if you thought you could expand on these operational these operations optimization projects as it relates to the repsol synergies that we've been discussing maybe you can provide a little more color on what your team is planned for the rest of this year and into 2024. So total I'll ask you to maybe expand upon that first before we turn it over to <unk>.
Sure sure.
I guess, maybe to expand a little bit on on.
Your.
Recognition of the payroll people I would say that.
John.
We're pretty happy to see that Repsol people that we have former ethanol people that we brought in really working hard along with our payroll people to identify some synergies.
Optimization opportunities they really stepped up.
Amen.
It looked like a really great addition, so we're pretty happy on that I'm sure. That's probably other groups are seeing that too.
As far as what we've got planned for the remainder of this year. We've got some kind of quick wins, if you want to call. It that we've got immediate plans for three projects in the greater Sundance area.
Two should be completed here in November one and December to them involved some pipeline tie ins that well.
Redirect roughly 20 million cubic feet, a day well gas.
Into.
Lower line pressure and higher liquid recovery plans.
And then a third involves a compressor sales pipeline redirection.
It ended up.
Removing the need for about $2 $5 million pipeline that we were previously envisioning building.
So we have that savings and then.
Gas that moves into that.
System will will end up being at a lower line pressure, so that will help and we're doing it.
Minimal cost a.
A few hundred thousand dollars.
Very little overlap regulatory applications required.
And then as far as going into 2024, we're going to focus on on really.
Adding infrastructure I guess in connecting infrastructure, so that we're able to connect repsol glass into Pedro infrastructure. So that we've got swing capability. So that we can move gas around from plant to plant outages and then.
We'll continue to look for lower line pressure opportunities and that sort of stuff. So so where we are.
Sort of got to about five projects that.
That we're envisioning right now several of them will be up.
Up in the northern area sort of Wild River Wild pace, the celiac and that will connect those three plants together and then and then further south connecting the <unk> gas plant the med large gas plant into the.
The old man.
Watson.
And no upheld facility. So we're excited about that.
Yes.
Expect to have a lot of this stuff done probably in the first half of 2024 and then we'll continue working on some of that.
Little bit more nuance things as we move through.
The first half of the year, and we'll probably be able to do it we're expecting costs pretty minimal costs, even for some of those larger better modification.
Paul pipeline built to make that happen.
Okay. Thanks, Todd Thats good.
Color.
Okay.
There's a lot of questions. So I'll, let Keith let's open up the phone lines are perhaps we can see what we have progressed.
As a reminder to ask a question you will need to press star one one on your telephone to remove yourself from the queue Press Star one one again, please standby, while we compile the Q&A roster.
Our first question.
Comes from the line of Jeremy Mccrea of Raymond James.
Yes, hi, guys.
It's been a month since the closing here now and Im curious if youre getting.
Any kind of update just in terms of some of the synergies that we could have expected.
Are you getting maybe.
I'm, just trying to think of like better potential for more access into the California market better rig contracts better anything just with some of the synergies and contracts that you guys may have had with Repsol and then second question a lot of M&A going on here in the sector here right now.
Are you guys done with these tuck in acquisitions or is there more still to come here.
Okay. So hi, Jeremy Thanks for your question.
And the first I think Todd alluded to some of the projects that we've got working on as far as optimization scope.
We did get a little bit a little bit of diversification with the acquisition into a little bit more California into the California market with the marketing side.
As far as you know as far as synergies around drilling et cetera, really we havent changed our program. All we do is redirected more on the repsol assets. So we still have four rigs Brian.
That doesn't really materialize any changes to sort of synergies or larger synergies related to contracts like that.
With respect to what was the second part of your question just a lot of M&A going on in the sector right now just to your comments on that and how do you guys fit in with all of this M&A that you are you guys done are you still looking at things still opportunistic.
Yes, we haven't changed our approach in fact that argue that what we just did it isn't any different than what we've been doing all the way along.
We call. These tuck ins because they have the synergies right next door, we understand them really well and so we'll continue to do that.
For us it's.
The strategy really hasn't changed we will look at opportunities as they come around and we'll jump on them that we think it makes sense to us and we can make them work and typically they're going to come with facilities and they are going to come with a lot of opportunities. So that we can continue our strategy of owning controlling you think that's a really important and we'll continue to look at any kind of opera.
<unk> like that I think the repsol opportunities.
Firstly, the Repsol acquisition provides us with additional opportunities as we move out footprint gets bigger and we see more opportunities on other kinds of tuck ins that will pursue as we go along here but.
Really we have.
Also not we're looking at land sales or other ways to add.
To our to our to our land base, maybe you want to comment on that Darrin, Yes, sure. We're definitely still in a landfill front term continue to target perspective.
That fit our profile in the quarter.
Did pick up 10 sections of prospective land for an average of 211 acre and that put us to a total of 26 sections year to date for an average of 178 an acre.
So we're active on the last slide two which is good so with the additional footprint of the reps that allowance.
Many new landfills in the future will outfit.
Our profile given that closer proximity to our pro forma basis. So we will look to capitalize on those opportunities once they arrived.
Okay. Thanks, guys.
Thanks, Great. Thanks, Jeremy.
Thank you again to ask a question. Please press star one on your telephone again Thats Star one on your telephone to ask a question.
Our next question comes from the line.
I have Chris Thompson.
<unk>.
Yes, good morning, guys. Thanks for taking my questions.
Just firstly on some of that infrastructure work that Youre doing you mentioned redirecting 20 million a day.
With these projects coming up here at the end of this year does that actually increase utilization on.
Specific plan does it does it decreased utilization on another.
How should we be thinking about that I noticed you specifically called out utilization in the press release there.
Yes, you'll get tied to sort of expand a little further on that I think.
The general at all we were looking at this from the perspective of.
We got to get drilling hearings start growing production in those areas and that will really be the key driver for opex reduction because obviously fixed cost.
They have been underdeveloped the CRA is in solar.
Fact that these plants have not been where production has been falling the fixed costs are spread out.
Cost and so that utilization is down relative to where.
We'd like to see it. So obviously, we're going to get drilling here, but on the short term talks about these projects planned to move production around and to optimize it and part of that is we're lowering line pressures to help increase throughput as well right. So.
Utilization rates are going to move around as we do that obviously right.
I think on specifically on the 20 million cubic feet a day of gas that I mentioned that is moving.
Some gas up in the CRE area that phacelia plant has been full.
All four.
A long time.
And it's liquid recoveries are lower.
The other flat so our plan is to us.
The accident rate, Eric Repsol pipe going rate might have been we're going to move some gas.
Further north into the Wild River.
So that's why she is already 100% is where we're.
We are going to help lower pressures.
<unk> utilization.
Yes, exactly and we have it will move a little bit of gas maybe out up.
While a plant, but it will release the infrastructure that we were directing.
Move that gas around so yes definitely.
Will help.
On life insurance.
Positively affect a lot of other wells in that area.
Got it Okay, and then from a infrastructure spending.
Standpoint next year.
You mentioned the big turnaround at the Edson plan. So just wondering if you can expand a bit on <unk>.
What what the estimated costs are for that and other infrastructure spend in the budget.
I won't get into specific projects can move around on us Chris but generally speaking are they.
Sylvie budget is closer to 15% to 18% of our annual budgets and App isn't any different.
So maybe I guess.
Last year, it was lower than that but.
So theres a few projects that we've got Nicole this year that related to that the gas the gas plant.
Yes, and gas plant turnaround is actually spaced over a couple of different months, so it's spread out.
But it will be around the three infrastructure costs facility costs will be in that 50% to 80% of our capital budget range.
Okay.
And then next question for me, how should we be thinking about your royalty rate next year and then.
Cash taxes, as well and we've talked about operating costs in the past, but just wondering if theres been any change too.
Your outlook on Opex as well.
Sure I mean, youll get challenged to answer the royalty question here first and we will go.
Go ahead.
Yes, Chris I think our royalty rate.
And over the last year obviously.
April.
Yes.
You pick up a bit we did see a little bit higher.
Somewhere around that 10% would be yet.
The modeling.
In terms of cash.
We're modeling around 12%, 14% next year, it's going to be a bit higher than where we were at in 2023.
The <unk> acquisition.
Partnerships, so it doesn't come with many tax pools.
The resource pools of non cat losses as well.
Hello, Operator partners Kelly, so really we're only inheriting a little bit as you see pools and some resource pools that we would've generated from <unk>.
During the.
I'll wrap up.
Yes.
Tomorrow.
Sure.
Chris You also asked about operating cost operating cost I mentioned earlier that your utilization of your plants.
I'd like to think.
We have significant improvements that we can make the operating cost step up cost will be higher but we've already we're already going to.
See some some changes to that impact.
As far as people synergies feel.
And so.
Costs are going to go up for sure but.
We still think that.
But we have lots of opportunities.
Downward direction.
Or in essence before doing.
If you look to our.
Our corporate presentation, I have a sort of a total cash cost.
Slide that gives you some direction around what we see actual cash cost excluding royalties.
Yes.
Our presentation.
Numbers.
Alright. Thanks, JP, maybe just last question from me just with your preliminary budget and guidance out could.
Could you maybe help us a bit on the shape of the capital profile next year.
And the shape of your production profile next year.
Yes, sure so capital.
Our capital program is probably relatively.
Balanced throughout the year.
A little bit higher in the backend and.
Because we've got different and a lot has to do with the timing of facility projects.
In fact production production typically will be backend loaded for us.
I have a couple of things that come out of the year, but we have a little bit higher declines in the front end and so.
Relatively flattish first half of the year, we grow in the back.
Very typical profile and part of that has to do with factor we have to break up period, we're modeling right now.
We arent going to be running all four rigs to break up that could change so that capital profile could change as well if we decide that.
It's a good time to go it makes sense in the markets there.
Get some lower cost typically done, but not always so right now we're modeling.
Or less a flat front end and then a higher back in production side and capital is more or less throughout the year.
Okay, I think you mentioned.
Existing 2024 between $135 140000.
<unk> thousand Boe's a day.
So I mean, if we just.
Connect.
Exit this year guidance to the exit next year guidance in a straight line, we kind of get to about 100.
32000, a day as an average next year is that.
Is that the right way to be thinking about it.
Yes, again, I would say come out of the year stay flat first half and ramp it up in the back half to those exit volumes.
It should get you there.
Okay, great. Thanks, I'll pass it back.
Thank you thanks for your call Chris.
Thank you.
As there are no questions in queue I would now like to turn the conference back to J P. La <unk> for closing remarks.
Sorry.
Do have a question.
I am sorry, we have a question please standby from the line of.
Okay.
Travis wood of MBS.
Hey, guys. Good morning, two questions.
First just kind of carrying on from and Jeremy's question around M&A.
Anything that you see within the portfolio kind of pro forma now that you've been operating it for a month that you could carve out is for patients.
Non core including potentially some facilities with that.
Yes, there is.
Obviously, we're going to continue to look at these assets in a way that we've always been focused and so really what we purchased here is quite focused right.
Alright.
None of it I would suggest that the reps.
Repsol asset.
Or something like that we would consider closing out necessarily it's really really nicely with us when we bought it but there may be some minor properties. All of this that we would look to.
Yes for sure.
And we will continue to look at that.
I'll be one.
Sort of direct our capital program.
Nothing specific.
Okay.
Thank you for that and then unrelated.
A lot of comments around maintenance and kind of optimizing infrastructure.
Directing volumes kind of.
Zig zagging across the portfolio anything.
From an optimization standpoint, as we think about liquids capture is there anything within that optimization outside of courses.
There anything on the revenue side, where we could expect.
Higher NGL.
<unk> on the backend.
I think Todd mentioned there that.
With respect to redirecting some of our gas to higher efficiency higher liquid recovery plans, certainly it's part of that and Thats part of it it's about making money is not just about production right. So obviously, the higher liquid recoveries, where they make sense, what they got to make sense.
Yes.
Got it.
That doesn't make sense, we turned it that we turn it off like we always have broadband and the same would go with anything on the Repsol last we would handle it the same way. So we'll always be looking for is highest netback. We can get if that means changing our processes or moving production around to do that we're going to be doing that so.
This gives us even more opportunity now that we have.
Our connection as Todd mentioned, we're going to interconnect all these plants together to give us maximum flexibility to be able to do those kinds of things, but nothing specific to tell you right now test drives we're still we're still in the <unk>.
All right.
Okay Fair enough and then just specifically for ads in the maintenance there is that is it related to.
Just.
Kind of.
Not enough capital spend from repsol over the years or is there something specific that you want to target before you start to change throughput there.
Yes first of all actually I would say.
The capital the capital spending.
Done by restaurants in the past has actually been.
Maintain the gas.
Gaslog has been great.
What they have spent their money on so.
The condition of that facility is in great shape, it's just.
Yes.
Coming up to its turnaround in Illinois.
Can expand upon that the money we're spending there is more on preventative maintenance as part of an ongoing program as opposed to fixed.
Yes. This is this.
This is their 10 year.
Turnaround so they've got obviously, a very big facility. So there's a lot of that <unk> entries that have to happen a lot of the changes that sort of stop and then.
Along with that.
R&R work to replace stuff, that's maybe coming to end of life.
It's just typical.
10 year and five year schedule. So it's just <unk>.
Timed out.
We picked up the assets right.
A very large 10 year.
Sure.
Okay.
That's good color, thanks, very much I'll turn it back.
Thank you once again to ask a question. Please press star one on your telephone again Thats Star one one on your telephone to ask a question.
And I show no questions. Mr. <unk> the floor is yours for remarks, Sir.
Okay. Thanks will thank you all for tuning in.
We're excited about going forward here.
We need some time to digest.
And similarly as it were.
Assets in.
<unk>.
But going forward, we're quite excited about the repsol acquisition.
Okay.
You have to ask Marshall.
So thank you very much for tuning in and we'll see you next year.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Okay.
[music].
Okay.
Great.
Yes.
Yes.
[music].
Thanks.