RE:RE:RE:PEY CKE Merger ? Diversification and moreI doubt whether Peyto would be interested in Chinook, since this would be inconsistent with Peyto's fundamental corporate strategy. It has positioned itself as a pure-play Deep Basin producer whose expertise in this single geographic formation, together with its geographical concentration, has allowed it to keep its costs to amongst the lowest in the industry.
I see three problems.
First, taking over Chinook (or, say, one of its neighbours) would, yes, diversify it out of Deep Basin and into the Montney, but into a formation in which it does not have any special expertise. (This is, to my way of thinking, Peyto's strength as a company. They know how to drill Deep Basin better than anyone.)
Second, Chinook's wells are hundreds of miles away from all the rest of Peyto's wells. Again, Peyto's geographical concentration helps it keeps its costs low.
Third, most of Chinook's production (70%) is trapped into Station 2 pricing, which is lower than the AECO prices what Peyto receives. So in 3Q, Chinook's average price per mmcf of its gas production was only $1.20; Peyto's was $2.81 (both figures are in each company's 3Q MD&A). (This is a problem that should resolve itself over the next year or two.)
Yes, Chinook's newest wells have good condensate, and at its present price it looks attractive. But Peyto's got a game plan that has worked for it. I doubt whether it will change it for this company.