Teck Resources Ltd (TECK) 2009 Q3 法說會逐字稿

Good morning Ladies and Gentlemen. welcome to the UTS Energy Third 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 and predevelopment stage oil stands mining and extraction enterprise that could materially effect 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 Monday, November 16, 2009, at 7:00 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 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 Lutlely, Vice President Mining and Extraction, Martin Sandell, Vice President Engineering, and Daryl Wightman, Vice President Resource Development and Business Strategy. I will now turn the call over to Will.

Thanks Jina. We have our presentation on the website that I'm going to try and talk to, so I hope everyone has got access to that. I think it has just been posted. And, I will just reiterate those three forward looking statements, slides at the beginning. So I'm going to start my comments on slide number five, titled UTS Highlights One. Pretty clearly the biggest highlight is the completion of the Petro-Can, Suncor merger Now I've got the preeminent operator in oil sands running the Fort Hills project. And, as we expected, the announcement was made on Friday by Suncor that they are going to take a little while to sort out the best way forward with their development projects. It was pretty clear to us that they were to continue the projects that they've already invested heavily in, and were half done or significant amounts of money were already put into them such as the (inaudible) project. So this comes as no surprise and actually we are quite constructively looking at this development . We think it will take about a year to sort out the best way to develop Fort Hills.

And, it shows really that it is quite complicated and large opportunities and synergies with the Suncor infrastructure. So we're looking to participate in that process fully through the coming year. Moving on to two of our other projects, Frontier and Equinox, they are both in the regulatory development stage and the main message here is we're continuing with our joint venture partner, Teck, looking at these projects and developing them through the regulatory process, thereby, we think, significantly increasing their value and moving them towards an eventual development Moving on to slide number six. Lease 421 area we have just announced a pending sale of that asset. It was very attractive to us to take that move and I'll explain a little later on of what that does for our financing. Wayne will talk a little bit about it, so will I.

But in reality delivering $250 million from an asset which we spent about $15 million on in a period of two years, demonstrates the success of our strategy of growing significant value out of the expiration portfolio and lots of kudos to Daryl Wightman whose team on that. And the idea I want to leave you with is that we can repeat that process and we've been doing this for five or six years now. And there will be a slide at the end, hopefully, that will explain that. Another pretty quiet thing that we've been getting on with quite diligently over the last two or three years, and this is something in Howard and Martin's area and Chris Laing working on pretty substantially which is the pilot plant to develop our own technology for the high temperature paraffinic froth treatment. Now that's a mouth full but what that boils down to is that we now have the technology that we can deploy in our joint projects with Teck that allows us to be a long (inaudible) exporter to get into the lines with (inaudible) which is extremely important.

I guess that I can't finish -- and this really is the last time I'm going to refer to this in public -- the sale of 421 really marked the end of a very challenging year which was commenced by the total bid for UTS. I think that now we've moved forward, and we are well financed, got a great partner and a good suite of assets and I'm looking forward to a successful next couple of years. Moving on to slide seven , this just shows you the lands that we currently enjoy owning-- ownership. The three major projects and the key bit here still, even after the disposition of lease 421 we still, interestingly, have a lot more barrels at site Fort Hills proven one a significant up side than we do in Fort Hills.

I'm not saying Fort Hills isn't an important asset. What I'm saying is I really want the shareholder to pay attention to the exploration success in delivering assets into the portfolio which can either then go into the development chain or create internal funding. That's one of the key messages that really I'm trying to get over today. Wayne, could you pick up now on some of the funding issues.

Thank you, Will. UTS is fully funded to the first quarter of 2014. Our net cash and equivalents, is $458 million including the proceeds of the sale of lease 421 area. In addition to that $695 million remaining earned in from Suncor and Teck as and when they spend the money on Fort Hills. UT is fully funded to the first quarter of 2014 , and that assumes two trains, with first production coming on full production in 2016, and followed by the second train in 2017. If it's a single train operation, then we would be even more strongly funded, and Will will touch on that later in another slide. We've got strengthening fundamentals. Oil prices are higher. Heavy oil differentials are running between 10 and 15%.

Lower costs, debt and capital markets are improving, and there's a shortage of heavy oil in the Gulf of Mexico. This makes our projects more valuable, because of the strengthening fundamentals. Slide number nine forecasts budget, Fort Hills project, $33 million. Our share is $2 million. This is a minimum budget. It could increase, depending on what evolves in 2010. Our other projects, primarily Frontier and Equinox, $22 million, G&A $13 million. Total outflow of $37 million.

Thanks, Wayne. One of the things I would like to say, the assumptions in this budget, the minimum Fort Hills budget, and I would like to point out that the fully funding relates to an assumption that the full first year production is 2016 single train for Fort Hills, so it probably would come on in the end of 2015, which we think probably now given the study period is probably the earliest it can come on. Most unusually, I'm going to take you to slide 10, and we're going to talk a little bit about Suncor.

I think it's pretty important because you just take some of the public statements they've made and also some of the summary out of the call last Friday, they are pretty clearly focused in Oil Sands Company with an integrated aspect. They're going increase Oil Sands back up to 65, 70% of the total revenue, and they're going to increase the in situ levels by completing the half done, half funded projects. So that's pretty obvious that would happen.

Also noted that they've said they have been an acquirer of Consolidated Oil Sands leases. It's not to say that we expect to be bought. All is to say is they are focused on Oil Sands and they're not looking to get rid of the Oil Sands assets they've got. That's the key point, and that's the key point for Fort Hills. They also, I believe, have commented that you could resource and they are going to have to look at over the next year. I take all of that as constructive and positive.

Going to slide 11, which by definition is wrong what we've tried to do is take the suite of projects we think Suncor has access to, pick up on the comment that George made that they are looking for 10 to 12% growth over the decade and show you that pretty clearly to achieve those without other acquisitions or dispositions in the Oil Sands, pretty clearly Fort Hills features strongly to be able to deliver that 4 to 5,000 barrels of growth over the decade. We also think that when you ally it to the natural declines that you're going to see in the conventional portfolio you see why this is absolutely key to the go forward strategy of Suncor, and, of course, UTS, which is why I'm putting it in. I'm not suggesting I've got the order correct here, and I'm not suggesting I've got any insight. What I am suggesting , in that decade Fort Hills is absolutely critical.

Now the other point I want to make is pretty clearly we brought in Petro Canada to the project because we wand to get the project done. Those agreements are written all around, development principals that have us commencing in 2011. Pretty clearly we've transferred the assets but haven't actually been paid for it yet. That's something that we'll obviously be discussing with Suncor over the piece and pretty clearly we feel with the remaining earning, we're, A very well funded, but B, we'd like to see Fort Hills come into the development program, perhaps earlier in the piece than later. That's the only messaging from a UT S perspective I wanted to use that slide for.

So coming back to our business now on slide 12, and this is the slide Wayne alluded to earlier, all we're trying to show is for a range of capital intensities, ranging from $5 billion to $10 billion we're pretty well funded. We have to raise in the worst case, or the largest case, around $900 million. That assumes that we dedicate the funds we have on hand that Wayne was talking about, largely to Fort Hills. And, I think, one of the messages we do have for Suncor and Teck is we're pretty well funded after 421, and we look forward to being able to progress Fort Hills as a strong partner Moving on to slide 13, a little bit of a time line, and Howard, would you like to take us through it. This is one of Howard's charts, which I think is very clear and shows where some value development is occurring in the rest of the portfolio.

Okay, thanks, Will If you take a look at slide 13 you can see along the top the Fort Hills activities, so we're basically recognizing that, as Will said, for the next 12 months, essentially this is going to be a study phase. So if you turn your attention to the bottom half of the slide where the projects are referred in to green, our focus with Teck is primarily going to be on the Frontier project. In the last few months, we're near completing a scoping study which will give us sort of a general guideline as to how this project could be developed in terms of the mine and the bitumen extraction facilities.

With that, Teck, as operator, is going to initiate a DBM, a design basis memorandum, or pre feasibility study, early in January of 2010. And with the completion of that study towards the end of the year we'll be ready, we'll have the information in place to prepare a regulatory application which right now looks like would be filed sometime in the first half of 2011. So what the message is out of this is that while we're actively engaged and participating in Fort Hills, we also have other major projects in the UTS Teck partnership to work on and further create value in those projects.

Back to you, Will. Thanks, Howard. On slide 14 what I've tried to do is synthesize the Company. First and foremost, Fort Hills, we're recognized for that, and secondly, as Howard was just talking the, the assets that we currently enjoy ownership on, but, of course, you can't forget the one that we've just sold for -- pending sale, I'm sorry, which will close fairly shortly, on lease 421 area, adding significant amount of financial capacity to the Company.

The other thing is we've been pretty busy over the time period with developing technology, the first one, the demonstration plant, not as successful as the second, but the key bit here is we're quite open minded and recognize that technology is going to play a pretty key part as we go forward in the Oil Sands game. The other thing is, you have to have some patience, as we've demonstrated at Fort Hills. I understand from the share holder's perspective that's not always very attractive, but these Oil Sands are long-term in nature, very high capital intensive, and you have to spend the right time to get the right technologies and the right strategy to develop them.

I think the other point is, I'd like to say that we're constantly looking for other opportunities that fit into this model The last chart really cuts to that. What we've tried to show in the last shot slide 15 is since 2004 when we bought the 100% interest or became 100% working interest owner of Fort Hills we've done a number of different transactions. Red is raising equity from the shareholders so interestingly that in time period we've raised around $450 million worth of equity. On our balance sheet right now we have slightly more than that. We've also bought some lands and found some oil sands. We've also farmed down and also sold some assets. So we've brought in, in that time period, around $1.4 billion of earning that's in green.

And interestingly, we've brought in $450 million of revenues from asset sales over that time period. We right now enjoy owning significantly more barrels than when we started. The message I'm trying to get over here is we think there's a great opportunity for companies that today are well funded to enjoy this sort of opportunity set again while we're getting on with the existing projects that we have in the portfolio. And that really is the end of my formal comments, Jina, thank you.

Thanks, Will. I would now like the open the floor for question and answer session and I'd ask the operator to come back on and explain how we will proceed.

(Operator Instructions) Your first question comes from the line of Martin Lapoint from TD Waterhouse. Your line is open.

With the 421 lease-sale to Imperial Oil, can you talk a little bit about possibly a partnership with them and on the Teck asset and if that might get you to first oil a little quicker? Thank you.

Well, on lease 421, assuming that that transaction closes, Martin, we're then in the a partner in the 421 area. So I think us being a partner with Teck and Imperial on that, those assets, is unlikely. In terms of getting first oil from the other assets before Fort Hills, I wouldn't really want to draw a comment on that other than I'm going to ask Howard to give us his sense of the earliest first oil date out of the other assets, which I think should give you a sense that -- where Fort Hills sits in relation to those.

I think if you look realistically now at the cycle time for taking projects into development, if we're able to get Frontier application in early 2011, typically approvals, regulatory approvals, are taking essential three years, so it would be early 2014 before we'd have a regulatory approval in place on that, , and then at least one year of detailed engineering before kicking off the construction cycle. So realistically, the very earliest Frontier could be constructed would be 2018, most likely the first year of full production, 2019, perhaps even 2020.

I think this is consistent with the messaging that we've been using with our stakeholders as essentially 10 years from now would be the earliest we could see production from those other assets. Just putting in that context with Fort Hills, the lease extension that was put in place just before the merger by Petro Canada on behalf of the partnership, leases out to 2019, that they have to be in productions. So I think what you're really asking, Martin, is the earliest production date is probably first full year of production, 2016, could be 15 if they got at it immediately, but I think in reality it's more like 16. So you're talk between 16 and 19, being on stream, of other range of options that we see. Clearly we would like to see it at the early earlier part of that range.

So you don't see any partnership of the other assets, not the 421 but the other UTS Teck assets as potentially partnering up with Imperial Oil?

Not as I speak today but we're always open to any business opportunities that come along, Martin.

Thank you, Will.

Your next question comes from the line of Mark Friesen from [Versant Partners]. Your line is open.

Just a question of, how long do your partners, namely Suncor and Teck, have to decide to proceed with Fort Hills before they would just incur the cost of paying you their commitments in cash?

Good morning, Mark. I don't really want to answer that question, because I don't want to get into this them and us fractus debate around the agreement. I would rather spend the next year working constructively within the partnership with a new operator, working out the best way to move forward for all of the partners.

Okay, thank you, Will.

(Operator Instructions) Your next question comes from the line of Richard Wyman from Canaccord Financial.

Good morning. I just have a question related to your slide 12 where you have a range of possible capital expenses depending on the number of trains. Is there any further update to the accuracy of that range? You've got a couple of circles in here in green and red and I'm just wondering if there's clarity on where those numbers actually you think are going to setting out.

I'm going to hand this to Martin, then I will add any comment I think is necessary.

Yes, good morning, Richard. These numbers, just to be clear, are numbers that UTS has developed internally that have not been provided to us by Suncor.

Currently the plan is to undertake studies of Fort Hills development options over the next six to 12 months, and there will be a review of potential synergies with existing Suncor operations, so we wouldn't expect an update on these numbers before certainly before the middle of next year.

Great. Is that all right, Richard?

Yes

I think the key message, I'm going add one comment, is that we're really pretty well funded now for what we think is most likely, which is sort of single train 80 to 100,000 barrels a day, first phase Fort Hills, and I think we're trying to get over the share holder there was really one of the drivers for the disposition of 421, because the market really wasn't giving us any recognition of any value whatsoever into that asset.

All right, thanks.

(Operator Instructions) There are no further questions at this time.

Thank you, operator. Ladies and gentlemen, this concludes the conference call for today. This call will be posted our website, www.uts.ca. Thank you for participating. You may now disconnect your lines.