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Executives

Craig Morgan McKenzie - President and Chief Executive Officer

Charles J. Campise - Chief Financial Officer

Analysts

Roger Bensen – Number One Corporation

Toreador Resources Corp. (TRGL) Q4 2008 Earnings Call March 16, 2009 11:00 AM ET

Operator

Welcome to the Toreador 2008 Fourth Quarter and Full Year Financial and Operational Results Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions)

I would now like to turn the conference over to our host, Mr. Craig McKenzie, CEO. Please go ahead sir.

Craig Morgan McKenzie

Okay. Thank you for that. Ladies and gentlemen, welcome. Good morning and thank you for joining us today. As just mentioned, I'm the CEO of Toreador, now approaching my second month on Board.

With me here in Dallas, I have Charles Campise, our CFO, who will walk you through the '08 results and on the line I have John Gilboux, VP of Exploration, and joining us a little later will be Dr. Peter Hill, our Chairman, who'll be available for the Q&A session.

Before we continue, I'd like to remind everyone that this call is being recorded. And that in the course of our discussion we will be including forward-looking statements, and of course there are risks associated with doing this. I'd refer everyone to the sections entitled Safe Harbor Statement and cautionary note to investors at the bottom of our press release this morning that facilitate this phone call.

So, going back to the purpose of the call, Charles will give the 2008 results. But before that, I wanted update you with how we're transforming this company from top to bottom. We're doing this thorough focused cash management and tight cost controls. I'd like to tell this audience that cash and liquidity are absolutely key.

2008 was a volatile year for the industry and a difficult year for us here at Toreador. Commodity prices were hit hard by year end. Oil's now at 2004 levels while costs have doubled since then. So we're taking action. We believe there'll be a wave of consolidation in the industry over the balance of this year. And further I think that only those companies that are taking very proactive steps right now will survive or have their value realized and we fully intend to be a part of that number.

Lucky for our shareholders, there are a number of positive elements in our portfolio of assets that give us optimism about concerning turning around this company. And we'll focus on them over the balance of the year and the time beyond.

Toreador, the Board's drawn a line under the past performance versus how we intend to go forward. Last month we introduced a cohesive two-step plan; first, to create a corporate platform that focuses on reducing debt, divesting non-core assets, cutting overhead and improving our core operations in France and Hungary.

The second step would be a three-year strategic plan that would be rolled out sometime in the second quarter. We're working on that right now and as part of that effort we're doing an in-depth portfolio review of our France assets and also within that, we're looking at inorganic ... I'm sorry, organic growth that includes further exploration potential.

In addition, we are also looking at inorganic opportunities outside of the company. So, we're going to be opportunistic as well as strategic.

But going back to the platform in terms of just getting our fundamentals right, I'd like to impress upon you that in one month's time we've made tangible strides in delivering it. We said we have closed the overdue and protracted Petrol Ofisi deal in Turkey and we did that as announced early march.

We said we've pay down the $30 million ISC facility which required $36 million in payments and we did that as well. We closed that entirely. We've said we'd buy back a portion of the bonds, take advantage of the current market conditions, meaning that they are trading at a discount and we're about to do just that. In the next few days we'll provide further details on how we're now in a position to buyback up to $25 million of face value.

The outcome of this effort will depend on the response of the bond market of course which we cannot control. But, if you look at the math that's associated with this, I think its impressive to say that by the end of Q1 we will have taken our debt down from $115 million to as low as 60 million and still have cash on hand to meet our cost and minimum capital commitments. So certainly our net debt position would be less than 60.

We said we'd cut our G&A by 50% over the course of the year. We now have a firm plan in place that's underway, that's been approved by the Board, that will drive out in excess of $6 million from our overhead. And of course with this, notwithstanding the hard work and dedication of our professional staff, unfortunately this plan involves reducing our head count from 90 to 41 by around mid year.

So, these are dramatic efforts and I don't want to belittle the point. This is a major change for the company.

We're now focusing on going beyond 50% of reduction by getting creative. We're looking at joint ventures that would share a cost with our partners also streamlining accounting and reporting processes for an overall savings. These are tough times in the industry and I don't want to be in position later in the year, where I look back with regret wishing that I had moved faster and gone further and been more decisive.

With the fail of the remainder Turkey underway as referenced earlier in previous press releases, we've retained stellar advisors in London to conduct that process. The proceeds will, the proceeds from that eventual sale would be another traunch for us to further pay down our debt.

In terms of capital discipline, we've dramatically cut our capital program to live within our cash flow. At the beginning of this year there was a budget of $25 million for 2009. This is now been adjusted to just little over six million for the balance of the year.

So we're focusing on our core assets in France and Hungary. We're on track to drill our high-profile exploratory well in Hungary that's been paid for by our partner, and we'll have results in the next month. But right now, I want to impress upon everyone that the well is on track.

The last thing I wanted to say about all this is the value proposition. When I look at our share price today, it's hard for me to see any of the benefits built into this price. For me it looks like we're trading in just a very small fraction of our NAV. So it's plenty of upside available for the shareholders, it's who we work for. We're going to work it further through debt reduction, the bond discounts should give us an uplift, the cost cutting levels that we're taking and of course the portfolio upside beginning with our very near-term exploration well in Hungary.

The Board and the management and the staff, will be working tirelessly to bring all this value to our shareholders. So hopefully the market will respond here in the near-term.

Concerning 2008, switching over to that, you'll see that from our reserves reporting that they've been negatively impacted by the decrease in oil prices. So we're not unlike about every other oil company out there who's filing right now. And as you know, the SEC requires us to use end of year prices. And in our case, the oil's dropping from about $97 a barrel to $34 a barrel so, that's a 62% decrease. So it is significant.

The falling price has had a severe impact on the economic life in our oil wells in France causing the late life volumes to be classed as uneconomic. But I don't want to suggest that all is lost. I look at this as just being a snapshot in time, using the 12/31 prices.

It's interesting when I was out in the fields in France here a few weeks ago, meeting with all the fuel personnel; I was certainly trying to impress upon them the drama of this reduction and the impact. And what I got in return humorously was a response that's absolutely true. The wells don't know the difference.

The wells will continue on. We've got good stable production, low decline and there are no upsets in our operating infrastructure. So, we anticipate still maintaining about a thousand barrels a day.

Of course, when oil prices go back up we expect an equivalent response in our reserve bookings and also some of our PUDs will also become economic again.

The last thing I'll mention before I hand it over to Charles that you'll see we have a significant write down in our SASB project. This is unavoidable in the context of past costs relative to the 0.4 value of those assets that we've had to reposition our books to represent the 0.4 value.

Charles will expand upon that. So now I'd like to just turn it over to Charles and let him go with the 2008 results and then following that we'll come back to Q&As.

Charles J. Campise

Good morning. At December 31, 2008, we had 22.4 million in cash and cash equivalents and a current ratio of 1.66 to 1. Included in current assets is 55 million of oil and gas property held for sale which represents the value of the assets sold to Petrol Ofisi, and included in current liabilities is the 30 million of IFC debt.

If you exclude these items, the adjusted current ratio would be 1.42 to 1. Our debt to equity ratio was 2.1 to 1 at December 31, compared to 0.71 to 1 at December 31, 2007.

The cause for the change is 85 million non-cash charge we recorded in 2008 for impairments. Additionally, after giving effect to the pay-off of the IFC credit facility, the debt to equity ratio reduces to 1.53 to 1.

Cash provided by operations totaled 17.7 million, capital expenditures were 11 million and EBITDAX, a non-GAAP measure, totaled 30.7 million.

Our 2008 total production was 805,000 barrels of oil equivalent or 2,200 barrels of oil equivalent per day.

Our average oil price received was $93.40 (ph) a barrel and our average gas price was $10 per mcf on average price per barrel of oil equivalent of $77.41.

This resulted in total revenues of 62.4 million for the year. This operating expense was 17.2 million or $21.38 per barrel of oil equivalent. The cost per barrel is high primarily due to work overs done in Turkey on the East Ayazli platform that has encountered mechanical and geological problems that require the wells to be worked over every three to four months.

We also had an operational problem with one of our work overs in France that required an extensive fishing job. The work overs in France and Turkey resulted an approximately two million of cost or $2.48 per barrel of oil equivalent.

Exploration expense totaled 5.8 million. This is the cost associated with our exploration departments in France, Hungary, Turkey and Dallas.

In 2008, we participated in the drilling of two exploratory wells in the Szolnok area of Hungary. Unfortunately neither of these wells found commercial reserves and were plugged and abandoned. However, since our share of the cost to drill was carried by our partners, we incurred zero dry hole cost.

DD&A was 33.1 million or $41.17 per barrel of oil equivalent. The rate per barrel of oil equivalent is excessive due to the cost to develop the reserves associated with the South Akcakoca Sub-Basin. This then resulted in our impairments taken in 2008 which are a result of the proved reserves not just to buying the investment that was made in the SASB.

This justification was amplified by the first offer we received from the Petrol Ofisi, which resulted in $53.5 million impairment in June 2008, and was further reinforced with Petrol Ofisi's claim of an adverse change and a subsequent renegotiation of the price which resulted in an additional impairment of 26 million taken in the fourth quarter of 2008.

We also impaired our share of the cost associated with Eskakali well that was drilled and but (ph) suspended in 2007. The impairment was necessary because the operator has not presented a plan to develop the Eskakali area and a plan is not expected in the foreseeable future. If we could've shown a plan of development we would not have had to write this well off.

Additionally, we recorded an impairment in Romania of 600,000. We impaired the goodwill associated with the acquisition of Turkey in 2002 totaling 833,000. And we impaired our investment in Trinidad that was also a result of the Madison oil merger in 2002, totaling two million.

Total general and administrative expense totaled 15.5 million. Included in this amount is 2.4 million in stock compensation expense, which is attributable to the amortization of stock grants that were granted by the Board in previous years.

Additionally, there's 900,000 of cost associated with the resignation of two former officers of the company and three other employees that resigned in June 2008.

Interest expense was 7.9 million, which represents interest on the 5% convertible notes and the ISC credit facility.

We've recorded an income tax provision of 6.1 million, which is due to the taxable profits generated by France in 2008, which is a result of the higher oil prices received in 2008. This resulted in a loss available to the common shares of 108.6 million or $5.48 per share on 19.9 million weighted average shares outstanding during the year.

Quietly moving forward to 2009; in our financial statements for 2009, you will notice that due to the Board approving sale of our remaining interest in Turkey and the company retaining stellar energy advisors to assist in this sale, all revenues and expenses relating to Turkey will be shown on the Statement of Operations under the caption, Discontinued Operations.

The net PPNE or Plant, Property and Equipment book value will be shown as the current asset under the caption, Assets Held for Sale, and all costs paid and are accrued in 2009 will be shown here also.

Lastly, and this one as both of you have been listening for a while will understand our priority (ph) and we have finally eliminated our material weakness and have received an unqualified opinion from Grant Thornton on their report on internal control.

I personally on behalf of the Board would like to thank the finance and accounting things in each of our foreign offices for their help in achieving this unqualified opinion. Also, I would like to thank the Dallas team for their dedication, hard work and professionalism in achieving the removable of the material weakness qualification.

Back to you Craig.

Craig Morgan McKenzie

Okay, thanks Charles. Just to recap, notwithstanding some of the specifics of the 2008 results, what I'd like to leave you with is an impression that we are going after everything we can control and influence, and this pertains to every aspect of the company. We are primarily focusing on cost, capital and our portfolio, and certainly in the course of this year we'll materially pay down our debt. So, we'll be in much better position later in the year out from which to then start growing in a prudent manner.

So, thank you for your patience ladies and gentlemen. I'll turn it over to questions-and-answers. Operator, would you mind coming back in?

Question-and-Answer Session

Operator

Thank you, sir. We will now being the question-and-answer session. (Operator Instructions) And our first question comes from the line of Roger Bensen with Number One Corporation. Please go ahead.

Roger Bensen – Number One Corporation

Hi Craig. On your last call, you indicated that we might have -- by this time encounter the first objective in the Hungary well. Did we actually get there?

Craig Morgan McKenzie

Hi Roger. No, we are at 3200 meters and the proposed TD (ph) is 3800. So, we're within striking distance. We should be able to TD the well in the coming weeks as well as log it at which point in time we'll then put out a press release concerning the results.

Roger Bensen – Number One Corporation

Thank you.

Craig Morgan McKenzie

Thanks Roger.

Operator

Thank you. And our next question comes from the line of Alex Katz (ph) with UBS. Please go ahead.

Unidentified Analyst

Good morning. You alluded to your net asset value earlier. I was wondering if you could walk me through what you think that might be given current prices?

Craig Morgan McKenzie

Hi, Alex. It really kind of depends on what you use as a long term price deck. I can easily calculate NAV values in the range of 150 to $200 million based on not the 12/31 pricing that I was bound to use from the SEC but use a more stable price tag of say 45 this year, 55 next, and a little bit of increase thereafter.

So, the bulk of this would be in our France assets. And with respect to Hungary, it really depends upon the outcome of this well. And what I included here was a risk weighted value since I don't have the results in hand yet. And of course the remainder of Turkey, that value will be borne out of what we receive as a bid. So I can't ... it wouldn't be prudent for me to sort of speculating with that right now. But that should play out in the next several months. Does that help you?

Unidentified Analyst

Yes, thank you.

Operator

Thank you. (Operator Instructions) And we have no further questions.

Craig Morgan McKenzie

Okay. Thank you very much. We appreciate every one's time.

So operator, we'll end the phone call then.

Operator

Thank you. Ladies and gentlemen, this concludes our conference for today. Thank you for using AT&T conferencing.

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