Peyto Exploration & Development Corp.

Good day, everyone, and thank you for standing by. Welcome to Paytel's first quarter 2024 financial results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To participate, you will need to press star 11 on your telephone. You will then hear a message advising your hand is raised. To withdraw your question, simply press star 11 again. Please be advised that today's conference is being recorded. Now I would like to hand the conference over to the President and Chief Executive Officer, J.P. Lachance. Please proceed. J.P.

Thanks, Carmen. Good morning, folks, and thanks for joining PEDO's first quarter conference call. I'd like to remind everybody that all statements made by the company during this call are subject to the same forward-looking disclaimer and advisory set forth in the company's news release issued yesterday. Present with me in the room today to answer your questions, we have Riley Frame, our VP of Engineering and Chief Operating Officer, Tavis Carlson, our VP of Finance and CFO, Lee Kern, our VP of Drilling and Completions, Todd Burdick, our VP of Production, and Derek Zember, our VP of Land and Business Development. Firstly, we'd like to thank the PATO team, both in the office and in the field, for their contributions to a strong quarter. And Q1 was a good quarter for Payto despite low gas prices. We generated $205 million of funds from operations and $100 million of earnings, which in part has to do with our industry-leading cash costs, but also thanks to a $93 million hedging gain from our systematic hedging program that we put in place over the last two and a half years. This allowed us to not only fund our capital program of $114 million, but pay our shareholders $64 million in dividends and also left us enough to pay down some debt, about $23 million of net debt over the quarter. We continue to be excited by the drilling results on the newly acquired Repsol lands. We had 15 wells on stream to the end of the quarter with enough history that show us a sustained 30% increase of average well productivity as compared to the performance of recent wells, recent years on Pato's legacy assets. This continues to affirm that the assets we bought last year have the quality we thought they did. We completed some very long lateral wells in the first quarter across all species. Longest quarterly program in our history, in fact, at an average length of about 2,200 meters. And we continue to see the benefits of doing this to optimize resource recovery. In Q1, we also drilled two 2,400-meter lateral Dunvegan wells that we subsequently brought on in April. that demonstrate good deliverability, coupled with higher liquid content than our Spear River wells, about 20 to 30 barrels per million. It hasn't succeeded enough to dedicate a rig to the play for the rest of the year. We have over 100 wells booked across our land base, and we expect to drill about 10 to 12 wells total in 2024. You can find a little more information about this in the April monthly report and in our corporate presentation slide deck. Payless focus on unit operating costs remain a priority, so much so that we set a target of at least a 10% reduction from Q1 levels by the end of the year. And we've already begun to make meaningful changes in this regard beyond connecting gathering systems and plants together in the field. The decision to no longer recover ethane via a third-party deep cut plant fits to a T with our own control strategies. Paying someone else to extract low-value ethane from the gas space doesn't make sense, especially when we can redirect a portion of that raw gas stream to our Edson gas plant, which helps dilute its higher fixed costs. We estimate that we will see about a $0.02 per MCFE reduction on overall operating costs going forward without any material loss in revenue. We do lose about 2,000 barrels a day of low-value production from the base, but in the short term, but we expect to more than make up that loss by the year end with the quality of the drilling program that we're executing. And this is a good example that we're running a business here to make money, not lower value BOEs. We're still running four rigs right now, but we have them situated on three well pads for the most part through a breakup to minimize moves and we'll be prudent on spending capital and bringing on production in the current low price environment. That means we might wait on completions to keep costs down and production ads will be delayed accordingly. We have varying levers we can pull to reduce capital should low prices prevail past the summer. I know many are wondering about the status of the Cascade Power Plant and when we're going to start selling gas to them under our contract. As a reminder, that contract is for 60,000 GJs a day or about 52 million cubic feet a day over the next 15 years and it will start once they are fully operational. We have pressured up our pipeline that connects the gas directly to their plant and we're ready to go. Based on publicly available data, both plants have been generating some power and are making commissioning progress, so that's a good sign. The latest filing with the Alberta Utilities Commission for start-up is in July of 2024. When we look past summer 2024 and into 2025, We're excited about the LNG egress build-out, which is coming over the next few years. By the end of the decade, Canada and the US should be exporting at least another 12 BCF a day. Besides that, there's significant demand potential that could be born out of the evolution of AI with increased power requirements for data centers. We all know that natural gas is safe, secure, clean, and affordable, but most importantly, it is a reliable supply of energy for the future. In the meantime, we all While all that comes to fruition, Payto is well protected with our low-cost structure, our disciplined hedging policy, and our quality drilling inventory to thrive in 2024. This gives us confidence to execute a measured capital program, sustained dividend payments to shareholders, and still allow us to manage the balance sheet with repayments of debt over the course of the year. Okay, I'll keep this short, but just a reminder, our AGM is next week on Wednesday, May 22nd at 3 p.m. in our in the building in our Calgary office on the plus 50 level in the conference center. We hope to see you there. If you can't make it, we'll be posting a recording of it on our website afterwards, but please vote your shares. If you need help with that, you can see our press release for instructions. Okay, again, I like to keep this short, so maybe I'll go to the phones. Carmen, if there's any questions there. If not, I can go to some questions we have that came in overnight.

Thank you. I don't see any questions at this time, but as a reminder, if you do have a question, simply press star 11 to get in the queue. I see one question is on the phone. How do you want to proceed? Go ahead. All right. Thank you. One moment while I bring it to the stage. From Chris Thompson with CIBC, please proceed.