Peyto Exploration & Development Corp T.PEY

RE:RE:RE:RE:Cascade Power Plant

[MikeySwoosh]

Yasch22 wrote: Mikey, it's true that nothing's been confirmed yet about the supplier of the second 60K GJ/d. The fact remains that Peyto is still hoping to get the second contract too. They first mentioned that aim back in 2020, and they've repeated it in every presentation since, including the one for January 15.

See page 26, where they say, "Will have the capability to provide 100% of fuel." I'm tempted to think this is just one of those uncorrected holdovers from a slide first put out 2.5 years ago. But that can't be, because Peyto has just recently revised this slide, meaning they've paid attention to every part of it. The biggest revision is that the projected start date has been moved from "mid-2023" to "Q4 2023".

Obviously, other players in the vicinity would be hot to trot, but I haven't so much as heard a whisper about any of them other than the Mitsubishi subsidiary, Cutbank Dawson Gas Resources Ltd. They seem mainly interested in investing in a mix of up-mid-downstream opportunities in Alberta and BC. They have a portion of LNG Canada, co-ownership of a gas processing plant near Dawson Creek, and part ownership of some gas-producing properties here and there.

I'm wondering if Cutbank is the outfit Peyto has co-producing rights with in Greater Sundance, the one that Peyto's revenue by something like 3 or 4K mcf/d in Q2 or Q3.

It appears that my original post didn't include the entirety of the excerpt that I had highlighted. Anyway, here's the remainder, and speaks more to the where Peyto may stand with respect to having access to providing more production to Cascade...

"And I would really say that, we are so advantaged by being directly connected to them. We save a lot of costs, pipeline toll, really anybody else, who wants to supply gas to them has to put their gas on Nova or pay a receipt, toll to get on to Nova and then Canada Corp has to pay a delivery toll to get off of Nova with that same gas. And so, we save both pieces of that toll by directly connecting to them. And I think likely we will supply more than just the 50% that we have committed to. It makes economic sense for us to supply more. So, whether we supply some for the others that have committed gas to them and in exchange, we do some sort of relationship with those parties. We will see. But, yes, we are excited plant to get up and running and excited to be a very significant part of the Alberta Pool grid here when it comes to electricity."

Anyway, I appreciate that DG or JP have included in the Peyto presentations going back to 2020 that Peyto has the "capability" to supply all of the volume required by Cascade, but it feels like rhetoric to me. There are clearly other supply commitments in place, and as I mentioned, perhaps Peyto can derive a couple of extra dimes worth of profit on each GJ by supplying the gas, capturing the agreed upon percentage of the power pool price, and then reimbursing the supplier on the differential above the spot AECO price. We've all read enough newsletters and presentations, and listened to enough conference calls (not only from Peyto), to recognize that management teams are going to try to put a positive spin on whatever is being dispensed to the investment community. Celebrate the successes, and perhaps excuse or gloss over the failures. This is just a reality. WE have to parse through it all and ultimately decide on the investment case. Anyway, returning to Cascade specifically, no one yet has the hindsight to know where Peyto should market their production to maximize returns, especially over the next 15 years, so I guess maybe it's not even a discussion worth having. Perhaps they'll regret even partnering with the Cascade power project a decade from now, and be grateful that they only "hedged" 60 GJ/day. If the past few years have taught us anything, clearly there is no shortage of company insiders that have little clue as to what their unhedged revenues might look like when they finalize their budgets for the upcoming year.

Regardless of whether Peyto supplies Cascade with 60K GJ/d or 120K GJ/d, or somewhere in between, the legitimacy of the investment thesis for Peyto (for me), and what I would hope is being discussed in earnest at the next board meeting centers around capital allocation (is it justifiable to grow production with the current pricing environment?) and free funds flow allocation (why pay out so much in dividends when strip pricing has come off enough to perhaps upend the viability of forecasted cashflows that were suppose to contribute to meaningful debt repayment?) Hopefully the reserves report, which should be released in a couple of weeks, followed by the Q1 report in March, shed some light on the considerations being made.