Peyto Exploration & Development Corp. · TSX:PEY
Peyto Exploration & Development — Peyto Energy Trust — Shareholder Meeting (May 2009)
50 slides from Peyto Exploration & Development's shareholder meeting presentation, May 6, 2009
Slide 1: Annual General Meeting
Annual General Meeting May 6, 2009 TSX: PEY.UN Distribution: $0.12/month www.PEYTO.com
Slide 2: Peyto's History
Peyto’s History Design, Drill and Build Strategy 2 5/11/2009
Slide 3: The Peyto Strategy: The Soul of our Machine - PEDC
The Peyto Strategy The Soul of our Machine - PEDC “Peyto will be what it has always been, a prof itable, growing energy co mpany focused on the tota l return from unconventiona l Peyto Peyto natural gas resour ces.” ? Energy Energy Trust Trust PEDC PEDC (GP) PEDC Peyto Peyto Operated Operated Trust
Slide 4: The Peyto Strategy: Prospect Generation
The Peyto Strategy Prospect Generation “To explore and develop you must be able to come up 1400 with drilling locations and Booked Future Locations execute on them. Peyto’s has a ten year track record 1200 Gross Drilled Wells of doing just that.” 1000 800 600 400 200 0 99 00 01 02 03 04 05 06 07 08
Slide 5: The Peyto Strategy: Assemble a Talented Team
The Peyto Strategy Assemble a Talented Team • Darren Gee President, CEO, Director • Kathy Turgeon VP of Finance, CFO • Scott Robinson Executive VP and COO • Kevin Klimuk Assistant Controller • Nicole Kehler Administrative Assistant • Melanie Gallant Finance • Enrico Espiritu Engineering Manager • Ly
Slide 6: The Peyto Strategy: Combine Assets, Business and Profit Sharing
The Peyto Strategy Combine Assets, Business and Profit Sharing “Many would argue that short life reserves are worth more • High Quality Assets because they come out faster. As a reservoir engineer, I’ve • Approximately 100% natural gas and natural gas liquids alw ays associated short life • Long res
Slide 7: Highest Quality Assets
$/boe PE 0% 10% 20% 30% 40% 50% 60% 70% 80% $- YT VE O $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 PE T_ Y U PG TO TE N T_ X U _ PG N ER UN X_ F_ U C UN N N PG AE _U _ BN N AE UN P_ T_ U PM UN PM N T_ T_ U BN U N AE N P T_ _ U N UN C AE PG N _ _U Z A UN ER N R F_ _U U D PW N AY N T_ _ PW UN U ZA N T_ R PG U
Slide 8: Most Profitable Business
VE Total Costs ($/boe) / Total Revenue ($/boe) 0 1 2 T_ U N 0% 20% 40% 60% 80% 100% 120% 140% 160% PE PE YT YT TE O O T_ U TE N N T_ AE U N _U ZA VE N R T_ _U UN N PW AE T_ T_ U U ZA N N R BT _U E_ C N PG U N _U D PG N AY _U F_ N U BT N PG E_ X UN _U N PM C T_ PG U _U BN N N P_ BN U PG N P X_ _U N U
Slide 9: The Peyto Strategy: Timed Capital Investments
The Peyto Strategy Timed Capital Investments “Peyto responded to high $400 400% service costs and lower returns in 2006 by reducing capital expenditures in 2007 and CAPEX / Funds from Operations (%) 2008. Peyto continuously Funds from Operations & CAPEX monitors costs to ensure $300 capital is only
Slide 10: Peyto's Focus: General Area of Operations Map
Peyto’s Focus General Area of Operations Map “Over the past ten 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’s premier exploration area for high quality long life gas reserves.” Alberta's Central Deep
Slide 11: Peyto's Focus: Multiple Vertical Targets
Peyto’s Focus Multiple Vertical Targets “Peyto’s design, drill and build strategy targets over 7 different tight gas Sundance Area Reservoirs reservoirs in the Deep Basin. Just 3 of the primary targets offer close to 50 bcf/section!” ection! BCF/ S 50 11 5/11/2009
Slide 12: Peyto's Focus: Cardium Resource Play
Peyto’s Focus Cardium Resource Play “At an average sand R12 R7 R2W6 R24 R19 R14 R9 R4W5 thickness of 15 m and T66 with over 120 townships of area, there is up to 65 TCF T61 of Original Gas In Place. That is a massive resource!” T56 T51 T46 T41 D T36 R20 R15 R10 •Pembina •Sundance •Kakwa 12 5/11/2009
Slide 13: Cardium Resource Play: Production
Peyto’s Focus Cardium Resource Play “On production for more Deep Basin Cardium Production than 20 years, the Cardium produces over 300 450 mmcf/d and has produced 1600 close to 1 TCF of gas. 400 Peyto’s responsible for 1400 almost 1/3 of it.” 350 1200 Production (mmcf/d) 300 1000 Well Count 250 800
Slide 14: Peyto's Focus: Gas Plants & Land
Peyto’s Focus Gas Plants & Land “Peyto owns and operates R10 R8 R6 R4 R2W6 R27 R25 R23 195 mmcf/d R21 R19 of gas R17 processing capacity and T65 T65 maintains a very high Smoky/Kakwa working interest in its 35 mmcf/d land base - keys to low Cutbank T63 operating costs.” T63 W Chicken T61 Sundance T6
Slide 15: Peyto's Success
Peyto’s Success The Highest Quality Production and Reserves
Slide 16: Production: Organic Production Growth
Peyto’s Production Organic Production Growth “All of our production growth has come from internally generated ideas. At Peyto we 160,000 $10 believe the best assets are the ones you can design, drill and $9 140,000 build yourself. This build it ourselves approach is part of $8 120,000 what makes Pey
Slide 17: Reserves Growth
Peyto’s Reserves Reserves Growth “Over 900 BCFe have been discovered and developed 1,200 through the drill bit, with 290 BCFe of those having been recovered to date.” 1,000 800 BCFe 600 400 200 - 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Proved Producing Total Proved Proved + Probable Additi
Slide 18: Reserves Predictability
Peyto’s Reserves “Deep Basin Tight Gas resource plays, that don’t Predictability produce water and have vast areal extent, deliver predictable production profiles requiring very little revision over time. It Peyto Sundance Cardium G Pool is this predictability that 2001 Original 37 Producers gives u
Slide 19: Cardium Formation - Permeability Segregation
Peyto’s Reserves Cardium Formation - Permeability Segregation “The Cardium is a very fine grained, low permeability sand that doesn’t allow water FOOTHILLS STRUCTURES to flow through the pore spaces. A “hydrodynamic” trap is created with water up-dip of GAS AS ING INCRE BILITY gas.” EA PERM WATER TR
Slide 20: Net Asset Value Growth
Peyto’s Reserves Net Asset Value Growth $45 Proved Producing $40 Total Proved Proved + Probable Additional NP V @ 5% debt adjusted per unit $35 P+P w/ cum. distribution $30 h owt $25 l G r el ta d To Mo GR $20 C A 5 % 4 $15 $10 $5 $- 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 20 Historical Pe
Slide 21: Net Present Value
Peyto’s Reserves Net Present Value Variable Price Economics NPV (millions of CDN dollars) Category 0% 5% 8% 10% Proven Producing $ 5,273 $ 2,736 $2,103 $ 1,825 Proven Non-Producing $ 141 $ 63 $ 44 $ 36 Proven Undeveloped $ 1,073 $ 468 $ 312 $ 244 Total Proven $ 6,488 $ 3,267 $ 2,459 $ 2,105 Probable
Slide 22: Net Present Value Sensitivity
Peyto’s Reserves Net Present Value Sensitivity “The Net Present Value of Peyto’s reserves are less Gas Price Forecast sensitive to drops in $9,000 commodity price because of 14.00 their long producing life 12.00 Gas Price, $/GJ $8,000 and low cost structure.” 10.00 8.00 6.00 $7,000 Net Present Value
Slide 23: Peyto's Profits
Peyto’s Profits How profitability is achieved
Slide 24: Build It For Less
Peyto’s Profits Build It For Less “On average Peyto has built producing barrels for 1/3 of what we sell them for. That is where the real Peyto FD&A Costs profit lies.” $50.00 $45.00 Proved Producing $/boe (including change in FDC) Total Proved $40.00 Proved + Probable $35.00 Field Netback $30.00 $25
Slide 25: Building Our Own Production
Peyto’s Profits Building Our Own Production “Each year we build a wedge of production that Weighted Average 140 Base Decline will decline less over time. The aggregate of all of those wedges at a point in 28% 23% 24% 120 time determines our 29% corporate decline.” 100 2008 Drills 26% 32% 2007 Drills
Slide 26: 2007 Activity
Peyto’s Profits 2007 Activity “Every year we focus on picking the best ideas to 120 execute. In 2007 we drilled 39 wells that contributed 2007 Capex $122 Million 100 4,600 boe/d and turned $122 million into $307 39 net wells million.” 80 2007 Drills 4,600 boe/d new production 60 40 120 PLA Dec 31, 2
Slide 27: 2008 Activity
Peyto’s Profits 2008 Activity 120 2008 Capex $139 Million 100 2008 Drills 41 net wells 80 4,200 boe/d new production 60 120 PLA Dec 31, 2008 Strip Pricing Feb 27, 40 Pricing 2009 20 100 NPV(5) $302.5 million NPV(5) $270 million 0 2001 2002 2003 2004 2005 2006 80 2007 2008 2009 IRR 27% IRR 20% 60 40
Slide 28: $1 into $3
Peyto’s Profits $1 into $3 “Over our ten year history, we've used $1.5 billion and turned it into $4.6 billion. Some years we've done a little better, some years not 10 yr Capex $1.54B 140 quite as good, but on 120 average that’s $1 into $3.” 500 net wells 100 80 20,000 boe/d production 60 $1.71B cu
Slide 29: Low Operating Costs
Profits Low Operating Costs “One of the reasons our assets are so valuable is our industry leading Field Processing Operating operating costs. Our operating cost so low for a number of reasons. Firs s are Expenses Transportation Income Costs t, we produce from reservoirs that do not have Year ($/boe
Slide 30: Operating Cost Trend
Profits Operating Cost Trend “We ‘ve not been immune to inflationary pressure on op costs but our assets, our $16.00 concentration and our Quarterly Operating Costs dedicated operations staff $14.00 help keep the majority of it $12.00 at bay.” $10.00 ($/boe) $8.00 $6.00 $4.00 $2.00 $- 2000 2001 2002
Slide 31: Peyto Marketing Strategy
Profits Peyto Marketing Strategy 2003 2004 2005 2006 2007 2008 Peyto $7.51/mcf Peyto $7.38/mcf Peyto $8.78/mcf Peyto $8.46/mcf Peyto $8.42/mcf Peyto $8.64/mcf $15.00 AECO Mo $7.43/mcf AECO Mo $7.53/mcf AECO Mo $9.41/mcf AECO Mo $7.75/mcf AECO Mo $7.32/mcf AECO Mo $8.97/mcf Avg Avg Avg Avg Avg Avg $1
Slide 32: Gas Marketing: Future Sales
Gas Marketing Future Sales Look Forward Average Average Energy Volume Volume Price Price Volume Price Year Season Month (GJ/d) (E3m3/d) (MMscfd) ($/GJ) ($/mcf) (MMscfd) ($/mcf) Nov 55,000 1,324 47 $ 8.02 $ 9.38 23 $ 9.32 2008 Dec 55,000 1,324 47 $ 8.02 $ 9.38 22 $ 9.32 Winter Jan 55,000 1,324 47 $ 8
Slide 33: Peyto's Returns
Peyto’s Returns Profits to Unitholders
Slide 34: Strong Returns: Return on Capital, Return on Equity
Strong Returns Return on Capital, Return on Equity “Can you guess which spectacular growth 70% Company delivered such uninspiring returns? That’s why Peyto’s 60% strategy is make money first, growth second.” 50% 44% Ave ROE 40% 30% 22% Ave ROCE 20% 10% 0% 1999 2000 2001 2002 2003 2004 2005 2006 2007
Slide 35: Returns to Unitholders
Returns to Unitholders Profits and Distributions “Peyto's earnings/share have grown significantly in the 10 year history. As a trust we’ve flowed these profits out to $2.50 unitholders in the form of Earnings/Share distributions while Distributions/Share continuing to grow the asset base.” $2.00 $1.
Slide 36: Sustainable Returns: Balanced Distribution
Sustainable Returns Balanced Distribution “Our plan was to payout roughly 50% of the funds from operations. Over the past five and a half years our total payout ratio has Historical Payout Ratio averaged 55%.” Maximum 71% 100% Minimum Converted 42% 80% to a Trust at 57% 60% 40% 20% 0% Q3 Q4 Q1 Q2 Q3
Slide 37: Sustainable Returns: Positive Reserve Replacement Cycle
Sustainable Returns Positive Reserve Replacement Cycle “Our reserve replacement cycle was negative for 2008 which means we need to improve our efficiency to sustain this level of Peyto 2008 Reserve Replacement Cycle payout.” Funds From Operations ($/mcfe) $ 6.53 Distribution at 65% ($/mcfe) $ (4.25)
Slide 38: Distribution Growth
Anualized Distribution/Unit Price (%) 07 /0 $0.00 $0.05 $0.10 $0.15 $0.20 09 1 /0 /0 3 11 1 /0 /0 3 01 1 /0 /0 3 03 1 /0 /0 4 05 1 /0 /0 4 BOE factor - 6 mcf = 1 bbl of oil equivalent 07 1 /0 /0 4 09 1 /0 /0 4 unit over time.” 11 1 /0 /0 4 Distribution Growth 01 1 /0 /0 4 to grow our reserves per 03
Slide 39: Accumulating Tax Pools
Peyto’s Returns Accumulating Tax Pools Peyto Year End Tax Pools $800 “At Peyto, our tax efficiency accumulates the $700 old fashioned way, we build it.” $600 $500 Millions $400 $300 $200 $100 $- 1,999 2,000 2,001 2,002 2,003 2004 2005 2006 2007 2008E UCC (25%) CEE (100%) CDE (30%) COGPE (10%) CAPEX
Slide 40: Why own Peyto?
“Our base assets are forecast to provide over $2 billion in funding over the Why own Peyto? next 10 years. Do you want to be a part of turning the next $1.5 billion into $4.5?” • Ten year history of coming up with drilling ideas and executing on them • Based on past success, future ideas will be suc
Slide 41: The Future
The Future • Commodity Prices • Supply Costs • Peyto’s Trust &Total Return Model 41 5/11/2009
Slide 42: Natural Gas Prices: A Return to Better Prices
Natural Gas Prices A Return to Better Prices “Eventually, Natural Gas AECO Short vs Long Term Swap Prices prices are expected to $12 recover to more historic AECO 5th yr out fixed $11 $12.00 levels. The future prices are $10 swap still relatively strong $9 Gas Price $/GJ $11.00 between $7-$8/GJ desp
Slide 43: N. American Energy Consumption
N. American Energy Consumption ”Drill, Baby, Drill” “Natural gas is the cleanest burning fuel and most practical domestic solution for US energy independence. The gas industry better get 3,000 drilling if we want to be able to supply that market.” 2,500 million tonnes of oil equiv 2,000 1,500 For na
Slide 44: Natural Gas Supply
“Less drilling, drives less supply. That should correct Natural Gas Supply the short term natural gas price, but doesn’t help motivate fuel switching Reduced Drilling Equals Less Production that would increase long term demand.” 44 5/11/2009
Slide 45: Natural Gas Supply Costs
Natural Gas Supply Costs NEB Study Shows Deep Basin Lowest “The Deep Basin has definitely been competitive 2007 Average Canadian Supply Cost by Region: with the lowest cost basins in the US.” 2006 Average US Supply Cost by Region: Source: NEB Sept 2008 Natural Gas Supply Costs in Western Canada in 2
Slide 46: Drilling Costs Coming Down
Natural Gas Supply Costs Drilling Costs Coming Down “Drilling Rig labour rates Drilling Rig have recently dropped. That Typical 3000 m Tele-Double is the first reduction seen in Labour Cost vs Market Dayrate ten years.” $18,000 $8,000 $16,000 $7,000 $6,000 $14,000 Labour Cost $5,000 Dayrate $12,000
Slide 47: Build It For Less
Peyto’s Profits Build It For Less “If natural gas prices are going to be bounded by Peyto FD&A Costs world wide supply cost, we need to bring our supply cost down as well.” $50.00 $45.00 Proved Producing $/boe (including change in FDC) Total Proved $40.00 Proved + Probable $35.00 Field Netback $30.0
Slide 48: Evolving Corporate Structure
Peyto Energy “As corporate structure evolves, so too does Peyto’s Evolving Corporate Structure model; from a Sustainable Energy Trust to a Total Return E&P Model.” 400% 350% Peyto Exploration Peyto Energy Peyto and Development Trust Energy % of BT Funds from Operations 300% Corp. 250% Growth E&P Gro
Slide 49: 2009 Outlook
2009 Outlook • Capital Expenditures ($50 - $90 million) • Maintain Financial Flexibility • Be Opportunistic • Expand Undeveloped Inventory • Cautiously Evaluate Impact of New Technologies 49 5/11/2009
Slide 50: Disclaimer: Forward Looking Statements
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