Wed, 3 Dec 2008|
Good morning. Thank you very much for allowing me to visit -- -- and that you don't throw it. And joining me is Kelly Whitley who are -- are investor relations activities and with her -- -- That's who set up -- really challenging questions for a -- and Julian are breakout session computer will be ready for it. As much you know we're upstream energy company focused on profitable growth were simple company relatively unique in that we have one core asset. That's a long life gas opportunity in the -- dale -- a complex. In southwest Wyoming where were in the early stages of development of -- world class legacy asset. -- this keen focus that allows us to generate consistent sustainable industry leading growth as -- as financial performance. We pride ourselves on our conservative financial profile. And delivery of some of the best growth and financial returns in the union peace after. I'd like to -- discussion this morning by taking a deeper look into what differentiates all for a -- with focused on our performance and where we see ourselves going forward. First we're fortunate to have the largest position in a wonderful asset. And this combined with the management team is focused on maintaining our low cost structure has allowed us to consistently -- -- -- after our financial performance over the last several years. With a one measures that in terms of -- -- cost margins were eternal capital return on equity. Second we have over 5300 long life and I emphasize third party. They're gonna -- natural gas wells and our inventory. That we expect this in the port to grow again this year -- over 24 year. Set of very low risk reinvestment opportunities all at very high rates of return. We continue to do a tremendous -- says the success more around 100% over the past seven years. Again highlighting the relatively low risk. Offers asset base so we have when -- places to confidently reinvest their cash -- we move forward. That we believe offers the industry's most consistent and best cost structure. And by that I mean lowest cost structure we could double RG and -- costs and still registers the lowest unit cost you know prices in the industry. In terms of -- -- as well as -- -- -- we've led the industry the last several years this internally to some of the industry's strongest margins. We're doing the benefits of expanding pipeline capacity. -- some. Some 200 million a day of our gas is no longer priced in Wyoming rather moving buyout firm capacity on Iraqis express pipeline to the midwest and ultimately the northeast. Outside of the Rockies pricing environment and we're no longer simply Iraqis price -- We believe that alters consistently led the industry in reserve and production growth over the last five years. And 2007 the drill bit along that we -- production by 32%. And proved reserves by 25%. All organically. Replacing over 600% of our production. No acquisitions. No dilution of our shareholders. In fact while buying back -- stopped. In terms of return we have a slide outlining our economics for average well in Wyoming and one we'll see their returns are exceptional. -- six dollar natural gas prices and or you're an average reserves -- well posture. Over 60%. We believe we're fortunate to be in a very early stage development of -- world class legacy asset. The -- Dylan -- -- continue to rank within that can hop fields. Gas fields in terms of resource potential of the United States. We're the only player to have a position in both fields with the largest player in -- dale and -- the third largest player in -- Less than 10% of the unified field is in the proved producing or cash flow and earnings generating category. So we have over 90% of our growth ahead of us. Let's take a look at our overall reserve position. I'm looking at reserve growth in detail because it drives net asset value which -- lot. Perhaps not today. Is generally a primary determinant -- -- -- We've got a good job of going proved reserves from just over TCF in 2003 the three keys and you're in 2000 so. Some point 9% compound annual growth for. So while under booking proved reserves. As most you may know we're very conserve we're very concerned and reserve booking. We do this by limiting the proved undeveloped portion of -- proved reserves category to only goes well locations we see ourselves developing over the next three years. What a flat capital investment assumption. In this case -- here in 2007. It was seven million a year for three years. Anything that would otherwise in the SEC proved reserve category but and purposely person with -- probable category. So we believe once you consider -- reserves in the larger sense. Not simply the proved reserve category. So let's translate this on -- per share basis. It was a four year proved reserve for sure compound annual growth chart put together -- Curtis was. One -- see -- through 2007 -- had a per share of her reserve growth rate of 28%. We outperform the media and by fourteen. -- -- the -- we haven't issued equity support growth we haven't polluted our shareholders were highly unusual. We've been going at very high rates -- the same time we've been buying my first thought. So let's look at our three. We believe we have some of the lowest risk reserve locations one -- -- We consider all of our reserves -- I'd like all within the fairway again we limit our proved reserves. As a result we can focus on -- the -- -- locations this resource for three. A year and three to ten point seven trillion cubic feet a year and those. Production growth falls from reserve growth. This is a slide of -- production growth over the last six years from 28 point nine BC FE to 200 point one point three BC FC in 2000 so. A 43%. Compound annual growth again I want to point out this -- was not predicated on acquisitions. -- all generated internally all organically but let's look at how we finance this growth compared to -- -- This UBS slide -- production -- -- debt adjusted per share basis across the sector over the last six years. -- during this period -- delivered growth in production for -- adjusted share. A 50%. Roughly twice. Our closest peer. The mean was 13%. So according to UBS we lead the sector -- or production growth per share. And clearly demonstrating the effect or internal financing combined -- share repurchase activity. -- -- next slide -- as we're working in the kind of young accomplice to him both these fields within topped him from the resource than you asked the -- bills in the top two or three. The first significant discovery here was -- in the early to mid ninety's in -- number one producer here Oprah's number three. The gas in place testament is thirteen point six trillion cubic feet in -- believes -- about a half keys of this can be recovered over time for recovery factor -- about 62%. If the pine -- field -- the Big Brother Jones. We've got the largest position here -- -- roughly three times the size of -- some ninety square miles contains about nine or producing wells. Currently making -- excesses of the same type stances Joan of the last -- -- -- -- low career ability tight low porosity. The deeper higher pressure very -- some 5000 feet. Ventricular nature it takes very large -- jobs -- proportionality in there. In the -- over gas in place estimates for -- -- that -- and 2007 by and analysts who -- some 53 trillion cubic feet. Number of analysts showed this gas and placed -- growing over the next couple years too rough. -- sixty -- Xia that we would concur. A key point here's an Ellis who was a bit more conservative of the reason we can recover about 58%. At the gas in place with 31 tree to tree this can point seven as net self. Let's take a look at or 2008 plan. As -- -- -- this year we've increased for capital budget twice to 945. Million because -- continue to improve efficiencies from marine fleet. We're growing our world faster for less money therefore we get more wells drilled. Lower per well average cost we're targeting roughly 300 can gross wells in Wyoming and Portland will draw 150 of these ourselves. This will put us in 2008 where we previously thought we'd be in 2009. We plan to draw number wells in the Marcellus and Pennsylvania working to clarify our understanding of -- there. In terms of production were -- estimate 14347. BC -- for 2008. For. Four point 52. Point 9% growth there. And we look to find this growth from cash flow what part in reserve replacement ratio over 4%. Looking at third quarter 2008 operating highlights. We have 35%. Year over year production increase we've continued to see -- dramatic improvement in efficiency during the year. -- -- 77%. Year over year increase in the number of wells drilled. In terms of time from respected TV we have between four days -- their best -- reaching TV on one well and fifteen days. Soar well caution continuing to decline as we bring their basic drove down pat wells are now averaging less than five point five million well. This compares to six point two million for full year just to thousands. Increasing the present value in the -- all -- all wheel wells. We've yet to account for some of the reductions we think -- about to be offered from the service sector do reduction in their overall life. Finally during the second quarter and average -- -- wealth for -- for had initial production rate of nine million it. At a slide continues to -- the improving efficiencies that I spoke to from our operations group we've gone from 61 days to drill well note six to 35 and two thousands. And now we're averaging point borders but the TV more importantly start to finish were running 32 days. -- what is your cost increasing from seven million on average in 2006 to what should read five point five million in the third quarter. Our least expensive -- and -- quarter was well under five million dollars. So we continuing -- improve our efficiency in terms of both time as well as cost. As a reminder here's a typical kind -- production well profile is driven by over pressured nature Reza warned of very large fraction that we use there. So wells coming -- very high rates the typical well has approximately seventy -- effort -- of reserves. Good size not water to be -- feel like often seen in other bases. Generally comes on about eight million a day -- declined rapidly over the first two years. -- will typically achieve pay out within two years. And then -- around your five and six it produces roughly six to 8% decline right for over forty to fifty years. We -- about 20% of estimated ultimate recovery in that first two years and then we've got 45 years. A free cash to either reinvested in the business were returned to shareholders. But translating -- an updated well economics at seven dollar long term gas and Wyoming and considering an average well cost of five point seven million while. Of the -- return here's 88%. Single well I think the cost less than a dollar can -- roughly year reserve life over forty years. -- let's look at this in the context of -- -- investment decisions and -- 2009 capital investment program. -- -- mix of hedges firm transportation where one can currently has gas prices in Wyoming. We can achieve roughly a six dollar gas price. For 2009 -- largely six and a half BCF for greater wells. Assuming a six dollar flat gas price -- -- about 60%. If were wrong and gas prices are weaker in Wyoming say five dollars flat. We generate roughly 50% return. Keep in mind that these numbers get no benefit to -- well costs we've been able to achieve very 2000 me. The key point here is the strong returns associated -- asset based differentiates us from our peers. We don't need high commodity prices generate substantial returns. And we have a high degree resilience in lower commodity price environment. We're not dealing with a marginal resources. Let's put this into perspective and look at growth of economics across various resource place. This is slide prepared by Credit Suisse has ranked break even economics but play breakeven defined by the -- -- 10% return. It's a bit dated -- cost increases purchases. They were confidence and Henry have gas prices basis -- transportation differentials worked there now. -- for a force -- for pine -- Our numbers are better in this look at arson minute. I wanna focus your attention on the 74760. Gas to make things work here. But consistent and what there's. Consistent with what there's they're seeing. What we're seeing there and -- reduced drilling activity in the nation's. In fact we're aware of operated just -- four million dollars to not take delivery of the new Bill -- And that they had destined for the lot. They rate the contractors currently will overtake is more than 20% last the workers comparable rate -- crisis back in June. The key point here is a -- was considers the lowest break even economics even with Rockies basis differentials. Or associated with a resource play in -- -- Again consistent with what we're seeing in -- market and outlining the advantage that we have -- to our low cost structure and the underlying nature of our legacy yes. -- reviewing our financial metrics the last three years plus the first nine months of 20081 can -- your cash flow margins most -- 76%. Net income margin 39%. -- tech companies that don't generate 39% net income -- Return on capital with 35% return on equity 48% we TV's returns over the last several years in the face of wide fluctuations in gas price. Ranging on average annual basis from 465 to 798 currency after the first. Again this performance primarily due to our low cost structure a wide margins are wide margins were largely to mitigate or commodity price risk. A -- focus your attention on three numbers here return on equity return on capital and net income breaking. Our average return on equity over this period was over 40%. We can afford to grow very high rates. And a sustainable way from internal cash flow without stressing -- -- In terms of capital we have roughly two billion dollars of net invested capital in our business this includes all acreage costs -- -- prior growing costs of sir. We have a very low level of capital investment. Can -- compared to our cash flow and earnings capability. As a result our eternal capital averaged over 36% during -- time period. Additionally our net income breakeven is less than two dollars and certainly -- frontier -- We can sustain positive earnings 27 -- -- and TSE. Very -- gas prices not the seven dollars required for some other companies. I don't believe there's another company in the sector that compares to us in terms of delivering financial results particularly in the sustainable fashion. In light of current capital market conditions let's look at our financial straight first we have three million -- term debt. Seventeen years bullet maturity average interest costs five point 76%. -- -- never -- your bank facility unsecured no formal -- based rather covenants governing north of that position. The most restrictive -- on the patient at just under two billion dollars. We set available in our senior bank facility 500. That's that's all -- one -- Sort liquidity in this 500 it is this 509 and availability. -- a 148 million outstanding. What 352 million dollars. Including our revolver weighted average cost of that's four point 7% no maturity in two point twelve that the -- Zero point five times roughly 66. Months cash flow. Very low level. The only reason we have this level that's literature -- purchase program. Over the past few years we've reports about fighters in the five million oval for stock this compares to our 440. -- I also want to point out that during the first nine months of 2008. Cash -- 666. Million. Well camp -- registered 680 million. Very balance. So the key point here is this in the current environment once these other companies working hard -- rituals which we've been for quite some time. Matching cash -- -- Reaching reasonable levels of that. This next slide. -- -- made about all in cost includes operating cost depletion interest taxes generic offers the lowest at 251. Compared to an average of 544. If one chooses to look at it would be -- to determine the -- this next like comparative can be crossed. Across the industry ultra registered 98 cents for 2007 compared to the dollar -- 2006 and a median and those seventh. But 257. But the sector. Let's nationalize one of my favorites prepared by Coleman it's a measure returns and growth put together -- once line. -- -- X axis is the three year production per -- compound annual growth measure on the Y axis is plotted to return measures cash return on cash invested. It's over the same three year period and it's very difficult for companies excel on both these fronts saying. Over this time frame -- registered 36% cash for colonel cash invested -- in terms of production per share growth 43%. So we're literally off the chart. Even -- productions and Iraqis. We're one of the few companies have achieved outstanding multi year production growth combined with financial return. Let's talk about our drilling inventory -- to keep limiting our reinvestment risk that I spoke to and provide for sustainability -- our production growth financial firms. Does the growth and under -- locations or inventory over the last five years from three or sixty wells and three to roughly 5300 locations in 2007. Our location for all mapped -- unified engineered and determined economic. My third party engineering firm knows who always reserves above -- to -- -- -- The key point here is that we keep adding to our low risk high return growing inventory and we at some point four years of these projects ahead of us. We believe we'll have over 5300. Locations and -- inventory at year end 2008 even after drilling 300 -- -- here. Again this goes to the point of sustainable growth. At this point resource of kind of keeps growing -- yes -- can keep on giving. It's like this is in perspective and a bit of a different way comes right off knows who historical reserve report read barker estimates of original gas in place. What you see other measured resources grown from 36 trillion cubic feet 53 trillion cubic feet of over the measure time -- -- what's more important goal for the blue bubble bars that's that portion of the gasses going to be recovered -- fell for a in fact if -- 2003 Q teaser roughly 5% original gas in place would make its -- shareholders. But grew the year 2007 over point percent of the gas in place. Would make its way for to -- shareholders -- ten point seven cubic ten point seven trillion cubic feet if you read these. -- original gas in place goes -- and as we make improvements that are growing completion techniques. And had the benefits of technology working for for the next spectators. The one -- -- resource base continues to -- Q how we are -- ten point seventies to the fourteen team -- target that we. Established for ourselves who primarily through these initiatives -- -- nation growing low quality. And normally pressured a -- intervals. And we see ourselves going -- at the resource plays are roughly 3.3 keys to these initiatives over the next are we years. First to take a quick quicker delineation work this is a simple slide -- to -- the target areas that for delineation. The larger proportion area outlines where those who was -- the original gas in place -- of -- It provides review whether expirations. That -- its gas from Iraq. That would in this area want to see the -- reserve contours. Green area there. Or the estimated Altman recoveries at the reservoir engineers can be here believe can be achieved. There -- -- reds were groups extremely conservatively estimate load each and every year. -- all -- news over the next several years draw another roughly eighty to ninety delineation wells largely between the purple line there. We're right fallacious -- we have gas and a reserve conquerors with a reserve engineers say war or give us credit for reserves. So we even think they're expirations are very conservative and we'll -- a few outside -- -- that. It's that simple. -- have one look to 2007 results we completed thirteen delineation wells are three. In 2008 we've increased the number wealth of 32 and so far this year we drove nineteen delineation wells. That's sixteen and these are completed looking at the results were saying over 40% increase in -- for these wells. Compared to is that pre -- knows who instruments. So delineation -- well underway we're having good success in expanding the field and in both reserved. And more wells. That's very and -- at very high returns and even modest gas prices. And the second effort we have underway as low quality pay we began a look at other potential -- -- -- -- subvert section sometime back. The production history today from those intervals that we've completed is consistent with the alliance and completions. Sort appears we've opened up separate sand lenses lenses that are too far away from the world war -- -- for -- people want to see. At this effort to meaningfully add to our production and reserves are simply the incremental cost of extra front pages so foremost -- work's been concentrated -- -- work on an area. We believe this effort latter point 2.3 -- -- people well. And all future wells in the field -- we're gonna continue with more extensive work this year. To lower reserve cut off points and -- any additional gas inflation recoverable reserves. No we have are normally pressured itself whole book and copy over pressure foundry really -- alliance. We now have over a hundred impressions in the field where we've completed in this normally pressure one and another point to be -- while. We believe this is available to us in all wells in the field existing and future. So when one sums up these three activities want to see -- reasonably we can move from it for ten point 72 -- target for king PC. So where -- we see ourselves headed in terms of future production growth. Or one of very few companies will provide this level of transparency. And all organic -- for the drove. -- as we continue to execute to -- some 33% compound annual growth rate over seven -- eight year period. Again we expect this to be funded from cash. Again in the concept -- consistent sustainable growth. The pipelines are meaningful aspect of our business let's talk a lot take -- capacity from Iraqis. In January 2008 there were some six point six speech yesterday -- -- capacity of Iraqis. Rockies. Express west was placed in the service during the course of 2008. There's only been one month this year where Rex -- was transporting this capacity of one point five -- yesterday. Additionally there been maintenance issues on -- as well as other pipelines that -- in GPL. So one word on the street is the Rockies pipes are full that's not the full and complete story. Now the second phase of Rex Rex east is to be completed in June adding another 300 million -- -- capacity and Ohio and by the end of 2009 at the Pennsylvania. -- the ultimate objective is to sell gas all the way into the northeast. The following -- -- the bison project which takes gas some Iraqis from the powder in the trans Canada. In the -- projects later take Rockies gas to the West Coast with a large ship for PG and he just received California public utility commission approval. For 375 million -- that it. With El Paso having -- pipe there in this pipeline looks like it will happen. And and we have to -- related expansions and when he can and when he eleven at 400 million today. Selling all its incremental capacity available rocky shippers fine like when he 113 years from now ten point four -- -- today. Compared to six point six -- yesterday. 57% increase -- take -- capacity Iraqis do mystery. On top of -- -- several additional pipes which are working on project into the midwest and Chicago which could amount to an additional one point six speech yesterday. With a legacy asset like kinda help will be -- for the next point eight point five years. With production for an additional forty to 45 -- for fifty years. All this pipeline capacity very significant for us. Well -- slide addresses value what you valuation metrics of -- reserve bases here in 2007. That's six dollar gas -- and her millions not denying her during the running now assuming average well costs of six point two million. And not the five point five million rain today or -- Candace can doing. Seven dollar long term gas prices are PD in -- twelve. But keep in mind this also gives no benefit to the development and delineation work -- -- done this year nor the creation. Of our substantial -- -- yours. Focusing on captive reserves are wanna give your sense for where we are now where we're going red slice here two point nine teach yet he has proved reserves -- here in 2007. Some nineteen -- -- -- per share. The blue slice of the large slice lowers upside seven point eight PC -- -- -- engineered -- school now for some 15 AM CST for sheer. And then we have growth of at least the 3.3 TC FB. And the Joan of -- dealers that we've spoken to. This amounts to another some 21 in CI -- per share. We've seen word or creation activity together would improve cut offs of social equality papering this number in the focus. For total -- potential of some fourteen PC FC or ninety NTSB per share. That's well over two billion barrels of oil equivalent. In one field in southwest Wyoming that -- for. So in summary we continue to be in the very early stages developing a world class legacy asset one that -- phone unit. I would over 5300 along like -- locations according to a 24 year inventory it all -- very attractive right to return. We continue to see ourselves leading the industry was organic sustainable growth. Combine this with a management team that's established the lowest cost operator in the industry was significant financial strength. We expect to continue to deliver strong -- terms. Reserve base continues to expand we continued to improve our efficiencies and driver will cost down. With a record a decision now we're poised to begin growing completion work your round further improving our efficiency. We believe war ideally positioned -- we consider the 2008 will be our best year yet. Thank you very much.