Obsidian Energy Ltd (OBE) 2010 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Penn West Energy Trust third quarter conference call. I would now like to turn the call over to Mr. William Andrew, CEO of Penn West Energy. Mr. Andrew, please go ahead.

Thank you, and good morning, and thank you for joining the conference call. Welcome to our 2010 third quarter financial and operating results call. With me in Calgary this morning our President and Chief Executive Officer, Murray Nunns, as well as key members of our senior executive team, our Chief Financial Officer, Todd Takeyasu is here as well. In less than 60 days, with share holder and regulatory approval, we intend to move Penn West to our next phase of growth as a conventional exploration company. As discussed in a recent investor day, we plan on converting to a corporation on or around January 1, 2011. Unit holders of record should receive a proxy mailing in the very near future which outline our plans for conversion to an income -- from an income trust to a corporation as well as proposed changes the equity held by unit holders. We believe we are well positioned to move aggressively back into the exploration and development business as a conventional corporation. Our business model calls for a balance between growth and yield. We believe that this model for investors looking for sustained development and active exploration complemented by quarterly income is the right model.

The foundation for sustained developing is in place with strong land position interest in many of the top tier resource plays in North America. We believe an unparalleled inventory of drilling locations, we've already identified 8,000 and Murray will talk in more detail but we're basically adding more every day. We've got a very strong, very experienced technical team as well as an extremely strong financial team. I don't think we need to say more about the strength of our M&A team and the creative deals that they do as well. Last but not least, we are now in a position to say that once again we've got a strong balance sheet which leaves us tremendous flexibility.

Our exploration team is focused on the application of horizontal technology on tight rock and on source rock. We're looking forward within our basin and outside our basin with a strategic plan that emphasizes early entry, ingenuity, resource control and creative deal making. As a Corporation, we will move to a quarterly dividend that will provide a level of income for our investors and we'll -- we've provided detail in our last conference call. The board, as well, yesterday was in agreement with management on setting a sustainable type of dividend and proceeding forward with that, and that would be at the -- at or near the level of current distribution. Details on our conversion will be availible very shortly and the detailed perspectives that will accompany your proxy.

Penn West units are traded on both the New York Stock Exchange under the symbol, PWE, and in the Toronto Stock Exchange under the symbol PWT.UN. And I will advise you as well that there will be a change in that symbol on conversion to a conventional corporation. We suspect it's just going to be PWT without the UN. All references during this conference call are in Canadian dollars unless otherwise indicated and all conversions of natural gas to barrels or equivalent are done on a 6 to 1 basis.

Certain information regarding Penn West and 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 news release issued early this morning and also asked to review the advisory notice therein. Participants are also cautioned that the included list of risk factors is not exhaustible. Official information on these other risk factors that could affect 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 at www.sedar.com, the SEC website at www.sec.gov, and, as always, we invite you to visit our website at www.pennwest.com where you'll find not only this information, but also the most recent of our investor packages and also pertinent information that we encourage unit holders and potential shareholders to read. During this conference call certain references made to non-GAAP terms. Participants are directed to Penn West MD&A financial statements availible on our website as well as filings availible on the websites noted earlier, the review disclosure concerning non-GAAP items.

Following our review and update this morning, we're going to open the phone lines at which time we would be pleased to attempt to answer your questions. With that, I have extreme pleasure to turn the call over to the President and COO, Murray Nunns.

Thank you, Bill. The second half of 2010 represents a pivot point for Penn West. We entered Q3 with three drilling rigs operating and we finished with 20. The appraisal process of our extensive light oil asset base has now reached critical mass. We are now driving forward with the development phase on our key resource plays. We have the depth and breadth of drilling inventory to significantly grow volumes, not just now, but well into the future.

On a production basis, third-quarter results were very similar to the second quarter and on track with our expectations as we averaged approximate 164,000 BOE per day. Also during the third quarter we closed our second significant JV. This time on the Muskwa shale gas play near Wildboy in northeast British Columbia. This, in combination with a number of other transactions has lowered our net debt by almost CAD800 million in 2010 which provides us with the financial flexibility we need as we implement full EMP strategies.

In looking at our 2010 capital and operations, in early September, we increased our capital budget by CAD150 million which, in combination with the approximately CAD100 million in strategic land acquisitions for key exploration development plays will bring our total annual capital spending to approximately CAD1 billion in 2010. At the end of Q3 we have 20 rigs operating, concentrated primarily on our four large-scale oil plays. We anticipate drilling 320 wells in 2010. By the end of Q3, 110 of these wells were on production. A further 160 wells will be brought on by year end with a balance of 50 wells on stream early in 2011. We expect the average annual production for 2010 between 165,000 to 167,000 BOE per day, with a exit rate of approximately 168,000 BOE per day.

And now turning to the 2011 capital and operations. The aim for 2011 will be to carry forward the momentum that we built in the second half of 2010. The program for 2011 will continue to focus on light oil with more than 85% of our capital spending directed to these projects. We will drill between 180 and 200 wells in the first quarter of 2011. We anticipate operating 30 rigs in total and have all required services under contract. Approximately 70% of the rig fleet will be deployed on our four major oil plays. In the first quarter we anticipate between six to eight rigs running on the Cardium, five rigs on the Amaranth, two to three rigs on the Colorado play and five rigs running on the Carbonates in north-central Alberta. We will also be advancing appraisal work on our two major JVs. Gross spending is expected to be oppressively CAD250 million next year on these two projects with Penn West exposure about CAD40 million. We will also be testing a series of exploration concepts in 2011. We believe this is an important step in driving Penn West forward as a full cycle exploration company. Penn West capital spending, capital budget for 2011 will be between CAD1 billion and CAD1.2 billion. We anticipate forecast annual production to be between 172,000 to 177,000 BOE per day.

For us, and all of us at Penn West, all the pieces are in place. We are executing on a high-quality inventory with the ability to provide value added growth. The Penn West vote for conversion to an EMP is anticipated to be on December 14, 2010 in Calgary. We look forward to providing investors with ongoing returns and consistent -- consisting of growth and yield as one of North America's leading EMP companies.

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. As we said before, these are the people who make the wheels turn and have brought us to this point where conversion is not only imminent but essential and are prepared to drive this company forward. Going around the table we have Dave Middleton, our Executive VP and Managing Director of the Peace River Oil Partnership; Hilary Foulkes, our Senior VP of Business Development; Mark Fitzgerald, our Senior VP of Production; Bob Shepherd, our Senior VP of Exploration and Development; David Sterna, VP of Marketing; and Jeff Curran, our VP of Accounting and Reporting as well as Jason Fleury, our Manager of Investor Relations. In addition and absent from the team today, Keith Luft, our General Counsel and Senior VP of Stakeholders Relations. He's grinding away on that prospectus we just talked about. And Thane Jensen, our VP of Operations who is in the field undoubtedly and where ever he is I can almost guarantee you he's got a wrench in his hand. So, with that we will turn the call back to the operator and are open for questions. Hello, operator?

We will now take questions from the telephone line. (Operator Instructions) The first question is from Michael Zuk from Stifel Nicolaus. Please go ahead.

Good morning guys. Just an order of magnitude and I guess by region, where are the 160 wells awaiting tie in?

The 160 wells combination of still drilling and ready for tie in. I think Bob Shepherd can give you a bit of a rundown on approximate where and which types.

Yes, so we've got roughly 15 to 20 -- 17 wells in the Cardium to tie in the remainder -- later this year. There is just under 40 wells at Waskada, 13 wells in the northern Alberta carbonate, 40 up in the Viking oil play, the Colorado oil play. And then the rest of them, there's roughly 40 wells that are spread across our Viking gas play and rest of the portfolio.

Perfect. Thanks.

Thank you.

Thank you. (Operator Instructions) The next question is from Gordon Tait from BMO Capital Markets. Please go ahead.

Good morning. I was wonder if you could provide a few more milestones or some benchmarks for those two emerging resource plays, specifically Seal. Where do you expect to be on the development of that play by the end of 2011?p

Really, on the Peace River oil properties, 2011, the primary trust of 2011 is really appraisal. We set this play aside for the last two years as we concentrated on our oil resources plays. So, the main focus will be vertical appraisal is approximately 60 well program of vertical appraisal across the spread of the properties. There's a small horizontal program, but limited volume impact from that. And then, the third piece for 2010 will be initiation of cyclical steam tests in one of our already producing areas. That will give us that first hand information in terms of performance. And then driving toward 2012, looking at what I will call commercial appraisal of steam projects later in 2012 with more appraisal. So that's the general timeline forward on this project. Really limited volume 2011, 2012 starting to move into significant tests of technology on extraction.

What we did, Gordon, is -- as you know, with the partnership with China Investment Corporation, in fairness, we wanted to have good and fruitful discussions with them. And a -- partner meetings which we have completed. We're still in the midst of, obviously, working through and with that partnership. We wanted their input as well and they've had very in input with regards to setting the development plan. And that will set the wheels in motion to get our application in for the thermal pilot. Based on what we have seen in the past, the approval time from submission to go is somewhere in the range of 18 to 24 months. On receipt of that, then Dave and the team, with the cooperations and the approval of our partners, will move ahead with the first large commercial pilot. And then from there we'll moved to the first commercial application of the steam or the thermal process. Until that time, the plan is to this year drill about a dozen horizontal wells, as Murray talked about, 50 or 60 continued appraisal well. They are more to set up what would be thermal projects, three, four and five up the road. Dave and the team, as well as our partners, are set on where we want to be with the first thermal project and pilot is just waiting approval process.

Alright, thanks for that. Then just with the state of the gas market, do you see the Horn River player, the Cordova embankment -- is that kind of on the back burner, or are you still going to move forward with that?

We're going to moving forward aggressively. I'll have Murray talk about the plans on that.

Yes, the general plan at Cordova is really to drive ourselves through an appraisal test. Up here, it's much more a combination of vertical strap wells to extend out across the property. And testing the path technology and building up to a full-scale path. So we are looking at the path of approximately 8 wells this winter and getting a full scale test off on that development style and approach to the area as well, as we said, extending the reach. We've gone through this within the context of JV and our partner, Mitsubishi. They're encouraged by going down the same route with our ability to access of the North American gas market, with our access through Alberta. We believe this puts us well advanced in terms of moving this play ahead. And positioning it for the long-term and putting us in a position where we can steer how hard, how fast we develop this as the North American gas market unfolds.

Yes, the plan for this winter is 10 to 12 wells. We will be putting them through our gas plant at Wildboy, getting a few more data points. We believe we've got it good start. There's the really a three step process and Cordova -- the project in Cordova. First step would be to fill the Wildboy gas plant up. That'll take us to between 130 million to 150 million cubic feet per day. We think 150 million because of the pressure that the shale gas will be producing at. We can take the next logical step up which we believe is about a doubling of the gas plant size and a looping of our existing sales gas line into Alberta. That would take us up to 300 million cubic feet. After that, we are relying on our partner. Those of you that know Mitsubishi know that they are world leaders on LNG facilities. They're world leaders on gas marketing. They have a plan. We're keen to be part of the plan that would involve an LNG -- ultimately an LNG terminal and the ability to move product outside North America as well as inside North America.

Alright. Just one question then -- for step one of that plan, when do you -- when would you expect to fill up the Wildboy gas plant? When do you that could be --

I think you'll see us move aggressively after this winter. You know, we're kind of watching the gas price a little bit but we also are very aware that we need to appraise this project. If you look at our first phase in isolation, a strong leg up that we believe we have in the area is the fact that we have great infrastructure. We've got an under utilized gas plant, we've got a pipeline and road system that goes right up into where we're going to develop. We want to get back in and winter drilling. Those of you that have followed Penn West will know that we're very used to doing that and also with my COO, we'll also know his past history -- he's got no fear of drilling gas wells in the winter time. So we're going to drill 10 to 12 this year and we'll make a stronger push next winter, with the approval of our joint venture partner, and then, keep moving from there. So, it'll get -- Gordon, it'll get very aggressive after this winter.

Okay thanks.

Thank you. There are no further questions registered at this time. I would like to turn the meeting back over to Mr. Andrew.

Thank you very much. We're available, certainly today, by phone if there are any more questions. We encourage you again to go to our website. And also to pay close attention because we will be coming out with the information circular perspectives and the voting instructions with regard to the proposed move to a corporation. Thank you very much.

Thank you the conference now has ended. Please disconnect your lines. Thank you for your participation.