Peyto Exploration & Development Corp. · TSX:PEY
Peyto Exploration & Development — Peyto Energy Trust — Shareholder Meeting (May 2006)
53 slides from Peyto Exploration & Development's shareholder meeting presentation, May 16, 2006
Slide 1: 2006 AGM
2006 AGM May 16, 2006
Slide 2: Oil & Gas Trust
Oil & Gas Trust Assets + Business - Distributions • Assets • Oil and gas reserves • Business • Investing capital to find and develop more oil and gas reserves • Distributions • Cashflow from operations that are taken out of the Trust and given to the unitholders 2 5/16/2006
Slide 3: Peyto Energy Trust
Peyto Energy Trust Assets + Business - Distributions • Assets • Approximately 100% natural gas and natural gas liquids • Long reserve life • Low operating costs • High Operatorship • Business • Peyto’s business is to design, drill and build its own assets • Low finding and development costs • High r
Slide 4: Assets
Assets Made Made by By Peyto Peyto Made by Peyto 4 5/16/2006
Slide 5: Peyto is a Tight Gas Company
Peyto is a Tight Gas Company North American Tight Gas Deep Basins Peyto’s Assets are located in Canada’s Alberta Deep Basin Alberta Deep Basin 5 Map Courtesy of GTI 5/16/2006
Slide 6: General Area of Operations Map
General Area of Operations Map Over the past eight years, Peyto has focused it’s efforts design, drill and build strategy exclusively in the Alberta Deep Basin. The Deep Basin is considered Alberta’s premier exploration area for high quality long life gas reserves. Peyto’s Sundance Area Alberta's Ce
Slide 7: Peyto Operations Map
Peyto Operations Map Gas Plants & Land By fall of 2006 Peyto will own Smoky/Kakwa and operate 195 mmcf/d of gas processing capacity in 35 mmcf/d the Deep Basin. Cutbank Nosehill 10 mmcf/d Sundance 20 mmcf/d 110 mmcf/d Leland Peyto owns over Wildhay 202,000 net acres (315 20 mmcf/d net sections) of l
Slide 8: Gas Plant & Gathering System
Gas Plant & Gathering System Greater Sundance Greater Sundance Area Gas Plants z Oldman - 110 mmcf/d Compression, 110 mmcf/d Refrigeration, constructed & installed April 2000 z expanded four times over two years z Wildhay (New) - 20 mmcf/d Compression, 20 mmcf/d Refrigeration, constructed & installe
Slide 9: Deep Basin Tight Gas
Deep Basin Tight Gas Multiple Vertical Targets Sundance Area Reservoirs Peyto’s design, drill and build strategy targets over 7 different tight gas reservoirs in the Deep Basin 9 5/16/2006
Slide 10: Cardium Resource Play
Cardium Resource Play Greater Edson Area Trend Cardium Resource Play 9Low Risk Development Drilling 9High Heating Value, Liquid Rich 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 produci
Slide 11: Cardium Resource Play
Cardium Resource Play Analogue Producers, on production before 1991 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 Produ
Slide 12: Low Operating Costs
Low Operating Costs Field Processing Operating “One of the reasons our assets are so valuable is our Expenses Transportation Income Costs industry leading operating costs. Our operating costs Year ($/boe) ($boe) ($/boe) ($/boe) are so low for a number of reasons. First, we produce from reservoirs th
Slide 13: Operating Costs Five Year Trend
Operating Costs Five Year Trend $12 Operating Costs Trend Q4 2000 to Q4 2005 Fourth Quarter Operating Costs ($/boee) •Peyto + 4% $10 •BNP + 309% •Baytex + 134% $8 •ARC + 37% $6 $4 $2 $- 1999 2000 2001 2002 2003 2004 2005 2006 Year Peyto Bonavista Baytex ARC 13 BOE factor - 6 mcf = 1 bbl of oil equiv
Slide 14: Operating Costs Industry Comparison
Operating Costs Industry Comparison Q4 2005 Operating Costs $14 $12 $10 $8 $/boe $6 $4 $2 $- AE U N PT U N FE UN ZA UN BN UN AV UN PG UN HT UN DA UN PW U N ER UN EE UN PG UN FE N PM U N VE UN PW N AE N BT UN UN CP UN TE UN SH TO _U U U X_ T_ T_ F_ R_ E_ N_ T_ P_ Y_ F_ L_ _ T_ T_ I_ E_ T_ F_ E_ Y _ G
Slide 15: Tight Gas Understanding the Value (1)
Tight Gas Understanding the Value (1) $14 $14 “Royalty rate drops as the productivity declines. The operating costs increase $12 Royalty because of the lower productivity $12 relative to the component of fixed operating costs.” $10 $10 Royalty Rate ($/boe) Op Costs ($/boe) Price ($/GJ) $8 $8 Operati
Slide 16: Tight Gas Understanding the Value (2)
Tight Gas Understanding the Value (2) 60 $180 NPV 8% per boe/d 50 $150 Value of Production, NPV 8% / boe/d “Typical Peyto deep basin tight gas production actually becomes more valuable over time as netbacks continue Production Rate (boe/d) to improve (2%/yr to year 24). Even 40 Production though pro
Slide 17: Reserves, Volume Summary
Reserves, Volume Summary Natural Gas Sales Gas Liquids & Oil Category (BCF) (Mstb) BOE's(Mstb) Proven Producing 428 16,569 87,881 Proven Non-Producing 28 773 5,460 Proven Undeveloped 90 2,409 17,461 Total Proven 546 19,751 110,802 Probable Additional 215 6,786 42,645 Proved + Probable 761 26,537 153
Slide 18: Reserve Life Industry Comparison
Years - 5 10 15 PE YT AE O T_ U ER N F_ U PT N Long F_ U VE N T_ PW UN T_ Reserve Life U PW N I_ U AV N N _ EE U N E_ U PG N F_ U FE N T_ U BN N P_ U PG N X_ U H N TE Average _U ZA N R _ SH UN N_ U C N PG 2005 Year End Proven Producing Reserve Life _U D N AY _U AE N Industry Comparison, Proven Produ
Slide 19: Reserves, Net Present Value
Reserves, Net Present Value Variable Price Economics NPV (millions of CDN dollars) Category 0% 5% 8% 10% Proven Developed 3,762 2,232 1,816 1,627 Proven Undeveloped 610 307 222 182 Total Proven 4,372 2,539 2,038 1,809 Probable Additional 1,634 680 465 375 Proven + Probable 6,006 3,219 2,503 2,184 Pa
Slide 20: Industry Comparison, Results
Assets Industry Comparison, Results Results Q4 2005 Year End 2005 Res erve Life (yrs ) Revenue 2005 Average Before Operating Bas ic Cas h Well Average Hedging Netback Cos ts Cos ts Proven Proven + Productivity Weighted Com pany Nam e ($/boe) ($/boe) ($/boe) ($/boe) Producing Total Proven Probable (b
Slide 21: Industry Comparison, Weighted Ranking
Assets Industry Comparison, Weighted Ranking Results Q4 2005 Year End 2005 Res erve Life (yrs ) Revenue 2005 Average Before Operating Bas ic Cas h Well Average Hedging Netback Cos ts Cos ts Proven Proven + Productivity Weighted Com pany Nam e ($/boe) ($/boe) ($/boe) ($/boe) Producing Total Proven Pr
Slide 22: Business
ag : PEYTO."as Business _ Bhd —— —S } | Lo ZA NWS y le — = III V4 — | | — as ess Ee | l) 22 5/16/2006
Slide 23: Strategy, We Build it Ourselves
Strategy, We Build it Ourselves Acquire Build 23 5/16/2006
Slide 24: The Team
The Team • Don Gray President & CEO, Director • Kathy Turgeon Finance, Vice President • Jennifer Sharp Administrative Assistant • Cheree Stephenson Finance • Darren Gee Engineering, Vice President • Lydia Hamaliuk Finance • Enrico Espiritu Engineering • Catherine MacPhee Finance • Neil Korchinski En
Slide 25: Capital Expenditures Track Record
Capital Expenditures Track Record $358 million CAPEX $400 400% CAPEX / Funds from Operations (%) Funds from Operations & CAPEX $300 300% (Millions of Dollars) $200 200% $100 100% $- 0% 1999 2000 2001 2002 2003 2004 2005 Year Funds from Operations CAPEX CAPEX / Funds from Operations 25 Management use
Slide 26: 2005 Business: Capital Expenditures & Well Activity
2005 Business Capital Expenditures & Well Activity z Capital Expenditures z Total $358 MM z Drill & Complete $274 MM z Tie ins & Facilities $60 MM z Land $12 MM z Seismic $12 z Well Activity z Wells Drilled, 120 gross, 99 net z Wells Completed, 126 gross, 104 net z Wells Brought on Production, 115 g
Slide 27: 2005 Business: Performance Ratios
2005 Business Performance Ratios Proved Total Proved + Performance Ratios Developed Proved Probable FD&A, $/boe $ 14.45 $ 13.33 $ 11.18 before change in future development capital FD&A, $/boe $ 13.88 $ 15.32 $ 15.17 including change in future development capital Reserve Replacement Ratio 3.1 3.3 4.0
Slide 28: Proven Reserve Growth Per Unit
AE -25% -20% -15% -10% -5% 0% 5% 10% 15% 20% T_ U N PE YT VE O T_ U D N AY _U N AE _U BN N P _U FE N Industry Comparison L_ U ZA N R _U PG N X _U PG N F_ U PW N T_ U 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_ Proven Reserve Growth Per Unit
Slide 29: Effective Recycle Ratio
-1 0 1 2 3 PE YT O AE T_ U D N AY _U PG N X _U VE N T_ U N AE _U BN N P _U H N TE _U PG N F_ U BT N E_ U ZA N R _U AV N N Effective Recycle Ratio _U PW N T_ U SH N N _U FE N Industry Comparison, Effective Recycle Ratio L_ U FE N T_ U ER N F_ U N 2005 Effective Recycle Ratio, Proven Producing PW I_ U
Slide 30: Reserve Replacement Ratio
-1 0 1 2 3 PE YT O AE T_ U N VE T_ U N D AY _U N BN P _U N ZA R Industry Comparison _U N PG X _U N PG F_ U N BT E_ U N FE T_ U N H TE _U PW N T_ U N PT F_ U N Reserve Replacement Ratio PM T_ U N SH N _U ER N F_ U N C PG _U 2005 Proven Producing Reserve Replacement Ratio Per Unit N PW I_ U N AV N _U
Slide 31: Achievement of Growth: Absolute Production Growth
Achievement of Growth Absolute Production Growth 25,000 “All of our production growth has come from internally generated ideas. At Peyto we believe the best assets are the ones you can design, drill and build yourself. This build it ourself approach is 20,000 part of what makes Peyto unique.” P ro d
Slide 32: Per Unit Production, Reserves and Income Growth
Achievement of Growth Per Unit Production, Reserves and Income Growth 250 1.0 Funds from Operations ($/unit) Daily Production (boe/d/million 200 0.8 Growth Per Reserves (boe/unit) & Trust Unit 150 0.6 units) 100 0.4 50 Converted 0.2 to a Trust - - Q4 99 Q4 00 Q4 01 Q4 02 Q4 03 Q4 04 Q4 05 Quarter Fu
Slide 33: Achievement of Value Growth
Achievement of Value Growth Debt Adjusted Reserve NPV Growth per unit DA Proved Producing NPV 0% $35 Debt Adjusted Net Present Value Per Unit per unit, $31.83 $30 DA Proved Plus $25 Probable NPV 10% per unit $20 ($/unit) DA Proved Producing NPV 10% per unit $15 $10 $5 $0 Q4 00 Q4 01 Q4 02 Q4 03 Q4 0
Slide 34: Market Return
Market Return Annual Return and Total Return Cumulative 250% Market Return 25000% Annual “Peyto’s business Market Return strategy has lead to significant profitable growth and an outstanding total return 200% 20000% for its unitholders. When we started in October 1998 we had no track record, making
Slide 35: Business Performance: Industry Comparison, Results
Business Performance Industry Comparison, Results Results 2005 Effective Recycle Ratio 2005 Res erve Growth Per Unit “Effective Recycle Ratio – With Performance we are trying Average to compare the business side of oil and gas. The effect that Proven Proven + Proven Proven + Weighted the capital inv
Slide 36: Business Performance: Weighted Ranking
Business Performance Industry Comparison, Weighted Ranking Weighted Ranking 2005 Effective Recycle Ratio 2005 Res erve Growth Per Unit Average Proven Proven + Proven Proven + Weighted Com pany Nam e Producing Proven Probable Producing Proven Probable Ranking Peyto 2004 1 1 1 1 1 1 1 Peyto 2005 2 3 3
Slide 37: Sustainability
Sustainability 37 5/16/2006
Slide 38: 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 39: Keys to Sustainability
Keys to Sustainability • Suitable Assets • Strong Business • Balanced Distribution Model 39 5/16/2006
Slide 40: Keys to Sustainability: A Suitable Asset
Keys to Sustainability A Suitable Asset, Deep Basin Tight Gas • Geographically Extensive Tight Gas • Low Geological Risk • Multiple Vertical Targets • Long Reserve Life • High Revenue, Low Operating Cost, High Netback 40 5/16/2006
Slide 41: Keys to Sustainability: Strong Business
Keys to Sustainability Strong Business • Unique Design, Drill and Build Approach • Long Track Record of High Return on Capital • Consistent Industry Leading FD&A Costs • Consistent Industry Leading Recycle Ratio • Consistent Growth in Future Resource Opportunities 41 5/16/2006
Slide 42: Balanced Distribution: Payout Ratio
Keys to Sustainability Balanced Distribution Historical Payout Ratio “Since we converted to a trust over two years ago, we have increased our 100% distribution five times. Our model was designed to grow our reserves per “Our plan was to payout roughly 50% unit, thus, allowing us to grow our of the f
Slide 43: Distribution Growth
Keys to Sustainability Distribution Growth Monthly Distribution $0.15 “Since we converted to a trust over two years ago, we have increased our distribution five times. Our model was designed to grow our reserves per Anualized Distribution/Unit Price (%) unit, thus, allowing us to grow our distributi
Slide 44: Positive Reserve Replacement Cycle
Keys to Sustainability Positive Reserve Replacement Cycle Peyto Q4 2005 Example Funds From Operations ($/boe) $ 42.32 Distribution at 46% ($/boe) $ (17.97) Cash Available After Distribution ($/boe) $ 24.35 2005 Proved Developed FDA ($/boe) $ (14.34) Cash Available After Distribution & Cost to Replac
Slide 45: Industry Comparison, Reserve Replacement Cycle
Keys to Sustainability Industry Comparison, Reserve Replacement Cycle Q4 2005 Proven Producing Reserve Replacement Cycle $15 $10 $5 $/boe $- ER N PW U N CP UN EE UN BN UN PM N SH UN UN HT N TE N ZA N DA UN FE N AE N PG N BT N PW N FE N PT N UN AV UN VE N PG O U U U U U U _U U _U _U U U U YT X_ F_ T_
Slide 46: Sustainability Industry Comparison, Results
Sustainability Industry Comparison, Results Results 2005 Proven Q4 2005 Producing Payout Adjus ted Res erve Life (yrs ) Q4 2005 Operating Res erve Res erve Average Dis tribution Cos ts Growth Per Proven Proven + Replacem ent Weighted Com pany Nam e Payout Ratio ($/boe) Unit Producing Proven Probable
Slide 47: Sustainability Industry Comparison, Weighted Ranking
Sustainability Industry Comparison, Weighted Ranking Weighted Ranking 2005 Proven Q4 2005 Producing Payout Adjus ted Res erve Life (yrs ) Q4 2005 Operating Res erve Res erve Average Dis tribution Cos ts Growth Per Proven Proven + Replacem ent Weighted Com pany Nam e Payout Ratio ($/boe) Unit Produci
Slide 48: Valuation
Valuation + = Assets Business Valuation 48 5/16/2006
Slide 49: Proved Producing Undiscounted NPV Comparison
Valuation Industry Comparison, Proved Producing Undiscounted NPV 2005 Proved Producing Undiscounted NPV $8,000 $7,000 $6,000 NPV, millions of dollars $5,000 $4,000 $3,000 $2,000 $1,000 $- SH U N N AV UN EE UN FE UN VE UN PG UN DA UN ZA N FE N PG UN HT UN PM UN AE N PW U N PE N PT N TE N BT N CP UN B
Slide 50: Market Value vs. Engineering Value
Valuation Industry Comparison, Market Value vs. Engineering Value Market Valuation Premium to Proved Producing Undiscounted NPV 140% “As of April 9, 2006, Peyto traded at a discount to it’s 120% proved producing NPV. Given Peyto’s track record of profitable growth, one would expect it to trade at a
Slide 51: A "Short" Sighted Market
Valuation A “Short” Sighted Market Reserve Life versus Premium to Proved Producing NPV @ 0% “Investors are paying premiums for short life trusts, or those 140% that are setup to deplete the fastest. This phenomena is a result of rising commodity prices that have created the illusion 120% of sustaina
Slide 52: 2006 Outlook
2006 Outlook • Capital Expenditures ($360 - $460 million) • Drill & Re-Enter New Gas Locations • Expand Gas Gathering & Processing Capacity • Expand Undeveloped Land Base • Expand 3-D & 2-D Seismic Database • Acquire Partner Working Interests 52 5/16/2006
Slide 53: Peyto Energy Trust
Peyto Energy Trust Assets + Business - Distributions • Assets • Approximately 100% natural gas and natural gas liquids • Long reserve life • Low operating costs • High Operatorship • Business • Peyto’s business is to design, drill and build its own assets • Low finding and development costs • High r