CALGARY, Alberta, Aug. 11, 2026 (GLOBE NEWSWIRE) -- Peyto Exploration & Development Corp. (TSX: PEY) ("Peyto" or the "Company") is pleased to report its operating and financial results for the second quarter of 2026.

Q2 2026 Highlights:

• Peyto delivered second quarter production volumes of 145,320 boe/d (758.2 MMcf/d of natural gas, 18,959 bbls/d of NGLs), a 10% increase year over year (7% on a per share basis), driven by the Company's successful capital program.
• Funds from operations^1,2 ("FFO") of $227.7 million ($1.09/diluted share, up 15%) was recorded, and $140.6 million of free funds flow³ was generated in the quarter. Strong FFO was driven by the Company’s industry-leading low cash costs⁴ and realized natural gas price after hedging and diversification activities of $3.42/Mcf, 108% higher than the AECO 7A monthly benchmark.
• Adjusted earnings⁵ (earnings excluding unrealized gains or losses on financial instruments and foreign exchange) for the quarter totaled $105.0 million, or $0.50/diluted share, and rose 19% from $0.42/diluted share in Q2 2025.
• The Company returned $71.8 million of dividends to shareholders in the quarter and reduced net debt⁶ by $72.4 million from March 31, 2026.
• Peyto recorded $36.7 million in realized hedging gains in the quarter and has a hedge position protecting approximately 505 MMcf/d of natural gas production for the second half of 2026 and 404 MMcf/d for 2027, at $4.02/Mcf and $3.31/Mcf, respectively. The Company’s natural gas and NGL hedges combine to secure revenue of approximately $485 million for the second half of 2026 and $590 million for calendar 2027, thus far.
• The Company bolstered its diversification program with the signing of a long-term natural gas supply agreement with Centrica Energy ("Centrica"). Under the agreement, Peyto will deliver 50,000 MMBtu/d to Centrica over a 10-year period commencing in 2029. Deliveries will be made at the NIT (AECO) hub and will be priced against the Dutch Title Transfer Facility ("TTF") benchmark, less deductions.
• A 71% operating margin⁷ and a 29% profit margin⁸ were generated in the quarter, resulting in an 18% return on capital employed⁹ ("ROCE") and a 16% return on equity⁹ ("ROE"), on a trailing 12-month basis.
• Cash costs¹⁰ totaled $1.32/Mcfe in the quarter, including $0.28/Mcfe of royalties. Cash costs before royalties totaled $1.04/Mcfe, 11% lower than Q2 2025 and back to levels prior to the Company’s acquisition of the Repsol Assets in Q4 2023. These costs included operating expense of $0.50/Mcfe, transportation of $0.30/Mcfe, G&A of $0.05/Mcfe and interest expense of $0.19/Mcfe.
• Capital expenditures totaled $84.9 million in the quarter. Peyto drilled 10 wells (10.0 net), completed 14 wells (14.0 net), and brought 15 wells (15.0 net) on production. Additionally, the Company purchased 26 gross (26 net) sections of undeveloped land through crown land sales and mineral land acquisitions bringing H1 2026 total mineral land acquisitions to 67 gross (53.8 net) sections.
  
  

Second Quarter 2026 in Review

Peyto slowed capital activity in the quarter during a wet spring and early summer period. Second quarter production averaged 145,320 boe/d, up 10% year over year. The AECO 7A monthly gas price averaged only $1.43/GJ during the quarter, however, Peyto’s diversification to downstream markets and mechanistic hedging strategy helped to achieve a realized natural gas price of $3.42/Mcf ($2.97/GJ), more than double the AECO price. The Company continued to add to the diversification portfolio with a 50,000 MMBtu/d natural gas supply agreement linked to European TTF pricing starting in 2029. At the start of the quarter, Peyto began delivering approximately 85 MMcf/d of sales gas to a third-party processor which has enhanced NGL recoveries by an incremental 1,500 bbls/d. Strong production and realized pricing during the quarter, combined with Peyto's lowest controllable costs since acquiring the Repsol assets, contributed to FFO of $227.7 million, up 19% (15% per diluted share) from Q2 2025. The FFO supported $84.9 million of capital expenditures, $71.8 million of shareholder dividends and allowed for a $72.4 million reduction in net debt in the quarter.

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¹This press release contains certain non-GAAP and other financial measures to analyze financial performance, financial position, and cash flow including, but not limited to "operating margin", "profit margin", "return on capital", "return on equity", "netback", "funds from operations", "adjusted earnings", "free funds flow", "total cash costs", and "net debt". These non-GAAP and other financial measures do not have any standardized meaning prescribed under IFRS^® Accounting Standards and therefore may not be comparable to similar measures presented by other entities. The non-GAAP and other financial measures should not be considered to be more meaningful than GAAP measures which are determined in accordance with IFRS, such as earnings, cash flow from operating activities, and cash flow used in investing activities, as indicators of Peyto’s performance. See "Non-GAAP and Other Financial Measures" included at the end of this press release and in Peyto's most recently filed MD&A for an explanation of these financial measures and reconciliation to the most directly comparable financial measure under IFRS.
² Funds from operations is a non-GAAP financial measure. See "non-GAAP and Other Financial Measures" in this news release and in the Q2 2026 MD&A.
³ Free funds flow is a non-GAAP financial measure. See "non-GAAP and Other Financial Measures" in this news release and in the Q2 2026 MD&A.
⁴Cash costs is a non-GAAP financial measure. See "non-GAAP and Other Financial Measures" in this news release.
⁵Adjusted earningsis a non-GAAP financial measure. See "non-GAAP and Other Financial Measures" in this news release and in the Q2 2026 MD&A.
⁶Net debt is a non-GAAP financial measure. See "non-GAAP and Other Financial Measures" in this news release and in the Q2 2026 MD&A.
⁷Operating Margin is a non-GAAP financial ratio. See "non-GAAP and Other Financial Measures" in this news release.
⁸Profit Margin is a non-GAAP financial ratio. See "non-GAAP and Other Financial Measures" in this news release.
⁹Return on capital employed and return on equity are non-GAAP financial ratios. See "non-GAAP and Other Financial Measures" in this news release and in the Q2 2026MD&A.
¹⁰Cash costs is a non-GAAP financial measure. See "non-GAAP and Other Financial Measures" in this news release.

(1)  This is a Non-GAAP financial measure or ratio. See "non-GAAP and Other Financial Measures" in this news release and in the Q2 2026 MD&A

Capital Expenditures

Peyto spud 10 gross (10.0 net) horizontal wells in the second quarter, including 3 Cardium, 1 Notikewin, 3 Falher, and 3 Wilrich wells in the core Sundance and Brazeau areas as the Company slowed drilling activity through the traditional wet break-up period. Despite slower drilling, Peyto managed to complete 14 gross (14.0 net) wells and brought 15 gross (15.0 net) wells on production in the quarter, resulting in total well-related capital expenditures of $67.8 million. As part of the program, Peyto spud the first well on a three-well Cardium pad in Sundance that will test the extended reach design which has proven to be successful in Brazeau, improving capital efficiencies for the play. Additionally, Peyto invested $13.6 million in facilities, pipeline optimization projects, and turnarounds at the Kakwa, Cecilia and Brazeau gas plants. Drilling costs per meter increased 17% as compared to Q1 2026, as Peyto drilled shorter laterals in Spirit River channels in the quarter and ran into isolated operational problems on two wells that resulted in higher average per well drill costs. Completion costs per meter were up marginally from Q1 2026 due to species mix. Peyto’s historical drilling and completion costs are summarized in the following table.

(1)  Based on field estimates and may be subject to minor adjustments going forward. 

To further bolster drilling inventory, Peyto successfully acquired 26 gross (26 net) sections in the Company’s core areas through crown land sales and mineral land purchases totaling $1.9 million. This includes 14 sections in the Brazeau area targeting recent Cardium success and brings the total capital invested on land acquisitions and new inventory in the first half of 2026 to $5.5 million to acquire 67 gross (53.8 net) sections at average cost of $158/acre.

Peyto also spent $2.2 million towards abandonment and reclamation activities during the quarter as part of the planned $13 million budget for 2026.

Marketing

Commodity Prices
In the second quarter, Peyto realized a natural gas price after hedging of $3.42/Mcf, or $2.97/GJ, 108% higher than the average AECO 7A monthly benchmark of $1.43/GJ, driven by strong realized prices at the Company's non-AECO hubs, including Dawn, Parkway, Ventura, Chicago and Henry Hub, as well as realized hedging gains. Peyto’s diversification activities contributed $0.93/Mcf (net of diversification costs) in the quarter, while the Company's natural gas hedging activity resulted in a realized gain of $0.85/Mcf ($58.1 million). The value of Peyto's natural gas market diversification and hedging activities over the past eight quarters, relative to the AECO 7A benchmark, is illustrated in the following table.

1. AECO 7A monthly benchmark has been converted to $/Mcf at Peyto's average heat content of 1.15 GJ/Mcf.
2. Diversification value represents the difference between Peyto's realized natural gas price (after diversification cost but before realized hedging gain/loss) and the AECO 7A monthly benchmark price.
   
   

Condensate and pentanes averaged $125.42/bbl for the quarter, up 54% year over year driven by higher WTI oil prices from escalating geopolitical tension in the Middle East. Other NGL volumes were sold at an average price of $28.48/bbl, or 22% of Canadian dollar WTI. Peyto's combined realized NGL price was $77.40/bbl before hedging, and $64.98/bbl including a realized hedging loss of $12.42/bbl ($21.4 million) in the second quarter of 2026.

During the quarter, the Company entered into a long-term natural gas supply agreement with Centrica. Under the agreement, Peyto will deliver 50,000 MMBtu/d to Centrica over a 10-year period commencing in 2029. Deliveries will be made at the NIT (AECO) hub operated by NGTL in Alberta. The natural gas will be priced against the Dutch TTF benchmark, less deductions. With this new agreement, Peyto has over 400 MMcf/d of natural gas exposed to non-AECO markets starting in 2028 and beyond. The diversification portfolio includes physical or financial agreements that are linked to markets at Dawn/Parkway, Chicago/Ventura, Henry Hub, Empress, Emerson 2, Dutch -TTF, and Alberta power prices. Natural gas at these markets can be hedged to secure revenue or left to float on daily or monthly prices.

Hedging
The Company has been actively hedging future production with financial and physical fixed price contracts to protect a portion of its future revenue from commodity price and foreign exchange volatility. The following table summarizes Peyto's hedge position for the second half of 2026, calendar 2027 and calendar 2028. Peyto’s natural gas and liquid hedging program has secured revenue of approximately $485 million for the second half of 2026 and $590 million for calendar 2027.

The Company's fixed price contracts combined with its diversification to the Cascade power plant and other premium market hubs in North America allow for revenue security and support Peyto's capital expenditure program, continued shareholder dividends and debt reduction. Details of the Company’s ongoing marketing and diversification efforts are available on Peyto’s website at https://www.peyto.com/Marketing.aspx.

Netbacks

The Company’s realized natural gas and NGL sales yielded a combined revenue stream of $3.92 /Mcfe before hedging gains of $0.46/Mcfe, resulting in a quarterly net sales price of $4.38/Mcfe, 3% higher than the $4.27/Mcfe realized in Q2 2025. Cash costs totaled $1.32/Mcfe in the quarter, 1% higher than $1.31/Mcfe in Q2 2025 due to increased royalties. Cash costs before royalties decreased 11% from Q2 2025 and have been reduced to levels prior to the acquisition of Repsol Assets in Q4 2023, achieving Peyto’s strategy to fully integrate the assets into the Company’s low-cost model. Operating costs totaled $0.50/Mcfe, down from $0.54/Mcfe in Q2 2025 while interest costs totaled $0.19/Mcfe, down from $0.26/Mcfe in Q2 2025. The Company's cash netback (net sales price including other income, net marketing revenue, realized gain on foreign exchange, less total cash costs) was $3.16/Mcfe, resulting in a solid 71% operating margin. Historical cash costs and operating margins are shown below:

(1)  Revenue includes other income, net marketing revenue and realized gains (losses) on foreign exchange.
(2)  First quarter of Repsol assets included in Peyto's results

Effective April 1, 2026, Peyto entered into a new agreement with a midstream operator to process natural gas at its deep cut facility from certain gas plants in the Sundance area. Since then, The Company has been delivering approximately 85 MMcf/d of sales gas and generated approximately 1,500 barrels per day of incremental Propane, Butane, and Pentanes+ volumes.

Depletion, depreciation, and amortization charges of $1.28/Mcfe, along with provisions for current tax, deferred tax, performance-based compensation and stock-based compensation resulted in earnings of $1.31/Mcfe, for a 29% profit margin. Dividends to shareholders totaled $0.91/Mcfe.

Activity Update

Drilling activity has picked up after spring breakup with a total of 4 rigs active in the Sundance and Brazeau core areas. Since the end of the second quarter, 9 gross (9 net) wells have been spud, 7 gross (7 net) wells have been completed, and 6 gross (6 net) wells have been brought on production. The Company expects to continue operating 4 drilling rigs for the balance of the year but will react to changing commodity prices and the business environment as necessary.

Peyto has continued developing Cardium prospects with an updated drilling and completion design. Drilling longer laterals and increasing completion intensity to improve deliverability while managing costs is key to this strategy. Recent well results in the Brazeau area have produced initial rates between 4 to 6 MMcf/d accompanied by NGL yields of up to 100 bbls/MMcf. At the same time, drilling cost reductions of 37% per horizontal meter have been achieved. This has provided the confidence to acquire additional mineral rights in the area where the Company sees at least 20 future locations to develop. Peyto has spud 5 wells in Brazeau so far in 2026 and plans to apply similar design changes to Cardium locations in the Sundance area for the remainder of the year. The strategy to add more liquid-rich targets to capture higher liquid pricing in 2026 also serves to improve economic returns for the long-term benefit of Cardium inventory across the Company’s core areas.

To date in 2026, Peyto has completed turnarounds at four of its 13 operating gas plants and has one more planned on a portion of the Swanson Gas Plant later this August. These scheduled plant disruptions have minimal effect on corporate production due to the interconnectivity of the Company’s gas gathering system, a feature of Peyto’s "own and control" strategy that is core to the Company’s operations that goes beyond low cost operations. This integrated system allows production volumes to be rerouted during maintenance periods, minimizing the impact on production. Peyto also attempts to coordinate these turnarounds with other downstream maintenance activities (for example on NGTL or at fractionation facilities) to minimize overall production downtime. The Company controls 98% of its production which minimizes exposure to potentially lengthy third-party facility turnarounds.

Outlook

While liquids pricing is affected by ever-changing world events, natural gas demand continues to grow, and the outlook remains positive both within Alberta and globally. The prospect of continued LNG buildout in both Canada and the US to supply global markets and gas-fired power demand in North America, provides exciting tailwinds for the natural gas industry. However, the volatility in near-term commodity prices is a reminder of the importance of controlling costs and managing risks. Fortunately, Peyto’s low risk capital plans have been protected through market diversification, a mechanistic hedging program, and an industry-leading cost structure. The Company re-iterates its 2026 capital program to invest between $450 to $500 million to add 43,000 to 48,000 boe/d of new production by yearend. In the meantime, Peyto will manage production to limit exposure to weaker priced markets for the remainder of the summer season, if necessary.

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¹¹Total Cash costs is a non-GAAP financial ratio. See "non-GAAP and Other Financial Measures" in this news release.
¹² Cash netback is a non-GAAP financial ratio. See "non-GAAP and Other Financial Measures" in this news release and in the Q22026 MD&A.

Conference Call and Webcast

A conference call will be held with senior management of Peyto to answer questions with respect to the Company’s Q2 2026 results on Wednesday, August 12, 2026, at 9:00 a.m. Mountain Time (MT), or 11:00 a.m. Eastern Time (ET).

Access to the webcast can be found at: https://edge.media-server.com/mmc/p/qm9fbnpg. To participate in the call, please register for the event at: Participant Call Link. Participants will be issued a dial in number and PIN to join the conference call and ask questions. Alternatively, questions can be submitted prior to the call at info@peyto.com. The conference call will be available on the Peyto Exploration & Development website at www.peyto.com.

Management’s Discussion and Analysis

A copy of the second quarter report to shareholders, including the MD&A, unaudited consolidated financial statements and related notes, is available at https://www.peyto.com/Files/Financials/2026/Q22026FS.pdf and at https://www.peyto.com/Files/Financials/2026/Q22026MDA.pdf and will be filed at SEDAR+, www.sedarplus.com at a later date.

Jean-Paul Lachance
President & Chief Executive Officer
403-261-6081
August 11, 2026

Cautionary Statements

Forward-Looking Statements

This news release contains certain forward-looking statements or information ("forward-looking statements") as defined by applicable securities laws that involve substantial known and unknown risks and uncertainties, many of which are beyond Peyto's control. These statements relate to future events or the Company's future performance. All statements other than statements of historical fact may be forward-looking statements. The use of any of the words "plan", "expect", "prospective", "project", "intend", "believe", "should", "anticipate", "estimate", or other similar words or statements that certain events "may" or "will" occur are intended to identify forward-looking statements. The projections, estimates and beliefs contained in such forward-looking statements are based on management's estimates, opinions, and assumptions at the time the statements were made, including assumptions relating to: macro-economic conditions, including public health concerns and other geopolitical risks, the condition of the global economy and, specifically, the condition of the crude oil and natural gas industry, and the ongoing significant volatility in world markets; other industry conditions; changes in laws and regulations including, without limitation, the adoption of new environmental laws and regulations and changes in how they are interpreted and enforced; increased competition; the availability of qualified operating or management personnel; fluctuations in other commodity prices, foreign exchange or interest rates; stock market volatility and fluctuations in market valuations of companies with respect to announced transactions and the final valuations thereof; results of exploration and testing activities; and the ability to obtain required approvals and extensions from regulatory authorities. Management of the Company believes the expectations reflected in those forward-looking statements are reasonable, but no assurances 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 that Peyto will derive from them. As such, undue reliance should not be placed on forward-looking statements. Forward-looking statements contained herein include, but are not limited to, statements regarding: management's assessment of Peyto's future plans and operations, including the 2026 capital expenditure program; production estimates; activity levels; future Cardium drilling locations; the sustainability of the Company's dividend; the effectiveness of the Company's hedging program at securing revenue;and the Company's overall strategy and focus.

The forward-looking statements contained herein are subject to numerous known and unknown risks and uncertainties that may cause Peyto's actual financial results, performance or achievement in future periods to differ materially from those expressed in, or implied by, these forward-looking statements, including but not limited to, risks associated with: continued changes and volatility in general global economic conditions including, without limitations, the economic conditions in North America and public health concerns; continued fluctuations and volatility in commodity prices, foreign exchange or interest rates; continued stock market volatility; imprecision of reserves estimates; competition from other industry participants; failure to secure required equipment; increased competition; the lack of availability of qualified operating or management personnel; environmental risks; changes in laws and regulations including, without limitation, the adoption of new environmental and tax laws, tariffs, and regulations and changes in how they are interpreted and enforced; the results of exploration and development drilling and related activities; and the ability to access sufficient capital from internal and external sources. In addition, to the extent that any forward-looking statements presented herein constitutes future-oriented financial information or financial outlook, as defined by applicable securities legislation, such information has been approved by management of Peyto and has been presented to provide management's expectations used for budgeting and planning purposes and for providing clarity with respect to Peyto's strategic direction based on the assumptions presented herein and readers are cautioned that this information may not be appropriate for any other purpose. Readers are encouraged to review the material risks discussed in Peyto's latest annual information form under the heading "Risk Factors" and in Peyto's annual management's discussion and analysis under the heading "Risk Factors".

The Company cautions that the foregoing list of assumptions, risks and uncertainties is not exhaustive. 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. The forward-looking statements, including any future-oriented financial information or financial outlook, contained in this news release speak only as of the date hereof and Peyto does not assume any obligation to publicly update or revise them to reflect new information, future events or circumstances or otherwise, except as may be required pursuant to applicable securities laws.

Information Regarding Disclosure on Oil and Gas Reserves

Some values set forth in the tables above may not add due to rounding. It should not be assumed that the estimates of future net revenues presented in the tables above represent the fair market value of the reserves. There is no assurance that the forecast prices and costs assumptions will be attained, and variances could be material. The aggregate of the exploration and development costs incurred in the most recent financial year and the change during that year in estimated future development costs generally will not reflect total finding and development costs related to reserves additions for that year.

Barrels of Oil Equivalent

To provide a single unit of production for analytical purposes, natural gas production and reserves volumes are converted mathematically to equivalent barrels of oil (BOE). Peyto uses the industry-accepted standard conversion of six thousand cubic feet of natural gas to one barrel of oil (6 Mcf = 1 bbl). The 6:1 BOE ratio is based on an energy equivalency conversion method primarily applicable at the burner tip. It does not represent a value equivalency at the wellhead and is not based on current prices. While the BOE ratio is useful for comparative measures and observing trends, it does not accurately reflect individual product values and might be misleading, particularly if used in isolation. As well, given that the value ratio, based on the current price of crude oil to natural gas, is significantly different from the 6:1 energy equivalency ratio, using a 6:1 conversion ratio may be misleading as an indication of value.

Thousand Cubic Feet Equivalent (Mcfe)

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.

Non-GAAP and Other Financial Measures

Throughout this press release, Peyto employs certain measures to analyze financial performance, financial position, and cash flow. These non-GAAP and other financial measures do not have any standardized meaning prescribed under IFRS and therefore may not be comparable to similar measures presented by other entities. The non-GAAP and other financial measures should not be considered to be more meaningful than GAAP measures which are determined in accordance with IFRS, such as net income (loss), cash flow from operating activities, and cash flow used in investing activities, as indicators of Peyto’s performance.

Non-GAAP Financial Measures

Funds from Operations
"Funds from operations" is a non-GAAP measure which represents cash flows from operating activities before changes in non-cash operating working capital, decommissioning expenditure, provision for performance-based compensation and transaction costs. Management considers funds from operations and per share calculations of funds from operations to be key measures as they demonstrate the Company’s ability to generate the cash necessary to pay dividends, repay debt and make capital investments. Management believes that by excluding the temporary impact of changes in non-cash operating working capital, funds from operations provides a useful measure of Peyto’s ability to generate cash that is not subject to short-term movements in operating working capital. The most directly comparable GAAP measure is cash flows from operating activities.

Free Funds Flow
Peyto uses "free funds flow" as an indicator of the efficiency and liquidity of Peyto’s business, measuring its funds after capital investment available to manage debt levels, pay dividends, and return capital to shareholders through activities such as share repurchases. Peyto calculates free funds flow as cash flows from operating activities before changes in non-cash operating working capital, provision for performance-based compensation, and transaction costs, less total capital expenditures, allowing Management to monitor its free funds flow to inform its capital allocation decisions. The most directly comparable GAAP measure to free funds flow is cash from operating activities. The following table details the calculation of free funds flow and the reconciliation from cash flow from operating activities to free funds flow.

Adjusted Earnings
Peyto uses "adjusted earnings" for its own performance measure and to provide investors with a measurement of the Company’s earnings prior to the non-cash effects of unrealized gains and losses on derivative financial instruments and unrealized gains and losses on foreign exchange. The most directly comparable GAAP measure for adjusted earnings is earnings. The following table details the calculation of earnings to adjusted earnings.

Total Capital Expenditures
Peyto uses the term "total capital expenditures" as a measure of capital investment in exploration and production activity, as well as property acquisitions and divestitures, and such spending is compared to the Company's annual budgeted capital expenditures. The most directly comparable GAAP measure for total capital expenditures is cash flow used in investing activities. The following table details the calculation of cash flow used in investing activities to total capital expenditures.

Net Debt
"Net debt" is a non-GAAP financial measure that is the sum of long-term debt and working capital excluding the current financial derivative instruments, current portion of lease obligations and current portion of decommissioning provision. It is used by management to analyze the financial position and leverage of the Company. Net debt is reconciled to long-term debt which is the most directly comparable GAAP measure.

Net marketing revenue
Peyto uses the term "net marketing revenue" to evaluate the profitability of products purchased from third parties that are resold. Net marketing revenue is calculated as marketing revenue less marketing purchases.

Non-GAAP Financial Ratios

Funds from Operations per Share
Peyto presents funds from operations per share by dividing funds from operations by the Company's diluted or basic weighted average common shares outstanding. "Funds from operations" is a non-GAAP financial measure. Management believes that funds from operations per share provides investors an indicator of funds generated from the business that could be allocated to each shareholder's equity position.

Netback per MCFE and BOE
"Netback" is a non-GAAP measure that represents the profit margin associated with the production and sale of petroleum and natural gas. Peyto computes "field netback per Mcfe" as commodity sales from production, plus net marketing revenue, if any, plus other income, less royalties, operating, and transportation expenses, divided by production. "Cash netback" is calculated as "field netback" less interest, less general and administration expense and plus or minus realized gain on foreign exchange, divided by production. "After-tax cash netback" is calculated as "cash netback" less current tax, divided by production. Netbacks are per-unit-of-production measures used to assess Peyto’s performance and efficiency.

Net marketing revenue per Mcfe
"Net marketing revenue per Mcfe" is comprised of marketing revenue less marketing purchases, as determined in accordance with IFRS, divided by the Company's total production.

Total Payout Ratio

"Total payout ratio" is a non-GAAP measure which is calculated as the sum of dividends declared plus total capital expenditures plus decommissioning expenditures, divided by funds from operations. This ratio represents the percentage of the capital expenditures and dividends that is funded by cashflow. Management uses this measure, among others, to assess the sustainability of Peyto’s dividend and capital program.

Operating Margin 
Operating Margin is a non-GAAP financial ratio defined as funds from operations, before current tax, divided by revenue before royalties but including realized hedging gains/losses, other income and net marketing revenue.

Profit Margin
Profit Margin is a non-GAAP financial ratio defined as net earnings divided by revenue before royalties but including realized hedging gains/losses, other income and net marketing revenue.

Cash Costs
Cash costs is a non-GAAP financial ratio defined as the sum of royalties, operating expenses, transportation expenses, G&A and interest, on a per Mcfe basis. Peyto uses total cash costs to assess operating margin and profit margin.

Return on Equity (ROE)

Peyto calculates ROE, expressed as a percentage, as trailing 12-month earnings divided by period-end shareholders' equity. Peyto uses ROE as a measure of long- term financial performance, to measure how effectively Management utilizes the capital it has been provided by shareholders and to demonstrate to shareholders the returns generated over the long term.

Return on Capital Employed (ROCE)
Peyto calculates ROCE, expressed as a percentage, as adjusted earnings before interest and taxes ("Adjusted EBIT") on a trailing 12-month basis, divided by average capital employed over a trailing 12-month basis. Average capital employed is calculated as the average of shareholders' equity plus average net debt, over the past four quarters. In reporting ROCE for prior periods, capital employed was defined as shareholders' equity plus long-term liabilities at period end. The Company has changed the definition of capital employed to better align liabilities with interest-bearing debt. Peyto uses ROCE as a measure of long-term financial performance to measure how effectively Management utilizes the capital (debt and equity) it has been provided and to demonstrate to shareholders the returns generated over the long term. ROCE and the components of Adjusted EBIT and average capital employed are detailed in the following tables.

Adjusted EBIT

Average capital employed