SYMBOL: PEY.UN - TSX
CALGARY, Feb. 14 /CNW/ - Peyto Energy Trust ("Peyto") is pleased to
present the results of our independent reserve report effective December 31,
2005. The evaluation encompassed 100% of the Trust's reserve assets and was
conducted by Paddock Lindstrom and Associates in compliance with National
Instrument 51-101.
Highlights
- The net present value (NPV) discounted at 5% of the total proved
reserves grew 66% from $1.5 billion in 2004 to $2.5 billion in 2005.
Adjusting for debt and equity this NPV grew 63%.
- The NPV discounted at 5% of the proved plus probable additional
reserves grew 62% from $2.0 billion in 2004 to $3.2 billion in 2005.
Adjusting for debt and equity this NPV grew 57%.
- The proved developed reserve life increased 14% from 10.1 years in 2004
to 11.5 years in 2005. This reserve life grew due to the maturation of
our tight gas wells and the scheduling of new processing capacity in
the greater Sundance area.
- The proved plus probable additional reserve life increased 10% from
17.1 years to 18.9 years. This growth in reserve life reflects Peyto's
unique ability to internally generate its own high quality investments.
The team continues to successfully replace what it develops with new
opportunities.
- Proved producing, total proved and proved plus probable additional
reserves increased 24%, 20% and 18% respectively from 2004 to 2005.
- Peyto replaced over 310% of its annual production with new proved
producing reserves while replacing close to 400% with new proved plus
probable additional reserves.
- Our reserve and value growth was achieved by focusing 100% of our
capital investments into internally generated projects. Peyto did not
have to participate in the marginal acquisition market of 2005.
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The following table outlines the per unit growth in production, reserves
and value for 2005.
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Growth
Dec. 31, 2004 Dec. 31, 2005 Growth Per Unit
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Units Outstanding(1) 96,615,544(2) 103,450,701 7%
Q4 Production (boe/d) 20,688 22,245 8% 0%
Reserves (mboes)
Proved Producing 70,996 87,881 24% 16%
Total Proved 92,028 110,802 20% 12%
Proved + Probable 129,506 153,448 18% 11%
Net Present Value Discounted at 5% ($million)
Proved Producing $1,281 $2,113 65% 54%
Total Proved $1,533 $2,539 66% 55%
Proved + Probable $1,983 $3,219 62% 52%
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1. Units outstanding are as at the end of the period and include units to
be issued pursuant to year end private placements
2. Adjusted to reflect trust unit split that was effective in May 2005
The following tables summarize Peyto's reserves and the discounted net
present value of future cash flow, before income tax, using variable and
constant pricing, at December 31, 2005.
Variable Dollar Economics
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Net Present Value ($million)
Discounted at
Oil BOE
Gas & NGL 6:1
Reserve Category (mmcf) (mstb) (mboe) 0% 5% 8% 10%
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Proved Producing 427,873 16,569 87,881 $3,545 $2,113 $1,723 $1,545
Proved Non-producing 28,124 773 5,460 $217 $119 $93 $82
Proved Undeveloped 90,311 2,409 17,461 $610 $307 $222 $182
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Total Proved 546,308 19,751 110,802 $4,371 $2,539 $2,038 $1,809
Probable Additional 215,154 6,786 42,646 $1,634 $680 $465 $375
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Proved + Probable
Additional 761,462 26,537 153,448 $6,005 $3,219 $2,503 $2,185
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Note: Based on the Paddock Lindstrom & Associates report effective
December 31, 2005
The Paddock Lindstrom and Associates Ltd. price forecast used in the
variable dollar economics is available on their website at
www.padlin.com.
Constant Dollar Economics
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Net Present Value ($million)
Discounted at
Oil BOE
Gas & NGL 6:1
Reserve Category (mmcf) (mstb) (mboe) 0% 5% 8% 10%
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Proved Producing 425,956 16,478 87,471 $4,518 $2,753 $2,245 $2,007
Proved Non-producing 27,782 758 5,387 $274 $155 $123 $108
Proved Undeveloped 89,842 2,386 17,360 $829 $446 $333 $280
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Total Proved 543,580 19,622 110,218 $5,621 $3,355 $2,701 $2,396
Probable Additional 214,173 6,742 42,438 $2,026 $934 $667 $552
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Proved + Probable
Additional 757,753 26,364 152,656 $7,647 $4,289 $3,369 $2,948
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Note: Based on the Paddock Lindstrom & Associates report effective
December 31, 2005
Performance Ratios
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Proved +
Proved Proved Total Probable
Producing Developed Proved Additional
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Reserve Life Index (years)
Q4 2005 average
production - 22,245 boe/d 10.8 11.5 13.6 18.9
Reserve Replacement Ratio
2005 production -
8.1 million boes 3.1 3.1 3.3 4.0
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- The reserve life index is calculated by dividing the reserves (in boes)
in each category by the annualized average production rate in boe/year.
Peyto believes that the most accurate way to evaluate the current
reserve life is by dividing the proved developed reserves by the actual
fourth quarter average production. In our opinion, for comparative
purposes, the proved developed reserve life provides the best measure
of sustainability.
- The reserve replacement ratio is determined by dividing the yearly
change in reserves before production by the actual annual production
for the year.
Analysis
There are two fundamental questions that we believe should be answered
from this annual evaluation.
- Base Reserves - How did the "base reserves" that were on production in
the last reserve report perform based on twelve more months of data?
- Value Creation - How much value did our 2005 capital investments
create?
Base Reserves
Simply put, the new estimate for last year's proved developed producing
reserves (base reserves) is within 99.3% of the previous estimate, after
adjusting for the 2005 production. This difference is certainly within the
margin of error for this kind of evaluation. We are pleased to report that our
base reserves are meeting our expectations stated a year ago and the
additional twelve months of data has enhanced the confidence in this
evaluation.
Value Creation
Our capital investments in 2005 were funded from a combination of
cashflow, debt and equity. In order to assess how much the value per unit has
increased year over year we need to know the change in NPV of the assets, the
change in net debt and the change in units outstanding.
At year end 2005, we estimate that the net debt had increased by $51
million over the past year while the number of units outstanding has increased
from 96.6 million to 103.5 million. These estimates take into consideration
all of our capital expenditures and the total fixed and performance based
compensation paid out during the year. We believe these estimates are
accurate, however they remain unaudited at this time. After adjusting for
changes in debt and equity, the proved plus probable NPV discounted at 5% is
worth $28.25/unit, or 57% more today than a year ago.
In our opinion, it is important to identify the amount of value created
by the capital invested during the year. We undertake this exercise to
determine the best use of the unitholders' capital on a go forward basis. In
order to assess how much value was created during the year from our capital
program, the independent engineers have run last year's NPV with this years
price forecast to eliminate the change in value attributable to the commodity
price forecast. For example, when we look at the total proved case
undiscounted, we can see that our capital program created $1 billion worth of
NPV (NPV created by drill bit in table below). The following table breaks out
the value creation for both the total proved and proved plus probable cases.
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Before Tax Debt Adjusted NPV Reconciliation Table ($million)
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Total Proved Proved + Probable
Additional
Discounted at Discounted at
Evaluation Formula 0% 5% 0% 5%
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NPV at Dec 31, 2004
after net debt
(Jan 1, 2005 price
forecast) A $ 2,397 $ 1,288 $ 3,432 $ 1,738
NPV after net debt
at Dec 31, 2004
(Jan 1, 2006 price
forecast) B $ 3,387 $ 1,884 $ 4,857 $ 2,546
NPV at Dec 31, 2005
after net debt
(Jan 1, 2006 price
forecast) C $ 4,075 $ 2,242 $ 5,709 $ 2,922
2005 Funds from
operations D $ 307 $ 307 $ 307 $ 307
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Increase in 2004 NPV due
to price forecast B - A $ 990 $ 596 $ 1,425 $ 808
NPV created by drill
bit in 2005 C - B + D $ 995 $ 665 $ 1,159 $ 683
Total change in debt
adjusted NPV from
2004 to 2005 C - A $ 1,678 $ 954 $ 2,277 $ 1,184
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The 2005 growth per unit in debt adjusted NPV for the total proved
undiscounted case is 59%. When the $1.39 per unit that was distributed to the
unitholder during the year is added back, this growth rate is 64%. The capital
program accounted for 34% of this growth in value, while the change in
forecasted commodity prices accounted for the other 66%. The following table
breaks out the year over year percent change in debt adjusted NPV per unit for
both the total proved and proved plus probable cases.
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Year over Year Percent Change to Before Tax Debt Adjusted NPV Per Unit
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Total Proved Proved + Probable
Additional
Discounted at Discounted at
Evaluation 0% 5% 0% 5%
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NPV from 2004 to 2005 after
change in net debt per unit 59% 63% 55% 57%
NPV from 2004 to 2005 after
change in net debt per unit
plus 2005 distributions 64% 73% 59% 65%
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The growth in our fundamentals has been accomplished with the drill bit
while maintaining our low operating costs, long reserve life and after the
2005 cash distribution of $136.6 million to unitholders.
Peyto has a reserves committee of independent board members which reviews
the qualifications and appointment of the independent qualified reserve
evaluators. The committee also reviews the procedures for providing
information to the evaluators. All booked reserves are based upon annual
evaluations by the independent qualified reserve evaluators. The evaluations
are conducted from the fundamental geological and engineering data. Peyto
believes this is the most stringent standard of reserves governance available
to the industry, and that it goes well beyond external reviews or audits of
reserves.
Distribution Increase
A committee of Peyto's independent directors has approved a distribution
increase of $0.02 per unit per month to be paid on March 15, 2006. This
represents a 17% increase from the current distribution. We feel comfortable
that this increase passes our sustainability test when we consider the
following business conditions:
- After adjusting for changes in debt and equity, the value of the
Trust's reserve assets are worth at least 50% more today than a year
ago.
- The proved developed reserve life has increased 14% from 10.1 years in
2004 to 11.5 years in 2005.
- We have a 2006 hedged gas price of $9.91/mcf on over 50% of our current
after royalty production.
- On February 13, 2006 the AECO gas price for the remainder of 2006 was
trading at $7.64/gj or $8.94/mcf.
- Despite the recent volatility in short term natural gas prices, the
long term contracts have strengthened. For example, over the past year
the one year contract for the period of November 1, 2009 to October 31,
2010 is up 50% and over the last three months is up 14%. When converted
for Peyto's heating value, this long term contract currently trades at
over $9/mcf.
- A significant reduction in the 2006 base decline rate from the previous
year, based on the Dec 31, 2005 independent engineering report.
While production per unit in 2005 remained stable, we were successful in
growing the value of the Trust independent of commodity prices. Peyto is in a
stronger position today to create wealth for our unitholders than ever before.
We will continue to execute on our strategy to invest Peyto's capital in
projects that provide a strong financial return and add to our solid oil and
natural gas foundation.
For more in depth discussion of the 2005 reserve report an interview with
the management will be available on our website by Friday February 17, 2006.
We encourage you to actively visit Peyto's website located at www.peyto.com.
Certain information set forth in this document, including management's
assessment of Peyto's future plans and operations, contains forward-looking
statements. By their nature, forward-looking statements are subject to
numerous risks and uncertainties, some of which are beyond these parties'
control, including the impact of general economic conditions, industry
conditions, volatility of commodity prices, currency fluctuations, imprecision
of reserve estimates, environmental risks, competition from other industry
participants, the lack of availability of qualified personnel or management,
stock market volatility and ability to access sufficient capital from internal
and external sources. Readers are cautioned that the assumptions used in the
preparation of such information, although considered reasonable at the time of
preparation, may prove to be imprecise and, as such, undue reliance should not
be placed on forward-looking statements. Peyto's actual results, performance
or achievement could differ materially from those expressed in, or implied by,
these forward-looking statements and, accordingly, no assurance can be given
that any of the events anticipated by the forward-looking statements will
transpire or occur, or if any of them do so, what benefits that Peyto will
derive therefrom. Peyto disclaims any intention or obligation to update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise. BOEs may be misleading, particularly if used in
isolation. A BOE conversion ration of 6 Mcf:1 bbl is based on an energy
equivalency conversion method primarily applicable at the burner tip and does
not represent a value equivalency at the wellhead. Some values set forth in
the tables above may not add due to rounding. It should not be assumed that
the estimates of future net revenues presented in the tables above represent
the fair market value of the reserves. There is no assurance that the constant
prices and costs assumptions and forecast prices and costs assumptions will be
attained and variances could be material.
The Toronto Stock Exchange has neither approved nor disapproved the
information contained herein.
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%SEDAR: 00019597E
