cibc analyst 11/8 outperform pt 12-18 mo C$18Q3/23: Slight Miss On Cash Flow; 2024 Budget Moves Slightly Higher
Our Conclusion
Cash flow was slightly below consensus and Peyto’s 2024 budget comes in at the high end of our expected capital efficiency range but includes a major turnaround at the Edson Gas Plant, along with other pipeline and plant optimization projects to capture infrastructure synergies from the Repsol assets. Peyto has ~92% of its 2024 capital commitments (capex plus dividend) secured through its gas hedges, which leaves it well positioned for price headwinds this winter. The stock trades at 4.5x 2024E EV/DACF on strip versus peers at 4.3x.
Key Points
Slight miss on cash flow, production and capital spending prereleased. Production of 98 MBoe/d (11% liquids) was in line with Street at 98 MBoe/d (12% liquids). Capital spending of $94MM was in line with our estimate of $94MM and better than Street at $100MM. Cash flow of $0.83/sh was ahead of our estimate of $0.76/sh and shy of Street at $0.86/sh. Capital spending for 2023 is expected to be $425MM, which is below our estimate of $458MM and Street at $442MM.
2024 budget comes in at the high end of Peyto’s capital efficiency range. Capital spending of $475MM is ahead of our estimate of $450MM and in line with Street at $472MM. Production was guided to a midpoint exit rate of 138 MBoe/d, implying 132 MBoe/d average annual production, which is below our estimate of 134 MBoe/d and Street at 133 MBoe/d. Using a 25% decline rate, the implied capital efficiency in Peyto’s guidance is $11,177/Boe/d, slightly above its long-term plan at $10k-$11k/Boe/d.
Repsol integration ongoing. Peyto expects to drill 10 net wells on the acquired Repsol lands by year end where it is running two rigs that were previously working on Peyto lands prior to the acquisition. The company intends to run a four-rig program into 2024.
Capital program and dividends mostly protected in 2024. Through its regular hedging program, Peyto has fixed $655MM and $599MM of 2024 and 2025 gas revenue, respectively. This amounts to ~92% of our estimated capital commitments (capex plus dividend) in 2024 and ~82% in 2025.
New COO and CFO announcements. Riley Frame was appointed COO having served 10 years at the company in engineering roles. We see this as a positive update given the position has been vacant since JP Lachance was appointed to the CEO role. Kathy Turgeon will retire from the CFO role in March 2024 and will be succeeded by VP Finance Tavis Carlson. Mr. Carlsen has been with Peyto since 2022.
Price Target Calculation Our 12- to 18-month price target of $18.00 is based on a target 2024E EV/DACF multiple of 5.5x on our CIBC base commodity price forecasts. We estimate net debt of $1567MM in 2024E. Our price target represents 0.9x our risked NAV on the CIBC base commodity price forecast.