Summary
Peyto has ample reserves and production is consistently growing. The balance sheet improved in Q1, but can do with a bit more reinforcement. Peyto is profitable and has a medium PE. Shareholder returns are at decent levels. Peyto is robust under low oil prices.
In my 85 oil and gas companies ranking, Peyto sits in the top 25 at a high 20th position.
Production
• Peyto Exploration has ample reserve (3.26 tcf) and production is on a consistent growth path.
• Production has grown with 55% from 81 K BoE/d/d (2019) to125 K BoE/d (2024).
• Production growth is gas market constrained. Unconstrained Peyto could grow with 8-10%/year.
• Q1 production (133.8 K BoE/d MM scfe/d) was comparable with Q4 (133.4 K BoE/d) and close to my expectation (134 K BoE/d). Peyto did not provide a specific Q1 outlook.
• Production is expected to pick-up in H2 2025 with the start of Canadian LNG exports and increasing power demand.
• 2025/2026 production, as suggested by a Peyto marketing presentation, could reach 135-140 K BoE/d, 70% of the volumes would be for firm contracts while the remaining 30% “floats” at various hubs.
• For 2025/2026 I assume that Peyto will grow to 133 K BoE/d (2025) and to 140-141 K BoE/d (2026).
• From 2027 onwards, Peyto is hopeful on gas contracts for LNG and new power stations. I assume a 6% growth rate to 190 K BoE/d. However, I would not be amazed if the actual growth rate would be higher.
- Peyto - Q1 Production.jpg (62.81 KiB) Viewed 168 times
Balance sheet
• The balance sheet is a reasonably shape, recovering from the late 2023 Repsol Canada acquisition.
• Equity ratio (=equity/balance sheet total) in Q1 was a moderate 48.4%, comparable to the 49.0% in Q4.
• Q1 long-term debt (C$ 1,171 M) was C$ 124 M below Q4 (C$ 1,295 M).
• Q1 debt/EBITDA ratio on an annual basis was a decent 1.10.
• The balance sheet can do with a bit of reinforcement but allows moderate shareholder returns.
Profitability
• Peyto is a profitable company.
• Q1 profit of C$117 M (eps C$ 0.57) was above expectation mostly due to strong realized hedging gains (C$ 50.8 M).
• Royalties were a reasonable 6%. Costs were as anticipated.
• Peyto has hedged 70% of the 2025 gas production at Nymex prices of US$ 3.90-4.37 /MM Btu.
• Peyto states that it is not sensitive to import tariffs. Despite this I am reducing the realized gas price with 5%.
• For 2025, I expect an to increase to C$ 1.98 (PE is a medium 9.9).
• Towards 2029 the eps can stay at 2025 levels with increasing production compensated by no hedging results.
Shareholder returns
• Peyto does not buy back shares.
• Peyto pays a monthly dividend of C$ 0.11, which equates to C$ 1.32 on an annual basis.
• The dividends equate in 2025 to a decent return of 6.7%.
• After 2025 returns can sit at decent 6.5-7.2% levels.
Conclusions
Peyto has ample reserves and production is consistently growing. The balance sheet improved in Q1, but can do with a bit more reinforcement. Peyto is profitable and has a medium PE. Shareholder returns are at decent levels. Peyto is robust under low oil prices.
In my 85 oil and gas companies ranking, Peyto sits in the top 25 at a high 20th position.