Teck Resources Ltd (TECK) 2008 Q1 法說會逐字稿

Welcome to UTS Energy's first quarter conference call. (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 pre-development stage oil sands, 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 Tuesday, May 13, 2008, at 7:00 a.m. 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 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 of Mining and Extraction, Martin Sandell, Vice President Engineering, and Daryl Wightman, Vice President Resource Development and Business Strategy.

Before turning the call over to Will Roach to discuss our first quarter activities, I will remind those people in the Calgary area that UTS is holding its annual general meeting tomorrow, May 14, at 3 p.m., in the McMurray room at the Calgary Petroleum Club. Details of the meeting are posted on our website.

Now let me turn the call over to Will Roach. Will?

Thanks, Jina, good morning everyone. Before I start, I would like to just point out that there's a presentation being uploaded onto the website, and I'm going to try and walk you through some of those slides with my colleagues. I'll also point out that there is a couple of forward-looking statement slides to start with.

Moving on to slide three entitled Q1, 2008 highlights, what I'm going to try and do is I'll just give you a very quick update on where we are on Fort Hills, and then I'll hand it off to Daryl Wightman to talk a little bit about the expiration activities and where we've got to in the analysis of that data. And then I'll ask Howard to cover off where we've got in some of our project planning on both Equinox and Frontier, and then Wayne will walk through a little bit about the status of the financing activities of Fort Hills, and I'll bring it all together at the back end with a summary of where we're headed over to the rest of the year.

So moving on to slide four, I'll cover off the project status. I think the first comment is Petro-Canada is making good progress on the feed and it's on track we think for completion in about the mid of 2008. A month later than we originally thought but generally going pretty well.

The good news so far is there is no major surprises on costs, although we're just in the beginning of the phase where we're doing a bottom up cost estimate for the project, and that's one where you have all the detailed engineering and you work the cost northwards as opposed to making assumptions. We're hoping to get that piece of work sorted out by the September time frame.

Initial site work at both sites is progressing, and I'm happy to say Petro-Canada really quite focused on the execution side of things, and they're doing a lot of good work, certainly in my opinion, on the key strategies for both labor and also the construction side of things, which is where these projects really are critically dependent on success.

Yesterday we were informed by the ERCB that there's going to be a public notice issued on the mine amendment that we had submitted for the changes to the mine plan, we have already approved. That will be announced tomorrow and that's a 21-day period to receive objections.

And on the South regulatory progress, we have that date set now for the commencement of those hearings, which is June 23, of this year. So we're still looking forward to a fourth quarter sanctioning decision, and with that, I can happily say that Fort Hills is doing pretty well in our opinion.

So what I'd like to do now is hand it off to Dr. Daryl Wightman to cover some of the expiration activities.

So slide five, the title slide expiration and deliniation assets. Moving to slide six, the 2007 and 2008 drilling and expiration.

Our target for the program, our drilling program for the last winter, was 300 to 400 wells, and we wound up drilling 353 core holes in the program, so we were very pleased with that despite a somewhat slow start, we were really happy with the number of wells we've drilled. Seven of the 353 wells were drilled in our in situ area, which is in the Birch Mountains. The Birch Mountains on the powerpoint are outlined in white on the left hand side or west side of the map.

Most of the wells we've drilled in the past year were in the lease 311 area. You can see all of the red dots in there. That area is now called the Frontier Project, so the lease 311 area really forms the southern part of the Frontier Project, and that was the concentration for our drilling program for this year.

Moving on to slide number 7, year end -- by this year end 2008, we will have a contingent resource for the Frontier Project, based on those wells that we're showing that were drilled on slide number six. We'll probably have a discovered resource to the north of that in the scattering wells that we had on leases 610 and 840, so that's also part of the Frontier Project but in the central to northern part, and we'll have an initial evaluation of the seven wells to be drilled in the Birch Mountains area to evaluate our in situ potential.

We'll have a large drilling program this coming winter as well, and by year end 2009, we'll have a contingent resource on lease 610 and 840, and we'll have an initial evaluation of the other lands that we have, which include some lands on the eastern side of the Athabasca River.

Moving to slide number 8, the Frontier and Equinox oil sands mine projects, the proposed development plans were released in March of this year, and starting with the Equinox oil sands mine, that's based on our lease 14, that will support a mine of approximately 50,000 barrels per day over a mine life of about 20 years. There's about 380 million barrels of raw bitumen that has been discovered and is a contingent resource on lease 14.

Moving north of that into the Frontier oil sands mine area, we expect that, based on this year's drilling program and next year's drilling program, this coming winter's drilling program, we'll probably have somewhere in the order of 2 to 3 billion barrels of bitumen in that area and that will form the basis for the Frontier oil sands mine.

And just, there is a note on the bottom of that slide 8, and just to emphasize that we have a 50% working interest. These lands are UTS and Teck Cominco. So, the total figures for the mine, UTS's net interest is 50% of that.

Just on the bottom of the powerpoint, slide number eight, there is a mention that Fort Hills, the ultimate capacity there is probably going to be somewhere in the 340,000 barrels a day, and we have, UTS has 20% of that project.

Slide number nine is just a look at the activity in the area. The mining projects that are in the vicinity of the Equinox and Frontier Projects. You can see that the Shell Pierre river mine is on the south side of the Equinox Project and the north side of the Equinox Project. It also boarders the southern part of the Frontier Project and the eastern border of the Frontier Project.

Also in the area are the CNRL Horizon Project, the Fort Hills Project is directly across the river from the Equinox Project, so there is a lot of -- I will not go over all of the mines but there is obviously a lot of activity and infrastructure in the area.

Turning that over to Howard for slide number ten.

Yes, good morning, ladies and gentlemen. This is Howard Lutley, V.P. of mining and extraction. Well Daryl has just done a fairly good job of outlining where active project areas are beyond the Fort Hills Project. And so first in slide ten, I would like to bring you up to date with the activities related to the Equinox Project.

Now as Daryl mentioned, Equinox is the project that we formerly referred to as lease 14, and now that this project has been publicly disclosed through the public disclosure process, it now has it's own project name and is the Equinox Project.

Our objective over the next 12 months, through engineering work, is to establish the cost and schedule for developing this project at a production rate of approximately 50,000 barrels per day on a 100% basis. We're working closely with our partner, Teck Cominco, and have recently awarded to a number of contractors, the necessary contracts to kick off a design basis memorandum. We have a very strong contracting team, Norwest Corporation on the mine planning and engineering side, on the engineering of the plans and facilities, SNC-Lavelin and Fleur Canada in a joint venture, and on the environmental and permitting, Jacques Whitford-AXYS.

During the first quarter, we achieved significant progress in putting these teams together and kicked off the mining contractor, such that they've already made substantial progress on the mine planning and have been able to establish the basic layout of the mine on the Equinox area. We've also picked off the stake holder consultation process, which of course is a priority activity as we advance this project.

So in the next quarter, you'll see us move forward, especially on the engineering process as we put together the schedule and prepare ourselves to -- put ourselves in position to put together a good, strong reliable cost estimate. And then the final activity in the Equinox area will be to put together the E.I.A. terms of reference, so that we can move forward with the permitting process.

We'll now move to slide 11 and make some comments about the Frontier Project. Now as Daryl mentioned also, Frontier is the larger area centered around lease 311, and the leases to the north and west of that that make up our newest surface mining project area. And again we are partners, 50-50, with Teck Cominco on this project.

Essentially the work on this project is about a year behind the Equinox project. So we're in very early stages of establishing the project basis.

At this stage, the core analysis is about 12% complete and we cannot begin major project engineering until we have a complete geological modeling, all of the core data in and our initial mine plan. So over the next few months, we will get that process going, so that by the end of this year, we will have a contingent resource in place and start the mine planning by the fourth quarter of this year. At the same time during this summer, we'll kick off the environmental baseline studies and the geotechnical program, so that by the time, this time next year when we're ready to start engineering, we have all of the key data in place to kick off a more detailed work effort.

Finally, the planning for next year's drilling is going on now and the geologists are in place.

Anyway, I will it turn it over to Will Roach to carry on.

Yes, I want to take you to slide 12 and apologize to my colleague Martin Sandell who is going to walk us through the really, pretty important activities we're doing on the environmental study work side, which is linked to the DBM engineering that Howard just talked about.

And the linkage there is, one of the key things we're trying to do on the Equinox engineering is to get enough work done so we can understand the impact of some of these opportunities, but also we could possibly extrapolate some of the results that we'll be getting off Equinox into the Frontier front end engineering work that we'll commence next year.

Martin.

Thank you Will, my name is Martin Sandell. Good morning, I'm going to talk, as Will mentioned, about a number of studies we'll be carrying out in parallel, and as part of the Equinox DBM to help formulate our optimum environmental strategy.

With respect to carbon and capture and storage, we're carrying a number of internal studies to quantify costs and technical issues of PCS, and we are also participants in the Alberta Saline Aquifer Project, which we'll be pursuing over the next year or two. In parallel with the Equinox DBM and establishment of baseline emissions, as Will mentioned, for the mine and extraction process, we'll carry out what we call the carbon neutral mine study. And this will look at technologies to minimize the carbon footprint of the mine, and how we can adopt different design philosophies that may allow more efficient carbon capture.

At the same time, we'll also be looking at how we can eliminate natural gas usage from our operations through the use of low-value feed stocks such as asphalting.

With respect to extraction studies, as part of the Equinox DBM, we'll be undertaking with use of best practices in extraction and tailing technology, with the objective of reducing water consumption and the overall footprint of the tailing pond. This should also help improve energy efficiency and reduce our carbon footprint.

As a separate initiative, we'll looking at carbon capture ready gasification as a potential opportunity for UTS. This is obviously linked to the use of low value feed stocks in the elimination of natural gas.

I would now like to hand over to Wayne who is going to talk about financing initiatives.

Thank you Martin. My name is Wayne Bobye, Vice President and Chief Financial Officer.

Slide 13, I'll walk you through the financing initiatives. Turning to slide 14, which is the UTS capital expenditure profile, UTS-Fort Hills Project costs and expiration is funded until the fourth quarter of 2009. This results from the remaining partner earning contributions of $1.2 billion, and UTS's contribution made from available cash and proceeds from the sale of 15% of lease 14.

UTS's funding requirements are 1.6 billion for phase one of the Fort Hills Project and 150 million for other projects. UTS is paying essentially 12.5% to earn 20% of the phase one of the Fort Hills Project.

Turning to slide 15, UTS's (inaudible) EBITDA for UTS's partner share of phase one, 30,000 barrels of synthetic crude oil will be produced and at varying prices for WTI, ranging from 60 to $120. UTS forecast earnings before income tax and depreciation, EBITDA will range from 400 to $850 million. Certainly will provide enough funding to service our debt at those price ranges.

Turning to slide 16, UTS funding. This shows the funding capacity at $60 WTI to be in the range of 1.2 billion to 2 billion. The banking institutions are currently using between 60 and $70 WTI as a landing parameter. At $80 WTI, the lending capacity is between 1.6 and $2.7 billion, and interesting enough, the high yield lenders are using around $80 WTI for their borrowing parameter.

UTS believes that it can achieve a 1.8 billion in borrowing capacity, with a combination of bank debt and high yield debt. And recently the markets have improved significantly in the area of the high yield.

Turning to slide 17, UTS's financing strategy. UTS is presently in discussion with several banking institutions in preparation for a comprehensive financing plan using a combination of bank debt and the bond market. So far these discussions have been very encouraging. We're also looking at reviewing private, that is another source of funding, primarily with pension funds.

Another source that we are going to start initiating discussions with is the sovereign well funds primarily for debt financing. We're going to review that market also. Right now UTS believes that the $1.8 billion will be financed into that market primarily based on positive discussions we've had with the banking community.

Slide 18 shows UTS's debt capacity increasing with successful delineation. For the Fort Hills Project, UTS is targeting for the first half of 2009 to execute debt financing. This date is linked to the Fort Hills Project Sanction and the independent contingent resource estimates to be completed by year end 2008 for the Frontier Project. Upon completion, this resource report and sanction, UTS will retain ratings from Standard & Poor's and Moody's, more resource barrels will enhance UTS's borrowing base, provide flexibility and a better credit rating.

Now I'd like to turn over the discussion back to Will Roach.

Thanks Wayne. I would like to point you to slide 19, to look at the year ahead. One of the most frequently heard comments I hear back from the market as such, is that there is a dearth of milestones coming up for UTS. I would fundamentally disagree with that.

I think we have a pretty busy year ahead, and the way I see it is, if we get to sanction by the year end, we'll have a transformational year in terms of what the balance sheet looks like. We'll be able to book resources on Fort Hills, pretty substantial amount, we're also -- I'm sorry, book reserves, I apologize on Fort Hills. We'll be able to also get a contingent resource on the Frontier Project, that will be a pretty substantial number and also a discovered resource to the northern part of the Frontier drilling program that hopefully next year will prove up with our drilling program into a contingent resource.

The other side of thinks, we're going to get a pretty good idea of the options for Equinox, we're also going to get an idea of the costs. And one of the things we didn't dwell on, there's a whole range of different options that can be developed at Equinox, and the whole idea of showing you this slide, where all those mines around there, is there is a number of opportunities for tie backs or integration or satellite developments, as well as stand alone site. I think you need to watch that space quite carefully because it will lower the capital intensity required if we get that right.

In addition to that, Daryl's team is pretty busy looking at all of the seismic we shot this year, and trying to integrate the in situ drilling results. So we should, by the fourth quarter, have a good idea of what we've got over there, and what we wish to drill or do with that acreage. It's a pretty substantial piece of acreage, it's about 111 sections.

So I think it's a pretty busy year, pretty exciting and a lot of catalysts which I think could be very positive.

Moving on to the summary, on slide 20. I pretty well covered most of the things here. I guess the main thing is, I think UTS is pretty well positioned now to go forward into the financing.

My intuition is that we will get the sanction decision, then we'll get a debt rating and then we'll do the financing, so I would expect the financing to be at some stage in the first half, as Wayne indicated, of 2009. That will also allow us to get the most leverage out of the other assets.

I think though going forward, if I have to summarize it all, it's going to come down to financing, execution and environmental performance, and you've heard Martin talking about some of the initiatives that we're taking there for the other acreage. So, with that I'd like to hand it back to Jina and say thank you very much.

Thank you Will. I would now like to open the floor for questions and answer session, and ask the operator to come back on with further instructions.

Thank you Ms. Abells Morissette.

(OPERATOR INSTRUCTIONS). One moment please for your first question. Your first question comes from Mark Friesen with T.D. New Crest. Please go ahead.

Hi. Good morning. I have some questions on the environmental front. Are those efforts that you share with your partners and how much roughly have you been spending on the environmental studies?

Good morning, Mark. Yes, that's work that is being funded 50/50 in the Tech, UTS joint venture. We're operating that right now and then Tech is actually just starting to look at staffing after take over operatorship once we go into a more defined project phase.

The amount of money that we've put into the environmental work right now, I think Martin, is about a couple of million dollars this year?

Right, in that order, yes.

And we fully expect that number to grow next year, Mark.

Okay. Martin, you mentioned very briefly, looking at using asphalt teams as a potential source of energy and not using natural gas. Wouldn't that have an increased impact on potential CO2 emissions, so I'm assuming there would be a gasifier and a sequestration involved with something like that.

Yes, you're absolutely right, Mark. It certainly would increase CO2 emissions by probably, would double them in fact, relative to natural gas. So yes, it's inherently associated with carbon capture and storage.

One of the ideas here is, we're actually going to find out what the cost would be to both substitute natural gas and reduce our exposure to natural gas costs, and then on the plus side, the extra capital required to be able to sequester that additional CO2. So hopefully we're going to try and establish where that balance tips in one or other direction.

Okay, interesting. And one final question for me, any update on the leases located to the northeast of Fort Hills, the leases that were added into the Fort Hills partnership, any clarification on the potential or ability to use those for tailings ponds or overburdened storage?

Well, I can confirm, as Daryl talked about, that they've been completely drilled off now. So that drilling has been done and I believe there's been a marginal discovery of hydrocarbons or minable resource on the extreme west of that, and the results in drilling on the majority of it is, as we anticipated, relatively negative in terms of hydrocarbon potential, thus it will be available in the future for use as a tailings area. That would be subject to a subsequent application to the government for later development of the second phase, and that is not part of the original approval Mark, so that would be -- I would imagine something would be happening in the 2010, 2011 time frame in the regulatory process.

Great. Thank you very much.

Your next question comes from Richard Wyman with Canaccord Adams. Please go ahead.

Good morning, everyone. I have a few questions for you. First of all, when you mentioned that with Project Sanctioning you'll get some reserve bookings, could you give us some idea of what the magnitude of that reserve booking might be?

Well, I will start that. There is the optimistic view and then there's the Will Roach view. The Will Roach view is we'll certainly be able to book 30 years of our share of production, in terms of SCO barrels, which I think will be around 300 million barrels of reserve.

There is a possibility we may be able to book substantially more than that. Daryl, do you want to answer that?

Yes. If we end up booking reserves, there would be some in the probable and some in the proven category, it would probably end up being roughly 80% of, something in the order of 3 to 3.2 billion barrels, so we'd be probably looking at something in the overall total of something like 600 million barrels, and then that would be for the full life of the mine.

But there are a few hoops that we have to go through between now and the end of the year, and Will has mentioned those, so we will be -- there is a few things left to go but if all goes well, the conversion into reserves would probably -- we'd probably would be looking at approximately 80% of the current number being converted into reserves. And then that will be broken down into both probable and proven, if everything goes ahead as planned.

And I will add a sense of caution to that. The number I'm advising our Board of Directors is, around the 300 mark and if it comes in the way Daryl has described we will be very pleased.

And it's up to the reserve auditor to make that decision?

I think it's up to a number of factors. It's up to the sanction of the project, which is the most critical one. We have to have sanction by year end. That would be a big determinant, and then in addition to that it depends on the approach the operator takes with the independent resource evaluator. And obviously that is a matter of discussion that is going to be ongoing between now and the year end.

The least optimistic case is the one I started with, which is the 30 years production at 30,000 barrels a day net to us. Which is where you get the 300 number. I fully expect it to be potentially better than that but I've learned that managing expectations is a very important aspect of my job.

And is the reserve auditor Brool or is it G.L.J. or is it the operators--.

Brool.

Brool.

Yes, they had a reserve order to Petro-Canada as elected to use for the Fort Hills partnership.

Okay, and then shifting gears here a bit. The $700 million of long lead time items, what kind of stuff is that.

I'm going to hand that to Martin and Howard.

I can start off on the mining side. We've placed initial orders for some of the longer lead time pieces of major mining equipment, and also some of the process vessels for the north site, and I think I'll let Martin comment on the upgrader site.

Yes, with respect to the upgrader, that would include coke drums, major reactor vessels, major distillation columns and I think even some of the major electrical equipment.

And the main pump.

And the pump.

Sorry what was the last one?

Pumps.

Pumps and compressors as well.

So if for some curious reason, the sanctioning is not granted, is there any kind of penalty paid to these long lead time items to delay or cancel?

Martin?

Yes. There would be some cancellation charges associated with those. I couldn't put an exact figure on that. It's probably less than $200 million.

I think on the mining equipment side, with the market for mining equipment, there would be no -- you would probably make money, no real concerns about placing that equipment.

But Richard, just to reassure you, I'm pretty sure that the partnership, having made these commitments, is fairly intent on proceeding. And I understand your question. In the event there is a sanctioning hiccup, I would imagine it would be a small delay as opposed to a cancellation.

Okay, and then turning to this Equinox Project for a moment, being surrounded by shell and having a relatively modest acreage position and looking at how all of these environmental pressures are building in the oil sands business, is there not even a regulatory push to try and combine projects to minimize your footprint?

I think the reason we've shown you slide 9, is to give you an indication there is a number of options that you can look at for Equinox. And let's be -- let me first tell you, that the area of the Equinox lease or lease 14, is the same area as Manhattan island, and about a third of it is mineable.

So this is a pretty substantial mine, it's just, you get the scale out of whack here because you're looking at oil sands. So mining this is a pretty viable option we believe as a satellite. And that was the other reason of showing this.

Now the regulatory process we're just right at the front end of, as is Shell on Pierre River, and there is obviously some synergies between the two projects, as there is interestingly between CNR Horizon and, because it's a continuous deposit, going into our lands from there, as is into the Frontier Project.

And what we're trying to show here is there is a continuous trend on the west side of the river of hydrocarbon resources that we found a substantial piece of, and on the map it looks like a small lease, this asset, 400 million barrels plus or minus, can easily be tied back either to the north, to the Frontier Project, potentially to the south if there was partnership agreement, or integrated into the Pierre River or some other arrangements. So what we're trying to get over here, it's a pretty strategic asset. The commentary about the reduction of duplication of facilities, absolutely I'm sure the government will look at that in that regulatory process, and indeed we've already started discussions with Shell on cooperation.

And then lastly, on the drilling that you've done to begin the process of evaluating the in situ opportunities, are those seven wells, were they drilled into some kind of a geological anomaly or are they purely reconnaissance to calibrate your seismic.

I'm going to hand that to Daryl and then say something.

Yes, it is more of on a reconnaissance level, Richard. We had access to a bit of seismic data that we had shot previously in the area, but really it was more on a reconnaissance level and then we've coordinated our wells with the seismic that we shot, so that we would have the ties to the wells for the seismic, and that was the main reason for doing it that way.

And there was some regional work that we've done obviously, and we drilled those wells on regional trends. But it was a combination of regional trends and tieing in with the seismic that we were shooting.

Okay.

So what you're hearing there is that, a pretty big exercise integrating that seismic with those well results. And from my simplistic view, is we've proven the hydrocarbon system pretty extensively, continues underneath the Birch Mountains. That's the first thing we've achieved with those six wells, as I believe they were hydrocarbon exceptional wells. So that is great. One of the wells looked quite interesting and so we're pretty encouraged by the analysis of that over the next year.

Great. Thanks.

(OPERATOR INSTRUCTIONS). Your next question comes from Robert Plexman with CIBC World Markets. Please go ahead.

Good morning. You gave us a range of, for the reserves, proven and probable Will, I guess 3 to 600 million barrels, just wondering, would the volume of resource reclassified into the proved category, would that have any impact on your availability of credit?

Robert, good morning. Yes, I hope so. And that's why I was trying to temper that answer.

Obviously if we could get a reserve of 600 million barrels, then I think it increases our debt capacity pretty substantially. But you know, I think what will help us more is if we get a contingent resource on the Frontier Project linked with the Equinox Project, in excess of the values we have in Fort Hills. That will really help us. Because what we're trying to get over by that map again, going back to it, is that we're in the heartland of mining here and we think we've found one of the last mining resources around. A lot of big players who are getting after these developments.

So these assets are both valuable in the ground but strategically valuable is the point, and I think Wayne is going to do a pretty good job of getting that across to the debt market. Do you want anything to that Wayne?

Well I think you're right, Will. The reserves are worth more than resource barrels for sure, but they're both worth something I think that a contingent resource for mining is certainly valuable.

If you turn it into reserves then it's even more valuable and will help your borrowing base for sure.

And I think, Robert, the other point that Daryl mentioned when he went through this, the arrival of infrastructure for Fort Hills that we will hopefully have access to in the UTS-Teck joint venture, will also increase the value of these barrels. And also other developments of the Pierre River and other assets around there will make it easier for us to, we believe, proceed in a cooperative fashion with the other operators.

Okay, thanks. If I could ask one more quick one. Martin, you talked about a carbon neutral mine. By that, do you mean like no net CO2 emissions.

I think that would be the ultimate objective Robert. I don't think that we would seriously state that we could achieve that objective completely but that's kind of an ideal situation.

It's really -- to some extent this is a theoretical study to see what it would take to achieve that, and the economics of that would obviously be quite challenging, so we're trying to understand some of the technologies associated with that and we'll see which ones we can actually use in practice.

So you think of this as conceptual, I realize, but do you think you could get to the point where you could be producing without having to incur an offset cost.

I think theoretically, yes, almost.

Let me try that -- the answer on that, Rob. In the extreme right hand side is -- you do business as it is done today, and you emit CO2 and you will then in whatever date pick up some fees that you have to pay.

The alternative is to work out today what it would cost to capture all of that CO2 or pretty well as much as you can. There's going to be a cost associated with that per barrel in the ground. We want to find out what that is. Because once you know that and then you balance it off against the CO2 cost you will have because of taxes or impositions, plus the savings you potentially make by not buying natural gas, at some stage that makes a sensible economic proposition.

We also think environmentally there is going to be pressures driving you towards that. So it seems to us like a pretty good piece of work to find out where those costs sit and how much it really would cost. We've got no feel for that right now.

Okay. That helps. Thanks.

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

Good morning, guys. Had kind of a further question to Robert's. So, do you have a sense for how much debt the reserves or resources add at the Equinox and Frontier mines could actually support, as you talk to the folks in the debt market? Would they give you $0.10 a barrel for that, $0.15 a barrel? Something like that?

Too generous.

I'm going to have a go at that and give you to Wayne. One of the things we're trying to do is find that out. We've had initial indications. But they move around with transactions in the market.

Let me cover off one which is at the back of your mind, the Synenco transaction. I would strongly recommend you do not compare the assets on the west of the river, and that's the other reason we put that chart in with the Synenco assets. We felt the Synenco assets were not large enough to be a stand alone development, and I think the acquisition by Totale has shown that. I suspect that asset will turn into a satellite development rather like the north Aurora with the Syncrote asset back to Mildred lake.

So the resources we think we have in Frontier and Equinox are at least twice the resource volume that Synenco we believe had. So there is the first point. So the valuation of these assets we think will be fundamentally different to the Northern light's assets.

Now I'll let Wayne tell you a little bit about his discussions with some of the banks.

Well, because the important part in all of this is to get the contingent resource number from an independent engineering firm, that's the first step so that we can put a number on it, not a wide range but a good number. And from that, we're certainly in a better position to do borrowing then if we just add the Fort Hills Project.

When you look at the other ones, other companies prior to us, Western and others, they just had one project but we have several projects and what that does for us, it provides a tremendous amount of flexibility. If we desire to, when we're financing, we can pledge units in the partnership, we can pledge other resource barrels, so it gives us a much broader borrowing base and a lot more flexibility going forward.

To answer the question of where -- how much they're going to give for that, we haven't got to that stage. There would be various ranges, but I guess the proof will be when we finally execute the final number. But it's definitely beneficial to us, and our goal is not to -- we do not want to sell those barrels because we think they're valuable. We think we can use those barrels to get a stronger borrowing base and more flexibility. That's what we're trying to do.

If I can add something there. The way I'm trying to explain this is, that I've been frustrated that we've made some really substantial discoveries and the market really hasn't given us too much value for them, and I think the main reason for that is, how the hell are you going to finance and what are they really worth in the ground and the time value of money and these are long term away projects.

What we're trying to get over is that there aren't too many of these assets being discovered. These assets are closely integrated with existing mine plans and opportunities, whereby there is going to be infrastructure around. And once Fort Hills goes ahead, we think the capital intensity required for us to get these into development will be substantially less than perhaps it would be if they were green fill sites on their own.

But I'm optimistic that the value of these assets will gradually, hopefully more quickly than slowly, get worked into the UTS stock price. That really is part of what we're trying to achieve here. And if it doesn't, then I think the asset value will become clear in the short-term.

That's great. Will, could I actually see if I could get you to take a stab at looking at your assets, what sort of broad valuation range do you think the market is at currently? I mean there's been a lot of moving parts with all of the regulatory changes and then oil prices doubling, probably the bottom end of the range would be Synenco it certainly would be safe to say, but do you have a more finite range than that to help us.

Yes. We transacted half of lease fall in with Teck for $1 a barrel about a year ago. That's one, we transacted Fort Hills with a partnership for further in for around $1.80 a barrel. The partnership obviously pretty enthusiastic about that asset. We think as these migrate towards production, those values will go up.

So actually, we're not in any rush to do any transactions on these. We're just trying to explain to the market that these barrels are valuable. I don't think you'll see UTS selling any barrels for $0.35, which is sort of what I was telling you, and the good thing is we do not need to do any transactions.

And the Chairman, Dennis Sharp, frequently points out to me is that his fundamental belief, which I think I'm a subscriber to, is that it's going to be easier over the next 18 months to find dollars than it is to find barrels in the magnitude and strategic locations that we've just done. So, I think this is a bit of a challenge for Wayne. We want to get the highest value and the most economic debt financing that we can, and we want to keep as many barrels as we can because we think that will serve our shareholders the best. So, I'm avoiding your question, I'm giving you some data points, but I certainly don't think we'd be tempted to transact at the Synenco value, and I think we would always be looking for a higher number than we did on lease 14.

That's great. Thanks, Will.

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

Ladies and gentlemen, if there are no further questions, this concludes our conference call for today. Thank you for participating. Please disconnect your line.