洛茲集團 (L) 2009 Q4 法說會逐字稿

Good morning. My name is Melissa, and I will be your conference operator today. At this time I would like to welcome everyone to the Loews fourth quarter and year-end earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a Question and Answer Session. (Operator Instructions) Thank you.

I will now turn the call over to Darren Daugherty, Director of Investor Relations. You may begin.

Thank you, Melissa. Good morning, everyone. Welcome to Loews Corporation fourth quarter 2009 earnings conference call. A copy of the earnings release may be found on our website, Loews.com. On the call this morning are Jim Tisch, the Chief Executive Officer of Loews, and Peter Keegan, the Chief Financial Officer of Loews.

Before we begin, I would like to make a few brief disclosures disclosures regarding forward-looking statements. This conference call will include the use of statements that are forward-looking in nature. Actual results achieved by the Company may differ materially from projections made in any forward-looking statements. Forward-looking statements reflect circumstances at the time they are made, and the Company expressly disclaims any obligation to update or revise any forward-looking statements. This disclaimer is only a brief summary of the Company's statutory forward-looking statements disclaimer. We urge you to read the full disclaimer included in the Company's 10-K and 10-Q filings with the SEC.

I would also like to remind you during this call today we may discuss certain non-GAAP financial measures. Please refer to our security filings for reconciliation to the most comparable GAAP measures.

I will now turn the call over to Loews Chief Executive Officer, Jim Tisch.

Thank you, Don. Good morning and thank you for joining us on our call today. Loews wrapped up the year with a solid fourth quarter that benefited from good operating results at CNA, ongoing earnings strength at Diamond Offshore and improved investment income from the Holding Company investment portfolio. CNA reported solid net operating income for both the quarter and full year primarily due to improvement in net investment income. In '09 Tom Motamed, the CEO of CNA, launched a strategy to drive top and bottom line growth and in support of this strategy CNA has strengthened its leadership team, opened new field offices and added underwriting staff. Within its core property and casualty operations, CNA specialty segment continued to deliver very strong performance, and within its commercial segment the improvement initiatives are beginning to take hold. CNA has seen continued recovery of its investment portfolio which together with earnings has boosted CNA's book value per common share by 72% from year end '08. Representing a $5.4 billion pretax improvement in its unrealized gain position.

Last quarter during our earnings conference call I elaborated on how mark-to-market accounting rules could potentially be misleading with respect to unrealized losses at property and casualty insurance company. While it was unpleasant last year to see unrealized losses on the after side of the balance sheet, we believe that the bulk of the securities held by CNA would ultimately recover in value as they have. CNA finished '09 with its balance sheet and investment portfolio in very good shape. The reason I am revisiting this issue, however, is that at some point in the future interest rates could rise in the United States. Should this occur, or more realistically when this occurs, most P&C insurance companies, including CNA, would likely suffer a negative impact on the market value of their fixed income investment portfolios which would in turn have a negative impact on GAAP book value. But because CNA's portfolio is generally comprised of securities that attempt to match the duration and liquidity requirements of its insurance liabilities, a decline in market values caused by an interest rate rise would not meaningfully impact the Company's ability to pay claims. We therefore tend to focus on book value per share before unrealized gains and losses. And notwithstanding the decline in stated GAAP book value as a result of increasing interest rates, there is an offsetting benefit to a higher interest rate environment. CNA would be able to invest its significant cash flows into higher yielding securities.

During the fourth quarter CNA completed a $350 million bond offering at a competitive yield which underscores the market confidence in CNA's financial strength. Of the proceeds $250 million were used to redeem preferred stock owned by Loews which continues to hold $1 billion of the preferred shares in CNA.

For '09 Diamond Offshore posted record earnings stemming from strong day rates and utilization rates for its semi-submersible drilling rigs. Energy prices have recovered from one year ago, but the uncertain economic outlook has somewhat dampened demand for offshore drilling services and the day rates that Diamond has been able to command for new contracts. Despite these market challenges, Diamond entered 2010 with a contract backlog of about $8.5 billion and with approximately 75% of its floater fleet fully committed. As you may know, Diamond has a policy of considering the payment of special cash dividends reflecting the earnings, financial position, and the earnings outlook for the Company. In that regard, Diamond's Board of Directors last week declared a special and regular quarterly dividend together totaling $2 per share representing a $140 million payment to Loews.

Boardwalk closed out the year with a strong fourth quarter both in terms of progress made on its expansion projects and the positive impact these expansion projects are having on cash flow. Boardwalk has declared a cash distribution for the fourth quarter of $0.50 per unit continuing its track record of increasing cash distribution to unit holders each quarter since its initial public offering in '05. Loews' cash receipts from Boardwalk dividends last quarter was $69 million. As previously disclosed, all of Boardwalk's 42" pipeline expansion projects have received approval from the Pipeline and the Hazardous Materials Safety Administration, or PHMSA, to operate at their full design capacity. On its 36" projects, the Fayetteville and Greenville laterals, Boardwalk is able to meet all customer requirements until mid-2011 by operating the pipelines at normal operating pressures. The Company is seeking approval from PHMSA to operate the Fayetteville lateral at higher operating pressures which would allow Boardwalk to further increase capacity.

Given the strong demand for pipeline capacity from the Haynesville Shale production area, Boardwalk has announced two compression projects to boost capacity on its East Texas pipeline system. The Clarence compression project and the Haynesville project will leverage Boardwalk's flexible and integrated pipeline system and should generate favorable project economics. Once in service these projects will be supported by long life contracts averaging more than 11 years. Importantly, Boardwalk has completed all the necessary financing and has enough liquidity in place to complete all of its announced projects including the newest compression projects.

With strong cash flow from our subsidiaries, Loews Corporation finished 2009 with $3 billion of cash and investments and only $866 million of debt at the Holding Company level. During the year we repurchased 10.5 million shares of our common stock for $348 million. This represents 2.4% of the shares outstanding at the beginning of the year. From January 1st through February 5th of this year we bought an additional 1.6 million shares for $57 million.

With that, I will now turn the call over to Pete Keegan, our Chief Financial Officer. Pete.

Thanks, Jim, and good morning, everyone. For the fourth quarter Loews reported net income of $403 million versus the loss of $958 million in the prior year quarter. For the full year income from continuing operations was $566 million versus a loss of $182 million in 2008. Loews' interest in CNA's fourth quarter net realized investment gains after tax and noncontrolling interest was $44 million versus a loss of $283 million in the fourth quarter 2008. This improvement reflects the realized investment gain of $217 million after tax and noncontrolling interest from the sale of CNA's common stock holdings of Verisk Analytics in October 2009, offset by other than temporary impairment losses. For the full year Loews' interest in CNA's net realized investment losses after tax and noncontrolling interest was $505 million. These primarily consisted of other than temporary impairment losses related to asset backed and corporate securities.

In 2008 Loews' interest in CNA's net investment losses was $756 million after tax and noncontrolling interest. CNA contributed $182 million to Loews' net operating income for the quarter versus a loss of $15 million in the fourth quarter of 2008. The increase was primarily driven by improved results from limited partnership investments. For the full year CNA's contribution to net operating income was $904 million, up from $488 million in 2008. Results benefited primarily from higher investment income as well as from unusually light catastrophe losses.

Diamond Offshore's contribution to net income for the fourth quarter declined to $128 million versus $137 million in the prior year fourth quarter primarily due to a higher effective tax rate. Average day rates for semi-submersible rigs were essentially flat as was average utilization for intermedial semi-submersibles. Utilization for high spec floaters was down about eight percentage points primarily because of timing of required rig surveys. For the full year Diamond's contribution to net income increased to a record $642 million from $612 million in 2008.

HighMount reported net income of $35 million in the fourth quarter versus $37 million in the prior year fourth quarter excluding $754 million of noncash impairment charges. Excluding noncash impairment charges of $754 million after tax in the fourth quarter 2008 and of $660 million after tax in the first quarter of 2009, HighMount's net income for the full year declined to $123 million from $179 million in 2008 primarily because of decreased production volumes and lower natural gas prices.

Production numbers are as follows. In 2009 HighMount reported natural gas sales of 70.8 billion cubic feet at an average realized price of $6.94 per thousand cubic feet. Natural gas liquids production of 3.3 million-barrels at an average realized price of $30.98 per barrel. And oil production of 363,000 barrels at an average price of $55.37 per barrel. As of December 31 HighMount had hedges in place that covered approximately 64% of its estimated 2010 natural gas equivalent production at an equivalent price of $6.43 per Mcfe and 35% of estimated 2011 production at an equivalent price of $6.49 per Mcfe. At year end, total proved reserves were approximately two trillion cubic feet equivalent, down from 2.2 Tcfe in the previous year. The revision is primarily related to lower average energy prices in 2009 compared to December 31, 2008, and the reclassification of some proved undeveloped reserves to a non-proven category.

Boardwalk's contribution to Loews' fourth quarter net income increased to $28 million from $27 million in the prior year quarter reflecting increased revenues from pipeline expansion projects and higher parking and lending revenues which benefited from favorable pricing spreads between spot and futures market prices. For the full year Boardwalk's contribution to net income decreased to $67 million as compared to $125 million in 2008. The decline is because in 2009 revenues from the expansion projects were approximately $122 million lower than expected due to remediation of pipeline anomalies while operating expenses associated with the expansion projects increased.

Loews Hotels recorded net losses of $4 million and $34 million for the quarter and full year versus net income of $4 million and $40 million for the fourth quarter and full year in 2008. Average room rates for the quarter decreased to $217 from $252 in the prior year quarter while occupancy decreased to 61.6% from 65.8% resulting in a 19.3% decrease in revenue per available room. Hotel bookings across the entire upper upscale lodging industry were significantly lower in 2009 than in prior years.

Net investment income from Loews trading portfolio was $16 million for the quarter versus a net loss of $78 million in the prior year fourth quarter. For the full year investment income was $113 million versus a net loss of $33 million in 2008. Improvements were primarily from better performance in the trading portfolio and a larger cash balance. Much of the losses in 2008 related to mark-to-market losses in the equity portfolio which has since recovered.

Holding Company cash and investments as of December 31st totaled $3 billion. As Jim mentioned, during 2009 we purchased 348 million of our common stock at an average price of $33.05. Additionally, we made investments in Boardwalk pipeline of $150 million for common units and $200 million for subordinated debt, and we paid $108 million of dividends to our shareholders. We received $954 million in dividends from our subsidiaries and $175 million of investment income from our trading portfolio. $250 million of senior preferred stock was redeemed by CNA and $100 million of subordinated debt was repaid by Boardwalk pipeline.

Now, I will turn the call back over to Darren.

Thank you, Pete. Operator, at this time we'll open it up for questions.

(Operator Instructions). Our first question comes from Bob Glasspiegel of Langen McAlenney.

Good morning. Given that I don't have the 10-K, can you give me the year end carrying values for Diamond, Boardwalk, CNA and HighMount?

I don't think we have it readily available, Bob.

Okay. We'll wait until the 10-K. Jim, your commentary on interest rates seemed to be more pronounced that the Company is positioning for rates to go higher than other calls. Maybe I am over analyzing, but in the context of expecting interest rates to go higher, how does that affect how you position your portfolio with the parent user cash?

The parent, we don't have much in the way of fixed income. We do from time to time trade in the government bond market, but we don't have fixed income the way we do in CNA. And the reason I wanted to talk about book value and what's going to happen is that I feel pretty confident that at some point in the next few years interest rates are going to go up, and CNA's book value is going to go down. And this is just a way of saying in advance I told you so, and trying to make abundantly clear, at a time when we don't need to say it, what will happen to the book value, and the fact that in terms of the operation and financial strength of CNA that it is pretty much a non event if the book value does go down as a result of an increase in interest rates.

We could have this discussion later, but if you have strong conviction that interest rates are going higher, to me it would have some influence on CNA's desire to write long-term casualty business where assumption of loss cost growth factors into how you might price the product.

It much more affects us in the management of the portfolio than the underwriting of insurance products. Tom Motamed is not at CNA to do cash flow underwriting. We are there to be in the top quartile of underwriters and to achieve combined ratios commensurate with that. So we are looking to generate significant underwriting income at CNA.

Just making my point clear, if you had perfect knowledge that inflation was going to be running 8% in the next three to five years, you would not want to be writing much long-term casualty business. So it would go the other way, it seems to me it would make management want to be more restrictive on underwriting, not aggressive.

I know, but I am more concerned about interest rates than I am inflation.

You think we might have interest rates going up without inflation?

Without significant amounts of inflation. I think that's entirely possible.

Thank you. I may have some follow-ups.

Your next question is from [Fatin Shaw] of Capital Stone Global Markets.

Good morning. Thanks for taking my question. It seems like you picked up the share repurchases a little bit more in the fourth quarter and I think you mentioned that you're requiring another 1.6 million since today's release, so just want to get your thoughts on going forward. I know you stated that are you looking to continue the share repurchases but as far as a thought process now with the market conditions, has any of that thought process changed? Are you looking for discount to NAV? Are you looking at absolute dollar amount to make these repurchases? That's the first part. Second part is, any indication or any update on how to potentially monetize the current assets that they're being held at the Holding Company level, primarily HighMount, similar to how you did Boardwalk pipelines, you did IPO of just under 20%? Doing a potential IPO or spin off to the market doesn't necessarily have to be a significant amount to monetize that value, so just want to find out your thought process on that with market conditions currently.

First we'll discuss repurchases. We are following the same playbook that we've followed for the past 40 years or so. That is, we buy the shares in when we think they're attractively priced. We use a whole host of measures to do that. We look at some of the parts valuation. We look at earnings. We look at cash flow. We look at just about everything that any analyst would look at in determining whether the shares are cheap or (inaudible). And then we act accordingly. I can't say how much money we would spend in the course of the year on repurchases, but the thing I can say is we will do absolutely nothing in any way to jeopardize the financial strength of Loews. I said in my remarks that we have $3 billion of cash. We have $866 million of debt. I think that even though we spent last year $350 million repurchasing shares, our cash balance at the end of the year was higher than at the beginning of the year. So we are very conservative in the management of those share repurchases.

With respect to monetizing assets, it is funny. I don't know how to answer you because if we were thinking about an IPO and I would say something, then we would be jumping the gun. And I can't do that. If I say we're not doing something, then maybe that gives a different answer, and you could gain your way to figuring out what we're doing. Let me just say that instead we constantly look at markets. When we've taken businesses public, they've been for very, very specific reasons, and because we thought it would be not only good for Loews but also good for the shareholders of Loews and the potential shareholders of those subsidiaries. But beyond that, I don't want to talk about what specific plans we have for the IPOs of any of our businesses. I am sorry to say, but it is the way it has to be. You will find out when, as and if we file a prospectus for that business.

Thank you, Jim. Have a good day.

Your next question comes from Michael Millman of Millman Associates.

Thank you. Maybe pushing a little bit more on the repo, the first question is how much cash on the balance sheet at this point in time gives you comfort? Or put the other way, how much could you spend on repos given the opportunity?

First of all, in terms of how much cash gives us comfort, I can't give you an exact number. I can tell you if you look through history we have had significantly less than $3 billion and we have still been comfortable. Let me leave it at that. What was the second part of your question?

It was the reverse of that but I think you have answered it. The next question is where do you see the most upside for Loews value over the next couple of years?

I am reticent to answer but what the heck, I'll sally forth anyway. My sense is that CNA is trading at two-thirds of book value, is a place where there could be significant upside opportunity. The stock is a prove me, or it has to prove itself to the market but I have seen what the management is doing. I have seen what the numbers look like, and I have a sense that they will be able to do what they say they're going to do. As we say, stay tuned and we'll all see.

Right. Given what you said before, it would seem reasonable that the market is assuming that interest rates will go up and that therefore the book value will go down. Do you think selling at two-thirds of book value is taking this into account?

Yes, because right now the mark-to-market on the investments at CNA is pretty much a wash, it doesn't have much of an effect on book value. So I don't think that going forward in the future that the level of interest rate will have a significant impact on the price of CNA's stock. I think people will look through book value and instead look towards the underlying operating income of the Company on a quarterly and annual basis. I think that if interest rates were to spike up and therefore the book value were to decline again, I don't think that would be such a significant factor.

So basically you see opportunities for the Company to do a lot better in its basic business and that would drive the stock?

For CNA, yes.

Great, thank you.

Your next question comes from David Adelman of Morgan Stanley.

Good morning, Jim. Just one question. It has to do with the prospect of the Holding Company considering or making an acquisition. How does the fact, if at all, that Loews continues to trade at a sizable discount to its sum of the part value influence your thinking with respect to doing a large scale acquisition?

A large scale acquisition would be a use of cash just the way share repurchases are a use of cash. We weigh the long-term benefits of all the different opportunities including share repurchases and acquisitions in trying to determine what is the best course for Loews. So it is sort of like going to the eye doctor and looking at the eye chart and say is A more attractive or B more attractive, can you see more clearly with A or B. And we make our decision that way. We don't feel that we have to make an acquisition. What we feel we have to do is constantly be striving to increase the long-term value of the company. And we use whatever means we can which we believe provides the best results for all our shareholders.

Okay. Thank you.

Your next question comes from Steve Velgot of Susquehanna.

Yes, I had a couple housekeeping questions, and then I was going to ask if Jim could comment on what seller's expectations have generally been like in looking at acquisitions. But the housekeeping questions are the cash and investments at the Holding Company are excluding the $1 billion investment in CNA preferred, I take it?

That's correct.

Okay. And then the second question, Peter, could you just restate what Loews holds in terms of the subdebt at Boardwalk or was that all paid back?

We owe $100 million.

Still $100 million. Okay. And Jim, the question about overall expectations among sellers, if you could just comment on whether or not you think expectations are too high or it probably always seems that way when you're more of a buyer, but I wondered how that may have changed over the last year or so?

I don't know what the specific expectations of sellers are. I would put a little differently. I would say that with respect to a lot of businesses, sellers are looking to sell based on the economics of '07 and early '08, and buyers often times are looking to buy based on the economics of late '08 and '09. And it is too early to tell yet exactly how that's all going to weigh out. We're going to have to see, as well, what happens to the economy, and with that in general corporate profits and for each particular instance the profitability of those individual companies. My general sense is that we are not going to have a robust recovery the way we've had from prior recessions. And my reasoning for that is that I believe that this, what we now call great recession, is different from prior recessions. And it is different because it didn't come about because the Fed raised interest rates to choke off an expanding economy, rather it came about, I believe, because we as a nation had a mountain of debt that basically fell down on itself.

We had debt to GDP in the '50s of 120% and that has expanded over the past 50 years to 360% of total debt to GDP in our economy. And in '07 and '08 that mountain cracked, and then crashed the economy. When you come out of a normal recession, what happens is that the Fed loosens up on interest rates after they choked off the inflationary expectations, and then the banks lend money, extend credit and with that extension of credit you have that expansion phase coming off of the bottom of the economy. This time around there is not that extension of credit. And the reason is because there is already too much credit in the economy either on the part of the homeowner, homeowner and consumers primarily, but also the overall economy in general. And so I don't believe we're going to get that boost or lift-off phase that you get ordinarily of of the bottom of a recession simply because we're not going to have the accelerant which is the credit extension in order to finance it. So just to bring that back to the price of buying businesses, we operate under the assumption that things are not going to get better, significantly better, in the near term, and we'll have to see what the market is thinking with respect to the economy by looking at the prices that others are willing to pay for businesses that are up for sale.

Okay. And then just a quick follow-up, Jim. Do you tend to expand your scope of potential acquisitions more globally of late or are you primarily focused in the US?

We're primarily focused in the US for a number of reasons. Number one, they don't make airplanes fast enough. Number two, they haven't eliminated time zones. Number three, we have a tough enough time understanding how to do business in the culture here in the United States, and to think that we could, from a few thousand miles away, master it in a foreign country just doesn't really make sense to me. Additionally, the question always has to arise if the opportunity is so good, why aren't the locals in that foreign country taking advantage of it? So for all of those reasons we tend to maintain our focus here in the United States. We're not afraid to have businesses that deal internationally. For example, Diamond Offshore has very substantial operations that occur outside the United States, but we are in general looking for businesses that are located here in the States.

Thank you.

(Operator Instructions). Your next question is a follow-up from Bob Glasspiegel of Langen McAlenney.

I was wondering if I could drill a little deeper into HighMount. A lot of moving parts over the last year. We've written down $1.1 billion in the carrying value. You've gotten more active with the well costs coming down, you've got the Mobile XTO transaction which to some extent validates the carrying value of your original purchase as opposed to the writedowns. The question is, are things getting better or worse for that investment in the last year? Does the carrying value writedown that the accountants forced on you seem unduly conservative relative to the economics and the fundamentals of the business? How should I think of what the value of this business is today?

Listen, I don't know what the value of the business is. I do know we bought HighMount for about $1.65 per Mcfe which was at the time an attractive valuation and I still consider it an attractive valuation. The writedowns that took place last year occurred because of the spot price of natural gas on one particular day. And last year the price of natural gas got down to, Henry Hub's gas got down to a price with a handle of one on it, so it was like $1.80 or $1.90. But at the end of the quarter when we had to actually determine whether there would be a writedown, the price got down to, I think, $3 and change, some very low price. In the meantime, the SEC has changed the rules for the SEC 10 ceiling test impairment charges. And so I think if these new rules had been used in the prior quarters, the writedowns would not have been as significant.

I would say also, as you can imagine, I think the business is getting better overall. Certainly gas prices are up, or at least spot gas prices are up. The twelve-month strip is now trading at just under $6 an Mcfe. That's up significantly from where it was during '09, and importantly the cost of drilling wells has come down rather significantly for us. Going back a year-and-a-half to drill a well in Sonora cost us in excess of $1 million, or about $1 million. It has since declined to about $450,000, and now it is ticking up a bit because of what's going on with steel prices and the like. But nonetheless the cost of drilling is still rather low, and we find especially in our major market which is Sonora, we can drill wells at what looks to us to be very attractive returns for HighMount.

It seems like, obviously, the accounts make it harder to write up assets than write down the assets, but if things are getting better, the fundamentals are improving, and your balance sheet reflects $1.1 billion hit to something that doesn't reflect economic reality, it seems like at some point the accountants would say we're being too conservative and now we're carrying this as is.

I have never, ever, ever, ever seen an accountant say you're being too conservative, and likewise I have never, ever, ever seen them say, gee, the value for that asset is too low on your balance sheet, why don't you write it up? It doesn't happen.

The way you get the benefit, Bob, is because you wrote the assets down as you go forward and so gas in the future you have lower costs to amortize and get the benefit very gradually over the future.

Okay. Thank you for the education.

I am going to propose you for the FASB board.

I have testified a few times, and they could care less what I have to say.

Your next question comes from Allen Glen.

Thank you. Good morning, gentlemen. My question relates to the spin off of Lorillard in 2008.

Ancient history.

Yes. Generally are you glad, given what's happened to the Company since then with the increased excise taxes that you made that decision in looking back?

You know, I don't like to look back. I look forward. I think the shareholders of Loews have done well. I think the shareholders of Lorillard have done well. I wish Lorillard all the best luck in the world. Marty Orlowski does a phenomenal job running that business. But I don't want to sit here now and second guess should we have done it or shouldn't we have done it. Let me just say we're very pleased with how Loews looks today.

Thank you.

Your next question comes from Adrian Day of Adrian Day Asset Management.

Good morning. I would like to ask a general question if I may, the opposite of what you were asked earlier about good things that could happen. Obviously the balance sheet let's you sleep at night. That's great. What is it that you think could go wrong with the Company or frustrates you about the circumstances?

I would advise you to look at our upcoming 10-K or prior 10-Qs that talk about certain risk factors. There is, I think, 30 pages of things that could go wrong. But just to mention a few, I would say oil prices could go down significantly, gas prices could go down, both of which would hurt Diamond Offshore and also HighMount. Generally that wouldn't hurt Boardwalk too much. And likewise Boardwalk has pretty much finished its major capital project, so it would be difficult to see what could hurt Boardwalk significantly other than a dramatic change in gas demand or some things going on intramarket, in the different markets that Boardwalk serves. And likewise I am assuming no gas leaks or explosions which are something that could happen to anybody in the pipeline business.

When you talk about CNA, that's a work in progress. I think that, as I said before, the people at CNA are doing a great job. But anything can happen there. We could have more hurricanes, and even outside of hurricanes season, earthquakes have been known to strike from time to time. So catastrophes are a significant risk as well as investment portfolio. At the hotel business there is the overall economic environment. There is the risk, hopefully they have learned their lesson, but there is a risk that Washington can do yet more to try to kill the business. But notwithstanding all of these risks they are risks that we live with, they're risks that I am accustomed to. I feel generally comfortable taking those risks, and I feel especially comfortable that we at the Holding Company have the cash and financial resources in place such that if, heaven forbid, some of these risks actually do come to pass, that we have the ability to come through them in pretty good shape.

Okay, that's great. I appreciate that, thanks.

Your next question comes from Joe Lew of Mass Capital.

Good morning, gentlemen. Just going back to HighMount, did you say what the PV-10 value for the reserves were under the new SEC rules?

We did not say it, no.

Okay. And what are your thoughts on hedging? When you look at the curve, right now going out to 2011, I think call it 640-ish, which is roughly in line with where the assets are hedged today, just thinking about strategically how to position HighMount into maximizing value there, have you given thoughts to hedging the production there more?

We have stated as a general rule that we like to be hedged one year's worth of production over the coming two years, and that's approximately where we are now. Additionally, when we do some of these drilling programs, and in particular the program that we did last year when gas prices were very low, we drilled the well, but we didn't complete it or frac it until sometime starting in December. And what we did is we hedged the first three years of production in order to be able to lock in very significant double digit returns on those investments. So we think that hedging is a very attractive tool that we have in order to maximize returns for HighMount.

And then also what was the CapEx for the year for HighMount?

The CapEx was -- we have Dennis Millet and Tim Parker on from HighMount.

Jim, it's probably about $200 million is what we spent in capital in 2009.

Great, thank you.

If there are no more questions I will turn the call back to management for closing remarks.

Thank you for joining us on the call today. A replay will be available on our website Loews.com in approximately two hours. That concludes today's call.

Thank you for participating in today's conference. You may now disconnect.