Peyto Gas And Exploration (PEYUF) Q4 2015 Earnings Call Transcript

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Peyto Gas & Exploration (PEYUF) CEO Darren Gee said the company is laser focused on why they exist

“You know, the primary objective of Peyto is to invest capital to make a return to generate a profit. We always think about the dollars and cents. We don’t get distracted by the plays, by the production, and by some of the other things that a lot of our competitors do because we know this is always about the book ends.  It’s about the money in and the money out and despite the fact that we’re looking, now, at a really low gas price, not dissimilar to what we saw in 2012, we know where our strengths lie and we know where our focus needs to be and when we don’t lose focus on what’s important, we don’t lose focus on the returns that we can generate on investing that capital wisely and efficiently and on driving costs down, we always come out stronger and better from some of this commodity volatility than going in.”

Peyto Gas & Exploration (PEYUF) CEO Darren Gee said they are producing more oil at less cost by being more efficient

“I think the more important thing for investors to focus on this year is the costs and the efficiencies that we have achieved. We were already known by most as a super low cost producer. We were already leading the industry in terms of our efficiencies. We managed to drive those costs down and to improve on those efficiencies and I think that’s amazing work by the team.”

Utilizing increased technology has been one of the drivers to reduce cost

“Over the past three years we have seen our operating costs drop by nearly 30%. A portion of this reduction has come through an intensive effort to use technology and by making key changes to process. We have employed a more focused effort on remote well monitoring using the [indiscernible] system we have in place and the result is that we have been able to increase the number of wells that each operator looks after in the field. We are also working with our water haulers to optimize fluid transport in the field.”

Also reduced costs by reducing third party contractors 

“We have also worked hard to reduce maintenance costs by moving away from expensive third-party labor and instead bringing top quality compressor mechanics in-house. We have also started recycling water using produced water for fracs, which has helped to reduce volume and the distance required for transport as well as reducing our volume disposal cost. And these fundamental changes are providing with us with a means to make lasting reductions to our overall operating cost.”

Improved drilling performance in 2015 

“Our capital costs were reduced in the order of 25% year-over-year from 2014 to 2015. And of that 25% admittedly the largest portion was the result of service cost reductions. However, approximately one third of these reductions were the direct result of improved performance in technical revision to our program. We feel confident that these improvements are tangible and will be retained even in the event of an industry activity increase that will undoubtedly result in a pricing increase to the service industry.”

Peyto Gas & Exploration (PEYUF) Vice President of Drilling Lee Curran says the company has a continuous improvement operating culture regardless of the price of energy

“We employ a core group of extremely engaged and loyal and competent staff, both in the Calgary office and at the field level. Every individual in this group adds value and seeks ways to improve our efficiencies. This has long been the culture here at Peyto. Many companies contain elements of this culture. However, I would be amiss to find a peer where it exists with the level of commitment as it does here through all disciplines of both the office and field operations.”

Peyto Gas & Exploration (PEYUF) Vice President of Land Tim Louie says the company is being opportunistic about acquiring acreage at attractive prices when some of their competitors are being forced to sell

“In 2015 Peyto acquired 58 net sections for $8.6 million at an average price of $230 per acre. Out of the 58 sections 37 sections were picked up at land sales, while the remaining land were acquired through asset deals. Peyto seized 181 drill able locations on the lands we acquired last year.”

Peyto Gas & Exploration (PEYUF) CFO Kathy Turgeon says the company is conservatively financed even in this low energy price environment

“Well, these are certainly challenging times Peyto continues to focus on maintaining a strong balance sheet and conservatively managing our debt levels, as always. As disclosed in the MG&A we are well within our financial covenants and our budgeting and forecasting models for 2016 give us confidence that this situation will continue. We don’t foresee having to seek any kind of covenant relaxation or relief even in this low commodity price environment.”