Peyto 2027 Capital Budget: Fifth Rig, Cardium Liquids Push

Peyto's 2027 capital budget, set out November 9 as a preliminary range of $475 million to $525 million, adds a fifth drilling rig and 70 to 80 horizontal wells. The Alberta gas producer says it is aiming that drilling at liquids-rich Cardium wells to capture stronger pricing, after its local AECO gas benchmark averaged only $1.46/GJ in the third quarter.

Key points

Peyto Exploration & Development set a preliminary 2027 capital budget of $475 million to $525 million (Canadian dollars), against 2026 guidance of $450 million to $500 million (Q3 2026 MD&A).
The company expects to add a fifth rig before the end of 2026, with Cardium wells making up more than a third of the locations drilled in 2027.
Third-quarter production averaged 142,952 boe/d, up 10% from a year earlier, with natural gas liquids up 20%.
Peyto realized $3.50/Mcf for its gas after hedging and diversification, 108% above the AECO 7A monthly benchmark of $1.46/GJ.
Funds from operations were $220.9 million, or $1.06 per diluted share, and net debt fell $185.5 million in the first nine months of 2026.

What is in Peyto's 2027 capital budget?

Peyto's 2027 capital budget pays for 70 to 80 horizontal wells across all of its core areas, with about 80% of the money going to well-related costs. The rest covers projects tying more gas into the Edson and Bigstone gas plants, minor turnarounds at two plants, pipeline and plant debottlenecking, and about $10 million of closure work to cut abandonment obligations.

The company says the program should add 45,000 to 50,000 boe/d of new production by the end of 2027, more than offsetting a forecast annual decline of 26% to 28%. It expects condensate and pentanes to grow faster than gas, taking liquids to nearly 15% of total production by year-end. Details will be finalized in early 2027, and Peyto says the program stays flexible to commodity prices and service costs.

In its MD&A, Peyto says that at current prices its operating cash flow should fully fund the 2027 program and the dividend, with what is left going to debt repayment.

Why is Peyto shifting toward Cardium liquids?

Peyto says the Cardium focus targets higher liquids content to capture stronger pricing, and its recent Cardium wells have come in cheaper and more productive. Realized condensate and pentanes prices averaged $110.04/bbl in the quarter, up 32% from a year earlier on higher WTI, while the AECO 7A gas index averaged $1.46/GJ.

Peyto reports that three Sundance Cardium wells drilled with elements of its newer Brazeau Cardium design cost 11% less per meter than the previous design, and says production from them continues to beat earlier vintages. In Brazeau, it estimates a revised completion method has cut completion costs by about 12% per meter. Those are the company's own field estimates.

How does Peyto get more than double the AECO price?

Peyto sells gas at hubs outside Alberta and hedges heavily. Sales priced at Dawn, Parkway, Ventura, Chicago and Henry Hub added $1.00/Mcf over AECO in the quarter, net of diversification costs, and hedges added another $0.82/Mcf, bringing the realized price to $3.50/Mcf.

Even after rising 55% from $0.94/GJ a year earlier, the AECO 7A monthly price remained low, and Henry Hub averaged US$2.95/MMBtu, according to the MD&A.

Q3 2026	Price
AECO 7A monthly benchmark	$1.68/Mcf ($1.46/GJ)
Diversification value	$1.00/Mcf
Realized hedging gain	$0.82/Mcf
Peyto realized gas price after hedging	$3.50/Mcf ($3.04/GJ)

More is coming. During the quarter Peyto won over 80,000 GJ/d of new TC Energy Mainline service to North Bay Junction and Parkway, starting in November 2028, which it says will double its gas sales into Ontario. The MD&A also lists a 60,000 GJ/day supply deal with the Cascade power plant, priced off Cascade's power price, and 50,000 MMBtu/d of sales to Centrica Energy from 2029, priced against the Dutch TTF benchmark.

How much of 2027 is already hedged?

Peyto says its gas and liquids hedges already lock in about $690 million of 2027 revenue. For 2027 it has hedged 417 MMcf/d of gas at an average $3.32/Mcf, against 462 MMcf/d at $4.20/Mcf for the fourth quarter of 2026, plus oil swaps, collars and call options and US dollar sales.

The 2027 gas hedges carry a lower average price than the fourth-quarter ones, so the hedge book sets a lower floor next year.

What does the release leave out?

The release gives no average production target for 2027, no commodity price assumptions behind the budget and no cost for the fifth rig. It reports the cost-per-meter gains but no well-level returns or payback for the Cardium program.

The release does not explain the jump in royalties to $0.27/Mcfe from $0.08/Mcfe a year earlier, which pushed total cash costs up 7% to $1.29/Mcfe even as costs before royalties fell 10% to $1.02/Mcfe. The MD&A attributes it mainly to smaller Gas Cost Allowance credits and higher royalties on liquids, as NGL sales and oil prices rose; royalties took 7.0% of sales before hedging, against 2.6%.

Reported earnings rose 72% from a year earlier, but they include unrealized gains on financial instruments; adjusted earnings, which strip those out, rose 15% to $105.4 million.

What does Peyto's plan mean for Western Canadian gas producers?

Our analysis: Peyto's budget shows a low-cost gas producer treating cheap AECO gas as a condition to manage, not a reason to slow down: it is nudging capital up, drilling for higher-value liquids, and buying pipeline space to reach better-priced markets. For producers still selling mostly at AECO, the quarter's numbers show how large the gap has become, with Peyto realizing more than twice the local benchmark. Gas has been priced better elsewhere: MOL Group credited a favourable natural gas price environment for its third-quarter upstream results. For investors who hold producers for their dividends, Peyto's hedge book is one of the ways price trends reach their returns.

Frequently asked questions

What is Peyto's 2027 capital budget?

Peyto has set a preliminary 2027 capital budget of $475 million to $525 million, covering 70 to 80 horizontal wells plus facilities and pipeline projects. The company will finalize the details in early 2027.

What were Peyto's Q3 2026 results?

Peyto produced an average of 142,952 boe/d in the third quarter of 2026, up 10% from a year earlier. Funds from operations were $220.9 million, or $1.06 per diluted share, and adjusted earnings rose 15% to $105.4 million.

Did Peyto raise its dividend?

Yes. Peyto's board raised the monthly dividend to $0.13 per share starting with the November dividend, payable December 15, 2026, its second increase this year and 18% above the 2025 rate of $0.11.

How much of Peyto's 2027 gas is hedged?

Peyto has hedged 417 MMcf/d of 2027 natural gas production at an average $3.32/Mcf. With its liquids hedges, it says about $690 million of 2027 revenue is secured so far.

Peyto adds a fifth rig and aims its 2027 drilling at Cardium liquids while AECO gas stays cheap