Third Quarter 2022 in Review
Peyto was active with five drilling rigs in the third quarter, as well as pipeline and infrastructure projects designed to expand existing gathering systems to accommodate incremental production volumes. These projects continue into the fourth quarter. The Company also closed a property acquisition in the Brazeau area in the quarter which added 42 net sections of land, with over 40 internally identified drilling locations, and 12 producing wells. These new lands are expected to provide future production growth by filling the Company’s Aurora gas plant which was purchased in Q1 2022.
Activity Update
While drilling in the fourth quarter 2022 has continued with 5 rigs, Peyto plans to taper activity towards year end and the traditional Christmas break. Production is expected to ramp up from 107,000 boe/d currently to 110,000 boe/d by year end as the Company completes and brings on 17 net new wells. The Company has already commenced drilling on the newly acquired lands in Brazeau which will begin to fill the 45 MMcf/d Aurora facility. This gas plant, which was 10% full upon acquisition, is projected to be filled by the end of Q1 2023.
Peyto now expects that approximately $450 million of total organic capital (before acquisitions) will be invested this year which will exceed the high end of earlier guidance ($350–$400 million) as the Company drills deeper and longer wells than those originally planned, as well as constructs new well pads, pipeline loops and gas plant installations, specifically in the highly successful Chambers area, that will facilitate future growth. Over $25 million will be invested in 2022 in large diameter pipelines in the Chambers area that establishes a core infrastructure position. In total, 2022 facility and major pipeline capital is now expected to account for over 20% of all organic capital, up from 15% in 2021 and 11% in 2020.
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Peyto Wells Spud 2022
2023 Preliminary Budget and Plans
Peyto continues to enjoy increasing economic success with ERH well designs in several formations including the Cardium, Falher and Wilrich which opens up more resource for economic development and adds to future drilling inventory. In addition, during 2022 a new Dunvegan play emerged in the Cecilia area where the first 4 wells, using the latest ERH design, have exceeded initial expectations. These wells have proven up even more drilling inventory that will supply production to the Cecilia, Wildhay and Oldman North gas plants in 2023 and beyond. Applying the latest ERH design to these and other formations will be the focus of the 2023 capital program in the Greater Sundance core area along with a large $9 million pipeline project to connect the Swanson gas plant and Cascade power plant.
Peyto will also be developing a new core area called Whitehorse in 2023 which will involve land acquisition, development drilling and infrastructure investments (roads/pipelines/new gas plant). The development drilling in this area will commence in the first half of 2023 in support of a new 50 MMcf/d gas plant scheduled to be operational in the third quarter 2023. Much of the equipment for this new facility will be relocated from the currently shut-in Peyto Galloway plant site, meaning the Company will only have to spend on relocation and installation, rather than waiting to buy new equipment. As well, Peyto has committed to a multi-well farm-in intended to earn an additional 35 gross sections of Deep Basin rights, which contain over 60 internally identified ERH development locations. These new lands will complement the existing 72 sections, which already have over 120 internally identified Wilrich locations, and combined will help support the long-term utilization of this new facility. This initial development drilling will focus on deeper targets but is also expected to identify multiple shallower zones like in Peyto’s Greater Sundance and Brazeau areas.
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Meanwhile in the Greater Brazeau area, Peyto plans to continue to fill up remaining plant capacity at both Brazeau and Aurora gas plants throughout 2023 using pre-existing drilling inventory and lands acquired in 2022. The new gas plant and pipelines installed in 2022 in the Chambers area will continue to support additional development there for decades to come. Peyto is specifically scheduling a larger percentage of 2023 drilling in the summer months to take advantage of lower anticipated service rates, and greater equipment and materials availability. This will help offset service cost inflation pressures and allow Peyto to continue to add production at capital efficiencies less.
While specifics of the 2023 budget are still being finalized, an organic capital program of $425–$475 million is anticipated, which will use between 4 and 5 drilling rigs throughout the year and is estimated to add approximately 35,000 to 40,000 boe/d of new production by the end of the year. This volume addition would be more than sufficient to offset the annual forecast decline of 27% on anticipated 2022 exit production of 110,000 boe/d allowing Peyto’s production to grow to a target of approximately 120,000 boe/d by year end 2023. While this is a similar organic capital program to 2022, there may also be opportunities throughout the year for unplanned acquisitions or infrastructure investments that the Company chooses to pursue.
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