SYMBOL: PEY.UN - TSX
CALGARY, Feb. 13 /CNW/ - Peyto Energy Trust ("Peyto" or "the Trust") is pleased to present the results and analysis of the independent reserve report effective December 31, 2007. The evaluation encompassed 100% of the Trust's reserve assets and was conducted by Paddock Lindstrom and Associates Ltd. ("PLA") in compliance with National Instrument 51-101 and in accordance with the COGE (Canadian Oil and Gas Evaluation) Handbook.
Highlights
- For the eighth consecutive year, Peyto has grown its reserves, and
associated net asset value, from which sustainable distributions are
funded. Since inception, Peyto has invested a total of $1.4 billion
to build, with the drill bit, total proved assets that have funded
cumulative distributions of $622 million and have a remaining value
of $2.5 billion (Before Tax, Net Present Value, discounted at 5%,
"BT NPV(5)", debt adjusted).
- For 2007, Peyto invested $122 million, less than 45% of its cash
flow, to replace over 125% of its annual production with new Proved
Producing reserves at a Finding, Development and Acquisition ("FD&A")
cost of $12.68/boe. As a result, the value (BT NPV(5), debt adjusted)
of the remaining Proved Producing reserve assets was maintained at
$19.53/unit.
- Peyto replaced 175% of production with new Total Proved reserves at a
FD&A cost of $9.42/boe and 117% of production with new Proved plus
Probable Additional reserves at a FD&A cost of $9.38/boe (including
the changes in future development capital).
- The reserve life index ("RLI") increased by at least one year in all
categories with Proved Producing RLI of 13 years, Total Proved RLI of
16 years, and Proved plus Probable Additional RLI of 21 years.
- The distribution life index ("DLI", as defined below) of the
Proved Producing assets increased from 23 years in 2006 to 24 years
in 2007, indicating that distributions are more sustainable today
than a year ago.
- The value of Peyto's proven assets, or the BT NPV(5), of the Total
Proved reserves, grew 3% to $3.0 billion in 2007. Adjusting for
changes in debt and the number of units outstanding, this NPV/unit
grew 3% to $23.80/unit.
- The BT NPV(5), of the Proved plus Probable Additional reserves grew
1% to $3.7 billion in 2007. Adjusting for changes in debt and the
number of units outstanding, this NPV/unit remained effectively the
same at $30.77/unit.
The following table outlines the per unit change in production, reserves
and value for 2007.
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%
Dec. 31, Dec. 31, % Change
2007 2006 Change Change Per Unit
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Units Outstanding (000's) 105,712 105,537 175 Nil
Capital Expenditures
($million)(1) 121.6 311.9 (190.3) (61%)
Q4 Production (boe/d)(1) 21,134 22,550 (1,417) (6%) (6%)
Reserves (mboes)
Proved Producing 99,226 97,181 2,046 2% 2%
Total Proved 124,328 118,681 5,647 5% 5%
Proved + Probable 164,759 163,464 1,294 1% 1%
Net Present Value Discounted
at 5% ($million)
Proved Producing $2,515 $2,462 $53 2% 2%
Total Proved $2,966 $2,869 $98 3% 3%
Proved + Probable $3,703 $3,679 $27 1% 0%
Debt ($million)(1) $450 $433 $17 4% 4%
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(1) Capital Expenditures, Q4 Production and Debt are estimated and remain
unaudited at this time.
The following tables summarize Peyto's reserves and the discounted net
present value of future cash flows, before income tax, using variable pricing,
at December 31, 2007.
Variable Dollar Economics
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Net Present Value ($million)
Discounted at
Reserve Gas Oil & NGL BOE 6:1
Category (mmcf) (mstb) (mboe) 0% 5% 8% 10%
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Proved
Producing 496,110 16,541 99,226 $4,694 $2,515 $1,963 $1,719
Proved Non-
producing 15,642 453 3,060 $140 $62 $43 $35
Proved
Undeve-
loped 111,869 3,396 22,041 $848 $389 $270 $217
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Total
Proved 623,621 20,391 124,328 $5,682 $2,966 $2,276 $1,971
Probable
Additio-
nal 203,010 6,596 40,431 $1,890 $737 $490 $390
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Proved +
Probable
Additio-
nal 826,631 26,987 164,759 $7,572 $3,703 $2,766 $2,361
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Note: Based on the PLA report effective December 31, 2007
The Paddock Lindstrom and Associates Ltd. price forecast used in the
variable dollar economics is available on their website at www.padlin.com.
Analysis
There are three fundamental questions that Peyto believes should be
answered from this annual evaluation.
1. Base Reserves - How did the "base reserves" that were on production
at the time of the last reserve report perform
during the year?
2. Value Creation - How much value did the 2007 capital investments
create?
3. Sustainability - Is the distribution sustainable going forward?
Base Reserves
Last year's Proved Producing reserves (base reserves) were evaluated and adjusted for 2007 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 1% of previous estimates. Peyto is again pleased to report that the base reserves continue to meet with expectation and increase the confidence in the predictability of those future recoveries.
The forecast for natural gas price is approximately 5% lower today than a year ago, while the forecast for natural gas liquids is approximately 25% higher. Overall, the change in the forecast of future commodity prices had little effect on the value change of the base reserves, given their liquid rich nature, as the drop in gas price was offset by the rise in liquids price. The debt adjusted NPV, discounted at 5%, of last year's Proved Producing reserves decreased just 2% due to this change in commodity price forecasts.
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. This exercise is undertaken to ensure the best use of the unitholders' capital on a go forward basis. At Peyto's request, and for the benefit of unitholders, the independent engineers have run last year's evaluation 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 the capital investments in 2007 were funded from a combination of cash flow, debt and equity, it is necessary to know the change in debt and the change in units outstanding to see if the change in value is truly accretive.
At year end 2007, the forecasted debt had increased by $17 million over the past year while the number of units outstanding has remained essentially the same at approximately 106 million. The change in debt includes all of the capital expenditures and the total fixed and performance based compensation paid out during the year. Although these forecasts are believed to be accurate, they remain unaudited at this time.
Based on this reconciliation of changes in BT NPV, the Peyto team was able to create $569 million of Proved Producing, $675 million of Total Proven, and $465 million of Proved plus Probable Additional undiscounted reserve value, with $122 million of capital investment. The ratio of capital expenditures to value creation is what Peyto refers to as the NPV recycle ratio, which is simply the undiscounted value addition, resulting from the capital program, divided by the capital investment. For 2007, the Proved Producing NPV recycle ratio is 4.7, compared with 2.9 for 2006. By all measures, the capital investments of 2007 were very successful in building additional value for unitholders.
The following table breaks out the value created by Peyto's capital investments and reconciles the changes in debt adjusted NPV of future net revenues using forecast prices and costs as at December 31, 2007.
Value Reconciliation
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Proven +
Proven Total Probable
Producing Proven Additional
($millions)
Discounted at 0% 5% 0% 5% 0% 5%
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Before Tax Net
Present Value at
Beginning of
Year ($millions) $4,066 $2,029 $4,961 $2,435 $7,059 $3,245
Dec. 31, 2006
Evaluation using
PLA Jan. 1, 2007
price forecast,
less debt
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Per Unit Outstanding
at Dec. 31, 2006
($/unit) $38.53 $19.22 $47.01 $23.08 $66.88 $30.75
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2007 sales
(revenue less
royalties and
operating costs) ($310) ($310) ($310) ($310) ($310) ($310)
Net Change due to
price forecasts
(using PLA
Jan 1, 2008
price forecast) ($82) ($50) ($94) ($64) ($92) ($86)
Value Creation
due to
discoveries
(additions,
extensions,
transfers,
revisions) $569 $395 $675 $454 $465 $403
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Before Tax Net
Present Value at
End of Year
($millions) $4,243 $2,064 $5,232 $2,516 $7,122 $3,253
Dec. 31, 2007
Evaluation using
PLA Jan. 1, 2008
price forecast,
less debt
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Per Unit Outstanding
at Dec. 31, 2007
($/unit) $40.14 $19.53 $49.49 $23.80 $67.37 $30.77
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Year over Year
Change in Before
Tax NPV/unit 4% 2% 5% 3% 1% 0%
Year over Year
Change in Before
Tax NPV/unit
including
Distribution 9% 10% 9% 10% 3% 6%
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Sustainability
As a growth oriented, sustainable trust, Peyto's primary objective is to grow the resources which generate sustainable distributions for unitholders. In order for distributions to be more sustainable and grow, Peyto must profitably find and develop more reserves. Simply increasing production from the existing reserves will not make distributions more sustainable. This year the Trust was successful in increasing reserves and sustainability, despite a slight decline in production levels. There are two key measures for sustainability: Reserve Life and Distribution Life.
Peyto's Reserve Life grew in all categories by approximately one year, with Proved Producing Reserve Life Index ("PP RLI") increasing to 13 years and Proved plus Probable Additional Reserve Life Index increasing to 21 years. This growth in reserve life is in part due to the natural maturation of the tight gas wells but also reflects Peyto's unique ability to internally generate its own high quality investments. The Proved Producing Distribution Life Index ("PP DLI") increased to 24 years in 2007, while Proved plus Probable Additional Distribution Life Index was maintained at 40 years. Growth in both of these measures, as highlighted in the following table, indicates that distributions are more sustainable today than a year ago.
2003 2004 2005 2006 2007
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PP RLI 10 9 11 12 13
PP DLI 14 17 22 23 24
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The following table outlines the 2007 performance ratios for all three
reserve categories.
Performance Ratios
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Proved +
Proved Total Probable
Producing Proved Additional
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FD&A Cost ($/boe)
(including change in future
development capital) $12.68 $9.42 $9.38
Reserve Life Index (years)
Q4 2007 average production
- 21,134 boe/d 13 16 21
Distribution Life Index
(years)
Q4 2007 annualized -
$44.4 million 24 29 40
Reserve Replacement Ratio
2007 production -
7.544 million boes 1.3 1.7 1.2
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- 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
future development capital ("FDC"), by the change in the reserves,
incorporating revisions and production, for the same period (eg.
Total Proved ($121,600+$2,648)/(124,328-118,681+7,544)(equal sign)
$9.42).
- 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 99,226/(21.134(x)365)(equal sign)13).
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 index is calculated by dividing the debt
adjusted undiscounted NPV by the Q4 annualized distribution (eg.
Proved Producing ($4,694-$450.4 million)/(44.4(x)4) million/year
(equal sign) 24 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 ((124,291-118,681+7,544)/7,544)
(equal sign)1.7).
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 in accordance with the COGE (Canadian Oil and Gas Evaluation) Handbook. 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.
Alberta's New Royalty Framework
On October 25, 2007 the Alberta Government released a new Royalty Framework pertaining to royalties on oil and gas resources including oil sands, conventional oil and gas, and coalbed methane. This new framework was scheduled to take effect on January 1, 2009 and was based on the Alberta government's response to the recommendations put forth by the Alberta Royalty Review Panel.
On February 4, 2008, the Alberta Premier, Ed Stelmach, asked to dissolve the provincial legislature and called for a provincial election for March 3, 2008. As the detailed legislation containing the new royalty framework was not passed, the succeeding government will be responsible for implementing any changes to the existing royalty scheme. Until that time, Peyto continues to operate under the existing Alberta royalty guidelines. Also in the interim, Alberta Energy continues to evaluate the "unintended consequences" of the proposed new framework and may provide future recommendations for modification. Should the succeeding government implement the royalty framework that was announced in October 2007, the impact to Peyto's reserves and their NPV is not expected to be material.
The following table summarizes Peyto's reserves and discounted net present value of future cash flows, before income tax, using variable pricing, under the new proposed royalties, at December 31, 2007.
Variable Dollar Economics, New Royalty Framework
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Net Present Value ($million)
Discounted at
Reserve Gas Oil & NGL BOE 6:1
Category (mmcf) (mstb) (mboe) 0% 5% 8% 10%
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Proved
Producing 495,896 16,533 99,182 $4,619 $2,499 $1,955 $1,713
Proved Non-
producing 15,650 453 3,061 $135 $61 $42 $35
Proved
Undeve-
loped 111,870 3,396 22,041 $844 $391 $272 $219
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Total
Proved 623,416 20,382 124,285 $5,599 $2,952 $2,269 $1,966
Probable
Additio-
nal 203,007 6,596 40,431 $1,819 $721 $482 $384
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Proved +
Probable
Additio-
nal 826,423 26,978 164,715 $7,417 $3,673 $2,751 $2,351
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General
For more in depth discussion of the 2007 reserve report, an interview with the management will be available on Peyto's website by Friday February 22, 2008. 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 2008. Unitholders are encouraged 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 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. 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.
%SEDAR: 00019597E
