Sunday, August 26, 2012

The Peyto Advantage

This is perhaps one of the best videos I have ever seen on the Peyto Advantage.  As mentioned in my previous post, Peyto is the low cost operator and developer of natural gas in Canada. 

Darren Gee, the current CEO of Peyto, gives an excellent overview of the company in this presentation.  I know Peyto isn't real popular at these energy conferences, mostly because they often show a lot of industry comparison slides.  Darren doesn't do that much in the following presentation but you can find more industry comparison slides on their website (Click Here).

My favorite quote from Darren has to be from a couple years ago when he said something like, "Every oil and gas company comes to these conferences and announce they can drill 100% rate of return wells.  What I don't understand is why aren't those same economics coming out of the back end of the company in the reported financial statements?"  Good Question!


Disclosure: Long PEY.


  1. It is often a good idea to look at competitors that a good company has respect for. Around 3:35 he mentions two US companies that are as low cost as Peyto: UPL and SVN. They have not had the same positive development that Peyto has had lately. Anything you looked at?

  2. Thanks for posting video.

    Have followed and owned PEY for many years. Bought my initial amount way too high but was able to average in large part of my holding during the 2008 downturn.

    How do you look at valuation?

    Seems to be close to fair value at current price based on present value of reserves (2P). Have not added any value to future which is probably where I am going wrong (but would like to get this for free).

    Also concerned with insider selling:

    I know that insider selling not as important as buying.

    Thanks again. I like your posts.

  3. Balans,

    I have looked at both UPL and SWN in the past, but have never purchased either.


    I look at valuation in two ways. First is NAV, and the second is a modified CF multiple.

    The biggest wide card is NG prices. The NAV price deck is listed in the reserve report. If you buy at that price you will gain any upside from gas price increases. If gas prices recover to any sense of normalcy over the next couple years Peyto will move much higher. Remember NG prices will be at your back over the next couple years.

    As for insider selling it doesn't bother me a bit. Insiders at Peyto own a significant portion of the company and act like owners. The returns on capital are the best in the industry.