Mr. Jean-Paul Lachance reports

PEYTO DELIVERS STRONG RESERVES GROWTH IN 2023

Peyto Exploration & Development Corp. has presented the results and in-depth analysis of its independent reserve report, effective Dec. 31, 2023. The evaluation encompassed 100 per cent of Peyto's reserves and was conducted by GLJ Ltd. The year 2023 marks the company's 25th year of successful reserves development.

2023 highlights:

• Peyto delivered strong reserves growth across all categories in 2023 from its successful drilling program and the strategic acquisition of Repsol Canada Energy Partnership. Proven developed producing reserves increased 35 per cent to 443 million barrels of oil equivalent, total proven reserves increased 41 per cent to 830 MMboe and total proven plus probable reserves increased 40 per cent to 1,303 MMboe. On a per-share basis, reserves increased 21 per cent, 26 per cent and 26 per cent for PDP, TP and P+P, respectively.
• Peyto replaced 400 per cent, 727 per cent and 1,077 per cent of annual production with new PDP, TP and P+P reserves, respectively.
• Peyto developed and acquired 920.2 billion cubic feet equivalent (153.4 MMboe) of new PDP reserves at a finding, development and acquisition cost of $1.21 per thousand cubic feet equivalent ($7.25 per boe). Peyto's three-year average PDP FD&A cost is $1.20 per Mcfe.
• Peyto executed a strong drilling program with finding and development costs, before acquisitions, of $1.15 per Mcfe for PDP reserves while acquiring reserves at $1.24 per Mcfe.
• FD&A costs, including the change in future development capital, for TP and P+P reserve categories, were $1.43 per Mcfe ($8.56 per boe) and $1.22 per Mcfe ($7.32 per boe), which represent an 18-per-cent and a 40-per-cent reduction from 2022, respectively.
• The company added 353 gross locations, the majority of which is located on lands acquired from Repsol. This increases the company's total booked location count to 1,608 gross locations, 65 per cent of which are classified as proven.
• The company's average field netback was $3.51 per Mcfe ($21.07 per boe), resulting in 2.9 times recycle ratio (2.7 times on an unhedged basis).
• The reserve life index for the PDP, TP and P+P reserves increased to 10, 19 and 30 years, respectively, due to acquisition of low-decline production from the Repsol assets. Peyto's PDP reserve life is one of the longest in the industry.
• Total company reserve values (before-tax net present value discounted at 5 per cent) for PDP, TP and P+P reserves on a debt adjusted basis are $23.31 per share, $49.66 per share and $75.88 per share.

2024 capital budget

The board of directors of Peyto has approved a 2024 capital budget of $450-million to $500-million. The capital program is projected to add between 40,000 and 45,000 boe/d of new production by year-end and offset the estimated 25-per-cent decline in base production, allowing Peyto to target an exit rate between 135,000 and 140,000 boe/d. The company expects to utilize four drilling rigs to drill 70 to 80 net horizontal wells, representing approximately 80 per cent of the 2024 budget. The remaining capital is planned for optimization and maintenance projects for Peyto's 15 operating gas plants and extensive gathering system infrastructure. The company's capital program is specifically designed to have flexibility in the back half of the year when natural gas prices are forecasted to strengthen. In the meantime, Peyto will target the low end of guidance, closely monitor future prices and react to the business environment as it unfolds.

Peyto's active hedging program has secured prices for approximately 70 per cent of projected gas volumes for 2024 at an average price near $4 per thousand cubic feet, which provides revenue security for the company's business plan. This level of price protection is one of the highest in the industry. Peyto's market diversification to multiple sales points also helps to derisk the reliance on a single market and provides exposure to anomalous events similar to the recent very cold temperatures experienced in January that drove up prices in the U.S. Midwest. In addition to various export markets, Peyto has an agreement to supply 60,000 gigajoules per day of gas to the 900-megawatt-hour Cascade power plant, which is expected to start up in the second quarter. This project has been delayed due to equipment failures during the initial commissioning stages, which have since been rectified.

Repsol acquisition

On Oct. 17, 2023, Peyto closed the acquisition of the Repsol assets, which included approximately 23,000 boe/d of low-decline production, 455,000 net acres of mineral land and interests in five operated gas plants in the Alberta Deep basin directly adjacent to the company's Greater Sundance area. The purchase of the Repsol assets was motivated by the internal identification of over 800 low-risk, high-impact, undrilled locations and the synergies with Peyto's lands and facilities.

Highlights of the Repsol asset included in the reserves report include:

• Peyto drilled and brought on production eight wells prior to year-end, which exhibited strong reserves assignments of 7.0 billion cubic feet equivalent per well at an average half cycle proven plus probable developed producing finding cost per well of 76 cents per Mcfe, demonstrating the significant quality of upside on the new lands.
• The reserves attributed to the Repsol assets in the report are 92 MMboe, 195 MMboe and 300 MMboe in the PDP, TP and P+P categories, respectively, at Dec. 31, 2023 (excluding the eight wells drilled by Peyto on the assets in fourth quarter 2023).
• Total consideration of $699-million was paid to acquire the assets and approximates the BT NPV8 of the PDP reserves of $715-million at Dec. 31, 2023, implying all undeveloped drilling opportunities came at no additional cost other than to drill them.
• Proven developed producing costs for the acquisition including the postclosing adjustment are $7.44 per boe ($1.24 per Mcfe) with an accretive reserve life index of 11.2 years.
• Two hundred ninety-nine of the 800 internally identified horizontal drilling locations have been included in the reserves report at Dec. 31, 2023, with an average P+P well assignment of 835 Mboe per well (5.0 bcfe per well) and half cycle development costs of $5.60 per boe (93 cents per Mcfe).
• Peyto continued optimization of plant throughput and integration with the Greater Sundance area to reduce costs and extend reserves life.

The total consideration paid for the Repsol assets was $699-million, which included a $636-million base purchase price and a $63-million postclosing adjustment. The postclosing adjustment reimbursed Repsol for costs incurred during the interim period from June 1 to Oct. 17, 2023, and included payments for capital expenditures, royalties, operating expenses, corporate allocations, and general and administrative expenses. During the interim period, Repsol had an active drilling program and incurred approximately $45-million in capital expenditures drilling wells and constructing pipeline infrastructure, which included $17-million of equipment inventory. The capital inventory will be fully deployed in Peyto's drilling program by the end of 2024. The corporate allocations, G&A expenses and capital expenditures during the interim period represent a large portion of the postclosing adjustment, and will not continue under Peyto's industry-leading cost structure and operating philosophy.

Historical perspective

Over the past 25 years, Peyto has acquired, explored and discovered 10.5 trillion cubic feet equivalent of Alberta Deep basin natural gas and associated liquids, of which 57 per cent has been developed.

Each year, the company invests in the discovery of new reserves and the efficient and profitable development of existing reserves into high-netback natural gas and natural gas liquids production for the purpose of generating the maximum possible return on capital for its shareholders.

In those 25 years, a total of $8.4-billion was invested in the Canadian economy in the acquisition and development of 6.0 tcfe of total developed natural gas and associated liquids at an average cost of $1.40 per Mcfe while a weighted-average field netback of $3.47 per Mcfe delivered $8.4-billion in funds from operations and $2.8-billion in dividends and distributions to shareholders, and resulted in a cumulative recycle ratio of 2.5 times. Royalty payments made to Alberta during this time have totalled over $1.2-billion.

Based on the Dec. 31, 2023, evaluation, the debt-adjusted net present value of the company's remaining total proven plus probable reserves (5-per-cent discount, less debt) was $76 per share, composed of $34 per share of developed reserves and $42 per share of undeveloped reserves. This includes a provision for all abandonment liability for wells, well sites, pipelines and facilities for which Peyto has ownership and responsibility.

2023 reserves report and analysis

An attached table summarizes Peyto's reserves and the discounted net present value of future cash flows, before income tax, using the three-consultant average pricing forecast (GLJ, McDaniel and Sproule), at Jan. 1, 2024.

Analysis for Peyto shareholders

One of the guiding principles at Peyto is "to tell you the business facts that we would want to know if our positions were reversed." Therefore, each year, Peyto provides an extensive analysis of the independent reserve evaluation that goes far beyond industry norms to answer the most important questions for shareholders:

1. Base reserves: How did the base reserves that were on production at the time of the last reserve report perform during the year, and how did any change in commodity price forecast affect their value?
2. Value creation: How much value did the 2023 capital investments create, both in current producing reserves and in undeveloped potential? Has the Peyto team earned the right to continue investing shareholders capital?
3. Growth and income: Are the projected cash flows capable of financing the growing number of undeveloped opportunities and a sustainable dividend stream to shareholders, without sacrificing Peyto's financial flexibility or allowing for the timely repayment of any debt used?
4. Risk assessment: What are the risks associated with the assessment of Peyto's reserves and the risk of recovering future cash flows from the forecast production streams?

Reserves committee

Peyto has a reserves committee, composed of independent board members, that reviews the qualifications and appointment of the independent reserve evaluators. The committee also reviews the procedures for providing information to the evaluators. All booked reserves are based upon annual evaluations by the independent qualified reserve evaluators conducted in accordance with the COGE (Canadian oil and gas evaluation) handbook and National Instrument 51-101. The evaluations are conducted using all available geological and engineering data. The reserves committee has reviewed the reserves information and approved the reserve report.

Outlook

Lower seasonal demand as a result of a warmer-than-normal North American winter, coupled with increased production, has left gas storage levels above the five-year average across the continent. This imbalance continues to put downward pressure on prices for 2024; however, the increase in gas-fired power demand and the buildout of LNG egress projects over the next two years bode well for the longer-term future of natural gas prices.

Peyto's risk management strategies such as market diversification and systematic hedging will continue to play an important role in securing the company's revenue going forward. Currently, Peyto has protected approximately 70 per cent of forecasted gas production in 2024 with fixed-price hedges at prices just under $4 per Mcf. Additionally, Peyto has approximately 55 per cent of forecasted gas volumes fixed for 2025. These gas marketing strategies attempt to ensure steady financing of future capital programs, sustainability of dividends and protection of the balance sheet. As the industry's lowest-cost producer, Peyto is naturally insulated from short-term price dislocations to preserve profit margins but will monitor the business environment to ensure continued profitable growth with shareholder capital.

General

A complete filing of the statement of reserves (Form 51-101F1), report on reserves (Form 51-101F2), and report of management and directors on oil and gas disclosure (Form 51-101F3) will be available in the annual information form to be filed by the end of March, 2024. Shareholders are encouraged to actively visit Peyto's website.

We seek Safe Harbor.