Peyto Exploration & Development Corp. · TSX:PEY
Peyto Exploration & Development — Peter's & Co. Energy Conference 2010
56 slides from Peyto Exploration & Development's conference presentation, September 2010
Slide 1: Peter's & Co. Energy Conference
Peter’s Peter s & Co. Co Energy Conference September 2010 TSX: PEY.UN www.Peyto.com Current Distribution: $0.12/month 10.2% Cash on Cash Yield 121,946,039 units outstanding [$1.44/$14.10 = 10.2% (Aug 30/10 closing)]
Slide 2: The Peyto Strategy
The Peyto Strategy 11 Y Year T Track kRRecord d Prospect Generation Reserves Growth NAV Growth Profit Sharing (BCFe) (NPV5 Debt Adj/Unit) 1999 2000 2001 1999 1999 2002 2000 2000 2003 2001 2004 2001 2002 2005 2002 2003 2006 2003 2004 2007 2004 2005 2008 2005 2006 2009 2006 2007 2008 2007 2008 2009 20
Slide 3: Compound Annual Total Return
Compound Annual Total Return C L 0 10 20 30 40 50 60 70 80 Largest Calfrac Well Servicess Jan‐99 Osisko Mining Source: BMO Capital Markets Peyto Energy Trust First Quaantum Minerals Pacific Rubiales Energy Jan‐00 Callowayy REIT Eldorado Gold Corrporation Trican Well Serviice Jan‐01 Ivanhoe Mines Ltd
Slide 4: Why Own Peyto Today?
Why Own Peyto Today? All the same reasons as before • All Organic Business Model Exploration and development • Acquisitions for inventory Re-investment, geographic focus • Need exit strategy • Amass, promote, liquidate Invest, develop, profit • Proven Lowest Cost Producer All costs,, includi
Slide 5: Organic Business Model: Production per Unit or Share
Organic Business Model P d ti per U Production Unit it or Sh Share $40 00 $40.00 /d per million) m distribution) 300 Record Production/unit Aug/05 of 241 boe/d/mm $35.00 250 $30.00 Production per Unitt or Share (boe/ nd without cum Converted C t d 200 to a Trust $25.00 $20.00 150 Uniit price (with a
Slide 6: Peyto's Tax Pools
Organic Business Model P t ’ T Peyto’s Tax P l Pools $800 $700 $600 $500 ons $400 $ Millio $300 $200 $100 $- 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F UCC (25%) CEE (100%) CDE (30%) COGPE (10%) CAPEX 6 10/18/2010
Slide 7: Geographically Focused Asset Base
Organic Business Model G hi ll F Geographically dA Focused Assett B Base • 240,000 net acres R10 R8 R6 R4 R2W6 R27 R25 •R235 operated R21 gas plants R19 R17 R15 R13W5 T64 • 750 km pipelines T64 • 600+ producing wells C G F F CF F C F F F F GG Cutbank • 25,000 boe/d F C F W C FC T62 F C F F T62 C Chi
Slide 8: Tight Gas Resource Plays
Tight Gas Resource Plays H i t l MSF Pil Horizontal Pilott P j t Projects 8 10/18/2010
Slide 9: Multiple Vertical/Horizontal Targets
Tight Gas Resource Plays M lti l V Multiple Vertical ti l /H /Horizontal i t lTTargets t Sundance Area Reservoirs 12 9 10/18/2010
Slide 10: Cardium Resource Play: Horizontal MSF Pilot #1
Cardium Resource Play H i Horizontal t l MSF Pil Pilott #1 C di Cardium Gas G Fairway F i Pilot Project #1 Sundance Cardium • >4,000 sq miles • up to 65 TCF Gas in Place1 • ~ 2-3 TCF developed to date E Peyto Cardium Rights • >400 sq miles (gross) • 1.0 TCF developed to date (vertical wells only)2 D
Slide 11: Cardium Type Log and Reserves
Cardium Resource Play C di Cardium T Type L Log and dRReserves Volumetric Reserves AREA(Ha)= 256 (1 section) 23m Gross thickness H(m)= 15 15m Net Pay (using POROSITY(%)= 9 6% porosity cutoff) SW(%)= 18 TEMP.(Deg.C)= 80 PRES.(kPa)= 19000 Z= 0.8 Recovery Factor(%)= 85 Surface Loss(%)= 7 OGIP(BCF)= 19.
Slide 12: Pilot Project #1 – Sundance Cardium
Cardium Resource Play Pilot Project #1 – Sundance Cardium R23 R22 R21 R20 R19W5 W FFUUF F A U F U FL FU Peyto 13-18-55-24W5 G CG F F G G C W F F C F FF F F F F D24 F U F U 21 F F C F 24 G F 19 U F F W E 24 L G G G UV 20 21 F 22 23 GV F F F F FC 21 UF UF G A 19 20 22 23 22 23 24 19 20 21 22 23 A 20 F
Slide 13: Normalized Cardium Production – Vertical vs. Horizontal
Cardium Resource Play N Normalized li d CCardium di P Production d ti – Vertical V ti l vs. H Horizontal i t l Average Vertical Last 10 years 10,000 Average Vertical Last 5 years 2-5 times i i i l rate initial Daily Gas Production (mcfe/d) 1,000 100 Ave Cardium Vertical ‐ Last 10 yrs (00/04‐10‐055‐2
Slide 14: Cardium Economic Comparison – Vertical vs. Horizontal
Cardium Resource Play E Economic i CComparison i – Vertical V ti l vs. H Horizontal i t l Ave Cardium Vertical ‐ last 5 yrs (00/13‐20‐055‐22W5/0) 7,000 00/02‐15‐055‐21W5/0 Cardium HZ (1329m) 00/08‐22‐055‐21W5/0 Cardium HZ (1043m) 6,000 00/13‐06‐055‐21W5/0 Cardium HZ (967m) 00/03‐16‐055‐22W5/0 Cardiu
Slide 15: Sundance Cardium Horizontals
Sundance Cardium Horizontals Undeveloped Opportunities Peyto 16-32-55-21W5 Peyto 8-22-55-21W5 Cardium Horizontal Cardium Horizontal On Production Aug 13/10 On Production Jan 7/10 T56 Peyto 2-15-55-21W5 Peyto 13.18-55-24W5 Cardium Horizontal Cardium Horizontal On Production Oct 8/09 On Production Aug
Slide 16: Cardium Horizontal Development: Potential Locations
Cardium Horizontal Development P t ti l L Potential Locations ti R9 R7 R5 R3 R1W6 R26 R24 R22 R20 R18 R16W5 F CF F FFF G CE G JF G FC ED F AEF AF C F G FF FCF KKGF CIK CGFCF CF D CL GC G FGFA G E G G G G CG L GF CG ECF F GF CI EF CJ CE EEE L S I E G J EEG EE F LLLG G GG G ILK LF F C FF G GG G EG K F
Slide 17: Notikewin Resource Play: Horizontal MSF Pilot #2
Notikewin Resource Play H i Horizontal t l MSF Pil Pilott #2 Peyto Notikewin Mineral Rights 17 10/18/2010
Slide 18: Notikewin Type Log and Reserves
Notikewin Resource Play T Type L 1 Log 1-20-54-22W5 20 54 22W5 28m Gross Pay Volumetric Reserves 19m Net Pay AREA(Ha)= 256 (1 section) H(m)= 19 23m Gross Pay POROSITY(%)= 8 16m Net Pay SW(%)= 35 TEMP.(Deg.C)= 96 PRES.(kPa)= 32000 Z= 1.02 Recovery Factor(%)= 85 Surface Loss(%)= 4.5 OGIP(BCF)= 22 RGIP
Slide 19: Pilot Project #2 – Greater Sundance Notikewin
Notikewin Resource Play Pilot Project #2 – Greater Sundance Notikewin R23 R22 R21 R20 R19W5 U WF FDV U U F C G F F F W G E Peyto Pine Ck 14-7-56-17W5 L GG FG IC F F FF FF F U F F C G UV F G F F FVU F F F UG F F G F FF F UF UF F I EU G E G U C F F C C FF E F F C V F F U FU F CU F C F FU F F FC CU C F
Slide 20: Normalized Notikewin Production – Vertical vs. Horizontal
Notikewin Resource Play N Normalized li d NNotikewin tik i P Production d ti – Vertical V ti l vs. H Horizontal i t l Average Vertical Notikewin 00/08‐03‐056‐21W5/0 10,000 00/06‐27‐054‐22W5/2 Notikewin HZ (943m) 00/10‐15‐054‐22W5/0 Notikewin HZ (796m) 00/14‐03‐055‐21W5/0 Notikewin HZ (963m) 00/14‐07
Slide 21: Notikewin Economic Comparison – Vertical vs. Horizontal
Notikewin Resource Play E Economic i CComparison i – Vertical V ti l vs. H Horizontal i t l 10,000 Average Vertical Notikewin 00/08‐03‐056‐ Hi h Hz High H 21W5/0 / 00/10‐15‐054‐22W5/0 Notikewin HZ (796m) 8,000 00/06‐27‐054‐22W5/2 Notikewin HZ (943m) Ave Vertical 00/14‐03‐055‐21W5/0 Notikewin HZ (963
Slide 22: Sundance Notikewin Horizontals
Sundance Notikewin Horizontals Undeveloped Opportunities Peyto 6-27-54-22W5 Notikewin Horizontal On Production Jan 30/10 T56 YE 2009 Peyto HZ Ntkn Locations (29) Peyto 14-7-56-17W5 HZ Drilled (1 Gross, 1 Net) Notikewin Horizontal HZ PUD (4 Gross, 4 Net) On Production May 4/10 T55 Possible HZ Locatio
Slide 23: Wilrich Resource Play: Horizontal MSF Pilot #3
Wilrich Resource Play H i Horizontal t l MSF Pil Pilott #3 Nosehill Project Area Peyto Wilrich Mineral Rights 23 10/18/2010
Slide 24: Wilrich Type Log and Reserves
Wilrich Resource Play T Type L 7 Log 7-5-56-20W5 5 56 20W5 Volumetric Reserves AREA(Ha)= 256 (1 section) JET 2825 H(m)= 16 FRAC 23m Gross Pay (-1578.4) POROSITY(%)= 8 16m Net Pay SW(%)= 35 TEMP.(Deg.C)= 98 PRES.(kPa)= 24000 Z= 0.92 Recovery Factor(%)= 85 Surface Loss(%)= 4.5 OGIP(BCF)= 15 RGIP RAW(B
Slide 25: Pilot Project #3 – Nosehill Wilrich
Wilrich Resource Play Pilot Project #3 – Nosehill Wilrich R21 R20 R19W5 F G 25 F U 29 28 27 F 26 30 29 F28 K 27 26 25 30 29 28 27 26 F F C Peyto 14-05-56-20W5 F G J I EE E F F G F F G G C E Wilrich Horizontal F F CG E IC W LGG F G 20 F F C 21 UF 22 23 24 19 20 21 22 23 24 GGUV 19 20 21 22 23 On Prod
Slide 26: Normalized Wilrich Production – Vertical vs. Horizontal
Wilrich Resource Play N Normalized li d Wilrich Wil i h Production P d ti – Vertical V ti l vs. H Horizontal i t l Average Wilrich Vertical 00/02‐26‐055‐20W5/0 00/13‐25‐055‐20W5/0 / / Wilrich HZ ((1500m)) 00/12‐05‐056‐20W5/0 Wilrich HZ (1334m) 10,000 00/14‐05‐056‐20W5/0 Wilrich HZ (640m) 00/16‐33‐05
Slide 27: Wilrich Economic Comparison – Vertical vs. Horizontal
Wilrich Resource Play E Economic i CComparison i – Vertical V ti l vs. H Horizontal i t l Average Wilrich Vertical 00/02‐26‐055‐20W5/0 9,000 00/13‐25‐055‐20W5/0 Wilrich HZ (1500m) 00/12‐05‐056‐20W5/0 Wilrich HZ (1334m) 00/14‐05‐056‐20W5/0 Wilrich HZ (640m) 8,000 00/16‐33‐055‐20W5/0 Wilrich HZ (1129m
Slide 28: Wilrich Horizontal Development
Wilrich Horizontal Development U d Undeveloped l dOOpportunities t iti Peyto 16-35-55-20W5 Wilrich Horizontal Peyto 13-25-55-20W5 Peyto 14-05-56-20W5 On Production Jul 3/10 Wilrich Horizontal R.22 Wilrich Horizontal R.21 R.20W5 On Production Sep 23/09 On Production Mar 25/10 YE 2009 Peyto HZ Wilrich
Slide 29: Other Resource Plays
Other Resource Plays H i Horizontal t l MSF Pil Pilott #4 #4,5 5 and d on 29 10/18/2010
Slide 30: Technical Challenges
Technical Challenges H i Horizontal t l MSF Di Directional ti l Drilling D illi Geo-steer down to Geo-Steering & Drilling Hazards avoid popping out of sand. Once out is difficult to get back down. drape Geo-steer down to fi d sand find d if crossed d small fault Geo-steer down to find sand using 3D
Slide 31: Logistical Issues
Logistical Issues S Summer vs. Wi Winter t Completions C l ti 31 10/18/2010
Slide 32: Why Own Peyto Today
Why Own Peyto Today All the same reasons as before • All Organic Business Model Exploration and development • Acquisitions for inventory Re-investment, geographic focus • Need exit strategy • Amass, promote, liquidate Invest, develop, profit • Proven Lowest Cost Producer All costs,, includin
Slide 33: Low Cost Producer: Margins Matter
Low Cost Producer M i M Margins Matter tt 100% 90% 80% enue 70% Margin as % of Reve 74% Operating 60% Margin 50% 40% 30% 56% Profit Margin 20% 10% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Earnings Cashflow Field Netback 33 10/18/2010
Slide 34: The New Margins (how to make $3 gas work)
Low Cost Producer Th New The N M Margins i (h(how tto make k $3 gas work) k) Total Peyto Revenue 84% Gas 16% Liquids TWP (new drilling) Peyto H2 2010 Unhedged Cardium Hztl Wilrich/Notikewin Hztl $4.20/GJ (Ave AECO daily) $3/GJ $4.89/mcf $ / ((16% up p Peyto y realized)) $3.50/mcf $ / ((ave 17% lift
Slide 35: Industry Margins Comparison Q2 2010
Low Cost Producer M i - Industry Margins I d t Comparison C i Q2 2010 80% $18 $16 Q2 2010 Operating Costts ($/boe) 70% Margin 60% $14 Q2 2010 Operating M $12 50% $10 40% $8 30% $6 20% $4 10% $2 $ 0% $0 Operating Costs include Transportation costs. 35 Operating Margin – Cashflow divided by revenue (b
Slide 36: Peyto's Industry Leading Operating Costs
Low Cost Producer P t ’ IIndustry Peyto’s d t L Leading di O Op C Costs t $16 Costs ($/boe) 13%/yr $14 $12 $10 Quarterly Operating C $8 $6 $4 1.6%/yr $2 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Year Peyto Bonavista Baytex ARC Enerplus Crescent Point Vermilion 36 BOE factor - 6
Slide 37: Low Op Cost = Long Reserve Life
Low Cost Producer L Low O Op Cost C t = Long L R Reserve Lif Life 2009 Year End Proven Producing Reserve Life 15 10 35 Years PDP 5 30 29 TP - 25 25 P+P 21 22 RLI ((yrs) 20 18 16 15 14 14 11 10 10 10 6 5 0 YE 2009 4 times Op Cost 10% inflation 4 times Op PLA Feb 201 Reserve Report (Dec 31, 2009) Cost
Slide 38: Deep Gas Drilling Royalty Incentives
Low Cost Producer D Deep G Gas Drilling D illi R Royalty lt IIncentives ti 3,500-4,000 m MD Trigger depth for Natural Gas Deep Drilling Program 2,200 m TVD reduced from 2,500m TVD to 2,000m TVD 3,700-4,000 m MD 2,650-2,850 m TVD 4,200 m MD 2,750-2,900 m TVD *3,700m 3,700m Cardium Horizontal Well wou
Slide 39: Peyto's Full-Cycle Gas Supply Cost
Low Cost Producer P t ’ Full-Cycle Peyto’s F ll C l G Gas S Supply l CCostt $10 $10 hedged Realiized Price ($//mcfe) cfe) $8 41% $8 as Price ($/GJ J) s Price ($/mc Average Profit $6 $6 $/mcf Bonus Cnd$ Realized Gas O Monthly Ga $4 $4 PDP FD&A G&A, Interest $2 $2 Peyto R AECO Peyto Unh Royalties Op C
Slide 40: Who's Profitable
Low Cost Producer Wh ’ Profitable Who’s P fit bl Peyto Ave Profit 2002-2009 = $2.92/mcfe Ultra Pet. Ave Profit 2002-2009 = $2.79/mcfe $10 $10 $10 $10 Price ($/mcf) ce ($/mcfe) $8 41% $8 $8 $8 Peyto Realized Gas Price ($/mcfe) $/mcfe) Average ECO Monthly Gas Price ($/GJ) Profit Ultra Realized Gas Pri
Slide 41: Why Own Peyto Today
Why Own Peyto Today All the same reasons as before • All Organic Business Model Exploration and development • Acquisitions for inventory Re-investment, geographic focus • Need exit strategy • Amass, promote, liquidate Invest, develop, profit • Proven Lowest Cost Producer All costs,, includin
Slide 42: Horizontal Well Payout
Horizontal Well Payout C t off Capital Cost C it l Ad Advantage t 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 00/13-35-055-20W5/0 00/12-34-055-20W5/2 Life (in months) Wilrich 00/16-35-055-20W5/0 % Paid Out 00/04-05-056-20W5/0 00/16-33-055-20W5/0 00/14-05-056-20W5/0 00/12-05-056-20W5/0 00/13-25-055-2
Slide 43: High Returns on Capital and Equity
The Peyto Strategy Hi hR High t Returns on C it l and Capital dE it Equity 60% $250 50% 41% $200 Ave ROE 40% $150 30% 21% Ave $100 ROCE 20% $50 10% 0% $0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Return On Capital Employed (%) Return On Equity (%) Earnings ($M) Return on Equity (ROE) is
Slide 44: 2010 Activity To Date
2010 Activity To Date Continue Active Development Pace • Capital Expenditures ($225-$250 million before DRC) • ~ 50 net wells pprojected j to YE 2010 ((29 drilled to date)) • 80-85% are Horizontal MSF • Plant expansion at Nosehill, compressor upgrades at Oldman and Wildhay increase Peyto’s raw gas p
Slide 45: 2011 Outlook
2011 Outlook Evolving Corporate Structure Peyto Exploration Peyto Exploration Peyto Energy & Development & Development Trust Corp. Corp. $400 Growth + Growth E&P Growing Trust Optimized Profit Income E&P Sharing $350 $300 $250 $200 $150 $100 $50 $- 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2
Slide 46: Appendix
Appendix • Quarterly Track Record • Industry Comparisons • Distribution Historyy • Payout Ratio • Gas Marketing • Hedging Strategy • Reserves data – volumes, values 46 10/18/2010
Slide 47: Quarterly Track Record
Quarterly Track Record 2010 2009 2008 Q2 Q1 Total Q4 Q3 Q2 Q1 Total Q4 Q3 Operations Production Oil & NGLs (bbl/d) 3,465 3,330 3,028 3,222 2,916 2,950 3,022 3,265 3,207 3,199 Natural gas (mcf/d) 112,422 103,934 92,718 95,467 89,259 90,191 95,998 100,384 101,907 100,324 Barrels of oil equivalent 22,2
Slide 48: Highest Quality Assets
Highest Quality Assets O Operating ti Costs, C t Netback, N tb k PProfit fit M Margin, i R Reserve Lif Life Q2 2010 Operating Costs Q2 2010 Netbacks $18 $40 $16 $35 $14 $30 $12 $25 $10 $/boe $/boe $20 $8 $15 $6 $4 $10 $2 $5 $- $- Q2 2010 CF Margin 2009 Year End Proven Producing Reserve Life 80% 15 7
Slide 49: Most Profitable Business
Most Profitable Business T t l Costs, Total C t Recycle R l RRatio, ti DD&A R Recycle, l L Leverage 2009 Low Cost Producer 2009 Recycle Ratio, Proven Producing +FDA PP ($/boe) / Total Revenue ($/boe) 3 140% 120% 100% 2 80% 60% 1 Total Costs Cash+ 40% 20% 0% 0 2009 DD&A Recycle Ratio 2009 Debt to PP
Slide 50: Distribution History
Distribution History Monthly Distribution $0.20 $0.15 $0.10 $0.05 $0.00 Monthly Distribution 50 Historical Per Unit and Units Outstanding numbers have been adjusted to reflect the May 27, 2005 2:1 stock split 10/18/2010 BOE factor - 6 mcf = 1 bbl of oil equivalent
Slide 51: Payout Ratio History
Payout Ratio History Historical Payout Ratio Maximum Minimum 100% 91% 42% % Converted to a Trust 80% at 57% 60% 40% 20% 0% Quarter Cash Payout Ratio Total Payout Ratio Historical Per Unit and Units Outstanding numbers have been adjusted to reflect the May 27, 2005 2:1 stock split Total Payout Ratio
Slide 52: Gas Marketing
Gas Marketing F t Future Sales S l Financial Hedges - Gas Pricing 2009 2010 2011 2012 0-Jan-00 GJ/d ($/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 A M J J A S O From To 1-Apr-09 31-Oct-09 5000 $7.850 ● ● ● ● ● ● ● 1-Nov-08 31-Mar-09 5000 $9.700 1-Apr-09 31-Oct-09 5000
Slide 53: Successful Hedging Strategy
Successful Hedging Strategy Peyto Realized Price History 2003 2004 2005 2006 2007 2008 2009 Peyto Peyto Peyto Peyto Peyto Peyto Peyto $16.00 $7.51/mcf AECO Mo $7.38/mcf AECO Mo $8.78/mcf AECO Mo $8.46/mcf AECO Mo $8.42/mcf AECO Mo $8.64/mcf AECO Mo $6.44/mcf AECO Mo $7.43/mcf $7.53/mcf $9.41/mcf $7.
Slide 54: Peyto's Reserves: Volumes
Peyto’s Reserves V l Volumes Natural Gas Sales Gas Liquids & Oil Category (BCF) (Mstb) BOE's(Mstb) Proven Producing 497 15,801 98,573 Proven Non-Producing 15 374 2,913 Proven Undeveloped 242 7,116 47,372 Total Proven 753 23,291 148,858 Probable Additional 260 7,693 51,033 Proved + Probable 1,013 30,
Slide 55: Peyto's Reserves: Net Present Value
Peyto’s Reserves N t Present Net P t Value V l Variable Price Economics NPV (millions of CDN dollars) Category 0% 5% 8% 10% Proven Producing $ 4,655 4 655 $ 2,389 2 389 $1,825 1 825 $ 1,578 1 578 Proven Non-Producing $ 140 $ 68 $ 49 $ 41 Proven Undeveloped $ 1,855 $ 888 $ 626 $ 508 Total Proven $ 6,
Slide 56: Advisory Regarding Forward-Looking Statements
Advisory R Regarding di F Forward-Looking d L ki St Statements t t 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
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