Comstock Resources Inc (CRK) 2003 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Comstock Resources first quarter 2003 financial results conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session.

I would now like to turn the call over to Mr. Jay Allison, President of Comstock. Mr. Allison, you may begin.

Thank you, Christine. Welcome to Comstock Resources first quarter 2003financial and operating results conference call. You can view a slide presentation during or after this call by going to our web site at www.comstockresources.com. And clicking "Presentations". There you will find a presentation entitled first quarter 2003 results. To change the page in the presentation click on the arrow on the page. I am Jay Allison, president of Comstock.

With me this morning is Roland Burns, our chief financial officer; and Mike Taylor, our vice president of corporate development, who will help answer questions today. With this call, I will review our first quarter and 2003 financial results as well as the results of our year-to-date 2003 drilling program.

Our discussions today will include forward-looking statements within the meaning of the securities laws, while we believe the expectations in such statements can be reasonable, there can be no assurance that such expectations would prove to be correct. If you look an page 2 of the web cast, the title should be first quarter 2003 highlights.

We reported today the highest revenues and second-highest net income of any quarter in Comstock's history. We generated a net profit of $20.2 million or 6% per share for the first quarter. One of the major factors driving these strong results were the surge in natural gas prices for the first quarter which we have been able to fully benefit from since we did not nor do we have any of our production hedged.

Our production was up 10% from the last quarter of 2002 with increased production from our Gulf of Mexico region. We continued to improve our balance sheet and have lowered our debt to total capitalization ratio to 59% from 62%.

And lastly, we continued to have excellent results in our drilling program, for we had seven successes out of 8 wells drilled in the first quarter, giving us an 88% success rate.

Page 3, oil and gas sales, our oil and gas sales in the first quarter of 2003 reached a record-high level and more than doubled from our sales in the first quarter of 2002.

Our sales increased by 159% to $68.6 million from $26.5 million. The increase is attributable to soaring natural gas and crude prices as well as a 6% increase in our production. Sales were also up 63% from our fourth quarter sales of $42 million.

Page 4. EBITDAX, earnings before interest taxes -- and - EBITDAX increased to $55.8 million as compared to $18 million in the first quarter of 2002. EBITDAX was up 44% from the 4th quarter EBITDAX of $47.8 million.

Page 5, operating cash flow. Our cash flow from operations of the first quarter of this year increased to $47.9 million, up 325% from $11.3 million in the first quarter of 2002 and up 54% from $31.1 million in the fourth quarter of 2002. On a per share basis our cash flow from operations was$1.39 for the first quarter as compared to 33-cent in the first quarter of2002.

Page 6, earnings: We reported the second-highest profit in our corporate history, with net income of $20.2 million excluding the effect of adopting FASB 143 in the first quarter which increased income by $726,000 or.2-cents per share. This compares to a net loss of $4.7 million for the first quarter of 2002 and is more than double the profit we had in the fourth quarter of last year of $9.5 million. We had 60-cents in earnings per share in the first quarter of 2003 as compared to a loss of 13-cents in2002's first quarter.

Page 7, production: Production in the first quarter of 2003 averaged120 cubic feet per million a day which represents a 6% increase from 2002'sfirst quarter and a 10% increase from 2002's fourth quarter. The growth in production came exclusively from the Gulf of Mexico.

We averaged 43 million cubic feet per million were day in the Gulf of Mexico region,31 million feet per day in our southeast Texas region, 32 million per day in our east Texas/North Louisiana region, and 14 million per day in the South Texas and "other" regions.

Page 8, average oil price, our average oil price increased 63% in the first quarter of 2003 to 33.75 compared to $20.68 in 2002's first quarter.

Page 9, average gas price: Gas prices were up substantially in the first quarter of 2003 as compared to 2002's first quarter. Our average realized gas price was $6.53. 176% higher than the first quarter of 2002 average price of $2.36. We had no hedges in place in the first quarter so we realized the full benefit of higher gas prices.

Page 10, costs per unit of production: Our lifting cost for NCFE produced increased by 26% in the first quarter of 2003 to $1.05, from .79-cents in2002. The increase is due primarily to higher production and advalorem (ph) taxes due to the higher -- prices. We averaged 14-cent in the first quarter of 2003, up 5-cents from the first quarter of 2002.

The increase is due to the opening of our new offshore office operations office in Houston and other increased personnel costs. Depreciation, depletion and amortization for BCFE increased per MCFE fort first quarter of 2002.

Page 11, cash margin: Due to the much stronger oil and gas prices in the first quarter, our cash margin per unit of production increased by $3.44 to$5.14 per MCFE as compared to $1.70 in 2002's first quarter.

Page 12, capital expenditures: In the first quarter of this year, we spent$16.3 million on our drilling program as compared to $15.7 million in the first quarter of 2002. We spent $2.9 million to drill eight developmental wells all of which were successful or are still be evaluated.

We spent an additional $1.8 million for workovers and re-compilations, offshore production facilities and other development costs. We spent $11.6 million on our expiration program. $10.7 million was spent to drill six exploratory wells; 5 were successful with one dry hole in South Texas, giving us an 83% success rate in 2003. $900,000 was spent for exploratory acreage and seismic data.

We are budgeting to spend $100 million in our drilling program for this year.

Page 13, Gulf of Mexico drilling results: We are off to a great start in our Gulf of Mexico exploration program. We spent $9.5 million in the first quarter and drilled four wells in the Gulf of Mexico, under our exploration program with BODAK (ph) offshore.

All of these wells were successful. Early in the first quarter we drilled an 11,150-foot test with ship shoal 146 and made a discovery with the OCSG22705 (ph) number 1 well. This well was recently placed on production at a daily production rate of 16.9 cubic feet per million per day.

We have a 40% working interest in this well. The second successful well was drilled at South Pelto (ph) block 22. As we reported on April 8, the SCSG number two will was drilled to test the can of corn prospect to a depth of 18825 feet and found approximately 520 feet of net pay in 11 separate reservoirs. Early indications are that this is a significant, deep shell (ph) discovery. A second well is planned to be drilled -- is planned to be drilled late in the second or early in the third quarter to delineate this discovery and the test approximately1,000 feet of section beneath the sands found productive in the first well.

We own a 29% working interest in this well. We also made a discovery of Vermillion (ph) block 122 with OCSG620 number 1 well that was drilled to a depth of 12,532 feet and found approximately 69 feet of net pay in three separate reservoirs. We had a 40% interest in this well.

The fourth well was a successful well at South Temblar (ph) block 34. We own a 33% working interest in this well.

At the recent federal lease sale, we acquired leases on 15 blocks, primarily in the ship shell, south Pelto and south Temblar area acquiring almost 60,000 acres. This slide on page 13 of the web cast of the presentation shows our acreage position in the gulf, where we have almost 200,000 acres to conduct exploration activities on.

Page 14, offshore prospect inventory: We have an extensive inventory of off shore prospects which we have identified with 3D seismic and we have acquired the acreage. We have 139,000 acres in undeveloped acreage in the Gulf of Mexico acquired under our joint venture with BODAK. We have identified 64 acres on this acreage with over a 1 trillion cubic feet potential of gas. We will retain a 40% interest in each of these prospects(it's Bois d'Arc ).

Page 15, South Texas and other region drilling results. Outside of the Gulf of Mexico, we drilled 10 wells in the first quarter. We drilled three wells in our South Texas exploration program. Two of these wells were successful discoveries in the ball ranch and Kennedy County Texas. The number 6 drill was drilled to 16,176 feet and found approximately 45 feet of net pay. The ball number two well was drilled to a total depth of 16,380 feet and found approximately 74 feet of net pay. Completion operations are underway for both of these wells. The third well drilled on our CAD slick project was unsuccessful.

The remaining wells drilled in the first quarter include one successful development well in north Louisiana and six shallow wells drilled in the new Albany shell field in Kentucky which are currently being evaluated.

Page 16, capital structure: At the end of the first quarter we had$351 million in total debt, $131 million was outstanding at our bank facility which has a $240 million borrowing base giving us $109 million available under the credit facility. We were able to pay down $15 million in debt in the first quarter of 2003, and we increased our book equity to$248 million. Debt as a percent of our total capitalization fell to 59%,as compared to 62% at the end of last year. We expect to reduce our debt by similar amount in the second quarter.

On April 30, we reported that the holders are 1.2 million shares of our preferred stocks -- their preferred shares into 3 million shares of our common stock (converted ) this conversion resolutions our dividend product by $1.1 million.

The impact of the conversion will be an increase in our common stockholders equity of$12 million and a reduction in our preferred stockholders equity of$12 million. The 3 million shares of new common shares were already counted in our diluted shares outstanding.

Page 17, our outlook for this year: Looking out to the remaining three-quarters of 2003, we are very excited about the prospects for the company. We expect production this year to increase to somewhere between45 and 49 BCFE, which is an increase of 10 to 20% over 2002.

We plan to spend $100 million on the drilling program this year with over half of that budget going for high impact exploration projects. Further drilling is planned to further extend our Hammond and South Pelto 22 discoveries. We also have upside in our multi inventory drilling prospects in Gulf of Mexico and South Texas.

Lastly, with the improved natural gas prices, we should generate substantial cash flow in excess of our capital expenditures. We will utilize the extra cash flow to pay down our debt, which should substantially enhance our balance sheet by the end of 2003.

Currently, we have six rigs running. Four are drilling our onshore prospects, two are drilling our offshore prospects. Offshore, we plan to utilize these two rigs and possibly another rig to drill an additional 19 wells this year, which include the offset to the South Pelto (ph) oil well.

Two significant discoveries, South Temblar (inaudible) should go to sales in the third quarter of this year. The two offshore prospects currently drilling are the ship shell 146 offset well, which, if it's a gas well will flow to the existing facility in the ship shown 146 area; and the second well is the south item number one well and it's successful will flow to the South Pelto (ph) number 5 facility.

On shore in the South Texas region we plan to drill an additional 15 wells this year to test various Wilcox and Vicksburg (ph) prospects at depths between 12,000 and 17,000 feet. Near our double-A wells lease in Southeast Texas in Polk County, where we drilled the Hammond number one well last year, which at that point in time in our history was the most successful exploration well, which paid out in 75 days of its initial production.

We have spudded (ph) the Hammond number two well and expect to reach total depth on that well in the next 60 days. Thereafter, we will drill the Collins number two well, which is an offset to the Collins number one well which is a well drilled in our 2002 program. The Collins number one well is currently being connected to sales line and it is expected to begin producing late May or early June.

With that, Christine, I will open it up for questions.

Thank you. We will now begin the question-and-answer session. If have you a question, press 1 on your touchtone phone. You hear an acknowledgment you have been placed in cue. If your question has been answered and you wish to be removed from the cue, press the pound sign. If you are using a speaker phone, pick up the hand set. Press one on your touchtone phone. The first question is from Wayne Andrews. Please go ahead.

Hello, gentlemen. Good job. Couple of quick questions. I was looking and thinking about your arrangements on South Pelto (ph) 22 for first production and I wasn't sure if you covered that what your thoughts are in getting those volumes online? And what sort of arrangements you might have with Stone? I know they have a platform nearby with capacity; that right?

That's correct. Where we are on that, Wayne, is -- you know, what (inaudible) when we would drill the second well would be late second quarter or third quarter. And Stone at Pelto (ph) 23, they currently have capacity of 70 million a day in gas and 4,000 barrels of oil. It would cost us about $3 million to lay a flow line over to produce the Pelto (ph)22 wells from the -- from South Pelto (ph) 23 platform.

That is an option that we have. I think there are, probably, three different options that available, and that is one of them. If we, you know, went forward with that option under the Bois d'Arc (ph) venture, you would see sales probably not fourth quarter that would be the guesstimate.

Very good. Then you also mentioned ship shell 146 being on. When exactly did that well start up?.

That well -- that's the 146

You said it was doing a little over 16 million a day.

It's right as 17 million a day. We own 40% of that. That well went on -- Roland, do you know when it went on?

Wayne, I think it went on in the second week of march, first and second week of March.

Right

We had drilled the well at the beginning of the year, and we had - Bois d'Arc (ph) had put together a spec platform and happened to have a spec platform in inventory and was able to have it brought out there and (inaudible) in and got the well on production in record time for our well in the Gulf of Mexico that had no facilities around it.

Very nice.

So I think we will probably look at trying to have another spec platform maybe built and have that in inventory because it speeds up the time frame of getting them on production.

Excellent. Just one last thing: Any updates -- any wells in plan for the central AA wells field, any developments there?.

Well, our goal is to drill -- we have 10 wells in the heart of the AA wells area. And we really have planned to drill two of those 10 this year. We have not permitted any of them. We have really focused on the Collins number two well and the Hammond number two, which are the harder wells to drill because they're underneath the picket. So we plan on drilling two wells there. And in the Ross area lane, which is where Collins and Hammond are located, we plan to drive file wells in that area. We want to get the Hammond two down and see if it's as good as the other two wells and see if it's as good as the Collins 2 and then possibly drill two or three more.

That makes sense. You have a higher interest area also.

We operate all of the wells in the AA and the Ross area, which are the Hammond Collins well. We own a 58% interest of that. South of that, remember, we have leased 4,000 acres we operate it and we own 100 percent interest right now but we will probably sell down and own a 50% interest. But we have a prospect in what we call the Robin area, and that would be an upper Wood Vine well at about 19,000 feet, and it's -- it would be drilled for two reasons, one, the two deep that we have in the area and secondly, an ARCO well that was drilled in '81 that coiled -- in the upper wood by and sand. That lost the well. That was 22 years ago. But, you know, we're currently working on thank and hopefully will do something on that by year end and that would be a wild exploration as we call it, which is what the Hammond was, and we drilled it last year and it paid out in 75 days.

Very good. Sounds like a good inventory. Thank you.

Thank you, Wayne.

Our next question comes from Van Levy from CIBC World Markets. Go ahead.

Good morning, how are you?

How are you Van?

Did the Ross prospect -- can you give me a sense of what has been put there? I know you have been through this but I want to make sure I understand it, but your additional wells, the Hammond number two and the Collins number 2, those are within the Ross prospect; is that correct?

)) Yeah, what we have done, if you look at -- on one of the maps, Van, you might see, there are three areas in Polk County. The Northern area is what we call the AA wells area which is a little less than 12,000 acres. Within that area, we have 10 prospects that we would like to drill and it's held by production and we plan on drilling two of those. If you drop south of that, about a mile and a half, we have2,000 acres which we operate.

And we own a 58% in. We call that 2,000acres the Ross area. Within the Ross area, in 2002, we drilled one well, which is the Hammond number 1 well last year.

Right.

And that we drilled -- the rig location was outside the big picket. We TBid (ph) the well underneath the big picture. Production was October and by --the well had paid out. Sales of that well go to the east side of the picket. After that we drilled the Collins number one well, and the Collins number 1, we needed to get a right-of-way from El Paso, which we have, and we had to lay 4.25 miles of pipeline, which we have or are in the process of doing and my notes as of today say by late May, which is only three weeks from now, or by the first of June, that well will be producing. So now what we're doing is we're drilling in the same Ross area the Hammond number 2 well, and we will drill in the Collins number 2 well and hopefully those will be really good wells.

And those wells, Van, will be connected to the sales line that was laid for the Collins number 1 well. So that is the Ross area. And in the Ross area, you know, we think there's probably150 BCFE reserves of which last year, because of the success we had with the Collins number one and Hammond number one, on an 8H basis, we proved up about 50BCFE of that, which on a net basis was 25 BCFC. If you look at the remaining reserves that we're trying to prove up in 2003, on an 8H basis it's 100 BCFE reserves of which half of that would be ours.

Then if you drop south some more toward the gulf, we think the Delta goes south. And we had leased 4,000 acres in the middle of the big thicket. We operated. We owned 100 percent interest in it, as we did in the Ross area, the2000 acres, we will probably sell down and in the Ross area we kept 58%. But you've got a shallow wood vine there. You have wells that -- the upper Wood Vine at 58,000 feet.

When you go south to this Robin area, which is the 4,000 acres that's laced, your upper wood vine is about 19,000 feet. So it's a little more expensive. It's probably a 3.4 million dry hole, and we say we will probably end up owning half and operating it, but - and we're working to figure out where the well would be that we would want to permit. It takes about six months to permit a well, we're told right now, in the thicket, so there would be a fourth quarter event.

You know, you got, based upon the 2D and the log of the well, the ARCO well that was drilled, you know, you have pretty good reserve potentials there. And it is in, Van, the same area where our -- geologists, engineers and geophysicists have been very successful so we stay in that area and move south to the gulf and see if we can't continue to have success there.

So it looks like you bought the AA wells, you have increased reserves pretty materially there, you used your knowledge and you extended it to the south to the Ross and now you're going to the Robin so it looks like an area you learned and you have added a tremendous amount of value. Last question ...

One other note, Van, on AA, we had a slide and it's not in the presentation, but we have, in the AA wells, remember, we paid $109 million and we put another, say, $46 million in it so say less $150 million in the AA area, I think as of the end of last year we had received $260 million net dollars back and in the future, the net cash flows to us are about, I think the number was $450 million. I mean, it's that type of an area

Well, it worked out pretty well. Congratulations. Lastly, you have the honor of them and Hyatt's gross (inaudible), a conference call wouldn't be complete without a question for hedging. What are your thoughts about hedging moving forward? It looks like the markets are sliding?

Our attitude, still, is, you know, we're not inclined to hedge unless we've -- you know, you take December 17th of 2001, when we bought the Debix properties which we bought in East Texas and when prices shot up the last week of March 2002, as you know we hedged 50 million a day with gas at 3.46 because we thought the fundamentals were there for gas prices to be a lot lower in 2002, and we didn't want really our CapEx budget to slip beyond$75 million or we felt like the company would be hurt.

That's why we hedged at that time. I think where we are today we look at our production profile which continues to grow. We look at the early success we have had at the drill pit and we look at wells like Pelto (ph) 22 and the 146 well in the gulf and then we look at the offset to the Collins and Hammond and those type of prospects and we know we can hook those up to sales pretty yearly. And we look at our bank availability and we look at our free cash flow and we just don't see any reason why we should be hedging so. I think for the month of April and hay, we have average -- May, we have averaged$5.13 or $5.15 for those two months so our second quarter numbers hopefully will be in the $5 plus numbers for gas prices depending on what this next month is like. Roland, do you have any other comments? '

No, I think that sums it up. We have looked at hedging when we have --when we need to protect either debt service payments or, last year, it was really that we needed to spend an amount for exploration and drilling and we never borrowed even 1 dollar to spend it on drilling. So, when that's needed, we have done that. But this year there's a very large margin between our expected drilling program and what cash flow would be generated and we're already way ahead of the curve with this really big first quarter with gas prices, especially the month of march. So that's -- that's one reason why we don't hedge is because the additional money that the company made just for the month of march will be -- will beat any hedging strategy we had for this year.

In March we saw our gas prices at $9.13, I think. Pretty sweet.

Great, I love the trend, growing production, paying down debt; that always works. Thanks, guys.

Thank you, Van

As a reminder, for all participants to ask a question, press1 on your touchtone phone.

Our next question comes from Rehan Rashid.

Hey Rehan

Couple of housekeeping measures, production exit rate for first quarter or maybe for April, any thoughts there?.

Going into the second quarter and leaving the first quarter our production was about 122 (Inaudible) a day, in that range. That's kind of -- we kind of -- earlier we hoped the colonel -- the Collins would be online at the end of the first quarter but it wasn't. It will be more toward the end of the second quarter.

Jay Allison That's the difference in the production, the Collins well. That's a big well. The right-of-way took an extra probably 60 days to get. Now at least we know that we have that in the pipelines being laid so we can't predict when that well will go online.

We are keeping track of the first quarter and we're at the 10%production growth type level. But with the projects lined up, we still feel comfortable about our being able to achieve on the higher range, higher end of the range. Production growth at the end of the year.

Does the higher end of the range include Pelto (ph) 22 or is that just a buffer that you would like to keep?

The earliest that production could contribute would be the fourth quarter, so that's not something that we're trying to count on, you know, for this year, and until the second well gets drilled, then we can really better see what exactly the connection plans are.

I think if you look at the first four months you can assess it back to February 1 of 2003 and you can go out four months, we really have had far more success than we ever thought at the drill bet. The Pelto(ph) 22 is a -- we have had fewer dry holes than we thought we would have with the amount of exposure we have had. I think we have had good reserve ads and the only negative, which is not a big negative, is the Collins right-of-way from the pipeline was 60 days late.

So it's been -- I think we have, for the first time in the corporate history, we really have a head start on this year and really we can now focus on 2004 and the type of growth rate we might have then.

Would you expect -- I know this is a wide shot here, but for 2004, with the guidance range for production with the same if south Pelto (ph) comes in line with what expectations would be?

Rehan, that's probably what we would aim for expectations right now, and I think that's within grasp, kind of with south Pelto (ph) 22, kind of out there. But there's a lot -- I mean, we're not even a fourth of the way into our drilling this year, so there's lots of projects out there. So we think it's going to be an exciting year for the company and the exploration programs because that's where the dollars are really being spent primarily.

I mean, we take kind of a neutral out look on exploration prospects because if you get into excited about them and they don't work out, then it's really negative. So -- I mean, if you look at what is on the drawing bored with the Hammond and Collins number 2 and other things in that area and then the Ross well, then you look at the offset to the Pelto (ph) 22, I mean, we have just in that group of wells, which you can count on one hand, I mean, those are material events of this company that will happen this year, we think. So, yes, it's really exciting.

Okay. What -- you mentioned you sold march gas without any change. How about thoughts of April and May.

April and May were 5 to 12.15. They were within a penny or two of each other.

One last question. On the Gulf of Mexico offshore drilling, any more deep-shelf belt plans this year and what would be the timing of those, if any.

We do have an inventory of the deeper wells. I think if you look at --what we try to do, we try to drill a deeper prospect and if it's successful, then instead of drilling a shallow were one, because of the amount of risk that you take, we will tee up another deeper prospect. You know, currently we're drilling a well right now which is a deeper prospect.

Okay, one last question on the balance sheet, talking about your 11.25bonds are accountable sometime in April of next year, any thoughts on how you would proceed on that front?

We would just have to wait and see what things look like in the future. But obviously, we like to figure out a way to lower our overall cost of borrowing.

Okay, thanks.

Thank you, Rehan

Our next question is from Michael Sullivan from Lehman Brothers. Go ahead.

Most of my questions have been answered. Just looking for an update on what the Hammond number 1 is currently producing at?

It's chugged back to 19 million a day.

It's produced the same -- at the same level since the day it came on. There's been no falloff in production at (inaudible).

I wish we had a lot of wells chugging back 19 million

(Inaudible) it's a very strong well.

: Just one other follow up to the last question. In terms of -- if you look out for the target debt to rate cap, if have you one or any thoughts around that?

We think in a perfect world -- and we won't get there this year - if you get a 40% net-to-cap, then you're very comfortable. Hopefully we can get, you know, 48% or so and it's the function of one, commodity prices and two production but mainly commodity prices. Because of the Hammond and Collins offsets, they won't come online until, say, the middle of the third quarter. But that's our goal.

We have taken it one time from 72% debt to cap to 46% and if we can get it below that we need to get it below that.

Great, thank you.

Gentlemen, no additional questions at this time. Do you have any concluding remarks in.

No, I would like to say some quarters are better than others, and, you know, this is one of those quarters where everything has worked and we're, you know, we're grateful for that. We have touched on, a little bit, the convertible preferred. I mean, we were fortune enough to have all of the different participants agree to sell the shares and buy the shares and as a company, you know, what that has allowed to us do is it has allowed to us save 1.1 million a year in dividends, which is a 9% coupon, so, you know, I think that's a big event that happened in the second quarter. We mentioned it as a first quarter event as a footnote to what happened a couple of weeks ago, but that's just another positive thing that's happened to the company that shouldn't be overlooked. And I think, pertaining to Pelto (ph) 22, you know, drilled (Inaudible) venture, it's our goal to not overdrill that area and properly drill the number of wells and prove up the reserves you know, and to do that within a very reasonable time, I think the production is needed for all of the companies. We will do that as a prudent party. That's it. Roland?

That's it. The quarter came in much as we expected and really were the beneficiary of really the strong march gas price. And, you know, we use that -- and of course that -- the debt reduction that march contributed didn't see on the balance sheet this time because we won't collect that money for the second quarter and that's why we're competent and that there be a large amount of debt reduction the second quarter, you know. Mainly, you know, due to the very high March and even the month before that's prices. I think we're on tap to meeting our goals this year.

Mike, any comments?

I would just like to say we have a lot of exploration projects for a company our size and a lot of things to choose from and we have a lot of good possibilities for new discoveries towards the new year.

All right, with that, thank you.

This concludes today's teleconference. Thank you for participating. You may all disconnect at this time.