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Peyto Reports Third Quarter 2012 Results and 2013 Capital Budget

CALGARY, ALBERTA -- (Marketwire) -- 11/07/12 -- Peyto Exploration & Development Corp. ("Peyto" or "the Company") (TSX:PEY) is pleased to present its operating and financial results for the third quarter of the 2012 fiscal year. With a third quarter 2012 operating margin of 75%(1) and profit margin of 23%(2), Peyto grew production per share for the twelfth consecutive quarter. Highlights of the 2012 third quarter include:


--  Production per share up 18%. Third quarter 2012 production increased 27%
    (18% per share) from 218 MMcfe/d (36,390 boe/d) in Q3 2011 to 276
    MMcfe/d (46,033 boe/d) in Q3 2012. 
    
--  Funds from operations of $0.54/share. Generated $77 million in Funds
    from Operations ("FFO") in Q3 2012 down 7% (13% per share) from $83
    million in Q3 2011. Increased production and lower costs helped offset
    the 31% year over year reduction in realized commodity prices. 
    
--  Maintained low cash costs of $1/mcfe. Total cash costs, including
    royalties, operating costs, transportation, G&A and interest were
    $1.00/mcfe ($6.02/boe). Industry leading operating costs of $0.35/mcfe
    ($2.09/boe) in Q3 2012 helped contribute to cash netbacks of $3.01/mcfe
    ($18.08/boe) representing a 75% operating margin. 
    
--  Record capital investments of $317 million. To the end of the third
    quarter, 21,800 boe/d of new production had been added in 2012,
    including 4,800 boe/d resulting from the $187 million acquisition of
    Open Range Energy Corp. ("Open Range" or "ONR"). Excluding the
    acquisition, the annualized (trailing twelve month) cost to build new
    production has averaged $18,000/boe/d. A total of 30 gross wells were
    drilled during the third quarter. 
    
--  Earnings of $0.16/share, dividends of $0.18/share. Earnings of $23.1
    million were generated in the quarter ($68.1 million year-to-date) while
    dividends of $25.6 million ($75.4 million year-to-date) were paid to
    shareholders, representing a before tax payout ratio of 33% of FFO. 

Third quarter 2012 in Review

The third quarter of 2012 was an historic time for Peyto. The acquisition of Open Range represented the first major corporate acquisition in the Company's fourteen year history. The properties that were acquired were a natural fit with Peyto's Greater Sundance core area and included strategic facility and pipeline infrastructure that can be expanded and integrated into Peyto's existing system. In addition, 99 net sections of land were included containing over 100 future drilling locations of similar quality to Peyto's existing inventory of future locations. The Peyto team quickly and efficiently integrated Open Range into its business without disrupting a very active quarter that saw 6 to 8 drilling rigs running throughout. Inclusive of the acquired properties, Peyto maintained its industry leading low cost advantage with total cash costs of $1.00/Mcfe ($6.02/boe). Peyto's total borrowing capacity was expanded to $880 million, reflecting the value of the additional properties, including the issue of $50 million of additional senior secured 10 year notes. The company maintained its financial flexibility with quarter ending net debt of $684 million or 2.2 times annualized Funds from Operations. Despite low natural gas prices, earnings of $0.16/share were generated, delivering 9% Return on Equity (ROE) and 7% 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, 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.                                            
                                                                            
----------------------------------------------------------------------------
                                                Three Months ended          
                                                      September 30       %  
                                                 2012         2011  Change  
----------------------------------------------------------------------------
Operations                                                                  
Production                                                                  
  Natural gas (mcf/d)                         244,794      194,832      26% 
  Oil & NGLs (bbl/d)                            5,236        3,918      34% 
  Thousand cubic feet equivalent (mcfe/d                                    
   @ 1:6)                                     276,200      218,338      27% 
  Barrels of oil equivalent (boe/d @                                        
   6:1)                                        46,033       36,390      26% 
Product prices                                                              
  Natural gas ($/mcf)                            3.06         4.43     (31)%
  Oil & NGLs ($/bbl)                            68.62        78.07     (12)%
  Operating expenses ($/mcfe)                    0.35         0.36      (3)%
  Transportation ($/mcfe)                        0.11         0.13     (15)%
  Field netback ($/mcfe)                         3.29         4.41     (25)%
  General & administrative expenses                                         
   ($/mcfe)                                      0.03         0.04     (25)%
  Interest expense ($/mcfe)                      0.25         0.26      (4)%
Financial ($000 except per share)                                           
Revenue                                       102,042      107,526      (5)%
Royalties                                       6,632        9,265     (28)%
Funds from operations                          76,918       82,506      (7)%
Funds from operations per share                  0.54         0.62     (13)%
Total dividends                                25,576       23,951       7% 
Total dividends per share                        0.18         0.18       -  
  Payout ratio                                     33           29      14% 
Earnings                                       23,058       37,741     (39)%
Earnings per diluted share                       0.16         0.28     (43)%
Capital expenditures                          317,089      111,570     184% 
Weighted average shares outstanding       142,069,408  133,061,301       7% 
As at September 30                                                          
Net debt (before future compensation expense and unrealized                 
 hedging gains)                                                             
Shareholders' equity                                                        
Total assets                                                                
                                                                            

                                                                            
----------------------------------------------------------------------------
                                                 Nine Months ended          
                                                      September 30       %  
                                                 2012         2011  Change  
----------------------------------------------------------------------------
Operations                                                                  
Production                                                                  
  Natural gas (mcf/d)                         228,982      181,881      26% 
  Oil & NGLs (bbl/d)                            4,608        3,826      20% 
  Thousand cubic feet equivalent (mcfe/d                                    
   @ 1:6)                                     256,630      204,834      25% 
  Barrels of oil equivalent (boe/d @                                        
   6:1)                                        42,772       34,139      25% 
Product prices                                                              
  Natural gas ($/mcf)                            3.15         4.58     (31)%
  Oil & NGLs ($/bbl)                            74.26        79.45      (7)%
  Operating expenses ($/mcfe)                    0.32         0.35      (9)%
  Transportation ($/mcfe)                        0.12         0.13      (8)%
  Field netback ($/mcfe)                         3.39         4.51     (25)%
  General & administrative expenses                                         
   ($/mcfe)                                      0.05         0.07     (29)%
  Interest expense ($/mcfe)                      0.23         0.26     (12)%
Financial ($000 except per share)                                           
Revenue                                       291,090      310,297      (6)%
Royalties                                      21,549       31,195     (31)%
Funds from operations                         219,296      234,212      (6)%
Funds from operations per share                  1.57         1.76     (11)%
Total dividends                                75,415       71,823       5% 
Total dividends per share                        0.54         0.54       -  
  Payout ratio                                     34           31      10% 
Earnings                                       68,128      102,147     (33)%
Earnings per diluted share                       0.49         0.77     (36)%
Capital expenditures                          461,646      284,373      62% 
Weighted average shares outstanding       139,631,290  132,954,010       5% 
As at September 30                                                          
Net debt (before future compensation                                        
 expense and unrealized hedging gains)        683,540      526,743      30% 
Shareholders' equity                        1,092,079      873,588      25% 
Total assets                                2,077,890    1,665,978      25% 
                                                                            
----------------------------------------------------------------------------
                                      Three Months ended   Nine Months ended
                                            September 30        September 30
($000)                                    2012      2011      2012      2011
----------------------------------------------------------------------------
Cash flows from operating activities    72,004    79,685   205,939   204,403
Change in non-cash working capital       3,032     1,807     8,464    22,224
Change in provision for performance                                         
 based compensation                      1,882     1,014     4,893     7,585
----------------------------------------------------------------------------
Funds from operations                   76,918    82,506   219,296   234,212
----------------------------------------------------------------------------
Funds from operations per share           0.54      0.62      1.57      1.76
----------------------------------------------------------------------------
(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

While drilling at the start of the third quarter focused on the development of the more liquids-rich formations in Peyto's inventory, like the Cardium and Falher, more recent activity has shifted back to the less liquids-rich, deeper formations like the Notikewin, Wilrich and Bluesky. This is due to improving natural gas prices which result in improved economics for the deeper, drier gas zones that enjoy greater royalty incentives.

At currently forecast natural gas prices, effectively all of the formations that Peyto develops within its core areas can yield similar full cycle, before tax, internal rates of return. Peyto has been nimble with its capital allocation and has quickly redirected its drilling efforts to diversify development activity amongst all of the potential targets.

During the quarter Peyto acquired 17 sections of new land at crown land sales, bringing total 2012 land acquisitions to 41.3 net sections. This is in addition to the 104.2 net sections of land added through property and corporate acquisitions. All 145.5 net sections are adjacent to or within Peyto's existing core areas. In total, net of expiries, Peyto's Deep Basin land position has grown by 28% in 2012, or 134 net sections (85,600 net acres).

Capital Expenditures

In addition to the $187 million acquisition of Open Range, Peyto had an active quarter of drilling activity. In total, Peyto invested $130 million in the building of new assets with $59 million spent drilling 30 gross (25.8 net) wells, $35 million spent completing 24 gross (20.2 net) wells, and $11 million spent on wellsite equipment and pipelines to bring on 24 gross (20.2 net) producing wells. A further $6 million was invested to expand current facilities, while the balance or $19 million was invested in the acquisition and evaluation of new undeveloped lands.

Overall, drilling times continued to shorten as rig crews became more practiced with Peyto's drilling design. In 2012, the average horizontal well has taken just 20 days to drill, down more than 30% from 30 days in 2010. At the same time, the average horizontal well length in 2012 is 109 m longer. These efficiency gains not only translate into reduced capital cost but they allow Peyto to drill more wells with fewer rigs and less technical staff.

Financial Results

Alberta (AECO Monthly) natural gas prices averaged $2.08/GJ in the third quarter 2012, resulting in a Peyto unhedged realized price of $2.38/mcf before hedging gains of $0.68/mcf. Meanwhile, Edmonton light oil prices averaged $82.71/bbl from which Peyto realized $68.62/bbl (or 83%) for its oil and natural gas liquids blend of Condensate, Pentane, Butane and Propane. Combined Peyto's unhedged revenues totaled $3.41/mcfe ($4.01/mcfe including hedging gains), or 164% of the dry gas price.

Peyto maintained its industry leading low cash costs in the quarter, despite the integration of the higher cost Open Range production, with average royalties of $0.26/Mcfe ($1.57/boe), operating costs of $0.35/Mcfe ($2.09/boe), transportation of $0.11/Mcfe ($0.68/boe), G&A of $0.03/Mcfe ($0.18/boe) and interest of $0.25/Mcfe ($1.50/boe). These cash costs totaled $1.00/Mcfe ($6.02/boe) and were deducted from revenues to yield a cash netback of $3.01/Mcfe ($18.08/boe), or a 75% operating margin. This industry leading operating margin has now been achieved for sixteen consecutive quarters and highlights Peyto's commitment to be the lowest cost producer in the Canadian industry.

Depletion, depreciation and amortization charges of $1.72/Mcfe, along with a provision for future tax and market based bonus payments, reduced the cash netback to earnings of $0.91/Mcfe or a 23% profit margin.

During the quarter Peyto's syndicate of lenders increased Peyto's borrowing base to $880 million, reflecting the addition of the ONR assets. As well, on September 6, 2012, Peyto issued $50 million of senior secured notes pursuant to a note purchase and private shelf agreement with Prudential Investment Management Inc. The notes have a coupon rate of 4.88% and mature on September 6, 2022. Including this latest issue, Peyto now has $150 million of senior secured notes outstanding which rank equally with Peyto's revolving bank facility of $730 million. With quarter end net debt of $684 million, Peyto has $196 million of available borrowing capacity ensuring future financial flexibility.

Marketing

Approximately 49% of Peyto's natural gas production in the quarter had been pre-sold in forward sales done over the previous year at an average price of $3.23/GJ. The remaining balance of production was subject to AECO monthly spot prices that averaged $2.08/GJ. On a blended basis, Peyto's realized gas price was $2.64/GJ or $3.06/mcf, reflective of Peyto's high heat content natural gas production.

The company's hedging practice of layering in future sales in the form of fixed price swaps, in order to smooth out the volatility in natural gas price, continued throughout the quarter. By the end of the third quarter Peyto had committed to the future sale of 59,695,000 gigajoules (GJ) of natural gas at an average price of $3.15/GJ or $3.68/mcf, based on Peyto's historical heat content. The following table summarizes the remaining hedged volumes and prices for the upcoming years, effective September 30, 2012:


----------------------------------------------------------------------------
                         Future Sales               Average Price (CAD)     
----------------------------------------------------------------------------
                             GJ            Mcf           $/GJ          $/Mcf
----------------------------------------------------------------------------
2012                 13,875,000     11,858,974          $3.18          $3.72
2013                 38,730,000     33,102,564          $3.17          $3.71
2014                  7,090,000      6,059,829          $3.03          $3.55
----------------------------------------------------------------------------
Total                59,695,000     51,021,368          $3.15          $3.69
----------------------------------------------------------------------------

As illustrated in the following table, Peyto's realized natural gas liquids prices(1) were down 12% year over year and 4% from the previous quarter.


----------------------------------------------------------------------------
                                      Three Months ended  Three Months ended
                                            September 30             June 30
                                          2012      2011      2012      2011
----------------------------------------------------------------------------
Condensate ($/bbl)                       89.85     93.63     90.14     98.66
Propane ($/bbl)                          19.60     47.00     18.61     42.96
Butane ($/bbl)                           58.21     65.28     61.10     66.52
Pentane ($/bbl)                          93.16     98.16     93.44     99.76
----------------------------------------------------------------------------
Total Oil and NGLs ($/bbl)               68.62     78.07     71.27     84.06
----------------------------------------------------------------------------
    Liquids prices are Peyto realized prices in Canadian dollars adjusted   
(1) for fractionation and transportation.                                   

Peyto's hedging practice with respect to Propane and Butane also continued in the quarter and by the end of the third quarter Peyto had committed to the future sale of 186,000 bbls of Propane and Butane at an average price of $51.12USD/bbl. The following table summarizes the hedged volumes and prices for the upcoming years.


----------------------------------------------------------------------------
                    Propane                             Butane              
----------------------------------------------------------------------------
           Future Sales     Average Price     Future Sales     Average Price
                 (bbls)        ($USD/bbl)           (bbls)        ($USD/bbl)
----------------------------------------------------------------------------
2012             48,000            $37.30           45,000            $65.88
2013             48,000            $37.30           45,000            $65.88
----------------------------------------------------------------------------
Total            96,000            $37.30           90,000            $65.88
----------------------------------------------------------------------------

As at September 30, 2012, Peyto had committed to the future sale of 204,400 barrels of oil and natural gas liquids at an average price of $54.62 USD per barrel and 59,695,000 gigajoules (GJ) of natural gas at an average price of $3.15 per GJ. Had these contracts been closed on September 30, 2012, Peyto would have realized a gain in the amount of $2.9 million.

ONR Acquisition Update

On August 14, 2012 Peyto closed the acquisition of Open Range Energy Corp. for an effective total capital cost of $187.2 million. The acquisition was conducted pursuant to a plan of arrangement with Peyto exchanging 0.0723 Peyto shares for each Open Range share (5.4 million shares total) and assuming the $75 million in net debt (inclusive of transaction costs).

Integration of the Open Range asset base was concluded shortly after closing and drilling activity commenced on former ONR lands on September 17, 2012. So far, 5 wells have been drilled and 1 gross (0.6 net) well brought on production which has maintained production from the acquired lands at 5,100 boe/d. For the quarter, the ONR acquisition contributed production for 47 days or approximately 2,600 boe/d of average production.

Activity Update

Peyto currently has 8 drilling rigs running, which will increase to 9 by mid-November, out of approximately 90 natural gas directed rigs in the Western Canadian Sedimentary Basin (WCSB) making Peyto one of the busiest natural gas drillers in Canada. This counter cyclical strategy to invest in natural gas when most of the industry is not, allows Peyto improved purchasing power for services, materials and labor which lowers absolute development costs and improves shareholder returns. This strategy has resulted in Peyto building over 18,000 boe/d of new production since the start of 2012 at industry leading capital efficiencies of less than $18,000/boe/d. The new volume additions combined with acquired volumes of 4,700 boe/d and base production of 28,300 boe/d equates to current production of 51,000 boe/d.

In addition, Peyto has 7 gross (6.5 net) wells that are drilled but waiting on completion, and 5 gross (4.0 net) wells completed but waiting on tie in, which represents approximately 6,000 boe/d of behind pipe production. In the past, Peyto has not had this much productive capacity waiting on completion and tie in operations but recent pad drilling techniques, which significantly reduce rig move costs, have delayed wellsite access for completions and pipelining operations. The economic benefit of reduced drilling costs significantly outweighs the short term delay in production additions. The company remains on track to exit 2012 at approximately 57,000 boe/d.

The enhanced liquids recovery project at Peyto's Oldman gas plant, which was originally scheduled to be completed by October 1, 2012, is now expected to be completed and operational by the end of November. An unexpected delay in the delivery of a major component and subsequent construction delays has set the project back eight weeks. Upon completion, it is expected that the Oldman liquid yield will increase from 25 bbl/mmcf to 40 bbl/mmcf, principally from improved Propane and Butane recoveries.

2013 Budget

The Board of Directors has approved a preliminary 2013 budget which includes a capital program expected to range between $450 and $500 million. This record level of investment anticipates that 8 drilling rigs will remain active throughout the year, developing several of the stacked formations within Peyto's Deep Basin core areas. As with past years, it is forecast that over 80% of the capital will be directed to well-related activity including drilling, completions, wellsite equipment and pipelines. In addition, both facility expansion and additional liquids recovery ("deep cut") projects will account for 15% of the total capital. The remaining capital will be directed to new land acquisitions and seismic evaluation.

A total of 100 gross, 85 net wells are forecast to be drilled in 2013 from over 1,000 locations in Peyto's existing inventory. This is expected to result in the addition of between 25,000 to 29,000 boe/d of new production and assumes that similar capital efficiencies to the past four years of $17,500/boe/d can also be successfully achieved in 2013. A portion of this new production will offset an internally forecast 34% base decline, while a portion will grow overall 2013 production to a forecast exit level between 62,000 boe/d and 67,000 boe/d.

AECO natural gas prices in 2013 are currently forecast to average approximately $3.40/GJ, up almost 50% from average 2012 levels. This price, combined with oil prices forecast to average $90/bbl and Peyto's industry leading low cash costs of $1/Mcfe ($6/boe), would result in strong cash netbacks and the ability to fund the dividend and the majority of the 2013 capital program. The balance of the capital program can be funded from available bank lines, working capital and equity, while still maintaining a strong balance sheet.

Outlook

The remainder of 2012 and full year 2013 is forecast to be one of the most active periods in Peyto's history. It comes at a time when the rest of the Canadian industry is not focused on developing natural gas resources as most plays do not provide an economic return at current prices. The number of active, natural gas directed drilling rigs in Canada is clear evidence of that fact. Peyto's unique low cost structure in combination with its focused, returns driven strategy allows the company to take a very counter cyclical approach which has delivered superior total returns to shareholders in the past. Fortunately, Peyto's current inventory of profitable drilling opportunities has never been greater.

The company's financial flexibility, quality asset base and strong balance sheet position Peyto to be opportunistic in this environment. As always, capital investments will only be pursued if return objectives can be met.

Conference Call and Webcast

A conference call will be held with the senior management of Peyto to answer questions with respect to the 2012 third quarter on Thursday, November 8th, 2012, at 9:00 a.m. Mountain Standard Time (MST), or 11:00 a.m. Eastern Standard Time (EST). To participate, please call 1-800-734-8592. The conference call will also be available on replay by calling 1-800-633-8284 (North American Toll Free) or 1-402-997-9140 (for those outside North America) using passcode 21608617. The replay will be available at 11:00 a.m. MST, 1:00 p.m. EST Thursday, November 8th, 2012 until 11:00 am MST on Thursday, November 15th, 2012. In addition to telephone access, the conference call can be accessed through the internet at http://events.digitalmedia.telus.com/peyto/110812/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 third quarter report is available on the Peyto website at http://www.peyto.com/news/Q32012MDandA.pdf. A complete copy of the third 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 where there is a wealth of information designed to educate and inform.

Darren Gee

President and CEO

November 7, 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. Any "financial outlook" or "future oriented financial information" in this press release, as defined by applicable securities legislation has been approved by management of Peyto. Such financial outlook or future oriented financial information is provided for the purpose of providing information about management's current expectations and plans relating to the future. Readers are cautioned that reliance on such information may not be appropriate for other purposes. 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 Consolidated Balance Sheet (unaudited)                            
(Amount in $ thousands)                                                     
                                                   September 30  December 31
                                                           2012         2011
----------------------------------------------------------------------------
Assets                                                                      
Current assets                                                              
Cash                                                          -       57,224
Accounts receivable                                      57,771       53,829
Due from private placement (Note 7)                           -        9,740
Financial derivative instruments (Note 9)                 8,316       38,530
Prepaid expenses                                          2,342        3,991
----------------------------------------------------------------------------
                                                         68,429      163,314
----------------------------------------------------------------------------
                                                                            
Long-term financial derivative instruments (Note 9)           -        6,304
Prepaid capital                                          18,673        1,414
Property, plant and equipment, net (Note 4)           1,990,788    1,629,220
----------------------------------------------------------------------------
                                                      2,009,461    1,636,938
----------------------------------------------------------------------------
                                                                            
----------------------------------------------------------------------------
                                                      2,077,890    1,800,252
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
Liabilities                                                                 
Current liabilities                                                         
Accounts payable and accrued liabilities                120,020      110,483
Dividends payable (Note 7)                                8,633        8,278
Provision for future performance based compensation                         
 (Note 8)                                                 7,607        4,321
----------------------------------------------------------------------------
                                                        136,260      123,082
----------------------------------------------------------------------------
                                                                            
Long-term financial derivative instruments (Note 9)       5,396            -
Long-term debt (Note 5)                                 615,000      470,000
Provision for future performance based compensation                         
 (Note 8)                                                 2,841        1,235
Decommissioning provision (Note 6)                       63,772       38,037
Deferred income taxes                                   162,542      152,190
----------------------------------------------------------------------------
                                                        849,551      661,462
----------------------------------------------------------------------------
                                                                            
Shareholders' equity                                                        
Shareholders' capital (Note 7)                        1,013,100      889,115
Shares to be issued (Note 7)                                  -        9,740
                                                                            
Retained earnings                                        75,602       82,889
Accumulated other comprehensive income (Note 7)           3,377       33,964
----------------------------------------------------------------------------
                                                      1,092,079    1,015,708
----------------------------------------------------------------------------
                                                      2,077,890    1,800,252
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
Approved by the Board of Directors                                          
                                                                            
Michael MacBean                     Darren Gee                              
Director                            Director                                
                                                                            
                                                                            
Peyto Exploration & Development Corp.                                       
Condensed Consolidated Income Statement (unaudited)                         
(Amount in $ thousands)                                                     
                                                                            
                               Three months ended         Nine months ended 
                                     September 30              September 30 
                                2012         2011         2012         2011 
----------------------------------------------------------------------------
Revenue                                                                     
Oil and gas sales             86,827       99,829      240,927      282,893 
Realized gain on hedges       15,214        7,697       50,163       27,404 
Royalties                     (6,632)      (9,265)     (21,549)     (31,195)
----------------------------------------------------------------------------
Petroleum and natural                                                       
 gas sales, net               95,409       98,261      269,541      279,102 
----------------------------------------------------------------------------
                                                                            
Expenses                                                                    
Operating                      8,843        7,157       22,747       19,672 
Transportation                 2,900        2,552        8,151        7,087 
General and                                                                 
 administrative                  759          841        3,369        3,795 
Future performance                                                          
 based compensation                                                         
 (Note 8)                      1,882        1,014        4,893        7,585 
Interest                       6,352        5,205       16,486       14,336 
Accretion of                                                                
 decommissioning                                                            
 provision                       284          192          773          658 
Depletion and                                                               
 depreciation (Note 4)        43,772       30,987      122,546       90,863 
Gain on disposition of                                                      
 assets (Note 4)                (363)           -         (508)        (818)
----------------------------------------------------------------------------
                              64,429       47,948      178,457      143,178 
----------------------------------------------------------------------------
Earnings before taxes         30,980       50,313       91,084      135,924 
----------------------------------------------------------------------------
                                                                            
Income tax                                                                  
Deferred income tax                                                         
 expense                       7,922       12,572       22,956       33,777 
                                                                            
----------------------------------------------------------------------------
Earnings for the period       23,058       37,741       68,128      102,147 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
                                                                            
----------------------------------------------------------------------------
Earnings per share                                                          
 (Note 7)                                                                   
Basic and diluted       $       0.16 $       0.28 $       0.49 $       0.77 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
----------------------------------------------------------------------------
Weighted average number                                                     
 of common shares                                                           
 outstanding (Note 7)                                                       
Basic and diluted        142,069,048  133,061,301  139,631,290  132,954,410 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
                                                                            
Peyto Exploration & Development Corp.                                       
Condensed Consolidated Statement of Comprehensive Income(unaudited)         
(Amount in $ thousands)                                                     
                                                                            
                                   Three months ended     Nine months ended 
                                         September 30          September 30 
                                      2012       2011       2012       2011 
----------------------------------------------------------------------------
Earnings for the period             23,058     37,741     68,128    102,147 
Other comprehensive income                                                  
 (loss)                                                                     
Change in unrealized gain (loss)    (6,812)     8,394      9,381     18,825 
 on cash flow hedges                                                        
 Deferred tax recovery (expense)     5,507       (103)    10,195      2,408 
Realized (gain) loss on cash       (15,214)    (7,697)   (50,163)   (27,404)
 flow hedges                                                                
----------------------------------------------------------------------------
Comprehensive Income (Loss)          6,539     38,335     37,541     95,976 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
                                                                            
Peyto Exploration & Development Corp.                                       
Condensed Consolidated Statement of Changes in Equity (unaudited)           
(Amount in $ thousands)                                                     
                                                                            
                                                          Nine months ended 
                                                               September 30 
                                                            2012       2011 
----------------------------------------------------------------------------
Shareholders' capital, beginning of period               889,115    755,831 
----------------------------------------------------------------------------
Common shares issued                                     112,187          - 
Common shares issued by private placement                 11,952     17,150 
Common shares issuance costs (net of tax)                   (154)       (75)
Common shares issued pursuant to DRIP                          -      1,973 
Common shares issued pursuant to OTUPP                         -      2,889 
----------------------------------------------------------------------------
Shareholders' capital, end of period                   1,013,100    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                                   68,128    102,147 
Dividends (Note 7)                                       (75,415)   (71,823)
----------------------------------------------------------------------------
Retained earnings, end of period                          75,602     81,098 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
                                                                            
                                                                            
----------------------------------------------------------------------------
Accumulated other comprehensive income, beginning of                        
 period                                                   33,964     20,893 
----------------------------------------------------------------------------
Other comprehensive income (loss)                        (30,587)    (6,171)
----------------------------------------------------------------------------
Accumulated other comprehensive income (loss), end of                       
 period                                                    3,377     14,722 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
                                                                            
                                                                            
----------------------------------------------------------------------------
Total shareholders' equity                             1,092,079    873,588 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
                                                                            
Peyto Exploration & Development Corp.                                       
Condensed Consolidated Statement of Cash Flows (unaudited)                  
(Amount in $ thousands)                                                     
                                                                            
                                   Three months ended     Nine months ended 
                                         September 30          September 30 
                                      2012       2011       2012       2011 
----------------------------------------------------------------------------
Cash provided by (used in)                                                  
 operating activities                                                       
Earnings                            23,058     37,741     68,128    102,147 
Items not requiring cash:                                                   
 Deferred income tax                 7,922     12,572     22,956     33,777 
 Depletion and depreciation         43,772     30,987    122,546     90,863 
 Accretion of decommissioning                                               
  provision                            284        192        773        658 
Change in non-cash working                                                  
 capital related to operating                                               
 activities                         (3,032)    (1,807)    (8,464)   (22,224)
----------------------------------------------------------------------------
                                    72,004     79,685    205,939    205,221 
----------------------------------------------------------------------------
Financing activities                                                        
Issuance of common shares                -          -     11,952      4,727 
Issuance costs                        (170)         -       (205)       (99)
Cash dividends paid                (25,251)   (23,951)   (75,060)   (67,241)
Increase (decrease) in bank debt    70,000     35,000     (5,000)   135,000 
Repayment of Open Range bank debt  (72,000)         -    (72,000)         - 
Issuance of long term notes         50,000          -    150,000          - 
----------------------------------------------------------------------------
                                    22,579     11,049      9,687     72,387 
----------------------------------------------------------------------------
Investing activities                                                        
Additions to property, plant and                                            
 equipment                         (94,583)   (93,451)  (272,850)  (275,870)
----------------------------------------------------------------------------
                                                                            
----------------------------------------------------------------------------
Net increase (decrease) in cash          -     (2,717)   (57,224)     1,738 
Cash, Beginning of Period                -     12,349     57,224      7,894 
----------------------------------------------------------------------------
Cash, End of Period                      -      9,632          -      9,632 
----------------------------------------------------------------------------
                                                                            
                                                                            
The following amounts are included in cash flows from operating activities: 
----------------------------------------------------------------------------
                                                                            
Cash interest paid                   7,544      5,205     15,979     13,746 
Cash taxes paid                          -          -          -          - 
----------------------------------------------------------------------------

Peyto Exploration & Development Corp.

Notes to Condensed Consolidated Financial Statements (unaudited)

As at September 30, 2012 and 2011

(Amount in $ thousands, except as otherwise noted)

1. Nature of operations

Peyto Exploration & Development Corp. and its wholly subsidiary Open Range Energy Corp. ("Open Range"), (collectively "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 November 6, 2012.

2. Basis of presentation

The condensed consolidated 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 consolidated 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 consolidated 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 consolidated financial statements.

All accounting policies and methods of computation followed in the preparation of these condensed consolidated 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. Any reference to "Peyto" or the "Company" throughout these financial statements refers to the Company and its subsidiary. All inter-entity transactions have been eliminated.

3. Corporate Acquisition

On August 14, 2012, Peyto completed the acquisition, by plan of arrangement, of all issued and outstanding common shares of Open Range. The total consideration of approximately $187.2 million paid for by the issuance of 5.4 million shares and the assumption of Open Range's long-term debt and working capital deficiency ($193.6 million was allocated to Property, plant & equipment). Transaction costs of approximately $0.6 million are included in the financial statements.

The Open Range properties are a natural fit with Peyto's Greater Sundance core area. Open Range's plant and pipeline infrastructure complements Peyto's existing core assets and accesses other proven Peyto lands adjacent to the main Sundance area. This will allow for the accelerated development of the Peyto step-out areas.


($000s)                                                                     
Fair value of net assets acquired                                           
----------------------------------------------------------------------------
Working capital                                                      (1,868)
Property, plant and equipment                                       193,629 
Financial derivative instruments                                     (1,132)
Bank debt                                                           (72,000)
Decommissioning provision                                            (8,800)
Deferred income taxes                                                 2,358 
----------------------------------------------------------------------------
Total net assets acquired                                           112,187 
----------------------------------------------------------------------------
Consideration                                                               
Shares issued (5,404,007 shares)                                    112,187 
----------------------------------------------------------------------------
Total purchase price                                                112,187 
----------------------------------------------------------------------------

The above amounts are estimates, which were made by management at the time of the preparation of these condensed consolidated financial statements based on information then available. Amendments may be made as amounts subject to estimates are finalized.

If Peyto had acquired Open Range on January 1, 2012, the pro-forma results of the oil and gas sales, net income and comprehensive income for the period ended September 30, 2012 would have been as follows;


                                              Open Range                    
                              As Stated  January 1, 2012                    
                          September 30,    to August 14,          Pro Forma 
($000s)                            2012             2012  September 30, 2012
----------------------------------------------------------------------------
Oil and gas sales               240,927           27,756             268,683
Net income                       68,128            1,134              69,262
Comprehensive income             37,541            1,134              38,675
----------------------------------------------------------------------------
                                                                            
4. Property, plant and equipment, net                                       
                                                                            
Cost                                                                        
----------------------------------------------------------------------------
At December 31, 2011                                              1,843,766 
----------------------------------------------------------------------------
  Acquisitions through business combinations, net                   193,629 
  Additions                                                         291,246 
  Dispositions                                                         (768)
----------------------------------------------------------------------------
At September 30, 2012                                             2,327,873 
----------------------------------------------------------------------------
                                                                            
Accumulated depletion and depreciation                                      
----------------------------------------------------------------------------
At December 31, 2011                                               (214,546)
----------------------------------------------------------------------------
  Depletion and depreciation                                       (122,546)
  Dispositions                                                            7 
----------------------------------------------------------------------------
At September 30, 2012                                              (337,085)
----------------------------------------------------------------------------
                                                                            
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Carrying amount at September 30, 2012                             1,990,788 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Proceeds received for assets disposed of during the three and nine month periods ended September 30, 2012 were $1.0 million and $1.2 million (2011 - $nil and $1.5 million).

During the three and nine month periods ended September 30 2012, Peyto capitalized $2.3 million and $4.8 million (2011 - $1.7 million and $4.4 million) of general and administrative expense directly attributable to production and development activities.


5. Long-term debt                                                           
                                                                            
----------------------------------------------------------------------------
                                      September 30, 2012   December 31, 2012
----------------------------------------------------------------------------
Bank credit facility                             465,000             470,000
Senior secured notes                             150,000                   -
----------------------------------------------------------------------------
Balance, end of the period                       615,000             470,000
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Peyto has a syndicated $730 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 $700 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.

On September 6, 2012, Peyto issued CDN $50 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 4.88% and mature on September 6, 2022. 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 September 30, 2012.

Peyto's total borrowing capacity is $880 million and Peyto's net credit facility is $730 million.

Total interest expense for the three and nine month periods ended September 30, 2012 was $6.4 million and $16.5 million (2011 - $5.2 million and $14.3 million) and the average borrowing rate for the three and nine month periods was 4.6% and 4.4% (2011 - 4.4% and 4.4%).


6.  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 cease 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                                            9,793
Provisions acquired through business combinations                      8,800
Accretion of decommissioning provision                                   773
Change in discount rate and estimates                                  6,369
----------------------------------------------------------------------------
Balance, September 30, 2012                                           63,772
----------------------------------------------------------------------------
----------------------------------------------------------------------------
  Current                                                                  -
  Non-current                                                         63,772
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Peyto has estimated the net present value of its total decommissioning provision to be $63.8 million as at September 30, 2012 ($38.0 million at December 31, 2011) based on a total future undiscounted liability of $131.6 million ($101.2 million at December 31, 2011). At September 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 2.32 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.

7. Shareholders' capital

Authorized: Unlimited number of voting common shares


Issued and Outstanding                                                      
                                                                            
Common Shares (no par value)             Number of Common Shares   Amount $ 
----------------------------------------------------------------------------
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 shares issued for acquisitions                  5,404,007    112,187 
Common share issuance costs (net of tax)                       -       (154)
----------------------------------------------------------------------------
Balance, September 30, 2012                          143,889,963  1,013,100 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

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).

On August 14, 2012 Peyto issued 5,404,007 common shares which were valued at $112.0 million (net of issuance costs) ($20.76 per share) in relation to the closing of a corporate acquisition (Note 3).

Per share amounts

Earnings per share have been calculated based upon the weighted average number of common shares outstanding for the three and nine month periods ended September 30, 2012 were 142,069,048 and 139,631,290 (2011 - 133,061,301 and 132,954,410). There are no dilutive instruments outstanding.

Dividends

During the three and nine month periods ended September 30, 2012, Peyto declared and paid dividends of $0.18 and $0.54 per common share or $0.06 per common share per month, totaling $25.6 million and $75.4 million (2011 - $0.18 and $0.54 per share or $0.06 per share per month, $24.0 million and $71.8 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 9.

8. 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:


                                            September 30        September 30
                                                    2012                2011
----------------------------------------------------------------------------
Share price                              $18.83 - $24.75     $18.83 - $19.93
Exercise price                           $12.06 - $24.37      $9.57 - $19.10
Expected volatility                             0% - 32%           25% - 31%
Expected life                                 0.25 years   0.25 - 2.25 years
Risk-free interest rate                            1.08%               0.91%
----------------------------------------------------------------------------

9. 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 September 30, 2012:


----------------------------------------------------------------------------
Propane                                                                Price
Period Hedged                               Type  Monthly Volume       (USD)
----------------------------------------------------------------------------
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
September 1, 2012 to March 31, 2013  Fixed Price       2,000 bbl  $32.34/bbl
September 1, 2012 to March 31, 2013  Fixed Price       2,000 bbl  $33.60/bbl
September 1, 2012 to March 31, 2013  Fixed Price       2,000 bbl  $32.97/bbl
October 1, 2012 to March 31, 2013    Fixed Price       2,000 bbl  $34.01/bbl
October 1, 2012 to March 31, 2013    Fixed Price       2,000 bbl  $34.65/bbl
October 1, 2012 to March 31, 2013    Fixed Price       2,000 bbl  $36.96/bbl
----------------------------------------------------------------------------
                                                                            
----------------------------------------------------------------------------
Butane                                                                 Price
Period Hedged                               Type  Monthly Volume       (USD)
----------------------------------------------------------------------------
September 1, 2012 to March 31, 2013  Fixed Price       2,000 bbl  $80.64/bbl
September 1, 2012 to March 31, 2013  Fixed Price       2,000 bbl  $58.38/bbl
September 1, 2012 to March 31, 2013  Fixed Price       2,000 bbl  $60.06/bbl
September 1, 2012 to March 31, 2013  Fixed Price       2,000 bbl  $60.06/bbl
October 1, 2012 to March 31, 2013    Fixed Price       2,000 bbl  $66.36/bbl
----------------------------------------------------------------------------
                                                                            
----------------------------------------------------------------------------
Condensate                                                             Price
Period Hedged                               Type  Monthly Volume       (USD)
----------------------------------------------------------------------------
August 1, 2012 to December 31, 2012  Fixed Price         200 bbl  $90.00/bbl
----------------------------------------------------------------------------
                                                                            
----------------------------------------------------------------------------
Iso-Butane                                                             Price
Period Hedged                               Type  Monthly Volume       (USD)
----------------------------------------------------------------------------
September 1, 2012 to March 31, 2013  Fixed Price       1,000 bbl  $82.32/bbl
September 1, 2012 to March 31, 2013  Fixed Price       1,000 bbl  $60.48/bbl
September 1, 2012 to March 31, 2013  Fixed Price       1,000 bbl  $62.58/bbl
September 1, 2012 to March 31, 2013  Fixed Price       1,000 bbl  $62.58/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 December 31, 2012    Fixed Price     12,500 GJ    $1.95/GJ
August 1, 2012 to December 31, 2012    Fixed Price      5,000 GJ    $2.23/GJ
August 1, 2012 to March 31, 2014       Fixed Price      5,000 GJ    $3.00/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 October 31, 2013   Fixed Price      5,000 GJ   $3.005/GJ
November 1, 2012 to October 31, 2013   Fixed Price      5,000 GJ    $3.00/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 March 31, 2014     Fixed Price      5,000 GJ    $3.05/GJ
November 1, 2012 to March 31, 2014     Fixed Price      5,000 GJ    $3.02/GJ
November 1, 2012 to October 31, 2014   Fixed Price      5,000 GJ  $3.0575/GJ
January 1, 2013 to December 31, 2013   Fixed Price      5,000 GJ   $3.105/GJ
January 1, 2013 to March 31, 2014      Fixed Price      5,000 GJ    $3.00/GJ
January 1, 2013 to March 31, 2014      Fixed Price      5,000 GJ    $3.02/GJ
April 1, 2013 to March 31, 2014        Fixed Price      5,000 GJ   $3.105/GJ
----------------------------------------------------------------------------

As at September 30, 2012, Peyto had committed to the future sale of 204,400 barrels of oil and natural gas liquids at an average price of $54.62 USD per barrel and 59,695,000 gigajoules (GJ) of natural gas at an average price of $3.15 per GJ or $3.68 per mcf. Had these contracts been closed on September 30, 2012, Peyto would have realized a gain in the amount of $2.9 million. If the AECO gas price on September 30, 2012 were to increase by $1/GJ, the unrealized gain would decrease by approximately $59.7 million. An opposite change in commodity prices rates would result in an opposite impact on other comprehensive income.

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


----------------------------------------------------------------------------
Propane                                                                Price
Period Hedged                               Type  Monthly Volume       (USD)
----------------------------------------------------------------------------
January 1, 2013 to March 31, 2013    Fixed Price       4,000 bbl  $36.12/bbl
April 1, 2013 to June 30, 2013       Fixed Price       4,000 bbl  $34.86/bbl
----------------------------------------------------------------------------
                                                                            
----------------------------------------------------------------------------
Natural Gas                                                            Price
Period Hedged                                Type  Monthly Volume      (CAD)
----------------------------------------------------------------------------
January 1, 2013 to October 31, 2013   Fixed Price        5,000 GJ   $3.42/GJ
April 1, 2013 to October 31, 2013     Fixed Price        5,000 GJ  $3.205/GJ
April 1, 2013 to March 31, 2014       Fixed Price        5,000 GJ   $3.53/GJ
November 1, 2013 to October 31, 2014  Fixed Price        5,000 GJ   $3.50/GJ
----------------------------------------------------------------------------

10. Commitments and contingencies

Peyto has contractual obligations and commitments as follows:


                          2012     2013     2014    2015    2016  Thereafter
----------------------------------------------------------------------------
Note repayment(1)            -        -        -       -       -     150,000
Interest payments(2)         -    6,830    6,830   6,830   6,830      25,615
Transportation                                                              
 commitments             3,190   13,259   12,134   9,185   4,452       1,462
Operating lease            417    1,661    1,677     522       -           -
----------------------------------------------------------------------------
Total                    3,607   21,750   20,641  16,537  11,282     177,077
----------------------------------------------------------------------------
(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.

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, Exploitation  
Officer                                                                     
                                                                            
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                                                

Contacts:
Peyto Energy Trust
Darren Gee
President and CEO
403.261.6081
403.451.4100 (FAX)
www.peyto.com

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