Teck Resources Ltd (TECK) 2007 Q2 法說會逐字稿

Welcome to the UTS Energy second-quarter 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's expectations and are subject to a variety of risks and uncertainties and other factors that are inherent in the development stage oilsands, mining, and extraction enterprise that could materially affect UTS's results. No representation can be or is being made with respect to the accuracy of the projections or the ability of 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 Thursday, August 9, 2007 at 7 AM Mountain time and will be available for playback on the Company's Website.

I will now turn the conference over to Ms. Jina Abells Morissette, Corporate Secretary of UTS Energy. Please go ahead.

Thank you, operator, and good morning everyone. Welcome to the UTS Energy second-quarter results conference call. Thank you for joining us this morning. My role today will be to chair the conference call. I'm joined today by Will Roach, President and CEO of UTS; Wayne Bobye, Vice President and Chief Financial Officer; Howard Lutley, Vice President Mining and Extraction; Martin Sandell, Vice President Engineering; and Daryl Wightman, Vice President Resource Development and Business Strategy.

We've had an active and productive second-quarter 2007 with two very significant developments. Petro-Canada released an execution plan for Fort Hills that mitigates risk, and we completed a $200 million transaction with a Teck Cominco on Lease 14.

With that, I would like to turn things over to Will Roach to outline what this means to UTS Energy. Will?

Thanks, Jina. Good morning everyone. I will refer to a slide presentation which we have up on our Website. I hope all of you can access that. I will refer your attention to the slide number 2 which is a more detailed forward-looking statement. And then I want to move straight on to the slide number 3 which is the agenda.

We will try and put some perspective on the Q2 highlights with respect to our overall corporate state of health which I believe is extremely good. The key issues being the interplay between the Fort Hills Project funding and the exploration and development upside on the west of the Athabasca River, (inaudible) Leases 14 and the 311 area.

Moving to slide 4 which covers the first part of the highlights, and it really is the key development for the second quarter which was of course the announcement of the Foot Hills project development by the operator of Petro-Canada. In summary we expect bitumen, first bitumen production in the third quarter of 2011 and then followed shortly thereafter by the first synthetic crude oil production in 2012. The costs were broadly in line with our previous guidance at about $100,000 per flowing barrel and UTS's share of the funding being $4.7 billion.

The other outstanding highlight of the second quarter was the sale of the 50% of Lease 14 at Teck Cominco which is detailed on slide 5.

Let me give you a little more color on this transaction which is really one of the key developments for UTS's funding and growth strategy. As the slide shows, it has had some profound impacts but the two key ones, firstly, it cleans up our balance sheet completely and repays the debt for the land acquisition with Teck Cominco. And then secondly, it provides, we believe, the benchmark for the value of the barrels on the west of the river.

Now, returning in more detail to the Fort Hills Project, on slide 6 we try and give you a bit more detail around the size of the project and the cost. And whilst there is no new data here, I think it is worthwhile dwelling on these a little bit in addition with that now to move to the schedule shown in slide 7. This highlights the schedule being driven off the regulatory approval for the upgrader which we expect to get in the mid 2008s, and then again, the first bitumen in 2011 and the first synthetic production in 2012.

This land provides Petro-Canada, the operator, with a lot of flexibility in terms of work force (inaudible) allocation and staggers the commissioning effort for both the mine and the upgrader which we think will mitigate the risk quite (inaudible).

The overall planning and phasing for the complete project is shown on slide 8, and this shows you subsequent phases of the development after the first phase. In addition to the two phases of production coming on in 2011 and 2012 and then 2014, we foresee also the addition of gasification. At UTS we think this will be a key growth area and we think that will mitigate a significant amount of the natural gas usage at the upgrader and may potentially offer some opportunities for [C02 sequestration].

Slide nine shows the cost and being no news here, but I think it is worthwhile noting that we believe this is a very robust cost estimate with a very significant 29% of the base cost allowed for contingency and escalation. You should also note the extensive pre-sanction cost spend of in total $2.2 billion.

How do these ranks on a worldwide scale and basis? We've tried to cover that on slide 10. This shows some data put together by First Energy looking at finding and development costs. The conventional finding and development costs are rising as shown by the chart and these really are driven by two factors, the costs are up due to the business. In addition, the find sizes are generally down.

The Fort Hills Project is shown against this trend and also note the reserve life index for the Fort Hills Project is in excess of 40 years at a 280,000 barrels a day synthetic production level versus a typical reserve life index of around 12 years. This chart is really one of the reasons why the oilsands are receiving so much attention and investment over the next little while.

Slide 11 shows the status of the earn-ins and we are now about 21% through the earn-in. The partnership now having spent a total of $514 million where UTS's share has been at 4% or $221 million. We spent the funding on the first earnings to carry UTS until the second or third quarter 2008 or around about the project [expansion].

Slide 12 shows the schematic impact of farming down a small part of the working interest of Fort Hills. As you can see, the objective here really is to right-size UTS's working interest. This is a balance really between decreasing the financing risk and matching the production and oil price upside. This shows schematically the impact of farming down and it clearly reduces the amount of new equity required and reduces the amount of debt to be carried. And as importantly, increases the time that we will spend in the earn-in and defers the need to raise debt and new equity while we explore the land from the west of the river.

Moving onto that subject, on slide 13. Let's quickly review the status of the activities on Lease 14 and 311. Suffice to say it has been busy and it will get significantly busier over the next year or so. (inaudible) on Lease 14, we expect to get a contingent resource estimate and finalize the Teck transaction by the year end. And most importantly, we will also get a development plan worked out and hopefully a preliminary idea of the cost for notional development around 50,000 barrels a day of bitumen production.

On 311, we should provide the first look at a mine plan. This is assuming continuity between the 60 or so wells we've (inaudible) to date. And slide 14 shows the drilling plan over the next couple of years. As you can see two really busy drilling seasons are contemplated for the 2007/2008 season and the 2008/2009. In all, between 750 and 800 wells should be drilled and this when you link it to potentially farming down, you can see the importance of getting that additional funding to carry us through this period of time. The ideal outcome being two complete drilling seasons on the west prior to raising a significant proportion of the equity and holding the holding the debt in place. The plan here of course is to replace any barrels that we would sacrifice in a farm down right now and the idea of course is to find hopefully many more barrels in this expiration acreage which of course we own 50% of with Teck Cominco.

Moving on now to slide 15, we can see the potential growth within the company and this is shown of course for a working interest of 30% in Fort Hills as it is right now and 50% in working interest in the other asset. It should be noted that we've also of course already drilled and (inaudible) on the 14 and 311 area so this is a fairly robust plan we think going forward. But of course requires a really significant investment.

As you can see moving forward to slide 17, you should see over the next little while the short- and mid-term milestones that we expect to be completing and communicating to the market. And mostly really toward year-end focusing around the 14 transactions and estimates and the Lease 311 notional mine plan around the discovered resources that we have there and then moving on into the mid-term where we have the financing and project sanction in the second half of 2008.

And with that Jina, I'd like to hand it back to you.

Think you, Will. I would now like to open the floor to questions and answer session and I will ask the operator to come back on to explain how to proceed.

(OPERATOR INSTRUCTIONS) Andrew Potter, UBS Securities.

Hi guys. Just a question on the in situ side, I noticed that in the Marathon bid for Western, they penned some pretty big resource estimates to the in situ leases just to the west of your northern stuff. Just wondering if that means anything to you guys in terms of how you are looking at your in situ leases and maybe what your plans are around those leases?

Will, do you want to respond?

Okay Andrew. Thanks. I'm going to a hand this to Daryl after I have a quick go at it because Daryl is managing the exploration effort over there. But right now we've just [shot] some seismic over the area and we're actually just shooting some more. And we are going to be shooting that seismic this winter. And we've just put a project together which hasn't actually been approved within the Teck and UTS partnership, but we're proposing to take a drilling rig for this coming winter season and if the results of that seismic look attractive, then we would be hopefully have a capacity to drill between 10 and 14 in situ wells. Daryl?

Yes, I think Will has given the bulk of it that we are looking at a program this winter in our in situ lines, both geophysical and the drilling program. We have approximately 100 sections in the -- that would be classified as in situ and there are only seven wells on those approximately 100 sections. So there is very little to almost no data on our in situ land and the wells that do exist, the seven wells, are very old and the well launch are not that useful.

So we really have no data and so we need to go out and obtain some data, we will need to drill some wells. We need to find out what we have there. We definitely have good indications. We've drilled wells right up to the toe of the Birch Mountains and our existing drilling program and we've got good oilsands that do extend right to the toe of the Birch Mountains. So hopefully that trend continues and we will go under the Birch Mountains such that those will be in situ oilsands.

So the drilling program this winter will be the initial step to evaluate a very substantial line position in the in situ area.

Thank you, Daryl. Does that answer your question, Andrew?

Yes it does, thanks.

Great.

(OPERATOR INSTRUCTIONS) There are no further questions at this time. Please continue.

Thank you. If there are no further questions, ladies and gentlemen, this concludes the conference call today. Thank you for participating. Please disconnect your lines.