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OCI Orecap Invest Corp

0.06
0.00 (0.00%)
14 Jun 2024 - Closed
Delayed by 15 minutes
Share Name Share Symbol Market Type
Orecap Invest Corp TSXV:OCI TSX Venture Common Stock
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  0.00 0.00% 0.06 0.055 0.06 0.06 0.06 0.06 119,000 17:36:43

Peyto Reports Second Quarter 2012 Results and Sets New Company Record for Cash Costs

08/08/2012 9:59pm

Marketwired Canada


Peyto Exploration & Development Corp. (TSX:PEY) ("Peyto" or "the Company") is
pleased to present its operating and financial results for the second quarter of
the 2012 fiscal year. Peyto's production per share grew for the eleventh
consecutive quarter while second quarter operating margins of 75%(1) and profit
margins of 21%(2) were generated. Second quarter 2012 highlights include:




--  Production per share up 15%. Second quarter 2012 production increased
    20% (15% per share) from 207 MMcfe/d (34,443 boe/d) in Q2 2011 to 248
    MMcfe/d (41,343 boe/d) in Q2 2012. 

--  Funds from operations of $0.47/share. Generated $65 million in Funds
    from Operations ("FFO") in Q2 2012 down 16% (19% per share) from $77
    million in Q2 2011. Increased production and lower costs helped offset
    the 30% year over year reduction in realized commodity prices. 

--  Record low cash costs of less than $1/mcfe. Total cash costs, including
    royalties, operating costs, transportation, G&A and interest were
    $0.97/mcfe ($5.84/boe), setting a new Company record. Industry leading
    operating costs of $0.29/mcfe ($1.76/boe) in Q2 2012 down from
    $0.32/mcfe ($1.90/boe) in Q2 2011 helped contribute to this new record
    low. Cash netbacks of $2.86/mcfe ($17.17/boe) represented a 75%
    operating margin. 

--  Capital Investments of $46 million. At the end of the second quarter,
    12,000 boe/d of new production had been added with $145 million of
    cumulative 2012 capital for a total cost of $12,100/boe/d. The
    annualized cost to build new production (trailing twelve months) has
    averaged $17,600/boe/d. A total of 10 gross wells were drilled during
    the second quarter. 

--  Earnings of $0.13/share, dividends of $0.18/share. Earnings of $18.2
    million were generated in the quarter ($45.1 million year-to-date) while
    dividends of $24.9 million ($49.8 million year-to-date) were paid to
    shareholders, representing a before tax payout ratio of 39% of FFO. 

--  First significant corporate acquisition. Subsequent to the second
    quarter, Peyto announced an agreement to purchase all of the issued and
    outstanding common shares of Open Range Energy Corp. ("Open Range") on
    the basis of a share exchange, pursuant to a statutory plan of
    arrangement. This represents the first significant corporate acquisition
    in the Company's thirteen year history. The acquisition is expected to
    close on August 14, 2012 subject to, among other things, the approval of
    Open Range shareholders. 



Second quarter 2012 in Review

The second quarter of 2012 was a typical period of reduced activity due to
spring break-up. Operations in the field were effectively shut down for a six
week period which restricted new production additions from April to late June.
Total production for the quarter was maintained at the same level as Q1 2012,
although increased liquids production was realized through facility
optimizations and new drilling that was focused on the more liquids rich
formations in Peyto's inventory. Peyto's strict focus on cost control during the
quarter resulted in record low cash costs of $0.97/mcfe ($5.84/boe), inclusive
of all royalties, operating costs, transportation, G&A and interest. Financial
flexibility was maintained, with quarter ending net debt of $519 million on
expanded total debt capacity of $800 million (inclusive of $100 million of
senior secured notes) which represented a net debt to annualized FFO ratio of
2.0 times. The strong financial and operating performance delivered in the
quarter resulted in an annualized 9% Return on Equity (ROE) and 8% 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, particularily if used in isolation as it is based on an energy
equivalency conversion method primarily applied at the burner tip and does not
represent a value equivalency at the wellhead.




----------------------------------------------------------------------------
                Three Months ended June         Six Months ended June       
                                     30      %                     30      %
                       2012        2011 Change       2012        2011 Change
----------------------------------------------------------------------------
Operations                                                                  
Production                                                                  
  Natural gas                                                               
   (mcf/d)          221,176     183,790    20%    220,994     175,297    26%
  Oil & NGLs                                                                
   (bbl/d)            4,480       3,811    18%      4,291       3,779    14%
  Thousand cubic                                                            
   feet                                                                     
   equivalent                                                               
   (mcfe/d @                                                                
   1:6)             248,058     206,657    20%    246,737     197,970    25%
  Barrels of oil                                                            
   equivalent                                                               
   (boe/d @ 6:1)     41,343      34,443    20%     41,123      32,995    25%
Product prices                                                              
  Natural gas                                                               
   ($/mcf)             2.86        4.43  (35)%       3.19        4.66  (32)%
  Oil & NGLs                                                                
   ($/bbl)            71.27       84.06  (15)%      77.75       80.18   (3)%
  Operating                                                                 
   expenses                                                                 
   ($/mcfe)            0.29        0.32   (9)%       0.31        0.35  (11)%
  Transportation                                                            
   ($/mcfe)            0.12        0.13   (8)%       0.12        0.13   (8)%
  Field netback                                                             
   ($/mcfe)            3.16        4.41  (28)%       3.45        4.57  (25)%
  General &                                                                 
   administrativ                                                            
   e expenses                                                               
   ($/mcfe)            0.07        0.07      -       0.06        0.08  (25)%
  Interest                                                                  
   expense                                                                  
   ($/mcfe)            0.23        0.24   (8)%       0.22        0.25   (8)%
Financial ($000                                                             
 except per                                                                 
 share)                                                                     
Revenue              86,553     103,193  (16)%    189,049     202,770   (7)%
Royalties             6,082      12,007  (49)%     14,917      21,929  (32)%
Funds from                                                                  
 operations          64,732      77,010  (16)%    142,377     151,706   (6)%
Funds from                                                                  
 operations per                                                             
 share                 0.47        0.58  (19)%       1.03        1.14  (10)%
Total dividends      24,927      23,951     4%     49,808      47,872     4%
Total dividends                                                             
 per share             0.18        0.18      -       0.36        0.36      -
  Payout ratio           39          31    26%         35          32     9%
Earnings             18,201      32,718  (44)%     45,069      64,406  (30)%
Earnings per                                                                
 diluted share         0.13        0.25  (48)%       0.33        0.49  (33)%
Capital                                                                     
 expenditures        45,924      69,017  (33)%    144,557     172,803  (16)%
Weighted average                                                            
 trust shares                                                               
 outstanding    138,485,956 133,061,301     4%138,399,017 132,900,079     4%
                                                                            
As at June 30                                                               
Net debt (before future compensation                                        
 expense and unrealized hedging gains)            519,328     474,008    10%
Shareholders'                                                               
 equity                                           999,057     859,205    16%
Total assets                                    1,789,210   1,576,618    13%
                                                                            
                                                                            
----------------------------------------------------------------------------
                                       Three Months ended   Six Months ended
                                                  June 30            June 30
($000)                                     2012      2011      2012     2011
----------------------------------------------------------------------------
Cash flows from operating activities     74,551    81,831   133,934  124,718
Change in non-cash working capital      (10,934)   (4,751)    5,433   22,834
Change in provision for performance                                         
 based compensation                       1,115       (70)    3,010    4,154
----------------------------------------------------------------------------
Funds from operations                    64,732    77,010   142,377  151,706
----------------------------------------------------------------------------
Funds from operations per share            0.47      0.58      1.03     1.14
----------------------------------------------------------------------------



(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 International Financial Reporting
Standards ("IFRS") and does not have a standardized meaning prescribed by IFRS.
Therefore, funds from operations, as defined by Peyto, may not be comparable to
similar measures presented by other issuers, and investors are cautioned that
funds from operations should not be construed as an alternative to net earnings,
cash flow from operating activities or other measures of financial performance
calculated in accordance with IFRS. Funds from operations cannot be assured and
future dividends may vary.


Exploration & Development

Peyto focused drilling efforts on the more liquids rich formations in the second
quarter. Although all of the drilling was in the Greater Sundance core area,
half of the new wells spud were targeting the Cardium formation. The most recent
Greater Sundance Cardium wells have averaged 45 bbl/mmcf of natural gas liquid
in their first month of production, with over 60% of that liquid production
being condensate and pentanes while the remainder is split between propane and
butane. This focused drilling has helped improve corporate liquid yields from 18
bbl/mmcf at the start of the year to 22 bbl/mmcf by the end of the second
quarter.


Peyto's enhanced liquids recovery project for the Oldman plant continued to
progress throughout the quarter, although minor delays in facility manufacturing
has pushed the anticipated startup to early October from late September 2012. A
similar project at Peyto's Nosehill gas plant remains on schedule for January
2013. 


Early production data in Peyto's southern expansion areas of Edson and Ansell
are providing confidence in the profitability of future locations there. These
areas are expected to benefit from the Open Range acquisition and associated gas
plant and gathering system infrastructure. Combined, these areas account for
approximately 9 mmcfe/d of production that is currently processed by a third
party. After the installation of 25 km of pipeline to connect these wells to the
Open Range gathering system, Peyto expects to see a 60% reduction in operating
costs for these and future volumes. This strategically located infrastructure
also allows Peyto to aggressively pursue additional drilling opportunities in
both areas.


Capital Expenditures

Peyto spent $23 million to spud 10 gross (8.3 net) wells in the second quarter
2012. Completion of 10 gross (8.7 net) zones and the wellsite equipment and
connection of 12 gross (10.7 net) wells cost $14.3 million and $4.8 million,
respectively. New facilities accounted for $2.5 million in the quarter, while
$1.2 million was invested into new land and seismic. 


Peyto's drilling efficiency continues to improve in 2012, evidenced by the
average Cardium well in Greater Sundance now taking 17 days from spud to rig
release, down 25% from 23 days in 2011. Second quarter drilling costs are also
starting to reflect this improvement in drilling times. The average drilling
cost of a Cardium well was $2.1 million in Q2 2012 as compared to $2.5 million
in 2011. This reduced drilling time allows for more wells to be drilled with
fewer rigs, also enabling Peyto to accomplish more with its small and efficient
team of technical professionals.


Financial Results

Alberta natural gas prices averaged $1.74/GJ in the second quarter 2012,
resulting in a Peyto unhedged realized price of $1.98/mcf before hedging gains
of $0.88/mcf. Meanwhile, Edmonton light oil prices averaged $84.02/bbl from
which Peyto realized $71.27/bbl for its natural gas liquids blend of Condensate,
Pentane, Butane and Propane. Combined, Peyto's unhedged revenues totaled
$3.05/mcfe ($3.83/mcfe including hedging gains), or 175% of the dry gas price,
illustrating the benefit of high heat content, liquids rich natural gas
production.


Royalties of $0.26/mcfe, operating costs of $0.29/mcfe, transportation costs of
$0.12/mcfe, G&A of $0.07/mcfe and interest costs of $0.23/mcfe, combined for
total cash costs of $0.97/mcfe. These are the lowest total cash costs achieved
in the Company's thirteen year history and resulted in a cash netback of
$2.86/mcfe or a 75% operating margin.


Depletion, depreciation and amortization charges of $1.73/mcfe, along with a
provision for future tax and market based bonus payments reduced the cash
netback to earnings of $0.81/mcfe, or a 21% profit margin.


During the quarter, Peyto increased its credit facility with its syndicate of
lenders from $625 million to $700 million. Including the $100 million of senior
secured notes, Peyto's total borrowing capacity has increased to $800 million.


Marketing

The natural gas price in North America bottomed out in the quarter with both
Henry Hub and AECO daily prices averaging $1.95/MMBTU and $1.58/GJ in April
2012. This was the lowest natural gas price seen in over a decade and was caused
by an abundance of natural gas in storage due, in part, to the fourth warmest
winter on record. Since then, natural gas prices have recovered as this low
price drove increased demand and consumption for power generation, as well as
reduced drilling activity for new natural gas production. Much of Peyto's
natural gas production was protected from this volatile price drop due to
forward sales that were layered in over the previous year. Approximately 41% of
Peyto's natural gas production was pre-sold for the quarter at an average fixed
price of $3.59/GJ.


Natural gas liquids prices were similarly affected by weather and storage
levels, most significantly Propane, with Conway Propane prices dropping 47% from
US$1.02/gallon in January 2012 to US$0.54/gallon in June. The quarter over
quarter comparison of Peyto's realized liquids prices is shown in the table
below.


Oil & Natural Gas Liquids Prices by Component



----------------------------------------------------------------------------
                                      Three Months ended    Six Months ended
                                                 June 30             June 30
                                          2012      2011      2012      2011
----------------------------------------------------------------------------
Condensate ($/bbl)                       90.14     98.66     95.22     93.46
Propane ($/bbl)                          18.61     42.96     24.42     42.26
Butane ($/bbl)                           61.10     66.52     64.69     62.11
Pentane ($/bbl)                          93.44     99.76     97.97     94.75
----------------------------------------------------------------------------
Total Oil and NGLs ($/bbl)               71.27     84.06     77.75     80.18
----------------------------------------------------------------------------



Peyto's hedging practice of layering in fixed price swaps for future production,
in order to smooth out the volatility in natural gas and natural gas liquids
prices, continued in the quarter. By the end of the second quarter, Peyto had
committed to the future sale of 49,000 bbls of Propane and Butane at an average
price of $61.56/bbl, and 51,510,000 gigajoules (GJ) of natural gas at an average
price of $3.29/GJ or $3.84/mcf (based on Peyto's historical heat content). Had
these contracts been closed on June 30, 2012, Peyto would have realized a gain
in the amount of $26.1 million.


Activity Update

Peyto has maintained a very active pace since the end of breakup in early June,
with six drilling rigs working throughout the Company's Deep Basin core areas.
Drilling continues to be focused on the more liquids rich formations including
the Cardium, Falher and Bluesky, with only selective locations being drilled in
the Notikewin and Wilrich. New production additions for the year have grown to
14,000 boe/d, contributing to total current production of 44,000 boe/d. Natural
gas liquids make up approximately 5,000 bbl/d of this total.


The first compressors are starting to arrive at the Oldman gas plant as part of
the enhanced liquids recovery project. All new equipment is expected to be set
by the end of August with startup expected for early October. 


Peyto's natural gas fueling station at its Oldman gas plant also remains on
schedule to be operational by November 2012. This will allow for the conversion
of both drilling rigs and field trucks to run off natural gas rather than
diesel, contributing to both capital and operating cost savings. 


ONR Acquisition Update

On July 3, 2012, Peyto announced it had entered into an agreement to acquire
Open Range on the basis of 0.0696 of a Peyto common share for each Open Range
common share pursuant to a statutory plan of arrangement (for an aggregate of
5.2 million Peyto common shares). On August 6, 2012, Peyto announced it had
amended the arrangement and increased the exchange ratio in favour of Open Range
to 0.0723 (for an aggregate of 5.4 million Peyto common shares) in response to
an unsolicited bid for Open Range by a third party. A copy of the amended
Arrangement Agreement was filed by Open Range will be available for viewing on
SEDAR at www.sedar.com.


This acquisition represents the first significant corporate acquisition in
Peyto's thirteen year history. It is a unique opportunity that is consistent
with Peyto's strategy of being geographically focused, controlling the
infrastructure, and pursuing low-cost, long-life production.


The Open Range properties are a natural fit with Peyto's Greater Sundance core
area. Open Range's plant and pipeline infrastructure can be interconnected with
Peyto's existing infrastructure and provides a bridge to other proven Peyto
lands on the outskirts of the main Sundance area. This will allow for the
accelerated development of these Peyto step-out areas and reduce the operating
costs of the operated production from both asset bases. 


Upon completion of the Arrangement, Peyto intends to aggressively develop the
numerous drilling opportunities identified on the Open Range lands by deploying
two additional drilling rigs, beyond the six that are currently running on Peyto
lands. It is anticipated that up to 55 gross (45 net) wells will be drilled over
the next three years for a cumulative capital investment that is currently
estimated at $245 million. Recent gains in Peyto's drilling efficiency are
expected to reduce this estimate and further enhance the value of the Open Range
acquisition for Peyto shareholders. 


Much like Peyto's Greater Sundance area where successful drilling activity has
generated years of additional development opportunities, Peyto expects the Open
Range lands to ultimately yield many more locations beyond those currently
identified. Integration of the acquired properties is not anticipated to
displace any of Peyto's existing growth plans.

Highlights of the acquisition are as follows:



--  Approximately 31 mmcf/d and 460 bbl/d of long life, natural gas and
    liquids production. 

--  Of this production over 98% will be operated by Peyto and processed in
    Peyto owned and operated facilities. 

--  Over 125 gross (110 net) sections of land primarily in the
    Sundance/Ansell area of the Alberta Deep Basin. 

--  Ownership and control of two strategically positioned gas plants in the
    Sundance/Ansell area with the option to install deep cut processing
    facilities. These plants have approximately 25 MMcf/d of unutilized
    processing capacity that adds immediate value to existing and future
    Peyto wells. 

--  Peyto has identified over 100 high rate of return, drilling locations
    offering sweet, liquids-rich potential in the five main formations that
    Peyto has already been actively developing (Cardium, Notikewin, Falher,
    Wilrich and Bluesky). These will complement Peyto's existing inventory
    of over 900 drilling locations. 

--  Over 115 square miles of three dimensional seismic data covering the
    Open Range lands. 



Completion of the arrangement is expected to occur on August 14, 2012, subject
to, among other things, the approval of at least 66 2/3% of the votes cast at a
meeting of Open Range shareholders. 


Outlook 

The bulk of Peyto's expanded drilling program of $450 million will be executed
in the second half of 2012. This will be the most active period in Peyto's
history. At an annualized rate of almost $600 million per year, this pace of
capital investment represents one of the largest, natural gas directed capital
programs currently in Alberta and sets Peyto apart as a leader in the
development of Alberta's natural gas resources. Peyto's advantage as the lowest
cost producer in the industry makes this level of capital investment possible
during a period of lower natural gas prices and allows Peyto to take advantage
of reduced natural gas activity and lower service costs.


With approximately $400 million of the capital program directed to Peyto's
existing assets and $50 million towards opportunities that Peyto has identified
on the Open Range lands, production is expected to reach 57,000 boe/d by year
end. At the same time, Alberta natural gas prices are forecast to recover to
over $3/GJ by December 2012, allowing Peyto to fund this capital investment
through growing Funds from Operations and available bank lines. 


As always, Peyto will maintain its financial flexibility with a healthy balance
sheet and remain positioned to take advantage of future opportunities to
maximize returns for shareholders. 


Conference Call and Webcast

A conference call will be held with the senior management of Peyto to answer
questions with respect to the 2012 second quarter on Thursday, August 9th, 2012,
at 9:00 a.m. Mountain Daylight Time (MDT), or 11:00 a.m. Eastern Daylight Time
(EDT). To participate, please call 1-416-340-2219 (Toronto area) or
1-866-226-1793 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 7113191. The replay will be available at
11:00 a.m. MDT, 1:00 p.m. EDT Thursday, August 9th, 2012 until midnight EDT on
Thursday, August 16th, 2012. The conference call can also be accessed through
the internet at http://events.digitalmedia.telus.com/peyto/080912/index.php.
After this time the conference call will be archived on the Peyto Exploration &
Development website at www.peyto.com.


Management's Discussion and Analysis

Management's Discussion and Analysis of this second quarter report is available
on the Peyto website at http://www.peyto.com/news/Q22012MDandA.pdf. A complete
copy of the second quarter report to shareholders, including the Management's
Discussion and Analysis, and Financial Statements is also available at
www.peyto.com and will be filed at SEDAR, www.sedar.com, at a later date.


Shareholders and interested investors are encouraged to visit the Peyto website
at www.peyto.com where a monthly president's report allows you to follow the
progress of the capital program and ensuing production growth.


Darren Gee, President and CEO

August 8, 2012

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)



                                                         June 30 December 31
                                                            2012        2011
----------------------------------------------------------------------------
Assets                                                                      
Current assets                                                              
Cash                                                           -      57,224
Accounts receivable                                       39,793      53,829
Due from private placement (Note 6)                            -       9,740
Financial derivative instruments (Note 8)                 27,409      38,530
Prepaid expenses                                          11,454       3,991
----------------------------------------------------------------------------
                                                          78,656     163,314
----------------------------------------------------------------------------
                                                                            
Long-term financial derivative instruments (Note 8)            -       6,304
Prepaid capital                                            6,923       1,414
Property, plant and equipment, net (Note 3)            1,703,631   1,629,220
----------------------------------------------------------------------------
                                                       1,710,554   1,636,938
----------------------------------------------------------------------------
                                                                            
----------------------------------------------------------------------------
                                                       1,789,210   1,800,252
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
Liabilities                                                                 
Current liabilities                                                         
Accounts payable and accrued liabilities                  67,265     110,483
Dividends payable (Note 6)                                 8,309       8,278
Provision for future performance based compensation        6,573       4,321
 (Note 7)                                                                   
----------------------------------------------------------------------------
                                                          82,147     123,082
----------------------------------------------------------------------------
                                                                            
Long-term financial derivative instruments (Note 8)        1,331           -
Long-term debt (Note 4)                                  495,000     470,000
Provision for future performance based compensation        1,993       1,235
 (Note 7)                                                                   
Decommissioning provision (Note 5)                        47,154      38,037
Deferred income taxes                                    162,527     152,190
----------------------------------------------------------------------------
                                                         708,005     661,462
----------------------------------------------------------------------------
                                                                            
Shareholders' equity                                                        
Shareholders' capital (Note 6)                           901,041     889,115
Shares to be issued (Note 6)                                   -       9,740
                                                                            
Retained earnings                                         78,119      82,889
Accumulated other comprehensive income (Note 6)           19,898      33,964
----------------------------------------------------------------------------
                                                         999,058   1,015,708
----------------------------------------------------------------------------
                                                       1,789,210   1,800,252
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Approved by the Board of Directors                                    
                                                                      
Michael MacBean                         Darren Gee                    
Director                                Director                      



Peyto Exploration & Development Corp.

Condensed Income Statement (unaudited)



                                                                            
                   Three months ended June 30      Six months ended June 30 
                           2012          2011           2012           2011 
----------------------------------------------------------------------------
Revenue                                                                     
Oil and gas sales        68,879        96,607        154,100        183,065 
Realized gain on         17,674         6,586         34,949         19,705 
 hedges                                                                     
Royalties                (6,082)      (12,007)       (14,917)       (21,929)
----------------------------------------------------------------------------
Petroleum and            80,471        91,186        174,132        180,841 
 natural gas                                                                
 sales, net                                                                 
----------------------------------------------------------------------------
                                                                            
Expenses                                                                    
Operating                 6,603         5,945         13,904         12,516 
Transportation            2,645         2,371          5,251          4,535 
General and               1,639         1,348          2,610          2,954 
 administrative                                                             
Future                    1,115         2,348          3,010          6,572 
 performance                                                                
 based                                                                      
 compensation                                                               
 (Note 7)                                                                   
Interest                  4,996         4,512         10,134          9,130 
Accretion of                232           234            489            465 
 decommissioning                                                            
 provision                                                                  
Depletion and            39,101        30,850         78,774         59,876 
 depreciation                                                               
 (Note 3)                                                                   
Gain on                    (144)            -           (144)          (818)
 disposition of                                                             
 assets (Note 3)                                                            
----------------------------------------------------------------------------
                         56,187        47,608        114,028         95,230 
----------------------------------------------------------------------------
Earnings before          24,284        43,578         60,104         85,611 
 taxes                                                                      
----------------------------------------------------------------------------
                                                                            
Income tax                                                                  
Deferred income           6,083        10,860         15,035         21,205 
 tax expense                                                                
                                                                            
----------------------------------------------------------------------------
Earnings for the         18,201        32,718         45,069         64,406 
 period                                                                     
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
                                                                            
----------------------------------------------------------------------------
Earnings per                                                                
 share (Note 6)                                                             
Basic and diluted $        0.13 $        0.25  $        0.33  $        0.49 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
----------------------------------------------------------------------------
Weighted average                                                            
 number of common                                                           
 shares                                                                     
 outstanding                                                                
 (Note 6)                                                                   
Basic and diluted   138,485,956   133,061,301    138,399,017    132,900,079 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            



(Amount in $ thousands)

Peyto Exploration & Development Corp.

Condensed Statement of Comprehensive Income (Loss) (unaudited)

(Amount in $ thousands)



                                                                            
                                   Three months ended Six months ended June 
                                              June 30                    30 
                                      2012       2011       2012       2011 
----------------------------------------------------------------------------
Earnings for the period             18,201     32,718     45,069     64,406 
Other comprehensive income                                                  
 (loss)                                                                     
Change in unrealized gain (loss)   (10,923)     6,522     16,194     10,431 
 on cash flow hedges                                                        
Deferred tax recovery                7,149         69      4,689      2,510 
Realized (gain) loss on cash       (17,674)    (6,586)   (34,949)   (19,705)
 flow hedges                                                                
----------------------------------------------------------------------------
Comprehensive Income (Loss)         (3,247)    32,723     31,003     57,642 
----------------------------------------------------------------------------
----------------------------------------------------------------------------



Peyto Exploration & Development Corp.

Condensed Statement of Changes in Equity (unaudited)

(Amount in $ thousands)



                                                                            
                                                           Six months ended 
                                                                    June 30 
                                                             2012      2011 
----------------------------------------------------------------------------
Shareholders' capital, beginning of period                889,115   755,831 
----------------------------------------------------------------------------
Common shares issued                                            -         - 
Common shares issued by private placement                  11,952    17,150 
Common shares issuance costs (net of tax)                     (26)      (75)
Common shares issued pursuant to DRIP                           -     1,973 
Common shares issued pursuant to OTUPP                          -     2,889 
----------------------------------------------------------------------------
Shareholders' capital, end of period                      901,041   777,768 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
                                                                            
                                                                            
----------------------------------------------------------------------------
Common shares to be issued, beginning of period             9,740    17,285 
----------------------------------------------------------------------------
Common shares issued                                       (9,740)  (17,285)
Common shares to be issued                                      -         - 
----------------------------------------------------------------------------
Common shares to be issued, end of period                       -         - 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
                                                                            
                                                                            
----------------------------------------------------------------------------
Retained earnings, beginning of period                     82,889    50,774 
----------------------------------------------------------------------------
Earnings for the period                                    45,069    64,406 
Dividends (Note 6)                                        (49,839)  (47,872)
----------------------------------------------------------------------------
Retained earnings, end of period                           78,119    67,308 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
                                                                            
                                                                            
----------------------------------------------------------------------------
Accumulated other comprehensive income, beginning of       33,964    20,893 
 period                                                                     
----------------------------------------------------------------------------
Other comprehensive income (loss)                         (14,066)   (6,764)
----------------------------------------------------------------------------
Accumulated other comprehensive income, end of period      19,898    14,129 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
                                                                            
                                                                            
----------------------------------------------------------------------------
Total shareholders' equity                                999,058   859,205 
----------------------------------------------------------------------------
----------------------------------------------------------------------------



Peyto Exploration & Development Corp.

Condensed Statement of Cash Flows (unaudited)

(Amount in $ thousands)



                                                                            
                                     Three months ended    Six months ended 
                                                June 30             June 30 
                                         2012      2011      2012      2011 
----------------------------------------------------------------------------
Cash provided by (used in)                                                  
 operating activities                                                       
Earnings                               18,201    32,718    45,069    64,406 
Items not requiring cash:                                                   
Deferred income tax                     6,083    10,860    15,035    21,205 
Depletion and depreciation             39,101    30,850    78,774    59,876 
Accretion of decommissioning                                                
 provision                                232       234       489       465 
Change in non-cash working capital                                          
 related to operating activities       10,934     7,169    (5,433)  (20,416)
----------------------------------------------------------------------------
                                       74,551    81,831   133,934   125,536 
----------------------------------------------------------------------------
Financing activities                                                        
Issuance of common shares                   -         -    11,952     4,628 
Issuance costs                              -       (13)      (35)        - 
Cash dividends paid                   (24,927)  (23,951)  (49,808)  (43,291)
Increase (decrease) in bank debt       25,000    30,000   (75,000)  100,000 
Issuance of long term notes                 -         -   100,000         - 
----------------------------------------------------------------------------
                                           73     6,036   (12,891)   61,337 
----------------------------------------------------------------------------
Investing activities                                                        
Additions to property, plant and                                            
 equipment                            (74,624)  (86,258) (178,267) (182,418)
----------------------------------------------------------------------------
                                                                            
----------------------------------------------------------------------------
Net increase (decrease) in cash             -     1,609   (57,224)    4,455 
Cash, Beginning of Period                   -    10,740    57,224     7,894 
----------------------------------------------------------------------------
Cash, End of Period                         -    12,349         -    12,349 
----------------------------------------------------------------------------
                                                                            
                                                                            
                                                                            
 The following amounts are included in cash flows from                      
 operating activities:                                                      
----------------------------------------------------------------------------
                                                                            
Cash interest paid                             4,122   4,228   8,435   8,541
Cash taxes paid                                    -       -       -       -
----------------------------------------------------------------------------



Peyto Exploration & Development Corp.

Notes to Condensed Financial Statements(unaudited) 

As at June 30, 2012 and 2011 

(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 August 7, 2012.


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 for the
year ended December 31, 2011.


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.


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 audited Financial Statements as at and for the years ended December 31,
2011 and 2010. 


3. Property, plant and equipment, net



                                                                            
                                                                            
Cost                                                                        
----------------------------------------------------------------------------
At December 31, 2011                                              1,843,766 
----------------------------------------------------------------------------
  Additions                                                         153,185 
  Dispositions                                                            - 
----------------------------------------------------------------------------
At June 30, 2012                                                  1,996,951 
----------------------------------------------------------------------------
                                                                            
Accumulated depletion and depreciation                                      
----------------------------------------------------------------------------
At December 31, 2011                                               (214,546)
----------------------------------------------------------------------------
  Depletion and depreciation                                        (78,774)
  Dispositions                                                            - 
----------------------------------------------------------------------------
At June 30, 2012                                                   (293,320)
----------------------------------------------------------------------------
                                                                            
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Carrying amount at June 30, 2012                                  1,703,631 
----------------------------------------------------------------------------
----------------------------------------------------------------------------



Proceeds received for assets disposed of during the three and six month periods
ended June 30, 2012 were $0.1 million and $0.1 million (2011 - $nil and $1.5
million). 


During the three and six month periods ended June 30 2012, Peyto capitalized
$0.8 million and $2.5 million (2011 - $1.0 million and $2.3 million) of general
and administrative expense directly attributable to production and development
activities. 


4. Long-term debt

Peyto has a syndicated $700 million extendible revolving credit facility with a
stated term date of April 28, 2013. The bank facility is made up of a $30
million working capital sub-tranche and a $670 million production line. The
facilities are available on a revolving basis for a period of at least 364 days
and upon the term out date may be extended for a further 364 day period at the
request of Peyto, subject to approval by the lenders. In the event that the
revolving period is not extended, the facility is available on a non-revolving
basis for a further one year term, at the end of which time the facility would
be due and payable. Outstanding amounts on this facility will bear interest at
rates ranging from prime plus 1.25% to prime plus 2.75% determined by Peyto's
debt to earnings before interest, taxes, depreciation, depletion and
amortization (EBITDA) ratios ranging from less than 1:1 to greater than 2.5:1. A
General Security Agreement with a floating charge on land registered in Alberta
is held as collateral by the bank.


On January 3, 2012, Peyto issued CDN $100 million of senior secured notes
pursuant to a note purchase and private shelf agreement. The notes were issued
by way of private placement and rank equally with Peyto's obligations under its
bank facility. The notes have a coupon rate of 4.39% and mature on January 3,
2019. Interest will be paid semi-annually in arrears. 


Upon the issuance of the senior secured notes January 3, 2012, Peyto became
subject to the following financial covenants as defined in the credit facility
and note purchase and private shelf agreements:




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



Peyto is in compliance with all financial covenants at June 30, 2012.

The private shelf agreement was amended on June 25, 2012 to provide for the
issuance, on an uncommitted basis, of an additional US $50 million of senior
notes on or prior to January 3, 2015.


Peyto's total borrowing capacity remains at $800 million; however Peyto's net
credit facility is $700 million. 


Total interest expense for the three and six month periods ended June 30, 2012
was $5.0 million and $10.1 million (2011 - $4.5 million and $9.1 million) and
the average borrowing rate for the three and six month periods was 4.1% and 4.3%
(2011 - 4.1% and 4.4%). 


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, 2011                                            38,037
----------------------------------------------------------------------------
New or increased provisions                                            2,508
Accretion of decommissioning provision                                   489
Change in discount rate and estimates                                  6,120
----------------------------------------------------------------------------
Balance, June 30, 2012                                                47,154
----------------------------------------------------------------------------
----------------------------------------------------------------------------
  Current                                                                  -
  Non-current                                                         47,154
----------------------------------------------------------------------------
----------------------------------------------------------------------------



Peyto has estimated the net present value of its total decommissioning provision
to be $47.2 million as at June 30, 2012 ($38.0 million at December 31, 2011)
based on a total future undiscounted liability of $109.0 million ($101.2 million
at December 31, 2011). At June 30, 2012 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 2061. The Bank of Canada's long term bond rate of
2.33 per cent (2.49 per cent at December 31, 2011) and an inflation rate of two
per cent (two per cent at December 31, 2011) were used to calculate the present
value of the decommissioning provision.


6. Shareholders' capital 

Authorized: Unlimited number of voting common shares



Issued and Outstanding                                                      
                                                       Number of     Amount 
Common Shares (no par value)                       Common Shares          $ 
----------------------------------------------------------------------------
Balance, December 31, 2010                           131,875,382    755,831 
----------------------------------------------------------------------------
                                                                            
Common shares issued                                   4,899,000    115,126 
Common share issuance costs (net of tax)                       -     (3,854)
Common shares issued by private placement                906,196     17,150 
Common shares issued pursuant to DRIP                    113,527      1,973 
Common shares issued pursuant to OTUPP                   166,196      2,889 
----------------------------------------------------------------------------
Balance, December 31, 2011                           137,960,301    889,115 
----------------------------------------------------------------------------
                                                                            
Common shares issued by private placement                525,655     11,952 
Common share issuance costs (net of tax)                       -        (26)
----------------------------------------------------------------------------
Balance, June 30, 2012                               138,485,956    901,041 
----------------------------------------------------------------------------
----------------------------------------------------------------------------



Peyto reinstated its amended distribution reinvestment and optional trust unit
purchase plan (the "Amended DRIP Plan") effective with the January 2010
distribution whereby eligible unitholders could elect to reinvest their monthly
cash distributions in additional trust units at a 5 percent discount to market
price. The DRIP plan incorporated an Optional Trust Unit Purchase Plan ("OTUPP")
which provided unitholders enrolled in the DRIP with the opportunity to purchase
additional trust units from treasury using the same pricing as the DRIP. The
DRIP and the OTUPP plans were cancelled December 31, 2010.


On December 31, 2010, Peyto completed a private placement of 655,581 common
shares to employees and consultants for net proceeds of $12.4 million ($18.95
per share). These common shares were issued on January 6, 2011. 


On January 14, 2011, 279,723 common shares (113,527 pursuant to the DRIP and
166,196 pursuant to the OTUPP) were issued for net proceeds of $4.9 million. 


On March 25, 2011, Peyto completed a private placement of 250,615 common shares
to employees and consultants for net proceeds of $4.7 million ($18.86 per
share). 


On December 16, 2011, Peyto closed an offering of 4,899,000 common shares at a
price of $23.50 per common share, receiving proceeds of $110.1 million (net of
issuance costs).


On December 31, 2011 Peyto completed a private placement of 397,235 common
shares to employees and consultants for net proceeds of $9.7 million ($24.52 per
share). These common shares were issued on January 13, 2012.


On March 23, 2012 Peyto completed a private placement of 128,420 common shares
to employees and consultants for net proceeds of $2.2 million ($17.22 per
share).


Per share amounts

Earnings per share or unit have been calculated based upon the weighted average
number of common shares outstanding for the three and six month periods ended
June 30, 2012 were 138,485,956 and 138,399,017 (2011 - 133,061,301 and
132,900,079). There are no dilutive instruments outstanding.


Dividends 

During the three and six month periods ended June 30, 2012, Peyto declared and
paid dividends of $0.18 and $0.36 per common share or $0.06 per common share per
month, totaling $24.9 million and $49.8 million (2011 - $0.18 and $0.36 per
share or $0.06 per share per month, $24.0 million and $47.9 million). 


Comprehensive income

Comprehensive income consists of earnings and other comprehensive income
("OCI"). OCI comprises the change in the fair value of the effective portion of
the derivatives used as hedging items in a cash flow hedge. "Accumulated other
comprehensive income" is an equity category comprised of the cumulative amounts
of OCI.


Accumulated hedging gains 

Gains and losses from cash flow hedges are accumulated until settled. These
outstanding hedging contracts are recognized in earnings on settlement with
gains and losses being recognized as a component of net revenue. Further
information on these contracts is set out in Note 8. 


7. Future performance based compensation

Peyto awards performance based compensation to employees annually. The
performance based compensation is comprised of reserve and market value based
components.


Reserve based component

The reserves value based component is 4% of the incremental increase in value,
if any, as adjusted to reflect changes in debt, equity, dividends, general and
administrative costs and interest, of proved producing reserves calculated using
a constant price at December 31 of the current year and a discount rate of 8%. 


Market based component 

Under the market based component, rights with a three year vesting period are
allocated to employees. The number of rights outstanding at any time is not to
exceed 6% of the total number of common shares outstanding. At December 31 of
each year, all vested rights are automatically cancelled and, if applicable,
paid out in cash over the three year vesting period. 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 valuation model were: 




                                              June 30               June 30 
                                                 2012                  2011 
----------------------------------------------------------------------------
Share price                           $18.83 - $24.75       $18.83 - $21.50 
Exercise price                        $12.06 - $24.55        $9.57 - $18.84 
Expected volatility                           0% - 36%              0% - 38%
Expected life                              0.50 years     0.50 - 2.50 years 
Risk-free interest rate                          1.04%                 1.58%
----------------------------------------------------------------------------



8. Risk management contracts

Peyto uses derivative instruments to reduce its exposure to fluctuations in
commodity prices. Peyto considers all of these transactions to be effective
economic hedges for accounting purposes. 


Following is a summary of all risk management contracts in place as at June 30,
2012:




----------------------------------------------------------------------------
Propane                                                                Price
Period Hedged                               Type  Monthly Volume       (CAD)
September 1, 2012 to March 31, 2013  Fixed Price       2,000 BBL  $49.56/BBL
September 1, 2012 to March 31, 2013  Fixed Price       2,000 BBL  $44.10/BBL
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Butane                                                                 Price
Period Hedged                               Type  Monthly Volume       (CAD)
----------------------------------------------------------------------------
September 1, 2012 to March 31, 2013  Fixed Price       2,000 bbl  $80.64/bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Iso-Butane                                                             Price
Period Hedged                               Type  Monthly Volume       (CAD)
----------------------------------------------------------------------------
September 1, 2012 to March 31, 2013  Fixed Price       1,000 bbl  $82.32/bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Natural Gas                                                            Price
Period Hedged                                 Type  Daily Volume       (CAD)
----------------------------------------------------------------------------
April 1, 2011 to October 31, 2012      Fixed Price      5,000 GJ    $4.05/GJ
April 1, 2011 to October 31, 2012      Fixed Price      5,000 GJ    $4.15/GJ
April 1, 2011 to October 31, 2012      Fixed Price      5,000 GJ    $4.10/GJ
April 1, 2011 to October 31, 2012      Fixed Price      5,000 GJ    $4.00/GJ
April 1, 2011 to March 31, 2013        Fixed Price      5,000 GJ   $4.055/GJ
April 1, 2011 to March 31, 2013        Fixed Price      5,000 GJ    $3.80/GJ
June 1, 2011 to March 31, 2013         Fixed Price      5,000 GJ    $4.17/GJ
June 1, 2011 to March 31, 2013         Fixed Price      5,000 GJ    $4.10/GJ
June 1, 2011 to March 31, 2013         Fixed Price      5,000 GJ    $4.10/GJ
November 1, 2011 to March 31, 2013     Fixed Price      5,000 GJ    $4.00/GJ
April 1, 2012 to December 31, 2012     Fixed Price      5,000 GJ  $3.3125/GJ
April 1, 2012 to December 31, 2012     Fixed Price      5,000 GJ   $3.395/GJ
April 1, 2012 to October 31, 2013      Fixed Price      5,000 GJ    $4.00/GJ
April 1, 2012 to October 31, 2013      Fixed Price      5,000 GJ    $4.00/GJ
April 1, 2012 to October 31, 2013      Fixed Price      5,000 GJ    $4.00/GJ
April 1, 2012 to October 31, 2013      Fixed Price      5,000 GJ    $4.00/GJ
April 1, 2012 to March 31, 2013        Fixed Price      5,000 GJ    $2.20/GJ
April 1, 2012 to March 31, 2013        Fixed Price      5,000 GJ    $2.31/GJ
April 1, 2012 to October 31, 2013      Fixed Price      5,000 GJ    $2.52/GJ
April 1, 2012 to March 31, 2014        Fixed Price      5,000 GJ    $3.00/GJ
May 1, 2012 to October 31, 2013        Fixed Price      5,000 GJ    $2.30/GJ
June 1, 2012 to October 31, 2012       Fixed Price      5,000 GJ    $1.83/GJ
July 1, 2012 to October 31, 2012       Fixed Price      5,000 GJ    $2.32/GJ
July 1, 2012 to October 31, 2012       Fixed Price      5,000 GJ    $2.35/GJ
August 1, 2012 to October 31, 2014     Fixed Price      5,000 GJ    $3.10/GJ
November 1, 2012 to October 31, 2013   Fixed Price      5,000 GJ    $2.60/GJ
November 1, 2012 to March 31, 2014     Fixed Price      5,000 GJ    $2.81/GJ
November 1, 2012 to March 31, 2014     Fixed Price      5,000 GJ    $3.00/GJ
November 1, 2012 to October 31, 2014   Fixed Price      5,000 GJ  $3.0575/GJ
April 1, 2013 to March 31, 2014        Fixed Price      5,000 GJ   $3.105/GJ
----------------------------------------------------------------------------



As at June 30, 2012, Peyto had committed to the future sale of 49,000 barrels of
natural gas liquids at an average price of $61.56 per barrel and 51,510,000
gigajoules (GJ) of natural gas at an average price of $3.29 per GJ or $3.84 per
mcf. Had these contracts been closed on June 30, 2012, Peyto would have realized
a gain in the amount of $26.1 million. If the AECO gas price on June 30, 2012
were to increase by $1/GJ, the unrealized gain would decrease by approximately
$51.5 million. An opposite change in commodity prices rates would result in an
opposite impact on other comprehensive income. 


Subsequent to June 30, 2012 Peyto entered into the following contracts:



----------------------------------------------------------------------------
Propane                                                                Price
Period Hedged                               Type  Monthly Volume       (CAD)
----------------------------------------------------------------------------
September 1, 2012 to March 31, 2013  Fixed Price       2,000 bbl  $32.34/bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Butane                                                                 Price
Period Hedged                               Type  Monthly Volume       (CAD)
----------------------------------------------------------------------------
September 1, 2012 to March 31, 2013  Fixed Price       2,000 bbl  $58.38/bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Iso-Butane                                                             Price
Period Hedged                               Type  Monthly Volume       (CAD)
----------------------------------------------------------------------------
September 1, 2012 to March 31, 2013  Fixed Price       1,000 bbl  $60.48/bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Natural Gas                                                            Price
Period Hedged                               Type  Monthly Volume       (CAD)
----------------------------------------------------------------------------
August 1, 2012 to March 31, 2014     Fixed Price        5,000 GJ    $3.00/GJ
January 1, 2013 to December 31,                                             
 2013                                Fixed Price        5,000 GJ   $3.105/GJ
----------------------------------------------------------------------------



9. Commitments and contingencies

Peyto has contractual obligations and commitments as follows:



                              2012    2013    2014   2015   2016  Thereafter
----------------------------------------------------------------------------
Note repayment(1)                -       -       -      -      -     100,000
Interest payments(2)         2,195   4,390   4,390  4,390  4,390      10,975
Transportation commitments   5,044   9,265   7,746  5,462  2,270         285
Operating lease                536   1,071   1,071      -      -           -
----------------------------------------------------------------------------
Total                        7,775  14,726  13,207  9,852  6,660     111,260
----------------------------------------------------------------------------
(1) Long-term debt repayment on senior secured notes                        
(2) Fixed interest payments on senior secured notes                         



Contingent liability

From time to time, Peyto is the subject of litigation arising out of its
day-to-day operations. Damages claimed pursuant to such litigation may be
material or may be indeterminate and the outcome of such litigation may
materially impact Peyto's financial position or results of operations in the
period of settlement. While Peyto assesses the merits of each lawsuit and
defends itself accordingly, Peyto may be required to incur significant expenses
or devote significant resources to defending itself against such litigation.
These claims are not currently expected to have a material impact on Peyto's
financial position or results of operations. 


10. Subsequent Event

Subsequent to June 30, 2012, Peyto announced its intention to purchase all of
the issued and outstanding common shares of Open Range Energy Corp. on the basis
of a share exchange, pursuant to a statutory plan of arrangement. This
transaction is subject to the approval of Open Range shareholders, among other
things.


Officers



Darren Gee                                       Tim Louie                  
President and Chief Executive Officer            Vice President, Land       
                                                                            
Scott Robinson                                   David Thomas               
Executive Vice President and Chief Operating     Vice President, Exploration
Officer                                                                     
                                                                            
Kathy Turgeon                                    Jean-Paul Lachance         
Vice President, Finance and Chief Financial      Vice President,            
Officer                                          Exploitation               
                                                                            
Stephen Chetner                                                             
Corporate Secretary                                                         
                                                                            
Directors                                                                   
Don Gray, Chairman                                                          
Rick Braund                                                                 
Stephen Chetner                                                             
Brian Davis                                                                 
Michael MacBean, Lead Independent Director                                  
Darren Gee                                                                  
Gregory Fletcher                                                            
Scott Robinson                                                              
                                                                            
Auditors                                                                    
Deloitte & Touche LLP                                                       
                                                                            
Solicitors                                                                  
Burnet, Duckworth & Palmer LLP                                              
                                                                            
Bankers                                                                     
Bank of Montreal                                                            
Union Bank, Canada Branch                                                   
Royal Bank of Canada                                                        
Canadian Imperial Bank of Commerce                                          
HSBC Bank Canada                                                            
The Toronto-Dominion Bank                                                   
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

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