Peyto Exploration & Development Corp.

Thank you for standing by, and welcome to PATO's third quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. To remove yourself from the queue, you may press star 11 again. I would now like to hand the call over to President and CEO, J.P. Lachance. Please, go ahead.

Thanks, Lateef. Good morning, folks, and thanks for joining PAYTO's third 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 at the company's news release issued yesterday. Here in the room with me is Riley Frame, our COO, Tavis Carlson, our CFO, Lee Curran, our VP of drilling and completions, Tar Burdick, our VP of production, Mike Collins, our VP of marketing, Eric Sember, our VP of land and business development, Christy Rafus, our VP of finance, and Michael Reese, our VP of geoscience. Before we discuss the quarter on behalf of this group here, the management team, I'd like to sincerely thank the entire BATO team, both here in the office and in the field, were their contributions to yet another strong quarter. And we had a busy quarter that's carried on through into Q4. July was a little wet, somewhat unusually wet, and that slowed our activity in the month down a little bit. We had some plant turnarounds. We built and started up a new field compressor in Sundance. We added a fifth rig. We shut in some gas in September due to low prices. And most recently, we extended our credit facility. And that's just to name a few things. Properly, production per share was up 5% compared to Q3 last year, relatively flat quarter-over-quarter production at approximately 130,000 BWs a day. But our cash costs of $1.21 per MCFE or $1.13 per MCFE without royalties were down to their lowest level since we purchased the Repsol Canada assets in the fourth quarter of 2023. And that's not just unit costs due to some production dilution. That's absolute costs as well. ECO 7a prices averaged a mere $0.94 per GJ, or about $1.08 per MCF when you account for the heat content of our gas for the quarter. But our strong hedge book added $87 million of gains, or about $1.38 per MCF for gas, and our marketing diversification contributed another $1.11 per MCF, yielding $3.57 per MCF all in realized natural gas price, which equates to about 3.3 times that of ECO for the quarter. Putting all these elements together resulted in funds from operations of nearly $200 million, or $0.98 per diluted share, and that's up by 29% from Q3 last year, or 26% on a per share basis. We also achieved a top-tier operating margin of 72%, with a profit margin of 29%, and which, at the end of the day, we feel is most important. I mean, after all, it's generating profits, right? And it's those profits that we can return back to our shareholders in the form of dividends, which we paid out $0.33 per share in the quarter, or a total of $66 million. We spent $126 million of capital in Q3, up from previous quarters, and that's mainly due to the addition of a Sundance compressor station, the addition of a fifth rig later in the quarter, and the old man plant turnarounds. Nevertheless, our payout ratio was just under 100%, and we were able to pay down a little more net debt of $20.5 million, bringing our year-to-date net debt repayment to $126 million. And I think more importantly, the increase in capital activity in late Q3 allows us to increase production into Q4 and Q1 and capitalize on improving venture price. Okay, let's talk a little bit about our operations during the quarter and so far into Q4. We had a couple of minor production interruptions in the quarter with planned old man turnarounds and some gas that we elected to shut in when prices went negative. But we also brought on a new field compressor in Sundance, which added some gas by pulling down the gathering system pressure. We brought on another rig in Sundance to help us catch up on the activity delayed from the wet July. And a drilling program shifted to the potent Nauticuid flare and blue sky species in the third quarter, and we're now drilling and completing what we think we expect will be the most productive wells of the 2025 program. We don't advertise individual well rates, but we expect that the wells that we just drilled in the second half of 2025 will perform those from earlier in the year, such that our full-year vintage production curve should look a whole lot like 2024. And that really relates to the complexion of the species in the second half as compared to the first half. Of course, it isn't just the rates that matter. It's also the amount of capital that we deploy to achieve them, and we expect that these balls will rank as some of our highest rates of return projects this year. So what does all this mean? I expect we're going to set a new production record for the company in November, and we're well on our way and very comfortable to reaching our target of 140,000 BOEs per day exit for December, which correlates to the midpoint of our guidance of capital spending. Also subsequent to the third quarter, we renewed and extended our credit facility for another four years. We rolled in what was left of the term loan that we put in place for the Repsol acquisition. So our new revolving credit facility now stands at $1.05 billion, of which we were drawn $745 million on closing of that extension. We still have approximately $491 million of long-term private notes that mature at various times over the next nine years. When you take all this together, it provides Payto with a strong liquidity position to execute a business plan. It also shows the support of our lenders to Payto's business plan and to our strategy. I mentioned that we shut in some production in September, not because we were exposed to low eco-prices. Our hedging and downstream diversification protected us from that, but because it made sense to have someone else pay us to take their gas, which we then used to fulfill our physical contracts. and preserve our gas for better pricing in the future. Our diversification to other markets allowed us to gain a premium price of $1.11 per MCF, as I mentioned earlier, over ACO, and that's net of the cost to get to those markets. Our physical and synthetic service to Henry Hub, Chicago Dawn, Parkway, Ventura, and the Alberta power market all contributed to this gain, and we expect them to continue to contribute meaningfully into 26 based on the current strip. We've released our preliminary capital budget for 2026. We plan to invest between $450 to $500 million of capital next year to drill between 70 to 80 net wells. This program should add between 43,000 to 48,000 BOEs per day by next December and more than replace our estimated 26 to 28% corporate production decline over the year. If this sounds a lot like 25, it is. I guess the key difference here is that we plan to continue drilling with five rigs in the first half of 26, which should change the production profile and the capital profile to be a little more front-end loaded than in the past years. We can apply the brakes and slow down the program in the second half if prices or the business environment warrants it. Conversely, we can keep it going with five rigs and aim for the high end of the guidance, if that makes sense. And this plan is consistent with our low outlook on natural gas prices in 2026. The preliminary program has us spending about 80% on new wells, with the rest going towards pipeline and plant optimizations. These projects will be undertaken to improve plant reliability, lower our costs, and de-bottom field gas gathering systems to accommodate new drilling. We also have some minor plant turnarounds planned for later in Q3 next year. when prices tend to be the weakest. And maybe we'll get Todd to expand with some details on that later. We will firm up the capital budget in February with our reserves release, which should also coincide with the full ramp up of LNG Canada, if it all goes well. So in closing, we think it's an excellent quarter. And as we look forward, we're well positioned to grow modestly, 5% to 10%, with enough cash flow not only to fund the capital program, but to return dividends to our shareholders. and to continue to pay down debt over the next year. This is thanks to our prudent business strategy to keep the cost that we control as low as possible while protecting the revenues in the near term with our disciplined hedging strategy and de-risking our sales markets to gas demand regions. This has manifested in stable long-term returns to our shareholders over the last 27 years, and we aim to continue that. I don't think there's been a more optimistic time in the natural gas market with all the positive demand growth from both recent and future LNG build-outs in North America, and the increasing appetite for power generation from gas in both U.S. and Canada. Heck, it looks like we've even got a little support from our federal government to the industry, and I think PAYTO is well-positioned to take advantage of these exciting times. Okay, I think there's probably some questions, Lateef. Perhaps we can move the phone if there's anybody waiting. If not, I do have some questions that have come in through email overnight.

Thanks, sir. As a reminder, to ask a question, you will need to press star 1-1 on your telephone. To remove yourself from the queue, you may press star 1-1 again. And, sir, I don't show any questions at this time.