埃尼石油 (E) 2007 Q4 法說會逐字稿

Good morning ladies and gentlemen and welcome to the First Calgary Petroleums Limited conference call. I would now like to turn the meeting over to Mr. Jeff Angel, Vice President, Corporate Communications and Investor Relations. Please go ahead, Mr. Angel.

Thank you very much, Melanie. As the operator said, my name is Jeff Angel. I'm the Vice President of Corporate Communications and Investor Relations for First Calgary. On behalf of the entire management team, I would like to welcome you to the call this morning.

With me this morning in our Calgary office, we have our Chief Executive Officer, Rick Andersen. We have our Chief Operating Officer, Shane O'Leary. Also in the Calgary office, we were fortunate enough to have one of our independent directors here this morning, Darryl Raymaker has joined us and we also have our Chief Financial Officer on the call, Mr. David Savage from London and the newly appointed Chairman of First Calgary Petroleums who is traveling, but we are grateful that he has been able to join us from United States, Mr. Gar Emerson.

We're going to begin the conference call. I'm going to turn it over to Rick Andersen for a few comments. We will hear some quick updates from Shane O'Leary, David Savage, and some brief comments from Gar Emerson and then we will come back and open it up for your questions. Again, thank you very much for joining us this morning. And I'm now going to turn the call over to Rick Andersen. Rick?

Thank you, Jeff. Good morning. This is Rick Andersen and I do welcome you to this investor presentation. Our intention is to review the 2007 activities, both operations and financially, after which we would like to address the current situation leading up to our annual general meeting on April 8.

As an introduction, let me give some background on the Company and our strategy. First Calgary holds a production sharing contract in Algeria referred to as Block 405b Ledjmet with Sonatrach, the Algeria national oil company. The Company has just completed the exploration and appraisal drilling on the block, having drilled and completed 31 wells. We are moving quickly into the development phase with a goal of bringing these reserves to production in 2010.

We have achieved a number of milestones this past year, which are critical to realizing first production. Let me now ask Shane O'Leary, our Chief Operating Officer and David Savage, our Chief Financial Officer to review these milestones with you. Shane?

Thanks, Rick. 2007 was marked by significant milestones achieved on the path to first gas and completion of our appraisal activities on the block. Let me address progress on the MLE development first by highlighting some of the key events and activities in 2007.

In February of 2007, the Company received approval from the Algerian authorities for the MLE development. In anticipation of that, we staffed the project management team under Jim Corbett, our VP of projects in London, with highly skilled professionals to manage the front-end engineering and design study, or FEED, and the engineering procurement and design or the EPC part of the project.

(inaudible) CP now has 34 London-based employees and contractors working on the MLE development and together with 54 staff in Algeria and 60 in Calgary, FCP has approximately 150 people currently dedicated to the delivery of this project. Our staffing is going to grow as we enter the EPC phase.

In May 2007, we awarded the FEED contract for the MLE gas plant pipeline and gathering systems to Genesis, which is a subsidiary of the large French contractor Technip. The FEED was completed in December of 2007 on budget and on schedule. In addition to setting out the design parameters, key deliveries included confirming the conceptual cost estimates for the project and identifying long-lead items such as compressors, turboexpanders which we will shortly be placing orders for in the market together with Sonatrach.

The FEED study is an integral part of the EPC package. The EPC tender documents prepared jointly by First Calgary and Sonatrach were issued to four large EPC contractors on February 18 or about a month ago, and we expect to award the EPC in July. Assuming all goes well, we will be on target for startup in the second half of 2010.

Finally, in 2007, we commenced drilling MLE 7, the first development well for the MLE development. This well has now been suspended as a successful development well. We're in the progress of completing the drilling of MLE 8.

In summary, MLE development continues to move forward as planned, and we're hitting all of the targets that we have set out so far today. Now let me address the appraisal drilling and subsurface activities in 2007.

The Company drilled eight wells in 2007 and completed two wells that were spotted in 2006 for a total of the 10 wells completed. This drilling activity in 2007 concluded the exploration and appraisal drilling of the three main fields underlying Block 405b. That is the MLE field, the CAFC area and ZER.

The appraisal period covering the CAFC and ZER areas expires at the end of December of 2008. So by this time, we must have prepared and have approved development plans to hold these areas of interest under an exploitation (inaudible) We've been doing a lot of development planning work and our goal is to submit development plans to the authorities in the second quarter of 2008 and receive approval well before year-end.

Drilling operations in 2007 consisted of a dual strategy -- appraise the LES/LEC TAGI oil pool discovered in 2006 and test the outer limits of known pool boundaries from discoveries made in 2006 and before. The program achieved these objectives -- in particular the LES-7 and LES-8 wells successfully appraised the LES/LEC TAGI oil and gas pool, verifying reservoir structure and reservoir continuity. This TAGI oil and gas pool will form the anchor project for the CAFC development.

We also acquired 250 square kilometers of 3-D high resolution seismic over the entire MLE field and the northern half of the CAFC area. This is a new generation of 3-D and the purpose of the program is to enhance resolution to further delineate structural details and better define geological trends in order to pick development wells in these areas.

The initial interpretation to seismic is extremely encouraging in that a significant southern extension of the MLE field has been identified and this is an area that's currently outside of the area that D&M is evaluating, so it's a completely new area with quite a bit of potential. The concept we have here, which is to test the very productive horizons in the MLE field as being above what we previously thought was below the gas water contacts, and now we think these productive zones are higher than the gas water contact. We're pretty excited about that.

Turning now to the year-end 2007 reserve summary, the high level of drilling and testing activity in 2007 combined with previous year's data has enabled a very rigorous reserves evaluation to be conducted by D&M. By year-end 2007, over 30 wells have been drilled and and 145 tests completed. More data has enabled D&M to apply more stringent petrophysical analysis and test data parameters to what qualifies as net [pay] and also better define field and reservoir limits.

2007 reserves summary compiled compiled by D&M can be summarized as follows. FCP has realized a 3.2% increase in gross proven reserves to 208 million barrels of oil equivalent and an 8.7% decreased in proven plus probable reserves to 586 million barrels of oil equivalent, and a 3.9% decrease in the proven plus probable plus possible to 1.4 billion barrels of oil equivalent.

On a net present value basis, the 2P reserve case has increased approximately 13% over 2006 to $1.64 billion, and that's using an 8% discount, reflecting a higher crude price forecast applied in 2007 by D&M which is roughly about $22 per barrel higher than what they used in 2006. So for the 2007 evaluation, D&M is assuming a forecast price that averages about $83 a barrel, almost flat over a ten-year period after startup in 2010, so about $83 a barrel from 2010 through to 2020.

Let me wrap up by saying that with a 1P and a 2P reserve base of 208 million barrels of oil equivalent and 586 million barrels of oil equivalent respectively, these are large fields by any measure of what is being found in our industry today, particularly in an on-shore environment. We are working diligently with Sonatrach to get this development onstream as quickly as possible, and we're receiving excellent cooperation from Sonatrach to achieve this. Additional details concerning reserves can be found in the Company's 2007 AIF filing and MBNA report for 2007. I will now turn it over to David Savage who will discuss some of the project financing aspects of the project. David?

Thank you very much, Shane. Good morning everybody. I'm going to talk about the financial strategy and the process that we are actually following to ensure that we raise the necessary finance at the appropriate time for the Company to be able to implement its development plan for Block 405b.

The development of Block 405b in line with in our intentions, which Shane has just presented, does present a challenge to First Calgary in terms of both the magnitude of the financial requirement, which is approximately $1 billion or FCP 75% share of the MLE or the LME project, and an additional amount for the central area; and also the timing, given that we are targeting first gas in the third quarter of 2010.

And the financial strategy that we are pursuing has two components. The first component is the equity/quasi equity, and we achieved that aspect of it by the issuance of our $267 million convertible debt issue in December of 2007. And that bond issue was specifically designed to be structurally subordinated and thereby to accommodate additional forms of senior secured project financing.

Basically, the bond issue proceeds are going to be primarily used for the remainder of 2007 to fund down payments relating to certain long leadtime items, and in addition, to continue the drilling program. The timely procurement of those long leadtime items is critical to the overall achievability of the project schedule.

I want to talk now at some length about the limited recourse finance which is the second part of the financing strategy. The remainder of the projected LME costs will be funded through a limited recourse project financing, which we are working on very intensively with our project finance advisers, Citibank.

And the project financing is going to be based upon well-established reserve base lending principles and techniques, whereby the debt capacity of the project will be defined by referenced projected production profiles, revenue and cost projections and cover ratio calculations pertaining to proven reserves only. On the basis of the conditions which were prevailing in late 2007, the MLE debt capacity was calculated to be in the neighborhood of 700 to $750 million.

However, with a continuing upward movement of oil prices and the related adjustment in the forward oil price curve, the debt capacity of LME has actually increased in recent months. We will be updating the debt capacity analysis on the basis of revised reserve and production profiles after receiving D&M's 2007 report and evaluating the debt capacity implied by those numbers, taking into account updated capital cost numbers and the changing oil price scenario.

I think important to that aspect also is that we are going to hedge a significant amount of our production price relating to the significant portion proportion of our production, and we're going to, thereby increase the debt capacity further. That's a very attractive aspect of the current market conditions right now.

On the basis of the fixed-price EPC strategy, we do not forecast any additional financing requirements to enable completion of MLE beyond the money that will be available under the project financing facility. The project financing facility will actually be structured as a dual tranche facility. The first ranche will be available for MLE debt requirements and the second tranche will be reserved for the central area CAFC requirements. They will both have their own drawing conditions.

We currently estimated CAFC's debt capacity based upon proven reserves is in the area of $350 million. This number, again, will be adjusted and in line with [refinement] and the strategy to be followed in terms of developing CAFC. In particular to the extent the TAGI oil pool is the current focus of the initial development effort, it is anticipated that the [NPD] of the central area will actually be increased, which will also lead to a higher debt capacity.

The aggregate capital cost related to CAFC will need to be adjusted to reflect the sequence and timing of investment and production from different parts of the area. And I believe that the thinking in terms of the sequence will go into the Final Discovery Report, which, as Shane mentioned, is going to be submitted sometime in the second quarter.

Our plan for financing CAFC also anticipates the reinvestment of some surplus cash flow from MLE. CAFC, you'll recall, is supposed to come onstream roughly 12 months after MLE. And from the very beginning of the MLE production, we're going to be throwing off surplus cash.

So accordingly, it is our current estimation that the combination of the proceeds of the convertible debt issue and the project financing facility, which will be an amount of between $1 billion and $1.2 billion, and cash flow available from MLE post completion will provide sufficient funds to complete the development of Block 405b.

Now I would like to very briefly address a couple of other points which I suspect are of interest to you. And the first one is the impact of delays. Delays can occur for a number of reasons. A delay in the completion of the EPC contract, a delay in the completion of the project loan facility, for example, a delay in the negotiations ongoing with regard to finalizing the commercial agreements between the Company and Sonatrach.

The principal impact, of course, of the delays is that depending upon their nature, we may be in a position of deferring cash outgoings, or we may be in a position of deferring cash incomings do to the longer development cycle. Effectively, our means of addressing delays is to be as careful in looking forward and assessing the situation as possible (technical difficulty) and trying to preserve our flexibility in terms of making procurement commissions of a final nature.

I think that our present belief, our present understanding based upon the processes that are going on with regard to the development plan itself and with regard to the development of the financing, is that they are moving in parallel and we're very hopeful that they will come together as we really need them to come together by the end of the second quarter. I will come back to that in a minute and give you some feeling about the schedule in a little bit more detail.

The second point I would like to address is the current market, the current banking market. I think you all are aware that we are in a period of extreme disarray and nervousness in the credit markets. However, the severity of the contraction or other reaction from banks to specific product and industry sectors varies considerably for the market as a whole and within particular banks.

The sectors of CBO, sub-prime mortgages and leveraged loans are effectively closed as we all know. But it is fair to say that project financing with specific reference to oil and gas infrastructure and other resources remains relatively healthy. Capital allocated to the oil and gas and other project financed lending by leading project and resource banks such as Citibank, BNT, RBS, [Caleon], Bank of Scotland, Societe General, HSBC and others, does not appear to have been reduced.

We base these comments on the ongoing discussions that we are having with a group of leading oil and gas banks from time to time. And in fact, as part of a detailed and coordinated process of preparing to approach a selected group of project and resource oriented banks, we have engaged in a regular bank [sounding] process since November.

In that context, we have provided extensive information and held detailed discussions with this group of banks. The most recent of these discussions actually took place on Tuesday of this week. So it is our summary assessment that the MLE and CAFC project financing facility risk will be taken up albeit probably at higher spreads than were applicable three months ago on a fully underwritten basis.

Pursuant to the schedule that we are pursuing with regard to the preparation of a complete bank package, which basically would include all the detailed credit documentation, reserve reports and other export reports, legal opinions, financial projections, and so forth, we do expect to be able to approach a pre-selected group of banks initially on a bilateral basis in June and to form an underwriting syndicate in the course of July, 2008. And while it is a tight schedule, we are targeting syndication and financial close to occur in August of 2008.

That's what I wanted to say to you today. But of course, I'll be happy to respond to questions when we get a question-and-answer time. Thank you.

Thanks very much, David. We're going to have Rick Anderson speak and then Gar Emerson. Rick?

Thanks, Shane and David. You will have seen the First Calgary's information circular relating to the April 8 annual general meeting and you've probably seen the dissident circular that was released yesterday.

The dissidents are basically looking to remove me as a Director and CEO and to restrict the Board's ability to deal with the Company's asset base. I believe, as does the majority of the Board, this would be extremely detrimental to long-term shareholder value as it most likely would result in direct and significant delays in the Company's goal of first production.

This requisition to move me has allowed the Company to step back and review the composition of our group. As a result, the Company has recently appointed Mr. Garfield Emerson to the Board of Directors and the Board has elected Gar to the position of Chairman. Gar's CV speaks for itself.

As well, we have nominated Mr. David Savage, First Calgary's Chief Financial Officer to stand for election to the Board. This puts all three executives on the Board with six nonexecutives. Three additional nominees have put their names forward for election to our Board. They are the Honorable Roy McLaren, a former politician, diplomat, businessman and Canadian High Commissioner to the UK. As well, Mr. McLaren sits on a number of boards of prominent companies; Mr. Stewart McDowell, former oil executive and Canadian Ambassador to the united Arab Emirates; and Mr. Kenneth Taylor, the former Canadian Ambassador to Iran during the 1979-80 U.S. hostage crisis, former Canadian Counsel General to New York City, and past and current director of some prominent companies.

These three gentlemen plus Gar Emerson bring FCP to a new level. We are adding some very prominent people who have excelled in legal, government, diplomacy, foreign affairs, and business including banking and oil and gas. Two of them, McDowell and Taylor, have extremely good connections in the Middle East and McDowell speaks Arabic. First Calgary's asset is in an Arabic country.

This new Board provides the strategic framework as First Calgary heads into a new era of growth as well as fulfilling our current endeavors. I would now like to hand the meeting over to Gar Emerson, First Calgary's Chairman, for his observations, after which I would like to comment on the Waterford circular. Gar?

Thank you, Rick, and good morning ladies and gentlemen and thank you for joining this call. I came on the Board of First Calgary Petroleums and was appointed the Chairman of the Board on March 7. I succeeded Chuck Pittman, who resigned due to family health reasons. You'll see from my biography that I am independent of management of First Calgary and any of its shareholders.

I have substantial experience in board and corporate governance matters. I have been a director of many public companies for more than 25 years, including 13 years as the Chairman of the board of Rogers Communications. In addition to corporate governance, my business and legal background reflect an extensive expertise in strategic advisory work including 11 years as the CEO of NM Rothschild in (inaudible) Canada, an investment banking firm affiliated with NM Rothschild of London, England.

When I joined the Board of First Calgary Petroleums as Chair, I did so on the solid understanding with the Board that my duty is to act in the best interest of the Company, and to maximize value for all shareholders. I intend to pursue that duty diligently.

I have been nominated for election on April 8 together with five other nonexecutive directors, whose experienced backgrounds have been summarized by Rick Anderson with respect to the other nonmanagement nominees. Three other nominated directors are the CEO, the COO and the CFO, and I think you can tell that they bring extensive and valuable oil and gas leadership, operating and financing expertise to the Company.

I believe that the election of the nominated directors would create an experienced and unified Board that is well-qualified with the required skills to supervise and work with management to increase the value of the Company for the benefit of all of its shareholders. The Board I would lead will be committed to explore all options to maximize shareholder value. Thanks, Rick. Back to you.

Thank you, Gar. As I said, we received the information circular from the dissident shareholders last night. We view this as a very hostile attempt by Waterford, which is Michael Kroupeev and his associate Yuri Shafranik to take control of the Company without paying for it. It has the makings of a very personal attack on me, however I do not intend to take my eye off the ball.

We now open the lines and we would respond to any of the Waterford comments if listeners so desire or any questions you have as it really relates to First Calgary's 2007 operations. I do open the lines. I hand it back to Jeff Angel actually now.

Thanks very much, Rick. Melanie, we are ready for the question-and-answer part of the call and I would remind -- I know that a number of media have called in. I would remind them that this is -- we are grateful for their interest. This is, however, the analyst and investor call and I would be happy to talk to any media personally after the call. You can reach me through First Calgary Petroleums. And the main number here in Canada is 403-264-6697. That's 403-264-6697. We would now welcome any questions and I will turn the call back over to you, Melanie, right now.

(OPERATOR INSTRUCTIONS). George Kestovan, private investor.

Gentlemen, thank you very much for taking my call. Mr. Anderson, thank you to you and your management team for the detailed discussion of your project and the present status of the Algerian project. I just have two questions.

What are your plans for First Calgary post to the commencement of Algerian productions, because obviously you're going to have significant positive cash flow? And more importantly, what are the dissidents long-term plans for the Company?

I can speak to (inaudible) -- thank you for the question. This is Rick Anderson. I can speak to our plans and we really are moving the Company back into a growht position. We are focused right now on getting the reserves in Block 405b onto production. We have a 2010 timeline and we are achieving all the milestones necessary to get there.

We have set up a new ventures group in London and we're looking at projects, if you will, that are more drill ready and probably non-operated. We've had group in for a year looking at what's available in the world and what could we move on quickly if we have the money.

Right now the money we have in the treasury is basically earmarked for first production, so we really don't have any flexibility until we award the EPC contract and until the project financing comes in. At that time, I believe we will have some financial options.

We are also looking at some grassroots projects in Algeria in our own backyard and in other countries. So we're very optimistic by the second half of this year that we should be able to make moves towards getting back into an exploration phase which is the exciting phase. As far as the dissidents, they have put forward no plans as to how they would grow this Company or what they would do with this Company, and that's about all I can say about them.

Thank you very much.

Terry Peters, Canaccord Adams.

Rick, I just wondered if you could make some comments with respect to the nature of your capital spending and your reserves at the end of last year? In particular if you'd just talk about what portion of your capital have been directed towards new exploration because I'm looking at the results and the value increased and proved reserves increased. The 2P didn't. Is that more related to your nature of your drilling, i.e. appraisal drilling, which is focused on -- within existing assessed reserves? And maybe you could give us an outline as to the -- of your capital spend program, how much would have been directed towards various activities?

Okay, good question, Terry. If you don't mind, I'm going to hand that to Shane O'Leary who is sitting right here with me. He's probably better equipped to answer your questions.

Terry, most of our spending on drilling was focused on appraisal. We did drill some significant stepout wells. For example, LES-9 was an attempt to extend the TAGI pool about over five kilometers to the south. That well was not successful.

But for the most part, we drilled appraisal wells around existing discoveries. In the TAGI pool, we had excellent success appraising that pool. In the (inaudible) area, although we did extend the pool somewhat, it wasn't as on as large a scale as we would have liked. And similarly, in the (inaudible) area, we also had sort of mixed results with some of the appraisal drilling. And all that is, of course, taken into consideration in the final reserve numbers.

Great. And is the -- if you look on the second -- just a second question I have, if you look at options for, and maybe -- I don't know if David would answer this one, but options for financing and it looks like you're moving along the path and to finance this with your existing cash and project financing. But if you were to entertain an option that I think you've spoken about in the past, of looking at a third party, would you look at that for the whole block or would you look at that for the central area or could you actually look at that for the central area if you were to bring an industry partner into the picture? Because it looks like Emily MLE is fairly well-defined.

We're not able to bring partners into specific fields. If we bring partners in, it would be for the entire block.

Okay. Okay. Well that's fine. And the I guess as far as transacting or bringing in a partner, is there any limitations that would be placed upon you with requiring approval from Sonatrach or the Algerian government?

There is, Terry. If we bring somebody and on asset base, we do need Sonatrach's approval and we stay very close with these guys. When we are having any conversations with any company, we first run it through them so they are aware of who we're talking to.

But there's no other restrictions in that regard?

No, that's all.

And would there be restrictions or -- if there was a change in control with respect to First Calgary, would there be issues with (multiple speakers)

Yes, if you are talking an actual corporate takeout, which is I think what you're talking about, there are no restrictions. But anybody who is looking at that, I think it would be wise that you would involve the Algerians. And so we would have conversations with them. The restrictions really only apply to bringing partners in on the production sharing contract or the asset itself.

Okay. Thanks, Rick.

Gavin Wylie, Scotia capital.

Thank you. My question is a bit of a follow-up to that one as well. It's just in terms of what's your take on (inaudible) if the management team was voted out? What would they effectively do given what you seen in terms of progression on other projects elsewhere with Repsol, is there a threat that would happen if the management team was removed?

Gavin, I think big problem you would have is relationships are extremely important here, and we have spent the last 10 years building theses relationships. Shane and his group have really done a good job on the Sonatrach level and I have been working the political side with the oil minister.

If the dissidents were to gain control, if you will, and probably would make some management changes, you're going to change people sitting at the table and you do not want to do that. I think what would happen is it wouldn't be a situation like Repsol. Repsol was basically offside commercially. They had commitments that they hadn't honored and they were totally offside and that's why that block was taken away from them.

We're not offside. But what would happen is probably delays in the execution of our business plan and bringing onto production. And this project is more susceptible to time delays when you look at the net present values than it is to cost overruns. So I think the big fear would be delays in implementing our strategy of going to first production.

Okay, and the second question I had was just more operationally, in terms of the licensing round in Algeria, the next one that's expected to occur, when is that and typically what's the timeline in terms of when approvals and grants are being awarded?

I'd don't think the date has been set. I'm not aware of that, but we have already prequalified ourselves to attend that bid round and so we are ready to go when they are ready to go.

Thank you.

[Jonathan Kopus], Deutsche Bank.

I just had a few questions. First of all, on your reserve side, seeing the the 2P number tighten up but not a whole lot of movement in the 1P number, I just wondered if you could talk a little more around how those numbers are moving. Particularly you mentioned the southern extension to MLE and before we've heard about the evolution of the liquid story over the block. (inaudible) give us some updates on that.

Second question was just on CapEx. I just wondered, the $1 billion net to you that you are talking about in terms of the MLE development, is that still a historic number, or is that what you expect to be carrying into the sort of project finance stages? I wondered how up-to-date that number was. And then finally, you talked about hedging. Could you give us some idea about whether that would be over liquids and gas and does it create any complexities regarding the current sales agreements or moving into any future ones?

Who wants to start?

I will try and take the first two. On the reserves, they didn't move around too much. One of the reasons for that is that when we discovered the TAGI oil pool, the assumption based on the information available at the time that D&M used was that the structure was full of oil. And subsequent drilling -- with subsequent drilling, we determined that there was a very large gas cap in the structure.

So in terms of how it impacted the reserves, they had assumed that it was full of oil and that if you have gas in a significant part of the structure, you can divide by six in terms of barrels of oil equivalent. So although the gas is valuable, we have gas rights, we can strip liquids and we're going to be doing all that, it had an impact and the TAGI drilling program was very successful. It had an impact in terms of what they were carrying on their books, not moving too much in that respect because of the movement in oil to gas.

Some of the areas, as I mentioned previously, we did see some reduction in 2P and LEW use and in the MZLN area just based on some of the test results and some of the drilling that was delineating the field. And so taking all that into consideration, we ended up where we did with the proven and the 2P and so on.

With respect to the capital, we're still using the $1 billion net for the MLE development and that includes the gas plant, the gatherings systems, and the pipelines. That is now been validated by the FEED study. We did do a detailed cost estimate in connection with the FEED study and so we feel very confident about that number. And of course, the remaining capital has to do with the drilling program which is quite substantial.

We are a very efficient driller in Algeria, at least Sonatrach tells us that. In fact, they tell us we are the most efficient thriller in Algeria. So we feel we've got a very good handle on our drilling costs and our ability to execute on the drilling program. So we have a good confidence level around that number. Your third question on hedging of the project, I think I might see if David Savage would like to address that one.

Jonathan, I can't really say very much about hedging right now. Certainly we're going to hedge the gas, the gas sales. But discussions with regard to the marketing of liquids are much less advanced to the present time. It would be our intention to do so -- basically, probably to hedge about 50% of volumes.

Mix might be different between the two, but we haven't had discussions with banks about specific instruments or pricing or anything like that. And it's just a behavioral a assumption of the present time that we're going to need to do it to get the sort of financing volume out of it that we need to achieve.

Okay, the 50% of the BOE volumes?

Yes. I'll be happy to talk to you about that as time progresses and as our thinking becomes a bit more specific.

Okay great. Thanks very much.

[James Banghart], JPMorgan.

One is, can you give us a breakdown of what the $1.3 billion makes up as in how much is the gas (inaudible) and how much for piping and roughly how much for gathering systems and drilling wells? And the second question was how many drills -- how much drilling has been done over the past year and what has been the estimated CapEx on that?

Shane, you have to respond to the breakdown amongst the different categories. I don't have it in front of me.

Yes, I don't have it in front of me, but I will give you a pretty good estimate here. The gas plant and everything associated with that, it's a cryogenic gas plant. It takes temperatures down to about minus 80 degrees. So it's a little more expensive than what you might think. It's about 600 -- I'd say about $650 million for that. You've got pipelines, before product pipelines, 140 kilometers for three of them and then the tie-in for the oil. They are about $300 million I would say, and then the rest, to make up the 1.3 is drilling and project management team costs and other things that are thrown in there. I hope that's sufficient detail for you on that.

That's great. That's great.

Okay, the 2007 program, I believe our total spend in 2007 was something like $180 million. And the vast majority of that was for the appraisal drilling program, although we did incur -- we started to incur development costs because we did the FEED study and we have a good portion of our staffing dedicated to development activities. So without seeing the number in front of me, I would probably say that 140, 150 of that was spent on drilling --appraisal drilling.

And how many holes is that associated with? How much roughly are you spending per --?

Probably 10 wells.

Okay.

Don't forget there's all kinds of support costs for (inaudible) based staff and Calgary office and other things in there. It's not all direct drilling costs.

And then I guess last question is what's the number of wells expected to be drilled for the rest of -- for 2008?

Well we're on a very slow drilling level of activity right now. We're down to one rig. We are drilling development wells exclusively now except for this MLE 10 well that is going to test this new seismic concept.

We don't have to drill development wells now because we could drill them later in the development program, but we elected to do it to maintain our drilling staff in place, keep them active, keep our efficiency levels high. If we'd shut down the program, we risked losing some of our people and so on. So we drill about one will every two months. So on that basis, we will do five or six wells this year.

Okay. So is it fair to say roughly cash spend is sort of between 25 and $30 million per quarter?

Let me think here for a second.

(technical difficulty) around 20.

Yes, it's 25, (inaudible) -- yes, about that. Yes.

Okay. That's great. Thank you.

[Sam Sharinek, Kriverse Capital].

I guess I have couple of couple of questions. One is relating to the proxy and the dissident proxy situation. A couple are relating to the project itself. As far as the proxy side, obviously you've got a couple of major shareholders, one being Wellington Financial. Do you know at this time where they stand on this issue or where their support is swaying towards?

I didn't understand your question. The proxy is by Waterford Financial.

Waterford. But obviously you have some major shareholders such as Wellington Financial for instance.

No, I see what you're saying. No, at this point, we have our advisors JPMorgan Cazenove working with us, and we're basically taking our advice from them. What I would say is we over the next few weeks, are going to be doing a road show and getting in front of as many people as we can basically to lay out our business strategy plan again and to give people comfort that the Company is being managed and we're making good progress in bringing our reserves onto production. So at this point, that's about all I can say.

Okay, fair enough. So I guess it is -- we will wait and see from that side. Then my second question is relating to the -- obviously the extension -- of the southern extension, which I think Shane ahd said off of high resolution 3-D there seems to be some exciting upside on that side, and then the TAGI oil pool. Do you guys a plan on drilling this extension and drilling on the TAGI side this year as well?

Yes, in fact, when we interpreted the seismic for the first time, we got quite excited about this potential on the southern part of the TAGI field and we have reorganized the sequence of the well. So while we're going to drill a regular development well next, we're actually going to move the rig to this location that will test this concept of the new seismic. And we're going to drill that well next and it should (inaudible) sometime in April.

Okay good. And I guess on the MLE Field itself, I think you highlighted that there may be an opportunity on an extension as well based on high resolution 3-D.

That's what I was referring to (multiple speakers) the MLE. We don't anticipate any additional drilling in the central area prior to getting our exploitation license later this year.

And the TAGI pool, obviously being an oil pool, is there any chance of that oil production coming onstream prior to the Q3 2010, or are they pretty well going to coincide with one another?

We're looking at an early oil concept. We've been in discussions with the operator to the north of us which is Conoco Phillips. They have spare capacity in their oil processing facility. It's only about 20 kilometers away from us.

We have had discussions with Sonatrach. They have given us the go-ahead to make the technical case for how we might be able to do that, and so the answer is yes. We're definitely pursuing that. And it's going to be -- it's probably going to formulate part of our development plan submission in the second quarter of 2008. We're going to be looking at an early oil scheme.

Very good. And I guess my last question is, based on a D&M reports, any indication what the MPV -- say MPV10 would be -- would look like at this point?

Would look like what?

What would the MPV discounted at 10% look like on the asset right now?

I can look that up for you quickly.

Because obviously you got all P's so --

Yes, on a 2P basis, it's 1.28.

on a 2P basis?

Yes.

P plus P, do you have that or no?

That's P plus P.

(inaudible) possible? No?

With the possibles, it's 2.2.

2.2. Great. Thank you.

Coming back to your first question you asked me, I thought about it for a second here. What I would say is I'm quite confident that existing shareholders, being the other large shareholders we have, wouldn't allow a change of control to happen in this Company without an acquiring party paying for it. And that's one of our big criticisms of what seems to be happening now. This is a way for someone to come in, get control of the Board, get control of the Company and not pay for it. And I don't think existing shareholders would allow that to happen.

I guess, Rick, having said that, obviously there's a lot of rumors that are swirling around whether it's groups out of the Emirates or groups out of different parts of the world that we here are looking at the asset or looking at a potential acquisition or some kind of a corporate transaction. Have you been seeing any interest from that side or a higher level?

We have been approached by a number of companies and it's kind of like the vultures circling the waterhole looking for the cripple. Everybody knows there's something going on right now and what we've done is we have JPMorgan Cazenove as our advisors standing in front of us, and basically saying not now.

We have a situation we must deal with and we're more interested in focusing on our strategy, which is bringing these reserves onto production in a timely fashion. We think that is the best way to maximize shareholder value. When people start looking at us now, they look at our market cap and we feel we have a market value that's trading well below our asset value, and that's the problem, so we're really focused on maximizing shareholder value.

So I guess I was to take your 1.28 MPB to your 2.2 you'd be somewhere in the middle of that which would almost imply an MPB of $6 or so. It's a start.

You do the math. I can't do that math on the telephone. Thank you.

[James Banghart], J.P. Morgan.

Just a follow-up question. Back to the capital budgeting, Sonatrach is due to spend or is their part of it is $300 million, is that right for (multiple speakers) MLE?

Sonatrach is responsible for 25% of the cost. We're in the Block together 75/25 split (multiple speakers).

How is their part of that going to be spent? Is it reimbursed or is it spent cash on day one or is --?

For the exploration phase, they were carried through the exploration phase but in the event of a successful development, they reimburse us for their 25% share going forward. For the development expenditures, they are cash called and pay accordingly to whatever the spending profile is, so they are a regular working interest participants.

Okay. Great. Thank you.

Operator, it's Jeff Angel again. I'm sorry. We're going to have to end. I'm not sure if there are anymore questions in the queue but I would like to thank everyone for joining our analyst and investor call today. I would remind the people of a couple of things.

The call replay will be available on the First Calgary Petroleums Limited web site which is www.FCPL.ca. There's also other information on there that is particularly useful. And if anybody -- analyst, investor, or media -- have any follow-up questions from this call or any other questions at any other time, please give me, Jeff Angel, a call directly here and the First Calgary number is in Canada 403-264-6697. That's 403-264-6697.

And on behalf of the entire management team, and the Board of Directors, we would like to thank everyone for joining the call today and invite any follow-up questions that you do have. Thank you very much.

Thank you. The conference has now ended. Please disconnect your lines at this time. Thank you for your participation.