Peyto Reports Record Q2 Results

Peyto Reports Record Q2 Results 
CALGARY, ALBERTA -- (Marketwired) -- 08/13/13 -- Peyto Exploration &
Development Corp. (TSX:PEY) ("Peyto") is pleased to present its
operating and financial results for the second quarter of the 2013
fiscal year. Peyto's production per share grew for the fifteenth
consecutive quarter with second quarter operating margins of 76%(1)
and profit margins of 26%(2). Second quarter 2013 highlights
included: 


 
--  Production per share up 31%. Production increased 41% (31% per share)
    from 248 MMcfe/d (41,343 boe/d) in Q2 2012 to 349 MMcfe/d (58,145 boe/d)
    in Q2 2013, setting a new company record. Current production is
    approximately 60,000 boe/d. 
    
--  Funds from operations per share up 57%. Funds from Operations ("FFO")
    grew 70% (57% per share) from $65 million in Q2 2012 to $110 million in
    Q2 2013 due to increases in both production and natural gas price, also
    a new company record. 
    
--  Operating costs of $2/boe. Industry leading operating costs of
    $0.35/mcfe ($2.10/boe) for Q2 2013 were up slightly from $0.29/mcfe for
    Q2 2012 mostly due to an increase in power prices. Total cash costs,
    including royalties, operating costs, transportation, G&A and interest
    were $1.09/mcfe ($6.54/boe), resulting in a $3.47/mcfe ($20.82/boe) cash
    netback or 76% operating margin. Peyto has maintained this industry
    leading operating margin, in excess of 75%, for the past three years. 
    
--  Capital investment of $74 million. A total of 13 wells were drilled in
    the second quarter. During the quarter Peyto drilled its 245th
    horizontal well in the Deep Basin marking 1.0 million meters using the
    new horizontal multi-stage frac technology. 
    
--  Earnings of $0.25/share, dividends of $0.22/share. Earnings of $38
    million were generated in the quarter while dividends of $33 million
    were paid to shareholders, representing a before tax payout ratio of 30%
    of FFO. The monthly dividend was increased in May 2013 from $0.06/share
    to $0.08/share. 

 
Second Quarter 2013 in Review 
The second quarter of 2013 was a period of reduced operational
activity for Peyto due to a prolonged spring break-up and higher than
normal rainfall. Southwestern Alberta experienced twice the normal
rainfall in June caus
ing wet surface conditions and flooding in many
areas. As a result, much of Peyto's June drilling and completion
operations were delayed to late July. Consequently, company record
production levels of 60,000 boe/d, which were achieved in April,
declined throughout the quarter as no new wells were connected. Peyto
was able to advance three facility projects in the quarter, however,
which together will increase total company processing capacity from
440 MMcf/d to 520 MMcf/d by Q4 2013. Realized natural gas prices
improved from the previous quarter to almost double that of the
previous year and when combined with increased average production
drove company funds from operations to record levels. Peyto improved
its financial flexibility in the quarter with an expanded credit
facility and an increase in total borrowing capacity to $1.15
billion. At quarter end, 65% of this capacity was utilized resulting
in a net debt to annualized FFO ratio of 1.7 times, down from 2.0
times in Q2 2012, and leaving over $400 million undrawn. The strong
financial and operating performance delivered in the quarter resulted
in an annualized 12% Return on Equity (ROE) and 10% Return on Capital
Employed (ROCE). 


 
(1) Operating Margin is defined as funds from operations divided by revenue 
    before royalties but including realized hedging gains/losses.           
(2) Profit Margin is defined as net earnings for the quarter divided by     
    revenue before royalties but including realized hedging gains/losses.   
    Natural gas volumes recorded in thousand cubic feet (mcf) are converted 
    to barrels of oil equivalent (boe) using the ratio of six (6) thousand  
    cubic feet to one (1) barrel of oil (bbl). Natural gas liquids and oil  
    volumes in barrel of oil (bbl) are converted to thousand cubic feet     
    equivalent (Mcfe) using a ratio of one (1) barrel of oil to six (6)     
    thousand cubic feet. This could be misleading, particularly if used in  
    isolation as it is based on an energy equivalency conversion method     
    primarily applied at the burner tip and does not represent a value      
    equivalency at the wellhead.                                            
                                                                            
----------------------------------------------------------------------------
                               Three Months ended June 30                %  
                                        2013           2012         Change  
----------------------------------------------------------------------------
Operations                                                                  
Production                                                                  
 Natural gas (mcf/d)                 310,621        221,176             40% 
 Oil & NGLs (bbl/d)                    6,374          4,480             42% 
 Thousand cubic feet                                                        
  equivalent (mcfe/d @ 1:6)          348,868        248,058             41% 
 Barrels of oil equivalent                                                  
  (boe/d @ 6:1)                       58,145         41,343             41% 
Product prices                                                              
 Natural gas ($/mcf)                    3.72           2.86             30% 
 Oil & NGLs ($/bbl)                    67.82          71.27             (5)%
 Operating expenses ($/mcfe)            0.35           0.29             21% 
 Transportation ($/mcfe)                0.12           0.12              -  
 Field netback ($/mcfe)                 3.77           3.16             19% 
 General & administrative                                                   
  expenses ($/mcfe)                     0.05           0.07            (29)%
 Interest expense ($/mcfe)              0.25           0.23              9% 
Financial ($000 except per                                                  
 share)                                                                     
Revenue                              144,614         86,553             67% 
Royalties                              9,849          6,082             62% 
Funds from operations                109,987         64,732             70% 
Funds from operations per                                                   
 share                                  0.74           0.47             57% 
Total dividends                       32,727         24,927             31% 
Total dividends per share               0.22           0.18             31% 
 Payout ratio                             30             39            (23)%
Earnings                              37,773         18,201            108% 
Earnings per diluted share              0.25           0.13             92% 
Capital expenditures                  73,809         45,924             61% 
Weighted average common                                                     
 shares outstanding              148,758,923    138,485,956              7% 
As at June 30                                                               
Net debt (before future compensation expense and unrealized hedging gains)  
Shareholders' equity                                                        
Tota
l assets                                                                
                                                                            
                                                                            
                                                                            
 
----------------------------------------------------------------------------
                                Six Months ended June 30                 %  
                                        2013           2012         Change  
----------------------------------------------------------------------------
Operations                                                                  
Production                                                                  
 Natural gas (mcf/d)                 303,943        220,994             38% 
 Oil & NGLs (bbl/d)                    6,109          4,291             42% 
 Thousand cubic feet                                                        
  equivalent (mcfe/d @ 1:6)          340,595        246,737             38% 
 Barrels of oil equivalent                                                  
  (boe/d @ 6:1)                       56,766         41,123             38% 
Product prices                                                              
 Natural gas ($/mcf)                    3.61           3.19             13% 
 Oil & NGLs ($/bbl)                    71.65          77.75             (8)%
 Operating expenses ($/mcfe)            0.33           0.31              6% 
 Transportation ($/mcfe)                0.12           0.12              -  
 Field netback ($/mcfe)                 3.72           3.45              8% 
 General & administrative                                                   
  expenses ($/mcfe)                     0.04           0.06            (33)%
 Interest expense ($/mcfe)              0.23           0.22              5% 
Financial ($000 except per                                                  
 share)                                                                     
Revenue                              277,816        189,049             47% 
Royalties                             20,440         14,917             37% 
Funds from operations                212,844        142,377             49% 
Funds from operations per                                                   
 share                                  1.43           1.03             39% 
Total dividends                       59,493         49,839             19% 
Total dividends per share               0.40           0.36             11% 
 Payout ratio                             28             35            (20)%
Earnings                              74,179         45,069             65% 
Earnings per diluted share              0.50           0.33             52% 
Capital expenditures                 242,908        144,551             68% 
Weighted average common                                                     
 shares outstanding              148,716,032    138,399,017              7% 
As at June 30                                                               
Net debt (before future                                                     
 compensation expense and                                                   
 unrealized hedging gains)           746,094        519,328             44% 
Shareholders' equity               1,227,842        999,057             23% 
Total assets                       2,328,117      1,789,210             30% 
                                                                            
                                                                            
                                                                            
----------------------------------------------------------------------------
                                    Three Months ended    Six Months ended  
                                          June 30              June 30      
($000)                                   2013      2012       2013      2012
----------------------------------------------------------------------------
Cash flows from operating                                                   
 activities                            96,700    74,551    189,243   133,934
Change in non-cash working capital      6,728   (10,934)    14,504     5,433
Change in provision for performance                                         
 based compensation                     6,559     1,115      9,097     3,010
----------------------------------------------------------------------------
Funds from operations                 109,987    64,732    212,844   142,377
----------------------------------------------------------------------------
Funds from operations per share          0.74      0.47       1.43      1.03
----------------------------------------------------------------------------
(1) Funds from operations - Management uses funds from operations to analyze
    the operating performance of its energy assets. In order to facilitate  
    comparative analysis, funds from operations is defined throughout this  
    report as earnings before performance based compensation, non-cash and  
    non-recurring expenses. Management believes that funds from operations  
    is an important parameter to measure the value of an asset when combined
    with reser
ve life. Funds from operations is not a measure recognized by 
    International Financial Reporting Standards ("IFRS") and does not have a
    standardized meaning prescribed by IFRS. Therefore, funds from          
    operations, as defined by Peyto, may not be comparable to similar       
    measures presented by other issuers, and investors are cautioned that   
    funds from operations should not be construed as an alternative to net  
    earnings, cash flow from operating activities or other measures of      
    financial performance calculated in accordance with IFRS. Funds from    
    operations cannot be assured and future dividends may vary.             

 
Exploration & Development  
Second quarter drilling activity focused on the Greater Sundance core
area and the many liquids rich, sweet gas resource plays currently
under development. A total of 13 wells were drilled across this land
base, targeting the prospective zones shown in the following table: 


 
Q2 2013                                 Field                               
                                                                       Total
                                                         Kisku/  New   Wells
Zone            Sundance Nosehill Wildhay Ansell Berland  Kakwa Area Drilled
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cardium                2                                                   2
Notikewin                       2              1                           1
Falher                 2                1                                  3
Wilrich                1        1       3                                  5
Bluesky                2                                                   2
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total                 
 7        3       4      1                          13
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
Both the Bluesky and Falher formations continue to prove up
significant additional inventory with each successful well drilled.
To date Peyto has drilled and brought onto production ten Bluesky
horizontal wells, which combined, currently contribute 5,000 boe/d to
company total production. An additional 5 Bluesky wells are planned
for the remainder of the year. As well, both Upper and Middle Falher
horizontal wells, of which 26 have been brought on production in the
last year, are contributing 8,000 boe/d currently, up from 3,000
boe/d a year ago. Peyto has plans to drill 10-15 Falher wells to the
end of the year. 
Over the past year and a half, Peyto has assembled a significant land
base in a new core area in Brazeau River. In total, 98.5 sections
(91.6 net) of contiguous land was purchased with previously
identified prospectivity in the Spirit River section including the
Notikewin, Falher and Wilrich formations. Average land cost to date
has been less than $300/net acre of mineral rights. Thus far, Peyto
has drilled three Wilrich wells with initial results that are
comparable to those achieved in the Greater Sundance area. As well,
Peyto has begun construction on a new 20 MMcf/d gas facility in the
area, which should be operational by early November 2013. Peyto is
encouraged by the initial results to date and the significant
drilling inventory currently identified on these lands. Management
believes capital invested in this area will meet or exceed Peyto's
high return objectives. For the balance of the year, one drilling rig
will be active in the Brazeau area.  
Capital Expenditures  
During the second quarter of 2013, Peyto spent $32.3 million to drill
13 gross (12.3 net) horizontal wells and $10.1 million completing 9
gross (8.0 net) wells. Wellsite equipment and tie-ins accounted for
$7.3 million, to bring on production 11 gross (10.0 net) wells. Two
major pipeline projects were completed early in the quarter in the
Ansell and Berland areas, accounting for $4.1 million, which allowed
Peyto to redirect existing production to owned facilities and lower
cost processing alternatives. Ongoing progress on the three new gas
plants that Peyto is constructing in 2013, at Oldman North, Swanson
and Brazeau, accounted for remainder of the $18.5 million in pipeline
and facilities capital.  
Peyto invested $5.0 million into new lands in the quarter, primarily
in the Brazeau, Berland and Sundance areas, as well as $0.6 million
in new seismic, adding a significant number of new drilling locations
to Peyto's vast, liquids rich, deep basin inventory.  
Financial Results  
Alberta daily natural gas prices averaged $3.35/GJ in Q2 2013, up 86%
from Q2 2012, resulting in a Peyto unhedged realized price of
$3.85/mcf before hedging losses of $0.13/mcf. Meanwhile, Edmonton
light oil prices averaged $92.62/bbl from which Peyto realized
$68.08/bbl, before hedging losses of $0.26/bbl, for its natural gas
liquids blend of condensate, pentane, butane and propane. Combined,
Peyto's unhedged revenues totaled $4.68/mcfe ($4.56/mcfe including
hedging losses), or 138% of the dry gas price, illustrating the
benefit of high heat content, liquids rich natural gas production. 
Royalties of $0.32/mcfe, operating costs of $0.35/mcfe,
transportation costs of $0.12/mcfe, G&A of $0.05/mcfe and interest
costs of $0.25/mcfe, combined for total cash costs of $1.09/mcfe.
These industry leading total cash costs resulted in a cash netback of
$3.47/mcfe or a 76% operating margin. 
Depletion, depreciation and amortization charges of $1.68/mcfe, along
with a provision for future tax and market based bonus payments
reduced the cash netback to earnings of $1.19/mcfe, or a 26% profit
margin. 
During the second quarter, Peyto's $730 million credit facility was
reviewed and the annual secured revolver was replaced by a $1.0
billion, two year, covenant based unsecured revolver. Including the
$150 million of senior unsecured notes, Peyto's total borrowing
capacity increased to $1.15 billion. 
Marketing  
AECO daily natural gas price was much improved in the second quarter
of 2013. This was due to a more typical storage balance entering the
spring "shoulder season" than the previous year's excess. Both AECO
and NYMEX futures prices for natural gas, however, are forecast to
rise by less than 7% per year for the next five years on the
expectation that ample supplies of natural gas are available for
growing demand.  
Approximately 57% of Peyto's (after royalty) natural gas production
had been pre-sold for Q2 2013, at an average fixed price of $3.19/GJ.
This was the result of an active hedging program which layers in
future sales in the form of fixed price swaps in order to smooth out
the volatility in natural gas price.  
Going forward, Peyto has committed to the future sale of 75,045,000
GJ of natural gas at an average price of $3.34/GJ. As at August 12,
2013, the remaining hedged volumes and prices for the upcoming years
are summarized in the following table. 


 
----------------------------------------------------------------------------
                              Future Sales            Average Price (CAD)   
----------------------------------------------------------------------------
                                  GJ            Mcf      $/GJ          $/Mcf
----------------------------------------------------------------------------
2013                      27,435,000     23,856,522      3.25           3.74
2014                      44,010,000     38,269,565      3.37           3.88
2015                       3,600,000      3,130,435      3.60           4.14
----------------------------------------------------------------------------
Total                     75,045,000     65,256,522      3.34           3.84
---------------------------------------------
-------------------------------

 
As illustrated in the following table, Peyto's hedged realized
natural gas liquids prices (1) were down 4% year over year and 10%
from the previous quarter. 


 
----------------------------------------------------------------------------
                                               Three Months ended           
                                                     June 30          Q1    
                                                    2013      2012      2013
----------------------------------------------------------------------------
Condensate ($/bbl)                                 92.44     94.49     96.63
Propane ($/bbl)                                    23.70     19.50     26.75
Butane ($/bbl)                                     48.12     64.05     61.40
Pentane ($/bbl)                                   100.37     97.95    107.13
----------------------------------------------------------------------------
Total Oil and NGLs ($/bbl)                         68.08     71.27     75.72
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Liquids prices are Peyto realized prices in Canadian dollars adjusted   
    for fractionation and transportation.                                   

 
Peyto's hedging practice with respect to propane also continued in
the quarter and as of August 13, 2013, Peyto had committed to the
future sale of 236,544 bbls of propane at an average price of
$35.69USD/bbl. As at August 12, 2013, the remaining hedged volumes
and prices for the upcoming years are summarized in the following
table. 


 
----------------------------------------------------------------------------
                                                     Propane                
----------------------------------------------------------------------------
                                                               Average Price
                                     Future Sales (bbls)          ($USD/bbl)
----------------------------------------------------------------------------
2013                                             104,544               34.26
2014                                             132,000               36.94
----------------------------------------------------------------------------
Total                                            236,544               35.76
----------------------------------------------------------------------------

 
Activity Update  
Since exiting the second quarter of 2013, Peyto has completed an
additional 18 wells, 16 that have been brought on production, which
has increased production from July's 53,500 boe/d average to
approximately 60,000 boe/d currently. The remaining wells will be
tied in and producing by the end of August. In addition, 10 wells are
currently drilled and waiting on completion, while ten drilling rigs
are actively working in Peyto's core Deep Basin areas drilling
approximately 14 wells per month. There is also 2,500 boe/d of
productive capability waiting on the new Brazeau processing facility,
expected in Q4 2013.  
On July 7, 2013, Peyto rig released its 245th horizontal well,
marking the point at which Peyto had drilled over 1.0 million meters
using horizontal well technology. Since the summer of 2009 when Peyto
spud its first horizontal well in the Deep Basin, the combination of
horizontal wells with multi-stage fracture stimulation technology has
helped Peyto become one of the fastest growing E&P companies in
Canada, effectively tripling corporate production over that time. The
experience and knowledge gained from this activity makes Peyto one of
the most proficient drillers in the Deep Basin.  
Outlook  
Near term Alberta natural gas prices have recently come under
pressure due to high transportation tariffs and competition from
North Eastern US supplies, however, the long term importance of
natural gas in North America continues to increase. Alberta natural
gas prices are currently forecast to recover to above $3/GJ by this
coming winter season.  
Based on continued profitability at these levels and at the current
pace of activity, management believes that year end 2013 production
will exceed the previous 67,000 boe/d exit guidance, once again
achieving capital efficiencies of less than $18,000/boe/d.  
Peyto's high level of ownership and control, combined with a lean
team, allows the company to be nimble with the ability to slow down
or increase activity as market conditions dictate, taking advantage
of opportunities to maximize shareholder returns. The low cost
structure and high operating margins combined with a strong hedge
book mean Peyto is also financially well positioned to withstand
continued volatility in natural gas prices. As always, Peyto will
maintain a strong balance sheet while only pursuing capital
investments if its high return objectives can be met.  
Conference Call and Webcast  
A conference call will be held with the senior management of Peyto to
answer questions with respect to the 2013 second quarter on
Wednesday, August 14th, 2013, at 9:00 a.m. Mountain Daylight Time
(MDT), or 11:00 a.m. Eastern Daylight Time (EDT). To participate,
please call 1-416-340-8018 (Toronto area) or 1-866-223-7781 for all
other participants. The conference call will also be available on
replay by calling 1-905-694-9451 (Toronto area) or 1-800-408-3053 for
all other parties, using passcode 9039358. The replay will be
available at 11:00 a.m. MDT, 1:00 p.m. EDT Wednesday, August 14th,
2013 until midnight EDT on Thursday, August 21st, 2013. The
conference call can also be accessed through the internet at
http://www.gowebcasting.com/4414. After this time the conference call
will be archived on the Peyto Exploration & Development website at
www.peyto.com. 
Management's Discussion and Analysis  
Management's Discussion and Analysis of this second quarter report is
available on the Peyto website at
http://www.peyto.com/news/Q22013MDandA.pdf. A complete copy of the
second quarter report to shareholders, including the Management's
Discussion and Analysis, and Financial Statements is also available
at www.peyto.com and will be filed at SEDAR, www.sedar.com, at a
later date. 
Darren Gee, President and CEO  
August 13, 2013 
Certain information set forth in this document and Management's
Discussion and Analysis, including management's assessment of Peyto's
future plans and operations, capital expenditures and capital
efficiencies, contains forward-looking statements. By their nature,
forward-looking statements are subject to numerous risks and
uncertainties, some of which are beyond these parties' control,
including the impact of general economic conditions, industry
conditions, volatility of commodity prices, currency fluctuations,
imprecision of reserve estimates, environmental risks, competition
from other industry participants, the lack of availability of
qualified personnel or management, stock market volatility and
ability to access sufficient capital from internal and external
sources. Readers are cautioned that the assumptions used in the
preparation of such information, although considered reasonable at
the time of preparation, may prove to be imprecise and, as such,
undue reliance should not be placed on forward-looking statements.
Peyto's actual results, performance or achievement could differ
materially from those expressed in, or implied by, these
forward-looking statements and, accordingly, no assurance can be
given that any of the events anticipated by the forward-looking
statements will transpire or occur, or if any of them do so, what
benefits Peyto will derive there from. In addition, Peyto is
providing future oriented financial information set out in this press
release for the purposes of providing clarity with respect to Peyto's
strategic direction and readers are cautioned that this information
may not be appropriate for any other purpose. Other than is requ
ired
pursuant to applicable securities law, Peyto does not undertake to
update forward looking statements at any particular time.  
Peyto Exploration & Development Corp.  
Condensed Balance Sheet (unaudited)  
(Amount in $ thousands) 


 
                                                 June 30         December 31
                                                    2013                2012
----------------------------------------------------------------------------
Assets                                                                      
Current assets                                                              
Cash                                              15,511                   -
Accounts receivable                               61,956              85,677
Due from private placement (Note 6)                    -               3,459
Financial derivative instruments                                            
 (Note 8)                                          7,139              10,254
Prepaid expenses                                  13,910               4,150
----------------------------------------------------------------------------
                                                  98,516             103,540
----------------------------------------------------------------------------
                                                                            
Long term portion of financial                                              
 derivative instruments (Note 8)                   1,732                   -
Prepaid capital                                        -               3,714
Property, plant and equipment, net                                          
 (Note 3)                                      2,227,869           2,096,270
----------------------------------------------------------------------------
                                               2,229,601           2,099,984
----------------------------------------------------------------------------
   
                                                                         
----------------------------------------------------------------------------
                                               2,328,117           2,203,524
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
Liabilities                                                                 
Current liabilities                                                         
Accounts payable and accrued                                                
 liabilities                                      75,571             164,946
Income taxes payable                                   -               1,890
Dividends payable (Note 6)                        11,901               8,911
Provision for future performance                                            
 based compensation (Note 7)                       8,548               2,677
----------------------------------------------------------------------------
                                                  96,020             178,424
----------------------------------------------------------------------------
                                                                            
Long-term debt (Note 4)                          750,000             580,000
Long-term derivative financial                                              
 instruments (Note 8)                                  -               2,532
Provision for future performance                                            
 based compensation (Note 7)                       3,285                  59
Decommissioning provision (Note 5)                52,540              58,201
Deferred income taxes                            198,430             174,241
----------------------------------------------------------------------------
                                               1,004,255             815,033
----------------------------------------------------------------------------
                                                                            
Equity                                                                      
Share capital (Note 6)                         1,130,069           1,124,382
Shares to be issued (Note 6)                           -               3,459
Retained earnings                                 89,932              75,247
Accumulated other comprehensive                                             
 income (loss) (Note 6)                            7,841               6,979
----------------------------------------------------------------------------
                                               1,227,842           1,210,067
----------------------------------------------------------------------------
                                               2,328,117           2,203,524
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
Peyto Exploration & Development Corp.  
Condensed Income Statement (unaudited) 
(Amount in $ thousands) 


 
                            Three months ended         Six months ended     
                                  June 30                   June 30         
                                2013         2012         2013         2012 
----------------------------------------------------------------------------
Revenue                                                                     
Oil and gas sales            148,466       68,879      276,889      154,100 
Realized gain (loss) on                                                     
 hedges (Note 8)              (3,852)      17,674          927       34,949 
Royalties                     (9,849)      (6,082)     (20,440)     (14,917)
----------------------------------------------------------------------------
Petroleum and natural gas                                                   
 sales, net                  134,765       80,471      257,376      174,132 
----------------------------------------------------------------------------
                                                                            
Expenses                                                                    
Operating                     11,242        6,603       20,548       13,904 
Transportation                 3,796        2,645        7,455        5,251 
General and                                                                 
 administrative                1,717        1,639        2,197        2,610 
Future performance based                                                    
 compensation (Note 7)         6,559        1,115        9,097        3,010 
Interest                       8,022        4,996       14,332       10,134 
Accretion of                                                                
 decommissioning                                                            
 provision (Note 5)              369          232          737          489 
Depletion and                                                               
 depreciation (Note 3)        53,287       39,101      104,912       78,774 
Gain on disposition of                                                      
 assets                            -         (144)           -         (144)
----------------------------------------------------------------------------
                              84,992       56,187      159,278      114,028 
----------------------------------------------------------------------------
Earnings before taxes         49,773       24,284       98,098       60,104 
----------------------------------------------------------------------------
                                                                            
Income tax                                                                  
Deferred income tax                                                         
 expense                      12,000        6,083       23,919       15,035 
                                                                            
----------------------------------------------------------------------------
Earnings for the period       37,773       18,201       74,179       45,069 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
                                                                            
----------------------------------------------------------------------------
Earnings per share (Note                                                    
 6)                                                                         
Basic and diluted              $0.25       $ 0.13       $ 0.50       $ 0.33 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
----------------------------------------------------------------------------
Weighted average number                                                     
 of common shares                                                           
 outstanding (Note 6)                                                       
Basic and diluted        148,758,923  138,485,956  148,716,032  138,399,017 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
Peyto Exploration & Development Corp.  
Condensed Statement of Comprehensive Income (unaudited)  
(Amount in $ thousands) 


 
                                                 
                           
                                     Three months ended   Six months ended  
                                          June 30             June 30       
                                         2013      2012      2013      2012 
----------------------------------------------------------------------------
Earnings for the period                37,773    18,201    74,179    45,069 
Other comprehensive income                                                  
Change in unrealized gain on cash                                           
 flow hedges                           30,204   (10,923)    2,076    16,194 
Deferred tax recovery (expense)        (8,514)    7,149      (287)    4,689 
Realized (gain) loss on cash flow                                           
 hedges                                 3,852   (17,674)     (927)  (34,949)
----------------------------------------------------------------------------
Comprehensive income                   63,315    (3,247)   75,041    31,003 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
Peyto Exploration & Development Corp.  
Condensed Statement of Changes in Equity (unaudited)  
(Amount in $ thousands) 


 
                                                                            
                                                Six months ended June 30    
                                                       2013            2012 
----------------------------------------------------------------------------
Share capital, beginning of period                1,124,382         889,115 
----------------------------------------------------------------------------
Common shares issued by private placement             5,742          11,952 
Common shares issuance costs (net of tax)               (55)            (26)
----------------------------------------------------------------------------
Share capital, end of period                      1,130,069         901,041 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
                                                                            
                                                                            
----------------------------------------------------------------------------
Common shares to be issued, beginning of                                    
 period                                               3,459           9,740 
----------------------------------------------------------------------------
Common shares issued                                 (3,459)         (9,740)
----------------------------------------------------------------------------
Common shares to be issued, end of period                 -               - 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
                                                                            
                                                                            
----------------------------------------------------------------------------
Retained earnings, beginning of period               75,247          82,889 
----------------------------------------------------------------------------
Earnings for the period                              74,179          45,069 
Dividends (Note 6)                                  (59,494)        (49,839)
----------------------------------------------------------------------------
Retained earnings, end of period                     89,932          78,119 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
                                                                            
                                                                            
----------------------------------------------------------------------------
Accumulated other comprehensive income,                                     
 beginning of period                                  6,979          33,964 
----------------------------------------------------------------------------
Other comprehensive income (loss)                       862         (14,066)
----------------------------------------------------------------------------
Accumulated other comprehensive income                                      
 (loss), end of period                                7,841          19,898 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
                                                                            
                                                                            
----------------------------------------------------------------------------
Total equity                                      1,227,842         999,058 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
Peyto Exploration & Development Corp.  
Condensed Statement of Cash Flows (unaudited)  
(Amount in $ thousands) 


 
                                                                            
                                     Three months ended   Six months ended  
                                          June 30             June 30       
                                         2013      2012      2013     
 2012 
----------------------------------------------------------------------------
Cash provided by (used in)                                                  
operating activities                                                        
Earnings                               37,773    18,201    74,179    45,069 
Items not requiring cash:                                                   
 Deferred income tax                   12,000     6,083    23,919    15,035 
 Depletion and depreciation            53,287    39,101   104,912    78,774 
 Accretion of decommissioning                                               
  provision                               369       232       737       489 
Change in non-cash working capital                                          
 related to operating activities       (6,729)   10,934   (14,504)   (5,433)
----------------------------------------------------------------------------
                                       96,700    74,551   189,243   133,934 
----------------------------------------------------------------------------
Financing activities                                                        
Issuance of common shares                   -         -     5,742    11,952 
Issuance costs                              -         -       (73)      (35)
Cash dividends paid                   (29,752)  (24,297)  (56,504)  (49,808)
Increase (decrease) in bank debt      110,000    25,000   170,000   (75,000)
Issuance of long term notes                 -         -         -   100,000 
----------------------------------------------------------------------------
                                       80,248        73   119,165   (12,891)
----------------------------------------------------------------------------
Investing activities                                                        
Additions to property, plant and                                            
 equipment                           (161,437)  (74,624) (292,897) (178,267)
------------
----------------------------------------------------------------
                                                                            
----------------------------------------------------------------------------
Net increase (decrease) in cash        15,511         -    15,511   (57,224)
Cash, beginning of period                   -         -         -    57,224 
----------------------------------------------------------------------------
Cash, end of period                    15,511         -    15,511         - 
----------------------------------------------------------------------------
                                                                            
                                                                            
                                                                            
The following amounts are included in cash flows from operating activities: 
----------------------------------------------------------------------------
                                                                            
Cash interest paid                       6,646     4,122    14,514     8,435
Cash taxes paid                              -         -     1,890         -
----------------------------------------------------------------------------

 
Peyto Exploration & Development Corp.  
Notes to Condensed Financial Statements (unaudited) 
As at June 30, 2013 and 2012  
(Amount in $ thousands, except as otherwise noted) 


 
1.  Nature of operations 

 
Peyto Exploration & Development Corp. ("Peyto" or the "Company") is a
Calgary based oil and natural gas company. Peyto conducts
exploration, development and production activities in Canada. Peyto
is incorporated and domiciled in the Province of Alberta, Canada. The
address of its registered office is 1500, 250 - 2nd Street SW,
Calgary, Alberta, Canada, T2P 0C1. 
Effective December 31, 2012, Peyto completed an amalgamation with its
wholly-owned subsidiary Open Range Energy Corp. pursuant to section
184(1) of the Business Corporations Act (Alberta). Following the
amalgamation, Peyto does not have any subsidiaries. 
These financial statements were approved and authorized for issuance
by the Audit Committee of Peyto on August 12, 2013. 


 
2.  Basis of presentation 

 
The condensed financial statements have been prepared by management
and reported in Canadian dollars in accordance with International
Accounting Standard ("IAS") 34, "Interim Financial Reporting". These
condensed financial statements do not include all of the information
required for full annual financial statements and should be read in
conjunction with the Company's consolidated financial statements as
at and for the years ended December 31, 2012 and 2011. 
Significant Accounting Policies  
(a) Significant Accounting Judgments, Estimates and Assumptions  
The timely preparation of the condensed financial statements requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingencies,
if any, as at the date of the financial statements and the reported
amounts of revenue and expenses during the period. By their nature,
estimates are subject to measurement uncertainty and changes in such
estimates in future years could require a material change in the
condensed financial statements. 
Except as disclosed below, all accounting policies and methods of
computation followed in the preparation of these financial statements
are the same as those disclosed in Note 2 of Peyto's consolidated
financial statements as at and for the years ended December 31, 2012
and 2011.  
(b) Recent Accounting Pronouncements  
Certain new standards, interpretations, amendments and improvements
to existing standards were issued by the International Accounting
Standards Board (IASB) or International Financial Reporting
Interpretations Committee (IFRIC) that are mandatory for accounting
periods beginning January 1, 2013 or later periods. The affected
standards are consistent with those disclosed in Peyto's consolidated
financial statements as at and for the years ended December 31, 2012
and 2011.  
Peyto adopted the following standards on January 1, 2013:  
IFRS 10 - Consolidated Financial Statements; supercedes IAS 27
"Consolidation and Separate Financial Statements" and SIC-12
"Consolidation - Special Purpose Entities". This standard provides a
single model to be applied in control analysis for all investees
including special purpose entities. This standard became applicable
on January 1, 2013. Peyto adopted the standard on January 1, 2013,
with no impact on Peyto's financial position or results of
operations. 
IFRS 11 - Joint Arrangements; requires a venturer to classify its
interest in a joint arrangement as a joint venture or joint
operation. Joint ventures will be accounted for using the equity
method of accounting, whereas joint operations will require the
venturer to recognize its share of the assets, liabilities, revenue
and expenses. This standard became applicable on January 1, 2013.
Peyto adopted the standard on January 1, 2013, with no impact on
Peyto's financial position or results of operations. 
IFRS 12 - Disclosure of Interests in Other Entities; establishes
disclosure requirements for interests in other entities, such as
joint arrangements, associates, special purpose vehicles and
off-balance-sheet vehicles. The standard carries forward existing
disclosure and also introduces significant additional disclosure
requirements that address the nature of, and risks associated with,
an entity's interests in other entities. This standard became
effective for Peyto on January 1, 2013. Peyto adopted the standard on
January 1, 2013, with no impact on Peyto's financial position or
results of operations. 
IFRS 13 - Fair Value Measurement; defines fair value, sets out a
single IFRS framework for measuring fair value and requires
disclosure about fair value measurements. IFRS 13 applies to
accounting standards that require or permit fair value measurements
or disclosure about fair value measurements (and measurements, such
as fair value less costs to sell, based on fair value or disclosure
about those measurements), except in specified circumstances. IFRS 13
became applicable on January 1, 2013. Peyto adopted the standard on
January 1, 2013, with no impact on Peyto's financial position or
results of operations. 


 
3.  Property, plant and equipment, net 
 
----------------------------------------------------------------------------
Cost                                                                        
----------------------------------------------------------------------------
At December 31, 2012                                              2,483,007 
----------------------------------------------------------------------------
 Additions                                                          236,511 
----------------------------------------------------------------------------
At June 30, 2013                                                  2,719,518 
----------------------------------------------------------------------------
                                                                            
Accumulated depreciation                                                    
----------------------------------------------------------------------------
At December 31, 2012                                               (386,737)
----------------------------------------------------------------------------
 Depletion and depreciation                                        (104,912)
----------------------------------------------------------------------------
At June 30, 2013                                                   (491,649)
----------------------------------------------------------------------------
                                                                            
----------------------------------------------------------------------------
--------------------
--------------------------------------------------------
Carrying amount at December 31, 2012                              2,096,270 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Carrying amount at June 30, 2013                                  2,227,869 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
During the three and six month periods ended June 30, 2013, Peyto
capitalized $1.5 million and $4.1 million (2012 - $0.8 million and
$2.5 million) of general and administrative expense directly
attributable to production and development activities.  


 
4.  Long-term debt 
 
----------------------------------------------------------------------------
                                           June 30, 2013   December 31, 2012
----------------------------------------------------------------------------
Bank credit facility                             600,000             430,000
Senior unsecured notes                           150,000             150,000
----------------------------------------------------------------------------
Balance, end of the period                       750,000             580,000
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
As at June 30, 2013, the Company had a syndicated unsecured $1.0
billion extendible revolving credit facility with a stated term date
of April 26, 2015. The bank facility is made up of a $30 million
working capital sub-tranche and a $970 million production line. The
facilities are available on a revolving basis for a two year period.
Outstanding amounts on this facility will bear interest at rates
ranging from prime plus 0.8% to prime plus 2.25% determined by the
Company's debt to earnings before interest, taxes, depreciation,
depletion and amortization (EBITDA) ratios ranging from less than 1:1
to greater than 2.5:1.  
On January 3, 2012, Peyto issued CDN $100 million of senior unsecured
notes pursuant to a note purchase and private shelf agreement. The
notes were issued by way of private placement and rank equally with
Peyto's obligations under its bank facility. The notes have a coupon
rate of 4.39% and mature on January 3, 2019. Interest is paid
semi-annually in arrears.  
On September 6, 2012, Peyto issued CDN $50 million of senior
unsecured notes pursuant to a note purchase and private shelf
agreement. The notes were issued by way of private placement and rank
equally with Peyto's obligations under its bank facility. The notes
have a coupon rate of 4.88% and mature on September 6, 2022. Interest
is paid semi-annually in arrears.  
Upon the issuance of the senior unsecured notes January 3, 2012,
Peyto became subject to the following financial covenants as defined
in the credit facility and note purchase and private shelf
agreements: 


 
--  Senior Debt to EBITDA Ratio will not exceed 3.0 to 1.0  
--  Total Debt to EBITDA Ratio will not exceed 4.0 to 1.0  
--  Interest Coverage Ratio will not be less than 3.0 to 1.0 
--  Total Debt to Capitalization Ratio will not exceed 0.55:1.0 

 
Peyto is in compliance with all financial covenants at June 30, 2013. 
Total interest expense for the three and six month periods ended June
30, 2013 was $8.0 million and $14.3 million (2012 - $5.0 million and
$10.1 million) and the average borrowing rate for the period was 4.2%
and 4.1% (2012 - 4.1% and 4.3%).  


 
5.  Decommissioning provision 

 
Peyto makes provision for the future cost of decommissioning wells,
pipelines and facilities on a discounted basis based on the
commissioning of these assets. 
The decommissioning provision represents the present value of the
decommissioning costs related to the above infrastructure, which are
expected to be incurred over the economic life of the assets. The
provisions have been based on Peyto's internal estimates of the cost
of decommissioning, the discount rate, the inflation rate and the
economic life of the infrastructure. Assumptions, based on the
current economic environment, have been made which management
believes are a reasonable basis upon which to estimate the future
liability. These estimates are reviewed regularly to take into
account any material changes to the assumptions. However, actual
decommissioning costs will ultimately depend upon the future market
prices for the necessary decommissioning work required which will
reflect market conditions at the relevant time. Furthermore, the
timing of the decommissioning is likely to depend on when production
activities ceases to be economically viable. This in turn will depend
and be directly related to the current and future commodity prices,
which are inherently uncertain. 
The following table reconciles the change in decommissioning
provision: 


 
----------------------------------------------------------------------------
Balance, December 31, 2012                                           58,201 
----------------------------------------------------------------------------
New or increased provisions                                           4,012 
Accretion of decommissioning provision                                  737 
Change in discount rate and estimates                               (10,410)
----------------------------------------------------------------------------
Balance, June 30, 2013                                               52,540 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
 Current                                                                  - 
 Non-current                                                         52,540 
----------------------------------------------------------------------------
--------------
--------------------------------------------------------------

 
Peyto has estimated the net present value of its total
decommissioning provision to be $52.5 million as at June 30, 2013
($58.2 million at December 31, 2012) based on a total future
undiscounted liability of $137.5 million ($127.9 million at December
31, 2012). At June 30, 2013 management estimates that these payments
are expected to be made over the next 50 years with the majority of
payments being made in years 2041 to 2062. The Bank of Canada's long
term bond rate of 2.89 per cent (2.36 per cent at December 31, 2012)
and an inflation rate of two per cent (two per cent at December 31,
2012) were used to calculate the present value of the decommissioning
provision. 


 
6.  Share capital 

 
Authorized: Unlimited number of voting common shares 
Issued and Outstanding 


 
                                       Number of Common              Amount 
Common Shares (no par value)                     Shares                   $ 
----------------------------------------------------------------------------
Balance, December 31, 2011                  137,960,301             889,115 
----------------------------------------------------------------------------
Common shares issued                          4,628,750             115,024 
Common shares issued for                                                    
 acquisition                                  5,404,007             112,187 
Common shares issued by private                                             
 placement                                      525,655              11,952 
Common share issuance costs (net of                                         
 tax)                                                 -              (3,896)
----------------------------------------------------------------------------
Balance, December 31,2012                   148,518,713           1,124,382 
--------------------------------------------------------------------------
--
Common shares issued by private                                             
 placement                                      240,210               5,742 
Common share issuance costs (net of                                         
 tax)                                                 -                 (55)
----------------------------------------------------------------------------
Balance, June 30, 2013                      148,758,923           1,130,069 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
On December 31, 2011 Peyto completed a private placement of 397,235
common shares to employees and consultants for net proceeds of $9.7
million ($24.52 per share). These common shares were issued on
January 13, 2012. 
On March 23, 2012, Peyto completed a private placement of 128,420
common shares to employees and consultants for net proceeds of $2.2
million ($17.22 per share). 
On August 14, 2012, Peyto issued 5,404,007 common shares which were
valued at $112.2 million (net of issuance costs) ($20.76 per share)
in relation to the closing of a corporate acquisition. 
On December 11, 2012, Peyto closed an offering of 4,628,750 common
shares at a price of $24.85 per common share, receiving proceeds of
$110.0 million (net of issuance costs). 
On December 31, 2012, Peyto completed a private placement of 154,550
common shares to employees and consultants for net proceeds of $3.5
million ($22.38 per share). These common shares were issued January
7, 2013. 
On March 19, 2013, Peyto completed a private placement of 85,660
common shares to employees and consultants for net proceeds of $2.2
million ($26.65 per share). 
Per share amounts  
Earnings per share or unit have been calculated based upon the
weighted average number of common shares outstanding for the three
and six month periods ended June 30, 2013 of 148,758,923 and
148,716,032 (2012 - 138,485,956 and 138,399,017). There are no
dilutive instruments outstanding. 
Dividends  
During the three and six month periods ended June 30, 2013, Peyto
declared and paid dividends of $0.22 per common share ($0.06 per
common share per month for April and $0.08 per common share per month
for May and June) and $0.40 per common share, totaling $32.7 million
and $59.5 million (2012 - $0.18 and $0.36 or $0.06 per share per
month, $24.0 million and $49.9 million).  
Comprehensive income  
Comprehensive income consists of earnings and other comprehensive
income ("OCI"). OCI comprises the change in the fair value of the
effective portion of the derivatives used as hedging items in a cash
flow hedge. "Accumulated other comprehensive income" is an equity
category comprised of the cumulative amounts of OCI. 
Accumulated hedging gains  
Gains and losses from cash flow hedges are accumulated until settled.
These outstanding hedging contracts are recognized in earnings on
settlement with gains and losses being recognized as a component of
net revenue. Further information on these contracts is set out in
Note 8.  


 
7.  Future performance based compensation 

 
Peyto awards performance based compensation to employees annually.
The performance based compensation is comprised of reserve and market
value based components. 
Reserve based component  
The reserves value based component is 4% of the incremental increase
in value, if any, as adjusted to reflect changes in debt, equity,
dividends, general and administrative costs and interest, of proved
producing reserves calculated using a constant price at December 31
of the current year and a discount rate of 8%.  
Market based component  
Under the market based component, rights with a three year vesting
period are allocated to employees. The number of rights outstanding
at any time is not to exceed 6% of the total number of common shares
outstanding. At December 31 of each year, all vested rights are
automatically cancelled and, if applicable, paid out in cash.
Compensation is calculated as the number of vested rights multiplied
by the total of the market appreciation (over the price at the date
of grant) and associated dividends of a common share for that period. 
The fair values were calculated using a Black-Scholes valuation
model. The principal inputs to the option valuation model were:  


 
                                    June 30, 2013             June 30, 2012 
----------------------------------------------------------------------------
Share price                       $22.58 - $30.40           $18.83 - $24.75 
Exercise price                    $19.30 - $22.68           $12.06 - $24.55 
Expected volatility                       0% - 26%                  0% - 36%
Option life                            0.50 years                0.50 years 
Dividend yield                                  0%                        0%
Risk-free interest rate                      1.25%                     1.04%
----------------------------------------------------------------------------
 
8.  Financial instruments 

 
Financial instrument classification and measurement  
Financial instruments of the Company carried on the condensed balance
sheet are carried at amortized cost with the exception of cash and
financial derivative instruments, specifically fixed price contracts,
which are carried at fair value. There are no significant differences
between the carrying amount of financial instruments and their
estimated fair values as at June 30, 2013. 
The Company's areas of financial risk management and risks related to
financial instruments remained unchanged from December 31, 2012. 
The fair value of the Company's cash and financial derivative
instruments are quoted in active markets. The Company classifies the
fair value of these transactions according to the following
hierarchy. 


 
--  Level 1 - quoted prices in active markets for identical financial
    instruments. 
--  Level 2 - quoted prices for similar instruments in active markets;
    quoted prices for identical or similar instruments in markets that are
    not active; and model-derived valuations in which all significant inputs
    and value drivers are observable in active markets. 
--  Level 3 - valuations derived from valuation techniques in which one or
    more significant inputs or value drivers are unobservable. 

 
The Company's cash and financial derivative instruments have been
assessed on the fair value hierarchy described above and classified
as Level 1. 
Fair values of financial assets and liabilities  
The Company's financial instruments include cash, accounts
receivable, financial derivative instruments, due from private
placement, current liabilities, provision for future performance
based compensation and long term debt. At June 30, 2013, cash and
financial derivative instruments are carried at fair value. Accounts
receivable, due from private placement, current liabilities and
provision for future performance based compensation approximate their
fair value due to their short term nature. The carrying value of the
long term debt approximates its fair value due to the floating rate
of interest charged under the credit facility. 
Commodity price risk management  
Peyto uses derivative instruments to reduce its exposure to
fluctuations in commodity prices. Peyto considers all of these
transactions to be effective economic hedges for accounting purposes. 
Following is a summary of all risk management contracts in place as
at June 30, 2013: 


 
----------------------------------------------------------------------------
Propane                                               Monthly          Price
Period Hedged                                Type      Volume          (USD)
----------------------------------------------------------------------------
April 1, 2013 to December 31, 2013    Fixed Price   4,000 bbl  $   30.66/bbl
April 1, 2013 to December 31, 2013    Fixed Price   4,000 bbl  $   32.34/bbl
April 1, 20
13 to December 31, 2013    Fixed Price   4,000 bbl  $  34.885/bbl
April 1, 2013 to December 31, 2013    Fixed Price   4,000 bbl  $   35.39/bbl
April 1, 2013 to December 31, 2013    Fixed Price   4,000 bbl  $   34.44/bbl
January 1, 2014 to March 31, 2014     Fixed Price   4,000 bbl  $   37.80/bbl
January 1, 2014 to December 31, 2014  Fixed Price   4,000 bbl  $   35.70/bbl
January 1, 2014 to December 31, 2014  Fixed Price   4,000 bbl  $  35.485/bbl
----------------------------------------------------------------------------
                                                                            
----------------------------------------------------------------------------
Natural Gas                                                            Price
Period Hedged                                TypeDaily Volume          (CAD)
----------------------------------------------------------------------------
April 1, 2012 to October 31, 2013     Fixed Price    5,000 GJ  $     4.00/GJ
April 1, 2012 to October 31, 2013     Fixed Price    5,000 GJ  $     4.00/GJ
April 1, 2012 to October 31, 2013     Fixed Price    5,000 GJ  $     4.00/GJ
April 1, 2012 to October 31, 2013     Fixed Price    5,000 GJ  $     4.00/GJ
April 1, 2012 to October 31, 2013     Fixed Price    5,000 GJ  $     2.52/GJ
April 1, 2012 to March 31, 2014       Fixed Price    5,000 GJ  $     3.00/GJ
May 1, 2012 to October 31, 2013       Fixed Price    5,000 GJ  $     2.30/GJ
August 1, 2012 to March 31, 2014      Fixed Price    5,000 GJ  $     3.00/GJ
August 1, 2012 to October 31, 2014    Fixed Price    5,000 GJ  $     3.10/GJ
November 1, 2012 to October 31, 2013  Fixed Price    5,000 GJ  $     2.60/GJ
November 1, 2012 to October 31, 2013  Fixed Price    5,000 GJ  $    3.005/GJ
November 1, 2012 to October 31, 2013  Fixed Price    5,000 GJ  $     3.00/GJ
November 1, 2012 to March 31, 2014    Fixed Price    5,000 GJ  $     2.81/GJ
November 1, 2012 to March 31, 2014    Fixed Price    5,000 GJ  $     3.00/GJ
November 1, 2012 to March 31, 2014    Fixed Price    5,000 GJ  $     3.05/GJ
November 1, 2012 to March 31, 2014    Fixed Price    5,000 GJ  $     3.02/GJ
November 1, 2012 to October 31, 2014  Fixed Price    5,000 GJ  $   3.0575/GJ
January 1, 2013 to October 31, 2013   Fixed Price    5,000 GJ  $     3.42/GJ
January 1, 2013 to December 31, 2013  Fixed Price    5,000 GJ  $    3.105/GJ
January 1, 2013 to March 31, 2014     Fixed Price    5,000 GJ  $     3.00/GJ
January 1, 2013 to March 31, 2014     Fixed Price    5,000 GJ  $     3.02/GJ
April 1, 2013 to October 31, 2013     Fixed Price    5,000 GJ  $    3.205/GJ
April 1, 2013 to March 31, 2014       Fixed Price    5,000 GJ  $    3.105/GJ
April 1, 2013 to March 31, 2014       Fixed Price    5,000 GJ  $     3.53/GJ
April 1, 2013 to March 31, 2014       Fixed Price    5,000 GJ  $     3.45/GJ
April 1, 2013 to March 31, 2014       Fixed Price    5,000 GJ  $     3.50/GJ
April 1, 2013 to March 31, 2014       Fixed Price    5,000 GJ  $     3.08/GJ
April 1, 2013 to March 31, 2014       Fixed Price    5,000 GJ  $      3.17GJ
April 1, 2013 to March 31, 2014       Fixed Price    5,000 GJ  $     3.10/GJ
April 1, 2013 to October 31, 2014     Fixed Price    5,000 GJ  $     3.25/GJ
April 1, 2013 to October 31, 2014     Fixed Price    5,000 GJ  $     3.30/GJ
April 1, 2013 to October 31, 2014     Fixed Price    5,000 GJ  $     3.33/GJ
April 1, 2013 to October 31, 2014     Fixed Price    7,500 GJ  $     3.20/GJ
April 1, 2013 to October 31, 2014     Fixed Price    5,000 GJ  $     3.22/GJ
April 1, 2013 to October 31, 2014     Fixed Price    5,000 GJ  $     3.20/GJ
April 1, 2013 to October 31, 2014     Fixed Price    5,000 GJ  $   3.1925/GJ
April 1, 2013 to October 31, 2014     Fixed Price    5,000 GJ  $     3.25/GJ
April 1, 2013 to October 31, 2014     Fixed Price    5,000 GJ  $     3.30/GJ
July 1, 2013 to October 31, 2013      Fixed Price    5,000 GJ  $     3.34/GJ
August 1, 2013 to March 31, 2014      Fixed Price    5,000 GJ  $     3.55/GJ
November 1, 2013 to March 31, 2014    Fixed Price    5,000 GJ  $     3.71/GJ
November 1, 2013 to March 31, 2014    Fixed Price    5,000 GJ  $     3.76/GJ
November 1, 2013 to March 31, 2014    Fixed Price    5,000 GJ  $     3.86/GJ
November 1, 2013 to March 31, 2014    Fixed Price    5,000 GJ  $     4.00/GJ
November 1, 2013 to March 31, 2014    Fixed Price    5,000 GJ  $     3.52/GJ
November 1, 2013 to October 31, 2014  Fixed Price    5,000 GJ  $     3.50/GJ
November 1, 2013 to October 31, 2014  Fixed Price    5,000 GJ  $     3.53/GJ
November 1, 2013 to March 31, 2015    Fixed Price    5,000 GJ  $   3.6025/GJ
April 1, 2014 to October 31, 2014     Fixed Price    5,000 GJ  $    3.505/GJ
April 1, 2014 to October 31, 2014     Fixed Price    5,000 GJ  $    3.555/GJ
April 1, 2014 to October 31, 2014     Fixed Price    5,000 GJ  $     3.48/GJ
April 1, 2014 to March 31, 2015       Fixed Price    5,000 GJ  $     3.82/GJ
April 1, 2014 to March 31, 2015       Fixed Price    5,000 GJ  $     3.44/GJ
April 1, 2014 to March 31, 2015       Fixed Price    5,000 GJ  $     3.52/GJ
November 1, 2014 to March 31, 2015    Fixed Price    5,000 GJ  $     3.81/GJ
November 1, 2014 to March 31, 2015    Fixed Price    5,000 GJ  $     3.90/GJ
----------------------------------------------------------------------------

 
As at June 30, 2013, Peyto had committed to the future sale of
228,000 barrels of propane at an average price of $35.05 per barrel
and 78,325,000 gigajoules (GJ) of natural gas at an average price of
$3.31 per GJ. Had these contracts been closed on June 30, 2013, Peyto
would have realized a gain in the amount of $8.9 million.  
Subsequent to June 30, 2013 Peyto entered into the following
contracts: 


 
----------------------------------------------------------------------------
Propane                                               Monthly          Price
Period Hedged                                Type      Volume          (USD)
----------------------------------------------------------------------------
October 1, 2013 to December 31, 2013  Fixed Price   4,000 bbl  $  39.774/bbl
January 1, 2014 to March 31, 2014     Fixed Price   4,000 bbl  $   36.54/bbl
January 1, 2014 to March 31, 2014     Fixed Price   4,000 bbl  $  39.354/bbl
----------------------------------------------------------------------------
                                                                            
----------------------------------------------------------------------------
Natural Gas                                                            Price
Period Hedged                                TypeDaily Volume          (CAD)
----------------------------------------------------------------------------
April 1, 2014 to March 31, 2015       Fixed Price    5,000 GJ  $   3.4725/GJ
April 1, 2014 to March 31, 2015       Fixed Price    5,000 GJ  $    3.525/GJ
April 1, 2014 to March 31, 2015       Fixed Price    5,000 GJ  $     3.60/GJ
----------------------------------------------------------------------------
 
9.  Commitments 

 
Following is a summary of Peyto's contractual obligations and
commitments as at June 30, 2013.  


 
                         2013     2014     2015     2016     2017 Thereafter
----------------------------------------------------------------------------
Note repayment(1)           -        -        -        -        -    150,000
Interest payments(2)    3,415    6,830    6,830    6,830    6,830     18,785
Transportation                                                              
 commitments            6,993   13,338   10,059    5,177    1,685      1,235
Operating leases        1,126    2,392    1,228      712      360          -
----------------------------------------------------------------------------
Total                  11,534   22,560   18,117   12,719    8,875    170,020
----------------------------------------------------------------------------
(1) Long-term debt repayment on senior unsecured notes                      
(2) Fixed interest payments on senior unsecured notes                       

 
Officers 


 
Darren Gee                             Tim Louie                            
President and Chief Executive Officer  Vice President, Land                 
Scott Robinson                         David Thomas                         
Executive Vice President and Chief     Vice President, Exploration          
Operating Officer                                                           
Kathy Turgeon                          Jean-Paul Lachance                   
Vice President, Finance and Chief      Vice President, Exploitation         
Financial Officer                                                           
Stephen Chetner                                                             
Corporate Secretary                                                         

 
Directors  
Don Gray, Chairman  
Stephen Chetner  
Brian Davis  
Michael MacBean, Lead Independent Director  
Darren Gee  
Gregory Fletcher  
Scott Robinson 
Auditors  
Deloitte LLP 
Solicitors  
Burnet, Duckworth & Palmer LLP 
Bankers  
Bank of Montreal  
Union Bank, Canada Branch  
Royal Bank of Canada  
Canadian Imperial Bank of Commerce  
The Toronto-Dominion Bank  
Bank of Nova Scotia  
HSBC Bank Canada  
Alberta Treasury Branches  
Canadian Western Bank  
Transfer Agent  
Valiant Trust Company 
Head Office  
1500, 250 - 2nd Street SW  
Calgary, AB  
T2P 0C1  
Phone: 403.261.6081  
Fax: 403.451.4100  
Web: www.peyto.com  
Stock Listing Symbol: PEY.TO  
Toronto Stock Exchange
Contacts:
Peyto Exploration & Development Corp.
1500, 250 - 2nd Street SW
Calgary, AB T2P 0C1
403.261.6081
403.451.4100 (FAX)
www.peyto.com