Morningstar | Peyto Exploration & Development's Hedges Are Running on Empty
Narrow-moat Peyto Exploration & Development’s hedging continues to provide little upside. First-quarter daily average AECO prices increased almost 70% from the fourth quarter, but Peyto’s natural gas realizations only increased 2% to CAD 2.48 per thousand cubic feet. Without the hedging benefits, pricing realizations only improved by 13% from the fourth quarter, and the company only recognized a CAD 0.12 hedging gain in the first quarter compared with CAD 0.34 in the fourth quarter and CAD 0.99 in the third quarter of 2018. The stock is down almost 3% on the announcement of the lower-than-expected pricing.Peyto also reported first-quarter average production of 87.1 thousand barrels of oil equivalent per day, up 1% sequentially but down 16% from the year-ago quarter. Production was slightly below our expectations, driven by lower-than-expected drilling even with the increase in AECO prices.
We intend to incorporate these financial and operating results in our model shortly, but for now, our CAD 8 fair value estimate and narrow moat rating are unchanged.
Peyto Energy is an unincorporated open-ended limited purpose trust established under the laws of the Province of Alberta. Through its direct and indirect subsidiaries, Co. is engaged in the acquisition, exploration, development and production of oil and natural gas in Western Canada.
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