Peyto Exploration & Development Corp. (“Peyto” or the
“Company”) (TSX:PEY) is pleased to present the results and analysis
of its independent reserve report effective December 31, 2017. The
evaluation encompassed 100% of Peyto’s reserves and was conducted
by InSite Petroleum Consultants (“InSite”). The year 2017 marks the
Company’s 19th year of profitable reserves development. Reserves
per share grew in all categories and producing reserves were added
at the lowest cost since 2003.
HISTORICAL PERSPECTIVE
- Over the past 19 years, Peyto has explored for and discovered
5.8 TCFe of Alberta Deep Basin natural gas and associated liquids,
of which 60% has now been developed. Each year the Company invests
in the discovery of new reserves and the efficient and profitable
development of existing reserves into high netback natural gas
production for the purpose of generating the maximum return on
capital for its shareholders. At the same time, this activity
delivers significant financial benefits not just to Albertans but
all Canadians.
- In those 19 years, $5.7 billion was invested in the acquisition
and development of the 3.5 TCFe of developed reserves at an average
cost of $1.63/MCFe, while a weighted average field netback1 of
$3.99/MCFe has resulted in a cumulative recycle ratio1 of 2.4
times. Royalty payments made during this time period have totaled
over $832 million.
- Based on the December 31, 2017 evaluation, the debt adjusted,
Net Present Value of the Company’s remaining Proved plus Probable
Additional reserves (“P+P NPV”, 5% discount, less debt) was
$38/share, comprised of $22/share of developed reserves and
$16/share of undeveloped reserves.
2017 HIGHLIGHTS
- For the year ended December 31, 2017, Peyto invested $521
million of total capital and built 47,000 boe/d of new production2
at a cost of $11,000/boe/d. This cost to build new production is
consistent with that of 2016 and is inclusive of $78 million in new
land, seismic, and facilities (15% of total capital). Without this
$78MM of growth capital, sustaining capital efficiency would have
been $9,500/boe/d.
- Peyto developed over 383 BCFe (63.9 MMboes) of new Proved
Producing (“PP”) reserves at a Finding, Development and Acquisition
(“FD&A”) cost of $1.36/MCFe ($8.16/boe) while the average field
netback2 was $2.80/MCFe ($16.79/boe), resulting in a 2.1 times
recycle ratio1. The PP FD&A has fallen 42% in the last four
years due to ongoing well design optimization and superior
operational execution, despite service cost pressures.
- Peyto replaced 225% of annual production with new Total Proved
(“TP”) reserves at a FD&A cost of $1.39/MCFe ($8.35/boe) and
replaced 279% of annual production with new Proved plus Probable
Additional (“P+P”) reserves at a FD&A cost of $1.49/MCFe
($8.97/boe) (including increases in Future Development Capital
(“FDC”) of $183 million and $415 million for the respective
categories). For comparative purposes, FD&A costs before
changes in FDC were $1.03/MCFe ($6.18/boe) and $0.83/MCFe
($4.99/boe), respectively.
- P+P FDC includes $144 million of Deep Cut facility capital that
results in greater value enhancement as opposed to just volume
increase. Along with the 2017 investment of $23 million into an
integrated liquids storage, pipeline and associated pump stations,
these types of infrastructure investments extracts additional value
from the resource to the benefit of Peyto shareholders.
- Total Company reserves increased by 11%, 12% and 10% to 1.6
TCFe, 2.7 TCFe and 4.3 TCFe for PP, TP and P+P reserves, both in
absolute and on a per share basis, while liquid reserves increased
by 14%, 13% and 36%, respectively. Higher liquids recovery is
reflective of a richer undeveloped well population as well as the
impact of Deep Cut facility investments. In total, PDP reserves
represented 38% of P+P reserves.
- The Reserve Life Index (“RLI”) for the PP, TP and P+P reserves
remained unchanged at 7, 11 and 18 years, respectively.
- At year end, P+P reserves of 722 MMboes (inclusive of 1,015
future locations) had been assigned to just 16% of Peyto’s total
Deep Basin rights.
2018 UPDATE
- Peyto’s drilling plans for 2018 remain the same as previously
announced, with a capital budget between $200 and $250 million and
plans to drill 50 to 60 wells. Many of these locations will be
targeting Peyto’s Cardium resource play in the Greater Sundance
area which contains 40 to 60 bbl/mmcf of natural gas liquids
(greater than 50% C5+). This area already has the required
infrastructure including wellsites, roads, pipelines, gas plants
and is connected to both gas and liquids sales systems. As always,
however, Peyto will remain nimble and ensure this capital plan
remains flexible to account for changing commodity prices and
service costs.
- Peyto has protected funding for the capital program with over
75% of forecast 2018 natural gas production pre-sold at an average
price of $2.33/GJ ($2.68/mcf) and 25% of forecast 2019 natural gas
production pre-sold at an average price of $1.97/GJ ($2.27/mcf)
which, along with liquids revenues, limits revenue exposure to spot
AECO prices to approximately 10% (2018) and 40% (2019) of revenues,
respectively.
1Recycle Ratio is Field Netback divided by FD&A.2Capital
Expenditures, Field Netback (Revenue less Royalties, Operating
costs and Transportation), and Production are estimated and remain
unaudited at this time.
2017 RESERVES
The following table summarizes Peyto's reserves
and the discounted Net Present Value of future cash flows, before
income tax, using variable pricing, at December 31, 2017.
|
|
|
|
Before Tax Net Present Value
($millions) |
|
|
|
|
Discounted at |
Reserve Category |
Gas(BCF) |
Oil & NGL (mstb) |
BCFe(6:1) |
mmboe(6:1) |
0% |
5% |
8% |
10% |
Proved Producing |
1,480 |
27,889 |
1,647 |
275 |
$5,510 |
$3,589 |
$2,956 |
$2,649 |
Proved
Non-producing |
40 |
816 |
45 |
7 |
$131 |
$84 |
$68 |
$60 |
Proved Undeveloped |
919 |
15,996 |
1,015 |
169 |
$2,664 |
$1,392 |
$974 |
$773 |
Total Proved |
2,439 |
44,700 |
2,708 |
451 |
$8,305 |
$5,065 |
$3,999 |
$3,482 |
Probable
Additional |
1,356 |
44,447 |
1,623 |
270 |
$5,329 |
$2,516 |
$1,734 |
$1,385 |
Proved +
Probable Additional |
3,795 |
89,147 |
4,330 |
722 |
$13,634 |
$7,581 |
$5,733 |
$4,866 |
Note: Based on the InSite report effective
December 31, 2017. Tables may not add due to rounding.
ANALYSIS FOR PEYTO
SHAREHOLDERS
One of the guiding principles at Peyto is “to
tell you the business facts that we would want to know if our
positions were reversed.” Therefore, each year Peyto provides an
analysis of the reserve evaluation that goes far beyond industry
norms in order to answer the most important questions for
shareholders:
- Base Reserves - How did the “base reserves” that were on
production at the time of the last reserve report perform during
the year, and how did any change in commodity price forecast affect
their value?
- Value Creation - How much value did the 2017 capital
investments create, both in current producing reserves and in
undeveloped potential? Has the Peyto team earned the right to
continue investing shareholders’ capital?
- Growth and Income - Are the projected cash flows capable
of funding the growing number of undeveloped opportunities and a
sustainable dividend stream to shareholders, without sacrificing
Peyto’s financial flexibility?
- Risk Assessment – What are the risks associated with the
assessment of Peyto’s reserves and the risk of recovering future
cashflows from the forecast production streams?
1. Base Reserves
Peyto’s existing Proved Producing reserves at
the start of 2017 (the base reserves) were evaluated and adjusted
for 2017 production as well as any technical or economic revisions
resulting from the additional twelve months of production and
commodity price data. As part of InSite’s independent engineering
analysis, all 1,314 producing entities were evaluated. These
producing wells and zones represent a total gross Estimated
Ultimate Recoverable (EUR) volume of 3.4 TCFe, which is within 0.5%
of the previous estimates. In aggregate, Peyto is pleased to report
that its total base reserves continue to meet with expectation,
which increases the confidence in the prediction of future
recoveries.
The commodity price forecast used by the
independent engineers in this year’s evaluation is lower than last
year which had the effect of reducing the Net Present Value of all
reserve categories. For example, the debt adjusted NPV, discounted
at 5%, of last year’s Proved Producing reserves, decreased $440
million, or 18%, due to the difference in commodity price forecasts
and with Peyto’s realized historical offsets to posted prices.
InSite’s price forecast used in the variable dollar economics is
available on their website at www.insitepc.com.
For 2018, InSite is forecasting the total base
production (all wells on production at Dec. 31, 2017) to decline to
approximately 75,162 boe/d by December, 2018. This implies a base
decline rate of approximately 32% from December 2017. This forecast
decline rate is lower than the 2017 actual base decline of 37%.
While rapid production growth had driven the base decline rate up
in recent years, it is expected that the corporate decline rate
will decrease into the future because production additions will
represent a smaller proportion of total production, even as the
Company’s total production continues to grow. The historical base
decline rates and capital programs are shown in the following
table:
|
2006 |
2007 |
2008 |
2009 |
20101 |
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
2018F |
Base Decline
(%/yr)* |
29% |
23% |
26% |
20% |
22% |
33% |
35% |
34% |
38% |
40% |
40% |
37% |
32% |
Capital
Expenditures ($MM) |
$312 |
$122 |
$139 |
$73 |
$261 |
$379 |
$618 |
$578 |
$690 |
$594 |
$469 |
$521 |
$225 |
*The base decline represents the aggregate
annual decline of all wells on production at the end of the
previous year.1. Horizontal drilling began in 2010.
2. Value
Creation/Reconciliation
During 2017, Peyto invested a total of $521
million to drill 142 gross (138 net) gas wells, as well as invested
in infrastructure to reduce field operating costs, and enhance
realized prices for its NGLs. In keeping with Peyto’s strategy of
maximizing shareholder returns, an evaluation of the economic
results of this investment activity is necessary in order to
determine, on a go-forward basis, the best use of shareholders’
capital. Not only does this look back analysis give shareholders a
report card on the capital that was invested, it also helps
illustrate the potential returns that can be generated from similar
future undeveloped opportunities.
Exploration and Development
Activity
Of the total capital invested in exploration and
development activities in 2017, approximately 4% was spent
acquiring lands and seismic, 11% on new facilities, and the
remaining 85% was spent drilling, completing and connecting
existing and new reserves. Of the 142 gross (138 net) wells
drilled, 68% or 97 gross wells were previously identified as
undeveloped reserves in last year’s reserve report (62 Proved, 35
Probable Additional). The remaining 45 wells were not recognized in
last year’s report. As is the case in most years, a portion of
Peyto’s drilling locations were chosen from the Company’s total
internal drilling inventory which is larger and more comprehensive
than that identified in the InSite report.
The undeveloped reserves originally booked to
the 97 locations at year end 2016 totaled 297.7 BCFe (3.1
BCFe/well) of Proved Undeveloped plus Probable Additional reserves
for a forecast capital investment of $295.3 million ($0.99/MCFe).
In actuality, $304.6 million of capital ($0.95/MCFe) was spent on
these 97 wells during 2017, yielding Proved Producing plus Probable
Additional reserves of 321.1 BCFe (3.3 BCFe/well).
Service cost were slightly higher than forecast,
particularly for pressure pumping equipment, however those were
more than offset with improved design and better well results. The
following table illustrates the Company’s historical performance in
converting future undeveloped locations into producing wells and
demonstrates Peyto has consistently converted more reserves at
better cost than was forecast.
|
|
|
|
|
|
|
|
|
Reserve Year |
Total Drills |
Booked Locations Converted |
Booked/Total |
Forecast Outcome |
Forecast Cost per Unit |
Actual Outcome |
Actual Cost per Unit |
Actual/Forecast Cost per Unit |
|
gross wells |
gross wells |
|
BCFe |
Capex* $MM |
$/MCFe |
BCFe |
Capex* $MM |
$/MCFe |
|
2010 |
48 |
30 |
63% |
84 |
$123 |
$1.46 |
102 |
$138 |
$1.35 |
-8% |
2011 |
70 |
51 |
73% |
152 |
$214 |
$1.41 |
151 |
$209 |
$1.38 |
-2% |
2012 |
86 |
60 |
70% |
189 |
$295 |
$1.56 |
196 |
$278 |
$1.42 |
-9% |
2013 |
99 |
69 |
70% |
206 |
$332 |
$1.61 |
218 |
$310 |
$1.42 |
-12% |
2014 |
123 |
90 |
73% |
278 |
$417 |
$1.50 |
288 |
$419 |
$1.45 |
-3% |
2015 |
140 |
103 |
74% |
307 |
$456 |
$1.49 |
348 |
$385 |
$1.11 |
-26% |
2016 |
128 |
82 |
64% |
254 |
$297 |
$1.17 |
254 |
$246 |
$0.97 |
-17% |
2017 |
142 |
97 |
68% |
298 |
$295 |
$0.99 |
321 |
$305 |
$0.95 |
-4% |
Total |
836 |
582 |
70% |
1,768 |
$2,429 |
$1.37 |
1,878
|
$2,290 |
$1.22 |
-11% |
*Capex represents only well related capital for
drilling, completion, equipping and tie-in
This annual analysis of reserves that are
converted from an undeveloped state to a producing state helps to
validate the accuracy of the remaining future undeveloped reserves
and their capital requirements. This accuracy, by which Peyto can
predict future reserve recoveries and capital requirements, also
helps to reduce the risk associated with valuing those undeveloped
locations.
Value Reconciliation
In order to measure the success of all of the
capital invested in 2017, it is necessary to quantify the total
amount of value added during the year and compare that to the total
amount of capital invested. At Peyto’s request, the independent
engineers have run last year’s reserve evaluation with this year’s
price forecast to remove the change in value attributable to
commodity prices. This approach isolates the value created by the
Peyto team from the value created (or lost) by those changes
outside of their control (ie. commodity prices). Since the
capital investments in 2017 were funded from a combination of cash
flow, debt and equity, it is necessary to know the change in debt
and the change in shares outstanding to see if the change in value
is truly accretive to shareholders.
At year-end 2017, Peyto’s estimated net debt had
increased by 17% or $195 million to $1.326 billion while the number
of shares outstanding remained the same at 164.9 million shares.
The change in debt includes all of the capital expenditures, as
well as any acquisitions, and the total fixed and performance based
compensation paid out for the year. Although these estimates are
believed to be accurate, they remain unaudited at this time and may
be subject to change.
Based on this reconciliation of changes in BT
NPV, the Peyto team was able to create $1.176 billion of Proved
Producing, $1.652 billion of Total Proven, and $2.090 billion of
Proved plus Probable Additional undiscounted reserve value, with
$521 million of capital investment, cost reductions and NGL price
enhancements. The ratio of capital expenditures to value creation
is what Peyto refers to as the NPV recycle ratio, which is simply
the undiscounted value addition, resulting from the capital
program, divided by the capital investment. For 2017, the Proved
Producing NPV recycle ratio is 2.3 which means for each dollar
invested, the Peyto team was able to create 2.3 new dollars of
Proved Producing reserve value. The historic NPV recycle ratios are
presented in the following table.
|
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
Wt. Avg. |
Capital Investment ($MM) |
$139 |
$73 |
$261 |
$379 |
$618 |
$578 |
$690 |
$594 |
$469 |
$521 |
NPV0 Recycle Ratio |
|
|
|
|
|
|
|
|
|
|
|
Proved
Producing |
2.1 |
5.4 |
3.5 |
2.4 |
1.6 |
1.5 |
1.5 |
2.3 |
2.9 |
2.3 |
2.2 |
Total
Proved |
2.5 |
18.9 |
6.1 |
4.7 |
2.2 |
2.0 |
1.7 |
3.3 |
4.2 |
3.2 |
3.3 |
Proved + Probable Additional |
2.2 |
27.1 |
10.3 |
6.6 |
3.2 |
4.0 |
2.6 |
5.0 |
7.3 |
4.0 |
5.1 |
*NPV0 (net present value) recycle ratio is
calculated by dividing the undiscounted NPV of reserves added in
the year by the total capital cost for the period (eg. 2017 Proved
Producing ($1,176/$521) = 2.3).
3. Growth and
Income
As a dividend paying, growth oriented
corporation, Peyto’s objective is to profitably grow the resources
which generate sustainable income (dividends) for shareholders. In
order for income to be more sustainable and grow, Peyto must
profitably find and develop more reserves. Simply increasing
production from the existing reserves will not make that income
more sustainable. Reserve Life Index (RLI), or a reserve to
production ratio, provides a measure of this long term
sustainability.
During 2017, the Company was successful in
replacing 171% of annual production with new Proved Producing
reserves, resulting in an 11% increase in total PP reserves. Fourth
quarter production, however, only increased 8%, from 101,767 boe/d
to 109,793 boe/d, which had the effect of increasing the Proved
Producing reserve life index from 6.7 years to 6.9 years. The
RLI in all categories declined from 2009 until 2013 due to the
adoption of horizontal multi-stage fracture well designs where
larger initial production rates are combined with steeper initial
declines.
For comparative purposes, the Total Proved and
P+P RLI index was 11 and 18 years, respectively. Management
believes that the most meaningful method to evaluate the current
reserve life is by dividing the Proved Producing reserves by the
actual fourth quarter annualized production. This way production is
being compared to producing reserves as opposed to producing plus
non-producing reserves.
The following table highlights the Company’s
historical RLI Index.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
2006 |
2007 |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
Proved Producing |
11 |
12 |
13 |
14 |
14 |
11 |
9 |
9 |
7 |
7 |
7 |
7 |
7 |
Total Proved |
14 |
14 |
16 |
17 |
21 |
17 |
16 |
15 |
12 |
11 |
11 |
11 |
11 |
Proved + Probable Additional |
19 |
20 |
21 |
23 |
29 |
25 |
22 |
22 |
19 |
18 |
17 |
18 |
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Future Undeveloped
Opportunities
As at December 31, 2017, Peyto had 751 net
sections of Alberta Deep Basin lands. In many of these sections,
mineral rights are held in a number of stacked prospective horizons
expanding this land base by almost four fold to a total of 2,931
net sections of rights over 7 separate Cretaceous horizons. Over
Peyto’s 19 year history, the Company has found and developed 3.5
TCFe of EUR reserves which resides in 273 of these net sections.
Effectively, Peyto has invested $5.7 billion to fully develop 9.3%
of its existing land base which has also resulted in the generation
of $2.3 billion in cumulative earnings to date. Likewise, the
remaining undeveloped land base holds significant future potential.
The independent reserve evaluators have forecast development
activity for the next six years as shown in the following table of
future development capital.
|
|
|
Future Development Capital |
|
|
|
|
Proved
Reserves |
|
Proved+ Probable Additional Reserves |
|
|
Year |
|
Undisc., ($Millions) |
|
Undisc., ($Millions) |
|
|
2018 |
|
$215 |
|
$250 |
|
|
2019 |
|
$471 |
|
$525 |
|
|
2020 |
|
$359 |
|
$695 |
|
|
2021 |
|
$343 |
|
$663 |
|
|
20222023 |
|
$71- |
|
$561$244 |
|
|
Thereafter |
|
$29 |
|
$40 |
|
|
Total |
|
$1,488 |
|
$2,978 |
|
|
|
|
|
|
|
|
Every year Peyto finds and develops new drilling
inventory that the independent evaluators review to create a
forecast of future development activity. Their forecast is by no
means a complete assessment of Peyto’s current opportunities, nor
is Peyto content to just sit back and harvest these current
opportunities. Each year the results from the drilling activity
spawns additional offsetting locations both on currently owned
lands and lands Peyto does not yet own but attempts to acquire. The
pace of inventory generation has historically exceeded the pace of
drilling activity at a ratio of 2:1, resulting in a growing number
of future drilling locations recognized in Peyto’s reserve report.
In 2017, however, and as a result of falling commodity prices, much
of the new exploratory lands that were purchased were not
evaluated, so there were not as many new locations recognized as
compared to the past.
(gross locations) |
2007 |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
Avg. |
Wells Drilled |
48 |
53 |
29 |
52 |
70 |
86 |
99 |
123 |
140 |
128 |
142 |
88 |
Locations Added To Reserves Report |
73 |
93 |
96 |
149 |
151 |
156 |
220 |
257 |
208 |
245 |
165 |
165 |
Inventory Generation Rate |
1.5 |
1.8 |
3.3 |
2.9 |
2.2 |
1.8 |
2.2 |
2.1 |
1.5 |
1.9 |
1.2 |
1.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Peyto’s development drilling activity has proved
up additional future drilling locations with the number of future
drilling locations recognized in the reserve report increasing from
947 gross (784 net) locations to 1,015 gross (854 net) locations.
Of these future locations, 56% are categorized by the independent
reserve evaluators as Proven Undeveloped with the remaining 44% as
Probable Undeveloped. In addition, the Probable Additional category
includes deep cut facility installations at three of Peyto’s
Greater Sundance gas plants and the Brazeau gas plant. The net
reserves associated with the undeveloped locations and facility
installations (not including existing uphole zones) totals 2.3 TCFe
(378 mmboes) while the total capital required to develop them is
estimated at $3.0 billion or $1.31/MCFe. This is forecast to create
Net Present Value of $3.2 billion (5% discount rate, post capital
recovery) or $20 per share of incremental value at the Insite
commodity price forecast.
The undiscounted, forecast for Net Operating
Income for the Total Proved and P+P reserves over the future
development capital schedule totals $3.9 billion and $5.6 billion,
respectively, more than sufficient to fund the future development
capital shown above, ensuring those reserve additions are accretive
to shareholders.
The total estimated Future Development Capital
for both Total Proved and P+P reserves increased from the previous
year by $183 million and $415 million, respectively, which reflects
the increase in undeveloped locations, an increase in service
costs, and the addition of deep cut facilities to capture
incremental liquids from the gas stream.
4. Risk Assessment
Effectively 100% of Peyto’s natural gas and
natural gas liquid reserves exist in low permeability (tight),
sandstone reservoirs in the Alberta Deep Basin. In almost all
cases, the volumetric capacity of these sandstone reservoirs can be
determined using traditional geological and reservoir engineering
techniques, which, when complimented by production performance
data, increases the certainty of the reserve estimates. In the
majority of Peyto’s core areas, continuous drilling activity has
further refined the geologic and geometric definition of these
reservoirs to a higher level of certainty.
In addition, these Deep Basin sandstone
reservoirs do not contain mobile water nor are they supported by
active aquifers. Mobile water traditionally increases the risk
associated with reservoir recovery by impeding the flow of
hydrocarbons through the reservoir and up the wellbore. Water
production, separation and disposal processes also increase
operating costs which shortens the economic life of producing
wells, further contributing to reduced recovery. As many of these
traditional reserves determination and recovery risks are not
present in Peyto’s Deep Basin reservoirs, Management has a higher
level of confidence in its reserves and their ultimate
recovery.
Peyto’s high operating margins have meant that
forecasts of net operating income are less affected by commodity
price volatility than in most traditional reserve evaluations. As a
result, the predicted economic life of Peyto’s producing wells are
less sensitive to changes in commodity prices. These high operating
margins are achieved through the Company’s high level of ownership
and control of all levels of production operations, through a
concentrated geographic asset base, and by striving to be the
lowest cost producer in the industry.
Peyto further reduces the risk of predicted
operating incomes with an active hedging program that aims to
achieve a fixed price on a descending graduated schedule of 85% of
gross production for the immediate summer or winter season and 75%,
65%, 55%, 45% and 30% thereafter for the successive following
seasons. These fixed prices are achieved through a series of
frequent transactions which is similar to “dollar cost averaging”
the future gas prices in order to smooth out volatility. At
present, Peyto has over 75% of forecast 2018 natural gas production
pre-sold at an average price of $2.33/GJ ($2.68/mcf) and 25% of
forecast 2019 natural gas production pre-sold at an average price
of $1.97/GJ ($2.27/mcf) which, along with liquids revenues, limits
revenue exposure to spot AECO prices to approximately 10% (2018)
and 40% (2019) of revenues, respectively.
These cumulative factors listed above, which
reduce the traditional risk of realizing future cashflows from
Peyto’s reserves, is why, in Management’s opinion, Peyto’s reserves
can be valued at lower discount rates than other, more conventional
asset bases.
PERFORMANCE RATIOS
The following table highlights annual
performance ratios both before and after the implementation of
horizontal wells in late 2009. These can be used for comparative
purposes, but it is cautioned that on their own they do not measure
investment success.
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Proved Producing |
|
|
|
|
|
|
|
|
|
FD&A ($/MCFe) |
$1.36 |
|
$1.44 |
|
$1.64 |
|
$2.25 |
|
$2.35 |
|
$2.22 |
|
$2.12 |
|
$2.10 |
|
$2.26 |
|
RLI (yrs) |
|
7 |
|
|
7 |
|
|
7 |
|
|
7 |
|
|
7 |
|
|
9 |
|
|
9 |
|
|
11 |
|
|
14 |
|
Recycle Ratio |
|
2.1 |
|
|
1.8 |
|
|
2.0 |
|
|
1.9 |
|
|
1.6 |
|
|
1.6 |
|
|
2.1 |
|
|
2.4 |
|
|
2.5 |
|
Reserve Replacement |
|
171% |
|
|
153% |
|
|
193% |
|
|
183% |
|
|
190% |
|
|
284% |
|
|
230% |
|
|
239% |
|
|
79% |
|
Total Proved |
|
|
|
|
|
|
|
|
|
FD&A ($/MCFe) |
$1.39 |
|
$1.01 |
|
$0.72 |
|
$2.37 |
|
$2.23 |
|
$2.04 |
|
$2.13 |
|
$2.35 |
|
$1.73 |
|
RLI (yrs) |
|
11 |
|
|
11 |
|
|
11 |
|
|
11 |
|
|
12 |
|
|
15 |
|
|
16 |
|
|
17 |
|
|
21 |
|
Recycle Ratio |
|
2.0 |
|
|
2.6 |
|
|
4.5 |
|
|
1.8 |
|
|
1.6 |
|
|
1.7 |
|
|
2.1 |
|
|
2.1 |
|
|
3.2 |
|
Reserve Replacement |
|
225% |
|
|
183% |
|
|
188% |
|
|
254% |
|
|
230% |
|
|
414% |
|
|
452% |
|
|
456% |
|
|
422% |
|
Future Development Capital ($ millions) |
$1,488 |
|
$1,305 |
|
$1,381 |
|
$1,721 |
|
$1,406 |
|
$1,318 |
|
$1,111 |
|
$741 |
|
$446 |
|
Proved plus Probable
Additional |
FD&A ($/MCFe) |
$1.49 |
|
$0.62 |
|
$0.54 |
|
$2.01 |
|
$1.86 |
|
$1.68 |
|
$1.90 |
|
$2.19 |
|
$1.47 |
|
RLI (yrs) |
|
18 |
|
|
18 |
|
|
17 |
|
|
18 |
|
|
19 |
|
|
22 |
|
|
22 |
|
|
25 |
|
|
29 |
|
Recycle Ratio |
|
1.9 |
|
|
4.2 |
|
|
6.1 |
|
|
2.1 |
|
|
2.0 |
|
|
2.1 |
|
|
2.4 |
|
|
2.3 |
|
|
3.8 |
|
Reserve Replacement |
|
279% |
|
|
283% |
|
|
287% |
|
|
328% |
|
|
450% |
|
|
527% |
|
|
585% |
|
|
790% |
|
|
597% |
|
Future Development Capital
($millions) |
$2,978 |
|
$2,563 |
|
$2,657 |
|
$2,963 |
|
$2,550 |
|
$2,041 |
|
$1,794 |
|
$1,310 |
|
$672 |
|
- FD&A (finding, development and acquisition) costs are used
as a measure of capital efficiency and are calculated by dividing
the capital costs for the period, including the change in
undiscounted FDC, by the change in the reserves, incorporating
revisions and production, for the same period (eg. Total Proved
($521.2+$183.3)/(451.3-404.4+37.5) = $8.35/boe or $1.39/MCFe).
- The RLI is calculated by dividing the reserves (in boes) in
each category by the annualized Q4 average production rate in
boe/year (eg. Proved Producing 274,551/(109.793x365) = 6.9).
Peyto believes that the most accurate way to evaluate the current
reserve life is by dividing the proved developed producing reserves
by the annualized actual fourth quarter average production.
In Peyto’s opinion, for comparative purposes, the proved developed
producing reserve life provides the best measure of
sustainability.
- The Recycle Ratio is calculated by dividing the field netback
per boe, by the FD&A costs for the period (eg. Proved Producing
(($16.79)/$8.16=2.1). The recycle ratio is comparing the netback
from existing reserves to the cost of finding new reserves and may
not accurately indicate investment success unless the replacement
reserves are of equivalent quality as the produced reserves.
- 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 ((451.3-404.4+37.5)/37.5)
= 225%).
RESERVES COMMITTEE
Peyto has a reserves committee, comprised of
independent board members, that 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 conducted in
accordance with the COGE (Canadian Oil and Gas Evaluation) Handbook
and National Instrument 51-101. The evaluations are conducted using
all available geological and engineering data. The reserves
committee has reviewed the reserves information and approved the
reserve report.
GENERAL
A complete filing of the Statement of Reserves
(form 51-101F1), Report on Reserves (form 51-101F2), and Report of
Management and Directors on Oil and Gas Disclosure (form 51-101F3)
will be available in the Annual Information Form to be filed by the
end of March 2018. Shareholders are encouraged to actively visit
Peyto’s website located at www.peyto.com. For further information,
please contact Darren Gee, President and Chief Executive Officer of
Peyto at (403) 237-8911.
This news release contains certain
forward–looking information and statements within the meaning of
applicable securities laws. The use of any of the words "expect",
"anticipate", "continue", "estimate", "may", "will", "project",
"should", "believe", "plans", "intends" and similar expressions are
intended to identify forward-looking information or statements. In
particular, but without limiting the foregoing, this news release
contains forward-looking information and statements pertaining to
the following: management's assessment of Peyto's future plans and
operations, including the 2018 program, capital expenditures, the
volumes and estimated value of Peyto's reserves, the life of
Peyto's reserves, production estimates, project economics including
NPV, netback and recycle ratio, the ability to enhance value of
reserves for shareholders and ensure the reserves generate the
maximum possible return. Forward-looking statements or
information are based on a number of material factors, expectations
or assumptions of Peyto which have been used to develop such
statements and information but which may prove to be incorrect.
Although Peyto believes that the expectations reflected in such
forward-looking statements or information are reasonable, undue
reliance should not be placed on forward-looking information and
statements because Peyto can give no assurance that such
expectations will prove to be correct. In addition to other
factors and assumptions which may be identified herein, assumptions
have been made regarding, the impact of increasing competition, the
timely receipt of any required regulatory approvals, the ability of
Peyto to obtain qualified staff, equipment and services in a timely
and cost efficient manner, drilling results, field production rates
and decline rates, the ability to replace and expand reserves
through development and exploration, future commodity prices,
currency, exchange and interest rates, regulatory framework
regarding royalties, taxes and environmental matters and the
ability of Peyto to successfully market its oil and natural gas
products. By their nature, forward-looking information and
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. 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 information and
statements will transpire or occur, or if any of them do so, what
benefits that Peyto will derive therefrom. The
forward-looking information and statements contained in this news
release speak only as of the date of this news release, and Peyto
does not assume any obligation to publicly update or revise any of
the included forward-looking statements or information, whether as
a result of new information, future events or otherwise, except as
may be required by applicable securities laws.
This news release contains information,
including in respect of Peyto's 2018 capital program, which may
constitute future oriented financial information or a financial
outlook. Such information was approved by the Board of
Directors of Peyto on February 13, 2018, and such information is
included herein to provide readers with an understanding of the
Company's anticipated capital expenditures for 2018. Readers
are cautioned that the information may not be appropriate for other
purposes.
Boes may be misleading, particularly if used in
isolation. A boe conversion ratio 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. Given that the value ratio based on the current price of
crude oil as compared to natural gas is significantly different
from the energy equivalency of 6:1, utilizing a conversion on a 6:1
basis may be misleading as an indication of value.
Finding, development and acquisition
costs, reserves replacement and netbacks do not have
standardized meanings or standard methods of calculation and
therefore such measures may not be comparable to similar measures
used by other companies and should not be used to make comparisons.
Such metrics have been included by Peyto to give readers additional
measures to evaluate the Peyto's performance; however, such
measures are not reliable indicators of the future performance of
Peyto and future performance may not compare to the performance in
previous periods and therefore such metrics should not be unduly
relied upon.
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 forecast prices and costs assumptions will be
attained and variances could be material. The aggregate of the
exploration and development costs incurred in the most recent
financial year and the change during that year in estimated future
development costs generally will not reflect total finding and
development costs related to reserves additions for that year.
The Toronto Stock Exchange has neither approved
nor disapproved the information contained herein.
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