2023 HIGHLIGHTS
- Peyto delivered strong reserves growth across all categories in 2023 from its successful drilling program and the strategic acquisition of
Repsol Canada Energy Partnership (the "Repsol Assets"). Proved Developed Producing ("PDP") reserves increased 35% to 443 million barrels of oil equivalent ("MMboe"), Total Proved ("TP") reserves increased 41% to 830 MMboe, and Total Proved plus Probable ("P+P") reserves increased 40% to 1,303 MMboe. On a per share basis, reserves increased 21%, 26%, and 26% for PDP, TP, and P+P, respectively. - Peyto replaced 400%, 727% and 1,077% of annual production with new PDP, TP, and P+P reserves, respectively.
- Peyto developed and acquired 920.2 BCFe1 (153.4 MMboe) of new PDP reserves at a Finding, Development and Acquisition ("FD&A"2) cost of
$1.21 /Mcfe ($7.25 /boe). Peyto’s 3-year average PDP FD&A cost is$1.20 /Mcfe. - Peyto executed a strong drilling program with Finding and Development costs ("F&D"2), before acquisitions, of
$1.15 /Mcfe for PDP reserves while acquiring reserves at$1.24 /mcfe. - FD&A costs, including the change in
Future Development Capital ("FDC"), for TP and P+P reserve categories were$1.43 /Mcfe ($8.56 /boe) and$1.22 /Mcfe ($7.32 /boe), which represents an 18% and a 40% reduction from 2022, respectively. - The Company added 353 gross locations, the majority of which are located on lands acquired from Repsol. This increases the Company’s total booked location count to 1,608 gross locations, 65% of which are classified as Proved.
- The Company’s average field netback3 was
$3 .51Mcfe ($21.07 /boe), resulting in 2.9 times recycle ratio4 (2.7 times on an unhedged basis). - The Reserve Life Index5 ("RLI") for the PDP, TP and P+P reserves increased to 10, 19 and 30 years, respectively, due to acquisition of low decline production from the Repsol Assets. Peyto’s PDP reserve life is one of the longest in the industry.
Total Company reserve values (BT NPV5) for PDP, TP, and P+P reserves on a debt adjusted basis are$23.31 /share,$49.66 /share, and$75.88 /share.
2024 CAPITAL BUDGET
The Board of Directors of Peyto has approved a 2024 capital budget of $450–$500 million. The capital program is projected to add between 40,000 and 45,000 boe/d of new production by year end and offset the estimated 25% decline in base production allowing Peyto to target an exit rate between 135,000 to 140,000 boe/d. The Company expects to utilize four drilling rigs to drill 70–80 net horizontal wells representing approximately 80% of the 2024 budget. The remaining capital is planned for optimization and maintenance projects for Peyto’s 15 operating gas plants and extensive gathering system infrastructure. The Company’s capital program is specifically designed to have flexibility in the back half of the year when natural gas prices are forecasted to strengthen. In the meantime, Peyto will target the low end of guidance and closely monitor future prices and react to the business environment as it unfolds.
Peyto’s active hedging program has secured prices for approximately 70% of projected gas volumes for 2024 at an average price near
REPSOL ACQUISITION
On
Highlights of the Repsol Asset included in the reserves report include:
- Peyto drilled and brought on production 8 wells prior to year-end which exhibited strong reserves assignments of 7.0 BCFe/well at an average half cycle proved plus probable developed producing ("PDP+PA") finding cost per well of
$0.76 /mcfe, demonstrating the significant quality of upside on the new lands. - The reserves attributed to the Repsol Assets in the report are 92 MMboe, 195 MMboe, 300 MMboe in the PDP, TP, P+P categories, respectively, at
December 31, 2023 (excluding the 8 wells drilled by Peyto on the assets in Q4 2023). - Total consideration of
$699 million was paid to acquire the assets and approximates the BT NPV8 of the PDP reserves of$715 million atDecember 31, 2023 , implying all undeveloped drilling opportunities came at no additional cost other than to drill them. - Proved Developed Producing costs for the acquisition including the post-closing adjustment are
$7.44 /boe ($1.24 /Mcfe) with an accretive RLI of 11.2 years. - 299 of the 800 internally identified horizontal drilling locations have been included in the reserves report at
December 31, 2023 with an average P+P well assignment of 835 Mboe/well (5.0 BCFe/well) and half cycle development costs of$5.60 /boe ($0.93 /Mcfe). - Continued optimization of plant throughput and integration with the
Greater Sundance area to reduce costs and extend reserves life.
The total consideration paid for the Repsol Assets was
HISTORICAL PERSPECTIVE
Over the past 25 years, Peyto has acquired, explored and discovered 10.5 TCFe of
Peyto 25-year cumulative production*: | 2.690 | TCFe |
Total Proved + Probable Developed reserves*: | 3.333 | TCFe |
Total Developed natural gas and liquids*: | 6.023 | TCFe |
Total Proved + Probable Undeveloped reserves*: | 4.485 | TCFe |
Total acquired, explored for and discovered*: | 10.508 | TCFe |
* As at | ||
Each year the Company invests in the discovery of new reserves and the efficient and profitable development of existing reserves into high netback natural gas and NGL production for the purpose of generating the maximum possible return on capital for its shareholders.
In those 25 years, a total of
Based on the
2023 RESERVES REPORT AND ANALYSIS
The following table summarizes Peyto’s reserves and the discounted Net Present Value of future cash flows, before income tax, using the 3 Consultant Average ("3CA") pricing forecast (GLJ, McDaniel, and Sproule), at
Before Tax Net Present Value ($millions) | ||||||||||||
Discounted at | ||||||||||||
Reserve Category | Gas (BCF) | Oil & NGL (mstb) | BCFe (6:1) | MMboe (6:1) | 0% | 5% | 8% | 10% | ||||
Proved Developed Producing | 2,240 | 70,125 | 2,661 | 443 | ||||||||
Proved Non-producing | 26 | 580 | 29 | 5 | ||||||||
Proved Undeveloped | 2,005 | 47,943 | 2,293 | 382 | ||||||||
Total Proved | 4,271 | 118,648 | 4,983 | 830 | ||||||||
Probable | 2,480 | 59,582 | 2,837 | 473 | ||||||||
Total Proved + Probable | 6,751 | 178,230 | 7,820 | 1,303 | ||||||||
Note: Based on the GLJ report effective | ||||||||||||
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:
- 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?
- Value Creation – How much value did the 2023 capital investments create, both in current producing reserves and in undeveloped potential? Has the Peyto team earned the right to continue investing shareholders’ capital?
- 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?
- 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 2023 (the base reserves) were evaluated and adjusted for 2023 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 1,883 producing reserve entities (zones/wells) were evaluated. These base producing wells and zones represent a total gross Estimated Ultimate Recoverable ("EUR") volume of 5.4 TCF (remaining PDP+PA reserves plus all cumulative production to date), which is within 0.5% of 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, the debt adjusted NPV, discounted at 5%, of last year’s PDP reserves, decreased
For 2024, GLJ is forecasting the total base production (PDP reserves) to decline to approximately 95,000 boe/d (485MMcf/d of gas and 14,400 bbl/d of NGLs) by
2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024F | ||||||||||||||||||||||
Base Decline (%/yr)* | 40% | 40% | 37% | 35% | 29% | 23% | 27% | 30% | 29% | 25% | |||||||||||||||||||||
Capital Expenditures ($MM) | |||||||||||||||||||||||||||||||
*The base decline represents the aggregate annual decline of all wells on production at the end of the previous year. | |||||||||||||||||||||||||||||||
2. Value Creation/Reconciliation
During 2023, Peyto invested a total of
Exploration, Development, and Acquisition Activity
Of the total capital invested in exploration and development activities (excluding acquisitions) in 2023, approximately 4% was spent acquiring lands and seismic, 16% on pipeline and facility projects, and the remaining 80% was spent drilling, completing, and connecting existing and new reserves. Of the 72 gross wells drilled, 44 or 61%, were previously identified as undeveloped reserves in last year’s reserve report (32 Proved, 12 Probable locations). The remaining 28 wells were 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 2022 originally booked to the 44 drilled locations referred to above, totaled 171 BCFe (3.9 BCFe/well) of Proved plus Probable Undeveloped reserves for a forecast capital investment of
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 | ||||||||
2014 | 123 | 90 | 73% | 278 | $1.50 | 288 | $1.45 | -3% | |||||||
2015 | 140 | 103 | 74% | 307 | $1.49 | 348 | $1.11 | -26% | |||||||
2016 | 128 | 82 | 64% | 254 | $1.17 | 254 | $0.97 | -17% | |||||||
2017 | 142 | 97 | 68% | 298 | $0.99 | 321 | $0.95 | -4% | |||||||
2018 | 70 | 37 | 53% | 104 | $1.10 | 120 | $0.98 | -11% | |||||||
2019 | 61 | 39 | 64% | 129 | $0.86 | 123 | $0.88 | +2% | |||||||
2020 | 64 | 52 | 81% | 172 | $0.92 | 165 | $0.82 | -11% | |||||||
2021 | 95 | 61 | 64% | 221 | $0.87 | 227 | $0.84 | -3% | |||||||
2022 | 95 | 79 | 83% | 331 | $0.81 | 333 | $0.96 | +19% | |||||||
2023 | 72 | 44 | 61% | 171 | $159 | $0.93 | 236 | $196 | $0.83 | -11% | |||||
Total | 1,293 | 894 | 69% | 2,896 | $3,433 | $1.19 | 3,082 | $3,360 | $1.09 | -8% | |||||
*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 helps to validate the accuracy of the remaining future undeveloped reserves and the associated capital requirements. This accuracy helps Peyto predict future reserve recoveries and capital requirements and reduces the risk associated with valuing future undeveloped locations. While the Peyto team will do its utmost plans to continue to drive down costs in 2024, future development capital used in the reserves report for undeveloped locations reflects the most recent costs seen in 2023.
Value Reconciliation
In order to measure the success of all capital invested in 2023, 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 the 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 2023, Peyto’s estimated net debt had increased by 54% or
Based on this reconciliation of changes in BT NPV, the Peyto team was able to create
The historic NPV recycle ratios are presented in the following table.
2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 10 yr Wt. Avg. | |
NPV0 Recycle Ratio | |||||||||||
Proved Developed Producing | 1.5 | 2.3 | 2.9 | 2.3 | 4.6 | 1.8 | 3.5 | 5.2 | 3.6 | 2.0 | 2.7 |
Total Proved | 1.7 | 3.3 | 4.2 | 3.2 | 11.7 | 5.5 | 6.9 | 5.5 | 4.0 | 4.4 | 4.3 |
Total Proved + Probable | 2.6 | 5.0 | 7.3 | 4.0 | 15.1 | 9.2 | 6.5 | 11.5 | 3.8 | 7.8 | 6.5 |
*NPV0 (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. 2023 Proved Developed Producing | |||||||||||
3. Growth and Income
Over the past 20.5 years, Peyto has paid a total of
During 2023, the Company’s capital program and acquisition efforts were successful in replacing 400% of annual production with new PDP reserves, resulting in 35% growth. Fourth quarter production increased 14%, from 105 Mboe/d (553 MMcf/d gas, 12,840 bbl/d NGLs) to 120 Mboe/d (623 MMcf/d gas, 16,175 bbl/d NGLs). The change in both PDP reserves and fourth quarter production resulted in an increase of the PDP RLI (ratio of the two) from 8.6 years to 10.1 years. For comparative purposes, the TP and P+P RLI were 19 and 30 years, respectively. Management believes that the most meaningful method to evaluate the current reserve life is by dividing the PDP reserves by the actual fourth quarter annualized production. This way production is being compared to producing reserves as opposed to producing plus non-producing reserves.
The following table highlights the Company’s historical RLI.
2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
Proved Developed Producing | 7 | 7 | 7 | 7 | 9 | 9 | 9 | 9 | 9 | 10 |
Total Proved | 11 | 11 | 11 | 11 | 16 | 19 | 18 | 16 | 15 | 19 |
Total Proved + Probable | 18 | 17 | 18 | 18 | 25 | 29 | 27 | 25 | 24 | 30 |
Future Undeveloped Opportunities
Every year Peyto finds and develops new drilling inventory that GLJ reviews to create a forecast of future development activity. Their forecast is by no means a complete assessment of Peyto’s current opportunities, nor is Peyto content to just sit back and harvest these current opportunities. Each year the results from the drilling and acquisition activity spawn additional offsetting locations both on currently owned lands and lands Peyto does not yet own but attempts to acquire.
As of
The undiscounted, forecast for Net Operating Income for the TP and P+P reserves over the future development capital schedule, as contained in the evaluator’s report, totals
TP Reserves | P+P Reserves | |
Year | Undisc., ($Millions) | Undisc., ($Millions) |
2024 | 500 | 499 |
2025 | 494 | 501 |
2026 | 397 | 500 |
2027 | 499 | 554 |
2028 | 578 | 592 |
2029 | 560 | 633 |
2030 | 295 | 642 |
2031 | 14 | 651 |
Thereafter | 15 | 1,192 |
Total | 3,352 | 5,764 |
4. Risk Assessment
Effectively 100% of Peyto’s natural gas and natural gas liquid reserves exist in low permeability (tight), sandstone reservoirs in the
In addition, these
Peyto’s high operating margins have meant that forecasts of net operating income are less affected by commodity price volatility than in most traditional reserve evaluations. As a result, the predicted economic life of Peyto’s producing wells is less sensitive to changes in commodity prices. These high operating margins are achieved through the Company’s high level of ownership and control of all levels of production operations, through a concentrated geographic asset base, and by striving to be the lowest cost producer in the industry.
Peyto attempts to further reduce the risk of predicted operating incomes with an active market diversification and hedging program that is designed, over time, to smooth out the volatility in both
Finally, Peyto is the operator of over 96% of its producing wells which fits with the Company’s own and control strategy. As of
These cumulative factors listed above, which reduce the traditional risk of realizing future cashflows from Peyto’s reserves, is why, in Management’s opinion, Peyto’s reserves can be valued at lower discount rates than other, more conventional asset bases and why Management highlights Net Present Values (NPV) at 5% discount rates.
PERFORMANCE RATIOS
The following table highlights annual performance ratios for the last decade. These can be used for comparative purposes, but it is cautioned that on their own they do not measure investment success.
2023 | 2022 | 2021 | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||||||||
Proved Developed Producing | |||||||||||||||||||||||||||||||
FD&A ($/Mcfe) | $1.21 | ||||||||||||||||||||||||||||||
RLI (yrs) | 10 | 9 | 9 | 9 | 9 | 9 | 7 | 7 | 7 | 7 | |||||||||||||||||||||
Recycle Ratio | 2.9 | 2.8 | 2.8 | 1.5 | 1.4 | 2.3 | 2.1 | 1.8 | 2.0 | 1.9 | |||||||||||||||||||||
Reserve Replacement | 400% | 165% | 188% | 127% | 75% | 98% | 171% | 153% | 193% | 183% | |||||||||||||||||||||
Total Proved | |||||||||||||||||||||||||||||||
FD&A ($/Mcfe) | $1.43 | ||||||||||||||||||||||||||||||
RLI (yrs) | 19 | 15 | 16 | 18 | 19 | 16 | 11 | 11 | 11 | 11 | |||||||||||||||||||||
Recycle Ratio | 5.3 | 2.3 | 2.4 | 8.0 | 1.7 | 2.2 | 2.0 | 2.6 | 4.5 | 1.8 | |||||||||||||||||||||
Reserve Replacement | 727% | 159% | 194% | 132% | 137% | 294% | 225% | 183% | 188% | 254% | |||||||||||||||||||||
$3,352 | |||||||||||||||||||||||||||||||
Total Proved + Probable | |||||||||||||||||||||||||||||||
FD&A ($/Mcfe) | $1.22 | ($ | 0.01 | ) | 1.02 | ||||||||||||||||||||||||||
RLI (yrs) | 30 | 24 | 25 | 27 | 29 | 25 | 18 | 18 | 17 | 18 | |||||||||||||||||||||
Recycle Ratio | 7.8 | 1.9 | 2.5 | N/A | 1.7 | 2.6 | 1.9 | 4.2 | 6.1 | 2.1 | |||||||||||||||||||||
Reserve Replacement | 1077% | 167% | 308% | 167% | 140% | 342% | 279% | 283% | 287% | 328% | |||||||||||||||||||||
$5,764 | |||||||||||||||||||||||||||||||
See Non-GAAP Financial Ratios in the Advisories section of this news release for details on the calculation of the above metrics. |
RESERVES COMMITTEE
Peyto has a reserves committee, comprised of independent board members, that reviews the qualifications and appointment of the independent reserve evaluators. The committee also reviews the procedures for providing information to the evaluators. All booked reserves are based upon annual evaluations by the independent qualified reserve evaluators conducted in accordance with the COGE (Canadian Oil and Gas Evaluation) Handbook and National Instrument 51-101. The evaluations are conducted using all available geological and engineering data. The reserves committee has reviewed the reserves information and approved the reserve report.
OUTLOOK
Lower seasonal demand as a result of a warmer-than-normal North American winter, coupled with increased production has left gas storage levels above the 5-year average across the continent. This imbalance continues to put downward pressure on prices for 2024, however, the increase in gas-fired power demand and the buildout of LNG egress projects over the next two years bodes well for the longer-term future of natural gas prices.
Peyto’s risk management strategies such as market diversification and systematic hedging will continue to play an important role in securing the Company’s revenue going forward. Currently, Peyto has protected approximately 70% of forecasted gas production in 2024 with fixed price hedges at prices just under
GENERAL
A complete filing of the Statement of Reserves (form 51-101F1), Report on Reserves (form 51-101F2), and Report of Management and Directors on Oil and Gas Disclosure (form 51-101F3) will be available in the Annual Information Form to be filed by the end of
ADVISORIES
Unaudited Financial Information
Certain financial and operating information included in this news release including, without limitation, exploration and development expenditures, acquisitions, field netbacks, funds from operations, net debt, FD&A costs, Finding & Development costs excluding acquisitions, acquisition costs, and recycle ratio, are based on estimated unaudited financial results for the year ended
Information Regarding Disclosure on Oil and Gas Reserves
Some values set forth in the tables above may not add due to rounding. It should not be assumed that the estimates of future net revenues presented in the tables above represent the fair market value of the reserves. There is no assurance that the forecast prices and costs assumptions will be attained, and variances could be material. The aggregate of the exploration and development costs incurred in the most recent financial year and the change during that year in estimated future development costs generally will not reflect total finding and development costs related to reserves additions for that year.
Forward-Looking Information
This news release contains certain forward–looking information and statements within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "may", "will", "project", "should", "believe", "plans", "intends" and similar expressions are intended to identify forward-looking information or statements. In particular, but without limiting the foregoing, this news release contains forward-looking information and statements pertaining to the following: management's assessment of Peyto's future plans and operations, including the 2024 capital expenditure program, the volumes and estimated value of Peyto's reserves, the life of Peyto's reserves, production estimates, project economics including NPV, netback and recycle ratio, the ability to enhance value of reserves for shareholders and ensure the reserves generate the maximum possible return, the commencement of the Cascade Power Plant, and LNG egress. Forward-looking statements or information are based on a number of material factors, expectations or assumptions of Peyto which have been used to develop such statements and information, but which may prove to be incorrect. Although Peyto believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward-looking information and statements because Peyto can give no assurance that such expectations will prove to be correct. In addition to other factors and assumptions which may be identified herein, assumptions have been made regarding, the impact of increasing competition, the timely receipt of any required regulatory approvals, the ability of Peyto to obtain qualified staff, equipment and services in a timely and cost efficient manner, drilling results, field production rates and decline rates, the ability to replace and expand reserves through development and exploration, future commodity prices, currency, exchange and interest rates, regulatory framework regarding royalties, taxes and environmental matters and the ability of Peyto to successfully market its oil and natural gas products. By their nature, forward-looking information and 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. 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 information and statements will transpire or occur, or if any of them do so, what benefits that Peyto will derive therefrom. The forward-looking information and statements contained in this news release speak only as of the date of this news release, and Peyto does not assume any obligation to publicly update or revise any of the included forward-looking statements or information, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.
This news release contains information, including in respect of Peyto's 2024 capital program, which may constitute future oriented financial information or a financial outlook. Such information was approved by the Board of Directors of Peyto on
Barrels of Oil Equivalent
Boes may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf:1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.
Drilling Locations
This news release discloses drilling locations in three categories: (i) proved locations; (ii) probable locations; and (iii) unbooked locations. Proved locations and probable locations are derived from the independent engineering evaluation of Peyto's oil, NGLs and natural gas interests prepared by GLJ dated
Non-GAAP and Other Financial Measures
Throughout this news 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. Such metrics have been included by Peyto to give readers additional measures to evaluate the Peyto's performance; however, such measures are not reliable indicators of the future performance of Peyto and future performance may not compare to the performance in previous periods and therefore such metrics should not be unduly relied upon.
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 and provision for future performance-based compensation. 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.
Capital Expenditures
Peyto uses the term 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.
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. 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.
Non-GAAP Financial Ratios
Netback per MCFE
"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.
Finding, Development and Acquisition Costs
FD&A (finding, development and acquisition) costs are used as a measure of capital efficiency and are calculated by dividing the capital costs for the period, plus acquisition costs and including the change in undiscounted FDC, by the change in the reserves, incorporating revisions and production, for the same period (eg. 2023 Total Proved ($413MM+$699MM+$1,271MM)/(830.5Mboe-590.2Mboe+38.3Mboe) =
Finding and Development Costs
F&D (finding and development) costs are used as a measure of capital efficiency and are calculated by dividing the capital costs for the period, including the change in undiscounted FDC, by the change in the reserves, incorporating revisions and production, for the same period.
Reserve Life Index
The RLI is calculated by dividing the reserves (in boes) in each category by the annualized Q4 average production rate in boe/year (eg. 2023 Proved Developed Producing 443,492Mboe/(120Mboe/d x365) =10.1). Peyto believes that the most accurate way to evaluate the current reserve life is by dividing the proved developed producing reserves by the annualized actual fourth quarter average production. In Peyto’s opinion, for comparative purposes, the proved developed producing reserve life provides the best measure of sustainability.
NPV0 Recycle Ratio
The NPV0 Recycle Ratio is the ratio of capital expenditures to value creation, which is simply the undiscounted value addition, resulting from the capital program and acquisition, divided by the capital and acquisition investment.
Recycle Ratio
The Recycle Ratio is calculated by dividing the field netback per boe, by the FD&A costs for the period (eg. 2023 Proved Developed Producing
Reserve Replacement Ratio
The reserve replacement ratio is determined by dividing the yearly change in reserves before production by the actual annual production for the year (eg. 2023 Total Proved (830.5Mboe-590.2Mboe+38.3Mboe )/37.8Mboe =727%).
1 BCF and TCF refers to billions and trillions of cubic feet, respectively
2 F&D and FD&A are non-GAAP financial ratios. See "non-GAAP and Other Financial Measures" in this news release
3 Field netback operations is a non-GAAP financial ratio. See "non-GAAP and Other Financial Measures" in this news release
4 Recycle ratio and NPV Recycle Ratio are non-GAAP financial ratios. See "non-GAAP and Other Financial Measures" in this news release
5 RLI is a non-GAAP financial ratio. See "non-GAAP and Other Financial Measures" in this news release
6 See "Drilling Locations" in this news release for further information
7 Developed Reserves is Total Proved + Probable Developed Reserves and includes Proved + Probable Developed Producing reserves and Proved + Probable Developed Non-Producing reserves
Source:
2024 GlobeNewswire, Inc., source