(Idea) Peyto Exploration - Our Largest Position In The Natural Gas Portfolio
By: Jon Costello
Note: Dollar references are to Canadian dollars unless otherwise specified.
I last covered Peyto Exploration (PEY:CA) in March 2024. Since then, the stock has run from $15 to $20.80 as the company has become a favored destination for investors seeking long-term natural gas exposure.
Little has changed in the company’s economics over the past year. The share price increased as rising Henry Hub natural gas prices spurred interest in gas-weighted E&Ps while, at the same time, the energy investing consensus embraced a natural gas bull market.
PEY is one of the best-managed E&Ps in North America. The company’s large contiguous blocks of geologically advantaged acreage span 1.1 million acres in the Alberta Deep Basin, making it one of the lowest-cost natural gas producers on the continent. Its acreage footprint is shown below.
Source: Peyto Exploration June 2025 Corporate Presentation.
Natural gas is all the rage these days after long-time oil bulls grew concerned about forecasted inventory builds in 2025 and 2026 and pivoted their portfolios away from oil and toward natural gas. The bull thesis for natural gas states that surging global demand for electricity and LNG will create a call on the low-priced, abundant North American gas reserves. The increased demand will result in a sustained high-price environment that causes natural gas-weighted equities to outperform.
While the thesis is both plausible and valid, I haven’t been able to wholeheartedly embrace it, mainly on the grounds that higher demand doesn’t necessarily lead to higher prices. If there is enough low-priced supply to satisfy the rising demand, prices will correct lower pending a supply response.
The fact is that North America has staggering natural gas reserve volumes—far more than crude oil, based on the quantity of reserves that cover current production rates. So far, at least, I haven’t seen a convincing analysis demonstrating that North American natural gas prices will remain at levels high enough to generate big gains for gas-weighted E&P shareholders from their current stock prices.