Teck Resources Ltd (TECK) 2007 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to if UTS Energy's Corporate update 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 which are inherent in a predevelopment stage oil sands mining and extraction enterprise that could materially affect UTS 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 Wednesday, March 26, 2008, at 7:00 a.m. Mountain time. And will be able to play back on the Company's website. I will now turn the conference over to Ms. Jina Abells Morissette, Corporate Secretary for UTS Energy. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining us this morning for our call. 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 are pleased to report that in 2007 we have continued to increase UTS's asset value through our development and partnership activities. With that, I would like to turn things over to Will Roach. Will?

Thanks, Jina. I'm going to go through a presentation that's on our website. I'm hoping that everyone's got sight of that. I'm going to point everybody's attention to the forward-looking information which is on slide two, which is quite detailed and I don't intend to go through the details but would recommend everybody has a read of that.

What I would like to do then is go onto slide three and take a pretty high level look at 2007, which in the four years that I've been in the Company I think has been probably the most successful year we've had. We've now put a great partnership together in Fort Hills and we've made some pretty good progress, the operated Petro-Canada, as well on the front end engineering studies. We in addition to that have built about 350 wells in the exploration venture with Teck Cominco, with a high degree of success and we'll talk a bill more about those in a minute. We also quietly accessed about $1.25 billion of funding through the year by asset transactions and also the equity markets. And we believe pretty solidly have now put the foundations in place for a significant amount of heat, in fact, one of the messages we're trying to talk to today is we've now got a 10 to 15 year build-out, depending on the oil price of a fairly significant portfolio, production capacity within the Company frozen by the drill bit now we think in the order of 150,000 to 200,000 barrels a day.

Moving on to slide number four, what I would like to do is just talk about the backbone of the Company, which is the Fort Hills project in a bit more detail on the status there. We're on track to Petro-Canada on track to finish the feed studies. About the mid-of 2008, I'd say we're about a month behind where we thought we would be which is pretty good in today's environment. Staffing up has gone very well on the project and we haven't had any major surprises so far on the cost estimate, which is good and we're looking to get an update of that project, cost estimate for Phase I in about the July, August time frame. Site work is proceeding in both the north and south and that's going very well and Petro-Canada has been very diligent in looking at the labor supply and developing ways of looking at that so I'm pretty encouraged by the way that's been going.

The update regulatory hearing is expected within the next short while. We expect that to get the approval in place probably at the end of the first half of this year, perhaps the beginning of next year, start getting the regulation process complete. So that means really that we're on track to sanction in the second half of this year, probably towards the October time frame, if my estimates are right. What I'd like to do now is I'm going to slide five and I'm going to hand it to Daryl Wightman who has been running the drilling program and he'll walk us through a little bit of the high level exploration and delineation drilling results for this year. Daryl?

Thank you, Will. We had had a very good drilling season this year. Our 2007, 2008. We were anticipating drilling somewhere between 300 and 400 wells and we wound up drilling 353 wells. Which includes seven in the in situ area. So we did have a very good drilling season. As well, the results look very promising in the Lease 311 area, which is the central part of our area to the north of Lease 14. The results there look very good and we'll be getting core analysis and analyzing results over the next few months. North of that in Lease 40 and 514, the results were not quite as good but there is more drilling that will be required in those areas.

In the in situ area in the Birch mountains off to the West of our minable acreage, we drilled seven wells, we shot approximately 100-kilometers of seismic and over the next few months we will be integrating those results, integrating the well results with the seismic and looking at the cores and will be evaluating our in situ acreage for our way forward in our in situ lands. So all in all, a very good drilling season. We move to slide seven, Lease 311, an area which really is the heart of our oil sands to the north of Lease 14, we had 63 core holes drilled prior to this winter's program. 286 new core holes in that area and we expect to have a contingent -- we will have a contingent resource estimate at the end of this year. So that has gone very well. I'll turn it back to you, Will.

Thanks, Daryl. I'd just like to add on to that. Really, what I think Daryl is saying there, there were no surprises, the results are pretty well in line with what we had forecasted towards the end of last year. And in fact, we were sufficiently encouraged by those results, moving on to slide eight, to go forward with proposals for two projects, which we announced also today and so proposed development plans for the Lease 14 area, which we now call Equinox and then the Frontier area which is the 311 area, but also 610, which the drilling proved up to be prospective and also the site of 840. As Daryl said, there's a lot more work to be done as we go north there, but overall those results weren't as good as we'd hoped in the northern part of that acreage.

The announcement being done today really relates to the fact that Equinox now has got a number of different options because the drilling this year we think the Frontier area has actually proved up sufficient for a stand-alone project. Now Equinox can be looked at as either a satellite to Fort Hills or satellite to Frontier or perhaps integrated into the adjoining acreage around us, operated by Shell. But pretty encouraged by what's going on and we have just started the regulatory process by announcing these two preliminary development plans today. Obviously, going to involve a lot of forward work before we get to that stage of committing to a project, but this is the first step along those lines and really what we're trying to show here is we have a sequence of projects with Phase I at Fort Hills, Phase II Fort Hills, actually Phase III, followed by Phase I in Frontier, equinox projects thereafter. Pretty substantial opportunities for the shareholders, we think.

Moving on to slide nine, a little bit more detail about the development concepts being looked at for Equinox, which you'll recall is Lease 14. The smaller of the leases. And as we think a capacity of around 50,000 barrels a day. A lot of the work we're doing on Equinox will be we think extremely useful to get a baseline to do a whole bunch of environmental work but also for the work we'll be trying to integrate into the study work which we'll start next year on the Frontier development.

If we go on to slide 10, talk a little bit about Frontier, much bigger project, we think very clearly already proven up to be 160,000 barrels a day, drilling in 610 and 840 will confirm if there's any additions to that over the next year or so. And we also think that the combination of the two assets with the existing infrastructure really will offer us some potential upside opportunity and also increases the number of options we have to develop these assets.

Moving on to slide 11, you're going to see here that we haven't just focused on drilling. In fact, we've had a pretty extension you oil sampling program on the Frontier area and also Lease 14, taken a lot of samples of ore, about 1500 tons, also we commissioned a pilot plan to develop with UTS -- sorry, with Teck Cominco, our understanding of the extraction technologies we'll require to deploy to develop these assets. So that was a very successful program and the total budget for those activities is in the order of $15 million this year, again, doing that 50/50 with Teck Cominco.

Moving on to slide 12, it also highlights the additional work we've been putting in place in terms of the engineering for both of these projects and also the regulatory preparation and the budget for these activities over the last year has been also another, in the order of around $15 million. But a significant amount of work is going on in terms of defining baselines, the environmental work, and also the work required to get the engineering to a level where we understand the best way to develop the assets.

Moving on to slide 13, it's a bit of a time line of what you should expect on resources. We're not giving any numbers today on the 311 area. We're going to wait for the independent resource analysis is complete for contingent resource at year end. We're of course going to get a discovered resource with quite a wide range on 610 and 840, because we have a relatively low drilling density but the results in this area were sufficiently good that we've already committed to a drilling program that's probably around 250 to 300 wells for next year. Which then is showing up on the bottom of the slide where we would hope to prove up the contingent resource at the northern section of the Frontier leases. This year you should expect at the year end a contingent resource on the 311 area and a discovered resource for the wide range on the 840. As I would say, we proved up we think the numbers in the 311 area pretty conclusively that we gave towards the year end last year.

Moving on to 14, it just summarizes that we think that the assets on the west of the river really are going to benefit by coming into production after the Fort Hills project is up and running and we think there's a substantial amount of opportunity we've -- that are in place to look at a range of different ways we can develop those assets in a more valuable manner. The key now is to work out how we get all of this financed and when I go to slide 15 I'm going to hand it to Wayne, Wayne Bobye, to talk us through some of the things we're looking at on the financing side. Wayne?

Thank you, Will. Going to walk through some of the financing initiatives. Turning to slide 16, Fort Hills project, Phase I, our financing status. We've got a budget in Phase I of $15.2 billion, which includes feed costs from July '07 forward. UTS has funding in place for the first $7.5 billion, with the earnings one and two and we've got cash on the balance sheet of about $360 million to fund that first $7.5 billion. So the remaining amount that we need to fund is about $1.5 billion.

Turning to slide 17, you can see a breakout of UTS's capital expenditure profile, wherein we show in 2008 and 2009 that we're funded actually to the fourth quarter of 2009. So what this tells you is that time is on our side. We've got time to execute our financing plan. We've already mentioned that we've got -- why did that happen, that we're funded. We've got the two earn-ins that we did and we raised $275 million of equity so that puts us in good shape to the end of 2009. So what we need to do going forward, we need to fund in 2010 about $1 billion and in 2011 about $600 million. I want to stress that there's no requirement to have our funding in place at Project Sanction. We've got time to execute this plan and we're going to start on that today, so that we're ready at Project Sanction to put a very good financing plan in place.

Turning to slide 18, we've got a lot of funding flexibility. Really the goal that UTS is trying to achieve is, one, be ready to put in financing for the $1.6 billion of Phase I of the Fort Hills project when we're sanctioned. We're going to be sanctioned somewhere around September or October of 2008 and time's on our side. And really, we want to be ready to execute a financing plan once we're sanctioned and it's really going to depend on the tone and depth of the debt market at that time, which will dictate exactly the timing of that financing. The timing of that financing could be anywhere from the fourth quarter of 2008 to the third quarter of 2009. It's really going to depend on what the debt capacity is and what the tone is, so we've got time to execute and what we'll try to do is arrange a financing group to look at bank debt, term loan B, high yield, another source would be private equity and debt, in particular pension funds and insurance companies, and we'll also look at sovereign wealth funds as another source and if required and we would try to minimize the amount of equity that we need, if the tone of the market is there for the debt we should be able to place all of the debt and minimize equity. But I want to stress that we do have financing flexibility here because we have a lot of other assets that -- what we'll try to do here is not bring those into play but try to do most of our financing in debt market.

Turning to slide 19, just some highlights on this. What this shows is what our debt capacity is for the Fort Hills Phase I. At $60 a barrel for the oil, generate about 400 million of EBITDA, earnings before tax and depreciation and amortization and it's pretty robust in the sense that we could borrow up to five times EBITDA if the debt market's there. If the debt market's not there, we might have to not be able to borrow as much. Might only be three times. So we require about $1.8 billion when we include fees in there, so if we have a robust debt market we would be able to do all that at the $60 and have interest coverage of about two times. So this would -- don't have to do it all at once. As I said before, we could do it in phases. We could do about $1 billion in 2010 and then later on, phase in some more.

Turning to slide 20, this gives you an idea of what UTS low cost per flowing barrel is. This enhances our economics because of the earnings we've done. Essentially, UTS is paying about 12.5% to earn 20% in the Fort Hills project and this really translates into very low cost per flowing barrel of about 63,000 flowing barrel for UTS.

Turning to slide 21, a graph that shows our notional EBITDA for Phase I at 30,000 barrels of synthetic oil per day. We show a range of EBITDA of between $50 a barrel and $90 a barrel for Phase I. At $60 a barrel the EBITDA works out to about 400 million per year and at 90, about 600 million per year. If the oil price remains at 80, UTS's financing in the debt markets will be greatly facilitated. We do our planning around 60 but we've got, as you can see, it's very robust if oil prices remain where they're at today.

Turning to Slide 22, just kind of a busy slide that shows the -- what our debt capacity will increase with delineation drilling. The key message here is that the more barrels that UTS has translates into more debt capacity and what we're trying to do here is we want to put in place an execution plan already at Project Sanction to execute a debt strategy but also we want to tie that to the drilling that we've done and more barrels, contingent barrels that we get from an independent engineering firm translates into more debt capacity. So along the way we'll execute that plan. We'll engage an advisor. We'll look at getting a credit rating from Standard and Poor's and Moody's and look at putting the first part of our debt in place somewhere around the fourth quarter of 2008, somewhere into 2009. And that will depend on what the tone of the debt market is and then later on look at a second traunch in 2010 and again tie that back to the drilling program. As we get more contingent barrels, we'll have more debt capacity.

The final thought that I want to leave you with is we've got a tremendous amount of flexibility to do the financing because we've got assets that are worth money and that was proven up when we looked at Lease 14. We sold 50% of that for $1 a barrel for 200 million, so we've got a tremendous amount of flexibility with the assets that we have in hand. With that, I'll turn it back over to Will to finish up the presentation.

Thanks, Wayne. Moving to slide 23, I think it would be inappropriate to talk about these two new projects in Fort Hills without referring to the key role that we see the environmental performance of the Company having going forward. It's probably one of the most important issues alongside financing that we have to manage over the next little while. To that end, just some news, we joined the [Saline Aqua First] project, looking at CO2 storage along with I think another 26 companies doing that. So that, I think, is an extremely positive move.

In addition to that, some of the study work we're doing in the DBM for Equinox, we're going to build on to that and we're going to work out what it would actually cost to produce what we call a carbon neutral mine, looking at best practices to minimize the carbon footprint. So we'll have a cost to develop it but also an incremental cost that would then be required to make that CO2 neutral as we call it and then a whole bunch of activities. On the extraction we talked about looking at technology and extraction to try and reduce the usage of water and energy in the process. In addition to that, we're doing quite a significant amount of work with Teck Com with gasification. We think longer term that gasification will be a viable technology to provide energy into the process which then also has a clean CO2 stream which we believe could be more (inaudible). There's a lot of additional work we're doing around the drilling is the point I'm trying to make, in terms of the engineering and also the way in which we're going to try and approach the environmental challenges of the oil sands going forward.

Moving to slide 25 now, 24 gives you the highlight of the growth profile but slide 25 gives you a view of what we've proven up in the Company here. And the key bit here is you can see these three phases of Fort Hills, Equinox and Frontier coming in. What we're really saying, over the next 10 to 15 years we've got a major Company to build out in stages. You can time that correctly, the contribution of cash flow into that model at various oil prices makes this a more doable challenge. In addition to that, of course the higher the commodity price once we get into production, the more of these assets in all likelihood we'll be able to retain. We're showing 50% working interest in Equinox and Frontier and some additional potential. Pretty clearly, as Wayne has said, we're going to be growing asset value as we go through and we're going to be looking at the best way and the best working interest to keep those assets. The challenge is that we think keeping the barrels in the Company, the development opportunities with a pretty good partnership in Fort Hills and also an excellent partnership with Teck, the way we want to grow the Company.

Moving to slide 26, year ahead, obviously the big issues this year are getting regulatory approval for the upgrade and then hopefully revised or renewed cost estimates with the Sanction then following shortly thereafter at Fort Hills. As Wayne has said, that then kicks off in earnest the debt rating process and the financing. We're going to be looking at options as we go through that but that sort of starts that process. We also get then the contingent resources out of the 311 area at year end, also the discovered resource in the 840 area. To give an idea, by year end, I hope the Dallas team on the in situ potential we're pretty optimistic about that. And also we'll have the design basis down on Equinox so we can start looking at the real costs of what that sort of development would be.

So in summary, on slide 27, I believe we're very well-positioned and in the best position since I've been in the Company. With all of these resources, I fully expect our resource base to double by year-end from what we had last year, which is a pretty substantial step forward in terms of organically growing value within the Company and first production then, if the project stays on track and we firmly believe it will at Fort Hills, we've had (inaudible) in 2012 and then we really have a long build-out through those projects and an excellent opportunity to grow a substantial Company here. Just reminding ourselves again, this is all dependent upon our ability to manage the environmental challenges in a responsible way, and we're certainly make sure we do the right things in that area, which I think will then allow us to access the right financing. With that, Jina, I'll hand it back to you. Thank you, Will. I would now like to open the floor for questions and answer session to start. I'd ask the Operator to come back on and explain the process.

Thank you, Ms. Abells Morissette. Ladies and gentlemen, we will now conduct the question-and-answer session. (OPERATOR INSTRUCTIONS) Your first question comes from Mark Polak, RBC Capital Markets. Please go ahead.

Good morning, guys. Just a couple questions from me, if I could. Given Daryl's comments about preliminary results at 514, 840, could you just maybe give some color about the 250 to 300 wells next year and where you think those will be distributed?

Sure. Daryl, why don't you give a bit of an overview of where those wells are going.

Thanks, Will. Thanks, Mark. We will be drilling a lot of wells next year in Lease 610, we'll have a few left that we will be drilling in the Lease 311 and 477 area. But a lot of the other wells then will be in Lease 610 and in Lease 840 and we'll be drilling some more wells up in 514 as well. But the bulk of our program will probably be immediately north of the big drilling program that we've done this year. So we'll be basically moving northward with our extensive drilling program. As Will pointed out, we hope to drill approximately 300 wells next year. We think that that's a program size that's very -- more manageable, very manageable and that we can get it done in -- with a good use of all of the resources. So I guess the bulk of the wells will be in the Lease 610, southern part of 840 and then the rest of the wells will be farther north than that.

Great. Thank you. And then second question, the Frontier project, I think the resource estimates you guys had put out last fall or late in the year did not include Lease 610. So probably some upside there. The production range of 100 to 160, would that include Lease 610 or is there potential upside to that as you do next year's drilling on 610?

I'll try and answer that. It's really -- the 160 is really based on two trains of extraction process, similar to that that we're building for Fort Hills. The reason we chose that is we'll have a pretty good handle on the costs of that. If you look at the resource numbers we put out last year, we gave a pretty solid indication that at those sort of levels we've got a 40 to 50 year project. Pretty clearly, if we establish significant resources in 610 and 840, they will be in all likelihood incremental and would probably infuse us to look at subsequent stages. But I think 160 is a good number to start with.

Great. Thank you. And one more, if I could. When you guys mentioned the cost estimate review for Fort Hills, is that a normal part of the feed process here or are you guys seeing anything as you work through the engineering to suggest there might be some changes to that?

I think that -- I can hand this to Martin and Howard who have been working most closely, but my take on it is we haven't had any major surprises, absolutely normal to look at the cost estimate and the whole idea of the feed process is to do a bottom-up exercise. And I'll let Martin and Howard finish it off.

Yes, this is Martin Sandell, Mark. I think we'll summarize that pretty well. We haven't really seen any major surprises in the cost estimates to date. One of the major objectives of the feed, the feed part of the project is to produce what's called a plow three estimate which is a higher quality, bottom-up estimate than we had to date and that's really what we'll be preparing over the next two to three months and that's what will really give us a good handle on what the cost will be for the Sanction.

And this is Howard Lutley. The only thing I would add to that is that by our participation in the review of the cost estimate, it helps us with weighing and the financing process so we can make sure that people looking at this opportunity fully understand what's in those cost estimates. So it's a normal part of the process.

Great. Thank you very much.

Thanks, Mark.

Your next question comes from Mark Friesen, TD Newcrest.

Two questions from me. The first one, with respect to the in situ program that you've made some favorable comments about here, if you could just provide a bit of color in terms of your in-house expertise to handle in situ, possible indications of where that might take you. And because it's different than mining, would Teck be interested in participating in the in situ program as well? Then I have a follow-up as well.

Well, I'll answer the supplementary there with Teck. If you wish to get a comment from Teck about in situ, I guess you've got to ask them, Mark. I don't want to speak for them. But pretty clearly, they've funded their 50% of the exercise so far and one imagines that they're obviously interested in growing value. Back to the first part, I'm going to hand it to Daryl after I just give you an expose on the fact that Daryl Wrightman's expertise really has, and some of the guys on his team really have been historically more related to in situ than actually mining. So I'm pretty confident we've got the right level of expertise from the, A, getting well programs drilled and B, from the understanding what the reservoir (inaudible). Pretty confident that we also have some project execution skills within the Company.

I think that what you're he really asking is would we try and do this or would we try and partner with someone. I think the first thing we want to do is work out whether the acreage is attractive before we start taking those decisions. What we've given you is a -- we've got five mining projects, Phase I, Fort Hills, Phase II, Phase III and then Equinox and then Frontier. So that's quite a program to build out. And he we've sort of done the exploration on that now so that's moving into the project definition phase. The next thing for Daryl and his team to do is to look at the other assets within the portfolio. With that, Daryl, I'll hand it to you to pick up any of the bits I haven't covered there.

Thank you, Will. I think Will has covered the main points and I would just add that the -- this is our initial foray into our in situ lands. We've only drilled seven wells. That's a very very low well density. We're not anywhere near sufficient number of wells to really evaluate it. But we do have some encouraging results and we shot seismic. We need to integrate our well results with the seismic, so that will take us a bit of time to do that and I think Will's covered also that we feel pretty confident here that we can evaluate the upside or the potential for a project and if we establish that we do have the potential for a project, then there are several paths forward. We could partner with others and just various things that we would look at. We're not at that stage yet.

I would add, Mark, that we're sufficiently confident about what we've done. We're looking at retaining a rig for next year's program.

Okay. That's great. Thanks for the explanation there. The second question is with respect to the environmental studies that you made reference to, Will, in your comments, wondered if you could provide a bit more detail on a couple of those points with respect to what that could mean for possible development of Fort Hills and application of that technology in the first stages of your project?

Well, these studies have been done Teck and UTS for our land and Petro-Canada is operating Fort Hills. I think the die is pretty nearly cast on Fort Hills, the way that's going to be developed. I think these studies are really related to the way in which UTS and Teck go about our business on the west of the river or in the other projects and really the guy who is best placed to answer what we're trying to get out of these is Martin. He's been sort of the architect, and also Harold on the (inaudible) side. Why don't we start with Martin.

Yes, I'll give you a little bit of an overview of what we're doing with respect to the greenhouse gas studies and primarily what we're looking to understand is what it costs, first of all, to develop a mine with improved efficiency using state-of-the-art technologies to reduce greenhouse gas emissions and that might include the integration of processes or it might include, for instance, technology such as at face crushing and slurrying, rather than using trucks, so that you can have a centralized power source from which you can capture CO2. In and in addition to that we're looking at what it costs to actually capture the CO2 from the centralized power and heat sources and sequester that. Coupled with that we're also looking at the potential for elimination of natural gas from the mine process using low value byproducts such as acetylene as a heat source which will obviously produce more CO2 that we need to capture and sequester.. So it's a fully integrated study, looking at all aspects of greenhouse gas emissions and we intend to do that in parallel with the DBM for Equinox so that we have a real project on which to base that. And that will give us a baseline against which we can measure the cost and the impact of these technologies.

Do the studies prolong the development cycle or does it fit within the -- what the--?

I think it will fit within the current schedule that we expect. I this stage I think -- we're looking at what best-in-class technologies. I wouldn't say that we're going to implement all or even any of these technologies in Equinox, but it's looking to understand what the true impact, the cost impact of these technologies is and the feasibility of those technologies and to -- I guess to get an understanding of what we might need to implement going forward into the future as we get a better understanding of the greenhouse gas legislation that's soon to be implemented.

So my answer Mark, to that question would be no, it won't change the schedule but it certainly prepares us to understand what the real cost of doing business may be in the future.

Great. Thank you for the update, you guys.

Thanks, Mark.

I don't know if Howard wanted to add anything to that with regard to the tailings.

I think just to add to that, on the saving side, we're concentrating in two areas. One is minimizing the amount of water we use from the Athabasca river, so we're looking at ways of maximizing water recycle and the other part of that, which is related, is to maximize recapture of the hot water which then helps us reduce our energy input requirements. So that in turn reduces our greenhouse gas emissions. So as Martin said, it's a totally integrated view, hidden at the areas that have been a key concern with the stakeholders in the area.

Thanks, Howard.

Your next question comes from Jenny Mikhareva with Macquarie Capital Markets. Please go ahead.

Good morning, gentlemen. Could you please comment on the quality of the resource that you have on the west side of the river, both Frontier and Equinox and how that compares to the Fort Hills project?

Yes, well, I'll give you a heads up on that and then hand it to Daryl. My understanding is that it's pretty good. Daryl?

Yes, I think we would all agree with that. It looks very good. Lease 14 area, the oil sands are very high quality. They're not quite as thick as what we have up in the Lease 311 area but the grade is very high, it's up perhaps as high as 12%. We've got the contingent resource there so our data is better. So it's got relatively low overburden, its roughly in the 25 to 30 meters in thickness range there and very high grade. Lease 311, an area, we've got to look at the data that we've acquired this winter but there's a couple of things do stand out right away. We have areas where there's very low overburden or very little overburden, down to around 10 meters. So the overburden situation in the Lease 311 area is very good. The ore is thicker than what we see on Lease 14. We've got values that we expect will be up into the 50-meter range on the Lease 311 area and the grade, we would expect would be very comparable to most of the other projects in the oil sands mining. So I would say that overall, our assets have a very high quality, very high quality ore.

Great. Thank you. And also, how much did your delineation program end up costing you you and seismic, all together how much did you spend this winter?

The budget is not completely finalized yet because we haven't actually got all the costs back in, but we expect it to be around the $110 million mark, plus or minus a couple million at the end of the day, which is pretty well exactly what we predicted.

That will put your cash position then at--?

That's 50/50.

Okay. Thank you.

Thanks.

Your next question comes from Andrew Fairbanks, Merrill Lynch. Please go ahead.

Good morning, guys. Just a couple of strategic questions for you. First, on Lease 14, you've alluded to still the possibility of perhaps combining those assets into Fort Hills or Shell or some of the adjacent projects. Do you have a sense for what sort of time frame we should expect in terms of some conclusion there? Is this a two quarter event? A two year event? Just how long -- obviously at some point you have to say, well, look we have to develop this ourselves at barrels a day, but do you have a sense for a time line on that?

Yes, the time line is not this year. I don't think we'll be doing any asset transactions this year. This year we'll be just doing the engineering work to find out what the real value is. Remember, we now have proved to ourselves that Frontier is a stand-alone project. So in some ways, 14 has become an asset that becomes more directly in our control as it becomes a satellite back to that. So we need to understand that opportunity. The other part is that we don't actually think that doing an early transaction on the Lease 14 asset is the best thing to do. We need to understand what the real value is, the real opportunity, so, my intuition is that if we did anything with that, a great offer came along that you couldn't refuse, would be more like towards the end of next year, when a decision would be taken in the partnership with Teck.

That's great. Thanks, Will. Just one other. As you think about potentially putting 200,000 barrels a day of bitumen into the market, do you have any thoughts on downstream marketing, JVs or solutions of some kind or are you comfortable just being a marketer of that much bitumen?

No, we're not. And I think the answer to that would be we need to -- very similar to the one I just gave you on 14. One of the things we're going to be doing over the next 18 months to two years is working pretty closely with Teck to understand how much product have we got. Is it 150 barrels a day, is it 200. Then obviously we have to time those projects. I think that they will always follow Fort Hills. Because in Fort Hills we create a significant amount of synthetic product. We also have rights to expand the Fort Hills project which gives us a potential opportunity there but obviously not big enough to take all of that product.

One of the sort of intellectual games we play is if you put all of the west of the river production in with the all of UTS and Teck's Fort Hills production, you get a pretty big number which has the right ratio of synthetic to bitumen to be able to get to a southern market. And those numbers would be in the order of 350,000 barrels a day, if my arithmetic is about right, which is a pretty big amount of product of synthetic plus bitumen. Which I think is really big enough to start talking and interesting some of the major downstream refinery type players. As you've seen in some of the recent transactions. Again, I wouldn't expect that to happen overnight. This will be a long process and we'll try and understand exactly what our options are. I think the key thing, Andrew, is that we keep as much of these assets as we can, because we think in the long-term barrels are going to be extremely valuable, particularly with infrastructure. Once we get funded for the first phase, I think the market will understand that we really do have a long-term future here and the key to us will be getting the right downstream partner for the west with Teck.

Excellent. Thanks, Will.

Thanks.

Your next question comes from Richard Wyman, Canaccord Adams, please go ahead.

Good morning everyone. I do have a couple of questions that tie to the questions that have already been asked. I'm just curious to know, perhaps as it relates to Lease 14 more than anything else, but potentially all of your assets, is, to what extent does the regulatory process force aggregation of these things, so you don't get proliferation of extraction and upgrading and minimize the environmental footprint. Could you comment on how you see this whole regulatory process playing out?

I'll talk on the west of the river, because clearly the regulatory process is done on Fort Hills and also there's an application in for the upgrade. I'll just talk on the west of the river. Pretty clearly we're going to talk to the adjacent leaseholders. And Shell representing the Albion partnership around 14 and 311, and pretty clearly the other players on the other side of the river, mining in the horizon project and also a little further south, the Joslyn project now operated by Totale. Pretty clearly, all of these deposits are pretty substantial in themselves, Richard. If you add these 14 to the 311 area, I think that we've got a substantial project. I don't want to give you ranges of numbers because the regulatory process is -- or the reserve estimating process is tenuous to say the least. And I don't want to be promotional on that. We're confident we have a substantial number of barrels, probably in the order of the same as Clear River at the end of the day and probably in the order of the same as the Joslyn project. So that's a lot of barrels on that side of the river. There hasn't actually been any, as I'm aware of, forcing together of projects in the past. I think what you're really asking about is Lease 14 and does that make more sense to be integrated in Pierre river. We'll know that in a year's time. I haven't seen any evidence yet on that. I know we've got Cam Bateman in the room. Maybe I should ask Cam if he has any views on that. Or Howard, because Howard's been pretty close to that. Let me start with Howard and then go to Cam.

I think -- Will's right, there's certainly been no regulatory push to move us towards combination of projects. At the same time, if you look at the way industry works up in that area, there's a surprising amount of cooperation on a technological area and I think what you see the companies doing these days is spending more time talking to each other, looking for areas where you can cooperate further. A good example in the Fort Hills project is, for example, the boundary agreements between the syncrude Aurora north and Fort Hills, so that there's cooperation across the boundaries so that none of the oil is wasted. Probably more importantly is that when the reclamation comes together in those areas, there's a seamless reclamation plan across those boundaries. That's been a requirement of the regulators. I think generically and directionally, we're going to see more and more attention paid to those opportunities to look for areas where the companies can cooperate to come up with better solutions, better long-term solutions. Cam, anything to add to that?

Thanks, Howard. The only thing I'd add is that as we've moved forward with Equinox, we are letting the regulators understand that there are options for that project, either as a stand-alone binding and extraction project or as a satellite production facility, similar to the Aurora north project that syncrude has where they're just pipelining the frog over to their other main extraction facilities. We're carrying both of those options through the regulatory process and the regulators are aware that we're going to have to make a decision at some point down the road on that.

And I guess to follow that up, especially if you're considering capturing and sequestering CO2 or gasifying ash fault teams, there's probably a significant cost associated with that and having a central point might achieve economies of scale and so I guess what I'm getting to is whether it's regulatory edict or industry choice to mitigate costs in the long run and yet honor environmental mitigation measures. How do you see this thing playing out? Is it -- do you expect to preserve independence or are you going to have to form joint ventures here?

I think the first step, Richard, is to understand what the cost of doing that business is, what the real implications are and whether you can do it. And that's what we're doing. So we're not trying to sort of run before we can walk. And pretty clearly, the way in which the environmental issues are being legislated around the oil sands are evolving. So I think it's a bit premature to ask for a definitive answer to that but pretty clearly you can see it moving along such that we have to understand these issues so that we can say whatever we decide to do at the end, there's a set of reasons why we do that. I think this is prudent engineering. If it works and is essential thing to do with our partners, we'll be the first people to knock on the door and say let's do something together.

One last question of a technical nature. You're moving discovered resources into contingent resources. What's the pace to convert contingent into probable and proven?

Well, we're hoping that sanctions to the Fort Hills project will render us a whole bunch of reserves, probable and proven this year and then obviously the pace that the other resources get to reserves is dependent on the commitment to the project. So I think the key I'm trying to get over, Richard, is we have a number of highly defined, attractive assets that follow on and the pace that they follow-on is really determined by A, our ability to access finance, and B, the actual oil price once we get into production. The higher the oil price, the less financing we have to externally, and the more internally generated financing there is. So we've got one pace for a $60 oil price and we've got another pace for $100 oil price. Again, I'm not trying to be evasive. I think you understand the answer.

Thanks very much.

Your next question comes from [Mike Dunn], First Energy. Please go ahead.

Good morning, gentlemen. Shell's recently disclosed that they are the owners of about six townships of land immediately to the east of I guess your Frontier lands. Can you talk about whether or not you guys looked at bidding on those lands? I guess they went for sale in late '06 and '07 and what you know about prospectivity of the resource to the east of your Frontier lands?

I think you should really ask Shell that question. On the bidding of the land, I don't wish to disclose what we bid and did not bid on. I think that's something that Daryl would shoot me for and I think it would also give away some of our understanding of the lands in that area. And I think if you want comment on the prospectivity of that land you really should ask the operator.

Okay. Thanks.

(OPERATOR INSTRUCTIONS) One moment for your next question. Your next question comes from Robert Plexman, CIBC World Markets.

Good morning. Had a question for Wayne about the Company's debt capacity to finance Phase I. I see that the multiple EBITDA has changed a little bit, but it's still pretty solid here at 3 to 5 times and Wayne in your remarks you seem really confident about the Company's ability to access the debt market and just realizing that those credit markets have really fallen apart the past few months. Can you share with us your reasons for continuing to be confident?

Well, Robert, I think I tried to allude to it. I think we've got -- time is on our side. We've been through these cycles before. If you go back to 1998, we had a flip in the market with the Japanese meltdown in the banking community and that did recover in about six months. So my view is we had some positive data the other day with Bear Stearns, they jacked the price up from $2 to $10 and the housing market in the States showed some growth. So I think things go down but they also rebound and what we have is time on our side for the debt market to repair itself and we're not going to sit here waiting. We're going to get an execution plan in place so that we're ready to pull the trigger at Sanction if it's there. If it's not, then we can wait a bit. So I think what I'm saying, debt markets will rebound and we can be patient and wait for the appropriate timing for that to occur. We put a range on that EBITDA because the capacity's really going to depend on what's the tone at that time, is the bank market there, term loan B is not very good today but it will correct itself. These things always move in cycles. I think because we position ourselves so we're not in a box, we don't have to do it right at Sanction so we're going to prepare an execution plan so that when the moment's there, we're ready to react.

Okay. Thanks, Wayne.

Ms. Abells Morissette, there are no further questions at this time. Please continue. I'm sorry, there is another question in the queue here. One moment. Your next question comes from [Arthur Grayfor], Canaccord Adams.

This question is for Wayne. There's a slide in the presentation that shows the funding requirements for Fort Hills exploration in the bar form and in 2010 it's $1 billion, in 2011 it's almost $600 million. Does that include any funding for Phase II or is that all Phase I?

No, that's all Phase I, best of my knowledge. There might be a bit of -- there might be some loss in there, but we've pretty much got just Phase I in there.

Would there be any incremental costs for Phase II above and beyond that are not in this slide?

There could be, depending on what the timing of that phase is. We don't have a -- we have 2014 as a start-up for Phase II and if -- depending on when that starts, it's possible to see some (inaudible) for that. Martin is probably a better guy to answer that question. He's more on top of that.

Well, I can answer that, I don't know if Will you would want to make a comment on that first.

I would just want to say my understanding is this year the total spend on Phase II, which is not yet approved by the partnership, is in the order of $50 million. I'll hand it to you, Martin.

Going forward, assuming that Phase II is developed on the production in 2014, we would indeed see some significant expenditures during 2010 and 2011. I can't say specifically what those would be. But at this stage I would emphasize that Phase II is not going to be approved as part of the initial sanctions of the project and therefore the schedule for Phase II is not fixed and that's something that obviously is subject to further study and partner approval.

I would add that that is a unanimous decision to go ahead with Phase II.

Okay. Thank you.

Ms. Abells Morissette, there are no further questions at this time. Please continue.

Thank you, operator. Ladies and gentlemen, this concludes our conference call for today. Thank you for participating. If you would all sign off.

Thank you.