Alberta Oil - - JUNIORS -

Over the past five years, the last com­mod­ity that you would want to be a pro­ducer of in North Amer­ica was nat­u­ral gas. The flood of nat­u­ral gas from shale wells has re­sulted in prices so low that drilling nat­u­ral gas wells has been an ex­cel­lent way to de­stroy share­holder value for al­most ev­ery com­pany. Ap­par­ently, Dar­ren Gee and his col­leagues at Peyto Ex­plo­ration didn’t get the memo.

Since 2010, while nat­u­ral gas pro­duc­ers have floun­dered, Peyto has grown its pro­duc­tion five­fold from 20,000 boe/d to more than 100,000 boe/d. More im­por­tantly, it has done so prof­itably. While ev­ery oil and gas pro­ducer aims to be the low­est cost, most prof­itable pro­ducer in the busi­ness, Peyto ac­tu­ally achieves it. From 1998 through the end of 2015, Peyto wasn’t just the best per­form­ing en­ergy stock on the TSX, it was the best per­form­ing stock, pe­riod.

Gee and Peyto have re­sisted the urge to chase op­por­tu­ni­ties in dif­fer­ent plays and have in­stead stayed fo­cus on the tremen­dous as­sets the com­pany has. Peyto’s as­sets are in the best part of the Deep Basin. On each sec­tion of land, Peyto has up to 80 bil­lion cu­bic feet of re­source through stacked for­ma­tions (Wil­rich, Fahler, Notikewin, Cardium, Bluesky). By us­ing hor­i­zon­tal drilling and pad ef­fi­cien­cies, Peyto can get a lot of gas out on less in­vested cap­i­tal. The re­sult is in­cred­i­ble eco­nom­ics.

Peyto has only 51 em­ploy­ees and con­trols all of its own in­fra­struc­ture. The com­bi­na­tion of these fac­tors al­lows Peyto to gen­er­ate a pos­i­tive in­vest­ment re­turn drilling wells at lower nat­u­ral gas prices than its com­peti­tors. In fact, low nat­u­ral gas prices help Peyto in that they lower ser­vice costs. At higher gas prices, Peyto can mint money. That makes it hard for this com­pany to lose.


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