RE:RE:RE:President's Report for October 2022October President’s Report (cibc equity research)
Price Target (12-18 mos.): C$18.00
Our Conclusion
Peyto released its October President’s Report, which showed production for Q3/22 was just shy of our estimate and lower than Street. Spending for July and August is on track to exceed our estimate and Street unless September spending was substantially lighter than the previous two months. The report also includes additional disclosure regarding Peyto’s market diversification strategy and realized gas price, which we expect could help calibrate consensus cash flow estimates going forward. We expect the miss to consensus production could see estimates move lower on the back of this update.
Key Points
Slight miss to production, but liquids come in ahead. Production of 105 MBoe/d (13% liquids) was just shy of our estimate of 105.7 MBoe/d (12% liquids) but beat on liquids content, while Street production was at 106.3 MBoe/d (12% liquids). Capital spending for July and August totaled $84MM versus our estimate of $100MM for the full quarter and Street at $94MM. Improved market diversification disclosure should help reduce noise in Street estimates going forward. The report highlights additional detail surrounding the company’s market diversification activities on a quarterly basis, which management will keep updated regularly. We expect this should help reduce some noise in Street cash flow estimates going forward. Peyto provides a reference case of $4.00/GJ AECO and US$5.00/MMBtu NYMEX, which drives a demonstrative realized price in Q3/22 of $2.92/GJ. Actual benchmarks for the quarter came in at $3.73/Mcf AECO 5A (approximately $4.29/GJ using Peyto’s heating value of 1.15 GJ/Mcf) and US$7.96/MMBtu NYMEX; therefore, we should expect a realized price that comes in ahead of Peyto’s reference case in Q3. Peyto’s example also demonstrates a step change in realized pricing under the reference scenario occurring in Q4/23 under the current marketing portfolio, while its proportion of fixed price contracts diminishes over the same period, giving Peyto more exposure to commodity volatility.