Obsidian Energy Ltd (OBE) 2010 Q4 法說會逐字稿

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

Thank you and good morning. Welcome to Penn West's 2010 fourth-quarter financial and operating results conference call. With me this morning in Calgary are President and Chief Operating Officer Murray Nunns; our executive management team. That includes Hilary Foulkes, Dave Middleton, and our CFO Todd Takeyasu as well as other members of our senior management.

On January 1, 2011, Penn West Exploration began operating as a conventional growth corporation. This marks a significant chapter in the history of Penn West as the Company returns to a model that was successful for many years. We believe that we are better positioned than ever before to aggressively explore Western Canada while developing those plays already in our portfolio of oil and gas assets.

We also believe that paying a portion of our funds flow to shareholders in a quarterly will enhance the return our shares provided. Penn West Exploration shares are traded both on the New York Stock Exchange under the symbol PWE and on the Toronto Stock Exchange under the symbol PWT. 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 6 to 1 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 forward-looking statements under applicable securities laws and necessarily involve risks. Participants are directed to Penn West's fourth-quarter news release of this morning and are asked to review the advisory notice therein.

Participants are also cautioned that the included list of risk factors is 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 securities regulatory authorities and may be accessed through the SEDAR website at www.SEDAR.com or the SEC website at www.SEC.gov and of course our own website where you will find this information plus our most recent investor package at www.PennWest.com.

During this conference call, certain references to non-GAAP terms may be made. Participants are directed to Penn West's MD&NA and financial statements available on our website as well as filings available on the website noted earlier to review disclosures regarding non-GAAP items. Following our review and update this morning, we will open the phone lines at which time we would be pleased to answer your questions.

Penn West's exploration emerged in 2011 in some ways the same, but in many ways different from the E&P company that grew so dramatically during the 1990s. As a trust we were able to consolidate our dominant position in light oil in Western Canada through the acquisition of three trusts -- Petrofund, Vault and Canetic.

We went from virtually no light oil production in the province of Saskatchewan to being the second largest oil producer. We added a key resource at Waskada, Manitoba and we've strengthened our whole -- both the Central Alberta Kearney fairway and the Viking fairway that crosses Southwest Saskatchewan and into Southeastern Alberta.

Our work in enhanced oil recovery included increasing our positions in the Weyburn and Midale CO2 floods which complemented our operated Joffre CO2 flood in Alberta. These projects that use industrial weight CO2 is injected to boost oil recovery combined with that R&D work that we continued to do on CO2 capture and injection leave Penn West with a greener footprint than most producers in North America and continues to position us as the leader in carbon capture and storage research.

On the exploration and development front, and Murray will get into a little more detail, we've got 31 rigs drilling in Western Canada right now. That makes us the most active operator.

The fact that between 80 and 85% of these rigs at any one time are targeting oil and most of it light oil, speaks to the depth of inventory in Penn West's portfolio and the pace that we've adopted as an exploration and development company.

Last year was pivotal to Penn West. We shored up our balance sheet while showing both ingenuity and deal acumen on the transactions we completed.

These include the sale of our Shaunavon oil assets and two groundbreaking joint venture agreements, one with the Chinese Investment Corporation on our Peace River oil sands property and the other with Mitsubishi Corporation on our extensive shale gas holdings in Northeastern BC.

As we progress through 2011 and beyond, we will continue to rebalance our project and prospect portfolio and we will continue to explore innovative means to aggressively provide funding, technical cooperation and product marketing to support our portfolio resource plays in Western Canada. Murray will guide you through our results for 2010 and then provide you with an update on the activity that he and our team at Penn West are undertaking to bring the horizontal revolution to light oil in Western Canada. With that, I'm very pleased to turn the call over to our President and COO Murray Nunns.

Thanks, Bill, and good morning, everybody. The conversion of Penn West Exploration from an energy trust was a logical step towards the Company for fully realizing its potential.

This conversion highlights the ability of Penn West to utilize evolving technologies to deliver both growth and dividends to shareholders. Key to 2010 was Penn West's focus on appraising the resource potential of our extensive portfolio light oil weighted assets and position the Company as a dominant operator in the development of light oil in Western Canada. Based on this foundation of success in 2010, Penn West now moves forward as an exploration production company.

So on the financial front first off, funds flow for the quarter was CAD305 million or CAD0.67 per unit. Net income for 2010 totaled approximately CAD226 million or CAD0.51 per unit.

This compares with a net loss of CAD144 million or CAD0.35 per unit in 2009 and an the increase in earnings came as a result of higher oil and natural gas revenues, mainly oil, and lower unrealized risk management losses. Net debt was reduced by approximately CAD536 million during 2010 to just over CAD3 billion at year-end.

This was due to cash proceeds received from a number of initiatives, most notably the Peace River oil partnership and the Cordova joint venture. The capital spending program was slightly higher due to our activity ramp-up in the fourth quarter which helped us gain momentum for our exploration and exploration lands and development program in 2011.

Now let's take a look at production. Fourth-quarter production averaged 166,148 boe per day. Production exited the year in 2010 at approximately 167,000 boe per day with apportionment issues on certain Anchorage pipelines reducing the year-end exit production rate by approximately 1,900 boe per day.

Current daily production is between 165,000 to 167,000 boe per day to date in Q1. To date in Q1, we have had a total of approximately 4,000 boe per day of production off-line, 3,500 boe per day of which relates to third-party non-operated facility issues which we anticipate to be back on stream sometime near the end of Q1.

And important to note, year to date we have on stream approximately 20% of our anticipated Q1 tie-ins. So the bulk of our Q1 tie-ins are to follow yet.

With nearly 85% of our development capital being targeted to oil plays, Penn West's liquids production is forecasting increase from roughly 60% in 2010 to an average of approximately 65% for 2011. This liquid stream is relatively light and it's at approximately 33 degrees API in total when we look at it.

Now let's take a look at the operation side of the equation as we have started to gain momentum on that side of the organization. Our claims from a productivity and and EUR perspective are performing as we had anticipated.

It is this confidence in the plays that is driving our capital program for 2011 of between CAD1.1 billion to CAD1.2 billion. Let's take a quick walk through the play and hit a couple of highlights as we go.

In the Cardium, we have significant appraisal out -- we have appraisal in significant areas of the play now done. This has allowed us to prioritize our 2011 capital spending.

The bulk of our efforts are concentrated in the high productivity areas of West Canada and Williston Green as well as some other select areas around the play trend. We have confidence in a deliverability of these areas.

The three-month exit rates for recent wells are between 125 to 275 boe per day on average with variations across the area generally in those bounds. In the Cardium as of today, we have eight rigs currently drilling, we've drilled 16 wells to date this year with 80 to 90 total wells planned for 2011.

At Waskada in Southern Manitoba, we are achieving consistent results. We've ramped up production from 500 boe per day in 2009 to just over 5,500 boe per day at year-end 2010.

In anticipation of increased volumes, we have begun work on a new expanded [battery] which will take our daily handling capacity from 7,500 boe per day to current -- which it's at currently to 15,000 boe per day for that area. At Waskada, we currently have six rigs running. We drilled 24 wells to date this year and plan 80 to 90 wells for 2011.

On the Colorado group in Saskatchewan and spilling over into Eastern Alberta, we recently saw the commissioning of a new expanded [battery] to handle growing volumes there. There's an expanding development program for 2011 in the central portion of the play at Dodsland in the Viking formation.

We've also started to migrate our appraisal work north through the area and to the west as well. In 2011, we will continue to develop the Viking oil in the central portion of the field. We will also work our way into (inaudible).

We're also extending our appraisal work further west into East Central Alberta where grass gassy oil dominates the Viking zone. We continue to find this play attractive with solid returns and significant running room for Penn West.

This year as of now, we have three current rigs drilling. We drilled 18 wells to date this year and 60 to 70 wells are planned for 2011.

In Northern Alberta on the carbonate trend, this trend continues to generate positive results. We're moving forward with appraisal work in both the Swan Hills and Slave Point area platforms.

We're looking to extend our drilling season through breakup and into Q2/Q3 with the use of pad drilling. Our last six wells averaged a three-month exit rate. And again, I want to emphasize that's the exit rate at three months, up 265 barrels per day.

In the carbonates, we currently have five rigs running. We drilled eight wells to date this year and have a program of 30 to 35 wells planned for 2011, and it's a play that could see more capital before the year is out.

On the joint venture side of the equation, appraisal work has been progressing in both the partnerships and the development of bitumen resources at Peace River and the joint venture developing shale gas in the Cordova Embayment of Northeast British Columbia.

The Peace River oil partnership is scheduled to begin its several pilot program in Q2 of this year. We are not anticipating any significant production adds from either of these properties this year.

On the exploration side of the equation, and there's probably nobody happier in the room than Bill and I to put [a knee] back on the exploration side of Penn West. What we have been doing is ensuring that we have an inventory in place for the future.

So not just the light oil inventory that we have now, but bringing out further things out of the asset base. Our exploration group has been actively pursuing a number of emerging plays across Western Canada.

We've been adding to key land positions in these plays and this allows us to achieve the critical mass necessary to make meaningful contributions to Penn West in the future. We are also selectively positioning certain liquids-rich gas plays for development at a future date under a more appropriate commodity pricing scenario.

Looking at the 2010 reserves, Penn West's exploration and development program replaced 121% of 2010 production excluding economic factors and net of AMD. We maintained one of the highest 1P to 2P ratios in our peer group at 73%.

Even more significant is our proved developed producing to 1P ratio of just over 83% compared to a peer average of approximately 69%. Penn West's reserve bookings were in line with our expectations. Booking specifically on our major resource plays further encourage us the plays are performing as we had anticipated.

2010 2P finding and development and acquisition costs including the change in future development capital were CAD18.12 per barrel. This excludes capital spending on land and any changes due to economic factors caused by lower natural gas strips that were used in reserves analysis this year.

Assuming an average commodity price of $80 West Texas going forward in 2011, the average incremental barrel which Penn West will produce will yield a net-back of between CAD45 to CAD55. This results in a recycle ratio of between 2.5 to 2.9 on the key portions of our inventory and our inventory as a whole as a matter of fact.

This go forward recycle ratio combined with the running room in our portfolio and the ability to execute on large-scale capital programs will yield ongoing sustainable growth for Penn West's shareholders. If the current strip price remains above our internally budgeted pricing forecast, our funds flow from operations could deliver additional -- will deliver additional funds flow. Additional funds flow above forecasted levels will likely be deployed into development programs across our portfolio later in 2011.

We are now full bore ahead in 2011 on executing our growth strategy. We believe now more than ever in the quality of our plays, the ability of our people to deliver profitable growth for our shareholders.

Just before we take some calls, I'd like to let everyone know that in addition to Bill Andrew and Todd Takeyasu, Dave Middleton and Hilary Foulkes are in the room. We have another series of members of the senior team. But before that, I'd like to bring to your attention the promotion of Hilary Foulkes to the position of Executive Vice President of Business Development.

Just by way of note for everyone, if they're not aware, Hilary has been instrumental in numerous initiatives since first coming to Penn West in 2008. She was involved in the strategies behind our active portfolio management which included the two groundbreaking joint ventures Bill alluded to earlier today.

Hilary's leadership and vision are respected throughout the industry. She plays a key role in our team and we look forward to her continuing impact on Penn West.

So in addition to the aforementioned, we also have on hand today Keith Luft, our General Counsel and Senior VP of Stakeholder Relations; Bob Shepherd, our Senior VP of Exploration and Development; Thane Jensen, Senior VP of Operations; David Sterna, VP of Marketing, [Jeff Kern], our VP of Accounting and Reporting. And that's about it (multiple speakers) and Jason Fleury, our Manager of IR. He was waving wildly at me.

I'd now like to turn this call over to the operator and open up the phone lines for questions.

(Operator Instructions) Alan Campbell, Xinhua News Agency.

I'm from Xinhua News Agency which is China's national news agency. How is your relationship going with the CIC so far?

Very well, they're marvelous partners to have. We very much appreciate the capital that's been injected into the Company through CIC and through their partnership within China, we have also greatly enhanced our technical capability on thermal projects.

And moving forward with our Peace River oil project and we are actually planning to be back over on that side of the Pacific Rim within the next month or so and visiting China as one of the countries that -- where we will be going.

Do you expect any more Chinese investment in the future?

I think as I said in sort of the introduction to today's call, we view -- we have got a much more worldwide view I think than we used to have an oil and gas industry in Western Canada. For many decades, our primary source of funding in Western Canada was capital from the US. We still bring very much appreciate that source of capital and share support as well as Canadian and European.

But increasingly a very dominant player is emerging in Asia, and China is one of those countries that is extremely dominant not only in the region, but in the world. So we expect that in the future that we will do some other similar type things.

Anytime we can bring in some funding, and we can combine it with some additional technical confidence as we did with Mitsubishi where we hook up with a partner that's got extensive marketing experience in natural gas and in liquefied natural gas, we will do so. And I'm certainly not going to say no, I'm going to say yes and in all probability, yes.

Thank you, Mr. Andrew.

Jason Frew, Credit Suisse.

I guess maybe for Murray, you mentioned the carbonates region could see a little bit more capital later in 2011. I was just wondering if you could expand on that a little bit and perhaps classify how you're thinking about it, whether drillbit or from a consolidation perspective?

On the carbonates, the predictability of select areas right now is very high. So what we're looking towards is maybe accelerating in some of the central portions of the play to a bit more pad drilling which will add a little more volume and smooth out our operations and allow us to drive cost over the year.

So it won't be sort of pushing out on the front edges of the play on the appraisal but more accelerating some of our central field development, take advantage of where we have sort of existing facilities. We can drill the [fill type] exercise.

In terms of the consolidation, we're going to be pretty selective. The industry's kind of got to the [frothy stage] in or around some of the guts of the play.

We're not out there to shoot our feet off with some of the smaller crowd or pay the top dollar. So [if there's feeding frenzy] we're not going to to be in it. We will wait until people sort of go through their natural cycle from the excitement to [solid edge] more consolidations at that stage or level or people who have just kind of got to their natural growth limits and want a reasonable exit where we look for consolidation. But we're not going to play on the freeway on that one.

Cristina Lopez, Macquarie Securities.

I was just wondering -- I know that you mentioned the CapEx was running a little higher as you were ramping up activity into year-end. Just wondering if you could give us a bit more color because it was -- it did end up exceeding what your guidance was for the year in October.

Sure, I'll take that one because I guess I was the guilty party in pushing the capital up, and I'll give you the same explanation that I gave the Board of Directors in December when we elected to do it. Two things, we -- and Murray talked about the exploration efforts that we're making in the Company and we have a very, very strong exploration team, very skilled on resource plays.

There were two in particular that we elected to in December to aggressively secure a land position in. These plays are in very close proximity to our existing portfolio of assets and they're plays that we think will be of importance to the Company over the next five to 10 years. So that was part of it, and, Cristina, that was probably account for 65, 70 million of the number.

The other part -- and as we move through the middle of November, we wanted to make sure that we kept the ramp going. We wanted to make sure that we were really ready to push into 2011 hard. So we decided rather than wait until January, we will go into December and we will get locations ready. We will get equipment out, we will start ordering some of the items that need ot be fabricated.

So we ended up putting oh, probably another CAD60 million or CAD70 million on the capital program through December. So that is the explanation.

It wasn't a case of -- then we've gone back and looked at the AFEs, the normal postmortem that we do. It wasn't a case being of [out on our scoping]. It was really just a measured thing that we did and we said we want to hit the ground running hard in 2011 which we have.

We can't -- it's difficult when a partner-operated gas plant goes out of commission on the first day of January and continues to be out of commission through the middle of February. David Sterna and Magni Lake are doing a marvelous job on oil apportionment but it hit us in December and hit us in January.

It was talking to Magni last night and we're moving all of our oil rigs now or this week. We'll see what happens next week. So those are a couple things. Without those things Murray talked about where we are producing today and you put those on top of and we are bang on where we want to be with lots to come, as Murray was talking about.

And so Murray's comment was that -- I think it was Murray's comment. It may have been yours. But you've got about 20% of the Q1 tie-ins complete now. Are you on schedule with Q1? Does it feel like things are actually going ahead as expected?

Yes, we're good on Q1. I think that there's no doubt that roughly 5,000 barrels that was impacted in January and through the first part of February will hurt us a little bit on our production volumes in the first quarter, but we are extremely confident that we will make those production volumes up as we go into the third and fourth quarter.

And Murray [said that had the teams had Bob] and the teams kind of isolated for the last couple of weeks and we are looking at just where we can kind of tweak our budget a little bit in terms of where we aim our capital but we'll get our guidance back up into the upper end of the range. So, no there's no --

No delays, yes.

No.

Last question for me is on apportionments. Are you budgeting for any apportionments through this summer or do you feel that -- are you (multiple speakers)

I think growth -- I think, Cristina, normally if you follow us, you probably realize we don't do much in the way of weather excuses or marketing excuses when we can. You know, we had a crappy year last year in Manitoba with floods that were above and beyond normal wet weather.

The apportionment is above and beyond, but we continue to have tremendous confidence particularly in Magni Lake who manages our marketing, working for David Sterna. She and her team have managed to keep the oil moving.

It's costing a little bit more money, averages about a dollar a barrel more for the oil that we're moving around. But we're moving ahead without it. And assuming that -- although there are apportionment issues, that we will have our way around it.

Perfect, that's it for me. Thanks, guys.

Kyle Preston, Canaccord Genuity.

Thanks, good morning, guys. Just had a question with respect to your -- what you're seeing for recent well costs on your Pembina play and your northern carbonates in particular. I know one of your initiatives there was to drive costs down. Can you just to speak to where current costs are per well?

Yes, I -- we have published what our target costs were for this year previously. We know that over the balance of this year as we move from appraisal to development, we will be driving that cost down, as we move to exclusively pad drilling.

Right now, I would say we're a mixture of half appraisal on the Cardium and half pad drilling. So we'll be running sort of 15% to 20% above those target numbers and driving towards those target numbers. And as we move more of the equation into development, we will move closer to those target numbers.

We're not seeing massive cost pressure in the industry. We're seeing selective attempts. But we have enough buying power that we have been able to balance this across the Company in terms of activity levels. So we're not seeing anything on that side of the equation driving the overall cost structure.

You're seeing -- and the industry will see it around the edges some crews that aren't quite up to snuff to execute at the high level. We will obviously cull some of our rig fleet as we come out of Q1 to go with the top end lowest-cost operations that we can drive forward with.

And that will be part of our program. So look for that in the future. Look for that balance shifting to more appraisal by the latter half of the year and those will be the two things that will start to drive that cost structure towards our targets.

Thank you. Sorry, one follow-up question there. In the Cardium, are you guys utilizing the slick water fracs on that play now?

We have attacked it both ways. We are not fully satisfied on the application of the slick water fracs yet but we are testing side-by-side on well pairs to try to convince ourselves that we have got the formulation right and the most cost effective way to do this. We again slightly right now favor the hydrocarbon fracs, but that balance could shift over the next three months in favor of the slick water work.

Michael Zuk, Stifel Nicolaus.

Just a follow-up to the previous question, curious to know as it pertains to the carbonates where you guys are seeing the better results, in Slave Point or Swan Hills. And I guess as a follow-up, do you have any infrastructure issues other than what is happening in the Penn growth plan?

At the current -- first off, both the plays, we're not favoring one over the other. There's a bit of a depth variation but there's a bit more deliverability on the deeper play than the shallower play.

So right now we're not favoring the Slave Point versus the Swan Hills area one versus the other. They tend to balance off in terms of their profitability.

In terms of infrastructure, these areas saw significant production in the past. So right now with pretty limited facility tweaks, we can go ahead and go on a drill to fill basis and bring it through. So the vast bulk of this year's program is really -- I won't say a half cycle basis but has a limited amount of facility impact on our capital budget.

The big thing I think on sort of the what we'll call the Red Earth/Swan Lake play versus Swan Hills, we have been drilling a little more [reef edge] up north. As Murray says, they're a little bit strong on the deliverability [prop] side of it.

Most of those six wells that we talked about average 265 barrels a day would be [soft] in that area. We're still well within where we had targeted. We're averaging with all our wells almost 200 barrels per day.

Swan Hills area from our first pass, the wells are not quite as prolific as up around Red Earth but we're seeing partner activity with strong wells. We've got a very extensive land portfolio there. The one advantage that Swan Hills has when everything is working is it does have much more facility capacity than Red Earth. I think, Mike, over time it becomes just a balance of a little higher deliverability or productivity from the oil wells in and around the Red Earth country, that country will require ultimately more facility work than we will need in Swan Hills. So we can probably -- we can absorb a little less productivity from the Swan Hills area.

Okay, thanks. And you know, you mentioned earlier on that you were kind of moved pass the appraisal phase on the Cardium and you're starting to dial in specific areas of interest. When do you expect we could see that on the carbonates in terms of moving from the platform [at the reef edge] and deciding where you want to deploy capital?

I'd generally put the carbonates about six months minimum behind the Cardium in terms of sort of where we are in the appraisal cycle. I think like I said, there's slight areas we can go ahead and development, but it's the pushing out on the carbonates plays that goes a little bit slower than the Cardium.

The Cardium has a lot of vertical control you can rely on. The carbonate plays, you don't have that.

So I think by year-end, we will be through the central portions, we will be through the appraisal piece in both the Slave and Swan. But pushing out to the edges, that's going to take a significant period longer, again because of a lack of control and the risk level when you go out with zero vertical control.

Jonathan Fleming, Cormark Securities.

Murray, when you walked through some of the implied finding costs there earlier with your net-back and your recycle ratio, I did some quick math and said you're looking for finding and development costs from the drillbit next year in that sort of 18 and CAD20 range. So first of all, is that about the range that you are looking for? And then second of all, does that include future development capital?

You are spot on. One, yes, 18 to 20 is sort of our expectation range. And two, that does include FDC.

And second was with respect to Bill's comment about acquiring some additional land on resource plays here in the fourth quarter. I know that you guys continue to delve into your asset base and poke around and try to figure things out.

I guess what is the probability of you guys bringing on an additional resource play in 2011 or is this going to be sort of a continuation of stuff that you already have talked about and just going to expand those plays?

I think we kind of see a conveyor belt or a continuum that we are trying to build. We've got our existing play base which we will continue to consolidate positions around.

We have got within the context of the asset base a series of smaller plays, ones that are right now yielding 100 to 300 locations. And those we are looking to see if we should consolidate those. How do they play into our portfolio strategy?

Maybe they should be moved off if they are too far down, we are not going to get to them. And then the third element being the exploration piece of really getting back to doing grassroots because if you want to have low-cost barrels, that's one of the best ways to do it and to be tracking in different directions from where the industry is in terms of activity. So we're really looking to move forward on all three of those fronts as we move through the year.

Okay and then lastly on your land base, you saw the overall land base of Penn West be a little bit smaller at the end of 2010 than it was in 2011. Is that something that again we would continue see as you sort of focus in on more I guess tighter resource style plays?

No, I think some of that move last year would be some of the joint ventures. We're moving off significant chunks of acreage into those joint ventures.

Some of it might have been sort of some older shallow gas areas where the economics really don't hold together anymore. But effectively we'll be looking to be balancing the equation more so than we have over the last year.

Good stuff, guys. Thanks.

[James Odell], Point Financial.

I have seen that you expect production to go up about 5% for the coming year for 2011. Where do you see production two, three, four and five years out?

Basically what we would think is that we are planning to grow the Company on production reserves by 5 or 6% this year. We will augment that with yield or a dividend, the targeted shareholder return would be around 10%.

As we -- even on a simple multiple with putting on 5% growth into the equation every year, within two or three years, you're looking at a growth size of closer to 7% -- 6.5%, 7% and complemented by a yield of 3% to 3.5%.

Roger Serin, TD Securities.

Murray, you mentioned that you had about 20% of the tie-ins done. Can you give us a sense of productive capacity of the sort of 80% of Q1 that hasn't been tied in?

I think what you're seeing is about a 50-50 mixture of the plays, maybe a little bit more weighted to the light -- the shallower plays. So somewhere -- I'm not even going to venture a guess on the productivity. You know what the three-month numbers are.

But just to think [that we have blend] the earlier tie-ins are probably a little bit more weighted to the shallower plays, the later tie-ins in the quarter and now we're going to be starting to bring on sort of the longer duration drills, the longer lead time events, more of the pad drilling.

So later in the quarter should be slightly more weighting towards the deeper projects. So that is the balance of the equation in an overall sense.

Just a couple other questions. The Sifton acquisition in late December, was that just under about 1000 boe's a day?

What we did there -- and I think it's the genius that I have sitting beside me in Hilary that does these things -- she hit about three balls in the air at the same time, and we had two properties where we had -- where we're not an operator, smaller working interest, we sold those properties. We then used those proceeds to fund most of the acquisition of Sifton at about 1000 barrels a day, Sifton being right in our wheelhouse in the Cardium in the Pembina area.

So, from -- I guess from the outside looking in, it looks like oh, you bought another 1000 barrels a day and spent money. Why do you need this extra Cardium?

But really it was a case of just portfolio adjustment moving some non-operated non-core assets and using that -- those funds to fund the Sifton acquisition almost in all but I'll say in part. That's what we did.

It forms part of our strategy in the East Pembina area where we are targeting some wells in the East Pembina through the first and third quarter this year and into the fourth quarter. So the Sifton acreage is something we will look at as well.

So on a net basis, you sold some assets and bought some assets, obviously more operated, better focus. Were you close to flat on the volumes? Did you sell about 1000 and bought about 1000, Bill?

Yes, I think we're -- yes, pretty flat. I think we did -- might have been 100 barrels difference but pretty flat.

I think one last question relating to breakup. Can you give me a sense of the -- it looks like it will be pretty wet. What do you think will happen during breakup in terms of your operations? Can you give us a sense of kind of the impact from a volume point of view?

I'll give you sort of the white hair point of view from observing it. We haven't really seen our first thaw, so we are well into February and we haven't seen the first thaw. I've got a feeling we're going to have a pretty good winter of drilling.

There is a decent snowpack around, so that should keep the frost in the ground if we're clever enough to do that on our roads that are going in in other locations. So we should be able to keep the operation going reasonably well into March and then -- last year really the place we got caught was Manitoba and that was a flood.

That was a case where you've got a foot or two of water everywhere and it is virtually impossible to get rigs around. So in talking to Thane and to Bob and to Murray, the expectation this year is that we will push this winter season as far as we can.

We are geared up on some of our areas where we have got some -- had some pads pre-built so we'll be able to get an early start into the late spring, early summer drilling season. The summer, we will see us do a lot of work we hope in Waskada and Dodsland and those plains type plays.

So I think we are good. It's been cold. I know there's a lot of companies I heard about last week that are talking about cold weather and the impact of cold weather, but we like cold weather (multiple speakers)

Okay, thanks very much.

Jill Angevine, First Energy.

Question, can you just run over the three-month exit rates again for the Cardium? Make sure I have got them here right.

And in terms of the type curves that you're looking at, would those be in line? And also can you give more detail on average reserves maybe booked to the Cardium or the range that you are seeing this year versus last year? Were they similar? Any more color you could add there would be great.

Sure, first off, the exit rates. We have seen typically in the West Pembina part of the play three-month exit rates at about 125 barrels per day.

Willie Green, our last year series of exit rates have been closer to about the 275 barrels a day range for Willie Green. So that would be the first.

On the EUR side of the equation, when we kind of look at last year's book, we're seeing an average. And I want to be very careful and very clear about this.

We are seeing a book average of about 165,000 barrels EUR. That includes a series of wells in the water flood, includes a series of wells with five to six fracs. So that's everything but the kitchen sink thrown in we're seeing 165.

We see industry type curves that are higher than that. We're very comfortable with a 165 to 180 range for the play. We think there are areas that we have already highlighted where we can exceed that.

But we're not going to push the numbers out to those ranges until we have seen longer-term performance on all the wells. So that is how we're looking at the type curve side of the equation for that play. I can't quite recall if there was a third question in there, Jill, or not.

No, that's good. Thanks.

Dan Healing, Calgary Herald.

I was just going to ask a follow-up question on the property acquisitions in the fourth quarter. Can you tell me where those were and were those Crown line sales?

You'd have to shoot us to find that out. Yes, they were. Most of our land acquisition is through Crown land sales so they were areas that we had either actively pursued and posted ourselves or actively pursued and had another industry participant post. So no, they were Crown land sales.

In Alberta?

In Western Canada.

Is Manitoba considered part of Western Canada?

Manitoba continues to be -- one of the interesting things about Manitoba is sort of the first western province [to see somewhat] by Europeans and as a result, there's a fair amount of freehold land there through the land that was granted 100 plus years ago. So there's not as much Crown land sale activity.

I think the other thing is the fact that in the Western Canadian part of the basin, only two-thirds -- Murray might give you a little better number. But I think somewhere between two-thirds and three-quarters of the rock, source rock, clastics, carbonate are in Alberta. So it follows that a lot of our focus is in Alberta and in the resource type plays.

The one thing that I believe that we are going to see over the next two or three years in Alberta is really a development of the source rock plays that we really haven't seen in Western Canada yet, and it's things that are being drilled extensively in the US where you're looking at shales and organic shales that contain hydrocarbons. That's the type of things we're looking at.

We're also focused very much as Murray talked about not only in the carbonates in Western Canada, a lot of those carbonates are in Alberta, and specifically too in the -- in a couple of [patches] where we continue to be very interested in the Colorado group and the various soapstone shales, sandstones that are involved in there. So I'm going to give you a non-answer but it's Western Canada, a lot of our focus just because of where the rock is is in Alberta.

And I guess this acquisition was made when the Company was still a trust. But does it kind of reflect the changing attitude towards spending and exploration and that sort of thing to go over your capital guidance?

We try not to do that. The Board of Directors and shareholders aren't very pleased when you pop over your capital guidance.

As I said, we did that on a measured basis. We wanted to move particularly on a couple of plays.

We're going to budget on a go-forward basis between 10 and 15% of our budget on exploration. That includes land.

So I think you can see -- you'll see in the future where acquisition of Crown lands, wildcat drilling that Penn West will spend somewhere between CAD120 million and CAD150 million or CAD160 million a year on land plus wildcat drilling. That's just normally in the operations.

I have one other question if I could and I probably just missed this because I was a bit late getting on the call. But is there any update on the Mitsubishi joint venture in terms of timelines or anything like that for this year?

No, we are chugging away trying to get some wells drilled. We had a little mechanical difficulty with the first one and that's [phased up] that's sorted out and we're just moving ahead from our evaluation drilling.

The ramp up over the next three or four years with Mitsubishi called for us to first fill up our existing gas plant. That would take us to roughly 125 million to 130 million a day and then push on from there.

The thought was to have this property ready basically for full-scale development within the next 2.5 to three years, recognizing that a lot of the work up there has to happen in the wintertime, particularly on the pipelining work. We have been very active with our partner and Hilary has been active as well as our engineering teams just looking at where we're going to off-ramp some of this gas over the next or two decades or three decades prior.

But we are convinced that the sooner we get a connection to the Pacific Rim and have an ability to move gas to the Pacific Rim, the better off we are in Western Canada. So part of the things we're working on is that.

Have you heard anything more about any kind of offshore LNG terminal project or anything like that to move the gas physically to the Pacific Rim?

There's an awful lot -- I'll just say this, Dan, that there's an awful lot of work going on from several different fronts. We are not active. We haven't been -- I think if you follow the Company, we haven't been big midstream players or downstream players. But we continue to follow the activities of others both in Canada and the US and their efforts to potentially get an LNG terminal loading facility on the Pacific Ocean.

Kam Sandhar, Peters & Co.

I have two questions. First of all, just wondering if you could give us a sense of how you're thinking about hedging going forward. I noticed you have obviously boosted your hedge position a bit here into 2011, and whether or not there is sort of a maximum level that you would hedge to.

And then the second question is just on -- wondering if -- you may not have these details in front of you -- but provide us with how many locations you may have booked by some of your big resource plays which is the Cardium, Viking in the carbonates.

On the hedge book, we can hedge up to 50%. I think as you know, we've got no gas hedged right now. Like to have had gas hedged, but we don't.

We've got about 40% of our oil hedged right now in 2011. And we would run our book up in the future somewhere probably between 30 and 50%.

Gas it's just there's really no point in going up and hedging. It's at 360 or 370 right now, so we'll just leave that.

We do -- we will go back to our logic when we ran it as an E&P before which is to try and secure our first-quarter capital program, do a little bit of hedging through the year to do that. That generally amounts to an average of about 30% of our total product.

The second part is in terms of booked locations and we are -- on the Cardium, on the main part of the Cardium play, we would be 3000 plus. We are still adding. We plan to add -- basically the way the Murray's challenged the crew is to come up with between 500 and 800 locations this year.

When we say locations, we're talking about ones that would be surveyed and ready to go additional. We got an inventory in-house that would be in the order of 7500, 8000 locations on our various plays and we are just really crawling up the ladder on a lot of them. So I think as we tend to be on our reserve book, we tend to be fairly conservative when we talk about where we have our locations and what we are going to do with them and not to get too far ahead of ourselves.

Yes and just to put a general thought around that. We booked on our book -- and by sort of the PUD probable numbers, you can tell as Bill says, we're true to our word, have been pretty conservative on the book approach. We booked less than a year's drilling ahead on all of this.

So it's really only the active capital program that's on the book and the book really has very, very limited representation of anything beyond that on the major resource plays. So the potential of the book lies ahead of us, not behind us.

Okay, so what sorts of things do you need to do to I guess to move that process along a bit more aggressively? Is it just a bit more development drilling or are you just -- I guess maybe walk me through what (multiple speakers)

Part of it, Kam, if we were to -- if we wanted to grow this thing at 10%, we would burn through somewhere around -- instead of where we are drilling this year, we'd drill about double that amount. So we would be somewhere in order of 800 to 900 net wells.

So that gives us a 10% growth. That would give us about a 10-year inventory ahead of us right now. So I think that's -- I think Bob and the teams have done fairly well in that regard.

Obviously as you move forward and replace some of our production in reserves with these resource plays, recognizing that they're horizontal, we will need certainly through the next four or five or six years, we'll need to increase the number of wells that we drill each year to maintain a certain amount of growth. So we have taken that into -- that factor into account as well.

On a full 10% growth model, you would go from 850 wells this year to somewhere over 900 next year to close to 1000 the year after. But you are still even on our existing inventory, we're not really cutting into it that much.

And the other thing that we're seeing as we go forward is that we just keep adding plays, adding areas and expanding our play areas. Probably the best example would be the play area that we have in Waskada from where we originally envisioned it, now we're out in the [good land] area and we are pushing the Waskada play.

The Viking play has gone beyond the west part of Dodsland. Now we're up into [Crawburn] and we're pushing across into the Alberta side. So we continue to add locations.

Okay, and then the last question just on your capital program as to whether you've secured services for the balance of the year in terms of fracturing and drilling?

Yes, one of the nice things about operating 30 plus rigs is buying power. The second nice thing we have on that side of the fence -- if you've ever met our VP of Ops in person, he went to OSU I think and he's about the size of the center on OSU.

So he provides us with a presence on the service side that has given us the buying power. So we really have the basic rigs, we have the basic fracking capacity to execute on the plans as we desire.

The industry around the edge is starting to feel it a little bit, the labor side, the fabrication. But overall our buying power has really protected us on that side of the equation.

Okay, great. Thanks, guys.

(Operator Instructions) Cliff Griffith, Private investor.

Morning gentlemen, and good morning, Hilary. I would like to direct this question either to Bill or Murray. It's regarding production.

I've got some numbers in front of me here going back to 2008 when production was 189,462 barrels per day and 2009 it was 177,221. Last year it was 164,600.

Now your projection for 2011 is 172,000 to 177,000. So that represents three years in a row the numbers are all south from your peak year, and as a shareholder, I'd like to see the numbers going north.

We could've done that, but I think that the qualifier we would put in there is the fact that our debt at this time in 2008 was about CAD4.8 billion to CAD4.9 billion. Our current debt is about CAD3 billion.

So we've taken CAD2 billion, shored up the balance sheet by CAD2 billion. As all of us know, there's no money tree. So we -- the way we came up with the cash to shore up the balance sheet was primarily through the sale of certain of our properties and we did that with the Shaunavon, we did that in the sale of heavy oil, two sales of heavy oil in Saskatchewan.

We did that with a joint venture with China Investment Corp. and we did that with the joint venture with Mitsubishi and as well, Hilary and her crew have continued to diligently work on selling some of our non-core non-operated assets. So that's the basic answer, that we sold to repair the balance sheet.

With the balance sheet where it is right now, we feel two things. One we've got it shored up and we think that where we are positioned with our oil and our weighting to oil that we are probably at a lot less risk of impairing the balance sheet and certainly a lot of the gas weighted companies over the next couple of years.

We think we're in a pretty good position and it's just the case. We could've run it at 190,000 barrels a day, but we would've been sitting today at CAD5 billion of debt and I don't think the shareholders would be particularly enamored with us if we did that.

When do you expect to get up to 180,000 barrels a day, 189,000 barrels a day, your '08 figures, and pass that number?

We are talking about 5 to 6% growth a year. So we are moving off 165 last year. We thought that would put us in sort of the 175 -- 174, 175 range as average this year.

That will put us at 185, 186, 187 in 2012. So we would be back up there where we were towards the end of 2012. We'd probably be looking at an exit rate in and around where we were in 2008 and we will be at that exit rate with CAD2 billion less debt than we had in 2008.

So from that time on, Bill, from 2012 here, we're looking at about a 5% growth in production?

Yes, 5 and then as I said earlier, because you're growing your base by 5, you kind of get a little bit -- 5% increments on top of that. The 5 will become 6 and then 7.

Okay, well I hope I live that long.

I hope I do too, Cliff, so we will both try.

Thank you very much.

Thank you. There are no further questions registered at this time.

Thank you very much. If you need more information, please feel free to call. We have got our toll-free investor hotline number. And Jason and Mary and I are trying to be always available. Refer you to the website again, www.pennwest.com. For investors and particularly investors on the retail side, that's a great source of information.

All of our filings are on there. All of our most recent investor presentations, a summary of our properties, a summary of our reserves. So we encourage all investors in Penn West to take the time to go to the website. Thank you.

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