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Pengrowth Energy (NYSE:PGH)

Q4 2012 Earnings Call

March 01, 2013 8:30 am ET

Executives

Derek W. Evans - Chief Executive Officer, President and Director

Robert W. Rosine - Executive Vice President of Business Development

Christopher G. Webster - Chief Financial officer

Marlon John McDougall - Chief Operating Officer

Analysts

Jonathan Caplan

Roger Serin - TD Securities Equity Research

Cristina Lopez - Macquarie Research

Dirk M. Lever - AltaCorp Capital Inc., Research Division

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

Jay Abella

Operator

Good morning, ladies and gentlemen. Welcome to the Pengrowth Energy Corporation's Fourth Quarter Results Conference Call and Webcast. I would now like to turn the meeting over to Mr. Derek Evans, President and Chief Executive Officer. Please go ahead, Mr. Evans.

Derek W. Evans

Thank you, operator. And good morning, ladies and gentlemen, and thank you for joining us for the call this morning. I'm Derek Evans, President and CEO of Pengrowth. Joining me today on the call are Marlon McDougall, our Chief Operating Officer; Chris Webster, our Chief Financial Officer; Bob Rosine, our Executive Vice President of Business Development; Fred Kerr, our VP of Investor Relations; and Andrew Grasby, our Senior Vice President, General Counsel and Corporate Secretary.

Before we begin, I remind you that certain information presented today may constitute forward-looking statements. Such statements reflect current expectations, estimates, projections and assumptions of the company. These forward-looking statements are not guarantees of future performance and are subject to certain risks, which could cause actual performance and financial results in the future to vary materially from those contemplated in the forward-looking statements. For additional information on these risks, see Pengrowth's annual information form under the headings Risk Factors and Forward-looking Statements.

Having gotten that out of the way, let me begin by saying, that we are as disappointed as you are, I'm sure, in the performance of Pengrowth's stock. Everyone of us here at Pengrowth is a shareholder. And I, personally, have a significant part of my net worth invested in Pengrowth shares. We continue to believe that Pengrowth is on the right track strategically and that today, our stock is significantly undervalued. That belief is underscored by our latest reserve report from GLJ Petroleum Consultants, which indicates significant reserve growth and translates into an internally calculated net asset value of over $8.60 per share before tax, using a 10% discount rate. The details of this calculation are in our Q4 news release that we issued last night. I want to remind shareholders about our goals and our strategy to achieve those goals. This material is very well laid out in our Investor Day presentation from January 11, which is on our website, which I would encourage you to read.

Today, Pengrowth production is just over half oil and liquids with the balance being natural gas. We continue to emphasize our conventional oil and liquids drilling opportunities, particularly in the Cardium at Lochend and at Swan Hills, while we bring the Lindbergh project closer to commercial production. We think that the thermal bitumen business makes great sense for Pengrowth because it offers a sustainable business model with long life reserves, low declines and better capital efficiencies than alternatives like natural gas or light oil. In our view, this makes it ideal for supporting a dividend. We have a very strong thermal bitumen asset at Lindbergh, whose pilot result suggested is one of the better thermal assets in Alberta. As well, we have an experienced and talented team to develop that resource.

Pengrowth is moving to be a sustainable dividend-paying energy producer. In order to do that, we will invest approximately $600 million over the next 2 years to drill wells, build the surface facility to bring the Lindbergh production on-stream in 2014. We know that Pengrowth shareholders value receiving a stable dividend. We have said it in our news releases. We have said it at our Investor Day in January, and I will say it again; Pengrowth is committed to maintaining its dividend at the current levels of $0.04 per share per month.

Our 2013 capital program is fully funded and will not result in incremental debt in 2013. The 2013 CapEx program of $770 million and our 2013 annual dividend of $250 million are fully funded by expected cash flow of $680 million, Weyburn proceeds of $315 million and DRIP proceeds of $50 million. We will not be taking on additional debt in 2013. As we noted in our January 11 Investor Day, we are not interested in issuing equity or additional debt to fund our Conventional capital and Lindbergh project in 2013 or 2014. To that end, we announced our intention to divest of up to $700 million of assets in 2013, which will fund our capital commitment in 2014 and beyond.

We are in the market now with our non-core eastern heavy oil package, our non-operated southeast Saskatchewan assets are expected to be in the market by the end of March. Our eastern heavy asset is operated and produces approximately 2,850 BOEs a day, and has significant remaining EOR potential. The southeast Saskatchewan package comprises operated and non-operated assets producing about 6,000 BOEs a day, mostly medium and light oil, with a relatively shallow decline and high operating netback. These are high quality, oily assets that we expect to generate significant interest.

When we showed in our January 11 Investor Day that Pengrowth will sell assets, thereby temporarily shrinking production somewhat in order to shift to a more sustainable model with a higher oil weighting, longer reserve life and lower declines, we also noted that we expected cash flow per share, which is ultimately what pays the bills and the dividend, to remain steady in 2013 and 2014. The stock market always prefers to see growth, preferably right away, but to be sustainable, growth has to come from assets that don't decline rapidly or cost too much to maintain every year. I learned this crucial lesson early in my career. Sustainability is what I preached and practiced at my previous oil and gas company, Focus Energy Trust, and that is what we are building today at Pengrowth.

As managers, our responsibility is to position the company for long-term prosperity, and our strategy put Pengrowth where it needs to be, more financially sustainable with an oilier production mix, lower declines, lower maintenance capital requirements and enjoying major increases in cash flow as the Lindbergh asset ramps up, that is the price. In the interim, we will protect our cash flows via hedging, managing our balance sheet and raise cash via dispositions, all the while maintaining the dividend.

I don't want to rehash our quarterly report in detail. It's very thorough. But I did want to make a couple of observations about our most recent financial results. We added significant reserves in 2012, both via the NAL acquisition and the drill bit, and we did so at very attractive SG&A cost. NAL not only boosted our reserves but also provided key drilling opportunities in a number of areas, including the Lochend and Garrington areas.

Fourth quarter 2012 average production was approximately 94,039 BOEs a day, which is essentially unchanged from the third quarter 2012 average of approximately 94,300 BOEs a day. Fourth quarter 2012 funds flow from operations was approximately $190 million, which was $49 million higher than the third quarter 2012 funds flow of approximately $141 million. The largest impact here were from higher prices, hedging gains and lower operating costs. Full year 2012 funds flow of approximately $539 million was $81 million lower than full year 2011's fund flows of $620 million. The funds flow were boosted or bolstered by higher volumes but offset by lower realized crude oil prices and significantly lower realized natural gas prices.

I want to take a few minutes to talk about the future I've described, why we're undertaking this transition to become a more sustainable energy producer. Pengrowth will emerge from this process a transformed company with a much higher oil rating, lower decline rates and much greater cash flow. We have an excellent set of conventional assets that provide significant drilling opportunities. We are currently operating 13 drilling rigs with significant activity in the Lochend and Garrington area, where 6 rigs are drilling Cardium opportunity that have recycle ratios of greater than 4x at today's oil price.

As recently as a year ago, Lindbergh's first oil was a 2016 phenomena. Thanks to stronger-than-expected reservoir performance with the Lindbergh pilot wells ramping up to full production in 6 months instead of the expected 18 months typical of a McMurray thermal project, we have accelerated Lindbergh's first oil by a full year, and now expect the first commercial phase of Lindbergh to be close to full 12,500 barrel production by late 2014, which is approximately 1.5 years from now.

This is an exciting time for Pengrowth. We go into 2013 with a differentiated, logical strategy to become a sustainable, growing oil producer and plan -- with a plan to get there. Our stock is clearly undervalued, and we are standing by our dividend, giving the stock a very attractive yield. We look forward to informing you about the story as it unfolds over the coming months.

We'd now be happy to answer any questions you may have. Operator, do you have any questions in the queue?

Question-and-Answer Session

Operator

[Operator Instructions] We have our first question from Jonathan Caplan of Caplan Capital Management.

Jonathan Caplan

I've been a longtime shareholder. My clients have been longtime shareholders of the company's stock. I'm kind of astounded by the response in the stock market to your plans at Lindbergh. And I like what management is saying. The stock market does not seem to agree, so my question is, is there a point or is there a price in stock where you would consider share repurchase as being the best alternative vis-a-vis dividends or capital expenditures?

Derek W. Evans

Jonathan, thanks for your question. It's Derek Evans here. We would agree with you. We are as baffled by the lack of stock market response to what we think is a very strong and sustainable strategy. At the current time, I -- we're not looking at repurchasing stock. Clearly, our focus is on divesting of some assets to make sure that we've got the capital, not only for our 2013 CapEx program, but also 2014 on -- and beyond. I would say though, if we saw proceeds in excess of -- proceeds from our sales that were in excess of what we had anticipated, this would be something that we would look at very seriously.

Operator

Our next question is from Roger Serin of TD Securities.

Roger Serin - TD Securities Equity Research

I'm wondering if you could -- with what's going on with differentials, if you could touch on your marketing strategies, and whether you setting things up in anticipation of Lindbergh, whether you're changing some of your oil marketing strategies in the near term?

Derek W. Evans

Roger, our oil marketing strategies are very liquid and are moving around quite a bit. I would -- our view though is that we're seeing that WTI to Edmonton light differential start to moderate somewhat. But to that end, we have continued to move more crude by rail to try and get around some of the bottlenecks that exist in the Lower 48 and that are causing some of the transportation concerns, and I think we will be moving somewhere in the neighborhood of 4,500 barrels of product in late February, early March in that regard. The heavy differentials that we're seeing at the current time we think will abate somewhat with BP Whiting and a number of other refinery issues being moderated or coming back on. So we think we see some improvement there. Over the long term, we have set -- or are in the process of setting Lindbergh up to either truck, rail, any number of different alternatives. We have 4 pipelines that run directly by our Lindbergh asset, which we believe 3 of those potentially have capacity to get crude to Hardisty. Once we've got it to Hardisty, we have a number of opportunities to market it from -- or to move it from there. But I would tell you that our view is that the -- that differential will be substantially less on Lindbergh product in 2014, 2015. We see it coming down into the low 20s.

Roger Serin - TD Securities Equity Research

Okay. Since you've opened the door a little bit, on the 4,500 barrels a day, is that light, medium, heavy?

Derek W. Evans

It's primarily light.

Roger Serin - TD Securities Equity Research

And what would you say the costs of rail are relative to the costs of pipe?

Derek W. Evans

Currently, the costs of rail are -- this is highly dependent upon whether -- where you're dragging the crude to, but we would say there's a range of rail charges somewhere in the $15 to $18 a barrel of cost. And the cost of pipe is somewhere in the $7 to $8.5 range, if you can find that capacity.

Roger Serin - TD Securities Equity Research

Okay. Just a couple of follow-up questions. As it relates to your year end reserves, what component of your future development capital was for Lindbergh? And what proportion of your 2P NAV was from Lindbergh?

Derek W. Evans

I'm going to turn those 2 questions over to Bob, Roger.

Robert W. Rosine

So Roger, on the 2P future development capital, there is -- Lindbergh is $1.23 billion. So for total Lindbergh, including the changes in FTC, it's $1.26 billion. And on the NAV side, about $1.26 would be Lindbergh-related. So you still have a NAV of $7.30, $7.40 without Lindbergh. That's all pretax.

Roger Serin - TD Securities Equity Research

Okay. So if I look at your reserve report, could you -- you're rolling it down on a -- could you give me in dollars at 10% pretax?

Robert W. Rosine

For Lindbergh by itself?

Roger Serin - TD Securities Equity Research

Yes.

Robert W. Rosine

$646 million 2P.

Roger Serin - TD Securities Equity Research

That was the number I wanted. 10% pretax?

Robert W. Rosine

Correct.

Operator

Our next question is from Cristina Lopez of Macquarie.

Cristina Lopez - Macquarie Research

Just a quick question on Lindbergh reserve bookings. Going through the next few years, when do you expect to be booking further reserves for Phase I? And when do you -- will you be able to start booking for Phase II as well?

Derek W. Evans

Cristina, it's Derek. I'm going to turn that one over to Bob as well.

Robert W. Rosine

Yes, Cristina, the -- we'll be able to book reserves this year in the 2P category and be able to move from probable to proved with the P approval, which we expect this summer. And that will be quite a sizable move from probable to proved, and that's a regulatory portion of NI 51-101. But on the additional bookings on a 2P basis, it's all delineation and core hole drilling. So we can actually control that by ramping up or ramping down, but our core hole program this year of -- being 2012 was quite successful. And we've got an active core hole program plan for 2013.

Cristina Lopez - Macquarie Research

And then my next question is rather for Chris or Derek with respect to the possibility of looking at project financing. Can you talk to what you think terms may end up looking like if you went down the route of project financing?

Christopher G. Webster

Sure, Cristina, it's Chris here. We have started to explore a couple of project financing alternatives. It would benefit us from the perspective of the debt not counting against any financial covenants, so it gives you additional flexibility. Preliminary estimates are that it would cost between 400 and 500 basis points more than what our current bank line would cost us. So it is something that we would deploy in the event that we were unsuccessful at asset dispositions because it does have a significant step up in costs.

Operator

Our next question is from Dirk Lever of AltaCorp Capital.

Dirk M. Lever - AltaCorp Capital Inc., Research Division

Two simple questions. Are you still aiming for ballpark 10,000 barrels a day to generate the $700 million in the sales? And then the second question is when do you receive the $315 million?

Derek W. Evans

Dirk, it's Derek. We expect to receive -- let me deal with the second part of the question first. The Weyburn sales process, which is the $315 million you're referring to, is on track, and we are scheduled to close early in March. My legal counsel will not let me be any more specific than that, but it will happen sooner than later. The second part of your question really dealt with $700 million or 10,000 BOEs a day. We are more focused on making sure that we get to -- up to $700 million of proceeds, and if that's 9,000 BOEs or it's 10,500 BOEs, we're more different from the production perspective but the -- we definitely want to make sure that we're bringing in up to $700 million.

Dirk M. Lever - AltaCorp Capital Inc., Research Division

Right. And if I could ask a follow-on, there's really no magic to the timing right? Like you could collect it throughout the year or you could even leak into next year. It doesn't absolutely have -- you don't have a drop-dead date for raising the funds, right?

Derek W. Evans

As I -- in my preamble to the call, I tried to point out that there is no funding pressures in 2013. With the Weyburn sales closing early March, we are -- we won't take on any incremental debt. So that $700 million of proceeds is really prepositioning for 2014 and beyond, to ensure that we have the financial flexibility to move not only Lindbergh Phase I forward, but Phase II as well.

Operator

Our next question is from Andrew Roberts [ph] of Pengrowth.

Unknown Shareholder

I'm a shareholder. I have about 10,000 shares. I just had a couple of questions from a shareholder's point of view. I just want to confirm, my information says there are approximately 512 million shares outstanding. I just want to -- if you could confirm that. Another thing I would like to see, I love the dividend of $0.04 per month, but with your share price being so undervalued, I'd like to see, at some point, maybe even $0.01 per month being put towards [indiscernible]. And then I just -- last point, I wanted to know if you had or if you're going to have access to the West Coast natural gas project?

Derek W. Evans

Andrew, I missed the middle question, but let me answer the first and the third question. Yes, I can confirm that the 511,900,000 million shares outstanding is a correct number. I think you quoted roughly 512 million, so that is a correct number. Your third question was with respect to access to West Coast natural gas. I think -- I believe what you're referring to is West Coast LNG. We have not been part of any of the LNG processes on the West Coast. And partly, that is because we're quite concerned about the timeframe on when they are fundamentally going to be developed. And they tend to be projects that are owned and controlled by very large companies, so we have not been invited to attend. We are much more focused, as a company, on taking a big portion of our natural gas production and turning it into power for our facilities in the Olds area and Swan Hills. And indeed, our Lindbergh project has 30-megawatt power generation capability. So one of the ways still we hope to be able to harvest the value of our natural gas is by converting those natural gas molecules into electrons and using them to help reduce our operating cost structure for the company. If you could just remind me, we didn't quite hear what your second question was.

Unknown Shareholder

My second part was that I love the $0.04 dividends per month, but I guess as a shareholder, I'd even be willing to have it go down to $0.03 per month and have a $0.01 per month share buyback. It's just that I would love to see management do something about the low stock price that -- take advantage of that situation of your stock being so undervalued.

Derek W. Evans

That's a great question. I think the -- we are -- as we look across our shareholder base, Andrew, it is predominantly shareholders that are focused and value that dividend very highly. I would be very reluctant to do what you're suggesting. I'm much more comfortable maintaining the dividend at the $0.04, and looking inside of our organizations for efficiencies, for higher-than-expected proceeds from some of our sales prospects and taking any sort of capital that we could find in that regard or proceeds from dispositions and using it in a share buyback piece. But I'm on the record repeatedly saying that we are not prepared to modify or cut the dividends. So I -- although I appreciate the idea, I don't think that's something we're going to move forward with.

Operator

Our next question is from Greg Pardy of RBC Capital Markets.

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

So Derek, maybe just 3 quick ones for you. You may have covered it, but just what are the 1P reserves just at Lindbergh? That's question 1. Interested in what your Cardium program looks like in 2013. And then the last one is just a nit. How much interest do you expect to capitalize in 2013?

Derek W. Evans

Greg, I would like to turn the 1P reserves at Lindbergh question over to Bob. Marlon will handle the 2013 Cardium program, and Cris will opine on interest for you. So let's start with Bob.

Robert W. Rosine

Yes. On the 1P reserves, it's 12.8 million barrels at Lindbergh.

Derek W. Evans

Marlon?

Marlon John McDougall

From a Cardium drilling perspective, we're looking at spending close to $200 million in the Greater Olds area. There's a little bit of Mannville and Elkton in that, but the lion's share of that is Cardium drilling. We expect to drill up to 40 Cardium wells, very much focused in the Lochend, and some in the Garrington area.

Christopher G. Webster

And on the last question on the capitalized interest, while we haven't defined the exact interest rate we're going to use, you would expect us to capitalize something in the range of $12 million to $15 million.

Operator

Our next question is from Roger Serin of TD Securities.

Roger Serin - TD Securities Equity Research

I have two follow up questions. You have recently put some heavy oil assets up for sale, just under 3,000 barrels a day. Could you give me some color on the other types of assets that you might be targeting for purposes of getting to your $700 million?

Derek W. Evans

So Roger the -- I'm just going to give you a little bit of color. The heavy oil assets are 13 to 14 degree API oil. The EOR projects that we're talking about there are polymer and we've -- these are things we're thinking about [indiscernible] to demonstrate it and are proven to be capable, we've had great success with. I think one of the key factors on this particular production is that it's got a 5% decline. So we expect that there's going to be quite of bit of interest in that. Southeast Saskatchewan, we've talked about before, non-operated and operated production, about 6,000 BOEs a day. I would say -- so those 2 in -- together, we would hope, would be very close to providing us with up to $700 million. But we, like every other oil and gas company, have people that approach us looking to buy assets on sort of things that aren't for sale. And I would expect that you're going to see that, of that $700 million, there's going to be bits pieces of non-core, both oil and gas positions, that get divested. So I don't want to be too specific because I am covered by CAs in a number of instances here, but I would point out that I don't think it would be unreasonable to expect that we could see up to $100 million worth of bits and pieces sold.

Roger Serin - TD Securities Equity Research

Okay. And one last question. Save me from doing the work. What's the density you're looking to get to? You've talked about additional drilling from a core hole point of view at Lindbergh. What's sort of the density you would look to get to from a well point of view to mitigate risk?

Derek W. Evans

So on a -- as you know, Roger, we are required by our license to drill up 16 wells per section, depending on the amount of seismic coverage that we have. The minimum, with the 3D seismic and 4D seismic that we're in the process of acquiring, is 8 wells per section. But I think you should think about this as having effective definition, either through seismic or actual physical drilling of effectively 16 wells per section.

Robert W. Rosine

Operator, it's Bob. I've just got one thing to add on the reserves. I'd mentioned that when we get a P approval, we'll be able to move a lot of reserves from probable to proved. That's about 75 million to 80 million barrels, so that 12.8 of proved will go up substantially upon regulatory approval this summer.

Operator

Our next question is from Jay Abella of Investment Partners.

Jay Abella

Just wanted to say that I think management, from an operational standpoint, is doing a great job and it's just not translating into the stock price right now. We appreciate all the communications in the last couple of months here, especially. I do happen to have one question regarding the make versus buy decision on Lindbergh. Just with the depressed valuations in, essentially, Western Canada, and really in North America as a whole, is the market maybe telling us that if this isn't the best project that you guys can do with money, isn't there a buy decision in here that possibly you should be looking at as well? And if so, if Lindbergh is the best alternative going forward for both reserve replacement and putting some more oil on the books and what not, how can that be conveyed in numbers to everybody else so that people understand this is the best thing that Pengrowth could be doing with its money?

Derek W. Evans

It's a great question. I mean, I think it really comes down to how do you convince the market that what you're doing today is in their best interest in the longer-term. And I -- Jay, you've hit the nail on the head from a challenge. We fundamentally believe that Lindbergh -- our thermal assets, with their 10% decline, are the foundation element. They're the very basic key to creating a sustainable oil-weighted entity that will throw off huge amounts of cash flow, in the case of Lindbergh, $600 million in 2018. And so we -- I think it's management's responsibly to try and figure out how to communicate that better. But it's something that's not coming for 1.5 years, and I think people today want to be rewarded and told that it's -- they have a more immediate need. The thing though that I don't think sometimes we do as good a job as we possibly could is it's not that there's nothing going on here for the next 18 months. The reality is -- I mean, we're running 13 drilling rigs today. Six of those drilling rigs are working on the Cardium play in the Lochend and Garrington area, and those wells have recycle ratios of -- in excess of 4x. So for every dollar we invest, we're getting $4 of return for our shareholder. So it's -- how do we handle the transition? I think we handle the transition by continuing to communicate that where we're spending the dollars in the next 18 months is generating significant value and return for our shareholders. But in the long term, we're going to have an asset that has a 10% decline that's going to improve our sustainability and improve our ability to continue to pay a strong dividend.

Jay Abella

And so I guess what I'm asking though, is that a lot of people are saying similar things to what you just said about their companies. And so it just seems to me that there's been an enormous amount of capital spent in other enterprises that you would not necessarily have to pay for with respect to the go-forward process of extracting oil and extracting upside. So I'm just wondering whether -- if this is the best project out there available to you guys, then can that be conveyed to people who will either understand it or care? That's really what it comes down to.

Derek W. Evans

So let me be very clear, it is the best project. And it really comes down to looking at what those declines are on some of these light oil projects that other people are talking about. If there's 60% to 70% in that first year, which are -- it's impossible from our perspective to grow a sustainable company. You just can't drill enough wells at some point in time to be able to overcome that decline. But I mean, that is not a widely held opinion. That would be something that our management team, not only in this light, but in previous lights, has a fair amount of experience with. And that's part of the reason you -- that we moved away from these high-decline light tight oil assets, and said that they're not a sustainable foundation element. But Jay, to your point, that is not a well-understood or well-recognized phenomena. I mean we run into people all the time that tell us that in the Lower 48, that the -- that business is going to generate enough oil and natural gas so that they won't be any imports from Canada or elsewhere. And we don't think that's possible based on what we understand about the declines. But that's a wall of opinion that we're pushing back against.

Jay Abella

Right. And I don't believe that either, obviously. But at the same time, that needs to be better conveyed with respect to -- a long-life asset with low decline prompts capital expenditure as far as the eye can see every day of the week, but I don't think people understand that right now. And you're right, I think that there is an enormous push back here, but I'll shut up and let somebody else go ahead.

Operator

[Operator Instructions] And our next question is from Grant Wheaton [ph], a private investor.

Unknown Shareholder

Maybe you could explain to me how your financing strategy and your business strategy work together, because your stock is down what, 50% in the last 7, 8 months? I'm glad it's up 10% in the last 2 days. But when you said at the beginning of the call, the market doesn't seem to understand, and this could be why. So I just understand how can you bet, well I wouldn't say bet -- ensure the $0.04 a month dividend when you admit that you don't have enough cash flow to pay it this year. Next year, you're depending on all these asset sales in order to continue your business strategy. Wouldn't it be better to cut the dividend now, use the internally generated cash to develop your projects and then when you have the cash flow in 2017, 2018, then do it? Even if you cut it in half, you've still got a 5.5% yield, which is better than pretty well everything else on the market. So there's an inconsistency here.

Derek W. Evans

Grant, let me turn that over to Chris Webster, our CFO.

Christopher G. Webster

Okay, thank you. I agree with you in the sense that the market share price does not reflect the total potential of cash flow within the company. And certainly, that's why we took a large amount of time trying to show, in our investor presentation, that by funding Lindbergh through the rotation of assets -- and rotating assets is a normal business function in most oil and gas companies. You actually start to grow the cash flow significantly on a per share basis. The cutting of the dividends to facilitate that at the front end, I really don't think does much service for our current shareholders who are being essentially paid to wait for this project to come online. And cutting it in half really doesn't materially change the amount of finance and flexibility that you have. So we're comfortable with the $0.04, the $250 million in dividends this year. We're comfortable paying it next year. We know that we're going to get the Weyburn proceeds in, in a couple of weeks. And I'm essentially set for 2013 with the current dividend. So that strategy, I think, holds a lot of value for shareholders in the interim, and hopefully, the yield question that you have solves itself by a higher share price.

Unknown Shareholder

I agree. I hope it does, too. But as a shareholder -- if you're down 50% and I'm getting a 10% dividend, it takes quite a while to get back to breakeven. So my concern is the market doesn't believe you. And I'm not a big believer in the efficient market hypothesis, but there's a limit to how inefficient the market can be. So people obviously don't believe you're going to be able to maintain an 11% dividend yield. So maybe it goes back to the fundamental transformation you're doing in the company, which I think is a great idea, moving from mature gas fields with lots of cash flow to a more sustainable oil-based business, which is great. But I just don't see how you can maintain the dividend the way it is and be a development company. Because at the moment, that's what you're turning -- that's what you are over the next few years is a development company. You're not generating the cash to fund your development and your dividend at the same time, from operations.

Christopher G. Webster

Okay, well, I guess that part is the communication piece that we have to continue to work on with the market. The shareholder base that we have is looking to a dividend on a monthly basis. We're prepared to continue to pay it. And we can see ourselves growing that cash flow meaningfully within those confines.

Operator

We have no further questions registered at this time. I would like to return the meeting back over to Mr. Evans.

Derek W. Evans

Thank you, operator. And thank you, ladies and gentlemen, for joining us today for the Pengrowth call with respect to our year end reserves and annual results. We are committed and very excited about the future opportunity inside of the company and look forward to being able to continue to report our efforts and progress in that regard to you in the coming months. Thank you very much.

Operator

Thank you. The conference has now ended. Please disconnect your lines at this time. And we thank you for your participation.

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