RE:RE:RE:RE:The undisciplined Natgas producers are at it again!It really all depends on the US Production profile. Oil prices staying high has kind of been a double edged sword. While Peyto is largely unhedged on liquids and will make bank there, longer term it will encourage lots of associated gas like in 2018-2019.
The STEO forecast was heavly based on US gas producer discipline, which for the most part they have been and Oil production taking a while to ramp up. US Shale is taking oil up 800Kbpd next year and that will bring lots of new gas. I think a price closer to $3.80 average for the year unless the GFS and Euro models flip-flop here in December. Currently the HDDs for the foreseeable future are about as bearish as they can get.
Summer gas prices are pretty solidly $3.70 and up, but that can change pretty quickly. The risk of storage quickly goes away if we don't get a serious draw in the first half of winter. The widow maker trade has already collapsed to 8 cents from over a buck.
That being said, it's all noise for Peyto until winter 2023. They just have too much production hedged, and granted they are low prices given the tape; they are the highest prices Peyto has had for at least 4 years and coinciding with the highest production.
Long term the market is pricing gas at $3-3.25 out almost a decade, and that is what most analysts are going to be using to price gas reserves and value stocks. Peyto is a very happy company at those prices. The short term noise, is what matters for debt though. Peyto needs to paydown debt while they have good terms and high EBITDA. They "should" really be trying to get down to $500-600M in debt, as that would give them so much flexibility in the down cycle. Imagine if Peyto had a spare $30M during the energy rout. They could have retired 20% of their float, and saved $20+M a year in dividends or given 20% higher dividends in perpetuity. They could have literally bought Birchcliff $600MM (for two years CAPEX they could have doubled reserves and doubled production). Or bought out Painted Pony like CNRL did for 69 cents a share. The high debt model really paints you into a corner in a down market and makes you vulnerable.
The US situation is doing a few bullish things, while there are a few bearish trends in Canada. US D&C inflation is WAYY up. Half of the growth capital they are spending is being used to combat inflation. That is the primary reason that long term global breakevens are going up.
https://oilprice.com/Energy/Energy-General/US-Shale-Industry-To-Spend-83-Billion-In-2022.html
US Federal permit moratorium and general regulation hitting the industry is really ramping up the cost for land and new production. This puts US regulation more inline with Canada. The crown land freeze makes it a sellers market for farmers who own drilling rights. Workers who got laid off with the energy apocalypse in 2020, that live in booming areas like Houson, Austin and Albuquerque; that found new jobs won't go back to O&G. New workers don't want to go into O&G unless there is a huge payday as they view it as a sunset industry. That area of the US has super low unemployment as US companies from high tax/reg states are all going to business friendly states. Peyto has largely sidestepped inflation by maintaining 5 rigs on long term contracts throughout COVID.
On the bearish side, Canadian E&Ps like was mentioned earlier, are keen to fill egress capacity. Hopefully they don't get ahead of themselves like numerous times in the past. NGTL 2017, they planned for new egress, drilled to fill and then the project was delayed 3 years and we saw negative pricing and the worst tape in the history of energy. I can kind of see a situation like that playing out where Qatar, Mozambique, Austrailia and US all ramp up brownfield expansions due to bouyant LNG prices today, just as Europe and Asia start making huge investments to diversify away from gas given the nose bleed pricing today. LNG Canada delays construction due to global pricing (Typical "Market Conditions" verbage) and AECO gets flooded with stranded gas again.
Given that long rant, I am pretty bullish on Peyto and have a very large position in the company.