西方石油 (OXY) 2002 Q3 法說會逐字稿

Welcome to Vintage Petroleum third quarter 2002 year earning results conference call.

This call is for the benefit of Vintage shareholders and other interested parties.

Any rebroadcast is prohibited without the permission of Vintage.

As we indicated earlier to you, people such as the press and Bloomberg can listen to the conference call but can't ask questions.

I would now like to turn this program over to Julie Smith.

Please go ahead, ma'am.

Good afternoon.

The slides to accompany our presentation today are available at www.Vintage Petroleum.com via the conference call icon or the presentation section of our web page.

The discussion in this call today includes certain statements that may be deemed to be forward-looking statements within the meaning of the private securities litigation reform act of 1995.

Statements other than historical facts that address estimates of oil and gas reserves, future production and costs, exploration drilling, exploitation activities, capital spending, planned asset sales and developments or events that include estimates of oil export and tax levels in Argentina are forward-looking statements.

Although Vintage believes the expectations expressed are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially.

Factors that could cause actual results to differ materially include oil and gas prices and realizations, exploitation and exploration successes, actions to be taken or to be taken by foreign government.

Changes in foreign exchange and inflation rates as well as continued availability of capital and financing and general economic market or business conditions.

Outside of our housekeeping, today is the answer to the question many of you have.

Where in the world is Bob Phaneuf?

Our Vice President of Corporate Development in a secure, undisclosed location listening in.

Our agenda today will begin with our CEO, Craig George, reporting this quarter's results and updating the progress on our deleveraging plans.

Additional detail and discussion will be provided by Bill Barnes, our CFO, Larry Sheppard, Vice President of New Ventures and Gary Watson, Vice President of Canadian Operations.

Our COO, Bill Abernathy, will discuss our 2003 capital budget and plans.

At that point, we will open it up to questions.

At this time, I turn your attention to Craig George.

Thank you, Julie.

First, the highlights and that will start us on slide three.

Our net income was up from 10 cents per share in Q3 of 2001 to 50 cents in Q3 this year. 26 cents of the 50 cents is from continuing operations and 24 cents was a result of our $40 million sale of Trinidad Assets.

We're re-affirming our production target of 31.1 million barrels equivalent.

We're increasing our cash flow target to $230 million, increasing our EBITAX target to $335 million.

Our debt reduction to date is $87.3 million, well on our way to our $200 million goal.

To that end, we're proceeding with our sale of Ecuador with a great well thrown into the mix and the bottom line is we're proceeding with our repositioning as planned and we had a good quarter.

On slide four, sales volumes for the quarter were in line with our estimates, for oil, 4.9 million barrels.

For gas, 17.9 [bcf] or a total of 17.9 [mmboe].

Reductions from Q3 2001 are primarily associate we did property sales, reduced gas takes in Bolivia and our growing hiatus in Argentina.

On slide number five, our oil realizations were up 10% to 2451.

Gas realizations were down 11% to 201.

This was due to Argentina where peso-denominated gas sales suffered from peso devaluation.

Revenues were $157.1 million, down 9% in the quarter-to-quarter comparison as a result of lower production, but void by favorable commodity prices.

Net income was up considerably from $6.2 million to $31.7 million or 50 cents per share as I described earlier.

Cash flow was $64.9 million or $1.02 per share.

We're still on track to reduce our debt by $200 million through both property divestitures and excess cash flow.

On slide number seven, we show that our California sale closed in June for $15.5 million.

Our Trinidad sale closed in July for $40 million and our Ecuador sale is proceeding at pace and we're targeting to close by year end.

Additionally, and not part of our debt repayment plan, we have a couple of other U.S. packages in the sales process.

They were actually kicked off by reverse inquiries, and it might be a good time to harvest some of the value created if the prices are right for the property that's are offered.

At the end of October, our total debt was $896 million, on page eight, we show the components of that debt.

We had $46 million of outstanding bank debt and $850 million of both senior notes and senior subordinated notes.

This provided us with a unused availability under our $300 million bank facility of $236 million as of the end of October.

With that, I will turn it over to Larry Sheppard for an exploration update.

Good afternoon.

As all of you are well aware, [INAUDIBLE] over the last couple of years has undertaken an effort to assemble an inventory of exploration prospects into a program which will be complementary to our very large inventory of exportation projects.

It is our intent that by having this portfolio managed to risk reward type projects that we would be able to provide Vintage exposure to an exploration program that has a sustainable year-over-year result that consistently adds value and also at the same time, provides exposure to potentially transforming events.

Our effort is well under way and, in fact, we plan to see in this next year drilling coming forward.

I would hope to see that we would have a new prospect being drilled every month and we would anticipate particularly out of North America that we would begin to see production volumes and reserves associated with the success of that program in this next year.

As an update to where we currently stand, south Louisiana we've licensed over 100 square miles and are generating prospects on that.

As a first indication of success, our well in Little Temple has come on production in the last couple of weeks, currently producing about 5 million cubic feet a day, 200 gross [INAUDIBLE] a day Those are gross rate.

With hope that those rates would be able to be increased over time as -- as the Floyd pressures stabilize in the well.

We're also, at this moment, just right on the verge of studying our well and our value area that we've talked about.

That would be our shop prospects in [INAUDIBLE], Louisiana.

This is a 20,000-foot [INAUDIBLE] that is on trend and adjacent to the Lily Booth Fields, quite a holistic that -- it is operated by Meridian.

That well is about a 90-day well.

So, hopefully by the time we report in the first quarter of next year we will have some -- some good news on that.

We also have leased acreage on four other prospects and expect two to three of those to be drilled in next year.

In west Texas, on our horizontal-type gas drilling play, we currently have leased approximately 8,000 net acres on three separate prospects and continue to actively work other prospects in that play.

Drilling should begin late this year or early next year and we would likely to see not only these three prospects, but maybe two to three other prospects drilled in this -- this play concept next year.

And then lastly, in the U.S. is our Texas Gulf Coast Program.

We have over 500 square [INAUDIBLE] that have been licensed and actively worked.

We have multiple prospects that have been identified.

We will take advantage in the states and federal lease sales early next year to assemble acreage on the prospects, looking forward to drilling the first of these by the end of 2003.

On the international front, in our high impact exploration, drilling is under way in Yemen as you saw last week, we made a press release on our first well, our Orsolot prospect.

We encounter hydrocarbon in both the targeted land.

We were somewhat disappointed with the open hole logs and therefore determined that we would defer any other testing of that well until we can do more detailed analysis on fluid and cores.

We subsequently moved the rig and as of this morning just [spudded] the second prospect, our [anagia] prospect.

Quite excited about this prospect, it's been better defined in our recent survey, but we drilling in a structure that was previously defined by a well drilled by Shell in the early '90s that had indicated pay envy land formation on [INAUDIBLE].

And so here within the next two to three weeks, we will be hopefully looking forward to getting that well down and keeping our fingers crossed that he did we have good things to talk about

And with that, I will pass the floor to Mr. Watson to speak about Canada.

Thanks, Larry.

Those of you viewing the webcast, I will be referring to the brief outline of Canadian operations results and outlook on slides number 11 and 12.

As Craig indicated, we're on target to meet or exceed our Canadian 2002 volume target of 6.6 million barrel oil equivalent.

From the drilling perspective, the fourth quarter is sizing up to be very active for Vintage Canada.

In the Sturgeon Lake area we're planning to drill two Leduc horizontal wells, a key one being a follow-up to our successful [tenna]-16 well that's maintained a production rate of 260 barrels of oil per day throughout the third quarter.

Later this year, a 10-square mile 3-D seismic survey will acquired in the North Sturgeon area to identify future drilling opportunities.

In addition, we're anticipate receiving with the 7-well infill drilling program, targeting incremental reserves in [INAUDIBLE] Badheart gas pool.

In the Grouard area, we plan to continue our program of identification and exploitation of Gilwood oil pools.

We're currently testing two recently-cased wells and have spud the first of three additional fourth quarter wells. 16 square mile 3-D survey will support our drilling effort throughout 2003.

Three horizontal re-enters are planned in Freeman, targeting [INAUDIBLE] oil reserves in the Beaverhill Lake formation.

If the program is successful, additional drilling will occur in 2003.

In the Wymark area, the Saskatchewan, we're evaluating two exploitation wells, two re-completions in the [INAUDIBLE] formation.

Successful results from these wells will likely lead to additional fourth quarter drilling.

Our new ventures team continues to build an exciting inventory of exploration opportunities.

We anticipate drilling two shallow exploratory wells during the fourth quarter of 2002 with additional significant prospects tied up for 2003.

Late this quarter, we will begin to prepare winter access for our licenses in the northwest territories, drilling and shallow exploratory well and a testing of two to three previously drilled and cased wells.

And with that, I will pass it to Bill Barnes for some comments on Argentina.

Thanks, Gary.

I will take the next few minutes to briefly touch on what we see as a stabilization since June of this year and some of the Argentina's important economic indicators.

Central Bank's foreign currency reserves have risen from a low point of $8.9 billion to a recent high occuring last week of $9.7 billion.

Pesos circulating outside of the banking freeze have held steady since May at an approximately $4 billion U.S. equivalent level, which is an indication that the government has managed to curb the issuance of quasi currencies.

The exchange rate has held stable at about 3.6 Pesos to one U.S. dollar since the end of May.

And monthly inflation has decreased to an average of 2.6% per month from May through September with an October expected rate of about 1%.

This compares to a high point of 10% inflation monthly in the month of April and 40% inflation year-to-date.

Argentina's ongoing dialogue with the IMF is hopeful of some agreement being reached in the near term.

IMF assistance is critical for the management of upcoming debt obligations with multi-lateral lenders.

It's requested assistance with the obligations through the end of 2003 and if successful, plans to begin debt restructuring talks withholders of the private sector bonds.

Plans set in motion by the President Duhalde to transition the government back into the hands of an elected President remains in place with early elections scheduled for March 2003.

The export tax continues to be the most significant government measure effecting Vintage as the slide on the webcast on page 13 indicates, the impact of this tax is partially offset by the devaluation savings on our peso-denominated costs and is expected to be about a $12 million hit to cash flow net of income taxes and this represents about 5% of the company's total cash flow target for 2002.

Our strategy which we put in place earlier this year was to increase export levels to 70% of our Argentina production.

We achieved this level and it remains in place today.

Additionally, we have successfully maintained 70% of the export sales proceeds outside of the country, allowing us to capture our free cash flow and U.S. dollar accounts.

There have been reported discussions between the government and a few large producers which may result in a short-term agreement to return 50% of export proceeds to Argentina rather than the current 30% level.

Through the industry wide obligation result from the discussions, our act to capture all of our free cash flow through export proceeds wouldn't be impacted based on our 2003 targeted production levels.

Based on our experience in the last several months in managing our business within Argentina, and keeping the other factors I've just discussed in mind, we're reinitiatating a drilling operation in Argentina and plan to acquire additional 3-D seismic begin this quarter.

Plans are also in place to further ramp-up development activities in 2003 due to the continued economic and political stability.

At this point, I will turn the presentation over to Bill Abernathy to discuss our preliminary capital expenditure plans for 2003.

Thank you, Bill.

I'm going to spend the next several minutes discussing the 2003 capital budget, our volume forecasts for that year and also some of our other targets for 2003.

For those of you viewing the webcast, there is a pie chart on page 14 that shows a breakdown of this budget.

The spending level has been set at $180 million, that's an increase of 25% over the 2002 budget.

It provides significant levels of activity in all of our core areas and strikes a good balance between exploitation and exploration and still allows for about $35 million of cash flow over and above the capital budget to be used for a general corporate purposes.

Of the $180 million, $128 million or 71% will be allocated to lower-risk exploitation and $52 million or 29% will be allocated to exploration.

Within the $128 million allocated to exploitation, $85 million or about 2/3 is allocated to North America with the U.S. and Canada each being allocated $42 to $43 million and the remaining third is allocated to Argentina.

And within the $52 million allocated to exploration, $39 million or 75% is allocated to North America with $31 of the $39 million going to the U.S.

And the remaining $13 million or 25% is split between the Frontier and other international areas.

In total, $124 million or 69% of the budget is allocated to North America and keeping with our strategy to rebalance our portfolio towards North America with $74 million or 41% of the total being allocated to the U.S.

As always, we try to put our capital dollars where we think the return will be the highest and that can vary from year-to-year based on prices and opportunities in each country.

Now that we've looked at how the budget will be allocated for 2003, let's look for a minute at what we'll be spending those dollars on by country and for those looking at the webcast, the brief outline is on page 15.

In the U.S., the focus of the exploration activity will be on gas prospects in south Louisiana, west Texas and the Texas Gulf Coast, as Larry Sheppard discussed a few minutes ago.

Exploitation activity will be comprised of a significant level of work over activity across the existing operating area with drilling activities focused on horizontal drilling for oil and Luling and West Ranch fields and south central Texas and in several field areas in California.

In Canada, our plan is to progress -- to progress in developing reserves identified at time of acquisition as well as extensions of those areas and Girard will continue to drill for oil in the Gilwood, Beaverhill Lake and Bluesky as well as for cretaceous gas and Peace River Arch will continue drilling for Dunn Vagon, Bluesky and Halfway and Horsley gas.

And Sturgeon Lake will be drilling shallow Badheart as well as deeper cretaceous gas and we'll also do some Leduc horizontal re-entries for oil.

In the west central area, we will drill for [INAUDIBLE] and cardium gas and in the eastern five area, will drill for belly river gas.

And beyond these exploitational and extensional activities, the Canadian New Ventures Group is built on exploration inventory and we expect to drill two or three prospects in 2003 that could be very significant if successful.

In Argentina, we anticipate restarting our drilling program that was suspended earlier this year, since there's already been some discussion on that point, I will add that we plan to have two rigs running in the first half of the year.

Three rigs in the second half of the year and I will reiterate that the program is discretionary.

It is contingent upon continued improvements in the economic and political situation in Argentina and it could be suspended again at anytime if those continued improvements were to reverse.

In our Frontier exploration efforts, there are several areas we will be continuing to focus on during the year.

Larry Sheppard has already discussed that, so I don't need to add anything there.

In the northwest territories, we plan to test two or three of the wells that were drilled in case two years ago and plan to drill an additional shallow exploration well there.

And in addition to a couple of other Frontier areas in which new significant prospects have been generated and that will probably be drilled in 2003 but I will defer to conversation on those until they are a little closer at hand.

In summary, we feel like the 2003 budget that we've laid out provides for an appropriate balanced program of capital spending and all our operating areas with lower risk exploitation being the dominant component in every core area and a level of exploration spending that exposes us to a continuing series of significant prospects, both within and outside of our existing core areas.

With this budget in mind, I'd next like to talk about our targets for 2003.

For those on the webcast, this is page 16.

Specifically I'd like to discuss the 2003 targets and the framework of a comparison to pro forma 2002 targets, which has a contribution from properties sold or expected to be sold in 2002 removes from the 2002 current targets.

That allows a more realistic comparison of a consistent set of assets from one year to the next.

I think that's particularly appropriate in light of the property sales that we expected to accomplish this year.

In total for 2003, buy-ins are estimated to be 18.3 million barrels of oil and 57.7 [bcf] or 21.9 million [boe] compared to the pro forma 2002 figure of 29.9 million [boes].

This represents an overall buy in decline of 2.7% on a consistent set of assets.

And the U.S., we expect to produce 6.2 million barrels of oil and 22.6 [bcf] of gas 10 million [boes] compared to pro forma 2002 figure of 9.9 million [boes].

Our expectation is that the volume about build during the year as result of a larger domestic capital program and that will exit 2003 at a higher rate than the year-end pro forma 2002 exit rate.

In Canada, we expect to produce 1.5 million barrels of oil and 24.9 [bcf] or 5.6 million [boes] compared to 6.6 million [boes] in 2002.

Canada's budget allocation for 2003 is about $10 million below the 2002 level and a greater portion of that budget is allocated to explorations than in 2002.

We've not included any risked exploration volume in Canada for the 2003 forecast so our hope would be that we could do better than the forecasted 5.6 million [boes].

In Argentina, we expect to produce 10.4 million barrels of oil and 8.7 [bcf] or 11.9 million [boe] compared to 12.2 million [boes] in 2002.

The lower volume for 2003 is a direct result of the suspended capital program in 2002 but with the larger capital allocation for 2003, volume will build throughout the year and we expect to exit 2003 at a level higher than the 2002 exit rate.

And in Bolivia, we expect to produce 8.5 [bcf] and a small amount of compensate for a total of 1.5 million [boe] versus 1.2 million [boes] produced for 2002.

The difference being an expectation that we will be able to sell more gas in the domestic market in 2003 than during 2002.

In total for the company, even though the 2003 volumes are expected to be slightly below the 2002 pro forma volumes, we expect to build volume during next year and exit 2003 at rates higher than the pro forma 2002 exit rate.

With this total volume forecast of 29.1 million [boes] and the assumed NYMEX oil price of $25 per barrels, assumed NYMEX gas price of $3 million per BTU with the appropriate realized prices relative to the NYMEX oil and gas prices and accounting for the oil and gas hedges we have in place, we expect to generate EBITAX $295 million and cash flow of $215 million.

And once again, this provides funds over and above the $180 million budget to be used for general corporate purposes.

One final comment, this budget and targets do not include any contribution from acquisitions and so to the extent we're success in making an acquisition, the total capital spending would be higher as would production, cash flow, EBITAX and so forth.

So at this point, I turn it back to Craig for a short wrap-up.

Thanks, Bill.

Before we turn it over for questions, I will wrap up with four points to take home with you.

First, our production is on track and that now includes Canada.

Second, we still have sound business in Argentina and we're back to drilling.

Third, our exploration program is building momentum as planned in all three of our venues, the U.S., Canada and Frontier.

And last, but not least, we're paying down our debt as we promised you.

Now we'll be happy to take some questions.

Thank you.

If you would like to ask a question, please enter the queue by pressing one on your touch-tone phone.

In the interest of allowing all questioners to have an opportunity ask questions, Vintage has asked each participant limit them themselves to one question and one follow-up.

If you have additional questions, you may return to the queue to ask them.

If the question you asked was already asked, press the pound sign on your touch-tone phone to remove yourself from the queue.

One moment while we take our first question.

The first question comes from Keith Chan with Dreyfuss.

Go ahead, sir.

Hi, I have a question on your 2003 target.

The LOE is projected to be $7.

You are running somewhere close to 6 1/4 year-to-date.

Why are you having higher LOE costs?

Okay, the biggest difference in, first of all, if you make a pro forma justment the number for the U.S. -- well, the number would be a little bit higher, but the biggest driver for the $7 figure, we're using a little bit higher prices in 2003 so that effects the severance taxes and the export taxes but also there's built into that LOE assumption an inflation in assumption for LOE in Argentina.

So, those are the components that drive it.

Yeah, we also have an additional quarter of the export tax in Argentina that's factored into that, as well.

Okay.

I'll come back.

Our next question comes from Ken Beer with Johnson Rice.

Go ahead.

Hi, guys.

Actually, two questions and I'm limited to two.

First for Larry, in Yemen, after the well that you have -- that you're moving ahead on, where -- would you like have another two or three wells after that?

And what sort of prospect has been lined up for the next one or two wells?

Ken, we do -- we originally went into the program, this drilling campaign expecting to drill three or four wells.

Right.

I cannot specifically comment at this moment about which of the next prospects we would drill.

We're still in discussions internally and externally on that.

However, what I can say is that within the area of the two 3-Ds we have shot, we have a significant number of Alif prospects.

So, what I would anticipate us doing is going ahead here in the next week or two and sorting down through that and coming to agree which -- which one of those we would drill.

But it would be prospects that are inside the areas of two 3-Ds that we shot and similar prospects to the ones we've drilled in the past.

Okay.

Let me just have one follow-up for Bill Barnes.

That is on the debt side, assuming Ecuador moves ahead and you get the kind of dollar amount that you hoped for, my cut would see that it's well in excess of the bank debt outstanding.

Can you pay down some of your other debt?

What sort of call provisions do you have?

We have two provisions -- two existing bonds that are -- have call provisions right now, Ken.

We've got the $50 million stud that's left on the 9%.

That's callable I think at 101 or 101.5 here in the next two weeks.

Okay.

And then I don't remember the size of the next one, but it's called at a higher premium than that.

So, you -- bottom line, you can put cash back to work in terms of paying down some of the outstanding.

We believe we can, yeah.

Some of the fixed debt.

Okay.

All right, I'll stop there.

Thank you.

Thanks, Ken.

Next we have a question from Kelly Krenger with BOA Securities.

Go ahead.

Good afternoon.

Just a couple of questions, first on your production, can you reconcile second to third quarter production, I know you had some asset sales in there?

And also, if you hit your full year target of 32.1 million barrels that would imply production down in the fourth quarter again I think down to 7.3 million barrels from 7.9.

Can you reconcile that production that production as well for the second to third quarter production?

And then the third to fourth quarter production in terms of what asset sales impact there is and where the rest of the -- the -- the production decline is?

Just a moment, Kelly.

In term of asset sales from the second quarter to third quarter, at the end of the second quarter is when we saw the Santa Maria properties and that's probably 150,000 barrels within the second quarter production level.

Okay.

And from the third to fourth, I don't think there's anything in our targets that's assumed to close before the end of the year.

So, that would be declines.

Okay.

And then --

We will point out there is probably an inventory adjustment that's probably built into the fourth quarter that would be a negative.

Okay.

So that would make it appear that the production has fallen faster than it actually is.

Okay.

Yeah, we're leaving an inventory building for the year that -- that actually we didn't have a significant one at the end of the third quarter.

So, it's -- it's timings of how our production internationally gets lifted.

Okay.

Do you have a sense for how much -- how much of the -- I guess the 600,000 barrels that would be?

200,000 roughly built in for inventory build mainly in South America.

Okay.

Okay.

All right.

I guess I will get back in the queue.

Thank you.

The next question comes from Greg Anderson with Bank One.

Go ahead, please.

Hey, guys.

Just a couple of quick questions.

First, are the rigs that you'd be drilling with in Argentina, are those the rigs you were still using before that are already down there?

Would there be any cost to restart them?

It's the same rigs and for the most part it's the same crews.

So, just mobilizing the rig to the field so there is nothing that's very significant at all with respect to mobile.

Yeah.

Okay.

And your fourth quarter LOE, can you give us any guidance on that fourth quarter number?

It seems like the third quarter number in the first calm of quarters are running below what your original guidance was.

I wondered if that's going to follow through to the fourth quarter?

I think -- I think it could very well follow was it has been, we didn't adjust it significantly our targets, but Argentina, you know, we had assumed some level of inflation and as Bill mentioned earlier, inflation really leveled off back in May, so we've seen our LOE costs go lower in Argentina as well as I think we've controlled them in the U.S. and Canada overall and that's probably been feeding our targets a little bit.

Great.

Thanks.

We will move next to David Heikkinen of Hibernia.

Go go ahead.

Good afternoon.

Quick question on 2003 Cap Ex, what level of Cap Ex would you need to match the pro forma 2002 production?

Not show the decline.

And then would it be -- where would, -- obviously you're not planning with your debt targets in reducing that, but I'm trying to get a feel for where you would have a break-even year?

That's a pretty tough to answer, but I think as Bill said before, we're leaving ourselves some room of plus or minus $35 million worth of cash.

I think if we applied that to some of our drilling opportunities, if we had some good exploration success or if we applied that to an exploration that, would give us a flat production profile from year-to-year, if not an increase in production profile.

And then not exactly a follow-up, but on the LOE question, can you give a break out on LOEs per area?

'03 is fine.

U.S., Argentina.

Canada.

Do we have that in here?

We're going to have to get back with you on that one.

Okay, that's cool.

Thanks.

Next to John White with BMO Nesbitt Burns.

Go ahead.

Hi.

I wondered what's the status -- there's been some talk out of Argentina about lowering the export levels to 50%.

Can you talk a little bit about that?

Hi, this is Mike Kyle.

We are hearing that there are discussions going on between some of the larger producers, I think Bill mentioned that during his discussion about Argentina, about changing the amount of funds that would come into the country.

We're not a party to those discussions, we could assume that they wouldn't impact us directly, but if they did, I think as Bill mentioned it wouldn't impact our ability to capture free cash flow.

And here it is really more of a question of rebate rating 50%, isn't it?

It is just a matter of the dollar proceeds received in the U.S. accounts.

The amount of Pesos that the government allows you to buy with the proceeds.

Yeah.

Right now we're required to rebate rate 30% in country.

Should it go 50%, even at that level, we will still be capturing all of our free cash flow outside the country.

Okay.

Thank you.

So, if it goes there, it's not going to have an adverse impact on our plans.

Thanks.

We have a follow-up question from Keith Chan.

Go ahead.

Can you talk about your hedging in terms of what they will be in 2003?

Yeah, we've included on the webcast a couple of pages back in the appendix page is 19 and 20, I believe.

They detail our current hedging positions.

So, for the fourth quarter we've got about 1.5 million barrels hedged at an average NYMEX price of $26.04.

For 2003, we have a total of 3 million, a little over 3 million barrels hedged at an average NYMEX price of $24.90.

And what we have in the webcast is a quarter by quarter breakdown of the daily volumes and the average NYMEX prices related to those.

In addition, for gas we've got, let's see, for the -- for October we're got 20 million a day in the U.S. hedge at an average NYMEX price of 260.

We've got -- that's for the month of October.

We've got another 20 million a day in Canada hedged at an [aico] price of $3.58 cents per [mbtu] Canadian.

And a couple of callers in place for the fourth quarter, as well, with floors of 350 and caps for October at $4 and for November/December at 510.

Another 20 million a day for the last two months of '03.

For -- excuse me of '02.

For 2003, we've got about 30 million a day hedged throughout the year with prices ranging from 420 down to 386 quarter by quarter throughout that period.

So, so if you sort of try to net out all those transaction, what type of pricing should we use for modeling purpose?

For the hedged portion?

If you're modeling all of 2003 on gas, we've got about 11 [bcf] hedged at a average NYMEX price of $4.

I think we stated our average percentage realizations for 2003 were about 70% of NYMEX.

So, you can assume, I don't know what you're assuming for NYMEX, but if it's less than $4 them in '03, you can assume $4 for 11 [bcf] of it and apply that average realization percentage to your NYMEX average price.

And for oil, I think we're using a -- a target of 82% of NYMEX for oil average for 2003 -- excuse me, 83% for 2003.

And again, our 2003 volumes that is hedged today is about 3 million barrels at an average price of $24.90.

Thank you very much.

Once again, if you would like to ask a question, press the 1 on your touch-tone phone.

We have a follow-up question from Kelly Krenger.

Go ahead.

Thanks.

I wanted to see if you could help me reconcile your debt balances.

It seems like you've paid down -- looks like $30 million of debt since the end of the quarter.

And if you add up your Cap Ex spending through the first nine months, it's $92 million and if you -- you hit your full-year target of 144, that would imply $52 million of Cap Ex.

So it seems like you've paid down a good amount of debt here in the fourth quarter and I wonder if that's going to -- or where you've -- maybe ask the question a different way.

If you don't assume the sale of Ecuador just for now, where will that end the year?

What kind of debt balance do you think you will have at the end of the year?

We're drawing a blank on that one, Kelly.

We don't have that model without the information in there.

Okay, I'm not saying -- saying that you won't sell, I'm just trying to get to the number.

It just looks -- I wouldn't have expected you have $30 million in incremental debt paid down in the month of October if you were on budget to spend the $144 million of Cap Ex by the end of the year.

Part of that is I think a lot of the Cap Ex is scheduled -- a lot of drilling started in October and November and the timing with those Cap Ex we spend are going to be very much towards the end of the quarter.

Okay.

I think you're seeing, you know, kind of a change in working capital, really, for the month of October and that we've got significant cash flow and not too much in the way of outflow payments for our Cap Ex, so, you know, I wouldn't think we'd see a lot of further pay down really from that level without the property sales just about,.

Yeah, you wouldn't project two more months at what October went down by is what Mick is saying.

But go --

That's with the property sales.

But go ahead and model in the $50 million or so of Cap Ex in the fourth quarter and see where the debt comes out based on the end of the quarter levels?

And what the expected cash flow would be then for the end -- for the rest of the year?

I think that would be a reasonable approach.

Okay.

Thank you.

We move next to Jack Aiden with McDonald Investments.

Go ahead.

Hi, two questions.

Let us for argument's sake, you got Yemen as a discovery.

How long will it take to put out production, what will be the cost involved or would you consider selling it quickly?

And I have one other question to ask.

Yeah, I guess -- I guess part of the answer is how -- how big of a discovery that we might have, Larry, would you like to follow up on that?

Yeah, Jack, really the object -- the size of the discovery is -- is -- is obviously going to be directed at, you know, what we end up spending on.

I think what we can say is to put the project on production, you're probably talking about 18 months, if it's a big one, maybe 24 months.

We'd have to go through a process of declaring commercialization, getting the government to agree and then going ahead and getting the facilities installed and online.

So, before you can see cash flow, I think you're going to be looking at 18 to 24 months and, you know, the -- the amount of capital that it could take to put one on from the small discovery wouldn't be but a few millions dollars, may it be so we had a huge discovery and have to spend many million dollars to put it on.

What was the cost of the dry hole?

The one we just drilled?

Yes, sir.

I think our net share is probably around a million an a half, maybe more than that, about a million and a half or two.

Between a million and a half and two.

Yeah.

Between a million and a half and two.

Okay.

Now, on Ecuador, how confident are you in getting it selled by the year end?

Well, I think it is fire say that we're heavily engaged in negotiations for the sale.

There always could be some kind of a hang-up it might be that the sale will be subject to government approval.

Although, we think that might be quickly forthcoming, you never know.

But at this point in times, we're optimistic.

And final question, your G&A it looks like for 2003 on [boe] equivalent, going up slow, but, you know, like 15, 20 cents for -- or 15 cents from the third quarter level.

Any specific reason?

Lower production.

Lower production level.

As Bill says, we're expecting to ramp up our production from the fourth quarter exit rate throughout the course of the year.

So, we should see the G&A come down as we go into 2004 if we're able to maintain and grow that production further.

But the fain factor in terms of the per barrel increase in G&A is not necessarily dollar increases, but it is smaller production.

Thank you.

We go next to the site of Van Levy with CIBC.

Go ahead.

Good afternoon, gentlemen.

Hi, Van.

Two questions, one just mechanical, hoping you could break out LOE tax, DD&A and your new production target for 2003 by country?

The other one's I guess for the third quarter, LOE tax and DD&A.

And second, I want to understand Argentina in the sense of you moved from workover program, now you're confident and you're starting -- or gaining confidence, you're starting to drill.

I really want to understand the -- the mindset and what, you know, what's giving you confidence to take this to the next level and if we extrapolate, obviously you will pick of your drilling more than that, possibly, you know, maybe there's acquisition opportunities or the flip side of it, maybe it creates some opportunity for you to sell the asset.

Can you kind of address that?

Sure, if you'd like, I will do the first part and then Mickey can follow-up with the other -- other questions about LOE and DD&A.

As far as Argentina, we've been watching it day after day after day and have seen the highs and the lowes.

There are a number of good indicators.

Inflation has stabilized we feel good about that.

The currency has more or less stabilized, we feel good about that..

The government outlook is much improved compared to the way it was five or six months ago when we seemed to see a President every week or so.

At this point time, we have pretty much confidence in the ongoing process of electing a new President and we think whomever that might be, they're more likely to be business friendly than business unfriendly.

That's a positive thing.

We've been watching the IMF negotiations with Argentina like hawks and have a number of contacts on both sides and although we don't know if they will there will be an agreement that's signed in the next few weeks, it seems like they're as close as ever been before with just a small handful of issues that are not basically agreed to but hopefully they will be agreed to and also, really, more from anecdotal position, we at this point in time are the last oil producer not drilling.

So, every -- everybody else, essentially, who's producing oil is back to drilling.

And one of the reasons, it's a pretty compelling reason; even with the export tax, the economics are competitive with the other projects that we have in our inventory.

So, as Bill said a little while ago, both Bill Barnes and Bill Abernathy, as long as nothing else adverse happens, we feel comfortable investing more money into Argentina.

As to your question on buying or selling reserves, I think that's something we have on our radar screen right now and I really don't have an answer for you as to whether we'd like to have more or whether we'd like to have less, although I think I've been preaching for the last couple of years we're trying to reposition our assets so that percentage-wise we wouldn't have this high a percentage in Argentina as we did a year or two ago.

Of course, we're doing other things in terms of other property divestitures that might help the problem along.

In terms of the long-term future of Argentina, I think it will be bright.

I think they will continue to go through rough spots, but it's not new their history.

It's been that way for the last 20 or 30 or 40 or 60 years.

I think we have to wait it out and it will work.

One, you know, follow you that is: How -- now, how did the recycle rates under this new environment work?

I know that the labor, obviously get adjusted downward, but looking at the defining cost plus the other lifting costs including the export tax, how do you envision cash from cash returns working going forward, say given a $25 or $20 oil environment?

Well, I guess it is fair to say we've looked at it in a lot of detail.

And at this point in time, our costs associated with drilling are lower.

Our labor costs, of course, are lower.

We do have the increased tax, which is 20%, that's deductible.

I guess the bottom line there is it's not quite 20%, a little bit less.

At this point in time, assuming we can continue to drill the caliber of wells we've drilled in the past, our economics are not necessarily any worse than they were before.

Okay.

Great.

Thanks.

Our next question comes from the site of Brad Bego with Credit Lee and A. Go ahead.

Thanks, several of my questions have been answered.

Craig, one quick one for you, is there any reserves booked in Yemen?

And secondly, I wanted to get detail on the DD&A rate.

Certainly, there are no reserves booked in Yemen at this point.

Okay.

And a specific question on DD&A rate?

You're looking at a 510 of [boe] rate going forward.

Your second, third quarter rate was in the 560-type range.

I know you're taking off the Ecuador reserves, but I would assume that they're booked at less than $5 of [boe], which it implies as you put those proceeds toward your pool that the DD&A rate would actually go up.

So, I realize part of that is a non-oil and gas, so, if you could give me that component, that would help.

Oil and gas DDnd A for the last couple of quarters has been steady at 524.

And going forward, I think we did project about 510.

Part of that will just be the mix of the property.

From the various countries.

That seems like a big change from the 530 -- 539 or 535 --

535, yeah, 535.

We take into account some of the properties that we've sold the first half of the year and some of them that we're going to identify to sell in the last part of this year.

Maybe being higher -- a higher DD&A rates, pulling them out of the mix will lower our average some.

Uh-huh.

Okay.

All right.

Sounds good.

Thanks.

Sure, Brad.

Okay, we will go next to Tom Covington with AG Edwards.

Go ahead, sir.

Thank you.

I noticed the gas run rate in Canada was about $80 million per day in the third quarter and you're forecasting $70 million per day in 2003.

I wondered if that's just a reflection of the reduction of exploitation Cap Ex, a longer project cycle times or other performance issues?

And is there a level of Cap Ex where you feel like you could grow the asset?

Tom, you're correct, it is a direct reflection of the capital we're putting into exploitation projects.

And the level of capital to grow it, I mean we hope we can grow it looking at our me we're putting into the exploration projects.

We're going to try to turn some of these around and -- and build a wedge on top of what we're doing.

So, I think we don't, as Bill had mentioned, we don't have any volumes in there for that.

I think that creates some upside.

So, and a competitive allocation process, the Argentina gets these dollars that would have gone Canada perhaps this year?

Is that sort of how you're looking at it?

I think maybe, Tom, the best way to answer that is when we get to -- when we're looking at the budgeting process, obviously there are some items that are non-discretionary that you need spend some money on, those might be regulatory or might be projects you're already committed to.

Then there's a strategic component, which, for the most part; exploration, although in some cases it's an election to spend money on certain projects that if they're successful than you can do a lot more of them.

When it comes to the discretionary dollars and that's really where the meat of your question is, I think, we look at all of the projects that are candidates to be done within the upcoming calendar year and then we kind of run some kind of risk economics and -- and sort those on the private investment ratio and depending upon the number of projects that our candidates to be done in a given country and if a given year, then that affects where those discretionary dollars go.

And one thing that turns out to be important for this particular year, we spent quite a bit of time earlier this year looking at California in the U.S. and it required a number of opportunities that we came up during the course of looking at California a little bit harder than maybe we had looked at in the last few years and that results -- that resulted in quite a few additional exploitation dollars being allocated to the U.S. this year than particularly in last year.

So, I wouldn't necessarily say that -- that Argentina is getting all the dollars it might necessarily would have flowed to Canada.

I think the U.S. has taken some of those.

Thank you very much.

We have a follow-up question from Ken Beer with Johnson Rice.

Go ahead.

Just a stay on that, part of my question was looking at the northwest territories, you're going to have activity up about -- there.

Is that something you're being forced to do because of, you know, obligations and also, about how much are you talking about?

Because it's obviously from a discretionary standpoint.

You know, any activity up there won't turn into a production and therefore cash flow anytime real soon.

Right.

Ken, we do have some expires on those acreage that occur in the 2004 to 2005 range.

So, I -- I mean we're not forced to do anything exactly this year, but we need to appraise the acreage before the -- before it would expire.

Gotcha.

And so, you know -- and we're looking at maybe two to two and a half million dollars next year.

And totally off of that subject, for Ecuador, will there be any cash income tax impact from any sale on Ecuador?

Is that something that will be a -- any, any material difference between the gross amount that you've announced versus the net amount?

We'll announce both amounts and there will be some income taxes depending on the sales proceeds.

Okay.

All right, thank you, Bill.

Thanks.

We have a follow-up question from Keith Chan.

Go head.

Yeah, I know it's not the end of the year, but can you give us some feel of what you're finding costs through the draw bit would look like this year?

Not at this point, I don't think so, Keith.

At least I tried.

Nice try!

Once again, to ask a question, press the 1 on your touch-tone phone.

We have another question from Ken Beer, go ahead, sir.

I've got follow up and ask, is Bob all right?

Where are you holding him and keeping him?

Let him go!

This is the only way I will be able to get a raise out of these guys is if I take on more responsibility!

Thanks, Julie!

That's it.

And we have no further questions right now.

It's a problem, but we think it will be okay!

We have no further questions at this time.

Okay.

Thank you very much.

Thank you.

That concludes today's conference, you may now disconnect your lines.