CALGARY, ALBERTA--(Marketwired - Aug. 9, 2017) - Peyto Exploration & Development Corp. (TSX:PEY) ("Peyto" or
the "Company") is pleased to present its operating and financial results for the second quarter of the 2017 fiscal year. A 75%
operating margin(1) and a 22% profit margin(2) in the quarter delivered an annualized 10% return on equity
(ROE) and 8% return on capital employed (ROCE). Additional highlights included:
- Earnings of $0.24/share, dividends of $0.33/share. Earnings of $40 million were generated in the quarter
while dividends of $54 million were paid to shareholders. Dividend payments represented a before tax payout ratio of 41% of
Funds from Operations ("FFO"), down from 53% in Q2 2016. The Company has never incurred a write down or recorded an impairment
and this quarter represents Peyto's 50th consecutive quarter of earnings.
- Funds from operations of $0.81/share. Generated $133 million in FFO in Q2 2017 up 31% from $102 million in
Q2 2016 (29%/share) as 11% higher production was combined with 15% higher commodity prices. For the first half of 2017, funds
from operations were 8% higher than capital expenditures, or $21 million of free cashflow (before dividend payments).
- Total cash costs of $0.85/Mcfe (or $0.68/Mcfe ($4.11/boe) excluding royalties). Industry leading total
cash costs, including $0.17/Mcfe royalties, $0.24/Mcfe operating costs, $0.18/Mcfe transportation, $0.05/Mcfe G&A and
$0.21/Mcfe interest, combined with a realized price of $3.36/Mcfe, resulting in a $2.51/Mcfe ($15.04/boe) cash netback, up 18%
from $2.12/Mcfe in Q2 2016.
- Capital investment of $98 million. A total of 25 gross wells (24 net) were drilled in the second quarter,
24 gross wells (22 net) were completed, and 29 gross wells (26 net) brought on production. Over the last 12 months new wells
brought on production accounted for 34,929 boe/d at the end of the quarter, which, when combined with a trailing twelve month
capital investment of $495 million, equates to an annualized capital efficiency of $14,160/boe/d. Peyto had 19 gross wells
that were waiting on completion and/or tie in representing an expected 11,500 boe/d of behind pipe production which would have
reduced the capital efficiency to the $11,000/boe/d target levels
- Production per share up 9%. Second quarter 2017 production of 585 MMcfe/d (97,531 boe/d) was up 11% from
Q2 2016. The backlog of drilled but uncompleted wells has now been connected with August daily production to date averaging
111,000 boe/d.
Second Quarter 2017 in Review
The plan to take advantage of reduced industry activity and reduced service costs in the second quarter was partly hampered by
heavy rains and wet ground conditions that limited the majority of drilling and completion activity to the month of June. Despite
the challenging surface conditions Peyto was still able to drill and complete 25 new wells and bring 29 wells on production.
Average drilling costs of $1.8 million/well and completion costs of $0.9 million/well were achieved, consistent with 2016 levels.
The liquids pipeline constructed in Q1 2017, connecting four of the nine gas plants, was utilized for the last half of the
quarter to reduce liquids trucking in the quarter, increasing the Company's realized liquids prices by approximately $2.50/bbl,
and reducing road maintenance and environmental emissions. Operating costs were lower as warmer weather reduced chemical
consumption and facility utilizations were optimized. Peyto added 13 sections of new land with pre-identified drilling locations
to its inventory of future prospects for an average price of $113/acre. A strict focus on cost control improved operating margins
resulting in increased year over year returns on capital employed.
1. Operating Margin is defined as funds from operations divided by revenue before royalties but including realized
hedging gains/losses.
2. Profit Margin is defined as net earnings for the quarter divided by revenue before royalties but including realized
hedging gains/losses. Natural gas volumes recorded in thousand cubic feet (mcf) are converted to barrels of oil equivalent (boe)
using the ratio of six (6) thousand cubic feet to one (1) barrel of oil (bbl). Natural gas liquids and oil volumes in barrel
of oil (bbl) are converted to thousand cubic feet equivalent (Mcfe) using a ratio of one (1) barrel of oil to six (6) thousand
cubic feet. This could be misleading, particularly if used in isolation as it is based on an energy equivalency conversion
method primarily applied at the burner tip and does not represent a value equivalency at the wellhead.
| |
|
|
|
|
| |
Three Months Ended June 30 |
% |
Six Months Ended June 30 |
% |
| |
2017 |
2016 |
Change |
2017 |
2016 |
Change |
| Operations |
|
|
|
|
|
|
| Production |
|
|
|
|
|
|
| |
Natural gas (mcf/d) |
535,274 |
489,337 |
9% |
542,118 |
528,284 |
3% |
| |
Oil & NGLs (bbl/d) |
8,319 |
6,621 |
26% |
8,949 |
6,815 |
31% |
| |
Thousand cubic feet equivalent (mcfe/d @ 1:6) |
585,187 |
529,064 |
11% |
595,813 |
569,171 |
5% |
| |
Barrels of oil equivalent (boe/d @ 6:1) |
97,531 |
88,177 |
11% |
99,302 |
94,862 |
5% |
| Production per million common shares (boe/d)* |
592 |
545 |
9% |
602 |
591 |
2% |
| Product prices |
|
|
|
|
|
|
| |
Natural gas ($/mcf) |
2.92 |
2.60 |
12% |
2.94 |
2.85 |
3% |
| |
Oil & NGLs ($/bbl) |
48.33 |
41.46 |
17% |
48.23 |
37.42 |
29% |
| Operating expenses ($/mcfe) |
0.24 |
0.26 |
-8% |
0.26 |
0.25 |
4% |
| Transportation ($/mcfe) |
0.18 |
0.17 |
6% |
0.18 |
0.16 |
13% |
| Field netback ($/mcfe) |
2.77 |
2.39 |
16% |
2.78 |
2.57 |
8% |
| General & administrative expenses ($/mcfe) |
0.05 |
0.06 |
-17% |
0.05 |
0.04 |
25% |
| Interest expense ($/mcfe) |
0.21 |
0.21 |
- |
0.20 |
0.19 |
5% |
| Financial ($000, except per share*) |
|
|
|
|
|
|
| Revenue |
178,982 |
140,891 |
27% |
366,932 |
320,243 |
15% |
| Royalties |
9,071 |
4,874 |
86% |
19,707 |
11,859 |
66% |
| Funds from operations |
133,487 |
102,178 |
31% |
272,792 |
242,085 |
13% |
| Funds from operations per share |
0.81 |
0.63 |
29% |
1.66 |
1.51 |
10% |
| Total dividends |
54,408 |
53,735 |
1% |
108,796 |
106,255 |
2% |
| Total dividends per share |
0.33 |
0.33 |
- |
0.66 |
0.66 |
- |
| |
Payout ratio |
41 |
53 |
-23% |
40 |
44 |
-9% |
| Earnings |
39,957 |
9,102 |
339% |
80,211 |
51,045 |
57% |
| Earnings per diluted share |
0.24 |
0.06 |
300% |
0.49 |
0.32 |
53% |
| Capital expenditures |
97,738 |
50,634 |
93% |
251,612 |
226,397 |
11% |
| Weighted average common shares outstanding |
164,874,175 |
161,845,999 |
2% |
164,837,609 |
160,494,262 |
3% |
| As at June 30 |
|
|
|
|
|
|
| End of period shares outstanding (includes shares to be issued |
|
|
|
164,874,175 |
164,630,168 |
- |
| Net debt |
|
|
|
1,218,879 |
1,018,796 |
20% |
| Shareholders' equity |
|
|
|
1,647,133 |
1,656,995 |
-1% |
| Total assets |
|
|
|
3,604,373 |
3,389,786 |
6% |
| *all per share amounts using weighted average common shares
outstanding |
| |
|
|
|
| |
Three Months Ended June 30 |
|
Six Months Ended June 30 |
|
| ($000 except per share) |
2017 |
2016 |
|
2017 |
2016 |
|
| Cash flows from operating activities |
127,980 |
103,123 |
|
249,117 |
241,241 |
|
| Change in non-cash working capital |
2,191 |
(9,279 |
) |
18,351 |
(10,391 |
) |
| Change in provision for performance based compensation |
3,316 |
8,334 |
|
5,324 |
11,235 |
|
| Funds from operations |
133,487 |
102,178 |
|
272,792 |
242,085 |
|
| Funds from operations per share |
0.81 |
0.63 |
|
1.66 |
1.51 |
|
(1) Funds from operations - Management uses funds from operations to analyze the operating performance of its energy
assets. In order to facilitate comparative analysis, funds from operations is defined throughout this report as earnings
before performance based compensation, non-cash and non-recurring expenses. Management believes that funds from operations
is an important parameter to measure the value of an asset when combined with reserve life. Funds from operations is not a
measure recognized by Canadian generally accepted accounting principles ("GAAP") and does not have a standardized meaning
prescribed by GAAP. Therefore, funds from operations, as defined by Peyto, may not be comparable to similar measures
presented by other issuers, and investors are cautioned that funds from operations should not be construed as an alternative to
net earnings, cash flow from operating activities or other measures of financial performance calculated in accordance with
GAAP. Funds from operations cannot be assured and future dividends may vary.
Exploration & Development
Second quarter 2017 activity was primarily focused in the Greater Sundance area as wet conditions limited access in Brazeau
and other areas during the quarter. Four drilling rigs were active during April and May, while nine rigs were drilling during
June. The second quarter drilling activity was entirely focused on the Spirit River group of formations including the Notikewin,
Falher and Wilrich. In total, 25 horizontal wells were drilled as shown in the following table:
| |
|
|
| |
Field |
Total
Wells
Drilled |
| Zone |
Sundance |
Nosehill |
Wildhay |
Ansell |
Berland |
Kisku/
Kakwa |
Brazeau |
| Belly River |
|
|
|
|
|
|
|
|
| Cardium |
|
|
|
|
|
|
|
|
| Notikewin |
2 |
2 |
|
1 |
|
|
3 |
8 |
| Falher |
1 |
|
|
1 |
|
|
1 |
3 |
| Wilrich |
9 |
1 |
|
3 |
|
|
1 |
14 |
| Bluesky |
|
|
|
|
|
|
|
|
| Total |
12 |
3 |
|
5 |
|
|
5 |
25 |
Horizontal well drilling costs in Q2 2017 were in line with Q1 and with 2016 average costs despite the wetter conditions and
delays associated with spring breakup. Completion costs (per meter of horizontal lateral) were down from Q1 2017 due to lower
service costs and lower completion intensity in the Sundance area versus the Brazeau area. The following table illustrates the
progression of cost optimization designed to contribute to lower overall development costs and ultimately greater returns:
| |
|
|
|
|
|
|
|
|
|
| |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
2017
Q1 |
2017
Q2 |
| Gross Hz Spuds |
52 |
70 |
86 |
99 |
123 |
140 |
126 |
40 |
25 |
| Measured Depth (m) |
3,762 |
3,903 |
4,017 |
4,179 |
4,251 |
4,309 |
4,197 |
4,313 |
4,143 |
| |
|
|
|
|
|
|
|
|
|
| Drilling ($MM/well) |
$2.76 |
$2.82 |
$2.79 |
$2.72 |
$2.66 |
$2.16 |
$1.82 |
$1.82 |
$1.89 |
| $ per meter |
$734 |
$723 |
$694 |
$651 |
$626 |
$501 |
$433 |
$423 |
$457 |
| |
|
|
|
|
|
|
|
|
|
| Completion ($MM/well) |
$1.36 |
$1.68 |
$1.67 |
$1.63 |
$1.70 |
$1.21 |
$0.86 |
$1.09 |
$0.96 |
| Hz Length (m) |
1,335 |
1,303 |
1,358 |
1,409 |
1,460 |
1,531 |
1,460 |
1,547 |
1,498 |
| $ per Hz Length (m) |
$1,017 |
$1,286 |
$1,231 |
$1,153 |
$1,166 |
$792 |
$587 |
$705 |
$641 |
| $ '000 per Stage |
$231 |
$246 |
$257 |
$188 |
$168 |
$115 |
$79 |
$83 |
$76 |
Capital Expenditures
During the second quarter of 2017, Peyto spent $48 million on drilling, $21 million on completions, $9 million on wellsite
equipment and tie-ins, $17 million on facilities and major pipeline projects, and $2 million on new Crown lands and seismic, for
total capital investments of $98 million.
In addition to the 25 gross (24 net) horizontal wells drilled, 24 gross (23 net) wells were completed and 29 gross (26 net)
wells were equipped and tied in. Peyto completed construction and commissioned its Greater Sundance liquids pipeline in the
second quarter and installed a 6 km, 10" gathering line in West Brazeau, which crosses the Nordegg river and connects several new
locations to the Brazeau gathering system.
Peyto also purchased 13 sections of new Crown land at sales in the second quarter, mostly in the Greater Sundance area, for an
average purchase price of $113/acre.
Commodity Prices
Average daily AECO natural gas prices were $2.64/GJ in Q2 2017, up slightly from $2.58/GJ the quarter before but up
significantly from the $1.33/GJ in Q2 2016. US Henry Hub spot prices increased in a similar fashion. A return to historical norms
for natural gas storage helped improve supply demand fundamentals contributing to the increase.
On average for Q2 2017, Peyto realized a natural gas price of $2.54/GJ or $2.92/Mcf. This was the result of a combination of
approximately 17% of natural gas production being sold in the daily or monthly spot market at an average of $2.59/GJ ($2.99/Mcf)
and 83% having been pre-sold at an average hedged price of $2.52/GJ (prices reported net of TCPL fuel charges).
In the second quarter of 2017, lower realized liquid propane prices combined with a progressively increasing carbon tax, which
was imposed on Peyto's Oldman deep cut plant, resulted in less propane recoveries than in Q1 2017. As a result, Peyto's Q2 2017
blended, realized, oil and natural gas liquids price was $48.33/bbl, which represented 78% of the $61.95/bbl average Canadian
Light Sweet posted price. Details of realized commodity prices by component are shown in the following table:
Commodity Prices by Component
| |
|
| |
Three Months ended June 30 |
| |
2017 |
2016 |
| AECO monthly |
($/GJ) |
2.63 |
1.18 |
| AECO daily |
($/GJ) |
2.64 |
1.33 |
| Henry Hub spot |
($US/MMBTU) |
3.08 |
2.14 |
| Natural gas - prior to hedging |
($/GJ) |
2.59 |
1.21 |
| |
($/mcf) |
2.99 |
1.38 |
| Natural gas - after hedging |
($/GJ) |
2.54 |
2.26 |
| |
($/mcf) |
2.92 |
2.60 |
| |
|
|
| Oil and natural gas liquids ($/bbl) |
|
|
| |
Condensate ($/bbl) |
57.60 |
47.83 |
| |
Propane ($/bbl) |
13.39 |
0.40 |
| |
Butane ($/bbl) |
30.81 |
19.52 |
| |
Pentane ($/bbl) |
59.93 |
50.67 |
| Total Oil and natural gas liquids ($/bbl) |
48.33 |
41.46 |
| Cnd Light Sweet stream ($/bbl) |
61.95 |
54.70 |
Liquids prices are Peyto realized prices in Canadian dollars adjusted for fractionation and
transportation.
Financial Results
Approximately 20%, or $0.69/Mcfe, of Peyto's revenue come from its liquids sales while 80%, or $2.67/Mcfe, came from natural
gas. This liquids revenue covered all cash costs but royalties. Cash costs of $0.85/Mcfe, included royalties of $0.17/Mcfe,
operating costs of $0.24/Mcfe, transportation costs of $0.18/Mcfe, G&A of $0.05/Mcfe and interest costs of $0.21/Mcfe. Cash
costs were lower than the previous quarter due to reductions in operating costs and royalties, partially offset by increases in
transportation, G&A and interest. These total cash costs, when deducted from realized revenues of $3.36/Mcfe, resulted in a
cash netback of $2.51/Mcfe or a 75% operating margin. Historical cash costs and operating margins are shown in the following
table. Going forward, Peyto expects per unit cash costs will continue to trend towards $0.80/Mcfe levels for the balance of
2017.
| |
|
|
|
| |
2015 |
2016 |
2017 |
| ($/Mcfe) |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
| Revenue |
4.17 |
3.81 |
3.80 |
3.58 |
3.24 |
2.92 |
3.16 |
3.38 |
3.44 |
3.36 |
| Royalties |
0.18 |
0.13 |
0.15 |
0.13 |
0.13 |
0.10 |
0.12 |
0.18 |
0.19 |
0.17 |
| Operating Costs |
0.32 |
0.31 |
0.28 |
0.25 |
0.23 |
0.26 |
0.25 |
0.26 |
0.29 |
0.24 |
| Transportation |
0.15 |
0.15 |
0.16 |
0.16 |
0.16 |
0.17 |
0.16 |
0.16 |
0.17 |
0.18 |
| G&A |
0.04 |
0.04 |
0.02 |
0.05 |
0.03 |
0.06 |
0.04 |
0.03 |
0.04 |
0.05 |
| Interest |
0.20 |
0.19 |
0.19 |
0.16 |
0.17 |
0.21 |
0.19 |
0.18 |
0.20 |
0.21 |
| Total Cash Costs |
0.89 |
0.82 |
0.80 |
0.75 |
0.72 |
0.80 |
0.76 |
0.81 |
0.89 |
0.85 |
| Netback |
3.28 |
2.99 |
3.00 |
2.83 |
2.52 |
2.12 |
2.40 |
2.57 |
2.55 |
2.51 |
| Operating Margin |
79% |
78% |
79% |
79% |
78% |
73% |
76% |
76% |
74% |
75% |
Depletion, depreciation and amortization charges of $1.38/Mcfe, along with a provision for deferred tax and market based bonus
payments reduced the cash netback to earnings of $0.75/Mcfe, or a 22% profit margin. Dividends of $1.02/Mcfe were paid to
shareholders.
Natural Gas Marketing
Peyto's practice of layering in future sales in the form of fixed price swaps, and thus smoothing out the volatility in
natural gas prices, continued throughout the quarter. For the balance of 2017, approximately 68% of gas volumes have been hedged
to protect against increased AECO volatility. The following table summarizes the remaining hedged volumes and prices for the
upcoming years as of August 9, 2017:
| |
|
|
| |
Future Sales |
Average Price (CAD) |
| |
GJ |
Mcf |
$/GJ |
$/Mcf |
| 2017 |
70,490,000 |
61,295,652 |
2.61 |
3.00 |
| 2018 |
107,630,000 |
93,591,304 |
2.55 |
2.93 |
| 2019 |
13,550,000 |
11,782,609 |
2.47 |
2.85 |
| 2020 |
910,000 |
791,304 |
2.47 |
2.84 |
| Total |
192,580,000 |
167,460,870 |
2.57 |
2.95 |
*prices and volumes in mcf use Peyto's historic heat content premium of 1.15.
In order to deal with restricted access to take-away capacity, Peyto has arranged for excess firm transportation on the NGTL
system north of the James River receipt point of up to 120% of Peyto's forecasted natural gas sales for the remainder of the
year. Specific monthly excess service is projected to offset the outage forecast provided by NGTL and safeguard against potential
curtailments due to limited capacity. Beyond 2017, Peyto has secured new firm transportation to accommodate its expected
production growth.
Activity Update
Following an unusually wet spring breakup, continuous operations were resumed in late June and have continued through July and
into August. The backlog of uncompleted wells accumulated during Q1 and carried through Q2 was effectively eliminated over this
period. Consequently, Peyto's has recently reached record daily production levels in excess of 115,000 BOE/d.
Peyto continues to run 9 drilling rigs (4 in Brazeau, 5 in Greater Sundance) and since the end of the second quarter has spud
18 gross (16.5 net) wells, completed 16 gross (16 net) wells, and tied in 22 gross (21.5 net) wells. Peyto now expects to drill
and tie-in 80 wells in the second half of 2017. Included in this second half drilling will be step out Wilrich and Notikewin
tests on newly acquired lands in south Brazeau, as well as Wilrich step outs in a new emerging area called Whitehorse. The
Company has recently tied in 3 wells to a third-party processing facility in Whitehorse and is encouraged by the early results.
Infrastructure plans for the Whitehorse area will be finalized in early 2018 and will likely include construction of a Peyto
facility to process area volumes.
In addition, the site for the new Brazeau East gas plant is now ready, with the construction timeline aligned with the fall
drilling and tie-in schedule. Pending installation of the first 70 mmcf/d of equipment, the Brazeau area will have over 210
mmcf/d of processing capacity.
Summer gas prices have been extremely volatile and although Peyto has an active hedging program, some volumes are still sold
on the daily index. Ownership and operatorship of 99% of the production and processing facilities provides the flexibility to
actively manage the daily volumes to ensure profit margins are preserved.
Outlook
While natural gas prices have deteriorated of late, Management expects prices will improve entering the fall for the winter
heating season. The current and future 5 year strip for AECO natural gas price is below $2.40/GJ and is insufficient to sustain
current Canadian gas production levels which would result in a tightening of supply and demand. That said, the Company has
reviewed the economic returns of its remaining 2017 capital program in light of the weaker price forecast and is confident the
remaining drilling program continues to make the economic return hurdle and deliver full cycle value creation for
shareholders.
As always, Peyto's focus will be on maximizing efficiency and minimizing both capital and cash costs throughout its business.
This laser like focus on profitability is unwavering and will continue to be used to direct capital to the highest return
opportunities within Peyto's portfolio. This portfolio of opportunities is growing, as Peyto adds new Crown lands with identified
drilling locations at historically low cost per acre. The Company's operation and financial flexibility, quality asset base and
strong balance sheet position Peyto to continue to be opportunistic in this environment.
Conference Call and Webcast
A conference call will be held with the senior management of Peyto to answer questions with respect to the Q2 2017 financial
results on August 10th, 2017 at 9:00 a.m. Mountain Daylight Time (MDT), or 11:00 a.m. Eastern Daylight Time (EDT).
Please see the press release for conference call details. To participate, please call 1-844-492-6041 (North America) or
1-478-219-0837 (International). Shareholders and interested investors are encouraged to ask questions about Peyto and its most
recent results. Questions can be submitted prior to the call at info@peyto.com. The conference call can also be accessed through the internet at http://edge.media-server.com/m/p/m67ombbn. The conference call will be
archived on the Peyto Exploration & Development website at www.peyto.com.
Management's Discussion and Analysis
A copy of the second quarter report to shareholders, including the MD&A, audited financial statements and related notes,
is available at http://www.peyto.com/Files/Financials/2017/Q22017MDandA.pdf and
will be filed at SEDAR, www.sedar.com at a later date.
Darren Gee
President and CEO
August 9, 2017
Certain information set forth in this document and Management's Discussion and Analysis, including management's
assessment of Peyto's future plans and operations, capital expenditures and capital efficiencies, contains forward-looking
statements. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond
these parties' control, including the impact of general economic conditions, industry conditions, volatility of commodity prices,
currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other industry participants, the
lack of availability of qualified personnel or management, stock market volatility and ability to access sufficient capital from
internal and external sources. Readers are cautioned that the assumptions used in the preparation of such information,
although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be
placed on forward-looking statements. Peyto's actual results, performance or achievement could differ materially from those
expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events
anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits Peyto will derive
there from. In addition, Peyto is providing future oriented financial information set out in this press release for the purposes
of providing clarity with respect to Peyto's strategic direction and readers are cautioned that this information may not be
appropriate for any other purpose. Other than is required pursuant to applicable securities law, Peyto does not undertake to
update forward looking statements at any particular time. To provide a single unit of production for analytical purposes, natural
gas production and reserves volumes are converted mathematically to equivalent barrels of oil (BOE). Peyto uses the
industry-accepted standard conversion of six thousand cubic feet of natural gas to one barrel of oil (6 Mcf = 1 bbl). The
6:1 BOE ratio is based on an energy equivalency conversion method primarily applicable at the burner tip. It does not represent a
value equivalency at the wellhead and is not based on current prices. While the BOE ratio is useful for comparative measures
and observing trends, it does not accurately reflect individual product values and might be misleading, particularly if used in
isolation. As well, given that the value ratio, based on the current price of crude oil to natural gas, is significantly
different from the 6:1 energy equivalency ratio, using a 6:1 conversion ratio may be misleading as an indication of
value.
Peyto Exploration & Development Corp.
Condensed Balance Sheet (unaudited)
(Amount in $ thousands)
| |
|
|
| |
June 30
2017 |
December 31
2016 |
| Assets |
|
|
| Current assets |
|
|
| Cash |
4,235 |
2,102 |
| Accounts receivable |
75,145 |
94,813 |
| Due from private placement (Note 6) |
- |
4,930 |
| Derivative financial instruments (Note 8) |
25,265 |
- |
| Prepaid expenses |
32,448 |
13,385 |
| |
137,093 |
115,230 |
| |
|
|
| Long-term derivative financial instruments (Note 8) |
5,030 |
- |
| Property, plant and equipment, net (Note 3) |
3,462,250 |
3,347,859 |
| |
3,467,280 |
3,347,859 |
| |
3,604,373 |
3,463,089 |
| |
|
|
| Liabilities |
|
|
| Current liabilities |
|
|
| Accounts payable and accrued liabilities |
107,571 |
158,173 |
| Dividends payable (Note 6) |
18,136 |
18,109 |
| Derivative financial instruments (Note 8) |
- |
119,280 |
| Provision for future performance based compensation (Note 7) |
12,179 |
6,854 |
| |
137,886 |
302,416 |
| |
|
|
| Long-term debt (Note 4) |
1,205,000 |
1,070,000 |
| Long-term derivative financial instruments (Note 8) |
- |
31,465 |
| Provision for future performance based compensation (Note 7) |
6,848 |
4,499 |
| Decommissioning provision (Note 5) |
142,953 |
127,763 |
| Deferred income taxes |
464,553 |
386,012 |
| |
1,819,354 |
1,619,739 |
| |
|
|
| Equity |
|
|
| Share capital (Note 6) |
1,649,537 |
1,641,982 |
| Shares to be issued (Note 6) |
- |
4,930 |
| Retained earnings (deficit) |
(27,809) |
776 |
| Accumulated other comprehensive (loss) income (Note 6) |
25,405 |
(106,754) |
| |
1,647,133 |
1,540,934 |
| |
3,604,373 |
3,463,089 |
See accompanying notes to the financial statements.
Peyto Exploration & Development Corp.
Condensed Income Statement (unaudited)
(Amount in $ thousands except earnings per share amount)
| |
|
|
| |
Three months ended June 30 |
Six months ended June 30 |
| |
2017 |
2016 |
2017 |
2016 |
| Revenue |
|
|
|
|
| Oil and gas sales |
182,097 |
86,444 |
379,133 |
222,647 |
| Realized (loss) gain on hedges (Note 8) |
(3,115) |
54,447 |
(12,201) |
97,596 |
| Royalties |
(9,071) |
(4,874) |
(19,707) |
(11,859) |
| Petroleum and natural gas sales, net |
169,911 |
136,017 |
347,225 |
308,384 |
| |
|
|
|
|
| Expenses |
|
|
|
|
| Operating |
13,018 |
12,732 |
28,703 |
25,273 |
| Transportation |
9,742 |
8,190 |
19,209 |
16,859 |
| General and administrative |
2,646 |
2,853 |
4,959 |
4,710 |
| Future performance based compensation (Note 7) |
4,305 |
12,533 |
7,674 |
17,088 |
| Interest |
11,018 |
10,063 |
21,563 |
19,456 |
| Accretion of decommissioning provision (Note 5) |
715 |
543 |
1,465 |
1,147 |
| Depletion and depreciation (Note 3) |
73,731 |
76,635 |
153,775 |
166,594 |
| Gain on disposition of assets (Note 3) |
- |
- |
- |
(12,668) |
| |
115,175 |
123,549 |
237,348 |
238,459 |
| Earnings before taxes |
54,736 |
12,468 |
109,877 |
69,925 |
| |
|
|
|
|
| Income tax |
|
|
|
|
| Deferred income tax expense |
14,779 |
3,366 |
29,666 |
18,880 |
| Earnings for the period |
39,957 |
9,102 |
80,211 |
51,045 |
| |
|
|
|
|
| |
|
|
|
|
| Earnings per share (Note 6) |
|
|
|
|
| Basic and diluted |
$0.24 |
$0.06 |
$0.49 |
$0.32 |
See accompanying notes to the financial statements.
Peyto Exploration & Development Corp.
Condensed Statement of Comprehensive Income (Loss) (unaudited)
(Amount in $ thousands)
| |
|
|
| |
Three months ended June 30 |
Six months ended June 30 |
| |
2017 |
2016 |
2017 |
2016 |
| Earnings for the period |
39,957 |
9,102 |
80,211 |
51,045 |
| Other comprehensive income (loss) |
|
|
|
|
| Change in unrealized gain (loss) on cash flow hedges |
36,879 |
(110,733) |
168,839 |
(15,178) |
| Deferred tax (expense) recovery |
(10,798) |
44,598 |
(48,881) |
30,449 |
| Realized loss (gain) on cash flow hedges |
3,115 |
(54,446) |
12,201 |
(97,596) |
| Comprehensive income (loss) |
69,153 |
(111,479) |
212,370 |
(31,280) |
See accompanying notes to the financial statements.
Peyto Exploration & Development Corp.
Condensed Statement of Changes in Equity (unaudited)
(Amount in $ thousands)
| |
|
| |
Six months ended June 30 |
| |
2017 |
2016 |
| Share capital, beginning of period |
1,641,982 |
1,467,264 |
| Common shares issued by private placement |
7,574 |
7,644 |
| Equity offering |
- |
172,500 |
| Common shares issuance costs (net of tax) |
(19) |
(5,402) |
| Share capital, end of period |
1,649,537 |
1,642,006 |
| |
|
|
| |
|
|
| |
|
|
| Shares to be issued, beginning of period |
4,930 |
3,769 |
| Shares issued |
(4,930) |
(3,769) |
| Shares to be issued, end of period |
- |
- |
| |
|
|
| |
|
|
| |
|
|
| Retained earnings (deficit), beginning of period |
776 |
103,339 |
| Earnings for the period |
80,211 |
51,045 |
| Dividends (Note 6) |
(108,796) |
(106,255) |
| Retained earnings (deficit), end of period |
(27,809) |
48,129 |
| |
|
|
| |
|
|
| |
|
|
| Accumulated other comprehensive income, beginning of period |
(106,754) |
49,185 |
| Other comprehensive loss (income) |
132,159 |
(82,325) |
| Accumulated other comprehensive (loss) income, end of period |
25,405 |
(33,140) |
| |
|
|
| |
|
|
| |
|
|
| Total equity |
1,647,133 |
1,656,995 |
See accompanying notes to the financial statements.
Peyto Exploration & Development Corp.
Condensed Statement of Cash Flows (unaudited)
(Amount in $ thousands)
| |
|
|
| |
Three months ended June 30 |
Six months ended June 30 |
| |
2017 |
2016 |
2017 |
2016 |
| Cash provided by (used in) |
|
|
|
|
| operating activities |
|
|
|
|
| Earnings |
39,957 |
9,102 |
80,211 |
51,045 |
| Items not requiring cash: |
|
|
|
|
| |
Deferred income tax |
14,779 |
3,366 |
29,666 |
18,880 |
| |
Depletion and depreciation |
73,731 |
76,635 |
153,775 |
166,594 |
| |
Accretion of decommissioning provision |
715 |
543 |
1,465 |
1,147 |
| |
Gain on disposition of assets |
- |
- |
- |
(12,668) |
| |
Long term portion of future performance based compensation |
989 |
4,198 |
2,351 |
5,852 |
| Change in non-cash working capital related to operating activities |
(2,191) |
9,279 |
(18,351) |
10,391 |
| |
127,980 |
103,123 |
249,117 |
241,241 |
| Financing activities |
|
|
|
|
| Issuance of common shares |
- |
172,507 |
7,574 |
180,144 |
| Issuance costs |
- |
(7,381) |
(26) |
(7,399) |
| Cash dividends paid |
(54,408) |
(53,142) |
(108,769) |
(105,631) |
| Increase (decrease) in bank debt |
70,000 |
(95,000) |
135,000 |
- |
| |
15,592 |
16,984 |
33,779 |
67,114 |
| Investing activities |
|
|
|
|
| Additions to property, plant and equipment |
(97,738) |
(50,634) |
(251,612) |
(226,397) |
| Change in prepaid capital |
3,770 |
233 |
(2,829) |
7,733 |
| Change in non-cash working capital relating to investing activities |
(45,369) |
(47,991) |
(26,322) |
(64,234) |
| |
(139,337) |
(98,392) |
(280,763) |
(282,898) |
| Net increase in cash |
4,235 |
21,715 |
2,133 |
25,457 |
| Cash, beginning of period |
- |
3,742 |
2,102 |
- |
| Cash, end of period |
4,235 |
25,457 |
4,235 |
25,457 |
| |
|
|
|
|
| The following amounts are included in cash flows from operating activities: |
|
|
|
|
| |
Cash interest paid |
15,597 |
13,764 |
25,209 |
19,407 |
| |
Cash taxes paid |
- |
- |
- |
- |
See accompanying notes to the financial statements.
Peyto Exploration & Development Corp.
Notes to Condensed Financial Statements (unaudited)
As at June 30, 2017 and 2016
(Amount in $ thousands, except as otherwise noted)
1. Nature of operations
Peyto Exploration & Development Corp. ("Peyto" or the "Company") is a Calgary based oil and natural gas company. Peyto
conducts exploration, development and production activities in Canada. Peyto is incorporated and domiciled in the Province
of Alberta, Canada. The address of its registered office is 300, 600 - 3rd Avenue SW, Calgary, Alberta,
Canada, T2P 0G5.
These financial statements were approved and authorized for issuance by the Audit Committee of Peyto on August 8, 2017.
2. Basis of presentation
The condensed financial statements have been prepared by management and reported in Canadian dollars in accordance with
International Accounting Standard ("IAS") 34, "Interim Financial Reporting". These condensed financial statements do not include
all of the information required for full annual financial statements and should be read in conjunction with the Company's
financial statements as at and for the years ended December 31, 2016 and 2015.
Significant Accounting Policies
(a) Significant Accounting Judgments, Estimates and Assumptions
The timely preparation of the condensed financial statements requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingencies, if any, as at the date of the financial
statements and the reported amounts of revenue and expenses during the period. By their nature, estimates are subject to
measurement uncertainty and changes in such estimates in future years could require a material change in the condensed financial
statements.
All accounting policies and methods of computation followed in the preparation of these financial statements are the same as
those disclosed in Note 2 of Peyto's financial statements as at and for the years ended December 31, 2016 and 2015.
(b) Standards issued but not yet effective
In July 2014, the IASB completed the final elements of IFRS 9 "Financial Instruments." The Standard supersedes earlier
versions of IFRS 9 and completes the IASB's project to replace IAS 39 "Financial Instruments: Recognition and Measurement." IFRS
9, as amended, includes a principle-based approach for classification and measurement of financial assets, a single 'expected
loss' impairment model and a substantially-reformed approach to hedge accounting. The Standard will come into effect for annual
periods beginning on or after January 1, 2018, with earlier adoption permitted. IFRS 9 will be applied by Peyto on January 1,
2018. The impact of the standard has been evaluated and is expected to have no material impact on the Company's financial
statements.
In May 2014, the IASB issued IFRS 15 "Revenue from Contracts with Customers," which replaces IAS 18 "Revenue," IAS 11
"Construction Contracts," and related interpretations. The standard is required to be adopted for fiscal years beginning on or
after January 1, 2018, with earlier adoption permitted. IFRS 15 will be applied by Peyto on January 1, 2018. IFRS 15 provides
clarification for recognizing revenue from contracts with customers and establishes a single revenue recognition and measurement
framework. The impact of the standard has been evaluated and is expected to have no material impact on the Company's financial
statements. Additional disclosure may be required upon implementation of IFRS 15 in order to provide sufficient information to
enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from the contracts with
customers.
In January 2016, the IASB issued IFRS 16 "Leases", which replaces IAS 17 "Leases". For lessees applying IFRS 16, a single
recognition and measurement model for leases would apply, with required recognition of assets and liabilities for most leases.
The standard will come into effect for annual periods beginning on or after January 1, 2019, with earlier adoption permitted. The
Company is currently evaluating the impact of the standard on the Company's financial statements
3. Property, plant and equipment, net
| |
|
| Cost |
|
| At December 31, 2016 |
4,901,523 |
| Additions |
251,612 |
| Decommissioning provision additions |
13,725 |
| Prepaid capital |
2,829 |
| At June 30, 2017 |
5,169,689 |
| Accumulated depletion and depreciation |
|
| At December 31, 2016 |
(1,553,664) |
| Depletion and depreciation |
(153,775) |
| At June 30, 2017 |
(1,707,439) |
| |
|
| Carrying amount at December 31, 2016 |
3,347,859 |
| Carrying amount at June 30, 2017 |
3,462,250 |
During the three and six month periods ended June 30, 2017, Peyto capitalized $1.4 million and $3.5 million (2016 - $0.9
million and $3.1 million) of general and administrative expense directly attributable to exploration and development
activities.
4. Long-term debt
| |
|
|
| |
June 30, 2017 |
December 31, 2016 |
| Bank credit facility |
685,000 |
550,000 |
| Senior unsecured notes |
520,000 |
520,000 |
| Balance, end of the period |
1,205,000 |
1,070,000 |
The Company has a syndicated $1.0 billion extendible unsecured revolving credit facility with a stated term date of December
4, 2019. An accordion provision has been added that allows for the pre-approved increase of the facility up to $1.3 billion,
at the Company's request, subject to additional commitments by existing facility lenders or by adding new financial institutions
to the syndicate. The bank facility is made up of a $30 million working capital sub-tranche and a $970 million production
line. The facilities are available on a revolving basis. Borrowings under the facility bear interest at Canadian bank
prime or US base rate, or, at Peyto's option, Canadian dollar bankers' acceptances or US dollar LIBOR loan rates, plus applicable
margin and stamping fees. The total stamping fees range between 50 basis points and 215 basis points on Canadian bank prime and
US base rate borrowings and between 150 basis points and 315 basis points on Canadian dollar bankers' acceptance and US dollar
LIBOR borrowings. The undrawn portion of the facility is subject to a standby fee in the range of 30 to 63 basis points.
Peyto is subject to the following financial covenants as defined in the credit facility and note purchase agreements:
- Long-term debt plus the average working capital deficiency (surplus) at the end of the two most recently completed fiscal
quarters adjusted for non-cash items not to exceed 3.0 times trailing twelve month net income before non-cash items, interest
and income taxes;
- Long-term debt and subordinated debt plus the average working capital deficiency (surplus) at the end of the two most
recently completed fiscal quarters adjusted for non-cash items not to exceed 4.0 times trailing twelve month net income before
non-cash items, interest and income taxes;
- Trailing twelve months net income before non-cash items, interest and income taxes to exceed 3.0 times trailing twelve
months interest expense;
- Long-term debt and subordinated debt plus the average working capital deficiency (surplus) at the end of the two most
recently completed fiscal quarters adjusted for non-cash items not to exceed 55 per cent of the book value of shareholders'
equity and long-term debt and subordinated debt.
Peyto is in compliance with all financial covenants at June 30, 2017.
Outstanding senior notes are as follows:
| |
|
|
|
| Senior Unsecured Notes |
Date Issued |
Rate |
Maturity Date |
| $100 million |
January 3, 2012 |
4.39% |
January 3, 2019 |
| $50 million |
September 6, 2012 |
4.88% |
September 6, 2022 |
| $120 million |
December 4, 2013 |
4.50% |
December 4, 2020 |
| $50 million |
July 3, 2014 |
3.79% |
July 3, 2022 |
| $100 million |
May 1, 2015 |
4.26% |
May 1, 2025 |
| $100 million |
October 24, 2016 |
3.70% |
October 24, 2023 |
On April 26, 2016, the amended and restated note purchase and private shelf agreement dated January 3, 2012 and restated as of
April 26, 2013 was amended to increase the shelf facility from $150 million to $250 million. $150 million has been drawn
under this shelf facility.
Total interest expense for the three and six month periods ended June 30, 2017 was $11.0 million and $21.6 million (2016 -
$10.1 million and $19.5 million) and the average borrowing rate for the period was 3.7% and 3.8% (2016- 3.7% and 3.6%).
5. Decommissioning provision
Peyto makes provision for the future cost of decommissioning wells and facilities on a discounted basis based on the
commissioning of these assets.
The decommissioning provision represents the present value of the decommissioning costs related to the above infrastructure,
which are expected to be incurred over the economic life of the assets. The provisions have been based on the Company's
internal estimates on the cost of decommissioning, the discount rate, the inflation rate and the economic life of the
infrastructure. Assumptions, based on the current economic environment, have been made which management believes are a
reasonable basis upon which to estimate the future liability. These estimates are reviewed regularly to take into account
any material changes to the assumptions. However, actual decommissioning costs will ultimately depend upon the future market
prices for the necessary decommissioning work required which will reflect market conditions at the relevant
time. Furthermore, the timing of the decommissioning is likely to depend on when production activities ceases to be
economically viable. This in turn will depend and be directly related to the current and future commodity prices, which are
inherently uncertain.
The following table reconciles the change in decommissioning provision:
| |
|
| Balance, December 31, 2016 |
127,763 |
| New or increased provisions |
7,775 |
| Accretion of decommissioning provision |
1,465 |
| Change in discount rate and estimates |
5,950 |
| Balance, June 30, 2017 |
142,953 |
| Current |
- |
| Non-current |
142,953 |
Peyto has estimated the net present value of its total decommissioning provision to be $143.0 million as at June 30, 2017
($127.8 million at December 31, 2016) based on a total future undiscounted liability of $273.7 million ($258.2 million at
December 31, 2016). At June 30, 2017 management estimates that these payments are expected to be made over the next 50 years with
the majority of payments being made in years 2047 to 2065. The Bank of Canada's long term bond rate of 2.13 per cent (2.31 per
cent at December 31, 2016) and an inflation rate of 2.0 per cent (2.0 per cent at December 31, 2016) were used to calculate the
present value of the decommissioning provision.
6. Share capital
Authorized: Unlimited number of voting common shares
Issued and Outstanding
| |
|
|
| Common Shares (no par value) |
Number of
Common Shares |
Amount
$ |
| Balance, December 31, 2016 |
164,630,168 |
1,641,982 |
| Common shares issued by private placement |
244,007 |
7,574 |
| Common share issuance costs, (net of tax) |
- |
(19) |
| Balance, June 30, 2017 |
164,874,175 |
1,649,537 |
Earnings per common share has been determined based on the following:
| |
|
|
| |
Three Months ended June 30 |
Six Months ended June 30 |
| |
2017 |
2016 |
2017 |
2016 |
| Weighted average common shares basic and diluted |
164,874,175 |
161,845,999 |
164,837,609 |
160,494,262 |
On December 31, 2016, Peyto completed a private placement of 146,755 common shares to employees and consultants for net
proceeds of $4.9 million ($33.59 per share). These common shares were issued January 6, 2017.
On March 14, 2017, Peyto completed a private placement of 97,252 common shares to employees and consultants for net proceeds
of $2.6 million ($27.19 per common share).
Dividends
During the three and six month periods ended June 30, 2017, Peyto declared and paid dividends of $0.33 and $0.66 per common
share ($0.11 per common share for the months of January to June 2017), totaling $54.4 million and $108.8 million respectively
(2016 - $0.33 and $0.66 ($0.11 per common share for the months of January to June 2016), totaling $53.7 million and $106.3
million respectively).
Comprehensive income
Comprehensive income consists of earnings and other comprehensive income ("OCI"). OCI comprises the change in the fair value
of the effective portion of the derivatives used as hedging items in a cash flow hedge. "Accumulated other comprehensive
income" is an equity category comprised of the cumulative amounts of OCI.
Accumulated hedging gains
Gains and losses from cash flow hedges are accumulated until settled. These outstanding hedging contracts are recognized
in earnings on settlement with gains and losses being recognized as a component of net revenue. Further information on these
contracts is set out in Note 8.
7. Future performance based compensation
Peyto awards performance based compensation to employees annually. The performance based compensation is comprised of
reserve and market value based components.
Reserve based component
The reserves value based component is 4% of the incremental increase in value, if any, as adjusted to reflect changes in debt,
equity, dividends, general and administrative costs and interest, of proved producing reserves calculated using a constant price
at December 31 of the current year and a discount rate of 8%.
Market based component
Under the market based component, rights with a three year vesting period are allocated to employees. The number of
rights outstanding at any time is not to exceed 6% of the total number of common shares outstanding. At December 31 of each
year, all vested rights are automatically cancelled and, if applicable, paid out in cash equally over a three year
period. Compensation is calculated as the number of vested rights multiplied by the total of the market appreciation (over
the price at the date of grant) and associated dividends of a common share for that period.
The fair values were calculated using a Black-Scholes valuation model. The principal inputs to the option valuation model
were:
| |
|
|
| |
June 30, 2017 |
June 30, 2016 |
| Share price |
$23.52-$33.80 |
$24.09-$34.68 |
| Exercise price (net of dividends) |
$22.77-$33.14 |
$23.43-$33.02 |
| Expected volatility |
27.3% |
38.9% |
| Option life |
0.50 years |
0.50 years |
| Risk-free interest rate |
1.10% |
0.52% |
8. Financial instruments
Financial instrument classification and measurement
Financial instruments of the Company carried on the condensed balance sheet are carried at amortized cost with the exception
of cash and financial derivative instruments, specifically fixed price contracts, which are carried at fair value. There are no
significant differences between the carrying amount of financial instruments and their estimated fair values as at June 30,
2017.
The Company's areas of financial risk management and risks related to financial instruments remained unchanged from December
31, 2016.
The fair value of the Company's cash and financial derivative instruments are quoted in active markets. The Company classifies
the fair value of these transactions according to the following hierarchy.
- Level 1 - quoted prices in active markets for identical financial instruments.
- Level 2 - quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in
markets that are not active; and model-derived valuations in which all significant inputs and value drivers are observable in
active markets.
- Level 3 - valuations derived from valuation techniques in which one or more significant inputs or value drivers are
unobservable.
The Company's cash and financial derivative instruments have been assessed on the fair value hierarchy described above and
classified as Level 1.
Fair values of financial assets and liabilities
The Company's financial instruments include cash, accounts receivable, financial derivative instruments, due from private
placement, current liabilities, provision for future performance based compensation and long term debt. At June 30, 2017, cash
and financial derivative instruments are carried at fair value. Accounts receivable, due from private placement, current
liabilities and provision for future performance based compensation approximate their fair value due to their short term nature.
The carrying value of the long term debt approximates its fair value due to the floating rate of interest charged under the
credit facility.
Commodity price risk management
Peyto uses derivative instruments to reduce its exposure to fluctuations in commodity prices. Peyto considers all of these
transactions to be effective economic hedges for accounting purposes.
Following is a summary of all risk management contracts in place as at June 30, 2017:
| |
|
|
|
Natural Gas
Period Hedged |
Type |
Daily Volume |
Price
(CAD) |
| January 1, 2016 to March 31, 2018 |
Fixed Price |
5,000 GJ |
$2.54/GJ |
| April 1, 2016 to March 31, 2018 |
Fixed Price |
60,000 GJ |
$2.42/GJ to $2.75/GJ |
| April 1, 2016 to October 31, 2018 |
Fixed Price |
35,000 GJ |
$2.10/GJ to $2.60/GJ |
| May 1, 2016 to October 31, 2017 |
Fixed Price |
20,000 GJ |
$2.11/GJ to $2.305/GJ |
| May 1, 2016 to October 31, 2018 |
Fixed Price |
20,000 GJ |
$2.20/GJ to $2.35/GJ |
| July 1, 2016 to October 31, 2017 |
Fixed Price |
10,000 GJ |
$2.375/GJ to $2.3775/GJ |
| July 1, 2016 to October 31, 2018 |
Fixed Price |
20,000 GJ |
$2.28/GJ to $2.45/GJ |
| August 1, 2016 to October 31, 2017 |
Fixed Price |
20,000 GJ |
$2.22/GJ to $2.30/GJ |
| August 1, 2016 to October 31, 2018 |
Fixed Price |
25,000 GJ |
$2.3175/GJ to $2.5525/GJ |
| November 1, 2016 to March 31, 2018 |
Fixed Price |
5,000 GJ |
$2.51/GJ |
| April 1, 2017 to October 31, 2017 |
Fixed Price |
160,000 GJ |
$2.23/GJ to $2.86/GJ |
| April 1, 2017 to March 31, 2018 |
Fixed Price |
110,000 GJ |
$2.6050/GJ to $3.1075/GJ |
| April 1, 2017 to October 31, 2018 |
Fixed Price |
10,000 GJ |
$2.585/GJ to $2.745/GJ |
| May 1, 2017 to October 31, 2017 |
Fixed Price |
10,000 GJ |
$2.715GJ to $2.70/GJ |
| June 1, 2017 to October 31, 2017 |
Fixed Price |
10,000 GJ |
$2.725/GJ to $2.94/GJ |
| November 1, 2017 to March 31, 2018 |
Fixed Price |
115,000 GJ |
$2.50/GJ to $3.27/GJ |
| November 1, 2017 to October 31, 2018 |
Fixed Price |
5,000 GJ |
$2.92/GJ |
| April 1, 2018 to October 31, 2018 |
Fixed Price |
50,000 GJ |
$2.39/GJ to $2.565/GJ |
| April 1, 2018 to March 31, 2019 |
Fixed Price |
110,000 GJ |
$2.3425/GJ to $2.625/GJ |
| April 1, 2019 to March 31, 2020 |
Fixed Price |
10,000 GJ |
$2.445/GJ to $2.50/GJ |
As at June 30, 2017, Peyto had committed to the future sale of 206,815,000 gigajoules (GJ) of natural gas at an average price
of $2.57 per GJ or $2.96 per mcf. Had these contracts been closed on June 30, 2017, Peyto would have realized a net gain in
the amount of $30.3 million. If the AECO gas price on June 30, 2017 were to decrease by $0.10/GJ, the financial derivative asset
would decrease by approximately $20.7 million. An opposite change in commodity prices rates would result in an opposite
impact.
Subsequent to June 30, 2017 Peyto entered into the following contracts:
| |
|
|
|
Natural Gas
Period Hedged |
Type |
Daily Volume |
Price
(CAD) |
| August 2 - 31,2017 |
Fixed Price |
20,000 GJ |
$1.81/GJ |
| August 3 - 31,2017 |
Fixed Price |
30,000 GJ |
$1.80/GJ |
| September 1, 2017 to October 31,2017 |
Fixed Price |
5,000 GJ |
$1.935/GJ |
| November 1, 2017 to March 31, 2018 |
Fixed Price |
10,000 GJ |
$2.60/GJ to $2.6625/GJ |
| April 1, 2018 to March 31, 2019 |
Fixed Price |
10,000 GJ |
$2.385/GJ to $2.415/GJ |
9. Related party transactions
Certain directors of Peyto are considered to have significant influence over other reporting entities that Peyto engages in
transactions with. Such services are provided in the normal course of business and at market rates. These directors are
not involved in the day to day operational decision making of the Company. The dollar value of the transactions between
Peyto and the related reporting entities is summarized below:
| |
|
|
| Expense |
|
Accounts Payable |
| Three Months ended June 30 |
Six Months ended June 30 |
As at June 30 |
| 2017 |
2016 |
2017 |
2016 |
2017 |
2016 |
| 151.3 |
288.4 |
211.0 |
650.6 |
227.7 |
427.4 |
10. Commitments
In addition to those recorded on the Company's balance sheet, the following is a summary of Peyto's contractual obligations
and commitments as at June 30, 2017:
| |
|
|
|
|
|
|
| |
2017 |
2018 |
2019 |
2020 |
2021 |
Thereafter |
| Interest payments(1) |
7,900 |
22,085 |
19,890 |
17,695 |
12,295 |
26,645 |
| Transportation commitments |
19,901 |
45,577 |
39,955 |
28,160 |
24,016 |
92,733 |
| Operating leases |
1,042 |
2,197 |
2,197 |
2,197 |
2,197 |
11,360 |
| Other |
157 |
- |
- |
- |
- |
- |
| Total |
29,000 |
69,859 |
62,042 |
48,052 |
38,508 |
130,738 |
(1) Fixed interest payments on senior unsecured notes
11. Contingencies
On October 1, 2013, two shareholders (the "Plaintiffs") of Poseidon Concepts Corp. ("Poseidon") filed an application to seek
leave of the Alberta Court of Queen's Bench (the "Court") to pursue a class action lawsuit against the Company, as a successor to
new Open Range Energy Corp. ("New Open Range") (the "Poseidon Shareholder Application"). The proposed action contains
various claims relating to alleged misrepresentations in disclosure documents of Poseidon (not New Open Range), which claims are
also alleged in class action lawsuits filed in Alberta, Ontario, and Quebec earlier in 2013 against Poseidon and certain of its
current and former directors and officers, and underwriters involved in the public offering of common shares of Poseidon
completed in February 2012. The proposed class action seeks various declarations and damages including compensatory
damages which the Plaintiffs estimate at $651 million and punitive damages which the Plaintiffs estimate at
$10 million, which damage amounts appear to be duplicative of damage amounts claimed in the class actions against Poseidon,
certain of its current and former directors and officers, and underwriters.
New Open Range was incorporated on September 14, 2011 solely for purposes of participating in a plan of arrangement with
Poseidon (formerly named Open Range Energy Corp. ("Old Open Range")), which was completed on November 1, 2011. Pursuant
to such arrangement, Poseidon completed a corporate reorganization resulting in two separate publicly-traded companies: Poseidon,
which continued to carry on the energy service and supply business; and New Open Range, which carried on Poseidon's former oil
and gas exploration and production business. Peyto acquired all of the issued and outstanding common shares of New Open
Range on August 14, 2012. On April 9, 2013, Poseidon obtained creditor protection under the Companies' Creditor
Protection Act.
On October 31, 2013, Poseidon filed a lawsuit with the Court naming the Company as a co-defendant along with the former
directors and officers of Poseidon, the former directors and officers of Old Open Range and the former directors and officers of
New Open Range (the "Poseidon Action"). Poseidon claims, among other things, that the Company is vicariously liable for the
alleged wrongful acts and breaches of duty of the directors, officers and employees of New Open Range.
On September 24, 2014 Poseidon amended its claim in the Poseidon Action to add Poseidon's auditor, KPMG LLP ("KPMG"), as a
defendant.
On May 4, 2016, KPMG issued a third party claim in the Poseidon Action against Poseidon's former officers and directors and
Peyto for any liability KPMG is determined to have to Poseidon. Peyto is not required to deliver a defence to this claim at
this time.
On July 3, 2014, the Plaintiffs filed a lawsuit with the Court against KPMG LLP, Poseidon's and Old Open Range's former
auditors, making allegations substantially similar to those in the other claims (the "KPMG Poseidon Shareholder KPMG
Action"). On July 29, 2014, KPMG LLP filed a statement of defence and a third party claim against Poseidon, the Company
and the former directors and officers of Poseidon. The third party claim seeks, among other things, an indemnity, or
alternatively contribution, from the third party defendants with respect to any judgment awarded against KPMG LLP.
The allegations against New Open Range contained in the claims described above are based on factual matters that pre-existed
the Company's acquisition of New Open Range. The Company has not yet been required to defend either of the actions. If it is
required to defend the actions, the Company intends to aggressively protect its interests and the interests of its Shareholders
and will seek all available legal remedies in defending the actions.
Officers
Darren Gee
President and Chief Executive Officer |
Tim Louie
Vice President, Land |
| |
|
Scott Robinson
Executive Vice President and Chief Operating Officer |
David Thomas
Vice President, Exploration |
| |
|
Kathy Turgeon
Vice President, Finance and Chief Financial Officer |
Jean-Paul Lachance
Vice President, Exploitation |
| |
|
Lee Curran
Vice President, Drilling and Completions |
Stephen Chetner
Corporate Secretary |
| |
|
Todd Burdick
Vice President, Production |
|
| Directors |
| |
Don Gray, Chairman |
| |
Stephen Chetner |
| |
Brian Davis |
| |
Michael MacBean, Lead Independent Director |
| |
Darren Gee |
| |
Gregory Fletcher |
| |
Scott Robinson |
| Auditors |
| |
Deloitte LLP |
| Solicitors |
| |
Burnet, Duckworth & Palmer LLP |
| Bankers |
| |
Bank of Montreal |
| |
Bank of Tokyo-Mitsubishi UFJ, Ltd., Canada Branch |
| |
Royal Bank of Canada |
| |
Canadian Imperial Bank of Commerce |
| |
The Toronto-Dominion Bank |
| |
Bank of Nova Scotia |
| |
Alberta Treasury Branches |
| |
Canadian Western Bank |
| Transfer Agent |
| |
Computershare |
| Head Office |
| |
300, 600 - 3 Avenue SW |
| |
Calgary, AB |
| |
T2P 0G5 |
| |
Phone: 403.261.6081 |
| |
Fax: 403.451.4100 |
|
Web: http://www.peyto.com/
|
| Stock Listing Symbol: PEY.TO |
| |
Toronto Stock Exchange |