Peyto Exploration & Development Corp T.PEY

PEY hedging blues, extended version

[SecondhandGnus]

As a long-term PEY holder (ie >10 years), I've found a lot to like: low costs, good operators, concentrated acreage of good quality and a clear philosophy.  In-depth, quality communication is a huge bonus--I've read every single one of Darren Gee's President's Reports and found them valuable and informative, climate-change skepticism warts and all.  The lack of clarity around Peyto's hedging issues are therefore disappointing, if perfectly understandable--who wants to show off their missteps in public?
Make no mistake, hedging costs are really bad and getting worse, but there is hope (eventually).  Last quarter, PEY's "insurance" cost approximately $328.6 million, and Q2 '22 will add to the carnage, since hedges have only gone further into the red with the rise in oil and gas prices.  A breakdown:
Q1 recognized hedging loss = $53.4 million;
Q1 increase in future hedging loss:  $348.6 million March 31 '22 - $73.4 million Dec. 31 '21 = $275.2 million;
Total loss in 3 months: $53.4MM + $275.2MM = a giant $328.6MM methane leak, which is much greater today than at quarter's end.

i don't want to pile on after the fact, as I believe that the share price is being over-punished and I'm planning on eventually buying more shares.  The worst of the hedges were actually in Q2/Q3 last year, but these can be partially explained by being offside of the original (and subsequently the modified) loan covenants, so it was bankers' choice.  My concern is the increase in hedging now that the debt ratios are healthier: overall pre-selling of nat gas equivalent (inc. oil at a 6:1 ratio) is up approx. 12.4% from Dec. 31st ´21 to March 31st '22.  In other words more is hedged, if not so poorly, and with the Putin war premium shareholders are being doubly punished.  This too shall pass, but until then the news ain't good.

[sportstermathew]

If there were no hedges at all PEY would be up to $25 to $35 range, most companies are in the same boat.  So for the current price range we are doing fairly well. Production increasing, land increasing, plants growing in size and number, plus pipes, cashflow and FFO etc all growing with debt coming down and a decent dividend higher than most with potential to be further increased and better

[SecondhandGnus]

I like your take, Sportstermathew--I'll add a few thoughts: 1. I agree with the positives for Peyto and its future stock price.  Unhedged I'd expect it to be trading closer to $20 due to a relatively high debt, but perhaps you're right in that the market might be seeing through to it being paid down; 2. I'd use Birchcliff as an unhedged analogy for PEY, not OBE, due to closer

[malx1]

Remember all the NG gurus complaining about PEY hedges? OOOOOOOOOOOOOPS

[nukester]

"Hedging blues, extended version"  Sounds like a late night info-mercial From Malx's Greatest Hits album,  Original, uncut, extended sarcasm! But wait ...  there is more :-) Note to self, never piss off Malx, he is like a dog with a bone :-) Cheers, Nukester

[bttmfischer]

He maybe the only one who bought one of that. 

[malx1]

Been called much worse in nicer settings! Just find it amusing when all the PEY experts here swing from bullish to bearish to bullish to bearish each month as the wind blows a new direction.    It's like watching a herd of cats playing with one paper ball.

[houbahop]

What is funnier is to see all the rubishes you post on the various forums. There is absolutely nothing of substance, only negative criticism of others point of views. I hope your interactions with people are not limited to this in your personal life.

[malx1]

Well they keep hiring me for weddings and bar mitzvahs, so must be doing something right.      Tough crowd here with the NG experts.     

[nukester]

Technically speaking "Negative Cristicism" can be considered substance. Consider the photon, an abstract concept of energy, no mass , yet when it passes through a solar panel it creates an actual electron flow. According your view Malx's comments had no substance, yet they evoked a physical response from you and your keyboard??? How does "Absolutely nothing of substance"

[ElJ]

Nukester,                   Houbahop and yourself are both longtime BBoard posters that have earned the respect of colleagues based on proven familiarity and expertise in the O & G sector, amongst others.  Your reference to "nothing of substance" evoking "a physical response" is possibly a gesture of humour, and does not

[nukester]

EIJ,  Thank you for sensing my twisted sense of humor, as well as updating my understanding of  modern electro-magnetic theory :-) Back to Peyto:   Seems like colder weather is on the way! https://twitter.com/JimCantore/status/1741757529162465601 Cheers, Nukester