Peyto Exploration & Development Corp. · TSX:PEY
Peyto Exploration & Development — CIBC Energy Conference 2012
50 slides from Peyto Exploration & Development's conference presentation, Apr 19, 2012
Slide 1: CIBC Energy Conference April 2012
2011 ‐ 2003 ‐ 2010 1998 ‐ 2003 www.Peyto.com CIBC Energy Conference April 2012
Slide 2: Advisory Regarding Forward-Looking Statements
Advisory Regarding Forward-Looking Statements This presentation contains forward-looking statements and forward-looking information within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "objective", "ongoing", "may", "will", "pr
Slide 3: Peyto Profile
Peyto Profile PEYTO Exploration & Development Corp. N TSX Listing: PEY N Monthly Dividend: $0.06/share N Shares Outstanding: g 138 million ((6% insider ownership) p) N Current Production: 250 MMCFe/d (42,000 boe/d) N Q4 2011 Net Debt: $100 million (senior secured notes, 7 yr, 4.39% coupon, Prudentia
Slide 4: Peyto's Assets
Peyto’s Assets Geographically Focused Core Areas • 313,800 net acres (825,000 net acres for all zones)) • 5 operated gas plants ---(340 mmcf/d capacity) Cutbank • 900+ km pipelines • 750+ producing zones Kakwa • 42,000 boe/d y Peyto Processed by y Chicken Leland 150 miles Pine Creek C ee Greater G t
Slide 5: The Peyto Strategy: Growth per Share
The Peyto Strategy Growth per Share 400 $12 Production perr Share (boe/d per mms) 350 $10 300 GJ) CO Gas Price ($/G $8 250 200 $6 150 $4 AEC 100 $2 50 YoY production 0 $- growth/share liq prod/share gas prod/share AECO ($/GJ) 5 Historical Per Unit (share) and Units (shares) Outstanding numbers have
Slide 6: The Peyto Strategy: Returns Driven
The Peyto Strategy Returns Driven 250 200 2011 150 Net Capital to PV5 100 50 0 Production/share g growth 250 2011 Capital Program 62 Net Wells 200 21,700 boe/d 150 2P Reserves/share growth 100 50 0 IRR 6 Note: liquids are converted to molar equivalent gas volume for this analysis (1 bbl approximatel
Slide 7: Business: Build it for less than you sell it
Peyto’s Business “Build it for less than you sell it” $8 2011 PP FD&A $6 $/mcfe AECO $4 Monthly $10 $/GJ $2 Peyto Unhedged Realizzed Price ($/mcfe) 39% $8 eyto Realized Gas Price ($/mcfe) $- Average Profit ARX NGL CLT VET ONR NAE TOU ERF PGF BNP PEYTO CPG PMT PWT PRQ* TET FEL* BIR BTE $6 $4 2011 Op
Slide 8: Returns: Effective Gas Price per Mcfe
Peyto’s Returns Liquids Rich Gas Streams Effective Gas Price per Mcfe (assumes $100/bbl oil) $6 cfe) $ $5 Price ($/Mc $4 Cardium (45 bbl/MMcf sls) Wilrich (7 bbl/MMcf sls) $3 + PP FD&A Effective P $2.12/Mcfe $2 12/M f Notikewin (10-15 bbl/MMcf sls) $2 Falher (15-17 bbl/MMcf sls) Min. Realized Gas Ka
Slide 9: 2012 Outlook: The Gas Price Bottom?
2012 Outlook The Gas Price Bottom? $2.35/GJ Up 36% $1.75/GJ http://www.gasalberta.com/pricing-market.htm 9 4/19/2012
Slide 10: Long Term Potential: Grow Production in Time for Export?
Long Term Potential Grow Production in Time for Export? 70,000 2015 Wedge 60,000 2014 Wedge 2013 Wedge 2012 Wedge 50 000 50,000 2015 0 5 is s the e 2011 Wedge forecast for first N.A. LNG Export 2010 Wedge 40,000 Base-2009 /d BOEs/ 30,000 20,000 10,000 0 10 BOE factor - 6 mcf = 1 bbl of oil equivalen
Slide 11: The Rest of the Story
The Rest of the Story… • The Peyto Strategy • Peyto’s Business • Peyto’s Assets • Peyto’s Returns • 2012 Outlook • Appendix
Slide 12: The Peyto Strategy
The Peyto Strategy Deploy p y Superior p Business Acumen N Deep basin technical expertise N Continuous focus on returns N Internally generated drilling ideas (over 1,100 locations to date) Develop Superior Assets N Operated and geographically concentrated (99% operated and processed) N Longest reser
Slide 13: Superior Shareholder Return
The Peyto’s Strategy Superior Shareholder Return $40 $35 $30 $25 $20 Shareholder IRR $ $15 $10 $5 $0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Share Price w/Div Share Price 13 Historical Per Unit and Units Outstanding numbers have been adjusted to reflect the Ma
Slide 14: Peyto's Profitable Business
Peyto’s Peyto s Profitable Business
Slide 15: Who's Profitable
Peyto’s Business Who’s Profitable Peyto Ave Profit 2002-2011 = $2.69/mcfe Ultra Pet. Ave Profit 2002-2011 = $1.56/mcfe AECO Monthly $10 $10 $/GJ Daily Wellhead Gas Pricce ($/mcf) e ($/mcfe) 39% $8 $8 o Realized Gas Price ($//mcfe) Average mcfe) Profit Realized Gas Price ($/m Unhedged Realized Price
Slide 16: The Low Cost Advantage
Peyto’s Business The Low Cost Advantage Peyto Ave CND >75% %GGas* * WTI Oil C$/bbl $105 11% 15% AECO Gas C$/GJ $2.00 89% 85% Unhedged Revenue ($/mcfe) $3.69 $4.20 Royalties ($0.53) ($0.56) Operating Costs (w/Transport) ($0.48) ($1.52) G&A ($0 06) ($0.06) ($0 38) ($0.38) Interest ($0.28) ($0.41) Cash
Slide 17: Focus on Returns Drives Capital Discipline
Peyto’s Business Focus on Returns Drives Capital Discipline 2012 ‐ $?/boe/d 2011 ‐ $17 $17,500/boe/d 500/boe/d 2010 ‐ $17,300/boe/d $80,000 2009 ‐ $17,300/boe/d 2008 ‐ $33,100/boe/d 2007 ‐ $26,500/boe/d dge Annual Production Wed 2006 ‐ $50,300/boe/d $ /b /d $60,000 2005 ‐ $42,100/boe/d 2004 ‐ $22,20
Slide 18: Peyto's Unique Assets
Peyto’s Peyto s Unique Assets
Slide 19: Deep Basin Lands Go A Long Way
Peyto’s Assets Deep Basin Lands Go A Long Way Net Peyto Sections Net Sections of Cardium, Dunvegan, Notikewin, Falher, Wilrich, Bluesky, & Cadomin Net Sections for 2.2 TCFe of 2P EUR 19 TCFe – Trillion Cubic Feet equivalent Lands at December 31, 2011 4/19/2012 Based on InSite Petroleum Consultants (
Slide 20: Deep Basin Permeability Segregation
Peyto’s Assets Deep Basin Permeability Segregation FOOTHILLS STRUCTURES GAS AS ING INCRE BILITY EA PERM WATER TRANSITION ZONE WATER GAS ASE INCRE AREA OF GAS DEPTH MATURATION 20 4/19/2012
Slide 21: Applying Hz Technology to Tight Deep Basin Sands
Peyto’s Assets Applying Hz Technology to Tight Deep Basin Sands Up to per section 21 *NGL recoveries can increase by up to 15 bbl/mmcf with deeper cutting processing facilities 4/19/2012
Slide 22: Large Hz MSF Inventory
Peyto’s Assets Large Hz MSF Inventory Horizontal Locations 192 locations 16 locations 14 locations 69 locations 180 locations Years of Drilling Inventory 182 locations 14 locations 2 locations >669 locations! 22 4/19/2012 *400 of these locations are recognized in the IPC (formerly PLA) independent r
Slide 23: Organically Built Core Areas
Peyto’s Assets O Organically Built Core C Areas K C C G FAU G C GU F UA F G C A VUF C C C A C F A C U F FA F U L F CU F C G FA FAUFAU U FA U FU VU FA A VC F AU V F A FA C K KA U F A W N V F FU AU V A A A AU F GF A FAF AVU C FA AWUUA F GA V FCC F AFU A F KU A F F F A FA UFA 140 net GU G F G A F UA A
Slide 24: Kisku Cardium – Vertical vs. Horizontal
Peyto’s Assets Kisku Cardium – Vertical vs. Horizontal 7,000 Hz Well #1 Hz Wellll #2 Kisku Cardium Hz Type Economics 6,000 Hz Well #3 Capital: $5.8MM (D/C/E/T) n (mcfe/d) Hz Well #4 Vert Well #1 IP(1m): 3.6 mmcf/d, 60 bbl/mmcf sales 5,000 Vert Well #2 EUR: 3.2 BCFe sales Vert Well #3 Vert Well #4 IR
Slide 25: Oldman Enhanced Liquids Extraction
Peyto’s Assets Oldman Enhanced Liquids Extraction N Reduce process temp. from -35oC to -80oC N Increase liquids recovery by 15 bbls/mmcf on bbl/mmcf more liquids over 100 mmcf/d net sales recovery N Approx. $23 MM Capital Investment N Less than 2 yr payout, IRR >75% at $3.27/GJ and $98/bbl Edm. Ligh
Slide 26: Opportunity To Enhance Returns
Peyto’s Assets Opportunity To Enhance Returns T i lS Typical d Sundance C di Cardium H Hz W ll Well 60% 50% 40% 30% 20% 10% IRR at $1/GJ 0% $2/GJ Gas $1 /GJ Gas $1/GJ + $1 Gas + $2 Gas + Price Price 10% Capex 10% 10% savings Savings + Savings + Deep Cut Deep Cut *Assumptions for typical Sundance Car
Slide 27: Longest Reserve Life
Peyto’s Assets Longest Reserve Life 10 Peyto 2011 PP RLI (yrs) 5 0 Industry 2011 PP RLI (yrs) 27 2010 Year End Proved Producing Reserve Life (using Q4 2010 production rate). 4/19/2012 Source: Company AIF & Financials
Slide 28: Lowest Operating Costs
Peyto’s Assets Lowest Operating Costs $20 $15 $10 Peyto 2011 Op Costs ($/boe) $5 $‐ Industry 2011 Op Costs ($/boe) Operating Costs include Transportation costs. ($/boe) 2 BOE factor - 6 mcf = 1 bbl of oil equivalent 4/19/2012
Slide 29: Lowest Operating Costs – Gas Producers
Peyto’s Assets Lowest Operating Costs – Gas Producers $18 PEYTO $16 Trilogy $14 Fairborne Operatingg Costs ($/boe) Perpetual p $12 Progress $10 Tourmaline $8 Celtic Average $6 $4 1 %/yr $2 $‐ 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 29 BOE factor - 6 mcf = 1 bbl of oil equiva
Slide 30: Deep Gas Drilling Royalty Incentives
Peyto’s Assets Deep Gas Drilling Royalty Incentives 3,500-4,000 m MD Trigger depth for Natural Gas Deep Drilling Program 2,200 m reduced from TVD 2,500m TVD to 2,000m TVD 3,700-4,000 m MD 2,650-2,850 m TVD 4 200 m MD 4,200 Effective Royalty 2,750-2,900 m TVD *3,700m Cardium Horizontal Well would rec
Slide 31: Lowest FD&A Cost
Peyto’s Assets Lowest FD&A Cost $50 $40 $30 Peyto 2011 PP FD&A ($/boe) $20 $10 $‐ Industry 2011 PP FD&A ($/boe) 31 Proved Producing FD&A Cost – Inclusive of Acquisition, Finding and Development Capital *Inclusive of significant dispositions 4/19/2012
Slide 32: Low FD&A Costs = High Recycle Ratio
Peyto’s Assets Low FD&A Costs = High Recycle Ratio Proved Producing $50 Total Proved Proved + Probable $40 Field Netback $30 $20 $ Peyto PP Recycle Ratio $10 (10 yr) $0 Recycle Ratio is the Netback divided by FD&A *FD&A costs include all capital expenditures and changes in Future Development Capital
Slide 33: Lowest Total Costs
Peyto’s Assets Lowest Total Costs 200% s as % of Total Revenue 150% 100% Peyto 2011 Margin Total Costs 50% 0% Op Costs Royalties G&A Interest PDP FD&A Industry 2011 Margin 33 Total Costs per boe includes – Royalties, Op Costs, G&A, Interest, Management Fees, and PP FD&A cost *Inclusive of significan
Slide 34: Peyto's Incredible Returns
Peyto’s Peyto s Incredible Returns
Slide 35: High Returns on Capital and Equity
Peyto’s Returns High Returns on Capital and Equity 60% $10 50% $8 40% $6 30% 12 yr Average ROE $4 % 20% 10% $2 0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 $0 Return R t O On C Capital it l E Employed l d (%) Return On Equity (%) Earnings/share Realized Gas Price ($/mcfe) 12 y
Slide 36: Shareholder Returns = NAV Growth + Income
Peyto’s Returns Shareholder Returns = NAV Growth + Income $60 Cum Div/Dist P+P $50 share TP $40 PV5 debt adj./s PDP $30 $20 $ $10 Compound Annual $- Growth Rate 36 PV5 DA/share is Before Tax Net Present Value, discounted at 5%, less debt divided by the number of shares/units outstanding Historical U
Slide 37: Careful Use of Debt
Peyto’s Returns Careful Use of Debt $2 $2.5 5 100% $2.0 80% $1 5 $1.5 60% $1.0 40% $0 5 $0.5 20% Average Net Debt $- 0% to NPV PDP NPV8 ($B) Net Debt/PDP NPV8 Proved Developed Producing (PDP) Net Present Value (NPV) discounted at 8%, as evaluated by the Independent Engineering firm 37 InSite Petrole
Slide 38: More Of 2011
2012 Outlook More Of 2011 Drill (100% Hz Wells, liquids rich) Expand & Extract Increase Processing Capacity & NGL Yield Increase Undeveloped Land Base Shoot Seismic 2012 Capital Program Acquire Additional Opportunities and Partner Interests 38 4/19/2012
Slide 39: Select Your Menu For Best Returns
2012 Outlook Select Your Menu For Best Returns P t Peyto Energy Returns - January 2012 $2.50/GJ $4/GJ $2.50/GJ $4/GJ FROM THE GRILL STARTERS Sundance Falher Hz 20% 40% DESERTS Nosehill Wilrich Hz 13% 36% Sundance Bluesky Hz 24% 54% Oldman Enhanced Liquids >75% Nosehill Noti. Hz 16% 42% Recoveryy Ob
Slide 40: Increased Returns With Deep Cut
2012 Outlook Increased Returns With Deep Cut C Species Pre Deep Post Deep Cut IRR Cut IRR Cardium 46% 49% Sundance Cardium 33% Kisku Notikewin 29% 42% Average IRR Improvement Falher 20% 25% Wilrich l h 13% 15% Bluesky 24% 35% 40 Commodity Assumptions: $2.50/GJ gas, $100/bbl oil, esc. At 2% /yr 4/19/
Slide 41: It Just Gets Easier to Grow
2012 Outlook It Just Gets Easier to Grow 2012 Decline Assumes 2011 Base 20,700 @ 13% 2011 New 21,300 @ 48% 31% forecast base decline* -40% 2011 Decline 2010 Base = 15,500 @ 14% 2010 New = 15,100 @ 53% 33% 31%F 33% actual base decline e (boe/d) years!! 32% -30% duction Wedge 31% production in 3 y 30%
Slide 42: Appendix
Appendix • Quarterly Track Record • Tax Pools • Payout Ratio • Gas Marketing • Hedging Strategy • Reserves data – volumes, values, RLI 42 4/19/2012
Slide 43: Quarterly Track Record
Quarterly Track Record Total Q4 Q3 Q2 Q1 Total Q4 Q3 Q2 Q1 Total Q4 Operations Production Oil & NGLs (bbl/d) 3,856 3,947 3,918 3,811 3,746 3,389 3,439 3,322 3,465 3,330 3,028 3,222 Natural gas (mcf/d) 189,653 212,715 194,832 183,790 166,710 122,031 148,551 122,717 112,422 103,934 92,718 95,467 Barre
Slide 44: Peyto's Tax Pools
Organic Business Model Peyto’s Tax Pools $1,200 $1,000 $ , $800 Millions $600 $400 $200 $- 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 CEC UCC (25%) CEE (100%) CDE (30%) COGPE (10%) CAPEX 44 4/19/2012
Slide 45: Payout Ratio History
Payout Ratio History Maximum Historical Payout Ratio 91% 100% Minimum Converted 42% 80% to a Trust at 57% 60% 40% 20% 0% Cash Payout Ratio Total Payout Ratio Converted to a Corp. at 32% Historical Per Unit and Units Outstanding numbers have been adjusted to reflect the May 27, 2005 2:1 stock split T
Slide 46: Gas Marketing
Gas Marketing F t Future Sales S l Financial Hedges - Gas Pricing 2011 2012 2013 2014 Term GJ/d ($/GJ) A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M From To 1-Apr-10 p 31-Mar-12 5000 $5.670 ● ● ● ● ● ● ● ● ● ● ● ● 1-Apr-11 31-Mar-12 5000 $6.200 ● ● ● ● ● ● ● ● ● ● ● ● 1-Apr
Slide 47: Successful Hedging Strategy
Successful Hedging Strategy Peyto Realized Price History 2003 2004 2005 2006 2007 2008 2009 2010 2010 $16.00 Peyto $7.51/mcf Peyto $7.38/mcf Peyto $8.78/mcf Peyto $8.46/mcf Peyto $8.42/mcf Peyto $8.64/mcf Peyto $6.44/mcf Peyto $5.36/mcf Peyto $4.47/mcf AECO Mo AECO Mo AECO Mo $14.00 AECO Mo AECO Mo
Slide 48: Peyto's 2011 Reserves
Peyto’s 2011 Reserves Volumes Natural Gas Sales Gas Liquids & Oil Category (BCF) (Mstb) BOE's(Mstb) Proven Producing 668 16,125 127,457 Proven Non-Producing 14 356 2,745 Proven Undeveloped 422 24,834 95,102 Total Proven 1,104 41,314 225,304 Probable Additional 496 14,525 79,977 Proved + Probable 1,6
Slide 49: Peyto's 2011 Reserves: Before Tax NPV
Peyto’s 2011 Reserves Before Tax Net Present Value Variable Price Economics NPV (millions of CDN dollars) Category 0% 5% 8% 10% Proven Producing $ 4,809 4 809 $ 2,624 2 624 $2,049 2 049 $ 1,792 1 792 Proven Non-Producing $ 97 $ 43 $ 29 $ 23 Proven Undeveloped $ 2,796 $ 1,306 $ 878 $ 681 Total Proven
Slide 50: FAQ
FAQ Frequently Asked Questions 1. Peyto has had some spectacular growth over the last two years, how can that growth continue? The profitable growth in production, reserves and funds from operations per share that we’ve experienced over the last two years is the result of achieving very good rates o
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