西方石油 (OXY) 2003 Q4 法說會逐字稿

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  • Operator

  • Good day, and welcome to Vintage Petroleum's fourth-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 can listen to the conference but cannot ask questions.

  • I would now like to turn the program over to Mr. Bob Phaneuf.

  • Please go ahead.

  • Bob Phaneuf - VP-Corporate Development

  • Thank you.

  • Welcome to the Vintage conference call.

  • Just a couple of housekeeping items before we get started.

  • First, we did make four separate releases yesterday -- an earnings release, a reserves release, an operational update and a release regarding the management teams.

  • Secondly, the remarks that we will make today contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995.

  • There is an expanded discussion of forward-looking statements at the end of our press releases, as well as at the end of our slide presentation for your more thorough review.

  • Additionally, we will talk about cash flow, EBITDAX and net income before special items.

  • These are all non-GAAP financial measures.

  • Reconciliations to the comparable GAAP measures can be found in the appendix to this slide presentation and in our press release announcing year-end '03 results and reaffirming our '04 targets.

  • If you will turn to the first slide on your (indiscernible) today for those of you on the webcast, we are really going to have three speakers.

  • We will start off with Bill Abernathy, who will review our year-end reserves.

  • Secondly, Bill Barnes, our CFO, will discuss our fourth-quarter and year-end '03 results, our balance sheet as well as our targets for 2004.

  • And finally, Charlie Stephenson, our Chairmen who has recently been named by the Board of Directors to the additional positions of President and CEO, will comment about the recent management change.

  • So at this point, I will hand it over to Bill Abernathy.

  • Bill Abernathy - EVP, COO, Director

  • Thank you, Bob.

  • For those of you on the webcast, slide number three will address the year-end reserve picture.

  • Preliminary year-end reserves were (ph) 447.1 million BOEs, and that's using year-end pricing of 32.52 (ph) for NYMEX oil and $6.19 per MMBtu for NYMEX gas.

  • Present worth at 10 percent of the Company's reserve (indiscernible) prices of $3.5 billion.

  • Moving on to panel four is a reconciliation from year-end '02 reserves to year-end '03 for the Company reserves, and also a reconciliation with Canada excluded.

  • For the total Company year-end '02, reserves were about 529 million BOEs.

  • During the year, we produced 27.8 million BOEs, and we divested about 55 million.

  • The largest piece of that was Ecuador, followed by the U.S. and Canada.

  • We had total additions from all sources of 22.6 million BOEs in the U.S., Argentina and Yemen, but most of that was negated by the significant revision 21.8 BOE driven by the negative revisions in Canada.

  • This results in a preliminary year-end 2003 figure of 447.1 BCOEs (ph).

  • I will discuss the Canadian revisions in a little bit more detail in a minute, but I think it is instructive to look at a reconciliation in which we looked at the total Company reconciliation excluding Canada.

  • That is on the same slide there.

  • In this case, we have year-end '02 reserves of about 480 million BOEs.

  • During the year we produced 23.3 and had divestitures of 51.6 million BOEs in Ecuador and the U.S.

  • We had additions from all sources of 21.9 million BOEs and positive revisions of (technical difficulty), yielding year-end '03 reserves of 432.5.

  • Total reserve (indiscernible) and revisions for this case is 27.1 million BOEs, and that replaces about 116 percent of the production and net reconciliation of 23.3.

  • Of these adds and revisions, 9.5 million BOE were in the U.S. and 14.3 in Argentina and 3.1 were in Yemen.

  • Total oil and gas expenditures for the year were about $182 million, and using this figure and 27.2 million BOE of net additions and revisions outside of Canada, you have (indiscernible) cost of 669 per BOE.

  • And if we consider only 149 million of oil and gas spending outside of Canada, (technical difficulty) of 550 (ph) per BOE.

  • And this breaks into about $7.25 for the U.S., a little over $4 for Argentina and about $3.90 for Yemen.

  • Next let me address the Canadian reserve revisions and impairment issue.

  • As we addressed in the release, there are a number of contributors to these reserves, but the more significant contributors are related to the results of our work programs and performance of producing properties, especially in the latter part of the year.

  • The most significant contributor is that exploitation results have been well below our expectations, and there are revisions to reserve previously (indiscernible) to those specific wells that were drilled or worked over, as well as to reserves to the remaining upside (ph) in those programs.

  • And then secondly, performance of producing properties below previous estimates resulted in reserve revisions for those properties, as well as the upside related to those same properties or to very similar properties.

  • The field with the largest reserve revision was Sturgeon Lake.

  • It's located in Alberta.

  • Sturgeon Lake produces oil from the deeper Leduc Reef (ph) and gas from moderate depth cretaceous sands and from the shallower (indiscernible) sands.

  • We had undertaken a drilling program to drill a series of wells in what was believed to be relatively undrained, localized (indiscernible), using (indiscernible) seismic to locate those ties (ph) both in the fore-reef and back-reef areas of the formation.

  • In the course of the drilling program, we pursued a number of G&G improvements to help us better determine locations to drill, (technical difficulty) data (technical difficulty) to seismic.

  • But after drilling a total of 13 locations, we've seen that reserves for a well are below the expectations and the success rate has declined particularly at the end of '03, especially as the result of the last two wells drilled in the fourth quarter.

  • And today, we just feel no longer feel that there's a substantial program for this type of drilling in Leduc and all the remaining unimproved, undeveloped locations have been removed from the reserve (indiscernible) there.

  • Also in Sturgeon Lake, The shallow Badheart gas plan was determined to be productive in the field in early '01.

  • Reserves were booked on the basis of volumetric estimates.

  • A reservoir was initially developed in 2001, and we anticipated the need for an infill development program during 2002, but a permitting delay prevented us from doing that infill program.

  • So actually, we are not able to get it started until into the third quarter of '03.

  • As we drilled those wells and got them on production and saw what the rates were and then ultimately what the pressures were, what we determined was that the infill wells were not encountering new reserves, and it was (indiscernible) that the volumetric reserve estimates were too high.

  • In the interim, the installation of compression and velocity strength in the wells had massive decline rates that the wells otherwise (indiscernible) experience.

  • So as a result, we have reduced the Badheart reserve estimates for those reserves that we see being produced by the existing (indiscernible) wells.

  • The field with the second-largest revisions is Windfall, which is also in Alberta.

  • The most significant property at Windfall is the large Leduc gas reservoir that produces with (ph) a very significant water drive.

  • It was originally anticipated that there were a number of wells that had become inactive that could be returned to production to recover additional gas, and then there was the expectation that several additional wells could be drilled to recover gas from potentially undrained (indiscernible) portions of the reservoir.

  • But during the year, the gas rate and the reservoir declined significantly.

  • The water rates came up significantly.

  • The most recently drilled well is performing well below expectations, and at this point, the upside is (indiscernible) and appropriately classify it as through (ph).

  • Together, Sturgeon Lake and Windfall make up about 65 percent of the reserve revisions.

  • There were other contributors, but these two are the most notable.

  • Obviously, we are very disappointed to have to report results such as these, but we feel compelled to do so given the state of our analysis of these fields at this point.

  • I believe that our analysis is technically accurate at this point, and I think we have the most realistic picture possible of our Canadian reserves today.

  • At this point, let's move on to some of the financial measures, and I will turn the mic over to Bill Barnes.

  • Bill Barnes - CFO, EVP, Treasurer, Secretary, Director

  • Thanks, Bill.

  • I will begin by briefly summarizing the financial results for 2003.

  • For those of you viewing the webcast, I am now on slide five.

  • Our cash flow for the year totaled 277 million, exceeding First Call main expectations by nearly six percent.

  • Production from continuing operations for 2003 was 27.6 million BOE, slightly ahead of our most recent guidance, but as anticipated, below the year earlier level of 31.3 million BOE, due to asset sales and the impact of natural declines (ph).

  • Strong prices for both oil and gas more than offset the lower production, resulting in a $48 million increase in cash flow over the prior year's 229 million.

  • Realized prices for 2003 were $25.87 a barrel and $3.38 per Mcf.

  • Our reported net loss for the year was $240.9 million, or $3.76 per share, and reflects nearly $300 million of after-tax non-cash impairment charges triggered by the downward reserve revisions in Canada that Bill Abernathy just discussed.

  • Earnings before these impairments and certain other special items would have been $49.8 million, or 78 cents a share, for the year, and $14.7 million, or 23 cents a share, for the fourth quarter.

  • Fourth quarter includes $11.6 million, or 18 cents a share, for the after-tax impact of exploration expenses incurred during the quarter.

  • On page 6 of the webcast, we summarize our debt position at year-end 2003.

  • The pro forma column reflects the redemption of 150 million of our 9 3/4 percent Senior Sub Notes, which was completed last week, two outstanding bond issues totaling $550 million that are due in the years 2011 and 2012 and 157 million of bank debt under our facility with the $300 million borrowing base.

  • Net debt of 645 million at year-end represents 60 percent of book capitalization, which is an increase from 49 percent at the end of the third quarter; and net debt to cap increased solely due to the large impairment charges that we previously discussed, and is now outside our target range of 40 to 55 percent.

  • We will take some time to work this back down into this range of our targets and we currently have no plans that will impact debt to cap in the short-term.

  • From a liquidity standpoint, we have 55 million of cash on hand and unused availability under our $300 million borrowing base with banks of over $140 million.

  • Due to the higher commodity prices since the last borrowing base redetermination and lower fixed charges due to our recent bond call, we do not expect a significant impact on our borrowing base due to the reserve cuts in Canada, and this reserve base will be redetermined in April by our bank group.

  • One final note.

  • The non-cash charges do not significantly impact any of the financial covenants under either our bank facility or our bond indentures.

  • Looking forward, our 2004 production target remains unchanged at 26.9 million BOE, and it's shown on page 7 of the webcast.

  • We have increased our targets for EBITDAX to $337 million and cash flow to $242 million as a result of a higher assumed NYMEX reference price for oil of $29 a barrel.

  • Current futures prices could support an even higher oil price assumption and to provide additional support, we have hedged about 29 percent of our targeted 2004 oil production through price swaps at a NYMEX reference price of $29.56 a barrel.

  • At this point, I'll turn the presentation over to you, Charlie.

  • Charlie Stephenson - Chairman of the Board, President, CEO

  • Thank you, Bill.

  • As everyone has read now, I have assumed the position of President and CEO at the request of the Board of Directors.

  • For some time, the Board and myself have not been satisfied with the performance of the Company.

  • Some of that performance has been out of our control, such as financial problems in Argentina, but most of it has been.

  • The serious loss of equity and reserves in this last quarter due to the revision in Canada prompted the Board to take the action that we did.

  • We did not feel that simply saying that we are disappointed in our write-down, but things were looking up otherwise, was sufficient to send the message of the Board's determination to change the performance of the Company.

  • Consequently, it was asked that I come back.

  • I visited with Craig and he voluntarily resigned to pursue other activities.

  • Going forward, my job is going to be to make sure we spend our cash flow in the most prudent manner to get the most production that we can for the dollar that we spend.

  • We are going to focus on production growth.

  • We are also going to keep our mistakes to a very manageable level when we make them.

  • And I fully intend to take advantage of all the new business opportunities that will come our way as we move forward.

  • Those are the reasons I think our Company is today really poised to have some very significant growth and move back to the level of performance within our peer group that we've been used to.

  • During the -- we've been a public company now for 14 years, and during most of the '90s, we were in the upper quartile and even higher of our peer group.

  • And lately we've been in the bottom quartile, and that is not acceptable.

  • We intend to move back up to where we used to be.

  • And with that statement, I'll turn it back to Bob.

  • Bob Phaneuf - VP-Corporate Development

  • Thanks, Charlie.

  • At this point, we have no more prepared remarks, and we are glad to open it up for questions.

  • Operator

  • (OPERATOR INSTRUCTIONS) Van Levy with CIBC.

  • Van Levy - Analyst

  • Good afternoon, gentlemen.

  • Key question I have is in Canada, you didn't lower your production guidance, yet you wrote off a lot of reserves.

  • Are these reserves completely gone, are they just going to the probable category?

  • My gut would be that after write-downs last year, you are tired of having these reserve write-downs and possibly you pushed it really hard and there is a chance in the future that some of these reserves may come back.

  • In addition to that question, I would like to ask Charlie specifically what differently is he going to do?

  • The company is trading I think at the cheapest valuation of the sector at about only $3.40 a barrel.

  • What specifically will he do in terms of running the Company that was different from the previous last couple years?

  • Bill Abernathy - EVP, COO, Director

  • I'll answer the first part of the question, Van.

  • Most of those reserves that were in the proved category did not get reclassified as probable or possibles in most cases.

  • They were removed from the reserve base altogether.

  • With respect to the forecast, as we were looking into '04, you may recall that we as put the forecast together, there was a lot of capital being allocated to Yemen and to Argentina, which resulted in lower amounts of capital about being allocated to U.S. and Argentina -- I'm sorry, the U.S. and Canada.

  • And at that time there was a -- for the forecast in Canada, there was a certain risk profile that was put on that.

  • As we kind of relook at things at the moment, kind of considering everything we know right now, considering some drilling successes that we've had in the first part of the year in (indiscernible) in Canada, we feel comfortable that the forecast that we have out there for the Company in total is fine, and considering the perhaps a little bit different risk profile on the Canadian volume forecast than we would have put together at the beginning of the fourth quarter, plus adding on the recent drill success there, we are comfortable with leaving it where it is.

  • Charlie Stephenson - Chairman of the Board, President, CEO

  • In dealing with the second question of what I would do differently, I am going to take a little bit different approach about how we spend the money.

  • We've always spent our cash flow in a budgeting process, and we do have a budget that is there.

  • It is $225 million.

  • I'll probably put it to our guys that they don't have a budget; they can spend any amount of money that is going to bring us good production results and the projects will not be done if we don't feel very comfortable that we are going to get good results from it.

  • And that is just a little bit different than having the budget that you go spend.

  • They can actually spend more than the budget if we are having good success.

  • As far as exploration, it may be focused a little bit more intently or differently than we've been doing it somewhat.

  • We've had some good results, and we are going to pursue those results.

  • Areas that haven't been giving us the kind of results, we probably will not pursue those areas any further.

  • There are new areas that we are getting into that I like that relates to the unconventional gas that will give us an opportunity to put together a fairly large acreage position, that if it turns out that we do have success, then we have a significant asset that we can spend our money developing not only new reserves, but good production and growing organically.

  • As far as international, I still think that we will continue to have international exploration.

  • This year, we will do our first drilling in the Po Valley, which has quite a bit of running room if we prove successful there.

  • That is not new, but it is not anything that I intend to change.

  • As far as acquisitions and exploitation, those are really the areas that we started this Company in, and I feel like we are very good at.

  • The Genesis acquisition has turned out to be a very bad acquisition and a mistake.

  • That is one acquisition out of 100 that we've done that -- where the others have been very successful.

  • I think we have very good people.

  • I think they are very dedicated and they are fully committed to not make these mistakes.

  • So as we move forward, acquisition will continue to play a large part in what we do.

  • We recently passed up a few that probably we shouldn't, and that was a factor in making the change, as well.

  • So my goal is to make sure that this Company is continuing to grow or will continue to grow at the rate that we want to.

  • If we get to the point that we can't see that we can grow any further, which I don't think we are there yet, then we will pursue other options.

  • But that is my game plan, and that is what I intend to do.

  • This is not a short-term deal for me.

  • I think when I am comfortable that this Company has the base and the goals to move forward from, then we look for a new CEO that has the vision and the determination and the energy to take this Company and make it grow further and take it to the next level.

  • Van Levy - Analyst

  • Charlie, one last question.

  • You and your family clearly own somewhere around 11 million shares.

  • I think a key question people would have would be in terms of how energized you are.

  • Certainly, ownership of 11 million shares would energize most anyone.

  • But could you care to comment on that?

  • Charlie Stephenson - Chairman of the Board, President, CEO

  • Well, I am not the Ever-ready rabbit or whatever it is.

  • I feel energized.

  • Vintage is -- outside of the shares that I own, it's part of my life.

  • So it has gotten my full attention.

  • Operator

  • Brad Beago with Credit Lyonnais.

  • Brad Beago - Analyst

  • I guess to follow up a little bit, Charlie, you are saddled with a pretty mature U.S. asset base.

  • Looking at your operations update, you are really only active in a couple of oil fields in Texas and then some of the exploration associated with your Galveston Bay properties.

  • What is -- in your strategy do you do with such a mature asset base, where your exploitation opportunities are pretty limited?

  • Charlie Stephenson - Chairman of the Board, President, CEO

  • Well, I think you take advantage of other opportunities that come along that you can acquire that will expand the asset base.

  • And those opportunities are there.

  • And we just need to be very proactive about being involved in the opportunities.

  • And it is not that we are not looking, because we have had opportunities, and they will come again.

  • So we still have -- even though we have a mature asset base, we still have opportunities within that base.

  • And we find them every day that we do our work.

  • Not long ago, we figured out a way to dewater some old abandoned gas field that today we are producing over 22 million cubic feet a day from.

  • So as we work our areas and as other people do things and as we actually do some exploration in certain areas, it gives us some inherent advantage in acquisitions.

  • So I am not at all discouraged or disappointed with where we are at today in working our asset base.

  • Brad Beago - Analyst

  • Okay.

  • And I guess in your operations update, you also discuss some new 3-D seismic that you are acquiring in Argentina.

  • Do you want to kind of talk about what kind of inventory you see down there?

  • Obviously you've got a big program going this year.

  • How long can that last?

  • Bill Barnes - CFO, EVP, Treasurer, Secretary, Director

  • At the pace we're going this year, there is three to four years of additional spending to get all of our 3-D -- all of our areas in those concession shot with 3-D.

  • I think we will be spending 5.5 to $6 million this year on 3-D seismic, and then we will repeat that for the next three or four years, and that ought to allow us to get ever (indiscernible) with 3-D.

  • Charlie Stephenson - Chairman of the Board, President, CEO

  • But 3-D is then going to generate all the drilling prospects that come from that.

  • So to answer your question how many years can we keep developing the Argentine properties, I don't think we know today.

  • It is going to be a long time.

  • Bill Barnes - CFO, EVP, Treasurer, Secretary, Director

  • At this point, there is only about 40 percent of our acreage that has been covered with 3-D.

  • So there is a lot of running room.

  • Brad Beago - Analyst

  • And since Argentina has gone through this meltdown and then it has really come back I think pretty strong in the last year, are their acquisition opportunities in Argentina, and would you consider taking advantage of those?

  • Larry Sheppard - VP-New Ventures

  • As you may remember, we made our first acquisition in Argentina in '95.

  • And we have continued to grow through acquisitions all throughout now almost the ten-year period.

  • We have targeted other assets down there.

  • We still have ongoing discussions.

  • We don't have anybody right now at this very ready moment that wants to sell, but we do know that there are going to be assets that are going to be sold.

  • We've got them on the radar screen.

  • And I guess I might use the example of (indiscernible).

  • We talked with Totale (ph) for three years about buying that asset.

  • And when the time was right and we were ready, we had an opportunity and we executed on it very rapidly.

  • So I think the answer to the question is yes, there are still, we believe, significant acquisition opportunities in Argentina, and we are certainly poised to take advantage of them.

  • We think particularly in the two basins where we are situated, both the San Jorge and the Cuyo (ph), that we have economies that make us the natural buyer of assets that trade there.

  • And so we are just waiting to get the guys that have been ready to sell them and we are constantly pestering them about it.

  • Operator

  • Joe Allman with RBC.

  • Joe Allman - Analyst

  • Could you give us what you are targeting in terms of growth, just in Argentina alone, for both production and reserves -- and not just in 2004, but over the next several years, what kind of growth are you looking for?

  • Bill Abernathy - EVP, COO, Director

  • Let me address that in this fashion.

  • For this year, we have four drilling rigs and seven workover rigs running for the entire year.

  • We have a long-range plan which would ramp activity up down there.

  • I can't point to a reserve growth target, but we certainly have an expectation that production is going to grow.

  • And if you will give me just one moment, I will see if I can give you a figure that would be useful to you.

  • It's about 7 percent on oil.

  • Gas is seasonal, and generally over numbers of years, it will follow oil upwards.

  • But for the moment, we are expecting it to be pretty flat this year with last year.

  • But we are expecting oil to kind of grow at a 7 percent pace with the four drilling rigs that we've got going and the 7 workover rigs and perhaps at a little steeper pace in that (technical difficulty) activity level.

  • Joe Allman - Analyst

  • And will that increase with the workovers -- I'm sorry -- the water floods (ph) that you're doing?

  • Bill Abernathy - EVP, COO, Director

  • We don't have a volume component in any of these figures for water floods, but the expectation is probably in '05 there would be a volume component that comes from (indiscernible) money that we spend on water floods in '04.

  • Joe Allman - Analyst

  • Outside of Argentina, what are the two or three things, two or three projects that excite you the most that you think you can really -- you feel good about at this point based on what you know and you think you can get some pretty good growth in reserves and production?

  • Bill Abernathy - EVP, COO, Director

  • Let's start with Yemen, and let me let Larry Sheppard speak to that for just a moment.

  • Larry Sheppard - VP-New Ventures

  • Joe, we are -- as you well know, we declared commerciality on our Magia (ph) prospect late last year.

  • That is moving forward aggressively to an early production facility installation and hopefully we'll be onstream here maybe within the next 30 days.

  • We will be back in the field.

  • We are going to be drilling some other delineation wells in the field, with a target to have a full facility and pipeline on by maybe the end of the first quarter of next year.

  • At that point, the facility will be about a 10,000 barrel a day facility.

  • We have of our (indiscernible), about 50 percent out of the project.

  • So that is the first.

  • There are several follow-up opportunities out there that we are going to be assessing this year, so we think we've got good growth there.

  • Charlie mentioned Italy.

  • That could be one that if it does work, we will have a new exploration concept in an old base that nobody else is pursuing.

  • We will drill that this year.

  • We are quite excited about our High Island discovery and High Island 55 L -- think that will be on midyear.

  • We think we've got some significant follow-up opportunities on the Gulf Coast exploration, ideas that are already in the hopper, some of the leases are already in hand.

  • So I would hope that this year you will hear some other positive news out of that.

  • Joe Allman - Analyst

  • Anything in Canada that's of particular interest?

  • Unidentified Company Representative

  • I think we need to watch the Cypress area that we are working in in the Foothills Trend in northeast B.C.

  • We have about 13 million U.S. in exploration dollars for 2004, and probably half of that will be spent in that area.

  • These are high impact wells.

  • They can be 5 to 20 million cubic feet per day type wells, and we do have infrastructure in the area where we could commercialize the production.

  • Operator

  • (OPERATOR INSTRUCTIONS) Ken Beer with Johnson Rice.

  • Ken Beer - Analyst

  • Somewhat of a follow-up, just staying in Argentina for a moment.

  • Bill, I think you had indicated that you were looking to ramp up from the current level of activity.

  • Kind of when does that occur and kind of what level -- are you going to go from four rigs to just five.

  • And I guess to follow on that thought, with unlimited funds, kind of how far could you push this program, because it seems like that is where you have the best cookie-cutter asset base available to you.

  • And the (ph) question is could you go to six or seven rigs or are you going to pretty much keep it at four or five?

  • Bill Abernathy - EVP, COO, Director

  • Ken, we have not looked at an '05 budget, say for example specifically.

  • But at the moment we are thinking in terms of kind of on average adding one drilling rig per year until perhaps the '06 time frame.

  • The thing we want to make sure that we do not do is get ahead of ourselves there.

  • We are adding people at this point to get us into position to add an additional rig beyond the one that we have now and then an additional rig beyond that.

  • But there is a bit of a learning curve as you bring new people into the organization.

  • And we just want to make sure that we don't pick up drilling rigs faster than the organization can handle them, so that we keep our results as good as they have been.

  • Ken Beer - Analyst

  • Fair enough.

  • Bill Abernathy - EVP, COO, Director

  • So I think that's probably the fairest way to address it.

  • But we certainly are considering what we would need to do to move (ph) at a faster pace.

  • Ken Beer - Analyst

  • And then I had just a question for Larry in terms of the Italy play.

  • It's just if you could give us a sense as to kind how and why Vintage is there.

  • Because it seems like it's an interesting play, and yet I would think, especially in this time period, there is a lot of tension in terms of where dollar flow goes; and yet, here you're committing some dollars on an expiration play that's in a totally different country.

  • So this must be really attractive to you guys, and I am just trying to remember exactly how you all identified this particular play.

  • Larry Sheppard - VP-New Ventures

  • Good question, Ken.

  • Actually, we've been in Italy getting to the drilling stage longer than we wanted to be.

  • It just has moved slower in us being able to get to drilling.

  • But what happened is the European Union, in essence, forced ENI to open up in some of the areas that had been exclusively the domain of (indiscernible) ENI forever, as the state oil company.

  • And the Po Valley is a mature area, but it is an area that has basically been looked at and drilled on the basis of large structural geology.

  • We believe that like maybe the Gulf Coast, that there was a lot of opportunities for stratographic type of traps, and thought that we could bring some of that concept and a little bit of that technology that we have used in other places, and if it was applied, could find still some very meaningful reserves in a place where we had a lot of running room and little competition.

  • In a place that also -- I can't remember the last numbers, but I think Italy imports about 80 to 85 percent of their gas, so there is an absolute ready market there for the product at a very attractive price.

  • So this again was an opportunity to try to find a place where with not many dollars exposed, we could put ourselves in a position to have an opportunity to have some really impactful success without having to go just head to head and slug it out with 50 of our best friends for the same lease.

  • Ken Beer - Analyst

  • And last, and then I will back away, but for Bill Barnes and really for Charlie, as maybe that extra dollar comes in from cash flow because of either higher gas or oil prices, as you look at your opportunity set in '04, you've got maybe acquisitions along with drilling along with paying down debt.

  • Kind of where does that extra dollar go in your mind if it comes in?

  • How would you rank those three if you do get that extra dollar that comes in?

  • Charlie Stephenson - Chairman of the Board, President, CEO

  • I think if we get the extra dollar that our first preference would be to apply it towards an acquisition.

  • If that is not available, if we have good opportunities within our exploitation base, then that is where that's going to go.

  • And then if that doesn't happen, then I think we'll repay debt.

  • Ken Beer - Analyst

  • That's fair.

  • That is exactly what I was looking for.

  • Thank you, guys.

  • Operator

  • At this point, we have no further questions.

  • So I would like to give everyone one last opportunity to register. (OPERATOR INSTRUCTIONS) Van Levy with CIBC.

  • Van Levy - Analyst

  • In terms of capital expenditures for 2003, can you break that out by country?

  • And while you're looking for that, knowing history as long as I have, historically at times, Vintage was very aggressive with its balance sheet in terms of acquisitions.

  • Are there any sort of parameters on the debt side that would limit you from leveraging up the balance sheet unless you make an acquisition to take it down?

  • I'm sorry -- an equity offer to take it down?

  • Charlie Stephenson - Chairman of the Board, President, CEO

  • I think if we were to make an acquisition in today's environment, part of it would be funded through equity.

  • We don't want to get our balance sheet out of hand, being an acquisition company that does fluctuate.

  • So we are doing more drilling today than we have historically, so our stated desire to be in the range that we've stated previously is our goal, it will take us a little while to get there now, though.

  • Van Levy - Analyst

  • Charlie what is your long-term view on the oil side of the market?

  • I think a number of us have been surprised that the prices have been so high.

  • Do you expect it to stay in the -- I don't know, call it 28 to $32 level?

  • Does that matter in terms of the way that you run your business?

  • Charlie Stephenson - Chairman of the Board, President, CEO

  • Yes, it's great for the way we run our business if it would stay high.

  • I think the key to the oil price is two things -- one, OPEC's ability to produce within the range that consumption is; and then I think consumption is very much dictated by the U.S. economy.

  • If the economy stays strong, then I think there is a chance that oil prices can be at a higher level.

  • They don't really say this, but I think probably the dollar coming down has effectively raised a little bit the price of oil.

  • But I think there is a good chance that as long as our economy stays good, that we are going to have fairly high oil prices.

  • Bill Barnes - CFO, EVP, Treasurer, Secretary, Director

  • The answer to your CAPEX question is in the U.S., for oil and gas capital expenditures we spent about 74 million; in Canada about 31 million; in Argentina about 58; and in Yemen about 12.

  • And then we had probably about 4 million in two or three other places.

  • So a total of about $182 million for oil and gas capital expenditures.

  • Van Levy - Analyst

  • And you gave the proved developed component of the Company as 69 percent.

  • Could you break that out by country also?

  • Unidentified Company Representative

  • We're searching for it.

  • Bill Abernathy - EVP, COO, Director

  • The U.S., Van, is about (technical difficulty) proved developed reserves at about 114 million BOEs.

  • Van Levy - Analyst

  • Proved developed?

  • Bill Abernathy - EVP, COO, Director

  • Proved developed.

  • Canada, about -- I'm sorry.

  • I was looking at a different percentage -- it's about 37 percent.

  • I was looking at PW10 (ph).

  • Canada is about just under 5 percent of proved developed at about 14.5 million BOE.

  • Van Levy - Analyst

  • You're talking PUDs now.

  • Bill Abernathy - EVP, COO, Director

  • I'm sorry.

  • Van Levy - Analyst

  • Are you talking PUDs all the way through, so the U.S. is 37 percent undeveloped and Canada --?

  • Bill Barnes - CFO, EVP, Treasurer, Secretary, Director

  • Those percentages are (ph) the percent of the total proved developed, aren't they?

  • Van Levy - Analyst

  • Let me ask in another way.

  • What is your PUD percentage by country in terms of reserves, not PV10 (ph).

  • Bill Abernathy - EVP, COO, Director

  • Total reserves for the whole Company, okay.

  • What we were quoting is for --.

  • Bill Barnes - CFO, EVP, Treasurer, Secretary, Director

  • Under 16 percent for the U.S., of the U.S. total that (multiple speakers).

  • Van Levy - Analyst

  • Okay, great.

  • Bill Barnes - CFO, EVP, Treasurer, Secretary, Director

  • Canada is 2.

  • Argentina is about half -- 48 (ph).

  • Bolivia is 13, 14 percent.

  • And Yemen is 100 percent.

  • Van Levy - Analyst

  • Okay, great.

  • Thank you.

  • Operator

  • We have no further questions, so I'll turn it back over -- I'm sorry.

  • We do have a speaker from Martha Tuttle (ph) with Prudential.

  • Martha Tuttle - Analyst

  • Just one follow-up.

  • I didn't actually hear the percentage of proved developed.

  • Did you say 69 percent?

  • Unidentified Company Representative

  • Yes, total.

  • Martha Tuttle - Analyst

  • Of the 447?

  • Unidentified Company Representative

  • Yes.

  • Martha Tuttle - Analyst

  • Fine.

  • Thank you.

  • Operator

  • At this point, I will turn it back over to our speakers.

  • Bob Phaneuf - VP-Corporate Development

  • Thanks very much everyone for joining us today, and I will be available for any additional follow-up questions that you have at 918-878-5451.

  • Again, thank you very much for taking the time to join us today.

  • Operator

  • That concludes today's teleconference.

  • Thank you for attending.

  • Everyone have a great day.

  • You may disconnect at any time.