Teck Resources Ltd (TECK) 2006 Q4 法說會逐字稿

Welcome to the UTS Energy fourth quarter and year-end conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time, for you to queue up for questions. [OPERATOR INSTRUCTIONS]

The company may make forward-looking statements during this call. These statements are based on UTS expectation and are subject to variety of risks and uncertainties and other factors which are inherent and in predevelopment stage. Oil sands, mining and extraction enterprise that could materially effect UTS's result. No representation can be, or is being made with respect to the accuracy of the projections or the ability of the UTS to achieve the projected results. The company assumes no obligation to update any forward-looking statements. I would like to remind everyone that this conference call is being recorded on Tuesday, March 27, 2007, at 7:00 AM mountain time, I will be avail -- and will be available for play back on the company's website.

I will now turn the conference over to Mr. Dennis Sharp, Executive Chairman. Please go ahead, sir.

Thank you, operator, and good morning, everyone. Thank you for participating in this morning's session. I am joined today by Will Roach, President and Chief Executive Officer of UTS, Wayne Bobye, Vice President and Chief Financial Officer, Howard Lutley, Vice President Mining and Extraction, Martin Sandell, Vice President of Engineering, and Daryl Wightman, Vice President Resource Development and Business Strategy.

2006 was a significant year for UTS as we continued to move forward with the Fort Hills project, while at the same time we made major strides through our exploration program toward the possibility of a second and even third oil sands project. While it would be premature to make any definitive projections in this regard, I can say that we are more confident today than we were at the beginning of 2006. I believe this past year could well prove to be a major breakthrough for our company. We have successfully created considerable value for our shareholders over the past several years, while creating diversified growth opportunities for the years ahead. Our stake in Fort Hills has grown to 1.4 billion net barrels. Lease 14 represents as much as another 400 million barrels, and our other 19 leases co-owned with Teck Cominco could prove to be a platform for significant future growth. We have secured an enviable financial position through our partnerships and believe 2007 will see many important milestones in the further creation of shareholder value. 2006 is indeed been a very good year.

I would like now to ask Will Roach, our President to provide a more detailed review of our progress over the last year and to offer some insight into what is in store for UTS as we move forward. Over to you, Will.

Thanks, Dennis. Good morning. What I'd like to do is start with slide three, which is the agenda for the call. What I'm going to do is I'm going to try to spend a little time talking about the business environment in Alberta. And then I'm going to talk about what we've been doing in 2006, principally talking about our three key assets, the Fort Hills project, Lease 14 and the exploration land, and then I'm going to talk about a little bit about the funding alternatives and then some [inaudible] minestones -- milestones, and then turn it over to Q&A for my colleagues to try and answer any questions you may have.

Moving to slide four, I'd like to spend some time explaining our perception of the current Alberta business environment. The last 10 months or so has been particularly challenging for energy companies. This has been driven by five or six factors that are working against the oil sand sector. And there are a couple of challenges that are specific to UTS. Environment -- environmental pressures in oil sands developments at both professional and federal levels and specifically air emissions, water usage, and natural gas usage. These are all working together to make our business more cost -- more costly.

Cost escalation, this has received the most attention. And we continue to see growth of -- in profits. Labor constraints, lastly reflected in the cost side would argue, but also the schedules. And they are also receiving a lot of attention at all levels of government and industry alike. All price volatility is always with us. For example, over the last 10 months we've seen a high of $78 WTI a barrel and a low of $49 a barrel. This coupled with the price inflation erodes investor sentiment as we've seen over the last 10 months.

Added to this, our Alberta Royalty Review. First let me say that the existing royalty program works and has stimulated a lot of growth. Review right now causes uncertainty when making investments of this size and does not inspire investor confidence. And the finally the elimination of ACCA. And none of these catastrophic individually. But when taken together, they represent significant uncertainties just at the time when we're looking for some fiscal stability.

However, on the upside what is important to remember is that this projects we are involved in have life cycles of as much as 50 years. This is not to understate the pressures we face, but at the same time it's important to note and keep the long-term perspective in mind. Even with these pressures, we firmly believe that these projects remain very attractive if the long-term oil price remains above $40 to $50 WTI.

There are also a couple of specific challenges to UTS. Firstly, the level of preinvestment in Fort Hills, which is now a significantly large faith project. How much should we spend in the first phase in case the length of it expansions? That's a key question facing the partnership. In addition to that, the financing of the Fort Hills project Phase 1, which we're going to cover in some detail later.

Moving on to slide five. Notwithstanding these challenges, we believe the oil sands are a good place to invest in. Moreover, this is an environment where responsible companies with a competitive edge can really thrive. Over the past three years, we have transformed UTS which now comprises three distinct assets. Which we believe are the foundations for a long-term solid growth.

Firstly, the Fort Hills project, the cornerstone of the company. We made measurable progress in 2006 as we moved the project towards sanctions in 2008. Lease 14, 100% working interest, discovered in 2006, and now extensively delineated with over 128 wells and a result in the order of 400 million barrels. And lastly, newly acquired exploration increase. For the most part held 50/50 with Teck Cominco. To give you some idea of scale, net to net this acreage is eight times the area of our Fort Hill project holdings. So far this acreage looks very perspective. And we've drilled in excess of 100 exploration wells this season. I'm very happy to say we can share some of the preliminary results with you today, which of course are very positive.

Moving on to slide six, this highlights the progress specifically made in the Fort Hills project, which that plan is steadily moving towards sanction in the second half of 2008. There's a lot of good news here, however the cost estimates dominate the landscape. So let's deal with that first.

We at UTS now believe the cost will be in the range of $100,000 per flowing barrel of synthetic crude oil. The final numbers should be available from the partnership in June 2007, along with the project phasing and size. The key challenge here is being able to strike the right balance between initial cost, project size, and most importantly execution risk. This is the big issue in front of the Fort Hills partnership right now.

On the results side, we've seen a lot of growth, thanks to a new mine plan, an increased commodities screen price, the recover resources have increased by 34% to 4.7 billion barrels or net to UTS 1.4 billion barrels. On the upgraded side, we have bought a significant piece of land near Edmonton. We chose this site as we believe the proximity to Edmonton and access to the city's labor pool, will be a significant short and long-term advantage. As planned we expect to achieve first oil in the third quarter of 2011, as consistent with the partnership commitments, which are to have 100,000 barrels a day [inaudible] in production by 2011, which is the current plan. The new [inaudible] is complete and under final review.

Moving on to slide seven, this gives some more detail on Lease 14, which is an extremely important asset to UTS. We use Lease 14 as collateral for the expans -- exploration land purchases with Teck -- which Teck funded to the value of about $165 million, or net UTS share of about $80 million. So this asset has allowed UTS to significantly increase the exposure to potential organic growth by the drill bit and as you know Teck has an option to take 50% working interest in Lease 14 under fair market value. We believe that this option will -- will probably be triggered later this year. We also believe that Lease 14 may support a future stand alone mining development of 50,000 [inaudible] a day. This is now based on 126 wells and a preliminary mine plan. Noting that the independent resource evaluation will be available at the end of Q4 2007.

Moving to slide eight, and this shows you a map of Lease 14 showing where we found the resources in the terms of the total volume to be mined [inaudible] and place ratio. This is based on the 2006, 28 wells we've drilled, but it's been largely supported by the current additional drilling. Oranges and red indicate the minable areas on the lease. Should be noted that the strip ratio for 14 looks to be about 1.4:1, and when in context that should be compared for the average strip ratio for Fort Hills, which is about 1.9:1, so significantly less, hence [inaudible].

Moving to slide nine, this slide illustrates how we consider 50,000 barrel per day rich -- mine and extraction plant into the lease. By the year end, we'll have developed the construction engineering for this mine and extraction plan and currently foresee it in earliest first drill date in 2013. Now, this isn't the only development opportunity we have for Lease 14. It could end up being a satellite to 311 or the Fort Hills project. Or indeed it could be exploded into a [inaudible] river development recently announced by the operator of the [inaudible], directly north and south of this lease, [Shaw], Canada.

Moving on to slide 10, firstly let me say that we purchased the exploration lands drawing from Teck Cominco after an extensive geophysical evaluation, which we've undertaken over the previous 18 months. The exploration lands can be conveniently divided into two distinct areas. Area 2, west of the Athabasca River, which comprises land adjacent to already discovered bitumen with the benefit of well data privy to UTS, and I'm referring to the 2006 drilling program where we discovered hydrocarbons on Lease 14 and Lease 311 as we previously told the market. Going to Area 3, east of the river, this is pure exploration play and does not have the benefit of -- of well data or well control. Again, it's worthwhile remembering the key role of Lease 14, which is the asset underpinning our debt to Teck for these exploration lands.

Moving to slide 11, this map -- map needs a little explaining, but is really designed to illustrate that we now have a range of opportunities, that three distinct phases of development. Area 1, which is the Fort Hills project, is under development as a mining project and we foresee a first oil date in 2011. Area 2, which really is a delineation exercise now for future projects where we've already discovered hydrocarbons in the leases, 14 and 311 which are shown in red. And then area 3, which is an exploration play where we're trying to identify some exploration upsides on the east of the river. Now it is worthy to note that 93% of our total spend on exploration leases was spent on the seven leases shown in yellow and white stripes. The numbers -- these numbers are 468, 470, 477, all adjacent to 311 and we'll be talking about those shortly, 610 and 840. And on east of the river, Lease 509 and 511. And again, I'll remind you the leases shown in red, we have already found minable oil sands, minable depth.

Moving on to slide 12, from the preliminary results of the exploration drilling in Lease 311 and area. All the data I would point out has been derived from the interpretation of well logs and the well -- and the results are very encouraging. On Lease 311, we have now drilled 33 wells, all wells encountered oil sands and 25 -- 25 of which had minable oil sands with thicknesses of between 15 and 40 meters and depths of 14 to 43 meters. That is an implied strip ration for what we've discovered thus far of around 1:1. Remembering context here, Lease 14 is 1.4:1, and Fort Hills is 1.9:1. On the surrounding leases specifically Leases 468, 470 and 477 we've now drilled 34 wells. 23 found minable oil sands in thicknesses between 15 meters and 41 meters, at depths of 30 to 58 meters. The applied strip ratio has been slightly higher but still about 1.3:1. For context, as I said Fort Hills is 1.9:1. So in summary, to maneuver and increase these resources.

Overall, these four leases, 311, 468, 470,477. We think we found between 20 and 34 minable sections. This is a significant potential resource. And again, we expect the independent resource evaluation to be available in the fourth quarter 2007.

So what are we doing now? Well we're planning a 400 well delineation and exploration program for 2008. The delineation effort will focus on these four leases and the exploration of the leases directly to the north. And by that, that 610, 840, 513 and 514, or a total of around 100 sections of potentially minable acreage. We also [tacked in] potential on our leases to the west under the Birch Mountains. This represents a potentially another 80 sections of land.

Moving on to slide 13, this lays out the funding that will be required for Phase 1 of the Fort Hills project. As you can see we have several options for financing the $4 billion to $5 billion, representing our share of the Phase I costs. The first $750 million that UTS funding for the first 2.5 project expenditures is in place by the earn in where we are carried by the partners. This we think takes us to the end of 2008 or just past sanction. Assuming a 50:50 debt to equity ratio and assuming no asset transaction, we foresee a need for between $1.25 billion and $1.75 billion of equity and about $2 billion to $2.5 billion of debt. We believe that Lease 14, potentially 400 billion barrels and the delineation of the Lease 311 area in 2008, which as I've said has the potential -- potential significant minable resource, and more over the exploration of other adjacent minable leases and [inaudible] leases provides UTS a significant added financial flexibility. Time will tell and hence we believe that the asset transactions may well be an attractive addition for sources of further funding for UTS.

Moving to slide 14, this summarizes UTS today. For some perspective, it's worthwhile considering this in comparison to where we were about three years ago, when we owned 22% of the Fort Hills project, at that stage perceived to be a 2.3 billion barrel resource. We had a partner that did not wish to proceed with the project. And UTS had a market capitalization of around $50 million with about $8 million in the bank. So where we are today. Well, we have 30% in the Fort Hills project, which is now seen as 4.7 billion barrel resource, and add to UTS 1.4 billion barrels. We have $750 million of committed funds for UTS, or the first $2.5 billion of project funding in place. We have two well-funded committed partners with great expertise to execute this project. We have 100% of Lease 14, we think has around 400 billion barrels and we'll end up with the resource estimate in the fourth quarter of 2007. We have a 50/50 joint venture with Teck on about 270,000 acres of exploration lands. We have a significant discovery in the Lease 311 area and we believe we have significant upside in the remaining long trend, exploration acreage, and of course, most importantly a strong and talented team. Let me now talk about a few milestones and then hand over some questions.

Moving to slide 16, these give you the key Fort Hills project milestones and they really revolve around one key date, June 2007, when the project size phasing and level of preinvestment, and most importantly, costs will be known. Thereafter, it's all financing leading up to project sanctions in the second half of 2008.

We're going to slide 17, Lease 14 milestones are pretty straightforward. We're going to be working up a feasibility and development plan over the next period towards the end of the year. And we're going to have the contingent resource estimate finalized in the fourth quarter. And also we're going to work on the potential sale of 50% to Teck Cominco. Moving on to slide 18, we have the key milestones in the exploration program, which really revolve around the defining and enhancing the contingent result estimates for 311 area, and most importantly, developing the pretty extensive 2008 drilling program and budget.

So with that, I'd like to hand it back to Dennis to -- to carry on the conference call.

Thank you, very much, Will. Needless to say, we're very pleased with the progress we've made, not only with Fort Hills, but identifying the new prospects that we believe could become the oil sands mining developments of the future. We proved that the minable area is larger than originally perceived, which for us is very geologically exciting and we tend to work diligently to bring some of these prospects to fruition. I would now like to open the floor for question and answer session, and ask the operator to come back on to explain how we will proceed. Operator?

Thank you, Mr. Sharp. Ladies and gentlemen, we will now conduct the question and answer session. [OPERATOR INSTRUCTIONS] Your first question comes from Andrew Potter from UBS, please go ahead.

Hi, guys. Could you comment at all on the results from the wells that you drilled on Lease 840? And is it fair to assume that there is a trend running from Lease 311 up through Lease 610 to 840?

Will?

Thanks, Dennis. Now I'm going to hand that pretty smartly over to Daryl. And ask him to comment on the drilling results and any trends he sees there. And then I will add a comment afterwards.

We're not commenting specifically on the drilling results on 840. As far as the -- you're talking about a trend in our Area 2, our results in Lease 14 and the 311 area have some geological similarities. So there does appear to be a trend in this geographic area. Beyond that, additional wells will be required to do any subsurface geology and I think that's where I would end my answer on that.

[inaudible] would be more circumspect than I, I will now add that 840 is a lease that is four miles north of 477, which we've declared the results of. And we also own Lease 610 in between. So Lease 840 and 610 represent 60 sections of land, which I think is what's behind your question, Andrew.

Yes.

The question is we're going to spend quite a bit of time working on that. We've got some preliminary well digs, I think we've got 9 wells, or 8 or 9 wells in 840, which we find encouraging and we're going to obviously explore Lease 610 and 8 for the -- in the first quarter 2008.

Okay. Perfect. And can I ask one more question just on Area 3? I wasn't 100% clear on how many wells you actually got done on Area 3 and what the initial indications are.

Actually, I don't know if I have the exact number with me. I think it was approximately 30 wells, but we drilled -- maybe slightly less than that, about 25 wells that we drilled in Area 3. Those leases were acquired very late. So we didn't have time to get the programs properly set up for there and we didn't have enough -- we had our hands full drilling on the west side of the river. So we did some preliminary drilling on the east side of the river. But the results are very preliminary. We didn't conduct an extensive drilling program there. We have to drill more wells there. And on the east side of the river, will be the focus of some of our wells that we're drilling in the coming season of 2007, 2008 drilling program.

Andrew, I'll add to that. We're a bit coy about talking about that -- those drilling results. As they are somewhat acreage adjacent to our acreage over there.

Sure.

And we really have to get a little bit more work done before we announce any of those results. As you know we have privacy of that data for a year and we're going to keep that.

Okay. That's great. Thanks a lot.

Thank you very much, Andrew.

Next question comes from Jenny Mikhareva from Orion Securities. Please go ahead.

Good morning, gentlemen. Two questions for me, please. Your interpretation of drilling results from this winter is based on logs rather than cores. Would you comment on what's the issue there and what your cores look like? And what that might actually mean as far as the resource potential potential on your leases?

Jenny, I'll -- I'll just address it initially. The core analyses, that's very detailed and that will be available as well as indicated in the third quarter. We've had a visual look at the cores. And as a geologist, I can say that we're all fairly happy with what we see. But that detail work has to be completed. And I'll turn it over to Will and Daryl to give you some more detail.

Okay, I thought Dennis would have answered you. Jenny, you can actually see one of the cores on the front page of our -- of our conference call. That is a core from Lease 311. So that gives you a feel for the quality of the oil sands. But I'm going to hand it to Daryl because there's -- there's quite a degree of optimism associated with the core analysis in my opinion versus the log analysis.

I think that Dennis and Will have answered most. I think the only thing I can add to that is that we are expecting the core analysis by Q4 of 2000 -- of this year, 2007. And our results from the analysis of well logs by comparison to Lease 14 from last year shows that our log analysis tends to be conservative. So we expect while we've got estimates off of well logs, we expect that the final core analysis will show that we'll probably be moving upward in our estimates.

Thanks, Daryl.

Great. Thank you. And another question is regarding the leases that you identified or rather 20 to 34 sections of minable bitumen. Now are there any more sections that you have identified that you're not mentioning that are potentially minable?

That answer is yes. Go ahead, Will. The answer's yes. The 20 to 34 sections come from Lease 311, Lease 477 in the east half of Leases 468 and 470. We have preliminary drilling on some other leases, but we're not discussing these at this time.

Another -- another factor, remember, Jenny, is the -- what we call the Birch Mountains, that's an escarpment. And, of course, our work this year has taken us up to the base of the escarpment and the oil sands does not stop there, so as I'd like to use the expression in the fullness of time, we'll have the opportunity to determine what the exploitable and [inaudible] opportunities are for us to the west.

Great. Thank you.

So the simple answer there, Jenny, is, yes, we think we have other potential leases with hydrocarbons.

Your next question comes from Kyle Preston from Salman Partners. Please go ahead.

Yes, thank you, operator. Actually, I think most of my questions have been answered at this point.

Morning, Kyle.

Morning.

That's it? Or do you have anything else, Kyle?

Your next question comes from Brent -- Brent Watson from Sprott Securities. Please go ahead.

Hey, guys. I wondered if you could maybe shed a little color on as to why Petro-Canada wasn't involved in the purchase of the new lands that you're partnered with Teck on?

Well, I'll let you answer that. It's very simple.

Well, the first thing is you need to obviously address any questions to Petro-Canada about their business strategies. I'm not going to discuss their strategies. But what I will discuss are ours. And pretty clearly that Teck and UTS own rights to the upgrade over and above the Fort Hills project. And so any expansions for the -- for the upgrade over and above Fort Hills, Teck and UTS between them own 45%, or the right thereof.

So pretty clearly we wanted to be in a position to have some bitumen product to put through that upgrader for the longer term. And that was really the genesis of this exercise. In addition to that, we did focus on looking for minable resources and what better companies look for minable resources than an open pit miner, such as Teck Cominco with their levels of expertise. So those were really the two main drivers. Dennis.

And it's been a wonderful partnership with Teck Cominco because we have a very qualified -- It's a small staff, but a very qualified staff. So we've worked closely with Teck Cominco in putting this land position together. And it's been technically driven, it's been an exciting program for us for the last 18 months. And when we started, we would have loved to have had 100% of these lands, but we didn't have the financial capability of proceeding on that basis. And Teck represented a very excellent financial and technical partner for UTS.

Thanks, guys.

Thank you.

[OPERATOR INSTRUCTIONS] Your next question comes from Mark Friesen from FirstEnergy Capital. Please go ahead.

Thank you, good morning. Quick question with respect to your ability to -- to mine Lease 14 independently from Shell, which straddles you both to the north and to the south. So a couple of questions I also have relating to that. I wonder if you could comment on the assumption in your MD&A, the one that Norwest made for TV:BIP ratio of 24:1, that seemed like a little bit high to me. Also if you could comment on your ability to look at Lease 14 independently given the specific size of the lease and the location of it. In terms of it being a viable satellite or a viable stand alone. And also your ability to look at an independent execution of that project both in terms of working on it at the same time as you're looking at Fort Hills from an operational and financial point of view.

Mark, I'm going to turn that over to Will and he'll answer your 12 questions.

Thanks, Dennis.

Okay, Mark, good morning. I hear three questions there. MD&A, that's the cut off 24:1, not the average.

Okay.

As I said the average is substantially less. And I'm going to hand it to Howard who's the mining guy to talk about that. And your questions really are ones which are driven by a nice problem to have is the way I would describe it. We've got a constrained resource, we've got a lease that we have -- we believe space to develop it on. So we have a number of options. Now with that, I'm going to ask Howard to deal with the mine and extraction planning on that. And then I'm not going to conjecture around Shell.

Good morning. This is Howard Lutley, VP of Mining and Extraction. If you look at the process we go through or any company goes through once they have that lease and it's discovered a valuable resource on that lease, we go through a number of steps if it can be technically produced and then the second step is to see if it can be economically produced. So the first task that we gave to Norwest was to come up with a mine plan that could -- and we constrained them and said, see if you can develop a mine plan that is technically sound by current industry planning criteria that can be completed within the lease. And -- and we were somewhat concerned that that wasn't possible. But fortunately they've come up with a sustainable mine plan that's valid for at least 20 years at about 50,000 barrels a day of bitumen. So that was really the first hurdle to pass that it was technically feasible to mine bitumen at that rate within the confines of the lease.

So the second hurdle, which we're in the process of establishing is whether it can be done on an economic basis. We have recently engaged as they will be putting together for us an extraction and facilities plan and scoping level estimate. We'll have that probably completed by the end of June and by that -- then after that, we'll be able to run the economics with their cost estimates and -- Norwest cost estimates to see if it's both technically and economically feasible to develop Lease 14 as a stand alone project. I think as far as the -- the corporate issues around what we then do with that knowledge, I'll turn that back to Will to comment on.

Yes, Mark. We obviously are aware that Shell owns or Shell [inaudible] own Lease 9 and Lease 17. And leases either side of them. And of course recently announced their Pierre River expansion, which I think is their second or third expansion down the road. And that clearly is a potential opportunity. But obviously we wish to establish the value of the lease in our own portfolio. And we now believe we have a considerable resource to the north of that in the Lease 311 area. We also have a considerable resource across the river in Fort Hills. So there's a number of options there and I wouldn't want to get too focused on any one of those. But the key is to be in control of our destiny on that issue.

The only thing I would add to that, Will, timing is always an issue here and our timing may be considerably different than what Shell might wish to do on the west side of the river.

That's a good point, Dennis.

Thanks for your comments on that. Smart.

Your next question comes from Kyle Preston from Salman Partners. Please go ahead.

Yes, hi, guys. Sorry. Just one other follow-up question here. Just with respect to the sort of the timing and process on the sale of your 50% interest in Lease 14. Will, can you just speak a little on that?

Will?

Yes. It's quite complicated and I'll try not to get into minutiae, but the deal with Teck is that we have to fully delineation the asset, which we now believe we've done in terms of the drilling. And that's to get one well per LSD. We then need to do all the core analysis and all of the engineering work that you've just heard described. That should be done we believe by October, November of this year. We then write to Teck saying we've done the work, here it is, and this is the value for 50% of the asset.

They then have 30 days to do one of three things. First one is to say thank you very much, we agree, send us a check. It won't be as simple as that, but that would be nice. The other option is to say, well, we don't agree, we think the value is different, and then we go into a dispute resolution process revolving around baseball arbitration. They make the case, we make the case, send them to the arbitrator. And he or she picks the best one. Obviously you can't put a ludicrous case together, or you lose immediately. So that brings you close together. And the whole idea that you don't end up then going to arbitration. And you form an agreement. The last option, of course is they say, no thank you, we don't want it, and then we have 180 days to repay them with no interest.

So the whole process could be done earlier of course, if we so decide. And it was neutrally attractive to UTS and Teck. So that's a long winded answer, but that's pretty well the way it goes. I'm getting nods of agreements from our lawyer, [Gina], across the table.

So who comes one that initial estimate of the fair market value?

We do.

We do. Okay.

And we're in control of the timing of that process.

And, Kyle, it's important to realize that if we mutually agree to proceed earlier as well as indicated, that's up to both parties to -- to agree upon.

Alright. Thank you.

Thanks, Kyle.

Your next question comes from Bruce Kippen from [Touchhill Kip] Capital Corp. Please go ahead.

Morning.

Morning, Bruce.

Morning, Will. Just looking at the report we got at the FirstEnergy conference in London, I think it was -- it says here slide 20. Referring to UTS Energy value per barrel at $0.55, including Lease 14, giving you a total barrels of 1.8 billion at $0.55 a barrel. You're at $900 -- $990 million. With the market right now say at $4, say $1.6 billion. Is that -- is that $0.55 include the $750 million [inaudible] money?

No, that's the difference in the number. We take that out, and what we try to give you is enterprise value per barrel, there Bruce. Pretty clearly we think that's a statistic that going to be very hard to measure for the next year or so because of the substantial number of barrels we've just brought into the portfolio in Lease 311, 468, 470, 477, and potentially on from there.

So what are we trading at per barrel including the possible barrels?

I'll let the chairman answer that one.

Well, Bruce, what we're doing, we're giving you the points. You have to draw the line between the points. So let's just say that the number that you're using is a very, very conservative number when we look at what has been identified over the past 18 months in our exploration lands.

That's exactly the point I'm making. It's awfully conservative.

Maybe I can have a go at that Dennis. I've just thought of a way through it. I would say, Bruce, it's still kind of premature for us to come up with estimates number of barrels we've got on those leases. I think it's 50 -- 50 wells in that area, which is in total around 34 square miles. So it's about 1.8 well per square mile. So -- and we think we've got between 20 and 34 perspective sections now. That number could grow over the next few years. We need to do the drilling to tell you. Daryl and Howard come up with this great little mental arithmetic and I'm going to hand it to -- to Daryl to give what he feels is a way you could look at that.

I drew up a little formula a few years ago. If you have basically in a section for every meter of oil sands you have, you have about 4 million barrels of oil there. So if you average 25 meters in thickness over a section, you have approximately 100 million barrels of oil in that section. So your thickness, you can -- just for a ballpark figure, you can multiply by four to get the number of millions of barrels per section. So I think what Will's getting at is when you look at the number of perspective sections we talked about and the average thicknesses that we see in our oils sands, you can do the arithmetic and come up with some possible numbers yourself.

That really is the background, Bruce. We're -- we're pretty excited. The numbers are pretty large. And I think if you do that arithmetic, too soon to say this, but you end up with the conclusion that we now have more resources outside Fort Hills than inside it, which is a pretty staggering thought looking back three years.

Well, I think it's fair to say from the calculations that I've made that UTS currently at $4 is selling per barrel lower than all the other ones I've been doing research on. And when I look at what Shell did up at Black Rock, I scratch my head because I don't understand it. It looks like $4 or something of that nature a barrel.

Well, Bruce, we have our work cut out for us, then, as management to convey to the investment community and to our shareholders the true value of this company.

I think that's 100% right, Jim, Dennis.

Noted, and we'll do our best on that, Bruce. We're very excited and as you know, Bruce, you're only allowed one question. So, we thank you, very much, for your one question. Operator?

Mr. Sharp, there are no further questions at this time. Please continue.

Well, if there are no further questions, then ladies and gentlemen, this concludes the conference call for today. I'd like to take this time on behalf of the Board of Directors and Management to thank our shareholders for their support in 2006. And we look forward to 2007 with renewed enthusiasm and optimism. I thank you for participating, and I would ask that you please disconnect your lines at this time, and may you all have a very pleasant day. Thank you.