Peyto Exploration & Development Corp. · TSX:PEY

Peyto Exploration & Development — Investor Presentation (September 2018)

49 slides from Peyto Exploration & Development's investor presentation, Sep 10, 2018

  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 – ~100,000 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 9/10/2018

  5. Slide 5: Total Shareholder Return

    PEY.TO Total Shareholder Return PEYTO Exploration & Development Corp. $60 120,000 $50 100,000 $40 80,000 $30 Future 60,000 Prospects $20 40,000 $10 Past 20,000 Profits $- 0 CTD Dividend ($/share) Month End Closing Price ($/share) Peyto Production (boe/d) 5 BOE factor - 6 mcf = 1 bbl of oil equivalen

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

    Peyto’s History What We’ve Done Over 19 Years PEYTO Exploration & Development Corp. N Goods and Services Purchased = $5.7 Billion N Land Purchased = 585 sections N Wells Drilled = 1,471 N Reserves Discovered = 5.8 TCFe N Production Recovered = 1.5 TCFe N Royalties Paid = $832 million N Profits Gener

  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 9/10/2018

  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 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

  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 Q2/18 $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 Q2/1

  12. Slide 12: Dividend Sustainability

    Q2/18 Q2/18 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: 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) ($0.76) ($

  14. Slide 14: 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

  15. Slide 15: 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

  16. Slide 16: Results in a Low Cost Advantage

    Peyto’s Profitable Business Results in a Low Cost Advantage PEYTO Exploration & Development Corp. $2.36 $5.10 ($0.18) $0.87 BOE factor - 6 mcf = 1 bbl of oil equivalent 16 Data from Peter’s & Co. 9/10/2018 Gas producers include: AAV,PNE,CKE,CQE,TOU,SRX,BIR,BXE,CR,ARX,BNP,POU,DEE,KEL,ECA,VII

  17. Slide 17: Unique Assets

    Peyto’s Unique Assets PEYTO Exploration & Development Corp. 17 9/10/2018

  18. Slide 18: 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

  19. Slide 19: 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 19 9/10/2018

  20. Slide 20: 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* 20 *NGL recoveries can increase by 15+ bbl/mmcf with deeper cutting processing facilities 9/10

  21. Slide 21: 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

  22. 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

  23. Slide 23: 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

  24. Slide 24: 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 2013 2014 2015 2016 2017 2018 2019 2020 24 9/10/2

  25. Slide 25: 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

  26. Slide 26: 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

  27. Slide 27: 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

  28. Slide 28: The New Cardium Play – High Grade Land Base

    Peyto’s Assets The “New” Cardium Play – High Grade Land Base PEYTO Exploration & Development Corp. 28 9/10/2018

  29. Slide 29: The New Cardium Play – Abundant Opportunities

    Peyto’s Assets The “New” Cardium Play – Abundant Opportunities PEYTO Exploration & Development Corp. Oldman & Oldman North 02-21 04-10 14-07 Nosehill Wildhay 13-02 16-34 02-27 Swanson Galloway 03-17 01-17 02-17 Total Greater Sundance Cardium Resource* Proven Resource: 350 BCFe cumulative recovery to

  30. Slide 30: The New Cardium Play – A Double

    Peyto’s Assets The “New” Cardium Play – A Double PEYTO Exploration & Development Corp. Average of 15 Old Cardium Hz Well Design (avg 8 stages) wells completed with new design EUR 2.75 BCFe IP30 1.8 mmcf/d raw gas C5 25 bbl/mmcf C4 10 bbl/mmcf Jan 4 Strip ($60 WTI) 2018 - $1.32/GJ C3 12.5 bbl/mmcf 20

  31. Slide 31: The New Cardium Play – A Different Design

    Peyto’s Assets The “New” Cardium Play – A Different Design PEYTO Exploration & Development Corp. Old Design New Design Old Design New Design 8 Stages 28 Stages $2.4MM Drill $1.6MM Drill 415 tonnes 640 tonnes $1.8MM Complete $1.3MM Complete 1,700 m3 clean fluid 4,250 m3 clean fluid 3.5 times the stag

  32. Slide 32: A Cardium Yr Model – At Strip Prices

    A Cardium 5 Yr Model* – At Strip Prices Grow Production/sh and FFO/sh Within FCF PEYTO Exploration & Development Corp. 140,000 Total Production Rate (boepd) 120,000 100,000 24% 25% 26% 80,000 26% 60,000 34% 18% 40,000 14% 11% 9% 20,000 Insite forecast “best estimate” declines - JAN-18 JAN-19 JAN-20

  33. Slide 33: 15% CAGR per Dividend Adjusted Share

    A Cardium 5 Yr Model* – At Strip Prices 15% CAGR per Dividend Adjusted Share** PEYTO Exploration & Development Corp. $6.00 1,200 1,096 PRODUCTION (BOED)/SHARE $5.00 1,000 ANNUALIZED FFO/SHARE $4.00 800 $3.00 600 Growth rate in $2.00 577 400 Prod/div. adj. share** $1.00 200 * Five year build out of C

  34. Slide 34: 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 @ IRR @ MMcf NGLs BCFE $MM Jan 4 Dec 7 $2.00 $2.50 $2.50 bbl/M Strip Strip Flat Flat esc M Sundance Wilrich 5.3 10 2.6 2.8 4% 4% 6% 15% 18% Nosehill Wilrich 5.5 10 3.3 3.0

  35. Slide 35: 2017 Full Cycle Returns By Formation

    Peyto’s Returns 2017 Full Cycle Returns By Formation PEYTO Exploration & Development Corp. 2017 Earnings Driven ROCE 8% Corporate Estimated WACC 5% Total PP&E $3,585 13% Field Level Return 2017 CAPEX $521 17% Field Return Rem. PP&E $3,064 12% Field Return (@ $2.50) 35 IRRs evaluated at flat $2.50/GJ

  36. 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 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

  37. Slide 37: Future

    Peyto’s Future PEYTO Exploration & Development Corp. 37 9/10/2018

  38. Slide 38: 2018 Outlook

    Peyto’s Future 2018 Outlook PEYTO Exploration & Development Corp. Drill ~50-60Hz Wells (Liquids Rich Natural Gas) vs 142 in 2017 Expand & Extract Increase Processing Capacity & NGL Yield Increase Undeveloped Land Base Shoot Seismic 2018 Capital Program Acquire Additional Opportunities and Partn

  39. Slide 39: Lower Supply Cost Before Returning to Growth

    Peyto’s Future Lower Supply Cost Before Returning to Growth PEYTO Exploration & Development Corp. Budget for summer In this scenario, gas price 15% of Q4/19 $6 production weakness? would be liquid (~16,500 boe/d) $17,500/boe/d $17,600/boe/d $17,300/boe/d $16,800/boe/d $5 $15,100/boe/d 100,000 $11,60

  40. Slide 40: Lower Costs and Increase Liquids to Preserve Profit

    Peyto’s Future Lower Costs and Increase Liquids to Preserve Profit PEYTO Exploration & Development Corp. 40 bbl/mmcf new adds in 2018/19 increases liq to 12% PEY 2017 PEY 2018 Goals PEY 2019 Goals 91% Gas @ $2.30/GJ 90% Gas @ $1.42/GJ*1.15 88% Gas @$1.55/GJ*1.15 AECO*115% 12% NGLs @$62/bbl=(75%ofoil

  41. Slide 41: Future Market Diversification and Gas Price Protection

    Gas Marketing Future Market Diversification and Gas Price Protection PEYTO Exploration & Development Corp. $6 2018 Budget 2019 Forecast 2017 $200-250MM $250-375MM Capex $521MM $5 100,000 Includes 158,000 MMBTU/d $4 summer NYMEX exposure via basis deals at $US1.435/MMBTU (AECO to NYMEX) or approx. 35

  42. Slide 42: Fixed Price Swaps For Gas and Liquids

    Gas Marketing Fixed Price Swaps For Gas and Liquids PEYTO Exploration & Development Corp. Peyto Marketing Summary AECO 7A Fixed Price Swaps (CDN$) Total Total Total Total Total 2017 Q1 2017 Q2 2017 Q3 2017 Q4 2017 2018 Q1 2018 Q2 2018 Q3 2018 Q4 2018 2019 Q1 2019 Q2 2019 Q3 2019 Q4 2019 2020 Q1 2020

  43. Slide 43: The Good News, Pipe Is Coming

    Gas Marketing The Good News, Pipe Is Coming PEYTO Exploration & Development Corp. 43 Source: TCPL 2017 Q4 Conference Call Presentation Feb 15, 2018 9/10/2018

  44. Slide 44: 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

  45. Slide 45: Appendix

    Appendix PEYTO Exploration & Development Corp. N Quarterly Track Record N Tax Pools N Gas Marketing N Leverage 45 9/10/2018

  46. Slide 46: Quarterly Track Record

    Quarterly Track Record PEYTO Exploration & Development Corp. 2018 2017 2016 Q2 Q1 Total Q4 Q3 Q2 Q1 Total Q4 Q3 Q2 Q1 Total Q4 Operations Production Oil & NGLs (bbl/d) 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 6,943 Natural gas (mcf/d) 493,821 568,496 559,663 59

  47. Slide 47: 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 47 9

  48. Slide 48: 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/

  49. Slide 49: 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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