SilverBow Resources Inc (SBOW) 2003 Q4 法說會逐字稿

Good morning. Welcome to the the Swift Energy Company Fourth Quarter Earnings Release Teleconference. At this time all parties have been placed on a listen-only mode and the floor will be open for questions following the presentation. At this time it is my pleasure to turn the call over to Scott Espenshade. Sir, you may begin.

Thank you. Good morning, everyone. I'm Scott Espenshade, Director of Investor Relations for Swift. I would like to welcome everyone to Swift's fourth quarter and full year earnings conference call. Today's call will cover the results for the past year. Terry Swift, President and CEO, will start the call with an overview. Then Alton Heckaman, Senior Vice President and CFO will review the financial results for the quarter. Joe D'Amico, Executive Vice President and COO with cover the domestic operations and then Bruce Vincent, Executive Vice President Corporate Development and President of Swift Energy International with update the New Zealand activities. Terry Swift will then wrap it up before we open up to a few questions.

But first, let me remind everyone that our presentation will contain forward-looking statements based on current assumptions, estimates and projections about us and our industry. These statements involve risks and uncertainties detailed in our SEC reports, and our actual results could differ materially. We expect our presentation to take approximately 20-25 minutes and we have allowed time for questions. Terry.

Thank you, Scott. Once again, I would like to welcome you to the Swift Energy Company's earnings conference call. We are pleased this morning to present the 2003 full year and fourth quarter financial and operating results.

During 2003 the company had several significant accomplishments that I'd like to note. First, we achieved record oil and gas revenues for the company and we achieved record oil and gas production for the company. We will go into that in detail in our presentation. We are very proud of those achievements.

Also during 2003 we continued to successfully implement our strategic plan which called for us to diversify and improve the quality of our oil and gas production and reserve base. During 2003, numerous achievements were made this that relate to this strategic mission. Our corporate reserve growth was the 9.5%. Our corporate production growth for the year was 7%. Our 2003 finding and development cost came in right at $1.23 per MCF equivalent, which we view as exceptional. Our 2003 reserve replacement rate was approximately 230%.

More specifically, during 2003 we had a lot of activity. A significant amount of our capital was expended in Lake Washington, it has become a very significant core area for the property -- for the company. During 2003 we kept two drilling rigs in the field most of the year. We completed significant facility upgrades and enhancements for future deliveries into the market -- processing and deliveries into the market from Lake Washington. We also increased the fuel production on the year about 300% which we view as a very significant achievement. And during January 2004 we are also pleased to announce that we averaged about 10,000 net barrels of oil equivalent a day for the company. Lake Washington reserves during 2003 increased year-over-year 37%.

We also had some significant achievements on the balance sheet, for the balance sheet during 2003. We reduced our ratio, the debt to PB10. We improved the balance sheet as a relates to liquidity as well. Alton, our CFO, will go into that in more detail.

Going forward into 2004 we have got several significant objectives in front of us that we have announced in our recent earnings review -- excuse me analyst review where we made presentations in Houston, New York and Boston. We are set upon the course to increase production in 2004 in the range of 11-17%. We are setting out to increase the reserves 5-8%. We have a target of $1.30 to $1.50 per Mcf equivalent on our finding and development costs. We will continue on our mission to diversify and improve the quality of the asset base. The commodity markets are clearly very exceptional and providing lots of incentives and rewards to oil and gas producers that are able to increase their productions and reserves. Oil and gas pricing will remain we believe strong in 2004.

From Texas to Louisiana and from the United States to New Zealand, the company is very well positioned and has a significant and visible opportunity set to go forward on with its mission. Our organizational resources are very focused on our mission and we clearly believe that we will have an exceptional 2004 in front of us. We're positioned to grow our volume, and value of our proved oil and gas reserves during 2004 and beyond.

With that introduction I would like to turn over to Alton for a review of the 2003 financials. Alton.

Thanks a lot, Terry. Good morning, everyone. I'll highlight the key financial information we included in the press release.

As Terry said, Swift had a great year. In 2003 we set new records for both revenues and production. Full year 2003 revenues exceeded $200 million. Production exceeded 53 BCFE. Net income before accounting change topped $34 million. Diluted EPS before the change came in at $1.24 and cash flow per share exceeded $4.

Looking specifically at the fourth quarter of 2003, Swift had production of 13.4 BCFE equivalent. An increase of 6% over the same quarter in 2002. Domestic production rose 16% from Q4 '02 and contributed 66% of the production for the quarter. Primarily the result of continued Lake Washington success, which Joe will fill you in on.

Swift's average composite realized price for the quarter increased 26% to just below $4 per MCF equivalent. Domestic prices actually rose 17% to an equivalent $4.59, while New Zealand increased 41% over the prior quarter to $2.78 composite price.

Oil and gas revenues were therefore 34% above the 2002 quarter. Total revenues for the fourth quarter total $53.1 million, an increase of 31% over 4Q '02. Swift thus realized $9.5 million in net income for the quarter which is 35 cents basic and 34 cents diluted.

As we noted in the press release Swift's fourth quarter and full year 2003 provision for income taxes includes an approximate $1.3 million reduction in the statutory U.S. tax rate adding 5 cents per share, due primarily to the currency exchange effect on the New Zealand deferred tax provision, partially offset by higher U.S. state taxes and other items.

Cash flow before working capital changes for 4Q '03 came in at $29.4 million or $1.06 per diluted share, while EBITDA was $36.1 million for the the quarter.

Turning to our cost structure, Swift remains committed to controlling our per unit cost and we have the results in the fourth quarter of '03. June 18 ended 26 cents per unit on the low side of our guidance. DD&A per unit was actually slightly above guidance at $1.23. Domestic production costs came in well below guidance, as economies of scale begin to kick in in Lake Washington. New Zealand production costs came in on the low side of their sides. And interest expense came in at 54 cents per unit.

As Terry mentioned our liquidity, we are in good shape. Our bank line remains virtually unused. At year end '03 we had $16 million drawn on the line, providing us with maximum flexibility. Our boring base is 250 million, while our commitment amount is currently set at 150 million.

Terry mentioned our strong commodity prices. With respect to Swift's hedging activity, we continue to layer in both oil and gas floor protection in the strong market that we see. Our detailed price risk management position is posted and updated on our website and is the best source for that specific information. We continue to be committed to this method of hedging based on the strategy of protecting the downside without giving away the upside opportunity.

Cap Ex for the fourth quarter came in at $43 million and $145 million for the full year 2003.

And as always we included additional financial and operational information, detailed information in our press release with the summary balance sheet per unit income statement, statements of cash flow, a GAAP to non-GAAP reconciliation, quarterly operational and financial comparisons both sequential and year to year and again update guidance for the first quarter and full year 2004. 2003 was a great year financially and 2004 is starting out strong.

With that I will turn it over Joe D'Amico for an overview of the domestic operations.

Thanks, Alton. Good morning, everyone.

I'm really pleased to report that for 2003 total production increased 70% to 53.2 BCF equivalent from 49.8 BCF equivalent in 2002. Domestically total production decreased from 2002 levels, but began increasing quarter to quarter throughout the year as the company continued to focus its efforts and capital towards the development of longer life oil reserves in the Lake Washington area. The company also began allocating capital towards natural gas development and its three other domestic core areas.

The 2003 domestic plants saw domestic production decrease in 2003 by 1% to 33.8 BCF equivalent from 34.3 BCF equivalent in 2002. But quarterly production increased throughout the year from 7.7 BCF equivalent in the first quarter of 2003 to 8.8 BCF equivalent in the fourth quarter.

Total of 2003 fourth quarter production of 13.4 BCF equivalent increased 12% from the 12.6 BCF equivalent produced in the same quarter of 2002 and decreased 3% from third quarter production of 2003 due to the upgrade of facility infrastructure at Lake Washington. Fourth quarter 2003 domestic production of 8.8 BCF equivalent increased 9% from the 7.6 BCF equivalent produced in the same quarter of 2002.

A quick overview of the Swift's 2003 reserved showed that Swift Energy again made significant strides in 2003 in improving the quality and quantity of its reserves. Year end 2003 proved reserves of 820 BCF equivalent were well balanced with 47% crude oil, 41% natural gas and 12% natural gas liquids.

Proved developed reserves remain essentially the same at 59% of total reserves in 2003 compared to 60% in the previous year. The majority of proved undeveloped reserves at year end 2003 are located in the Lake Washington area, which has 13% of the total reserves and then the AWP Olmos area which has 9% of the proved undeveloped reserves, 9% compared to the total reserves, both of which are characterized as long reserve life fields.

Domestic reserves at year end 2003 increased to 644 BCF equivalent, driven mainly by the reserves increase in the Lake Washington field which increased 37% to 261 BCF equivalent or 43.5 million-barrels of oil equivalent. Up from 190 BCF equivalent or 31.7 million barrels of oil equivalent at year end 2002.

Domestic reserves, making up 39% of total reserves at year end are located in the Lake Washington area which accounts for 32% of total reserves. AWP Olmos area which accounts for 26%. Masters Creek area 8%. The Brookeland area 5% and other domestic properties 7%.

During the fourth quarter, lease operating expenses increased by 5% to 64 cents per MCF equivalent compared to 61 cents per MCF equivalent in the same quarter of 2002. The main reasons for the increases in LOEs continue to be the increased activity in the Lake Washington area. We have had several initial, and in many case one-time charges, associated with the increase in the the facility capacity. We are confident, however, that we will be reducing our lease operating expenses in 2004. Declining on a per unit basis as production volumes increase and the elimination of these one-time expenses associated with the facility's upgrade.

Speaking of production volume increases I would like to reiterate what Terry mentioned on the Lake Washington production last month in January. We have surpassed 12,000 gross barrels of oil equivalent per day of production or approximately [10,000] net BOEs.

Swift has accomplished lot in the past year in the operation of Lake Washington. And this credit goes from our geologic and productions operations staff, because last January we were at approximately 5,000 gross barrels of oil equivalent per day or 4100 net barrels of oil equivalent per day. My staff is very excited about what this area may hold for the future and we can't wait to deliver the results for you.

During the fourth quarter, Swift energy completed 13 of 16 wells domestically. Of these 16 wells, 15 were development wells and one was an exploration well. In Lake Washington the company successfully drove 8 of 10 development wells but was unsuccessful in exploration wells. In other areas Swift Energy completed the development wells in the Austin Chalk the Brookeland area and 4 wells in the AWP Olmos area. For the full year 2003 the company successfully drilled 53 out of 63 domestic development wells and five of 8 exploration wells.

Currently, the company has a rig drilling in the Lake Washington area. One rig in the AWP Olmos area and one rig in the Masters Creek field. And as reminder, we have begun the preliminary planning for a three day shoot in Lake Washington field for this year. We are currently going to focus the survey on the intermediate depth for the sharpest image of the shallow but th 3D will benefit us with the images of shallow and deep horizons in Lake Washington as well. The current plan is to take the first half of 2004 for the field work and then process the data so the 3D information is available for the planning process for the 2005 budget. We believe that the 3D will be a great benefit to to the future drilling program for years to come in Lake Washington.

Now, look at 2004 drilling and the operations. We plan to drill up to 25 to 30 development wells on Lake Washington this year. We plan to have two rigs next month in the AWP Olmos area, which will allow us to drill up to 8 development wells in the first quarter and 15 to 18 wells for the year. We will finish drilling the Masters Creek new horizontal well in the Austin Chalk layer this quarter and then plan to move the rig to another Masters Creek development well. We also plan to start drilling two wells in the South Texas area later this quarter. One will be an operated well and the other will be a non-operated well.

I want to wrap up by reminding everyone of the diversification that Swift has added to the reserve and production base that should serve us well going into 2004. And we can't be more excited about the opportunities that lie before us in the next few years.

Now I'll turn it over to Bruce Vincent for an overview of international operations.

Thanks, Joe. And welcome, everyone.

As proud as we are of our domestic results we are also particularly pleased with our performance in New Zealand last year. And we are looking forward to a very productive 2004.

Our 2003 year end reserves in New Zealand increased 13% to 176 billion cubic feet equivalent and now constitute 21% of the company's total reserves. These reserves are found in our two core areas in New Zealand with 15% attributable to the Rimu/Kauri area, where we're exploiting three different sand horizons, and 6% to the Tawn area which consists of the four different fields. These reserves are well balanced with 53% natural gas, 38% crude oil and 9% natural gas liquids.

The increase in reserves this year was primarily attributable to drilling additions in the Kauri and Manutahi sands down in the Rimu/Kauri area. Additionally, on the production side, New Zealand continues to be a significant contributor to the company at 36% of total corporate production, with 19.4 billion cubic feet produced in 2003 which was an increase of 25% over the previous year levels.

Production in the Rimu/Kauri area averaged approximately 13 million cubic feet equivalent per day in the fourth quarter. This compares to an average production of approximately 6 million cubic feet per day during the first half of last year and 10.4 million cubic feet per day in the fourth quarter. So you can see a steadily rising production level in the Rimu/Kauri area.

The Tawn fields averaged 36 million cubic feet of daily volume in the fourth quarter, largely due to the fact that nominations by the purchaser were reduced during that period of time. These nominations continue to remain low as we move into the first quarter. In fact, January produced closer to an average of 31 million cubic feet per day and that is the primary reason for our lower guidance for New Zealand production in the first quarter of this year.

Another bright spot in New Zealand, though, is the improving pricing environment for natural gas, coupled with the improving value of the New Zealand dollar. Both of these factors have led to an improved net realized price for Swift. We received an average natural gas price of $1.83 per MCF for 2003 under our long-term contracts. This is a 39% increase over the $1.32 mer MCF that we received in 2002. Both our natural gas and natural gas liquids price contracts are denominated in New Zealand dollars, which has significantly strengthened during 2003 as it relates to the U.S. dollar. The currency exchange rate increased to approximately 66 cents New Zealand dollars per 1 U.S. dollar at end of 2003 compared to approximately 52 cents New Zealand dollars to 1 U.S. dollar at end of 2002. An approximate 25% increase.

Our plans for this year are primarily directed in the areas where we had our success in 2003. In the Rimu/Kauri area we plan to drill two to four wells in the Kauri sand and 4 to 6 wells in the Manutahi sand. We also plan to drill one [Terikki] sand well, most likely at Tawn, and one exploration well.

In summary let me tell you that we continue to be excited about our position in New Zealand. We continue to see the impact of the tidy natural gas market there and we believe that we are well positioned to take advantage of it. We have several exciting exploration prospects that we hope to put a drilling program together with and evaluate this potential over the next two years. We believe that the onshore acreage position, our experience at having been the leading operator in New Zealand in terms of drilling wells over the last few years along with our significant position and infrastructure assets will allow us to exploit the opportunities of this market and this basin at this time. The strengthening New Zealand dollar can only continue to help.

Thank you for your attention. I'm going to throw it back to Terry who can wrap it up.

Thanks, Bruce. In summary, I want to reiterate that we have had a very good quarter. We have had an exceptional year. We are positioned going in to 2004 in a very well manner.

Of particular note in 2003, we had two very significant milestones. Record oil and gas revenues. $209 million of oil and gas revenues. Record oil and gas production for the company. 53.2 BCF equivalent.

We had numerous achievements in 2003 that we talked about this morning and put it in the press release. Reserve growth for the year was 9.5%. Corporate production growth for the year was 7%. Our finding and development costs came in at $1.23 per MCF equivalent. Our reserve replacement rate was approximately 230%.

Those are excellent achievements that we are very proud of. We are looking forward to 2004. We are targeting more production increases in 2004. Our guidance is in the range of 11 to 17%. We believe we will again increase our reserves and do it in a manner that is diversified and brings greater quality to the reserve base. We are targeting 5 to 8% there. And again we have target orr F&D finding costs of $1.30 to $1.50 per MCF equivalent.

As we mentioned earlier, net oil and natural gas pricing has been very strong. It is rewarding producers that can be efficient and grow their production and reserves. We believe pricing will remain strong in 2004 and the company has an inventory of development projects and exploratory prospects that are clearly defined from which we believe we can grow. We have an exceptional group of oil and gas professionals at the company that are commited to this mssion and together we believe that we can build shareholders value.

At this time, we'd like to turn it over to question and answers -- for that portion of our presentation.

Thank you, the floor is now open for questions. If you have a question, please press the number one followed by four on your touch tone phone. If at any point your question is answered, you may remove your self from the queue by pressing the pound key. Questions will be taken in the order they are received. We do ask that while you pose your question that you pick up your handset to provide the best sound quality. Please hold as we poll for questions. Our first question is coming from Van Levy of CIBC Word Markets.

Good morning, gentlemen.

Good morning.

Congratulations. Looks like you had a great year. Lake Washington obviously has been, you know, a huge success for you. You're somewhere, if I recall correctly, some where around 12,000-barrels a day. What do you think the upper limit of Lake Washington could be, looking forward, you know, say, two years, three years? To could you get this thing in the 18 to 20,000-barrel a day gross range?

That is a great question and everyone is piping to answer that. Van, this is Terry. We do think we had an excellent year in 2003 and clearly Lake Washington was one of the material areas where we had achievements where we put most of our investment dollars and a significant amount of our manpower. As we noted this in presentation, we have slowed down the activity just a little bit in Lake Washington in terms of drilling rigs in order to bring ourselves to a point where we will have a 3D, we believe, in our hands by the middle of the year and begin processing it and doing all those things. Clearly, we believe that with that information in hand we would be in a much better position to answer you. But even then it would be somewhat speculative.

We are very excited about the field. We do believe we can increase reserves in the field next year. I do believe production in the field is going to go up where it is at. We are targeting increases that are in line with the guidance I have given you. If I was to give you a particular number at this time I really would be going to some of our scenarios where we have probable reserves identified and development around the probable reserves which could in fact take us materially higher than where we are at but those reserves are in the probable category right now. We are just not in a position to say how high it would go, though we do believe we can continue to increase the reserves and production in the field.

Van, this is Bruce. I would just add to that if your look at our guidance out there, we think that we will be at about 12,000-barrels a day of net production at the end of the year. That converts to about 14,500-barrels a day gross production. That is with one rig running all year. We are going to shoot the 3D, you know,. Much of our staff here has their mouth watering waiting to get their hands on that 3D. It will take time to interpret it and set drilling plans plans into action and start turning that into production. We have a high level level of confidence that Lake Washington will continue to be an extremely meaningful part of our growth. To try to pick a number out there two years from now, as Terry said, involves a lot of variables that may or may not happen, but we think you will see us committing more capital to it next year and following up on the heels of that 3D shoot.

One other question, if I may. If you look back at your history, the AWP field was a phenomenal field for you; the [INAUDIBLE] acquisition of Austin Chalk was very controversial at the time. I think you proved that you had significant value there. New Zealand, you know, still questionable how much you know true value through the drill bits from the acquisitions have worked out there. Lake Washington has been great. Looking forward, you know if we look at pipeline of possible new areas that could become the new Lake Washington or the new [Somat] acquisition where should we look?

I think it is clear to note that we have been growing through the drill bit, we have been growing organically. We have been developing inventories of acreage and option acreage not only in Lake Washington.

Lake Washington we do think we can take it to another level. We are working beyond the shallow reserves so in one aspect as we just talked a little earlier we could end up with a core of property underneath a core of property. We are certainly working that direction.

In South Texas, you mentioned AWP. We are not through with AWP. We are still very excited about the additional recoveries that could be achieved in AWP in this kind of gas market. We are going to go at that very methodical but we are not through with AWP in that area. In fact, we do have up to 18 wells scheduled this year for AWP and part of that activity will be looking at the issue of down spacing from 40s to 20s which has yet to really be seen in any of our numbers. And won't be for any immediate term. But that is an area going forward that we are continuing to add value in.

In South Texas, we have the Garcia Ranch area. We've got a pretty significant exploration effort underway there, we've got partners with us there. That is an area we are still focused on.

I would go to New Zealand and say that we have added significant value in New Zealand. We are proud of that asset base both in terms of what we drilled as well as what we have acquired and the infrastructure that we have there. We have significant opportunities there in the way of exploitation of shallow reserves all the way to -- which are generally lower risk types of projects -- all the way to deeper, higher risk, high impact gas drilling that we're going to be talking about going into the future.

So there's lots of areas. I haven't mentioned acquisitions. That is certainly an area that we look at and keep our powder dry in the way of liquidity but we're going to be picky there and make sure that the allocation of the capital there would compete with the other activities we have.

Great. Thank you very much.

Thanks Van.

Thank you. Our next question is from Phil Pace of Credit Suisse First Boston.

Good morning, guys.

Good morning.

Good morning.

A couple things. Bruce, I wonder if you could comment on the nominations being down in New Zealand is that seasonal and do you have have the actual change in pricing in New Zealand dollars '03 versus '02? And I was also curious to know finally to know how much of the $140 million of planned Cap Ex is tied to PUDs in the reserve report for 2004?

Okay. We can take those one at a time. In terms of the nominations. The nominations are down from our purchaser of the gas in the Tawn field which is Contact Energy. Our understanding that the principal reason for that is the the lakes are fairly full in New Zealand and so they are going to use more hydro, which is a cheaper cost of energy for them. We do expect nominations to creep up later in the year.

In terms of how much of the joint budget and PUDs,. I'll take a more of a high level approach to that question. We have about 83% of our direct Cap Ex dedicated to what we are calling development projects and 17% of that direct Cap Ex committed to exploratory types of projects, but we have an interesting situation particularly in Lake Washington.

Some of things that we categorized as exploration will go through developmental horizons and we will be drilling deeper on the structure. We have a couple of strategic wells that are both before the 3D shoot as well as late in the year after it. So we have exploration wells that really will also be in a position to have bailout capital applied to -- essentially booked behind pipe or booked reserves that are non-producing.

But 83% of the capital is targeted at -- directly at development wells and we do have the optionality in our 2004 budget to essentially put all of that to PUDs. They certainly take the highest level of focus. But we don't demand the organization drill only those types of wells because you are learning through the whole year and coming into the first quarter we do have I would say probably about 25% of that development drilling in the first quarter is not drilling specific PUDs out of the books and 75% is. That is kind of shooting from the hip.

I think you can see if you look at our guidance for production growth and reserve growth a higher production growth forecast and a lower reserve growth. A little bit higher finding cost pause we do plan to drill quite a lot of PUDs. In Lake Washington in particular, though, you often drill a PUD and you beget another PUD or sometimes two. We may be continually adding reserves and do a little better than that. We do plan to drill a lot of PUDs and we plan to bring that PUD percentage down a little bit and that is reflected in the guidance with regard to reserve growth and finding costs.

Your third question, as I recall, was the comparison of the gas price from '03 to '02 it is a related to the New Zealand currency exchange difference.

Yep.

I don't have that specific number for you. What I can tell you is that the difference in gas price through the first half of the year was largely the result of the improving exchange rate. In the third quarter, it was probably mostly the result of the improving exchange rate but it was in about the end of August, first of September that we began producing gas from the Kauri sand that is under a different contract at a higher price, and in the fourth quarter we continued to increase production coming from the Kauri sand, and so the improving blended price or realized natural gas price, particularly in the fourth quarter was the result both of improving currency exchange rate as well as the blended price of old gas, new gas I guess is a better way to call it. In terms of going back and trying to compute how much of that was a part of '03 versus '02 we would have to do some work to try to figure that out.

I think I can figure it out. Thanks, Bruce.

This is Terry. One other kind of metric that I would like to make sure sure that the investors are aware of as relates to the allocation of capital to developmental type projects that would be considered proved, undeveloped or otherwise, it is -- it should be clear that from our guidance we are targeting our production to grow at about twice the rate of the reserves. So we really are focused this year very much on bringing in to the proof producing categories and get them out of reserves.

Thank you. Our next question is coming from Frank Bracken of Jeffreys.

Hi, two questions. Both related to New Zealand. First, could you give us an update in terms of the timetable with respect to [fracing] and getting the sales, the first two wells, the wells you drilled later last year to the Kauri sand? Give us a handle on how to those are coming along. Secondly, I notice that Origin Energy is purchasing Half Cupay and wondered if you heard anything new with respect to plans for them to run through your infrastructure. What type of timetable we might expect for news if there would be any on that front?

Okay. Taking those questions in order in term of the Kauri wells that we are drilling, we have drilled the E-3 well and set pipe on it. We are currently drilling the Kauri E4 well, it should be down in the next couple of weeks. Assuming we find the Kauri sand, we will set pipe. Then we need to line up the equipment and services to perform the fracture stimulation. I would anticipate that would happen late first quarter, sometime in the second quarter more than likely. Probably more than likely in the second quarter sometime just the timing difference. We certainly want to have that on production by the end of the second quarter.

As to the other question about Cupay's development offshore which is south and slightly west of the Rimu production facilities which are onshore, we clearly believe that we have an excellent ongoing business and working relationship with Genesis who is the lead player there in our view that they have the largest position in that field. They have been working towards development of that field. We have been in discussions of a confidential nature with them so we are really not in a position to detail any of those discussions. I think it suffices to say that we think Origins is an excellent organization and we would be glad to see them out there. We don't have any particular knowledge of what that transaction might be. We read some of the same things that you read but that would be for those parties to announce the details, but we think Origin would be a great complement to that project out there, as would others, but Origin an excellent company to work with and we want to work with those parties that would develop Cupay because we believe we can add value to that product as it moves to market. That is kind of our big picture position.

Thank you. Once again as a reminder, one followed by four for any questions at this time. Thank you. Our next question is coming from Evan Templeton of RBC Capital.

Hi, thanks. Just wondering if you could comment very quickly just on the debt outstanding. Kind of what is your kind of well, current comfort level would be and also just intentions on that, intent in the quarters.

Yeah, this it Bruce, Evan. Good to see you. Thanks for the question.

In terms of the company's leverage position, you know, we are quite comfortable with where we are. We are a little bit on the high end of where we would like to be and we would like to try to get that leverage down. We would also like to try to get our interest expense down, but we tremendous opportunities that are low risk in nature and bring very good value and we think that our cash flow is best utilized for the capital program on our projects as opposed to using it to try to reduce debt right now.

In terms of the 10 and a quarter bonds. Obviously anybody can look at those bonds, they're callable in August. Given today's interest rate environment, assuming that it holds 'til August when they are callable, one would presume that you might call those. We don't have any specific plans to do so at the present time but it is certainly something that we will look and we will do the most prudent thing financially for the company that would both give us the best capital structure and also minimize the interest expense for the company.

An additional comment on the debt. We use as one of several metrics the debt to present value ten and over the past three years we have moved from a year end 2001, 43% level to about 22% level today which is right in our target range of where we want to be in terms of that metric.

As Bruce mentioned on -- in terms of our range we would like to bring that down just a little bit in terms of debt to capitalization from 2001. We went from 52% to 46%. Clearly, we are on the mission of adding value and as long as those ratios aren't too far different than that we will just keep adding value, but in terms of an optimized balance sheet we would like to bring that down a few more percentage points at least.

Fair enough. Thanks a lot, guys.

Thank you. I'm show no further questions at this time. I would turn the call back over to the management team for any further or closing comments.

Once again, we would Ike to thank you for joining us at our conference, earnings conference call for 2003 results and again we had significant results in 2003, on record oil and gas revenues. Record oil and gas production. We thank you for listening in and we look forward to 2004. Thank you.

Thank you. This does conclude this morning's teleconference. You may disconnect your lines and have a wonderful day.