Peyto Exploration & Development Corp. · TSX:PEY
Peyto Exploration & Development — Investor Presentation (January 2018)
44 slides from Peyto Exploration & Development's investor presentation, Jan 19, 2018
Slide 1: January 2018
January 2018
Slide 2: Advisory Regarding Forward-Looking Statements
Advisory Regarding Forward-Looking Statements PEYTO Exploration & Development Corp. 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", "obj
Slide 3: Who We Are
PEY.TO Who We Are PEYTO Exploration & Development Corp. N 5th Largest Natural Gas Producer in Canada N Pure Play Alberta Deep Basin – 110‐115,000 boe/d Gas & NGLs N Returns Focused Strategy – Avg ROCE 17%, ROE 31% over last 18 yrs among highest in industry N Long Reserve Life Asset ‐ 7 yrs PDP, 18 y
Slide 4: Total Shareholder Return
PEY.TO Total Shareholder Return PEYTO Exploration & Development Corp. $60 120,000 $50 100,000 $40 80,000 $30 60,000 Future $20 Prospects 40,000 $10 Past 20,000 Profits $- 0 CTD Dividend ($/share) Month End Closing Price ($/share) Peyto Production (boe/d) 4 BOE factor - 6 mcf = 1 bbl of oil equivalen
Slide 5: The Peyto Strategy: What We Believe
The Peyto Strategy What We Believe PEYTO Exploration & Development Corp. We believe that: N “Nature’s gas is the fuel for the future.” N “Our focus should be on maximizing the return on invested capital – your capital.” N “By selectively and efficiently investing capital at periods in the cycle when
Slide 6: Counter Cyclical Growth Per Share
The Peyto Strategy Counter Cyclical Growth Per Share PEYTO Exploration & Development Corp. 2500 $80 Hit 2017 YE Target 115,000 boe/d $70 2000 $60 1500 $50 $40 1000 $30 $20 500 $10 Growth rate in Prod/div. 0 $0 adj. share (last 8 yrs) Q2 2001 Q1 2002 Q4 2002 Q3 2003 Q2 2004 Q1 2005 Q4 2005 Q3 2006 Q2
Slide 7: Invest For Profit Not Growth
The Peyto Strategy Invest For Profit Not Growth PEYTO Exploration & Development Corp. $800 $600 Peyto Earnings $400 CTD Q3/17 $200 $- 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F Capital Investment ($MM) Earnings ($MM) Peyto Capital CTD Q3/17 7 1/19/2018
Slide 8: More Profit Per Dollar Of Capital
The Peyto Strategy More Profit Per Dollar Of Capital PEYTO Exploration & Development Corp. Earnings/Capital 2001-2016 50% 40% 30% 20% 10% 0% CTD Earnings/Capital -10% 2001-2016 -20% -30% PEY ARX CNQ BNE VET ERF COG RRC POU SWN First Energy 8 1/19/2018
Slide 9: Dividend Sustainability
Q3/17 Q3/17 Dividend Sustainability Peyto Ctd. Dist/Div. Peyto Ctd. Earnings The Peyto Strategy $1,000 $1,500 $2,000 $2,500 $3,000 $0 $500 Q1 2000 Q3 2000 Q1 2001 Q3 2001 Q1 2002 Q3 2002 Q1 2003 Q3 2003 Q1 2004 Q3 2004 Q1 2005 Q3 2005 Q1 2006 Q3 2006 Q1 2007 Q3 2007 Q1 2008 Q3 2008 Q1 2009 Q3 2009 Q
Slide 10: Profitable Business
Peyto’s Profitable Business PEYTO Exploration & Development Corp. 10 1/19/2018
Slide 11: Build it for less than we sell it
Peyto’s Profitable Business “Build it for less than we sell it” PEYTO Exploration & Development Corp. 2017 PEY 2014 PEY 2015 PEY 2016 PEY 2017F Land/Acq/Disp Seismic Drilling PDP FD&A $/mcfe ($2.25) ($1.64) ($1.44) (~$1.45) Compl. Wellsite Facilities ~$525MM Cash Costs $/mcfe ($1.08) ($0.81) ($0.76)
Slide 12: Competitive In The North American Marketplace
Peyto’s Profitable Business Competitive In The North American Marketplace PEYTO Exploration & Development Corp. 100% Montney 65% DB/35% Mont. 100% Deep Basin VII 2016 TOU 2016 PEY 2016 PDP FD&A $/mcfe ($3.75) ($2.45) ($1.44) Cash Costs $/mcfe ($2.39) ($1.26) ($0.76) Supply Cost ($6.14) ($3.71) ($2.2
Slide 13: The Price Bar Is Now Very Low, We Must Be Lower
Peyto’s Profitable Business The Price Bar Is Now Very Low, We Must Be Lower PEYTO Exploration & Development Corp. AECO $10 Monthly $/GJ Peyto Realized Gas Price ($/mcfe) 36% Avg. "Profit“ $8 Cum To Date $6 Bonus $4 PDP FD&A 31% $2 43% Cash Costs 24% $- Total Cash Costs per mcfe includes – Royalties,
Slide 14: Results in a Low Cost Advantage
Peyto’s Profitable Business Results in a Low Cost Advantage PEYTO Exploration & Development Corp. Operating Costs Transporation Costs Large/Integrated Producers $20 Intermediate Producers $5 Junior Producers Gas Producers $4 $15 Peyto $3 $10 $2 $1.97 $5 $1 $5.25 $- $- Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q
Slide 15: Unique Assets
Peyto’s Unique Assets PEYTO Exploration & Development Corp. 15 1/19/2018
Slide 16: Geographically Focused Core Areas
Peyto’s Assets Geographically Focused Core Areas PEYTO Exploration & Development Corp. • 480,000 net acres R10 R5W6 R27 R22 R17 R12 R7W5 • 9 operated gas plants Cutbank ---(835 mmcf/d net capacity) • 1600+ km pipelines • 1200+ producing zones T60 Kakwa • 115,000 boe/d T60 Chicken Leland Pine Creek O
Slide 17: Deep Basin Permeability Segregation
Peyto’s Assets Deep Basin Permeability Segregation PEYTO Exploration & Development Corp. FOOTHILLS STRUCTURES GAS AS ING INCRE BILITY EA PERM WATER TRANSITION ZONE WATER GAS SE INCREAH AREA OF GAS DEPT MATURATION 17 1/19/2018
Slide 18: Multi Zone Stacked Sandstone Reservoirs
Peyto’s Assets Multi Zone Stacked Sandstone Reservoirs PEYTO Exploration & Development Corp. Detailed Petrophysical work on the Spirit River sands revealed >30% more reserves per section Up to per section* 18 *NGL recoveries can increase by 15+ bbl/mmcf with deeper cutting processing facilities 1/19
Slide 19: Deep Basin Lands Go A Long Way
Peyto’s Assets Deep Basin Lands Go A Long Way PEYTO Exploration & Development Corp. 800 Peyto Lands 700 600 Net Sections 500 400 Net Peyto Sections 300 200 100 - Net Sections of Cardium, Dunvegan, Notikewin, Falher, Wilrich, Bluesky, & Cadomin Net Sections – Developed Area of All Reserves Found and
Slide 20: Large Hz MSF Inventory
Peyto’s Assets Large Hz MSF Inventory PEYTO Exploration & Development Corp. Done1 To Do Total Total Total Total Hz(Vt) Hz Locations Vertical Hz Locations Unbooked Wells Wells Booked* (3) 1 11 (6) 434 72 176(14) 409 5 1 5 8 1 2(2) 16 5 90 125 169(2) 84 7 68 32 17 101 135 258 2 21 14 314 336 132 4 38
Slide 21: Spirit River Group Potential Land Expiries
Peyto’s Assets Spirit River Group Potential Land Expiries PEYTO Exploration & Development Corp. AB Land Sales ~5 yr Term 6,000,000 $1,000 $900 5,000,000 $800 $700 4,000,000 $600 3,000,000 $500 $400 2,000,000 $300 $200 1,000,000 $100 0 $- 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20
Slide 22: Greater Sundance Area
Peyto’s Assets Greater Sundance Area PEYTO Exploration & Development Corp. Peyto Oldman & Oldman North Peyto Wildhay Sweet Gas Sweet Gas Plant Plants 90 mmcf/d Peyto Nosehill 250 mmcf/d Sweet Gas Plant 125 mmcf/d Peyto Swanson Sweet Gas Plant Peyto Galloway 130 mmcf/d Sweet Gas Plant 60 mmcf/d Peyto
Slide 23: The Greater Brazeau River Area
Peyto’s Assets The Greater Brazeau River Area? PEYTO Exploration & Development Corp. Peyto Brazeau Sweet Gas Plant (2013) 140 mmcf/d Peyto Brazeau River 40,000 140 mmcf/d Sweet Gas Plant 35,000 30,000 Boe/d 25,000 20,000 15,000 10,000 5,000 0 23 1/19/2018
Slide 24: Facility Ownership And Control
Peyto’s Assets Facility Ownership And Control PEYTO Exploration & Development Corp. Cutbank Kakwa Oldman & Oldman North Nosehill Wildhay Galloway Swanson Peyto Nosehill Gas Plant: 125 MMCF/d throughput Peyto Gas Plants YE 2014 YE 2015 YE 2016 YE 2017 YE 2018 WI 1 Oldman 125 mmcf/d 125 mmcf/d 125 mmc
Slide 25: Annual Production Additions
Peyto’s Future Annual Production Additions PEYTO Exploration & Development Corp. 2011 - $379MM - $17,500/boe/d Annual Production Additions ~$10,900/boe/d Capital Efficiency 2012 - $618MM - $17,600/boe/d 60,000 2013 - $578MM - $15,100/boe/d 2014 - $690MM - $16,800/boe/d 2015 - $594MM - $11,600/boe/d
Slide 26: Incredible Returns
Peyto’s Incredible Returns PEYTO Exploration & Development Corp. 26 1/19/2018
Slide 27: Focus On Returns Drives Capital Discipline
Peyto’s Returns Focus On Returns Drives Capital Discipline PEYTO Exploration & Development Corp. 2017 ~ $10,900/boe/d 120,000 2016 - $10,800/boe/d $900 2015 - $11,600/boe/d 2017 115,000 boe/d Exit 2014 - $16,800/boe/d Annual Production Wedge (boe/d) 2013 - $15,100/boe/d $800 2012 - $17,600/boe/d 100
Slide 28: High Returns On Your Capital And Equity
Peyto’s Returns High Returns On Your Capital And Equity PEYTO Exploration & Development Corp. 60% $12 50% $10 40% $8 30% $6 18 yr Avg ROE to 2016 20% $4 10% $2 0% $0 Return On Capital Employed (%) Return On Equity (%) Earnings/share Realized Price ($/mcfe) 18 yr Avg ROCE to 2016 Return on Equity (RO
Slide 29: Template Economics At Strip
Peyto’s Returns Template Economics At Strip PEYTO Exploration & Development Corp. Species IP Avg. EUR D&C IRR @ IRR @ IRR @ IRR @ MMcf NGLs BCFE $MM Jan 4 Dec 7 $2.00 $2.50 bbl/MM Strip Strip Flat Flat Sundance Wilrich 5.3 10 2.6 2.8 4% 4% 6% 15% Nosehill Wilrich 5.5 10 3.3 3.0 8% 9% 11% 20% Ansell/
Slide 30: Future
Peyto’s Future PEYTO Exploration & Development Corp. 30 1/19/2018
Slide 31: Take Action Now To Drive Costs Down
Peyto’s Future Take Action Now To Drive Costs Down PEYTO Exploration & Development Corp. 40 bbl/mmcf new adds in 2018 increases liq to 12% PEY 2017F PEY 2018 Goals PEY 2019 Goals 91% Gas @ $2.30/GJ 91% Gas @ $1.30/GJ*1.15 88% Gas @$1.50/GJ*1.15 AECO*115% 12% NGLs @$75/bbl*(75%ofoil) $3.38 ~$2.95 ~$2
Slide 32: 2018 Outlook
Peyto’s Future 2018 Outlook PEYTO Exploration & Development Corp. Drill ~50-60Hz Wells (Liquids Rich Natural Gas) vs 143 in 2017 Expand & Extract Increase Processing Capacity & NGL Yield Increase Undeveloped Land Base Shoot Seismic 2018 Capital Program Acquire Additional Opportunities and Partn
Slide 33: Drive Down Supply Cost Before Returning to Growth
Peyto’s Future Drive Down Supply Cost Before Returning to Growth PEYTO Exploration & Development Corp. H1 $60MM H2 $160MM $6 $17,500/boe/d $17,600/boe/d 12 wells 40 wells $17,300/boe/d $16,800/boe/d $15,100/boe/d $5 100,000 $11,600/boe/d $4 ~$10,900/boe/d $10,800/boe/d AECO 7A ($/GJ) ~$9,000/boe/d B
Slide 34: Limited Exposure to AECO Daily (5A)
Peyto’s Future Limited Exposure to AECO Daily (5A) PEYTO Exploration & Development Corp. Peyto AECO Gas Marketing Portfolio 100% 0% 8% 8% 6% 7% 12% 15% 90% 85% target 35% 80% 47% 70% % of forecast gas production 78% 78% 76% 60% 75% of 2018 hedged @ $2.34/GJ 94% 84% 50% 84% 81% 83% 83% 75% 55% 40% $2
Slide 35: Careful Use Of Debt For Leveraged Returns
Peyto’s Future Careful Use Of Debt For Leveraged Returns PEYTO Exploration & Development Corp. 2016 Net Debt/PDP NPV10 100% 80% 60% 40% 20% 0% BXE NVA AAV PWT VET TOU BNP TET ARX ERF WBE BIR PEYTO CPG CR VII BTE PGF KEL PMT Peyto Net Debt/PDP NPV10 100% Debt/PDP NPV10 80% Peyto becomes NAIC2 rated,
Slide 36: Canada Has Role To Play But Transport Costs Key
Peyto’s Future Canada Has Role To Play But Transport Costs Key PEYTO Exploration & Development Corp. 2018 Transport Transport Market Cost Net Price Costs as % Market Price (Firm+Fuel) Received of Price To AECO $1.73 $0.19 $1.54 11% To Malin $2.60 $0.76 $1.84 29% To Chicago $2.82 $0.82 $2.00 29% $? T
Slide 37: Appendix
Appendix PEYTO Exploration & Development Corp. N Quarterly Track Record N Tax Pools N Hedging Strategy N Gas Marketing N FAQ 37 1/19/2018
Slide 38: Quarterly Track Record
Quarterly Track Record PEYTO Exploration & Development Corp. 2017 2016 2015 Q3 Q2 Q1 Total Q4 Q3 Q2 Q1 Total Q4 Q3 Q2 Q1 Operations Production Oil & NGLs (bbl/d) 8,958 8,319 9,586 7,457 8,938 7,247 6,621 7,008 6,643 6,943 5,352 6,843 7,456 Natural gas (mcf/d) 557,958 535,274 549,037 537,111 556,975
Slide 39: Peyto's Tax Pools
Organic Business Model Peyto’s Tax Pools PEYTO Exploration & Development Corp. $1,800 $1,600 $1,400 $1,200 Federal Tax Pools Millions $1,000 $800 Q4/16 $600 $400 $200 $- 1999 2001 2003 2005 2007 2009 2011 2013 2015 CEC UCC (25%) CEE (100%) CDE (30%) COGPE (10%) CAPEX Peyto CTD. CapEx Q4/16 39 1/19/2
Slide 40: Gas Marketing: Future Sales (1 of 4)
Gas Marketing Future Sales (1 of 4) PEYTO Exploration & Development Corp. Hedges by year (averaged) Year Vol. GJ/d Price/GJ Vol. mcf/d Price/mcf 2015 344,644 3.48 299,690 4.00 2016 460,656 2.77 400,915 3.18 2017 554,904 2.58 482,821 2.97 2018 459,959 2.34 400,209 2.69 2019 121,890 2.05 106,057 2.35
Slide 41: Gas Marketing: Future Sales (2 of 4)
Gas Marketing Future Sales (2 of 4) PEYTO Exploration & Development Corp. 41 1/19/2018 •Assuming an Average Heating Value of 1.15 GJ/mcf for Peyto’s gas
Slide 42: Gas Marketing: Future Sales (3 of 4)
Gas Marketing Future Sales (3 of 4) PEYTO Exploration & Development Corp. Aug-16 Aug-17 Aug-18 Aug-19 May-16 Nov-16 May-17 Nov-17 May-18 Nov-18 May-19 Nov-19 Feb-16 Jun-16 Sep-16 Dec-16 Feb-17 Jun-17 Sep-17 Dec-17 Feb-18 Jun-18 Sep-18 Dec-18 Feb-19 Jun-19 Sep-19 Dec-19 Feb-20 Jan-16 Mar-16 Apr-16 Oc
Slide 43: Gas Marketing: Future Sales (4 of 4)
Gas Marketing Future Sales (4 of 4) PEYTO Exploration & Development Corp. Aug-16 Aug-17 Aug-18 Aug-19 May-16 Nov-16 May-17 Nov-17 May-18 Nov-18 May-19 Nov-19 Feb-16 Jun-16 Sep-16 Dec-16 Feb-17 Jun-17 Sep-17 Dec-17 Feb-18 Jun-18 Sep-18 Dec-18 Feb-19 Jun-19 Sep-19 Dec-19 Feb-20 Jan-16 Mar-16 Apr-16 Oc
Slide 44: Successful Hedging Strategy Smoothes Volatility
Gas Marketing Successful Hedging Strategy Smoothes Volatility PEYTO Exploration & Development Corp. 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Peyto Peyto Peyto Peyto Peyto Peyto Peyto Peyto Peyto Peyto Peyto Peyto Peyto $7.38/mcf $8.78/mcf $8.48/mcf $8.42/mcf $8.64/mcf $6.44/m
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