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
 
 
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