Peyto Exploration & Development Corp. · TSX:PEY

Peyto Exploration & Development — Investor Presentation (January 2019)

50 slides from Peyto Exploration & Development's investor presentation, Jan 16, 2019

  1. Slide 1: Slide 1

  2. 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

  3. 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 – ~95,000 boe/d Gas & NGLs N Returns Focused Strategy – Avg ROCE 16%, ROE 30% over last 19 yrs, among highest in industry N Long Reserve Life Asset ‐ 7 yrs PDP, 18 yrs

  4. Slide 4: Peyto Is The 5th Largest Gas Producer In Canada

    PEY.TO Peyto Is The 5th Largest Gas Producer In Canada PEYTO Exploration & Development Corp. 1.8 1.6 1.4 1.2 (Bcf/d) 1.0 0.8 0.6 0.4 0.2 0.0 YE 2016 YE 2017 Source: NBF, geoSCOUT; assumes 15% gas shrink 4 1/16/2019

  5. Slide 5: Total Shareholder Return

    PEY.TO Total Shareholder Return PEYTO Exploration & Development Corp. Peyto Exploration and Development Corp. $60 20 Year Trading History 120,000 Month End Closing Price ($/share) CTD Dividend ($/share) $50 100,000 Peyto Production (boe/d) $40 80,000 $11.61/share $30 Oct 23/18 60,000 Future $20 Pros

  6. Slide 6: What We've Done Over Years

    Peyto’s History What We’ve Done Over 20 Years PEYTO Exploration & Development Corp. N Goods and Services Purchased = $5.8 Billion N Land Purchased = 646 sections N Wells Drilled = 1,512 N Reserves Discovered = 5.8 TCFe (YE 2017) N Production Recovered = 1.6 TCFe N Royalties Paid = $852 million N Pro

  7. Slide 7: We Heat Your Homes

    Peyto’s Contribution We Heat Your Homes PEYTO Exploration & Development Corp. “Alberta Energy states that typical Alberta households use approximately 120 GJ of natural gas per year. As the 5th largest gas producer in Canada, in 2017, Peyto provided the natural gas to keep all the homes in AB and SK

  8. Slide 8: The Peyto Strategy

    The Peyto Strategy PEYTO Exploration & Development Corp. 8 1/16/2019

  9. Slide 9: 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

  10. Slide 10: Counter Cyclical Growth Per Share

    The Peyto Strategy Counter Cyclical Growth Per Share PEYTO Exploration & Development Corp. 2500 $80 $70 2000 $60 1500 $50 $40 1000 $30 $20 500 $10 Growth rate in Prod/div. 0 $0 adj. share (last 9 yrs) Q2 2001 Q1 2002 Q4 2002 Q3 2003 Q2 2004 Q1 2005 Q4 2005 Q3 2006 Q2 2007 Q1 2008 Q4 2008 Q3 2009 Q2

  11. Slide 11: Invest For Profit Not Growth

    The Peyto Strategy Invest For Profit Not Growth PEYTO Exploration & Development Corp. $800 $700 $600 $500 Peyto Earnings $400 CTD Q3/18 $300 $177 $200 $100 $- 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 CAPEX ($MM) Earnings ($'000) Peyto Capital CTD Q3/1

  12. Slide 12: Dividend Sustainability

    Q3/18 Q3/18 Dividend Sustainability Peyto Ctd. Dist/Div. Peyto Ctd. Earnings The Peyto Strategy (MM$) $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 Q4 1999 Q2 2000 Q4 2000 Q2 2001 Q4 2001 Q2 2002 Q4 2002 Q2 2003 Q4 2003 Q2 2004 Q4 2004 Q2 2005 Q4 2005 Q2 2006 Q4 2006 Q2 2007 Q4 2007 Q2 2008 Q4 2008 Q2

  13. Slide 13: Profitable Business

    Peyto’s Profitable Business PEYTO Exploration & Development Corp. 13 1/16/2019

  14. Slide 14: 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 2017 Land/Acq/Disp Seismic Drilling PDP FD&A $/mcfe ($2.25) ($1.64) ($1.44) ($1.36) Compl. Wellsite Facilities $521MM Cash Costs $/mcfe ($1.08) ($0.81) ($0.76) ($

  15. Slide 15: 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 CTD $6 Bonus $4 PDP FD&A 35% $2 40% Cash Costs 25% $- Total Cash Costs per mcfe includes – Royalties, Op Cost

  16. Slide 16: 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 100% Montney 10% DB/90% Mont. VII 2017* TOU 2017* Basin PEY 2017 AAV 2017* ARX 2017* PDP FD&A $/mcfe ($2.53) ($1.38) ($1.36) ($1.32) ($2.51) Cash Co

  17. Slide 17: Results in a Low Cost Advantage

    Peyto’s Profitable Business Results in a Low Cost Advantage PEYTO Exploration & Development Corp. $2.43 $4.75 ($0.01) $1.05 BOE factor - 6 mcf = 1 bbl of oil equivalent 17 Data from Peter’s & Co. 1/16/2019 Gas producers include: AAV,PNE,CKE,CQE,TOU,SRX,BIR,BXE,CR,ARX,BNP,POU,DEE,KEL,ECA,VII

  18. Slide 18: Unique Assets

    Peyto’s Unique Assets PEYTO Exploration & Development Corp. 18 1/16/2019

  19. Slide 19: Geographically Focused Core Areas

    Peyto’s Assets Geographically Focused Core Areas PEYTO Exploration & Development Corp. • 480,000 net acres • 9 operated gas plants Cutbank ---(835 mmcf/d net capacity) • 1600+ km pipelines • 1200+ producing zones Kakwa • 100,000 boe/d Chicken Leland Pine Creek Of Production: Greater Processed by Pey

  20. Slide 20: 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 20 1/16/2019

  21. Slide 21: 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* 21 *NGL recoveries can increase by 15+ bbl/mmcf with deeper cutting processing facilities 1/16

  22. Slide 22: 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* (2) 2 (3) 440 74 174(13) 414 5 1 5 8 1 2(2) 20 90 174 160(2) 69 7 74 40 8 111 162 319 2 20 14 381 378 182 4 39 54 48

  23. Slide 23: 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, & Montney Net Sections – Developed Area of All Reserves F

  24. 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 Gas Plants YE 2014 YE 2015 YE 2016 YE 2017 YE 2018 WI Whitehorse 1 Oldman 125 mmcf/d 125 mmcf/d 125 mmcf/d 125 mmcf/d 125 mmcf/d 100% 2 Nose

  25. Slide 25: Unique Infrastructure Location

    Peyto’s Assets Unique Infrastructure Location PEYTO Exploration & Development Corp. Alliance Oldman & Oldman North Nosehill Wildhay Galloway Swanson 240 kV Power Lines Highway 16 Greater Sundance Area Bickerdike Location Advantages: • Nova/Alliance Supply Backstop • CN Rail (export) • Paved Highway

  26. Slide 26: Potential For Additional Liquids Extraction

    Peyto’s Assets Potential For Additional Liquids Extraction PEYTO Exploration & Development Corp. Oldman and Nosehill Oldman North Wildhay Propane Gas Phase Value Far Less Than C3 Value ($/bbl of liq eq.) Liquid Value Condensate $20 Swanson via Pembina $15 $10 Galloway $5 $0 $1.00 $2.00 $3.00 $4.00 G

  27. Slide 27: The "New" Cardium Play – High Grade Land Base

    Peyto’s Assets The “New” Cardium Play – High Grade Land Base PEYTO Exploration & Development Corp. 27 1/16/2019

  28. Slide 28: The "New" Cardium Play – Abundant Opportunities

    Peyto’s Assets The “New” Cardium Play – Abundant Opportunities PEYTO Exploration & Development Corp. Oldman & Oldman North Nosehill Wildhay Swanson Galloway Total Greater Sundance Cardium Resource* Proven Resource: 350 BCFe cumulative recovery to YE 2017 (Less than 15% of internally estimated EUR) L

  29. Slide 29: The "New" Cardium Play – A Different Design

    Peyto’s Assets The “New” Cardium Play – A Different Design PEYTO Exploration & Development Corp. 2009-2014 2009-2014 Old Design (2009-2014) New Design (2017-2018) Old Design (last 12 wells) New Design (last 12 wells) 8 Stages 25 Stages $1.9MM Drill $1.6MM Drill 415 tonnes 650 tonnes $1.5MM Complete

  30. Slide 30: The "New" Cardium Play – Proving the Type Curve

    Peyto’s Assets The “New” Cardium Play – Proving the Type Curve PEYTO Exploration & Development Corp. We are experiencing higher than expected pipeline pressures in one specific area of the gathering system which is impacting 3 of the 9 wells and should be rectified with planned pipeline looping. 30

  31. Slide 31: Deep Basin Cardium – More Like Oil Than Gas

    Peyto’s Assets Deep Basin Cardium – More Like Oil Than Gas PEYTO Exploration & Development Corp. Reserves Revenue Type Curve by Product by Product IP 365 58 bbl/d 13% C5+/Condy 37 10% 55% bbl/d C3/C4 1.5 mmcf/d Natural 16% Gas 77% 29% 31 • Price Deck: $1.50/GJ AECO, WTI $70/bbl 1/16/2019

  32. Slide 32: New Montney Play and Potential Expiries

    Peyto’s Assets New Montney Play and Potential Expiries PEYTO Exploration & Development Corp. Potential Montney Intermediate Term Expiries 2019-2020 32 1/16/2019

  33. Slide 33: Incredible Returns

    Peyto’s Incredible Returns PEYTO Exploration & Development Corp. 33 1/16/2019

  34. Slide 34: 2018 IRRs YTD

    Peyto’s Returns 2018 IRRs YTD PEYTO Exploration & Development Corp. 2018 Wells ‐ YTD Prices Based on Actuals and 150 Price Deck: 2018 Actuals and Nov 1 Strip Forecast Nov 1 Strip Period Gas C5+ 130 Well Count Price Price ($/GJ) ($/bbl) 23 Gross @AECO @Edm 110 21 Net Cardium 39% 2018 Q1 1.76 75.08 90

  35. Slide 35: 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 19 yr Avg ROE to 2017 30% $6 20% $4 11% 10% 8% $2 0% $0 Return On Capital Employed (%) Return On Equity (%) Earnings/share Realized Price ($/mcfe) 19 yr Avg ROCE to 2017 Return on Equ

  36. Slide 36: Future

    Peyto’s Future PEYTO Exploration & Development Corp. 36 1/16/2019

  37. Slide 37: 2019 Outlook

    Peyto’s Future 2019 Outlook PEYTO Exploration & Development Corp. Drill ~50Hz Wells (Liquids Rich Natural Gas) vs 70 in 2018 Expand & Extract Increase Processing Capacity & NGL Yield Increase Undeveloped Land Base Shoot Seismic 2019 Capital Program Acquire Additional Opportunities and Partner I

  38. Slide 38: Gas Price Stability Before Returning to Growth

    Peyto’s Future Gas Price Stability Before Returning to Growth PEYTO Exploration & Development Corp. $5 14 bbl/mmcf 14 bbl/mmcf 17 bbl/mmcf 20 bbl/mmcf 27 bbl/mmcf 32 bbl/mmcf 36 bbl/mmcf, exit >18,000 bbl/d $4.19 $4 100,000 ~$10,900/boe/d $16,800/boe/d ~$10,000/boe/d $10,800/boe/d ~$10,000/boe/d $3

  39. Slide 39: Lower Costs and Increase Liquids to Preserve Profit

    Peyto’s Future Lower Costs and Increase Liquids to Preserve Profit PEYTO Exploration & Development Corp. 40‐50 bbl/mmcf new adds in 2018/19 increases liq to 14% PEY 2017 PEY 2018 Goals PEY 2019 Goals 91% Gas @ $2.30/GJ 90% Gas @ $1.42/GJ*1.15 86% Gas @$1.45/GJ*1.15 AECO*115% 14% NGLs @$72/bbl=(60%of

  40. Slide 40: Market Diversification and Gas Price Protection

    Gas Marketing Future Market Diversification and Gas Price Protection PEYTO Exploration & Development Corp. 88% Hedged 65% Hedged 17% Hedged 2% Hedged Markets Markets Markets Markets 99% AECO 68% AECO 54% AECO 56% AECO 1% Dawn 8% Dawn 8% Dawn 12% Dawn 0% Henry Hub 24% Henry Hub 38% Henry Hub 33% Henr

  41. Slide 41: Minimized AECO Spot Market Exposure

    Gas Marketing Minimized AECO Spot Market Exposure PEYTO Exploration & Development Corp. 2018 Budget Revenue 2019 Forecast Revenue Condy & C5+ - Gas - AECO spot Fixed Gas - AECO spot (monthly/daily) 4% (monthly/daily) 5% 10% Gas - Henry Hub spot Condy & 1.6% C5+ - Fixed Gas - Henry 11% Hub spot Condy

  42. Slide 42: Alberta Needs Storage

    Gas Marketing Alberta Needs Storage PEYTO Exploration & Development Corp. When supply When supply exceeds demand exceeds demand and there is no and there is NGTL gas flows access to storage, access to storage, price gets volatile 15,000 price remains $4.50 14,000 stable. ? $4.00 13,000 $3.50 12,000

  43. Slide 43: Fixed Price Swaps For Gas and Liquids

    Gas Marketing Fixed Price Swaps For Gas and Liquids PEYTO Exploration & Development Corp. 43 For a real time summary of Peyto’s future hedges see: http://www.peyto.com/Files/Marketing/hedges.pdf 1/16/2019 •Assumes an Average Heating Value of 1.15 GJ/mcf for Peyto’s gas

  44. Slide 44: The Good News, Pipe Is Coming

    Gas Marketing The Good News, Pipe Is Coming PEYTO Exploration & Development Corp. 44 Source: TCPL 2017 Q4 Conference Call Presentation Feb 15, 2018 1/16/2019

  45. Slide 45: Supply Driven Market May Be Temporary

    Gas Marketing Supply Driven Market May Be Temporary PEYTO Exploration & Development Corp. NORTH AMERICAN NATURAL GAS 20 92.1 100 18 79.4 90 Proven Reserve Life (years) Total Production (bcf/d) 16 80 13.7 14 11.4 70 12 60 10 50 8 40 6 30 4 20 2 10 - 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

  46. Slide 46: Appendix

    Appendix PEYTO Exploration & Development Corp. N Quarterly Track Record N Tax Pools N Gas Marketing N Leverage 46 1/16/2019

  47. Slide 47: Quarterly Track Record

    Quarterly Track Record PEYTO Exploration & Development Corp. 2018 2017 2016 Q3 Q2 Q1 Total Q4 Q3 Q2 Q1 Total Q4 Q3 Q2 Q1 Total Operations Production Oil & NGLs (bbl/d) 9,209 9,243 10,043 9,337 10,479 8,958 8,319 9,586 7,457 8,938 7,247 6,621 7,008 6,643 Natural gas (mcf/d) 456,197 493,821 568,496 55

  48. Slide 48: 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 Q4/17 $600 $400 $200 $- 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 CEC UCC (25%) CEE (100%) CDE (30%) COGPE (10%) CAPEX Peyto CTD. CapEx Q4/17 48 1

  49. Slide 49: 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 2017 Peyto 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/

  50. Slide 50: Careful Use Of Debt For Leveraged Returns

    Peyto’s Debt Careful Use Of Debt For Leveraged Returns PEYTO Exploration & Development Corp. Peyto Net Debt/PDP NPV10 100% 80% Peyto becomes NAIC2 rated, gains access to cheaper term debt 60% 40% 20% Debt/PDP NPV10 0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 20

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