Q3 2023 Highlights:
- Peyto announced on
September 6, 2023 , the acquisition ofRepsol Canada Energy Partnership (“Repsol”) for cash consideration of$US468 million ($636 million ) prior to post-closing adjustments (the “Acquisition”). The Acquisition provides Peyto with over 800 low-risk, high-quality drilling locations1 and synergistic infrastructure to allow for the optimization of production and costs in theGreater Sundance Area . Peyto closed the Acquisition onOctober 17, 2023 , therefore no contribution from the assets are included in third quarter results. - Average production volumes of 97,981 boe/d (520.5MMcf/d of natural gas, 11,231 bbls/d of NGLs) delivered
$148 million in funds from operations2,3 (“FFO”), or$0.84 /diluted share, and$54 million of free funds flow4 in the quarter. - Peyto generated earnings of
$57 million , or$0.33 /diluted share, in the quarter and$205 million or$1.16 /diluted share, for the year to date. Of these profits to date, approximately 85% or$175 million ($1.00 /share) have been returned to shareholders as dividends. - Quarterly cash costs of
$1.05 /Mcfe, before royalties of$0.29 /Mcfe, consist of operating costs of$0.44 /Mcfe, transportation of$0.29 /Mcfe, G&A of$0.04 /Mcfe and interest expense of$0.28 /Mcfe. Peyto continues to have the lowest cash costs in the Canadian natural gas industry. - Total capital expenditures5 were
$94 million in the quarter. Peyto drilled 19 wells (18.1 net), completed 19 wells (18.3 net), and brought 20 wells (18.9 net) on production for$81 million . The Company’s drilling and completions costs per meter decreased 3% from Q2 2023 as the effects of inflation have moderated. - Peyto delivered a 69% operating margin6 and a 25% profit margin7, resulting in a 12% return on capital employed8 (“ROCE”) and a 14% return on equity8 (“ROE”), on a trailing 12-month basis.
- Peyto has increased its hedge position materially in conjunction with closing the Acquisition, which currently protects approximately 68% and 56% of forecast gas production for 2024 and 2025, respectively.
- Over the past three years, Peyto has increased production from 78,200 boe/d to 97,981 boe/d, returned over
$300 million in dividends to shareholders, while reducing net debt by over$300 million .
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1 See “Drilling Locations” in this news release for further information.
2 This press release contains certain non-GAAP and other financial measures to analyze financial performance, financial position, and cash flow including, but not limited to “operating margin”, “profit margin”, “return on capital”, “return on equity”, “netback”, “funds from operations”, “free funds flow”, “total cash costs”, and “net debt”. These non-GAAP and other financial measures do not have any standardized meaning prescribed under IFRS and therefore may not be comparable to similar measures presented by other entities. The non-GAAP and other financial measures should not be considered to be more meaningful than GAAP measures which are determined in accordance with IFRS, such as earnings, cash flow from operating activities, and cash flow used in investing activities, as indicators of Peyto’s performance. See “Non-GAAP and Other Financial Measures” included at the end of this press release and in Peyto’s most recently filed MD&A for an explanation of these financial measures and reconciliation to the most directly comparable financial measure under IFRS.
3 Funds from operations is a non-GAAP financial measure. See “non-GAAP and Other Financial Measures” in this news release and in the Q3 2023 MD&A.
4 Free funds flow is a non-GAAP financial measure. See “non-GAAP and Other Financial Measures” in this news release and in the Q3 2023 MD&A.
5 Total capital expenditures is a non-GAAP financial measure. See “non-GAAP and Other Financial Measures” in this news release and in the Q3 2023 MD&A.
6 Operating Margin is a non-GAAP financial ratio. See “non-GAAP and Other Financial Measures” in this news release.
7 Profit Margin is a non-GAAP financial ratio. See “non-GAAP and Other Financial Measures” in this news release.
8 Return on capital employed and return on equity are non-GAAP financial ratios. See “non-GAAP and Other Financial Measures” in this news release and in the Q3 2023 MD&A.
Third Quarter 2023 in Review
Production volumes averaged 97,981 boe/d in the quarter, 6% lower than Q3 2022 due mainly to a reduced capital expenditure program in response to the sharp decline in natural gas prices in early 2023. Additionally, Peyto had an extended turnaround at the Oldman deep-cut gas plant in September that decreased production by approximately 1,000 boe/d in the quarter. Total capital expenditures were
Three Months Ended | % | Nine Months Ended | % | ||||||||||
2023 | 2022 | Change | 2023 | 2022 | Change | ||||||||
Operations | |||||||||||||
Production | |||||||||||||
Natural gas (Mcf/d) | 520,504 | 544,843 | -4 | % | 530,418 | 540,544 | -2 | % | |||||
NGLs (bbl/d) | 11,231 | 13,263 | -15 | % | 11,471 | 12,986 | -12 | % | |||||
Thousand cubic feet equivalent (Mcfe/d @ 1:6) | 587,888 | 624,423 | -6 | % | 599,245 | 618,461 | -3 | % | |||||
Barrels of oil equivalent (boe/d @ 6:1) | 97,981 | 104,071 | -6 | % | 99,874 | 103,077 | -3 | % | |||||
Production per million common shares (boe/d) | 558 | 608 | -8 | % | 570 | 608 | -6 | % | |||||
Product prices (after hedging) | |||||||||||||
Natural gas ($/Mcf) | 3.33 | 3.68 | -10 | % | 3.46 | 3.94 | -12 | % | |||||
NGLs ($/bbl) | 70.25 | 78.07 | -10 | % | 73.02 | 82.54 | -12 | % | |||||
Operating expenses ($/Mcfe) | 0.44 | 0.38 | 16 | % | 0.47 | 0.39 | 21 | % | |||||
Transportation ($/Mcfe) | 0.29 | 0.26 | 12 | % | 0.27 | 0.27 | 0 | % | |||||
Field netback(1) ($/Mcfe) | 3.29 | 3.65 | -10 | % | 3.42 | 3.82 | -10 | % | |||||
General & administrative expenses ($/Mcfe) | 0.04 | 0.02 | 100 | % | 0.04 | 0.02 | 100 | % | |||||
Interest expense ($/Mcfe) | 0.28 | 0.21 | 33 | % | 0.24 | 0.22 | 9 | % | |||||
Financial ( | |||||||||||||
Revenue and realized hedging gains/losses (2) | 231,938 | 279,661 | -17 | % | 729,679 | 874,385 | -17 | % | |||||
Funds from operations(1) | 147,980 | 197,388 | -25 | % | 470,152 | 606,781 | -23 | % | |||||
Funds from operations per share - basic(1) | 0.84 | 1.15 | -27 | % | 2.69 | 3.58 | -25 | % | |||||
Funds from operations per share - diluted(1) | 0.84 | 1.13 | -26 | % | 2.66 | 3.48 | -24 | % | |||||
Total dividends declared(3) | 59,802 | 25,686 | 133 | % | 175,195 | 76,529 | 129 | % | |||||
Total dividends declared per share(3) | 0.34 | 0.15 | 127 | % | 1.00 | 0.45 | 122 | % | |||||
Earnings | 57,444 | 84,861 | -32 | % | 204,840 | 277,222 | -26 | % | |||||
Earnings per share – basic | 0.33 | 0.50 | -34 | % | 1.17 | 1.63 | -28 | % | |||||
Earnings per share – diluted | 0.33 | 0.48 | -31 | % | 1.16 | 1.59 | -27 | % | |||||
Total capital expenditures(1) | 93,579 | 140,400 | -33 | % | 297,701 | 391,820 | -24 | % | |||||
Corporate acquisition | - | - | - | - | 22,220 | -100 | % | ||||||
Total payout ratio(1) | 104 | % | 84 | % | 24 | % | 101 | % | 77 | % | 31 | % | |
Weighted average common shares outstanding - basic | 175,573,752 | 171,230,853 | 3 | % | 175,085,253 | 169,642,562 | 3 | % | |||||
Weighted average common shares outstanding - diluted | 176,732,946 | 175,140,910 | 1 | % | 176,589,394 | 174,204,741 | 1 | % | |||||
Net debt(1) | 877,011 | 970,489 | -10 | % | |||||||||
Shareholders’ equity | 2,290,511 | 1,800,985 | 27 | % | |||||||||
Total assets | 4,325,691 | 3,934,616 | 10 | % |
(1) This is a Non-GAAP financial measure or ratio. See “non-GAAP and Other Financial Measures” in this news release and in the Q3 2023 MD&A.
(2) Excludes revenue from sale of third-party volumes.
(3) Total dividends declared in the three and nine months ended
Exploration & Development
The third quarter 2023 activity was spread out amongst the existing core areas of
Zone | ||||||||
Area | Cardium | Notikewin | Wilrich | Total | ||||
- | - | 5 | 6 | - | - | 11 | ||
Greater | 1 | - | 4 | - | 3 | - | 8 | |
Other | - | - | - | - | - | - | - | |
Total | 1 | - | 9 | 6 | 3 | - | 19 | |
Peyto’s average drilling and completion costs decreased in the third quarter both on an aggregate and on a per unit basis. Drilling cost per meter was reduced by 3% while completion cost per meter and cost per stage were reduced by 3% and 7%, respectively, over Q2 2023. Inflationary costs have stabilized and Peyto continues to optimize its operations through drilling extended reach horizontal (ERH) wells as well as taking advantage of pad drilling to maximize efficiency. Peyto also drilled a larger proportion of Notikewin wells in the quarter which resulted in a slight reduction in average lateral length over the previous quarter in which Peyto drilled a larger proportion of Wilrich wells.
2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2022 Q1 | 2022 Q2 | 2022 Q3 | 2022 Q4 | 2023 Q1 | 2023 Q2 | 2023 Q3(1) | |
Gross Hz Spuds | 126 | 135 | 70 | 61 | 64 | 95 | 95 | 29 | 23 | 23 | 20 | 19 | 15 | 19 |
Measured Depth (m) | 4,197 | 4,229 | 4,020 | 3,848 | 4,247 | 4,453 | 4,611 | 4,291 | 4,571 | 4,994 | 4692 | 5,198 | 4,768 | 4,728 |
Drilling ($MM/well) | $2.64 | |||||||||||||
$ per meter | $559 | |||||||||||||
Completion ($MM/well) | 1.58 | $1.38 | ||||||||||||
Hz Length (m) | 1,460 | 1,241 | 1,348 | 1,484 | 1,682 | 1,612 | 1,661 | 1,529 | 1,602 | 1,654 | 1870 | 1,947 | 2,140 | 1,853 |
$ per Hz Length (m) | $743 | |||||||||||||
$ ‘000 per Stage | $46 |
(1) Based on field estimates and may be subject to minor adjustments going forward.
(2) Peyto’s
Marketing
Commodity Prices
During Q3 2023, Peyto realized a natural gas price after hedging and diversification of
Condensate and pentanes volumes were sold in Q3 2023 for an average price of
Hedging
The Company has been active in hedging future production with financial and physical fixed price contracts to protect a portion of its future revenue from commodity price and foreign exchange volatility. Currently, Peyto has 405 MMcf/d of natural gas hedged at
Peyto is exposed to volatility in the Canadian/US dollar exchange ratio since commodities are effectively priced in US dollars and converted to Canadian dollars. The Company protects a portion of its US dollar exposure with foreign exchange forward contracts and has hedged
The Company’s fixed price contracts combined with its diversification to the Cascade power plant, expected to commence in Q1 of 2024, and other premium market hubs in
Financial Results
The Company’s realized natural gas and NGL sales yielded a combined revenue stream of
2020 | 2021 | 2022 | 2023 | ||||||||||||
($/Mcfe) | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 |
Revenue (1) | 2.30 | 1.73 | 2.15 | 2.71 | 3.70 | 2.92 | 3.33 | 4.42 | 5.25 | 5.48 | 5.01 | 5.74 | 5.10 | 4.07 | 4.32 |
Royalties | 0.12 | 0.06 | 0.14 | 0.18 | 0.29 | 0.26 | 0.36 | 0.53 | 0.60 | 0.95 | 0.70 | 0.72 | 0.53 | 0.18 | 0.29 |
Op Costs | 0.39 | 0.36 | 0.32 | 0.31 | 0.36 | 0.35 | 0.35 | 0.32 | 0.41 | 0.39 | 0.38 | 0.41 | 0.50 | 0.47 | 0.44 |
Transportation | 0.19 | 0.17 | 0.16 | 0.15 | 0.17 | 0.22 | 0.23 | 0.23 | 0.28 | 0.27 | 0.26 | 0.22 | 0.24 | 0.29 | 0.29 |
G&A | 0.04 | 0.04 | 0.04 | 0.04 | 0.04 | 0.05 | 0.02 | 0.02 | 0.03 | 0.02 | 0.02 | 0.02 | 0.03 | 0.05 | 0.04 |
Interest | 0.29 | 0.33 | 0.35 | 0.38 | 0.38 | 0.33 | 0.26 | 0.22 | 0.21 | 0.20 | 0.21 | 0.21 | 0.22 | 0.22 | 0.28 |
Cash cost pre-royalty | 0.91 | 0.90 | 0.87 | 0.88 | 0.95 | 0.95 | 0.86 | 0.79 | 0.93 | 0.88 | 0.87 | 0.86 | 0.99 | 1.03 | 1.05 |
Total Cash Costs9 | 1.03 | 0.96 | 1.01 | 1.06 | 1.24 | 1.21 | 1.22 | 1.32 | 1.53 | 1.83 | 1.57 | 1.58 | 1.52 | 1.21 | 1.34 |
Cash Netback10 | 1.27 | 0.77 | 1.14 | 1.65 | 2.46 | 1.71 | 2.11 | 3.10 | 3.72 | 3.65 | 3.44 | 4.16 | 3.58 | 2.86 | 2.98 |
Operating Margin | 55% | 45% | 53% | 61% | 67% | 59% | 63% | 70% | 71% | 67% | 69% | 72% | 71% | 70% | 69% |
(1) Revenue includes other income, net third party sales and realized gains on foreign exchange.
Depletion, depreciation, and amortization charges of
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9 Total Cash costs is a non-GAAP financial ratio. See “non-GAAP and Other Financial Measures” in this news release.
10 Cash netback is a non-GAAP financial ratio. See “non-GAAP and Other Financial Measures” in this news release and in the Q3 2023 MD&A.
Activity Update
Since the end of the quarter, Peyto activity has been steady with four rigs running across the core lands in
On
2024 Preliminary Budget and Plans
Peyto’s preliminary capital budget for 2024 includes a low-risk development program on both the recently acquired Repsol assets and the Company’s legacy core properties. Well activity will be dispersed across all core areas but with a larger portion in the
Major facility projects for 2024 include a maintenance turnaround at the recently acquired
While specific details of the 2024 budget are still being finalized, a capital program between $450–$500 million is anticipated and is estimated to add approximately 40,000 to 45,000 boe/d of new production by the end of the year. This volume addition would be more than sufficient to offset the annual forecast decline of 25% on anticipated 2023 exit production of between 126,000 to 128,000 boe/d.
This production addition cost represents an improvement of current capital efficiency due to the increased quality of the largely under-developed opportunities on the Repsol lands. Similar to prior years, there may also be opportunities throughout the year for unplanned acquisitions or infrastructure investments that the Company chooses to pursue. As always, Peyto will ensure any capital plans will be nimble with the ability to react to changes in commodity prices, service costs and the global economic environment.
2023 Sustainability Report
Peyto has released its 2023 Sustainability Report which details the Company’s environmental, social, and governance activities for the year ended
Key highlights in the report include:
- 63% reduction of methane emissions and flared volumes since 2016.
- Continued reduction in new land disturbances using pad drilling and existing infrastructure.
- Lower fresh water use intensity through high flowback recovery and more effective stimulations.
During 2024, Peyto will re-establish baseline quantities for emissions, land and water use intensity and re-evaluate targets and priorities including the new Repsol assets. Ongoing initiatives include further methane emissions reducing projects and investigation of carbon capture and sequestration options.
Peyto’s 25th Anniversary
This past October marks the Company’s 25th anniversary. During the past 25 years Peyto has invested
Management Changes
Peyto is pleased to announce the promotion of
As part of the Peyto’s orderly leadership succession process,
Peyto’s purposeful approach to senior management appointments has always been to promote from within to ensure the culture and core values of the Company are maintained. With the addition of the Repsol assets, the leadership team is focused and excited to embark on a new chapter in Peyto’s rich history of operational excellence, profitable growth and shareholder returns.
Outlook
Peyto expects to grow production to over 160,000 boe/d by the end of 2026 through capital investments ranging between $450–$500 million per year and believes this growth plan is well-timed with the expansion of LNG facilities in both the US and
Conference Call and Webcast
A conference call will be held with senior management of Peyto to answer questions with respect to the Company’s Q3 2023 results on
Access to the webcast can be found at: https://edge.media-server.com/mmc/p/r7opwsc4. To participate in the call, please register for the event at: https://register.vevent.com/register/BI6f63a06006664f1b9166322272dc7821. Participants will be issued a dial in number and PIN to join the conference call and ask questions. Alternatively, questions can be submitted prior to the call at info@peyto.com. The conference call will be archived on the
Management’s Discussion and Analysis and Financial Statements
A copy of the third quarter report to shareholders, including the MD&A, unaudited consolidated financial statements and related notes, is available at https://www.peyto.com/Files/Financials/2023/Q32023FS.pdf and at https://www.peyto.com/Files/Financials/2023/Q32023MDA.pdf and will be filed at SEDAR+, www.sedarplus.ca at a later date.
President & Chief Executive Officer
Phone: (403) 261-6081
Fax: (403) 451-4100
info@peyto.com
Cautionary Statements
Forward-Looking Statements
This news release contains certain forward-looking statements or information (“forward-looking statements”) as defined by applicable securities laws that involve substantial known and unknown risks and uncertainties, many of which are beyond Peyto’s control. These statements relate to future events or the Company’s future performance. All statements other than statements of historical fact may be forward-looking statements. The use of any of the words “plan”, “expect”, “prospective”, “project”, “intend”, “believe”, “should”, “anticipate”, “estimate”, or other similar words or statements that certain events “may” or “will” occur are intended to identify forward-looking statements. The projections, estimates and beliefs contained in such forward-looking statements are based on management’s estimates, opinions, and assumptions at the time the statements were made, including assumptions relating to: macro-economic conditions, including public health concerns and other geopolitical risks, the condition of the global economy and, specifically, the condition of the crude oil and natural gas industry, and the ongoing significant volatility in world markets; other industry conditions; changes in laws and regulations including, without limitation, the adoption of new environmental laws and regulations and changes in how they are interpreted and enforced; increased competition; the availability of qualified operating or management personnel; fluctuations in other commodity prices, foreign exchange or interest rates; stock market volatility and fluctuations in market valuations of companies with respect to announced transactions and the final valuations thereof; results of exploration and testing activities; and the ability to obtain required approvals and extensions from regulatory authorities. Management of the Company believes the expectations reflected in those forward-looking statements are reasonable, but no assurances 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 that Peyto will derive from them. As such, undue reliance should not be placed on forward-looking statements. Forward-looking statements contained herein include, but are not limited to, statements regarding: Repsol acquisition synergies including Peyto’s ability to optimize production and costs; management’s assessment of Peyto’s future plans and operations; the 2023 activity plans and capital expenditure program; project economics including internal rate of return; the commencement date of the Cascade Power Plant; Peyto’s preliminary budget and capital activity plans for 2024; estimated new production of 40,000 to 45,000 boe/d by the end of 2024; forecasted 2024 base decline of 25%; estimated 2023 production exit rate of 126,000 to 128,000 boe/d; Peyto’s 2024 management changes; management’s projection to grow production to over 160,000 boe/d by the end of 2026 through capital investments ranging between $450–$500 million per year; and the Company’s overall strategy and focus.
The forward-looking statements contained herein are subject to numerous known and unknown risks and uncertainties that may cause Peyto’s actual financial results, performance or achievement in future periods to differ materially from those expressed in, or implied by, these forward-looking statements, including but not limited to, risks associated with: continued changes and volatility in general global economic conditions including, without limitations, the economic conditions in
The Company cautions that the foregoing list of assumptions, risks and uncertainties is not exhaustive. 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. The forward-looking statements, including any future-oriented financial information or financial outlook, contained in this news release speak only as of the date hereof and Peyto does not assume any obligation to publicly update or revise them to reflect new information, future events or circumstances or otherwise, except as may be required pursuant to applicable securities laws.
Barrels of Oil Equivalent
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.
Thousand Cubic Feet Equivalent (Mcfe)
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.
Drilling Locations
This news release discloses drilling locations in three categories: (i) proved locations; (ii) probable locations; and (iii) unbooked locations. In respect of Repsol assets, proved locations and probable locations are derived from a report prepared by
Non-GAAP and Other Financial Measures
Throughout this press release, Peyto employs certain measures to analyze financial performance, financial position, and cash flow. These non-GAAP and other financial measures do not have any standardized meaning prescribed under IFRS and therefore may not be comparable to similar measures presented by other entities. The non-GAAP and other financial measures should not be considered to be more meaningful than GAAP measures which are determined in accordance with IFRS, such as net income (loss), cash flow from operating activities, and cash flow used in investing activities, as indicators of Peyto’s performance.
Non-GAAP Financial Measures
Funds from Operations
“Funds from operations” is a non-GAAP measure which represents cash flows from operating activities before changes in non-cash operating working capital, decommissioning expenditure, provision for future performance-based compensation and transaction costs. Management considers funds from operations and per share calculations of funds from operations to be key measures as they demonstrate the Company’s ability to generate the cash necessary to pay dividends, repay debt and make capital investments. Management believes that by excluding the temporary impact of changes in non-cash operating working capital, funds from operations provides a useful measure of Peyto’s ability to generate cash that is not subject to short-term movements in operating working capital. The most directly comparable GAAP measure is cash flows from operating activities.
Three Months Ended | Nine months Ended | |||||||||
($000) | 2023 | 2022 | 2023 | 2022 | ||||||
Cash flows from operating activities | 139,406 | 205,464 | 471,621 | 611,835 | ||||||
Change in non-cash working capital | 6,352 | (14,155 | ) | (3,691 | ) | (13,633 | ) | |||
Decommissioning expenditures | 1,026 | 3,579 | 1,026 | 3,579 | ||||||
Performance based compensation | - | 2,500 | - | 5,000 | ||||||
Transaction costs | 1,196 | - | 1,196 | - | ||||||
Funds from operations | 147,980 | 197,388 | 470,152 | 606,781 | ||||||
Free Funds Flow
Peyto uses free funds flow as an indicator of the efficiency and liquidity of Peyto’s business, measuring its funds after capital investment available to manage debt levels, pay dividends, and return capital to shareholders through activities such as share repurchases. Peyto calculates free funds flow as funds from operations generated during the period less additions to property, plant and equipment, included in cash flow from investing activities in the statement of cash flows. By removing the impact of current period additions to property, plant and equipment from funds from operations, Management monitors its free funds flow to inform its capital allocation decisions. The most directly comparable GAAP measure to free funds flow is cash from operating activities. The following table details the calculation of free funds flow and the reconciliation from cash flow from operating activities to free funds flow.
Three Months Ended | Nine months Ended | ||||||||||
($000) | 2023 | 2022 | 2023 | 2022 | |||||||
Cash flows from operating activities | 139,406 | 205,464 | 471,621 | 611,835 | |||||||
Change in non-cash working capital | 6,352 | (14,155 | ) | (3,691 | ) | (13,633 | ) | ||||
Decommissioning expenditures | 1,026 | 3,579 | 1,026 | 3,579 | |||||||
Performance based compensation | - | 2,500 | - | 5,000 | |||||||
Transaction costs | 1,196 | - | 1,196 | - | |||||||
Total capital expenditures | (93,579 | ) | (140,400 | ) | (297,701 | ) | (391,820 | ) | |||
Free funds flow | 54,401 | 56,988 | 172,451 | 214,961 | |||||||
Total Capital Expenditures
Peyto uses the term total capital expenditures as a measure of capital investment in exploration and production activity, as well as property acquisitions and divestitures, and such spending is compared to the Company’s annual budgeted capital expenditures. The most directly comparable GAAP measure for total capital expenditures is cash flow used in investing activities. The following table details the calculation of cash flow used in investing activities to total capital expenditures.
Three Months Ended | Nine months Ended | |||||||||||
($000) | 2023 | 2022 | 2023 | 2022 | ||||||||
Cash flows used in investing activities | 350,780 | 140,934 | 579,104 | 401,612 | ||||||||
Change in prepaid capital | (4,051 | ) | (6,740 | ) | (664 | ) | 8,190 | |||||
Deposit for acquisition | (63,303 | ) | - | (63,303 | ) | - | ||||||
Subscription receipt funds in escrow | (201,307 | ) | - | (201,307 | ) | - | ||||||
Corporate acquisitions | - | - | - | (22,220 | ) | |||||||
Change in non-cash working capital relating to investing activities | 11,460 | 6,206 | (16,129 | ) | 4,238 | |||||||
Total capital expenditures | 93,579 | 140,400 | 297,701 | 391,820 | ||||||||
Net Debt
“Net debt” is a non-GAAP financial measure that is the sum of long-term debt and working capital excluding the current financial derivative instruments and current portion of lease obligations and current portion of decommissioning provision. It is used by management to analyze the financial position and leverage of the Company. Net debt is reconciled to long-term debt which is the most directly comparable GAAP measure.
($000) | As at | As at | As at | |||||
Long-term debt | 818,080 | 759,176 | 934,828 | |||||
Current assets | (481,090 | ) | (218,550 | ) | (180,885 | ) | ||
Current liabilities | 449,048 | 471,858 | 506,950 | |||||
Financial derivative instruments - current | 94,213 | (126,081 | ) | (289,149 | ) | |||
Current portion of lease obligation | (1,300 | ) | (1,266 | ) | (1,255 | ) | ||
Decommissioning provision - current | (1,940 | ) | - | - | ||||
Net debt | 877,011 | 885,137 | 970,489 | |||||
Non-GAAP Financial Ratios
Funds from Operations per Share
Peyto presents funds from operations per share by dividing funds from operations by the Company’s diluted or basic weighted average common shares outstanding. “Funds from operations” is a non-GAAP financial measure. Management believes that funds from operations per share provides investors an indicator of funds generated from the business that could be allocated to each shareholder’s equity position.
Netback per MCFE and BOE
“Netback” is a non-GAAP measure that represents the profit margin associated with the production and sale of petroleum and natural gas. Peyto computes “field netback per Mcfe” as commodity sales from production, plus net third party sales, if any, plus other income, less royalties, operating, and transportation expense divided by production. “Cash netback” is calculated as “field netback” less interest, less general and administration expense and plus or minus realized gain (loss) on foreign exchange, divided by production. Netbacks are per unit of production measures used to assess Peyto’s performance and efficiency. The primary factors that produce Peyto’s strong netbacks and high margins are a low-cost structure and the high heat content of its natural gas that results in higher commodity prices.
Three Months Ended | Nine months Ended | ||||||||
($/Mcfe) | 2023 | 2022 | 2023 | 2022 | |||||
Gross Sale Price | 3.67 | 6.48 | 4.37 | 6.66 | |||||
Realized hedging loss (gain) | 0.62 | (1.60 | ) | 0.09 | (1.48 | ) | |||
4.29 | 4.88 | 4.46 | 5.18 | ||||||
Third party sales net of purchases | - | 0.07 | - | 0.03 | |||||
Other income | 0.02 | 0.04 | 0.03 | 0.02 | |||||
Royalties | (0.29 | ) | (0.70 | ) | (0.33 | ) | (0.75 | ) | |
Operating costs | (0.44 | ) | (0.38 | ) | (0.47 | ) | (0.39 | ) | |
Transportation | (0.29 | ) | (0.26 | ) | (0.27 | ) | (0.27 | ) | |
Field netback | 3.29 | 3.65 | 3.42 | 3.82 | |||||
Net general and administrative | (0.04 | ) | (0.02 | ) | (0.04 | ) | (0.02 | ) | |
Interest and financing | (0.28 | ) | (0.21 | ) | (0.24 | ) | (0.22 | ) | |
Realized gain on foreign exchange | 0.01 | 0.02 | - | 0.01 | |||||
Cash netback ($/Mcfe) | 2.98 | 3.44 | 3.14 | 3.59 | |||||
Cash netback ($/boe) | 17.85 | 20.62 | 18.85 | 21.56 | |||||
Return on Equity
Peyto calculates ROE, expressed as a percentage, as Earnings divided by Equity. Peyto uses ROE as a measure of long- term financial performance, to measure how effectively Management utilizes the capital it has been provided by shareholders and to demonstrate to shareholders the returns generated over the long term.
Return on Capital Employed
Peyto calculates ROCE, expressed as a percentage, as EBIT divided by Total Assets less Current Liabilities per the Financial Statements. Peyto uses ROCE as a measure of long-term financial performance, to measure how effectively Management utilizes the capital (debt and equity) it has been provided and to demonstrate to shareholders the returns generated over the long term.
Total Payout Ratio
“Total payout ratio” is a non-GAAP measure which is calculated as the sum of dividends declared plus additions to property, plant and equipment, divided by funds from operations. This ratio represents the percentage of the capital expenditures and dividends that is funded by cashflow. Management uses this measure, among others, to assess the sustainability of Peyto’s dividend and capital program.
Three Months Ended | Nine months Ended | ||||||||
( | 2023 | 2022 | 2023 | 2022 | |||||
Total dividends declared(1) | 59,802 | 25,686 | 175,195 | 76,529 | |||||
Total capital expenditures | 93,579 | 140,400 | 297,701 | 391,820 | |||||
Total payout | 153,381 | 166,086 | 472,896 | 468,349 | |||||
Funds from operations | 147,980 | 197,388 | 470,152 | 606,781 | |||||
Total payout ratio (%) | 104 | % | 84 | % | 101 | % | 77 | % |
(1) Total dividends declared in the three and nine months ended
Operating Margin
Operating Margin is a non-GAAP financial ratio defined as funds from operations, before current tax, divided by revenue before royalties but including realized hedging gains/losses and third-party sales net of purchases.
Profit Margin
Profit Margin is a non-GAAP financial ratio defined as net earnings divided by revenue before royalties but including realized hedging gains/losses and third-party sales net of purchases.
Free Cash flow Ratio
Free Cash Flow Ratio is a non-GAAP financial ratio defined as Free Funds Flow for the quarter divided by Funds From Operations for the quarter. Management monitors its Free Cash Flow Ratio to inform its capital allocation decisions.
Total Cash Costs
Total cash costs is a non-GAAP financial ratio defined as the sum of royalties, operating expenses, transportation expenses, G&A and interest, on a per Mcfe basis. Peyto uses total cash costs to assess operating margin and profit margin.
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