Watch Live

Tweet TWEET

Peyto Reports Q1 2014 Results and Another Dividend Increase

Peyto Reports Q1 2014 Results and Another Dividend Increase  CALGARY, ALBERTA -- (Marketwired) -- 05/14/14 --   Peyto Exploration & Development Corp. (TSX: PEY) ("Peyto" or the "Company") is pleased to present its operating and financial results for the first quarter of the 2014 fiscal year. Production per share growth of 28%, combined with earnings per share growth of 64%, support a 25% dividend increase. First quarter 2014 highlights, including a 77% operating margin(1) and a 30% profit margin(2), were as follows:        --  Production per share up 28%. First quarter 2014 production increased 30%     (28% per share) from 332 MMcfe/d (55,372 boe/d) in Q1 2013 to 433     MMcfe/d (72,209 boe/d) in Q1 2014.    --  Funds from operations per share up 54%. Generated a Company record $161     million in Funds from Operations ("FFO") in Q1 2014 up 56% (54% per     share) from $103 million in Q1 2013 due to increased production volumes     and improved commodity prices.    --  Cash costs of $1.25/Mcfe. Total cash costs, including royalties,     operating costs, transportation, G&A and interest, were up from     $1.02/Mcfe in Q1 2013 but still remain industry leading. This increase     was primarily due to higher royalties, driven by higher commodity     prices, and higher operating costs, due to front-end loaded chemical and     maintenance costs. Higher revenues, combined with these cash costs,     resulted in a cash netback of $4.12/Mcfe ($24.74/boe) or a 77% operating     margin.    --  Capital investment of $179 million. A capital program of $179 million     was executed in the quarter resulting in production additions of 11,500     boe/d at quarter end. The annualized cost (trailing twelve months) to     build this new production was $17,140/boe/d. A total of 31 gross wells     were drilled during the first quarter.    --  Earnings of $0.41/share, dividends of $0.24/share. Earnings of $62     million were generated in the quarter while dividends of $37 million     were paid to shareholders, representing a before tax payout ratio of 23%     of FFO.    --  Dividend increase to $0.10/share. The Board of Directors has approved a     monthly dividend increase of $0.02/share, starting in May 2014, to be     paid on June 13, 2014 to shareholders of record as of May 31, 2014.   First Quarter 2014 in Review  The first quarter of 2014 was another active period for the Company with 9 drilling rigs developing the many Deep Basin resource plays within Peyto's portfolio. Natural gas prices during the quarter were extremely volatile as cold winter weather reduced storage volumes to multi-year lows causing gas prices to increase dramatically. Peyto increased its pace of activity and accelerated 2014 spending plans in response to the increase in natural gas prices with an urgency to deploy more capital earlier in the year, before potential cost inflation could occur. Drilling through spring break-up became part of that plan, as did stockpiling chemicals and accelerating facility maintenance during unscheduled transportation outages. These efforts, combined with increased government and regulatory fees, resulted in higher per unit operating costs for the first quarter. At just over $3/boe, Peyto's operating costs, inclusive of transportation, continue to lead the industry by a wide margin. Average first quarter production of 72,209 boe/d was up 7% sequentially from the fourth quarter 2013, while average realized prices were up 25%. These contributed to a record $161 million in FFO, despite a $30 million hedging loss. Progress on facility expansions continued in the quarter in anticipation of ongoing production growth later in 2014. The strong financial and operating performance delivered in the quarter resulted in an annualized 20% Return on Equity (ROE) and 15% 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.    ----------------------------------------------------------------------------                                             3 Months Ended Mar. 31         %                                                    2014        2013   Change ---------------------------------------------------------------------------- Operations                                                                   Production                                                                     Natural gas (mcf/d)                           389,002     297,191      31%   Oil & NGLs (bbl/d)                              7,375       5,840      26%   Thousand cubic feet equivalent (mcfe/d @                                      1:6)                                         433,252     332,230      30%   Barrels of oil equivalent (boe/d @ 6:1)        72,209      55,372      30% Production per million common shares                                          (boe/d)(i)                                         476         372      28%   Product prices                                                                 Natural gas ($/mcf)                              4.45        3.49      28%   Oil & NGLs ($/bbl)                              80.49       75.88       6%   Operating expenses ($/mcfe)                      0.39        0.31      26%   Transportation ($/mcfe)                          0.13        0.12       8%   Field netback ($/mcfe)                           4.39        3.67      20%   General & administrative expenses                                             ($/mcfe)                                        0.04        0.02     100%   Interest expense ($/mcfe)                        0.23        0.21      10% Financial ($000, except per share(i))                                        Revenue                                         209,318     133,203      57% Royalties                                        17,861      10,591      69% Funds from operations                           160,785     102,856      56% Funds from operations per share                    1.06        0.69      54% Total dividends                                  36,505      26,766      36% Total dividends per share                          0.24        0.18      33%   Payout ratio                                       23          26    (12)% Earnings                                         62,129      36,405      71% Earnings per diluted share                         0.41        0.25      64% Capital expenditures                            179,378     169,099       6% Weighted average common shares outstanding  151,826,431 148,672,664       2% As at March 31                                                               End of period shares outstanding            153,690,808 148,758,923       3% Net debt                                        838,495     749,546      12% Shareholders' equity                          1,344,704   1,197,254      12% Total assets                                  2,686,661   2,281,287      18% (i)all per share amounts using weighted                                       average common shares outstanding                                             ----------------------------------------------------------------------------                                                   Three Months ended Mar. 31 ($000)                                                     2014         2013 ---------------------------------------------------------------------------- Cash flows from operating activities                    146,452       92,543 Change in non-cash working capital                        7,964        8,784 Change in provision for performance based                                     compensation                                             6,369        1,529 ---------------------------------------------------------------------------- Funds from operations                                   160,785      102,856 ---------------------------------------------------------------------------- Funds from operations per share(i)                         1.06         0.69 ----------------------------------------------------------------------------  (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 reserve life. Funds from operations is not a measure recognized by Canadian generally accepted accounting principles ("GAAP") and does not have a standardized meaning prescribed by GAAP. 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 GAAP. Funds from operations cannot be assured and future distributions may vary.  Exploration & Development  Peyto's first quarter 2014 activity continued to be diversified across the many stacked resource plays in the Alberta Deep Basin, with all zones yielding liquids rich, sweet natural gas. A total of 31 wells were drilled across the land base, targeting the many prospective zones, as shown in the following table:                                             Field                                                                                                          Total                                                       Kisku/           Wells Zone        Sundance Nosehill Wildhay Ansell Berland   Kakwa Brazeau Drilled ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Cardium            1        1       1      1                               4 Notikewin                           3                                      3 Falher             2        4                                      1       7 Wilrich            2        1       1      6       1                      11 Bluesky            2        3              1                               6 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Total              7        9       5      8       1               1      31 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------  The majority of the activity in the quarter focused on the deeper Falher, Wilrich and Bluesky formations. These formations are yielding greater economic returns due to a combination of higher natural gas prices, greater deep gas drilling royalty incentives combined with higher productivity and reserve recoveries.  Both the average depth and lateral length of Peyto's horizontal wells continued to increase in Q1 2014, as the Company attempts to develop more resource with each wellbore. At the same time, the drilling cost per meter and time required to drill, complete, and bring a new well on production continues to fall as Peyto's infrastructure (roads, wellsites, pipelines, etc.) expands and drilling practices are refined. The following table illustrates the ongoing efficiency gains which should contribute to lower development costs and greater returns:                                         2011         2012         2013      2014 Q1 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Gross Spuds                        70           86           99           31 Measured Depth (m)              3,903        4,017        4,179        4,236 HZ Length (m)                   1,303        1,358        1,409        1,468   Average Drilling ($MM)      $   2.823    $   2.789    $   2.720    $   2,767 $ per MD meter              $     723    $     694    $     651    $     653   Spud-Onstream (days)               59           50           59           41 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------  Capital Expenditures  During the first quarter of 2014, Peyto spent $80.2 million to drill 31 gross (28.4 net) horizontal wells and $36.1 million completing 22 gross (21.5 net) wells. Wellsite equipment and tie-ins accounted for $15.7 million, while a total of $40.4 million was invested in pipelines and facilities. A 27 km, 8" pipeline was installed which connected a new growth area called Pedley to Peyto's Wildhay gas plant. This new pipeline corridor provides the necessary infrastructure for future wells and the ultimate expansion of the Wildhay gas plant later in the year. Additional compression was installed at Swanson and Oldman North gas plants, as well as two compressors and a refrigeration unit at the Brazeau River gas plant. New lands in Brazeau and Sundance were acquired for $2.9 million, or $246/acre, while new 3D seismic was acquired in Brazeau, Ansell and Sundance accounted for $3.9 million.  By the end of the quarter, the 22 gross (21.6 net) wells that were brought onstream were contributing 11,500 boe/d to the quarter end exit rate of 72,000 boe/d.   Financial Results  Alberta (AECO) daily natural gas prices averaged $5.36/GJ in Q1 2014, while AECO monthly prices averaged $4.52/GJ. Typically, the monthly price exceeds the daily price but this was not the case in the first quarter. As Peyto had committed 88% of its production to the monthly price, Peyto realized a volume weighted average natural gas price of $4.57/GJ or $5.23/mcf, prior to a $0.78/mcf hedging loss.  Peyto realized a blended oil and natural gas liquids price of $84.64/bbl in Q1 2014, prior to a $4.15/bbl hedging loss, for its blend of condensate, pentane, butane and propane, which represented 85% of the $99.81/bbl average Edmonton light oil price.   Combining realized natural gas and liquids prices, Peyto's unhedged revenues totaled $6.14/mcfe ($5.37/mcfe including hedging losses), or 134% of the dry gas price, illustrating the benefit of high heat content, liquids rich natural gas production.  Royalties of $0.46/mcfe, operating costs of $0.39/mcfe, transportation costs of $0.13/mcfe, G&A of $0.04/mcfe and interest costs of $0.23/mcfe, combined for total cash costs of $1.25/mcfe ($7.47/boe). These industry leading total cash costs resulted in a cash netback of $4.12/mcfe or a 77% operating margin.  Depletion, depreciation and amortization charges of $1.77/mcfe, along with a provision for future tax and market based bonus payments reduced the cash netback to earnings of $1.59/mcfe, or a 30% profit margin, which funded dividends of $0.94/mcfe.   Subsequent to the end of the first quarter, Peyto's $1.0 billion covenant based unsecured credit facility was renewed and extended for an additional two years. This new revolver has more attractive pricing and the same covenants as the previous revolver (see the Management's Discussion & Analysis for a description of the covenants). Including the $270 million of senior unsecured notes, Peyto's total borrowing capacity is $1.27 billion, leaving over $430 million of available capacity as at March 31, 2014.  Marketing  Significantly colder than normal winter weather across much of North America during the first quarter caused natural gas storage inventories to be drawn down to multi-year lows. This led to higher natural gas prices, especially in Alberta where AECO daily natural gas prices fluctuated from lows of $3.66/GJ to highs of $24.82/GJ. The average daily price over the 90 day period of $5.36/GJ was 19% higher than the average monthly price at $4.52/GJ.  For the quarter, approximately 57% of Peyto's natural gas production received a fixed price of $3.38/GJ from hedges that were put in place over the previous 24 months, while the balance received the blended daily and monthly price of $4.57/GJ, resulting in an after-hedge price of $3.89/GJ or $4.45/mcf.   Peyto's practice of layering in future sales in the form of fixed price swaps, and thus smoothing out the volatility in gas prices, continued throughout the quarter. As at March 31, 2014 Peyto had committed to the future sale of 100,285,000 GJ of natural gas at an average price of $3.58/GJ or $4.12/mcf based on Peyto's historical heat content. The following table summarizes the remaining hedged volumes and prices for the upcoming years as of May 14, 2014.        ----------------------------------------------------------------------- -----                              Future Sales             Average Price (CAD)    ----------------------------------------------------------------------------                                  GJ            Mcf         $/GJ        $/Mcf ---------------------------------------------------------------------------- 2014                     65,095,000     56,604,348         3.58         4.12 2015                     34,480,000     29,982,609         3.73         4.29 2016                      1,820,000      1,582,609         3.97         4.57 ---------------------------------------------------------------------------- Total                   101,395,000     88,169,566         3.64         4.19 ----------------------------------------------------------------------------  (i)prices and volumes in mcf use Peyto's historic heat content premium of 1.15.   As illustrated in the following table, Peyto's realized natural gas liquids prices (1) were up 6% year over year with all but Butane receiving greater prices.        ----------------------------------------------------------------------- -----                                                 Three Months ended March 31                                                           2014           2013 ---------------------------------------------------------------------------- Condensate ($/bbl)                                     100.68          92.18 Propane ($/bbl) (includes hedging)                      36.65          25.52 Butane ($/bbl)                                          55.98          58.57 Pentane ($/bbl)                                        105.37         102.19 ---------------------------------------------------------------------------- Total oil and natural gas liquids ($/bbl)               80.49          75.88 ---------------------------------------------------------------------------- Edmonton par crude postings ($/bbl)                     99.81          86.28 ----------------------------------------------------------------------------  (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 at March 31, 2014, Peyto had committed to the future sale of 204,000 bbls of propane at an average price of $45.82 CAD/bbl or $41.45USD/bbl.  Activity Update  Peyto has successfully maintained a high level of activity through April and into the beginning of May while most of the industry has shut down for spring break-up. Activity will continue provided that weather and surface access conditions remain acceptable. Peyto currently has 7 of its 9 rigs drilling and 3 completion spreads running. Since the end of the first quarter, an additional 11 gross (9.7 net) wells have been, or are in the process of being drilled and 12 more wells (11.2 net) have been completed and brought on production. New wells for 2014 are contributing 15,000 boe/d to the current total production of 73,000 boe/d.  Most recently, Peyto has drilled and completed the longest horizontal well so far in the Company's history. This Sundance horizontal Wilrich well was drilled with a 2,888 m horizontal lateral and completed with a 21 stage slickwater fracture stimulation. The Company expects that longer horizontal laterals will not be applicable to all zones, nor in all areas, and while it is still too early to determine with certainty, Peyto expects this well will achieve above average rates of return.   Facility and pipeline expansion work continues to progress in anticipation of production growth in the second half of the year. A twinning of the Wildhay sales pipeline is in the final stages of completion, as are fabrication of a second refrigeration package and compressor for the Oldman North plant expansion which is scheduled for a September startup.  Recent investment success has prompted renewed focus on the Wilrich and Falher formations in Ansell, the Bluesky play in North Sundance, the Falher and Notikewin in Central Sundance, and the Wilrich in Brazeau River.   Dividend Increase  In keeping with Peyto's total return model, profitable growth in the Company's assets should ultimately yield growth in sustainable dividends for shareholders. Over the last year, production per share and Proved Developed Producing reserves per share have grown 28% and 12%, respectively, while earnings per share have increased 64%. Based on this profitable growth, and irrespective of the recent strength in natural gas prices, the Board of Directors of Peyto has approved a $0.02/share increase to the monthly dividend starting in May 2014. This is the second dividend increase since Peyto converted to a dividend-paying, growth corporation at the end of 2010.   Outlook   Commodity prices for the balance of 2014 continue to look robust, and while higher commodity prices will drive higher funds from operations, Peyto will remain vigilant with respect to service cost inflation. Peyto is executing more of its 2014 capital program in the first half of the year in an attempt to mitigate this potential cost inflation and fully expects to meet its rate of return objectives. The Company remains committed to maximizing the returns on shareholder's capital by continuing to be one of the lowest cost, most efficient and most profitable energy companies in the industry.   Conference Call and Webcast  A conference call will be held with the senior management of Peyto to answer questions with respect to the 2014 first quarter financial results on Thursday, May 15th, 2014, at 9:00 a.m. Mountain Daylight Time (MDT), or 11:00 a.m. Eastern Daylight Time (EDT). To participate, please call 1-416-340-9432 (Toronto area) or 1-800-769-8320 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 9633376. The replay will be available at 11:00 a.m. MDT, 1:00 p.m. EDT Thursday, May 15th, 2014 until midnight EDT on Thursday, May 22nd, 2014. The conference call can also be accessed through the internet at http://www.gowebcasting.com/5336. After this time the conference call will be archived on the Peyto Exploration & Development website at www.peyto.com.   Shareholders are invited to attend Peyto's AGM at 3:00 p.m. on Tuesday, May 27, 2014 at Livingston Place Conference Centre, +15 level, 222-3rd Avenue SW, Calgary, Alberta.   Management's Discussion and Analysis  Management's Discussion and Analysis of this first quarter report is available on the Peyto website at http://www.peyto.com/news/Q12014MDandA.pdf. A complete copy of the first 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  May 14, 2014  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 required 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)                                                                                                            March 31    December 31                                                          2014           2013  ---------------------------------------------------------------------------- Assets                                                                       Current assets                                                               Accounts receivable                                  108,164         83,714  Due from private placement (Note 6)                        -          6,245  Prepaid expenses                                      11,586          5,666  ----------------------------------------------------------------------------                                                      119,750         95,625  ----------------------------------------------------------------------------   Property, plant and equipment, net (Note 3)        2,566,911      2,459,531  ----------------------------------------------------------------------------                                                    2,566,911      2,459,531  ----------------------------------------------------------------------------                                                    2,686,661      2,555,156  ---------------------------------------------------------------------------- ----------------------------------------------------------------------------   Liabilities                                                                  Current liabilities                                                          Accounts payable and accrued liabilities             185,950        155,265  Dividends payable (Note 6)                            12,295         11,901  Derivative financial instruments (Note 8)             64,221         26,606  Provision for future performance based                                        compensation (Note 7)                                11,470          5,100  ----------------------------------------------------------------------------                                                      273,936        198,872  ----------------------------------------------------------------------------   Long-term debt (Note 4)                              760,000        875,000  Long-term derivative financial instruments                                    (Note 8)                                             17,735          5,180  Provision for future performance based                                        compensation (Note 7)                                 5,426          3,200  Decommissioning provision (Note 5)                    67,330         61,184  Deferred income taxes                                217,530        211,082  ----------------------------------------------------------------------------                                                    1,068,021      1,155,646  ----------------------------------------------------------------------------   Equity                                                                       Share capital (Note 6)                             1,292,384      1,130,069  Shares to be issued (Note 6)                               -          6,245  Retained earnings                                    112,599         86,975  Accumulated other comprehensive loss (Note 6)        (60,279)       (22,651) ----------------------------------------------------------------------------                                                    1,344,704      1,200,638  ----------------------------------------------------------------------------                                                    2,686,661      2,555,156  ---------------------------------------------------------------------------- ----------------------------------------------------------------------------  See accompanying notes to the financial statements.  Approved by the Board of Directors  Michael MacBean, Director   Darren Gee, Director         Peyto Exploration & Development Corp.                                        Condensed Income Statement (unaudited)                                       (Amount in $ thousands)                                                                                                       Three months ended March 31                                                           2014           2013  ---------------------------------------------------------------------------- Revenue                                                                      Oil and gas sales                                    239,421        128,424  Realized (loss) gain on hedges (Note 8)              (30,103)         4,779  Royalties                                            (17,861)       (10,591) ---------------------------------------------------------------------------- Petroleum and natural gas sales, net                 191,457        122,612  ----------------------------------------------------------------------------   Expenses                                                                     Operating                                             15,230          9,306  Transportation                                         5,145          3,659  General and administrative                             1,556            481  Future performance based compensation (Note 7)         8,596          2,538  Interest                                               8,741          6,310  Accretion of decommissioning provision (Note                                  5)                                                      498            368  Depletion and depreciation (Note 3)                   68,851         51,625  ----------------------------------------------------------------------------                                                      108,617         74,287  ---------------------------------------------------------------------------- Earnings before taxes                                 82,840         48,325  ----------------------------------------------------------------------------   Income tax                                                                   Deferred income tax expense                           20,711         11,920  ---------------------------------------------------------------------------- Earnings for the period                               62,129         36,405  ---------------------------------------------------------------------------- ----------------------------------------------------------------------------   ---------------------------------------------------------------------------- Earnings per share (Note 6)                                                  Basic and diluted                             $         0.41 $         0.25  ---------------------------------------------------------------------------- ----------------------------------------------------------------------------   ---------------------------------------------------------------------------- Weighted average number of common shares                                      outstanding (Note 6)                                                        Basic and diluted                                151,826,431    148,672,664  ---------------------------------------------------------------------------- ----------------------------------------------------------------------------   Peyto Exploration & Development Corp.                                        Condensed Statement of Comprehensive Income (unaudited)                      (Amount in $ thousands)                                                                                                           Three months ended March                                                                           31                                                            2014         2013  ---------------------------------------------------------------------------- Earnings for the period                                 62,129       36,405  Other comprehensive income                                                   Change in unrealized loss on cash flow hedges          (80,273)     (28,128) Deferred tax expense                                    12,543        8,227  Realized (gain) loss on cash flow hedges                30,103       (4,779) ---------------------------------------------------------------------------- Comprehensive income                                    24,502       11,725  ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Peyto Exploration & Development Corp.                                        Condensed Statement of Changes in Equity (unaudited)                         (Amount in $ thousands)                                                                                                           Three months ended March                                                                31                                                                       2014         2013  ---------------------------------------------------------------------------- Share capital, beginning of period                   1,130,069    1,124,382  ---------------------------------------------------------------------------- Common shares issued by private placement                6,997        5,742  Equity offering                                        160,480            -  Common shares issuance costs (net of tax)               (5,162)         (55) ---------------------------------------------------------------------------- Share capital, end of period                         1,292,384    1,130,069  ---------------------------------------------------------------------------- ----------------------------------------------------------------------------   ---------------------------------------------------------------------------- Common shares to be issued, beginning of period          6,245        3,459  ---------------------------------------------------------------------------- Common shares issued                                    (6,245)      (3,459) ---------------------------------------------------------------------------- Common shares to be issued, end of period                    -            -  ---------------------------------------------------------------------------- ----------------------------------------------------------------------------   ---------------------------------------------------------------------------- Retained earnings, beginning of period                  86,975       75,247  ---------------------------------------------------------------------------- Earnings for the period                                 62,129       36,405  Dividends (Note 6)                                     (36,505)     (26,766) ---------------------------------------------------------------------------- Retained earnings, end of period                       112,599       84,886  ---------------------------------------------------------------------------- ----------------------------------------------------------------------------   ---------------------------------------------------------------------------- Accumulated other comprehensive (loss) income,                                beginning of period                                   (22,651)       6,979  ---------------------------------------------------------------------------- Other comprehensive loss                               (37,628)     (24,680) ---------------------------------------------------------------------------- Accumulated other comprehensive loss, end of                                  period                                                (60,279)     (17,701) ---------------------------------------------------------------------------- ----------------------------------------------------------------------------   ---------------------------------------------------------------------------- Total equity                                         1,344,704    1,197,254  ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Peyto Exploration & Development Corp.                                        Condensed Statement of Cash Flows (unaudited)                                (Amount in $ thousands)                                                        The following amounts are included in cash flows from operating activities:  ----------------------------------------------------------------------------                                                      Three months ended March                                                                31                                                                       2014         2013  ---------------------------------------------------------------------------- Cash provided by (used in) operating activities                              Earnings                                                62,129       36,405  Items not requiring cash:                                                      Deferred income tax                                   20,711       11,920    Depletion and depreciation                            68,851       51,625    Accretion of decommissioning provision                   498          368    Long term portion of future performance based                                 compensation                                          2,227        1,009  Change in non-cash working capital related to                                 operating activities                                   (7,964)      (8,784) ----------------------------------------------------------------------------                                                        146,452       92,543  ---------------------------------------------------------------------------- Financing activities                                                         Issuance of common shares                              167,477        5,742  Issuance costs                                          (6,883)         (73) Cash dividends paid                                    (36,110)     (26,752) Increase (decrease) in bank debt                      (115,000)      60,000  ----------------------------------------------------------------------------                                                          9,484       38,917  ---------------------------------------------------------------------------- Investing activities                                                         Additions to property, plant and equipment            (179,378)    (169,099) Change in prepaid capital                                8,795        3,714  Change in non-cash working capital relating to                                investing activities                                   14,647       33,925  ----------------------------------------------------------------------------                                                       (155,936)    (131,460) ---------------------------------------------------------------------------- Net increase (decrease) in cash                              -            -  Cash, Beginning of Period                                    -            -  ---------------------------------------------------------------------------- Cash, End of Period                                          -            -  ----------------------------------------------------------------------------   Cash interest paid                                       8,330        7,867  Cash taxes paid                                              -        1,890    Peyto Exploration & Development Corp.                                        Notes to Condensed Financial Statements (unaudited)                          As at March 31, 2014 and 2013                                                (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.  These financial statements were approved and authorized for issuance by the Audit Committee of Peyto on May 13, 2014.        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 financial statements as at and for the years ended December 31, 2013 and 2012.  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 financial statements as at and for the years ended December 31, 2013 and 2012.   (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, 2014 or later periods. The affected standards are consistent with those disclosed in Peyto's financial statements as at and for the years ended December 31, 2013 and 2012.   Peyto adopted the following standards on January 1, 2014:  IAS 36 "Impairment of Assets" has been amended to reduce the circumstances in which the recoverable amount of cash generating units "CGUs" are required to be disclosed and clarify the disclosures required when an impairment loss has been recognized or reversed in the period. The retrospective adoption of these amendments will only impact Peyto's disclosures in the notes to the financial statements in periods when an impairment loss or impairment reversal is recognized.  IFRIC 21 "Levies" was developed by the IFRS Interpretations Committee ("IFRIC") and is applicable to all levies imposed by governments under legislation, other than outflows that are within the scope of other standards (e.g., IAS 12 "Income Taxes") and fines or other penalties for breaches of legislation. The interpretation clarifies that an entity recognizes a liability for a levy when the activity that triggers payment, as identified by the relevant legislation, occurs. It also clarifies that a levy liability is accrued progressively only if the activity that triggers payment occurs over a period of time, in accordance with the relevant legislation. Lastly, the interpretation clarifies that a liability should not be recognized before the specified minimum threshold to trigger that levy is reached. The retrospective adoption of this interpretation does not have any impact on Peyto's financial statements.  Standards issued but not yet effective  IFRS 9, as issued, reflects part of the IASB's work on the replacement of IAS 39 "Financial Instruments: Recognition and Measurement" and applies to classification and measurement of financial assets and financial liabilities as defined in IAS 39 and hedging transactions. The standard has no effective date. In subsequent phases, the IASB will address impairment of financial assets. The adoption of IFRS 9 may have an effect on the classification and measurement of the company's financial assets and financial liabilities. The Company will quantify the effect in conjunction with the other phases, when the final standard including all phases is issued with an effective date.        3.  Property, plant and equipment, net         Cost                                                                         ---------------------------------------------------------------------------- At December 31, 2013                                              3,071,245  ----------------------------------------------------------------------------   Additions                                                         179,378    Decommissioning provision additions                                 5,648    Prepaid capital                                                    (8,795) ---------------------------------------------------------------------------- At March 31, 2014                                                 3,247,476  ---------------------------------------------------------------------------- Accumulated depletion and depreciation                                       ---------------------------------------------------------------------------- At December 31, 2013                                                (611,714) ----------------------------------------------------------------------------   Depletion and depreciation                                        (68,851) ---------------------------------------------------------------------------- At March 31, 2014                                                  (680,565) ----------------------------------------------------------------------------   ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Carrying amount at December 31, 2013                              2,459,531  ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Carrying amount at March 31, 2014                                 2,566,911  ---------------------------------------------------------------------------- ----------------------------------------------------------------------------  During the period ended March 31, 2014, Peyto capitalized $2.8 million (2013 - $2.6 million) of general and administrative expense directly attributable to production and development activities.         4.  Long-term debt    ----------------------------------------------------------------------------                                            March 31, 2014  December 31, 2013 ---------------------------------------------------------------------------- Bank credit facility                              490,000            605,000 Senior secured notes                              270,000            270,000 ---------------------------------------------------------------------------- Balance, end of the year                          760,000            875,000 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------  As at March 31, 2014, the Company had a syndicated $1 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. Borrowings under the facility bear interest at Canadian bank prime (3% at both December 31, 2013 and 2012) or US base rate, or, at Peyto's option, Canadian dollar bankers' acceptances or US dollar LIBOR loan rates, plus applicable margin and stamping fees. The total stamping fees range between 80 basis points and 225 basis points on Canadian bank prime and US base rate borrowings and between 180 basis points and 325 basis points on Canadian dollar bankers' acceptance and US dollar LIBOR borrowings. The undrawn portion of the facility is subject to a standby fee in the range of 40.5 to 73.13 basis points.  On December 4, 2013, Peyto issued $120 million of senior unsecured notes pursuant to a note purchase 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 4.50% and mature on December 4, 2020. Interest will be paid semi-annually in arrears.  Peyto is subject to the following financial covenants as defined in the credit facility and note purchase agreements:        --  Long-term debt plus the average working capital deficiency (surplus) at     the end of the two most recently completed fiscal quarters adjusted for     non-cash items not to exceed 3.0 times trailing twelve month net income     before non-cash items, interest and income taxes;   --  Long-term debt and subordinated debt plus the average working capital     deficiency (surplus) at the end of the two most recently completed     fiscal quarters adjusted for non-cash items not to exceed 4.0 times     trailing twelve month net income before non-cash items, interest and     income taxes;   --  Trailing twelve months net income before non-cash items, interest and     income taxes to exceed 3.0 times trailing twelve months interest     expense;   --  Long-term debt and subordinated debt plus the average working capital     deficiency (surplus) at the end of the two most recently completed     fiscal quarters adjusted for non-cash items not to exceed 55 per cent of     the book value of shareholders' equity and long-term debt and     subordinated debt.   Peyto is in compliance with all financial covenants at March 31, 2014.  Total interest expense for the period ended March 31, 2014 was $8.7 million (2013 - $6.3 million) and the average borrowing rate for the period was 4.4% (2013 - 4.0%).   Subsequent to March 31, 2014, Peyto's banking syndicate agreed to extend the stated term date of the credit facility to April 26, 2017. Borrowings under the amended facility bear interest at Canadian bank prime or US base rate, or, at Peyto's option, Canadian dollar bankers' acceptances or US dollar LIBOR loan rates, plus applicable margin and stamping fees. The total stamping fees range between 50 basis points and 215 basis points on Canadian bank prime and US base rate borrowings and between 150 basis points and 315 basis points on Canadian dollar bankers' acceptance and US dollar LIBOR borrowings. The undrawn portion of the facility is subject to a standby fee in the range of 30 to 63 basis points.        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, 2013                                            61,184 ---------------------------------------------------------------------------- New or increased provisions                                            2,630 Accretion of decommissioning provision                                   498 Change in discount rate and estimates                                  3,018 ---------------------------------------------------------------------------- Balance, March 31, 2014                                               67,330 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Current                                                                    - Non-current                                                           67,330 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------  Peyto has estimated the net present value of its total decommissioning provision to be $67.3 million as at March 31, 2014 ($61.2 million at December 31, 2013) based on a total future undiscounted liability of $178.5 million ($177.8 million at December 31, 2013). At March 31, 2014 management estimates that these payments are expected to be made over the next 50 years with the majority of payments being made in years 2040 to 2063. The Bank of Canada's long term bond rate of 2.96 per cent (3.24 per cent at December 31, 2013) and an inflation rate of two per cent (two per cent at December 31, 2013) 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, 2012                       148,518,713      1,124,382  ---------------------------------------------------------------------------- Common shares issued b y private placement            240,210          5,742  Common share issuance costs (net of tax)                   -            (55) ---------------------------------------------------------------------------- Balance, December 31,2013                        148,758,923      1,130,069  ---------------------------------------------------------------------------- Common shares issued by private placement            211,885          6,997  Equity offering                                    4,720,000        160,480  Common share issuance costs, (net of tax)                  -         (5,162) ---------------------------------------------------------------------------- Balance, March 31, 2014                          153,690,808      1,292,384  ---------------------------------------------------------------------------- ----------------------------------------------------------------------------  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).  On December 31, 2013, Peyto completed a private placement of 190,525 common shares to employees and consultants for net proceeds of $6.2 million ($32.78 per share). These common shares were issued January 8, 2014.  On February 5, 2014, Peyto closed an offering for 4,720,000 common shares at a price of $34.00 per common share, receiving net proceeds of $153.6 million.   On March 17, 2014, Peyto completed a private placement of 21,360 common shares to employees and consultants for net proceeds of $ 0.8 million ($35.20 per common share).   Per share amounts  Earnings per share or unit have been calculated based upon the weighted average number of common shares outstanding for the period ended March 31, 2014 of 151,826,431 (2013 - 148,672,664). There are no dilutive instruments outstanding.  Dividends  During the period ended March 31, 2014, Peyto declared and paid dividends of $0.24 per common share or $0.08 per common share per month, totaling $36.5 million (2013 - $0.18 or $0.06 per common share per month, $26.8 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 and losses  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:                                                 March 31, 2014      March 31, 2013  ---------------------------------------------------------------------------- Share price                             $22.58 - $37.72     $22.58 - $26.94  Exercise price                          $19.91 - $32.03     $19.30 - $22.58  Expected volatility                                  24%                 25% Option life                                      1 year              1 year  Dividend yield                                        0%                  0% Risk-free interest rate                            1.07%               1.02% ----------------------------------------------------------------------------   8.  Financial instruments and Capital management   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 March 31, 2014.  The Company's areas of financial risk management and risks related to financial instruments remained unchanged from December 31, 2013.  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 significant value drivers are observable in active markets.  --  Level 3 - valuations derived from valuation techniques in which one or     more significant inputs or significant 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 March 31, 2014, 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 March 31, 2014:        ----------------------------------------------------------------------- ----- Propane                                                                Price Period Hedged                         Type        Monthly Volume       (USD) ---------------------------------------------------------------------------- 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 $37.485/bbl April 1, 2014 to September 30, 2014   Fixed Price      4,000 bbl $ 41.79/bbl April 1, 2014  to September 30, 2014   Fixed Price      4,000 bbl $ 42.63/bbl April 1, 2014 to September 30, 2014   Fixed Price      4,000 bbl $ 44.31/bbl April 1, 2014 to September 30, 2014   Fixed Price      4,000 bbl $ 46.20/bbl October 1, 2014 to December 31, 2014  Fixed Price      4,000 bbl $ 42.84/bbl ---------------------------------------------------------------------------- ----------------------------------------------------------------------------   Natural Gas                                                            Price Period Hedged                          Type         Daily Volume       (CAD) ---------------------------------------------------------------------------- November 1, 2012 to October 31, 2014   Fixed Price      5,000 GJ $ 3.0575/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 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 October 31, 2014      Fixed Price      5,000 GJ $  3.335/GJ April 1, 2014 to October 31, 2014      Fixed Price      5,000 GJ $   3.10/GJ April 1, 2014 to October 31, 2014      Fixed Price      5,000 GJ $   3.80/GJ April 1, 2014 to October 31, 2014      Fixed Price      5,000 GJ $  3.825/GJ April 1, 2014 to October 31, 2014      Fixed Price      5,000 GJ $   3.95/GJ April 1, 2014 to October 31, 2014      Fixed Price      5,000 GJ $   3.98/GJ April 1, 2014 to October 31, 2014      Fixed Price      5,000 GJ $   4.07/GJ April 1, 2014 to October 31, 2014      Fixed Price      5,000 GJ $   4.32/GJ April 1, 2014 to October 31, 2014      Fixed Price      5,000 GJ $   4.35/GJ April 1, 2014 to October 31, 2014      Fixed Price      5,000 GJ $   4.55/GJ April 1, 2014 to October 31, 2014      Fixed Price      5,000 GJ $   4.42/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 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 April 1, 2014 to March 31, 2015        Fixed Price      5,000 GJ $   3.27/GJ April 1, 2014 to March 31, 2015        Fixed Price      5,000 GJ $   3.41/GJ April 1, 2014 to March 31, 2015        Fixed Price      5,000 GJ $ 3.5575/GJ April 1, 2014 to March 31, 2015        Fixed Price      5,000 GJ $  3.465/GJ April 1, 2014 to March 31, 2015        Fixed Price      5,000 GJ $   3.43/GJ April 1, 2014 to March 31, 2015        Fixed Price      5,000 GJ $   3.54/GJ April 1, 2014 to March 31, 2015        Fixed Price      5,000 GJ $   3.50/GJ April 1, 2014 to March 31, 2015        Fixed Price      5,000 GJ $   3.25/GJ April 1, 2014 to March 31, 2015        Fixed Price      5,000 GJ $   3.25/GJ April 1, 2014 to March 31, 2015        Fixed Price      5,000 GJ $   3.23/GJ April 1, 2014 to March 31, 2015        Fixed Price      5,000 GJ $   3.23/GJ April 1, 2014 to March 31, 2015        Fixed Price      5,000 GJ $   3.23/GJ April 1, 2014 to March 31, 2015        Fixed Price      5,000 GJ $   3.31/GJ April 1, 2014 to March 31, 2015        Fixed Price      5,000 GJ $ 3.3525/GJ April 1, 2014 to March 31, 2015        Fixed Price      5,000 GJ $   3.40/GJ April 1, 2014 to March 31, 2015        Fixed Price      5,000 GJ $   3.49/GJ April 1, 2014 to March 31, 2015        Fixed Price      5,000 GJ $   3.54/GJ April 1, 2014 to March 31, 2015        Fixed Price      5,000 GJ $   3.61/GJ April 1, 2014 to March 31, 2015        Fixed Price      5,000 GJ $   3.70/GJ April 1, 2014 to March 31, 2015        Fixed Price      5,000 GJ $   3.75/GJ April 1, 2014 to March 31, 2015        Fixed Price      5,000 GJ $   3.81/GJ April 1, 2014 to March 31, 2015        Fixed Price      5,000 GJ $   3.83/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 $   3.95/GJ November 1, 2014 to March 31, 2015     Fixed Price      5,000 GJ $   4.05/GJ November 1, 2014 to March 31, 2015     Fixed Price      5,000 GJ $   4.12/GJ November 1, 2014 to March 31, 2015     Fixed Price      5,000 GJ $   4.20/GJ November 1, 2014 to March 31, 2015     Fixed Price      5,000 GJ $   4.44/GJ November 1, 2014 to March 31, 2015     Fixed Price      5,000 GJ $  4.585/GJ November 1, 2014 to March 31, 2015     Fixed Price      5,000 GJ $   4.78/GJ November 1, 2014 to March 31, 2015     Fixed Price      5,000 GJ $   4.60/GJ November 1, 2014 to March 31, 2015     Fixed Price      5,000 GJ $   4.58/GJ November 1, 2014 to March 31, 2015     Fixed Price      5,000 GJ $   4.68/GJ April 1, 2015 to October 31, 2015      Fixed Price      5,000 GJ $  3.285/GJ April 1, 2015 to October 31, 2015      Fixed Price      5,000 GJ $   3.30/GJ April 1, 2015 to October 31, 2015      Fixed Price      5,000 GJ $   3.35/GJ April 1, 2015 to October 31, 2015      Fixed Price      5,000 GJ $   3.40/GJ April 1, 2015 to October 31, 2015      Fixed Price      5,000 GJ $   3.47/GJ April 1, 2015 to October 31, 2015      Fixed Price      5,000 GJ $   3.48/GJ April 1, 2015 to October 31, 2015      Fixed Price      5,000 GJ $   3.52/GJ April 1, 2015 to October 31, 2015      Fixed Price      5,000 GJ $   3.70/GJ April 1, 2015 to October 31, 2015      Fixed Price      5,000 GJ $   3.75/GJ ----------------------------------------------------------------------------  As at March 31, 2014, Peyto had committed to the future sale of 204,000 barrels of propane at an average price of $45.82 CAD ($41.45 USD) per barrel and 100,285,000 gigajoules (GJ) of natural gas at an average price of $3.58 per GJ or $4.12 per mcf. Had these contracts been closed on March 31, 2014, Peyto would have realized a loss in the amount of $82.0 million. If the AECO gas price on March 31, 2014 were to increase by $1/GJ, the unrealized loss would increase by approximately $100.3 million. An opposite change in commodity prices rates would result in an opposite impact on other comprehensive income.   Subsequent to March 31, 2014 Peyto entered into the following contracts:        ----------------------------------------------------------------------- ----- Natural Gas                                                            Price Period Hedged                       Type          Daily Volume         (CAD) ---------------------------------------------------------------------------- November 1, 2014 to March 31, 2015  Fixed Price       5,000 GJ $     4.68/GJ November 1, 2014 to March 31, 2015  Fixed Price       5,000 GJ $     4.80/GJ November 1, 2014 to March 31, 2015  Fixed Price       5,000 GJ $     4.87/GJ April 1, 2015 to March 31, 2016     Fixed Price       5,000 GJ $   3.9175/GJ April 1, 2015 to March 31, 2016     Fixed Price       5,000 GJ $     3.93/GJ April 1, 2015 to March 31, 2016     Fixed Price       5,000 GJ $     4.00/GJ April 1, 2015 to March 31, 2016     Fixed Price       5,000 GJ $     4.05/GJ ----------------------------------------------------------------------------   9.  Commitments   Following is a summary of Peyto's contractual obligations and commitments as at March 31, 2014.                                          2014   2015   2016   2017   2018 Thereafter ---------------------------------------------------------------------------- Note repayment(1)                   -      -      -      -      -    270,000 Interest payments(2)            8,815 12,230 12,230 12,230 12,230     22,755 Transportation commitments     13,580 19,531 18,796 14,975 11,261     13,356 Operating leases                2,126  2,380  1,863  1,654  1,295     10,356 ---------------------------------------------------------------------------- Total                          24,521 34,141 32,889 28,859 24,786    316,467 ---------------------------------------------------------------------------- (1) Long-term debt repayment on senior secured notes                         (2) Fixed interest payments on se nior secured notes                            10. Contingencies   On October 31, 2013, Peyto was named as a party to a statement of claim received with respect to transactions between Poseidon Concepts Corp. and Open Range Energy Corp. The allegations contained in the claim are based on factual matters that pre-existed Peyto's involvement with New Open Range which makes them difficult to assess at this time. However, Peyto intends to aggressively protect its interests and the interests of its shareholders and will seek all available legal remedies in defending the action. Management continues to assess the nature of this claim, in conjunction with their legal advisors.  Officers      Darren Gee, President and Chief                                              Executive Officer                    Tim Louie, Vice President, Land           Scott Robinson, Executive Vice                                               President and Chief Operating        David Thomas, Vice President,           Officer                              Exploration                               Kathy Turgeon, Vice President,       Jean-Paul Lachance, Vice President,     Finance and Chief Financial Officer  Exploitation                              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: http://www.peyto.com/                                                 Stock Listing Symbol: PEY.TO                                                     Toronto Stock Exchange                                                       Contacts: Peyto Energy Trust Darren Gee President and CEO 403.261.6081 403.451.4100 (FAX) www.peyto.com