Peyto Exploration & Development Corp. · TSX:PEY
Peyto Exploration & Development — Investor Presentation (November 2005)
27 slides from Peyto Exploration & Development's investor presentation, Nov 22, 2005
Slide 1: Sustainability Discussion
Sustainability Discussion November 22, 2005
Slide 2: Profile
Profile • Established - November 1998 • Expertise - Exploration & Development of Long-life Gas Reserves • Core Area of Operations – Sundance & Smoky/Kakwa, located in Alberta’s Central Deep Basin • Units Outstanding - Basic & Diluted 102 million •NO CONVERTIBLE DEBENTURES OR EXCHANGEABLE SHARES • Mo
Slide 3: Sustainability
Sustainability Sustainability is an economic state where the demands (distributions) placed upon the business can be met without reducing the capacity of the business to meet the same demands in the future. Not all energy trusts were designed to be sustainable. Energy Trusts were created to maximize
Slide 4: Sustainability, Assets
Sustainability, Assets Reserve Life – assets with a longer reserve life are more sustainable and have more value Operating Costs – lower operating cost assets are more sustainable and have more value Commodity Quality – higher quality oil and gas captures a higher revenue stream and enhances sustain
Slide 5: Assets, Reserve Life, Proven Producing
Years - 2 4 6 8 10 PE YT ER O F_ U AE N T_ U Long PT N F_ U VE N Sustainability, T_ U PG N F_ U PW N T_ U VK N R _U PW N I_ U FE N T_ U AV N N _U BN N P_ Average U Assets, Reserve Life, Proven Producing ZA N R_ U PG N X_ U SH N N_ 2004 Year End Proven Producing Reserve Life UN CP G _U HT N E_ U N AE
Slide 6: Assets, Operating Costs
Sustainability, Assets, Operating Costs Q2 2005 Operating Costs $12 High $9 Average $/boe $6 $3 Low $- PG N VE N PM N VK N UN AV N UN ER N PW N PW N PG N BT N ZA N AE N UN HT N PT N BN N SH N FE O U U U U U U U U _U _U U _U _U U U U YT X_ T_ F_ R_ E_ T_ P_ N_ F_ T_ I_ T_ E_ T_ F_ G N R AE PE CP Oper
Slide 7: Assets, Commodity Quality, Gas
Sustainability, Assets, Commodity Quality, Gas Gas Price (before hedging) Q1 to Q3 2005 $9 Higher Quality $8 Lower Quality Gas Price $/mcf $7 $6 $5 O N N N N N N UN N N N N N N N UN UN _U YT U U _U _U _U U U U _U U U U F_ T_ I_ T_ F_ P_ T_ E_ _ F_ N_ PE AE N T R R TE PW AE VE PT FE PM AV PG BT BN ER
Slide 8: Assets, Commodity Quality, Liquids
Sustainability, Assets, Commodity Quality, Liquids Liquids Price (before hedging) Q1 to Q3 2005 $70 Higher Quality $60 Liquids Price $/bbl Lower Quality $50 $40 $30 N N N N N N N N N N N N N N N O _U _U _U U _U _U U _U U U U U _U U U YT I_ F_ T_ T_ E_ F_ T_ F_ N N TE P R R AE PW PE SH BN PG VE FE AE
Slide 9: Sustainability, Business
Sustainability, Business Recycle Ratio – the higher the netback is relative to the cost of finding and developing new reserves the more sustainable and valuable the business Capital Investments – if your business can generate competitive returns on capital, the more you can invest the more sustainab
Slide 10: Business, Recycle Ratio
Sustainability, Business, Recycle Ratio 2004 Proven Producing Recycle Ratio 4 3 2 “A recycle ratio of less than one is not sustainable” 1 - PG N FE N UN UN N SH N UN PM N UN UN UN N UN PW N VK N PG N UN UN CP N O U _U U U U _U U _U U U YT P_ N_ I_ X_ T_ R_ E_ F_ R_ T_ T_ E_ T_ F_ T_ F_ N AE G PW PE
Slide 11: Business, Capital Expenditures vs. Funds from Operations
Sustainability, Business, Capital Expenditures vs. Funds from Operations $400 “If your rate of return on capital Funds from Operations & CAPEX (Millions of expenditures exceeds your cost of capital, the more capital you invest the more sustainable the business will be.” $300 Dollars) $200 $100 $- 19
Slide 12: Business Strategy, Drill/Build
Sustainability, Business Strategy, Drill/Build Utilize the best engineering and geological expertise to generate capital investments that lead to the building of an oil and gas asset. If executed correctly this strategy offers the highest returns and the most control over your destiny. Expansion req
Slide 13: Drill/Build % of Capital Expenditures
Sustainability, Business Strategy, Drill/Build % of Capital Expenditures Drill/Build % of Capital Expenditures Q1 2003 to Q3 2005 100% Drillers/Builders “Only 25% of the Trust’s spend more than 50% of their capital on drill/build strategy” 50% Acquirers 0% N UN UN UN UN N N N UN UN UN UN UN UN UN O
Slide 14: Business Strategy, A History of Building Value
Sustainability, Business Strategy, A History of Building Value Yearly Production Profiles 12,000 “Since we founded 2000 Net - $44MM Peyto in 1998, we 2001 Net - $80MM have been a consistent leader in 10,000 2002 Net - $112MM the Canadian energy 2003 Net - $139MM sector in profitability, Estimated Ne
Slide 15: Business Strategy, Acquire
Sustainability, Business Strategy, Acquire Acquire/Transact – In most cases, utilize financial engineering to purchase a developed oil and gas asset. In general shorter reserve life trusts will trade at the greatest premium and thus, will have the lowest cost of capital and a financial advantage uti
Slide 16: Acquire/Transact % of Capital Expenditures
Sustainability, Business Strategy, Acquire/Transact % of Capital Expenditures Acquire/Transact % of Capital Expenditures Q1 2003 to Q3 2005 100% Acquirers “75% of the Trust’s spend more than 50% of their capital on acquire/transact strategy” 50% Drillers/Builders 0% O N UN UN UN UN UN UN UN UN UN UN
Slide 17: Why say you are sustainable?
Sustainability, Why say you are sustainable? A growing or sustainable business is worth more than a depleting business. As with the early 80’s in the U.S., many Canadian energy trusts try to create the illusion of sustainability in order to increase their valuation Describing the distributions as “y
Slide 18: Two Year Production Growth, Absolute
Sustainability, Two Year Production Growth, Absolute Q3 2003 to Q3 2005 Production Growth, Absolute 250% “Absolute growth in production without real 200% growth in production per unit just gives the illusion that the business is growing.” 150% 100% 50% 0% N N N O N N N N N N N N N N N N UN U _U U _U
Slide 19: Absolute Production Growth vs Per Unit Growth?
Sustainability, Absolute Production Growth vs Per Unit Growth? Q3 2003 to Q3 2005 Production Growth, Absolute vs Per Unit 250% “There is no correlation between absolute growth 200% and production per unit growth.” Absolute Production Growth 150% Absolute Growing Per Unit Shrinking 100% 50% Absolute
Slide 20: What to look for?
Sustainability, What to look for? Present Value growth per unit, independent of commodity prices, preferably proven producing value. Value growth per unit can result from a combination of production and reserve growth and cost reductions. Long term trends. Change in leverage. Change in operating cos
Slide 21: Trends, Value Growth Per Unit
Sustainability, Trends, Value Growth Per Unit 2004 Change in Debt Adjusted Proven NPV Per Unit 30% “This is one parameter that can be used along with annual distribution rate to calculate a real yield, which 20% is independent of market conditions Sustainable and commodity prices.” 10% 0% N UN N N N
Slide 22: Trends, Production Growth Per Unit
Sustainability, Trends, Production Growth Per Unit Q3 2003 to Q3 2005 Production Growth Per Unit 60% 40% 20% 0% UN UN UN UN N UN UN UN N N UN UN UN UN UN UN O U U _U YT T_ F_ R_ E_ P_ T_ F_ N_ N_ R_ T_ T_ I_ E_ F_ AE PE PW PT FE PM VE AE PG HT BT BN ER SH ZA AV VK -20% -40% 22 Per Unit numbers inclu
Slide 23: Trends, Proven Producing Reserve Growth Per Unit
Sustainability, Trends, Proven Producing Reserve Growth Per Unit 2004 Proved Producing Reserve Growth Per Unit 40% 30% 20% 10% 0% UN UN UN N UN UN UN O UN UN UN UN N UN UN UN UN UN UN _U _U YT T_ F_ I_ F_ E_ P_ F_ N_ T_ E_ T_ R_ T_ T_ R_ N_ G PE AE PW FE PT ER HT PM PW PG CP BT BN SH VE AE ZA VK AV
Slide 24: Trends, Operating Costs
Change in Costs per Boe -20% 0% 20% 40% 60% FE T_ UN AE T_ UN HT E_ U N PE YT O Sustainability, SH N_ UN PG Trends, Operating Costs F_ UN PT F_ UN PM T_ U N ER F_ U N VE T_ UN Q3 2003 to Q3 2005 AV N _U N BT Change in Operating Cost per Boe E_ U N VK R _U N AE _U N ZA R_ U N BN P_ UN PW I_ UN 24 11/
Slide 25: Trend, Change in Leverage
Sustainability, Trend, Change in Leverage Change in Debt per Flowing Boe Q3 2003 to Q3 2005 250% “This is not a perfect measure, however it does neutralize the 200% effect of rising and falling commodity prices.” 150% 100% 50% 0% N N UN UN UN UN UN UN UN N N UN N UN N UN O U U _U _U _U U YT F_ T_ R_
Slide 26: Payout Ratio
Sustainability, Payout Ratio If payout ratio was based on what was required to keep the value flat, than it would be a meaningful parameter to compare. Companies which lose money on their investments would be more sustainable with a higher payout ratio. Companies that make money on their investments
Slide 27: Sustainability
Sustainability • Strong Asset = More Sustainable • Successful Business Strategy = More Sustainable • At Peyto We Believe We Have Both 27 11/24/2005
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