Peyto Exploration & Development Corp. · TSX:PEY
Peyto Exploration & Development — RBC Capital Markets Canadian Energy Conference 2006
37 slides from Peyto Exploration & Development's conference presentation, May 17, 2006
Slide 1: Unconventional Energy Resources – Tight Gas Panel Discussion
RBC Capital Markets Canadian Energy Conference Unconventional Energy Resources – “Tight Gas” Panel Discussion May 17, 2006
Slide 2: Profile
Profile • Established - November 1998 • Market - PEY.UN, Toronto Stock Exchange • 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 103 million •NO CONVERTI
Slide 3: Characteristics of the Trust
Characteristics of the Trust • Low Payout Ratio • A range between 30-70% of funds from operations. In normal commodity price environments the target is 50%. • Distributions will be primarily interest & royalty income (75% Taxable in 2005) • Long Reserve Life • 18.9 years proven plus probable, 11.5 y
Slide 4: North American Tight Gas Deep Basins
North American Tight Gas Deep Basins Alberta Deep Basin 4 Map Courtesy of GTI 5/17/2006
Slide 5: General Area of Operations Map
General Area of Operations Map From the start, Peyto has focused it’s efforts exclusively in the Deep W6 W5 W4 Basin. Of the five most active companies in the Deep Basin, we are the only company that has not Alberta acquired our way in. The table below ranks the the top five companies with respect t
Slide 6: Total Return Annual Return
Total Return 250% 25000% Peyto’s disciplined focus and commitment to tight gas resource development has 200% 20000% provided tremendous return to unit holders. Clearly, tight gas has been and continues to be a successful 150% 15000% strategy. Annual Return Total Return 100% 10000% 50% 5000% 0% 0% Ye
Slide 7: Finding & Developing Our Own Production
Finding & Developing Our Own Production A Solid Six Year History 0 Gross Declines 2000 2001 2002 2003 2004 14 1st Year Decline -26% -36% -36% -41% -43% 2nd Year Decline -19% -23% -16% -25% 3rd Year Decline -18% -15% -14% 0 2006 Drills 12 4th Year Decline -12% -10% Net Sales (mmcf of gas equivalent)
Slide 8: Monthly Distribution History
Monthly Distribution History 15% $0.15 “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 Anualized Distribution/Unit Price (%) unit, thus, allowing us to grow our distributions per unit over time.” Monthl
Slide 9: Industry Comparison: Proven Producing Reserve Life
Industry Comparison Foundation, Proven Producing Reserve Life 2005 Year End Proven Producing Reserve Life 15 Peyto’s singular focus on developing its own tight gas 11.5 yrs reserves has led to the assemblage of over 545 Bcf of PDP reserves (over 110 MMBOE including 10 Long liquids) Years Average 5 S
Slide 10: Industry Comparison: Proven + Probable Reserve Life
Industry Comparison Foundation, Proven + Probable Reserve Life 2005 Year End Proven + Probable Reserve Life 20 Peyto’s singular focus on 18.9 yrs developing its own tight gas reserves has led to the assemblage of over 760 Bcf of P+P reserves 15 (over 153 MMBOE including liquids) Years 10 5 - HT U N
Slide 11: Tight Gas: A Theoretical Review
Tight Gas A Theoretical Review A Simplified Model 1 mile Resource Assumptions OGIP=22.6 Bcf OGIP=22.3 Bcf • 4 section block of land • Net pay 15m, 10% porosity, Sw=20% Well 1 Well 2 • Matrix permeability of 0.035 md • Fault altered permeability of 2 md • Homogeneous sand Fa ult OGIP=22.3 Bcf OGIP=22
Slide 12: Tight Gas: A Theoretical Review
Tight Gas A Theoretical Review Rate = 5200 mcfd Rate = 819 mcfd Rate = 1314 mcfd Rate = 300 mcfd Rec = 0.0% OGIP Rec = 0.0% OGIP Rec = 11.5% OGIP Rec = 2.4% OGIP P = 20 000 kPaa P = 20 000 kPaa P = 18 400 kPaa P = 19 400 kPaa P = 20 000 P = 20 000 P = 19 800 P = 19 900 kPaa kPaa kPaa kPaa Time = 0 T
Slide 13: Tight Gas: A Theoretical Review
Tight Gas A Theoretical Review Flush rate of 3 to 5 10000 MMcfd dropping to Year 20 1.5 MMcfd by yr 2 879 Mcfd 1000 Mcfd 100 Year 20 Flush rate of 800 Mcfd 230 Mcfd dropping to 330 Mcfd by yr 2 Well 2 -Matrix 10 Well 1 - Fault 1 Jan-20 Jan-22 Jan-24 Jan-26 Jan-28 Jan-30 Jan-32 Jan-34 Jan-36 Jan-38 J
Slide 14: 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 15: Ingredients to Sustainability
Ingredients to Sustainability • A Suitable Resource – Tight Gas • High Netback • Ability to Reinvest Efficiently • Achievement of Per Share (Unit) Growth 15 5/17/2006
Slide 16: Ingredients to Sustainability: A Suitable Resource
Ingredients to Sustainability A Suitable Resource – Tight Gas • Areally Extensive • Multiple Vertical (Stacked) Targets • High Volumetric Storage Capacity in Reservoirs • Repeatable Well Opportunities • Proven Analogues • Robust Economics 16 5/17/2006
Slide 17: A Suitable Resource: Multiple Vertical Targets
A Suitable Resource Multiple Vertical Targets Sundance Area Reservoirs 17 5/17/2006
Slide 18: Volumetric Storage Capacity in Reservoirs
A Suitable Resource Volumetric Storage Capacity in Reservoirs Deep Basin Cardium Eastern AB Mannville h =4m Por = 25% Swi = 30% d = 800 m Pi = 6 MPaa Tr = 30 oC h =11m Por = 9% Swi = 18% Pi = 19 MPaa d=2200m Tr = 78 oC OGIP (94 acres) = 2.0 Bcf (3.6 Bcf on 160 acres) OGIP (160 acres) = 0.9 Bcf R/F =
Slide 19: Long Life vs. Short Life Reserves
Reserves Long Life vs. Short Life Long Life Production 1,600 • Typically deeper reservoirs, with large definable areas and Short Life – Water Drive no associated water. “Peyto has been 1,400 engineered around • Production profile is predictable and flattens over time. Long Life Reserves.” • Long Lif
Slide 20: Repeatable Well Opportunities
A Suitable Resource Repeatable Well Opportunities Cardium Wells 9.0 8.0 7.0 Initial Recoverable per Well (Bcf) 6.0 5.0 4.0 Average = 1.6 Bcf/well 3.0 2.0 1.0 0.0 Well 20 5/17/2006
Slide 21: Proven Analogues – Greater Edson Area Trend
A Suitable Resource Proven Analogues – Greater Edson Area Trend Cardium Gas 9Low Risk Development Play 9Liquid Rich, High Heating Value Gas 9Predictable Production Profile 9Long Life Reserves 1 Cardium Gas Producers On production before 1991 z 32 wells on production before 1991 z 32 wells still prod
Slide 22: Proven Analogues – Greater Edson Area Trend
A Suitable Resource Proven Analogues – Greater Edson Area Trend RLI Reserve Life Based on Index based on Current Gas First first Year Rate 2005 Ultimate Rate and Produced Year Avg and Cum Gas Current Time On Exponential Remaining Ultimate Reserve Remainin On Prod Last Prod To Date Gas Rate Produced
Slide 23: Robust Project Economics – A Look Back at Price
A Suitable Resource Robust Project Economics – A Look Back at Price Historical Historical AECO AECO Gas Price Monthly ($/GJ)($/GJ) Gas Price $14.00 $/GJ x1.055GJ/MMbtu = $/MMbtu $12.00 1 Mcf Peyto gas = 1.12 MMbtu A “New Era” for Gas Peyto gas ($/Mcf) = 1.18 x $/GJ $10.00 $8.00 $6.00 $4.00 $2.00 $0.
Slide 24: Robust Project Economics
A Suitable Resource Robust Project Economics Assumptions Results (BT) Well Investment: Drill/Complete $1.6MM Scenario 1 Scenario 2 Tie In $0.2MM Gas Price $3.00/GJ Gas Price $8.50/GJ (less 0.13/MCF Nova) (less 0.13/MCF Nova) Reserve: $20 US/bbl oil $70 US/bbl oil 1.6 Bcf raw gas (Note: Yr 20 Cum =0.
Slide 25: Robust Project Economics: Production Forecast
A Suitable Resource Robust Project Economics Production Forecast 1000 Yr 1 = 47% decline Yr 2 = 26% decline Yr 10+ = 5% decline Mcfd raw 100 Yr 3 = 5-9% decline 10 0 5 10 15 20 25 30 35 40 45 50 Cumulative Cash Position 25.00 M 20.00 Cu m $20.9M e Esc, .5 % Pric C.F., 2 15.00 Undisc m $11.7MM Flat P
Slide 26: Ingredients to Sustainability: High Netback
Ingredients to Sustainability High Netback • Quality Resource with High Price Realization (Liquids rich, high energy content gas) • Low Cost Structure (Geographical focus with infrastructure strength) • High Resultant Unit Netback ($/boe) 26 5/17/2006
Slide 27: Quality Resource with High Unit Price Realization
High Netback Quality Resource with High Unit Price Realization Q4 2005 Revenue Before Hedging ($/boe) $75 $73.30/boe Peyto’s focus on sweet, liquids rich gas $70 provides excellent price realization, a key to high netbacks. $65 $60 $/boe $55 $50 $45 $40 CP UN PW N AV UN PM N HT N FE N FE N ER N DA N
Slide 28: Low Cost Structure
High Netback Low Cost Structure Q4 2005 Operating Costs 14.00 Peyto’s focus on 12.00 concentrated core areas with infrastructure strength provides low operating costs, another key to high 10.00 netbacks. 8.00 $/boe 6.00 $2.65/boe with 4.00 gas transportation 2.00 0.00 AE U N PT U N ZA UN AV UN PW U
Slide 29: High Netback
High Netback 2005 Netback ($/boe) $ 4 0 .0 0 $36.54/boe $ 3 5 .0 0 $ 3 0 .0 0 $ 2 5 .0 0 $ 2 0 .0 0 $ 1 5 .0 0 $ 1 0 .0 0 $ 5 .0 0 $ 0 .0 0 N N N N N N N N N N N N N N N N N N N N N TO N _U _U U _U U _U _U _U U _U _U U _U U U U U _U _U U U _U T_ F_ T_ T_ F_ L_ Y T_ T_ T_ I_ X N G R TF Y P TE N TE E
Slide 30: Ability to Reinvest Efficiently
Ingredients to Sustainability Ability to Reinvest Efficiently • Low FD&A Costs (Drill repeatable low risk prospects) • Leading Recycle Ratio • A Depth of Resource Opportunities 30 5/17/2006
Slide 31: Low FD&A Costs
$/boe AE 0 5 10 15 20 25 30 35 40 45 _ BT UN E_ PG UN X_ BN UN P_ U PE N PG YTO F_ Low FD&A Costs AE UN T_ $14.34/boe HT UN E_ AV UN N_ DA UN Y PW _UN T_ ZA UN R_ VE UN T_ FE UN T_ Ability to Reinvest Efficiently PW UN I_ Proven Producing FD&A ($/boe) ER UN F_ U FE N L_ SH UN N_ EE UN E PM _UN T_ C
Slide 32: Recycle Ratio
PG 0.0 0.5 1.0 1.5 2.0 2.5 3.0 X_ U PE N YT AE O B N _U N Recycle Ratio P_ AE UN T PG _UN F PW _UN T Ratio 2.5 A V _U N N_ VE UN T D A _UN Y_ BT UN E Z A _UN R_ FE UN T_ Ability to Reinvest Efficiently HT UN E_ PW U N I_ 2005 Proven Producing Recycle Ratio FE UN L SH _UN N_ ER U N F PM _U N T_ EE U
Slide 33: Effective Recycle Ratio
Ability to Reinvest Efficiently Effective Recycle Ratio 2005 Effective Recycle Ratio, Proven Producing 3 Effective “Effective Recycle Ratio” scales the Ratio 2.9 conventional recycle ratio by the fraction of cash flow that is reinvested. 2 1 0 FE N N PW N PT N PG N AV N PG N VE N BN N FE N PM N N EE
Slide 34: Achievement of Per Share (Unit) Growth
Ingredients to Sustainability Achievement of Per Share (Unit) Growth • Per Unit Production and Income Growth • Per Unit Reserves growth 34 5/17/2006
Slide 35: Per Unit Production and Income Growth
Achievement of Growth Per Unit Production and Income Growth 218 boed 250 per million 1.0 units Daily Production (boe/d/million Funds from Operations ($/unit) 200 0.8 Reserves (boe/unit) & Quarterly 150 0.6 funds of units) $0.84/unit 100 0.4 50 0.2 - - Q4 99 Q4 00 Q4 01 Q4 02 Q4 03 Q4 04 Q4 05 Quarte
Slide 36: Per Unit Reserves Growth
AE -25% -20% -15% -10% -5% 0% 5% 10% 15% 20% T_ U N PE YT O VE T_ U D N AY _U N AE _U BN N P _U FE N L_ U ZA N R _U PG N X Per Unit Reserves Growth _U PG N F_ U PW N T_ U Achievement of Growth FE N T_ U PT N F_ U H N TE _U ER N F_ U BT N E_ 2005 Proven Reserve Growth Per Unit U SH N N _U PW N I_ U C
Slide 37: Sustainability, Reserve Replacement Cycle
Industry Comparison Sustainability, Reserve Replacement Cycle Q4 2005 Proven Producing Reserve Replacement Cycle 15 Funds from Operations ($/boe) $42.32 Minus Distributions @ 46% ($/boe) ($17.97) Cash Available after Distribution ($/boe) $24.35 2005 Proved Developed FDA ($/boe) ($14.34) 10 Excess Av
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