Peyto Exploration & Development Corp.

Good day and thank you for standing by. Welcome to the Paytos fourth quarter 2025 financial results conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please decide that today's conference has been recorded. I'll now hand the conference over to your first speaker today, J.P. Lachance, President and CEO. Please go ahead.

Thanks, Marvin. Good morning, folks, and thanks for joining Payto's fourth quarter and full year 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, I have Riley Frame, our Chief Operating Officer, Tavis Carlson, our CFO, Lee Kern, our VP of Drilling and Completions, Todd Burdick, our VP of Production, Mike Collins, our VP of Marketing, Derek Sember, our VP of Land and Business Development, Christy Rayfrost, our VP of Finance, and Mike Reese, our VP of Geoscience. Before we discuss the quarter, on behalf of the management group, as always, I'd like to thank the entire PAIDO team, both the folks in the field and in the office, for their contributions to yet another strong year. And to be clear, they're the people that make PAIDO what it is. If I could sum up what the team accomplished in 2025 in one sentence, I'd say the company responsibly invested shareholder capital in 2025, which grew the business while returning a healthy dividend to shareholders and paying down a significant chunk of debt. Getting into the specifics, the company spent $475 million, which grew annual production and PDP reserves by 7% or 4% per share, and PDP reserves value by 2% per share, and that's despite the lower price ticks that were used by the evaluators. We paid dividends of $265 million or $1.32 per share and reduced net debt by $171 million or 13%. That's a pretty big accomplishment considering ACO prices averaged $1.76 per GJ last year. So let's start with the fourth quarter. We kept five rigs running through the quarter and right up until the Christmas break. then shut down to give those folks some time off to be with family during the holidays and recharge. We drilled some great wells in late Q3 and throughout Q4, as our program focused more on the nautic human and the flares, which tend to be the most productive species in our portfolio. Naturally, production ramped up in December, which averaged 145,000 VOAs per day. It's timed nicely for the increase in gas prices at both AECO and our multiple downstream markets. We spent $142 million in the quarter, bringing our total up to $475 million for the year, which landed in the middle of our capital guidance range and matched well with our exit production of 145,000 BOEs per day. This equates to an exit to exit capital efficiency of $10,000 per BOE. So essentially, we delivered on what we said we were going to do at the beginning of the year. If we dive into operations a little more, we spent 81% of that $475,000 on drilling 82 gross or 78.4 net wells, while the rest of that capital was spent on facilities and strategic pipelines, including a big field compressor in our core Sundance property. The mixture of wells we drilled last year are essentially delivering the same average productive outcomes as 2024 at the same costs. Which doesn't sound like much, but if you go back a couple of years, that's a 25% improvement year over year and a function of our acquisition of the Repsol assets that we purchased in late 2023. Some of the new plays we drilled last year include follow-ups to the Blue Sky, Viking, and a prolific Flare channel we discovered a couple of years ago. And of course, we drilled a lot of great non-acquing wells too, but Importantly, we continue to expand our drilling inventory by finding and developing new ideas that were not previously on our reserve books. In fact, 34 of the 82 wells we drilled last year were not recognized, and that's simply because the deep basin is endowed with a great stack of opportunities that we continue to unlock in and around our 1.1 million net acres of land. On the production operations side, as always, our efforts continued on reducing costs and optimizing our vast 1.5 BCF a day of gas processing capacity and gathering infrastructure. In areas where we haven't been as active drilling, like Brazeau, I think we just had one rig running there most of last year, we've been looking to bring third-party production into the plant to increase throughput and improve field netbacks. For that, we built an important pipeline in Q1 of 2025 and are actively seeking more opportunities like that. Turning to Q4 financials. The end of year ramp up in corporate production resulted in a fourth quarter average of 140,800 BOEs per day. That's up 6% over the same period last year or 3% per share. That drove a bunch of operations up Q4 over Q4 by 23% to 245 million. To get there, we received all in revenues of $4.71 per MCFE and after subtracting cash costs of $1.23 per MCFE, resulted in a cash net back of $3.47 per MCFE before we include performance-based compensation and cash taxes. That's a 60% improvement over Q4 of 2024. We also generated one of the highest quarterly earnings in our history at just under $126 million or 61 cents per diluted share. Of course, both our hedging and marketing diversification played a big role as Eco Monthly Gas sold at $2.22 for the quarter. We're about 255 in MCF when you factor in our heat content. Our hedge gains added 76 per MCF and our diversification to other markets added another 70 cents per MCF in value to our realized gas price. So clearly our marketing efforts played an important role in the quarter. Looking at the full year, we generated $860 million in funds from operations, an increase of 21% over 2024, which more than funded the capital program and dividend, as I mentioned at the beginning. Total cash costs, excluding cash taxes, averaged $1.29 per MCFE, and if you remove royalties of $0.16 to get what PATO controls, it equates to $1.13 per MCFE, and that's an $0.11 improvement over 2024. I think as you may recall that in the January 26th monthly report, we set ourselves a goal to reduce controllable costs further by another $0.10 in 2026. And as we reported, these low cash costs and strong revenues for the year generated a field-level net back of $3.61 in MCFE or an all-in cash net back of $2.93 per MCFE when you include cash taxes, G&A, and interest expense. Our reserve additions last year were one of the strongest in our 27-year history and essentially a repeat of 2024. If you haven't already, I encourage you to read the March monthly letter, which where we highlight some features from that reserves release that was issued on February 19th. But essentially strong well-performance and prudent capital spending by the entire Payot team drove PDP, FD&A costs down to $0.94 an MCFE. That's the lowest in the Canadian amount of the Canadian oil and gas producers. And when you combine our industry-leading low cash costs and high netbacks, it yields an after-tax cash netback recycled ratio of 3.1 times. meaning we turned essentially meaning we turned one dollar into three dollars and that's pretty good for a natural gas producer last year as we've always emphasized margins matter most and last year pedo put up an impressive 72 annual operating margin and a 31 annual profit margin of course these margins generate the profits to sustain dividends to return to shareholders grow the company and protect our balance sheet Turning to marketing, we continue to reap the benefits of our marketing diversification and hedging program. We've added a table in the press release to show what the two programs have achieved relative to ACO pricing over the last eight quarters. For the full year 2025, that premium to ACO on a volume average basis is about 88% or $1.80 per MCF over ACO prices. Looking forward at our hedge book, it secured a total of $880 million in revenues for 26 and another $350 $55 million for 2027 as it stands currently, you can expect us to continue our systematic hedging over the next six gas seasons and stay within the guardrails of our policy. And as we've always said, we hope our hedges are out of the money when we get there because that means that we're seeing better natural gas prices. In this case, it would be over $4 in MCF in 2026 or $3.50 in 2027. The gas that we have left floating for 2026 is pointed at US price markets, which allowed us to capture a premium on the daily market this past winter. It continues to trade above ACO even after you factor in the cost to get there. Okay, that was a lot of numbers and about the past, but to be clear, we think demonstrating the past execution is an indicator to future performance, so why don't we turn to the future? Looking forward to our plans for 2026. It's already been quite a volatile market for commodities, fueled by weather and, of course, world events. Our plan remains to spend $450 to $500 million drilling 70 to 80 net wells, the same as last year and the same as the year before. We expect to use four to five rigs to accomplish this. We'll slow down for breakup and then start up after the wet season. Current plan will be to run four rigs for most of the summer with an option to ramp back up to five later in the year, depending on prices. Remember, we are well protected through the summer with about 70% of our gas volumes fixed at prices just under $4 with very little exposure to a spot echo. The rest of our production is pointing to downstream markets, so we'll be watching them closely. We project a four-week program after breakup gets us pretty close to the midpoint of capital guidance, and we can adjust from there depending on where the business environment goes. We remain constructive on natural gas with the continued LNG build-out in Canada and the U.S. and increased demand from local markets like power for data centers. Clearly, recent world events remind us the need for energy, and we believe Canada can play an important role in providing a reliable, secure, and affordable supply. of oil and gas to these global markets. To that end, we continue to advocate for egress and local demand projects so that Canada, Canadian oil and gas can support the global demand for energy and our Canadian economy. In the meantime, we expect commodities will be volatile, but thanks to our prudent business strategy to keep the cost that we control as low as possible while protecting the revenues with our commodity marketing strategy, we expect to continue to deliver stable long-term returns to our shareholders and increase the value of the company. So I imagine there's a few questions. So maybe, Marvin, I'll open up the phone lines. If there's some questions in the queue, we can get to.

Thank you. At this time, we'll conduct a question and answer session. As a reminder to ask a question, you'll need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. And our first question comes from the line of Travis Wood of NBCCM. Your line is now open.