SYMBOL: PEY.UN - TSX
CALGARY, Feb. 14 /CNW/ - Peyto Energy Trust ("Peyto") is pleased to present the results and the analysis of the independent reserve report effective December 31, 2006. The evaluation encompassed 100% of the Trust's reserve assets and was conducted by Paddock Lindstrom and Associates ("PLA") in compliance with National Instrument 51-101.
Highlights
- Peyto has now completed its seventh consecutive year of reserves
growth with proved producing, total proved and proved plus probable
additional reserves increasing 11%, 7% and 7%, respectively from 2005
to 2006.
- The value of Peyto's proven assets, or the before tax net present
value (NPV) discounted at 5% of the total proved reserves, grew 13%
from $2.5 billion in 2005 to $2.9 billion in 2006. Adjusting for
changes in debt and the number of units outstanding, this NPV/unit
grew 6% to $23.08/unit.
- The before tax NPV discounted at 5% of the proved plus probable
additional reserves grew 14% from $3.2 billion in 2005 to
$3.7 billion in 2006. Adjusting for changes in debt and the number of
units outstanding, this NPV grew 9% to $30.75/unit.
- The proved producing reserve life increased 9% from 11 years in 2005
to 12 years in 2006, while the proved plus probable additional
reserve life increased 5% from 19 years to 20 years. This growth in
reserve life is in part due to the natural maturation of our tight
gas wells but also reflects Peyto's unique ability to internally
generate its own high quality investments.
- Peyto replaced over 210% of its annual production with new proved
producing reserves while replacing 220% with new proved plus probable
additional reserves.
- The distribution life (as defined herein) of the undiscounted proved
producing assets increased from 19 years in 2005 to 23 years in 2006
indicating that distributions are more sustainable today than a year
ago.
The following table outlines the per unit growth in production, reserves
and value for 2006.
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%
Dec. 31, Dec. 31, % Growth
2006 2005 Growth Growth Per Unit
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Units Outstanding
(000's)(1) 105,537 103,451 2,086 2% -
Q4 Production (boe/d) 22,550 22,245 305 1% 0%
Reserves (mboes)
Proved Producing 97,181 87,881 9,300 11% 8%
Total Proved 118,681 110,802 7,879 7% 5%
Proved + Probable 163,464 153,448 10,016 7% 4%
Net Present Value
Discounted at 5%
($million)
Proved Producing $2,462 $2,113 $349 17% 14%
Total Proved $2,869 $2,539 $330 13% 11%
Proved + Probable $3,679 $3,219 $460 14% 12%
Net Debt ($million
- unaudited) $433 $296 $137 46% -
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(1) Units outstanding are as at the end of the period and include units
to be issued pursuant to year end private placements
The following tables summarize Peyto's reserves and the discounted net
present value of future cash flow, before income tax, using variable and
constant pricing, at December 31, 2006.
Variable Dollar Economics
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Net Present Value ($million)
Discounted at
Oil BOE
Gas & NGL 6:1
Reserve Category (mmcf) (mstb) (mboe) 0% 5% 8% 10%
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Proved Producing 477,208 17,646 97,181 $4,500 $2,462 $1,940 $1,707
Proved Non-producing 19,125 571 3,759 $174 $80 $57 $47
Proved Undeveloped 91,404 2,507 17,741 $721 $327 $224 $178
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Total Proved 587,737 20,724 118,681 $5,394 $2,869 $2,221 $1,933
Probable Additional 226,441 7,043 44,783 $2,098 $810 $535 $423
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Proved +
Probable Additional 814,178 27,767 163,464 $7,492 $3,679 $2,756 $2,356
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Note: Based on the PLA report effective December 31, 2006
The Paddock Lindstrom and Associates Ltd. price forecast used in the
variable dollar economics is available on their website at www.padlin.com.
Constant Dollar Economics
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Net Present Value ($million)
Discounted at
Oil BOE
Gas & NGL 6:1
Reserve Category (mmcf) (mstb) (mboe) 0% 5% 8% 10%
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Proved Producing 477,394 17,651 97,217 $3,820 $2,295 $1,866 $1,666
Proved Non-producing 19,262 576 3,786 $139 $70 $52 $44
Proved Undeveloped 91,404 2,507 17,741 $600 $292 $206 $167
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Total Proved 588,060 20,734 118,744 $4,559 $2,657 $2,124 $1,877
Probable Additional 226,674 7,053 44,832 $1,585 $688 $477 $387
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Proved +
Probable Additional 814,734 27,787 163,576 $6,144 $3,345 $2,601 $2,264
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Analysis
There are three fundamental questions that we believe should be answered
from this annual evaluation.
- Base Reserves - How did the "base reserves" that were on production
at the time of the last reserve report perform based on twelve more
months of data?
- Value Creation - How much value did our 2006 capital investments
create?
- Sustainability - Is our distribution sustainable going forward?
Base Reserves
Last year's proved developed producing reserves (base reserves) were again evaluated and adjusted for 2006 production as well as any technical revisions, both positive and negative, resulting from the additional twelve months of data. Consistent with years past, the base reserves were within 2% of previous estimates. We are again pleased to report that our base reserves continue to meet our expectations and enhance our confidence in the predictability of those future recoveries.
In the short term, the forecast for natural gas prices is lower today than a year ago. Long term, however, natural gas prices are stronger. Overall, the change in the forecast of future commodity prices had little effect on the value change of the base reserves because of their long reserve life. The debt adjusted NPV discounted at 5% of last year's total proven producing reserves increased just 3% due to this change in commodity price forecasts. This is in contrast to 2005 when the change in commodity price forecasts increased the base reserve value by 46%. It is important to note that the 2005 price change has stayed with us which appears to indicate a shift in the future value of gas reserves.
Value Creation
In order to measure investment success, it is necessary to quantify the amount of value created during the year and compare that to the amount of capital invested. We undertake this exercise to ensure the best use of the unit holders' capital on a go forward basis. At Peyto's request and for the benefit of unit holders, the independent engineers have run last year's NPV with this year's price forecast to eliminate the change in value attributable to the commodity prices. This approach isolates the value created by the Peyto team from the value created by the change in commodity prices. Since our capital investments in 2006 were funded from a combination of cash flow, debt and equity, we also need to know the change in net debt and the change in units outstanding to see if the change in value is truly accretive.
At year end 2006, we forecast that the net debt had increased by $137 million over the past year while the number of units outstanding has increased from 103.5 million to 105.5 million. The change in net debt includes all of our capital expenditures and the total fixed and performance based compensation paid out during the year. We believe these forecasts are accurate; however they remain unaudited at this time.
Based on this reconciliation of changes in before tax Net Present Values, the Peyto team was able to create $914 million of Proved Producing and $1,197 million of Proved plus Probable Additional undiscounted reserve value with $312 million in capital investment. The ratio of capital expenditures to value creation is what we refer to as the NPV recycle ratio, which is simply the undiscounted value addition resulting strictly from the capital program divided by the capital investment. For 2006, the Proved Producing NPV recycle ratio is 2.9, compared with 2.6 times for 2005.
The following table breaks out the value created by Peyto's capital investments and reconciles the changes in debt adjusted NPV of future net revenues using forecast prices and costs as at December 31, 2006.
Value Reconciliation
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Proven
Proven + Probable
($millions) Producing Total Proven Additional
Discounted at 0% 5% 0% 5% 0% 5%
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Net Present Value at
Beginning of Year
($millions) $3,248 $1,816 $4,075 $2,242 $5,709 $2,922
Dec. 31, 2005 Evaluation
using PLA Jan. 1, 2006
price forecast, debt
adjusted
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Per Unit Outstanding
at Dec. 31, 2005
($/unit) $31.40 $17.55 $39.39 $21.76 $55.18 $28.24
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2006 sales (revenue
less royalties and
operating costs) ($328) ($328) ($328) ($328) ($328) ($328)
Net Change due to
price forecasts
(using PLA Jan 1,
2007 price forecast) $232 $49 $298 $64 $481 $114
Net Change due to
discoveries
(additions,
extensions, transfers,
revisions) $914 $491 $915 $457 $1,197 $537
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Net Present Value at
End of Year ($millions) $4,066 $2,029 $4,961 $2,435 $7,059 $3,245
Dec. 31, 2006 Evaluation
using PLA Jan. 1, 2007
price forecast, debt
adjusted
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Per Unit Outstanding
at Dec. 31, 2006
($/unit) $38.53 $19.22 $47.01 $23.08 $66.88 $30.75
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Year over Year Change in
Before Tax NPV/unit 23% 10% 19% 6% 21% 9%
Year over Year Change in
Before Tax NPV/unit
including Distribution 28% 19% 24% 14% 24% 15%
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Sustainability
As a growth oriented, sustainable trust, our primary objective is to grow our resources from which we generate sustainable distributions for our unit holders. In order for our distributions to be more sustainable and grow, we have to profitably find and develop more reserves. Simply increasing production from our existing reserves will not make us more sustainable. This year we were successful in growing our reserves and improving our sustainability, while maintaining our production at the same level. There are two key measures for sustainability: Reserve Life and Distribution Life. The following table outlines these performance ratios.
Performance Ratios
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Proved
Proved Total + Probable
Producing Proved Additional
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Reserve Life Index (years)
Q4 2006 average production
- 22,550 boe/d 12 14 20
Distribution Life (years)
Q4 2006 annualized - $44.2 million 23 28 40
Reserve Replacement Ratio
2006 production - 8.35 million boes 2.1 1.9 2.2
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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 (eg. Proved Producing 97,181/(22.550(x)365)(equal sign)
12). Peyto believes that the most accurate way to evaluate the
current reserve life is by dividing the proved developed producing
reserves by the actual fourth quarter average production. In our
opinion, for comparative purposes, the proved developed producing
reserve life provides the best measure of sustainability.
- The distribution life is calculated by dividing the debt adjusted
undiscounted NPV by the Q4 annualized distribution (eg. Proved
Producing $4,066 million/(44.2(x)4)million/year(equal sign)23 years).
- The reserve replacement ratio is determined by dividing the yearly
change in reserves before production by the actual annual production
for the year (eg. Total Proved ((118,681-110,802+8,350)/8,350)
(equal sign)1.9).
Peyto's reserve life grew in all categories by approximately one year, with Proven Producing reserve life increasing to 12 years and Proven plus Probable Additional reserve life increasing to 20 years. Our Proved Producing distribution life increased from 19 years in 2005 to 23 years in 2006, while Proved plus Probable Additional distribution life increased from 33 years in 2005 to 40 years in 2006. Growth in both of these measures indicates our distributions are more sustainable today than a year ago.
Reserves Committee
Peyto has a reserves committee of independent board members which reviews the qualifications and appointment of the independent 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.
The reserves committee, chaired by US petroleum engineering consultant Brian Davis, has reviewed the reserves information and approved the reserve report. Although the value of the Trust's reserve assets are worth more today than a year ago, the Board of Directors has decided not to increase the distribution at this time. Funds will instead be deployed to further the asset growth into the future.
While production per unit in 2006 has again remained stable, we were successful in growing the value of the Trust independent of commodity prices. Peyto continues to grow its asset base and to create wealth for our unit holders. 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 2006 reserve report an interview with the management will be available on our website by Friday February 23, 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.
%SEDAR: 00019597E