Peyto Exploration & Development Corp. · TSX:PEY

Peyto Exploration & Development — Investor Presentation (February 2020)

56 slides from Peyto Exploration & Development's investor presentation, Feb 10, 2020

  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 Pure Play Alberta Deep Basin – ~410 mmcf/d Gas, 13,000 boe/d NGLs N Returns Focused Strategy – Avg ROCE 16%, ROE 29% over last 20 yrs, among highest in industry N Long Reserve Life Asset – YE 2018: 9 yrs PDP, 25 yrs 2P, sweet gas, no mobile w

  4. Slide 4: Growth Per Share

    PEY.TO Growth Per Share PEYTO Exploration & Development Corp. Production/share Reserves/share FFO/share 2P NPV5/debt adj. (MMcfe/d/mm sh) (2P Bcfe/mm sh) ($/sh) share ($/sh) 1363 29.2 $4.33 1289 1222 $40 $40 26.3 $38 1179 $36 $38 $38 $37 1087 24.2 $3.59 $35 $36 $3.48 $34 22.5 $34 $2.92 $3.17 $31 20.

  5. Slide 5: Total Shareholder Return Model

    PEY.TO Total Shareholder Return Model PEYTO Exploration & Development Corp. Future Prospects Past Profits 5 BOE factor - 6 mcf = 1 bbl of oil equivalent 2/10/2020

  6. Slide 6: They Want More Energy – We Won't Change That

    The Big Picture They Want More Energy – We Won’t Change That PEYTO Exploration & Development Corp. 6 Source: BP Energy Outlook 2019 2/10/2020

  7. Slide 7: The World Needs More Canadian Energy

    The Big Picture The World Needs More Canadian Energy PEYTO Exploration & Development Corp.  Environmental Regulations  Worker Safety Russia Saudi Iran Iraq  Human Rights  Ethical Standards  Gender Equality  Indigenous Consultation Russia Qatar China Iran  CANADA 7 Source: Modern Resources 2/1

  8. Slide 8: Peyto Does It Better

    The Big Picture Peyto Does It Better PEYTO Exploration & Development Corp. Emission Intensity by Source Type for Canadian Oil and Gas (1990, 2005, 2016) 140 140 121.4 Emission Intensity per Barrel (kg CO2eq/bbl) 120 105.4 120 100 88.4 90.1 100 83.4 79.5 80 80 53.8 56.1 52.1 60 50.3 49.1 60 42.8 40 4

  9. Slide 9: Continuously Improving Environmental Performance

    The Big Picture Continuously Improving Environmental Performance PEYTO Exploration & Development Corp. Peyto GHG Emissions Intensity tCO2eq/boe (direct and indirect) 0.029 0.026 0.025 0.024 0.022 0.021 in GHG Emissions Intensity 2013 2014 2015 2016 2017 2018 Peyto Flaring and Venting of Methane 0.61

  10. Slide 10: So What Does All This Mean?

    The Big Picture So What Does All This Mean? PEYTO Exploration & Development Corp.  Canada has energy abundance.  Canada has a moral obligation to provide the rest of the world with our clean, responsibly developed energy to improve lives and preserve the environment.  Peyto can continue to be an

  11. Slide 11: The Peyto Strategy

    The Peyto Strategy PEYTO Exploration & Development Corp. 11 2/10/2020

  12. Slide 12: What We Continue To Believe

    Peyto’s Strategy What We Continue To Believe PEYTO Exploration & Development Corp. N “Nature’s gas is the fuel for the future.” N “Our gas and NGLs have some of the lowest emissions of any hydrocarbons produced in Canada.” N “Our business focus is to maximizing the return on invested capital – your

  13. Slide 13: Changing Gas Market Requires Changing Strategy

    Peyto’s Strategy Changing Gas Market Requires Changing Strategy PEYTO Exploration & Development Corp. US Natural Gas (EIA) Canadian Natural Gas (EIA) 92.1 80 110 70 100 90 60 84.5 80 50 That growth is 70 potentially reversing due to low NYMEX prices! 40 Canadian supply looks In 2019, the US grew to

  14. Slide 14: Integrate the Entire Oil & Gas Value Chain

    Peyto’s Strategy Integrate the Entire Oil & Gas Value Chain PEYTO Exploration & Development Corp.      14 2/10/2020

  15. Slide 15: Fast Becoming an Integrated Energy Business

    Peyto’s Strategy Fast Becoming an Integrated Energy Business PEYTO Exploration & Development Corp. Exploration and Development Production and Processing Storage and Marketing Midstream and Power Generation • 647 Lands Purchased (YE ‘18) • 1,475 producing wells North American market 300+ mmcf/d midst

  16. Slide 16: Alberta Egress Challenge

    Peyto’s Strategy Alberta Egress Challenge PEYTO Exploration & Development Corp. Do we revert back to a ∼$0.20 difference off • New Alberta NYMEX? government has made solving AECO market disconnection a priority • New Ministry of Natural Gas was created to address this issue • Associate Minister Dale

  17. Slide 17: Canadian Gas Egress Is Expanding

    Peyto’s Strategy Canadian Gas Egress Is Expanding PEYTO Exploration & Development Corp. Dry Natural Gas Production - Canada 25 (EIA) $9 LNG Export $8 2.0 Bcf/d 21 $7 LNG Canada 20 $6 NGTL Expansion $5+40% BCF/D 19 $4 15 $3 $2 $1 3.2 Bcf/d NGTL Expansion – 2019 to 2021 1.9 Bcf/d LNG Canada (trains 1&

  18. Slide 18: Fund Growth From Cashflow

    The Peyto Strategy Fund Growth From Cashflow PEYTO Exploration & Development Corp. $7,000 $6,182 120,000 $6,000 100,000 $5,000 80,000 $6,092 Peyto FFO $4,000 60,000 CTD Q3/19 $3,000 40,000 $2,000 $1,000 20,000 $0 Q4 1999 - Q4 2000 Q4 2001 Q4 2002 Q4 2003 Q4 2004 Q4 2005 Q4 2006 Q4 2007 Q4 2008 Q4 20

  19. Slide 19: Invest For Profit Not Growth

    The Peyto Strategy Invest For Profit Not Growth PEYTO Exploration & Development Corp. $800 $700 $600 $500 Peyto Capital $400 CTD Q3/19 $300 $200 $100 $- 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 CAPEX ($MM) Earnings ($'000) Peyto Earnings CTD Q3/1

  20. Slide 20: Dividend Sustainability

    The Peyto Strategy Dividend Sustainability PEYTO Exploration & Development Corp. $3,000 $2,500 $2,000 Peyto Ctd. Earnings (MM$) $1,500 Q3/19 $1,000 $500 $0 Q4 1999 Q4 2000 Q4 2001 Q4 2002 Q4 2003 Q4 2004 Q4 2005 Q4 2006 Q4 2007 Q4 2008 Q4 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q4 2014 Q4 2015 Q4 2016

  21. Slide 21: Profitable Business

    Peyto’s Profitable Business PEYTO Exploration & Development Corp. 21 2/10/2020

  22. Slide 22: Build it for less than we sell it

    Peyto’s Profitable Business “Build it for less than we sell it” PEYTO Exploration & Development Corp. 2018 PEY 2014 PEY 2015 PEY 2016 PEY 2017 PEY 2018 Land/Acq/Disp Seismic Drilling PDP FD&A $/mcfe ($2.25) ($1.64) ($1.44) ($1.36) ($1.18) Compl. Wellsite Facilities $232MM Cash Costs $/mcfe ($1.08) (

  23. Slide 23: The Price Bar Is Now Very Low, We Must Go Lower

    Peyto’s Profitable Business The Price Bar Is Now Very Low, We Must Go Lower PEYTO Exploration & Development Corp. AECO $10 Monthly $/GJ Peyto Realized Gas Price ($/mcfe) $8 36% Avg. $6 "Profit“ CTD Bonus $4 PDP FD&A 35% $2 Cash Costs 36% 29% $- Total Cash Costs per mcfe includes – Royalties, Op Cost

  24. Slide 24: Competitive In The North American Marketplace

    Peyto’s Profitable Business Competitive In The North American Marketplace PEYTO Exploration & Development Corp. 100% Montney 60% DB/40% Mont. 100% Deep 100% Montney 10% DB/90% Mont. VII 2018* TOU 2018* Basin PEY 2018 AAV 2018* ARX 2017* PDP FD&A $/mcfe ($2.67) ($1.52) ($1.18) ($1.51) ($1.28) Cash Co

  25. Slide 25: Results in a Low-Cost Advantage

    Peyto’s Profitable Business Results in a Low-Cost Advantage PEYTO Exploration & Development Corp. $2.92 $4.47 ($0.34) $0.88 25 BOE factor - 6 mcf = 1 bbl of oil equivalent Data from Peter’s & Co. 2/10/2020 Gas producers include: AAV,PNE,CKE,CQE,TOU,SRX,BIR,BXE,CR,ARX,BNP,POU,DEE,KEL,ECA,VII

  26. Slide 26: Unique Assets

    Peyto’s Unique Assets PEYTO Exploration & Development Corp.

  27. Slide 27: Geographically Focused Core Areas

    Peyto’s Assets Geographically Focused Core Areas PEYTO Exploration & Development Corp. • 563,500 net acres • 9 operated gas plants Cutbank ---(835 mmcf/d net capacity) • 2,000+ km pipelines • 1,250+ producing zones Kakwa • 80,000 boe/d Chicken Leland Pine Creek Of Production: Greater Processed by Pe

  28. Slide 28: Deep Basin Permeability Segregation

    Peyto’s Assets PEYTO Deep Basin Permeability Segregation Exploration & Development Corp. FOOTHILLS STRUCTURES GAS AS ING INCRE BILITY EA PERM WATER TRANSITION ZONE WATER GAS ASE INCRE AREA OF GAS DEPTH MATURATION 28 2/10/2020

  29. Slide 29: 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* 29 *NGL recoveries can increase by 15+ bbl/mmcf with deeper cutting processing facilities 2/10

  30. Slide 30: Large Hz MSF Inventory

    Peyto’s Assets PEYTO Large Hz MSF Inventory Exploration & Development Corp. Done1 To Do Total Total Total Total Hz(Vt) Hz Locations Vertical Hz Locations Unbooked Wells Wells Booked* (2) 2 440 113 363(12) 384 5 1 5 7 1 2(2) 18 90 176 165(2) 61 7 74 40 8 111 166 303 2 20 14 385 370 153 4 40 54 44 12

  31. Slide 31: Deep Basin Lands Go A Long Way

    Peyto’s Assets Deep Basin Lands Go A Long Way PEYTO Exploration & Development Corp. 1,000 Peyto Lands 900 800 700 Net Sections 600 Net Peyto Sections 500 400 300 200 100 - Net Sections of Cardium, Dunvegan, Notikewin, Falher, Wilrich, Bluesky, Cadomin, Montney & Duvernay Net Sections – Developed Are

  32. Slide 32: Facility Ownership And Control

    Peyto’s Assets Facility Ownership And Control PEYTO Exploration & Development Corp. Cutbank Kakwa Oldman (with Deep Cut) & Oldman North Nosehill Wildhay Galloway Swanson Peyto Gas Plants YE 2014 YE 2015 YE 2016 YE 2017 YE 2018 WI Whitehorse (on hold) 1 Oldman 125 mmcf/d 125 mmcf/d 125 mmcf/d 125 mmc

  33. Slide 33: "Big Sunny" Natural Gas Storage Scheme

    Peyto’s Assets “Big Sunny” Natural Gas Storage Scheme PEYTO Exploration & Development Corp. R.25 R.24 R.23 R.22 R.21 R.20 R.19 R.18 Nosehill Creek North Meter Station 139 mmcfd Capacity T.56 T.56 Obed North Oldman Meter Station 227 mmcfd Capacity North Nosehill Edson Viking D Gas Storage Unit Mayber

  34. Slide 34: 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

  35. Slide 35: 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 35 2/10/2020

  36. Slide 36: The "New" Cardium Play – Improving Execution

    Peyto’s Assets The “New” Cardium Play – Improving Execution PEYTO Exploration & Development Corp. Peyto Cardium D/C/E/T Capital Costs $4,500,000 2018 2019 $4,000,000 $3,500,000 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $- Drilling Completion E&T D/C/E/T Cost Trend 36 2/10/2020

  37. Slide 37: The "New" Cardium Play – Liquids Rich Revenue

    Peyto’s Assets The “New” Cardium Play – Liquids Rich Revenue PEYTO Exploration & Development Corp. Wildhay Cardium NOI by Component $4,000,000 $3,500,000 <2 yr payout for D/CE/T of $2.7MM and >40% BT IRR at $2/GJ AECO 35% $3,000,000 and $60US WTI. Cumulative Net Operating Income $2,500,000 $2,000,00

  38. Slide 38: 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 38 2/10/2020

  39. Slide 39: What Shareholders Currently Own

    Peyto’s Assets What Shareholders Currently Own PEYTO Exploration & Development Corp. Tangible Infrastructure (Replacement Value as at Dec 31, 2019) 80 Compressors ($3.25MM each) $259 MM 17 Inlets ($1.8MM each) $31 MM 20 Refrigeration plants ($5.4MM each) $108 MM 12 Power Generation Sets ($1.6M each)

  40. Slide 40: Incredible Returns

    Peyto’s Incredible Returns PEYTO Exploration & Development Corp. 40 2/10/2020

  41. Slide 41: 2018 Postmortem Returns Analysis

    Peyto’s Returns 2018 Postmortem Returns Analysis PEYTO Exploration & Development Corp. Cardium completion attempts with cased hole and cemented systems 41 Full cycle IRR is determined using actual capital spent on each well, including a $365k provision for land, seismic, and facilities. 2/10/2020 Ec

  42. Slide 42: 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 20 yr Avg ROE to 2018 30% $6 20% $4 10% $2 0% $0 Return On Capital Employed (%) Return On Equity (%) 20 yr Avg ROCE to 2018 Earnings/share Realized Price ($/mcfe) Return on Equity (RO

  43. Slide 43: Future

    Peyto’s Future PEYTO Exploration & Development Corp.

  44. Slide 44: 2020 Outlook

    Peyto’s Future 2020 Outlook PEYTO Exploration & Development Corp. Drill ~80Hz Wells (Liquids Rich Natural Gas) vs 50 in 2019 Market 3rd Party Capacity Offer Excess Capacity to Other Operators Increase Opportunities Undeveloped Land Base Diversify Markets Evaluate New Pipe Options 2020 Capital Pr

  45. Slide 45: 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 Lean gas $4.19 deferral due to low price. $4 100,000 ~$10,900/boe/d ~$10,000/boe/d $16,800/bo

  46. Slide 46: Lower Costs and Increase Liquids to Preserve Profit

    Peyto’s Future Lower Costs and Increase Liquids to Preserve Profit PEYTO Exploration & Development Corp. PEY 2017 PEY 2018 PEY 2019 Goals 91% Gas @ $2.30/GJ AECO*115% 89% Gas @ $1.43/GJ*1.16 86% Gas @$1.54/GJ*1.15 14% NGLs@$45/bbl=(60%of $75oil) $3.38 $3.27 $2.80 9% NGLs @ $62/bbl (80% oil) 11% NGLs

  47. Slide 47: Future Market Diversification and Gas Price Protection

    Gas Marketing Future Market Diversification and Gas Price Protection PEYTO Exploration & Development Corp. Q3 2019 Sales Gas 456,000 GJ/d* 47 *Average Heating Value of approximately 1.15 GJ/mcf for Peyto’s gas 2/10/2020

  48. Slide 48: Successful Hedging Strategy Smoothes Volatility

    Gas Marketing Successful Hedging Strategy Smoothes Volatility PEYTO Exploration & Development Corp. Gas Price ($/mcf) $12.00 $12.00 Peyto has beat the AECO $10.00 monthly price in 11 of the $10.00 last 13 years using a $8.00 methodical hedging strategy. $8.00 $6.00 $6.00 $4.00 $4.00 $2.00 $2.00 $- $

  49. Slide 49: Balanced Revenue Stream

    Gas Marketing Balanced Revenue Stream PEYTO Exploration & Development Corp. Peyto Quarterly Revenue Breakdown $300,000 60% $250,000 50% $200,000 40% $150,000 30% $100,000 20% $50,000 10% $0 0% Q4 2009 Q2 2010 Q4 2010 Q2 2011 Q4 2011 Q2 2012 Q4 2012 Q2 2013 Q4 2013 Q2 2014 Q4 2014 Q2 2015 Q4 2015 Q2

  50. Slide 50: Fixed Price Swaps For Gas and Liquids

    Gas Marketing Fixed Price Swaps For Gas and Liquids PEYTO Exploration & Development Corp. Peyto Marketing Summary 1.15 Heating Value GJ/mcf AECO 7A Fixed Price Swaps (CAD$/GJ) 1.300 cad/usd TOTAL TOTAL TOTAL TOTAL TOTAL Q4 2019 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 2020 Q1 2021 Q2 2021 Q3 2021 Q4 202

  51. Slide 51: LNG Consortium and Export Potential

    Gas Marketing LNG Consortium and Export Potential PEYTO Exploration & Development Corp. 51 2/10/2020

  52. Slide 52: Appendix

    Appendix PEYTO Exploration & Development Corp. N Quarterly Track Record N Tax Pools N Leverage N Reserves Growth 52 2/10/2020

  53. Slide 53: Quarterly Track Record

    Quarterly Track Record PEYTO Exploration & Development Corp. 2019 2018 2017 Q3 Q2 Q1 Total Q4 Q3 Q2 Q1 Total Q4 Q3 Q2 Q1 Total Q4 Operations Production Oil & NGLs (bbl/d) 10,650 11,110 10,703 9,692 10,273 9,209 9,243 10,043 9,337 10,479 8,958 8,319 9,586 7,457 8,938 Natural gas (mcf/d) 396,343 422,3

  54. Slide 54: 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 Q4/18 $600 $400 $200 $- 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 CEC UCC (25%) CEE (100%) CDE (

  55. Slide 55: 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 60% cheaper term debt 40% 20% Debt/PDP NPV10 0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 20

  56. Slide 56: Reserves Growth

    Peyto’s Assets Reserves Growth PEYTO Exploration & Development Corp. 7,000 6,000 5,000 17% CAGR 4,000 3,000 1644 2,000 TCFe of 1,000 1,682 Discovered Reserves 0 Probable Additional Proved Undeveloped Proved Developed Producing Cum Production BCFE 56 2/10/2020

Peyto Exploration & Development — Investor Presentation (February 2020) on 6ix