CALGARY, ALBERTA--(Marketwired - Aug. 10, 2016) - Peyto Exploration & Development Corp. ("Peyto" or the "Company") (TSX:PEY) is pleased to present its operating and financial results for the second quarter of the 2016 fiscal year. A continued focus on profitability and efficiency resulted in a 73% operating margin(1) and a 7% profit margin(2). Additional highlights included:
- Production per share up 4%. Second quarter 2016 production increased 7%, 4% per share, from 497 MMcfe/d (82,750 boe/d) in Q2 2015 to 529 MMcfe/d (88,177 boe/d) in Q2 2016. Approximately 17,400 boe/d of new production (not included in the figure above) was deliberately deferred during the second quarter 2016 due to low commodity prices.
- Cash costs of $0.80/Mcfe ($0.70/Mcfe or $4.22/boe excluding royalties). Total cash costs, including $0.10/Mcfe royalties, $0.26/Mcfe operating costs, $0.17/Mcfe transportation, $0.06/Mcfe G&A and $0.21/Mcfe interest expense, were down from $0.82/Mcfe in Q2 2015 despite the deferral of 17,400 boe/d of production. Lower realized commodity prices, partially offset by these lower cash costs, resulted in a cash netback of $2.12/Mcfe ($12.73/boe) or a 73% operating margin.
- Funds from operations per share of $0.63. Generated $102 million in Funds from Operations ("FFO") in Q2 2016 down 24% (27% per share) from $135 million in Q2 2015 due to a 23% reduction in realized commodity prices, partially offset by the 7% increase in production volumes.
- Capital investment of $51 million. A total of 19 gross wells (18 net) were drilled in the second quarter. New wells brought on production over the last 12 months produced or were capable of 46,700 boe/d at the end of the quarter, which, when combined with a trailing twelve month capital investment of $566 million, equates to an annualized capital efficiency of $12,000/boe/d. This incremental volume includes the new production that was deferred in the quarter.
- Earnings of $0.06/share, dividends of $0.33/share. Earnings of $9 million were generated in the quarter while dividends of $53 million were paid to shareholders, representing a before tax payout ratio of 53% of FFO. This quarter represents Peyto's 46th consecutive quarter (11.5 years) of earnings, totaling over $2 billion in cumulative earnings.
Second Quarter 2016 in Review
Peyto continued its track record of positive earnings in the second quarter, despite experiencing the lowest natural gas prices in its almost 18 year history. AECO natural gas prices during April and May averaged just $1.11/GJ, dipping as low as $0.38/GJ on May 9, 2016. The Company quickly adapted to these volatile natural gas prices by deliberately deferring the production from many of the new wells drilled and completed in late 2015 and early 2016 in order to improve the returns that will be generated from those capital investments. Owning and operating all of its production and processing facilities provided the flexibility to achieve this value capturing strategy. Drilling activity in the second quarter continued to take advantage of low industry activity and improved execution efficiency which resulted in a 12% reduction in drilling and completion cost per horizontal well from the first quarter of 2016, or 26% lower than the annual 2015 average cost. By the end of the quarter, natural gas prices had improved to over $2/GJ allowing Peyto to begin bringing back on the deferred volumes. Despite the effect of the low commodity prices in the quarter, the first half financial and operating performance resulted in an annualized 6% Return on Equity (ROE) and 6% Return on Capital Employed (ROCE).
| (1) | Operating Margin is defined as funds from operations divided by revenue before royalties but including realized hedging gains/losses. |
| (2) | Profit Margin is defined as net earnings for the quarter divided by revenue before royalties but including realized hedging gains/losses. |
| Natural gas volumes recorded in thousand cubic feet (mcf) are converted to barrels of oil equivalent (boe) using the ratio of six (6) thousand cubic feet to one (1) barrel of oil (bbl). Natural gas liquids and oil volumes in barrel of oil (bbl) are converted to thousand cubic feet equivalent (Mcfe) using a ratio of one (1) barrel of oil to six (6) thousand cubic feet. This could be misleading, particularly if used in isolation as it is based on an energy equivalency conversion method primarily applied at the burner tip and does not represent a value equivalency at the wellhead. | |
| Three Months Ended June 30 | % | Six Months Ended June 30 | % | ||||||
| 2016 | 2015 | Change | 2016 | 2015 | Change | ||||
| Operations | |||||||||
| Production | |||||||||
| Natural gas (mcf/d) | 489,337 | 455,443 | 7 | % | 528,284 | 450,148 | 17 | % | |
| Oil & NGLs (bbl/d) | 6,621 | 6,843 | -3 | % | 6,815 | 7,148 | -5 | % | |
| Thousand cubic feet equivalent (mcfe/d @ 1:6) | 529,064 | 496,498 | 7 | % | 569,171 | 489,528 | 16 | % | |
| Barrels of oil equivalent (boe/d @ 6:1) | 88,177 | 82,750 | 7 | % | 94,862 | 82,172 | 15 | % | |
| Production per million common shares (boe/d)* | 545 | 523 | 4 | % | 591 | 527 | 12 | % | |
| Product prices | |||||||||
| Natural gas ($/mcf) | 2.60 | 3.50 | -26 | % | 2.85 | 3.73 | -24 | % | |
| Oil & NGLs ($/bbl) | 41.46 | 43.54 | -5 | % | 37.42 | 40.16 | -7 | % | |
| Operating expenses ($/mcfe) | 0.26 | 0.31 | -16 | % | 0.25 | 0.31 | -19 | % | |
| Transportation ($/mcfe) | 0.17 | 0.15 | 13 | % | 0.16 | 0.15 | 7 | % | |
| Field netback ($/mcfe) | 2.39 | 3.22 | -26 | % | 2.57 | 3.37 | -24 | % | |
| General & administrative expenses ($/mcfe) | 0.06 | 0.04 | 50 | % | 0.04 | 0.04 | - | ||
| Interest expense ($/mcfe) | 0.21 | 0.19 | 11 | % | 0.19 | 0.20 | -5 | % | |
| Financial ($000, except per share*) | |||||||||
| Revenue | 140,891 | 172,202 | -18 | % | 320,243 | 356,014 | -10 | % | |
| Royalties | 4,874 | 5,875 | -17 | % | 11,859 | 13,867 | -14 | % | |
| Funds from operations | 102,178 | 135,195 | -24 | % | 242,085 | 279,837 | -13 | % | |
| Funds from operations per share | 0.63 | 0.86 | -27 | % | 1.51 | 1.80 | -16 | % | |
| Total dividends | 53,735 | 52,456 | 2 | % | 106,255 | 103,237 | 3 | % | |
| Total dividends per share | 0.33 | 0.33 | - | 0.66 | 0.66 | - | |||
| Payout ratio (%) | 53 | 39 | 36 | % | 44 | 37 | 19 | % | |
| Earnings | 9,102 | 12,295 | -26 | % | 51,045 | 56,808 | -10 | % | |
| Earnings per diluted share | 0.06 | 0.08 | -25 | % | 0.32 | 0.36 | -11 | % | |
| Capital expenditures | 50,634 | 116,643 | -57 | % | 226,397 | 254,720 | -11 | % | |
| Weighted average common shares outstanding | 161,845,999 | 158,117,853 | 2 | % | 160,494,262 | 155,996,994 | 3 | % | |
| As at June 30 | |||||||||
| End of period shares outstanding (includes shares to be issued | 164,630,168 | 158,985,273 | 4 | % | |||||
| Net debt | 1,018,796 | 934,262 | 9 | % | |||||
| Shareholders' equity | 1,656,995 | 1,640,616 | 1 | % | |||||
| Total assets | 3,389,786 | 3,178,991 | 7 | % | |||||
*all per share amounts using weighted average common shares outstanding
| Three Months Ended June 30 | Six Months Ended June 30 | |||||||
| ($000 except per share) | 2016 | 2015 | 2016 | 2015 | ||||
| Cash flows from operating activities | 103,123 | 134,316 | 241,241 | 260,450 | ||||
| Change in non-cash working capital | (9,279 | ) | (792 | ) | (10,391 | ) | 14,695 | |
| Change in provision for performance based compensation | 8,334 | 1,671 | 11,235 | 4,692 | ||||
| Funds from operations | 102,178 | 135,195 | 242,085 | 279,837 | ||||
| Funds from operations per share | 0.63 | 0.86 | 1.51 | 1.80 | ||||
(1) Funds from operations - Management uses funds from operations to analyze the operating performance of its energy assets. In order to facilitate comparative analysis, funds from operations is defined throughout this report as earnings before performance based compensation, non-cash and non-recurring expenses. Management believes that funds from operations is an important parameter to measure the value of an asset when combined with reserve life. Funds from operations is not a measure recognized by Canadian generally accepted accounting principles ("GAAP") and does not have a standardized meaning prescribed by GAAP. Therefore, funds from operations, as defined by Peyto, may not be comparable to similar measures presented by other issuers, and investors are cautioned that funds from operations should not be construed as an alternative to net earnings, cash flow from operating activities or other measures of financial performance calculated in accordance with GAAP. Funds from operations cannot be assured and future dvidends may vary.
Exploration & Development
Drilling activity in the second quarter was restricted to areas where pad drilling savings could be maximized and transportation restrictions minimized due to spring break-up and rain soaked conditions. Despite a short term deterioration in natural gas price, an ongoing reduction in drilling and completion costs ensured these locations still met Peyto's strict rate of return objectives. The bulk of the drilling efforts in the quarter were focused on the Wilrich formation across Peyto's Deep Basin lands, in particular in the Greater Sundance and Brazeau areas.
In total, 19 gross wells were drilled across the land base as shown in the following table:
| Field | ||||||||
| Zone | Sundance | Nosehill | Wildhay | Ansell | Berland | Kisku/ Kakwa |
Brazeau | Total Wells Drilled |
| Cardium | ||||||||
| Notikewin | 3 | 3 | ||||||
| Falher | 1 | 1 | ||||||
| Wilrich | 5 | 2 | 1 | 3 | 3 | 14 | ||
| Bluesky | 1 | 1 | ||||||
| Total | 10 | 2 | 1 | 3 | 3 | 19 | ||
Second quarter drilling costs per meter were 15% lower while completion costs per meter were 45% lower than average annual 2015 costs, as continued service cost reductions and efficiency gains were realized. The following table illustrates the ongoing efficiency gains which are contributing to lower overall development costs and helping enhance returns during periods of low natural gas prices:
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 Q1 |
2016 Q2 |
|||||||||
| Gross Hz Spuds | 52 | 70 | 86 | 99 | 123 | 140 | 36 | 19 | ||||||||
| Measured Depth (m) | 3,762 | 3,903 | 4,017 | 4,179 | 4,251 | 4,309 | 4,231 | 4,269 | ||||||||
| Hz Length (m) | 1,335 | 1,303 | 1,358 | 1,409 | 1,460 | 1,531 | 1,460 | 1,444 | ||||||||
| Drilling ($MM/well) | $ | 2.763 | $ | 2.823 | $ | 2.789 | $ | 2.720 | $ | 2.660 | $ | 2.159 | $ | 1.916 | $ | 1.824 |
| $ per meter | $ | 734 | $ | 723 | $ | 694 | $ | 651 | $ | 626 | $ | 501 | $ | 453 | $ | 427 |
| Completion ($MM/well) | $ | 1.358 | $ | 1.676 | $ | 1.672 | $ | 1.625 | $ | 1.702 | $ | 1.212 | $ | 0.910 | $ | 0.667 |
| $ per meter | $ | 361 | $ | 429 | $ | 416 | $ | 389 | $ | 400 | $ | 281 | $ | 215 | $ | 157 |
Capital Expenditures
Capital investments in the second quarter of 2016 totalled $50.6 million, comprised of $37.9 million for drilling and completions, $2.4 million for wellsite equipment and well connections, $8.5 million for major pipelines and facilities, and $1.3 million for new land and seismic data. The balance of the capital, or $0.5 million, was for leasehold improvements to build out Peyto's new head office space.
In total, 19 gross wells (18 net) were spud in the quarter and 11 gross wells (10.7 net) were completed with 20 gross wells (19.1 net) ready to be placed on production. Facility and pipeline investments of $8.5 million included the balance of the Brazeau Gas Plant expansion which was commissioned in early April 2016. In addition, 10 new sections of prospective deep basin lands were added in the quarter, purchased at Crown land sales for an average price of $154/acre.
Summer Production Strategy
The decline of Alberta natural gas (AECO) prices for the first 5 months of 2016 prompted Peyto to adopt a summer production strategy that temporarily deferred the flush production from newly drilled, high rate wells, to take advantage of higher fall prices. This same strategy was successfully utilized in 2012 and 2013 in similar environments to improve the returns on the capital investment. This strategy was paired with an enhanced hedging strategy to prevent the follow-on winter prices from further deterioration, but left Peyto with the flexibility to respond quickly and bring on-stream the shut in volumes as prices recovered. Over the second quarter of 2016, Peyto left approximately 17,400 boe/d of production shut in from newly drilled wells. While Peyto's cash cost were low enough to generate positive operating income from these new wells, even at these low summer prices, the total return on the capital invested in these new wells was enhanced considerably through this proven hold-back strategy. It was only because of Peyto's strong infrastructure position and operating flexibility that the Company was able to take this very opportunistic approach to volatile natural gas prices.
Commodity Prices
US natural gas production, which peaked in Q1 2016, fell steadily during the second quarter which helped to erode the storage surplus that had been weighing heavily on natural gas prices. As a result, both US and Canadian natural gas prices climbed during the second quarter, faster than had been originally forecast. AECO daily natural gas prices rose from a low of $0.38 CAD/GJ on May 9, 2016 to end the quarter at $2.23 CAD/GJ on June 30, 2016, while Henry Hub daily prices rose from a low of $1.49 USD/MMBTU on April 13, 2016 to end the quarter at $2.82 USD/MMBTU.
The average second quarter 2016 Alberta (AECO) daily natural gas price was $1.33/GJ down 47% from $2.52/GJ in Q2 2015, while the average AECO monthly price was $1.18/GJ down 53% from $2.53/GJ a year prior. As Peyto had committed 97% of its production to the monthly price, Peyto realized a volume weighted average natural gas price of $1.21/GJ or $1.38/Mcf, after the TCPL fuel charge and prior to a $1.22/Mcf hedging gain.
As a result of the Company's hedging strategy, approximately 68% of Peyto's natural gas production received a fixed price of $2.74/GJ, or $3.17/Mcf, when including hedges that were put in place over the previous 24 months, while the balance received the blended daily and monthly price of $1.21/GJ, resulting in an after-hedge price of $2.26/GJ or $2.60/Mcf.
Natural gas liquid prices were impacted by the Fort McMurray forest fires as heavy oil production interruptions resulted in surplus diluent (condensate and pentanes) which temporarily suppressed those product prices. In addition, liquids trucking charges in the second quarter are traditionally higher due to spring breakup road bans, resulting in condensate and pentane prices, which traditionally sell for a premium to Canadian Light Sweet oil, trading at a discount. Peyto realized an oil and natural gas liquids price of $41.46/bbl in Q2 2016 for its blend of condensate, pentane, butane and propane, which represented 76% of the $54.70/bbl average Canadian Light Sweet posted price, down from 82% in Q1 2016, as shown in the following table.
Commodity Prices by Component
| Three Months ended | June 30 | Mar 31 | June 30 | |||
| 2016 | 2016 | 2015 | ||||
| Natural gas - after hedging ($/mcf) | 2.60 | 3.06 | 3.50 | |||
| Natural gas - after hedging ($/GJ) | 2.26 | 2.66 | 3.06 | |||
| AECO monthly ($/GJ) | 1.18 | 2.00 | 2.53 | |||
| Oil and natural gas liquids ($/bbl) | ||||||
| Condensate ($/bbl) | 47.83 | 37.86 | 62.36 | |||
| Propane ($/bbl) | 0.40 | (7.70 | ) | (6.07 | ) | |
| Butane ($/bbl) | 19.52 | 16.58 | 22.63 | |||
| Pentane ($/bbl) | 50.67 | 41.30 | 61.36 | |||
| Total Oil and natural gas liquids ($/bbl) | 41.46 | 33.60 | 43.54 | |||
| Canadian Light Sweet postings ($/bbl) | 54.70 | 40.83 | 68.50 | |||
| Liquids prices are Peyto realized prices in Canadian dollars adjusted for fractionation and transportation. |
Financial Results
Peyto's realized natural gas price combined with realized liquids prices, resulted in unhedged revenues for the second quarter of $1.79/Mcfe ($2.92/Mcfe including hedging gains). Royalties of $0.10/Mcfe, operating costs of $0.26/Mcfe, transportation costs of $0.17/Mcfe, G&A of $0.06/Mcfe and interest expense of $0.21/Mcfe, all combined for total cash costs of $0.80/Mcfe ($4.83/boe). These cash costs were higher than the $0.71/Mcfe total costs reported in Q1 2016, due to the deferral of approximately 17,400 boe/d of new production in the quarter, but lower than the $0.82/Mcfe for the same period in 2015. Had the deferred volumes been produced in the quarter, Peyto expects total Q2 2016 cash costs would have been approximately $0.74/Mcfe. When Q2 2016 total cash costs of $0.80/Mcfe were deducted from realized revenues, it resulted in a cash netback of $2.12/Mcfe or a 73% operating margin.
Depletion, depreciation and amortization charges of $1.60/Mcfe, along with a provision for deferred tax and market based bonus payments reduced the cash netback to earnings of $0.19/Mcfe, or a 7% profit margin. Dividends of $1.12/Mcfe were paid to shareholders.
On May 18, 2016, Peyto closed a bought deal equity offering for 5,390,625 common shares at a price of $32.00 per common share for net proceeds of $165.6 million which was initially used to reduce bank indebtedness.
Natural Gas Marketing
In accordance with Peyto's summer production strategy, the Board of Directors of Peyto, on April 12, 2016, approved an increase to the hedging limit for future natural gas sales from 65% to 85% of forecasted winter 2016/2017 production volumes. As a result, Peyto increased the frequency of future sales to approach this new target.
The following table summarizes the remaining hedged volumes and prices for the upcoming years as of August 10, 2016.
| Future Sales | Average Price (CAD) | |||
| GJ | Mcf | $/GJ | $/Mcf | |
| 2016 | 77,795,000 | 67,647,826 | 2.62 | 3.01 |
| 2017 | 148,900,000 | 129,478,261 | 2.55 | 2.94 |
| 2018 | 45,310,000 | 39,400,000 | 2.46 | 2.83 |
| Total | 272,005,000 | 236,526,087 | 2.56 | 2.94 |
| *prices and volumes in mcf use Peyto's historic heat content premium of 1.15. |
Activity Update
The recovery of natural gas prices during June and July, to consistently above $2/GJ, has justified initiating the process of bringing on production the backlog of wells that were deferred due to much lower gas prices. As of early August, production has been restored to levels at or above 97,000 boe/d with an estimated 5,000 boe/d still remaining to be brought back on-line.
An unusually wet summer has hampered field activities through July and August, following the end of the break-up period in early June. Nonetheless, Peyto now has 8 drilling rigs running (6 in the greater Sundance area and 2 in the Brazeau area) that have spud 18 gross wells (16.5 net) since the end of the quarter. A 9th drilling rig is expected to be added later in the quarter, operating in the Brazeau area, increasing the Brazeau rig count to three rigs. Completion operations have also been challenged with the wet summer weather, however, Peyto has successfully completed 16 gross wells (15.4 net) since the end of the quarter which are now at various stages of being tied in and brought on production. There still remains a backlog of 11 drilled but uncompleted wells that should be cleared up by early September as ground conditions improve. Peyto expects there will be some additional production impact until this completion backlog is resolved, however, a return to full production capacity is expected by mid-September and is well timed for the start of the winter heating season and expected higher gas prices.
In addition to the increased pace of drilling and completions, Peyto has been actively adding to its multi-year inventory of Deep Basin locations since quarter end. An acquisition of 10 sections of land in the Brazeau area is expected to close in the third quarter and the Company plans to begin drilling the opportunities on this land shortly thereafter. With 3 drilling rigs running in the Brazeau area, the newly expanded 120 MMcf/d Brazeau gas plant is expected to be full by year end, and recent drilling success in the Wilrich, Notikewin and Cardium plays will all be contributing to this result.
Outlook
While the near term outlook for natural gas price has improved faster than originally forecast, this past quarter of low gas price has illustrated just how uniquely profitable the Peyto strategy is relative to the rest of the Canadian and US natural gas industry. The Company's strategic focus on profitability and returns, rather than the more common focus on growth, along with an ability to quickly adjust to market conditions, will continue to set Peyto apart and serve shareholders well over the longer term.
Peyto's record activity levels for the remainder of 2016, will continue to take advantage of low service costs and low industry activity in order to maximize returns on shareholder's capital. The Company's operational and financial flexibility, quality asset base, and strong balance sheet position Peyto to remain opportunistic in this environment.
During the upcoming third quarter, with the September 15, 2016 payment, Peyto is excited to celebrate the culmination of $2 billion in dividend payments. This represents a total of $16.53/share that has been paid out of the Company's cumulative profits.
Conference Call and Webcast
A conference call will be held with the senior management of Peyto to answer questions with respect to the 2016 second quarter on Thursday, August 11th, 2016, at 9:30 a.m. Mountain Standard Time (MST), or 11:30 a.m. Eastern Standard Time (EST). To participate, please call 1-416-340-2220 (Toronto area) or 1-866-225-6564 for all other participants. The conference call will also be available on replay by calling 1-905-694-9451 (Toronto area) or 1-800-408-3053 for all other parties, using passcode 7786038. The replay will be available at 11:00 a.m. MST, 1:00 p.m. EST, Thursday, August 11th, 2016 until midnight EST on Thursday, August 18th, 2016. The conference call can also be accessed and replayed through the internet at www.gowebcasting.com/7497. After this time the conference call will be archived on the Peyto Exploration & Development website at www.peyto.com.
Management's Discussion and Analysis
A copy of the second quarter report to shareholders, including the MD&A, audited financial statements and related notes, is available at www.peyto.com and will be filed at SEDAR, www.sedar.com at a later date.
Darren Gee, President and CEO
August 10, 2016
Certain information set forth in this document and Management's Discussion and Analysis, including management's assessment of Peyto's future plans and operations, capital expenditures and capital efficiencies, contains forward-looking statements. By their nature, forward-looking 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. 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. In addition, Peyto is providing future oriented financial information set out in this press release for the purposes of providing clarity with respect to Peyto's strategic direction and readers are cautioned that this information may not be appropriate for any other purpose. Other than is required pursuant to applicable securities law, Peyto does not undertake to update forward looking statements at any particular time. 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.
| Peyto Exploration & Development Corp. |
| Condensed Balance Sheet (unaudited) |
| (Amount in $ thousands) |
| June 30 2016 |
December 31 2015 |
||
| Assets | |||
| Current assets | |||
| Cash | 25,457 | - | |
| Accounts receivable | 63,773 | 85,525 | |
| Due from private placement (Note 6) | - | 3,769 | |
| Derivative financial instruments (Note 8) | - | 65,169 | |
| Prepaid expenses | 21,067 | 12,992 | |
| 110,297 | 167,455 | ||
| Property, plant and equipment, net (Note 3) | 3,279,489 | 3,190,059 | |
| 3,279,489 | 3,190,059 | ||
| 3,389,786 | 3,357,514 | ||
| Liabilities | |||
| Current liabilities | |||
| Accounts payable and accrued liabilities | 65,984 | 144,402 | |
| Dividends payable (Note 6) | 18,109 | 17,486 | |
| Derivative financial instruments (Note 8) | 19,738 | - | |
| Provision for future performance based compensation (Note 7) | 13,234 | 1,998 | |
| 117,065 | 163,886 | ||
| Long-term debt (Note 4) | 1,045,000 | 1,045,000 | |
| Long-term derivative financial instruments (Note 8) | 30,165 | 2,299 | |
| Provision for future performance based compensation (Note 7) | 5,852 | - | |
| Decommissioning provision (Note 5) | 144,385 | 118,882 | |
| Deferred income taxes | 390,324 | 403,890 | |
| 1,615,726 | 1,570,071 | ||
| Equity | |||
| Share capital (Note 6) | 1,642,006 | 1,467,264 | |
| Shares to be issued (Note 6) | - | 3,769 | |
| Retained earnings | 48,129 | 103,339 | |
| Accumulated other comprehensive (loss) income (Note 6) | (33,140 | ) | 49,185 |
| 1,656,995 | 1,623,557 | ||
| 3,389,786 | 3,357,514 |
See accompanying notes to the financial statements.
| Peyto Exploration & Development Corp. |
| Condensed Income Statement (unaudited) |
| (Amount in $ thousands except earnings per share amount) |
| Three months ended June 30 | Six months ended June 30 | |||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||
| Revenue | ||||||||||||
| Oil and gas sales | 86,444 | 145,555 | 222,647 | 296,781 | ||||||||
| Realized gain on hedges (Note 8) | 54,447 | 26,647 | 97,596 | 59,233 | ||||||||
| Royalties | (4,874 | ) | (5,875 | ) | (11,859 | ) | (13,867 | ) | ||||
| Petroleum and natural gas sales, net | 136,017 | 166,327 | 308,384 | 342,147 | ||||||||
| Expenses | ||||||||||||
| Operating | 12,732 | 14,117 | 25,273 | 28,006 | ||||||||
| Transportation | 8,190 | 6,638 | 16,859 | 13,216 | ||||||||
| General and administrative | 2,853 | 1,673 | 4,710 | 3,509 | ||||||||
| Future performance based compensation (Note 7) | 12,533 | 979 | 17,088 | 5,078 | ||||||||
| Interest | 10,063 | 8,703 | 19,456 | 17,579 | ||||||||
| Accretion of decommissioning provision (Note 5) | 543 | 616 | 1,147 | 1,127 | ||||||||
| Depletion and depreciation (Note 3) | 76,635 | 80,252 | 166,594 | 160,933 | ||||||||
| Gain on disposition of assets (Note 3) | - | - | (12,668 | ) | - | |||||||
| 123,549 | 112,978 | 238,459 | 229,448 | |||||||||
| Earnings before taxes | 12,468 | 53,349 | 69,925 | 112,699 | ||||||||
| Income tax | ||||||||||||
| Deferred income tax expense | 3,366 | 41,054 | 18,880 | 55,891 | ||||||||
| Earnings for the period | 9,102 | 12,295 | 51,045 | 56,808 | ||||||||
| Earnings per share (Note 6) | ||||||||||||
| Basic and diluted | $ | 0.06 | $ | 0.08 | $ | 0.32 | $ | 0.36 | ||||
See accompanying notes to the financial statements.
| Peyto Exploration & Development Corp. |
| Condensed Statement of Comprehensive Income (Loss) (unaudited) |
| (Amount in $ thousands) |
| Three months ended June 30 | Six months ended June 30 | |||||||
| 2016 | 2015 | 2016 | 2015 | |||||
| Earnings for the period | 9,102 | 12,295 | 51,045 | 56,808 | ||||
| Other comprehensive (loss) income | ||||||||
| Change in unrealized (loss) on cash flow hedges | (110,733 | ) | (21,712 | ) | (15,178 | ) | (46,749 | ) |
| Deferred tax recovery | 44,598 | 6,363 | 30,449 | 12,622 | ||||
| Realized (gain) on cash flow hedges | (54,446 | ) | (26,647 | ) | (97,596 | ) | (59,233 | ) |
| Comprehensive (loss) income | (111,479 | ) | (29,701 | ) | (31,280 | ) | 36,552 | |
See accompanying notes to the financial statements.
| Peyto Exploration & Development Corp. |
| Condensed Statement of Changes in Equity (unaudited) |
| (Amount in $ thousands) |
| Six months ended June 30 | ||||
| 2016 | 2015 | |||
| Share capital, beginning of period | 1,467,264 | 1,292,398 | ||
| Common shares issued by private placement | 7,644 | 7,732 | ||
| Equity offering | 172,500 | 172,517 | ||
| Common shares issuance costs (net of tax) | (5,402 | ) | (5,387 | ) |
| Share capital, end of period | 1,642,006 | 1,467,260 | ||
| Shares to be issued, beginning of period | 3,769 | 5,625 | ||
| Shares issued | (3,769 | ) | (5,625 | ) |
| Shares to be issued, end of period | - | - | ||
| Retained earnings, beginning of period | 103,339 | 173,927 | ||
| Earnings for the period | 51,045 | 56,808 | ||
| Dividends (Note 6) | (106,255 | ) | (103,237 | ) |
| Retained earnings, end of period | 48,129 | 127,498 | ||
| Accumulated other comprehensive income, beginning of period | 49,185 | 79,986 | ||
| Other comprehensive loss | (82,325 | ) | (34,127 | ) |
| Accumulated other comprehensive (loss) income, end of period | (33,140 | ) | 45,859 | |
| Total equity | 1,656,995 | 1,640,617 | ||
See accompanying notes to the financial statements.
| Peyto Exploration & Development Corp. |
| Condensed Statement of Cash Flows (unaudited) |
| (Amount in $ thousands) |
| See accompanying notes to the financial statements |
| Three months ended June 30 | Six months ended June 30 | |||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||
| Cash provided by (used in) | ||||||||||
| operating activities | ||||||||||
| Earnings | 9,102 | 12,295 | 51,045 | 56,808 | ||||||
| Items not requiring cash: | ||||||||||
| Deferred income tax | 3,366 | 41,054 | 18,880 | 55,891 | ||||||
| Depletion and depreciation | 76,635 | 80,252 | 166,594 | 160,933 | ||||||
| Accretion of decommissioning provision | 543 | 616 | 1,147 | 1,127 | ||||||
| Gain on disposition of assets | - | - | (12,668 | ) | - | |||||
| Long term portion of future performance based compensation | 4,198 | (693 | ) | 5,852 | 386 | |||||
| Change in non-cash working capital related to operating activities | 9,279 | 792 | 10,391 | (14,695 | ) | |||||
| 103,123 | 134,316 | 241,241 | 260,450 | |||||||
| Financing activities | ||||||||||
| Issuance of common shares | 172,507 | 172,517 | 180,144 | 180,249 | ||||||
| Issuance costs | (7,381 | ) | (7,342 | ) | (7,399 | ) | (7,380 | ) | ||
| Cash dividends paid | (53,142 | ) | (51,902 | ) | (105,631 | ) | (102,657 | ) | ||
| Increase (decrease) in bank debt | (95,000 | ) | (205,000 | ) | - | (115,000 | ) | |||
| Issuance of senior unsecured notes | - | 100,000 | - | 100,000 | ||||||
| 16,984 | 8,273 | 67,114 | 55,212 | |||||||
| Investing activities | ||||||||||
| Additions to property, plant and equipment | (50,634 | ) | (116,643 | ) | (226,397 | ) | (254,720 | ) | ||
| Change in prepaid capital | 233 | (1,255 | ) | 7,733 | (13,879 | ) | ||||
| Change in non-cash working capital relating to investing activities | (47,991 | ) | (24,691 | ) | (64,234 | ) | (47,063 | ) | ||
| (98,392 | ) | (142,589 | ) | (282,898 | ) | (315,662 | ) | |||
| Net increase (decrease) in cash | 21,715 | - | 25,457 | - | ||||||
| Cash, beginning of period | 3,742 | - | - | - | ||||||
| Cash, end of period | 25,457 | - | 25,457 | - | ||||||
| The following amounts are included in cash flows from operating activities: | ||||||||||
| Cash interest paid | 13,764 | 5,189 | 19,407 | 14,648 | ||||||
| Cash taxes paid | - | - | - | - | ||||||
| Peyto Exploration & Development Corp. |
| Notes to Condensed Financial Statements (unaudited) |
| As at June 30, 2016 and 2015 |
| (Amount in $ thousands, except as otherwise noted) |
- Nature of operations
Peyto Exploration & Development Corp. ("Peyto" or the "Company") is a Calgary based oil and natural gas company. Peyto conducts exploration, development and production activities in Canada. Peyto is incorporated and domiciled in the Province of Alberta, Canada. The address of its registered office is 300, 600 - 3rd Avenue SW, Calgary, Alberta, Canada, T2P 0G5.
These financial statements were approved and authorized for issuance by the Audit Committee of Peyto on August 9, 2016.
- Basis of presentation
The condensed financial statements have been prepared by management and reported in Canadian dollars in accordance with International Accounting Standard ("IAS") 34, "Interim Financial Reporting". These condensed financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with the Company's financial statements as at and for the years ended December 31, 2015 and 2014.
Significant Accounting Policies
(a) Significant Accounting Judgments, Estimates and Assumptions
The timely preparation of the condensed financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingencies, if any, as at the date of the financial statements and the reported amounts of revenue and expenses during the period. By their nature, estimates are subject to measurement uncertainty and changes in such estimates in future years could require a material change in the condensed financial statements.
All accounting policies and methods of computation followed in the preparation of these financial statements are the same as those disclosed in Note 2 of Peyto's financial statements as at and for the years ended December 31, 2015 and 2014.
(b) Standards issued but not yet effective
In July 2014, the IASB completed the final elements of IFRS 9 "Financial Instruments." The Standard supersedes earlier versions of IFRS 9 and completes the IASB's project to replace IAS 39 "Financial Instruments: Recognition and Measurement." IFRS 9, as amended, includes a principle-based approach for classification and measurement of financial assets, a single 'expected loss' impairment model and a substantially-reformed approach to hedge accounting. The Standard will come into effect for annual periods beginning on or after January 1, 2018, with earlier adoption permitted. IFRS 9 will be applied by Peyto on January 1, 2018 and the Company is currently evaluating the impact of the standard on its financial statements.
In May 2014, the IASB issued IFRS 15 "Revenue from Contracts with Customers," which replaces IAS 18 "Revenue, "IAS 11 "Construction Contracts," and related interpretations. The standard is required to be adopted for fiscal years beginning on or after January 1, 2018, with earlier adoption permitted. IFRS 15 will be applied by Peyto on January 1, 2018 and the Company is currently evaluating the impact of the standard on Peyto's financial statements.
In January 2016, the IASB issued IFRS 16 "Leases", which replaces IAS 17 "Leases". For lessees applying IFRS 16,
a single recognition and measurement model for leases would apply, with required recognition of assets and liabilities for most leases. The standard will come into effect for annual periods beginning on or after January 1, 2019, with earlier adoption permitted. The Company is currently evaluating the impact of the standard on the Company's financial statements.
- Property, plant and equipment, net
| Cost | ||
| At December 31, 2015 | 4,416,643 | |
| Additions | 237,214 | |
| Decommissioning provision additions | 24,356 | |
| Prepaid capital | (7,733 | ) |
| At June 30, 2016 | 4,670,480 | |
| Accumulated depletion and depreciation | ||
| At December 31, 2015 | (1,226,584 | ) |
| Depletion and depreciation | (164,407 | ) |
| At June 30, 2016 | (1,390,991 | ) |
| Carrying amount at December 31, 2015 | 3,190,059 | |
| Carrying amount at June 30, 2016 | 3,279,489 |
During the six months ended June 30, 2016, the Company closed an asset swap arrangement. For purposes of determining a gain on disposition, the estimated fair value was based on the fair value of the assets received. The Company recorded a gain of $12.7 million for the six months ended June 30, 2016.
During the three and six month periods ended June 30, 2016, Peyto capitalized $0.9 million and $3.1 million (2015 - $1.8 million and $3.8 million) of general and administrative expense directly attributable to exploration and development activities.
- Long-term debt
| June 30, 2016 |
December 31, 2015 |
|
| Bank credit facility | 625,000 | 625,000 |
| Senior unsecured notes | 420,000 | 420,000 |
| Balance, end of the period | 1,045,000 | 1,045,000 |
The Company has a syndicated $1.0 billion extendible unsecured revolving credit facility with a stated term date of December 4, 2019. An accordion provision has been added that allows for the pre-approved increase of the facility up to $1.3 billion, at the Company's request, subject to additional commitments by existing facility lenders or by adding new financial institutions to the syndicate. The bank facility is made up of a $30 million working capital sub-tranche and a $970 million production line. The facilities are available on a revolving basis. Borrowings under the facility bear interest at Canadian bank prime or US base rate, or, at Peyto's option, Canadian dollar bankers' acceptances or US dollar LIBOR loan rates, plus applicable margin and stamping fees. The total stamping fees range between 50 basis points and 215 basis points on Canadian bank prime and US base rate borrowings and between 150 basis points and 315 basis points on Canadian dollar bankers' acceptance and US dollar LIBOR borrowings. The undrawn portion of the facility is subject to a standby fee in the range of 30 to 63 basis points.
Peyto is subject to the following financial covenants as defined in the credit facility and note purchase agreements:
- Long-term debt plus the average working capital deficiency (surplus) at the end of the two most recently completed fiscal quarters adjusted for non-cash items not to exceed 3.0 times trailing twelve month net income before non-cash items, interest and income taxes;
- Long-term debt and subordinated debt plus the average working capital deficiency (surplus) at the end of the two most recently completed fiscal quarters adjusted for non-cash items not to exceed 4.0 times trailing twelve month net income before non-cash items, interest and income taxes;
- Trailing twelve months net income before non-cash items, interest and income taxes to exceed 3.0 times trailing twelve months interest expense;
- Long-term debt and subordinated debt plus the average working capital deficiency (surplus) at the end of the two most recently completed fiscal quarters adjusted for non-cash items not to exceed 55 per cent of the book value of shareholders' equity and long-term debt and subordinated debt.
Peyto is in compliance with all financial covenants at June 30, 2016.
On April 26, 2016, the amended and restated note purchase and private shelf agreement dated January 3, 2012 and restated as of April 26, 2013 was amended to increase the shelf facility from $150 million to $250 million. $150 million has been drawn under this shelf facility.
Total interest expense for the three and six month periods ended June 30, 2016 was $10.1 million and $19.5 million (2015 - $8.7 million and $17.6 million) and the average borrowing rate for the period was 3.7% and 3.6% (2015- 3.7% and 3.6%).
- Decommissioning provision
The following table reconciles the change in decommissioning provision:
| Balance, December 31, 2015 | 118,882 |
| New or increased provisions | 8,314 |
| Accretion of decommissioning provision | 1,147 |
| Change in discount rate and estimates | 16,042 |
| Balance, June 30, 2016 | 144,385 |
| Current | - |
| Non-current | 144,385 |
Peyto has estimated the net present value of its total decommissioning provision to be $144.4 million as at June 30, 2016 ($118.9 million at December 31, 2015) based on a total future undiscounted liability of $245.8 million ($239.0 million at December 31, 2015). At June 30, 2016 management estimates that these payments are expected to be made over the next 50 years with the majority of payments being made in years 2040 to 2064. The Bank of Canada's long term bond rate of 1.72 per cent (2.15 per cent at December 31, 2015) and an inflation rate of 2.0 per cent (2.0 per cent at December 31, 2015) were used to calculate the present value of the decommissioning provision.
- Share capital
Authorized: Unlimited number of voting common shares
Issued and Outstanding
| Common Shares (no par value) | Number of Common Shares |
Amount $ |
|
| Balance, December 31, 2015 | 158,958,273 | 1,467,264 | |
| Common shares issued by private placement | 281,270 | 7,644 | |
| Equity offering | 5,390,625 | 172,500 | |
| Common share issuance costs, (net of tax) | - | (5,402 | ) |
| Balance, June 30, 2016 | 164,630,168 | 1,642,006 |
Earnings per common share has been determined based on the following:
| Three Months ended June 30 | Six Months ended June 30 | |||
| 2016 | 2015 | 2016 | 2015 | |
| Weighted average common shares basic and diluted | 161,845,999 | 158,117,853 | 160,494,262 | 155,996,994 |
On December 31, 2015, Peyto completed a private placement of 149,030 common shares to employees and consultants for net proceeds of $3.8 million ($25.29 per share). These common shares were issued January 6, 2016.
On March 15, 2016, Peyto completed a private placement of 132,240 common shares to employees and consultants for net proceeds of $3.9 million ($29.30 per common share).
On May 18, 2016, Peyto completed a public offering for 5,390,625 common shares at a price of $32.00 per common share, for net proceeds of $165.6 million.
Dividends
During the three and six month periods ended June 30, 2016, Peyto declared and paid dividends of $0.33 and $0.66 per common share ($0.11 per common share for the months of January to June 2016), totaling $53.7 million and $106.3 million respectively (2015 - $0.33 and $0.66 ($0.11 per common share for the months of January to June 2015), totaling $52.0 million and $103.0 million respectively).
Comprehensive income
Comprehensive income consists of earnings and other comprehensive income ("OCI"). OCI comprises the change in the fair value of the effective portion of the derivatives used as hedging items in a cash flow hedge. "Accumulated other comprehensive income" is an equity category comprised of the cumulative amounts of OCI.
Accumulated hedging gains
Gains and losses from cash flow hedges are accumulated until settled. These outstanding hedging contracts are recognized in earnings on settlement with gains and losses being recognized as a component of net revenue. Further information on these contracts is set out in Note 8.
- Future performance based compensation
Peyto awards performance based compensation to employees annually. The performance based compensation is comprised of reserve and market value based components.
Reserve based component
The reserves value based component is 4% of the incremental increase in value, if any, as adjusted to reflect changes in debt, equity, dividends, general and administrative costs and interest, of proved producing reserves calculated using a constant price at December 31 of the current year and a discount rate of 8%.
Market based component
Under the market based component, rights with a three year vesting period are allocated to employees. The number of rights outstanding at any time is not to exceed 6% of the total number of common shares outstanding. At December 31 of each year, all vested rights are automatically cancelled and, if applicable, paid out in cash. Compensation is calculated as the number of vested rights multiplied by the total of the market appreciation (over the price at the date of grant) and associated dividends of a common share for that period.
The fair values were calculated using a Black-Scholes valuation model. The principal inputs to the option valuation model were:
| June 30, 2016 | June 30, 2015 | |||
| Share price | $24.09-$34.68 | $30.53-$32.27 | ||
| Exercise price | $23.43-$33.02 | $21.70-$33.68 | ||
| Expected volatility | 38.9 | % | 21.9 | % |
| Option life | 0.50 years | 0.50 years | ||
| Dividend yield | 0 | % | 0 | % |
| Risk-free interest rate | 0.52 | % | 0.49 | % |
- Financial instruments
Financial instrument classification and measurement
Financial instruments of the Company carried on the condensed balance sheet are carried at amortized cost with the exception of cash and financial derivative instruments, specifically fixed price contracts, which are carried at fair value. There are no significant differences between the carrying amount of financial instruments and their estimated fair values as at June 30, 2016.
The Company's areas of financial risk management and risks related to financial instruments remained unchanged from December 31, 2015.
The fair value of the Company's cash and financial derivative instruments are quoted in active markets. The Company classifies the fair value of these transactions according to the following hierarchy.
- Level 1 - quoted prices in active markets for identical financial instruments.
- Level 2 - quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and value drivers are observable in active markets.
- Level 3 - valuations derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.
The Company's cash and financial derivative instruments have been assessed on the fair value hierarchy described above and classified as Level 1.
Fair values of financial assets and liabilities
The Company's financial instruments include cash, accounts receivable, financial derivative instruments, due from private placement, current liabilities, provision for future performance based compensation and long term debt. At June 30, 2016, cash and financial derivative instruments are carried at fair value. Accounts receivable, due from private placement, current liabilities and provision for future performance based compensation approximate their fair value due to their short term nature. The carrying value of the long term debt approximates its fair value due to the floating rate of interest charged under the credit facility.
Commodity price risk management
Peyto uses derivative instruments to reduce its exposure to fluctuations in commodity prices. Peyto considers all of these transactions to be effective economic hedges for accounting purposes.
Following is a summary of all risk management contracts in place as at June 30, 2016:
| Natural Gas Period Hedged | Type | Daily Volume |
Price (CAD) |
| April 1, 2015 to October 31, 2016 | Fixed Price | 5,000 GJ | $2.885/GJ |
| April 1, 2015 to March 31, 2017 | Fixed Price | 50,000 GJ | $2.83/GJ to $3.05/GJ |
| May 1, 2015 to March 31, 2017 | Fixed Price | 5,000 GJ | $2.82/GJ |
| November 1, 2015 to March 31, 2017 | Fixed Price | 40,000 GJ | $2.84/GJ to $2.975/GJ |
| December 1, 2015 to March 31, 2017 | Fixed Price | 5,000 GJ | $2.55/GJ |
| January 1, 2016 to March 31, 2018 | Fixed Price | 5,000 GJ | $2.54/GJ |
| April 1, 2016 to October 31, 2016 | Fixed Price | 50,000 GJ | $2.40/GJ to $3.43/GJ |
| April 1, 2016 to March 31, 2017 | Fixed Price | 95,000 GJ | $2.58/GJ to $3.01/GJ |
| April 1, 2016 to March 31, 2018 | Fixed Price | 60,000 GJ | $2.42/GJ to $2.75/GJ |
| April 1, 2016 to October 31, 2018 | Fixed Price | 35,000 GJ | $2.10/GJ to $2.60/GJ |
| May 1, 2016 to October 31, 2017 | Fixed Price | 15,000 GJ | $2.11/GJ to $2.22/GJ |
| May 1, 2016 to October 31, 2018 | Fixed Price | 25,000 GJ | $2.20/GJ to $2.35/GJ |
| June 1, 2016 to October 31, 2016 | Fixed Price | 20,000 GJ | $1.52/GJ to $1.63/GJ |
| July 1, 2016 to October 31, 2016 | Fixed Price | 5,000 GJ | $1.73/GJ |
| July 1, 2016 to March 31, 2017 | Fixed Price | 10,000 GJ | $2.30/GJ |
| July 1, 2016 to October 31, 2017 | Fixed Price | 10,000 GJ | $2.375/GJ to $2.3775/GJ |
| July 1, 2016 to October 31, 2018 | Fixed Price | 20,000 GJ | $2.28/GJ to $2.45/GJ |
| August 1, 2016 to October 31, 2017 | Fixed Price | 20,000 GJ | $2.22/GJ to $2.30/GJ |
| August 1, 2016 to October 31, 2018 | Fixed Price | 25,000 GJ | $2.3175/GJ to $2.5525/GJ |
| November 1, 2016 to March 31, 2017 | Fixed Price | 165,000 GJ | $2.285/GJ to $3.00/GJ |
| November 1, 2016 to March 31, 2018 | Fixed Price | 5,000 GJ | $2.51/GJ |
| April 1, 2017 to October 31, 2017 | Fixed Price | 80,000 GJ | $2.23/GJ to $2.845/GJ |
| April 1, 2017 to March 31, 2018 | Fixed Price | 40,000 GJ | $2.825/GJ to $2.945/GJ |
| April 1, 2017 to October 31, 2018 | Fixed Price | 5,000 GJ | $2.585/GJ |
As at June 30, 2016, Peyto had committed to the future sale of 279,785,000 gigajoules (GJ) of natural gas at an average price of $2.56 per GJ or $2.94 per mcf. Had these contracts been closed on June 30, 2016, Peyto would have realized a net loss in the amount of $49.9 million. If the AECO gas price on June 30, 2016 were to decrease by $0.10/GJ, the financial derivative liability would decrease by approximately $29.8 million. An opposite change in commodity prices rates would result in an opposite impact.
Subsequent to June 30, 2016 Peyto entered into the following contracts:
| Natural Gas Period Hedged | Type | Daily Volume |
Price (CAD) |
| November 1, 2016 to March 31, 2017 | Fixed Price | 5,000 GJ | $2.8875/GJ |
| April 1, 2017 to October 31, 2017 | Fixed Price | 25,000 GJ | $2.60/GJ to $2.70/GJ |
| April 1, 2017 to March 31, 2018 | Fixed Price | 5,000 GJ | $2.8225/GJ |
| April 1, 2017 to October 31, 2018 | Fixed Price | 5,000 GJ | $2.745/GJ |
- Related party transactions
Certain directors of Peyto are considered to have significant influence over other reporting entities that Peyto engages in transactions with. Such services are provided in the normal course of business and at market rates. These directors are not involved in the day to day operational decision making of the Company. The dollar value of the transactions between Peyto and the related reporting entities is summarized below:
| Expense | Accounts Payable | ||||
| Three Months ended June 30 |
Six Months ended June 30 |
As at June 30 | |||
| 2016 | 2015 | 2016 | 2015 | 2016 | 2015 |
| 288.4 | 817.9 | 650.6 | 766.8 | 427.4 | 376.4 |
- Commitments
In addition to those recorded on the Company's balance sheet, the following is a summary of Peyto's contractual obligations and commitments as at June 30, 2016:
| 2016 | 2017 | 2018 | 2019 | 2020 | Thereafter | |
| Interest payments(1) | 9,193 | 18,385 | 18,385 | 16,190 | 13,995 | 27,840 |
| Transportation commitments | 15,480 | 32,325 | 38,180 | 31,925 | 24,665 | 99,659 |
| Operating leases | 702 | 2,279 | 2,032 | 2,032 | 2,032 | 12,567 |
| Other | 880 | - | - | - | - | - |
| Total | 26,255 | 52,989 | 58,597 | 50,147 | 40,692 | 140,066 |
| (1) | Fixed interest payments on senior unsecured notes |
- Contingencies
On October 1, 2013, two shareholders (the "Plaintiffs") of Poseidon Concepts Corp. ("Poseidon") filed an application to seek leave of the Alberta Court of Queen's Bench (the "Court") to pursue a class action lawsuit against the Company, as a successor to new Open Range Energy Corp. ("New Open Range") (the "Poseidon Shareholder Application"). The proposed action contains various claims relating to alleged misrepresentations in disclosure documents of Poseidon (not New Open Range), which claims are also alleged in class action lawsuits filed in Alberta, Ontario, and Quebec earlier in 2013 against Poseidon and certain of its current and former directors and officers, and underwriters involved in the public offering of common shares of Poseidon completed in February 2012. The proposed class action seeks various declarations and damages including compensatory damages which the Plaintiffs estimate at $651 million and punitive damages which the Plaintiffs estimate at $10 million, which damage amounts appear to be duplicative of damage amounts claimed in the class actions against Poseidon, certain of its current and former directors and officers, and underwriters.
New Open Range was incorporated on September 14, 2011 solely for purposes of participating in a plan of arrangement with Poseidon (formerly named Open Range Energy Corp. ("Old Open Range")), which was completed on November 1, 2011. Pursuant to such arrangement, Poseidon completed a corporate reorganization resulting in two separate publicly-traded companies: Poseidon, which continued to carry on the energy service and supply business; and New Open Range, which carried on Poseidon's former oil and gas exploration and production business. Peyto acquired all of the issued and outstanding common shares of New Open Range on August 14, 2012. On April 9, 2013, Poseidon obtained creditor protection under the Companies' Creditor Protection Act.
On October 31, 2013, Poseidon filed a lawsuit with the Court naming the Company as a co-defendant along with the former directors and officers of Poseidon, the former directors and officers of Old Open Range and the former directors and officers of New Open Range (the "Poseidon Action"). Poseidon claims, among other things, that the Company is vicariously liable for the alleged wrongful acts and breaches of duty of the directors, officers and employees of New Open Range.
On September 24, 2014 Poseidon amended its claim in the Poseidon Action to add Poseidon's auditor, KPMG LLP ("KPMG"), as a defendant.
On May 4, 2016, KPMG issued a third party claim in the Poseidon Action against Poseidon's former officers and directors and Peyto for any liability KPMG is determined to have to Poseidon. Peyto is not required to deliver a defence to this claim at this time.
On July 3, 2014, the Plaintiffs filed a lawsuit with the Court against KPMG LLP, Poseidon's and Old Open Range's former auditors, making allegations substantially similar to those in the other claims (the "KPMG Poseidon Shareholder KPMG Action"). On July 29, 2014, KPMG LLP filed a statement of defence and a third party claim against Poseidon, the Company and the former directors and officers of Poseidon. The third party claim seeks, among other things, an indemnity, or alternatively contribution, from the third party defendants with respect to any judgment awarded against KPMG LLP.
The allegations against New Open Range contained in the claims described above are based on factual matters that pre-existed the Company's acquisition of New Open Range. The Company has not yet been required to defend either of the actions. If it is required to defend the actions, the Company intends to aggressively protect its interests and the interests of its Shareholders and will seek all available legal remedies in defending the actions.
Officers
| Darren Gee President and Chief Executive Officer |
Tim Louie Vice President, Land |
||
| Scott Robinson Executive Vice President and Chief Operating Officer |
David Thomas Vice President, Exploration |
||
| Kathy Turgeon Vice President, Finance and Chief Financial Officer |
Jean-Paul Lachance Vice President, Exploitation |
||
| Lee Curran Vice President, Drilling and Completions |
Todd Burdick Vice President, Production |
||
| Stephen Chetner Corporate Secretary |
|||
| Directors | |||
| Don Gray, Chairman | |||
| Stephen Chetner | |||
| Brian Davis | |||
| Michael MacBean, Lead Independent Director | |||
| Darren Gee | |||
| Gregory Fletcher | |||
| Scott Robinson | |||
| Auditors | |||
| Deloitte LLP | |||
| Solicitors | |||
| Burnet, Duckworth & Palmer LLP | |||
| Bankers | |||
| Bank of Montreal | |||
| Union Bank, Canada Branch | |||
| Royal Bank of Canada | |||
| Canadian Imperial Bank of Commerce | |||
| The Toronto-Dominion Bank | |||
| Bank of Nova Scotia | |||
| Alberta Treasury Branches | |||
| Canadian Western Bank | |||
| Transfer Agent | |||
| Computershare | |||
| Head Office | |||
| 300, 600 - 3 Avenue SW | |||
| Calgary, AB | |||
| T2P 0G5 | |||
| Phone: 403.261.6081 | |||
| Fax: 403.451.4100 | |||
| Web: www.peyto.com | |||
| Stock Listing Symbol: PEY.TO | |||
| Toronto Stock Exchange | |||
Contact Information:
Darren Gee
President and CEO
403.261.6081
403.451.4100 (FAX)
www.peyto.com