Peyto Exploration & Development Corp T.PEY

Alternate Symbol(s): PEYUF

Energy Oil & Gas E&P

Peyto Exploration & Development Corp. is a Canadian energy company involved in the development and production of natural gas, oil and natural gas liquids in Alberta's deep basin. The Alberta Deep Basin is a geologic setting situated on the northeastern front of the Rocky Mountain belt in the deepest part of the Alberta sedimentary basin. It acquired Repsol Canada Energy Partnership (Repsol Assets), which included around 23,000 barrels of oil equivalent per day of low-decline production and 455,000 net acres of mineral land. The acquisition includes five operated natural gas plants with combined net natural gas processing capacity of around 400 million cubic feet per day, 2,200 kilometers (km) of operated pipelines, and a 12 MW cogeneration power plant. These assets include Edson Gas Plant and the Central Foothills Gas Gathering System. The Company has a total proved plus probable reserves of approximately 7.8 trillion cubic feet equivalent (1.3 billion barrels of oil equivalent).

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Peyto Exploration & Development Corp

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Post by Westcoastenergyon May 15, 2024 9:13am

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Post# 36040759

Scotia increases target to $22

Peyto Exploration & Development Corp.

PEY-T: C$15.22
Target: C$22.00
Old: C$20.00
Rating: Sector Outperform

Solid Q1/24 Results; Strong Setup for a Challenging Summer

OUR TAKE: Slight Positive. PEY delivered solid Q1/24 results, with cash flow in line (ahead before cash taxes). The company put up lower-than-expected opex for the second consecutive quarter, which we see as a positive indicator of progress integrating the Repsol assets. PEY plans to swing gas being processed through a third-party deep cut into one of its own facilities during Q2/23 to reject ethane (prices are very low) and sell higher heat content gas. We see this as a key benefit of PEY’s infrastructure ownership and integrated asset base. Looking ahead, we see the company well positioned to ride out weak and volatile AECO prices (we have PEY with essentially no AECO exposure through 2026 - see Exhibit 1) and deliver on its growth and debt reduction plans over the next few years across a range of commodity price scenarios. We have raised our Target Price to $22/share on our updated financial and NAV estimates.

KEY POINTS

Q1/24 AFF in line; pre-tax results beat expectations. Production of ~125 mboe/d (87% gas) and capex of $114M were pre-released in the most recent Peyto Monthly Report. Post-hedging realizations of $29.50/boe were ~4% ahead of expectations, while pre-tax cash costs of $11.77/boe were ~11% above expectations on higher-than-expected cash taxes. Notably, opex of $3.29/boe was ~4% below the Street. We see this as a positive given that this was the second quarter with the temporarily higher-cost Repsol assets in the portfolio. AFF of $205M ($1.05/share) was in line with consensus (pre-tax AFF beat the Street by ~5%), while free cash flow of $91M was ~11% above expectations (consensus was higher than the pre-released number). See Exhibit 2 for detailed results versus consensus expectations (Slight Positive).

2024 Capital budget and plans reiterated. PEY continues to target the low end of its capex budget of $450M to $500M, with flexibility to adjust activity in the back half of the year. The company plans to manage production during the summer and avoid adding volumes into a congested market. We expect ~flat volumes (net of a ~2 mbbl/d reduction to NGLs on the ethane rejection plan) for the next two quarters, with a ramp in Q4/24 on strong natural gas prices. The company continues to target material cost reductions on the Repsol assets, with the goal to reduce unit costs from their Q1/24 level by ~10% by the end of the year (Slight Positive).