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Executives

Stewart Yee - Vice President of Investor Relations

Nigel Lovett - President and Chief Executive Officer

John Gilboux - Vice President of Exploration

Steve Thornton - Vice President of Operations

Analysts

Owen Cheevers - Source Capital Group

Peter Schultz - Schultz and Company

Toreador Resources Corp (TRGL) Q3 2008 Conference Call November 7, 2008 11:00 AM ET

Operator

Good morning, ladies and gentlemen and thank you for standing by. Welcome to the Toreador Resources Third Quarter Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. [Operator Instructions]. This conference is being recorded today, Friday, November 7, 2008.

I would now like to turn the conference over to Stewart Yee, Vice President of Investor Relations. Please go ahead, sir.

Stewart Yee - Vice President of Investor Relations

Thank you, operator, and welcome everyone to the Toreador Resources third quarter 2008 earnings and operations update. My name is Stewart Yee, and the I’m Vice President of Investor Relations. Joining me today are Nigel Lovett, President and Chief Executive Officer, Vice President of Exploration, John Gilboux and Vice President of Operations, Steve Thornton. Also present in the room is Charles Campise, Senior Vice President of Finance and Accounting and Chief Accounting Officer.

We have a few prepared remarks, and then we will open the phone lines for questions. Before we continue, I would like to remind everyone that this call is being recorded and that today’s call may include forward-looking statements that are subject to Safe Harbor provisions. I would also like to remind everyone that there are important risk factors which can be found in our filings with the Securities and Exchange Commission that may cause results to be materially different from any forward-looking statements in this call.

I will now turn over the call to Nigel Lovett, President and CEO. Nigel?

Nigel Lovett - President and Chief Executive Officer

Thank you, good morning everybody. Given what our company has gone through and the new course we are now on those of you who know us will be focused I’m sure on the same two or three issues that we are. Those are the status of the closing of the sale of the majority of Black Sea gas play to Petrol Ofisi and the levels of our cash and cash flow.

The Petrol Ofisi sale is on course but it has taken longer than either we or Petrol Ofisi had hoped due to the very lengthy bureaucratic process it has had to go through even though we have been working closely with Petrol Ofisi to move the approvals process along.

Just today the Turkish Petroleum Authority cleared the assignment of our working interest to Petrol Ofisi. The Authority’s General Committee normally meets every month but missed their October meeting. So, we effectively lost a month in the process. That clearance now requires the Minister of Energies confirmation. The Minister will get the paperwork next week and then has 20 days to confirm or deny the assignment. We should receive our funds approximately a week after a confirmation. We therefore now expect to close around the end of this month.

I do need to caution you that there is always a change that this sale will not close although we do not see that happening right now. As I have said the Petroleum Authority process is now complete and the sale at least by next week will be in the hands of Minister of Energy who has been lobbied for his support both by Petrol Ofisi and by ourselves. I would also point out that since we negotiated this transaction in July four months ago, the exploration potential of the Black Sea remains in place. Oil service industry costs are likely to be trending down but Turkish gas prices have gone up about 25% to their current level of about $13.57 per Mcf out the well head.

In summary, our view is that the fat lady has not yet sung but she is approaching the microphone. While for my part I’m just hoping that the electricity is on.

As for cash and cash flow you will have seen that our third quarter EBIT tax was $13 million, giving us $27 million in EBIT tax so far this year. Our quarter end cash position was $24 million and that is after we had brought back $5.5 million worth of our convertible notes in the quarter.

Our third quarter was the seventh consecutive quarter of higher EBIT tax but before we get to concede it we should warn you that that record is unsustainable in an environment where oil prices has fallen more than 50% in just a few months. However, we can continue to meet our mandatory capital expenditure obligations at close to current price levels.

Since many of you are focused on G&A, let me comment now on that. Luckily we had already made many of the cuts that today’s environment now mandates. But, we are doing and will be doing more. Our 2009 budget shows G&A 31% lower than the 2007 level. Particular attention has been paid to the costs borne by our Dallas head office and those associated with being the public reporting company.

Our accounting and SEC related costs should be 64% lower in 2009 than in 2007 when we had restatement issues. Our Board related expenses should be down about 56% over the same period. Indeed, every G&A cost category is down except insurance over which we have little control and IT which was only up in association with our move to cheaper office space.

Finally, let me say how encouraged I am that a number of our employees have been buying our shares in recent weeks. Unlike this case of some of our higher profile energy companies I am not aware of any material use of margin debt by my colleagues and my own stockholding is un-margined.

Since this is the last time you will be hearing from us until mid March next year when we address this year’s results, I would like to make some brief comments on the environment we see in 2009 and our strategy for it. Absent political turmoil and an important OPEC country, it is hard to see oil prices rising significantly in the phase of severe declines in global economic growth and consumer demand.

OPEC has not proved itself to be disciplined in compliance with agreed cut backs in production either. Consequently, we are using a range of $50 to $70 per barrel for our budgets. On a more positive side we expect the oil service industries costs to trend down quite sharply as projects and capital expenditure budgets are cut back. We also anticipate declining levels of dollar interest rates, but with access to credit curtailed. However, we do not see material declines in European gas prices since European countries paid dollars for their imports at prices per Mcf higher than those they charge their industrial and residential consumers. Again, consumer demand might and probably will decline, but gas prices could well move in the opposite direction as governments, as we have seen even as recently as last weekend in Turkey, move to eliminate the pricing subsidies and offset any strengthening in the dollar against their domestic currencies.

Let me emphasize that this is simply a one year view and that any longer term scenario has to reflect considerably higher oil prices as a revival in demand with economic recovery is unlikely to be met by materially increased supply. At Toreador, this background has several implications, first, lower oil prices will create a tighter balance between net cash flow and what we call our mandatory or committed capital expenditures. A breakeven point in terms of oil prices and that balance is in the mid to high 60s per barrel. This is not the same as the breakeven point purely from a net cash flow generation standpoint. That is in the high 40s per barrel that’s price which we will continue to be cash flow positive after all cash costs.

Second, internal competition for capital will be determined on the basis of rigorous economic analysis and financial returns.

Third, our funding priorities will favor onshore and shallow water plays over deepwater plays where the capital expenditure in the time first production are just too burdensome for us.

Finally, 2009 will be critical for us in terms of the drill bit and exploration success. After several years where we have had little or no success at least in economic terms. Major wells will be drilled with material long term implications for our company in Hungary and France next year. A number of important wells is scheduled to be drilled in Turkey. Indeed, we could participate in up to 17 gross exploration wells and two gross development wells between now and the end of next year. I consider that to be a pretty extraordinary level of exposure for a little company like ours.

And, let me ask John Gilboux, our VP of Exploration to update you.

John Gilboux – Vice President of Exploration

Thank you, Nigel. In France we received official awarding of two of the three new permits and are awaiting the approval of the third hopefully before the end of 2008. Farm out is in progress on two new dogger prospects in the Paris basin and currently, our total gross acreage is nearly 614,000 acres. In Turkey we have finished the 1,000 kilometer 2D seismic survey over the Sea of Marmara shallow water permits and is currently being processed. We own a 50% working interest in these permits.

The 1,300 kilometer 2D seismic survey over the East Akcakoca deep water permits is completed and being processed. These permits are located immediately east of our SASB production. The western Black Sea offshore Thrace well is still scheduled for spud in the first half of 2009 and farm out efforts, are continuing on the band permits. In Hungary, the 145 square kilometer end draw 3D survey in our Szolnok permit has been shot and is currently midway through processing. We are anticipating finding two to three drillable Pannonian sand gas projects.

And lastly, in Romania, the Moinesti permit farm out is completed. Farm and partners working the geological and geophysical data, estimating to spud or reenter the first of three wells in the late first quarter of 2009.

Steve, do you want to talk over operations.

Steve Thornton – Vice President of Operations

Yes, I want to. Thank you, John. I want to give you all a brief update of our production in the various countries and our operations as we know them today.

I will start with France as John did. France, our current production is approximately 975 barrels of oil per day, we do have some wells down on -- undergoing routine maintenance as this is the part of the year when we bring some of the wells down due to some maintenance, change the pumps and bring them back up in the next several weeks.

In Turkey, our current SASB production has been averaging about in the Black Sea approximately 14 million cubic feet a day to the 100% interest. We just re-completed yesterday the Dogo Yasly 2 that production level is now up to 17.7 million cubic feet of gas a day. So, we are optimistic although it has proved in the past to fall off rapidly. And, the development well in the Chindiri field, which is an oil field operated by TPO, the state oil company. The field production has been averaging approximately 200 barrels a day to our 19.6% working interest.

In Hungary, the Tompa deep well, which is our BAE1 well, as anticipated, is spudding in mid December 2008. This is our Tompa D or Kiskunhalas trough prospect which is a deep, overpressured gas test, offsetting two gas show wells drilled by the state oil company in the mid 1980s. Toreador is being carried for 20%, 25% working interest through the testing and fracking of this well. The pipeline right-of-way to affect this testing is currently being secured with construction anticipated to start in the first quarter of 2009 and gas sales and testing to begin in the late second quarter of 2009.

And lastly, Romania. Romania at currently production levels, approximately 1 million cubic feet of gas a day that is a 100% owned by Toreador Romania, million cubic feet of gas a day with approximately five barrels of condensate per day of production. We did reenter one of the wells and re-completed in the Cretaceous up hole limestone, unfortunately, the results were uneconomic at this point with weak gas shows and water being produced. Plugging is underway and should be completed by the end of this week.

Thank you very much.

Stewart Yee - Vice President of Investor Relations

Operator, we’ll go ahead and start taking questions.

Question-and-Answer Session

Operator

Thank you, sir. [Operator instructions]. And we do have one question from Owen Cheevers with Source Capital Group. Go ahead, please.

Owen Cheevers

Good morning. Could you give some flavor of what you have been working on with regard to additional farm out efforts?

John Gilboux

In particular country or --?

Owen Cheevers

No. No particular country. I know that with the change in strategy to seek further farm outs of your reserves, I just wondered if you can give us kind of an overview how that might be proceeding.

John Gilboux

In France we are currently two dogger prospects and we have that out to approximately three to four companies at the moment. One in particular likes the prospect, won’t take -- the typical trade terms are pay 100% interest to earn 50% interest. They like the prospects, they are familiar with the area but they can’t, right now they are talking they can’t come with their complete 100% but they would like some say 50% of that. So, we know we would a little bit more selling to do if you will on those two prospects. So that’s moving forward in France. In Hungary, really farm out efforts have been completed as of last year when we got -- brought in the partnership group and the Szolnok and that’s moving forward. In the Tompa deep, again, that’s already been spoken for with our partner, Delta Hydrocarbons. So, nothing really new farm out wise is being marketed in Hungary at the present time. Again, in Romania the Moinesti farm outs have been put together and the operator is working through the geological and geophysical data. We expect to start following up on the farm out commitments in 2009.

The Viperesti block to the south of the Moinesti block has two prospects that we are attempting to farm out there. And, in Turkey the band permit that’s on the far eastern side of Turkey, a million acre permit, we are talking a pretty sizeable state owned company to come in and look at the data and review the data and see what terms we can establish for a farm out on the band permit. Bakuk is already – we already have a farm out agreement in place with Axa. Sea of Marmara, again, we’ve got farm out in place with our two other partners there although we will probably be selling down interest in the prospects that are generated by the recently completed 2D survey. The western Black Sea Thrace project, that’s already put together, partners are in place. So, reality is we just need to have some success in marketing these farm outs and we will get into 16 to 17 wells drilled over the next year and a half. We will just continue to develop new prospects and continue to stay this course of farming out and bringing in partners and drilling their interests.

Owen Cheevers

Okay, great, thank you very much. I appreciate.

Operator

Okay, thank you. Once again, ladies and gentlemen, this concludes our question and answer session for today and I would now like to turn the conference back over to management for any closing statement.

Stewart Yee

Wait, wait, wait. Actually there is one more question operator so go ahead and take that question.

Operator

Yes, sir. Next question is from Peter Schultz from Schultz and Company. Go ahead, please.

Peter Schultz

Yes, I was wondering what you could tell us about next year in terms of debt repayments, debt levels and obviously, how your cash flow relates to that and what you anticipate along those lines?

Nigel Lovett

Okay. This is Nigel Lovett, I’ll answer that question. The stated use of proceeds from the sale of our Black Sea interest to Petrol Ofisi will be primarily to reduce our leverage. We have two debt securities in place at the moment, one is a $30 million loan from the IFC, a bank facility, and the other is our convertible notes of which there are about $80 million outstanding.

The plan is to consider retiring a portion of both of those securities with the proceeds, and then in terms of cash flow for next year, I’m not going to give you a number. If you can tell me what the price of oil is and what the price of gas is going to be, then that’s fine, I’m happy to react accordingly. But what I think is important and I hope was heard clearly, is that we are continued to be net cash flow positive, even at oil prices below $50 a barrel, and we believe that that’s hopefully a worst case scenario for oil pricing in 2009.

As, I also indicated, we can cover our, what I call our mandatory and committed capital expenditures with oil prices in the high 60s. From our cash flow, we generated those prices and if the average price is below that, then as you heard, we have a reasonable amount of cash on the balance sheet with which to fund any shortfall.

We have a certain level of what we call optional capital expenditures for 2009, and those will be expanded only if we have the cash flow and only if the rates of return from them are acceptable to us and only if they enhance value. I hope that’s responsive to your question.

Peter Schultz

Yes, yes. Thank you.

Nigel Lovett

Okay. All right. Well, I think if that’s the end of the questions, I would like to thank everybody for participating. I’m pleased that this is an earnings call and for the first time on my watch, we actually have some earnings. I’m sorry they are not more, but we are focusing on cash flow and we’ve done a reasonable job, I hope you feel, in generating cash flow.

So, the trends are in place, and we have our strategy as annunciated, and we look forward to the next call and which should be, I guess, in March next year for the full year numbers. So, with that, thank you very much, everybody, and good bye.

Operator

Ladies and gentlemen, this concludes the Toreador Resources third quarter earnings conference call. If you would like to a listen to a replay of today’s conference, please dial 800-405-2236-or 303-590-3000 with the pass code 11120600. ACT would like to thank you for your participation and you may now disconnect.

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