Peyto Exploration & Development Corp. · TSX:PEY
Peyto Exploration & Development — Investor Presentation (May 2017)
49 slides from Peyto Exploration & Development's investor presentation, May 19, 2017
Slide 1: May 2017
May 2017
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: Peyto Profile
Peyto Profile PEYTO Exploration & Development Corp. N TSX Listing: PEY N Shares Outstanding: 164.9 million, 3% insiders (as of Jan 6/17) N Monthly Dividend: $0.11/share N Current Production: 0.6 BCFe/d N YE 2016 2P Reserves: 3.9 TCFe (655 mmboes) N Q1 2017 Net Debt: $0.52 billion (senior unsecured n
Slide 4: World Consumption of Hydrocarbons Isn't Slowing
The Big Picture World Consumption of Hydrocarbons Isn’t Slowing PEYTO Exploration & Development Corp. Consumption (MMBOE/day) Population (billions) 4 Source: ARC Financial, BP Energy Outlook 5/19/2017
Slide 5: Canada Supply Demand Compressing
The Big Picture Canada Supply Demand Compressing PEYTO Exploration & Development Corp. Pipe capacity from Montney/Deep Basin 5 Source: NEB, Canada’s Energy Future 2016 January 2016 5/19/2017
Slide 6: US Can Export Our Excess
The Big Picture US Can Export Our Excess PEYTO Exploration & Development Corp. EIA U.S. Natural Gas Net Imports (MMcf/d) 15,000 10,000 5,000 0 (5,000) (10,000) Imports (mostly CND) Exports Net 6 5/19/2017
Slide 7: 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 8: Results in a Low Cost Advantage
The Peyto Strategy Results in a Low Cost Advantage PEYTO Exploration & Development Corp. Operating Costs Transportation Costs $20 $4.00 $15 $3.00 $/boe $10 $2.00 $0.83 $5 $1.00 $8.15 $- $- Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016 2
Slide 9: Counter Cyclical Growth Per Share
The Peyto Strategy Counter Cyclical Growth Per Share PEYTO Exploration & Development Corp. 2017 YE Target >120,000 boe/d $70 1,400 $60 1,200 $50 1,000 $40 800 600 $30 400 $20 200 $10 Growth rate in prod. 0 $0 /debt & div. adj. share Q3 2001 Q1 2002 Q3 2002 Q1 2003 Q3 2003 Q1 2004 Q3 2004 Q1 2005 Q3
Slide 10: Consistent History of Earnings
The Peyto Strategy Consistent History of Earnings PEYTO Exploration & Development Corp. $800 $600 Peyto Cum. Earnings $400 Q4/16 $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 Cum. Capital Q4/16 10 5/19
Slide 11: 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 11 5/19/2017
Slide 12: Dividend Sustainability
Q4/16 Q4/16 Dividend Sustainability Peyto Ctd. Dist/Div. Peyto Ctd. Earnings The Peyto Strategy $1,000 $1,500 $2,000 $2,500 $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 Ctd Dist
Slide 13: Highest Total Return On TSX
Compound Annual Total Return (%) 0 5 10 15 20 25 30 35 40 45 Peyto Exploration & Development Computer Modelling Group Stella-Jones Inc. Smart REIT First Quantum Minerals ALIMENTATION COUCHE TARD Parkland Fuel Corp. Vermilion Energy Inc. Home Capital Group Inc. GILDAN ACTIVEWEAR INC Source: BMO, Tota
Slide 14: Profitable Business
Peyto’s Profitable Business PEYTO Exploration & Development Corp. 14 5/19/2017
Slide 15: Build it for less than we sell it
Peyto’s Profitable Business “Build it for less than we sell it” PEYTO Exploration & Development Corp. PEY 2014 PEY 2015 PEY 2016 $34 Land/Acq/Disp $8 Seismic PDP FD&A $220 Drilling $/mcfe ($2.25) ($1.64) ($1.44) $105 Compl. $41 Wellsite $60 Facilities Cash Costs ~$469MM $/mcfe ($1.08) ($0.81) ($0.76
Slide 16: Profitable Even Through The Lows
Peyto’s Profitable Business Profitable Even Through The Lows PEYTO Exploration & Development Corp. AECO Peyto Realized Gas Price ($/mcfe) Monthly $10 $/GJ 36% Avg. "Profit“ $8 Cum To Date $6 Bonus $4 Cash Costs $2 ($0.76) PDP FD&A ($1.44) $- Forecast Total Cash Costs per mcfe includes – Royalties, O
Slide 17: 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 18: Unique Assets
Peyto’s Unique Assets PEYTO Exploration & Development Corp. 18 5/19/2017
Slide 19: Geographically Focused Core Areas
Peyto’s Assets Geographically Focused Core Areas PEYTO Exploration & Development Corp. • 450,000 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 • >100,000 boe/d T60 Chicken Leland Pine Creek
Slide 20: Deep Basin Permeability Segregation
Peyto’s Assets Deep Basin Permeability Segregation PEYTO Exploration & Development Corp. Ante Ck FOOTHILLS STRUCTURES Elmworth GAS AS ING INCRE BILITY EA PERM WATER Kaybob TRANSITION ZONE WATER Kakwa GAS Gas INCREAH DEPT SE AREA OF GAS Window MATURATION Wild River Sundance Edson Bighorn Deep Basin T
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 5/19
Slide 22: 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 23: Adding To Our Drilling Islands
Peyto’s Assets Adding To Our Drilling Islands PEYTO Exploration & Development Corp. Greater Sundance Area Added 40 Net Sections We’ve added 56 Net Sections of Land net sections with over 84 Added in 2016* locations already in 2017! Brazeau Area Added 10 Net Sections Locations Identified on New Lands
Slide 24: 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 25: Reserve Growth Validates Future Locations
Peyto’s Assets Reserve Growth Validates Future Locations PEYTO Exploration & Development Corp. 4,500 $2.00 4,000 $1.80 $1.60 3,500 $1.40 3,000 $1.20 2,500 MMCFe $1.00 2,000 $0.80 1,500 $0.60 1,000 $0.40 500 $0.20 0 $0.00 2010 2011 2012 2013 2014 2015 2016 PDP PDNP PU PA Forecast Conversion Cost ($/m
Slide 26: Constantly Growing Inventory
Peyto’s Assets Constantly Growing Inventory PEYTO Exploration & Development Corp. PEYTO INVENTORY PEYTO LOCATION GENERATION RATE INVENTORY Ratio of Locations Added/Total Wells Drilled Cumulative Wells Drilled Booked Locations Wells Drilled Hz MSF Technology 1697 If we drilled 150 wells a year 3.3 16
Slide 27: 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 250 mmcf/d Peyto Nosehill Sweet Gas Plant 125 mmcf/d Peyto Swanson Peyto Galloway Sweet Gas Plant Sweet Gas Plant 130 mmcf/d 60 mmcf/d Peyto
Slide 28: The Greater Brazeau River Area?
Peyto’s Future 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 28 5/19/2017
Slide 29: 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 WI 1 Oldman 125 mmcf/d 125 mmcf/d 125 mmcf/d 125 mmcf/d 100% Peyto Nosehill Gas Plant: 125 MMCF/d
Slide 30: Predictable and Repeatable
Peyto’s Assets Predictable and Repeatable PEYTO Exploration & Development Corp. 30 5/19/2017
Slide 31: Annual Production Additions
Peyto’s Assets Annual Production Additions PEYTO Exploration & Development Corp. ~$11,000/boe/d 60,000 Capital Efficiency 2011 - $379MM 2012 - $618MM 50,000 2013 - $578MM 2014 - $690MM 2015 - $594MM 40,000 2016 - $469MM BOE/D 2017 ~ $575MM 30,000 20,000 10,000 0 1 4 7 10 13 16 19 22 25 28 31 34 37 4
Slide 32: Lumpy Production From Pads and New Areas
Peyto’s Assets Lumpy Production From Pads and New Areas PEYTO Exploration & Development Corp. 25 120,000 20 100,000 15 10 80,000 5 0 60,000 -5 40,000 -10 -15 20,000 -20 -25 0 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15
Slide 33: Incredible Returns
Peyto’s Incredible Returns PEYTO Exploration & Development Corp. 33 5/19/2017
Slide 34: Well IRR by Formation
BTAX IRR (%) -50 0 50 100 150 200 250 300 02/13-11-043-12W5/0 02/08-08-055-21W5/0 00/08-18-055-21W5/0 00/08-28-054-21W5/0 00/14-15-043-12W5/0 00/13-11-043-12W5/0 02/16-33-054-22W5/0 02/15-34-055-21W5/0 00/15-33-054-22W5/0 04/16-27-054-22W5/0 00/12-22-055-21W5/0 00/16-32-053-19W5/0 00/05-22-055-21W5/
Slide 35: Focus On Returns Drives Capital Discipline
Peyto’s Returns Focus On Returns Drives Capital Discipline PEYTO Exploration & Development Corp. 2017 ~ $11,000/boe/d 120,000 2016 - $10,800/boe/d $900 2015 - $11,600/boe/d 2017 Forecast Exit 120,000 boe/d 2014 - $16,800/boe/d Annual Production Wedge (boe/d) 2013 - $15,100/boe/d $800 2012 - $17,600/
Slide 36: 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 37: Future
Peyto’s Future PEYTO Exploration & Development Corp. 37 5/19/2017
Slide 38: Industry Cost Inflation
Peyto’s Future Industry Cost Inflation PEYTO Exploration & Development Corp. Active Canadian Drilling Rigs 800 $100/bbl oil, $3.50/GJ gas 600 400 $50/bbl oil, $2.30/GJ gas 200 0 JUL-13 JUL-14 JUL-15 JUL-16 JUL-17 GAS RIGS OIL TOTAL 38 Source: Baker Hughes 5/19/2017
Slide 39: Build it for less than we sell it: 2017 Goals
Peyto’s Future 15th 1998‐2013 “Build it for less than we sell it” PEY 2016 92% Gas @ $2.00/GJ AECO PEY 2017 Goals 8% NGLs @ $40/bbl (75% oil) 91% Gas @ $2.75/GJ $2.63/mcfe 9% NGLs @ $50/bbl Revenue $/mcfe $3.18 $0.56/mcfe hedging gain $3.18/mcfe Peyto Realized $3.52 $3.63/mcfe ($0.11/mcfe) hedge los
Slide 40: 2017 Outlook
Peyto’s Future 2017 Outlook PEYTO Exploration & Development Corp. Drill ~145-160Hz Wells (Liquids Rich Natural Gas) vs 129 in 2016 Expand & Extract Increase Processing Capacity & NGL Yield ~120 mmcf/d With Brazeau East GP Increase Undeveloped Land Base Shoot Seismic 2017 Capital Program Acquire
Slide 41: Where To From Here?
Peyto’s Future Where To From Here? PEYTO Exploration & Development Corp. 150,000 120,000+ boe/d exit $10,800/boe/d $11,600/boe/d ~$11,000 /boe/d 100,000 $16,800/boe/d ~$11,000 /boe/d BOED ~$11,000 $15,100/boe/d /boe/d $17,600/boe/d $17,500/boe/d 50,000 $17,300/boe/d 2013 2014 2015 2016 2017 Budget 2
Slide 42: Working Around The Takeaway Constraints
Peyto’s Future Working Around The Takeaway Constraints PEYTO Exploration & Development Corp. The capacity has been oversold by as much as 60% 42 5/19/2017
Slide 43: Appendix
Appendix PEYTO Exploration & Development Corp. N Quarterly Track Record N Tax Pools N Hedging Strategy N Gas Marketing N FAQ 43 5/19/2017
Slide 44: Quarterly Track Record
Quarterly Track Record PEYTO Exploration & Development Corp. 2017 2016 2015 2014 Q1 Total Q4 Q3 Q2 Q1 Total Q4 Q3 Q2 Q1 Total Q4 Q3 Q2 Operations Production Oil & NGLs (bbl/d) 9,586 7,457 8,938 7,247 6,621 7,008 6,643 6,943 5,352 6,843 7,456 7,632 8,077 7,502 7,568 Natural gas (mcf/d) 549,037 537,11
Slide 45: 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 45 5/19/2
Slide 46: Successful Hedging Strategy
Successful Hedging Strategy Peyto Realized Price History 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/mcf $5
Slide 47: Future Sales (1 of 3)
Gas Marketing Future Sales (1 of 3) PEYTO Exploration & Development Corp. Hedges by year (averaged) Year Vol. GJ/d Price/GJ Vol. mcf/d Price/mcf 2016 460,656 2.77 400,915 3.18 2017 518,849 2.60 451,562 2.99 2018 276,110 2.56 240,302 2.94 2019 32,192 2.49 28,017 2.86 2020 10,000 2.47 8,703 2.84 47 5/
Slide 48: Future Sales (2 of 3)
Gas Marketing Future Sales (2 of 3) PEYTO Exploration & Development Corp. 48 5/19/2017 •Assuming an Average Heating Value of 1.15 GJ/mcf for Peyto’s gas
Slide 49: Future Sales (3 of 3)
Gas Marketing Future Sales (3 of 3) PEYTO Exploration & Development Corp. Aug-16 Aug-17 Aug-18 May-16 Nov-16 May-17 Nov-17 May-18 Nov-18 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 Jan-16 Mar-16 Apr-16 Oct-16 Jan-17 Mar-17 Apr-17 Oct-17 Jan-18 Mar-18 Ap
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