Obsidian Energy Ltd (OBE) 2009 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Penn West Energy First Quarter Results Conference Call. (Operator Instructions). I would like to remind everyone that this conference is being recorded on Wednesday, May 6th at 2 o'clock Mountain time.

I will now turn my conference to Bill Andrew, CEO. Please go ahead.

Thank you and good afternoon to everybody. I'd like to welcome you to Penn West's 2009 First Quarter Financial and Operating Results Conference Call. With me this afternoon in Calgary is our President and Chief Operating Officer, Murray Nunns, and Murray will handle the bulk of the scripted part of the call. We've also got our Chief Financial Officer, Todd Takeyasu as well as other members of our Senior Management Team at Penn West.

Historically the hallmark for Penn West has been to meet guidance and to prudently manage our balance sheet. In recent years we moved aggressively to consolidate our position as the dominant player of conventional oil in Western Canada through the acquisitions of entities, such as Canetic Resources Trust and Petrofund energy Trust.

These large acquisitions took time to integrate into Penn West and during this time our results were disappointing. For the full year of running behind us since acquiring Canetic and with the addition of Murray Nunns as President and COO, as well as filling in other key leadership team members, I'm please to report that Penn West is now back on track.

Our production volumes were consistent with guidance. Our exploration and development teams continue to position Penn West aggressively to develop our wealth of assets and we continue to take prudent steps, the prudent steps necessary to restore a healthy and strong balance sheet.

Penn West Trust units are traded both on the New York Stock Exchange under the symbol PWE and on the Toronto Stock Exchange under the symbol PWT.UN. All references during this conference call are in Canadian dollars unless otherwise indicated and all conversions of natural gas to barrels of oil equivalent are done on a six to one conversion ratio.

Certain information regarding Penn West and the transactions and results discussed during this conference call, including management's assessment of future plans and operations, may constitute for forward-looking statements under applicable securities laws and necessarily involve risks.

Participants are directed to Penn West news release issued this morning and they are also asked to review the advisory notice therein. Participants are also cautioned that the included list of risk factors is not exhausted. Official information on theses other risk factors that could effect Penn West operations or financial results are included in reports on file with Canadian and US Securities Regulatory authorities and may be accessed through the Sedar Website and that is at www.sedar, S, E, D, A, R, dot com, and the SEC website at www.sec.gov or to our own website at www.penwest.com.

Additionally, during this conference call certain reference to non-GAAP terms maybe made. Participants are directed to Penn West MD&A and financial statements available on our website, as well as filings available on the websites noted earlier, to review disclosure concerning non-GAAP items.

Following our review and update this afternoon we'll open up the phone lines at which time we'd be pleased answer your questions. With that, I'm going to turn the call over to our President and COO, Murray Nunns.

Thank you, Bill. We'll start off with just a commentary on production and then move through some other facets of the Company. Penn West averaged 180,100 BOE per day for the first quarter and exited the first quarter producing at just over 182,000 BOE per day.

During Q1 Penn West also disposed of approximately 4,900 barrels per day of production in non-core areas. We are well positioned to meet our first half 2009 guidance of 180,000 BOE per day, which is before the impact of dispositions and/or acquisitions.

Our production was weighted to petroleum liquids, which made up roughly 59% of our first quarter production. Our liquid stream continues to register at approximately 30 degrees API, a relatively light mix.

Natural gas production averaged 447 million cubic foot per day, which was a 41 -- which makes up 41% of our daily production mix. In the first quarter approximately 75% of our cash flow comes from liquids, while the remaining 25% comes from natural gas.

On to some of the key financial numbers -- looking at our financial numbers, funds flow for the first quarter was $348 million. We incurred a $98 million net loss for accounting purposes due primarily to continued weakness in commodity prices. The average sales price for crude oil over the first quarter of 2009 was $38.30 per BOE. That's a decrease of 44% from $68.35 for the first quarter of 2008.

The average sales price for light oil and natural gas liquids was $44.50 per barrel, which is roughly half of what the sales price was for Q1 of 2008. Natural gas prices averaged $5.37 per MCF for Q1 2009, a 33% decrease from the previous year.

In 2008 Penn West entered into contracts, which see approximately 36% of our 2009 crude oil production, net of royalties, hedged on callers with an average US $80 per barrel floor price and average $110 per barrel ceiling. Approximately 30% of our 2009 natural gas net of royalties was contracted on callers between $6.50 and $10.00 per GJ.

Given current strip price and our own forecast, this has material impact on our 2009 funds flow. For the first quarter these contracts accounted for about $9.60 per barrel gain. As part of Penn West proactive risk management policies, we continue hedge positions of our 2010 production to ensure a measure of financial flexibility and capital program certainty. We've hedged approximately 20% of our 2010 crude oil production net of royalties with callers between $52.00 and $68.30 per barrel on the ceiling side and about 14% of our natural gas, 2010 natural gas, with floors at $6.50 per GJ and a ceiling at $9.50 per GJ.

Moving on to distributions, distributions paid during the quarter totaled $314 million equating to payout ratio of approximately 90% compared to 53% first quarter of 2008. We believe the recent reduction in distributions from $0.23 per month, per unit per month, to $0.15 per unit per month was necessary to avoid incurring debt to pay our distributions and to allow funding of our capital programs on a going forward basis.

As result of this reduction, and using a conservative commodity price forecast for the remainder of the year, we anticipate a payout ratio of approximately 60% for the remaining quarters of 2009. We prefer a long-term funds flow allocation, which sees approximately 60% of our funds being paid out to unit holders while investing the remaining 40% back into our asset base.

Preserving our balance sheet to maintain flexibility is a high priority for Penn West. We consider this reduction of distributions to be prudent in the current economic environment.

On the debt side of the equation on-going non-core assets sales, our minor equity issuance, a reduced monthly distribution and the reduced capital program in 2009 and continued debt capital diversification are all part of our debt management strategy for the first quarter.

Penn West's long-term debt at the end of the first quarter totaled $3.8 billion excluding convertible debentures. The debt currently consists of $2.3 billion of bank debt drawn on bank lines of $4 billion after the effects of the previously announced private debt placement. As such, Penn West now has a total of $1.4 billion in private notes. Our bank line is not subject to review until January 2011.

On the capital side of the equation, we invested approximately $181 million in development of projects during the first quarter, primarily weighted to crude oil. We focused on low cost production additions, while continuing to prove up select large scaled resource and enhanced oil recovery plays. Our strategy of divesting non-core assets continues to yield results evidenced by the closing of asset sales totaling 4,900 BOE per day in the first quarter.

Penn West believes the disposition of non-core assets brings increased focus to our operating groups and allows greater focus on Penn West comprehensive development strategy. The divested assets were primarily low productivity natural gas properties with higher than average abandonment and reclamation costs.

Subsequent to the quarter end, Penn West completed the acquisition of Reece Exploration. This acquisition has production volumes of approximately 1,900 BOE per day of primarily medium to light oil from Southwestern Saskatchewan, as well as land positions, which complement Penn West existing positions. Consistent with our strategy of pursuing scalable and repeatable plays, this purchase with further strengthen our development inventory in a highly strategic area to the Company.

In closing, we are gaining traction in our development and exploration programs, as evidenced by our strengthening production volumes. While we are encouraged by the positive gains this year to date, we remain vigilant in our efforts as we focus on our strategy. Penn West is developing a deep inventory of both tight oil and placed plays and gas resource targets, which will drive the Company's profitable growth for many years to come.

In addition to Bill Andrew and Todd Takeyasu today, joining us this afternoon in the room are a number of members of Penn West's Senior Management Team. We have on hand Dave Middleton, our Executive Vice President of Engineering and Corporate Development; Mark Fitzgerald, our Senior Vice President of Production; Hilary Foulkes, our Senior Vice President of Business Development; Keith Luft, our General Counsel, Senior Vice President in Stakeholder Relations, Dave Sterna, Vice President of Marketing and Jeff Curran, our VP of Finance.

I would now like to turn this call over to the operator and open up the phone lines to callers.

(Operator Instructions). Your first question comes from Chris Griffith, a private investor.

Murray, I just want to zero in on one thing in particular, the debt, the debt according to the [owage] report, including the convertible debentures, is $4.150 billion. That's a heck of a lot of Big Macs. Has that debt been reduced a little bit in the first quarter?

I'll turn that question to Todd Takeyasu.

We through the first quarter reduced our debt by about $260 million. You have to -- if you're looking at the Press Release, you have to pick up the working capital because there was a swing in there, so when we speak of debt we speak of all in debt. Over the course of the year we -- our current forecasts say that we're going to bring down debt somewhere on the $400 million to $450 million if -- well, current commodity prices stick, so we think we're on track there and --

$500 million this year.

Approximately so yes.

Now my next question is production. Are you replacing your production through the drill bit?

Any production replacement for any company is always a combination of efforts, combination of I'd say consistent operations in the field, and that's definitely an area where we put particular emphasis in the first quarter in terms of repair and maintenance work. It was also a result of drill bit efforts in both the fourth quarter and the first quarter. So we're very confident that the combination of efforts across the Company is what allows us to be a sustainable entity and establish the potential for growth in a lot of our assets.

So you feel, Murray, then that according to the report for '08 December 31st the reserve life index was 11 years and at the end of '09 that figure will be maintained.

Given the nature of our assets and the type of work we have and the oil in place that we have, yes we believe that is where we're driving towards.

Okay, okay, so I can leave my shares to my grandchildren and 25, 50 years from now the Company will still be drilling.

It might not be the people around the table but we will definitely still be drilling.

Distributions, your contemplating that distribution won't be altered if commodity prices remain about the same for the foreseeable future?

Yes, Chris, I think part of what we're looking at, as is -- as are all the trust companies right now, is the introduction of the stiff legislation in January 2011. After that there's a two-year period, January 1st, 2011 till January 1st, 2013, where you've got a grace period to convert to a conventional corporation without a pretty large tax consequence.

So what we're doing right now is with Murray's effort is basically strengthening the team to get ready for that eventuality. The timing on it will depend on a few things. One is the speed at which we can develop the resource plays that we need to compete as a conventional exploration Company.

Secondly, obviously, is the whole credit market, the availability of credit and commodities and other things that don't -- that affect us very greatly but things that we do not have control on. So what we are basically doing, we cut the distribution down to $0.15 because of our real fear of accumulating debt to pay distributions. We really do not want to do that.

Secondly, as we move forward at some time, and we don't know exactly when, but probably some time before the end of 2010, we will want to have more capital available and there's a possibility that we would trim the distribution.

By the end of 2010.

What would cause a distribution to stay where it is or increase, obviously, would be a ramp up on commodity prices. This year we're at $0.15. I believe the important thing that investors need to recognize and Murray indicated in his -- when he was speaking, is that we had a gain of about $9 a barrel on our hedges this year. Next year not as significant a gain. Next year the forward strip is not looking as strong as it is in the first quarter of this year so at -- what we're anticipating next year we would -- it would probably be tight on the distributions.

Oh so there's a good possibility they will be trimmed by the latter part of 2010?

I think I believe investors have to be ready for that because at some point it's simply not efficient to continue to operate the Company as a Trust. At that point and, again, depending on where we get. We've got a lot of things in the hopper. Murray is working very hard, as are the rest of the Team, with our larger plays. We believe we've got a tremendous asset base. The speed at which we can move forward on the asset base will determine what we will say to there, what will go to you, the unit holders, with.

Do we go forward with a straight conventional Company? Do we go forward with a Company that maintains a dividend and a reasonable dividend? And those are things we're going to determine over the next year and a half to two years. And it is that long a period. We're going to take our time. It took us time when we decided to convert to a Trust. It will take us time as we decide exactly the best road going forward.

I see. Okay that's fine. Thank you very kindly.

Gordon Tait, BMO Capital Markets.

Just a couple of points on your capital program, it does seem like from a year, a year and a half ago you've shifted some of your focus away from say the [CLO] offense play and CO2 development into maybe the exploitation of your Viking and Cardium friends. Can you maybe talk a little bit more about like about that? How did the economics of those plays look sort of in a $50, $55 environment and what sort of upside or how much potential do you see there in terms of drilling activity?

Thanks, Gordon. I'll break that into two parts. Yes we have distinctly -- we've taken a longer look at our entire inventory of resource potential within the Company, both from oil in place or what we classify as tight oil or enhanced oil recovery projects versus CO2 and [Seal]. It's not that we don't see the long-term potential of CO2 and Seal. It's I think it's a question of timing and priority. We believe some of this what I think one analyst called Brownfield projects can be -- are more readily accessible to us and really fit a good midterm project scope for us, so that's been the overall intent as we looked at the inventory.

In terms of potential adds that we're really in the midst of testing it, having looked at the cost structures associated with what the world should be like in a $50 to $55 oil environment, we believe we can readily achieve something in the $15 per barrel cost of adds for these projects and we believe that is very suitable for a 20%, 25% rate of return on a large-scale projects.

So looking in particular now at Pembina and [Dodsland], we will drill approximately 10 to 14 wells over the balance of this year in terms of different initiatives in those two fields, establishing the productive capability, establishing exactly injection rates and response times within the field. But all early indications that we've seen have been quietly encouraging. I would put them at that point and we will be marching down the road and then by next year, if these things fall into place, we'd see -- and this year we're probably spending about $125 million to $150 million on resource related projects within the Company and we could see that expand past the 25% mark to closer to the 40% mark in next year. So we're, again, quietly encouraged, continuing to push along those projects.

All right and then one more question just on your balance sheet, do you have a level of debt you're aiming toward, like a debt to cash flow or some metric where you -- some of you are doing some sales of production and paying down debt and taking some excess cash? Where would you like to be? Where would you like to see your debts that allow that?

In the ideal world we'd be -- we'd have total debt around $3.5 billion and that would be if we're looking at the strip next year, that would put us at just a little over three times debt to cash flow or right around that number. And I think it's reasonable that sort of $50 oil and $5 gas that three to one would be -- and that, Gordon, that would be the outer limits and obviously if we could pare it down from there that would be good.

Normally, in a robust commodity price environment we try to get our debt to cash flow down to about one to one, as the price starts to tail off less. Right now certainly we have some concerns about the capital markets and that's probably causing us to be more prudent that we'd normally be on debt.

All right thanks.

[Anthony Marvin] from Strong ARM Investment.

Just curious, I caught on to the conference call a little late and caught the tail end of your discussion regarding future changes down the road. As that time approaches, have you or do you plan on doing I guess for back lack of a better term, stress tests I guess you could say on different scenarios that would play out in regards to whether we remain a Trust or whether we go to corporation, whether the dividend or the distribution levels remain the same or --

Yes we certainly we're doing that and will continue to do that over the next 18 months or so or maybe two years. The things you have to look at is obviously the landscape around us so where are commodity prices, what's the capital market like? But within the Company itself, the things that we can control and Murray can drive forward. To emerge from a Trust model into a full growth E&P model, you have to have a developed depth of plays. You have to have the ability to execute on those plays consistently and we're very encouraged with the first quarter results. We've got to get some quarters under our belt.

We have to get a little further along the curve on a number of our resource plays. We've been focusing predominantly on tight oil in Southwest Saskatchewan and in Alberta and on shale gas opportunities in BC. We've got to move forward with those types of plays. The other I guess an off ramp or a possibility as well, is that if we're not meeting that pace you look at a trust like model or you look at a model where you've got the ability on a dividend or a larger dividend.

But for Penn West what we have to do is we have to be ready to emerge as a growth corporation so you have to try and gets your ducks in line. We feel we've got about two years to do that and sometime in the period obviously we've got an obligation to the unit holders to talk about our plans and what we feel going forward and we'll unroll that and unveil that as we move forward.

Right now, obviously we feel we've got the assets to compete. We've been in a trust for several years now. We haven't had access to all of the capital so we've been limited in terms of our spending. We have to achieve more consistent results. We have to get our exploration effort up, so those are things we're working on.

Okay do you see -- do you foresee the growth coming from assets that are already under our belt or do you see that coming from acquisitions or --?

It's going -- you know, the model that we used in the past I think will be the model going forward. The twist, of course, is that in the past in the conventional oil and gas business when I say conventional oil and gas business I'll forget about the oil sands. It's been normally vertical wells and lots of them. If you look at the trend and what's been the trend for the better part of a half a dozen years or more, the companies that are providing growth are those that have the resource plays. We feel that most of resource plays are underneath or are on the land where we're producing right now, so it's just a question of adopting new technology, and the technology is there, into those assets.

So that's where we feel the growth has to come from and it has to come from what we call non-conventional type of ideas or technology such as horizontal multi-frack drilling. We will always be open and that's been a history of the Company as well as that part of it as well is acquisitions and small acquisitions like the one we just completed with Reece all the way up to larger acquisitions such as the one we did with Canetic, so that's always a tool that you have in the chest but you -- fundamentally in an exploration company and to succeed as an exploration company you have to have the ability to go to the bit and have your bit delver growth. So that's where we need to get to in the next while.

Okay well it's certainly good to hear that you have your eyes on the growth if there's going to be any potential to the -- you know, for the distribution, that's good.

Yes no we need to do that.

Yes, yes and how is the CO2 recovery going?

It's going well. We've been -- and Dave Middleton has been leading the charge there. We are involved in a process right now where we would like to take one of our pilots up into a commercial pilot stage but we're looking for some involvement with the government and they're going through a short list right now as to where they're going to allocate their funds. It's a little tough. CO2 is a tough game at $50 oil and so we are continuing with our pilots. We're continuing with our experimental work but we're not going into full scale development.

Okay and then just one last question on whether we stay a trust or whether move into a Corporation, I guess my initial inclination would be to say that oil and natural gas prices doesn't really have much of an impact on that decision. Is that right, given the fluctuation?

Yes it's probably counter to -- probably at the opposite to what most people would think. I believe if you get to a point where let's say that we had stress on the commodity price, so let's think in a world we don't like to think of but let's look at say $25 oil and $3 gas. At that point basically you need all of your cash flow just to maintain the capital program and to run the business, so there basically it would have cut the distribution to a point where there's really no point in calling yourself a trust, so it's more -- yes when I talk about commodity price it's more of the low end, which would impact the ability to distribute cash.

Okay and I guess I said it was my last but actually this is so I apologize. In your models that you're running do you foresee with favorable oil and gas prices do you foresee a Corporation with a dividend or would it just be growth Corporation, no dividend?

I guess in the back of my mind I see a Company that will probably have a dividend. Ideally is that say we want to get ourselves into shape where we could go full growth but I think in the near term -- and when I say near term, I mean the near term obviously we're going to continue in the trust model in the medium term I would say you'd look at a combination of growth and a more modest dividend than the distribution is at right now.

Right, right, because I mean it seems, you know, I'm sure there's a lot of investors here because of the income play and I see that that creating volatility as we approach that date, so I -- you know, I just --

And that's one thing that we're certainly aware of and I know the -- all of the other COOs and CEOs with a trust are very aware of the same thing.

Right but we're stronger than they are.

We like to think so anyway.

All right. I appreciate it, guys.

(Operator Instructions). [Kevin Hanrahan] with KMH Capital Advisor.

Congratulations on your improvements in the balance sheet. I had a couple of questions about the balance sheet and maybe you can't answer these but I'll give it a shot anyway. And I saw you paid down bank debt I think in three different blocks year-to-date. Would you say -- and I know the banking system has had a lot of pressure, although the Canadian banking system looks better than the American banks. Were you under pressure from the banks to pay back debt or do you think it was a good idea yourselves?

Fundamentally we have time on our bank lines. That being said, we believe that, as you have indicated, given the current shapes of bank the little less you owe them, probably the better off you are. So our repositioning, and we really started this process 18 months ago, has been an ongoing -- it's an ongoing basis and we describe it internally as hitting a series of singles, rather than trying to hit a grand slam on the bank line.

So what we've done is combinations of private placements, minor equity issuance, dispositions and then the distribution cut. So we've really put a whole series of things together to continue driving in this direction and Todd had alluded to potential debt reductions before year end and from whether it's cash flow or other dispositions and so our aim and intent is to continue to lower what we owed the banks, puts us in the best possible position for a go forward basis.

Right and you issued some notes this year and I look at your notes. I think you've got -- correct me if I am wrong. I think I got $200 million due starting in 2015 for seven years in a row and so that debt seems to be longer-term debt that you wouldn't, you couldn't get in too much trouble on in the near term.

Right. That was part of the -- the big thing that and when we started this effort as Murray said about two years ago is the diversifier debt so that's -- I mean there's two actions we have going on at the same time and one is debt diversification, so to get away we ran the Company for 15 years or more, all in short-term debt. For us, you know, at that time 60 days was a long note. We recognize that you can't continue to run this size of Company on short-term debt. So we've gone to the market and we've termed out a portion of our debt, so that we've got some lead time and we can work that in.

The second part is the bank debt itself and we've been whittling away at the bank debt, particularly with the Canetic acquisition we took on some debt. We got a debt to cash flow ratio that was a little higher than we were comfortable with. We pushed some of the debt off the balance sheet last year, as Todd talked about earlier. We'll continue to do so this year and next year.

Our bank facility itself, the renewal date on it is mid-January of 2011, so there's lots of time. The discussions with the bank have been very amicable on the rollover of the facility. The main facility is CAD3.25 billion, so we're not -- Murray put some color and I think it's the color that everybody shares that's on the phone is that there's concern with the world financial situation and to the extent that we can pay down some of the amount of money that we owe, we'll do that.

If I could ask one other question, I know after the what I call a Halloween massacre, which I think was Halloween of '06, after that the Finance Minister came out with some rules like you could boost your capital or boost your investments by 100%.

Basically, it's called the Safe Harbor Provision that allowed you to acquire assets that represented 100% of your market cap prior to the Halloween massacre, as you term it. So basically we have a Safe Harbor Provision in the Company of $15 billion.

Okay and that includes the acquisitions you've made like Canetic, etcetera?

No Canetic was a trust on trust, so that doesn't include it.

Oh, that doesn't count? Okay. Well, can you give us an update on where you would be, you know, how much more room do you have to go?

Most of it's left.

Oh, most of it's left. So the Reece acquisition didn't count either?

It did, but it's small.

Oh, it did count, but Canetic did not count?

Right. Reece was at the end of the day a small number.

Right. It was $100 million.

Right.

Maybe $100 million ex of debt I think. Okay, well thanks very much and keep up the good work.

Mark Werner, Private Investor.

I'll tell you, I've been an investor with Penn West for a long time and I appreciate your stewardship during this rough economic period, but I feel a little disappointed in hearing something I haven't really heard and that is that I believed we had a good two-year period because of the tax pools or depreciation pools, which we might call in the United States. The dividend, the idea of the dividend or distribution could stay relatively high, given a decent price for oil and natural gas and you all sound like to me, as an outsider as sort of erring on the side of being very, very conservative. That's my first statement and/or question.

And, secondarily, while you all can't predict politics as being one of your American investors or US investors, is there any possibility that maybe your liberals will get in there and maybe soften the blow of the October surprise?

I've learned not to make--

And I realize that's a touchy question, but I think we should be thinking about that as well, especially in light of the fact that it seems like you all are so focused on becoming a corporation and cutting these distributions, which is basically the main reason why I'm in the Canadian trust in the first place.

Thank you. And I guess to clear things up first, we're not -- you know, we're not just wildly going forward to become a growth corporation. We recognize that after the 1st of January 2013 if you convert to a corporation after that date then there is a tax consequence and it's a bad tax consequence for the shareholders of Penn West, so ideally you'd like to do it before that time.

To that extent, we have to move forward and get ready for it. And in three years or three and a half years, as you know, goes by fairly quickly. We've been in the trust business for almost four years now and that time has gone by reasonably quickly. So we need to get our playbook in order. We need to continue to do as good a job with execution as we did in the first quarter and move forward, and so that will really dictate the speed at which we would transition from a trust into a corporation, the type of corporation, whether it's a full growth model or a corporation that has a modest dividend and a portion of growth, would reflect the plays that we have.

So that's the fundamental part about what we're doing going forward. We can't and certainly we do have tax pools, but I think it would be not prudent on our part in managing the Company to just say well we'll just fire away with the trust model and continue with the trust model to 2013 and then wake up on New Year's Eve and say, "Oh, we got to convert to a corporation" and I would turn to Murray and say, "Well, I guess we better get the drill bit in the ground" and he'd say, "We don't have very many locations." So we're just -- we're basically trying to build a playbook, get ourselves in position. We believe that that positioning will happen sometime between the latter part of 2010 and the outside would be into 2013 -- late 2012, sorry.

I appreciate that and I understand it and I am a friend and not a foe.

No, no, I'm not trying to beat up on you.

Right, I just want you to know that I think that within some conservative parameters I think that the shareholders or stockholders or unit holders need to have some stronger feeling. While you're being conservative I understand that, but let's say let's go from the sublime to the ridiculous. Let's say because of inflation, let's say God forbid because of the war in the Middle East, let's say oil shot up to $100 a barrel again for a three or four month period, I'd like to at least know and I'm sure there are other investors who would like to know. Well, gee, you know there is a small chance that this dividend could jump up for six months back to $0.30 a share if things got rosy again for the industry.

And I'm not getting that from this conference call and I say that with all due respect and I do that as a significant -- Penn West is a significant part of my portfolio, so let's say things just went back high, is there a possibility under those circumstances?

Certainly. In the near-term if you -- if Dave Sterna came in and told me that, you know, the oil price we're trading at $100 right now, then we would certainly turn to Todd and say, "Let's pay down some debt" and we would do that to a point of time. You know if we got into a robust oil price and it kept that way then obviously we'd look into our model and we'd say how much capital do we need? How much do we need to pay down debt and how much is available for distribution? And if there's an extended period if you're beyond the stage where it's a month or two or three months, then obviously you've got to look at the distribution.

The same reason as we -- you know the initial cut that we made on the distribution and the second cut, the primary reason for the cut in distribution was basically because we couldn't finance it. We were not going to go into debt to pay a distribution, so as the commodity price rebounds, certainly something that we look at, but I will caution investors and I don't want to go through it too many times, but I'll caution investors that one of the things that we've got going in parallel with this is strengthening our exploration team, strengthening our ability to deliver good consistent results and that's going to take a little bit of that capital in the short-term.

Right, I understand and I appreciate your answer. I just--

It's a difficult thing to know price, exact model. This is what we're going to hit for a distribution, but obviously, yes we -- that was one of the levers we used as commodity prices were going down. As commodity prices recover, and I hope like you that they do recover, certainly the distribution is something we look at.

And I am more concerned about the price of the stock than I am about the distribution. I'm kicking myself as I say that, but that's true. And secondarily, as a non-Canadian, and I think I'm the only person that might ask this, but again politically are we supporting the party that obviously conservatives aren't going to do it, but do the liberals have a snowball's chance in heck of getting elected up there? Is there anything we can be doing to help, so they might go back to that 10% plan? Is anybody bringing this up as you all near an election, unless I'm mistaken?

Yes there's been, as many well know, we've been actively involved with the Canadian Coalition of Trusts and working to try and reverse the decision. We've met a brick wall thus far with the conservatives. The liberals have indicated what I'll call very soft support for looking at a change to the proposal or to the Trust Legislation. So where that leaves us, if you've got the party in power that says no and if you've got the opposition that says maybe, you know we'll work like heck to try and convince the ones that say maybe to say yes, but in the interim we've got to go ahead and say what are the real chances of them taking this up as one of the top things on their agenda.

And I do recognize for individual shareholders it is very disconcerting what happened in 2006 on Halloween, but I think we also have to recognize what's going on in the world and they're probably not going to pick this up as an issue. They should, but they probably won't. There's other things that are politically more palatable and more salable and will attract them more votes than reversing the trust decision and that's a hill that is probably fairly daunting to climb.

Well, one last question along those lines and I'll let you all go. Are there any alliances with any of the other trusts or municipalities in these areas where we drill or produce oil and natural gas? Is economies are suffering so much we can go and politically form a union with them because certainly some of these towns and provinces have seen real estate prices and things just fall off a cliff because of the price of energy. Is anything being explored along those lines?

We've actively been doing that for two years and we have not ceased on that. We talk to the mayors of the many small towns that we operate in and around. We talk to the local politicians, both at a municipal county level, also the provincial politicians. We talk to federal politicians about the fact that, you know, whether the made in Canada solution with the trust was a good solution and that we view the legislation that the conservatives put in in late 2006 is very harsh and we also think that the trust would be a pretty good model right now when you're looking at the lack of yield that's available to most investors. So we are -- it's not for lack of effort.

Okay. I know that. I know that, but anyway right now they need us in a way more than we need them.

I think so, but.

Some of these builders and apartment owners, etcetera, etcetera. Anyway, thank you for your time and your efforts. I appreciate it very much.

Mr. Andrew, there are no further questions. Please continue.

Thank you, very much. I'll turn it over to Murray for the last words on this. Thank you.

Anyway, I appreciate everyone's time and attention today. We look forward to, as the year progresses, being able to report the results on some of the significant initiatives on the broader potential within the Company. And, again, thank you for your time and attention.

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.