TSX Commentary

Peyto Energy Trust (PEY.UN) – $12.54 – Recognition of Hz Locations Drives 20% Reserves Increase
Sector Perform, Average Risk, Price Target: $12.50 (prev. $12.00)
Peyto announced total P+P reserves of 200 mmboe, a 20% increase over 2008, and proved reserves of 149 mmboe (+17%). Proved producing reserves of 98.6 mmboe were down 1.4% from last year as growth in 1P and 2P reserves was attributable to the undeveloped category. Peyto plans to spend $180 million in development capital in 2010 (up from $73 million in 2009), targeting a mix of horizontal and vertical wells. Five horizontals have been completed to date – three in the Cardium and one each in the Notikewan and Wilrich – and initial production rates have been strong. RBC CM expects the capital program to produce steady volume growth through 2010. Management indicated they plan to maintain their current monthly distribution of $0.12/unit through 2010, as budgeted cash flow plus unused bank lines will be sufficient to fund capital spending and distributions. RBC CM would prefer to see Peyto adopt a more conservative distribution policy in order to fund growth capital; RBC CM estimates factor in a reduction of the distribution to $0.08/unit in mid-2010. RBC CM has increased its target to $12.50/unit and maintains its Sector Perform rating.