Athabasca Oil Corporation's CEO Discusses Q3 2013 Results - Earnings Call Transcript

Nov. 1.13 | About: Athabasca Oil (ATHOF)

Athabasca Oil Corporation (OTCPK:ATHOF) Q3 2013 Earnings Call October 30, 2013 9:30 AM ET

Executives

Andre De Leebeeck – VP, IR and External Communications

Sveinung Svarte – President and CEO

Rob Broen – COO

Brent Heagy – CFO

Rick Koshman – VP, Projects and Thermal Operations

Terry Bachynski – VP, Regulatory Stakeholder and Government Affairs

Analysts

Mark Polak – Scotiabank GBM

Mark Friesen – RBC Capital Markets

Neal Jacobs – Cambrian Capital

Matthew Taylor – National Bank Financial

Dan Healing – Calgary Herald

Jeff Lewis – Financial Post

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Athabasca Oil Corporation's Third Quarter Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. (Operator Instructions) As a reminder, this conference call is being broadcast live on the Internet and recorded.

I would now like to turn the conference call over to Andre De Leebeeck, Vice President Investor Relations and External Communications. Please go ahead Mr. De Leebeeck.

Andre De Leebeeck

Thank you, operator. And welcome, everyone, to our third quarter conference call. I would like to refer you to the advisories and forward-looking statements located at the end of today’s news release. All information provided today is qualified by those advisories.

Sveinung Svarte, Athabasca's President and Chief Executive Officer will begin the call discussing the current state of the business and recent events such as the appeal. Rob Broen, Athabasca's Chief Operating Officer will provide a summary of Q3 questions, operations, followed by Brent Heagy, Athabasca's Chief Financial Officer, who will then present a summary of Q3 financials.

Also present in the room are Rick Koshman, Vice President Projects and Thermal Operations, and Terry Bachynski, Vice President Regulatory Stakeholder and Government Affairs.

Please proceed, Sveinung.

Sveinung Svarte

Thank you, Andre. Good morning to everyone. I would like to start by thanking our teams for their continuous support and contributions through these challenging last six months we had in Athabasca.

Through their efforts, we have had some significant achievements, which includes for the first Athabasca's production at first quarter average 5836 barrels of oil equivalent per day within the guidance range previously provided.

Keyera successfully completed the scheduled shutdown of the Simonette Gas Plant for maintenance and completion of plant modifications in September. With that, Athabasca’s power production was brought back online October 1 with all wells tied in back on production by mid-October.

We do not anticipate any more restriction from Keyera going forward and current production is a little over 8000 BOE per day.

We progressed the first phase of Hangingstone at 12,000 barrels per day SAGD projects to 43% completion while remaining on budget and maintenance schedule for first steam for end of 2014.

We continue with infrastructure and facilities construction and commenced with the drilling of the first SAGD wells during the quarter. Also, we received two Alberta Energy Regulatory approvals on August 6, the Dover Commercial Project, and on September 19, our application for the Thermal Assisted Gravity Drain Project TAGD in Dover West carbonate.

We have no news to report on the Order in Council for the Dover Commercial Project other than that we did not make it to the Cabinet’s agenda this week. We understand the project is in the hands of the Cabinet and working through their internal process.

Our information is that it is being treated ordinary business and we will get on the Cabinet such that we can expect Order in Council in due course. We have also been advised that the appeal process has no impact on the progress of the Order in Council process.

If there is interest for more details on the appeal, we will treat that in the Q&A. We are continuing on the government – we are counting on the government to follow the process that they have defined and I think we addressed and as for Athabasca, that was the lowest to exercise our put call option.

The relationship with PetroChina has always been excellent in this joint venture and continues to be so. They are very interested in moving these projects forward and want to go into the fields to start development this winter.

As you know, our main source financing has always been with joint ventures. We prefer partners on all major projects we are developing and a 30% to 50% partner working interest is considered ideal.

Unfortunately we have not managed to tie with a partner on Oil Sands yet except from the one with PetroChina. The recent state-owned enterprise rules, the SOE rules for investment in Canada have complicated talks, even the joint ventures where minority interest are issued.

This is mainly linked to normal contractual items such as voting rights, default mechanisms, right of first refusals, sole risks, etcetera, which could all impact control of a project and lead to change of control. We are in the middle of a Duvernay joint venture effort.

There are numerous parties worldwide interested in this type of assets being large high-quality liquid rich shale in a stable political environment. The Duvernay development required upfront capital and oil sand development. Investment timing is also more flexible with built-in options, one can stop or accelerate building on short notice.

These appealing attributes lead to high competition for these assets and normally priced Duvernay deal should provide excess cash from the Light Oil division upon closure of a transaction.

We will look at any structure which will be beneficial to our shareholders in this deal once bids are been received. As for operations, recognizing at Athabasca is now a development and production company. We identified the need for a Chief Operating Officer and, as previously announced, the company has promoted Rob Broen, a twenty year old E&P veteran to this position and Rob is with us here today and is ready to take you through the quarterly operations. Rob?

Rob Broen

Thank you, Sveinung, and good morning everyone. I will provide an update on operations in the Light Oil division and then move on to a Thermal Oil discussion and update.

As mentioned earlier by Sveinung, the scheduled shutdown of Keyera Simonette gas plant for maintenance and completion of plant modifications in September, lasted 25 days, five days longer than schedule.

Our sour production was brought back online starting October 1, 2013 with all wells tied into non-production by mid-October 2013. We don’t anticipate any further restrictions from Keyera going further.

Despite Keyera’s longer than scheduled turnaround, Athabasca production in third quarter averaged 5826 barrels of oil equivalent per day. And that's within the guidance range that we provided previously. The Company made adjustments for some prior period accruals, primarily dating back to February 2012, resulting in reported production of 5507 BOE per day.

As Sveinung mentioned, we are currently producing just over 8000 BOE per day and we expect to average 6500 to 7000 BOE day in the fourth quarter 2013. We have sanctioned a small fourth quarter Montney drilling program. We are going to drill two high-graded wells in Kaybob East area, along with some additional optimization that we’ve identified from existing wells.

So now on to our Duvernay development. We are pleased with the strong performance of the three Duvernay horizontal wells that we have drilled along with results reported by other industry operators in the Kaybob Region. We are continuing progress our strategy to hold and delineate our Duvernay land position.

So I’ll spend some time talking about this. First, let me remind you of the high quality assets in Duvernay... The Duvernay is a world-class resource. The ERCB, Alberta Geological Society, estimated over 400 TCF and over 70 billion barrels of hydrocarbon in place.

This shale reservoir is high-quality. It has low play content. It’s over pressured low water saturations. It is a world-class resource. Athabasca owns greater than 350,000 acres of land and we have identified greater than 200,000 high-graded and for us that means more than 20 meters of net shale.

We believe our position is greater than 85% in the liquids rich gas window. So, as you probably know, our land is in the heart of the Kaybob Sub basin and that's the area where industry has been by far the most active.

There has been almost 200 locations licensed and 100 wells drilled in the last 18 months. The initial results have been excellent. Several IPs quoted by industry recently are greater than the 1000 BOE per day with liquid yields over 300 barrels per million.

We have three of the better horizontal wells drilled across the basin so far. For example, our 234 well, which we’ve talked about previously has produced almost 120,000 barrels of condensate liquids in nine months and it will pay out in about a year.

We own a valuable infrastructure system that allows to see not only the results of our own wells, but those of industries surrounding us as many are tied into us. Given the size of our asset base, we have lots of running room. We have over 1100 wells that are potential drills and that’s assuming four wells per section.

There is many different development scenarios. You could draw a number of them. We believe a reasonable operational activity base this asset can get us to greater than 100,000 BOE per day by 2020 and hold that profile for a decade in a success case.

I would add that the excellent Albert Royalty incentives provide for good economics in this play. The economics actually are very comparable to the Eagleford and the Eagleford is widely considered to be one of the most economic resource plays in North America.

Full field development rate of returns can be expected from 50% to 75%. Although this play will be a material gas resource for future LNG schemes, the liquids drive the economics of this play and production is expected to be approximately 50% liquids and that is a 55 degree API condensate.

And as you know this product commands a premium as a diluent for heavy oil in the local Alberta market. So second, I want to talk about our delivered execution strategy of what we are doing.

So first of all, we are confident in our initial technical interpretation and we are proceeding down path where we have a very deliberate drilling program and that started in September of this year.

Our land tenure is very good. We need to drill only 13 wells in the next two years to hold 95% of our high-graded acreage. Only eight wells need to be drilled this winter season. Two of which – one is drilled, a second one is currently drilling and we will hold this acreage where we also de-risk our land base.

So, as I mentioned, we have two rigs running. We will consider adding a third rig in January. We just TD-ied our first well and that well was near Simonette. We drilled a vertical strat test.

We kicked off, we finished a 1400 meter lateral. All indications are it looks like an excellent well. It exceeded our expectations in terms of thickness and quality and we had really good gas shows throughout drilling. Obviously though our success will be gauged after completions, but we are pleased with all indications so far.

Our second well has drilled through the vertical section. We've logged it and we've pulled back and we're now drilling horizontal.

A total of $44 million will be spent in the second half of 2013 on the Duvernay program. Now this includes drilling four wells, construction of water pits for completion, purchasing of long-lead equipment for the continued Duvernay program in 2014 including our casing strings that we need for our winter program.

Finally, I want to give you an update on our joint venture process. As everyone knows, we are going through a structured process to find a partner to develop our large Duvernay asset position consistent with our corporate strategy, we feel this is the best way to fund the play and accelerate value for our shareholders.

It is clear that the only way to access this world-class play, particularly in the Kaybob Basin, is to acquire or to enter into a joint venture. The large landholders in the Duvernay are big, multinational companies. Athabasca has one of the largest 100% operated positions in the play and offers a premium access to this play.

We are still in the process of taking parties through our data room, we are finishing detailed technical presentations. Once this is complete, we will set a bid deadline and as Sveinung mentioned, there is multiple parties from a wide spectrum of backgrounds with a high interest in these assets.

So we believe this will be a competitive process and it will provide a compelling entry for the joint venture partner, while also providing our shareholders excellent value. As such, we don’t believe that the status of the Dover put process really impacts this process.

Despite the relatively high well cost of this program, the results suggest this play can be cumulative cash flow positive by 2017. The amount of net capital required to make this play self-funding for Athabasca is well within reach through a joint venture based on recent transactions in the play.

So although Athabasca would prefer a joint venture partner, we do have other options available and these could include self-funding with Dover put proceeds or separating out the light oil assets from the company with independent financing alternatives.

Now I’ll move on to thermal oil. So at the end of September, we finished progressing our first phase of Hangingstone at 12,000 barrels per day, steam assisted gravity drainage project to 43% completion while remaining on budget and maintaining a schedule for first steam in the fourth quarter of 2014.

We continue with the infrastructure and facilities construction and almost also commenced the drilling of its first SAGD wells which is very exciting for us. At the central processing facility, earthworks is substantially complete.

The site construction has transitioned to pile driving and installation of structural foundations. Module fabrication continued on track and equipment has started to arrive on site as planned. I mentioned the drilling part, SAGD drilling commenced with one rig in August and our second rig started in September. Both rigs are meeting expected costs and scheduled performance.

At the end of September, four producer wells have been drilled. Now we are currently finishing our last lateral on our first five well pair pad. The second rig has now completed five producer laterals on the second pad. So we are making excellent progress.

The reservoir quality is in strong conformance with our expectations and, as you know, the geology is extremely important to us. We spend a lot of work in this area and it gives us the results as expected for the drilling program.

On Dover West, as Sveinung mentioned the Alberta Energy Regulator approved Athabasca’s application for thermal assisted gravity drainage. That's TAGD and that's for the pilot and demonstration project and that's for our Dover West carbonate asset and we're waiting on environmental approval.

So that's my update and my operational update on thermal and light oil and I'd like to now turn the conference all over to Brent Heagy, who will provide a review of Athabasca’s Q3 financials.

Brent Heagy

Thank you, Rob and good morning everyone. I’ll just start with a brief update on our financial position. As of September 30, 2013 we had $372 million of cash and cash equivalents and short-term investments on hand. We also have a $200 million of revolving credit facility available to us.

We continued with our capital program during the third quarter of 2013 with total capital spending of $146 million during the quarter spending was comprised of $19 million in the Light Oil division and $124 million in the Thermal division with the remainder allocated to corporate assets.

Total 2013 capital expenditures are expected to be approximately $835 million versus an initial budget of $798 million. The additional spending is primarily for Light Oil, for Duvernay and Montney drilling and production optimization, as Rob has already.

Overall spending for the Light Oil division is expected to be approximately $300 million with approximately $485 million expected for the Thermal Oil division and the remainder allocated to corporate and other assets for 2013.

We’ve undertaken a thorough review of capital in order to equilibrate our expenditures with funding. If there is a delay in receipt of the put call proceeds from PetroChina, our capital expenditure program would generally be as follows: first priority is to complete Hangingstone 1, as this is our first sanctioned thermal project and we are now beginning construction on the site aiming for first steam at the end of next year and as you all know, there is little flexibility in our spend profile on this project.

There would be no further sanctioning of thermal projects unless we get a joint venture. The only spend beyond Hangingstone Project 1 would be very minimal for items such as lease rentals. There would be a minimal spend on Light Oil with the focus on wells to maintain our land position in the Duvernay and also a small high-grade in Montney program to support our production levels.

Now, assuming we exercise our infrastructure put option for $145 million, in this case, we would begin drawing upon our line of credit towards the end of Q1 2014 and it will be fully drawn within Q3 2014. Therefore we would take action to further enhance our liquidity position and we would have the following options available to us.

The first is, potential sale of the entire infrastructure. The infrastructure put agreement allows us to do that and our objective would be to still maintain control. We also have a high confidence level and executing a joint venture in the Duvernay as Rob has discussed. And we’ve seen a high level of interest so far. Other options could include an outright sale or a spin-out into a separate entity.

We have the ability to issue up to $250 million in additional debt under our current credit agreement. Now that number would be $150 million if we decide to retain our current $200 million line of credit.

We are also confident in our ability to maintain our credit facility. We have been able to extend the debt-to-EBITDA covenants in the past and believe that our lending syndicate has a very good understanding of the underlying value of the asset base. We will be in discussions currently with our banking syndicate as we have a renewal coming up at the end of November of this year.

With these other options available, we are confident that we could secure the required funding to meet the 2014 program that I just previously described. Athabasca plans to provide the 2014 budget and we anticipate that we will be releasing that during the week of December 16, 2013.

So with that, I would now like to turn the conference call back to Sveinung who will provide closing comments before we begin the Q&A portion of the call.

Sveinung Svarte

Thank you, Brent. So, as we can see, Athabasca has the capacity to meet current commitments and we will maintain the discipline and on ensuring the increased funding capacity before undertaking new spending commitments. I must say, I am really looking forward to giving this put call not only from a funding point of view, because we have many other levers we can pull, but also from a business focus point of view.

The put call all to the way will allow us and you, most of you to focus on the underlying value in this company which consists of one of the largest positions in one of the hottest developments plays in North America which is the Duvernay Shale. In addition to almost 11 billion barrels of high-quality recovered bitumen to be developed. I don’t think people would not lose sight of that.

So with that, I think we are now ready for questions. So, operator, please announce the first question.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Your first question comes from the line of Mark Polak with Scotiabank. Your line is now open.

Mark Polak – Scotiabank GBM

Good morning guys. A question for you, on the Light Oil division, what do you think the current productive capacity of the well you have is? And then what would be sort of constraining that currently? And then finally, what do you expect you'll exit 2013 out in that division?

Rob Broen

Okay, morning Mark, this is Rob here. So, first of all, I mentioned previously, our current production is just over 8,000 BOE per day and we have almost all our wells on – we do have optimization that we can do in some wells and that’s going to include some artificial lifts.

Additions we are going to do in Q4 and we are actually going to add a little bit of compression capacity at our Kaybob East battery and that will add a little bit production capacity, but like I mentioned, our Q4 guidance is 6500 and 7000 as an average. And I think we are kind of seeing the peak of where we will be right now.

Mark Polak – Scotiabank GBM

Okay, so it's pretty much running unconstrained full, right now?

Rob Broen

Yes, we do have a small number of wells that are not producing and that’s facility constraints I mentioned. But they are lower producers in our portfolio.

Mark Polak – Scotiabank GBM

Okay, thank you. And then just on the line of credit to debt, can you clarify what the covenant is on that? What the debt-to-EBITDA ratio for that is?

Brent Heagy

It’s a three times ratio of the debt and that would just be the debt that drawn on the line only over EBITDA and that kicks in, in June 30, 2014. But as I mentioned, we will be looking to extend that.

Mark Polak – Scotiabank GBM

Okay, thank you.

Operator

Your next question comes from the line of Mark Friesen with RBC Capital Markets. Please go ahead.

Mark Friesen – RBC Capital Markets

Thanks, good morning. I just had a few questions. Could you comment on the current drilling that you are doing in the Duvernay? Is that drilling just intended for the lease retention that you mentioned? Or are those wells going to be completed and tied in and tested?

Rob Broen

Yes, hi Mark. Rob here again. Definitely we are going to complete the wells and tie them in. Our first priority is to hold our land our position and this is all land that’s in what we consider are high-graded region of Kaybob.

So, we are going to drill to hold our land, at the same time, we are delineating and de-risking the play. But we definitely are going to complete the wells. We probably won’t complete these first four wells till later this year or early next year. So we are going to get these four wells drilled and then we’ll proceed with completion and we can tie them all in.

Mark Friesen – RBC Capital Markets

Okay, so maybe – pardon me, maybe test trade updates maybe with the Q4 release or something like that?

Rob Broen

Potentially, it’s probably more something we will have for Q1.

Mark Friesen – RBC Capital Markets

Okay. Then with the Duvernay, could you maybe – I know you don't want to say too much, but could you maybe be a bit more specific with respect to when you expect to close the data room or when you expect to maybe close the transaction? And if you would be open at the same time to maybe an outright sale of the Duvernay, if any party was interested?

Brent Heagy

Hi, Mark, it’s Brent again. Obviously, we are looking at all options on the Duvernay and at the end of the day, we are looking for what’s best for shareholders on that. So, having said that, I don’t think I would comment too much on details on the process and timelines et cetera. We do have timelines established, but it’s not something we talk too much in public.

Mark Friesen – RBC Capital Markets

Okay, is it realistic to expect that could happen before year-end or is it likely an early 2014 event?

Brent Heagy

I am dying to answer you, but I’ve learnt from previous mistakes. So, basically I am going to dodge that question too.

Mark Friesen – RBC Capital Markets

Sure okay and I know, this is a delicate subject as well talking about Dover but there's been some recent comments in the press recently, I am referring to the one now of from Chief (inaudible) that mentioned that potentially an out-of-court settlement is still possible. Could you maybe provide some context as to maybe what he was talking about, especially, that the case has moved forward in the court? What sort of out-of-court settlement could there be at this point?

Brent Heagy

Basically, based on the feedback we have received from senior minister level, we do expect the Dover project to receive Order in Council shortly. The exact timing is of course difficult to predict again, which means that a project can be started as it is important to start the field work this winter.

And appeal process as you know, if the results would continue in parallel, however, as you – with any developments we always prefer some good relationship with the neighbors and here that’s being Fort MacKay.

We have planned using their businesses and services and we expect to do so for the next 60, 70 years and it is therefore strong wheels that all this is good and move forward in a positive way rather than ramming things through the regulatory and legal system.

So, talks are ongoing and I think the goal of ending this dispute is basically to move forward and one of the key goals is to limit access to third-parties in this area. A general access management plan is probably the final outcome whether resources can be developed while preserving the interest of Fort MacKay.

So, I don’t go into details on that, but I am optimistic that we can find a solution that both parties are satisfied with and continue a good neighbor, as good neighbors for next 60, 70 years.

Mark Friesen – RBC Capital Markets

Okay. You mentioned expectation that the next Order in Council approval should be forthcoming. Do you have the same expectations for the AER environmental approval, given that the AER is directly involved with the appeal?

Rob Broen

Yes we expect that to come shortly thereafter, there shouldn’t be any problems with that either.

Mark Friesen – RBC Capital Markets

Okay. Thanks very much.

Operator

(Operator Instructions) Your next question comes from the line of Neal Jacobs with Cambrian Capital. Please go ahead

Neal Jacobs – Cambrian Capital

Thanks a lot for taking my call. Could you explain again why your CapEx for this year went higher in the midst of all this uncertainty on the balance sheet?

Brent Heagy

Hi, it’s Brent Heagy here and I’ll start-off, it’s just the incremental spend that we’ve added on both for the four Duvernay wells and for this small Montney program the two wells that we mentioned and then also the optimization program. Do you have anything to add on that Rob?

Rob Broen

No, I’d say, I know your question is about funding, but, the programs that we have are very strategic. So, our Duvernay lands, the wells we are drilling are holding our land and de-risking the play, very important to our process that’s going on and on the Montney it’s very limited spending and we are targeting a couple of drills in an area we know we had stellar results and it’s low-risk production that has immediate cash flow for us. So, that’s the technical reasons why we’ve allocated money there.

Sveinung Svarte

And as you remember, back in December last year, when we approved the 2013 budget, we did say that we consider increasing spending in the Light Oil mid-year depending on the outcome of the put call. So we have decided now to make a small increase going forward increase we can afford with basically the money we see – but we have on that’s coming.

Neal Jacobs – Cambrian Capital

Got it and the last question for me is at what point do you decide to go to that capital light plan that you outlined during the prepared comments?

Sveinung Svarte

Obviously, we are working on the budget for 2014 and we have several scenarios. The good thing is that, there is flexibility in it especially since we can – the Oil Sands project that Brent hinted over earlier on. You can’t stop an Oil Sands project, but you make sure you can do that.

In the Light Oil, there is flexibility, so we probably move ahead as normal for the budget. But you might even approve something conditional to funds coming in. So, at least you can start preparing the rigs and be ready to go along you know that the money is in the back.

Neal Jacobs – Cambrian Capital

One more small one, how many wells run up against leasing commitments in the next 12 months in the Duvernay?

Rob Broen

Yes, we only have to drill eight wells this winter, that’s the entire winter season to breakup to hold land for 2014 and we’ll four of them done before the end of this year.

Neal Jacobs – Cambrian Capital

Okay. Thanks a lot.

Operator

(Operator Instructions)

Your next question comes from the line of Matthew Taylor with National Bank Finance. Your line is now open.

Matthew Taylor with National Bank Financial

Just a follow-up question to the Duvernay commitments. When you talk about eight wells this winter drilling them, do you have to complete those wells or is it just drilling them?

Rob Broen

It’s just to drill them.

Matthew Taylor with National Bank Financial

So the capital cost would be eight times five, so approximately 40 million bucks, is that fair?

Rob Broen

Well, maybe as an average. I mean, the cost to drill a Duvernay well really varies with depth and the depth varies a lot in this area. So the wells go anywhere from 3000 to almost 4000 meters deep. So we have a variance in well cost anywhere from $5 million to $7 million depending on where we drill.

But, to hold the land, we just need to drill the wells. Obviously, our intent subject to funding is to complete and tie them in as well. But to hold the land, we just need to drill.

Sveinung Svarte

And he won’t get the money to frac those from Brent before Brent has the fund to deploy in.

Operator

This concludes the analyst Q&A portion of today’s call. We will now take questions from members of the media. (Operator Instructions) Your first question comes from the line of Dan Healing with the Calgary Herald. Your line is now open.

Dan Healing – Calgary Herald

Good morning guys. Sveinung, earlier, when you mentioned that that the joint venture process had some hiccups because of the new federal, Statoil enterprise laws, were you referring to joint ventures in the Oil Sands, specifically, or all of the joint ventures you are looking at?

Sveinung Svarte

Yes, hi Dan. Yes, I should probably made that clear, it’s only in the Oil Sands you have this Statoil Enterprise issue and in the Light Oil part there is no such measure yet.

Dan Healing – Calgary Herald

Okay and you said in the Light Oil part in the Duvernay you are dealing with several enterprises or entities. Can you give us any color on who they are or how many?

Sveinung Svarte

No, I will surely not give you who they are, but I’ve said before that there is between 20 and 30 parties worldwide with interest in this kind of asset and it’s being liquid-rich shale in a stable political environment and most of those have been visiting out lately. So, you can probably guess.

Dan Healing – Calgary Herald

Okay, sounds good. Thanks.

Operator

Your next question comes from the line of Jeff Lewis with the Financial Post. Please go ahead.

Jeff Lewis – Financial Post

Hi, good morning. When you talk about the assurances from senior ministers that the Dover puts will be the Order in Council will be handled at the measure of ordinary business. Who is giving you those assurances and what are they saying?

Terry Bachynski

We’ve met with the senior – this is Terry Bachynski, we’ve met with the senior representation in a number of departments within the Government of Alberta and they’ve all consistently told us that the appeal process would not impact an Order in Council or ordinary government business and as recently as last Friday, when we were trying to determine where the process was within Cabinet.

We were advised that the matter is moving through the Cabinet process and that it's ordinary business and they assured us again that has no impact. The appeal process would have no impact on the Cabinet’s business. So, we expect it to be moving forward in that way.

Jeff Lewis – Financial Post

And who was that? Sorry. Sorry, that was Terry?

Terry Bachynski

Yes.

Jeff Lewis – Financial Post

Okay and just as a follow-up question on the Dover put, as far as the contingency, can you just go over again what you would do in the even that that put didn’t come through?

Sveinung Svarte

Okay, I think, I’ll hand that over to Brent, because, obviously if that don’t happen, we will have a reduced work program and Brent, would you?

Brent Heagy

Yes, sure. As I mentioned, if there was difficulty in getting in the put in, certainly we are going to align our capital with our expenditures and as I mentioned, our very first priority would be to complete Hangingstone 1.

Again, this is our first sanctioned thermal project. We are well into construction on this site. We are still aiming for first steam at the end of 2014. We would not sanction any further thermal projects unless we get a joint venture. And therefore, the only spend in the thermal area beyond Hangingstone 1 would be very minimal just for lease rentals just to maintain our position in those projects.

And also, there would be a minimal spend on the Light Oil as Rob Broen has mentioned, to maintain our land position in the Duvernay and then also, as we mentioned this small high-graded Montney program and optimization which really supports current production levels.

Sveinung Svarte

So that was in case, the put call was not received on time and also if we are not managed to make a joint venture on time. So, both of them would have to fail with that drop.

Jeff Lewis – Financial Post

Okay, thanks.

Operator

Mr. De Leebeeck, there are no further questions at this time. Please continue.

Andre De Leebeeck

Thank you for joining us today. Our call is now complete.

Rob Broen

Thank you.

Operator

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.

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