2008 Second Quarter Results

Transcription

1 20 Second Quarter Results August 8, 20 Power to Perform

2 Forward-Looking Statements This presentation contains forward-looking statements that may be identified by words like forecast, estimated, expected or similar expressions. These forward looking statements are based on certain assumptions that involve a number of risks and uncertainties and are not guarantees of future performance. Actual results could differ materially as a result of changes in PET s plans, changes in commodity prices, regulatory changes, general economic, market and business conditions as well as production, development and operating performance and other risks associated with oil and gas operations.

3 Evolving Business Plan ASSET OPTIMIZATION MAXIMIZE UNITHOLDER VALUE ACCRETIVE ACQUISITIONS + Looking to 2011 NEW VENTURES Unconventional gas GOB technical solutions Gas storage Bitumen land bank West Holden CBM HEALTHY BALANCE SHEET MAXIMIZE CASH FLOW

4 Excess cash for debt repayment or to increase capital spending Peters & Co. May 20 Second Quarter 20 Highlights

5 Q2 Business Plan Execution Highlights Maximize Cash Flow Production increased 22% to MMcfe/d Quarter over quarter, production increased 3% from MMcfe/d in Q1 20 Realized natural gas prices increased to $9.00/Mcfe for Q2 20 as compared to $8.80/Mcfe in Q Driven by a significant increase in AECO gas prices and despite realized hedging losses of $11.9 million. PET s realized gas price in Q was 20% higher than the AECO monthly index with hedging gains totalling $19.6 million in Q Increased revenues partially offset by higher royalties Crown royalties increased substantially as a percentage of revenue as royalties are calculated based on the Alberta Gas Reference Price Funds flow increased to $81.4 million ($0.73 per Trust Unit) from $72.7 million ($0.81 per Trust Unit) for Q Further price management is in place through March 2010 For the period from July 1 to December 31, 20, the weighted average price on PET s financial hedges and physical forward sales contracts for an average of 101,000 GJ/d is $7.51 per GJ The current forward market price for this period is $8.36 per GJ

6 Q2 Business Plan Execution Highlights Asset Optimization Net capital expenditures for Q2 20 totalled $16 million Drilling activity recommenced after lengthy spring break-up 7 gross wells (2.7 net) in east central Alberta with 100% success rate Seismic acquisition and crown land purchases of $4.6 million continued to build the prospect inventory Remainder of spending concentrated on well equipping and facilities construction in east central Alberta to tie-in additional natural gas volumes from end of winter capital program Ongoing capital program continues to deliver good results with six (6.0 net) wells drilled to date in Q3 Additional net $51.5 million budgeted for H2 20 Two rigs scheduled to continue 70 well drilling program Service rigs operating to complete new wells and perform PET s extensive program of over 100 additional recompletions in existing wellbores

7 Edmonton Athabasca Fort McMurray Viking H2 20 Capital H2 20 Capital Budget ~$51.5 million net Potential expansion to include unconventional drilling program Target Production Results ~ 16 MMcf/d (1 st 12 month average) Drilling ~70 gross wells (51 net) Includes 21 (12 net) on Severo lands Extensive Recompletions ~ 100 locations West Side East Side Athabasca East Central Birchwavy East Birchwavy West Southern AB & Sask Severo (Explore Co.) Calgary Pipeline and Facilities ~ 70 tie-in and facilities projects Seismic and Crown Land 2D and 3D seismic planned in Q3 Ongoing Crown land purchases focused in new venture and core areas Abandonment and Reclamation Ongoing commitments

8 Q2 Business Plan Execution Highlights Accretive Acquisitions In Q1 20, PET initiated active leasing of non-core fee-simple lands to: Generate bonus proceeds; Collect cash flow from lease payments; and Encourage development which could result in potential royalties from production. Proceeds from fee-simple leasing activities in Q2 totaled $0.6 million In July 20 PET closed non-core asset dispositions comprising approximately 0.5 MMcfe/d of production for proceeds of $9.9 million. To date in 20, non-core asset dispositions total $16.9 million

9 Q2 Business Plan Execution Highlights Healthy Balance Sheet Excess funds flows for the quarter reduced outstanding bank debt by $35.5 million to $310.8 million at June 30, 20 The DRIP contributed $4.4 million to PET s balance sheet in Q2. In March 20 PET suspended the OCP component of its DRIP plan. The distribution reinvestment portion of the plan continues to be available to Unitholders at 94 % of PET s market price Net debt to funds flow decreased 15% over the year, increasing PET s financial flexibility substantially. Projected exit net bank debt to 20 projected funds flow is 1.0 times at the current forward market for gas prices

10 Q2 20 Operating Results Three Months Ended June 30 Six Months Ended June % Change % Change Total Production (Bcf) Daily Production (MMcfe/d) Per Trust Unit (cf/d/unit) (4) (3) Natural Gas Price, before hedging ($/Mcfe) Natural Gas Price, after hedging ($/Mcfe) Unit Operating Costs ($/Mcfe) Wells Drilled (gross/net) (8) /2.7 5/5.0 40/(46) 44/ /71.6 (51)/(54) Q2 actual and deemed production ~209.3 MMcfe/d

11 Q2 20 Financial Results ($ millions except per Trust Unit amounts) Three Months Ended June 30 Six Months Ended June % Change % Change Revenue Funds Flow (1) Per Trust Unit (10) (21) Distributions (15) (18) Per Trust Unit (29) (33) Net Earnings (55.4) 9.2 (701) (141.0) (30.0) (369) Per Trust Unit (0.50) 0.10 (600) (1.27) (0.34) 274 Capital Expenditures (27) (27) Net Debt (1) (14) (14) (1) Net debt including convertible debentures - $236 million Current payout ratio ~45%

12 We see the current market as being grossly undervalued for natural gas as there simply has been no real change in underlying fundamental drivers. First Energy Capital Corp August 20 Gas Markets

13 Q1 and Q2 20 Fundamentals Bullish Bearish La Nina correlations strengthened as during the final 10 weeks of the heating season temperatures were 13% colder than the 10-year average New York and Chicago experienced their coldest winters in over 7 years The colder U.S. weather generated nearly 400 Bcf (over 5 Bcf/day) more gas demand over the final 77 days of winter Record cold weather in Japan, Korea, and Europe pushed spot prices to $14.00/Mmbtu in those regions resulting in record low U.S. LNG imports LNG Imports dropped by 1 Bcf/day vs and by 0.7 Bcf/d vs. 3-yr. average Combined cold winter and lower LNG imports resulted in U.S. storage exiting the winter heating season at Tcf vs. projections of 1.65 Tcf (335 Bcf below 2006 and only 8 Bcf above the 5-year average) Speculators believed NG undervalued relative to oil (BTU trade) Extreme volatility resulted in major short squeeze sending NYMEX NG prices up 35% in Q1 leading all commodity price moves

14 Liquefied Natural Gas LNG Imports dropped below 1 Bcf/day in Q4 2007/Q1 20 but have begun to rise

15 Current Q3 20 Fundamentals Bullish Bearish On a year to date basis, the U.S. has received just 0.9 Bcf/d of LNG, which is 1.6 Bcf/d less than the same period of 2007 Canadian production continues to slide U.S. gas supply is strong and appears to be growing. Recent EIA data (May) showed year over year U.S. gas production increased 4.6 Bcf/d (8%) vs. a 2.8 Bcf/d (5.6%) year over year increase in May demand Very mild European weather has resulted in a significant drop in global spot prices and a corresponding reduction in European LNG demand With relatively a mild North American summer to-date, U.S. storage continues to track close to five-year average U.S. Congress continues to try and reduce speculative trading behavior which could cause prices to fall as net longs are forced to liquidate Early July saw a rotation of funds out of many commodities including crude oil and natural gas over U.S. economic concerns. AECO spot prices have decreased 31% since July 3, 20

16 Natural Gas Storage 4,000 3, Yr Avg Nymex 12 Month Strip Nymex Daily Settle US$ Aeco 2A Settle CDN$ Aeco 12 month strip NG Storage vs. 5-year Average $14.00 $13.00 $12.00 Bcf 3,000 2,500 2,000 1,500 1,000 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Volatility continues - Gas prices decreased 31% since peak in early July $ ,461 $9.17 $8.55 $7.96 Sep- Oct- Nov- Dec- $11.00 $10.00 $9.00 $8.00 $7.00 $6.00 $5.00 $4.00 $/MMBTU

17 What s Next?? The weather outlook for the remainder of summer continues to trend closer to normal. Based on current forecasts the year over year storage deficit will continue to erode over the next five weeks? Key hurricane forecasts recently increased their hurricane prediction from 15 to 18 named storms Atlantic water temperatures above normal suggesting an active back end to the hurricane season Hurricanes can impact supply, demand or both? Leading indicators are worrying markets about a U.S. and Global economic slowdown Recession or no recession? Anecdotal signs that the huge energy price spike hitting the U.S. and global economies is beginning to drive conservation behaviors and hurt demand

18 What s Next?? Crude oil prices continue to be extremely volatile but have also trended lower since the end of Q2 and could impact the BTU trade speculators Two year forecast range from $75 to $200 per barrel Removal of global subsidies, demand destruction, and Funds exiting commodities has sent Crude from $ on July 11, 20 to $ on August 6, 20? Timing and volume of new LNG supply from gasification terminals currently being commissioned is somewhat uncertain Many key analysts calling for record U.S. LNG imports in 2009 Continued volatility expected

19 Price Risk Management Strategy Protect the level of the Trust s monthly distributions and manage the balance sheet Enhance or protect the economics of an acquisition as prices vary from those forecast Enhance or protect capital program economics Capitalize on perceived market anomalies Current Hedge Position Term Volumes at AECO (GJ/day) Price ($/GJ) (1) (1) Average price calculated using fixed price and ceiling price for collars (2) Futures price reflects forward market prices as at August 6, 20; NYMEX is $U.S./MMBTU (3) Calculated using production of 205 MMcfe/d, including gas over bitumen shut-in volume AECO/NYMEX Futures Price ($/GJ) (2) Active price management is a key component of business plan execution % of Current Production (3) September 20 - October 20 92,500 $7.47 $ % September 20 - October 20 10,000 (NYMEX) U.S. $7.70 U.S. $ % November 20 - March ,500 $7.79 $ % January ,000 $11.11 $ % April 2009 October ,000 $8.70 $ % November 2009 March ,500 $9.59 $ %

20 Not your typical natural gas trust National Bank December 2007 Investment Highlights

21 Sensitivities July to December 20 Current Forward Market (1) AECO Monthly Index (1) Jul-Dec ($/GJ) $ 8.00 $ 9.00 $ PET Realized ($/Mcfe) $ 8. $ 8.63 $ 9.19 Funds Flow (4) ($million/month) $ 23.6 $ 26.0 $ 28.5 Monthly Funds Flow Per Unit (4) ($/Unit/month) $ $ $ Annualized Payout Ratio (2) (%) 47% 43% 39% Ending Bank Debt ($million) $ 277 $ 262 $ 247 Ending Total Net Debt ($million) $ 513 $ 498 $ 483 Ending Total Net Debt to Funds Flow ratio (3) (times) (1) Average AECO Monthly Index price for Jul - December 20 at August 6, 20 was approximately $8.36/GJ. (2) At current monthly distribution of $0.10 per Trust Unit (3) Calculated as ending total net debt (including convertible debentures) divided by annualized funds flow (4) Based on 20 average second half production of 183 MMcfe/d

22 Debt Reduction Without Dilution Bank Debt Outstanding ($MM) Bank Debt Reduction Q207 - Q4E ($130MM) DRIP, $36.3 Funds Flow > Distirbutions + Capex, $ Q207 Q307 Q407 Q1 Q2 Q3E Q4E Bank Debt Real Estate Disposition, $35.8 Non-core Dispositions, $26.7 Non-core asset sale proceeds ~$26.7 million Production 2.5 MMcf/d ~$65,000 per flowing BOED

23 Financial Flexibility Q over Q Payout Ratio 250% $ % $10.50 $8.50 Payout Ratio (%) 150% 100% $6.50 $/GJ $ % $2.50 0% Q1 03 Q2 03 Q3 03 Q4 03 Q1 04 Q2 04Q3 04 Q4 04 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07 Q1 Q2 Q3 Q4 E E Distributions as % of Cash Flow Capex as % of Cash Flow AECO Natural Gas Strong financial flexibility and sustainability at current distribution $0.50

24 Sustainability Payout Ratio 20E Basic and All-in Payout Ratio 120% Basic Payout Ratio: PET 54%; Peer Group Average 69% 100% 80% 80% 92% 60% 40% 54% 69% 20% 0% Source: CIBC World Markets PMT Distributions as a % of Cash Flow Avg E&D Captial Expenditures as a % of Cash Flow PET is top quartile on projected sustainability

25 Payout Ratio and Yield Annual Yield and Payout Ratio 100% 30% 90% 25% Payout Ratio (%) 80% 70% 60% 20% 15% 10% Yield (%) 50% 5% 40% Current Payout Ratio Average Annual Yield High yield on highly sustainable distribution 0%

26 The Model Is Working - Net Asset Value and Distributions $ % $/Trust Unit $24.00 $20.00 $16.00 $12.00 $8.00 $ % 120% 80% 40% Cumulative return on initial NAV (%) NAV- Feb 2003 $8.91/Unit $0.00 Feb Q2 Year end net asset 5% Annual distributions Year end net asset value plus distributions to date Cumulative return on initial NAV (% ) Average 5 year annual return on NAV = 34% Value growth per Unit since inception = 190% 0% NAV-Aug. 6, 20 $11.97/Unit

27 Recent Unit Price Performance 180% 160% 140% 120% 100% 80% 1-Jan- 15-Jan- 29-Jan- 12-Feb- 26-Feb- 11-Mar- 25-Mar- 8-Apr- 22-Apr- 6-May- 20-May- 3-Jun- 17-Jun- 1-Jul- 15-Jul- 29-Jul- PET S&P/TSX Capped Energy Trust S&P/TSX Capped Energy S&P/TSX Composite AECO Natural Gas Daily Settle PMT.UN up 29% in 20 but down substantially from 20 highs with softening gas prices

28 Paramount Energy Trust Canada s only 100 % natural gas trust Low cost assets well suited to partial cash flow reinvestment, sustainable trust model Highly sustainable distributions at $ 0.10 per Unit per month Premium yield at very low payout ratio(15%) Extensive internal inventory of opportunities to fuel production and reserves replacement and generate future cash flow Track record of success with value-driven acquisitions to enhance asset base and opportunity inventory Healthy balance sheet to take advantage of opportunities Exposure to multiple New Ventures for future growth and option value Accountable and entrepreneurial team, motivated by excellence Focused on Maximizing Unitholder Value

29 For Additional Information: Clay Riddell Executive Chairman Sue Riddell Rose President & CEO Cam Sebastian VP Finance & CFO Sue Showers Investor Relations and Communications Advisor Suite 3200, th Avenue SW Calgary, AB T2P 3H5 (403) Fax (403)