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 > Solid quarter; Scotia agrees, $22 target price

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Post by Westcoastenergyon Aug 14, 2024 9:41am

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Post# 36178240

Solid quarter; Scotia agrees, $22 target price

E&P

Peyto Exploration & Development Corp.

PEY-T: C$14.73
Target: C$22.00
Rating: Sector Outperform

Q2/24 Results In Line; Powering Through a Tough Natural Gas Price Environment

OUR TAKE: Neutral. PEY delivered solid Q2/24 results, with cash flows in line. The company put up lower-than-expected opex for the third consecutive quarter, which we see validating the integration of and cost reduction program on the Repsol assets. PEY is taking advantage of the weak natural gas price environment to accelerate work to optimize the Edson processing plant acquired in the deal. Moreover, the company is delaying certain TILs and restricting production from other new wells to avoid increasing volumes in the face of weak summer price. Looking ahead, we see the company well positioned to ride out weak and volatile natural gas prices. We have PEY >60% hedged through 2025, with essentially no AECO exposure until 2026. As a result, we see relatively small changes to the company’s cash flows from US$2.50/mmBtu to US$4.50/mmBtu in 2025 (see our Commodity Price Sensitivities sheet). With this profile, we expect PEY to deliver on its growth (assuming supportive market dynamics and prices) and debt reduction plans over the next few years across a range of commodity price scenarios.

KEY POINTS

Q2/24 results in line. Production of ~122 mboe/d (88% gas) and capex of $101M were pre-released in the most recent Peyto Monthly Report. Post-hedging realizations of $23.69/boe and cash costs of $10.21/boe were in line with expectations. Notably, opex of $3.12/boe was ~3% below expectations, demonstrating PEY’s continued strong progress reducing costs following the Repsol asset acquisition. AFF of $125M ($0.79/share) came in just ahead of the Street, while Free Cash Flow of $52M was in line. See Exhibit 1 for detailed results versus consensus expectations (Neutral).

2024 capital budget and plans reiterated. PEY continues to target the low end of its capex budget of $450M to $500M (vs. just $214M spent during 1H/24), with flexibility to adjust activity in the back half of the year. The company plans to continue drilling and completing wells, but will delay certain TILs until natural gas prices improve. The company also reiterated its expectation to reduce opex by ~10% by the end of 2024 (with a ~5% reduction already achieved in Q2/24). Notably, PEY expects the formal start of its contract to supply gas to the Cascade Power Plant to kick off by the beginning of September (Neutral).