埃尼石油 (E) 2008 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the First Calgary Petroleums Ltd. conference call. I would now like to turn the meeting over to Mr. Shane O'Leary, President and Chief Executive Officer. Please go ahead, Mr. O'Leary.

Good morning, everyone, and thank you for joining myself and David Savage today for this call providing an update to shareholders following the first-quarter results announcement. I hope you've all had an opportunity to read through the first quarter results statement. This morning I will go through the recent corporate activity and current operations; then ask David to provide a brief update on the financing process before moving to a question and answer segment.

The first area I would like to talk about are the recent changes at board and senior management levels. I strongly believe that the compromise reached was in the best interest of all shareholders. From an operational point of view there is continuity in our relationship with Sonatrach. In my former role as the Chief Operating Officer I was responsible for drilling and development activities and was the primary interface with Sonatrach. I will maintain this role and continue with these responsibilities in my new position of President and CEO.

I spent a good portion of last week in Algiers meeting with the heads of the various divisions of Sonatrach, with which we interface on a regular basis. They all indicated they are very happy with the continuity that I can provide in my new position and also that the entire operating team under me has remained intact.

I also believe that the new board offers a great balance and one that will benefit shareholders as we maintain our momentum in developing our Algerian project. There is continuity with five previous members of the board continuing to advise the Company. The Chairman, Gar Emerson, as well as other directors have excellent finance and strategic advisory experience. As well there is extensive oil and gas experience among these Board members. Recent additions to senior management during the first quarter included our higher rate of a VP, Algeria country manager and David Savage taking on the role of CFO. While David Savage has been working with us and on the project debt financing since September of 2007, as our interim director of corporate finance, we are pleased that he has accepted the role of CFO for FCP.

Operationally the board level changes have not affected us at all, and we have continued to drive the operational and financing elements of the project forward. All the executive staff at FCP are committed to getting the first and subsequent phases of the development on-stream and building shareholder value. The activity during the first quarter is discussed in detail in the results report.

I think the key successes achieved in the development process for the four qualified firms have indicated interest in submitting a bid for the engineering, procurement and construction contracts. And 10 bids were received in response to the invitation to tender package for the gas gathering system and the export system line pipe, reflecting the strength and the potential of the project. We also completed two development wells and are continuing to utilize one rig to continue to drill development wells in the MLE field.

In addition, excellent progress has been made with our partner, Sonatrach, in establishing the joint venture organization, in Hassi Messaoud. That is the body that implements the development with many senior manager positions for the key disciplines already filled. In meetings I had last week with Sonatrach they expressed a strong desire to continue the momentum we have achieved and drive forward to development.

Progress has also been made with phases two and three, the development of the CAFC area of the block, and we expect to submit the final discovery report in the second quarter of this year, which will move forward the commercialization process in those areas.

I would now like to ask David Savage to provide an update on the financing process.

Thank you very much, Shane. As I am sure that many of you know, FCP, with its financial adviser Citibank is currently focused and actively working in putting together a financing package of the MLE development. Between $750 million and $800 million of MLE costs are expected to be financed by our reserve based debt financing. At the end of the first quarter our liquidity situation was such that we had approximately $210 million of working capital, as a result of the proceeds from the December 2007 convertible bond offering.

The funding from these two sources, that is the combination of the reserve based financing and our current cash resources, is expected to cover all or the greatest part of FCP's portion of forecast MLE development costs. Considerable progress has been made since the beginning of the year, in regard to the preparatory work required to be completed before approaching banks to solicit underwriting commitments.

This work includes, among other things, the negotiation of various commercial agreements with Sonatrach, the mandating and overseeing the preparation of a variety of independent consultant reports for the benefit of lenders, the overseeing of the preparation of financial documentation and of course, ongoing financial analysis underpinning the structuring of the detailed structure of the facility.

Beginning late in the fourth quarter of 2007 FCP has engaged in informal preliminary discussions with a group of banks, and the consensus view remains that financing on acceptable terms is achievable. Expressed interest in underwriting and funding MLE on the part of a number of experienced oil and gas project financing banks continues to be high. The general situation in the credit markets notwithstanding. Based on the progress made to date, it is currently anticipated that FCP will formally approach a small group of primarily European banks to secure underwriting commitments and that loan signing will take place in the second half of 2008.

I am happy to talk more about any of those points later on in the question-and-answer session, but I would now like to turn it back to Shane.

David, thank you for the update. Before I move to a question and answer segment I would like to summarize by reiterating what I said in the first-quarter results release. I strongly believe that there is no doubt that the settlement reached was in the best interest of all shareholders; offering continuity and a board that is experienced and able to offer guidance and advice during this important time to FCP.

Also, operations were not interrupted by the changes at the board level, and FCP has continued to make significant progress during the first quarter of 2008, moving forward with both the MLE and the CAFC activities. The management team and board are committed to building shareholder value and are reviewing all options to drive the project forward that maximizes value creation. I look forward to continuing to update you over the coming months on the progress we expect to make.

I would now like to open up the lines to allow for a question-and-answer session.

(OPERATOR INSTRUCTIONS) Jonathan Copus, Deutsche Bank.

Just one quick question; you talk in the statement about an aggressive target for first gas in the second half of 2010. Things are moving out, I mean how confident are you about getting to that first gas state during 2010?

Jonathan, it will all depend, of course, on when we award the EPC and the financing being put in place. Those are really the two key milestones that have to be achieved in order to get a good handle on when first gas will happen. If we can get those achieved in the August timeframe, there is still a good chance we can get first gas by the end of 2010.

Okay, and can I just ask one follow-up? In the sort of run-up to all this happening you talked last time we heard from you about thoughts about hedging. Could you just let us know where you are on that and is that also -- how does that fit into this process, and when are we likely to hear any details about that? Because clearly it is quite an important input into our valuations.

Jonathan, we have always said I think that hedging of a portion of the production of this facility of this project is a core part of the financing structure. We certainly will not be engaging in any hedging activities or we most certainly will not be before project completion before we start to produce first gas. We are still in discussions, actually, at the reasonably early stage of discussions with a number of banks about hedging strategies. And I think I'm not really prepared to make any concrete statement about that strategy today, although we will make disclosure in due course as we progress those discussions and as the financing comes closer to being put in place.

Okay, fair enough. Thanks very much.

Robert Maxwell, Liberty Square Asset Management.

I was wondering if you could talk a bit about corporate overheads becomes essentially you are now running three distinct centers of overhead, i.e. Algeria, London and Canada. One, how is that breaking down in terms of number of people and cost? And secondly, does it really make sense to remain a Canadian based company if your operations are going to be in the European North African time zone?

Yes, we are at a stage where we are trying to develop the asset. So we are exposed to overhead growing because of the need to have operations in the Hassi Messaoud area and London where we are running the EPC out of, and Calgary where we continue to do most of our subsurface work. The good news is that we have convinced Sonatrach that much of this overhead will be cost recoverable no matter where the work is undertaken. As long as the project teams can be linked to the activity that is going on on the ground, then we can include those costs for cost recovery.

For example, the most cost-effective place to do work for this company right now is in Calgary. Much cheaper than London and obviously much cheaper than in Hassi Messaoud. So we are only putting in London, for example, what is absolutely necessary to run out of there. And as the EPC evolves, and we award an EPC contract, many of those people will then be moved to wherever the EPC contractor is. And over time more and more of them will be moved into the Hassi Messaoud end of things and will have to really revisit what size of office we keep in London, if we keep an office in London and or whether we can just get by with a Hassi Messaoud and a Calgary-based operation. And that is totally driven by cost.

For logistical reasons we must have an office in London right now, but if it made more sense to have this company become a UK-based company, we would look at it. But just from the cost pressures that we see today we are getting the work done and we are doing it cost effectively by having most of our people in Calgary. And I think if you talk to other junior international focused companies that are based in Calgary, they are doing exactly the same thing. They are keeping all their people to the greatest extent possible in Calgary, because it is far cheaper than anywhere else to do business, and you also have an access of an excellent pool of talent that is available. As the bigger companies in Canada, like EnCana and others have slowed down their international activities. There is actually quite a boom going on with the juniors in Canada that are looking overseas because there is such a good talent of people here. I don't know if that captured your question or not, Robert.

Yes, can I just then a further one for basically for David, on the finance side, when you talk through the financing agreements for the EPC contract and getting financing in place, you referred to underwriting and then financing as it were signing. Is that to suggest that we should expect announcement within the next month or so of an underwriting commitment? Then followed in the August September period by the signing, or are they seemed to be one and the same thing?

I think you should not expect an announcement in the next month or two about an underwriting because fundamentally before we can approach the banks, we need to essentially have the commercial agreements with Sonatrach more or less agreed. And of course, we need to be at the point of placing an EPC contract order. And to the extent that there is any slippage in either of those things, we will have to delay the actual timing of the approach that we make to banks.

And the reason I distinguish between underwriting and signing -- signing of the underwriting and funding is really that our strategy is so much as possible to approach the banks with an absolutely complete package of that drawing, signing of the credit documentation and drawing very, very quickly thereafter is feasible. What we don't want to happen is that we enter into a situation of procuring an underwriting commitment, quote unquote, that is subject to all kinds of conditionalities, particularly in this credit environment where many banks consider that underwriting is somewhat illusory.

And at the same time would advocate an approach that is more geared toward so-called club approach to funding, given the fact that the Interbank market is in some period of transformation or at least temporary aberration right now. So I hope that that addresses your point. We have to keep all of these various wheels that are turning synchronously and bring them all together. And if the EPC contract is ready to go in the next three months or so, there is a chance that we will be able to sign or go to the banks and subsequently sign the underwriting agreement, I would say in September sometime. But it really depends upon making sure that all these factors come together simultaneously.

Fair enough. Thank you.

Terry Peters, Canaccord Adams.

Thank you and good morning. My first question is somewhat related. I just wanted to clarify the expected timing of the EPC and award, and that has to occur if I recall almost simultaneously with the underwriting commitment, or your project financing commitment. Is that correct?

We need for the banks to feel that they have something to finance; we need to be basically ready to go with the EPC contract.

What is the expected date?

I think I would prefer to defer to Shane to comment about that except to say that obviously we are trying to proceed with all possible speed to get to that point. And there are ongoing discussions going on with a number of contractors, and contractors are working very, very hard. But I think in terms of specific dates I think Shane is in a better position to make a comment to that point.

Well, we have had some good discussions recently with the EPC contractors. Some of them are at various stages. One of them has invested already 50,000 man hours of time working this up. The first thing we would expect to receive is technical, the technical bid, which would be in the May/June timeframe and then the commercial bids would come in after that possibly by a month. And then we expect to have a very quick turnaround in terms of the award after discussions with Sonatrach.

So the August timeframe is kind of what we are looking at, and obviously contingent on all the financing coming together. But the good news is that they are working on it, and there is lots of queries coming in from them to our London office. And we are doing what we can to answer those as quickly as possible. I would remind everybody that Sonatrach is our partner. Sonatrach wields an enormous club with the contracting community in Algeria because there is such a massive piece of business in their own right.

So we tend to get good cooperation from the EPC contractors, and we tend to be viewed as an important project in the contractor world. So far it is moving forward, and we will continue to update you as we can.

Okay, and just one follow-up question. In the past First Calgary has spoken about possibly bringing in a third party to become involved in the project and I'm just wondering if that strategy is being pursued simultaneously with this project financing or it is on the back burner or what can you say about that.

We get inquiries all the time, and for some reason we've had more than our -- than we've had in the past very recently. I don't know if that is related to the proxy contest or whatever, just the publicity that we receive. But whatever comes in has to be better than what we think we can deliver on a go forward strategy considering all things. And the board is definitely committed to maximizing shareholder value. So they will look at all of these things and will make decisions based on what they think is in the best interest for the shareholders going forward.

Okay, so it sounds like that is being addressed as it comes, I guess is the best way --

Nothing is going to stop us from moving this thing forward as quickly as we can. That is our plan, and that is what we are doing. And we know moving the project forward increases value, so we must do that. But if something comes along and it looks really attractive from a value point of view, I can assure you this board will look at it very closely.

One final question on that and the comments about the board. Are they conducting their own review external from management right now, or have they -- what process is the board following to ensure maximization of value? Or is there a process?

What we've done so far is -- I've been spending an enormous amount of time with the new board reviewing the project with them, so that they can get up to speed and that we are fully aligned with what it is that we are doing. There is no formal process per se to look at other entities coming in or anything like that.

We do have JPMorgan retained as our advisor, and obviously we are talking to them as these approaches occur and that sort of thing, but I wouldn't say there is any outside process. This board -- one thing I will say about this board is it is an incredibly experienced group of people. We have senior executives from Total now and from Shell and from our Gar Emerson strategic advisory experience, and I can go around the table. We've got a very, very competent and experienced board.

I don't think they need any more outside advice than what we have organized with JPMorgan right now as advisor.

Okay. Thanks, Shane.

Peter Deeb, Hampton Securities.

Just in light of the national importance in Algeria of this project dealing with an August 8 and sort of a soft time frame for getting your financing in place, I was wondering if you've gotten any visibility from Sonatrach as to the extent of their patience beyond that. Thank you.

Their patience? Well, this project is very important to them, and they went to see it proceed as quickly as possible. I might point out that our project has been moving along relative to other projects in Algeria at a very good pace. Since we got the exploitation license in February of '07, we immediately launched into the front-end engineering and design work. We said we would get it done by the end of the year. We did get it done.

We then immediately turned around and put the EPC tenders on the street. February 18th we got that done, of this year. We were two to three weeks behind on that on our own internal goals, which I don't think is material for a project like this.

And now the contractors who were working on doing the detailed engineering for the EPC, and we are working really hard on the financing. So I hear of delays mentioned quite a bit, but the fact of the matter is most of our milestones since we got the development license have been met. But I agree that the financing is a big one.

You compare that with other projects in Algeria, and you know about the Gassi Touil one, what happened there. There's another one that is to the East of us that is a huge project that has not moved in three to four years due to various partner problems and things like that.

So everything is relative, and Sonatrach is actually quite pleased with where this project is and how it has come along in a very short period of time relative to other projects in Algeria. So I think we've actually built up some goodwill equity with them in moving it along this far. And I definitely think that they could handle some delays. But it is a very important project for them, and they don't want to see any delays. So we are doing everything we can to avoid that.

Okay, thank you.

Gavin Wylie, Scotia Capital.

So just heading back to the AGM, you guys did talk about doing your first tranche at MLE, second tranche financing for CAFC. Total debt proceeds of $1 billion to $1.2 billion I guess was sort of the number that I heard. Is that still the thought or have you reduced your expectations and is it just going to be the MLE tranche that you are looking at now, or what is the current thought around there?

If I could make a few comments and Shane, please come into the discussion if you want to emphasize something. We are focusing upon MLE for the moment. The reason that we are focusing on MLE is because the final discovery report in the whole development concept relating to CAFC is being refined, and that report has not yet been submitted. And so we don't really know how much what sort of capital requirement with regard to the CAFC portion of the project will be required.

When we have a better handle upon it, of course we will do a debt capacity analysis on it and take some decisions about how we would like to proceed. We still would like conceptually, if possible to deal with a single facility. There are lots of advantages with dealing with a single facility which would be partitioned into tranches for the two parts of the project. But by far the most important thrust of our focus right now is on MLE, and for obvious reasons. Does that answer your question?

I think it does. I guess the question is does that preference to put them all or to put both MLE and CAFC into one facility, does that take precedence over a potential delay in financing just associated with MLE?

No, I would say we are not really obsessional about having a single facility as a matter of the financing architecture. It is just the rate at which we can proceed if there is any kind of extension of the time that is required to complete that development plan formulation. If it would have a very adverse effect in terms of the timing of the MLE facility we would certainly go the MLE facility earlier. But the structure that we've been talking about is obviously conditional; in the case of CAFC upon a number of conditions, present including of course a development plan. And it might be structurable in a way that would allow for MLE to proceed more rapidly and delayed availability with regard to the secondary tranche.

And we also, of course, do have to consider the situation vis-a-vis the syndication market right now; whereas three months ago we thought that would be quite an easy thing to do $1 billion facility. It is very clear that banks continue to be affected in a number of ways with regard to their individual liquidity costs and capital allocated in different areas. And probably it is fair to say that appetite for very, very large underwritings now as compared to the end of the year is lower.

That being said, we don't have any doubt at all that financing is achievable at a reasonable cost in regard to the MLE facility. I think we just have to see how it goes with regard to the refinement of CAFC and what that implies in terms of financing strategy for it.

Perfect. Thank you.

[Joacim Shakur], Hansel Limited.

Thanks, guys. Couple of situations in the UK recently where companies have been looking for financing for development projects, and Imperial Energy is one, I think a few months ago Melrose Resources is another. Both companies which had good assets and companies where perhaps critically there is more risk than then there is in others. In both companies certainly in the case of Imperial Energy they ended up doing a discounted rights issue as an alternative to that because they couldn't find appropriate debt financing. I am just wondering what the differentiator is with First Calgary and what makes the board confident that it can get (inaudible) rate on reasonable terms?

I think that our confidence arises from the fact that we started a series of conversations with about eight leading oil and gas banks in fourth quarter of last year, and we've been having periodic update sort of discussions to discuss the progress that is being made with regard to the project on one side. And on the other side the evolution within the finance industry and the individual positions of those banks and the way the syndication market is evolving and so forth and so on. And we take those updating discussions quite seriously, and they have been very direct.

And I believe that we do have an accurate impression on the basis of those discussions as of this time. But it is not really an issue of the board at this time. It is really the finance people in the Company who have been involved in these discussions. And of course, I repot to the board to bring them up to date on these discussions.

Okay. Do we actually have a fallback plan if we find a debt financing can be taken up on acceptable terms?

I don't actually think that's a realistic possibility, but if there is a fallback, there are several fallback ideas; one of course is a delay, which none of us want, and the other -- another one might be some kind of a joint venture arrangement. But I would really emphasize that we don't feel notwithstanding the history of the Imperial Energy transaction, that the situation that we are involved with here in Algeria is a bit different. If I'm not mistaken, Imperial Energy was a Russian project. Is that correct? Russian, yes.

I think that Algeria is arguably a much more straightforward than in terms of the political environment, and the history of the observation of a fiscal policy, discipline and so forth. So we don't really feel that we have -- and apparently the banking community does not feel that they have an unacceptably high degree of political risk with regard to an Algerian project financing. It is true to say that the Algerian project financing in the energy area this will be a first, but they have done other project financings in Algeria. And the government has been a reliable performer in terms of adhering to contractually agreed terms of engagement with both foreign investors and financial institutions.

Thanks.

Jean-Pierre Lecuyer, private investor.

At the last conference call someone talked about early on concept with Conoco Philips. Any news on that? Any development?

We are continuing to look at it. There is some ideas out there using companies like Schlumberger that have facilities on skid units that can be flown in and used on a temporary basis to get production going. So we are looking at that, and we are comparing it against the schedule of just going ahead and building MLE. And once MLE is built, then we can produce oil from the --.

Yes, we know that.

We don't need an early oil system. So the big question mark is how much does it cost us to do this temporary facility, and is it worth it on the schedule, how much time are we gaining, and how much are we advancing cash flow. And we haven't come to a conclusion on that. It is being looked at.

What was the spare capacity at Conoco Philips?

I think -- well, it varies because right now they have spare capacity, but they also have plans to increase production. So but certainly with the kind of volumes we were talking about 5 to 10,000 barrels a day we thought that they could handle those volumes. (multiple speakers) there is other issues, as well as crude compatibility with blending and meeting crude specs and it is more complicated than you think. So you've got to work through a lot of issues.

Thank you.

There are no further questions registered at this time. I would like to turn the meeting back over to Mr. O'Leary.

Thank you. We are pleased to have provided this update and endeavor to keep doing this going forward, keep you up to date on the key milestones that are connected with this project. So thank you very much for your time.

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