Growth and Income
As a dividend paying growth 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 2012, the Company was successful in replacing 284% of annual production with new PP reserves, which resulted in a 24% increase. Annual production increased 26%, from 12.9 mmboes to 16.3 mmboes, therefore the Proved Producing reserve life index remained effectively the same year over year. Similarly, the Total Proved and P+P reserve life index remained virtually the same at 15 and 22 years, respectively. By comparison, Peyto's Proved Producing reserve life is still one of the longest in the industry.
The following table highlights the Company's historical Reserve Life Index.
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012----------------------------------------------------------------------------Proved Producing 10 9 11 12 13 14 14 11 9 9Total Proved 13 12 14 14 16 17 21 17 16 15Proved + Probable Additional 19 17 19 20 21 23 29 25 22 22----------------------------------------------------------------------------
Future Undeveloped Opportunities
With the expansion of Peyto's exploration and development activity from $379 million in 2011 to $452 million in 2012, the Company has again been able to increase the pace that undeveloped opportunities are both recognized and developed. As a result, the number of future drilling locations in the reserve report has increased to 507 gross (401 net) locations from 437 gross (333 net) locations last year. Of these future locations, 67% are categorized by the independent reserve evaluators as Proven Undeveloped with the remaining 33% as Probable Undeveloped. The net reserves associated with the undeveloped locations total 1.18 TCFe (197 mmboes) while the total capital required to develop them is estimated at $2.0 Billion or $1.70/MCFe, This is forecast to create Net Present Value of $2.283 Billion (5% discount rate, post capital recovery) or $15.36 per share. The development schedule for the undeveloped reserves is shown in the following table of forecasted capital.
Future Development Capital Proved Reserves Proved+ Probable Additional ReservesYear Undisc., ($Millions) Undisc., ($Millions)----------------------------------------------------------------------------2013 $ 377 $ 5002014 $ 349 $ 4202015 $ 286 $ 3932016 $ 210 $ 3752017 $ 93 $ 331----------------------------------------------------------------------------Thereafter $ 3 $ 22----------------------------------------------------------------------------Total $ 1,318 $ 2,041
