Alberta natural gas producer Peyto Exploration & Development Corp. plans to maintain current production levels until prices strengthen at the AECO hub in Western Canada, according to CEO Jean-Paul Lachance.
“We’re keeping production flat to basically minimize any exposure to the AECO/Empress market,” Lachance told analysts during the second quarter 2024 earnings call.
Calgary-based Peyto operates exclusively in the Alberta Deep Basin.
The company produced 122,299 boe/d (642.8 MMcf/d natural gas) during the second quarter, and plans to “maintain roughly that level until we see prices improve,” Lachance said. He noted that the forward strip as of Wednesday (Aug. 14) showed AECO prices substantially higher in November versus October.
As of Friday, NGI’s NOVA/AECO C forward fixed price stood at C76.9 cents/GJ for October and C$1.599 for November.
Lachance said that natural gas prices during the second quarter were “the lowest we’ve seen since 2019, at AECO anyway.”
Peyto, which reports in Canadian currency (C$1.00/US 73 cents), “expects weaker spot natural gas prices will continue to prevail during the summer across North America as storage inventories remain elevated and supply and demand remain imbalanced,” management said. “Natural gas future markets have softened recently but the company remains well protected with large portions of future natural gas volumes hedged at prices near $4.00/Mcf.”
Peyto pinned 2024 capital expenditures toward the lower end of its guidance range of $450-$500 million, “but is poised to respond as market conditions improve,” the company said. “In the meantime, Peyto will continue to drill and complete wells but will manage production at current levels and build productive capability in anticipation of a higher winter gas price market.
“...Low-cost operations and disciplined hedging program secure cash flows to support future dividends and continued strengthening of the balance sheet over the balance of 2024 and beyond,” Peyto said.
The company designed the capital spending program “to have flexibility in the back half of the year when natural gas prices are forecasted to strengthen. Until that time, the company plans to target the low end of capital guidance and will react to changes in commodity prices as they unfold.”
Longer term, Peyto said it remained bullish on natural gas demand. “The significant construction of new liquefied natural gas facilities with an additional 12 Bcf/d of capacity coming online in the next few years in Canada and the USA, along with the prospects of future natural gas-fired power demand to meet expanding data center and artificial intelligence requirements are encouraging for natural gas producers and their investors,” management said.
Peyto’s natural gas production averaged 643 MMcf/d during the second quarter, up 22% year/year. The growth was primarily driven by its acquisition of Repsol SA’s upstream Canada business in late 2023.
Peyto realized an average natural gas price after hedging and diversification of $2.87/Mcf, or $2.50/GJ, “123% higher than the average AECO daily benchmark of $1.12/GJ,” management said. “Peyto’s natural gas hedging activity resulted in a realized gain of $1.22/Mcf ($71.4 million) due to the sharp decline in AECO and Henry Hub natural gas prices over the past year.”
Peyto reported net income of $51.4 million (26 cents/share) during 2Q2024, versus profits of $57.4 million (33 cents) in 2Q2023.
