Peyto Exploration & Development Corp. · TSX:PEY
Peyto Exploration & Development — Peyto Energy Trust — CIBC Energy Conference 2007
61 slides from Peyto Exploration & Development's conference presentation, Apr 18, 2007
Slide 1: April 18, 2007 www.Peyto.com
April 18, 2007 www.Peyto.com
Slide 2: Disclaimer
Disclaimer Forward Looking Statements Statements in this presentation contain forward-looking information including expectations of future production, reserves, components of distributable cash, cash flow and earnings, completion dates of construction and development projects, drilling and explorati
Slide 3: Oil & Gas Trust
Oil & Gas Trust Assets + Business – Distributions/Dividends • Assets • Oil and gas reserves • Business • Investing capital to find and develop more oil and gas reserves • Distributions/Dividends (Income) • Cashflow from operations that are taken out of the Trust and given to the unitholders as distr
Slide 4: Peyto Energy Trust
Peyto Energy Trust Assets + Business – Distributions/Dividends • High Quality Assets • Approximately 100% natural gas and natural gas liquids • Long reserve life “Many would argue that short life reserves are worth more because they • Low operating costs come out faster. As a reservoir engineer, I’v
Slide 5: Assets
Assets Made Made by By Peyto Peyto Made by Peyto 5 4/23/2007
Slide 6: Peyto is a Tight Gas Company
Peyto is a Tight Gas Company North American Tight Gas Deep Basins Peyto’s Assets are located in Canada’s Alberta Deep Basin Alberta Deep Basin 6 Map Courtesy of GTI 4/23/2007
Slide 7: Deep Basin Tight Gas
Deep Basin Tight Gas General Area of Operations Map “Over the past eight years, Peyto has focused it’s efforts on a design, drill and build strategy exclusively in the Deep Basin. The Deep Basin is considered Alberta Alberta’s premier exploration area for high quality long life gas reserves.” Peyto’
Slide 8: Peyto Operations Map
Peyto Operations Map Gas Plants & Land “Peyto owns and operates 195 mmcf/d Smoky/Kakwa of gas processing capacity in the Deep 35 mmcf/d Basin.” Leland Cutbank Nosehill 10 mmcf/d Sundance 20 mmcf/d 110 mmcf/d Peyto Land Growth 400,000 Total Gross Total Net 300,000 T o ta l A c re s 200,000 100,000 Wi
Slide 9: Deep Basin Tight Gas
Deep Basin Tight Gas Multiple Vertical Targets Sundance Area Reservoirs “Peyto’s design, drill and build strategy targets over 7 different tight gas reservoirs in the Deep Basin.” 9 4/23/2007
Slide 10: Low Operating Costs
Low Operating Costs Field Processing Operating “One of the reasons our assets are so valuable is our Expenses Transportation Income Costs industry leading operating costs. Our operating costs Year ($/boe) ($boe) ($/boe) ($/boe) are so low for a number of reasons. First, we produce from reservoirs th
Slide 11: Operating Costs Six Year Trend
Operating Costs Six Year Trend $12 Operating Costs Trend Q3 2000 to Q4 2006 $10 •Peyto + 53% Quarterly Operating Costs ($/boe) •BNP + 394% •Baytex + 159% $8 •ARC + 102% “We have not been immune to inflationary $6 pressure on operating costs, but our assets, our concentration and our dedicated operat
Slide 12: Operating Costs Industry Comparison
Operating Costs Industry Comparison Q4 2006 Operating Costs $18 $16 $14 $12 Ave $10.57/boe $10 $/boe $8 $6 $4 $2 $- AE U N H UN FE UN N AV U N C UN BN UN ER UN BT UN PW N PW UN TE UN PG U N ZA UN VE UN C UN D UN SH UN BN N PG UN PM UN FE O _U U U YT _ _ _ _ _ _ _ _ L_ I_ _ T_ T_ E_ T_ T_ F_ F_ T_ T_
Slide 13: Tight Gas: Understanding the Value (1)
Tight Gas Understanding the Value (1) 60 $180 NPV 8% per boe/d 50 “Typical Peyto deep basin tight gas $150 Value of Production, NPV 8% / boe/d production actually becomes more valuable over time as netbacks continue to improve (2%/yr to year 24). Even Production Rate (boe/d) 40 Production though pro
Slide 14: Tight Gas: Understanding the Value (2)
Tight Gas Understanding the Value (2) Op Costs + Royalty “Royalty rate drops as the productivity declines. The operating costs increase $15 because of the lower productivity relative to the component of fixed operating costs.” Royalty $10 Costs ($/boe) Operating Costs $5 $- 0 5 10 15 20 25 30 Years
Slide 15: Netback Industry Comparison
Netback Industry Comparison Q4 2006 Netback Commodity Price History 8:1 $110 $100 $40 “As commodity prices return to $90 AECO Monthly Gas Price ($/boe 8:1) Oil Price historical ratios, Peyto’s boes again $80 Edm Par Oil Price ($/bbl) demonstrate their superior quality.” $70 $35 $60 $50 $40 $30 $30 G
Slide 16: Reserves, Volume Summary
Reserves, Volume Summary Natural Gas Sales Gas Liquids & Oil Category (BCF) (Mstb) BOE's(Mstb) Proven Producing 477 17,646 97,181 Proven Non-Producing 19 571 3,759 Proven Undeveloped 91 2,507 17,741 Total Proven 588 20,724 118,681 Probable Additional 226 7,043 44,783 Proved + Probable 814 27,767 163
Slide 17: Reserves, Net Present Value
Reserves, Net Present Value Variable Price Economics NPV (millions of CDN dollars) Category 0% 5% 8% 10% Proven Producing 4,500 2,462 1,940 1,707 Proven Non-Producing 174 80 57 47 Proven Undeveloped 721 327 224 178 Total Proven 5,394 2,869 2,221 1,933 Probable Additional 2,098 810 535 423 Proven + P
Slide 18: Reserve Quality Predictability
Reserve Quality Predictability Peyto Cardium G Pool Original 37 Producers 100,000 Ultimate Recoverable Raw Gas (mmcf) Max 5.3% variance 90,000 80,000 70,000 60,000 CTD 50,000 37,400 mmcf 40,000 30,000 20,000 10,000 0 21-Jan-02 24-Jul-02 30-Jan-03 7-Feb-04 7-Feb-05 3-Feb-06 1-Feb-07 Paddock GLJ 2001
Slide 19: Reserve Life Industry Comparison
Reserve Life Industry Comparison, Proven Producing Reserve Life A current yield of 10% or Dist. Life of 10 years is less than our PP RLI 2006 Year End Proven Producing Reserve Life 15 “The average trust yield of 13% implies a distribution life of 7.5 years but the average trust only has 6 years Long
Slide 20: Business
Business l ug PEYTOS2 ENERGY TRUST 20
Slide 21: Strategy, We Build it Ourselves
Strategy, We Build it Ourselves Acquire Build 21 4/23/2007
Slide 22: The Team
The Team • Darren Gee President, CEO, Director • Kathy Turgeon Finance, Vice President • Scott Robinson Executive VP and COO • Cheree Stephenson Finance • Jennifer Perrot Administrative Assistant • Lydia Hamaliuk Finance • Tara Antosh Administrative Assistant • Liz Duerholt Finance • Enrico Espiritu
Slide 23: Corporate Governance
Corporate Governance • “We will be candid in our reporting, emphasizing the pluses and minuses important in appraising business value. Our guideline is to tell you the business facts that we would want to know if our positions were reversed.” • “Our policies and communications will be designed to en
Slide 24: Quarterly Track Record
Quarterly Track Record 2006 2005 2004 Total Q4 Q3 Q2 Q1 Total Q4 Q3 Q2 Q1 Total Q4 Q3 Q2 Q1 Operations Production Oil & NGLs (bbl/d) 4,436 3,834 4,205 4,145 4,143 4,436 4,185 4,569 4,653 4,337 3,882 4,360 3,967 3,918 3,315 Natural gas (mcf/d) 106,701 112,296 115,304 112,484 110,878 106,701 108,356 1
Slide 25: Capital Expenditures Track Record
Capital Expenditures Track Record $312 million CAPEX $400 400% CAPEX / Funds from Operations (%) Funds from Operations & CAPEX $300 300% (Millions of Dollars) $200 200% $100 100% $- 0% 1999 2000 2001 2002 2003 2004 2005 2006 Year Funds from Operations CAPEX CAPEX / Funds from Operations 25 Managemen
Slide 26: 2006 Business: Capital Expenditures & Well Activity
2006 Business Capital Expenditures & Well Activity z Capital Expenditures z Total $312 MM “100% of our capital expenditures are z Drill & Complete $228 MM directed towards internally generated investment ideas and spent on well related activity. No short cuts can be z Tie ins & Facilities $62 MM tak
Slide 27: 2006 Business: Performance Ratios
2006 Business Performance Ratios Proved Total Proved + Performance Ratios Developed Proved Probable FD&A, $/boe $ 17.67 $ 19.66 $ 17.39 including change in future development capital Reserve Replacement Ratio 2.1 1.9 2.2 Recycle Ratio 2.0 1.8 2.0 including change in future development capital NPV Re
Slide 28: Achievement of Growth: Building Our Own Production
Achievement of Growth Building Our Own Production 2007 Drills Net Sales (mmcfe/d molar recombination) 0 12 2006 Drills 2005 Drills 0 10 2004 Drills 80 2003 Drills 60 40 2002 Drills 2001 Drills 20 2000 Drills 1-Jun-00 1-Dec-00 1-Jun-01 1-Dec-01 1-Jun-02 1-Dec-02 1-Jun-03 1-Dec-03 1-Jun-04 1-Dec-04 1-
Slide 29: Absolute Production Growth
Achievement of Growth Absolute Production Growth 25,000 “All of our production growth has come from internally generated ideas. At Peyto we believe the best assets are the ones you can design, drill and build yourself. This build it ourselves approach 20,000 is part of what makes Peyto unique.” Conv
Slide 30: Reserves Growth
Achievement of Growth Reserves Growth Flat production has equaled growing 180,000 reserves and net asset value 160,000 “In our short history, Peyto has found and developed over 100 mmboes of proven producing reserves entirely through the drill bit.” 140,000 120,000 BOE 6:1 (000's) 100,000 80,000 60,
Slide 31: Net Asset Value Growth
Achievement of Value Growth Net Asset Value Growth Flat production has $35 equaled growing reserves and net asset value $30 NPV @ 5% debt adjusted per unit $25 $20 $15 $10 $5 $- 1999 2000 2001 2002 2003 2004 2005 2006 Proven Producing Total Proven Proven + Probable Additional Historical Per Unit and
Slide 32: Maintain Production to Grow Value
Deep Basin Tight Gas Maintain Production to Grow Value Unconventional or Conventional Gas Tight Gas 1,000 Gas rate $10 Remaining NPV5 N P V 5 (M M $) (m c f/d ) Gas (mcf/d) Remaining NPV5 100 $1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Years Years Exponential Decli
Slide 33: Maintain Production to Grow Value
Deep Basin Tight Gas Maintain Production to Grow Value Unconventional or Conventional Gas Tight Gas Production Add 3 Production Add 10000 Production Add 2$100 $100 Production Add Production Add 1 Production Add Base Gas Rate Base Gas Rate G a s R a te (m m c f/d ) N P V 5 (M M $ ) Add 3 Remaining NP
Slide 34: Profitable Re-investment
Achievement of Growth Profitable Re-investment 700 600% 600 “Every year we have created assets that are worth on average 2.2 times 500% the capital used to build them” Discounted Return on Investment 500 Value Created Each Year Capital Spent Each Year 400% ($ millions) 400 300% 300 200% 200 100% 100
Slide 35: Finding, Development and Acquisition Cost
Finding, Development and Acquisition Cost Industry Comparison 2006 Proven Producing FD&A Costs 40 35 “Proved Producing is the most critical category to evaluate since sooner or later reserves have 30 to come on production to cover their cost.” FD&A Cost ($/boe) 25 20 15 10 5 0 W N A UN PG O N ZA N B
Slide 36: Recycle Ratio
PG 0 1 2 3 X_ U PE N YT VE O T_ U ER N F_ U C N PG _U BT N E_ U AE N Recycle Ratio T_ U Recycle Ratio = Netback/Proved Producing FD&A Cost BN N P_ U TE N T_ U BN N E_ U FE N L_ U ZA N Industry Comparison, Recycle Ratio R _U PW N I_ U C N N E_ PW U N T_ U PG N F_ 2006 Recycle Ratio, Proven Producing
Slide 37: Effective Recycle Ratio
Effective Recycle Ratio Industry Comparison, Effective Recycle Ratio 2006 Effective Recycle Ratio, Proven Producing “Effective Recycle Ratio – With Performance we are trying to 3 compare the business side of oil and gas. The effect that the capital invested has on the overall enterprise. The effecti
Slide 38: Reserve Replacement Ratio
Reserve Replacement Ratio Industry Comparison 2006 Proven Producing Reserve Replacement Ratio Per Unit 3 2 “Reserve Replacement Ratios below 1:1 indicate the producing asset base is shrinking.” 1 0 VE N CN N HT N UN PW N PG N BN N AE N N UN UN SH N N BN N UN UN O PG N UN N UN UN U U U U U U U U U U
Slide 39: Sustainability
Sustainability 39 4/23/2007
Slide 40: Sustainability
Sustainability • Sustainability in an energy trust is the condition achieved when the company’s business allows it to distribute regular cash disbursements and simultaneously reinvest to grow and perpetuate on a per unit basis. • Most energy trusts were not designed to be sustainable. Most were foun
Slide 41: Keys to Sustainability
Keys to Sustainability • Suitable Assets • Strong Business • Balanced Distribution Model 41 4/23/2007
Slide 42: Keys to Sustainability: A Suitable Asset
Keys to Sustainability A Suitable Asset, Deep Basin Tight Gas • Geographically Extensive Tight Gas • Low Geological Risk • Multiple Vertical Targets • Long Reserve Life • High Revenue, Low Operating Cost, High Netback 42 4/23/2007
Slide 43: Keys to Sustainability: Strong Business
Keys to Sustainability Strong Business • Unique Design, Drill and Build Approach • Long Track Record of High Return on Capital • Consistent Industry Leading FD&A Costs • Consistent Industry Leading Recycle Ratio • Consistent Growth in Future Resource Opportunities 43 4/23/2007
Slide 44: Keys to Sustainability: Balanced Distribution
Keys to Sustainability Balanced Distribution Historical Payout Ratio “Since we converted to a trust over two years ago, we have increased our distribution five times. Our model was designed to grow our reserves per 100% “Our plan was to payout roughly 50% unit, thus, allowing us to grow our Maximum
Slide 45: Keys to Sustainability: Distribution Growth
Keys to Sustainability Distribution Growth Monthly Distribution $0.15 “Since we converted to a trust over three years ago, we have increased our distribution five times. Our model was designed to grow our reserves Anualized Distribution/Unit Price (%) per unit, thus, allowing us to grow our distribu
Slide 46: Positive Reserve Replacement Cycle
Keys to Sustainability Positive Reserve Replacement Cycle Peyto Q4 2006 Example Funds From Operations ($/boe) $ 37.29 Distribution at 57% ($/boe) $ (21.31) Cash Available After Distribution ($/boe) $ 15.98 Cost to replace Proved Developed Reserves (2006 FDA $/boe) Q4 2006 FD&A has $ (17.67) dropped
Slide 47: Industry Comparison, Reserve Replacement Cycle
Keys to Sustainability Industry Comparison, Reserve Replacement Cycle Q4 2006 Proven Producing Reserve Replacement Cycle $5 $- PG O N N BT N AV N BN N N ER N BN N PW N FE N N N N N PW N PM N UN PG N N N UN YT _U _U _U U U _U U U U U _U U _U U U U U U U $(5) T_ X_ F_ T_ T_ E_ T_ I_ T_ T_ F_ P_ E_ N_
Slide 48: Industry Comparison, Affordable Payout Ratio
Keys to Sustainability Industry Comparison, Affordable Payout Ratio 3 Yr Average Affordable Payout Ratio 100% “Not surprisingly, the average trust can 80% really only afford a sustained payout ratio of 17%. Unfortunately, this will not satisfy the 60% income investor nor provide tax shelter for the
Slide 49: Industry Comparison, Distribution Life
Keys to Sustainability Industry Comparison, Distribution Life Distribution Life, Proved Developed Producing NPV 25 20 15 Years 10 5 - TO N FE N FE N N N N ZA N N PM N SH N N PG N PW N N BN N N BN N N N PG N UN _U _U _U U U _U U U U U U U _U _U U U U U U U Y T_ X_ F_ T_ T_ T_ I_ T_ T_ E_ F_ E_ P_ N_
Slide 50: Industry Comparison, Payout Ratio
Keys to Sustainability Industry Comparison, Payout Ratio Q4 2006 Payout Ratio 140% 120% 100% Payout Ratio 80% 60% 40% 20% 0% D UN PW UN AV UN PM UN FE N PE N PG UN BN N BN UN ER UN SH N N N ZA N AE N PW N TE N PG N N BT N C UN FE O _U _U _U U _U U U U U U U U U YT _ _ _ _ _ _ I_ L_ T_ T_ E_ T_ T_ F_
Slide 51: Accumulating Tax Pools
Keys to Sustainability Accumulating Tax Pools Year End Tax Pools $800 $700 “At Peyto, our tax efficiency accumulates the old fashioned way, we build it.” $600 $500 Millions $400 $300 $200 $100 $0 2002 2003 2004 2005 2006 CEE (100%) CDE (30%) UCC (25%) COGPE (10%) 51 4/23/2007
Slide 52: Valuation
Valuation + = Assets Business Valuation 52 4/23/2007
Slide 53: Market Value vs. Asset Value, Production and Gas Price
Valuation Market Value vs. Asset Value, Production and Gas Price 250 “Growing net asset value, stabilized production and strengthening gas prices seems to have eluded the markets for the time being.” Closing Price ($/share) $30 Net Asset Value 200 Annual Production/share (boe/000's) Gas Price ($/boe
Slide 54: Share Price/NAV
Share Price/NAV 0% 20% 40% 60% 80% 100% 120% 140% PE YT PW O I_ U SH N N Dec 31, 2006 Share price _U AV N Valuation N_ U Ave 94% C PG N _U D N AY _U Dec 31, 2006 P+P NPV5 Debt Adjusted per unit TE N T_ U ZA N R _U BN N E _U FE N L_ U C N N E _U BN N P _U AE N T_ U PG N Industry Comparison, Market Pr
Slide 55: Industry Comparison, DACFM to achieve NAV
Valuation Industry Comparison, DACFM to achieve NAV 12 “Debt Adjusted CashfFlow Multiples (DACFM) of 6-8 times can be a reasonable proxy for value for conventional trusts with conventional assets, 10 unconventional assets cannot be valued this way. They must be valued with much different multiples t
Slide 56: Industry Comparison, Investor Recycle Ratio
Valuation Industry Comparison, Investor’s “Recycle Ratio” 2006 Investor Recycle Ratio 2.0 “From a potential investor’s perspective, what does the company sell the boes for as compared to what an investor has to pay to own a share 1.5 of them? ” Investor Recycle Ratio 1.0 0.5 -FE UN PG N AV UN N D UN
Slide 57: Industry Comparison, Proved Producing Undiscounted NPV
Valuation Industry Comparison, Proved Producing Undiscounted NPV 2006 Proved Producing Undiscounted NPV $8,000 $7,000 $6,000 NPV, millions of dollars $5,000 $4,000 $3,000 $2,000 $1,000 $- H TO N BT N FE N BN UN AE N PG N AV N PM N N N N N TE N VE N PG N N PW N BN N PW N FE N ZA N _U _U _U U U _U U U
Slide 58: A "Short" Sighted Market
Valuation A “Short” Sighted Market Reserve Life versus Premium to Proved Producing NPV @ 5% “Investors are paying premiums for short life trusts, or those that are setup to deplete the fastest. This phenomena is a result of rising 600% commodity prices that have created the illusion of sustainabilit
Slide 59: 2007 Outlook
2007 Outlook • Capital Expenditures ($120 - $160 million) • Drill & Re-Enter New Gas Locations • Expand Gas Gathering & Processing Capacity • Expand Undeveloped Land Base • Expand 3-D & 2-D Seismic Database • Acquire Partner Working Interests 59 4/23/2007
Slide 60: Peyto Energy: Before, During and After
4/23/2007 60 Dec-11 Energy Sep-11 Peyto ??? Jun-11 “We are just going to keep doing what Mar-11 Dec-10 Sep-10 Jun-10 we do so well.” Mar-10 Dec-09 Sep-09 Jun-09 Mar-09 Dec-08 Sep-08 Jun-08 Peyto Energy Trust Mar-08 Dec-07 Sep-07 Jun-07 Mar-07 Dec-06 A Successful Builder of Tight Gas Assets: Sep-06 D
Slide 61: Peyto Energy Trust
Peyto Energy Trust Assets + Business – Distributions/Dividends (Income) • Quality Assets • Approximately 100% natural gas and natural gas liquids • Long reserve life • Low operating costs • High operatorship • Profitable Business • Peyto’s business is to design, drill and build its own assets • Low