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Peyto Exploration & Development Corp. reported its first-quarter 2025 earnings, revealing a mixed financial performance with earnings per share (EPS) of $0.57, falling short of the forecasted $0.635. Revenue closely matched expectations at $354.27 million, slightly below the anticipated $354.28 million. Following the earnings announcement, Peyto’s stock price experienced a 1.38% decline, closing at $19.36, reflecting investor concerns over the earnings miss.
Key Takeaways
- Peyto’s EPS of $0.57 missed the forecast of $0.635.
- Revenue was nearly on target at $354.27 million.
- Stock price declined by 1.38% post-earnings.
- Operational efficiency improved with reduced cash costs.
- Innovations in drilling techniques are expected to enhance future returns.
Company Performance
Peyto demonstrated strong operational efficiency in Q1 2025, achieving a 71% operating margin and reducing cash costs to $1.42 per Mcfe from $1.51 in Q1 2024. The company drilled 19 wells, completed 13, and tied in 14, while discovering a new trend in the Flare Channel, which promises top-decile returns. Despite the earnings miss, Peyto’s diversified gas marketing strategy and minimal exposure to the AECO market position it well against industry peers.
Financial Highlights
- Revenue: $354.27 million (slightly below forecast)
- Earnings per share: $0.57 (below forecast of $0.635)
- Operating margin: 71%
- Cash costs: Reduced to $1.42 per Mcfe from $1.51 in Q1 2024
- Dividends paid: $66 million
- Net debt retired: $66 million
Earnings vs. Forecast
Peyto’s EPS of $0.57 fell short of the forecasted $0.635, marking a miss of approximately 10.2%. Revenue was nearly on target, with a negligible difference from expectations. This performance contrasts with previous quarters where Peyto often met or exceeded earnings expectations, raising concerns about its immediate financial trajectory.
Market Reaction
Following the earnings release, Peyto’s stock price declined by 1.38%, closing at $19.36. This movement reflects investor disappointment with the earnings miss, despite the stock trading near its 52-week high of $19.79. InvestingPro analysis indicates the stock is trading at a high revenue valuation multiple, with a notable 4.37% dividend yield and a 23-year track record of consistent dividend payments. The market’s reaction suggests cautious sentiment, influenced by the company’s shortfall in meeting EPS expectations. InvestingPro subscribers have access to 8 additional key insights about Peyto’s valuation and growth prospects.
Outlook & Guidance
Peyto plans to invest $450-$500 million in capital spending for 2025, focusing on production additions at $10-$11,000 per flowing BOE. The company aims to offset a 27% annual corporate decline rate and continue its systematic hedging strategy, maintaining 50-75% hedged in the current season. These initiatives are expected to bolster Peyto’s competitive position and drive future growth. For detailed analysis of Peyto’s investment potential, InvestingPro offers a comprehensive research report, part of its coverage of 1,400+ US equities, providing actionable insights through expert analysis and intuitive visuals.
Executive Commentary
CEO JP Lachant expressed optimism, stating, "We think the future is bright for natural gas," highlighting the company’s strategic focus on market diversification. COO Riley Frame emphasized cost efficiency, noting, "Our drill cost per horizontal meter was 40 percent less than our historical program," underscoring Peyto’s commitment to operational innovation.
Risks and Challenges
- Fluctuating natural gas prices could impact revenue.
- Potential delays in capital projects may affect production targets.
- Regulatory changes in environmental policies could increase operational costs.
- Market volatility and geopolitical factors may influence commodity prices.
- Competition from other energy producers may pressure market share.
Q&A
During the earnings call, analysts inquired about the new Cardium drilling technique, seeking clarity on its potential to reduce costs and enhance production efficiency. Executives also addressed questions on the company’s hedging strategy and measures to further reduce operating costs, indicating confidence in Peyto’s ability to navigate market challenges.
Full transcript - Peyto Exploration&Development Corp (PEY) Q1 2025:
Conference Moderator: and welcome to Peyto’s First Quarter twenty twenty five Financial Results Conference Call. At this time, all participants are in a listen only mode. After the speakers’ presentation, there will be a question and answer session. I would now like to turn the conference over to JP Lachant, President and CEO. You may begin.
JP Lachant, President and CEO, Peyto: Thanks, Zalonda. Good morning folks and thanks for joining Peyto’s first quarter conference call. Before we begin, I’d like to remind everybody that all statements made by the company during this call are subject to the same forward looking disclaimer and advisory set forth in the company’s news release issued yesterday. Present with me to answer questions is Riley Frame, our Chief Operating Officer, Davies Carlson, our CFO, Todd Burdick, our VP of Production, Derek Sember, our VP of Land and Business Development and the newest members of our senior management team, Mike Collins, Mike Rees and Kristi Raffos. Before we begin the quarter on behalf of the management group I’d like to say a big thank you to the entire Peyto team both in the office and in the field for their contributions to another strong quarter.
And it’s been an event filled first four months of twenty twenty five. We started out warm in January but got some very cool weather in February across all of North America. And that sent gas prices up sharply at many hubs and PTA was fortunate to have some of our gas pointed at these markets. It’s been very significant. It also took a significant dent out of Alberta gas storage inventories which otherwise would have been very full coming out of winter and into injection season.
Although we believe tariffs as they currently exist have a minimal impact on Peyto’s business. The uncertainty of the world economy continues to prevail and it’s likely going to be a bumpy ride for a while. But you know despite all this turmoil it’s business as usual for Peyto. And we continue to manage the things that we control like drilling good wells and managing our production operations. Turning to Peyto specifically we generated funds from operations of $225,000,000 in the quarter thanks thanks in part to our gas hedging gains which amounted to about or amounted to 83¢ per Mcf and our gas diversification portfolio which created another $1.13 per Mcf in value.
Together that fetched us $4.17 per Mcf in the quarter or 89% higher than the monthly AECO price. We still lead the industry with the lowest cash costs And with that superior gas revenue of our marketing program, it allowed us to generate a strong 71% operating margin. Cash costs were 1.42 per Mcfe for the quarter down from $1.51 per Mcfe in Q1 of twenty twenty four. As we continue to realize synergies with the Repsol assets in our operations. Our operating costs are typically higher in the first quarter due to the extra costs associated with operating in the cold.
And we expect that they will continue to come down throughout the year very similar to last year. We spent $102,000,000 of capital this past quarter. And the strong cash flow that we had not only allowed us to pay down or to pay out $66,000,000 in dividends, but coincidentally also allowed us to retire about $66,000,000 in debt. Net debt. On the marketing side of our business, our gas diversification to U.
S. Price markets such as Parkway and Dawn and in US Midwest like Ventura and Chicago. We gas point at Emerson, Henry Hub. They all contributed to a sound beat relative to the average monthly AECO price of 1.92 a DJ. However, Alberta gas pool prices averaged only $40 a megawatt fetching us a similar price to AECO for the quarter on our direct supply deal to the Cascade Power plant.
And just a reminder, we’re at the start of a fifteen year deal there and you know a longer term as power demand increases we expect that contract will be quite lucrative. You know in the meantime this is exactly why we want our gas to be directed to multiple markets. So we’re not reliant on just one customer. Obviously it’s not good business model. Looking forward to the summer and the rest of 2025 we’re excited as most producers are about the prospect of gas heading off the West Coast through LNG Canada this year.
We think this will be constructive to the AECO market, but the timing of the startup and the duration to ramp up to full capacity are still to be determined. In the meantime, we only have a small amount of our gas or natural gas exposed to the AECO market through 2025. Switching to operations, we drilled 19 wells in the quarter completed 13 and tied in 14. Part of the drilling program included a follow-up to the prolific flare channel that we discovered last year. It tested latest well tested similar to the other two wells on that trend which were amongst the top decile of our individual returns that we drilled last year.
And Mike Reese and his team see another 20 plus locations there to drill on that trend in the fullness of time. We also drilled a couple of low working interest Cardium wells in the Chambers area to test a different drilling technique. It’s new to Paydal but not to the industry. We targeted lower in the zone to improve drilling penetration rates. Each of those two wells we drilled had a 2,500 meter laterals and took about two weeks to drill from spud to rig release.
So costs were way lower than our conventional method. We stimulated each of those with a 60 stage ball drop cemented liner system and they’re flowing back now. But we intend to follow-up with a couple more wells later in the year to continue to test this concept. And why does it matter? Well 25% of our undrilled 2P reserves are booked to the Cardium and this method could improve the economics of some of those plays.
Facility capital was a little lighter than usual in Q1. We expect Q3 will be a bigger outlay of that part of our business since we have the old man plant turnaround scheduled for September and the construction of a field compressor project in the Obed area. That will the Obed compressor project will bring more liquid rich gas to the Edson gas plant via the Central Foothills gas gathering system in Q4. We did construct a pipeline project in Q1 that was as part of that capital outlay to connect some third party gas to the Brazeau plant. And this is for a multi year agreement that is strategic and that we can use it for other third parties in the area too.
We have lots of spare capacity at Brazeau and this won’t impact our growth plans there. Beyond Brazeau, we continue to pursue other third party volumes in key areas like Edson where we have an extensive large diameter gathering system and spare capacity that could be used. Looking forward our business plan and guidance remains unchanged for 2025. As I said earlier business as usual. We plan to spend between $450 to $500,000,000 to generate production adds at a capital efficiency rate between 10 and $11,000 per flowing BOE by year end.
And that should be more than enough to offset our annual corporate decline rate of 27%. We think the future is bright for natural gas especially as LNG projects in LNG Canada and others come to fruition. We still believe Alberta is the right place to develop data centers and we know that there are approximately 10 gigawatts of projects in the ASOQ including Wonder Valley. And maybe all these projects don’t get built but you know they have the potential to increase Alberta gas demand by 1.3 Bcf a day over the next few years. So we think we’re you know it’s been it’s a very exciting time to be a natural gas producer in Canada.
So with that Tawanda I imagine there’s some questions that maybe we’ll open up to the phones and pick some callers questions about the court.
Conference Moderator: Thank you. Ladies and gentlemen, as a reminder to ask a question, please press star 11 on your telephone, then wait for your name to be announced. To withdraw your question, Our first question comes from the line of Amir with ATB.
Amir, Analyst, ATB: Just had a quick follow-up question for you regarding that Cardium well. Was the difference this well related just to the drilling in terms of drilling lower in the Cardium just getting better rate of penetration or did you do anything different with the completions as well in terms of the 60 stage ball drop?
JP Lachant, President and CEO, Peyto: Yeah, so yeah, we drilled a little bit lower in the Cardium formation as I mentioned earlier, but yes, did change the completion up. I’ll maybe get Riley to comment around some more specifics around that. Maybe Riley, you can elaborate a little bit more on what exactly know, we mean by that.
Riley Frame, Chief Operating Officer, Peyto: Yeah, so I mean the concept of drilling in the bio turbated or lower portion of the Cardium has been around for a while. Lots of guys down in the Farrier area are doing it. But yeah, the big difference is just the rate of penetration that you’re able to achieve in that lower zone is quite a bit higher. The other advantage that we got out of doing it this way was also being able to drill these wells as a true monobore. So setting a surface casing and then drilling all the way to TD without setting intermediate.
So sort of that monobore drilling low and then setting the cemented ball drop liner system are the three main components that really changed the overall design of these wells for us and the cost structure associated with those has come in really, really good. So just, you know, to give you some sense of it, our drill cost per horizontal meter was 40 percent less than our historical program in this area. So, you know, as JP alluded to the, the impact on the go forward guardian could be fairly significant if we can continue to see success with this. The completion side, it’s aside from the size of it just fairly standard completion, typical to what we would normally pump except just obviously scale to stages that we ran in the wellbore.
Amir, Analyst, ATB: With the longer lateral like 60 stages on a ball drop is still fairly effective like you don’t get to an issue of the small ball sizes?
Riley Frame, Chief Operating Officer, Peyto: We definitely like there is definitely frictional issues towards the end of the lateral, but we’re still able to pump at at rates that are comparable to what the guys are doing with the coil shifter. We didn’t see too many issues and we were able to place everything that we want to do in this well at 16. So Okay,
Amir, Analyst, ATB: okay, no appreciate the color. And then just a second question more on the hedges. The I know you have a diversified program and you layer in hedges regardless of the gas price. Just curious, what is your target for percentage hedge for given that you’re now starting to layer in 27 hedges? So just curious what your target would be for ’26 and ’27 by the time we get to the end of ’25 in terms of percentage hedged that you’d like to be?
JP Lachant, President and CEO, Peyto: Yeah, as a reminder, the mechanical nature of our hedging program is such that we, you know, we want to land in a current season anywhere between 50 to say as much as say 80% to 7580% hedged, volumes hedged when once we arrive in that season. But we’re going three years out so six seasons out six gas seasons out. So we’re we will we will time it such that we’re doing this fairly regularly routinely not at any price. We do have some you know lower end targets. We’re not going to hedge gas at two dollars But certainly as we move forward we’re going to continue to hedge out 27 and bring that up in the curve as we get closer and closer to it.
And so that way we’re not speculating on price we’re doing this we’re doing this systematically over time. So like dollar cost averaging, right? So that hasn’t changed. Nothing’s changed in our strategy. So our you know guardrails as we like to call it are 50 to say 75% in the current season when we arrive and that papers down as we move out in the future over the next three years.
Amir, Analyst, ATB: Okay, sounds good. Thanks for the color.
Conference Moderator: Thank you. Ladies and gentlemen, that’s star one one to ask a question. I’m showing no further questions in the queue. I’d like to turn the call back over to JP.
JP Lachant, President and CEO, Peyto: Yeah, we do have some other questions that have come in here overnight or certainly live from yesterday. So maybe I’ll turn Todd for one here it’s about operating costs. Look we were down at 50¢ per Mcf per Mcfe last quarter we’re down from year over year and I know our price our costs usually you know fall down will drop throughout the year we have a history of doing that But you maybe you want to provide some more color on how you’re to get there Todd as we move forward throughout the rest of the year.
Riley Frame, Chief Operating Officer, Peyto: Yeah, sure. Yeah, obviously like you mentioned Q1 typically higher Q2 can be a little around the same maybe a little lower depending on how breakup goes. Obviously we’re hauling water at half loads so you’ve got twice the trips and twice the cost on that side of things. That’s we’re quickly coming out of breakup here so we should see those costs improve. But you know, we continue to work on small projects within the Edson gas plant that are aimed at reducing costs at the plant including we recently completed a project that allows for delivery of produced water into the plant and then on to the plants disposal well.
So we expect that will result in a modest reduction to our water handling costs. As we sort of understand better the compatibility side of water and that sort of thing we expect to expand the I guess area around the plant that will able to that we’ll be able to bring water in instead of bringing it to third party processors and disposal companies. Additionally, we also made some changes to some of our maintenance contracts at a few of
JP Lachant, President and CEO, Peyto: our gas
Riley Frame, Chief Operating Officer, Peyto: plants which should help with a small reduction in some of the plant maintenance costs. And then on the chemical side in May we saw a 10% reduction in methanol costs which is encouraging given we saw about a 25% increase over the past year. While we’re cautiously optimistic obviously you’ve mentioned the bumpiness of the world markets and methanol is sort of tied to the world economy in some ways. So we don’t have a clear line of sight if those prices are going to continue to drop or even hold where they are currently. But we’re cautiously optimistic on that front.
So you put all those together, we’ve it’s small little gains that we’re getting right now and we’re not getting big gains by shutting in sour production and things like that but we’re continue to push and work on it in fractions of a penny if you will. We always done. That’s right. Okay.
JP Lachant, President and CEO, Peyto: I don’t see any more questions on the caller’s list. So I might just wrap it up here folks because we all got work to do. So thanks for tuning in. Remember our AGM is next week Thursday, May twenty second at three p. M.
It’s in our building on the Plus 15 Level. It’s an in person meeting and we’ll work so we’re not telecasting it live but we’ll record it and we’ll put it up on the website later. So vote now if you haven’t already and we’ll see you at that meeting or see you on the next conference call.
Amir, Analyst, ATB: Thank you.
Conference Moderator: Ladies and gentlemen, that concludes today’s conference call. Thank you for your participation. You may now disconnect.
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