Canada’s Peyto Exploration rebounds in Q1

Canadian Deep Basin producer Peyto Exploration & Development said May 12 it had Q1 2021 net earnings of C$38.5mn (US$31.8mn), reversing a year-ago loss of C$67.7mn which included a C$80mn impairment on the value of its reserves.

Funds from operations rose 114%, to C$116.7mn, while capital expenditures were nearly 60% higher, at C$108.8mn against C$68.6mn, as it closed two acquisitions totalling C$35.6mn and had organic spending of C$73mn.

The acquisitions, which closed in Q1 and were effective from January 1, brought 2,900 barrels of oil equivalent (boe)/d of production, 95% of which was natural gas. That boosted Q1 production this year to 88,070 boe/d from 78,514 boe/d, as natural gas production rose to 455.6mn ft³/d from 401.6mn ft³/d and liquids production edged 5% higher, to 12,138 b/d from 11,585 b/d.

To take advantage of improving natural gas market fundamentals, Peyto sells its output at various hubs across North America, using both physical fixed price and basis transactions. In Q1 2021, about 40% was sold based on Henry Hub prices, 40% based on AECO prices and the rest at hubs in southern Manitoba, Oregon and Illinois.

These market diversification activities reduced Peyto’s average realised natural gas price by C$1.04/’000 ft³ compared to C$0.88/’000 ft³ in Q1 2020, but still left it with a net realised price of C$3.06/’000 ft³ compared to C$1.63/’000 ft³ a year ago.

And the diversification efforts paid off “handsomely” for Peyto in the first quarter, CEO Darren Gee told a conference call with analysts May 13, particularly with sales into Ventura near Chicago during Winter Storm Uri in February which sent temperatures plunging and prices soaring.

“We made off like bandits in a couple of places, particularly on the volumes we had diversified to the Ventura market, which is just outside Chicago,” he said. “When the cold spell hit mid-February, we saw spot prices there spike to over US$150/mn Btu and we cashed in on that for about a week – that windfall almost offset all of our expensive market diversification costs for the quarter.”

Peyto said it expects its market diversification costs will fall “significantly” over the next two years as older basis deals expire and are replaced by new, lower-cost basis deals.

“The combination of falling market diversification costs and rising North American natural gas prices, driven by reduced supply from tempered industry investment combined with strong global demand, is translating into a forecast of higher realised natural gas prices,” it said. “This has the effect of improving Peyto’s cashflow and balance sheet as well as increasing the value of its developed reserves.”