Obsidian Energy Ltd (OBE) 2009 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Penn West Energy Trust fourth quarter and year-end conference call and webcast. I now would like to turn the conference over to Mr. William Andrew, CEO of Penn West Energy. Mr. Andrew, please go ahead, sir.

Thank you and good morning. Welcome to our 2009 fourth quarter and year end financial and operating results conference call. With me this morning at the Penn West office in Calgary is our President and Chief Operating Officer Murray Nunns, as well as our Chief Financial Officer Todd Takeyasu, and we've got members of our senior management sitting around the table as well this morning. 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 PWE.UN. All references during this conference call are in Canadian dollars unless otherwise indicated. All conversions of natural gas to barrels of oil equivalent are done on a six to one conversion ratio.

2009 was a successful year for Penn West. Our daily production exceeded our guidance and the renewed focus and energy of our teams led to significant improvements in capital efficiency. These improved efficiencies provide a solid platform for more aggressive capital program in 2010 and into the future. As we position the Company for transition to a conventional exploration Company, we'll continue to work hard to unlock the potential of our assets, as we believe we have the assets to add considerable value to our investors. As a corporation, Penn West will focus on total shareholder return. This will consist of both growth and income from dividends. The growth will be achieved through increased focus and attention on resource plays.

Certain information regarding Penn West from the transactions and results discussed in this conference call, including Management's assessment of future plans and operations, may constitute forward-looking statements under applicable securities laws and necessarily involve risks. Participants are directed to Penn West's news release issued earlier this morning and they are also asked to review the advisory notice therein. Participants are also cautioned that the included list of risk factors are not exhaustive. Official information on these other risk factors that could affect Penn West's operations or financial results are included in reports on file with Canadian and US regulatory authorities and may be accessed through the SEDAR website at www.sedar.com and the SEC website at www.sec.gov. We always welcome to you come to our website, www.pennwest.com. There you will see all that information. You will see a tremendous amount of information on both the Company as well as our most recent investor materials, including usually the presentation that either Murray or I are carrying on the road to present the Company to potential investors.

In addition, during this conference call, certain references to non-GAAP terms may be made. Participants are directed to Penn West's MD&A as financial statements available on our website as well as filings available on the websites noted earlier to review disclosure concerning non-GAAP items. Following the conference call, the text part of the conference call this morning and our update, we would like to open up the phone lines, at which time we'd be pleased to answer your questions. With that and with no hesitation, we'll turn the call over to our President and COO, Murray Nunns.

Thank you, Bill. As Bill mentioned, Penn West 2009 results exceeded expectations. This morning we'll devote some time to our strong results in 2009. But the important message for 2010 is Penn West's focus on being a leader in conventional tight oil plays across the Western Canadian Sedimentary Basin. We are going to accomplish this through disciplined resource evaluation and consistent resource development strategies. As we transition to an E&P Company, Penn West is as well positioned as any comparable entity to provide investors with the strong combination of cash yields and growth.

Let's take a quick run through our financial results. Funds flow for the fourth quarter was CAD366 million, or CAD0.86 per unit. WTI averaged just over CAD76 per barrel in the fourth quarter, compared to just under CAD58 per barrel in the same period for 2008. For natural gas, our average sales in the fourth quarter were CAD4.39 per Mcf compared to CAD7.03 per Mcf during fourth quarter 2008 prior to the effect of hedging. Net debt including working capital was reduced by approximately CAD822 million in 2009. In addition to that, last month Penn West closed a property swap, which saw an additional CAD434 million applied to the Company debt. Penn West's total debt on a pro forma basis stands at slightly over CAD3 billion. Let's put in that perspective. Over the last 18 months, through one of the toughest downturns the economy has seen in recent memory, or extended memory, Penn West has de-leveraged the Company by approximately CAD1.3 billion, which positions our balance sheet well for the transition to an E&P Company.

On the hedging side of the equation, for 2010, we have 35% of our liquids hedged at a floor of $60 with an average price of about $75. On the gas side of the equation, approximately 20% of our 2010 natural gas production is hedged with an average floor of CAD6.34 per Mcf, and average ceilings of CAD8.74 per Mcf. We've also hedged 85% of our 2010 electricity at a price of CAD70.65 a megawatt hour, and 2011 to 2012, we've also hedged out now, taking advantage of the current energy pricing, with 80% of our power consumption at approximately CAD58 per megawatt hour. On the operations side of the equation, our 2009 production guidance was 171,500 barrels to 176,500 barrels per day, and that was net of property dispositions. Penn West averaged 177,000 BOE per day for the full year, exceeding guidance, as Bill had noted. Net of dispositions, production in the fourth quarter averaged just over 170,000 BOE per day.

Let's move into the capital realm, and that's really where it points to the focus of the Company on a forward basis, and looking at our capital investments. Excluding A&D activity, Penn West spent CAD196,000 in the fourth quarter, bringing 2009 development capital spending to CAD688 million, which was within our full year guidance of CAD650 million to CAD700 million. The resulting finding costs of our 2009 program were CAD13.75 per BOE before changes in FDC or future development capital. This is a significant reduction from CAD18.94 in 2008. Underlying our strong operational results is effective use of capital and consistent execution of development strategies. We can and will add value through the drill bit.

On that note, let's highlight three plays moving from east to west across western Canada. We'll start off in Manitoba, in the far eastern side of the Western Canadian Basin. In the lower Amaranth zone at Waskada in Manitoba, we have expanded our drill program in 2010 to between 35 to 50 multistage horizontal fracture wells. This expansion is fueled by our positive results in 2009. Last year, we drilled seven horizontal wells, which achieved an average three month production rate in excess of 100 BOE per day per well.

In the Viking play at Dodsland in southwestern Saskatchewan, Penn West completed the first delineation phase of drilling in 2009, which included 35 horizontal oil wells. Initial production from these wells was in excess of 3,000 BOE per day. We are pleased with the progress on this play, and we anticipate drilling at least an additional 45 to 50 horizontal development and delineation wells in2010.

In the Cardium zone, which extends across west central Alberta, the 2010 development plan includes the drilling of 35 to 50 horizontal wells. These locations will expand our work being done inside the known Pembina field while targeting areas within our large land position in the surrounding acreage, or halo portion of the trend. Encouraging well results from some of our recent development work inside the known pool has indicated that there is much potential to be unlocked in our position of more than 570,000 net acres on the trend, which dwarfs anyone else's holdings on the Cardium trend. Some of the areas that we will be active in will include, obviously, Pembina and West Pembina, as well, Willesden Green and Buck Lake and in Garrington. We will be active across the trend.

Overall for 2010, we anticipate spending CAD700 to CAD850 million on our exploration and development programs. We believe this will result in production of approximately 165,000 to 173,000 BOE per day, taking into account the last transaction of swap and disposition of the Leitchville/Shaunavon properties on a volume basis. However, and the one point I will make about the capital spending, the 2010 drilling program will expand to a level commensurate to the growth potential of our assets. Where and how much we spend from April through the end of the year will be greatly influenced by the results of our first quarter 2010 drill program.

Just on an additional note, if you are going to transition to being an E&P Company, one of things you have to have is an exploration arm. As Penn West accelerates capital investment into our deep inventory of resource development projects, we are taking a number of steps to also ensure the long-term viability of our strategies. Complementing today's extensive resource play development, we have added an exploration team which is actively evaluating prospects to find new resource plays as well. 2010 is shaping up to be an exciting year for Penn West with increasing financial flexibility, our focus on large scale resource development, which will be complemented by an expanding inventory of promising projects.

Just before we take some calls, I would like to let everyone know that in addition to Bill Andrew and Todd Takeyasu, joining us this morning in the room are a number of members of Penn West's senior management team. The people that really make the wheels turn are Dave Middleton, the Executive VP of Engineering and Corporate Development; Mark Fitzgerald, Senior VP of Production; Hilary Foulkes, Senior VP of Business Development; Bob Shepherd; Senior VP of Exploration and Development; Keith Luft, General Counsel, Senior VP of Stakeholder Relations; and Dave Sternas, the VP of Marketing; and Jeff Curran, VP of Accounting and Reporting. And I will now turn this call over to the operator and open up the phone lines to callers.

Thank you. (Operator Instructions). The first question will be from Jonathan Fleming from Cormark Securities. Please go ahead.

Hi, guys. Looking at that 800 barrel a day well that you drilled into the water flood part of the pool, wondering how long that well has been on production? If you can give us some color around if there is any water cut in that well, and where you would see the reserves on that type of well relative to the tight curve that you had at Investor Day. And finally are you going to have any follow-up tight flows on that in the water floods part of the pool?

Hi, this is Bob Shepherd. The well in question is -- has been on a relatively short time. We've got a couple -- or just over a week's production from the well. It is currently being evaluated and we're very encouraged by those early results. I would want to emphasize we do have tremendous amount of follow-up potential, both to this well in the interior parts of the field and in PCU9, but as Murray mentioned, we're extending the program well beyond that. So it's the first of many that I think you are going to see, and it is early days in the well, but very encouraging production rates.

I will just follow up with that, Jonathan, a little bit. Overall, if you look at our holdings, approximately 30% are what we classify as pool center, and about 70% are either perimeter or halo positions. I think our program will have a slight bent to the perimeter halos, but we will continue to evaluate and develop on the interior pools, because what we've seen is there is a good spread of results on the interior of the pools. And we believe in that the long run that this technique will work for both areas. It will work for the interior of the pools, and it will work for the perimeters and the halos. So we are encouraged on both sides. We think this well in particular can be equal to or exceed anything that's been found in the trend to date. It's just an indicator of -- in an area where there's a little bit of pressure in the center of these pools, there's ample opportunity for us to develop those as well as our perimeter and halo positions.

Thanks, Murray. Wondering as well how much activity would it take for you guys to decide that you really want to ramp up this program? Would it be a certain amount of capital spending that I should look for? Do you say, I need to spend CAD50 million or drill 25 wells? Or what's the magic to deciding, okay, this program really works in the [target] and we're going to see it really go hard?

I'll take a step back from that question even a little bit and say what should you be looking for as we transition to an E&P Company. We believe we will be in a position by later this year to be drilling plus or minus 500 to 700 wells a year in terms of both inventory depth and execution capability. That's what we see as a requirement for the future. We believe we have both the depth of inventory and the teams and personnel in place to do exactly that. In terms of any particular play, I think as we cross the threshold from 25 plus wells, you can anticipate basically an acceleration. Now, just given the size of the Pembina field and the Cardium trend as a whole, that number may be a little bit higher for that trend. I think as we exceed the 50 to 75 wells out there, we will have a series of projects that will accelerate, and our numbers should grow exponentially on appropriate plays.

Very good. Finally, on your F&D, the CAD16 including FDC this year, which is a very big improvement year-over-year, and congratulations on that -- is that a representative number of what we should be looking for going forward, all things being equal, commodity prices changing a lot, could change how those costs go?

As we stand back from the overall program, we believe that a CAD14 to CAD16 window is appropriate for finding costs on these style of plays, which yields a very solid recycle ratio at the $75 oil mark. So we see that as the logical sweet spot for a lot of our inventory. That's an appropriate level for us to achieve. The one underlying point I'd really like to drive is that even at these levels, when you look at our reserve book, is included, or is released now, I think the one thing you should understand is that less than 5% of that reserve book is attributable to horizontal impact. Most of that book is still tied to just vertical development of these fields. So we believe there is a tremendous upside in our overall reserve book for the long run.

Thanks very much, Murray.

Thank you. The next question will be from Greg Shaw of TD Securities. Please go ahead.

Thank you. Just following up on the question on the Cardium, in terms of your reserve for 2009, can you break out -- were there any key drivers of the increases this year?

I will turn that question over to Hilary Foulkes.

One of the biggest areas of reserve growth this year was through horizontal drilling in the Leitchville area, and then just generally across all of the properties that we're putting an additional focus on. So there was probably a little bit heavier weighting towards Leitchville, then really the development programs as they started to kick in in the properties that we were referring to earlier.

The one thing we did see, Greg, and I will chime in on that one, is we did see good horizontal bookings in all the areas where we are active, and we are quite comfortable that we haven't extended those in the slightest yet in terms of our overall book position.

Just a follow-up question there. On the horizontal bookings that you would have seen, can you quote any numbers for the three core areas?

I don't think we have those right at hand.

Thank you very much.

Thank you. The next question will be from Kyle Preston from Canaccord Adams. Please go ahead.

Yes, thank you. Can you guys hear me okay there?

Yes.

Just to follow on, on that 800 barrel a day Cardium well there, can you speak to -- was there anything different you saw with respect to the reservoir characteristics on that spot? Was that area currently under water flood, or is that an area that maybe was not swept from the water flood?

I'll take a wee rip at that. We've been in that area for 1.5 to two years. Our initial focus was on the enhancement of water injection. If you look at Cardium, in particular there's a small area, 1% or 2% of the total sand, aerial extent of the sand that has really produced a good portion of oil. The recoveries in that area are over 30% There's an area immediately surrounding that which would represent 5% or 6% of the pool, and you end up picking up recoveries of 25% to 30%. We're just beyond that, and where we've been focusing is primarily on the Pembina Cardium Unit 9 and the area surrounding that. We've been looking at water injection. We had geared our wells towards injecting water. We were getting rates of up to 500 barrels a day of water injection initially. This would compare with vertical injection rates of 30 to 50 barrels a day. We were very pleased that the injection rates stayed up good rates over the period of a year to 1.5 years.

So what we decided to do last year was let's take a couple of these water wells or injection wells, see how much oil we can get out of them, and we were very encouraged. We weren't getting the rates being reported in some of the halo wells recently, but we were taking wells basically from nothing, taking them up into the range of 60, 80, 90 barrels a day. So Bob and the team said, well, let's try just a straight oil well in the area and complete it. For oil, this our first one in an area that I think is being widely dismissed because it's got some pressure maintenance activity, and it came in. We cleaned it up for seven days. We've had it on flow for another seven days. And I think as Murray said, it's making in the range of 700 to 800 barrels a day, plus solution gas.

So there's lots of room in the area. If you look at our land map, it's pretty much Penn West color in and around where this well is. Murray as well talked about the amount of land that we have on what people are really focused on right now, which is the perimeter in the halo. I think as -- having been in Pembina now for 15 years, what we find is every time you turn over a sheet of paper, you see something new. It's a tremendous resource, the largest aerial extensive oil field in North America, the largest conventional oil field in Canada, and I think there's a lot of oil there.

Thanks. Can you also talk about any additional wells you drilled in the halo area and what kind of results you got from that?

We haven't drilled any yet.

One other question -- with respect to future asset sales, are you still planning more there, and what about your distribution policy going forward?

I will tackle the first part, and we'll flip the second part to Bill. The first part in terms of asset sales, we've been out filling the balance sheet to the point where we're reasonably well positioned. I think as we see opportunities to clean up the asset base a little bit more, we now have pretty well defined buckets of which plays we want to be in, which areas we're really focusing in. So there may be some selective divestiture point forward, but we're not rushing things out the door by any means. It really is to operationally streamline the Company and focus our operations, and also I think we're much more at a balance point now where we want to be adding selectively in our core areas. When we get the appropriate pricing, where we're ahead on the play, we are going to be adding into selectively in those areas and consolidating places where we're first movers. So that's a key focus for us as we move forward through 2010. And then I will turn the distribution question to Bill.

At our board meeting yesterday and last night on the press release, we voted to continue the distribution at CAD0.15 per unit per month for the next three months. We'll update that again at the end of the second quarter. What we're doing is basically, as we come up the curve and Murray and Bob and the teams have got us coming up the curve very rapidly, 1.5 years to two years ago after we went through a spate of acquisitions, we knew we had to revamp and revitalize our exploration and exploitation efforts. We've done that. We're to the point where we know we can keep it flat and maintain the current distribution. But we also know that we've got the properties right now that make sense to put a growth component into the story and into Penn West. Our belief is that we will ease into that growth, and we'll look at efficiencies. We'll look at commodity prices. Both things will affect the distribution going forward and the dividend going into the period when we convert to a conventional corporation. In the interim, we'll keep the distribution where it is. But, as I say, we will be having another review of that at the end of the first quarter. So expect something in May. We'll talk about it a little more.

Thanks, guys. Sorry, one last question here, just with respect to are you guys seeing any cost pressure? We're hearing from some of the other producers that they may be seeing some uptick in costs, especially from the pressure pumpers and the like.

On an overall basis, no. We have seen occasional equipment pinches, but they seem to be very localized and very short term. What we are seeing actually is the other side of the equation. What we're seeing is, as you start to ramp up these programs, your real gain is on the efficiency side, the ability to go to a manufacturing model and execute continuously. Frankly, we believe, on the average play from first well to 10th well, we see an efficiency gain of between 30% to 40% in terms of cost reduction. So frankly, we're seeing the opposite trend. I think one of the keys to be understood relative to shale gas plays. Shale gas plays take 200 to 300 ton fracs. They take small swaths of pumping equipment out of play for an extended period. Our typical fracs while we're doing these are in the range of anywhere from 10 to 25 tons. So we need 0.1 of the equipment. We're a lot more mobile, a lot quicker in those operations. Our drilling is dealing with smaller rigs typically. Our drill range -- we're dealing much more in the 1,500 meters vertical top end, between 1,000 and 1,500 meter vertical, and 800 to 1,500 meters horizontal. So we're dealing with smaller rigs, shorter ranges, smaller frac. Again, all of that adds to the efficiency of our operation in total.

The big thing, too, as we move through the trust model and go through a period where we're doing primarily acquisitions and didn't have a tremendous amount of activity going -- now we're becoming very active Company, lots of operations going on, lots of wells. So purchasing power comes into effect. As we start to flex that, I believe people to have recognize that as a senior independent, we're among the most active in Canada, so we have a lot of say and a reasonable amount of control over pricing. That's because of the amount of work we're doing. I'm going to -- we're on a roll. We'll give you a third one.

The other area where it's been really advantageous for us is infrastructure. In all these fields, we control the infrastructure. We're the highest working interest owner, whether it's Waskada, whether it's Dodsland. We've got existing capacity to tie into. We've got all control of that, so we can really keep our costs down -- when we go to Pembina, we own the heart of it. That's a field that had 100,000 barrels going through it at one time. Now it has 15,000 to 20,000. So we've got ample capacity to run our operations through these. So again, there's a variety of efficiencies we gain all over the place as we ramp up these programs.

All right, thanks a lot, guys.

The next question will be from Fergal Kelly from RBC Capital Markets. Please proceed.

Two questions. One, first if you could give us some color on what your plans are in 2010 for both the greater Swan Hills area and July Lakes?

There's two significant areas that are not in the top three in terms of our overall programs, but are areas we're paying particular attention to. For the Swan Hills area, we're out there testing a few things. We're doing some obvious development work on the front of the reefs. We're also taking a look at the platform. There's enough interest there that we think there's some application for the horizontal, but we're just not exactly certain how it grades out yet. We have a very extensive position, so it's a bit more of a exploration poke and evaluate type exercise. Up at July Lakes, or on the Cordova Embayment, which is an extension of the Horn River Basin -- in that area what we are doing is continuing evaluation, expanding out from our known universe. We already have two wells onstream, and we will have a series of strat wells that extend us out across the basin. So we have a very good understanding of where that play is at, probably about the best in the industry, I would suspect, on that particular portion of the play. And what we really want to do is let that one unfold. We have to see exactly where it fits in terms of cost structures. We know we have a big prize. There's no question about that. But this will help the -- what we're doing this year in terms of strat wells will quantify that price, and we'll see how the gas market shakes out in North America and how a play like this truly fits within our inventory.

Okay, and on the topic of exploration, how much have you budgeted for land and seismic in 2010?

Bob?

Roughly CAD60 million. Between CAD50 million and CAD70 million.

Great, thanks a lot, guys.

Thank you. (Operator Instructions). The next question will be from Gordon Tait from BMO Capital Markets.

Good morning. I've had quite a few questions answered. Just a couple of other things. I was looking at your overall sustaining CapEx or decline rates. It looks like the difference in production between 2008 and 2009 I think was about a 12,000 barrel a day decrease. In your release, I think you said 3,500 of that was because of sales. Is that correct?

That's based on an average over the year as opposed to -- it's really a timing issue with regard to that average, Gordon. Just to make that clear, there was obviously more volume divested, but the average effect was that -- a lot of it was late in the year.

Okay. So I think, would it be safe to say, though that about -- I think we're looking annual production to annual production, then you annualize that sales rate. So would it be 8,500 [MBtu] a day, which is natural decline? Is that correct?

The declines that we're seeing would be -- we've got about 17.5% to 18% decline on the Company.

So now you're spending -- that.

It's about 30,000 barrels a day that we have to replace each year to keep flat.

And then your spending is going up a little over where it was last year in your guidance. I presume you are looking at higher capital efficiencies coming out of these horizontal wells. You are going to lose another 3,000 BOE a day in January, is that right?

That's the big thing. Last year we went into it -- as you know, we came off numbers that were less than pretty in 2007 and 2008 on the heels of our acquisition. So for capital efficiency, Murray and crew really tuned it up last year, and we just really got going with the horizontal drilling. So as we move into an area, and basically the move will be -- you'll see Leitchville get replaced primarily by Waskada. That would be the area that's the furthest up the list in terms of where we are. Dodsland, a very close second. So we will push more wells in there, much more into what we call a development phase rather than initial development phase. And that will absolutely help our capital efficiency.

And then once these wells settle out or stabilize, what do you recommend you can -- your efficiency on replacing daily barrels would be?

I think basically you are going to have the front end coming into the hopper, and the way that the teams look at it are basically there's three phases to it. One is, and Murray talked about the exploration front end. That's the new resource plays coming in. The second is our initial development phase. There's not much of a exploration phase anymore because you are not doing a lot of seismic. Basically putting the bit in the ground, and seeing what happens when you hit it with the horizontal well and multi-frac. That, as Bob and Murray talked about, would generally be somewhere between 25 and maybe 75 wells, depending on the extent of the play. Then you are into a mode where you are infill drilling. Areas like Waskada, the thought right now is 10 to 12 horizontals per section. We think roughly the same at Dodsland as we move through the Cardium. I don't think we've hit the right number yet, but it might be six, might be eight wells per section. When you start multiplying by the number of sections, I think you've got the ability to continue that capital efficiency and improve. The other thing we haven't had the impact of, and both Murray and I and many members of the team have had to experience with doing large exploration and development programs before, is it's a heck of a lot different going out and drilling 400 or 500 wells than 100, because you've got the ability with purchasing power to go out and control your capital efficiency as well. I think it's -- yes, we know the wells -- part of horizontal drilling is that there's decline in the first year and decline subsequently. But you've got -- as long as you've got a solid inventory on the front end, that wall is not going to hit you for a long, long time.

Then with your three top play at Cardium, Dodsland, and Waskada, approximately, you've outlined the number of wells. What sort of dollars will go along with each of those areas, just approximately?

The wells at Dodsland are costing us, all in, between CAD1 million and CAD1.2 million. At Waskada, we're a little higher than that right now. I think we'll bring Waskada costs down, but they're more in the range of CAD1.5 million. In Pembina, the current costs are in the CAD3 million to CAD3.3 million range. We have cost gaining opportunities there, but I think we should be able to pull that down a bit. But that should give you some rough guidance.

Last question, you didn't say anything about Seal. Do you have any plans there? What are you thinking about Seal?

We're drilling between 25 and 30 strat wells this year. We're convinced. We spent a lot of time, we got prime results -- you've got primary, do you look at polymer, do you look at water flooding? We've come to the conclusion that the best thing to do is basically take an approach that includes thermal. But before we do that, we felt we better go out and just see exactly how extensive this sand is. We know sand itself is very expensive. We want to know exactly what it's like over the bulk of the 200,000 acres that we have on the southern block. And so we're out this summer, this winter and this summer drilling and into the fall, 25 to 30 wells after that. We'll work on some thermal and then go forward.

For us, Seal for us has always fallen into this dark hole because the short term economics are tough in Seal. You are looking at some primary recovery, but you're dealing with very viscous oil. You're dealing with high costs to get it out of the area and get it to the market. So if you look at those type of returns, versus what else we've been putting on the other plays that Murray and the team has been putting on the deck over the last couple years, Seal gets put back on the back burner. We know we need to change that. I think, and we've made no bones about this as well, you could very well see us take a backseat on that play and see somebody come in and basically give us a hand to move it forward.

Coming back to your question on cost, I just wanted to emphasize, those are the kind of costs we're seeing now. And really Dodsland is the only one of those where we've got enough wells into the program to be close to optimized when you look at -- so I would really expect for Waskada and Pembina, as Murray mentioned, and as we drill more wells -- we've seen this on every program where we've taken 30% out of these costs. So I would expect you are going to see that on the numbers I gave you for Waskada and Dodsland. If you build a long-term model, that's more the way you should be thinking.

All right, thanks.

Thank you. The next question will be from Cliff Griffith, a private investor.

Good morning, gentlemen.

Good morning, Cliff.

This question is either for Bill or Murray. If somebody came knocking and wanted to buy the Company out, what in your opinion, would be a fair value for the units?

I don't think we'd sell them for what they're trading at.

I'm sorry?

I don't think we'd sell them for what they're trading at.

No, I hope you wouldn't.

That's something that we don't really concern ourselves much day to day. A lot more than what it worth this time last year, let's put that it way. The team has worked hard. They've got efficiencies in order, the finding costs are down. We're on the front end of development on a lot of plays. We're seeing great results. Todd and team really went to work with Hilary and we got the debt down. It's not perfect, but it's heck of a lot better than it was. If we were in the selling game, we've got a lot cleaner and nicer house to sell than we had a year ago. But I'm not going to speculate on a price, Cliff.

I see, okay. My next question is, regarding the debt. Are you right on target for reducing the debt, and what do you expect the debt to be by the end of this year?

Our ideal debt is in the range of CAD2.5 to CAD3 billion. I will give you a fairly wide range because we don't have a lot of control in commodity prices, but in an ideal world, we would like to see debt at about 1.5 to maybe 1.7 times EBITDA, and we're running right new about 1.85. So if we could peel another little bit off the debt, it's not like we've been doing. Murray talked about taking CAD1.3 billion to CAD1.4 billion off in the last 1.5 years. We're not going to go at that pace, but we'll look. Hilary has still got a little bit of cleaning up to do with some properties. When we look at the Company, there's probably 80% of the assets that we're pretty keen on holding and moving forward. Of that, probably 100,000 or 120,000 barrels a day that are more core, and there's some in the other, as you look to the other 30,000 to 50,000 barrels a day, there's some of that that we're just not going to have the time to go after or just really to -- too small to fit on the radar screen. What we're seeing right now, and it's been very good compared to a year ago as well is that you are starting to see some activity on the acquisition side. So we expect that Hilary will be able to move a little bit of property over the next year or so. And right now, we're looking at if we sell it, do you go on and buy something else, or do you put it all towards the debt or a little bit towards the debt? So the plan is a little bit off the debt, but not certainly the level we were moving money off the debt the last couple years.

So your target for the end of this year would be 1.7?

Yes, 1.7 times EBITDA, so that would be -- I think that would be slightly less than CAD3 billion.

Okay. My next question, Bill, would be, have you set a date for conversion to a corp?

We've talked about it. Basically our guidance right now is we're two months into the year. We talked about 18 months at the beginning of the year, so the logical times would be the end of the year this year, if not early in 2011. We're looking at not only ourselves, but we're looking at the rest of the trust players as well, and looking at their attention. It looks to be that there will be a movement, that that would be in and around the date of the change and the introduction to [sieve tech] and that would be the end of the year, close to January next year. And we intend to be in and around that date as well. But the range we're giving right now is between 10 and 16 months.

Thank you very much.

Thank you. There are no further questions. I'll return the meeting back to Mr. Andrew.

I'm already suffering from a bit of a head cold today. That's why I barged in a little bit. Thank you very much for listening to us on the call. If there's any questions, don't hesitate to call Jason or I or Murray or Todd, and we'll attempt to answer them, and thank you.

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