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Talisman Energy (NYSE:TLM)

Q4 2012 Earnings Call

February 13, 2013 1:00 pm ET

Executives

Harold N. Kvisle - Chief Executive Officer, President, Independent Director, Chairman of Reserves Committee, Member of Executive Committee and Member of Human Resources Committee

L. Scott Thomson - Chief Financial Officer and Executive Vice President of Finance

Richard Herbert - Executive Vice-President of Exploration

Paul R. Smith - Executive Vice-President of North American Operations

Paul C. Warwick - Executive Vice-President of International Operations (West)

Robert R. Rooney - Executive Vice President of Legal and General Counsel

Analysts

Bob Brackett - Sanford C. Bernstein & Co., LLC., Research Division

Brian Singer - Goldman Sachs Group Inc., Research Division

George Toriola - UBS Investment Bank, Research Division

Greg M. Pardy - RBC Capital Markets, LLC, Research Division

Andrew Potter - CIBC World Markets Inc., Research Division

Matthew Portillo - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Mark Polak - Scotiabank Global Banking and Markets, Research Division

Michael P. Dunn - FirstEnergy Capital Corp., Research Division

Kam S. Sandhar - Peters & Co. Limited, Research Division

Robert S. Morris - Citigroup Inc, Research Division

Katherine Lucas Minyard - JP Morgan Chase & Co, Research Division

Operator

Good morning. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Talisman Energy Inc. 2012 Year-End and Fourth Quarter Results Conference Call. [Operator Instructions]

This call contains forward-looking information. Certain material factors and assumptions were applied in making the forecasts and projections to be discussed in this call, and actual results could differ materially from those anticipated by Talisman and described in the forward-looking information. Please refer to the cautionary advisories in the February 13, 2013, news release and Talisman's most recent Annual Information Form, which contain additional information about applicable risk factors and assumptions.

I would now like to remind everyone that this conference call is being recorded on Wednesday, February 13, at 11 a.m. Mountain Time.

I will now turn the conference over to Mr. Hal Kvisle. You may begin your conference.

Harold N. Kvisle

Thank you, operator, and welcome, everyone, to our year-end results conference call. A Talisman executive team is with me either here in the room or by telephone. We'll be happy to answer questions once Scott Thompson and I run through the results.

The focus of this call is 2012. We will, of course, talk to fourth quarter highlights and we'll have some full year discussion for context. We'll provide 2013 guidance the morning of March 6, the day of our investor open house in Toronto.

The major news for our company coming out of 2012 was our shift in strategic priorities. As we look back at our results in 2011 and 2012, you can see why these changes were necessary.

Despite challenges we've had in the few parts of the portfolio, the fundamentals of Talisman's assets in North America and Asia remain strong. This company has a solid set of core assets with promising growth potential, and we've set about maximizing the value of our core assets in a more value-focused way.

At a high level, our priorities this year are: firstly, greater capital discipline and focus; second, to operate our producing assets more efficiently; and third, to focus our efforts and our expertise on our best assets and opportunities.

These priorities are achievable. They will lead to a simpler business and will deliver attractive returns to shareholders. Over the next few minutes, I want to give you a feel for the kind of momentum we are building and the strong and steady progress we are making as we reshape Talisman.

In the last 6 months, we have developed a new business plan for the company and we are implementing that plan. First, we have taken steps to live within our means. In 2012, we executed on planned dispositions of $2.5 billion, which left our balance sheet in a stronger position at year end with debt levels $750 million lower than they were at the start of the year. Our year-end net debt was $3.7 billion. In 2013, we have reduced our planned capital spend. We have high-graded $4.5 billion in spending opportunities down to a $3 billion actual capital program. We are also being conservative and layering on more hedges, which protects our capital program and reduces uncertainty and risk.

As our second priority, our 2013 capital program will be significantly more focused. We will direct capital to a smaller number of high-value projects, projects that come onstream and generate profits more quickly. Let me put this in context. In 2012, while we exceeded our production target and ended the year with average daily production of 426,000 barrels equivalent per day, our portfolio became more weighted to North American gas as we went through the year. In 2013, we're investing approximately 90% of our capital on liquids and on international gas opportunities. We're high-grading our capital to invest in projects with higher netbacks that will generate cash more quickly. In addition, we have changed our approach to global exploration. Historically, we have invested close to 20% of our capital budget on long-term exploration opportunities. That's simply too much for a company with our production profile. We have reduced our global exploration budget to just over 10% of our capital program in 2013. We'll focus on opportunities with shorter cycle times and a greater likelihood of near-term production.

Moving on to our third priority. We're taking steps to drive operational excellence, getting better at what we do in all parts of our operations. This means making the business more stable, efficient, predictable and lowering our cost structure across the company. There's significant opportunity to increase our profitability through operational excellence. We're looking for ways to improve capital efficiency and operating costs in every aspect of our business. With focus and discipline, we did, in fact, become a top-tier performer in the Marcellus. We significantly reduced drilling times in the Montney; and in 2013, we're doing the same in the Eagle Ford. At a corporate level, we're targeting a reduction in our gross G&A run rate of at least 20% by the end of 2013.

And finally, we have taken steps to strengthen our core regions, focusing our energy and efforts on our very best assets. I'll start off with the North Sea, where, in the fourth quarter, we were pleased to close the Sinopec joint venture. This transaction has greatly reduced our exposure to the U.K. North Sea, an area that has been challenging for Talisman and challenging for other operators as well. Our specific problems in the North Sea are largely the result of historic underinvestment, which will be remedied through the Sinopec joint venture. In 2013, our focus will be to improve the reliability of our U.K. assets and to execute field development and life extension projects on time and on budget. The U.K. North Sea will be a much smaller part of Talisman's business going forward. Following the completion of the joint venture in mid-December, we exited the U.K. for the year with average daily production about 22,000 barrels a day. The U.K. now represents less than 10% of Talisman's production.

In North America, our portfolio continues to be a balancing act, growing liquids volumes, waiting on gas prices and unlocking significant value from pieces of our asset base through sales, swap or joint venture. Liquids production in North America grew by 17%, reflecting the success we've had ramping up the Eagle Ford. In 2013, the majority of our North American capital spend will be directed towards the Eagle Ford. We've reorganized our North American business to bring our shale and conventional business units together in both Canada and the U.S. This will reduce field operating costs, reduce overheads and lead to more efficient operations across-the-board.

Within Western Canada, we have established a core region extending from West Central Alberta to Fort St. John in Northeast B.C. Talisman has distinct competitive advantages in this region, given our legacy operations, extensive land holdings, our knowledge of the geology and our ownership of extensive infrastructure. This large continuous area includes our Edson, Duvernay and Montney plays. Of current interest, we continue to assess the liquids potential of the Duvernay play with encouraging initial results.

Southeast Asia continues to perform solidly and now accounts for more than 1/3 of our production and operating cash flow. In 2012, Southeast Asian production grew by 8% as a result of a full year production from the Kitan oilfield, offshore Australia and higher gas volumes in Indonesia. We have the relationships to continue to grow the business, such as, for example, our new Kinabalu property in Sabah. We are the right size to be the logical partner for the national oil companies. We're flexible and efficient and large enough to invest in big projects. With rising energy demand, high natural gas prices and relatively low costs, we see significant opportunity in our Asia-focused strategies.

Within our exploration portfolio, we do have some exciting opportunities. The key will be accelerating and unlocking the value in a cost-controlled way. In Colombia, we moved our investment in the OCENSA pipeline from the Equión enterprise to direct Talisman ownership, a change that secures our position as an initial shipper with confirmed access to pipeline capacity. This transfer of ownership caused us to revalue our share of the OCENSA pipeline in the fourth quarter to $650 million, significantly higher than when we purchased our position in Equión in 2011. In addition, we now have access to a share of the revenue from the sale of unused pipeline capacity to the open market and there is a high demand for that capacity today. We have begun drilling in Block 9 in Colombia where we have a 7-well appraisal and extended well test program planned for 2013. We see significant upside throughout our Colombian assets, and we have focused a strong technical team on those opportunities.

Turning to Kurdistan. We are unlocking what could be a giant oilfield, which we could develop ourselves or through some sort of joint venture or partnership. Delineation drilling will continue throughout 2013.

As you can see, we have made progress, and I'm confident we have set out on the right direction.

I'd now like to spend a minute or 2 on our year-end reserves picture, which is complicated. We have provided details based on Canadian definitions in pricing, which have resulted in very similar reserves to those calculated under SEC rules. At year end, we had approximately 1.7 billion barrels equivalent of proved plus probable reserves. That reflects our most reasonable estimate of recoverable resources based on our current knowledge of fields and reservoirs. That works out to an 11-year Reserve Life Index.

During the year, we added a combined total of 75 million barrels equivalent of proved plus probable reserves, mostly in our Eagle Ford, Montney, Wild River and Corridor assets. Decisions taken by management to reduce CapEx, optimize projects and focus the portfolio resulted in negative additions of 115 million barrels equivalent, primarily in the Marcellus, in the North Sea and as a result of our exit from Peru.

I'd now like to turn the call over to Scott Thomson. Scott will talk about the macro environment, financials and hedging. Scott?

L. Scott Thomson

Thanks, Hal. I will review our financial results, balance sheet, disposal activity during 2012 and our hedging position during the year. First, a little context from a commodity price perspective. Oil prices have been trending sideways, down slightly for Talisman both quarter-over-quarter and for the year as a whole. North American gas prices increased somewhat during the quarter. However, the jump to $4 in anticipation of a cold winter was short lived, and we're entering the shoulder season at approximately $3.30 per Mcf. Natural gas prices and volumes were strong in our Southeast Asia business, with realized prices of almost $9 per Mcf and netbacks of $4.85.

Now to the financials. Cash flow in the quarter was $675 million compared to $693 million in the immediately preceding quarter. A modest recovery in the North American gas price was not enough to offset the reduction in production in the North Sea and the impact from the sale of 49% of our U.K. business in mid-December.

2012 cash flow of $3 billion was down from $3.4 billion in 2011. A 35% reduction in gas prices in North America and lower North Sea volumes were partially offset by significant liquids-based production growth in Southeast Asia and North America.

Non-GAAP earnings from operations for the quarter was lower than the immediately preceding quarter, mainly due to lower volumes from the North Sea and a onetime DD&A charge of $62 million or 6% -- or sorry, $0.06 per share after-tax for the elimination of proved developed reserves for Auk in the U.K. and the Lynx/Palliser area in Canada.

The realized prices in the quarter were $57 per boe, which was consistent with the third quarter. However, for 2012, in general, we saw a 10% reduction in realized prices, driven primarily by the 35% decrease in North American gas prices. Our Southeast Asia price realizations remained robust throughout 2012, with gas prices averaging $9.28 per Mcf.

Operating expenses were $2.5 billion for the year, compared to $2.2 billion in 2011. North American operating costs increased approximately $110 million. However, $25 million of that increase was driven by the onetime effect resulting from the retrospective application of the Pennsylvania impact fee. The remaining increase was due to increased production, in particular the Eagle Ford. We also had a full year production from Kitan, Jambi Merang and Equión in Colombia. The remainder of the increase arose as a result of increased maintenance activity in the North Sea.

DD&A expense of $2.5 billion was 28% higher than 2011, due principally to the higher production in North America, full year production from Kitan and Jambi Merang and revisions to proved reserves in the fourth quarter. $187 million of the $550 million increase was a onetime charge that was due to the debooking of proved reserves in both the North Sea and North America.

G&A was $79 million higher than the prior year, primarily as a result of new offices and severance costs paid out during the year. Importantly, the trend of rising G&A has been reversed, and we are in-flight on reducing overhead, primarily in our North American operations and corporate center.

It is worth some time spending -- discussing a number of noncash charges that impacted net income during the quarter. We incurred impairments of $552 million pretax and $249 million post-tax in the fourth quarter, primarily the result of the reduced gas price environment, the deterioration in our North Sea business.

In addition, we've reduced our deferred tax assets in North America by approximately $430 million to reflect the continued economic uncertainty in the North American gas market.

During the quarter, we also recognized a gain on investments of approximately $860 million for the sale of our 49% of the U.K. business, and we've increased the value of the OCENSA pipeline by $365 million pretax in our financial statements to better reflect the current value of that investment.

Total capital expenditures for the year, including exploration expense, was $4 billion. $1.6 billion was spent in North America, with the majority spent on the development of the Marcellus and the Eagle Ford. In the fourth quarter, North America spent $310 million, which is down more than 50% since the fourth quarter of 2011. During 2012, $1.2 billion was spent in the North Sea and $500 million in Southeast Asia. As Hal mentioned, we have set a capital budget of approximately $3 billion for 2013. Lower capital spending will come primarily from reduced spending in North America and the international exploration.

At December 31, net debt was down to $3.7 billion from $4.5 billion at the end of 2011, largely as a result of our disposition program. In 4Q, we completed the sale of 49% equity interest in our U.K. business for $1.5 billion. Our disposition proceeds in 2012 were approximately $2.5 billion.

Despite reducing our capital budget by $1 billion between 2012 and 2013, we will continue to be in a free cash flow-negative situation. As we focus the portfolio, the proceeds from additional dispositions will assist in funding that free cash flow gap.

And lastly, turning to our hedging program. In the fourth quarter, we had $16 million of cash payments related to our hedging program. During 2012, we had a cash outflow from our hedging program of approximately $45 million, significantly lower than the $270 million outflow in 2011. For 2013, we have 70,000 barrels per day of oil hedged; 26,000 barrels of Brent hedged with an average floor of $90 and an average ceiling of $108; WTI collars for 10,000 barrels with an average floor of $85 and an average ceiling of $104; and Brent swaps for 34,000 barrels at an average swap price just over $105.

On the gas side, we have approximately 350 MMcf per day hedged and $3.50 by $4.75 collars for 2013.

Those are my highlights. I'll turn the call back over to you, Hal.

Harold N. Kvisle

Thank you, Scott. In summary, we've made progress on our 4 priorities: We've successfully strengthened our balance sheet, high-graded our 2013 capital program and we're now focused on cost reductions and improved operating efficiency. We'll have more to say about 2013 opportunities at our investor open house on March 6. I hope you'll join us for that event.

I'd now be happy to answer any of your questions. And, as I mentioned, we have the Talisman executive team here either in present -- in person or by telephone from the U.K. and Southeast Asia.

Operator, back to you.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Bob Bracket from Bernstein Research.

Bob Brackett - Sanford C. Bernstein & Co., LLC., Research Division

Some questions on the global exploration outlook for 2013. You talk about $300 million. Are there any commitments in Sierra Leone, Poland, Peru, any odd places, or will most of that money be kind of Colombia and Kurdamir?

Harold N. Kvisle

I think most of it will be Colombia, Kurdamir and some ongoing expenditures in places like Vietnam, Southeast Asia, PNG, places like that. As far as the exit from Peru, that process is well underway. And with respect to Poland, we're still in discussions with our partners and government.

Bob Brackett - Sanford C. Bernstein & Co., LLC., Research Division

And Sierra Leone?

Harold N. Kvisle

In Sierra Leone, we don't anticipate significant expenditure in 2013. We're considering our options there.

Operator

Your next question comes from the line of Brian Singer from Goldman Sachs.

Brian Singer - Goldman Sachs Group Inc., Research Division

It seems there has been some movement in Colombia where you're now drilling your way into test wells in the foothills, Block CPO-9 and Blocks CPE-8. Could you just give us an update on each of these areas, and what the next steps would be if the activity there is successful?

Harold N. Kvisle

Sure. I'll ask Richard Herbert, our Head of Exploration, to comment on that. Richard?

Richard Herbert

Yes, Brian, we have started to see some movements after clearly some delays that came from the -- mainly from the environmental permitting process. We'll provide sort of a fuller update of all the activity when we meet in Toronto in March. But in summary, right now, we have 1 well drilling in Block CP0-9, which is an appraisal well on the Akacias discovery. That well has now reached the top of the reservoir, it's being caged and we'll be drilling out quite soon. We've been drilling stratigraphic wells in Block CPE-8 and -- so we've been collecting data from those. We're still hopeful that the operator at Block CPE-6 will receive the permits required to start drilling again in Block CPE-6 in the second half of the year. In the meantime, we're making good progress acquiring 3D seismic over the discovery there. And in the Niscota Block in the foothills, we are now largely through the process of transferring the operator-ship of that block to Equión who is, I think, is a much better long-term operator for that unit. We finished drilling the Huron-2 well and we're waiting to test that one during March. And we're making good progress drilling Huron-3. So I think overall there's quite a lot of activity in Colombia and we look forward to talking more about it on March 6.

Brian Singer - Goldman Sachs Group Inc., Research Division

Great. That's helpful. And then on a separate note, just somewhat philosophically, how important is it for Talisman to show investors visibility on production -- on growth or on major projects versus simply just allocating capital to the high -- to high rate of return projects, regardless of the repeatability. And I guess in that context, what role should we expect the Marcellus to play in Talisman's future, given that it's not a major source of investment this year?

Harold N. Kvisle

Brian, it's a complex question. First of all, I'd say that our near-term priority is to improve the profitability and the rate of return of our capital investments. In my view, we've been overly biased towards very long term, long-cycle things that don't add incremental production in the near term. Once we have our focus in place and our cost structure demonstrating profitable returns, then, of course, growth is something that we would aspire to and we would move in that direction. So profitability first, then moving into growth. I think with respect to the Marcellus, we're very good at that play. I think our team has demonstrated a high level of performance there. And it's really a question of the gas price in North America and the allocation of capital to Marcellus relative to other things. We've had a slow year, and we'll probably have a slow period for much of 2013 in terms of drilling in the Marcellus. But any improvement in the gas price outlook that we could hedge it to and the reallocation of capital from other areas back to the Marcellus, it's a core asset and one that we think has excellent development economics, and we just want to deal with it at the right point in the gas price cycle.

Operator

Your next question comes from the line of George Toriola from UBS.

George Toriola - UBS Investment Bank, Research Division

I have 3 questions here. The first one is just in light of Scott's comments, that you expect to be free cash flow-negative at least in the near term here, when you talk about 90% of your capital focused on liquids and international opportunities, do you expect that what comes out of that expenditure would be able to hold your production here relatively flat from here, or you expect a widening gap in sort of production and cash flows?

Harold N. Kvisle

Well, I'd answer that question that we do expect to be cash flow-negative during the year because we have significant obligations to drill to retain land in high-quality situations, Eagle Ford, other places like that in North America. We do intend to close that gap in cash flow through divestments. Divestments are going to continue to be an important part of our work here at Talisman in 2013. And we do see opportunities to invest in gas and restore and grow gas production as commodity prices improve. In the near term, though, it really is all about liquids. But I felt [ph] that in Asia, particularly, we have gas development opportunities that are priced, where the commodity is priced essentially off liquids and those are in that liquids camp. So that will be the focus for 2013. And we do not intend to grow debt during the year, so there will be divestments that will enable us to fund that cash flow gap. And we'll look for opportunities to bring capital projects in under budget, and we'll also be very focused on increasing cash flow from our existing producing operations. Those are all drivers of narrowing that cash flow gap.

George Toriola - UBS Investment Bank, Research Division

Okay. The second question is you grouped the [indiscernible] in Duvernay and the Montney together. Is that [indiscernible] change in the way you'd look at the assets? Or how should we -- is there anything we should take from that? And I guess, the second part of that question is, how does the Montney dry gas compare with the Marcellus dry gas?

Harold N. Kvisle

Well, let me answer your second part first. I think Marcellus dry gas is in a better market region and so it attracts a better price. And we would generally see better economics in Marcellus delineation and drilling and development than we would in the Montney. Now longer term, I like the price outlook for the Montney because as a number of these LNG export projects come on stream, we'll see demand for gas in that part of North America that could very well result in Montney wellhead prices rising up and being among the best in North America. On the other part of your question, it's just important, in my view, that we reaffirm for the market that in this whole West Central Alberta to Fort St. John trend, Talisman has some really significant competitive advantages. The line of sight to those advantages has been lost, I feel, because we have not emphasized the strength of our position there. But even within that region, of course, we'll continue to farm out lands to other companies that have different drilling ideas than we do. And we'll continue to form joint ventures with people that would bring financial capability and sometimes technical knowledge to a joint venture opportunity and that could occur throughout that region. And there will be areas within that very large region where we would divest assets or form joint ventures, things like that in the normal course. But what I do want to emphasize is this is a part of West Central Alberta through to Northeast B.C. where Talisman is a strong performer, one of the very strongest players in the industry. It's an area where we've got a lot of land. We've got this tremendous geological knowledge and background and we've got infrastructure and existing operations. So those are competitive advantages in that region that we intend to use.

George Toriola - UBS Investment Bank, Research Division

Last question for me. The Marcellus, just talking about the reserve write-down here. Is that an indication of aggressive bookings previously, or -- I'm assuming that your long-term price has not changed substantially here. So I'm just wondering what exactly drove the write-down? Because you talk about capital expenditure, but certainly the timing of that expenditure can't [ph] be that significant.

Harold N. Kvisle

So I'm going to ask Paul Smith to add to my comments here. I'd just say very quickly that in prior years, we have foreseen a more aggressive pace of Marcellus development because we have a higher expectation for gas prices. With a reduced outlook for gas prices and an allocation of capital primarily to the Eagle Ford, that resulted in a lower pace of activity and the rules require us to move those out of the proved reserves -- proved undeveloped reserves category into probable and contingent. But Paul, could I ask you to add to that a bit, please?

Paul R. Smith

Yes. George, I think there's a story within the story here. And the first thing that I'd say, and you'll see more of this when our detailed reserves come out, but we actually added in the Marcellus this year 300 Bs of 1P reserves and that more than replaces the 180 Bs of production that we actually produced and that's before revisions. So that's kind of point one. Point two as Hal has said -- as a result of our view of the softening price environment and the re-phasing of capital, we have moved about 875 Bs of PUDs out of proven and into probable and contingent resources. The most important thing for me, George, is the technical quality of those resources are exactly the same today as they were yesterday. This is playing into a fairly well-defined, black-and-white SEC rules around being able to get to those PUDs within 5 years. Plans can and will change. And I'll tell you that it doesn't take a lot in terms of a changing gas price for us to be drilling into the Marcellus again or at least completing. We've got 50 wells uncompleted in the Marcellus. And you can imagine that the point-forward economics of those wells look very attractive. Now, we're not suggesting that we're going to jump onto them today, but as soon as gas prices start to approach $4, those things can be a possibility again.

Operator

Your next question comes from the line of Greg Pardy from RBC.

Greg M. Pardy - RBC Capital Markets, LLC, Research Division

Just a couple of questions. Hal, I know that improving the balance sheet, reducing debt and so forth has been a big priority. So despite being free cash flow-negative as you go through the year, would you still see dispositions aimed largely at improving the balance sheet, or do you think there's any room for share repurchases? That's question one. Question two's a little bit broad, you may or may not want to answer it. But just in terms of looking at this March 6 investor summit, which has clearly got the markets focused right now, should we be thinking about that as really more granularity around building within the strategic framework that you've already outlined, or will there likely be more, i.e., building upon it in some way, which would result in a more dramatic change to the company?

Harold N. Kvisle

Greg, we want to -- we do want to communicate a better picture of our strategy going forward at the March 6 event. And to the question of divestments, what really drives divestments, it's not that we don't like the properties. It's that we've got a very large portfolio of development opportunities that are beyond our funding capability. And in a weak gas price environment, we're not generating enough cash flow from gas in North America to fund this enormous gas resource base that we have. So as you think about divestments of assets, particularly here in North America, one of the drivers is to achieve a better balance between capital availability and the size of opportunities that we have. And we have a number of really excellent properties that, I think, would be worth more to potential buyers that have the ability to fund their development than they are to us. So in a way, we're shedding assets that don't generate a lot of cash flow. It'll improve our cash flow-to-asset ratio, and a share repurchase would be one option. We also have the options of redirecting that to further reduce debt or to invest in capital opportunities in other parts of the business. All of those are opportunities that, frankly, 6 months ago we didn't have any of them. We were really in a tough spot. So share repurchase could be an option, but I don't want to hold it out that we're indicating that's likely to be the option. These are financial alternatives that I think management and the board are going to have to consider as we go through 2013 and as we demonstrate success on divestment, primarily of assets that don't generate a lot of cash flow. We need to keep the cash flow up and we'll be reinvesting to grow that. As far as the March 6 event, I guess I've already commented on it. But in addition to that, we think that there are some pretty exciting opportunity in North America, in Asia and then we have this portfolio of assets in other parts of the world that we want to just try to convey a little more insight into how we see things going forward in Colombia, in Kurdistan, what's the direction in the North Sea, some of that kind of stuff. So bigger picture, longer-term presentations, I think, that's what we're aiming for on March 6.

Greg M. Pardy - RBC Capital Markets, LLC, Research Division

Okay, that's helpful. The last one for me then is obviously, usually the first stages of any kind of repositioning like this are the most painful. You're there for, I guess, a couple of years or so. When do you think the benefits of this strategy that you're implementing now will start to become evident to the market? Do you think it's probably third or fourth quarter or is this something that could extend a little bit beyond that? And by that, I mean improvements in terms of cost structures, more cash flow generation, probably more robust numbers that are kind of blowing through Street estimates, that kind of thing.

Harold N. Kvisle

So I think, both. The answer is both that in -- during the year 2013, we simply must demonstrate improvement in our cost structure and in the stability of our production, and we have to demonstrate some significant actions on the portfolio, and we intend to do that. But many of those things -- first, we obviously recognize that driving improved cash flow per share is pretty much a priority, but I also pay a lot of attention to the net asset value per share. And as we move forward, perhaps shedding some assets that don't attract much NAV in analyst's eyes or in our own and refocusing that available capital on development of things that generate cash flow, I think that's a move in the right direction. We're also very attentive to the NAV growth that we aspire to over the next 5 years. I look a lot at the 5-year plan and are we retaining assets that we're actually going to be able to fund the development of in an attractive and an economic way? Now, there's obviously volatility in this business, and as you go from quarter-to-quarter, we can see dramatic disappointments on the natural gas price side as we've seen. And so as we commence development of things like Marcellus, in my view, it's pretty important that we do a hedging program that's a complement to the capital program, so that we can assure ourselves of what the results and returns are going to be. I think that's particularly important over the next couple of years.

Operator

Your next question comes from the line of Andrew Potter from CIBC.

Andrew Potter - CIBC World Markets Inc., Research Division

Greg kind of asked part of my question, but I'll think about it in maybe a bit of a different way. So Hal, I guess in previous comments you seemed somewhat dismissive, I guess, of different strategic options like corporate sale or breakup or that kind of thing. I guess now that you've been on the job for almost 5 months, I mean, is there any change to how you view the different strategic options?

Harold N. Kvisle

Yes, Andrew, I think, firstly, I increasingly see North America and Asia as the core heartlands, if you will, of Talisman. We've got strong positions here in North America. Natural gas is going to be an increasing part of the energy mix in North America. And the company is really well positioned to participate in that going forward. It's just a question of commodity price, and we need to get a good alignment between our capital spending plans here in North America and what the commodity prices are going to be and what we can hedge in the market. The great thing about North America, these are relatively short-cycle opportunities. When we set out to increase the pace of drilling and development in the Marcellus, we can see cash flow returns coming relatively quickly compared to large offshore projects in the rest of the world, where things just don't happen at the same pace that we're able to do here in North America. In Asia, we really -- we make a bit of a big deal here about the relationships that we have with key players in that region. But this is really important. Our relationships with people like PETRONAS and the authorities in Malaysia and Pertamina and the authorities in Indonesia and similarly in Vietnam, these things are really critically important to companies like Talisman operating in that region. And we see a lot of long-term opportunity in doing the kinds of things that result in win-win outcomes for us and those national oil companies in those parts of the world. So Asia has a lot of opportunity. And I draw your attention, just think about the market-focused opportunity in Asia, that the demand for hydrocarbons in both Southeast Asia and Northeast Asia is extraordinary, and not only from our activities in Asia, but also with respect to something like the Montney. We do tend to focus on what that Asian market opportunity is going to be and that's a big part of our long-term plan. With respect to breakup of -- we're going to continue to shed assets, sometimes within core regions as, for example, in North America, where we just think we can generate economic value by turning some undeveloped lands and assets over to other parties. Certainly, in the North Sea, where we've done the Sinopec deal, that I think has been really important to Talisman. And obviously, with the U.K. production now less than 10% of our total, the North Sea is in no way the kind of strong core area for Talisman that it was previously and we'll have to assess our options to move forward there, always with an eye on what creates the most value for shareholders. In places like Kurdistan, I get pressure from various commentators that we ought to sell Kurdistan or exit. But this is a very large accumulation of oil that we're into there and also rich natural gas. And I think, again, we have to proceed in a measured way and think about different opportunities by way perhaps of joint venture or partnership, of bringing others into the project. I think we can manage this Kurdistan opportunity in a way that could be very value-creating for shareholders. And finally, Colombia is a situation that's been a bit frustrating. Not though because of technical disappointment, but simply the delay of the environmental permitting process. We think we're getting through that. There's more optimism across industry and within the Colombian government that we're going to be able to get through that, and I look forward to resolve some things like Block 9. And certainly, we have no intention or plan to exit a place like Colombia. We think that's a good keeper for the company long term. So you're going to see movement on the portfolio. As to whether the entire company is for sale, you never know when some other parties see significant value and comes forward and makes an offer that you don't expect. But I'd say, Andrew, we're not doing anything in that direction. We'll deal with those situations as and when they come up.

Andrew Potter - CIBC World Markets Inc., Research Division

Okay, that's good color. Just wanted to follow up. I think you had mentioned before that within North America, you wanted to get from 5 resource plays down to, I think, you were saying kind of 3.5 through some sales or JVs, all that kind of stuff. Are there formal sales processes under way right now? And I guess if there's not, when should we expect those kind of things to start moving forward?

Harold N. Kvisle

There actually are formal sale processes underway right now, and we're just putting our plans together for the next round of activity on that front. And if you can bear with us, we'll have more to talk about on that on March 6.

Andrew Potter - CIBC World Markets Inc., Research Division

Okay. And could you say which assets you have processes underway for? Montney, Marcellus, Eagle Ford or all of the above?

Harold N. Kvisle

Well, that's a good question. But if you can hang in there till March 6, we'd like to talk about it then.

Andrew Potter - CIBC World Markets Inc., Research Division

All right. Apologies, we're not very patient here. One last question. Just on Yme, I guess, the SBM reports tomorrow and there's been some suggestion that they may have more color. Is there a timeline to come to a resolute -- or is there an official deadline to come to an agreement with SBM on this? And I guess, once the Yme question is resolved or there is some settlement, does that open the door to Norway being sold, or would you still view that as core area once the dust is settled on Yme?

Harold N. Kvisle

So first let me comment on Norway generally, then I'm going to ask Paul Warwick, our EVP for International Operations West, who is very close to the Yme situation. In a moment, I'll ask Paul to comment on that. With respect to Norway generally, firstly, it's a valuable place because there's a lot of hydrocarbon in place, great reservoirs, all those kind of things. It's a place where we can see opportunity to create significant value. And secondly, it's oil and very high-grade, light, high-quality oil that attracts a terrific price, certainly relative to the prices we're seeing in much of North America today. But the reality we have to look at I think is, will Norway be significant in the portfolio? It is an offshore operation. Is there other opportunity there that we need to look at? Norway's one of those assets that we are -- we see value. We're going to pay a lot of attention to it. We're going to operate it very well. As to what the longer-term role in Talisman's portfolio is, at this time, we just don't know. But a big step in resolving Norway and moving forward is Yme. And Paul Warwick, if I could ask you to comment on Andrew's question about SBM and where we see Yme going, please?

Paul C. Warwick

Certainly, Hal, yes. Well, of course Yme is difficult and it's been going for some time and I think there have been lots of different conflicting stories about it. The upshot is that in answer to the question, there is no deadline for any form of negotiation. And the current situation is that we have contracts with SBM. We're applying that contract and expecting them to deliver under it. Of course, they have commented about negotiations and conversations have been happening in, I think, in the latter part of December, they issued a release, which spoke about that. And so it would be churlish of me to say that we're not talking in the sense that we're pursuing opportunities with all stakeholders, and there's a partnership group in Yme. It's not just Talisman. And there is the Norwegian government. There's SBM. And we have to take care of the interests of all parties. So at the moment, the contract's being applied. There are conversations ongoing. No deadline associated with those. And I can't, at this stage, give any direction whether those conversations will present anything beneficial for Yme or not. I guess, the other thing to say is and it's for some time there has been an arbitration proceeding going on associated with Yme and that continues as well. So it's not straightforward issue, but we're giving it a lot of attention. As Hal said, I'm very close to it. I've been dealing with it actually today and actually sat on this call in Oslo.

Andrew Potter - CIBC World Markets Inc., Research Division

And is there a deadline for the arbitration to finish, or is that just kind of open ended?

Paul C. Warwick

It takes the time that the arbitration court in Norway proceeds for and that will be quite some time. That's not a short-circuit progress -- program and it requires submitting large amounts of legal documentation, technical documentation from both parties and then the arbiters' understanding and then making decisions on it. So it's not a short-term process.

Operator

Your next question comes from the line of Matt Portillo from Tudor, Pickering, Holt.

Matthew Portillo - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Just a few quick questions for me. In terms of the Marcellus, I was wondering if you could provide us an updated type curve. I'm just trying to get a sense of how you look at the asset quality?

Paul R. Smith

Sure. Hey, Matt it's Paul here. We're now cumulatively 350-odd wells into the play. And as we've gone through the last 3 years, we've clearly continued to learn a lot. And last year was no different, despite the fact we had a relatively low program. So our average EURs in 2012 expanded quite significantly to about 5.5 Bcf in the play and the IP [indiscernible] similarly expanded to about 5.5. And I think that's one of the beautiful things about the Marcellus now is that it's a very, very predictable play with us having drilled that many wells. We know exactly what we have. We're sitting probably in one of the sweetest spots of the play. Our operational performance there has been outstanding and we continue to learn. EURs have expanded. And even with reduced drilling activity, we've been able to take cycle times down from 27 days in 2011 down to below 20 days last year. So continuous improvement even in a time of slowdown or especially in a time of slowdown.

Matthew Portillo - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

And then just a quick follow-up there. In terms of well cost, how should we think about your well cost today?

Paul R. Smith

Well, well costs are different when you're in single -- where we essentially, we've got one rig running and it's really there to protect lands. We're doing a lot of single well pads as opposed to the multi-well pad drilling that we were doing back in 2010 and 2011. So well costs are round about -- we have been as low as $4 million D&C cost to complete wells. We're in full swing on pad drilling. Single well drilling, which is a bit closer to $5 million to $5.5 million a well.

Matthew Portillo - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Great. And then just as a quick question on the Eagle Ford. I was wondering if you could provide a little breakdown on the capital spend in 2012 in regards to what was actually drilling capital and what was spent on infrastructure? And then maybe a little color around how you view F&D costs for 2012 in terms of the reserves you booked in the Eagle Ford?

Paul R. Smith

Can you repeat the second part again, Matt?

Matthew Portillo - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Just how you view F&D costs on wells in the Eagle Ford, the bookings in 2012?

Paul R. Smith

Okay. For the second question, I think in terms of F&D costs are going to be skewed in 2012 because we purposely left 50 wells drilled, but uncompleted. So job 1 as we've entered 2013 has been to get after a well backlog of 50 uncompleted wells. We've got 2 full time frac crews up and running right now to deal with that backlog, which we should clear in the months ahead and form part of our program for 2013, and we'll provide part of our guidance as we guide in March around where we expect the Eagle Ford to grow to from where we ended up this year, which is around 15.5 MPD [ph] full year. And we expect significant growth obviously with about 2/3 of our North American capital going into the Eagle Ford. Again, in terms of spend, there is, as you can imagine, Matt, in the early parts of the play, there's a disproportionate amount of front-end loading, of infrastructure capital that goes in and then is spread over many, many years of drilling and completions activity. And last year, roughly, roughly we spent $740 million CapEx, net, in the Eagle Ford. And about $220 million of that was spent on infrastructure. There's lots of other things that went in there. But significant infrastructure expenditure last year. And as we look into 2013, there'll be significant infrastructure expenditure again in 2013 to really get all of the producing areas that we're now drilling into to hold land and then start to optimize in a place where we've got flow assurance. And then future years, we expect that, indeed, to come down quite significantly as future wells start to benefit from those infrastructure facilities. And also, we start to really move towards pad drilling in a real way in 2013 and 2014, which we haven't been doing to date.

Matthew Portillo - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

And just last question on the Eagle Ford. In terms of the backlog of uncompleted wells, was that an infrastructure-related constraint, or was that a determination by management just to slow down on the completions?

Paul R. Smith

The latter. The latter, Matt, [indiscernible].

Operator

Your next question comes from the line of Mark Polak from Scotiabank.

Mark Polak - Scotiabank Global Banking and Markets, Research Division

Yes, just quick question, maybe looking for some clarification on the reserve issue with Auk and pushing up, going back to pre-sanction. I was surprised that reserves from the existing producers wouldn't have been removed from the proved category. Just wonder if you can elaborate on what the situation is there. My understanding of the redevelopment was 9 or 10 infill wells and some re-completions and facility upgrades. Are you looking at something in -- of larger scope or smaller scope for that redevelopment now?

Harold N. Kvisle

So I'd ask Paul Warwick in Aberdeen to address that question. Paul, please?

Paul C. Warwick

Certainly, Hal. Mark, the original redevelopment for Auk was quite substantial redevelopment, and it involved quite a large number of facilities. And as we look, it didn't reach our economic hurdles. And so we're currently looking at alternatives for the Auk development. And hopefully within the next year or so, we will have a project that should work. Now because the project doesn't work economically, we've been talking as we were with the Mar project through the U.K. government under brownfield allowance arrangements. And those which they've granted don't get the original Auk project economic [ph] either, so we need to come up with another solution. And so given that we can't envisage a date when we take that project to sanction, what we've described is, at the Auk site, reserves [indiscernible] always come off the books. Now, the nuance there is that Auk field, itself -- the original Auk field, which I think is the first development in the U.K. Continental Shelf, which Talisman picked up a few years ago. It's relied on Auk site to make it economic. And the future of the services [ph] and financial and reserves nuance, the future of that field, which is a very small amount of reserves really in the overall scheme of things, actually becomes economic. This doesn't mean we're not going to produce those reserves, but we have to take them off the books and then put them effectively on the books in the year that we produce them. And so that's why the existing reserves have come off the books as well. So we've gone through quite some detailed conversation to be able to understand the nuances of this. So there are 2 facets, one related to the Auk main fields and one to Auk sites [ph], and we're working on the sites and hopefully we'll have project there. It's not assured that there will be a project, but we hope that there will be [ph].

Operator

Your next question comes from the line of Mike Dunn from FirstEnergy.

Michael P. Dunn - FirstEnergy Capital Corp., Research Division

Question on the SEC's plans to mandate, I guess, pretty fulsome disclosure of government's contract payments with 2013 year-end reporting. Have you guys had discussions with some host governments or NLCs, particularly in Southeast Asia on what does this might entail? And has this impacting your strategies or relationships in any way there? And I have a couple of follow-up questions after that.

Harold N. Kvisle

I'll ask Bob Rooney, our General Counsel, to answer that.

Robert R. Rooney

We don't see that as a problem. We've been disclosing those payments for years under the EITI and we've been doing it in cooperation with those governments, so we really don't see a change to that.

Michael P. Dunn - FirstEnergy Capital Corp., Research Division

Okay. And I guess, unrelated, are you guys able to talk your exit rates or maybe current production rates from the U.K. or the Eagle Ford? And in the U.K., is that third-party pipeline back online yet?

Harold N. Kvisle

So Paul, with respect to the U.K.?

Paul C. Warwick

I'm not sure which third-party pipeline you're referring to. I can tell you that the exit rates from last year were disappointing, the U.K. business, and let's now [ph] use the term, we want to get the business to be predictable and efficient. And to do that, as we said, there's been underinvestment in previous years and we're making the investments to be able to get our assets to be efficient. It's a multi-year program. It's not going to happen overnight. And there are no quick fixes in that. But the exit rates at the end of last year we see that not being materially different throughout the first quarter of this year. There are a number of problems, but the biggest problem today is the overall helicopter issue affecting the U.K. Continental Shelf is the EC225 helicopter, meaning we actually can't get people to the facilities to work. I think that the pipeline that we've spoken about is the Galley pipeline, which is Talisman-operated pipeline between Galley, which is a field in the Tartan area and the Tartan host platform, which had a failure last year towards the end of August. That pipeline, if that's the one you're referring to?

Michael P. Dunn - FirstEnergy Capital Corp., Research Division

Yes, it is. Sorry.

Paul C. Warwick

Yes, that remains shut in and we're looking at alternatives how to repair it, including intelligently pigging the line as it sits to make sure it's okay and then making a repair on it. And that work is progressing, and at the moment, we're defining the project stage of what that repair looks like.

Michael P. Dunn - FirstEnergy Capital Corp., Research Division

Okay. And then on Eagle Ford, I'm not sure if you're willing to give us any update on the rates there, guys?

Paul R. Smith

Sure. I'll give you Eagle Ford and Marcellus given that somebody else will probably want to know Marcellus numbers anyway. So in the Eagle Ford, we exited the year strongly at about 21,000 barrels of oil equivalent a day, roughly just over 60% liquids weighted within that stream. And in the Marcellus, we continue to have very strong base performance during the year. We exited the year at around 460 million standard cubic feet a day on the end of December.

Michael P. Dunn - FirstEnergy Capital Corp., Research Division

Great. And on the Marcellus, is there -- I forget the number, but previously you talked about sort of an assumed sort of decline quarter-to-quarter. Is there any change to that? It looks like the numbers were a bit higher than we had modeled anyway for the quarter.

Paul R. Smith

Yes, I think we continue to learn. As I said, we've got 360 wells in the play. They're all different vintages as we think about -- we clearly got a lot of wells now that are sort of vintage 2011, have been through most of their decline. As we move into 2013, we'll have lot of wells that have been through most of their 2012 decline and we're bringing on very few new wells. So the base continues to improve. And 2012, the number works out at about a 31% annual average decline in 2012 and I would expect that to be slightly better in 2013 and we'll talk about that at the investor open house.

Michael P. Dunn - FirstEnergy Capital Corp., Research Division

Great. And last question if I may. Your segmented financials report about $100 million, I think $101 million in acquisitions in the fourth quarter. Any color on where that was from?

Harold N. Kvisle

Scott will answer that. Scott, please?

L. Scott Thomson

Sure. $50 million of the acquisitions was related to the Kinabalu payment. So as we took over Kinabalu, we had a $50 million payment and that now is producing oil. I think it came on hopefully, correct me if I'm wrong, I think it came on at the end of December and then $50 million is about an [ph] uplift that's just reported in the acquisition lines.

Operator

The next question comes from the line of comes Kam Sandhar from Peters & Co.

Kam S. Sandhar - Peters & Co. Limited, Research Division

I've got 2 questions. First of all, just I think Scott addressed operating costs earlier in the call in an absolute basis, but just wondering on a per barrel basis, the North Sea and Scandinavia costs continue to rise. I'm just wondering if, obviously, you guys have continued shut downs or whatever, but what should we be using for run rate for cost from those 2 business units in particular? And do you foresee any material reductions going forward? Second question, just on the Duvernay. I'm wondering if you could provide us a bit color on in terms of whether you guys would entertain potentially looking at a JV for that asset or is that something that Talisman will look to develop on its own going forward?

Harold N. Kvisle

So it's Hal here. I'll answer your second question first then ask Paul Warwick to comment on operating costs in the North Sea. With respect to the Duvernay, first of all, I tend to look at Duvernay as 2 very specific Duvernays, the north in the Kaybob region and the south in the sort of Silver Lake, Grimve [ph], Drayton Valley area, Williston Green it's sometimes called. And the 2 of those are quite different, much more industry activity in the north. First, I'd say that there are no assets in Talisman that are absolutely off-limits. We'll be willing to discuss joint ventures or divestments on a wide range of assets, but we do particularly like the position we've got in the Duvernay of the overlap with the position that Encana has recently done a deal on is significant, that we're in those same areas. We're particularly interested right now in how early-stage drilling in the south progresses probably because there's been relatively little drilling in the south from that which we've seen that looks interesting. But we have no prohibition on talking about any of these assets, in fact, including the Montney as well. So that we're open-minded about. On the North Sea, I'd just say, generally, in broad terms, any time that there's a decline in production at a large offshore installation, the fixed cost per barrel tends to go up quite dramatically. So the key to driving down operating costs in the North Sea, as we see throughout our business, is increased volume. If we can increase the volume spread, the fixed costs, across more barrels, that leads to a better metric. But we have very difficult circumstances in both the U.K. and Norway right now, and I'll ask Paul Warwick to comment on the costs.

Paul C. Warwick

Yes, thanks, Hal. Jim, I mentioned earlier about the need to repair these assets and fix them because of their lack of reliability and their predictability. And that, of course, is going to cost us. And I think we -- the underinvestment in prior years was not just about things like infill wells. It was about asset maintenance and keeping the assets in a condition where they have a high degree of operating efficiency. And so, unfortunately, we're going to have to spend some money to get these assets right. But that money is not being spent in the context of just pouring it down the drain, sort of good money after bad. The intention is to spend it to raise the operating efficiency of the asset. So in the context of Hal speaking about reduction in production, if we can get our assets operating at higher level of efficiency, we'll be able to produce more from them. And in recent years, we've seen a substantial impact on our operating efficiency and it just doesn't operate at a level where, at least I would say in the U.K. In Norway, for the Gyda field, we actually operate at very high level and it's probably -- it's a small field with small production. It's probably as good as any field anywhere in the North Sea in terms of its operating efficiency. But the U.K. operating efficiencies are generally far too low and we have to put money into those assets to get their operating efficiency up. There's no magic answer to this, unfortunately. And so, the sorts of some costs that we've been spending within the last year are going to be the sorts of costs we will continue to spend.

Operator

The next question comes from the line of Bob Morris from Citigroup.

Robert S. Morris - Citigroup Inc, Research Division

Hal, just very quickly because you've touched on the aspects of some of the assets you might look to sell or up [ph] for monetization and it doesn't appear that you want to exit any major regions besides perhaps the U.K., want to hold on to the Marcellus. You're already exiting Peru and Poland. But last quarter, you talked about being fairly aggressive in asset sales to the point of perhaps reducing your production base by 10% to 15% or more. Is that still the goal here near term? Are you going to be selling down assets that could result in 15%, 20% reduction in your current production base?

Harold N. Kvisle

So first of all, in North America, it's a different situation. We have significant net asset value in acreage and in undeveloped assets worth a lot of money that doesn't generate any production or cash flow to speak of today. And the focus on North American divestments will be on that kind of stuff and I think that there's good opportunities there for us to do that. You take the Montney, for example, our position in the Montney is enormous. And when we did the deal with Sasol, that reduced our overall ownership of that part of the Montney, but the resource in place there is so vast that the share that we could reasonably develop within a 20-year period is still effectively all accessible to Talisman. We just have to adjust the pace of activity. There's other parts of the Montney where we could divest that we are very unlikely to drill within the next 5 years. Those wouldn't affect cash flow. The Sinopec deal, on the other hand, when we divested 49% of the U.K., that did reduce our production and cash flow in the North Sea. But the reality is that it's going to take a lot of capital to restore North Sea to where we'd like it to be. Paul Warwick spoke to that just a moment ago. And by bringing Sinopec in, I'd like to say we've effectively doubled the amount of capital that's available because the opportunity suite is big. There's a lot of unrecovered oil and there's a lot of restorative investments we can make, both in terms of infill drilling and in terms of infrastructure platforms and the like. So you could see another transaction like the Sinopec one occur in an area where we feel a partner could bring more capital to bear than we're prepared to put into it ourselves. In North America, it's mostly going to be focused on divestment or joint ventures related to lands that we would be unlikely to drill ourselves.

Robert S. Morris - Citigroup Inc, Research Division

A lot of those are things that just not only don't have cash flow, but don't have production, so as far as things that currently produce is more along the international front?

Harold N. Kvisle

Yes, and we don't have a lot of initiatives or plans underway at this time to divest current production. We just -- we aren't focused on that right now.

Robert S. Morris - Citigroup Inc, Research Division

Okay, so it's unlikely that all these transactions, at least in the first half the year, perhaps for the full year, would result in a 10% to 15% drop in your production base?

Harold N. Kvisle

I think there's lots of things that could result in a 10% or 15% drop in production, but our objective within Talisman is to maintain flat production in each of our regions and in aggregate. And our intention this year is to make the very best possible capital investments and operate things in a very tightly controlled way and come out of the year with more cash flow per barrel and essentially stable production over the course of the year. Once we get through that, we start looking to, where can we grow and add value going forward? But job #1 right now is really to stabilize everything at the current production level.

Operator

Your last question comes from the line of Kate Minyard from JPMorgan.

Katherine Lucas Minyard - JP Morgan Chase & Co, Research Division

Thanks for a lot of color so far, especially ahead of the open house in early March. One thing I didn't catch, I'm not sure if it was in Scott's comments, but I was just curious as to how the change in the reserves might impact the DD&A outlook in 2013? Presumably some of the costs to develop the reserves that have been removed, have come off the books, but maybe some of the infrastructure costs haven't. I was just curious as to how you saw that unfolding over the course of the year?

L. Scott Thomson

The DD&A charge -- I mean, part of the Q4 DD&A charge actually reflects the reserve results you see here. So as we move forward to 2013, I don't want you to be looking at the 2012 DD&A and projecting that forward because it's a one-off charge in the order, I think, of $190 million, I've said. So that's not going to continue. But the impact of the reserves will be reflected for 2013 as we see in Q4 from a proved developed perspective.

Katherine Lucas Minyard - JP Morgan Chase & Co, Research Division

Okay. So more for a clean run rate for 2012, we could extend into 2013 and that's sort of how you'd encourage us to think about it?

L. Scott Thomson

Except taking out the Auk and the [indiscernible].

Operator

We have run out of time for questions. I turn the call back over to you, Mr. Kvisle.

Harold N. Kvisle

Okay. Well, I'd like to thank everybody for participating and attending today. Thanks for your time, and we look forward to seeing you on March 6.

Operator

This concludes today's conference call. You may now disconnect.

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