Q2 2025 Peyto Exploration & Development Corp Earnings Call
Tawanda: Hello, and welcome to Peyto Exploration & Development Corp.'s Q2 2025 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. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. I would now like to turn the conference over to Jean-Paul Lachance, President and CEO. You may begin.
Speaker #2: Hello, and welcome to PEYTO's second quarter 2025 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.
Speaker #2: To ask the question during the session, you will need to press *11 on your telephone. You will then hear an automated message advising your hand is raised.
Speaker #2: To withdraw your question, please press *11 again. I would now like to turn the conference over to Jean-Paul Lachance, President and CEO. You may begin.
Jean-Paul Lachance: Thanks, Tawanda. Morning, folks, and thanks for joining Peyto's second quarter 2025 conference call. Before we begin, I would 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. Here in the room with me is Riley Frame, our Chief Operating Officer; Travis Carlson, our CFO; Todd Burdick, our Vice President, Production; Mike Collins, our Vice President, Marketing; and Mike Reese, our Vice President, Geoscience. Before we discuss the quarter, on behalf of the management group, those that are here and not here, I would like to thank the entire Peyto team, both in the office and in the field, for their contributions to another strong quarter. Peyto remained active with four rigs during the second quarter through spring breakup.
Speaker #3: Thanks, Tawanda. Morning, folks, and thanks for joining Peyto's second-quarter 2025 conference call. 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 #3: Here in the room with me is Riley Frame, our Chief Operating Officer; Tavis Carlson, our CFO; Todd Burdick, our VP of Production; Mike Collins, our VP of Marketing; and Mike Reese, our VP of Geoscience.
Speaker #3: Before we discuss the quarter on behalf of the management group, those that are here and not here, I'd like to thank the entire PEYTO team, both in the office and in the field, for their contributions to another strong quarter.
Speaker #3: PEYTO remained active with four rigs during the second quarter through spring breakup. As is typical for PEYTO, production falls a little through Q2 as we try not to overspend, fighting through the mud to complete wells and bring them on production.
Jean-Paul Lachance: As is typical for Peyto, production falls a little through Q2 as we try not to overspend, fighting through the mud to complete wells and bring them on production. The fires near Fort Mack did cause some oil sand shut-ins that affected demand for natural gas in the province, and there was some NGTL maintenance that caused prices to go negative at least for one day in June. We did shut in some production that day, not because we had to, but to be more opportunistic and essentially get paid to fulfill our physical contracts and save our gas for another day. This had a marginal effect on production for the quarter, but I bring it up because it is something we will continue to consider as we move through the summer.
Speaker #3: The fires near Fort Mac did cause some oil sands shut-ins that affected demand for natural gas in the province. Additionally, there were some NGTL maintenance activities that caused prices to go negative, at least for one day in June.
Speaker #3: We did shut in some production that day, not because we had to, but to be more opportunistic and essentially get paid to fulfill our physical contracts and save our gas for another day.
Speaker #3: This had a marginal effect on production for the quarter, but I bring it up because it's something we'll continue to consider as we move through the summer.
Jean-Paul Lachance: Quarter production was just under 132,000 BOE/d, up 8% since the second quarter of 2024, and our cash costs were down 13% over the same period to $1.31 per MCFE as we continue to lead the industry in that regard. Our strong hedge book added $53 million in total gains, which added $0.75 per MCF to our realized gas revenue, and our market diversification contributed $0.53 per MCF net of transportation costs over and above the monthly ACO pricing. All these factors combined to increase funds from operations by 24% year over year as we generated $191 million in the quarter, or $0.95 per diluted share, which was also up 20% from Q2 last year.
Speaker #3: Corporate production was just under 132,000 BOEs a day, up 8% since the second quarter of 2024. Our cash costs were down 13% over the same period to $1.31 per MCFE.
Speaker #3: As we continue to lead the industry in that regard, our strong hedge book added $53 million in total gains, which contributed 75 cents per Mcf to our realized gas revenue.
Speaker #3: And our market diversification contributed $0.53 per MCF, net of transportation costs, over and above the monthly ACO pricing. All these factors combined to increase funds from operations by 24% year over year, as we generated $191 million in the quarter, or $0.95 per diluted share, which was also up 20% from Q2 last year.
Jean-Paul Lachance: We did not have much gas exposed to ACO pricing in the quarter since we have in-press service, which can net us better realizations than ACO, particularly when access to storage is restricted, which happened in Q2. In fact, we sold some of our excess in-press service during the quarter, allowing us to collect incremental income along with third-party processing at Brazeau. That added $0.07 per MCFE to our sales revenue in the form of other income. Our operating costs were slightly higher, a penny higher than the prior quarter, while our controllable operating costs were down quarter over quarter. We received our 2025 property tax bill in Q2, and it was higher than anticipated. That resulted in an adjustment that is reflected in the higher OpEx.
Speaker #3: We did not have much gas exposed to ACO pricing in the quarter since we have EMPRESS service which can net us better realizations to ACO, particularly when access to storage is restricted.
Speaker #3: Which happened in Q2. In fact, we sold some of our excess EMPRESS service during the quarter, allowing us to collect incremental income, along with third-party processing at Brazo that added $0.07 per MCFE to our sales revenue in the form of other income.
Speaker #3: Our operating costs were slightly higher, a penny higher than the prior quarter. While our controllable operating costs were down over the quarter over quarter, we received our 2025 property tax bill in Q2, and it was higher than anticipated.
Speaker #3: So, that resulted in an adjustment that's reflected in the higher operating costs. Despite this, we remain laser-focused on continuing to reduce the costs we control, and we're forecasting lower operating costs for the rest of the year.
Jean-Paul Lachance: Despite this, we remain laser-focused on continuing to reduce the costs we control, and we are forecasting lower operating costs for the rest of the year. I might get Todd Burdick to elaborate on that later in the call. Royalties were a lot lower in the quarter than last year because of weak ACO prices and increased gas cost allowance credits. We expect royalty rates to be around 5% for the remainder of this year based on the current strip. Interest costs were also lower in the quarter as interest rates have come off, and we have continued to reduce bank debt. In fact, we have paid down $40 million of net debt in the quarter and $105 million year to date. Taken together, our cash costs were down $0.11 per MCFE quarter over quarter and $0.19 relative to the second quarter of 2024.
Speaker #3: And I might get Todd to elaborate on that later in the call. Royalties were a lot lower in the quarter than last year because of weak ACO prices and increased gas cost allowance credits.
Speaker #3: And we expect royalty rates to be around 5% for the remainder of this year, based on the current strip. Interest costs were also lower in the quarter, as interest rates have come off, and we've continued to reduce bank debt.
Speaker #3: In fact, we've paid down $40 million of net debt in the quarter and $105 million year to date. So, taken together, our cash costs were down $0.11 per MCFE quarter over quarter, and $0.19 relative to the second quarter of 2024.
Jean-Paul Lachance: All in all, we have the lowest cash cost in town, but more importantly, I think one of the highest margins. As you know, our low-cost structure and our strong hedging and diversification strategy allow the company to weather volatility in the commodity markets. Switching to operations, we drilled 19 wells in the quarter, completed 19, and tied in 21. Part of the drilling program included follow-ups to the Q1 Cardium wells that were drilled in Brazeau, where we used a different drilling and completion design. We talked about that then. The first two wells we drilled were low working interest, which helped us to test the concept. The next three wells that we followed up with in this past quarter were at 100% to see and make sure we could repeat the results.
Speaker #3: So all in all, we have the lowest cash cost in town. More importantly, I think we have one of the highest margins. Of course, you know, our low-cost structure and our strong hedging and diversification strategy allow the company to weather volatility in the commodity markets.
Speaker #3: Switching to operations, we drilled 19 wells in the quarter, completed 19, and tied in 21. Part of the drilling program included follow-ups to the Q1 Cardium wells that were drilled in Brazo, where we used a different drilling and completion design.
Speaker #3: We talked about that then. The first two wells we drilled were low working interest, which helped us to test the concept. The next three wells that we followed up with in this past quarter were at 100% to see and make sure we could repeat the results.
Jean-Paul Lachance: At the end of the day, the key takeaway here is that we reduced our drilling and completion cost per meter by about 37%, and that should really help us as we look to improve the economics of future Cardium locations across our large inventory. Wellridge continues to perform well, as I detailed in the recent monthly letter, having dialed in our most recent design and applying it to the high-quality land we acquired from Repsol. We also completed another well in the flare channel trend in the quarter that we discovered last year in the Greater Sundance area. That well has already produced over 1 BCF of gas, and it is the best outcome on this trend so far.
Speaker #3: At the end of the day, the key takeaway here is that we reduced our drilling and completion costs per meter by about 37%.
Speaker #3: And that should really help us as we look to improve the economics of future Cardium locations across our large inventory. Wellrich continues to perform well, as I detailed in the recent monthly letter.
Speaker #3: Having dialed in our most recent design and applying it to the high-quality land we acquired from Repsol, we also completed another well in the Pler Channel trend in the quarter that we discovered last year in the Greater Sundance area.
Speaker #3: That well has already produced over 1 BCF of gas, and it's the best outcome on this trend so far. We have since drilled a follow-up well that will be completing shortly, which will help us delineate the trend and give the team more confidence in the 20-plus locations that we see in the play.
Jean-Paul Lachance: We have since drilled a follow-up well that we will be completing shortly, which will help us delineate the trend and give us, give the team more confidence in the 20-plus locations that we see in the play. We started construction of a 30 MMcf/d field compressor station in the Greater Sundance area. It will move more liquids-rich gas to the Edson Gas Plant via the Central Podil's gas gathering system later in Q3 and into Q4. Again, I might get Todd Burdick to elaborate on the details of that project later. That is going to help clear out some existing gathering system for a large-scale development that we have planned in the area that will go to, will take gas to Swanson and Old Mammoth. Long-awaited LNG Canada facility exported its first cargo right at the end of the quarter. I think it was June 30th.
Speaker #3: We started construction of a $30 million-a-day field compressor station in the Greater Sundance area. It will move more liquids-rich gas to the Edson gas plant via the Central Foothills Gas Gathering System later in Q3 and into Q4.
Speaker #3: And again, I might get Todd to elaborate on the details of that project later. That's going to help clear out some existing gathering system for a large-scale development that we have planned in the area.
Speaker #3: That will go to will take gas to Swanson in Old Man. Along the way to LNG Canada facility exported its first cargo right at the end of the quarter.
Speaker #3: I think it was June 30th. We expect this will be constructed for the reason in the long term, but we should be patient as things ramp up here.
Jean-Paul Lachance: We expect this will be constructive for the basin in the long term, but you know we should be patient as things ramp up here. In the meantime, we have plenty of production hedged for the summer, about 500 MMcf/d, priced at $4 an MCF. The rest of it is diversified to hubs in Eastern Canada and Chicago and Midwest where prices are stronger. Our business plan and guidance for 2025 remains unchanged. We plan to spend between $450 to $500 million to generate production adds at a capital efficiency rate of about $10,000 to $11,000 per BOE/d by the end of the year. That should more than offset our annual corporate decline, which we estimate is about 27%. We have a large number of potent non-Q1 locations and more of that new flare channel wells planned for the rest of the year.
Speaker #3: In the meantime, we have plenty of production hedge for the summer, about 500 million cubic feet a day, priced at $4 an MCF. And the rest of its diversified to hubs in Eastern Canada and Chicago and the Midwest.
Speaker #3: Where prices are stronger. Our business plan and guidance for 2025 remains unchanged. We plan to spend between $450 to $500 million to generate production adds at a cap efficiency rate of about 10 to 11 thousand dollars per BOE per day, by the end of the year.
Speaker #3: That should more than offset our annual corporate decline, which we estimate is about 27%. We have a large number of potent non-QN locations and more of that new Flare Channel wells planned for the rest of the year.
Jean-Paul Lachance: We expect these locations will bring our annual average productivity back to something similar to last year's stellar performance. We also have some Blue Sky and Viking wells planned that will follow up on past successes as well. We are not slowing activity per se because we want to keep our crews steady and we want to, as we expect to ramp up production in Q4, which will coincide with better winter pricing and as LNG progresses to full capacity. But of course, we will remain flexible with our plans as we always are. You know, at the end of the day, we sell a product that the world needs, and you know we run our business in a way that is sustainable. We keep our costs as low as possible. We diversify our sales points.
Speaker #3: We expect these locations will bring our annual average productivity back to something similar to last year's stellar performance. We also have some blue sky and Viking wells planned that will follow up on past successes as well.
Speaker #3: We're not slowing activity per se, because we want to keep our crews steady, and we want to, you know, as we expect to ramp up production in Q4, which will coincide with better winter pricing and as LNG progresses to full capacity.
Speaker #3: But of course, we'll remain flexible with our plans as we always are. You know, at the end of the day, we sell a product that the world needs, and you know we run our business in a way that is sustainable.
Speaker #3: We keep our costs as low as possible. We diversify our sales points. We hedge the near term, and we so that we can confidently fund our capital program, reward our shareholders with profits.
Jean-Paul Lachance: You know, we hedge the near term, and we absolutely can confidently fund our capital program, reward our shareholders with profits. You know, it is simple, predictable, and maybe perhaps a little boring, but we make no apologies for that. Okay, I imagine there are some questions. So, Tawanda, perhaps we can go to the phones first.
Speaker #3: You know, it's simple, predictable, maybe perhaps a little boring, but we make no apologies for that. Okay, imagine there's some questions. So Tawanda, perhaps we can go to the phones first.
Tawanda: Thank you. Ladies and gentlemen, as a reminder to ask a question, please press star one one on your telephone, then wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Chris Thompson with CIBC. Your line is open.
Speaker #2: Thank you. Ladies and gentlemen, as a reminder, to ask a question, please press *11 on your telephone, and then wait for your name to be announced.
Speaker #2: To withdraw your question, please press *11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Chris Thompson with CIBC.
Speaker #2: Your line is open.
Chris Thompson: Hey, good morning, everyone. Thanks for taking my questions.
Speaker #4: Hey, good morning, everyone. Thanks for taking my questions.
Speaker #3: Morning.
Jean-Paul Lachance: Morning.
Chris Thompson: Just to start out, you talked about some of the recent successes at Chambers in the new well core design. Just wondering, how does that compare to other competitors in the area? Is Peyto Exploration & Development Corp. sort of at the leading edge of this approach, or is this something that you've seen other operators do and now you're adopting?
Speaker #4: Just to start out, you talked about some of the recent successes at Chambers and the new well port design. Just wondering, how does that compare to other competitors in the area?
Speaker #4: Is PEYTO sort of at the leading edge of this approach, or is this something that you've seen other operators do and then now you're adopting?
Jean-Paul Lachance: As far as the, I mean, obviously, we mentioned that I think last quarter that this is not something new in the industry. It is something that others are already doing, at least in the oil part of the play. The concept of going, drilling a little bit lower into the bioturbated zone, just helps us with penetration rates. We talked about this last quarter. I do not know if there are a lot of gas guys doing this per se. I am looking at Mike and Riley here, and they are shaking their heads, no. We might be, there may be a couple other companies doing it. I do not know that we lead, but it is certainly an improvement for us, and it is important for our long-term Cardium inventory to get those costs down.
Speaker #3: Yeah, as far as the, I mean, obviously, you know, we mentioned that I think last quarter that this isn't something that isn't something new in the industry.
Speaker #3: It's something that others are already doing, at least in the oil part of the play. So the concept of going, you know, drilling a little bit lower into the bioturbated zone, just helps us with penetration rates.
Speaker #3: We talked about this last quarter, and so I wouldn't, you know, I don't know if there's a lot of gas guys doing this, per se.
Speaker #3: I'm looking at Mike and Riley here, and they're on their heads. So we might be, you know, there may be a couple of other companies doing it.
Speaker #3: So I don't know that we lead, we lead, but it's certainly an improvement for us, and it's important for our long-term, you know, Cardium inventory to get those costs down, right?
Chris Thompson: Okay. Then I guess just sticking to that Chambers and Brazeau area, can you maybe expand a bit on the third-party gas that you are bringing in there? I think you mentioned $0.07 an MCFE. Was that specific to Brazeau?
Speaker #4: Okay, and then I guess just sticking to that Chambers and Brazo area, can you maybe expand a bit on the third-party gas that you're bringing in there?
Speaker #4: I think you mentioned 7 cents an MCFE, just was that specific to Brazo?
Jean-Paul Lachance: is a combination of us selling some excess in-press service and the Brazeau processing fee income that we would have received. It is not just Brazeau. Maybe I could get Todd Burdick to elaborate on some of the other sources of our fee income, our third-party fee income. Todd, do you want to comment on that a little bit more? It is not just that area, though, just to be clear, Chris.
Speaker #3: That's a combination of us selling some excess EMPRESS service and the Brazo processing fee income that we would have received, but it's not just Brazo.
Speaker #3: Maybe I could get Todd to elaborate on some of the other sources of our fee income, our third-party fee income. Todd, do you want to comment on that a little bit more?
Speaker #3: It's not just that area though, just to be clear, Chris.
Chris Thompson: Yeah, for sure. Definitely some opportunities, some further opportunity in the Brazeau area. I think we mentioned last quarter when we commissioned that pipeline that we built it so that we can add. We've been, our GE group has been busy talking to others in the area. Then, up in Greater Sundance, we've had some producers that have been sending third-party gas to our Swanson plant for quite some time. We've been talking to others up there. The GE group's pretty active. We've got a little bit up in Cacqua. You know, it's kind of spread out all the way from Cacqua down to Brazeau. It's definitely not just happening in Brazeau. We're always working with other producers who may be looking to shut down plants or other things. It helps them on their OpEx and helps us on the other income part of the balance sheet.
Speaker #4: Yeah, for sure. Definitely, some opportunities, some further opportunity in the Brazo area. I think we mentioned last quarter when we commissioned that pipeline that we built it so that we can add, and we've been arguing we've been busy talking to others in the area.
Speaker #4: And then up in Greater Sundance, we've had some producers that have been sending third-party gas to our Swanson plant for quite some time.
Speaker #4: We've been talking to others up there. The JV group's pretty active. We've got a little bit up in Cacqua. So you know, it's kind of spread out all the way from Cacqua down to Braz, so it's definitely not just happening in Braz.
Speaker #4: And you know, we're always working with other producers who may be looking to shut down plants or other things. It helps them with their OPEX and helps us on the other income part of the balance sheet.
Jean-Paul Lachance: Okay, got it. And then just this next one for Jean-Paul Lachance, how are you thinking about capital allocation as we think out 2026 and beyond between organic growth and M&A? As you approach your debt targets, are there potential shareholder return increases? We still believe that we are going to put money into the drill bit to grow modestly over the next two years. We do not have, we have not come out with a formal plan for 2026 yet. Certainly, that is probably going to look a lot similar to the last two years from what we can predict at this point in time. We will see where prices and everything goes from here. We will continue to make debt repayment a priority. We have a soft debt to EBITDA target of one times, trailing 12-month EBITDA of one times. That has not changed.
Speaker #4: Right. Got it. And then just this next one for JP: how are you thinking about capital allocation as we look out to 2026 and beyond, between organic growth and M&A?
Speaker #4: And then you know, as you approach your debt targets, potential shareholder return increases.
Speaker #3: Well, we still believe that we're going to put money into the drill bit to grow modestly over the next two years. You know, we haven't come out with a formal plan for '26 yet.
Speaker #3: Certainly, that's probably going to look a lot similar to the last two years. From what I can, you know, from what we can predict at this point in time, you know, we'll see where prices and everything goes from here.
Speaker #3: But and we you know, we'll continue to make debt repayment a priority, but you know, we have a soft debt to EBITDA target of one times trailing 12-month EBITDA of one times.
Speaker #3: And so that hasn't changed. When we get there, which we expect will be sometime in 2026, then we'll relook at that capital allocation strategy. You know, but that depends on where prices are at.
Jean-Paul Lachance: When we get there, which we expect will be sometime in 2026, we will relook at that capital allocation strategy. That depends on where prices are at. LNG Canada came on and things, ACO and price, the differential or the basis between that proves all those things happen. We will start looking at, depending on our diversification and all those things, we will look at how we see the market and how the business is. We will decide then how we change that allocation, if we change that allocation to where it is right now. We have a fairly comfortable dividend level right now that we feel is very sustainable. We are going to continue to grow. Nothing really has changed from what we have been messaging all the way along, Chris.
Speaker #3: You know, LNG Canada came on, and things, you know, the pricing, you know, the differential or the divisus between that improves, all those things happen. And we'll start looking, and depending on our diversification and all those things, we'll look at how we see the market and how the business is, and we'll decide then how we change that allocation. If we change that allocation the way it is right now.
Speaker #3: But you know, we've got a fairly comfortable dividend level right now that we feel is very sustainable. And we're going to continue to grow and nothing really has changed from what we've been messaging all the way along, Chris.
Chris Thompson: Got it. Last question from me, Jean-Paul Lachance. You touched on ACO improving. How are you thinking about the marketing strategy here? It looks like your 2027 book has pretty sizable exposure to domestic benchmarks and relatively light on the fixed, which we expect will increase over time. How are you thinking about that? Which hubs do you see as having attractive pricing on the strip that you would be looking at?
Speaker #4: Got it. Got it. And then just one last question from me, JP. You touched on ACO improving. How are you thinking about the marketing strategy here?
Speaker #4: Looks like your 2027 book is pretty sizable exposure to domestic benchmarks. And you know, relatively light on the fixed, which we expect will increase over time, but how are you thinking about that?
Speaker #4: And which hubs do you see as having attractive pricing on the strip that you'd be looking at?
Jean-Paul Lachance: We still believe that diversification is important. Diversification does not mean not ACO. ACO is part of that. In fact, our exposure to ACO is that we would like to hedge some of that in the future, right? As we move closer to 2027, we will build that up because nothing has changed in our hedging strategy plan, right? When we get to 2027, we are going to be, at any season there in 2027, we are going to be minimum 50% hedged because we know this volatility in commodities is real. As we move forward, we are going to continue to bring up the hedge book in 2027. When we do that, and right now prices in 2027 at ACO are pretty good.
Speaker #3: We still believe in diversification is important. And diversification doesn't mean not ACO, but so ACO is part of that. And in fact, our exposure to ACO is in the fact that we would like to hedge some of that in the future, right?
Speaker #3: So as we move closer to '27, we'll build that up. Nothing has changed in our hedging strategy plan, right? When we get to '27, we're going to be in any season there in '27, we're going to be a minimum of 50% hedged because we know volatility in commodities is real.
Speaker #3: As we move forward, we're going to continue to bring up the hedge book in '27. And when we do that, and right now prices in '27 at ACO are pretty good, so you know, as we take some of that off the table, and we see maybe the effects of LNG Canada narrow that basis which improves that even more, then we'll take some more of that off the table.
Jean-Paul Lachance: As we take some of that off the table, and we see maybe the effects of LNG Canada narrow that basis, which improves that even more, then we will take some more of that off the table. Then we will have similar exposure going forward as we have today. Some ACO, a little bit of ACO, a little bit of everything else too. We think that is important not to have just one market. We think it is good. We want it to improve, but we are not, you know, we are not counting on it as it were.
Speaker #3: And then we'll have similar exposure, you know, going forward as we have today. You know, some ACO, a little bit of ACO, a little bit of everything else too.
Speaker #3: We think that's important not to have just one market. So we're not we think it's good. We want it to improve. But we're not you know, we're not counting on it as it were.
Chris Thompson: It doesn't sound to me like having additional exposure to ACO compared to where you've historically been in the last couple of years is something that you'd be really looking for?
Speaker #4: So it doesn't sound to me like having additional exposure to ACO, compared to where you've historically been in the last couple of years, is something that you'd be really looking for?
Jean-Paul Lachance: Yeah, we are only looking, remember, we only hedge two and three years out. To the extent that ACO improves, we have a whole lot of reserves that would be exposed to that in the future should ACO really start to run and become, say, a premium market or something different than what it is today. This is about managing things in the short term. I do not think I do not see us changing our strategy in that regard.
Speaker #3: Yeah, we're only looking—I mean, we're only hedged two and three years out. So, you know, to the extent that ACO improves, we have a whole lot of reserves that would be exposed to that in the future, should ACO really start to run and become, say, a premium market or something different than what it is today, right?
Speaker #3: So this is about you know, short managing things in the short term. So I don't think I don't see us changing our strategy in that regard.
Chris Thompson: Okay. That's all for me. I'll hand it back. Thank you.
Speaker #4: Okay. That's all for me. I'll hand it back. Thank you.
Jean-Paul Lachance: Okay. Thanks, Chris.
Speaker #3: Okay. Thanks, Chris.
Tawanda: Thank you. As a reminder, ladies and gentlemen, that is star 11 to ask the question.
Speaker #2: Thank you. As a reminder, ladies and gentlemen, that's *11 to ask the question.
Chris Thompson: Tawanda?
Speaker #3: Tawanda. I
Tawanda: Yes.
Speaker #2: Yes.
Chris Thompson: I have some questions here from Lynette coming overnight. So maybe I will just, if it is okay, I will ask a couple of those here of the team.
Speaker #3: I have some questions here from coming overnight, so maybe I'll just, if it's okay, I'll ask a couple of those here of the team.
Tawanda: All right. I will hand it back to you.
Speaker #2: All right. I'll hand it back to you.
Chris Thompson: Todd, we did talk earlier about the OpEx, the compressor that we are going to install. You have already started construction on it here. Some questions around, okay, what is, can you elaborate a little bit more? Where is this? And how is it going to help us?
Speaker #3: Todd, we did talk earlier about the op-ed, the compressor that we're going to install. You've already started construction on it here.
Speaker #3: Some questions around, okay, what's you know, what is can you elaborate a little bit more? Where is this? And how is it going to help us?
Todd Burdick: Sure. The compressor is, I guess, best described as the heart of the original Peyto Sundance area, geographically, Township 5321, WEF 5, for those who are familiar with the area. There are a lot of vertical penetrations in the area, a lot of horizontal and Cardium, Nautica units, flares, well rich. There is a lot of depletion. With the Repsol acquisition, as Jean-Paul Lachance mentioned, there is a development plan in the area. When we looked at it, we said there is a lot of production here that needs to be protected from higher line pressures when you are bringing on these bigger wells. So, after doing some sensitivities, it made a lot of sense to build a compressor, collect that older gas, which is a lot of Cardiums, and flares, and Nautica units, as I mentioned, that is the bulk of it.
Speaker #4: Sure, so the compressor is, I guess, best described as the sort of the heart of the original Peyto Sundance area, geographically, township 5321, West 5.
Speaker #4: For those who are familiar with the area, there's a lot of vertical penetrations in the area, a lot of horizontals in Cardium, non-QNs, Flares, Wellrich.
Speaker #4: A lot of depletion. And with the Repsol acquisition, obviously, as JP mentioned, there's a development plan in the area. And when we looked at it, we said there's a lot of production here.
Speaker #4: That needs to be protected from, you know, higher line pressures when you're bringing on these bigger wells. So, after doing some sensitivities, it made a lot of sense to take and build a compressor collect that older gas, which is a lot of Cardiums and flares and non-QNs, as I mentioned, that's the bulk of it.
Todd Burdick: With the pipeline infrastructure that we bought, along with the Repsol asset acquisition, it allowed us to tie that gas in, with some modest pipeline expenditures down to the Edson Gas Plant where we can get a lot better liquid recovery from, especially the Cardiums versus Old Man or Old Man North. Old Man obviously had the deep cut, but Edson had much better recoveries. Some of this gas went to Swanson. So, we are going to collect about 30 to 35 MMcf/d, initially. We built the plant so that we can expand it to that 60 to 70 MMcf/d, just with another DI and some more compressors. We are expecting to see somewhere around a 10 barrel per million uplift on the gas moving either from Swanson, Old Man, Old Man North down to Edson. It could be better. It will depend on the species.
Speaker #4: So and with the pipeline infrastructure that we bought, along with the Repsol asset. Acquisition, it allowed us to tie that gas in with some modest pipeline expenditures down to the Edson gas plant, where we can get a lot better liquid recovery from especially the Cardiums versus Old Man or Old Man North.
Speaker #4: Old Man obviously had the deep cut, but Edson had much better recoveries. And some of this gas went to Swanson. So we're going to collect about $30 to $35 million a day.
Speaker #4: Initially, we built the plant so that we can expand it to that 60 to 70 million cubic feet a day. Just with another DI and some more compressors.
Speaker #4: We're expecting to see somewhere on a 10 barrel per million uplift on the gas moving either from Swanson Old Man or Old Man North down to Edson; it could be better.
Speaker #4: It'll depend on the species. And then, along with that, as I mentioned, you know, you take—and I think JP alluded to the press release.
Todd Burdick: Along with that, as I mentioned, you take, and I think Jean-Paul Lachance alluded to the press release, you take 30 or 35 MMcf/d out of the gathering system that is going to Edson or to Old Man and Swanson. You are going to free up room. You are going to see some flush until we backfill that production with new production. As well, all that 30 MMcf/d gas that you are sending to Edson is now going to be at a much lower line pressure, probably half. So that helps the economics of those wells long term. A lot of little parts come into play into the advantage of building this compressor station.
Speaker #4: You take $30 or $35 million a day out of the gathering system that's going to Edson or to Old Man and Swanson. You're going to free up room.
Speaker #4: You're going to see some flush until we backfill that production with new production. As well, all that 30 million a day gas that you're sending to Edson is now going to be at a much lower line pressure, probably half.
Speaker #4: So that helps the economics of those wells long term. There are a lot of little parts that come into play regarding the advantage of building this compressor station.
Todd Burdick: Things are going really well. We are probably a month out, maybe a little bit longer till commissioning, where the guys have been, despite the rain, we have gotten shut down a little bit and had some delays, but things are moving along really, really well.
Speaker #4: Things are going really well. Well, you know, we're probably a month out, maybe a little bit longer until commissioning. The guys have been, despite the rain, we've been shut down a little bit and had some delays.
Speaker #4: But things are moving along really, really well. Okay, good. Thanks. Thanks, Todd. Another question was about the well outcomes so far this year. Maybe I'll get Riley to address that just to... okay, so we expect some improvements in the back half of the year.
Chris Thompson: Okay, good. Thanks, Todd. Another question was about the well outcomes so far this year. Maybe I will get Riley Frame to address that. We expect some improvements on the back half of the year. Can you talk about the cut species we are going to be drilling? Can you elaborate a little more? Can you give us a little more color on that?
Speaker #4: Can you talk about you know, the kind of species we're going to be drilling? Can you elaborate a little more? You know, color on that if you.
Jean-Paul Lachance: You bet. We are looking at the performance for the first half of the year here. We are actually very happy with where we are tracking relative to where we were last year. If you guys recall, 2024, we had a much more oil-rich-centric program in the first half of the year and a much more natural gas-centric program in the second half of the year. Very similar to 2024, I think what we will see is that that curve improve as we move forward through the second half of the year. When we distill it down to what is really important here, looking at what we are spending for what we are getting, I think we are right on track with 2024. I would expect us to be in line with those numbers as we move through the second half of the year.
Speaker #3: Yeah, you bet. So when we're looking at the performance for the first half of the year here, we're actually very happy with where we're tracking relative to where we were last year.
Speaker #3: If you guys recall from 2024, we had a much more Wellrich-centered program in the first half of the year and a much more non-QN Flare-centered program in the second half of the year.
Speaker #3: So very similar to '24, I think we'll see is that that curve improve as we move forward through the second half of the year.
Speaker #3: And you know, when we distill it down to what's really important here, looking at you know, what we're spending for what we're getting, I think we're right on track with 2024.
Speaker #3: And so, I would expect us to be in line with those outcomes as we move through the second half of the year.
Chris Thompson: Okay. We have talked about it in the press release, and I mentioned it here earlier. We are following up on some past successes. It is not a play, a couple of plays that we have not done it recently. One of the questions was the Viking, the Blue Sky. It is not something that people, I guess, the investors hear a lot about. So maybe I get Mike Reese to elaborate a little bit on what we are pursuing there in the Viking, the Blue Sky here this year, later part of this year.
Speaker #4: Okay, and we talked about in the press release, and I mentioned it here earlier, we're following up with some past successes, not a place to a couple of places that we haven't done it.
Speaker #4: Recently, one of the questions was about the Viking and the blue skies. Not something that, I guess, the investors hear a lot about.
Speaker #4: So maybe I get Mike to elaborate a little bit on what we're pursuing there in the Viking and the blue sky here this year, later part of this year.
Mike Reese: Thank you for that, Jean-Paul. It has been a little while since we dipped our toe into the Viking. We drilled our first Viking well about two years ago, and that was a fairly successful first test for us on our lands. We are looking to wrap up the second well in the Viking right now. We see a material amount of upside on our land base in the Viking and also on the Blue Sky. We haven't actually drilled the Blue Sky for a while. That goes back about five years to 2020. We did inherit as part of the Repsol acquisition a Blue Sky well that Repsol had drilled that I believe we completed, and that turned out to be quite a good well. Again, material upside in the Blue Sky on our existing land position.
Speaker #3: And you bet, JP. So it has been a little while since we dipped our toe into the Viking. We drilled our first Viking well about two years ago.
Speaker #3: And that was a fairly successful first test for us on our lands. We're looking to wrap up actually the second well and do all that in the Viking right now.
Speaker #3: So you see a material amount of upside on our land base in the Viking, and also on the blue sky. We haven't actually drilled the blue sky for a while.
Speaker #3: I think that goes back about five years to 2020. We did inherit as part of the Repsol acquisition a blue sky well that Repsol had drilled that I believe we completed.
Speaker #3: And that turned out to be quite a good well. So again, there is material upside in the blue sky on our existing land position. We are currently drilling the first blue sky well.
Mike Reese: We are drilling the first Blue Sky well currently, and we have a couple more in plan for the remainder of the year. Should the results come in as expected in these two zones, we will be more aggressive with them in the future.
Speaker #3: And we have a couple more planned for the remainder of the year. But should the results come in as expected in these two zones, we will be more aggressive with them in the future.
Chris Thompson: Thanks, Mike. I don't know if there's any more questions from the phone lines tomorrow.
Speaker #4: Okay, thanks, Mike. I don't know if there are any more questions from the phone lines, Tawanda.
Tawanda: As a reminder, ladies and gentlemen, that is star one one to ask the question. I am showing no further questions in the queue.
Speaker #2: As a reminder, ladies and gentlemen, that's 11 to ask the question. I'm showing no further questions in the queue.
Chris Thompson: Okay. Thanks for tuning in, folks. We'll see you on the next call in November.
Speaker #4: Okay, well, thanks for tuning in, folks. We'll see you on the next call in November.
Tawanda: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.