Peyto Exploration & Development Corp. press release

Peyto Delivers Record Reserves Results in 2024

2025-02-21

TSX - Toronto Stock Exchange · Natural Gas · Natural Gas Liquids · Oil · Canada

CALGARY, Alberta, Feb. 20, 2025 (GLOBE NEWSWIRE) -- Peyto Exploration & Development Corp. (TSX: PEY) ("Peyto" or the "Company") is pleased to present the results and in-depth analysis of its independent reserve report effective December 31, 2024. The evaluation encompassed 100% of Peyto’s reserves and was conducted by GLJ Ltd. ("GLJ"). The year 2024 marks the Company’s 26 th year of successful reserves development.

Peyto’s 2024 capital program marks the first full year of drilling high-quality inventory acquired in the Repsol Canada Limited Partnership transaction. Combined with drilling of high-graded locations on Peyto's legacy assets, the Company delivered several new reserves records in 2024.

2024 HIGHLIGHTS

The Company’s 2024 drilling program developed a record 457 BCFe 1 (76.2 MMboe 2 ) of new Proved Developed Producing ("PDP") reserves at a Finding, Development and Acquisition ("FD&A" 3 ) cost of $1.00/Mcfe ($6.01/boe). The Company’s continuous focus on finding and developing reserves at low costs has generated a five-year average PDP FD&A of $1.13/Mcfe. The Peyto team delivered record production in December of 2024 of 136 Mboe/d (721 MMcf/d gas, 15,708 bbl/d NGLs), generating an exit rate capital efficiency 4 of $9,700/boe/d, one of the best in Company history. The Company’s systematic hedging program and market diversification strategy, along with Peyto’s low operating cost structure, were able to deliver an average field netback 5 of $3.26/Mcfe ($19.59/boe). This resulted in a 3.3 times recycle ratio 6 (2.1 times on an unhedged basis), the highest on record over the last 20 years, despite the lowest annual AECO natural gas price during the same period. The 2024 drilling program produced a record average PDP reserves-per-well booking in the Company’s history at 6.0 Bcfe, up from 4.3 Bcfe in 2023. Peyto invested $458 million in capital 7 in 2024, using 64% of funds from operations 8 ("FFO"), while returning a record $258 million in dividends to shareholders. In 2024, the Company drilled 58 wells previously booked as proved and probable undeveloped reserves. Peyto converted these locations to developed reserves at a record low finding cost of $0.66/Mcfe, 26% lower than the 2023 reserve report assignments. Peyto’s history of converting reserves at or below booked values provides confidence in the remaining future undeveloped reserves and the associated capital requirements. The before tax, 10% discounted, net present value 9 ("BT NPV 10 ") of the Company’s reserves are $4.9 billion, $7.1 billion, and $9.6 billion on a PDP, Total Proved ("TP"), and Total Proved plus Probable ("P+P") basis, respectively. The Peyto capital program generated a 16% increase in PDP reserves value over last year, despite the decrease in forecasted prices used by GLJ in this year's report. Peyto replaced 166%, 199% and 239% of annual production with new PDP, TP, and P+P reserves, respectively. Peyto delivered reserves growth across all categories in 2024 from its successful drilling program. PDP reserves increased 7% to 474 MMboe, TP reserves increased 5% to 876 MMboe, and P+P reserves increased 5% to 1,367 MMboe. On a per share basis, reserves increased 5%, 3%, and 3% for PDP, TP, and P+P, respectively. Since inception, the Company has generated a 20% compound annual growth rate ("CAGR" 10 ) on a PDP reserves per share basis. FD&A costs, including the change in Future Development Capital ("FDC"), for TP and P+P reserve categories were $0.90/Mcfe ($5.38/boe) and $0.61/Mcfe ($3.67/boe), which represents a 37% and a 50% reduction from 2023, respectively. The Reserve Life Index 11 ("RLI") for the PDP remains unchanged at 10 years despite an 11% increase in year-over-year fourth quarter production. TP and P+P reserves RLI remain strong at 18 and 28 years, respectively, supported by the Company’s industry leading cash costs. Peyto’s PDP reserve life is one of the longest in the industry. Total Company reserve values (BT NPV 10 ) for PDP, TP, and P+P reserves on a debt adjusted basis implies $17.81/share, $28.79/share, and $41.52/share, respectively, using the 3 Consultant Average ("3CA") price forecast (GLJ, McDaniel, and Sproule).

2025 CAPITAL BUDGET

The Board of Directors of Peyto has approved a 2025 capital budget of $450–$500 million. The capital program is projected to add between 43,000 and 48,000 boe/d of new production by year end and more than offset the Company’s estimated 27% decline in base production. The Company expects to utilize four drilling rigs to drill 70–80 net horizontal wells, representing approximately 80% of the 2025 budget. The remaining capital is planned for optimization and maintenance projects for Peyto’s 15 operating gas plants and extensive gathering system infrastructure.

Peyto’s active hedging program has secured prices for approximately 473 MMcf/d of natural gas for 2025 at an average price over $4/Mcf, and when combined with the Company’s liquids hedges, provides revenue certainty of over $800 million, reflecting one of the highest levels of price protection in the industry. This revenue more than covers the expected capital program and dividends to shareholders for the year. Peyto’s strong hedge book, market diversification and industry leading cash costs supports the continued development of high-quality inventory despite current low AECO natural gas prices.

While the threat of U.S. tariffs continues to weigh on the industry and the country, management believes Peyto’s commodity hedges and natural gas diversification contracts will not be directly impacted. The majority of Peyto’s market diversification arrangements that have US hub pricing exposure are physically delivered in Canada and not the US. Additionally, most of the supplies used in the Company’s operations are sourced domestically, which should also limit any effects from counter tariffs that might be imposed by the Government of Canada. As always, Peyto will remain flexible and responsive to the business environment as it unfolds through 2025.

HISTORICAL PERSPECTIVE

Over the past 26 years, Peyto has acquired, explored and discovered 11.2 TCFe of Alberta Deep Basin natural gas and associated liquids, of which 59% has now been developed 12 .

Each year the Company invests in the discovery of new reserves and the efficient and profitable development of existing reserves into high netback natural gas and NGL production for the purpose of generating the maximum possible return on capital for its shareholders.

In those 26 years, a total of $8.9 billion was invested in the Canadian economy in the acquisition and development of 6.6 TCFe of total developed natural gas and associated liquids at an average cost of $1.34/Mcfe, while a weighted average field netback 3 of $3.45/Mcfe delivered $9.2 billion in FFO, $3.1 billion in dividends and distributions to shareholders, and resulted in a cumulative recycle ratio _4 _of 2.6 times. Royalty payments made to Alberta during this time have totaled over $1.3 billion.

Based on the December 31, 2024 evaluation, the debt adjusted, Net Present Value of the Company’s remaining Total Proved plus Probable reserves ("P+P NPV", 10% discount, less debt) was $42/share, comprised of $24/share of developed reserves and $18/share of undeveloped reserves. This includes a provision for all abandonment liability for wells, well sites, pipelines, and facilities for which Peyto has ownership and responsibility.

2024 RESERVES REPORT AND ANALYSIS

The following table summarizes Peyto’s reserves and the discounted Net Present Value of future cash flows, before income tax, using the 3 Consultant Average price forecast (GLJ, McDaniel, and Sproule), at January 1, 2025.

| | | | | | Before Tax Net Present Value ($millions) | | | | | | | | | | Discounted at | | | | | Reserve Category | Gas (BCF) | Oil & NGL (mstb) | BCFe (6:1) | MMboe (6:1) | 0% | 5% | 8% | 10% | | Proved Developed Producing | 2,435 | 67,968 | 2,843 | 474 | $10,183 | $6,693 | $5,471 | $4,879 | | Proved Non-producing | 49 | 1,049 | 55 | 9 | $183 | $110 | $85 | $73 | | Proved Undeveloped | 2,029 | 54,594 | 2,357 | 393 | $6,814 | $3,548 | $2,560 | $2,099 | | Total Proved | 4,513 | 123,611 | 5,255 | 876 | $17,179 | $10,351 | $8,116 | $7,051 | | Probable | 2,552 | 65,826 | 2,947 | 491 | $11,705 | $4,793 | $3,185 | $2,519 | | Total Proved + Probable | 7,065 | 189,437 | 8,202 | 1,367 | $28,885 | $15,143 | $11,302 | $9,569 |

Note: Based on the GLJ report effective December 31, 2024. Tables may not add due to rounding.

ANALYSIS FOR PEYTO SHAREHOLDERS

One of the guiding principles at Peyto is "to tell you the business facts that we would want to know if our positions were reversed". Therefore, each year Peyto provides an extensive analysis of the independent reserve evaluation that goes far beyond industry norms to answer the most important questions for shareholders:

1. Base Reserves – How did the "base reserves" that were on production at the time of the last reserve report perform during the year, and how did any change in commodity price forecast affect their value? 2. Value Creation – How much value did the 2024 capital investments create, both in current producing reserves and in undeveloped potential? Has the Peyto team earned the right to continue investing shareholders’ capital? 3. Growth and Income – Are the projected cash flows capable of funding the growing number of undeveloped opportunities and a sustainable dividend stream to shareholders, without sacrificing Peyto’s financial flexibility or allowing for the timely repayment of any debt used? 4. Risk Assessment – What are the risks associated with the assessment of Peyto’s reserves and the risk of recovering future cashflows from the forecast production streams?

1. Base Reserves

Peyto’s existing PDP reserves at the start of 2024 (the base reserves) were evaluated and adjusted for 2024 production as well as any technical or economic revisions resulting from the additional twelve months of production and commodity price data. As part of GLJ’s independent engineering analysis, all base 2,968 producing reserve entities (zones/wells) were evaluated. These base producing wells and zones represent a total gross Estimated Ultimate Recoverable ("EUR") volume of 9.1TCF (remaining PDP+PA reserves plus all cumulative production to date), which is 2% higher than the prior year estimate. As a result, Peyto is pleased to report that its total base reserves continue to meet expectations, which provides confidence in the prediction of future recoveries.

The commodity price forecast used by GLJ in this year’s evaluation is lower than last year for both natural gas and natural gas liquids, which has had the effect of decreasing the Net Present Value of all reserve categories. For example, 2023’s PDP reserves decreased $268 million (10% of the debt adjusted 2023 NPV 10 ) due to the difference in commodity price forecasts. Despite the decrease in value due to lower prices, record PDP additions from Peyto's 2024 drilling program resulted in a 16% increase in the PDP BT NPV 10 over 2023. The 3CA price forecast used in the evaluation is available on GLJ’s website at www.gljpc.com

For 2025, Peyto estimates a total base decline rate of approximately 27% from the monthly average production in December 2024 of 136 Mboe/d. The historical base decline rates and capital programs are shown in the following table:

| | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | 2025F | | Base Decline (%/yr) * | | 40% | | 37% | | 35% | | 29% | | 23% | | 27% | | 30% | | 29% | | 27% | 27% | | Capital Expenditures ($MM) | | $469 | | $521 | | $232 | | $206 | | $236 | | $365 | | $529 | | $413 | | $458 | $475 |

_*The base decline represents the aggregate annual decline of all wells on production at the end of the previous year. _ 2024 base decline adjusted to account for voluntarily shut-in volumes associated with uneconomic ethane production as well as the shut-down of sour gas production as Edson Gas Plant.

2. Value Creation/Reconciliation

During 2024, Peyto invested a total of $458 million in organic activity to evaluate exploration lands, expand its pipeline gathering network, and drill, complete and tie-in 77 gross (75.3 net) wells. In keeping with Peyto’s strategy of maximizing shareholder returns, an evaluation of the economic outcome of this investment activity is necessary to determine, on a go-forward basis, the best use of shareholders’ capital. Not only does this look back analysis give shareholders a detailed report card on the capital that was invested, but it also helps illustrate the potential returns that can be generated from similar undeveloped future opportunities.

Exploration, Development, and Acquisition Activity

Of the total capital invested in exploration and development activities (excluding acquisitions) in 2024, approximately 1% was spent acquiring lands and seismic, 16% on pipeline and facility projects, and the remaining 83% was spent on drilling, completing, and connecting existing and new reserves. This capital program delivered an incremental 47,300 boe/d, after adjustments for base production backout and voluntary shut-ins, generating a capital efficiency of $9,700/boe/d. Of the 77 gross wells drilled, 58 or 75%, were previously identified as undeveloped reserves in last year’s reserve report (47 Proved, 11 Probable locations). The remaining 19 wells were new locations developed in the year, on both existing and acquired lands, and were not recognized in last year’s report.

The undeveloped reserves at year-end 2023 originally booked to the 58 drilled locations, referred to above, totaled 305 BCFe (5.3 BCFe/well) of Proved plus Probable Undeveloped reserves for a forecast capital investment of $270 million ($0.89/Mcfe). In actuality, 441 BCFe (7.6 BCFe/well) were developed for $289 million of capital on these wells during 2024, resulting in a conversion cost of $0.66/Mcfe or a 26% improvement over what was previously forecast. Peyto continued to increase average horizonal lengths through 2024 which had the result of increasing total capital spent but also significantly improving year-over-year finding costs with greater reserve recoveries. Additionally, the results generated from both Peyto legacy lands and Repsol acquired lands have outperformed expectations throughout the year.

The following table illustrates the Company’s historical performance in converting predicted future undeveloped locations into producing wells and demonstrates that, other than the rapid inflation experienced in 2022, Peyto has typically converted more reserves at a lower cost than was forecast.

| Reserve Year | Total Drills | Booked Locations Converted | Booked/ Total | Forecast Outcome | Forecast Cost per Unit | Actual Outcome | Actual Cost per Unit | Actual/ Forecast Cost per Unit | | | | | | | | | | | gross wells | gross wells | | BCFe | Capex* $MM | $/Mcfe | BCFe | Capex* $MM | $/Mcfe | | | | | | | | | 2015 | 140 | 103 | 74 | % | 307 | $ | 456 | $ | 1.49 | 348 | $ | 385 | $ | 1.11 | -26 | % | | 2016 | 128 | 82 | 64 | % | 254 | $ | 297 | $ | 1.17 | 254 | $ | 246 | $ | 0.97 | -17 | % | | 2017 | 142 | 97 | 68 | % | 298 | $ | 295 | $ | 0.99 | 321 | $ | 305 | $ | 0.95 | -4 | % | | 2018 | 70 | 37 | 53 | % | 104 | $ | 115 | $ | 1.10 | 120 | $ | 118 | $ | 0.98 | -11 | % | | 2019 | 61 | 39 | 64 | % | 129 | $ | 111 | $ | 0.86 | 123 | $ | 109 | $ | 0.88 | +2 | % | | 2020 | 64 | 52 | 81 | % | 172 | $ | 158 | $ | 0.92 | 165 | $ | 135 | $ | 0.82 | -11 | % | | 2021 | 95 | 61 | 64 | % | 221 | $ | 193 | $ | 0.87 | 227 | $ | 192 | $ | 0.84 | -3 | % | | 2022 | 95 | 79 | 83 | % | 331 | $ | 268 | $ | 0.81 | 333 | $ | 320 | $ | 0.96 | +19 | % | | 2023 | 72 | 44 | 61 | % | 171 | $ | 159 | $ | 0.93 | 236 | $ | 196 | $ | 0.83 | -11 | % | | 2024 | 77 | 58 | 75 | % | 305 | $ | 270 | $ | 0.89 | 441 | $ | 289 | $ | 0.66 | -26 | % | | Total | 944 | 652 | 69 | % | 2,292 | $ | 2,322 | $ | 1.01 | 2,568 | $ | 2,295 | $ | 0.89 | -12 | % |

_*Capex represents only well related capital for drilling, completion, equipping and tie-in _

This annual analysis of reserves that are converted from undeveloped to developed provides confidence in the validity of the remaining future undeveloped reserves and the associated capital requirements. This helps Peyto predict future reserve recoveries and capital requirements and reduces the risk associated with valuing future undeveloped locations.

Value Reconciliation

In order to measure the success of all capital invested in 2024, it is necessary to quantify the total amount of value created during the year and compare that to the total amount of capital invested. Each year, Peyto runs last year’s reserve evaluation with this year’s price forecast to remove the change in value attributable to commodity prices. This approach isolates the value created by the Peyto team from the value created (or lost) by those changes outside of their control (ie. Commodity prices). Since capital investments can be funded from a combination of cash flow, debt and equity, it is necessary to know the change in debt and the change in shares outstanding to see if the change in value is truly accretive to shareholders.

At year-end 2024, Peyto’s estimated net debt 13 decreased by approximately 0.7% or $10 million from December 31, 2023, while the number of shares outstanding increased by 2%, due to the Company's stock option program, to 197.8 million shares. In calculating the change in debt, the Company included all capital expenditures, and the total fixed and performance-based compensation paid out for the year. Although these estimates are believed to be accurate, they remain unaudited at this time and may be subject to change.

Based on this reconciliation of changes in BT NPV 0 , the Peyto team was able to create $1.9 billion of PDP, $2.4 billion of TP, and $3.6 billion of P+P undiscounted reserve value, with $458 million of capital investment. The ratio of capital expenditures to value creation is what Peyto refers to as the NPV 0 recycle ratio 4 , which is simply the undiscounted value addition, resulting from the capital program and acquisition, divided by the capital and acquisition investment. For 2024, the PDP NPV 0 recycle ratio is 4.1, which means for each dollar invested, the Peyto team was able to create 4.1 new dollars of undiscounted PDP reserve value.

The historic NPV 0 recycle ratios are presented in the following table.

| | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | 2024 | 10 yr Wt. Avg. | | Capital Investment ($MM) | | $594 | | $469 | | $521 | | $232 | | 206 | | $236 | | $365 | | $529 | | $1,112 | $458 | | | NPV 0 Recycle Ratio | | | | | | | | | | | | | | | | | | | | | | Proved Developed Producing | | 2.3 | | 2.9 | | 2.3 | | 4.6 | | 1.8 | | 3.5 | | 5.2 | | 3.6 | | 2.0 | 4.1 | 3.0 | | Total Proved | | 3.3 | | 4.2 | | 3.2 | | 11.7 | | 5.5 | | 6.9 | | 5.5 | | 4.0 | | 4.4 | 5.3 | 4.8 | | Total Proved + Probable | | 5.0 | | 7.3 | | 4.0 | | 15.1 | | 9.2 | | 6.5 | | 11.5 | | 3.8 | | 7.8 | 7.9 | 7.2 |

_*NPV 0 (net present value) recycle ratio is calculated by dividing the undiscounted NPV of reserves added in the year by the total capital cost for the period (eg. 2024 Proved Developed Producing $1,857/$458) =4.1). _

3. G rowth and Income

Over the past 22 years, Peyto has paid a total of $22.63/share to shareholders in the form of distributions and dividends. Peyto’s objective, as a dividend paying, growth-oriented corporation, is to profitably grow the resources which generate sustainable income (dividends) for shareholders. For income to be sustainable and grow, Peyto must profitably find and develop more reserves. Simply increasing production from the existing reserves will not make that income more sustainable. RLI, or a reserve to production ratio, provides a measure of this long-term sustainability.