Peyto Energy Trust announces 2008 year end reserves and distribution adjustment


    CALGARY, Feb. 13 /CNW/ - Peyto Energy Trust ("Peyto" or "the Trust")
presents the results and analysis of the independent reserve report effective
December 31, 2008. 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.


    -   After ten years of exploration and development in Alberta's Deep
        Basin, Peyto has now invested $1.54 billion to find and develop over
        900 BCFe of high quality natural gas reserves.

    -   Of the 900 BCFe, over 290 BCFe has been recovered to date, generating
        $1.45 billion in cashflow, funding over $800 million in cumulative
        distributions ($7.96/unit) and over $475 million in government

    -   For the year ending December 31, 2008, Peyto invested $139 million of
        capital to build approximately 25 MMCFe/d (4,200 boe/d) of new
        production. That new production has associated Proved Producing
        reserves of 65 BCFe. For the year, the Proved Producing Finding,
        Development and Acquisition ("FD&A") cost, inclusive of additions,
        revisions and production was $2.88/MCFe ($17.30/boe). For the last
        three years, the average FD&A cost has been $2.65/MCFe ($15.88/boe).

    -   The value (BT NPV5, debt adjusted) of the remaining Proved Producing
        reserve assets grew 9% to $2.2 billion or $21.18/unit. This growth in
        value was primarily due to an increase in the commodity price
        forecast resulting from a reduction in the forecasted currency
        exchange rates.

    -   The BT NPV5 of the Total Proved reserves grew 10% to $3.3 billion in
        2008. Adjusting for changes in debt and the number of units
        outstanding, this NPV/unit also grew 10% to $26.19/unit.

    -   The BT NPV5 of the Proved plus Probable Additional reserves grew 10%
        to $4.1 billion in 2008. Adjusting for changes in debt and the number
        of units outstanding, this NPV/unit also grew 10% to $33.84/unit.

    -   Peyto replaced 139% of production with new Total Proved reserves at a
        FD&A cost of $3.17/MCFe or $19.02/boe and 122% of production with new
        Proved plus Probable Additional reserves at an FD&A cost of
        $3.88/MCFe or $23.28/boe (including the changes in future development
        capital of $53.7 million and $68.8 million respectively). Increases
        to the previous year's future development capital caused FD&A costs
        for 2008 to be greater than the three year running averages of
        $2.67/MCFe ($16.03/boe) and $2.78/MCFe ($16.68/boe) respectively.

    The following table outlines the per unit change in production, reserves
and value for 2008.

                             Dec. 31,  Dec. 31,                     % Change
                                2008      2007    Change  % Change  Per Unit
    Units Outstanding
     (000's)                 105,920   105,712       208       nil       nil
    Capital Expenditures
     ($million)(1)            $139.3    $121.6     $17.7       15%       15%
    Q4 Production
     (MMCFe/d)(1)              121.1     126.8      (5.7)      (4%)      (4%)
    Reserves (BCFe)
      Proved Producing         599.8     595.4       4.4        1%        1%
      Total Proved             762.9     746.0      16.9        2%        2%
      Proved + Probable        998.3     988.6       9.7        1%        1%
    Net Present Value
     Discounted at 5%
      Proved Producing         2,736    $2,515      $221        9%        9%
      Total Proved             3,267    $2,966      $301       10%       10%
      Proved + Probable        4,077    $3,703      $374       10%       10%
    Debt ($million)(1)        $492.6    $457.4     $35.2        8%        7%
    (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, 2008.

    Variable Dollar Economics
                                                 Oil &
                                      Gas        NGL       BCFe       MBOE
    Reserve Category                (mmcf)     (mstb)      (6:1)      (6:1)
    Proved Producing                503,296     16,078      599.8     99,960
    Proved Non-producing             14,566        394       16.9      2,822
    Proved Undeveloped              124,522      3,620      146.2     24,373
    Total Proved                    642,384     20,092      762.9    127,155
    Probable Additional             201,173      5,696      235.4     39,226
    Proved + Probable Additional    843,557     25,788      998.3    166,381

                                           Net Present Value ($million)
                                                    Discounted at

    Reserve Category                    0%         5%         8%        10%
    Proved Producing                 $5,273     $2,736     $2,103     $1,825
    Proved Non-producing               $141        $63        $44        $36
    Proved Undeveloped               $1,073       $468       $312       $244
    Total Proved                     $6,488     $3,267     $2,459     $2,105
    Probable Additional              $2,074       $810       $535       $424
    Proved + Probable Additional     $8,562     $4,077     $2,995     $2,529
    Note: Based on the PLA report effective December 31, 2008. Tables may not
    add due to rounding.

    The Paddock Lindstrom and Associates Ltd. price forecast used in the
variable dollar economics is available on their website at


    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 2008 capital investments

    3. Sustainability - Is the distribution sustainable going forward?

    Base Reserves

    Peyto's existing Proved Producing reserves at the start of 2008 (base
reserves) were evaluated and adjusted for 2008 production as well as any
technical revisions, both positive and negative, resulting from the additional
twelve months of data. Consistent with years past, the gross ultimate
recoverable volume of base reserves was 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
    Alberta's New Royalty Framework came into effect on January 1, 2009. The
change in royalties had only a minor effect on both the volume and value of
the existing base reserves. The volume of the Proved Producing reserves
remained essentially the same, while the NPV of the Proved Producing reserves,
discounted at 5%, dropped 3%.
    Paddock Lindstrom's Alberta natural gas price (AECO) forecast for the
next 15 years is approximately 17% higher today than a year ago, primarily due
to a reduction in the CND$/USD$ exchange rate. Their forecast for Alberta
Condensate price, which accounts for approximately 60% of Peyto's total
natural gas liquid production, is approximately 13% higher, again driven by
the change in exchange rate. The debt adjusted NPV, discounted at 5%, of last
year's Proved Producing reserves increased 15% 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 both commodity prices and changing royalties. This approach
isolates the value created by the Peyto team from the value created (or lost)
by those changes outside of their control. Since the capital investments in
2008 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 2008, the forecasted debt had increased by $35 million over
the past year while the number of units outstanding had 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 $299 million of Proved Producing, $355 million of Total Proven,
and $300 million of Proved plus Probable Additional undiscounted reserve
value, with $139 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 2008, the Proved
Producing NPV recycle ratio is 2.1, compared with 4.7 for 2007.
    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, 2008.

    Value Reconciliation
                                 Proved Producing          Total Proved

    Discounted at                0%      5%     10%      0%      5%     10%

    Before Tax Net Present
     Value at Beginning of
     Year ($millions)

    Dec. 31, 2007 Evaluation
     using PLA Jan. 1, 2008
     price forecast,
     less debt                $4,236  $2,057  $1,261  $5,224  $2,508  $1,514
    Per Unit Outstanding
     at Dec. 31, 2007
     ($/unit)                 $40.07  $19.46  $11.93  $49.42  $23.73  $14.32
      Net Change due to
        AB NRF                 ($174)   ($63)   ($37)  ($199)   ($69)   ($40)
      2008 sales (revenue
       less royalties and
       operating costs)        ($315)  ($315)  ($315)  ($315)  ($315)  ($315)
      Net Change due to
       price forecasts
       (using PLA Jan 1,
       2009 price forecast)     $735    $316    $182    $930    $402    $230
      Value Change due to
       discoveries (additions,
       extensions, transfers,
       revisions)               $299    $249    $241    $355    $249    $223

    Before Tax Net Present
     Value at End of Year

    Dec. 31, 2008 Evaluation
     using PLA Jan. 1, 2009
     price forecast,
     less debt                $4,781  $2,244  $1,332  $5,995  $2,775  $1,612
    Per Unit Outstanding
     at Dec. 31, 2008
     ($/unit)                 $45.13  $21.18  $12.58  $56.60  $26.19  $15.22

    Year over Year Change
     in Before Tax NPV/unit      13%      9%      5%     15%     10%      6%
    Year over Year Change
     in Before Tax NPV/unit
     including Distribution
     ($1.76/unit)                17%     18%     20%     18%     18%     19%

                                 Proved + Probable

    Discounted at                0%      5%     10%

    Before Tax Net Present
     Value at Beginning of
     Year ($millions)

    Dec. 31, 2007 Evaluation
     using PLA Jan. 1, 2008
     price forecast,
     less debt                $7,114  $3,245  $1,904
    Per Unit Outstanding
     at Dec. 31, 2007
     ($/unit)                 $67.30  $30.70  $18.01
      Net Change due to
        AB NRF                 ($300)   ($96)   ($50)
      2008 sales (revenue
       less royalties and
       operating costs)        ($315)  ($315)  ($315)
      Net Change due to
       price forecasts
       (using PLA Jan 1,
       2009 price forecast)   $1,270    $523    $291
      Value Change due to
       discoveries (additions,
       extensions, transfers,
       revisions)               $300    $227    $207

    Before Tax Net Present
     Value at End of Year

    Dec. 31, 2008 Evaluation
     using PLA Jan. 1, 2009
     price forecast,
     less debt                $8,069  $3,584  $2,037
    Per Unit Outstanding
     at Dec. 31, 2008
     ($/unit)                 $76.18  $33.84  $19.23

    Year over Year Change
     in Before Tax NPV/unit      13%     10%      7%
    Year over Year Change
     in Before Tax NPV/unit
     including Distribution
     ($1.76/unit)                16%     16%     17%


    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. During
2008 the Trust was successful in replacing the produced reserves but did not
grow the absolute reserves base. As a result, Reserve Life grew slightly in
all categories due to the natural maturation and resulting production rate
decline of the tight gas wells. The Distribution Life increased slightly but
only as a result of an increase in the commodity price forecast. This lack of
growth is mostly attributed to reduced capital expenditures while the Trust
endeavors to achieve a better cost structure and higher return for the
reserves being developed.
    The following table highlights the Trust's historical Reserve and
Distribution Life Index.

                      2003      2004      2005      2006      2007      2008

    PP RLI              10         9        11        12        13        14
    PP DLI              14        17        22        23        24        25

    The following table outlines the 2008 performance ratios for all three
reserve categories.

    Performance Ratios
                                                                   Proved +
                                           Proved        Total     Probable
                                         Producing      Proved    Additional
    FD&A Cost ($/boe)
    (including change in future
     development capital)                   $17.30       $19.02       $23.28
    Reserve Life Index (years)
    Q4 2008 average production
     - 20,191 boe/d                             14           17           23
    Distribution Life Index (years)
    Q4 2008 annualized - $47.7 million          25           31           42
    Reserve Replacement Ratio
    2008 production - 7.318 million boes       1.1          1.4          1.2

    -   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 ($139,324+$53,681)/

    -   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 99,960/(20.191(*)365)=14).
        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 Peyto's 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 ($5,273-$492.6 million)/(47.7(*)4) million/year
        = 25 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 ((127,155-124,328+7,318)/7,318)

    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.

    Distribution Adjustment

    Peyto has evaluated the long term funding requirements for the
undeveloped reserves in inventory. Traditionally, the Trust has funded these
opportunities with a combination of funds from operations, available bank
lines and equity. Due to the recent decline in natural gas and condensate
prices, fewer funds from operations will be available in the near term. The
credit crisis and an anticipated increase in the cost of borrowed funds mean
debt is less attractive as a funding source. Based on the value of the assets,
as determined by the independent reserve report, issuing new equity at the
current unit price also carries a high cost. Accordingly, Peyto's board of
directors has decided to reduce the monthly distribution by $0.03 per unit
with respect to February 2009 to be paid on March 16, 2009. This represents a
20% reduction from the previous distribution of $0.15 per unit per month and
the first time in the history of the Trust that distributions have been
adjusted downwards. Funds retained from the reduction in distributions will be
used to fund the 2009 capital program and reduce the long term debt.

    Ten Year Summary

    The conclusion of 2008 represents Peyto's tenth year in business. Over
the course of those ten years, Peyto has executed on a strategy to explore for
and develop unconventional tight gas reserves in Alberta's Deep Basin. Both
the strategy and the execution have been unwavering in their focus and
discipline. In retrospect, this strategy has proven to be tremendously
successful. In execution, the Trust can boast some of the best performance
metrics in this very competitive basin. In total, over $1.54 billion has been
invested into internally generated drilling projects with the resultant asset
base returning $1.45 billion in cashflow, which in turn has funded over $800
million in distributions ($7.96/unit). The independent reserve report
indicates that another $2.86 billion in value or $27/unit (BT NPV5, debt
adjusted) is yet to be extracted from these developed assets. In addition,
there are over 230 BCFe of undeveloped reserves recognized in both the Proved
and the Probable Additional categories that are forecast to add $720 million
or $6.80/unit (BT NPV5) in incremental value.
    There are many signs that the future of energy in North America is clean
burning natural gas. With the confidence of the past ten years of success,
with an abundant supply of new Deep Basin resource development opportunities
and with the prospect of this bright future for natural gas, Peyto is
optimistic about what lies ahead.


    For more in depth discussion of the 2008 reserve report, an interview
with the management will be available on Peyto's website by Friday February
20, 2009. 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 2009. Unitholders are
encouraged to actively visit Peyto's website located at

    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

For further information:

For further information: Darren Gee, President and Chief Executive
Officer of Peyto at (403) 237-8911; or Jim Grant, Investor Awareness, at (403)

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