This Canadian energy stock continues to develop productive reserves of natural gas and natural gas liquids while it awaits a recovery in prices.
While the company cut back on exploration in 2018, it plans to increase its exploration budget for 2019 as it enjoys ongoing drilling success in a formation that is rich in natural gas liquids. The shares trade at a low 3.5 times forecast cash flow for the current fiscal year. In the meantime, the company’s dividend appears safe, and yields a high 6.5%.
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PEYTO EXPLORATION & DEVELOPMENT CORP. (Toronto symbol PEY; www.peyto.com) produces and explores for natural gas and oil in Alberta. Its production is 90% gas and 10% oil. Over the past 20 years, the company has explored and developed natural gas reserves in the Alberta Deep Basin.
In the quarter ended June 30, 2018, the company’s output fell 6.1%, to 91,547 barrels of oil equivalent per day from 97,531 a year earlier. Peyto shut down some of its producing wells while it waits for gas prices to move higher. Cash flow declined 13.6%, to $0.70 a share from $0.81. The lower production, as well as lower gas prices, contributed to the decline.
In the second half of 2018, it focused the majority of its capital investment on the liquid-rich Cardium formation. Thanks to initial success in this zone, plus relatively strong pricing for NGLs (natural gas liquids), the company plans to increase its capital spending in the area next year.
Energy stocks: Company trades at just 3.5 times forecast cash flow for 2018
Peyto will spend $225 million on exploration in 2018. That’s down sharply from $517 million in 2017. Still, this year’s spending, plus ongoing drilling success, should position it to report rising output when gas prices rebound. As well, the company has approved a preliminary exploration budget of $255 to $300 million for 2019, with the prospect of drilling 75 to 90 wells.
The company’s long-term debt stands at $1.1 billion, or a high but manageable 57% of its currently depressed market cap.
Peyto trades at just 3.5 times forecast 2018 cash flow of $2.99 per share. The company pays a monthly dividend of $0.06. The annual rate of $0.72 yields a high 6.5%, but its dividend appears sustainable based on its forecast cash flow.
Like all natural-gas-weighted producers, Peyto will need gas prices to move higher to report rising cash flow. However, we still like its long-term prospects.
Thanks for your comment. The $2.99 refers to Peyto’s forecast 2018 cash flow per share: “Peyto trades at just 3.5 times forecast 2018 cash flow of $2.99 per share. The company pays a monthly dividend of $0.06. The annual rate of $0.72 yields a high 6.5%, but its dividend appears sustainable based on its forecast cash flow.”
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Peyto trades at 9+ NOT the $2.99 in your article!
Thanks for your comment. The $2.99 refers to Peyto’s forecast 2018 cash flow per share: “Peyto trades at just 3.5 times forecast 2018 cash flow of $2.99 per share. The company pays a monthly dividend of $0.06. The annual rate of $0.72 yields a high 6.5%, but its dividend appears sustainable based on its forecast cash flow.”