西方石油 (OXY) 2003 Q1 法說會逐字稿

Hello and welcome to Vintage Petroleum's first quarter conference call.

This call is for the benefit of Vintage shareholders and other interested parties and any rebroadcast of this call for commercial purposes is prohibited without the permission of Vintage.

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

I will now turn the program over to Ms. Julie Smith.

Please go ahead, ma'am.

Good afternoon, everyone.

I'm Julie Smith, Manager, Investor Relations, here at Vintage Petroleum.

Present today with me on the call are Craig George, our CEO, Bill Barnes, our CFO, Bill Abernathy, our COO, and other members of our management team.

Our call will begin with CFO Bill Barnes reporting this quarter's results and current financial position.

Craig George, our CEO, will provide a summary of operations and results and plans for 2003.

Supplies (ph) to the Company of our presentation are available at our Web site, www.vintagepetroleum.com via the conference call icon or in the presentation section of our Web page.

The discussion in this call 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 fact that address estimates of oil and gas reserves, estimated NYMEX prices and estimated realized prices for oil and natural gas, estimated realized prices for future production and costs, exploration drilling, exploitation activities, capital spending, planned asset sales and development for events that include estimates of oil export and taxation 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 materially differ.

Factors that could cause actual results to differ materially include oil and gas prices and realization, exploitation and exploration successes, actions taken or to be taken by the foreign governments, changes in foreign exchange and inflation rates, as well as continued availability of capital and financing and general economic market or business conditions.

During the call we may refer to non-GAAP financial measures such as cash flow from continuing operations or EBITDAX.

Please refer to the tables in our current press release in the appendix section of our Web cast presentation, both of which are available on our Web site for reconciliation of these measures to the comparable GAAP measure and for other information regarding these measures.

At this time I turn your attention to Bill Barnes.

Thank you, Julie.

For those of you who have access to the Web cast, I'll be discussing pages 2 through 6.

Our net income for the first quarter was $40.7 million, or 63 cents per share.

This includes after tax income of 10.8 million, or 17 cents a share, from discontinued operations related primarily to the gain on the sale of our Ecuador operations, and a seven million, or 11 cents a share, item related to a newly mandated accounting change dealing with asset retirement obligations.

Net income from continuing operations before these two items was 22.7 million, or 35 cents a share.

This compares to a net loss from continuing operations of 6.3 million, or 10 cents a share, in the year earlier quarter.

Cash flow from continuing operations before expiration expense and changes in working capital totaled $85 million for the quarter, more than double the year earlier level of 40.2 million.

During the first quarter we closed property sales in Ecuador and the U.S. for total proceeds of $167 million.

These proceeds, along with our cash flow and excess of cap ex, allowed us to significantly strengthen our balance sheet during the quarter.

Long term debt net of cash on hand at the end of the quarter was $689 million representing 51.9 percent of book capitalization, down from 60.5 percent just three months earlier.

We have zero outstanding bank debt and unused availability under our bank facility of $290 million and all of our outstanding debt consists solely of senior and senior subordinated notes with maturities prior--no maturities prior to 2009.

On page 3 of the Web cast, we show our comparison of oil and gas production from continuing operations for the first quarter of 2003 and 2002.

Adjusting for property sales and reduced gas takes in Bolivia, production on a BOE basis is down about 10 percent first quarter to first quarter, to seven million BOE.

We significantly curtailed our cap ex program in 2002, as most of you know, spending only 54 percent of cash provided by operating activities in order to help achieve our 2002 debt reduction goals.

A large portion of this reduced cap ex level related to Argentina where we ceased drilling in the first quarter of 2002.

Natural declines in our Argentina oil production first quarter to first quarter accounted for nearly a half a million barrels and most of the decline in total Company production.

While 2003 first quarter production is down from year earlier levels, the seven million BOE of production was in line with our expectations for the quarter.

With this good start in the first quarter, the reinitiation of drilling activities in Argentina late in 2002 and our increased capital program for 2003, we're well on our way to achieving our annual production target of 29.1 million BOE for 2003.

Turning to pages 4 and 5 of the Web cast, our realized oil and gas prices were dramatically higher during this first quarter than the year earlier levels.

Oil was up 74 percent to $28.20 per barrel and gas was nearly double the year earlier level at $3.88 per MCF.

These strong prices drove oil and gas sales for the quarter to 185.7 million, 57 percent higher than the year earlier quarter and cash flow from continuing operations again more than doubled to $85 million.

Page six of the web cast lists our current 2003 operational and financial targets.

Given the strong oil and gas prices we realized in the first quarter and our outlook for the remainder of 2003, we've increased our 2003 target for cash flow to $250 million and our EBITDA target to $350 million.

These increases reflect our current hedge positions which are listed in the web cast appendix and an increase in our 2003 assume Nymex prices for oil and gas from $26 a barrel to $27 and from $4.50 to $5.00 for BMCU.

All of the other 2003 targets remain essentially unchanged from our last update.

The perk BOE targets for LOE and G&A for the year are unchanged even though first quarter actuals are somewhat higher.

LOE in the first quarter was $7.71 per BOE versus our annual target of $7.18.

LOE includes both severance taxes and Argentina oil export taxes, which totaled $1.89 per BOE in the first quarter.

These taxes were driven much higher in the first quarter as a result of Nymex prices averaging nearly $34 a barrel and $6.60 per MMBTU.

Our significantly lower price assumptions for the remainder of 2003 results in lower per BOE taxes included in LOE coupled with the impact of higher production levels targeted in the second half of the year compared with the first quarter, we are a maintaining our per BOE targets for LOE and G&A at their current levels of $7.18 and $1.90.

As I previously mentioned, the seven million BOE of first quarter production was in line with our expectations and thus we are reaffirming our 2003 annual target of 29.1 million BOE.

With that, I'll turn the presentation over to Craig.

Thanks Bill.

Good job.

First I'd like to talk about the U.S. for those who have the web cast pages, that's page seven.

IN total for the quarter we drilled 11 gross or nine net wells with 93 percent success rate.

One of our most active exploitation drilling areas in the first quarter was Luling field, and there we had seven successful completions with the total production increase of over 1,000 barrels a day.

We also have exploitation programs underway nearby that area in West Ranch and Darts (ph) Creek and in California in Pleito Ranch and Grub (ph) .

As far as U.S. exploration, we're currently drilling the Leatherwood prospect in our West Texas horizontal program.

We've had good shows and should have completion results probably in about a month or so.

Our two other prospects in that play, Austin and Rosewood will spud in the second and third quarter.

In our Texas gulf coast program we were successful bidders in a recent lease sale for two prospects and have plans to drill at least one well by the end of the year.

In South Louisiana, even though our Tiger (ph) Bayou or Shadwell (ph) , which tied in non-commercial were still working on other high potential prospects in the trend and may have other wells to drill there in the future.

So in the U.S. our exploitation program is doing well and our exploration program is up and running and testing some really important projects this year.

Next, Argentina on page eight.

Here the economic and political climates have improves substantially so we're back to business.

Currency is more stable.

Inflation rate is moderated.

The IMF has an interim agreement in place.

Drilling economics are good.

In fact, maybe a little better than they were before.

In the political arena, a run off election between Kirchner and Menem will occur May 18 and in my mind the good news is neither candidate is anti-business.

As I said before, we're back to business with a $48 million budget.

A second rig working since February, a third rig added in April and in total we plan to drill 63 wells this year targeting production growth in Argentina once again.

On page nine we list a few more reasons we like Argentina.

We had great drilling programs year after year with over 96 percent success rate after drilling more than 300 wells, and we believe we still have hundreds more wells to drill if the political climate remains stable.

We have an attractive after tax return on investment.

Our margins remain strong, and we can still repatriate cash flow through exports, which results in much of our production paid for U.S. dollars in U.S. banks.

Next on page 10, in Canada, we're on a route there to reposition to tighten our focus and come up with a strategy that's more in line with the strategies we have in other countries.

We'll be focusing on technology driven projects as we do in other places.

We'll be divesting some non-core properties.

We'll focus on impactive exploration and a good example of this is the meaningful acreage position we're building in the British Columbia foothills trend.

And finally, we'll pursue coronary acquisitions when the time is right.

We feel like we're at a turning point in Canada and this will be a very, very important year for us to start to grow in Canada.

Last but not least on slide 11 is our frontier exploration.

And here we take a small percent of our organic budget between five and 10 percent and expose Vintage to a large potential prospect inventory where we can create significant value.

These have longer time horizons, of course, so the plan is to have several of these active in any given time.

In the Po Valley of Italy, we have a 70 percent working interest in 275,000 acres and we think some of the exploration techniques that have proven to work for us very well in Argentina will work here in Italy as well.

We should have a couple wells to drill later in this year.

Then in Yemen, where we have 75 percent interest in 850,000 acres, we've drilled and cased our second delineation wells for our 2002 An Nagyah oil discovery and we'll have more to say about that in a few weeks as testing proceeds.

In the Northwest territory, last quarter we had disappointing results in a shallow gas prospect, but we still have deeper zones to evaluate and here we have a 50 percent working interest in our blocks.

In Nova Scotia we've taken a position in a significant off shore play with 1.5 million gross acres and we'll test the concept with the first well in the third quarter.

In off shore Bulgaria we have a nearly two million acre unexplored block which we'll be evaluating with both existing and new seismic that we'll be shooting.

We currently have 100 percent working interest.

We may take on a partner later on.

Although our frontier exploration projects might appear far-flung, our focus is on creating value, not creating an empire.

Our G&G teams have a great track record of finding and growing reserves internationally like we've done in Bolivia and Ecuador and Trinidad and Argentina, but we maintain the discipline to modify the reserves when appropriate as we did recently in Trinidad and Ecuador.

Of course our other tried and truth growth driver is acquisitions discussed on page 12 and here we have a great track record also.

This year we'd like to add more North America properties to our portfolio if the price is right to help balance our international assets.

The good news is it looks like the sly (ph) will be improving from both majors and independents as the year goes on and assuming commodity prices remain above historical norms, we would hedge production to protect our prices.

The capital market appear too favorable to finance good acquisitions and we place appropriate amount of equity to stay in our target capital structure range.

So, in summary on page 13, we achieved our $200 million debt reduction goal.

Production and costs are on track to achieve our targets.

We are revising our cash flow target upwards to 250 million and EBITDA target up to 350 million.

Argentina is returning to a much more positive outlook.

Exploitation activity is robust particularly in the U.S. and Argentina with encouraging early results.

Exploration is gaining momentum.

Leatherwood drilling, more soon to come.

And we're building our inventory of prospects with significant upside potential.

The acquisition supply appears to be on the increase and capital markets are favorable.

And with all that said, we look forward to a good 2003 and making the most significant opportunity this year.

And with that, we'll open it up to questions.

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

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

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

If a question you intended to ask has already been asked, and you don't have another question to ask, please press the pound sign on your touchtone phone to remove yourself from the queue.

Once again, to ask a question, press star one on your touchtone phone.

Please stand by one second while I queue up our first participant.

Our first question comes from Van Levy from CIBC World Markets.

Please go ahead.

Good afternoon gentlemen and ladies.

How are you?

Hi Van.

Congratulations, you made some great strides here getting your balance sheet in order.

I have two questions.

One's a mechanical kind of generic from my model, I'd like to go through and get the LOE tax, the DDA and the G&A by country, if you could.

And then secondly, while your thinking about this, would a stock buy back be in the, you know, order here or potential since it looks like your cash flow is strong and your balance sheet is in order?

Van, I'll be happy to help you with the LOE and the DDA numbers right after the call I'll be available for you.

So just give me a ring.

Great.

Van, as far as stock buy back I think it's fair to say that's something that's always on our radar screen but at this moment we'll just have to wait and see what other opportunities come up.

OK.

Great.

Thanks.

Next question, Joe Allman from RBC.

Please go ahead.

Good afternoon.

Hi, Joe.

The, Craig, are there opportunities to buy some more assets in Argentina?

And if there are, would you take those opportunities?

Well that's a really good question.

At this moment I don't think there are a lot of properties that are on the market, although there may be more coming up in the next few months as things stabilize there.

I really think that gets back to the comment that I made before about the composition of our portfolio.

I think the investment community would probably be happier if we had more assets in North America compared to what we had internationally, but once we reestablished a better balance of North America to international I'm very happy with doing more things in Argentina.

I think over the long haul it will be a good place to be.

And then, you know, this is a follow up.

I guess, my impression is that Argentina has really been one of your best performing properties, you know, over time.

Is that - am I right about that?

Yes, I think you're right.

The San Jorge Basin has been very good to us and I think we've been pretty good to it, but that set of opportunities isn't necessarily unique to Argentina and we're looking for some of the same kinds of things in other places.

A good example might be the opportunity that I talked about a little bit earlier in the Poe Valley (ph) , where basically we took the same exploration strategy that worked for us in Argentina and tried to find another place where we could apply it.

And it looks like in the Poe Valley (ph) , it's - it'll be the same game.

So we'll see if that's really true or not, but we are trying to really duplicate the success machine that we built in Argentina and other places, as well.

All righty.

Thank you.

Next question from Brad Beago from Credit Lyonnais.

Please go ahead.

Good afternoon.

Hi, Brad.

Hi, Brad.

Gentlemen, I guess most importantly - I've really got two questions.

Mechanically maybe for Bill the tax rate shot up and most of your taxes were also current, so maybe you could give an outlook going forward if you expect to moderate back to the 35 percent type tax range and what kind of deferred percentage.

But also I think even more importantly, to follow up on Dan's (ph) question, you are sitting on a ton of cash right now and arguably your stock price is one of the most undervalued in the A&P (ph) group.

So, you know, I would think that there would be some, you know - some, you know, kind of a need to look at what you can do to increase the stock price.

And you're - and by my numbers you're trading at maybe three bucks a barrel.

I'm sure acquisitions aren't that cheap.

Are there structural impediments to buying back stock in your bonds?

And maybe you could elaborate a little more, Craig, on what you guys have discussed.

As far as structural impediments [Inaudible] ?

As far as a buyback.

Yes.

On the [Inaudible] ?

Currently our eight-and-five-eighths are callable at, like, 103 and a half or so (ph) .

Our nine-and-three-quarters become callable at 104 and an - or 105 (ph) in February of '04.

So absent that, it would be, you know, buybacks in the open market as an alternative for a use of cash.

In terms of your tax question, there's not a whole lot we can do about the current tax weighting (ph) for the remainder of '03.

It's probably going to remain as heavy as it is in the first quarter, so overall effective rate in the - probably the 40 percent range.

And that's driven - current taxes are driven by, you know, strong earnings in Argentina as well as the impact of property sales on our - on our U.S. tax situation.

OK, I'm sorry.

What did you say you thought the effective rate would be?

What are we for the quarter?

We're at - we're at 43 for the quarter, ...

Yes.

... but we're expecting it to be somewhere around 40 percent on average for the year.

Forty percent?

OK.

And now as far as a - the buyback, I was wondering if there are - there are indentures within your bonds that prevent you from buying back stock.

Oh, no.

I mean restricted payment baskets (ph) are quite large.

OK.

But, Brad, I - you know, I guess it's not a surprise to you we're really in kind of a new territory with excess cash and zero bank debt.

And we do consider on a day-to-day basis really what should we do with that cash.

We have the option to pay down some of our bonds, reduce our debt further.

We're looking at acquisitions as I said before we could step up our capital spending or we could buy back our stock.

And I think it's fair to say we look at all those options and in a great amount of detail.

OK, thanks.

Craig, yes, I think we all have looked at it and it seems to me it's pretty easy to the conclusion that buying back stock would be, you know the optimal strategy right now.

So obviously you're seeing something that I'm not.

Brad, I'm not sure I can tell you we've made any firm decision on exactly what we're going to do if we continue to build up cash reserve.

OK.

All right.

Thanks.

Next question - Tom Covington from A.G. Edwards.

Please go ahead.

Good afternoon, gentlemen.

Hi, Tom.

Hi, Tom.

Question - you mentioned very attractive rates of return in Argentina.

Give me a sense of what kind of numbers we're talking about there in terms of after-tax rates of return.

Before tax numbers range from, you know, 30 to 60 - 70 percent depending upon what your oil price is.

After-tax number I actually don't have off the top of my head [Inaudible] .

Sort of a mid-twenties oil price, it's in the 30 to 60 percent range?

Or ...

Yes.

OK.

What would it ...

[Inaudible] a couple different things that have happened.

One is the export tax that you all are aware of, and of course, that's a 20 percent hit.

But on the other hand, our actual costs as denominated in U.S. dollars have actually reduced more than that, so as a result, our drilling economics are essentially better than they once were.

OK.

What would it - what kind of signals would you have to see down there to put another rig to work in Argentina in terms of the political landscape down there?

Well, first, I think we need to have an end in the presidential elections that we're happy with.

We have to make sure that the interim agreement with the IMF is extended one way or another so that there's financial security - fiscal security.

And then beyond that, it's a matter of building the capacity of our internal machine to get wells drilled.

But I think if all those other positive things in the country happened, it's something we'll be evaluating through the year.

OK, but clearly not a matter of the inventory or the reservoirs that ...

No, no, absolutely not.

Not a limitation at all.

The inventory is quite robust, not only for just drilling locations but for [Inaudible] and also for some [Inaudible] .

So I think a pretty sizeable piece of our planning for 2004, once we get past the elections and look for continued stability, will be looking at the pace at which we can move up drilling activity down there.

Thank you very much.

Next question - Jack Aydin, McDonald Investments.

Please go ahead.

Hi.

Good afternoon, gentlemen.

Hi, Jack.

Hi, Jack.

Two questions - one, the exploration expenses for the quarter - it looks like quite high.

Could you break it down for me a little bit?

What was included in that 14 million-plus?

If there was a dry haul (ph) - big one or two or something like that that you did not say?

Yes, Jack, we had one large expenditure on a dry haul (ph) the Norman Number One (ph) in our Richarde (ph) prospect.

It's about $5 million.

The Northwest Territory shallow prospect drilling that Craig alluded to in his comments was another 2.7 million.

The Onoin Number Three (ph) that we talked about in the fourth quarter had some costs that were incurred in the first quarter.

It was another 1.3.

And then we had 2.3 million of just G&G work which gets expensed in expiration costs as well.

And then a myriad of others that were two to three million.

So if you look forward, what kind of guidance you would be looking at to exploration expenses for the year?

Do you give any indication?

We don't really give guidance on exploration and predicting dry hole levels outside of just our normal planned G&G work that will automatically get expensed, which is probably not unlike the level we had in the first quarter of a couple of million.

Second question, in Canada you--in the past you indicated that you will sell some asset.

Did you sell any or do you have any under contracts?

If there is any, what kind of production we might be talking about that could leave cash (ph) , you know, terms of members, type of production, volume wise?

Jack, we have only recently received this and we're still in the process of evaluating those and talking with some of the bidders so I think first to say anything at this point that might tip our hand in terms of exactly where we'll be going and how many offers we might accept (ph) , probably would not be the right thing to do in this setting.

But at such point as we decide what we'll be doing, we will let you guys know.

I'd like to be able to tell you more, but I just don't think it's appropriate for us to do right now.

The final question; everybody--you know, I mean to follow on your [Inaudible] like structuring this and the cash you're sitting with and the dilemma you are in, in a sense, you are trying to buy--acquire assets or buy shares in everything.

I mean with this kind of market wouldn't it be advantage to you to buy some North American assets even if you have to pay little bit forward (ph) , you still could hedge it and still you could lock in some return?

Well, we're certainly looking at a number of opportunities and looking at creative ways so that we can still have a very favorable return, so we hope we can find some situation like that.

Thanks.

Once again, if you'd like to ask a question, press star, 1, on your touchtone phone.

OK, Michael Schmitz from Banc of America, please go ahead.

Can you provide some additional details on the exploration prospects in the Gulf of Mexico, what type of reserve potential, what would you like to drill as a working interest?

Michael, we currently--the two prospects that we currently have under lease, one of them that's in the high [Inaudible] area, actually there is one exploration target and then what we believe to be some redevelopment potential there.

I'm going to say that that one is probably--it is definitely lower risk, but probably lower rewards, something in maybe the 25 BCFE (ph) range.

That's probably not typically what we would be targeting, but it was a great opportunity that we knew about.

The other one in Mustang Island is more of the typical type prospect that we're looking at.

There you're going to be looking at reserve sizes that are probably going to range between 30 and 80 BCFE (ph) and right now we've not determined exactly how much interest we're going to keep in those.

I'm sure we will turn some interest in those.

OK.

And then just some additional information on the Nova Scotia program; what are you looking for there?

Yes, we do.

We actually have two.

We will be the operator, though, of the project.

So it's a new area, favorable fiscal regime (ph) .

We've got a lot of cooperation so far out of the regulatory environment.

It's not a great deal of drilling there, but we think there's a lot of upside in it.

It's a situation where there's a lot of [Inaudible] .

If the first one works, then there may be another, who knows, three, four, five, 10 that are similar.

Yes, we have interest--you know, we could end up with an interest in 1.5 million acres, so figure it (ph) .

OK.

Thank you.

Yes.

We go back to Van Levy from CIBC World Markets.

One last question and this is a philosophical question.

Two times you guys flirted with some very, very tough situations in terms of over leveraging the balance sheet and potentially diluting the company.

Operationally, I think both times--you're a great company; you dug yourself out of it very well.

I guess my key question is what have you learned from the past two experiences, what will you do differently now, and maybe you can weave that into maybe some sort of targets and theories on what the optimal capital structure is when you do equity and how you handle hedges, or your view for hedges, just philosophically.

Well, I guess from a standpoint of capital structure, what we said is we'd like to operate somewhere in the 40 to 55 range for a debt to book cap.

And I think we've seen that when we got way out of whack that the market punished us pretty badly for doing that and we've certainly learned a most recent lesson with Genesis and that's one of the things if we could have done it different and if we could do it over, we would do it over.

So I think in almost any significant size acquisition you'll see us using some equity, even though we'll be unhappy at selling equity at a relatively low level.

So I think that's for certain one thing that we've learned.

On the Genesis acquisition, I guess that's another point that we had in terms of your hedging question and it seems like whenever you're fairly certain you're above historical norms that it would be wise to lock in a significant portion of the production and we certainly wish in retrospect we would have on that one. and I think if we were faced with another opportunity tomorrow like it, we definitely would.

OK.

Thank you very much.

Again, to ask a question, press star, 1, on your phone now.

Joe Allman, RBC, please go ahead.

Hey, Craig, just another kind of strategy question.

What's the overall strategy regarding operational focus versus operational diversification?

That's a really good question, Joe.

I guess you could get hammered on either side.

If you decide you're a one-niche player and you saturate that niche, there's nowhere to go.

On the other hand, if you're in too many places, you really can't manage them effectively.

So somewhere in the middle is the right place to be.

What we decided obviously is that for the four or five areas that we're in in the U.S. we can manage those effectively, especially with reduction in number of properties that we'll have in Canada with selling some assets.

We think we'll have an easier group of assets that we can really truly focus on.

And then in Argentina, of course, we're just in a couple of different basins.

Then you add on the different areas from our frontier exploration standpoint that--one of the points I may not have made very well is even if we're successful in every one of those frontier areas, five years from now we won't have ownership in that.

We really don't have a problem selling off our successes if we continue to have successes because we do realize that you can't have a fairly fixed group of people, no matter how bright they are and how active they are and manage a multitude of problems.

So we understand that it's important focus, both focus geographically and focus technology--from a technological standpoint.

But still, we don't want to be so narrow that we close ourselves to opportunity.

So it's a tough balance, but we try and agonize over that every day in terms of should we look at something new or should we just try and keep doing what we do.

But I think one of the answers is that in every one of the core areas that we work in, considering the smaller core areas, Gulf coast, mid-continent, California in the U.S. and on and on, we feel like we're competitive for every deal that goes down there and every drilling opportunity.

So from time to time it is appropriate to expand your core areas just to expand your opportunities.

But when we do that we make a very serious and a very conscious decision that it's time to take on one more area.

And so when looking at an acquisition in North America that you seem to be looking at now, are you looking to beef up some existing operating areas where you think you've got some things figured out, or are you looking for a new area and it'll be large enough where you've got a critical mass?

We could go either way, but if I got to pick, an ideal one right now would be one that we could fold into areas where we've already been successful, we know how to reduce operating costs, we know what kind of work-overs work and don't work, we know what kind of secondary recovery potential works and doesn't work, and we know how to exploit the reservoirs at the cheapest possible cost.

And just a quick--your debt to book capital target, did you say 40 to 45 percent?

40 to 55.

Thank you.

Thank you.

We go back to Brad Beago from Credit Lyonnais.

Please go ahead.

Hi, Craig.

One follow-up just on operations.

You pretty much stabilized production in the U.S. and Argentina, but Canada continues to slide.

Are we at the bottom--excluding property sales, do you think you've seen the bottom in terms of Canadian volumes and we'd see it either flat to starting to pick back up, and maybe you could break that out gas and oil?

Gary, you want to answer?

Brad, I think on the--it's we've got a little more decline to come in the second quarter, but then you're going to see it pretty much flat the rest of the year.

We're looking at about 60 million a day average net for the year.

On the oil side, it's again, small decline into the second quarter and then pretty much flat, and targeting about 3,500 barrels a day on the oil side.

So, you know, I'd have to categorize it pretty much as flat from this point forward.

OK.

And did you say what the volumes were with the properties that you're contemplating selling?

We did not.

OK.

And we would rather not.

Can I add, basically we have 10 packages that are out (ph) at this point in time and we haven't decided if we're going to sell some of them or all of them or none of them.

So it would certainly be premature to comment on that.

OK.

Alright, thanks.

Again, to ask a question, star, 1, on your phone now.

It appears we have no further questions at this time.

Do you have any concluding comments, Ms. Smith?

No, I don't.

Thank you for coming and I'll be available in my office today or tomorrow if you have any further questions.

Thank you.

Thank you very much.