Peyto Exploration & Development Corp.

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 will now like to turn the conference over to J.P. LaChance, President and CEO. You may begin.

Thanks, Dawanda. Morning folks, and thanks for joining PAYTO's second quarter 2025 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. Here in the room with me is Riley Frame, our Chief Operating Officer, Tavis Carlson, our CFO, Todd Burdick, our VP of Production, Mike Collins, our VP of Marketing, and Mike Rees, our VP of Geoscience. Before we discuss the quarter, on behalf of the management group, those that are here and not here, I'd like to thank the entire Paedo team, both in the office and in the field, for their contributions to another strong quarter. Paedo remained active with four rigs during the second quarter through spring breakup. As is typical for Paedo, production falls a little through Q2 as we try not to overspend, fighting through the mud to complete wells and bring them on production. The fires near Fort Mac did cause some oil sands shut-ins that affected demand for natural gas in the province, and there were some NTL maintenance that caused prices to go negative, at least for one day in June. We did shut in some production that day, not because we had to, but to be more opportunistic and essentially get paid to fulfill our physical contracts and save our gas for another day. This had a marginal effect on production for the quarter, but I bring it up because it's something we'll continue to consider as we move through the summer. Corporate production was just under 132,000 BOEs a day, up 8% since second quarter of 2024, and our cash costs were down 13% over the same period to $1.31 per MCFE, as we continue to lead the industry in that regard. Our strong hedge book added $53 million in total gains, which added 75 cents per MCF to our realized gas revenue, and our market diversification contributed 53 cents per MCF, net of transportation costs over and above the monthly ACO pricing. All these factors combined to increase funds from operations by 24% year-over-year as we generated $191 million in the quarter, or 95 cents per diluted share, which was also up 20% from Q2 last year. We did not have much gas exposed to ACO pricing in the quarter since we have Empress Service, which can which can net us better realizations to ACO, particularly when access to storage is restricted, which happened in Q2. In fact, we sold some of our excess EMPRESS service during the quarter, allowing us to collect incremental income along with third-party processing at Brezzo. That added $0.07 per MCFE to our sales revenue in the form of other income. Our operating costs were slightly higher, a penny higher than the prior quarter. While our controllable operating costs were down quarter over quarter, we received our 2025 property tax bill in Q2, and it was higher than anticipated. So that resulted in an adjustment that's reflected in the higher op costs. Despite this, we remain laser focused on continuing to produce the costs that we control, and we're forecasting lower operating costs for the rest of the year. And I might get Todd to elaborate on that later in the call. Ruralties were a lot lower in the quarter than last year because of weak ACO prices and increased gas cost allowance credits, and we expect royalty rates to be around 5% for the remainder of this year based on the current strip. Interest costs were also lower in the quarter as interest rates have come off and we've continued to reduce bank debt. In fact, we've paid down $40 million of net debt in the quarter and $105 million year-to-date. So taking together our cash costs, we're down 11 cents per MCFE quarter over quarter and 19 cents relative to second quarter of 2024. So all in all, we have the lowest cash costs in town, but more importantly, I think one of the highest margins. And as of course you know, our low cost structure and our strong hedging and diversification strategy allow the company to weather volatility in the commodity markets. Switching to operations, We drilled 19 wells in the quarter, completed 19, and tied in 21. Part of the drilling program included follow-ups to the Q1 Cardium wells that were drilled in Brazzo, where we used a different drilling and completion design. We talked about that then. The first two wells we drilled were low working interest, which helped us to test the concept. The next three wells that we followed up with in this past quarter were at 100% to make sure we could repeat the results. At the end of the day, the key takeaway here is that we reduced our drilling and completion cost per meter by about 37%, and that should really help us as we look to improve the economics of future carding locations across our large inventory. Wilrich continues to perform well, as I detailed in the recent monthly letter, having dialed in our most recent design and applying it to the high-quality land we acquired from Repsol. We also completed another well in the Polarific Flare Channel trend in the quarter that we discovered last year in the Greater Sundance area. That well has already produced over a BCF of gas, and it's the best outcome on this trend so far. We have since drilled a follow-up well that we'll be completing shortly, which will help us delineate the trend and give the team more confidence in the 20-plus locations that we see in the play. We started construction of a 30-million-a-day field compressor station in the Greater Sundance area. It will move more liquids-rich gas to the Edson gas plant via the Central Port Hills gas gathering system later in Q3 and into Q4. And again, I might get Todd to elaborate on the details of that project later. That's going to help clear out some existing gathering system for a large-scale development that we have planned in the area that will take gas to Swanson and Old Man. Long-waited LNG Canada facility exported its first cargo right at the end of the quarter, I think it was June 30th. We expect this will be constructed for the basin in the long term, but we should be patient as things ramp up here. In the meantime, we have plenty of production hedged for the summer, about 500 million cubic feet a day, priced at $4 at MCF, and the rest of it is diversified to hubs in eastern Canada and Chicago and the Midwest, where prices are stronger. Our business plan and guidance for 2025 remains unchanged. We plan to spend between $450 to $500 million to generate production ads at a cap efficiency rate of about $10,000 to $11,000 per BOE per day by the end of the year. That should more than offset our annual corporate decline, which we estimate is about 27%. We have a large number of potent non-AQN locations and more of that new flare channel wells planned for the rest of the year. We expect these locations will bring our annual average productivity back to something similar to last year's stellar performance. We also have some blue sky and Viking Wells planned that will follow up on past successes as well. We're not slowing activity per se because we want to keep our crew steady and we want to, as we expect, to ramp up production in Q4, which will coincide with better winter pricing and as LNG progresses to full capacity. But of course, we'll remain flexible with our plans as we always are. At the end of the day, we sell a product the world needs, and we run our business in a way that is sustainable. We keep our costs as low as possible. We diversify our sales points. We hedge in the near term so that we can constantly fund our capital program, reward our shareholders with profits. It's simple, predictable, and maybe perhaps a little boring, but we make no apologies for that. Okay, I imagine there's some questions. So to Wanda, perhaps we can go to the phones first.

Thank you. Ladies and gentlemen, as a reminder to ask the question, please press Start11 on your telephone, then wait for your name to be announced. To withdraw your question, please press Start11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Chris Thompson with CIBC. Your line is open.