Peyto Exploration & Development Corp. ("Peyto" or "the Company") (TSX:PEY) is
pleased to present its operating and financial results for the third quarter of
the 2012 fiscal year. With a third quarter 2012 operating margin of 75%(1) and
profit margin of 23%(2), Peyto grew production per share for the twelfth
consecutive quarter. Highlights of the 2012 third quarter include:
-- Production per share up 18%. Third quarter 2012 production increased 27%
(18% per share) from 218 MMcfe/d (36,390 boe/d) in Q3 2011 to 276
MMcfe/d (46,033 boe/d) in Q3 2012.
-- Funds from operations of $0.54/share. Generated $77 million in Funds
from Operations ("FFO") in Q3 2012 down 7% (13% per share) from $83
million in Q3 2011. Increased production and lower costs helped offset
the 31% year over year reduction in realized commodity prices.
-- Maintained low cash costs of $1/mcfe. Total cash costs, including
royalties, operating costs, transportation, G&A and interest were
$1.00/mcfe ($6.02/boe). Industry leading operating costs of $0.35/mcfe
($2.09/boe) in Q3 2012 helped contribute to cash netbacks of $3.01/mcfe
($18.08/boe) representing a 75% operating margin.
-- Record capital investments of $317 million. To the end of the third
quarter, 21,800 boe/d of new production had been added in 2012,
including 4,800 boe/d resulting from the $187 million acquisition of
Open Range Energy Corp. ("Open Range" or "ONR"). Excluding the
acquisition, the annualized (trailing twelve month) cost to build new
production has averaged $18,000/boe/d. A total of 30 gross wells were
drilled during the third quarter.
-- Earnings of $0.16/share, dividends of $0.18/share. Earnings of $23.1
million were generated in the quarter ($68.1 million year-to-date) while
dividends of $25.6 million ($75.4 million year-to-date) were paid to
shareholders, representing a before tax payout ratio of 33% of FFO.
Third quarter 2012 in Review
The third quarter of 2012 was an historic time for Peyto. The acquisition of
Open Range represented the first major corporate acquisition in the Company's
fourteen year history. The properties that were acquired were a natural fit with
Peyto's Greater Sundance core area and included strategic facility and pipeline
infrastructure that can be expanded and integrated into Peyto's existing system.
In addition, 99 net sections of land were included containing over 100 future
drilling locations of similar quality to Peyto's existing inventory of future
locations. The Peyto team quickly and efficiently integrated Open Range into its
business without disrupting a very active quarter that saw 6 to 8 drilling rigs
running throughout. Inclusive of the acquired properties, Peyto maintained its
industry leading low cost advantage with total cash costs of $1.00/Mcfe
($6.02/boe). Peyto's total borrowing capacity was expanded to $880 million,
reflecting the value of the additional properties, including the issue of $50
million of additional senior secured 10 year notes. The company maintained its
financial flexibility with quarter ending net debt of $684 million or 2.2 times
annualized Funds from Operations. Despite low natural gas prices, earnings of
$0.16/share were generated, delivering 9% Return on Equity (ROE) and 7% Return
on Capital Employed (ROCE).
1. Operating Margin is defined as funds from operations divided by revenue
before royalties but including realized hedging gains/losses.
2. Profit Margin is defined as net earnings for the quarter divided by
revenue before royalties but including realized hedging gains/losses.
Natural gas volumes recorded in thousand cubic feet (mcf) are converted
to barrels of oil equivalent (boe) using the ratio of six (6) thousand
cubic feet to one (1) barrel of oil (bbl). Natural gas liquids and oil
volumes in barrel of oil (bbl) are converted to thousand cubic feet
equivalent (Mcfe) using a ratio of one (1) barrel of oil to six (6)
thousand cubic feet. This could be misleading, particularly if used in
isolation as it is based on an energy equivalency conversion method
primarily applied at the burner tip and does not represent a value
equivalency at the wellhead.
----------------------------------------------------------------------------
Three Months ended
September 30 %
2012 2011 Change
----------------------------------------------------------------------------
Operations
Production
Natural gas (mcf/d) 244,794 194,832 26%
Oil & NGLs (bbl/d) 5,236 3,918 34%
Thousand cubic feet equivalent (mcfe/d
@ 1:6) 276,200 218,338 27%
Barrels of oil equivalent (boe/d @
6:1) 46,033 36,390 26%
Product prices
Natural gas ($/mcf) 3.06 4.43 (31)%
Oil & NGLs ($/bbl) 68.62 78.07 (12)%
Operating expenses ($/mcfe) 0.35 0.36 (3)%
Transportation ($/mcfe) 0.11 0.13 (15)%
Field netback ($/mcfe) 3.29 4.41 (25)%
General & administrative expenses
($/mcfe) 0.03 0.04 (25)%
Interest expense ($/mcfe) 0.25 0.26 (4)%
Financial ($000 except per share)
Revenue 102,042 107,526 (5)%
Royalties 6,632 9,265 (28)%
Funds from operations 76,918 82,506 (7)%
Funds from operations per share 0.54 0.62 (13)%
Total dividends 25,576 23,951 7%
Total dividends per share 0.18 0.18 -
Payout ratio 33 29 14%
Earnings 23,058 37,741 (39)%
Earnings per diluted share 0.16 0.28 (43)%
Capital expenditures 317,089 111,570 184%
Weighted average shares outstanding 142,069,408 133,061,301 7%
As at September 30
Net debt (before future compensation expense and unrealized
hedging gains)
Shareholders' equity
Total assets
----------------------------------------------------------------------------
Nine Months ended
September 30 %
2012 2011 Change
----------------------------------------------------------------------------
Operations
Production
Natural gas (mcf/d) 228,982 181,881 26%
Oil & NGLs (bbl/d) 4,608 3,826 20%
Thousand cubic feet equivalent (mcfe/d
@ 1:6) 256,630 204,834 25%
Barrels of oil equivalent (boe/d @
6:1) 42,772 34,139 25%
Product prices
Natural gas ($/mcf) 3.15 4.58 (31)%
Oil & NGLs ($/bbl) 74.26 79.45 (7)%
Operating expenses ($/mcfe) 0.32 0.35 (9)%
Transportation ($/mcfe) 0.12 0.13 (8)%
Field netback ($/mcfe) 3.39 4.51 (25)%
General & administrative expenses
($/mcfe) 0.05 0.07 (29)%
Interest expense ($/mcfe) 0.23 0.26 (12)%
Financial ($000 except per share)
Revenue 291,090 310,297 (6)%
Royalties 21,549 31,195 (31)%
Funds from operations 219,296 234,212 (6)%
Funds from operations per share 1.57 1.76 (11)%
Total dividends 75,415 71,823 5%
Total dividends per share 0.54 0.54 -
Payout ratio 34 31 10%
Earnings 68,128 102,147 (33)%
Earnings per diluted share 0.49 0.77 (36)%
Capital expenditures 461,646 284,373 62%
Weighted average shares outstanding 139,631,290 132,954,010 5%
As at September 30
Net debt (before future compensation
expense and unrealized hedging gains) 683,540 526,743 30%
Shareholders' equity 1,092,079 873,588 25%
Total assets 2,077,890 1,665,978 25%
----------------------------------------------------------------------------
Three Months ended Nine Months ended
September 30 September 30
($000) 2012 2011 2012 2011
----------------------------------------------------------------------------
Cash flows from operating activities 72,004 79,685 205,939 204,403
Change in non-cash working capital 3,032 1,807 8,464 22,224
Change in provision for performance
based compensation 1,882 1,014 4,893 7,585
----------------------------------------------------------------------------
Funds from operations 76,918 82,506 219,296 234,212
----------------------------------------------------------------------------
Funds from operations per share 0.54 0.62 1.57 1.76
----------------------------------------------------------------------------
(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
International Financial Reporting Standards ("IFRS") and does not have a
standardized meaning prescribed by IFRS. 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 IFRS. Funds from
operations cannot be assured and future dividends may vary.
Exploration & Development
While drilling at the start of the third quarter focused on the development of
the more liquids-rich formations in Peyto's inventory, like the Cardium and
Falher, more recent activity has shifted back to the less liquids-rich, deeper
formations like the Notikewin, Wilrich and Bluesky. This is due to improving
natural gas prices which result in improved economics for the deeper, drier gas
zones that enjoy greater royalty incentives.
At currently forecast natural gas prices, effectively all of the formations that
Peyto develops within its core areas can yield similar full cycle, before tax,
internal rates of return. Peyto has been nimble with its capital allocation and
has quickly redirected its drilling efforts to diversify development activity
amongst all of the potential targets.
During the quarter Peyto acquired 17 sections of new land at crown land sales,
bringing total 2012 land acquisitions to 41.3 net sections. This is in addition
to the 104.2 net sections of land added through property and corporate
acquisitions. All 145.5 net sections are adjacent to or within Peyto's existing
core areas. In total, net of expiries, Peyto's Deep Basin land position has
grown by 28% in 2012, or 134 net sections (85,600 net acres).
Capital Expenditures
In addition to the $187 million acquisition of Open Range, Peyto had an active
quarter of drilling activity. In total, Peyto invested $130 million in the
building of new assets with $59 million spent drilling 30 gross (25.8 net)
wells, $35 million spent completing 24 gross (20.2 net) wells, and $11 million
spent on wellsite equipment and pipelines to bring on 24 gross (20.2 net)
producing wells. A further $6 million was invested to expand current facilities,
while the balance or $19 million was invested in the acquisition and evaluation
of new undeveloped lands.
Overall, drilling times continued to shorten as rig crews became more practiced
with Peyto's drilling design. In 2012, the average horizontal well has taken
just 20 days to drill, down more than 30% from 30 days in 2010. At the same
time, the average horizontal well length in 2012 is 109 m longer. These
efficiency gains not only translate into reduced capital cost but they allow
Peyto to drill more wells with fewer rigs and less technical staff.
Financial Results
Alberta (AECO Monthly) natural gas prices averaged $2.08/GJ in the third quarter
2012, resulting in a Peyto unhedged realized price of $2.38/mcf before hedging
gains of $0.68/mcf. Meanwhile, Edmonton light oil prices averaged $82.71/bbl
from which Peyto realized $68.62/bbl (or 83%) for its oil and natural gas
liquids blend of Condensate, Pentane, Butane and Propane. Combined Peyto's
unhedged revenues totaled $3.41/mcfe ($4.01/mcfe including hedging gains), or
164% of the dry gas price.
Peyto maintained its industry leading low cash costs in the quarter, despite the
integration of the higher cost Open Range production, with average royalties of
$0.26/Mcfe ($1.57/boe), operating costs of $0.35/Mcfe ($2.09/boe),
transportation of $0.11/Mcfe ($0.68/boe), G&A of $0.03/Mcfe ($0.18/boe) and
interest of $0.25/Mcfe ($1.50/boe). These cash costs totaled $1.00/Mcfe
($6.02/boe) and were deducted from revenues to yield a cash netback of
$3.01/Mcfe ($18.08/boe), or a 75% operating margin. This industry leading
operating margin has now been achieved for sixteen consecutive quarters and
highlights Peyto's commitment to be the lowest cost producer in the Canadian
industry.
Depletion, depreciation and amortization charges of $1.72/Mcfe, along with a
provision for future tax and market based bonus payments, reduced the cash
netback to earnings of $0.91/Mcfe or a 23% profit margin.
During the quarter Peyto's syndicate of lenders increased Peyto's borrowing base
to $880 million, reflecting the addition of the ONR assets. As well, on
September 6, 2012, Peyto issued $50 million of senior secured notes pursuant to
a note purchase and private shelf agreement with Prudential Investment
Management Inc. The notes have a coupon rate of 4.88% and mature on September 6,
2022. Including this latest issue, Peyto now has $150 million of senior secured
notes outstanding which rank equally with Peyto's revolving bank facility of
$730 million. With quarter end net debt of $684 million, Peyto has $196 million
of available borrowing capacity ensuring future financial flexibility.
Marketing
Approximately 49% of Peyto's natural gas production in the quarter had been
pre-sold in forward sales done over the previous year at an average price of
$3.23/GJ. The remaining balance of production was subject to AECO monthly spot
prices that averaged $2.08/GJ. On a blended basis, Peyto's realized gas price
was $2.64/GJ or $3.06/mcf, reflective of Peyto's high heat content natural gas
production.
The company's hedging practice of layering in future sales in the form of fixed
price swaps, in order to smooth out the volatility in natural gas price,
continued throughout the quarter. By the end of the third quarter Peyto had
committed to the future sale of 59,695,000 gigajoules (GJ) of natural gas at an
average price of $3.15/GJ or $3.68/mcf, based on Peyto's historical heat
content. The following table summarizes the remaining hedged volumes and prices
for the upcoming years, effective September 30, 2012:
----------------------------------------------------------------------------
Future Sales Average Price (CAD)
----------------------------------------------------------------------------
GJ Mcf $/GJ $/Mcf
----------------------------------------------------------------------------
2012 13,875,000 11,858,974 $3.18 $3.72
2013 38,730,000 33,102,564 $3.17 $3.71
2014 7,090,000 6,059,829 $3.03 $3.55
----------------------------------------------------------------------------
Total 59,695,000 51,021,368 $3.15 $3.69
----------------------------------------------------------------------------
As illustrated in the following table, Peyto's realized natural gas liquids
prices(1) were down 12% year over year and 4% from the previous quarter.
----------------------------------------------------------------------------
Three Months ended Three Months ended
September 30 June 30
2012 2011 2012 2011
----------------------------------------------------------------------------
Condensate ($/bbl) 89.85 93.63 90.14 98.66
Propane ($/bbl) 19.60 47.00 18.61 42.96
Butane ($/bbl) 58.21 65.28 61.10 66.52
Pentane ($/bbl) 93.16 98.16 93.44 99.76
----------------------------------------------------------------------------
Total Oil and NGLs ($/bbl) 68.62 78.07 71.27 84.06
----------------------------------------------------------------------------
Liquids prices are Peyto realized prices in Canadian dollars adjusted
(1) for fractionation and transportation.
Peyto's hedging practice with respect to Propane and Butane also continued in
the quarter and by the end of the third quarter Peyto had committed to the
future sale of 186,000 bbls of Propane and Butane at an average price of
$51.12USD/bbl. The following table summarizes the hedged volumes and prices for
the upcoming years.
----------------------------------------------------------------------------
Propane Butane
----------------------------------------------------------------------------
Future Sales Average Price Future Sales Average Price
(bbls) ($USD/bbl) (bbls) ($USD/bbl)
----------------------------------------------------------------------------
2012 48,000 $37.30 45,000 $65.88
2013 48,000 $37.30 45,000 $65.88
----------------------------------------------------------------------------
Total 96,000 $37.30 90,000 $65.88
----------------------------------------------------------------------------
As at September 30, 2012, Peyto had committed to the future sale of 204,400
barrels of oil and natural gas liquids at an average price of $54.62 USD per
barrel and 59,695,000 gigajoules (GJ) of natural gas at an average price of
$3.15 per GJ. Had these contracts been closed on September 30, 2012, Peyto would
have realized a gain in the amount of $2.9 million.
ONR Acquisition Update
On August 14, 2012 Peyto closed the acquisition of Open Range Energy Corp. for
an effective total capital cost of $187.2 million. The acquisition was conducted
pursuant to a plan of arrangement with Peyto exchanging 0.0723 Peyto shares for
each Open Range share (5.4 million shares total) and assuming the $75 million in
net debt (inclusive of transaction costs).
Integration of the Open Range asset base was concluded shortly after closing and
drilling activity commenced on former ONR lands on September 17, 2012. So far, 5
wells have been drilled and 1 gross (0.6 net) well brought on production which
has maintained production from the acquired lands at 5,100 boe/d. For the
quarter, the ONR acquisition contributed production for 47 days or approximately
2,600 boe/d of average production.
Activity Update
Peyto currently has 8 drilling rigs running, which will increase to 9 by
mid-November, out of approximately 90 natural gas directed rigs in the Western
Canadian Sedimentary Basin (WCSB) making Peyto one of the busiest natural gas
drillers in Canada. This counter cyclical strategy to invest in natural gas when
most of the industry is not, allows Peyto improved purchasing power for
services, materials and labor which lowers absolute development costs and
improves shareholder returns. This strategy has resulted in Peyto building over
18,000 boe/d of new production since the start of 2012 at industry leading
capital efficiencies of less than $18,000/boe/d. The new volume additions
combined with acquired volumes of 4,700 boe/d and base production of 28,300
boe/d equates to current production of 51,000 boe/d.
In addition, Peyto has 7 gross (6.5 net) wells that are drilled but waiting on
completion, and 5 gross (4.0 net) wells completed but waiting on tie in, which
represents approximately 6,000 boe/d of behind pipe production. In the past,
Peyto has not had this much productive capacity waiting on completion and tie in
operations but recent pad drilling techniques, which significantly reduce rig
move costs, have delayed wellsite access for completions and pipelining
operations. The economic benefit of reduced drilling costs significantly
outweighs the short term delay in production additions. The company remains on
track to exit 2012 at approximately 57,000 boe/d.
The enhanced liquids recovery project at Peyto's Oldman gas plant, which was
originally scheduled to be completed by October 1, 2012, is now expected to be
completed and operational by the end of November. An unexpected delay in the
delivery of a major component and subsequent construction delays has set the
project back eight weeks. Upon completion, it is expected that the Oldman liquid
yield will increase from 25 bbl/mmcf to 40 bbl/mmcf, principally from improved
Propane and Butane recoveries.
2013 Budget
The Board of Directors has approved a preliminary 2013 budget which includes a
capital program expected to range between $450 and $500 million. This record
level of investment anticipates that 8 drilling rigs will remain active
throughout the year, developing several of the stacked formations within Peyto's
Deep Basin core areas. As with past years, it is forecast that over 80% of the
capital will be directed to well-related activity including drilling,
completions, wellsite equipment and pipelines. In addition, both facility
expansion and additional liquids recovery ("deep cut") projects will account for
15% of the total capital. The remaining capital will be directed to new land
acquisitions and seismic evaluation.
A total of 100 gross, 85 net wells are forecast to be drilled in 2013 from over
1,000 locations in Peyto's existing inventory. This is expected to result in the
addition of between 25,000 to 29,000 boe/d of new production and assumes that
similar capital efficiencies to the past four years of $17,500/boe/d can also be
successfully achieved in 2013. A portion of this new production will offset an
internally forecast 34% base decline, while a portion will grow overall 2013
production to a forecast exit level between 62,000 boe/d and 67,000 boe/d.
AECO natural gas prices in 2013 are currently forecast to average approximately
$3.40/GJ, up almost 50% from average 2012 levels. This price, combined with oil
prices forecast to average $90/bbl and Peyto's industry leading low cash costs
of $1/Mcfe ($6/boe), would result in strong cash netbacks and the ability to
fund the dividend and the majority of the 2013 capital program. The balance of
the capital program can be funded from available bank lines, working capital and
equity, while still maintaining a strong balance sheet.
Outlook
The remainder of 2012 and full year 2013 is forecast to be one of the most
active periods in Peyto's history. It comes at a time when the rest of the
Canadian industry is not focused on developing natural gas resources as most
plays do not provide an economic return at current prices. The number of active,
natural gas directed drilling rigs in Canada is clear evidence of that fact.
Peyto's unique low cost structure in combination with its focused, returns
driven strategy allows the company to take a very counter cyclical approach
which has delivered superior total returns to shareholders in the past.
Fortunately, Peyto's current inventory of profitable drilling opportunities has
never been greater.
The company's financial flexibility, quality asset base and strong balance sheet
position Peyto to be opportunistic in this environment. As always, capital
investments will only be pursued if return objectives can be met.
Conference Call and Webcast
A conference call will be held with the senior management of Peyto to answer
questions with respect to the 2012 third quarter on Thursday, November 8th,
2012, at 9:00 a.m. Mountain Standard Time (MST), or 11:00 a.m. Eastern Standard
Time (EST). To participate, please call 1-800-734-8592. The conference call will
also be available on replay by calling 1-800-633-8284 (North American Toll Free)
or 1-402-997-9140 (for those outside North America) using passcode 21608617. The
replay will be available at 11:00 a.m. MST, 1:00 p.m. EST Thursday, November
8th, 2012 until 11:00 am MST on Thursday, November 15th, 2012. In addition to
telephone access, the conference call can be accessed through the internet at
http://events.digitalmedia.telus.com/peyto/110812/index.php. After this time the
conference call will be archived on the Peyto Exploration & Development website
at www.peyto.com.
Management's Discussion and Analysis
Management's Discussion and Analysis of this third quarter report is available
on the Peyto website at http://www.peyto.com/news/Q32012MDandA.pdf. A complete
copy of the third quarter report to shareholders, including the Management's
Discussion and Analysis, and Financial Statements is also available at
www.peyto.com and will be filed at SEDAR, www.sedar.com, at a later date.
Shareholders and interested investors are encouraged to visit the Peyto website
where there is a wealth of information designed to educate and inform.
Darren Gee
President and CEO
November 7, 2012
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. Any "financial
outlook" or "future oriented financial information" in this press release, as
defined by applicable securities legislation has been approved by management of
Peyto. Such financial outlook or future oriented financial information is
provided for the purpose of providing information about management's current
expectations and plans relating to the future. Readers are cautioned that
reliance on such information may not be appropriate for other purposes. Other
than is required pursuant to applicable securities law, Peyto does not undertake
to update forward looking statements at any particular time.
Peyto Exploration & Development Corp.
Condensed Consolidated Balance Sheet (unaudited)
(Amount in $ thousands)
September 30 December 31
2012 2011
----------------------------------------------------------------------------
Assets
Current assets
Cash - 57,224
Accounts receivable 57,771 53,829
Due from private placement (Note 7) - 9,740
Financial derivative instruments (Note 9) 8,316 38,530
Prepaid expenses 2,342 3,991
----------------------------------------------------------------------------
68,429 163,314
----------------------------------------------------------------------------
Long-term financial derivative instruments (Note 9) - 6,304
Prepaid capital 18,673 1,414
Property, plant and equipment, net (Note 4) 1,990,788 1,629,220
----------------------------------------------------------------------------
2,009,461 1,636,938
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2,077,890 1,800,252
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Liabilities
Current liabilities
Accounts payable and accrued liabilities 120,020 110,483
Dividends payable (Note 7) 8,633 8,278
Provision for future performance based compensation
(Note 8) 7,607 4,321
----------------------------------------------------------------------------
136,260 123,082
----------------------------------------------------------------------------
Long-term financial derivative instruments (Note 9) 5,396 -
Long-term debt (Note 5) 615,000 470,000
Provision for future performance based compensation
(Note 8) 2,841 1,235
Decommissioning provision (Note 6) 63,772 38,037
Deferred income taxes 162,542 152,190
----------------------------------------------------------------------------
849,551 661,462
----------------------------------------------------------------------------
Shareholders' equity
Shareholders' capital (Note 7) 1,013,100 889,115
Shares to be issued (Note 7) - 9,740
Retained earnings 75,602 82,889
Accumulated other comprehensive income (Note 7) 3,377 33,964
----------------------------------------------------------------------------
1,092,079 1,015,708
----------------------------------------------------------------------------
2,077,890 1,800,252
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Approved by the Board of Directors
Michael MacBean Darren Gee
Director Director
Peyto Exploration & Development Corp.
Condensed Consolidated Income Statement (unaudited)
(Amount in $ thousands)
Three months ended Nine months ended
September 30 September 30
2012 2011 2012 2011
----------------------------------------------------------------------------
Revenue
Oil and gas sales 86,827 99,829 240,927 282,893
Realized gain on hedges 15,214 7,697 50,163 27,404
Royalties (6,632) (9,265) (21,549) (31,195)
----------------------------------------------------------------------------
Petroleum and natural
gas sales, net 95,409 98,261 269,541 279,102
----------------------------------------------------------------------------
Expenses
Operating 8,843 7,157 22,747 19,672
Transportation 2,900 2,552 8,151 7,087
General and
administrative 759 841 3,369 3,795
Future performance
based compensation
(Note 8) 1,882 1,014 4,893 7,585
Interest 6,352 5,205 16,486 14,336
Accretion of
decommissioning
provision 284 192 773 658
Depletion and
depreciation (Note 4) 43,772 30,987 122,546 90,863
Gain on disposition of
assets (Note 4) (363) - (508) (818)
----------------------------------------------------------------------------
64,429 47,948 178,457 143,178
----------------------------------------------------------------------------
Earnings before taxes 30,980 50,313 91,084 135,924
----------------------------------------------------------------------------
Income tax
Deferred income tax
expense 7,922 12,572 22,956 33,777
----------------------------------------------------------------------------
Earnings for the period 23,058 37,741 68,128 102,147
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings per share
(Note 7)
Basic and diluted $ 0.16 $ 0.28 $ 0.49 $ 0.77
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted average number
of common shares
outstanding (Note 7)
Basic and diluted 142,069,048 133,061,301 139,631,290 132,954,410
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Peyto Exploration & Development Corp.
Condensed Consolidated Statement of Comprehensive Income(unaudited)
(Amount in $ thousands)
Three months ended Nine months ended
September 30 September 30
2012 2011 2012 2011
----------------------------------------------------------------------------
Earnings for the period 23,058 37,741 68,128 102,147
Other comprehensive income
(loss)
Change in unrealized gain (loss) (6,812) 8,394 9,381 18,825
on cash flow hedges
Deferred tax recovery (expense) 5,507 (103) 10,195 2,408
Realized (gain) loss on cash (15,214) (7,697) (50,163) (27,404)
flow hedges
----------------------------------------------------------------------------
Comprehensive Income (Loss) 6,539 38,335 37,541 95,976
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Peyto Exploration & Development Corp.
Condensed Consolidated Statement of Changes in Equity (unaudited)
(Amount in $ thousands)
Nine months ended
September 30
2012 2011
----------------------------------------------------------------------------
Shareholders' capital, beginning of period 889,115 755,831
----------------------------------------------------------------------------
Common shares issued 112,187 -
Common shares issued by private placement 11,952 17,150
Common shares issuance costs (net of tax) (154) (75)
Common shares issued pursuant to DRIP - 1,973
Common shares issued pursuant to OTUPP - 2,889
----------------------------------------------------------------------------
Shareholders' capital, end of period 1,013,100 777,768
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Common shares to be issued, beginning of period 9,740 17,285
----------------------------------------------------------------------------
Common shares issued (9,740) (17,285)
Common shares to be issued - -
----------------------------------------------------------------------------
Common shares to be issued, end of period - -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Retained earnings, beginning of period 82,889 50,774
----------------------------------------------------------------------------
Earnings for the period 68,128 102,147
Dividends (Note 7) (75,415) (71,823)
----------------------------------------------------------------------------
Retained earnings, end of period 75,602 81,098
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accumulated other comprehensive income, beginning of
period 33,964 20,893
----------------------------------------------------------------------------
Other comprehensive income (loss) (30,587) (6,171)
----------------------------------------------------------------------------
Accumulated other comprehensive income (loss), end of
period 3,377 14,722
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total shareholders' equity 1,092,079 873,588
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Peyto Exploration & Development Corp.
Condensed Consolidated Statement of Cash Flows (unaudited)
(Amount in $ thousands)
Three months ended Nine months ended
September 30 September 30
2012 2011 2012 2011
----------------------------------------------------------------------------
Cash provided by (used in)
operating activities
Earnings 23,058 37,741 68,128 102,147
Items not requiring cash:
Deferred income tax 7,922 12,572 22,956 33,777
Depletion and depreciation 43,772 30,987 122,546 90,863
Accretion of decommissioning
provision 284 192 773 658
Change in non-cash working
capital related to operating
activities (3,032) (1,807) (8,464) (22,224)
----------------------------------------------------------------------------
72,004 79,685 205,939 205,221
----------------------------------------------------------------------------
Financing activities
Issuance of common shares - - 11,952 4,727
Issuance costs (170) - (205) (99)
Cash dividends paid (25,251) (23,951) (75,060) (67,241)
Increase (decrease) in bank debt 70,000 35,000 (5,000) 135,000
Repayment of Open Range bank debt (72,000) - (72,000) -
Issuance of long term notes 50,000 - 150,000 -
----------------------------------------------------------------------------
22,579 11,049 9,687 72,387
----------------------------------------------------------------------------
Investing activities
Additions to property, plant and
equipment (94,583) (93,451) (272,850) (275,870)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net increase (decrease) in cash - (2,717) (57,224) 1,738
Cash, Beginning of Period - 12,349 57,224 7,894
----------------------------------------------------------------------------
Cash, End of Period - 9,632 - 9,632
----------------------------------------------------------------------------
The following amounts are included in cash flows from operating activities:
----------------------------------------------------------------------------
Cash interest paid 7,544 5,205 15,979 13,746
Cash taxes paid - - - -
----------------------------------------------------------------------------
Peyto Exploration & Development Corp.
Notes to Condensed Consolidated Financial Statements (unaudited)
As at September 30, 2012 and 2011
(Amount in $ thousands, except as otherwise noted)
1. Nature of operations
Peyto Exploration & Development Corp. and its wholly subsidiary Open Range
Energy Corp. ("Open Range"), (collectively "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 1500, 250 - 2nd Street SW, Calgary, Alberta, Canada, T2P 0C1.
These financial statements were approved and authorized for issuance by the
Audit Committee of Peyto on November 6, 2012.
2. Basis of presentation
The condensed consolidated 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 consolidated
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 for the year ended December 31, 2011.
The timely preparation of the condensed consolidated 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 consolidated financial statements.
All accounting policies and methods of computation followed in the preparation
of these condensed consolidated financial statements are the same as those
disclosed in Note 2 of Peyto's audited Financial Statements as at and for the
years ended December 31, 2011 and 2010. Any reference to "Peyto" or the
"Company" throughout these financial statements refers to the Company and its
subsidiary. All inter-entity transactions have been eliminated.
3. Corporate Acquisition
On August 14, 2012, Peyto completed the acquisition, by plan of arrangement, of
all issued and outstanding common shares of Open Range. The total consideration
of approximately $187.2 million paid for by the issuance of 5.4 million shares
and the assumption of Open Range's long-term debt and working capital deficiency
($193.6 million was allocated to Property, plant & equipment). Transaction costs
of approximately $0.6 million are included in the financial statements.
The Open Range properties are a natural fit with Peyto's Greater Sundance core
area. Open Range's plant and pipeline infrastructure complements Peyto's
existing core assets and accesses other proven Peyto lands adjacent to the main
Sundance area. This will allow for the accelerated development of the Peyto
step-out areas.
($000s)
Fair value of net assets acquired
----------------------------------------------------------------------------
Working capital (1,868)
Property, plant and equipment 193,629
Financial derivative instruments (1,132)
Bank debt (72,000)
Decommissioning provision (8,800)
Deferred income taxes 2,358
----------------------------------------------------------------------------
Total net assets acquired 112,187
----------------------------------------------------------------------------
Consideration
Shares issued (5,404,007 shares) 112,187
----------------------------------------------------------------------------
Total purchase price 112,187
----------------------------------------------------------------------------
The above amounts are estimates, which were made by management at the time of
the preparation of these condensed consolidated financial statements based on
information then available. Amendments may be made as amounts subject to
estimates are finalized.
If Peyto had acquired Open Range on January 1, 2012, the pro-forma results of
the oil and gas sales, net income and comprehensive income for the period ended
September 30, 2012 would have been as follows;
Open Range
As Stated January 1, 2012
September 30, to August 14, Pro Forma
($000s) 2012 2012 September 30, 2012
----------------------------------------------------------------------------
Oil and gas sales 240,927 27,756 268,683
Net income 68,128 1,134 69,262
Comprehensive income 37,541 1,134 38,675
----------------------------------------------------------------------------
4. Property, plant and equipment, net
Cost
----------------------------------------------------------------------------
At December 31, 2011 1,843,766
----------------------------------------------------------------------------
Acquisitions through business combinations, net 193,629
Additions 291,246
Dispositions (768)
----------------------------------------------------------------------------
At September 30, 2012 2,327,873
----------------------------------------------------------------------------
Accumulated depletion and depreciation
----------------------------------------------------------------------------
At December 31, 2011 (214,546)
----------------------------------------------------------------------------
Depletion and depreciation (122,546)
Dispositions 7
----------------------------------------------------------------------------
At September 30, 2012 (337,085)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Carrying amount at September 30, 2012 1,990,788
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Proceeds received for assets disposed of during the three and nine month periods
ended September 30, 2012 were $1.0 million and $1.2 million (2011 - $nil and
$1.5 million).
During the three and nine month periods ended September 30 2012, Peyto
capitalized $2.3 million and $4.8 million (2011 - $1.7 million and $4.4 million)
of general and administrative expense directly attributable to production and
development activities.
5. Long-term debt
----------------------------------------------------------------------------
September 30, 2012 December 31, 2012
----------------------------------------------------------------------------
Bank credit facility 465,000 470,000
Senior secured notes 150,000 -
----------------------------------------------------------------------------
Balance, end of the period 615,000 470,000
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Peyto has a syndicated $730 million extendible revolving credit facility with a
stated term date of April 28, 2013. The bank facility is made up of a $30
million working capital sub-tranche and a $700 million production line. The
facilities are available on a revolving basis for a period of at least 364 days
and upon the term out date may be extended for a further 364 day period at the
request of Peyto, subject to approval by the lenders. In the event that the
revolving period is not extended, the facility is available on a non-revolving
basis for a further one year term, at the end of which time the facility would
be due and payable. Outstanding amounts on this facility will bear interest at
rates ranging from prime plus 1.25% to prime plus 2.75% determined by Peyto's
debt to earnings before interest, taxes, depreciation, depletion and
amortization (EBITDA) ratios ranging from less than 1:1 to greater than 2.5:1. A
General Security Agreement with a floating charge on land registered in Alberta
is held as collateral by the bank.
On January 3, 2012, Peyto issued CDN $100 million of senior secured notes
pursuant to a note purchase and private shelf agreement. The notes were issued
by way of private placement and rank equally with Peyto's obligations under its
bank facility. The notes have a coupon rate of 4.39% and mature on January 3,
2019. Interest will be paid semi-annually in arrears.
On September 6, 2012, Peyto issued CDN $50 million of senior secured notes
pursuant to a note purchase and private shelf agreement. The notes were issued
by way of private placement and rank equally with Peyto's obligations under its
bank facility. The notes have a coupon rate of 4.88% and mature on September 6,
2022. Interest will be paid semi-annually in arrears.
Upon the issuance of the senior secured notes January 3, 2012, Peyto became
subject to the following financial covenants as defined in the credit facility
and note purchase and private shelf agreements:
-- Senior Debt to EBITDA Ratio will not exceed 3.0 to 1.0
-- Total Debt to EBITDA Ratio will not exceed 4.0 to 1.0
-- Interest Coverage Ratio will not be less than 3.0 to 1.0
-- Total Debt to Capitalization Ratio will not exceed 0.55:1.0
Peyto is in compliance with all financial covenants at September 30, 2012.
Peyto's total borrowing capacity is $880 million and Peyto's net credit facility
is $730 million.
Total interest expense for the three and nine month periods ended September 30,
2012 was $6.4 million and $16.5 million (2011 - $5.2 million and $14.3 million)
and the average borrowing rate for the three and nine month periods was 4.6% and
4.4% (2011 - 4.4% and 4.4%).
6. Decommissioning provision
Peyto makes provision for the future cost of decommissioning wells, pipelines
and facilities on a discounted basis based on the commissioning of these assets.
The decommissioning provision represents the present value of the
decommissioning costs related to the above infrastructure, which are expected to
be incurred over the economic life of the assets. The provisions have been based
on Peyto's internal estimates of the cost of decommissioning, the discount rate,
the inflation rate and the economic life of the infrastructure. Assumptions,
based on the current economic environment, have been made which management
believes are a reasonable basis upon which to estimate the future liability.
These estimates are reviewed regularly to take into account any material changes
to the assumptions. However, actual decommissioning costs will ultimately depend
upon the future market prices for the necessary decommissioning work required
which will reflect market conditions at the relevant time. Furthermore, the
timing of the decommissioning is likely to depend on when production activities
cease to be economically viable. This in turn will depend and be directly
related to the current and future commodity prices, which are inherently
uncertain.
The following table reconciles the change in decommissioning provision:
----------------------------------------------------------------------------
Balance, December 31, 2011 38,037
----------------------------------------------------------------------------
New or increased provisions 9,793
Provisions acquired through business combinations 8,800
Accretion of decommissioning provision 773
Change in discount rate and estimates 6,369
----------------------------------------------------------------------------
Balance, September 30, 2012 63,772
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Current -
Non-current 63,772
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Peyto has estimated the net present value of its total decommissioning provision
to be $63.8 million as at September 30, 2012 ($38.0 million at December 31,
2011) based on a total future undiscounted liability of $131.6 million ($101.2
million at December 31, 2011). At September 30, 2012 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 2061. The Bank of Canada's long term
bond rate of 2.32 per cent (2.49 per cent at December 31, 2011) and an inflation
rate of two per cent (two per cent at December 31, 2011) were used to calculate
the present value of the decommissioning provision.
7. Shareholders' capital
Authorized: Unlimited number of voting common shares
Issued and Outstanding
Common Shares (no par value) Number of Common Shares Amount $
----------------------------------------------------------------------------
Balance, December 31, 2010 131,875,382 755,831
----------------------------------------------------------------------------
Common shares issued 4,899,000 115,126
Common share issuance costs (net of tax) - (3,854)
Common shares issued by private
placement 906,196 17,150
Common shares issued pursuant to DRIP 113,527 1,973
Common shares issued pursuant to OTUPP 166,196 2,889
----------------------------------------------------------------------------
Balance, December 31, 2011 137,960,301 889,115
----------------------------------------------------------------------------
Common shares issued by private
placement 525,655 11,952
Common shares issued for acquisitions 5,404,007 112,187
Common share issuance costs (net of tax) - (154)
----------------------------------------------------------------------------
Balance, September 30, 2012 143,889,963 1,013,100
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Peyto reinstated its amended distribution reinvestment and optional trust unit
purchase plan (the "Amended DRIP Plan") effective with the January 2010
distribution whereby eligible unitholders could elect to reinvest their monthly
cash distributions in additional trust units at a 5 percent discount to market
price. The DRIP plan incorporated an Optional Trust Unit Purchase Plan ("OTUPP")
which provided unitholders enrolled in the DRIP with the opportunity to purchase
additional trust units from treasury using the same pricing as the DRIP. The
DRIP and the OTUPP plans were cancelled December 31, 2010.
On December 31, 2010, Peyto completed a private placement of 655,581 common
shares to employees and consultants for net proceeds of $12.4 million ($18.95
per share). These common shares were issued on January 6, 2011.
On January 14, 2011, 279,723 common shares (113,527 pursuant to the DRIP and
166,196 pursuant to the OTUPP) were issued for net proceeds of $4.9 million.
On March 25, 2011, Peyto completed a private placement of 250,615 common shares
to employees and consultants for net proceeds of $4.7 million ($18.86 per
share).
On December 16, 2011, Peyto closed an offering of 4,899,000 common shares at a
price of $23.50 per common share, receiving proceeds of $110.1 million (net of
issuance costs).
On December 31, 2011 Peyto completed a private placement of 397,235 common
shares to employees and consultants for net proceeds of $9.7 million ($24.52 per
share). These common shares were issued on January 13, 2012.
On March 23, 2012 Peyto completed a private placement of 128,420 common shares
to employees and consultants for net proceeds of $2.2 million ($17.22 per
share).
On August 14, 2012 Peyto issued 5,404,007 common shares which were valued at
$112.0 million (net of issuance costs) ($20.76 per share) in relation to the
closing of a corporate acquisition (Note 3).
Per share amounts
Earnings per share have been calculated based upon the weighted average number
of common shares outstanding for the three and nine month periods ended
September 30, 2012 were 142,069,048 and 139,631,290 (2011 - 133,061,301 and
132,954,410). There are no dilutive instruments outstanding.
Dividends
During the three and nine month periods ended September 30, 2012, Peyto declared
and paid dividends of $0.18 and $0.54 per common share or $0.06 per common share
per month, totaling $25.6 million and $75.4 million (2011 - $0.18 and $0.54 per
share or $0.06 per share per month, $24.0 million and $71.8 million).
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 9.
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 over the three year vesting period. 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 valuation model were:
September 30 September 30
2012 2011
----------------------------------------------------------------------------
Share price $18.83 - $24.75 $18.83 - $19.93
Exercise price $12.06 - $24.37 $9.57 - $19.10
Expected volatility 0% - 32% 25% - 31%
Expected life 0.25 years 0.25 - 2.25 years
Risk-free interest rate 1.08% 0.91%
----------------------------------------------------------------------------
9. Risk management contracts
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 September
30, 2012:
----------------------------------------------------------------------------
Propane Price
Period Hedged Type Monthly Volume (USD)
----------------------------------------------------------------------------
September 1, 2012 to March 31, 2013 Fixed Price 2,000 bbl $49.56/bbl
September 1, 2012 to March 31, 2013 Fixed Price 2,000 bbl $44.10/bbl
September 1, 2012 to March 31, 2013 Fixed Price 2,000 bbl $32.34/bbl
September 1, 2012 to March 31, 2013 Fixed Price 2,000 bbl $33.60/bbl
September 1, 2012 to March 31, 2013 Fixed Price 2,000 bbl $32.97/bbl
October 1, 2012 to March 31, 2013 Fixed Price 2,000 bbl $34.01/bbl
October 1, 2012 to March 31, 2013 Fixed Price 2,000 bbl $34.65/bbl
October 1, 2012 to March 31, 2013 Fixed Price 2,000 bbl $36.96/bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Butane Price
Period Hedged Type Monthly Volume (USD)
----------------------------------------------------------------------------
September 1, 2012 to March 31, 2013 Fixed Price 2,000 bbl $80.64/bbl
September 1, 2012 to March 31, 2013 Fixed Price 2,000 bbl $58.38/bbl
September 1, 2012 to March 31, 2013 Fixed Price 2,000 bbl $60.06/bbl
September 1, 2012 to March 31, 2013 Fixed Price 2,000 bbl $60.06/bbl
October 1, 2012 to March 31, 2013 Fixed Price 2,000 bbl $66.36/bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Condensate Price
Period Hedged Type Monthly Volume (USD)
----------------------------------------------------------------------------
August 1, 2012 to December 31, 2012 Fixed Price 200 bbl $90.00/bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Iso-Butane Price
Period Hedged Type Monthly Volume (USD)
----------------------------------------------------------------------------
September 1, 2012 to March 31, 2013 Fixed Price 1,000 bbl $82.32/bbl
September 1, 2012 to March 31, 2013 Fixed Price 1,000 bbl $60.48/bbl
September 1, 2012 to March 31, 2013 Fixed Price 1,000 bbl $62.58/bbl
September 1, 2012 to March 31, 2013 Fixed Price 1,000 bbl $62.58/bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Natural Gas Price
Period Hedged Type Daily Volume (CAD)
----------------------------------------------------------------------------
April 1, 2011 to October 31, 2012 Fixed Price 5,000 GJ $4.05/GJ
April 1, 2011 to October 31, 2012 Fixed Price 5,000 GJ $4.15/GJ
April 1, 2011 to October 31, 2012 Fixed Price 5,000 GJ $4.10/GJ
April 1, 2011 to October 31, 2012 Fixed Price 5,000 GJ $4.00/GJ
April 1, 2011 to March 31, 2013 Fixed Price 5,000 GJ $4.055/GJ
April 1, 2011 to March 31, 2013 Fixed Price 5,000 GJ $3.80/GJ
June 1, 2011 to March 31, 2013 Fixed Price 5,000 GJ $4.17/GJ
June 1, 2011 to March 31, 2013 Fixed Price 5,000 GJ $4.10/GJ
June 1, 2011 to March 31, 2013 Fixed Price 5,000 GJ $4.10/GJ
November 1, 2011 to March 31, 2013 Fixed Price 5,000 GJ $4.00/GJ
April 1, 2012 to December 31, 2012 Fixed Price 5,000 GJ $3.3125/GJ
April 1, 2012 to December 31, 2012 Fixed Price 5,000 GJ $3.395/GJ
April 1, 2012 to October 31, 2013 Fixed Price 5,000 GJ $4.00/GJ
April 1, 2012 to October 31, 2013 Fixed Price 5,000 GJ $4.00/GJ
April 1, 2012 to October 31, 2013 Fixed Price 5,000 GJ $4.00/GJ
April 1, 2012 to October 31, 2013 Fixed Price 5,000 GJ $4.00/GJ
April 1, 2012 to March 31, 2013 Fixed Price 5,000 GJ $2.20/GJ
April 1, 2012 to March 31, 2013 Fixed Price 5,000 GJ $2.31/GJ
April 1, 2012 to October 31, 2013 Fixed Price 5,000 GJ $2.52/GJ
April 1, 2012 to March 31, 2014 Fixed Price 5,000 GJ $3.00/GJ
May 1, 2012 to October 31, 2013 Fixed Price 5,000 GJ $2.30/GJ
June 1, 2012 to October 31, 2012 Fixed Price 5,000 GJ $1.83/GJ
July 1, 2012 to October 31, 2012 Fixed Price 5,000 GJ $2.32/GJ
July 1, 2012 to October 31, 2012 Fixed Price 5,000 GJ $2.35/GJ
August 1, 2012 to December 31, 2012 Fixed Price 12,500 GJ $1.95/GJ
August 1, 2012 to December 31, 2012 Fixed Price 5,000 GJ $2.23/GJ
August 1, 2012 to March 31, 2014 Fixed Price 5,000 GJ $3.00/GJ
August 1, 2012 to October 31, 2014 Fixed Price 5,000 GJ $3.10/GJ
November 1, 2012 to October 31, 2013 Fixed Price 5,000 GJ $2.60/GJ
November 1, 2012 to October 31, 2013 Fixed Price 5,000 GJ $3.005/GJ
November 1, 2012 to October 31, 2013 Fixed Price 5,000 GJ $3.00/GJ
November 1, 2012 to March 31, 2014 Fixed Price 5,000 GJ $2.81/GJ
November 1, 2012 to March 31, 2014 Fixed Price 5,000 GJ $3.00/GJ
November 1, 2012 to March 31, 2014 Fixed Price 5,000 GJ $3.05/GJ
November 1, 2012 to March 31, 2014 Fixed Price 5,000 GJ $3.02/GJ
November 1, 2012 to October 31, 2014 Fixed Price 5,000 GJ $3.0575/GJ
January 1, 2013 to December 31, 2013 Fixed Price 5,000 GJ $3.105/GJ
January 1, 2013 to March 31, 2014 Fixed Price 5,000 GJ $3.00/GJ
January 1, 2013 to March 31, 2014 Fixed Price 5,000 GJ $3.02/GJ
April 1, 2013 to March 31, 2014 Fixed Price 5,000 GJ $3.105/GJ
----------------------------------------------------------------------------
As at September 30, 2012, Peyto had committed to the future sale of 204,400
barrels of oil and natural gas liquids at an average price of $54.62 USD per
barrel and 59,695,000 gigajoules (GJ) of natural gas at an average price of
$3.15 per GJ or $3.68 per mcf. Had these contracts been closed on September 30,
2012, Peyto would have realized a gain in the amount of $2.9 million. If the
AECO gas price on September 30, 2012 were to increase by $1/GJ, the unrealized
gain would decrease by approximately $59.7 million. An opposite change in
commodity prices rates would result in an opposite impact on other comprehensive
income.
Subsequent to September 30, 2012 Peyto entered into the following contracts:
----------------------------------------------------------------------------
Propane Price
Period Hedged Type Monthly Volume (USD)
----------------------------------------------------------------------------
January 1, 2013 to March 31, 2013 Fixed Price 4,000 bbl $36.12/bbl
April 1, 2013 to June 30, 2013 Fixed Price 4,000 bbl $34.86/bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Natural Gas Price
Period Hedged Type Monthly Volume (CAD)
----------------------------------------------------------------------------
January 1, 2013 to October 31, 2013 Fixed Price 5,000 GJ $3.42/GJ
April 1, 2013 to October 31, 2013 Fixed Price 5,000 GJ $3.205/GJ
April 1, 2013 to March 31, 2014 Fixed Price 5,000 GJ $3.53/GJ
November 1, 2013 to October 31, 2014 Fixed Price 5,000 GJ $3.50/GJ
----------------------------------------------------------------------------
10. Commitments and contingencies
Peyto has contractual obligations and commitments as follows:
2012 2013 2014 2015 2016 Thereafter
----------------------------------------------------------------------------
Note repayment(1) - - - - - 150,000
Interest payments(2) - 6,830 6,830 6,830 6,830 25,615
Transportation
commitments 3,190 13,259 12,134 9,185 4,452 1,462
Operating lease 417 1,661 1,677 522 - -
----------------------------------------------------------------------------
Total 3,607 21,750 20,641 16,537 11,282 177,077
----------------------------------------------------------------------------
(1) Long-term debt repayment on senior secured notes
(2) Fixed interest payments on senior secured notes
Contingent liability
From time to time, Peyto is the subject of litigation arising out of its
day-to-day operations. Damages claimed pursuant to such litigation may be
material or may be indeterminate and the outcome of such litigation may
materially impact Peyto's financial position or results of operations in the
period of settlement. While Peyto assesses the merits of each lawsuit and
defends itself accordingly, Peyto may be required to incur significant expenses
or devote significant resources to defending itself against such litigation.
These claims are not currently expected to have a material impact on Peyto's
financial position or results of operations.
Officers
Darren Gee Tim Louie
President and Chief Executive Officer Vice President, Land
Scott Robinson David Thomas
Executive Vice President and Chief Operating Vice President, Exploration
Officer
Kathy Turgeon Jean-Paul Lachance
Vice President, Finance and Chief Financial Vice President, Exploitation
Officer
Stephen Chetner
Corporate Secretary
Directors
Don Gray, Chairman
Rick Braund
Stephen Chetner
Brian Davis
Michael MacBean, Lead Independent Director
Darren Gee
Gregory Fletcher
Scott Robinson
Auditors
Deloitte & Touche LLP
Solicitors
Burnet, Duckworth & Palmer LLP
Bankers
Bank of Montreal
Union Bank, Canada Branch
Royal Bank of Canada
Canadian Imperial Bank of Commerce
HSBC Bank Canada
The Toronto-Dominion Bank
Alberta Treasury Branches
Canadian Western Bank
Transfer Agent
Valiant Trust Company
Head Office
1500, 250 - 2nd Street SW
Calgary, AB
T2P 0C1
Phone: 403.261.6081
Fax: 403.451.4100
Web: http://www.peyto.com/
Stock Listing Symbol: PEY.TO
Toronto Stock Exchange
FOR FURTHER INFORMATION PLEASE CONTACT:
Peyto Energy Trust
Darren Gee
President and CEO
403.261.6081
403.451.4100 (FAX)
www.peyto.com
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