Q2 2026 Peyto Exploration & Development Corp Earnings Call

August 12, 2026

Operator: Ladies and gentlemen, thank you for standing by. Welcome to Peyto's Q2 2026 financial results conference call. At this time, all participants are in the 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 11 on your telephone. You will then hear an automated message advising your hand is raised, and to withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would like now to turn the conference over to Jean-Paul Lachance, President and Chief Executive Officer. Please go ahead.

Operator: Ladies and gentlemen, thank you for standing by. Welcome to Peyto's Q2 2026 financial results conference call. At this time, all participants are in the 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, and to withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would like now to turn the conference over to JP Lachance, President and Chief Executive Officer. Please go ahead.

Speaker #1: 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 1-1 on your telephone.

Speaker #1: You would then hear an automated message advising your hand is raised, and to withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded.

Speaker #1: I would like now to turn the conference over to JP LeShoins, president and chief executive officer. Please go ahead.

Speaker #2: Thanks, Michelle. Morning, folks, and thanks for joining PEYTO's second quarter 2026 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 that was issued yesterday.

Jean-Paul Lachance: Thanks, Michelle. Morning, folks, and thanks for joining Peyto's Q2 2026 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 that was issued yesterday. Here in the room with me, I have most of the management team, including Riley Frame, our Chief Operating Officer, Tavis Carlson, our CFO, Todd Burdick, our VP of Production, Derick Czember, our VP of Land and Business Development, Michael Collens, our VP of Marketing, Crissy Rafoss, our VP of Finance, and Mike Rees, our VP of Geosciences. Before we discuss the quarter, on behalf of the management group here, and as always, I would like to thank the entire Peyto team in the office and in the field for their contributions to another strong quarter.

JP Lachance: Thanks, Michelle. Morning, folks, and thanks for joining Peyto's Q2 2026 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 that was issued yesterday. Here in the room with me, I have most of the management team, including Riley Frame, our Chief Operating Officer, Tavis Carlson, our CFO, Todd Burdick, our VP of Production, Derick Czember, our VP of Land and Business Development, Michael Collens, our VP of Marketing, Crissy Rafoss, our VP of Finance, and Mike Rees, our VP of Geosciences. Before we discuss the quarter, on behalf of the management group here, and as always, I would like to thank the entire Peyto team in the office and in the field for their contributions to another strong quarter.

Speaker #2: Here in the room with me, I have most of the management team, including Riley Frame, our Chief Operating Officer; Tavis Carlson, our CFO; Todd Burdick, our VP of Production; Derek Zember, our VP of Land and Business Development; Mike Collins, our VP of Marketing; Chrissy Raifus, our VP of Finance; and Mike Rees, our VP of Geoscience.

Speaker #2: Before we discuss the quarter, on behalf of the management group here and, as always, 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 #2: It was a wet spring and early summer in the areas that we operate, so we had a lot less activity in the field, especially when you compare that to Q1.

Jean-Paul Lachance: It was a wet spring and early summer in the areas that we operate, so we had a lot less activity in the field, especially when you compare that to Q1. Yet we managed to maintain production levels more or less at the same level, thanks to a strong drilling program in Q1. We paid down some more debt. We increased the dividend in May. We drilled more great wells. We added more undeveloped acreage. Signed another important natural gas diversification deal as well. I think that is pretty good for a typically quiet quarter. Let's dive into some details with operations first. We slowed drilling activity down as we typically do during the spring breakup. We only spudded 10 wells, which is reflected in our capital spend of only CAD 68 million in the well-related costs and includes some completions that would have spilled over from Q1.

JP Lachance: It was a wet spring and early summer in the areas that we operate, so we had a lot less activity in the field, especially when you compare that to Q1. Yet we managed to maintain production levels more or less at the same level, thanks to a strong drilling program in Q1. We paid down some more debt. We increased the dividend in May. We drilled more great wells. We added more undeveloped acreage. Signed another important natural gas diversification deal as well. I think that is pretty good for a typically quiet quarter. Let's dive into some details with operations first. We slowed drilling activity down as we typically do during the spring breakup. We only spudded 10 wells, which is reflected in our capital spend of only CAD 68 million in the well-related costs and includes some completions that would have spilled over from Q1.

Speaker #2: Yet we managed to maintain production levels more or less at the same level, thanks to a strong drilling program in Q1. We paid down some more debt.

Speaker #2: We increased the dividend in May. We drilled more great wells. We added more undeveloped acreage. Signed another important natural gas diversification deal as well.

Speaker #2: I think that's pretty good for a typically quiet quarter. Let's dive into some details, starting with operations. We slowed drilling activity down, as we typically do during the spring breakup.

Speaker #2: We only spud 10 wells, which is reflected in our capital spend of only $68 million in well-related costs, and includes some completions that would have spilled over from Q1.

Speaker #2: The average performance of these wells is tracking closely with the last two years' outcomes. And we're particularly pleased with the latest Cardium drills down in Brazo.

Jean-Paul Lachance: The average performance of these wells are tracking closely with the last 2 years' outcomes, and we are particularly pleased with the latest Cardium drills down in Brazeau. We applied the same drilling and completion strategy that worked so well last year in the area just south of there in Chambers. This is where we drill a little deeper in what we call the bioturbated zone, to increase the drilling speed. Then we complete the longer horizontal with more stages to increase stimulation intensity. The gas rates are better, but most importantly, so are the wellhead liquids. We have initial liquid rates of 400 to 600 barrels per day. Now we are applying our Cardium learnings up in the Sundance area to see if we can repeat those results and improve the internal rates of return up there as well. PEYTO also invested CAD 14 million in facility projects.

JP Lachance: The average performance of these wells are tracking closely with the last two years' outcomes, and we are particularly pleased with the latest Cardium drills down in Brazeau. We applied the same drilling and completion strategy that worked so well last year in the area just south of there in Chambers. This is where we drill a little deeper in what we call the bioturbated zone, to increase the drilling speed. Then we complete the longer horizontal with more stages to increase stimulation intensity. The gas rates are better, but most importantly, so are the wellhead liquids. We have initial liquid rates of 400 to 600 barrels per day. Now we are applying our Cardium learnings up in the Sundance area to see if we can repeat those results and improve the internal rates of return up there as well. PEYTO also invested CAD 14 million in facility projects.

Speaker #2: We applied the same drilling and completion strategy that works so well last year in the area, just south of there in chambers. This is where we drill a little deeper in what we call the bioturbated zone.

Speaker #2: To increase the drilling speed, we complete the longer horizontals with more stages to increase stimulation intensity. The gas rates are better, but most importantly, so are the wellhead liquids.

Speaker #2: We have initial liquid rates of 400 to 600 barrels per day. Now, we're applying our Cardium learnings up in the Sundance area to see if we can repeat those results and improve the internal rates of return up there as well.

Speaker #2: PEYTO also invested $14 million in facility projects that include major pipelines, plant optimizations, and some maintenance work during the quarter. We completed some plant turnarounds with a minimal effect on production since we planned these when we planned these, we tried to redirect volumes to other plants and staged the shutdowns to minimize or to maximize online time.

Jean-Paul Lachance: That included major pipelines, plant optimizations, and some maintenance work during the quarter. We completed some plant turnarounds with a minimal effect on production since when we plan these, we try to redirect volumes to other plants and stage the shutdowns to minimize or to maximize online time. Maybe I will get Todd to expound on that later. The credit of these efficient turnarounds goes in part to the great execution by our team in the field, but also to the planning that goes into these things in the office. This is an element of our own and control strategy that I think is often overlooked. We are not dependent on third parties' performance for these kinds of turnarounds. The majority of our gas, 98% of our gas is controlled by us and goes to our plants.

JP Lachance: That included major pipelines, plant optimizations, and some maintenance work during the quarter. We completed some plant turnarounds with a minimal effect on production since when we plan these, we try to redirect volumes to other plants and stage the shutdowns to minimize or to maximize online time. Maybe I will get Todd to expound on that later. The credit of these efficient turnarounds goes in part to the great execution by our team in the field, but also to the planning that goes into these things in the office. This is an element of our own and control strategy that I think is often overlooked. We are not dependent on third parties' performance for these kinds of turnarounds. The majority of our gas, 98% of our gas is controlled by us and goes to our plants.

Speaker #2: And maybe I'll get Todd to expand on that later. But the credit for these efficient turnarounds goes in part to the great execution by our team in the field, but also to the planning that goes into these things in the office.

Speaker #2: And this is an element of our own and control strategy that I think is often overlooked. We're not dependent on third parties' performance for these kinds of turnarounds.

Speaker #2: The majority of our gas—98% of our gas—is controlled by us and goes to our plants. The balance of our capital was spent in Q2.

Jean-Paul Lachance: The balance of our capital that was spent in Q2 was CAD 2 million. It was used to capture another 26 sections of land through crown sales and direct purchases. That brings new land purchases so far this year up to a total of 53.8 net sections at an average cost of CAD 158 per net acre, which cheaply adds to our unbooked drilling inventory. At the start of Q2, we redirected about 85 million cubic feet a day of sales gas to a third-party deep cut facility to increase our C3+ or our propane butane recoveries, mostly as some condensate, which adds to our incremental which adds an incremental 1,500 barrels per day, and that is helping to bring our corporate liquid content up from 12% to 13%. The other part of that is the Cardium program, of course, that is adding some more liquids. Switching to financials.

JP Lachance: The balance of our capital that was spent in Q2 was CAD 2 million. It was used to capture another 26 sections of land through crown sales and direct purchases. That brings new land purchases so far this year up to a total of 53.8 net sections at an average cost of CAD 158 per net acre, which cheaply adds to our unbooked drilling inventory. At the start of Q2, we redirected about 85 million cubic feet a day of sales gas to a third-party deep cut facility to increase our C3+ or our propane butane recoveries, mostly as some condensate, which adds to our incremental which adds an incremental 1,500 barrels per day, and that is helping to bring our corporate liquid content up from 12% to 13%. The other part of that is the Cardium program, of course, that is adding some more liquids. Switching to financials.

Speaker #2: The balance of our capital that was spent in Q2 was $2 million, which was used to capture another 26 sections of land through crown sales and direct purchases.

Speaker #2: That brings new land purchases so far this year up to a total of 53.8 net sections, at an average cost of $158 per net acre, which cheaply adds to our unbooked drilling inventory.

Speaker #2: At the start of Q2, we redirected about 85 million cubic feet a day of sales gas to a third-party deep-cut facility to increase our C3+ — or our propane-butane — recoveries, mostly as some condensate, which adds an incremental 1,500 barrels per day.

Speaker #2: And that's helping to bring our corporate liquid content up from 12 to 13 percent. The other part of that is the Cardium program, of course, which is adding some more liquids.

Speaker #2: Switching to financials, controllable cash costs in the quarter—that's operating, transport, interest, and G&A—totaled $1.04 per Mcfe, which brings us down to the pre-repsol levels before Q4 2023.

Jean-Paul Lachance: Controllable cash costs in the quarter, that is operating, transport, interest, and G&A totaled CAD 1.04 per Mcfe, which brings us down to the pre-Repsol levels before Q4 2023, and that speaks to the great effort by the Peyto team to stay focused and integrate these assets into our low-cost model. Flipping to revenue. Another strong quarter where our realized gas price was CAD 3.42 an Mcf, which is double the average AECO monthly for the quarter, which was CAD 1.64 per Mcf when you adjust that for our heat content. Once again, the diversification value of CAD 0.93 per Mcf played an important role, and the rest of the gain we saw was from CAD 0.85 of hedges. Speaking of diversification, we added another piece to our portfolio in Q2 with the Centrica gas supply agreement that fetches us European TTF-based pricing, less deductions.

JP Lachance: Controllable cash costs in the quarter, that is operating, transport, interest, and G&A totaled CAD 1.04 per Mcfe, which brings us down to the pre-Repsol levels before Q4 2023, and that speaks to the great effort by the Peyto team to stay focused and integrate these assets into our low-cost model. Flipping to revenue. Another strong quarter where our realized gas price was CAD 3.42 an Mcf, which is double the average AECO monthly for the quarter, which was CAD 1.64 per Mcf when you adjust that for our heat content. Once again, the diversification value of CAD 0.93 per Mcf played an important role, and the rest of the gain we saw was from CAD 0.85 of hedges. Speaking of diversification, we added another piece to our portfolio in Q2 with the Centrica gas supply agreement that fetches us European TTF-based pricing, less deductions.

Speaker #2: And that speaks to the great effort by the PEYTO team to stay focused and integrate these assets into our low-cost model. Flipping to revenue, another strong quarter where our realized gas price was $3.42 per Mcf, which is double the average AECO monthly for the quarter, which was $1.64 per Mcf when you adjust that for our heat content.

Speaker #2: Once again, the diversification value of $93 per MCF played an important role, and the rest of the gain we saw was from $85 of hedges.

Speaker #2: Speaking of diversification, we added another piece to our portfolio in Q2 with the Centrica Gas Supply Agreement that fetches us European TTF-based pricing, less deductions.

Speaker #2: That starts sometime in 2029 and delivers $50,000 MMBTUs at nit or at ACO. At a very attractive net back. Of course, that agreement's confidential, but it does bring our total unhedged diversified volume.

Jean-Paul Lachance: That starts sometime in 2029 and delivers 50,000 MMBtus at net or at AECO at a very attractive netback. Of course, that agreement is confidential, but it does bring our total unhedged diversified volumes, so that is non-AECO price-related volumes, to 400 million cubic feet a day in 2028 and beyond. Combine the low cost and the great pricing that we got, at least relative to AECO, it meant we generated CAD 228 million in funds from operations. That is CAD 1.11 per share. Adjusted earnings of CAD 150 million or CAD 0.50 a share. We have continued to impress with an operating margin of 71%. We announced the monthly dividend increase of CAD 0.01 per share. That is 9% in May, and that was paid out starting in June, and we still paid down total net debt by CAD 72 million. There is no rest for the wicked, and we are back up to running four rigs.

JP Lachance: That starts sometime in 2029 and delivers 50,000 MMBtus at net or at AECO at a very attractive netback. Of course, that agreement is confidential, but it does bring our total unhedged diversified volumes, so that is non-AECO price-related volumes, to 400 million cubic feet a day in 2028 and beyond. Combine the low cost and the great pricing that we got, at least relative to AECO, it meant we generated CAD 228 million in funds from operations.

Speaker #2: So that’s non-ACO price-related volumes to 400 million cubic feet a day in 2028 and beyond. Combining the low costs and the great pricing that we got, at least relative to ACO, meant we generated $228 million in funds from operations.

JP Lachance: That is CAD 1.11 per share. Adjusted earnings of CAD 150 million or CAD 0.50 a share. We have continued to impress with an operating margin of 71%. We announced the monthly dividend increase of CAD 0.01 per share. That is 9% in May, and that was paid out starting in June, and we still paid down total net debt by CAD 72 million. There is no rest for the wicked, and we are back up to running four rigs.

Speaker #2: That's $1.11 per share, and adjusted earnings of $1.50 million, or $0.50 a share. And we continue to impress with an operating margin of 71%.

Speaker #2: We announced the monthly dividend increase of $0.01 per share. That's up 9% in May. And that was paid out starting in June. And we still paid down debt of down total net debt by $72 million.

Speaker #2: There's no rest for the wicked, and we're back up to running four rigs. We expect to hold that there for the rest of the year.

Jean-Paul Lachance: We expect to hold that there for the rest of the year. We have continued to modify our drilling program going forward to shift even more towards some of the liquid rich species like the Cardium and the Falher. You can refer to the latest corporate presentation for reference to that. I think it is on slide 21, is your breakdown of the species that we are going to drill this year in the fullness of this year. We remain well-protected for the rest of the year with just over 500 million cubic feet a day of gas hedged over CAD 4 an Mcf and about 400 million cubic feet a day secured for 2027, at least so far, at CAD 3.30 an Mcf, both of which are higher than current strip, which is good and bad.

JP Lachance: We expect to hold that there for the rest of the year. We have continued to modify our drilling program going forward to shift even more towards some of the liquid rich species like the Cardium and the Falher. You can refer to the latest corporate presentation for reference to that. I think it is on slide 21, is your breakdown of the species that we are going to drill this year in the fullness of this year. We remain well-protected for the rest of the year with just over 500 million cubic feet a day of gas hedged over CAD 4 an Mcf and about 400 million cubic feet a day secured for 2027, at least so far, at CAD 3.30 an Mcf, both of which are higher than current strip, which is good and bad.

Speaker #2: We've continued to modify our drilling program going forward to shift even more towards some of the liquid-rich plays like the Cardium and the Flare.

Speaker #2: And you can refer to the latest corporate presentation for reference to that. I think it's on slide 21; it's your breakdown of the species that we're going to drill this year, in the fullness of this year.

Speaker #2: We remain well protected for the rest of the year with just over 500 million cubic feet per day of gas hedged at over $4 per MCF, and about 400 million cubic feet per day secured for 2027—at least so far—at $3.30 per MCF.

Speaker #2: Both of which are higher than current strip, which is good and bad. The rest of our production is pointed to downstream markets and essentially no, with no—really no—summer exposure to spot ACO prices through 2027.

Jean-Paul Lachance: The rest of our production is pointing to downstream markets and essentially, really no summer exposure to spot AECO prices through 2027. When combined with our liquid hedges, that secures CAD 485 million for the rest of 2026 and another CAD 590 million for 2027. This, along with our industry-leading cash costs, our market diversification, the great well results we are seeing, gives us the confidence to remain committed to our guidance, which is investing CAD 450 to CAD 500 million and drilling 78 net wells for 2026. We remain constructive for natural gas with the continued tailwinds that are presented from LNG build-out in Canada and the US, and the increased demand from local markets like power for data centers. Peyto's strategy remains the same. We focus on execution, control things that we can control, that is cost, while mitigating the risks on the commodities. You know how we do it.

JP Lachance: The rest of our production is pointing to downstream markets and essentially, really no summer exposure to spot AECO prices through 2027. When combined with our liquid hedges, that secures CAD 485 million for the rest of 2026 and another CAD 590 million for 2027. This, along with our industry-leading cash costs, our market diversification, the great well results we are seeing, gives us the confidence to remain committed to our guidance, which is investing CAD 450 to CAD 500 million and drilling 78 net wells for 2026.

Speaker #2: When combined with our liquid hedges, that secures $485 million for the rest of '26 and another $590 million for 2027. This, along with our industry-leading cash costs, our market diversification, and the great well results we're seeing, gives us the confidence to remain committed to our guidance, which is investing $450 to $500 million and drilling 70 to 80 net wells for 2026.

Speaker #2: We may we remain constructive for natural gas with the continued tailwinds that are presented from LNG Canada and both sorry, LNG build-out in Canada and the US.

JP Lachance: We remain constructive for natural gas with the continued tailwinds that are presented from LNG build-out in Canada and the US, and the increased demand from local markets like power for data centers. Peyto's strategy remains the same. We focus on execution, control things that we can control, that is cost, while mitigating the risks on the commodities. You know how we do it.

Speaker #2: And the increased demand from local markets, like power for data centers, Peyto’s strategy remains the same. We focus on execution and control the things that we can control.

Speaker #2: That's costs. While mitigating the risks on the commodities—you know how we do it—we believe this is a winning recipe. And it provides long-term returns to our shareholders in a very volatile commodity market.

Jean-Paul Lachance: We believe this is a winning recipe, and it provides long-term returns to our shareholders in a very volatile commodity market. Okay. I imagine there are some questions, Michelle, so maybe I will turn it over first to the phones. I have got some other questions that come in overnight, but maybe, Michelle, we will start with anybody on the phone who wants to ask a question, go ahead.

JP Lachance: We believe this is a winning recipe, and it provides long-term returns to our shareholders in a very volatile commodity market. Okay. I imagine there are some questions, Michelle, so maybe I will turn it over first to the phones. I have got some other questions that come in overnight, but maybe, Michelle, we will start with anybody on the phone who wants to ask a question, go ahead.

Speaker #2: Okay. I imagine there's some questions, Michelle, so maybe I'll turn it over first to the phones. I've got some other questions that came in overnight, but maybe, Michelle, we'll start with anybody on the phone who wants to ask a question.

Speaker #2: Go ahead.

Speaker #1: Thank you. As a reminder to ask a question, please press star 11 on your telephone. And wait for your name to be announced. And to withdraw your question, please press star 11 again.

Operator: Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. At this time, I am showing no questions in the queue.

Speaker #1: At this time, I am showing no questions in the queue.

Speaker #2: Okay. Maybe I'll I'll give you some time for people to think. And I will turn this I have one question that came in about a little more information about what we're doing with this Cardium play.

Jean-Paul Lachance: Okay. Maybe I will give some time for people to think. I have one question that came in about a little more information about what we are doing with this Cardium play and how we might be applying that up in Sundance. Maybe I will ask Riley to maybe expound upon that a little bit with respect to how we are doing and what we are doing in the Cardium these days.

JP Lachance: Okay. Maybe I will give some time for people to think. I have one question that came in about a little more information about what we are doing with this Cardium play and how we might be applying that up in Sundance. Maybe I will ask Riley to maybe expound upon that a little bit with respect to how we are doing and what we are doing in the Cardium these days.

Speaker #2: And how we might be applying that up in Sundance. So maybe I'll I'll ask Riley to maybe expound upon that a little bit with respect to how we're doing and what we're doing in the Cardium these days.

Speaker #3: Sure. Yeah. So, you know, like we've talked about mostly over the last little while here, we've been active in the Nebraska area. You know, we're going longer to try to help amortize the fixed cost of our wells.

Riley Frame: Sure. Yeah. Like we have talked about mostly over the last little while here, we have been active in the Brazeau area. We are going longer to help amortize the fixed cost of our wells, drilling into our Peyto zone to increase our ROPs. Then, obviously, we are increasing our stimulation intensity to try to improve on our per-meter performance. Like we talked about in the press release, that has translated into a 37% improvement in our drilling cost per meter horizontal, which is a huge improvement. We still think there is room to work on the completion side of that. One of the things that we did here just recently with the last pad we drilled was we tried a coil shiftable sleeve system. There are some significant advantages to that system as we start talking about cemented liner systems.

Speaker #3: Drilling in the tomato zone to increase our ROPs. And then, obviously, we're increasing our stimulation intensity to try to improve on our per-meter performance.

Speaker #3: So, like we talk about in the press release, that's translated into, you know, a 37% improvement in our drilling cost per meter horizontal, which is a huge improvement.

Speaker #3: But we still think there's room to work on the completion side of that. So one of the things that we did here just recently with the last pad we drilled was we tried a coil-shiftable sleeve system.

Speaker #3: There are some significant advantages to that system as we start talking about cemented liner systems. We just finished up those completions here recently.

Riley Frame: We just finished up those completions here recently, so it is still early, but everything is looking pretty positive that we have actually been able to move costs in the right direction there. We are on track to see an even larger cost reduction on a per-meter basis as we go forward. Translating that over to the Sundance area. We recently drilled our first pad in Sundance since 2022. Really trying to take what we have learned from Brazeau and apply that as best we can completely translatable. There are a few differences, but the main goal here was to try and drive horizontal lengths longer. This first pad, we were able to increase horizontal length by about 50%, which is pretty meaningful.

Speaker #3: So it's still early, but everything's looking pretty positive that we've actually been able to move costs in the right direction there. So we're on track to see an even larger cost reduction on a per-meter basis as we go forward.

Speaker #3: So, translating that over to the Sundance area, we recently drilled our first pad in Sundance since 2022. You know, really trying to take what we've learned from Brazeau and apply that as best we can.

Speaker #3: Obviously, it's not completely translatable. There's a few differences. But the main goal here was to try and drive horizontal lengths longer. So this first pad, we were able to increase horizontal length by about 50%, which is is pretty meaningful.

Speaker #3: The big difference up in Sundance would be that we don't really have the bioturbated zone to chase. So, going low and improving that ROP in that bioturbated zone isn't really an option.

Riley Frame: The big difference up in Sundance would be that we don't really have the bioturbated zones to chase. Going low and improving that ROP in that bioturbated zone isn't really an option. That length increase is still meaningful as it pertains to decreasing the per unit cost as we're drilling these wells. The other part of it would be increasing the stimulation intensity and driving that tonnage per meter number up a bit to try and get a higher per meter rate. Overall, the first couple wells we drilled here, it looks like we've been able to reduce our horizontal per meter cost by about 10% on the drill side, which is a good starting point. I think we'll continue to try and move that further down.

Speaker #3: But that length increase is still meaningful as it pertains to decreasing the per unit cost as we're drilling these wells. And then the other part of it would be increasing the stimulation intensity and driving that tonnage per meter number up a bit to try and get a higher per meter rate.

Speaker #3: So, you know, overall, the first couple wells we drilled here, it looks like we've been able to reduce our horizontal per meter cost by about 10% on the drill side, which is a good starting point.

Speaker #3: And I think we'll continue to try and move that further down. Those wells were completed just, sort of again, late last week here. So it's still early time.

Riley Frame: Those wells were completed just again, late last week here, so it's still early time. Overall, it's very encouraging and I think it will really help us to drive improved economics in Sundance, Cardium, right across the board, where we have obviously a lot of reserves booked, as well as a lot of location. Stay tuned on that as far as where we go with that one.

Speaker #3: But overall, it's very encouraging. And I think it it will really help us to to drive improved economics in Sundance Cardium across the board where we have, obviously, a lot of reserve books and a lot of reserves booked, as well as a lot of location.

Speaker #3: So stay tuned on that as far as where we go with that one.

Speaker #2: Okay, that sounds good. I think what you're—yeah. So essentially, we're trying to pull on both levers, both the cost side and the—right?

Jean-Paul Lachance: Okay. Sounds good. Essentially, we're trying to pull on both levers, both the cost side and the production side, because of course, what matters most is returns, not just increasing production in these wells.

JP Lachance: Okay. Sounds good. Essentially, we're trying to pull on both levers, both the cost side and the production side, because of course, what matters most is returns, not just increasing production in these wells.

Speaker #2: And the production side. Because, of course, what matters most is returns, not just increasing production in these wells. Costs matter, as you point out.

Riley Frame: Yeah.

Jean-Paul Lachance: Cost matters, as you point out. That's good.

JP Lachance: Cost matters, as you point out. That's good.

Speaker #2: So that's good.

Riley Frame: That's right. We're working on it.

Speaker #3: That's great, from what you're saying.

Jean-Paul Lachance: Yeah, exactly. So, other question that came in was this new term we've introduced in our press release or in our MD&A as well called adjusted earnings. I just wanted maybe Tavis to give you a chance to sort of explain that maybe in layman's terms a little bit more about what do we mean by this adjusted earnings. Thanks.

JP Lachance: Yeah, exactly. So, other question that came in was this new term we've introduced in our press release or in our MD&A as well called adjusted earnings. I just wanted maybe Tavis to give you a chance to sort of explain that maybe in layman's terms a little bit more about what do we mean by this adjusted earnings. Thanks.

Speaker #2: Yeah, exactly. So, another question that came in was about this new term we've introduced in our press release, and in our MD&A as well, called adjusted earnings.

Speaker #2: It's just one of maybe, Tavis, to give you a chance to sort of explain that maybe in layman's terms a little bit more. But what do we mean by this adjusted earnings?

Speaker #2: Thanks.

Speaker #3: Yeah, sure. This mainly stems from our new centric gas supply agreement. The PTF component of this contract is viewed as an embedded derivative, and we have to separate that from the underlying ACO component of the contract.

Tavis Carlson: Sure, Jim. It mainly stems from our new Centrica gas supply agreement. The PTS component to this contract is viewed as an embedded derivative, and we have to separate that from the underlying AECO component of the contract to account for it as a derivative financial instrument. So what that means is we have to mark to market this component every quarter and record that change in P&L. And this mark to market change is going to cause quite a bit of volatility in our earnings going forward, or it could potentially cause quite a bit of volatility. So we've decided to add a new non-GAAP measure to our disclosures that's going to take earnings, and we're just going to back out that unrealized gain or loss every quarter.

Speaker #3: Account for it as a derivative financial instrument. So what that means is we have to mark to market this component every quarter and record that change in value in P&L.

Speaker #3: This mark-to-market change is going to cause quite a bit of volatility in our earnings going forward, or it could potentially cause quite a bit of volatility.

Speaker #3: So, we've decided to add a new non-GAAP measure to our disclosures that's going to take earnings, and we're just going to back out that unrealized gain or loss every quarter.

Speaker #3: And we believe that's going to give investors a clearer picture of our current operating performance, without the noise of this non-cash item.

Tavis Carlson: And we believe that's going to give investors a clearer picture of our current operating performance without the noise of this non-cash item.

Speaker #2: Excellent. Okay, thanks for explaining that for folks. That's good. And one last question that came in about turnarounds. Maybe, Todd, you can— I mentioned it in my opening remarks.

Jean-Paul Lachance: Excellent. Okay. Thanks for explaining that for folks. That's good. One last question that came in about turnarounds. Maybe Todd, you can I mentioned it in my opening remarks, you could expand a little bit more about how we do this, because I think it's something we're proud of and how we manage our business and how we keep production on, and the uniqueness, I guess, or potential uniqueness of how our gathering systems and plants are all connected that allows us to do this. Maybe you can expand on that a little bit more, too.

JP Lachance: Excellent. Okay. Thanks for explaining that for folks. That's good. One last question that came in about turnarounds. Maybe Todd, you can I mentioned it in my opening remarks, you could expand a little bit more about how we do this, because I think it's something we're proud of and how we manage our business and how we keep production on, and the uniqueness, I guess, or potential uniqueness of how our gathering systems and plants are all connected that allows us to do this. Maybe you can expand on that a little bit more, too.

Speaker #2: You could expand a little bit more on how we how we do this. Because I think it's something you know, we think we're proud of and how we manage our business and how we keep production on.

Speaker #2: And the uniqueness, I guess, or potential uniqueness of the way our gathering systems and plants are all connected that allows us to do this.

Speaker #2: Maybe you could expand on that a little bit more as well.

Todd Burdick: Yeah, sure. Thanks for recognizing the planning that goes into turnarounds, the execution from our asset integrity group, our field foremen, our operators who are out there doing the work when turnarounds are happening. They do a great job. Sometimes they have to pivot mid-turnaround because we're going into vessels and we're looking and doing UT and that sort of stuff, and all of a sudden we see something needs to be repaired, and so they do a great job of minimizing the downtime. Yes, given the interconnectivity, especially down in Brazeau, we've got three plants that are essentially interconnected, and then, obviously in Sundance, we've got many plants, I think nine in total, that are interconnected. We're able to move gas from plant to plant. Still seeing some production losses, but it's mitigated substantially. We did three plants in the quarter.

Speaker #3: Yeah, sure. And yeah, thanks for recognizing the planning that goes into turnaround, the execution from our, you know, our asset integrity group, our field foreman, our operators, who are out there doing the work when turnarounds are happening.

Speaker #3: So, they do a great job. Sometimes they have to pivot mid-turnaround because we're going into vessels and we're looking and doing UT and that sort of stuff.

Speaker #3: And all of a sudden, we see something that needs to be repaired. And so, they do a great job of minimizing the downtime. But yes, given the interconnectivity—especially down in Braz—we've got three plants that are essentially interconnected.

Speaker #3: And then, obviously, in Sundance, we've got many plants—I think nine in total—that are interconnected. You know, we're able to move gas from plant to plant.

Speaker #3: Still seeing some production losses, but it's mitigated substantially. You know, we did three plants in the quarter; two were in Sundance.

Todd Burdick: Two were in Sundance, and out of those two plants, we only saw for the quarter about a 400 BOE a day loss on the quarter. The third plant was Brazeau. We were able to divert gas to Chambers and to Aurora, and that only accounted 100 BOEs on the quarter. The other part is the modularity of our plants. We might have two inlets at a plant, and we've got multiple processing trains. In a lot of situations, we're able to keep part of the plant running and just focus on the part that needs to be inspected. We've got them usually in five-year intervals. You might have one inlet that's five years and the other inlet that's sort of opposite or other vessels. We're able to keep part of the plant running. Not always, but we try that.

Speaker #3: And out of those two plants, we only saw for the quarter about a 400 BOE-a-day loss on the quarter. And then the third plant was Brazo. We were able to divert gas to Chambers and to Aurora.

Speaker #3: And that only accounted for 100 BOEs on the quarter. The other part is the modularity of our plants. So, you know, we might have two inlets at a plant, and we've got multiple processing trains.

Speaker #3: So, in a lot of situations where we're able to keep part of the plant running and just focus on the part that needs to be inspected, we've got them usually in five-year intervals.

Speaker #3: So you might have one inlet that's five years and the other inlet that's sort of opposite, or other vessels. So we're able to keep part of the plant running.

Speaker #3: Not always, but we try to do that. We do it by design to minimize the impact on a particular plant at one time. So, we did one plant at the beginning of Q1. CAC was a small plant that went really quick and good.

Todd Burdick: We do it by design to minimize the impact on a particular plant at one time. We did one plant at the beginning of Q1, Kakwa, a small plant. That went really quick and good, but we've got one more here in Q3 starting next week in Swanson. Same thing, we'll keep about half the plant running. We'll be able to push a little bit more through one train, and then we'll have gas going up to Nose Hill, down to the Edson plant, over to Oldman and Oldman North to try and minimize the downtime. Busy year with five turnarounds.

Speaker #3: But we've got one more here in Q3, starting next week in Swanson. Same thing—we'll keep about half the plant running. We'll be able to push a little bit more through one train, and then we'll have gas going up to Nosehill, down to the Edson plant, over to Old Man, and Old Man North to try and minimize the downtime.

Speaker #3: This year with five turnarounds.

Speaker #2: Yeah, okay. Well, thank you, and thanks again. Thanks to the team in the field and everyone that's involved in that. I think most folks in the office have to make sure all this runs the way it does.

Jean-Paul Lachance: Well, thank you. Again, thanks to the team in the field and everyone that is involved in that. A few people spoke to the opposite effort to make sure all this runs the way it does. It looks like no questions. Is that correct, Michelle?

JP Lachance: Well, thank you. Again, thanks to the team in the field and everyone that is involved in that. A few people spoke to the opposite effort to make sure all this runs the way it does. It looks like no questions. Is that correct, Michelle?

Speaker #2: And so, so it looks like no questions. Is that correct, Michelle?

Speaker #1: That's correct.

Operator: Correct.

Jean-Paul Lachance: Well, I think we will end it here. I guess it was a somewhat expected in-line quarter, maybe a little bit boring, but we will not apologize, certainly, for boring. Oh, wait a minute. Sorry, there is one question now that showed up on our queue. Do you want to take that call?

Speaker #2: Okay. Well, I think we'll end it here. I guess it was a somewhat expected, in-line quarter—maybe a little bit boring, but we won't apologize.

JP Lachance: Well, I think we will end it here. I guess it was a somewhat expected in-line quarter, maybe a little bit boring, but we will not apologize, certainly, for boring. Oh, wait a minute. Sorry, there is one question now that showed up on our queue. Do you want to take that call?

Speaker #2: Certainly. For boring—oh, wait a minute, sorry. There is one question now that has shown up in our queue. Do you want to take that call?

Operator: One moment. The question is going to come from Chris Thompson with CIBC. Your line is open.

Speaker #1: Okay, one moment. And the question is going to come from Chris Thompson with CIBC. Your line is open.

Operator: One moment. The question is going to come from Chris Thompson with CIBC. Your line is open.

Chris Thompson: Hey, apologies. I got my hand raised late there, but thank you for still taking my question, guys. Just on capital allocation, JP, you already raised the dividend once this year, maybe alluded to potential for additional raises going forward. Just maybe walk us through how you think about capital allocation now that you are below your debt targets and free cash flow generation has been pretty strong.

Speaker #4: Hey, apologies—I got my hand raised late there, but thank you for still taking my question, guys. Just on capital allocation: JP, you already raised the dividend once this year.

Speaker #4: Maybe alluded to potential for additional raises going forward. So, just maybe walk us through, you know, how you think about capital allocation now that you're below your debt targets and, you know, free cash flow generation has been pretty strong.

Speaker #3: Yeah. That's actually we did have some questions overnight on that too. So that's I'm glad to do bring it up. We've essentially, as we mentioned, we've essentially met our our soft target of debt to EBITDA, you know, by you know, approximately one times.

Jean-Paul Lachance: Yeah. Actually, we did have some questions overnight on that, too, so I am glad you did bring it up. Like we have mentioned, we have essentially met our soft target of debt-to-EBITDA by approximately 1 time, and we have increased the dividends slightly last quarter, recognizing that we made it there. That leverage target is backward-looking, of course. We are looking forward now, and I have always said that as we look forward, we will be looking at the business environment and be mindful of where the business environment is. Gas prices have weakened, certainly, in the forward strip. We are going to be mindful of that. We are going to remain prudent on our capital returns. We certainly want to give our shareholders confidence that these dividends are sustainable, and that is just the way we run the rest of the business, too. We will see.

JP Lachance: Yeah. Actually, we did have some questions overnight on that, too, so I am glad you did bring it up. Like we have mentioned, we have essentially met our soft target of debt-to-EBITDA by approximately 1 time, and we have increased the dividends slightly last quarter, recognizing that we made it there. That leverage target is backward-looking, of course. We are looking forward now, and I have always said that as we look forward, we will be looking at the business environment and be mindful of where the business environment is. Gas prices have weakened, certainly, in the forward strip. We are going to be mindful of that. We are going to remain prudent on our capital returns. We certainly want to give our shareholders confidence that these dividends are sustainable, and that is just the way we run the rest of the business, too. We will see.

Speaker #3: And we've increased the dividend slightly last quarter, you know, recognizing that we made it there. That leverage target is, you know, backward-looking, of course.

Speaker #3: And so we we you know, we're looking forward now. And I've always said that as we look forward, we're looking at the business environment to be and be mindful of where the business environment is, prices are gas prices have weakened certainly in in in the forward strip.

Speaker #3: So we're going to be mindful of that. We're going to remain prudent on our capital returns. We certainly want to give our shareholders confidence that these dividends are sustainable.

Speaker #3: And that's just the way we run the rest of the business too. So we'll see as things transpire. We certainly are, you know, obviously still paying down some debt.

Jean-Paul Lachance: As things transpire, we certainly are obviously still paying down some debt, but we are going to be mindful of the business environment going forward now. We have never paid a variable dividend on it, and we do not think we get credit for a variable dividend in the market. I do not see us starting that this time. Any dividend increase we make will be a fixed dividend increase, and we will continue to do that when we are comfortable with what the forward strip presents to us. That is kind of it in a nutshell, Chris, if that answers your question.

JP Lachance: As things transpire, we certainly are obviously still paying down some debt, but we are going to be mindful of the business environment going forward now. We have never paid a variable dividend on it, and we do not think we get credit for a variable dividend in the market. I do not see us starting that this time. Any dividend increase we make will be a fixed dividend increase, and we will continue to do that when we are comfortable with what the forward strip presents to us. That is kind of it in a nutshell, Chris, if that answers your question.

Speaker #3: But we're going to be mindful of of of the business environment going forward now. And we've never we've never paid a variable dividend. And and and we don't think we get credit for a variable dividend in the market.

Speaker #3: So I, I, you know, I don't see us starting that at this time. We're going to—any dividend increase we make will be a, a, you know, a fixed dividend increase.

Speaker #3: And we'll continue to do that when we're comfortable with what the forward strip presents to us. So, that's kind of it in a nutshell, Chris, if that answers your question.

Speaker #4: Sure. Yeah. So then you know, excess free cash flow, I guess, would be would be allocated to the balance sheet in the interim. At what point do you you know, can can you give us a bit of color on how low you'd be willing to let leverage go before you find that you have to make it a different kind of capital allocation decision?

Chris Thompson: Sure. Yeah. Excess free cash flow, I guess, would be allocated to the balance sheet in the interim. Can you give us a bit of color on how low you would be willing to let leverage go before you find that you have to make it a different kind of capital allocation decision?

Speaker #3: Well, as we get closer to that, that would be great. That would be a great problem when it be I would argue that I would argue that debt and net debt is a is a return of cap reduction in net debt's a return of capital to to the to shareholders as well.

Jean-Paul Lachance: Well, as we get closer to that would be a great problem, wouldn't it be? I would argue that reduction in net debt is a return of capital to shareholders as well. I am not sure that it does not, either one is a way of returning capital to shareholders. We could go lower. I will tell you what, when we get closer to that level, then we will talk about it.

JP Lachance: Well, as we get closer to that would be a great problem, wouldn't it be? I would argue that reduction in net debt is a return of capital to shareholders as well. I am not sure that it does not, either one is a way of returning capital to shareholders. We could go lower. I will tell you what, when we get closer to that level, then we will talk about it.

Speaker #3: So I, I'm not sure that it doesn't. Either one is a way of returning capital to shareholders. So I, you know, we could go lower.

Speaker #3: I'll tell you what, when we get closer to that level, we'll talk about it.

Speaker #4: Got it. Okay. No problem. And then, maybe just a question on the marketing side. Looking forward, starting in late '27, and more so in 2028, you know, there's more exposure to the WCSB, Empress, and Emerson markets.

Chris Thompson: Got it. Okay. No problem. Maybe just a question on the marketing side. Looking forward, starting in late 2027 and more so in 2028, there is more exposure to the WCSB Empress Emerson markets. Wondering how you are thinking about that, just given where your outlook is on natural gas.

Speaker #4: Wondering how you're thinking about that, you know, just given where where where your outlook is on on natural gas.

Speaker #3: Yeah. We're going to—nothing's really changed for us in the way we run the business and our strategy to take risk off the table.

Jean-Paul Lachance: Yeah. Nothing has really changed for us in the way we run the business and our strategy to take risk off the table. Those markets at times can trade just the same as AECO or AECO plus, and that is fine. Depending on the season, we might take that down or not. We might move those to downstream markets and make arrangements so we can do that as well. So there is flexibility there over the next, I would say, year and a half. We have built this position such that we do not need to react quickly to make these decisions. We obviously do not want to hedge something, say, below CAD 2, and so we are mindful of that, too.

JP Lachance: Yeah. Nothing has really changed for us in the way we run the business and our strategy to take risk off the table. Those markets at times can trade just the same as AECO or AECO plus, and that is fine. Depending on the season, we might take that down or not. We might move those to downstream markets and make arrangements so we can do that as well. So there is flexibility there over the next, I would say, year and a half. We have built this position such that we do not need to react quickly to make these decisions. We obviously do not want to hedge something, say, below CAD 2, and so we are mindful of that, too.

Speaker #3: Those those markets can trade you know, at times can trade just the same as ACO or ACO plus. And and that's fine. And so you know, some you know, depending on the season, we might take that down or not.

Speaker #3: We might move those to downstream markets and make arrangements so we can do that as well, so there's flexibility there. Over the next, I'd say, year and a half, you know, we've built this position such that we don't need to react quickly to make these decisions.

Speaker #3: And we've we obviously don't want to hedge something to say below $2. And so we're mindful of that too. And you know, that's that's our strategy is to continue to add to the hedge book as we see it as we as we have a mechanical program that we prescribed.

Jean-Paul Lachance: Our strategy is to continue to add to the hedge book as we see it, as we have a mechanical program that we prescribed, and we will continue to do that in a mindful way, of course. So nothing really changes for us. Like I said, we have 400 million cubic feet today, which is a substantial portion of our future gas out in 2028. Beyond this point is the downstream markets, and so we are not sort of fixed at AECO-only approach. In the meantime, we are well-protected on revenues, as I mentioned earlier. If prices really peel away and across the board entirely, then we will slow down. Clearly, right?

JP Lachance: Our strategy is to continue to add to the hedge book as we see it, as we have a mechanical program that we prescribed, and we will continue to do that in a mindful way, of course. So nothing really changes for us. Like I said, we have 400 million cubic feet today, which is a substantial portion of our future gas out in 2028. Beyond this point is the downstream markets, and so we are not sort of fixed at AECO-only approach. In the meantime, we are well-protected on revenues, as I mentioned earlier. If prices really peel away and across the board entirely, then we will slow down. Clearly, right?

Speaker #3: And we will continue to do that in a mindful way, of course. So, nothing really changes for us. Like I said, we have 400 million cubic feet a day, which is a substantial portion of our future gas out in '28 and beyond that's pointed to downstream markets.

Speaker #3: And so we're not sort of fixed at ACO only approach. And in the meantime, we're well protected on revenues, as I mentioned earlier. So so I I don't we will be you know, if if prices really peel away and across the board entirely, then we'll slow down clearly, right?

Speaker #4: Okay. Okay. And then, last question, if I can sneak in one more. Just on the data center side, we've seen the conversation amongst your peers become quite active in the last few months.

Chris Thompson: Okay. Last question, if I can sneak in one more. Just on the data center side, we have seen the conversation amongst your peers quite active in the last few months. Just wondering if you can give us a bit of color on what you are seeing in that market, and is that kind of the opportunity that Peyto might have access to as well?

Speaker #4: Just wondering if you can give us a bit of color on what you're seeing in that market, and is that kind of opportunity something that PEYTO might have access to as well?

Jean-Paul Lachance: Well, we certainly have access to it, to answer that question. We weren't the first ones to jump onto an LNG deal either. If you recall, we took our time to find the right deal. We'll be prudent on anything on data centers. I will remind you that we already have a power deal, right? We already sell our gas, a pretty good deal, actually. We sell our gas to a power plant. It's not like we are desperate for that. Those opportunities, if they present themselves, will have to make sense to us. We're not going to sign anything just for the sake of signing a deal. We're not desperate. We're going to look for the right price.

JP Lachance: Well, we certainly have access to it, to answer that question. We weren't the first ones to jump onto an LNG deal either. If you recall, we took our time to find the right deal. We'll be prudent on anything on data centers. I will remind you that we already have a power deal, right? We already sell our gas, a pretty good deal, actually. We sell our gas to a power plant. It's not like we are desperate for that. Those opportunities, if they present themselves, will have to make sense to us. We're not going to sign anything just for the sake of signing a deal. We're not desperate. We're going to look for the right price.

Speaker #3: Well, we certainly have access to it to answer that question. We weren't the first ones to jump onto an LNG deal either, if you recall.

Speaker #3: It took us time to find the right deal, so we'll be prudent in anything on data centers. I will remind you that we already have a power deal.

Speaker #3: Right? We already sell our gas. You know, it's a pretty good deal, actually. We sell our gas to a power plant, so it's not like we are desperate for that.

Speaker #3: Those opportunities, if they present themselves, will have to make sense to us. So we're not going to sign anything just for the sake of signing a deal.

Speaker #3: We're not desperate. We're going to we're going to look for the right price. And so we'll be we'll be we certainly see a lot of potential, but but we'll we'll be prudent in again with our with our approach to this.

Jean-Paul Lachance: We certainly see a lot of potential, but we'll be prudent, again, with our approach to this, and we'll make sure that any deal we enter into is good for Peyto and our shareholders.

JP Lachance: We certainly see a lot of potential, but we'll be prudent, again, with our approach to this, and we'll make sure that any deal we enter into is good for Peyto and our shareholders.

Speaker #3: And we'll make sure that any deal we enter into is, is, is good for Peyto and our shareholders.

Chris Thompson: Okay. Thanks for taking my questions.

Speaker #4: Okay, thanks for taking my questions.

Speaker #3: Yeah. Thanks, Chris. Thanks for asking them.

Jean-Paul Lachance: Yeah. Thanks, Chris. Thanks for asking them. Okay, I'll turn it back to you. That's good. We'll see you, everyone, next quarter. Thanks for tuning in.

Todd Burdick: Yeah. Thanks, Chris. Thanks for asking them.

Speaker #1: Okay, I'll turn it back to you. That's good. We'll see everyone next quarter. Thanks for tuning in.

JP Lachance: Okay, I'll turn it back to you. That's good. We'll see you, everyone, next quarter. Thanks for tuning in.

Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.