Peyto Exploration & Development Corp. · TSX:PEY
Peyto Exploration & Development — CIBC Energy Conference 2008
61 slides from Peyto Exploration & Development's conference presentation, Apr 16, 2008
Slide 1: April 16, 2008 CIBC Energy Conference
April 16, 2008 CIBC Energy Conference www.Peyto.com
Slide 2: 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 2 Map Courtesy of GTI 4/16/2008
Slide 3: Deep Basin Tight Gas
Deep Basin Tight Gas General Area of Operations Map “Over the past eight years, Peyto has focused it’s efforts on a design, drill and build strategy exclusively in the Deep Basin. The Deep Basin is considered Alberta’s premier exploration area for high quality long life gas reserves.” Peyto’s Sundan
Slide 4: Peyto Operations Map
Peyto Operations Map Gas Plants & Land R10 R8 R6 R4 R2W6 R27 R25 R23 R21 R19 R17 T65 T65 “Peyto owns and operates 195 mmcf/d of gas processing capacity and maintains a Smoky/Kakwa very high working interest in its land base - T63 Cutbank 35 mmcf/d keys to low operating costs.” T63 W Chicken T61 T61
Slide 5: Deep Basin Tight Gas: Multiple Vertical Targets
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. Just 3 of the primary targets offer close to 50 bcf/section!” 5 4/16/2008
Slide 6: Cardium Resource Play
Cardium Resource Play 6 4/16/2008
Slide 7: Cardium Depositional Model
Cardium Resource Play Cardium Depositional Model “The Cardium Geological model is a prograding shoreline that creates an extensive sand body of relatively uniform thickness.” Plint and Walker, 1987 7 4/16/2008
Slide 8: Cardium Depositional Model – Modern Analogy
Cardium Resource Play Cardium Depositional Model – Modern Analogy AN SSA DSS ND ACCE E SHHOR O REEFFA G NG S G RA R DIIN AD R PPROO G Satellite Image Modern Analogy USGS – United States Geological Survey Cancun is that way… 8 4/16/2008
Slide 9: Permeability Segregation
Cardium Resource Play Permeability Segregation “The Cardium is a very fine grained, low permeability sand that will not allow water to flow through the pore spaces. This creates a “hydrodynamic” trap with water up-dip of gas.” FOOTHILLS STRUCTURES GAS AS ING INCRE BILITY EA PERM WATER TRANSITION ZON
Slide 10: Cardium Type Log and Reserves
Cardium Resource Play Cardium Type Log and Reserves PEYTO WILDHAY 6-18-55-24W5 CARDIUM REGIONAL SAND WILDHAY AREA 23m gross thickness/15m net pay Volumetric Reserves AREA(Ha)= 256 (1 section) H(m)= 15 POROSITY(%)= 9 SW(%)= 18 TEMP.(Deg.C)= 80 PRES.(kPa)= 19000 Z= 0.8 Recovery Factor(%)= 85 Surface L
Slide 11: Cardium Thickness and Pool Map
Cardium Resource Play Cardium Thickness and Pool Map R12 R7 R2W6 R24 R19 R14 R9 R4W5 T66 “At an average sand thickness of 15 m and with over 120 townships of area, there is up T61 to 65 TCF of Original Gas In Place. That is a massive resource!” T56 T51 T46 T41 D T36 R20 R15 R10 •Pembina •Sundance •K
Slide 12: Deep Basin Cardium Production
Cardium Resource Play Deep Basin Cardium Production 400 1400 “On production for more than 20 years, the Cardium currently produces 350 1200 in excess of 300 mmcf/d and has produced close to 1 TCF of gas.” 300 1000 Production (mmcf/d) 250 800 Well Count 200 600 150 400 100 50 200 0 0 1988 1990 1992 1
Slide 13: Peyto's Cardium Producers
Cardium Resource Play Peyto’s Cardium Producers R13 R12 R11 R10 R9 R8 R7 R6 R5 R4 R3 R2 R1W6 R27 R26 R25 R24 R23 R22 R21 R20 R19 R18 R17 R16 R15 R14 R13W5 AC C F F CA D AA GCF E F C G G G G G GDG C G K F C AF F CF C K FF CD C G F C D KCC GC L F C C G C F G C G FL FG L C G J IES S EEEEJS GC G C C GJ
Slide 14: Cardium Resource Play
Cardium Resource Play • Low Risk Development Drilling • High Heating Value, Liquid Rich Gas • No Sour Gas, No Water Risk • Predictable Production Profile • Long Life Reserves 14 4/16/2008
Slide 15: Strategy, We Build it Ourselves
Strategy, We Build it Ourselves Acquire Acquire Build Build 15 4/16/2008
Slide 16: The Team
The Team • Darren Gee President, CEO, Director • Kathy Turgeon VP of Finance, CFO • Scott Robinson Executive VP and COO • Lydia Hamaliuk Finance • Nicole Kehler Administrative Assistant • Liz Duerholt Finance • Enrico Espiritu Engineering Manager • Michal Faminoff Finance • Neil Korchinski Engineeri
Slide 17: 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 18: Operating Costs Seven Year Trend
Operating Costs Seven Year Trend “We have not been immune to inflationary $14 pressure on operating costs but our assets, our concentration and our dedicated Quarterly Operating Costs ($/boe) operations staff help us keep the majority of $12 it at bay.” $10 $8 $6 $4 $2 $- 2000 2001 2002 2003 2004 20
Slide 19: Operating Costs Industry Comparison
Operating Costs Industry Comparison Q4 2007 Operating Costs $16 $14 Ave $11.22/boe $12 $10 $/boe $8 $6 $4 $2 $- N N N N N N N PM N PW N N N N N N N N O _U _U _U _U _U _U _U _U U U U U U U U U YT T_ T_ E_ T_ T_ F_ F_ T_ N AE P E R X PG AY PE BN BN PG AE ZA AV VE TE ER BT PG N D C Operating Costs incl
Slide 20: Netback Industry Comparison
Netback Industry Comparison Commodity Price History Q4 2007 Netback $120 $14.00 “Despite gas prices being disconnected $110 $100 $45 with oil prices, Peyto’s gassy “boes” Oil Price $12.00 $90 continue to demonstrate their superior AECO Monthly Gas Price ($/GJ) Edm Par Oil Price ($/bbl) $80 $10.00 qu
Slide 21: Profit Margin Industry Comparison
Profit Margin Industry Comparison Q4 2007 Profit Margin “Peyto’s high quality boes combined with 80% a low cost structure delivers one of the highest profit margins.” 70% 60% 50% 40% 30% 20% 10% 0% O N N N N N N N N N N N N N UN N N YT _U _U _U U U _U U U U U _U U U U U T_ X_ T_ F_ T_ T_ E_ T_ F_ E_
Slide 22: Reserve Life Industry Comparison
Reserve Life Industry Comparison, Proven Producing Reserve Life 2007 Year End Proven Producing Reserve Life 15 Long A current yield of 9% or Distribution Life of 11 years is “The average trust yield of 13% less than our PP RLI implies a distribution life of 7.5 years but the average trust only has 6
Slide 23: Reserve Quality Predictability
Reserve Quality Predictability “Deep Basin Tight Gas resource Peyto Sundance Cardium G Pool plays, that don’t produce water and have vast areal extent, deliver 2001 Original 37 Producers predictable production profiles requiring very little revision over time. It is this predictability that give us
Slide 24: Reserves, Volume Summary
Reserves, Volume Summary Natural Gas Sales Gas Liquids & Oil Category (BCF) (Mstb) BOE's(Mstb) Proven Producing 496 16,541 99,226 Proven Non-Producing 16 453 3,060 Proven Undeveloped 112 3,396 22,041 Total Proven 624 20,391 124,328 Probable Additional 203 6,596 40,431 Proved + Probable 827 26,987 16
Slide 25: Reserves, Net Present Value
Reserves, Net Present Value Variable Price Economics NPV (millions of CDN dollars) Category 0% 5% 8% 10% Proven Producing 4,694 2,515 1,963 1,719 Proven Non-Producing 140 62 43 35 Proven Undeveloped 848 389 270 217 Total Proven 5,682 2,966 2,276 1,971 Probable Additional 1,890 737 490 390 Proven + P
Slide 26: Business
Business Sad PEYTO.% ENERGY TRUST 26
Slide 27: Quarterly Track Record
Quarterly Track Record 2007 2006 2005 Total Q4 Q3 Q2 Q1 Total Q4 Q3 Q2 Q1 Total Q4 Q3 Q2 Q1 Operations Production Oil & NGLs (bbl/d) 3,599 3,675 3,573 3,540 3,607 4,081 3,834 4,205 4,145 4,143 4,436 4,185 4,569 4,653 4,337 Natural gas (mcf/d) 102,418 104,749 97,000 101,812 106,183 112,751 112,296 11
Slide 28: Capital Expenditures Track Record
Capital Expenditures Track Record $400 400% “Peyto responded to high service costs and lower returns in 2006 by reducing capital CAPEX / Funds from Operations (%) Funds from Operations & CAPEX expenditures in 2007. Costs have since $300 come down and returns have improved. We 300% can now look to be
Slide 29: 2007 Summary of Results
2007 Summary of Results 6000 5500 Q1 Q2 Q3 Q4 $30.5 Million $13.0 Million $42.6 Million $35.5 Million 4640 boed 5000 4500 $121.6 Million (50% Sundance, 22% Nosehill, 13% Chime, 8% Wildhay, 7% Oth ) 4000 $23.8 Million Debt Rate (Net) BOED (Year end $457.4 Million debt) $2.8 Million Equity 3500 $95.0
Slide 30: 2007 Production Growth
2007 Production Growth (Year over Year Comparison) 2006 7500 Capex: $311.9 million ● $107 millionof cashflow(34.3%) 7000 6340 ● $67 millionof equity(21.5%) ● $138 millionof debt (44.2%) boed 6500 74.4 net wells drilled 6000 110.8 net zones onstream 5500 $17.71/boe F&D (PDP) 4640 5000 boed Rate (Net)
Slide 31: Achievement of Growth: Building Our Own Production
Achievement of Growth Building Our Own Production Weighted Average Base Decline 28% 29% 23% 0 12 Net Sales (mmcfe/d molar recombination) 26% 2007 Drills 0 10 32% 39% 2006 Drills 31% 80 42% 26% 27% 2005 Drills 60 31% 41% 25% 19% 36% 2004 Drills 23% 40 26% 16% 16% 14% 2003 Drills 14% 36% 13% 23% 2002
Slide 32: 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 ourselves approach 20,000 is part of what makes Peyto unique.” Prod
Slide 33: Achievement of Growth: Reserves Growth
Achievement of Growth Reserves Growth 180,000 160,000 “Including cumulative production, Peyto has now found and developed over 140 mmboes of proven producing reserves 140,000 entirely through the drill bit.” 120,000 BOE 6:1 (000's) 100,000 80,000 60,000 40,000 20,000 - 1999 2000 2001 2002 2003 2004
Slide 34: Achievement of Value Growth: Net Asset Value Growth
Achievement of Value Growth Net Asset Value Growth Flat production has $35 equaled growing reserves and net asset value $30 NPV @ 5% debt adjusted per unit $25 $20 $15 $10 $5 $- 1999 2000 2001 2002 2003 2004 2005 2006 2007 Proven Producing Total Proven Proven + Probable Additional Historical Per Uni
Slide 35: Capital Investment to Value Created
Achievement of Growth Capital Investment to Value Created 700 450% “Every year we have created assets that are worth on average 2.2 times Peyto's Discounted Return on Investment the capital used to build them” 400% 600 350% Value Created Each Year Capital Spent Each Year 500 300% ($ millions) 400 25
Slide 36: 2007 Business Performance Ratios
2007 Business Performance Ratios “Acquisitions have yet to compete with the profitability of our drilling ideas even when service cost inflation has put pressure on those returns.” Proved Total Proved + Performance Ratios Developed Proved Probable FD&A, $/boe $ 12.68 $ 9.42 $ 9.38 including change i
Slide 37: Finding, Development and Acquisition Cost Industry Comparison
Finding, Development and Acquisition Cost Industry Comparison 2007 Proven Producing FD&A Costs 50 45 “Proved Producing is the most critical category 40 to evaluate since sooner or later reserves have to come on production to cover their cost.” 35 FD&A Cost ($/boe) 30 25 20 15 10 5 0 TO N N N N N N N
Slide 38: Historical F&D Costs
Historical F&D Costs Peyto FD&A Costs $45.00 Proved Producing $40.00 Total Proved $/boe (including change in FDC) $35.00 Proved + Probable “Our costs can’t increase on pace with Field Netback our netbacks if we want to preserve $30.00 our returns.” $25.00 $20.00 $15.00 $10.00 $5.00 $- 2001 2002 2003
Slide 39: Recycle Ratio Industry Comparison
Recycle Ratio Industry Comparison, Recycle Ratio 2007 Recycle Ratio, Proven Producing 6 5 4 3 2 1 0 N N N N N N N N N UN UN N N N UN O _U U U _U _U U _U U U _U U U YT T_ X_ F_ E_ P_ T_ T_ F_ E_ T_ N R AY AE PG PE PM PG PG AV VE AE ER BN BN ZA PW BT D N C 39 Recycle Ratio = Netback/Proved Producing F
Slide 40: Effective Recycle Ratio
Effective Recycle Ratio Industry Comparison, Effective Recycle Ratio 2007 Effective Recycle Ratio, Proven Producing 3 “Effective Recycle Ratio – With Performance we are trying to compare the business side of oil and gas. The effect that the capital invested has on the overall enterprise. The effecti
Slide 41: Reserve Replacement Ratio
Reserve Replacement Ratio Industry Comparison 2007 Proven Producing Reserve Replacement Ratio Per Unit 3 2 “Reserve Replacement Ratios below 1:1 indicate the unitholders producing asset base is shrinking.” 1 0 N UN UN N UN UN UN N N UN O UN UN UN UN UN N U _U U U _U YT X_ T_ R_ E_ T_ T_ T_ F_ E_ F_
Slide 42: Energy Trust DD&A Recycle Ratio
Industry Comparison Energy Trust DD&A Recycle Ratio 2007 DD&A Recycle Ratio 2 “ I think this illustrates best the difference in our model versus the others. The DD&A Recycle Ratio is calculated by dividing pre-tax cashflow per boe by the DD&A costs per boe. According to CIBC’s research department th
Slide 43: Sustainability
Sustainability 43 4/16/2008
Slide 44: Keys to Sustainability
Keys to Sustainability • Suitable Assets • Strong Business • Balanced Distribution Model 44 4/16/2008
Slide 45: Balanced Distribution: Historical Payout Ratio
Keys to Sustainability Balanced Distribution Historical Payout Ratio “Our plan was to payout roughly 50% of the funds from operations. Over the past four years our total payout ratio Maximum has averaged 53%.” 71% 100% Minimum 80% Payout Ratio Converted 42% to a Trust at 57% 60% 40% 20% 0% Q3 Q4 Q1
Slide 46: Distribution Growth
Keys to Sustainability Distribution Growth Monthly Distribution “Since we converted to a trust over $0.15 four years ago, we have increased our distribution five times. Our model was designed to grow our reserves per Anualized Distribution/Unit Price (%) unit, thus, allowing us to grow our distribut
Slide 47: Industry Comparison, Payout Ratio
Keys to Sustainability Industry Comparison, Payout Ratio Q4 2007 Payout Ratio 100% “Payout Ratios have come down over time, reflecting the need for improved sustainability.” 90% 80% 70% 60% Payout Ratio 50% 40% 30% 20% 10% 0% N PW N N N N N N N N N N N N N N N O _U _U _U _U _U _U _U _U U U U U U U U
Slide 48: Positive Reserve Replacement Cycle
Keys to Sustainability Positive Reserve Replacement Cycle Peyto Q4 2007 Reserve Replacement Cycle Funds From Operations ($/boe) $ 35.89 Distribution at 63% ($/boe) $ (22.84) Cash Available After Distribution ($/boe) $ 13.05 Cost to replace Proved Producing Reserves (2007 FDA $/boe) $ (12.68) Cash Av
Slide 49: Industry Comparison, Reserve Replacement Cycle
Keys to Sustainability Industry Comparison, Reserve Replacement Cycle Q4 2007 Proven Producing Reserve Replacement Cycle $10 $5 $- CP VE ZA BT AE PW AV NA PM PG PG ER BN BN PE DA T_ R_ E_ T_ $(5) G N YT P_ E F_ E_ Y F_ X_ T_ T_ _U _U _U _U U UN UN UN U UN UN UN O UN UN U N N N N N N N $(10) $/boe $(
Slide 50: Industry Comparison, Affordable Payout Ratio
Keys to Sustainability Industry Comparison, Affordable Payout Ratio 3 Yr Average Affordable Payout Ratio “Not surprisingly, the average trust can really only afford a sustained payout ratio of approximately 100% 20%. Unfortunately, this will not satisfy the income investor nor provide tax shelter fo
Slide 51: Industry Comparison, Distribution Life
Keys to Sustainability Industry Comparison, Distribution Life 2007 Distribution Life, Proved Developed Producing NPV 30 25 20 Years 15 10 5 - O N N N N N N N N N N N N N UN N N YT _U _U _U U U U _U U U U U _U _U U U T_ X_ F_ T_ T_ T_ E_ F_ E_ P_ AY N PE R AE PG T PM PW VE AE AV PG PG BT ER ZA TE BN
Slide 52: Accumulating Tax Pools
Keys to Sustainability Accumulating Tax Pools Peyto Year End Tax Pools $800 $700 “At Peyto, our tax efficiency accumulates the old fashioned way, we build it.” $600 $500 Millions $400 $300 $200 $100 $- 1999 2000 2001 2002 2003 2004 2005 2006 2007 UCC (25%) CEE (100%) CDE (30%) COGPE (10%) CAPEX 52 4
Slide 53: Valuation
Valuation + = Assets Business Valuation 53 4/16/2008
Slide 54: Market Value vs. Asset Value, Production and Gas Price
Valuation Market Value vs. Asset Value, Production and Gas Price “Growing net asset value, stabilized production and flat gas price seems to have eluded250 the markets for the time being.” Closing Price ($/share) $30 Net Asset Value 200 Annual Production/share (boe/000's) Gas Price ($/boe 8:1) Produ
Slide 55: Industry Comparison, Market Premium to NAV
Valuation Industry Comparison, Market Premium to NAV 100% 80% Ave 73% Share Price/NAV 60% 40% 20% 0% N N N N N N N N N N N N N N N N O _U _U _U _U _U _U U _U U U U U U U U U YT X_ T_ T_ T_ E_ T_ F_ F_ T_ N AE E P R PG AY PE BN BN PG TE AE AV VE ZA PW PM ER BT PG N D C Dec 31, 2007 Share price 55 Dec
Slide 56: Industry Comparison, DACFM to achieve NAV
Valuation Industry Comparison, DACFM to achieve NAV 14 “Debt Adjusted CashfFlow Multiples (DACFM) of 6-8 times can be a reasonable proxy for value 12 for conventional trusts with conventional assets. Unconventional assets cannot be valued this way. They must be valued with much different 10 multiple
Slide 57: Industry Comparison, Investor Recycle Ratio
Valuation Industry Comparison, Investor’s “Recycle Ratio” 2007 Investor Recycle Ratio 1.5 “From a potential investor’s perspective, what does the company sell the boes for as compared to what an investor has to pay to own a share of them? ” Investor Recycle Ratio 1.0 0.5 - N N N N N N N N N N UN PW
Slide 58: Industry Comparison, Proved Producing Undiscounted NPV
Valuation Industry Comparison, Proved Producing Undiscounted NPV 2007 Proved Producing Undiscounted NPV $12,000 $10,000 NPV, millions of dollars $8,000 $6,000 $4,000 $2,000 $- N UN UN AV N PG N CP N DA N ER N N BN N O UN UN N UN UN UN U U U U _U U U U _U YT X_ T_ R_ T_ T_ E_ T_ F_ F_ P_ E_ Y_ T_ E_
Slide 59: 2008 Outlook
2008 Outlook • Capital Expenditures ($110 - $150 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 59 4/16/2008
Slide 60: Peyto Energy Trust
Peyto Energy Trust Assets + Business – Distributions/Dividends (Income) • Quality Assets • Approximately 100% natural gas and natural gas liquids • Long reserve life • Low operating costs • High operatorship • Profitable Business • Peyto’s business is to design, drill and build its own assets • Low
Slide 61: Disclaimer
Disclaimer Forward Looking Statements Statements in this presentation contain forward-looking information including expectations of future production, reserves, components of distributable cash, cash flow and earnings, completion dates of construction and development projects, drilling and explorati
Peyto Exploration & Development — CIBC Energy Conference 2008 on 6ix