RE:RE:RE:Comments & questions about the hedgingYasch22 wrote: Thanks TE for another great post. Let's hope we get some top-level clarity in the coming President's Report.
*** TerribleEng wrote:
1. Yeah he will definitely have to talk about it. It will be a huge line item on the cashflow statement, as there will be large amounts of cash deployed to fund the margin calls in Q1.
2. There are pre-payout discounts, but those will be relatively reduced in nature because most of the wells being drilled payout in an unhedged manner in 3-4 months. Then things reset higher. It's not based on a fixed timing, it's based on cumulative revenue brought in by the well, versus eligible expenses. Low production wells, (Less than 70boe/day) do get a break on their royalties to keep them in production. For instance if a well produces 35boe/day their royalty rate can be reduced by 13%. Currently post-payout wells above the MT threshold are paying out 25.1% or $1.75/GJ.
3. Q1, won't really be bad in terms of the royalty issue. As you said the AECO rate averaged $4.50 or so. The only concern on Q1 results will be the mark-market losses requiring PEY to post collateral. It's going to impact the debt payment reporting on the Q1 results...materially in the wrong direction.
4. The unhedged volumes will keep the lights on and help fund capex.
5. I don't agree. Those suck. C5+ averaged $120CAD, the Post-payout royalty for Q1 on conde was 39.8%. If conde was at $87 for the Q1 hedges, they would have net-rev of $63.95CAD/boe(26.5% royalty). Their actual Q1 revenue on hedged post-payout wells will be $39.6CAD/BOE. If their unhedged production would see a number closer to $73CAD/boe. The impact of royalties on the hedges is extremely non-linear as the royalty rates grow with pricing.
Well, the President's Report is out, and nothing to speak of on the cost front. Looks like we'll have to wait another 9 or 10 days to get that much needed commentary to quell those cost fears, via royalties, that have been discussed. Darren instead continued to brag about the operations and value proposition of PEY. I think we all appreciate the operational excellence, and many own PEY for that reason, and maybe that reason alone, but the stewardship of our money will certainly be in question come the Q1 CC and shareholder meeting as such operational excellence isn't gonna coincide with a robust level of profitability, which clearly is the most important metric!