RE:RE:RE:scotiabank on PeytoDont assume that the spot price will be this low in H2. It is unlikely that prices will stay this low for a full year. Gas is experiencing something similar to oil in Q1 2016 when some analysts were calling for $20WTI. The lower prices go, the stronger the response in both supply and demand. By reducing the % hedged, Peyto is basically betting that future prices are going the be higher than what is being ordered in the futures market. Watch for higher cost/higher debt companies to see production declines in 2018. Market forces will move the pendulum. Low AECO prices also create an incentive for traders to find ways to move more gas into higher priced markets. I suspect US imports into eastern Canada have been displaced by western gas in recent weeks. Selling 30% of prodcution at $1.50 wont put Peyto out of business but they wont be highly profitable. Buying Peyto now is effectively a bet on prices rising in 2018 and valuations improving fast enough to justify tying up your capital. That is where the dividend is sure nice; so we get paid while we wait for gas to improve.
Chris_toronto wrote: Jumpy, how exactly is it steady as she goes when Peyto is exposed to AECO spot price for 41% of its 2018 production and the AECO spot is below $2 in the dead of winter and will likely be below $1 for much of the rest of 2018?
What are they going to do in October if prices were the same as last October? I'd like to hear a clear answer to this question from anybody. I wish some analyst would ask it at the next conference call.
In case you don't know what happened last October, the AECO spot price dipped to as low as an unheard of -$.35. So not only were producers not getting any money for the gas they produce and want to sell, they were in fact paying money for somebody to take the gas they produced. Now last October Peyto was 85% hedged at $3.00+ but this year they are only hedged around 35% at ~$2.30. The other 65% may not sell at all.
How exactly can one describe this situation as steady she goes? Because the term that came to my mind was more along the lines: **ly sh** the company may shut down a lot of its operations later this year.
Finally, I posted excerpts from this Scotia report a few days ago but thanks for posting the full report. This is the kind of posts I come here for. Now if you could only find and post the notes about the 2 downgrades that came out in the last few days you will be doing us a big favour because I don't have access to them. Apparently analysts are speaking to the company and getting hints that some announcement will be made about the dividend on Jan15.
jumpytarmac wrote: currently has approximately 80% of its production sold for the winter months at CAD $3/mcf, while calendar 2018E is 59% hedged at $2.78/mcf, which implies 31% monthly and 10% daily AECO exposure (typical target is 85% hedged).
looks like lots of value at the reality of the existing 2018 hedges of 59% at 2.78 mcf.
reduced rig counts suggests AECO rebound to 2.00 $ plus.
have to say things steady as she goes.
stock price will catch up accordingly.