Q4 2024 Peyto Exploration & Development Corp Earnings Call
Okay.
Speaker Change: Good day, everyone and thank you for standing by and welcome to <unk> fourth quarter 2024 financial results Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session. Just a question. During this session you will need to buy stock one one on your telephone you were gone for an automatic mode.
Bison Union.
Speaker Change: Please be advised that today's conference is being recorded.
Speaker Change: I'd like to turn the conference I'll bet you Mr. J P machines, but didn't know Chief Executive Officer. Please go ahead Sir.
Speaker Change: Thanks Lydia.
Speaker Change: Morning, folks and thanks for joining Peter was fourth quarter and year end 2024 conference call.
Speaker Change: Before we begin 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.
Speaker Change: Here in the room with me to answer your questions today, as really framed our VP of engineering and Chief operating Officer, David Carlson, Our CFO Lee Curran, our VP of drilling and completions, Todd Burdick, our VP of production and Derek Zemba, our VP of land and business development.
Speaker Change: Before we discuss the quarter and year on behalf of the management group I'd like to thank the entire peyto team between the opposite I'm in the field for their contributions to a great quarter and a very strong year.
Speaker Change: We get some real hard last year, which are detailed in the year end press release from last night and in our recent reserves report released in February.
Speaker Change: But I think what's most important takeaway is that we delivered on what we said we're going to do with the Rep sunglasses and go after making a significant acquisition in late 2023.
Speaker Change: So at this time last year, we were already drilling some great wells.
Speaker Change: <unk> 2024, where we drilled a total of 41 gross wells on the old Repsol Lance.
Speaker Change: It represents about 55% of total 75.
Speaker Change: And the outcomes from those well exceeded our expectations by delivering sustained 40% production improvement over our legacy programs and combined with the near flawless execution in the field helped with the company helped the company deliver some outstanding PDP SG&A costs in $2024 in Mcf.
Speaker Change: On production upside the team spent a lot of time redirecting gas molecules to different gas plants in the field last year to improve deliverability and liquid recovery, but they were also able to improve on the cost we're simplifying the operations out there.
Speaker Change: We save some third party fees on low value of ethane liquid recovery I mean move that gas.
Speaker Change: Flat to preserve the rest of the liquids.
Speaker Change: We also shut down the sour gas processing side of the Hudson.
Speaker Change: And this was a big part of getting our operating cost reduction for 55 cents per Mcf in Q1 down to <unk> 50 per Mcf in Q4, and a result of an improving FX. Despite the fact that.
Speaker Change: We lost about 3500 barrels a day of base production to Athena.
Speaker Change: Not to be outdone, though our legacy land last year delivered some great results too.
Speaker Change: We drilled a new flare trend right in the heart of Sundance and completed a couple of chocolate flare wells near the end of the year, which came in as expected.
Speaker Change: Team assembled dose capital lands over the last few years through a series of Crown sales in swaps with other producers.
Speaker Change: We had a large carty and positioning takla.
Speaker Change: These new spirit riverlands, along with our gas processing plant really compliment that.
Speaker Change: We'll monitor the performance of these wells and then we'll go back and drill some more.
Speaker Change: Keep that platform, perhaps later in the year.
Speaker Change: And over time, if we continue to like the results of those wells, we can expand the plant from 25 to about 50 million cubic feet, a day to Matt Sharpe sales egress in the area.
Speaker Change: We will increase the drilling activity accordingly.
Speaker Change: With the improvement of U S gas prices in Q4, the team continue to bring on new production and we set a record of 133000 Boe's a day in the quarter.
Speaker Change: We achieved our target exit production of 136000 Boe's a day in December after deploying $457 million capital, which is near the low end of our guidance last year.
Speaker Change: This translated.
Speaker Change: Translated into a trailing 12 month capital efficiency of approximately $9700 per flowing Boe.
Speaker Change: Which is one of the strongest in our history.
Speaker Change: On the financial side, we pulled in.
Speaker Change: Roughly $200 million in funds from operations of $1 a share in the quarter and thanks to cash costs of $2 36 per Mcf, which is the lowest since.
Q3 of 2023, which just before the Repsol acquisition.
Speaker Change: Some good net sales good net sales price of $4 28, that's an mcse well, thanks to our hedging gas market diversification our liquids.
Speaker Change: <unk>, the fact that vehicle daily price for the quarter was only $1 40 per GJ.
Speaker Change: All of this culminated into a great year with strong revenue and lower overall, lower overall cash costs, delivering a 64% operating margin.
Speaker Change: <unk> being one of the worst average annual prices vehicle on record.
Speaker Change: When you look at our net backs as compared to our finding costs. We achieved a solid three three times field netback ratio, where if you throw in all of our cash cost, including our taxes ratio it turns to be about $2 six.
Speaker Change: By either measure, we think thats been a very effective use of shareholders' capital.
Speaker Change: We delivered a record amount of dividends for in.
In 2024 of $258 million to shareholders, and we still manage to pay down a little bit of that.
Speaker Change: Marketing side, obviously, our hedges did well last year recall, we would put those on and put those on over the last three years and that combined with our U S priced market exposure helped us, especially in the fourth quarter achieved better pricing in April.
Speaker Change: As we look forward, we have hedged 488 million cubic feet a day for the for this year and 366 million cubic.
Speaker Change: 266 million cubic feet a day.
Speaker Change: So far for next year at prices over $4 in Mcf.
Speaker Change: And to put that into perspective.
Speaker Change: Hedge book, including some liquids.
Speaker Change: Liquid hedges that we have is secured $850 million of revenue for 2025.
Speaker Change: What's not secured is mostly floating on markets that price in U S dollars in Ontario, and the U S Midwest and of course, the Cascade power supply deal.
Speaker Change: We still have a little bit of acre exposure through our.
Speaker Change: Through our exposure through our <unk> service.
Speaker Change: If you look out beyond 2026 at our diversification portfolio it looks really strong.
Speaker Change: I would encourage you to check out our marketing slides on the website or in our corporate presentation.
And you've all been updated as of last night.
Speaker Change: One example of the quality of this book is is where we have roughly 70 million cubic feet a day of gas volume that's exposed to.
Speaker Change: Henry hub through basis deals that are priced at 76 U S per annum btu.
Speaker Change: And when you look at Henry Hub 2026 Summer futures currently trading at U S $4 17, so support $4 70.
Speaker Change: Brian Btu U S. This nets us back about.
Speaker Change: $4 60, Giga Joule April when you subtract the basis and convert the units and the currency, which is about $5 30 per.
Speaker Change: For Mcf with our heat protest.
Speaker Change: Now that compares to the share price at <unk> on a strip at about $2 and Eni <unk> D J.
And we continue to acquire service like this to locations with work. Most recently made an arrangement to add 30 million cubic feet Geophysical Dawn exposure starting in November two.
Speaker Change: 2025, 2025 for a long term deal, which cost us roughly $1 15 per GJ to get there.
Speaker Change: Right now winter of 'twenty five 'twenty six at Dawn is worth U S $4 78 per <unk> or about $5 28 per GJ landed in Alberta. After you improve the tools are subtracted tools and do the unit conversions. So that's $6 an mcf with our economy.
Speaker Change: When you combine that new service with our recent Parkway deal, we have about 70 million cubic feet a day exposed to that mark.
And on top of that we also have Chicago Emerson, a little bit of insurer in Milan as well exposure. So.
Speaker Change: And of course, we can hedge these markets and we are or we can let them float.
Speaker Change: But either way the marketing diversification portfolio, we have assembled looks pretty darn good.
Speaker Change: So all of these different sales points in our mechanical hedging program that helps derisk. Our revenues you couple that with our industry, leading cash costs and finding cost it really helps to reduce the volatility of our profits are our earnings over the long term that should give comfort to our shareholders in a return strategy.
Speaker Change: In February our board of directors formally approved capital budget between.
Speaker Change: Third $50 million to $500 million.
Speaker Change: What should drill us between 70 to 80 net wells and add between 43 to 48000 Boe's a day by the end of the year next year to offset.
Speaker Change: This decline rate, which we estimate at around 27%.
Speaker Change: That should see us exit December of 'twenty, five at or about 145000, Boe's a day using the midpoint of that guidance.
Speaker Change: And we think we can do that with a four rig program, which is designed to hold production flat more or less through the first half was 25 similar to what we've done in past years.
If we have production exposed to low prices.
Speaker Change: Oil prices, we expect us to manage that similarly to what we did this past year, where will the labor Union.
Speaker Change: And of course, we are living in some uncertain times right now with the threat of tariffs on and off again.
Speaker Change: On the one third by the data, but we think we're well insulated on the revenue side since we have already hedged close to two thirds of our gas volumes and about 27% of our liquid volumes for 2025.
Speaker Change: Most of our gas cost for our contracts physically deliver in Canada. So we should be U S tariff exempt.
Speaker Change: But clearly and certainly doesn't help the market sentiment over the rest of Canadian So we hope this trade war can be results sooner than later.
Speaker Change: On the gas natural gas macro there.
Speaker Change: There is plenty to be excited about with LNG ramping up in the U S already in LNG, Canada sometime this year.
Speaker Change: The demand right here in Alberta also looks bright with the vast number of connection requests to the to the power grid to the ACO network totaling 10.
Speaker Change: 10, gigawatts of demand, which by my math could be one four Bcf a day of local demand. If it was all fired by natural gas.
Speaker Change: Include phase two of LNG, Canada the Rockies.
Speaker Change: LNG project, we're part of and the NGL expansions that are planned to the end of the decade, you can quickly get up to about seven or eight or even nine Bcf a day of new demand by the end of the decade is all comes to fruition.
Speaker Change: And that's pretty exciting for a basin that produces about 90 Bcf a day.
Speaker Change: So as I like to say it I think we are in the right business.
Speaker Change: Okay.
Speaker Change: I imagine there's some questions Olivia so perhaps we can go to the phones.
Speaker Change: And take some of those questions.
Speaker Change: Finally, as a reminder to ask a question for Mr. Crestar, one one on your telephone and wait for your name to be announced.
Speaker Change: Please standby.
Speaker Change: Your line is open.
And we have a question coming from the line of Chris Thompson with CIBC World markets. Your line is now open.
Chris Thompson: Chris Good morning, J P and team thanks for taking my question.
Chris Thompson: The first one I wanted to ask you on just with respect to the capital efficiency, you've put up in 2024 90.
Chris Thompson: 9700, Boe's a day.
Chris Thompson: Your guidance implied capital efficiency is higher than that so I'm. Just wondering is there room to see.
Chris Thompson: Your actual efficiency be better in 2025 are there is there a reason why it's higher versus 24.
Chris Thompson: Yes, I would say this rule of course to improve.
Chris Thompson: I don't think we budgeted for 9700 last year, either having said that though we did bring a lot of production on at the end of the year. So.
Chris Thompson: So that year end exit capital efficiency is.
Chris Thompson: It has a little bit of that sort of extra production that we would have saved throughout the fourth quarter through the third quarter, I guess and moved it to the fourth quarter. So so I think the 10 five is a reasonable number still supply for your for your models.
Chris Thompson: Got it Okay, and then you mentioned <unk>.
Chris Thompson: <unk> expansions.
Chris Thompson: Through to the end of the decade I'm just wondering on.
Chris Thompson: Hey, those FTR service to NGL.
Chris Thompson: <unk>.
Chris Thompson: What is your what is your ability.
Chris Thompson: To deliver there with respect to the growth program that you have planned.
Chris Thompson: Yes, so we have.
Chris Thompson: We have about 15% to 20% extra FTR that meet Gary it's part of our transportation costs embedded in those transportation costs that you see every every every quarter. So that gives us room to grow into that we also sit in an area.
Chris Thompson: In the system, which is downstream bullet congestion. So it is easier for us to get incremental service, where we are and as loans out.
Chris Thompson: So that helps as well so we don't see any problems with being able to expand and of course, we have the processing capacity at our gas lift and also help us to be able to expand without having to spin up a lot of extra money. We got projects. The Taj group will do to help optimize things, but we don't have any sort of greenfield requirements and glass.
Chris Thompson: To accommodate that and we think the infrastructure.
Chris Thompson: The Buildout of Ngls plans over the next.
Chris Thompson: I guess at the end of the decade is can be more than sufficient for us.
Chris Thompson: Yes.
Chris Thompson: Do you guys intend to add more FTR is NGL.
Chris Thompson: Gross and provides that option.
Chris Thompson: And we will look at it certainly.
Chris Thompson: Okay, and then as far as further opex reductions.
Chris Thompson: As you noted they were they were quite good in 2024.
What about 2025, how do we see the cost structure moving.
Chris Thompson: This year.
Speaker Change: We undertook a couple of big projects will get talked to elaborate some more here, but we undertook a couple of big couple of bigger projects ones that we felt were moving the needle and of course, increasing utilization is always a big part of that but maybe I'll, let Todd elaborate on what thoughts are for this year.
Todd: Sure. So obviously Q1, we typically see higher operating costs.
Speaker Change: We worked throughout the year and then as the year goes.
Speaker Change: Through kind of the back half of the year will each operating costs come down.
Speaker Change: Partially through.
JP: The drilling program that JP mentioned.
JP: <unk> coming on in the back half of the year. So with that we will see operating cost per unit basis come down as far as the.
JP: Low hanging fruit projects out there to reduce.
JP: Operating cost.
JP: We pretty much did most of that this year.
JP: We're seeing things like low power prices, which hopefully stay that is helping us and we're at a time right now where we're seeing the highest methanol cost we've ever seen.
JP: Our understanding in the methanol market as we should see that come down. So that's a fairly significant cost. So so we will see things drop off in the back half of the year for sure.
JP: Thanks Todd.
JP: Okay, Chris got it yeah, that's great and then maybe I'll just throw in one last one here with respect to Qinetiq core on the Greenlight Energy Center.
Speaker Change: You guys did a great deal with them for Cascade.
Speaker Change: Have you been in talks with them at all on supplying the new project that they are looking at.
Speaker Change: Yes, Rob I can't talk about anything like that.
Speaker Change: Obviously, that's part of the 10 Gigawatts I mentioned in the opening remarks, there we have now.
Speaker Change: That will make up that it will be included in that number and I think us or anybody for that matter has opportunity then to two if it's not directly I think in that case for us.
Speaker Change: He is a way so we can directly connect to it obviously like we did with Cascade.
Speaker Change: We will look at any kind of look at any one of those deals.
Speaker Change: To increase our diversification, we think in long term power is going to be.
Speaker Change: We won't have that our exposure certainly if we like it we like our Cascade deal right now ours.
Speaker Change: It can be on every month and so sometimes it's great to know.
Speaker Change: But we think as we move forward with all the demand that's coming it's going to be good to have that power.
Speaker Change: <unk>.
Speaker Change: Okay.
Speaker Change: Thanks, a lot I'll hand, it back thank.
Speaker Change: Thank you.
Kent: Thank you Kent.
Kent: Again to ask a question. Please press Star then one.
Speaker Change: And our next question coming from the line of Michael Your line is open.
Go ahead Jeremy.
Kent: Yes.
Kent: The next question has to do with the hedge book.
Kent: Two parts first part is.
Kent: Thank you for the update to the.
Kent: Tomorrow is the last.
Kent: Snapshot was December.
Kent: And when I look at your March update.
Kent: Consistent with your earlier comments about.
Kent: The basis deals you have as you as the practice has been as you move forward you fix off of those basis deals in.
And then that gets included in the marketing update.
Kent: And.
Kent: In every case are almost every case.
Kent: It resulted in an upward movement in the level of the fixed hedges and because <unk> is so high.
Kent: <unk>.
Kent: An important consideration as to whether or not things are going to get better or stay the same.
Kent: Is that the evolution looking forward of the hedge book.
Kent: Having said all of that.
Kent: It appears that the hedge book is.
Kent: Has improved it is already in great shape, but.
Kent: Between December and now for what was taken on it has moved the forward hedge prices up a fair bit.
Given what you said about the existing basis stills, you have and the pricing.
Kent: At the hubs that those basis deals operate from.
Kent: Could you just make a comment on.
Kent: If if things prevailed the way they are.
Kent: How that might evolve how the forward book would evolve because it looks looks to me like.
Kent: We're moving upward fairly substantially second part is probably easier.
Kent: On the basis deals.
Kent: When might you start.
Kent: Setting things up for 2028.
Kent: 2027 is very robust in the basis are quite tight.
Kent: I was just curious if.
Kent: It's a timing thing on 2028.
Kent: For the basis deals or if it is because basis deals arent available at.
Kent: At the price that you tend to take a math, which is the cost of transport.
Kent: Part second part a little more more succinct.
Jerry: Okay. Thanks, Jerry I think I got it.
Jerry: So let's answer your first question how might the hedge book evolve.
Jerry: What you are asking at the end of that.
Jerry: We talked about this before our year guarantee.
Jerry: Mechanical and our and the way we do it we don't have any plans to change the way, we do that and that's so that we have some guardrails in there around harvests that we'd like to be up to 50% to 75% to 80% when we arrive at a given season, when we start putting that on up to three years in advance.
Jerry: Sixth gas seasons, as we call it so.
Jerry: We have the option right now and the Ecu pricing futures isn't that great it's not bad.
Jerry: Did some hedges for 2007.
Jerry: At $3 50 GJ.
Jerry: Alright, $3 45, and <unk> and that was the winter up $26 seven if I recall, so that enhance for us all day long, but on top of that we can hedge that nymex.
Jerry: <unk>.
Jerry: The basis that we have Henry hub basis that we have as well in many of the better price. So we're doing both.
Jerry: And we will continue to do that and so the book doesn't really change as we roll forward. We will continue to add those secure those revenues as we always have.
Jerry: The money that would be great.
Jerry: Now we're in the money and it looks good.
Jerry: If that changes Thats fine.
Jerry: We're running a long term business not one that looks just like that.
Jerry: So on the second part you said about the basis deal. So yes the basis is.
Jerry: It takes a while for it as you pointed out we'd like to get the basis.
Jerry: We're pretty close to transport cost as we look forward into 2008, even 29 thats not there yet and I think this will improve.
Jerry: LNG, Canada comes on that should narrow so we expect that <unk> will improve and that will narrow the basis and so let me get more opportunities to layer in some more basis deals to wherever they are but that's also the reason why we're doing some physical here because we recognized the basis.
Traditional way of just getting that short term.
Jerry: <unk>.
Jerry: The basis deal is not really available right now so we recognize that and we're getting some more physical we just did the $30 million.
Don deal $50 million.
Jerry: <unk>.
Jerry: Yeah.
Jerry: Sorry, Mark.
Parkway deal trials. So that's one area. We've just done that so thats part of the reason why we can be cash that as well. So we can complement our basis deals I suspect that basis will come in but it is not there right now is to reduce network costs, it's quite it's quite blown out in fact.
When you look at you look forward and that's one of the reasons why we are getting much better pricing equal right now youre looking at price.
Jerry: Basis Thats up.
Jerry: $2 out there are only two or three seasons outright so thats quite high as $3 right. Now so we expect that will close here, though as.
Jerry: And as LNG, Canada comes on.
Jerry: Thanks, Jerry Thank you. Thank you.
Jerry: Okay.
Jerry: Okay.
Jerry: Yeah.
Jerry: Thank you Sam.
Jerry: Ask a question please press star one one.
Speaker Change: And our next question coming from the line of Eric Missingham with unconventional NFC Energy Research. Your line is now open.
Eric Missingham: Great quarter, guys, great year out of the 20 years I've been following you guys.
Eric Missingham: Just it sounds like we're talking a little bit too much about hedging, but yes.
Eric Missingham: Your thoughts on.
Eric Missingham: Addressing J K L pricing ease of the.
Eric Missingham: Traditional hedge books and how that unfolds.
Eric Missingham: The LNG.
Eric Missingham: Buildout shall we say and or would you consider.
Eric Missingham: Doing a J KL net.
Eric Missingham: Processing tolls and transport off of the Gulf Coast.
Eric Missingham: And then just.
Eric Missingham: Secondly.
Eric Missingham: Okay.
Eric Missingham: If you had an option too.
Eric Missingham: Let's say move into.
Bit more liquid heavier rich assets would you consider it given some of the M&A. That's just been recently announced.
Eric Missingham: <unk> divestitures.
Eric Missingham: Thank you.
Speaker Change: Thanks, Eric Yeah, So I think you're referring to Jacob deals to get us exposure to Asia, I think thats, what youre going Youre asking it yes of course, we are looking at options for that whether it be a netback deal or even a percentage of the fees.
Eric Missingham: Jackie.
Eric Missingham: Pricing.
Eric Missingham: So we just haven't found one we like jet and so.
Eric Missingham: Balances are continues to add to our diversification portfolio.
Eric Missingham: A lot of those deals are quite long term, so you might be making.
Eric Missingham: Cost me a lot of money.
Eric Missingham: Long period of time, so that's something that we're also cognizant of running a business here. So we certainly are looking at not only just <unk>, but really in TTS as well right. So.
Eric Missingham: So that's ongoing but we don't have anything at this point in time as far as liquid rich M&A I would say that.
Eric Missingham: We want to be careful that we don't do something.
Eric Missingham: If there is opportunity out there and it makes sense to US has all the right attributes for any M&A deal, we're going to look at whether it be liquids.
Eric Missingham: Our gas rich so.
Eric Missingham: For us.
Eric Missingham: To see something that has lots of running room of course that as or controls its own infrastructure similar to what we do.
Eric Missingham: As the complementary.
Eric Missingham: If you look at the Repsol deal we did in that it's obviously.
Eric Missingham: Obviously like a glove.
Eric Missingham: Those opportunities.
Eric Missingham: That obviously are out there, but they are certainly smaller opportunities we're going to continue to pursue it and Derek and his team are active in doing that but I don't.
Eric Missingham: Getting liquids rich just for the sake.
Eric Missingham: Adding liquids I mean, our margins are the best.
Our margins that's what's important right at the end of the day, our op costs are really low yes, okay. Good check cash cost, but its our margins that we still need to pocket encourage you to look at our at our <unk>.
Eric Missingham: Marketing materials on the website presentation, where you can see where we've actually shown the margins crossword with other companies with higher liquid yields and you can see that that's what's important so just getting liquids rich for the sake of adding liquids is not something that we consider it has to be it has to have all the same attributes that we look for an acquisition and the manageable making money right Eric.
Eric Missingham: And that.
Eric Missingham: I come from liquids and it might not.
Speaker Change: No Ken that's agree with you. Thank you.
Yeah.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: And I'm seeing no further questions in the queue. At this time I will now turn the call back over to Mr. Jay <unk> for any closing remarks.
Speaker Change: Okay well. Thank you. Thank you very much for attending the conference call and we will see you next quarter.
This concludes today's conference call. Thank you all for participating you may now disconnect.
Speaker Change: Okay.
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