Peyto Exploration & Development (TSE:PEY) used its fourth-quarter 2025 earnings call to highlight a year of production growth, improved per-unit costs, and material debt reduction despite weak benchmark AECO natural gas pricing. President and CEO JP Lachance said the company “responsibly invested shareholder capital” in 2025, growing the business while paying a “healthy dividend” and reducing leverage.
2025 capital program and returns to shareholders
Lachance said Peyto invested C$475 million in 2025, landing in the middle of its guidance range. He reported that the capital program grew annual production and proved developed producing (PDP) reserves by 7% (or 4% per share) and increased PDP reserve value by 2% per share, even as third-party evaluators used lower pricing assumptions. During the year, Peyto also paid C$265 million in dividends (C$1.32 per share) and reduced net debt by C$171 million, a 13% decrease.
Fourth-quarter operations: production ramp and drilling focus
Peyto ran five rigs through the fourth quarter until the Christmas break. The drilling program shifted toward the Notikewin and Falher formations, which management described as the most productive zones in its portfolio. Production increased into December, with the company averaging 145,000 BOE/d that month, timed with stronger gas pricing in multiple markets.
For the quarter, Peyto spent C$142 million, helping deliver an exit production rate of 145,000 BOE/d. Lachance characterized this as an exit capital efficiency of about C$10,000 per BOE and said the company “delivered on what we said we were gonna do at the beginning of the year.”
On the full-year program, the company allocated 81% of total capital to drilling, completing 82 gross (78.4 net) wells. The remaining capital went primarily to facilities and pipelines, including a “big field compressor” at its core Sundance property. Lachance said the 2025 well mix delivered similar average outcomes to 2024 at similar cost, but represented a 25% improvement compared with a couple of years ago, which he attributed in part to assets acquired from Repsol in late 2023.
Financial results: higher funds from operations and one of Peyto’s strongest earnings quarters
Peyto’s fourth-quarter average production was 140,800 BOE/d, up 6% year-over-year (or 3% per share). Funds from operations rose 23% quarter-over-quarter to C$245 million.
Management said fourth-quarter all-in revenue was C$4.71 per Mcfe. After cash costs of C$1.23 per Mcfe, Peyto generated a cash netback of C$3.47 per Mcfe before performance-based compensation and cash taxes, a 16% improvement from the fourth quarter of 2024.
The company posted one of the highest quarterly earnings results in its history at just under C$126 million, or C$0.61 per diluted share. Lachance pointed to both hedging and marketing diversification as key drivers. AECO monthly gas sold for C$2.22 for the quarter (about C$2.55 per Mcf after heat content). Hedge gains added C$0.76 per Mcf, while diversification to other markets added another C$0.70 per Mcf to realized gas pricing.
For the full year, Peyto generated C$860 million in funds from operations, an increase of 21% over 2024. Total cash costs excluding cash taxes averaged C$1.29 per Mcfe. Excluding royalties of C$0.16 per Mcfe, the company’s “controllable” costs were C$1.13 per Mcfe, an improvement of C$0.11 versus 2024. Lachance reiterated a goal—previously discussed in a January monthly report—to reduce controllable costs by another C$0.10 in 2026.
Peyto reported a field-level netback of C$3.61 per Mcfe and an all-in cash netback of C$2.93 per Mcfe when including cash taxes, G&A, and interest expense. Lachance also said the company produced a 72% annual operating margin and a 31% annual profit margin.
Reserves, unbooked locations, and inventory expansion
Lachance said Peyto’s 2025 reserve additions were among the strongest in its 27-year history and “essentially a repeat of 2024.” He highlighted PDP finding, development and acquisition (FD&A) costs of C$0.94 per Mcfe and said that, combined with low cash costs and high netbacks, the company generated an after-tax cash netback recycle ratio of 3.1x.
Operationally, management emphasized continued inventory expansion. Lachance said 34 of the 82 wells drilled in 2025 were not previously recognized on the company’s reserve books, underscoring what he described as a “great stack of opportunities” across Peyto’s 1.1 million net acres. VP of Geoscience Mike Rees said unbooked locations can come from new mapping and data, newly acquired lands, competitor activity that “unlocks” new zones nearby, and improvements in drilling and completion technology that make previously marginal zones economic. Rees also said the company continuously high-grades its drilling schedule based on returns and market conditions.
2026 outlook: steady capital plan, hedging protection, and market volatility
Looking ahead, Lachance said Peyto’s plan remains to spend C$450 million to C$500 million in 2026 and drill 70 to 80 net wells, using four to five rigs. The company expects to slow activity during breakup and resume after the wet season. Peyto plans to run four rigs for most of the summer, with the option to increase to five rigs later depending on the overall “business environment,” including both prices and service costs. Lachance said if prices improve, the company could move toward the high end of guidance, while lower prices could drive spending toward the low end.
Management said Peyto is “well protected through the summer” with about 70% of gas volumes fixed at prices just under C$4, with little exposure to spot AECO. The remaining production is directed to downstream markets.
On hedging, the company said its hedge book secured C$880 million in revenues for 2026 and C$355 million for 2027, and it expects to continue a systematic approach over the next six gas seasons within policy limits. Lachance said the unhedged portion of 2026 volumes is aimed at U.S. pricing markets, which the company said traded above AECO after transportation costs during the past winter.
In the Q&A, management discussed third-party processing opportunities to utilize spare plant capacity, noting the company has brought third-party volumes into the Brazeau area and is seeking more opportunities, while also balancing capacity needs for its own development program. The call also addressed M&A criteria, with Lachance emphasizing a preference for owned and controlled infrastructure, operational synergies that reduce costs, scalable upside, and egress capability—while cautioning that Peyto is “picky” and not pursuing growth “for the sake of getting bigger.”
Lachance closed by reminding investors that the company’s annual general meeting is scheduled for May 21 as an in-person meeting in Calgary and encouraged listeners to follow the company’s monthly reporting for operational updates.
About Peyto Exploration & Development (TSE:PEY)
Peyto Exploration & Development Corp (Peyto Exploration & Development) is an oil and gas company that involves in the exploration and development of natural gas. The company acquires, explores, develops and produces crude oil and unconventional natural gas reserves.
