kevin4u2

http://www.peyto.com/Files/PMReport/2021/PMR2021Feb2.pdf I think this statement from the February President's Monthly Report is the most interesting. "Considering our track record over the last decade, with an ever increasing drilling speed (80% increase in 9 yrs), and a shallowing base decline, we may not be too far away from a single operating rig being able to hold us at 100,000 boe/d. Assuming of course that holding production steady and stripping off gobs of free cashflow is still the right strategy."

I am, although funnily enough I was wondering whether I should lighten up here. What’s your thesis behind “miles to run”? Darren Gee was just on BNN the other day and stated that they will double CF in 2021. That will put them at north of $440m this year. From my post above, because of the low decline rate, FCF will be very strong (>$200m). Back in 2014, they generated $662m in CF and FCF was $232m. Needed $429m in CAPEX then compared to $200m now. Big difference. They will invest most of their FCF this year to grow production by 16k boe/d (+20%). How are you defining free cash flow? After all investments or after maintenance investments? CF less maintenance capital. Maintenance capital would be in the $180-190m range. I rounded to $200m to be safe. Peyto needed $429m in maintenance CAPEX back in 2014 and now need much, much less. As you know their FCF can be used to pay down debt, dividends, or grow production. What I see is their strategy as per the presentation and Gee's BNN interview is to fill the plants (100,000 boe/d), which will further improve efficiency (cash costs down 10% to ~0.90CAD/mcf). They will then use FCF stream to further pay down debt and pay a dividend next year. No dividends this year. FCF will be among the highest in the company's history for next several years. Once the debt overhand is gone by later this year, this stock will go much higher. Remarkably, I have modelled their debt/EBITDA under two scenarios 1) pay down debt or 2)grow production (increasing CF), the debt to EBITDA is nearly identical after all factors are taken into consideration. That is why many are likely confused as to why they would grow production instead of paying down debt.

And I think the Tech to Energy rotation is just getting underway. The last 4 years will unwind.

I am, although funnily enough I was wondering whether I should lighten up here. What’s your thesis behind “miles to run”? Darren Gee was just on BNN the other day and stated that they will double CF in 2021. That will put them at north of $440m this year. From my post above, because of the low decline rate, FCF will be very strong (>$200m). Back in 2014, they generated $662m in CF and FCF was $232m. Needed $429m in CAPEX then compared to $200m now. Big difference. They will invest most of their FCF this year to grow production by 16k boe/d (+20%). Should exit the year over 100k boe/d. I'm sure you saw the recent reserve release. Their all in gas cost is now $2 CAD/mcf. They can make a 40% profit margin at $2.50 AECO and $55US WTI (slide 48). Their H2 2020 results were also very strong. Made an acquisition near Sundance for $35m in Q1 adding 2,900 boe/d. Mostly I liked this: The outlook for commodity prices in 2021 has significantly improved over the last six months which drives higher forecast cashflows, beyond the required funding for Peyto’s capital program. In addition, there have been extreme natural gas prices being realized at certain trading hubs over the last week due to record cold temperatures across much of the United States. As an example, Peyto was fortunate to have 20,000 MMBTU/d of unhedged gas sales exposed to the Ventura hub that averaged over $160/MMBTU for the last 5 days. As these superior commodity prices are realized, Peyto will look to use the free cashflow to reduce indebtedness and strengthen its balance sheet, while evaluating the ability to increase dividends to shareholders. Based on strip pricing, Peyto currently projects it will exit debt covenant relief during the second quarter of this year. While the 2021 drilling program is budgeted to be greater than 2020, Peyto currently has the team and resources to do much more and eagerly looks forward to 2022 and beyond. They made $16m in 5 days at Ventura. I have debt to EBITDA at 2.3x by year end, paying down $200m in debt over next 2 years, and will exit 2022 with debt to EBITDA at 1.8x or better at strip pricing & their hedges. Their strategy appears to be fill their gas plants (~100k boe/d), and milk the FCF/profits. TD analyst just came out with 95,300boe/d for 2021 and 104,500boe/d in 2022. My calculations have them with slightly lower production rates. They will also have 3rd party processing revenue this year. Regarding the gas demand, the polar vortex will bring end of winter storage to well below the 5 year normal. Look for a record draw tomorrow. LNG exports are running 10-11 bcf/d (have already recovered to 10bcf/d). Propane prices are currently very good. In Alberta, coal to NG power plant conversions will drive demand, and LNG Canada exports in 2024. Peyto will begin directly supplying Cascade power plant in 2023 (60k-120k GJ/d). The US big gas players have forecasted flat production this year. All this points to a struggle to fill storage to an adequate level by next winter. NYMEX should wake up in Q2 and realize prices are not adequate for next winter. Buy now and enjoy the ride for the next 2 years. At the average EV/DACF for the past 4 years we are are conservatively talking $11/shr this year and $15/shr next year. Upside includes higher gas prices, higher oil prices, or an increase in EV/DACF valuation to historical norms. It is definitely not out of the range of probabilities to see a >$20/share price in 2022. I made a fortune back in 2001 when Peyto was just starting out. They were the best performing stock on the TSX after their first 15 years in business (1999-2014). They have paid out close to $20/share in dividends. I think this run might be just as good, time will tell.

Must read of where storage will end up. We will struggle to refill for next year. NG will be strong for 2021 and 2022. https://seekingalpha.com/article/4406742-natural-gas-market-squeezes-higher-on-latest-cold-blast

Petec are you still holding? The numbers have materially improve and it looks like PEY has miles to run. The polar vortex is showing some production challenges for NG (down 15bcf/d) and how unreliable wind power is in Texas. Should be some record draws from storage tomorrow and next week. We will end storage below the 5 year average. Plus the under-investment for the past two years along with LNG exports now running 10+bcf per day, the rest of this year looks interesting from a supply/demand perspective (along with 2022). Berkshire just bought a bunch of NG pipelines assets, so they know gas will be in the mix for a long time.

No I haven't looked at it that way. I did take a look at Insite's forward price forecast and while near year have risen recently, further out years declined, so the net difference was negligible. The current NAV still supports a $10 share price, fairly easily. As for commodity prices, I think we are at the beginning of an upturn in several commodities. I also think inflation will run hot over the next few years. For NG, it really comes down to oil prices and whether OPEC forces prices down to punish US shale. The residual NG from shale has really depressed prices, however, that said if oil rises Peyto does benefit on the NGL side. I think even low NG prices, like $2/GJ gas Peyto can generate good returns. One thing I also find interesting in modeling different scenarios is that whether Peyto pursues growth or pays down debt, there is no real difference in year end debt to CF. The only benefit to paying down debt is it restricts supply, however you lose access to regular drilling services and staff gets bored. I also found the latest monthly letter from Darren Gee to be quite interesting. Even in a world of higher electrical demand, I have a hard time imagining a scenario where NG doesn't play a large role for years to come, as oil demand falls.

Here is my thoughts AECO 7A averaged $2.04/GJ = $2.15/Mcf in the quarter. - This is actual AECO average prices in the quarter. Unhedged realized gas price:$2.62/Mcf - This is unhedged realized gas price. This is the total revenue per mcf that they got for sales in the quarter. less diversification activities: -$1.01/Mcf - This is the expensive ($1.40USD/mmbtu) basis they purchased, blended away with some other hedges. plus hedging gains: $0.03/Mcf - These are gains on some other hedges. There is really no reason to isolate them out. They should just be added with the above line. Realized Gas Price = $1.64/Mcf - This is 2.62-1.01+0.03= 1.64/mcf In my model, I am simply taking the fixed gas prices right out of their presentation and calculating a weighted average. These are the "realized gas prices" for each market. When I said they are leaving money on the table, that is because they are. If they sold all their gas at AECO they would realize much higher prices. But they purchased the US basis hedges at a time when they couldn't get pipe access. It was costly but necessary at the time. They were getting next to zero at AECO. Now it looks like a stupid decision but that is only because the new UCP government in Alberta fixed the NG market. Check out the 2019 disconnect of AECO from Henry Hub, and then see how they now track again in 2020. https://www.oilsandsmagazine.com/energy-statistics/oil-and-gas-prices#dailyNatGasCAD Finally for your last question, In your model, is your unhedged realized gas price just assuming AECO + a premium? And then for all of the hedges you just listed from their last presentation, this would effectively show up in their reported "diversification activities" and "hedging gains/losses"?, No, I am just reporting the bottom line "Realized Gas Price". If one wanted to back calculate those costs you could. For the current quarter, for example, AECO Oct/Nov/Dec averages say $2.58/GJ, so with peyto add a 15% premium for heat content and you get a $2.97/mcf "Unhedged realized gas price". Then you look at slide 51 of their presentation (Marketing Summary), you will see they have 204,167 mmbtu/d (199,185 mcf/d) of AECO phys fixed price gas sold at $1.79CAD/mcf. So for this production of 199,185 mcf/d Peyto would report in Q4 2020: Unhedged realized gas price = 2.97/mcf less diversification activities = -1.18/mcf Realized Gas Price = $1.79/mcf I hope this makes sense. So what I did above is just calculated a weighted average of all the "Realized gas prices" as listed on p51. Yes the AECO phys basis hedges sucks but when you add up all of the other revenue streams, the average is still looking around the $2.40/mcf for Peyto in 2021. Currently 2021 AECO average futures are selling at close to $2.90/mcf (Peyto unhedged realized gas price). That is close to $80 million in less CF in 2021, but that gap will close over the next couple years. My point is even at $2.40 gas and $35 oil Peyto can generate significant CF and FCF over the next couple years because of their low decline asset base. As I mentioned above, fighting off a 25% decline rate is much different than Peyto circa 2015 with a 40% decline rate. It requires $120 million less capex just to maintain 80,000 boe/d rate of production, so in essence, they can earn the same FCF with $0.80/mcf lower gas prices compared to 2015. I actually see their FCF being slightly less next year than 2015 ($1.00 vs $1.06), however the major difference is the share price averaged $30.98/shr in 2015 while today they sell for $3.07/shr. A 33% FCF yield, I'll take that all day long. If Peyto were to sell for the same EV/DACF as it did in 2015, the share price would have to rise to $18.50 in 2021. I don't expect that to happen given the current political climate in Canada and the worldview that the O&G sector is going to be phased out over the next couple years. Oil demand may decline, however NG has a very bright future in an more electric world. The Peyto AGM presentation of 2019 does a very good job explaining how NG isn't going anywhere. Less Energy = Better Climate, however for the vast majority of people in this world More Energy = Better Life, so who wins? My bet is NG. Cheers.

No problem. All figures in $CAD. Assumption $300 million 2021 capex at $10k/boe/d efficiency 2021 Average Production = 88,920 BOE/d 2021 Hedges (all from pg.51 Presentation or Marketing section of website) AECO 7A - 68,158 mcf/d - $2.62/mcf AECO 5A - 8,701 mcf/d - $2.22/mcf AECO Phys Basis - 51,422 mcf/d - $2.03/mcf AECO Phys Fixed - 161,875 mcf/d - $1.86/mcf Emerson Fixed - 8,943 mcf/d - $2.98/mcf Malin Fixed - 33,333 mcf/d - $3.23/mcf Total Hedged NG - 328,483 mcf/d - $2.22/mcf Total Unhedged NG - 126,067 mcf/d - $2.80/mcf 2021 NG Blended Price - 454,550 mcf/d - $2.38/mcf (NG = 75,758 BOE/d, 72% hedged) 2021 Oil - 13,160 BOE/d @ $36/boe (14.8% NGLs) Est. Average Realized Price - $2.92/mcf ($17.51/boe) Est 2021 Revenue - $568 million (Est 2020 Revenue - $386 million) 2021 CF = $383 million 2021 FCF = $175 million (Maintenance CAPEX = $208 million for flat production) Shares outstanding = 164.88 million 2021 Debt repayment = $76 million Ending Debt = $1.09 billion Net Debt/EBITDA ~ 2.5 This is close to pg 48 of the presentation showing a 30% profit at $2/GJ gas and $30/bbl NGL price. You can tweak the numbers the outcome doesn't change much as so much of the NG is hedged for next year at decent prices. Of course they are leaving some on the table but who cares. The debt covenants will be done after Q3 next year. My preference would be to maintain production in 2022 and significantly pay down debt. Somewhere around $150 million is achievable. Debt repayment accrues to the equity holders so consider it a dividend. For 2022 they are already 45% hedged (assuming flat production) at $2.42/mcf (same calculation as above), and I estimate average NG price is estimated at $2.68/mcf. They just have to execute and that is what they are good at. I would note that these are not too far off TD estimates for 2021, however I have no idea how he calculates $643 million in revenue, on 84,235 boe/d at $17.17/boe (all right out of the report). They have CF at $336 million & 325 million in capex next year. CF rising from $1.29/sh this year to $2.04/sh next year, up 58%. YE debt to EBITDA of around 3x. I have CF rising from $1.30/sh to $2.32/sh next year. Cheers!

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.

You just can't help yourself can you? Please do yourself a favor and click on your own elections link. Then expand the results for Wildrose party, PC's and UCP. Who is the leader for the three parties? https://www.elections.ab.ca/parties-and-candidates/parties/ The WRP and PC's voted to merged into UNITED Conservative Party. 95% of both parties agreed to the merger. How much tighter do you want? 3.5% of the entire population of Alberta are card carrying UCP members. It is the largest provincial political party in Canada. Some former WRP members have started Alberta Advantage Party (AAP). https://edmontonjournal.com/news/politics/party-founded-by-former-wildrose-members-officially-registered-with-elections-alberta The Alberta party (AP) is a bunch of former leftest, who now claim they are centrist. Tell us again how many conservative parties there are in AB? And since you don't think it looks promising for conservatives in AB? Here is some polling info. 100% odds of UCP winning. http://alberta.338canada.com/ I think I'll stop now.

I don't think you understand Alberta (AB) politics very well. AB had a progressive conservative government for 44 continuous years from 1971-2015. The NDP won the 2015 election due to a split in the right wing vote between the PC's and the Wildrose party. Those two parties have since come together under the UCP banner (united conservative party) since the last election. They are currently polling 2x the NDP and it appears they will win in a landslide. Since 1993 the NDP had only garnered maximum of 4 of the 83 seats in AB and in the 80's they had a max of 16 seats. Even before 1971, the AB government was a right wing populist party called the Social Credit party that governed for 36 continuous years. So basically AB has had a right leaning government for 80 continuous years before 2015. A remarkable feat. The AB election must take place on or before May 31st of this year. I would say the implications could be far reaching. AB will turn to being very pro-business and regain it's economic growth again. Alberta, if it was it's own country, would rank 9th in the world for GDP per capita. If the Trudeau Liberals win the Canada election this fall, there will likely be more rumblings from this group. https://www.cbc.ca/news/canada/saskatchewan/brad-wall-buffalo-project-1.4987354

Manufacturing

Radical transparency has nothing to do with stress. We share many of the same principles in the company that I work for and we also study Ray's Principles. There is so much misconception in the comments above it's hard to even start to unwind it. I would suggest that most people live in an "ideal" world within their head. Everyone's precious ego gets offended if people question what they believe. To really understand the topic it requires a deeper understanding of psychology and philosophy. People of high self esteem, who want to learn, thrive in such an environment, while those who are externally validated (98% of population) can't handle it. Dalio is a realist, along the lines of Aristotle. He understands that our brain (amygdala) have different reactions to sensory input causing a flight or flight reaction that isn't necessary rational (cortex). When you feel a threat it can flood the brain with chemicals that renders the cortex useless. In the past this helped with physical threats, but today most threats are psychological. This explains why facebook is so popular. The users are addicted to the dopamine hit it gives them daily. Dalio doesn't give them the fake like button, but the opposite. So if your self worth is determined by others, which is 98% of the population, you will not enjoy radical transparency. And what is stress anyway? Stress is a disconnect between our thinking and reality. Your brain thinks the world "should be" this way but in reality it isn't. When you lock your keys in your car it causes you to stress out because what we want in our head doesn't match the physical world. Most people are "stressed" out by other people, as crazy as that seems to some (as if you can control them). All you can control is yourself and your reaction to any circumstance life throws at you. If you disagree, read "man's search for meaning" by victor frankl. A psychologist who self admitted himself into a Nazi concentration camp to test the hypothesis. Quote, "Everything can be taken from a man but one thing; the last of the human freedoms — to choose one's attitude in any given set of circumstances, to choose one's own way." Personal responsibility is the path least chosen. So, radical transparency is either a dream or a dread depending on your viewpoint and your level of psychological dependence. For those who want to know the truth and learn about the world and themselves, they will enjoy it. If you prefer to live in a delusional state where people say things just to make you feel good, you obviously won't enjoy it. Cheers.

Oddball, I'm not sure if you have seen this video, but it may change your mind regarding EVs, solar and the future of ICEs. Paradigm shifts are hard to see but many are predicting EVs to be the next one. This guy gives a lot of facts to support his views, and while I don't who the winners and losers will be, I have no doubt my kids will live much better than I do. If this video has been mentioned here, my apologies. Regards, Kevin That's crazy. I had to drive around for a few hours yesterday in Pittsburgh traffic, zero electric cars. I did see a Prius, that sort of counts.. I guess it makes sense in England. England is about the same size as Pennsylvania. If I was landlocked to an area the size of PA then range isn't much of a problem. You can get from one side of the island to another on one possibly two charges at most.