Peyto Exploration & Development Corp.

Hello and welcome to PATO's first quarter 2025 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 ask the question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. I would now like to turn the conference over to J.P. Lachance, President and CEO. You may begin.

Thanks, Yolanda. Morning, folks, and thanks for joining Payto's first quarter conference call. Before we begin, 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 to answer questions is Riley Frame, our Chief Operating Officer, Tavis Carlson, our CFO, Todd Burdick, our VP of Production, Derek Zember, our VP of Land and Business Development, and the newest members of our senior management team, Mike Collins, Mike Rees, and Christy Rafus. Before we begin the quarter, on behalf of the management group, I'd like to say a big thank you to the entire PAYDO team, both in the office and in the field, for their contributions to another strong quarter. And it's been an event-filled first four months of 2025. We started out warm in January, but got some very cool weather in February across all of North America. And that sent gas prices up sharply at many hubs, and Pato was fortunate to have some of our gas pointed at these markets. It also took a significant dent out of Alberta gas storage inventories, which otherwise would have been very full coming out of winter and into injection season. Although we believe tariffs as they currently exist have a minimal impact on Pato's business, The uncertainty of the world economy continues to prevail, and it's likely going to be a bumpy ride for a while. But, you know, despite all this turmoil, it's business as usual for Pato, and we continue to manage the things that we control, like drilling good wells and managing our production operations. Turning to Pato specifically, we generated funds from operations of $225 million in the quarter, thanks in part to our gas hedging gains, which amounted to about... amounted to $0.83 per MCF in our gas diversification portfolio, which created another $1.13 per MCF in value. Together, that fetched us $4.17 per MCF in the quarter, or 89% higher than the monthly ACO price. We still lead the industry with the lowest cash costs, and with that superior gas revenue of our marketing program, It allowed us to generate a strong 71% operating margin. Cash costs were $1.42 per MCFP for the quarter, down from $1.51 per MCFP in Q1 of 2024, as we continue to realize synergies with the Repsol assets in our operations. Our operating costs are typically higher in the first quarter due to the extra costs associated with operating in the cold, and we expect that they will continue to come down throughout the year, very similar to last year. We spent $102 million of capital this past quarter, and the strong cash flow that we had not only allowed us to pay out $66 million in dividends, but coincidentally also allowed us to retire about $66 million in debt, net debt. On the marketing side of our business, our gas diversification to U.S. price markets, such as Parkway and Dawn, and in the U.S. Midwest, like Ventura and Chicago, We gas-pointed Emerson, Henry Hub. They all contributed to a sound beat relative to the average monthly ACO price of $1.92 a GJ. However, Alberta gas pool prices averaged only $40 a megawatt, fetching us a similar price to ACO for the quarter on our direct supply deal to the Cascade Power Plant. And just a reminder, we're at the start of a 15-year deal there, and in longer term, as power demand increases, we expect that contract will be quite lucrative. In the meantime, this is exactly why we want our gas to be directed to multiple markets, so we're not relying on just one customer. Obviously, it's not a good business model. Looking forward to the summer and the rest of 2025, we're excited, as most producers are, about the prospect of gas heading off the West Coast through LNG Canada this year. We think this will be constructive to the eco-market, but the timing of the startup and the duration to ramp up to full capacity are still to be determined. In the meantime, we only have a small amount of our natural gas exposed to the eco-market through 2025. Switching to operations, we drilled 19 wells in the quarter, completed 13 and tied in 14. Part of the drilling program included a follow-up to the Flare channel that we discovered last year. The latest well test is similar to the other two wells on that trend, which were amongst the top decile of our individual well returns that we drilled last year. Mike Reese and his team see another 20 plus locations there to drill on that trend in the fullness of time. We also drilled a couple of low working interest cardium wells in the Chambers area to test a different drilling technique. It's new to Paedo, but not to the industry. We targeted lower in the zone to improve drilling penetration rates. Each of those two wells we drilled had 2,500 meter laterals and took about two weeks to drill from spud to rig release. So costs were way lower than our conventional method. We stimulated each of those with a 60-stage ball drop cemented liner system, and they're flowing back now. But we intend to follow up with a couple more wells later in the year to continue to test this concept. Why does it matter? Well, 25% of our un-drilled 2P reserves are booked to the Cardium, and this method could improve the economics of some of those plays. Facility capital was a little lighter than usual in Q1. We expect Q3 will be a bigger outlay of that part of our business since we have the Old Man plant turnaround scheduled for September and the construction of a field compressor project in the Obed area. The Obed compressor project will bring more liquid-rich gas to the Edson gas plant via the Central Port Hills gas gathering system in Q4. We did construct a pipeline project in Q1 that was as part of that capital outlay to connect some third party gas to the Brazzo plant. And this is for a multi-year agreement that is strategic and that we can use it for other third parties in the area too. We have lots of spare capacity at Brazzo and this won't impact our growth plants there. Beyond Brazzo, we continue to pursue other third party volumes in key areas like Edson where we have an extensive large diameter gathering system and spare capacity that could be used. Looking forward, our business plan and guidance remains unchanged for 2025. As I said earlier, business as usual. We plan to spend between $450 to $500 million to generate production ads at a capital efficiency rate between $10,000 and $11,000 per flowing BOE by year-end. And that should be more than enough to offset our annual corporate decline rate of 27%. We think the future is bright for natural gas, especially as LNG projects, LNG Canada and others, come to fruition. We still believe Alberta is the right place to develop data centers, and we know that there are approximately 10 gigawatts of projects in the ASOQ in Slippery Wonder Valley. And maybe all these projects don't get built, but they have the potential to increase Alberta gas demand by 1.3 BCF a day over the next few years. So we think it's a very exciting time. to be a natural gas producer in Canada. So with that, Tawanda, I imagine there's some questions that maybe we'll open up to the phones and pick some caller's questions about the court.

Thank you. Ladies and gentlemen, as a reminder to ask a question, please press star 11 on your telephone, then wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Amir with ATB. Your line is open.