Don Gray and Peyto Exploration - The Early Years

Back in February we wrote about Peyto Exploration, an outstanding natural gas company stuck in a cheap gas world. For a refresher see here.

Natural gas prices remain stuck for Canadian producers (and are particularly challenged as we write, with AECO September contracts looking quite ugly at only ~$1.40/mcf due to egress issues), but Peyto continues to chug along with a healthy hedge book.

The original President and CEO of Peyto was Don Gray, a very colourful and outspoken character in the oil patch (he is currently the Board Chairman). We found a great article from the Globe and Mail written in 2004, where at the time young Peyto was only six years old. 

What's fun about the article is how Peyto's strategy remains the same as today and the complaints about Peyto's strategy haven't changed either. 

Still, numbers such as that $300 million in 2005 capital spending get people talking about Peyto's future, asking the same question that's been asked all along: How long can this keep going? "They won't have $250 million or $300 million of projects every year," says Mark Bridges, an analyst at CIBC World Markets Inc. Gray's projection of doubling production to 40,000 barrels a day by the end of 2007 will be "pretty tough" to meet, Bridges says. "When they acknowledge things are slowing down, that's when the hit will come.

Peyto's 2017 budget is over $500 million and production is over 100,000 boe/d with further growth plans in place.

Gordon Zive of RBC Asset Management sees around four more years of drilling opportunities, but he also has perhaps the most pragmatic warning. "When you're young and you've been successful, you become complacent and, therefore, vulnerable to a shakedown. ... In the fullness of time, guys like [Gray] who think that they're almost infallible because of their success, are the ones who fall the furthest. ... I've seen that happen many times. I think Don Gray is an excellent example of a guy who's setting himself up for that fall."

"Guys think we're running out of land all the time," Gray says. [Rick] Braund laughs at the notion that Peyto is hemmed in: "That'd be bullshit."

We're glad Peyto didn't run out of drilling opportunities in 2009. Don Gray was focused on creating a strong cost efficient energy company, owning their own infrastructure, and remaining extremely focused. He was also more than happy to tell everyone else they were doing things the wrong way. 

Gray sees little original thought in the oil patch, just a bunch of people chasing the latest trend. "I see them almost as cowards," Gray says, adding that people become too averse to risk as they climb to the top rungs of the business. "They're quite happy with just being average, being the mediocre....It's hardly my competitors that challenge us. It's more my mouth that challenges us."

The article provides a surprising amount of background and insight into the early years of Peyto and really gives you a feel for how Don and the Company were perceived (and of course, can now be compared to the actual outcome). Here's the full article:

*If the article is no longer available by the time you read this please let us know and we can send you a saved copy.