2. Penn West Energy Trust (PWE) Company Overview Diversified Production Potential EOR Opportunities Large Inventory Shallow-Medium depth natural gas Natural Gas Liquids Light Oil Fields Existing Reservoirs Oil Sands Conventional Crude Oil Developed & undeveloped land
3. Market Environment Highly competitive energy industry Threat of Government laws & regulations Volatile commodity prices Competitive pressures to pursue more efficient and innovative technologies
6. Government Regulation New Alberta Royalty Framework Anticipated Legislation with more stringent industry regulations Incentive Programs EOR & Innovative Technology Incentive Programs Drilling Royalty Credits and New Well Incentive Programs in Alberta and BC Federal SIFT Taxes on Income Trusts
7. Trust vs. Corporation Unitholders Taxable investors pay income tax Shareholders Dividend tax paid double taxation Distributes all earnings to unitholders no taxes Gov’t Trust Dividends paid out of after-tax income All income paid to trust as royalty payment no taxes owns CIT rate = 29.5% Operating co. Corporation
8. SIFT Tax Specialized Investment Flow – Through Tax Causes Unbalanced tax treatment Gov’t loss of revenue (i.e. AB gov’t estimated a net revenue loss of 400 million/year) SIFT tax Eliminates tax advantage – distributions no longer deductible and will be taxed at corporate tax rate Applies to existing trusts in 2011 taxation year
12. Enhanced Oil Recovery Horizontal Multi-Stage-Frac Technology Advantages Lower Equipping Costs Less Surface Land Disruption Reduced Operating Costs Improved Water Injection Rates= improved recovery Cost Comparison 8 Verticals (Conventional) = 1 Horizontal Stage Frac $8.8MM VS. $3.0MM
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15. A Bright Future ... Tax pools of 6 billion dollars give them tax shelter for a period after 2011. Well known company with good management record 2.9 million acres of land for exploration
Largest conventional and natural gas energy trust in North AmericaDiversified production: shallow to medium depth natural gas, natural gas liquids, conventional crude oil, oil sands, large inventory existing reservoirs & light oil fields with a considerable potential for EOR opportunities
MENTION: Penn West’s focus is lowering cost in a time of transition. We’ll move to explaining the needs for this transition and how playing it safe by lowering costs now increase future profitabilityMention economic crisisTo remain competitive there is a need to pursue EOR
EV - A valuation measurement used to compare co’s with varying levels of debt = Market Capitalization + Interest Bearing Debt + Preferred Stock - Excess Cash = think if a company was to take-over Penn West (this is how much they would pay); they would get the cash but would have to pay off the debt as well – compares it to the market capitalization.MC - The total dollar market value of all of a company's outstanding shares (determines company size) = number of shares outstanding * Market price of share … is PennWest Large Cap or Med Cap? 10Bill+…LT Debt : Be careful, too much debt means shareholders will be last inline to collect money – refinanced existing debt or taken it to finance new investments??EV / EBITDA – low could be undervalued – encana = P/E how much willing to pay per dollar of earnings encana = Lyndsay is debt important here??Enterprise Value (Oct 4/09) $8.34BLong Term Debt $3.9BDebt / EBITDA 1.6xP/E 4.9Ave Daily Trading Vol (3m) 2.35M units* 2008 figure F&D Costs vs 2006 $0.20 – increased efficiencies
Kate: Strong asset base: Involved in tight oil, etc
Lyndsay will speak: Evaluate production, develop our current prospects
12:10
Lyndsay
In 2008: Penn West injected the C02 to restore pressure back into the field. The gases then act as an insulating layer in the atmopsher by keeping heat energy in. It is both economically viable, keeping the govt and environmentalists happy as it contributes to AB’s carbon capture and storage plan by sequestering of GHGs. Pilot taking place in South Swan Hills and commenced the injection of CO2 in 2008. The pilot is extended until 2011 and has shown C02 flood response.Pembina tested the C02 injection and continued to expand this pilot by injecting CO2 into existing vertical wells. This shows the potential for commerciality of CO2 flooding in PembinaCardiumRecoveries are expected to average 10-20% of the in-place volumesIn 2009:Penn West is focussing on their Resource Plays because this will drive down unit costs and increase their profitability. They have approximately 7 million acres of developed and undeveloped lands. Their hydraulic fracture simluation in multi-stages along a horizontal well improves their results dramatically. This technology exposes more surface area to the well bore which is a key criteria in “tight” reservoirs. A single horizontal well can access as much reservoirs as several vertical wells. The majority of their areas of focus is on tight oil that is why this technology is very important to their operations. With this technology is significantly lowers their costs. In Pembina Penn West continued to operate its vertical well pilot, and then expanded this by injecting CO2 into existing vertical wells.At Pembina they tested C02 injection into existing conventional well vs. injecting into a completed horizontal multi-stage fracture stimulation technology. The multi-stagethis generated 5x the productivity than the conventional vertical wells. This project shows the potential commerciality of c02 miscible flooding in the PembinaCardium
This is the main technology that is economical for Penn West. It is cost saving. *Read from slide*Jenna aka ME: Cost effective to Drill, Complete and Equip: 8 Verticals = $8.8MM VS. $3.0MM for 1 Horizontal Stage Frac (8 Fracs) Improved Water injection rates will improve sweep efficiency and recoveryOptimize current asset base: =ST Horizontal Frac,Raise capital: while tax advantages are there... Later work on expanding these capital intensive projects.... Horizontal frac: by 2010 they want over 80% of their assets to be using Horizontal frac (right now they have 20% recovery and with horizontal frac they expect to double that)– increase recovery using this method. Cost efficient method What horizontal frac is and one example of where they use it!
Penn West has sound financial fundamentals that stack up to other operators in the energy industry. Being Financially conservative Penn West entered 2009 with a strong balance sheet, a moderate level of well diversified debt and a hedging position able to somewhat mitigate the commodity price volatility.
