Peyto Exploration & Development Corp. · TSX:PEY
Peyto Exploration & Development — Investor Presentation (March 2014)
50 slides from Peyto Exploration & Development's investor presentation, Mar 10, 2014
Slide 1: Peyto 15th Anniversary 1998-2013
15th 1998‐2013
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: The Peyto Strategy: What We Believe
The Peyto Strategy 15th 1998‐2013 What We Believe • “We believe demand for natural gas will be greater than any other energy source.” • “We believe success comes from being the lowest cost, most efficient, most profitable Explorer and Producer in the industry.” 3 4/30/2014
Slide 4: The Peyto Strategy: How We Do It
The Peyto Strategy 15th 1998‐2013 How We Do It • Invest in our own ideas • Build it ourselves • Operate it ourselves • Focus on maximum return • Stay concentrated, lean & efficient 4 4/30/2014
Slide 5: Superior Shareholder Returns
The Peyto’s Strategy 15th 1998‐2013 Superior Shareholder Returns $50 $650,000 $45 $14 45% $40 Total $12 Return $35 last yr. $30 Shareholder IRR $10 $25 $8 $20 $15 $6 $10 $4 $5 $1,000 $0 $2 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Share Price
Slide 6: Profitably Grow Our Assets
The Peyto Strategy 15th 1998‐2013 Profitably Grow Our Assets Production Growth Reserves Growth PDP FD&A Operating Costs (MMcfe/mm sh) (2P Bcfe/mm sh) ($/Mcfe) w/transportation 18.9 $2.95 $2.88 ($/Mcfe) 872 16.7 $2.35 $2.39 $2.22 $0.54 $2.26 $2.12 14.5 $2.11 $2.10 $0.53 656 $0.52 12.9 $0.42 $0.48 561
Slide 7: Growth per Share
The Peyto Strategy 15th 1998‐2013 Growth per Share 600 2014 YE Target $15 $75 81,500 boe/d Production per Unit or Share (boe/d per million) 500 $60 $12 400 Gas Price ($/GJ) PEY+ Cum Div $9 $45 (2014 Forecast) 300 $30 $6 200 $3 $15 100 Production/share 0 $- $- growth rate Jan-01 Jan-02 Jan-03 Jan-04
Slide 8: Peyto Profile
Peyto Profile 15th 1998‐2013 N TSX Listing: PEY N Shares Outstanding: 153.7 million, 4.4% insiders (as of Feb. 5/14) N Monthly Dividend: $0.08/share (incr. from $0.06 effective May/13) N Current Production: ~450 MMCFe/d (75,000 boe/d) N YE 2013 2P Reserves: 2.8 TCFe (468 mmboes) N Net Debt: $100 mil
Slide 9: Peyto's Profitable Business
15th 1998‐2013 Peyto’s Profitable Business
Slide 10: Profitable Business: Build it for less than we sell it
Peyto’s Profitable Business 15th 1998‐2013 “Build it for less than we sell it” PEY 2013 Land/Acq Seismic $9MM $3MM Drilling $254MM PDP FD&A ($2.35) Compl. $152MM Wellsite $48MM $/mcfe Facilities $112MM $578MM ∆PDP Reserves (before Prod.) 41.0 mmboes PDP FD&A $14.09/boe Cash Costs $/mcfe ($1.06) $2.3
Slide 11: Profitable Even Through The Lows
Peyto’s Profitable Business 15th 1998‐2013 Profitable Even Through The Lows AECO Monthly $10 Peyto Realized Gas Price ($/mcfe) $/GJ 37% Ave. "Profit“ Cum To Date $8 $6 Bonus $1.02 $4 Cash Costs ($1.06) $2 PDP FD&A ($2.35) $- Forecast with 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2
Slide 12: Profitability Challenges for the Canadian Gas Industry
Peyto’s Profitable Business 15th 1998‐2013 Profitability Challenges for the Canadian Gas Industry 2013 2012 2011 20101 PDP FD&A $/mcfe ($2.93) ($3.43) ($3.68) ($3.11) Cash Costs $/mcfe ($3.13) ($2.98) ($3.31) ($3.19) Sales Price $/mcfe $6.56 $5.91 $6.95 $6.56 ($0.05) $0.27 Profit/(Loss) $0.50 ($0.50
Slide 13: Peyto's Unique Assets
15th 1998‐2013 Peyto’s Unique Assets
Slide 14: Geographically Focused Core Areas
Peyto’s Assets 15th 1998‐2013 Geographically Focused Core Areas • 425,000 net acres R10 R5W6 R27 R22 R17 • 9 operated R12 R7W5 gas plants Cutbank ---(525 mmcf/d net capacity) • 1000+ km pipelines • 900+ producing zones T60 Kakwa • 75,000 boe/d T60 Chicken Leland Processed by Peyto Pine T55 Creek T55
Slide 15: Deep Basin Permeability Segregation
Peyto’s Assets 15th1998‐2013 Deep Basin Permeability Segregation 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 Trap Brazeau Hoadley 15 4
Slide 16: Multi Zone Stacked Sandstone Reservoirs
Peyto’s Assets 15th 1998‐2013 Multi Zone Stacked Sandstone Reservoirs Detailed Petrophysical work on the Spirit River sands revealed >30% more reserves per section Up to per section* 16 *NGL recoveries can increase by 15+ bbl/mmcf with deeper cutting processing facilities 4/30/2014 Reserves are 2P r
Slide 17: Production By Formation
Peyto’s Assets 15th 1998‐2013 Production By Formation 80,000 70,000 60,000 BOE/D 50,000 Wilrich 40,000 30,000 Notikewin Falher 20,000 Cardium 10,000 Bluesky 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 17 4/30/2014
Slide 18: Deep Basin Lands Go A Long Way
Peyto’s Assets 15th 1998‐2013 Deep Basin Lands Go A Long Way 450 Peyto Lands 400 Net Lands (000's acres) 350 300 250 200 150 Net Peyto Sections 100 50 - Net Sections of Cardium, Dunvegan, Notikewin, Falher, Wilrich, Bluesky, & Cadomin Net Sections for 2.0 TCFe of PD EUR* TCFe of PD EUR – Trillion Cu
Slide 19: Spirit River Group Potential Land Expiries
Peyto’s Assets 15th 1998‐2013 Spirit River Group Potential Land Expiries 24 Month Expiries Earliest Expiry Date out to 2015-09-30 ( > 1700 agreements) Peyto Land 19 4/30/2014
Slide 20: Greater Sundance Area
Peyto’s Assets 15th 1998‐2013 Greater Sundance Area FF F A AFF CF ACF CF F CF C F AAC AA F A F LF F G CF I F F J F F C G G CL K CCF K F AG C FA F AFAF AF A A F FA F AF C G K FA FACF FAA F AGAF A F A F A F F AF F A CCF F G FC G F C J A G F C G F FFF F FA FAF F A F AFAF AF AF CG F A FA F FAF CF A FF F
Slide 21: Brazeau River Area
Peyto’s Assets 15th 1998‐2013 Brazeau River Area F U JM LE Keyera F F F S V F F GG L F G K G FG M CG Brazeau GE JS EE E E FC F G K J GA F U V W E G A G F E F C U U F KC F F A AG V F F C A E V E E U U C F F C KF G FSour GF Gas FE Plant GE A (1968) V I E V E F C G JC G F A K C G F L F U LF F A UK G G
Slide 22: Facility Ownership and Control
Peyto’s Assets 15th 1998‐2013 Facility Ownership and Control R9 R4W6 R26 R21 R16 R11 R6W5 Cutbank Waskahigan W Chicken T60 W Smoky/Kakwa Cutpick Leland/Berland Oldman North T55 Wildhay W W Nosehill W W Sundance Galloway WW Swanson Ansell P/L Peyto Gas Plants 50km, 10", $10MM YE 2013 YE 2014 WI Peyto
Slide 23: Large Hz MSF Inventory
Peyto’s Assets 15th 1998‐2013 Large Hz MSF Inventory To Do Done1 Total Total Hz Hz Locations Total Total Locations Unbooked Vertical Hz Booked* Wells Wells 56 432 63 200 356 5 1 5 1 14 90 56 87 43 7 27 37 23 27 56 254 1 14 136 179 192 4 14 47 48 12 2 87 2 16 177 652 328 628 1163 1. Drilling to Dec 3
Slide 24: Longest Reserve Life
Peyto’s Assets 15th 1998‐2013 Longest Reserve Life 10.0 8.7 7.6 7.2 6.9 6.3 6.1 6.0 6.0 5.8 5.7 5.6 5.5 5.4 5.1 5.0 5.0 4.6 4.5 4.4 Peyto 2013 PP RLI (yrs) 3.9 3.6 3.4 3 3 0.0 NVA PEYTO BXE AAV ARX BIR ERF Peyto 2013 WCP CPG TOU POU ZAR PWT VET TET PMT BNP CR BNE TBE BTE PGF Industry 2012 PP RLI (yr
Slide 25: Low FD&A Costs = High Recycle Ratio
Peyto’s Assets 15th 1998‐2013 Low FD&A Costs = High Recycle Ratio Proved Producing $50 Total Proved Proved + Probable $40 Field Netback $30 $20 Peyto PP Recycle Ratio $10 (14 yr average) $0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Recycle Ratio is the Netback divided by FD&A *FD&A
Slide 26: Lowest Operating Costs – Gas Producers
Peyto’s Assets 15th 1998‐2013 Lowest Operating Costs – Gas Producers How? • We operate • Full facilities • No water • No sour • Chemical recycle • Nat gas fuel • Continuous innovation CAGR 0.5 %/yr 26 BOE factor - 6 mcf = 1 bbl of oil equivalent 4/30/2014 Operating costs include transportation. (Adv
Slide 27: Deep Gas Drilling Royalty Incentives
Peyto’s Assets 15th 1998‐2013 Deep Gas Drilling Royalty Incentives 3,500-4,000 m MD Trigger depth for Natural Gas Deep Drilling Program 2,200 m reduced from TVD 2,500m TVD to 2,000m TVD 3,700-4,000 m MD 2,650-2,850 m TVD 4,200 m MD Effective Royalty 2,750-2,900 m TVD *3,700m Cardium Horizontal Well
Slide 28: Liquids Rich Natural Gas
Peyto’s Assets 15th 1998‐2013 Liquids Rich Natural Gas Peyto 2013 Realized Prices Natural Gas $3.01/GJ Ethane C2H6 $11/bbl = $3.84/GJ <1 bbl/mmcf Propane C3H8 $25/bbl = $6.29/GJ Liquid Conversion 4.3 bbl/mmcf Existing “Cheap” Deep Cut Butane C4H10 $53/bbl = $11.76/GJ Refrig. Cut (-110C) 3.8 bbl/mmcf
Slide 29: Self Sufficient Energy Inputs
Peyto’s Assets 15th 1998‐2013 Self Sufficient Energy Inputs $5MM Estimated Savings/yr. 29 Diesel $1.00/litre Nat Gas $3.00/Mcf (~$0.10/litre) 4/30/2014
Slide 30: Peyto's Incredible Returns
15th 1998‐2013 Peyto’s Incredible Returns
Slide 31: Focus on Returns Drives Capital Discipline
Peyto’s Business 15th 1998‐2013 Focus on Returns Drives Capital Discipline 2013 - $15,100/boe/d 2012 - $17,600/boe/d ONR Acq - $38,600/boe/d $60,000 Annual Production Wedge (boe/d) 2011 - $17,500/boe/d 80,000 2010 - $17,300/boe/d 2009 - $17,300/boe/d 2013YE Exit 75,200 boe/d Capital Efficiency ($/bo
Slide 32: Hypothetical Returns
Peyto’s Returns 15th 1998‐2013 Hypothetical Returns Upper Middle Brazeau Brazeau Species Cardium Notikewin Falher Falher Wilrich Bluesky Falher Wilrich Well Costs D&C ($M) ($M) $3,500 $4,300 $4,100 $4,200 $4,300 $4,200 $4,600 $4,800 Reserves BCFe 2.2 3.0 3.4 2.9 3.3 3.2 3.5 3.3 IP30 Mcf/d 1,500 4,00
Slide 33: Peyto's Returns
ROR, % 0 20 40 60 80 100 120 140 160 100/01‐29‐54‐21W5/0 HZ 100/11‐32‐54‐21W5/0 HZ 102/04‐33‐54‐21W5/0 HZ 100/16‐16‐56‐21W5/0 HZ 102/16‐29‐54‐21W5/0 HZ 102/13‐32‐54‐21W5/0 HZ 103/05‐04‐55‐21W5/0 HZ 100/01‐05‐51‐19W5/0 HZ 102/15‐18‐056‐21W5/0 100/13‐18‐56‐21W5/0 HZ 100/16‐18‐56‐21W5/0 HZ 100/04‐07‐56
Slide 34: Returns Driven – Organic Activity
Peyto’s Returns 15th 1998‐2013 Returns Driven – Organic Activity 80,000 70,000 60,000 2013 50,000 Boe/d 40,000 30,000 Net Capital (after NOI) to PV5 20,000 10,000 0 2013 Capital Program Production/share growth 99 gross/93 Net Wells 38,400 boe/d 40,000 $15,100/boe/d 30,000 20,000 2P Reserves/share gr
Slide 35: High Returns On Your Capital And Equity
Peyto’s Returns 15th 1998‐2013 High Returns On Your Capital And Equity 60% $10 50% $8 40% $6 30% 15 yr Average ROE $4 20% 12% 10% 10% $2 0% $0 Return On Capital Employed (%) Return On Equity (%) Earnings/share Realized Gas Price ($/mcfe) 15 yr Average ROCE Return on Equity (ROE) is earnings for the
Slide 36: Shareholder Returns = NAV Growth + Income
Peyto’s Returns 15th 1998‐2013 Shareholder Returns = NAV Growth + Income $60 Cum Div/Dist P+P $50 PV5 debt adj./share TP $40 PDP $30 $20 $10 Compound Annual $- Growth Rate (14 yr) 36 PV5 DA/share is Before Tax Net Present Value, discounted at 5%, less debt divided by the number of shares/units outst
Slide 37: Peyto's Future
15th 1998‐2013 Peyto’s Future
Slide 38: 2014 Outlook: Biggest Year Ever (again!)
2014 Outlook 15th 1998‐2013 Biggest Year Ever (again!) Drill 110-122 Hz Wells (100% Hz-MSF, Liquids Rich Natural Gas) Expand & Extract Increase Processing Capacity & NGL Yield Increase Undeveloped Land Base Shoot Seismic 2014 Capital Program Acquire Additional Opportunities and Partner Interest
Slide 39: Large Resource + Low Cost = Profitable Growth
2014 Outlook Large Resource + Low Cost = Profitable Growth 2014 Budget $575MM‐$625MM 100,000 110 – 122G (101‐112N) Wells, 9‐10 rigs 100,000 Add 32k to 35k boe/d for $18,000/boe/d 78,500 to 81,500 boe/d exit 90,000 90,000 75,200 boe/d exit 80,000 80,000 57,000 boe/d exit 70,000 70,000 60,000 60,000 4
Slide 40: Continuously Improve Profitability
2014 Outlook 15th 1998‐2013 Continuously Improve Profitability 2014 Goals* • Pad drilling • CNG powered rigs PDP FD&A $/mcfe <($2.00) • • • Well design improvements Water optimization Natural gas heated water • Summer drilling Cash Costs $/mcfe <($1.00) • • Natural gas fired power CNG trucks Sales P
Slide 41: Road to 100,000 boe/d
Peyto’s Future 15th 1998‐2013 Road to 100,000 boe/d 120,000 >100,000 boed 25% CAGR 110,000 >90,000 boed 100,000 >80,000 boed 90,000 72,600 boed $17,500/boe/d 80,000 $17,500/boe/d 70,000 BOED $17,500/boe/d 60,000 61,600 50,000 53,500 40,000 45,600 30,000 2014 Budget 2015 Budget 2016 Budget 2017 Budge
Slide 42: Appendix
Appendix 15th 1998‐2013 N Quarterly Track Record N Tax Pools N Payout N Hedging Strategy N Gas Marketing N Liquids Marketing N FAQ 42 4/30/2014
Slide 43: Quarterly Track Record
Quarterly Track Record 15th 1998‐2013 2013 2012 2011 Total Q4 Q3 Q2 Q1 Total Q4 Q3 Q2 Q1 Total Q4 Q3 Operations Production Oil & NGLs (bbl/d) 6,376 6,984 6,295 6,374 5,840 4,778 5,286 5,236 4,480 4,101 3,856 3,947 3,918 Natural gas (mcf/d) 317,622 361,870 300,286 310,621 297,191 238,490 266,808 244,
Slide 44: Peyto's Tax Pools
Organic Business Model 15th 1998‐2013 Peyto’s Tax Pools $1,600 $1,400 $1,200 $1,000 Federal Tax Pools Millions $800 Q4/13 $600 $400 $200 $- 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 CEC UCC (25%) CEE (100%) CDE (30%) COGPE (10%) CAPEX Peyto Cum. CapEx Q4/13 44 4/30/2
Slide 45: Dividend Sustainability
Peyto’s Payout 15th 1998‐2013 Dividend Sustainability Peyto Dividend Sustainability $2,000 $1,500 Peyto Cum. Earnings $1,000 Q4/13 $500 $0 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 Q
Slide 46: Successful Hedging Strategy
Successful Hedging Strategy 15th 1998‐2013 Peyto Realized Price History 2003 2004 2006 2010 2012 2013 $16.00 2005 2007 2008 2009 2011 Peyto Peyto Peyto Peyto Peyto Peyto Peyto Peyto Peyto Peyto Peyto $7.51/mcf $7.38/mcf $8.78/mcf $8.48/mcf $8.42/mcf $8.64/mcf $6.44/mcf $5.36/mcf $4.47/mcf $3.23/mcf
Slide 47: Gas Marketing
Gas Marketing 15th 1998‐2013 Future Sales (contracts before 2013) Financial Hedges - Gas Pricing 2013 2014 2015 2016 Da te contra cte d GJ/d ($/GJ) J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O 14-Mar-11 5000 $3.800 ● ● ● $4.000 Hedges by year (averaged)
Slide 48: Gas Marketing: Contracted in 2013
Gas Marketing 15th 1998‐2013 Future Sales (Contracted in 2013) Financial Hedges - Gas Pricing 2013 2014 2015 2016 Da te contra cte d GJ/d ($/GJ) J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O 14-Aug-13 5000 $3.270 ● ● ● ● ● ● ● ● ● ● ● ● 19-Aug-13 5000 $3
Slide 49: Liquids Marketing
Liquids Marketing 15th 1998‐2013 Future Sales Financial Hedges - Propane 2012 2013 2014 Term bbl/d Pricing ($/bbl) A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M From To 01-Sep-12 31-Mar-13 66 $49.56 ● ● ● ● ● ● ● 01-Sep-12 31-Mar-13 66 $44.10 ● ● ● ● ● ● ● 01-Sep-12 31-Mar-
Slide 50: Frequently Asked Questions
FAQ 15th 1998‐2013 Frequently Asked Questions 1. Peyto has had some spectacular growth over the last four years, how can that growth continue? The profitable growth in production, reserves and funds from operations per share that we’ve experienced over the last four years is the result of achieving
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