Penn West Petroleum's CEO Discusses Q4 2012 Results - Earnings Call Transcript

| About: Penn West (PWE)

Penn West Petroleum Limited (NYSE:PWE)

Q4 2012 Earnings Conference Call

February 14, 2012 12:00 p.m. ET

Executives

Clayton Paradis – Manager of Investor Relations

Calgary – President & CEO

Murray Nunns – CFO

Todd Takeyasu – EVP, Operations Engineering

David Middleton – SVP, Development

Mark Fitzgerald – Development

Rob Wollmann – SVP – Exploration

Analysts

Gordon Tait – BMO Capital Markets

Brian Kristjansen – Dundee

Roger Serin – TD Securities

Christina Lopez – Macquarie

Operator

Good morning and good afternoon. My name is Candice and I will be your conference operator today. At this time, I would like to welcome everyone to the Penn West Exploration Limited 2012 Fourth Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions)

Thank you. Mr. Clayton Paradis, you may begin your conference.

Clayton Paradis

Thank you, Candice, and good morning everyone. Welcome to Penn West 2012 Fourth Quarter Financial and Operating Results Conference Call. My name is Clayton Paradis, Manager of Investor Relations, and with me this morning in Calgary is our President and Chief Executive Officer, Mr. Murray Nunns; Chief Financial Officer, Mr. Todd Takeyasu; Executive Vice President – Operations Engineering, Mr. David Middleton; Senior Vice President – Development, Mr. Mark Fitzgerald; and Senior Vice President – Exploration, Mr. Rob Wollmann.

Before getting started this morning, I would like to quickly remind listeners of our customary conference call advisories. Penn West Explorations shares are traded both on the New York Stock Exchange under the symbol PWE, and on the Toronto Stock Exchange under the symbol PWT. All references during this conference call are in Canadian dollars unless otherwise indicated and all conversions of natural gas to barrels of oil equivalent are done on a 6:1 conversion ratio. All financials are reported under International Financial Reporting Standards or IFRS.

Certain information regarding Penn West and the transactions and results discussed during this conference call include management’s assessment of future plans and operations may constitute forward-looking statements under applicable securities laws and necessarily involve risks. We will also be discussing Penn West’s year-end 2012 reserves report in this morning’s call. These reserves, estimates have been calculated in com with National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities.

I would direct people to our Penn West’s fourth quarter news release and I also ask them to review the advisory notes therein. This new release can be found on our website, at www.pennwest.com.

Participants are also cautioned that the including list of risk factors contained within that release is not exhaustive. Official information detailing other risk factors that could affect Penn West operations or financial results are included in reports on file with Canadian and U.S. securities regulatory authorities and maybe accessed through the SEDAR website at www.sedar.com and the SEC website at www.sec.gov.

During this conference call certain references to non-GAAP terms maybe made. Participants are directed to Penn West’s MD&A and financial statements available on our website, as well as filings available on the websites noted earlier to review disclosure concerning non-GAAP items.

I would now like to turn the call over to Mr. Murray Nunns, President and Chief Executive Officer.

Murray Nunns

Thanks, Clayton. This morning after reviewing some 2012 highlights and key strategic directives for 2013, I’ll turn the call over to Rob Wollmann, who’ll provide you with an update on our Q4 and 2013 capital programs. Mark Fitzgerald will then follow with a brief summary of our reserves report, then we’ll open up the phone for questions.

Before we begin, I’d like to remind listeners that along with the Q4 results, we also announced the first quarter dividend of $0.27 per share to be paid on April 15, 2013 to shareholders of record on March 28, 2013.

We believe the dividend to be an appropriate component of our business model, as it provides our balance of immediate return as we prove the full resource potential and value of this company. We have an asset base that is unlike a lot of our peers. We have a vast array of light oil assets which provide strong cash flow and the resource base with significant upside which demonstrates creditability to add economic reserves. In 2012 this asset base also provided the ability for us to significantly improve our balance sheet through the sale of non-core assets.

Just touching on some of the highlights of 2012; we generated C$1.25 billion in cash flow derived approximately 90% from oil and liquids. The average production of 161,195 boe per day that was weighted approximately 65% to oil and liquids.

We replaced 190% of our total production on a proved plus probable basis excluding economic revisions on A&D activity. We produced approximately 59 million barrels last year, 65% of which was oil and natural gas liquids. Now let’s contrast that with the 2012 reserve additions where we added 110 million boe to the reserve books, 80% of which was oil and liquids. Proved plus probable finding and development costs, including FDC, improved by approximately 5% on a year-over-year basis to $25.50 per boe or $23.12 per boe excluding economic revisions largely related to natural gas.

In 2012 Penn West divested non-core properties producing approximately 16,500 boe per day for net proceeds of approximately C$1.6 billion. The net proceeds were used to pay down bank lines and resulted in a total debt to EBITDA ratio of 2.1 times at year end. We expect asset rotation activity to continue in 2013 as a means of unlocking value inherent in our asset base, as we divest non-core base assets and continue investing in our profitable light oil resources.

To maximize the value derived from our light oil resources, one focus area for 2013 is oil marketing. Reiterating what we have said previously, in 2013, Penn West has oil collars on 55,000 barrels per day of crude oil with an average floor price of $91.55 per barrel and $104 ceiling. Where possible, we have selectively hedged the light oil differential. On the natural gas side, we have 125 million cubic foot per day hedged at C$3.34 per mcf.

Penn West is selectively shipping crude oil by rail in certain areas and expects to reach to 5,000 to 7,000 barrel a day range in the second half of 2013. And I do want to underscore that rail will not be a major component of our shipping in the long run due to the nature and location of our assets throughout Western Canada. The majority of our volumes are already on or near existing pipelines, through which we have takeaway capacity. One step Penn West has taken to ensure strong oil pricing in the future for its products has been to contract 35,000 barrels per day or approximately 40% of our forecast 2013 net after royalty light oil volumes on the Flanagan South pipeline to the Gulf Coast beginning in the second half of 2014.

In a broader sense, ongoing pipeline infrastructure projects are expected to add between 2 million to 3 million barrels of capacity in North America by the end of 2014. This is expected to have a significant impact on the current Edmonton on light to WTI differentials.

Now turning to our highest priorities for 2013. Capital efficiency and production performance. We are targeting improvements in capital efficiency through capital allocation and effectiveness in execution. For production performance, we are looking at all major functions in the operational and production interface to optimize cycle times and on-stream performance. In addition, we’ve implemented organizational changes to attain these objectives.

Let me give you a little color on these changes. We’ve consolidated the senior team responsibilities. We have moved the organization into cross functional teams, and have restructured key outputs of planning and operations functions. We are well along on the fuel research and have a good roster of candidates we are in discussion.

We’ve been transitioning the company from a focus on oil resource growth to maximizing the effectiveness of our operations. This is an important change that we have implemented to fully realize the value inherent in our resources, and believe me, there is a strong sense of purpose around this imperative in the company.

All 2013 plans are on course with expectations. We are on plan with respect to capital expenditures and our operations and field teams are clearly aligned on attaining our key objectives.

I will now turn the call over to Rob Wollmann, our Senior VP of Exploration, whose shared responsibility it is to help deliver on the dollars, barrels and times associated with our 2013 capital plan.

Rob Wollmann

Thank you, Murray. The 2013 program is focused on delivering our production guidance efficiently with a light oil focus. We have learned a lot over the past several years in where and how to bet supply multi-stage frac horizontals to our vast light oil resource base. We are continuing to make and will continue to make material improvements in how to maximize the long-term value of these assets for Penn West shareholders through improved capital efficiency.

Our capital programs over the past three years have targeted primary production and secondary recovery, significant land additions in both the Slave Point and Duvernay and investments in major oil infrastructure expansion in the Spearfish, the Cardium, Viking and the Slave Point. We have appraised large parts of our light oil inventory and built a solid predictable foundation for development.

2013 capital allocation target areas, where we are generating strong economic returns, typically in excess of 2:1 recycle ratios on new oil developments, where we have available infrastructure capacity and where we are realizing ongoing cost savings. In addition, we are continuing to select, complete, invest, in appraising optimum waterflood recovery techniques, primarily in the Cardium and Slave Point, where we believe significant long-term value will be realized through a fully integrated horizontal development of these large light oil resources.

The incremental capital added in late 2012 to kick off the winter program provided momentum as we entered 2013. To date our 2013 program is ahead of schedule. We peaked with 20 drilling rigs in late January and are slowly releasing rigs on completion of the improved winter program. From a cost perspective, on average to both the use of optimal equipment improved, and improved drilling engineering programs, we have seen reductions in drilling costs and number of drilling days relative to both historic norms and our budgeted expectations. In many areas timing of completion activity has been advanced to take advantage of our drilling performance and minimize the risk associated with an early breakup. Completion cost to date on average are on to slightly below budget expectations. Our integrated teams remain on track to meet or beat our capital efficiency objectives and delivered the approved 2013 program.

As Murray mentioned, one of our key focuses in 2013 is on production performance. On that front initiatives including repair and maintenance, focus on shortening downtime, focusing field processes, proactively replacing at risk pipelines, consolidating underutilized facilities, and the ongoing positive impact of increasing volumes through our new facilities are all showing early signs of success. This is an ongoing effort that our integrated field and office teams are all contributing to.

Now moving on to projects specific updates. Firstly on the Spearfish. In late November, we initiated our winter program and have been operating with five drilling rigs in 2013. Year-over-year drilling days have dropped from on average eight days per well, down to five days per well with costs coming in below expectations.

Drilling operations are expected to include prior to the 10th of March significantly earlier than previous years. Our winter program calls for a total of 73 wells to be drilled. Completion and tie-in activities are largely on track despite several days lost in late January due to extreme cold in Southwest Manitoba. Our natural gas liquids extra plant remained on plan for start up during the second quarter of 2013, and is expected to provide an additional 500 boe to 700 boe per day to our current 13,500 barrel of oil per day infrastructure capacity. And our recent throughput has been in the 16,500 barrel a day range.

On to the Slave Point. Our Sawn winter drilling program concluded in early February well ahead of schedule, as drilling period days dropped from an average of 28 days per well to 17 to 19. Per well drilling costs are estimated to have averaged over C$500,000 below budget. Completion activity is on schedule with nine wells expected to be fraced by March 7th.

Production results from wells drilled in the new development area at Sawn continued to meet our expectations. Our original two wells brought on-stream at the end of Q1 2011 have already produced, on a combined basis, over 250,000 barrels. The four new wells brought on in 2012 are producing between 100 barrels and 500 barrels per day each, having been on-stream for over six months.

The Sawn oil and gas infrastructure expansion came on stream in December and provided processing capacity through 2014. We have a large defined development inventory available for the next several years at Sawn. And with additional appraisal planned for 2014 of our large land base along the northwest extension of the Sawn trend, significantly more opportunities to add high deliverability light oil barrels.

At Otter, the remaining six 2012 wells are all expected to be on-stream prior to the end of the first quarter. Penn West’s initial Slave Point waterflood pilots located at Otter and Sawn are anticipated to be on-stream prior to the end of this year. And a long industry pilot will provide key information to support future EUR investments.

On the Cardium, in 2013, our capital budget includes selective, primary drilling in the Older flats area and further progression on our waterflood strategy inclusive of two new horizontal waterflood pilots at Willesden Green. Our drilling and completion techniques have evolved and we are now seeing cost improvements in the order of 25%, driven by drilling efficiencies and water-based fracs.

Our existing horizontal waterflood pilot at West Pembina provides evidence and the potential of the waterflood strategy. Current production is in the 150 barrel of oil per day range with essentially no water production from three previously set-in legacy vertical wells offsetting our two horizontal water injectors.

We believe that Cardium is the most significant asset in the company from a long term perspective. The independent contingent resource study released in October identified an incremental 533 million barrels of potentially recoverable light oil. Notably potential recoveries from horizontal multi-fracture waterflooding are not reflected in the study.

Primary development terms on projects in the Cardium are in the 20% to 30% IRR range. The integration of primary development and secondary recovery through waterflood is expected to provide returns competitive with any plays in the basin.

On the exploration and joint ventures front, industry activity now essentially surround our bigger than 100,000 net acre Duvernay position in the Willesden Green area of West Central Alberta. Our initial stratigraphic well was consistent with our geological studies and in conjunction with released industry results suggests our position is in the heart of this emerging liquids rich play.

Our activity plans for 2013 will remain modest, as we say no material land tenure issues until the end of 2014. We are continuing to closely monitor industry results both from a productivity and cost perspective as appraisal of this play accelerates.

In the Peace River Oil Partnership plans for 2013 include continued primary multilateral drilling, start up of our second terminal pilot at Harmon Valley South, and continuing to progress our Seal Main commercial project through regulatory process. Results from the Seal Main pilot exceeded expectations with cumulative productions through two cycles of over 150,000 barrels with a steam oil ratio of 1.4.

Overall, the organizational changes and focus that Murray spoke of, with respect to capital efficiency and production performance are beginning to bear fruit. At this point, I will pass the call over to Mark Fitzgerald to provide year-end reserve highlights.

Mark Fitzgerald

Thanks, Rob. As Penn West has appraised our asset base and built the development programs that Rob highlighted under our light oil strategy, our company has worked to reflect this growing inventory on our reserve book. In 2012, two major independent contingent resource studies were done for Penn West that really serve to define the size of the price in the Cardium and Peace River Oil Partnership. Combined then with our internally generated inventory of horizontal wells, Penn West continues to see growth in the economic investment opportunities we have in our large light oil assets and other resource plays.

Both Murray and Rob have highlighted the ongoing evolution of our strategy when they spoke to our focus in 2013 on the efficient development of those oil resources, thereby converting oil reserves to production, and of course, further defining new reserves for future booking. In short, our strategies to define a resource, recognize the value of the resource on the reserve book, economically and efficiently convert that resource to production and reliably produce it over time. After another successful year in which we have seen a higher reserve replacement ratio in large portion of our primary horizontal inventory across our core plays remains unbooked. Based on the independently completed contingent resource studies and our own internally generated inventory less than 15% of our primary horizontal oil locations are currently reflected in our reserve book.

Potential recoveries associated with our enhanced oil recovery opportunities provide us then with a second layer potential future barrels as declines are flattened and recoveries on our large oil pools are potentially increased. Our light oil strategy continues to focus on recognition of a large intrinsic resource value of our plays on the reserved book over time.

Having highlighted the top level strategy, I would like to walk through some of the highlights from our year-end 2012 reserve report. Note that these values are all as of December 31, 2012, and further detail of course is available on our recent release. Net of acquisition and disposition activities, on reserve book continues to show growth and we increased bookings in all key resource plays in 2012.

On a proved plus probable basis, we added approximately 110 million barrels of reserves. I would like to highlight that approximately 80% of those barrels of crude oil and liquids are consistent with our ongoing oil focus. Our total proved reserves 78% are in the developed category and in addition total proved reserves as a percentage of proved plus probable were 66%. Murray has highlighted that our 2012 reserve replacement ratio was 190%, excluding the effect of acquisitions, dispositions and economic factors. If we still focus solely on the oil and liquid component of our book, that reserve replacement ratio for oil and liquids increases to greater than 230%. Total working interest approved for the probable reserves were C$676 million boe at year end December, at year end 2012, continuing to be weighted approximately 71% to crude oil and liquids. This is after the effect of 87 million barrels of oil weighted non-core asset dispositions.

And I just want to underscore the value of oil in this basin relative to natural gas, 90% of the NPV in our book in 2012 is driven by oil and natural gas liquids. Our light oil strategy continues to add high value, high net-back producing barrels to our operating base.

Finding and developing costs on a proved plus probable basis including economic revisions improved to C$25.50 per boe in 2012, a 5% improvement over 2011. The net-backs on our new oil development in excess of C$50 per barrel at current pricing. This represents an initial recycle ratio greater than two times, our new light oil development. This reinforces Murray’s earlier point regarding our asset rotation strategy, and the opportunity to continue to monetize non-core assets to fund our significant light oil programs.

In addition, with 85% of our internal inventory not yet reflected on the book, we are well positioned to continue to transition our production base towards higher net back, high value, light oil. As we have highlighted, the combination of our light oil asset base with strong and capital efficiency and production performance will maximize the value for our shareholders as we move through into 2013.

We’d now like to turn this call over to the operator Candice. And open up the phones to callers for questions.

Question-and-Answer Session

Operator

(Operator Instructions). And your first question comes from Gordon Tait with BMO Capital Markets. Your line is now open.

Gordon Tait – BMO Capital Markets

Hi, good morning. Couple of questions. Firstly, what are you targeting for asset sales this year, if you could maybe sort of quantify any production expect to sell and proceeds from that?

Clayton Paradis

We don’t have a specific target level, Gordon, I think up – what we’ll do is trying to give you a flavor for the priority. I think our top priority first will be looking at some of our early life projects, I think in that case and point would be the Duvernay. We think there is tremendous value, we don’t think there is recognition in the market for that, but more importantly, we believe an outside source of funding and extraction of some of the value given that we’ve only invested about $100 million in the Duvernay as a total. We think that’s a very good business proposition. So something like that would definitely be on the radar screen. We’ve looked at a variety of non-core assets that are – really don’t have inventory that has a long term impact. So we’re looking at some mixtures of that, we are very cognizant on the other side of the equation of not eroding our cash flow too much. So it is a really a balance for attacking the strike here.

Gordon Tait – BMO Capital Markets

As you sold some production off reduced Tier 4 guidance, some of the numbers of G&A for fields has increased. Is that – is that an area you target to see some cost savings in or you okay with where you are sitting now?

Clayton Paradis

Basically, as we have sold assets, we have – I think what we’ve done is maybe appropriate moves with our personnel. I think we brought the G&A down in approximately in a proportional manner from the dispositions. So we see that as sort of a key neutral – I would call it a neutral point. We also see some other efficiencies on G&A in terms of some relationships on our office space and a few other things that we’re doing to work on that type of the equation as well.

Gordon Tait – BMO Capital Markets

And then with the waterflood in the Cardium, what sort of the pace of development do you see therein, that would be one question. Secondly, would be do you have to shut in some of the producers and turn them into injector wells?

Clayton Paradis

I am going to – I am going to turn this over to Rob and I will maybe add some color at the end of that.

Gordon Tait – BMO Capital Markets

Sure go ahead.

Rob Wollmann

On the Cardium, the initial pilot have been in areas where the existing producers have been shut in. So, we took to reactivating those wells rather than having to shut in other well for us. In general, what we’re looking at in the next suite of waterfloods in the Cardium is converting one of the existing horizontals that we’ve drilled post is recovering its – low royalty oil into an injector and using as the horizontal injector side by side with existing horizontal producers.

Gordon Tait – BMO Capital Markets

Then give a sense of how many injectors you would like to have there by the end of this year and next year?

Murray Nunns

By the end of this year, as I mentioned before, we will have three pilots ongoing. In 2014, we would – we still have a number for you, but we certainly anticipate a much broader program in the Cardium with respect to waterflood.

Clayton Paradis

And just to add a little color to the longer term development. We ultimately believe horizontal to horizontal will be the way this is flooded. We also know with interests one of our competitors has initiated a pad or several – or couple of pads, and they’re looking at flooding at eight wells per section whereas we’re only looking at four wells per section right now. So, the general – the general thought process is around that are still evolving. But I think ultimately – ultimately the effectiveness that is demonstrated in the old vertical well and with the early experimentation points to a large price really is not part of the equation at this stage.

Gordon Tait – BMO Capital Markets

Okay. And one last question on Seal. When do you see the Seal play contributing sort of meaningfully to Penn West’s cash flow and production?

Mark Fitzgerald

Yeah, Gordon, right now, we’re continuing to drill our primary wells or horizontal wells. The real redo the step change and we’ve always talked about Seal being that step change in oil production, you’re going to see that in the last half of 2015. And that’s coming from the Seal Main commercial, that’s the 10,000 barrel a day project, which we currently have we sent that into the ERCB and environment back in September for approval.

Gordon Tait – BMO Capital Markets

Okay. Thank you.

Clayton Paradis

Thanks, Gordon.

Operator

(Operator Instructions) Your next question comes from Brian Kristjansen with Dundee. Your line is now open.

Brian Kristjansen – Dundee

Thanks. First question for Rob, if you can comment on some specifics about the 10-day drill savings that’s on?

Rob Wollmann

Sure, Brian. Yeah, the savings really are reflected in a couple of veins. One as we’ve gone into a development phase, we’ve not had to core as many wells, so that certainly is a savings. A second savings is our drilling group has made great progress in trying to figure out the shallow part of the section at Sawn where historically there has been some up hole challenges. And we seem to have those largely behind us and that contributes in large savings and number of coming days.

Brian Kristjansen – Dundee

Thanks. And in the Cardium you mentioned, water-based fracs, what percentage of your Cardium wells are getting completed with water-based fracs today?

Rob Wollmann

At this point virtually all of them.

Brian Kristjansen – Dundee

Great. And then with respect to corporate production being made up about 20% I guess today of horizontal drilled wells. Do you still have a comfort level in your 22% corporate decline?

Clayton Paradis

Yeah, so overall when we look at it, part of it is we’re now dealing with horizontals that are three plus years old based on past flush decline. So that’s really started to flattened out and so we’re very comfortable with the 22% estimate.

Brian Kristjansen – Dundee

Great. Thanks, guys.

Operator

And your next question comes from Roger Serin with TD Securities. Your line is now open.

Roger Serin – TD Securities

Good morning, everybody. Got a few questions here, hopefully we can get through them all. So if I look at CapEx by area, some of it’s in your IR presentation, some of it’s not. Could you give me a sense or confirm CapEx for each of your sort of three light oil plays Viking, Spearfish, Cardium, and Carbonate, you can lump or separates Sawn Hill and Slave Point.

Clayton Paradis

The guys are just leaping through to get the – get the exact number Roger. Why don’t you bring us on to another question and we’ll double back on that answer.

Roger Serin – TD Securities

I was hoping you would ask that. So can you give me any color on the Duvernay test that you guys did? You talked about it being convincing you or confirming that you’re in the right spot. I’m assuming you’re thinking that’s gas liquids?

Clayton Paradis

That’s correct. I mean the way we look at it Roger is that our vertical well bore, which we did complete with one frac. We’ve got the gas – obviously the gas analysis, the thermal maturity information and clearly indicates that we’re in the gas liquids window of the Duvernay.

Roger Serin – TD Securities

Okay. Your IR presentation talks about fair amount of work through 2012 expanding your fluid handling capacity in really most of your areas. Can you give me a sense of which of those areas you think could be constrained by fluid capacity and also which of those areas again those four well activity seeing growth year-over-year?

Clayton Paradis

I’ll take that one on Roger. So in Waskada or in the Spearfish play we have just in excess of 7,000 barrels of available handling capacity and feel that will be adequate for 2013 development with an expectation that that facility will be full by year end. In Sawn we have more than enough capacity for both this year and certainly well into next year. In the Cardium, we invested heavily in new infrastructure in Willesden Green and in Older Flats both of which will provide adequate handling capacity for both this year and next year.

Roger Serin – TD Securities

So my math tells me this Spearfish is growing, Sawn and the Carbonate is growing, probably the Viking flat to growing, are you expecting to see Cardium production growth this year with the capital allocation?

Clayton Paradis

No, more or less flat.

Roger Serin – TD Securities

Okay. Do you have that you guys have calculated at 2P FD&A, so not just F&D and but also FD&A?

Mark Fitzgerald

Roger, it’s Mark. We don’t really consider that one relevant this year given the focus on the dispositions as we went through the year. As you can appreciate the math that gets a little bit funny. I think from our perspective if we look at the $25 F&D, that reflects with FDC, kind of what we’re seeing in terms of delivery from these assets and the value of these assets as we move forward. The disposition on the book, it gets just a little bit, little bit funny as we move through it, but I think...

Roger Serin – TD Securities

I was asking because it was getting funny in my calculation...

Mark Fitzgerald

Yeah, yeah, it’s just – I think as we – as Murray talked about, as we focus on the rotation of what we would consider non-core assets or assets that have, we think good value and good inventory that are not in areas that we’re focused on right now and as we continue to move those out to 2.5 to 3 times ratios that we can invest in core production on the core areas that’s what we’ll continue to do.

Roger Serin – TD Securities

Okay. I think I only got a couple, one of them is FDC, you see a change in FDC of maybe up about $600 million. Obviously it seems like that’s a bit of a function of your mix is changing, your proved developed is down a little bit from last year, am I getting it, is that the right way to think of it, just the change in mix of proved developed versus larger component of PUDs and probables?

Murray Nunns

Yeah. I think as you can appreciate the dispositions 87 million barrels of a certain – certain ratio off the book. The FDC that we’ve added is we think a continuation or reinforcement again of the potential resource that we have and the ability to continue book that resource as we go forward.

And I – we highlighted a little bit that – that addition of the FDC still brings us only to based on our internal numbers and on the order of 15% of the horizontal inventory that we have on to that book. So the FDC comes on and increases the undeveloped bookings as we move forward, more closely in line with where developments our peers have had in terms of future bookings. We’ll continue to see that movement as we move forward.

Roger Serin – TD Securities

Okay. But there was nothing as it related to well costs, if anything they should have come down a little bit year-over-year?

Murray Nunns

We’re certainly – as Rob talked about, certainly seeing significant gains through Q4 into Q1 and are pretty pleased with what we’re seeing as move forward and as this reserve bookos evolves through 2013 into 2014, then we have that data of course to bring to bear as we go forward.

Roger Serin – TD Securities

Okay. Two other areas and I’ll let you answer the question about allocation of CapEx. The restructuring charges, is there any color beyond just you’ve had a series of right sizing going on and reallocation, is that all that I should read into that or were there other costs associated with that?

Murray Nunns

That’s correct, Roger, I wouldn’t read anymore into that.

Roger Serin – TD Securities

Okay. And lastly Q4 CapEx, little bit higher than we expected. Did you accelerate some capital to get a head start on the year or was that always in your plans?

Murray Nunns

It was always in our plans Roger. When we came out and we did our – or guidance shift at the end of this third quarter, it was all with the intent of getting rigs going into the place – starting in this first and second week of December in that range, and it just gave us that running start in the dead run towards break up that we’re all spoke of over the order. There’s nothing else really in that.

Roger Serin – TD Securities

Okay. I’m not sure, if you guys have got the CapEx, by area, but that would be greatly appreciated?

Murray Nunns

Yeah, it’s hard, Roger. We – I can give you a sense of it and then Clayton can probably follow-up with the details for you. As we talk to the – the real focus in 2013 is on the Spearfish, it’s the – we’ve seen very predictable results, very good efficiencies, good cost savings and that kind of $200 million to $250 million including facilities and optimization and otherwise will be in the Spearfish as we move through this year.

Other areas would be, Rob talked about Sawn and the Slave Point an area that we’ve seen very good results from – on the type curve we’ve seen good efficiencies, we’ve seen good savings. And then other – other areas that would have to be in our Central and the Madison River Area, Swan Hills we talked about, a little bit in the Cardium, but that’s primarily and absolutely coverage as we move through the year. So a very focused program, as we talked to and I think Clayton, can maybe follow-up with some of the specifics to help you with that.

Roger Serin – TD Securities

Okay. That would be appreciated. Thanks very much.

Operator

And your next question comes from Christina Lopez with Macquarie. Your line is now open.

Christina Lopez – Macquarie

Hi, guys. Roger asked a bunch of my questions, but I’ve just got a couple of more. With respect to exit volumes, are you able to sort of give us a sense of where exit volumes after the dispositions were for the year end? What do you look for production profile for the remainder of the year?

Murray Nunns

In terms of the exit volumes, and it’s one thing, we just – we haven’t commented on at all. I think you can kind of look at the average and it roughly takes in 20%, 25% of the – or dispositions at that point. But beyond that in terms of the profile going forward for this year we anticipate being relative – Q1 obviously a little bit we’ll have some impact later in the quarter of tie-ins from the Q1 programs. And then moving into Q2, we’d anticipate a little softness towards the end of Q2, because we got significant turnarounds in the June, July period.

Obviously we’re working to minimize their impact, but that is turnaround season. And then in Q3 we will sort of to have realized much -the balance of the impact from Q1 drilling. So we see volumes at that point. And then I think the important aspect for the balance of the year becomes whether we engaged that extra tranche of capital that we referred to in our budget discussions about a month ago. So right now planning on the $900 million case, we’d expect production again to be relatively flat on the full year basis, Q1 to Q4. And of course that changes if we deployed further capital in Q3, Q4.

Cristina Lopez – Macquarie

And that capital deployment is related to primarily whether or not ends up holding in for the year right?

Murray Nunns

We’ve underscored this and thanks for asking and giving me the opportunity to answer again. That will depend on our overall production performance, on our capital efficiency, I believe there’s also an aspect of that differential in commodity price and also what we do on the A&D side of the equation, because we do have the ultimate aim of continuing to enhance the balance sheet.

Christina Lopez – Macquarie

And then finally on the reserves, we saw the probable heavy oil number actually double this year and is that related to additional probable at Seal or is that a separate property?

Murray Nunns

Yeah, that’s a – that’s a reflection of recognition on or the thermal side of Seal. So that’s relative to our Seal main product.

Christina Lopez – Macquarie

Perfect. Thanks so much, guys.

Murray Nunns

Thanks, Christina.

Operator

And we have no further questions at this time. I’ll turn the call back to Mr. Murray Nunns for closing remarks.

Murray Nunns

Thank you everyone for your time and attention today. We view the business is relatively simple. We do have the advantages of a very large light oil base. We have taken the time to add to those resources over the years. We also recognized that efficiency and effectiveness on production performance and our capital efficiency are going to be the keys going forward in locking the value of this asset base and in the interim we do believe that the dividend remains and will remain part of the equation for our shareholders. Thanks everyone for your time and attention.

Operator

And this concludes today’s conference call. You may now disconnect.

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