Author Topic: PEY.TO - Peyto Exploration & Development  (Read 29586 times)

petec

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Re: PEY.TO - Peyto Exploration & Development
« Reply #70 on: April 22, 2020, 02:09:43 PM »
Amazing what cutting a dividend can do...
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ValuePadawan

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Re: PEY.TO - Peyto Exploration & Development
« Reply #71 on: April 22, 2020, 07:10:03 PM »
Amazing what cutting a dividend can do...

It's not the dividend it's the fact that US frackers will have to shut in production due to oversupply of oil. A side effect is that the gas that is produced along with the oil in the same well will also be shut in. Nat gas supply will drop but demand won't drop nearly to the same extent. Therefore North America gas prices will improve for as long as the US shale industry is in the decline which will probably be for at least 1.5 years.

petec

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Re: PEY.TO - Peyto Exploration & Development
« Reply #72 on: April 23, 2020, 01:05:16 AM »
Amazing what cutting a dividend can do...

It's not the dividend it's the fact that US frackers will have to shut in production due to oversupply of oil. A side effect is that the gas that is produced along with the oil in the same well will also be shut in. Nat gas supply will drop but demand won't drop nearly to the same extent. Therefore North America gas prices will improve for as long as the US shale industry is in the decline which will probably be for at least 1.5 years.

I suspect that is right. This dynamic has always been in the back of my mind when analysing the stock. The worst scenario for them is low gas prices and high oil prices, which is what they've had for several years now, and hopefully it is changing.

That said I do think cutting the dividend and capex will have given the market some comfort around the debt situation.
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mloub

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Re: PEY.TO - Peyto Exploration & Development
« Reply #73 on: October 20, 2020, 11:03:36 AM »
Bump.

Peyto is looking very interesting. They are one of the lowest NG cost producers anywhere in North America when you normalize out some of the fudge items other NG producers throw into the mix. They also own all their processing and collecting facilities outright, and have a processing capacity of 740mmcfe/d relative to their current gas/ngl production of 460mcfe/d. So incremental growth in production will come at a lower capex cost than growth in the past, which required spending to build out all that processing capacity.

They seem out of favour because of their leverage relative to their peers, but here too, not all is at it seems. For example, Advantage Oil & Gas, another well-run gas heavy producer in the Western Canadian Basin, recently signed a take-or-pay arrangement with Topaz, for 50mmcf/d @ $0.66/mcf of processing capacity for an upfront payment of $100m (and paid down debt by the same amount). Other players have done the same, but Peyto has not.

So if needed, Peyto could pull that lever too and lower debt on the balance sheet and push it out into other long-term commitments tied to their actual gas flows.

As I see it, the current state of the NG market is a case of a bear strolling into camp. You don't have to outrun the bear, you just have to outrun the other campers, and Peyto seems to have a pretty good chance of doing that with it's low operating costs, great asset base, and significant capacity in terms of unencumbered processing and distribution assets.

There are few other nuggets in the foot notes, but none major enough to tip the scales.

I would set the IV based on a full-cycle AECO gas price of $2.50 at $15 per share.

Hat tip to those who were ready to strike when it hit ~$1 in March.

M.
« Last Edit: October 20, 2020, 11:25:37 AM by mloub »

petec

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Re: PEY.TO - Peyto Exploration & Development
« Reply #74 on: October 20, 2020, 11:27:30 AM »
I would set the IV based on a full-cycle AECO gas price of $2.20 at $15 per share.

Could you share your maths behind the $15 number, and your thinking behind $2.20?
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mloub

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Re: PEY.TO - Peyto Exploration & Development
« Reply #75 on: October 20, 2020, 01:34:05 PM »
Sorry, just caught a typo there. Meant to say full-cycle AECO gas price of $2.50/mcf.

That full-cycle price is just my rough guess of the average price over a peak to trough AECO cycle in the next few years.

As for the rest of the math, it is even less scientific. I just plug in the dry gas price, times my expected daily production (which I expect to rise modestly over the next 1-2 years) add in the NGL's price estimate and production, minus opex, and capex, and then slap a multiple on the FCF based on historic multiples.

M.

Nelg

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Re: PEY.TO - Peyto Exploration & Development
« Reply #76 on: October 21, 2020, 09:04:16 PM »
The company really shot itself in the foot with the HH-AECO basis swaps (this is something material I missed in my earlier analysis, so I was caught off guard by how quickly their leverage increased).

I think they roll off after 2021, but they unfortunately don't seem like they can capture the full upside from stronger AECO prices, and will likely result in increased leverage under the forward curve. I'm estimating they'll be around 4.5x until later next year (at AECO of ~$2.80/Mcf and WTI of ~US$41/bbl), which doesn't give a ton of headroom even after their covenant relief. Maybe we'll get $5 gas prices this winter though.

I'm not bullish or bearish on the company, but their balance sheet does not give them complete control of their future if gas prices decline again (for whatever reason).

petec

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Re: PEY.TO - Peyto Exploration & Development
« Reply #77 on: October 27, 2020, 10:33:17 AM »
I just plugged spot AECO and propane prices into a model with basic cost and decline assumptions and came out with a 50% free cash flow yield at current prices.

As identified upthread, the issue is the hedges - they won't generate this much cash. But interesting to see what they could do if spot holds as the hedges roll.
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kevin4u2

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Re: PEY.TO - Peyto Exploration & Development
« Reply #78 on: November 24, 2020, 03:20:49 PM »
I have incorporated the hedges into a model and still get over $1/sh FCF for 2021.  Everyone keeps citing the hedges and as problem (along with the debt), but basis deals are only 209mmcfd while total gas production is estimated to be 454.5mmcfd.  That makes the basis deals 46% of hedged gas.  I'm getting a $2.40/mcf blended gas price for 2021, with 72% hedged.  Cash flows are going to materially improve next year. 

Another thing to keep in mind that fighting a 35% or 40% decline rate is much different than the estimated 25% for next year.  That allows them to maintain production with about $100 million in less capex than in previous years, greatly increasing FCF at the same production rate years ago. 

I see an 11% increase in production for next year and 33% improvement in realized prices based on capex at $300 million and production efficiency of $10k/boe/d.  This also means debt to CF will likely fall to 2.5 times by the end of next year with ~$80 million in debt repayment.  The last two quarters have destroyed their CF but the next 4 are going to be much higher. 

I would agree with the other posters, this has a lot of upside (at least 3-5x) over the next couple years.  If you are a gas bull, then this is a potential rocket ship. 

I just plugged spot AECO and propane prices into a model with basic cost and decline assumptions and came out with a 50% free cash flow yield at current prices.

As identified upthread, the issue is the hedges - they won't generate this much cash. But interesting to see what they could do if spot holds as the hedges roll.
« Last Edit: November 25, 2020, 07:10:41 PM by kevin4u2 »

petec

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Re: PEY.TO - Peyto Exploration & Development
« Reply #79 on: November 24, 2020, 10:56:38 PM »
Would you mind sharing the model?
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