Canada’s Peyto Weathers Covid Demand Destruction
Peyto Exploration & Development, a Canadian producer focused on the Deep Basin, said August 12 its “industry leading” cost structure helped shield it from some of the financial and demand impacts associated with mitigating the spread of Covid-19.
Still, the company’s realised commodity prices and operating margins in Q2 2020 were the lowest in its 21-year history, leading to a loss in the quarter of C$22.5mn (US$17.02mn) against a profit of C$98.8mn in Q2 2019.
Revenue and realised hedging gains fell to C$73.9mn from C$115.5mn in Q2 2019, while funds from operations dropped to C$33mn from C$76mn.
Capital expenditures were 9% higher year-over-year as the company maintained an active field program, with two rigs running through the quarter and 12 wells drilled in its core Sundance and Brazeau areas of the Deep Basin.
Looking forward, Peyto said it is “encouraged by the outlook for North American natural gas. Anemic drilling activity, shrinking supplies and increasing consumption has set the stage for significantly improved commodity prices. The spot and futures contracts for natural gas have already begun to reflect this improvement, with spot Nymex up 50% and the 2021 futures price up 10% from a month ago.”
Total cash costs in the quarter averaged C$0.96/’000 ft3 equivalent (‘000 ft3e), down sequentially from Q1 2020 but up from C$0.89/’000 ft3e in the second quarter last year, as wet weather in the spring increased road and lease maintenance costs.
Combined with an overall realised price of C$1.73/’000 ft3e, compared to C$2.30/’000 ft3e in Q1 2020 and C$2.60/’000 ft3e in Q2 2019, Peyto’s netback in Q2 fell to C$0.77/’000 ft3e from C$1.71/’000 ft3e a year ago.
Its operating margin in Q2 was 45%, down from 55% in the first quarter this year and 66% in Q2 2019. Quarterly operating margins through 2017 and 2018 ranged between 69% and 76%.
Natural gas production averaged 401.8mn ft3/day in Q2 2020, down from 422.32mn ft3/day in the same quarter a year ago, while crude oil and natural gas liquids production was essentially unchanged, at 11,126 b/d.