Base Reserves
Peyto's existing Proved Producing reserves at the start of 2012 (base reserves) were evaluated and adjusted for 2012 production as well as any technical revisions resulting from the additional twelve months of data. As part of InSite's independent engineering analysis, all 756 producing entities were evaluated. These producing wells and zones represent a total gross Estimated Ultimate Recoverable (EUR) volume of 1.4 TCF plus associated liquids. 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.
For 2013, InSite is forecasting the total base production (all wells on production at Dec. 31, 2012) to decline to approximately 37,000 boe/d by Dec. 31, 2013. Assuming the base production started the year at 57,000 boe/d (actual production was lower due to plant outages) then this implies a base decline rate of 35% over the first year. This high decline rate is similar to last year and to be expected as Peyto deploys increasing amounts of capital. The historical base decline rates and capital programs are shown in the following table:
2003 2004 2005 2006 2007 2008----------------------------------------------------------------------------Base Decline (%/yr) 31% 27% 30% 29% 23% 26%Capital Expenditure ($MM) $139 $231 $358 $312 $122 $139----------------------------------------------------------------------------(i) The base decline represents the aggregate annual decline of all wells on production at the end of the previous year. -------- 2009 2010 2011 2012 2013F----------------------------------------------------------------------------Base Decline (%/yr) 20% 22% 33% 35% 35%Capital Expenditure ($MM) $73 $261 $379 $618 $500----------------------------------------------------------------------------(i) The base decline represents the aggregate annual decline of all wells on production at the end of the previous year.
The commodity price forecast used by the independent engineers in this year's evaluation was lower than last year which had the effect of reducing the Net Present Value of all reserve categories. InSite's Alberta spot natural gas price forecast for the next 15 years, which begins at $3.13/MMBTU, is on average 13% lower today than a year ago, while their forecast for Alberta Condensate price, which accounts for over 50% of Peyto's total natural gas liquid production and starts at $97.20/bbl, is on average 14% lower. The debt adjusted NPV, discounted at 5%, of last year's Proved Producing reserves, decreased 20% due to this change in commodity price forecasts, as described in the following value reconciliation.
InSite's price forecast used in the variable dollar economics is available on their website at www.insitepc.com.
Value Creation/Reconciliation
During 2012, Peyto invested a total of $618.0 million. The Company spent $451.6 million on exploration and development activity and $166.3 million (net of $20.9 million in divestitures) on the acquisition of Open Range. By evaluating the economic results of these 2012 capital investments, it allows Peyto to determine the best use of capital on a go-forward basis, and illustrates the potential returns that can be generated from future undeveloped opportunities.
