Peyto Exploration & Dev (PEY.TO) Q1 Results - May 14

[dan_s]

Peyto's Q1 2025 results beat my forecast by a wide margin because their realized natural gas price, including cash settlements on their hedges, was $4.17Cdn/mcf, compared to my forecast gas price of $3.86Cdn/mcf. Production volumes during the quarter were 133,883 Boepd, compared to my forecast of 133,000 Boepd.

Peyto's outstanding hedging program locks in strong free cash flow this year and I do expect natural gas prices in Western Canada to rise into year-end thanks to the opening of LNG Canada's 1.8 Bcfpd export facility on the West Coast that is expected to be ramping up late in June.

Notes from the Peyto press release:
"Natural gas prices recovered in the quarter due to large draws on storage inventories from a relatively cold North American winter, coupled with increased U.S. LNG feed gas demand. The AECO 7A monthly gas price rose 39% from Q4 2024 and averaged $1.92/GJ. Peyto's realized gas price, before hedging, averaged $3.34Cdn/Mcf ($2.90/GJ), 51% higher than AECO 7A, driven by the Company's diversification to premium demand markets in the US and Canada.

Additionally, the Company recorded $0.83/Mcf of realized hedging gains on its gas volumes in the quarter from its mechanistic risk management strategy. All in, Peyto's realized gas price after hedging totaled $4.17/Mcf or 89% higher than AECO 7A monthly price.

The increased realized gas price, combined with Peyto's low cost structure, boosted free funds flow from operations (FFO) by 13% from Q4 2024 to $225.2 million, which funded $102.1 million of capital expenditures, $65.7 million of shareholder dividends and allowed for a $65.7 million reduction in net debt in the quarter."
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PEY.TO is a recent addition to our High Yield Income Portfolio, so I am still gaining confidence in my forecast model. Peyto's 3 Year Plan is to grow production by 8% to 10% per year. This Company has high-quality "Running Room".

[dan_s]

Peyto is a Canadian energy company involved in the development and production of natural gas, oil and natural gas liquids in
Alberta’s deep basin. At December 31, 2024, the Company’s total Proved plus Probable reserves were 8.2 trillion cubic feet
equivalent (1.37 billion barrels of oil equivalent) as evaluated by its independent petroleum engineers.
Production is weighted approximately 88% to natural gas and 12% to natural gas liquids.

The Peyto model is designed to deliver a superior total return with growth in value, assets, production and income, all on a
debt adjusted per share basis. The model is built around three key strategies:

> Use technical expertise to achieve the best return on capital employed through the development of internally
generated drilling projects.
> Build an asset base which is made up of high-quality natural gas reserves.
> Over time, balance dividends paid to shareholders with earnings and cash flow, and balance funding for the capital
program with cash flow, equity and available credit lines.

Operating results over the last 26 years indicate that these strategies have been successfully implemented.