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Executives

Darren Daugherty – Director, IR

Jim Tisch – President and CEO

Peter Keegan – SVP and CFO

Analysts

Robert Glasspiegel – Langen McAlenney

Sachin Shah – Capstone Global Markets

Michael Millman – Millman Associates

David Adelman – Morgan Stanley

Stephen Velgot – Susquehanna Financial Group

Alan Grand [ph]

Adrian Day – Adrian Day Asset Management

Joe Lu [ph] – Mass Capital [ph]

Loews Corporation (L) Q4 2009 Earnings Call Transcript February 8, 2009 11:00 AM ET

Operator

Good morning. My name is Melissa and I will be your conference operator today. At this time I would like to welcome everyone to the Loews’ fourth quarter and year end earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remark there will be a question-and-answer session.

(Operator instructions) I will now turn the call over to Darren Daugherty, Director of Investor Relations. Sir, you may begin.

Darren Daugherty

Thank you, Melissa. Good morning everyone. Welcome to Loews Corporations’ Fourth Quarter 2009 Earnings Conference Call. A copy of the earnings release may be found on our website Loews.com. On the call this morning are Jim Tisch the Chief Executive Officer of Loews, and Peter Keegan the Chief Financial Officer of Loews.

Before we begin, I would like to make a few brief disclosures concerning forward-looking statements. This conference call will include the use of statements that are forward-looking in nature. Actual results achieved by the company may differ materially from projections made in any forward-looking statements. Forward-looking statements reflect circumstances at the time they are made and the company expressly disclaims any obligation to update or revise any forward-looking statements.

This disclaimer is only a brief summary of the company’s statutory forward-looking statements disclaimer. We urge you to read the full disclaimer which is included in the company’s 10-K and 10-Q filings with the SEC. I would also like to remind you that during this call today we may discuss certain non-GAAP financial measures. Please refer to our security filings for reconciliation to the most comparable GAAP measures.

I will now turn the call over Loews’ Chief Executive Officer, Jim Tisch.

Jim Tisch

Thank you, Darren. Good morning and thank you for joining us on our call today. Loews’ wrapped up the year with a solid fourth quarter that benefited from good operating results of G&A, ongoing earnings strength at Diamond Offshore and improved investment income from the holding company investment portfolio. CNA reported solid net operating income for both the quarter and full-year, primarily due to improvement in net investment income.

In ’09, Tom Motamed, the CEO of CNA wants the strategy to drive top and bottom line growth, and in support of this strategy, CNA has strengthened its leadership team, opened new field offices and added underwriting staff. Within its core property and casualty operations, CNA specialty segment continued to deliver very strong performance. And within its commercial segment, the improvement initiatives are beginning to take hold. CNA has seen continued recovery of its investment portfolio, which together with earnings has boosted CNA's book value per common share by 72% from year-end ’08, representing a $5.4 billion free tax improvement in its unrealized gain position.

Last quarter during our earnings conference call, I elaborated on how mark-to-market accounting rules could potentially be misleading with respect to unrealized losses at property and casualty insurance company. While it was unpleasant last year to see unrealized losses on the asset side of the balance sheet, we believe that the bulk of the securities held by CNA would ultimately recover in value as they have.

CNA finished ’09 with its balance sheet and investment portfolio in very good shape. The reason I’m revisiting this issue however, is that at some point in the future, interest rates could again rise in the United States. Should this occur or more realistically when this occurs most PMC insurance companies including CNA will likely suffer a negative impact on the market value of their fixed income investment portfolios, which would in turn have a negative impact on GAAP book value. But because CNA’s portfolio is generally comprised of securities that attempt to match the duration and liquidity requirements of its insurance liability, a decline in market value caused by an interest rate rise would not meaningfully impact the company’s ability to pay claims.

We therefore tend to focus on book value per share before unrealized gains and losses. And notwithstanding the decline in stated GAAP book value as a result of increasing interest rates, there is an offsetting benefit to a higher interest rate environment. CNA would be able to invest a significant cash flow into higher-yielding securities. During the fourth quarter, CNA completed a $350 million bond offering at a competitive yield, which underscores the market confidence and CNA’s financial strength. Of the proceeds, $250 million will be used to regain the preferred stock owned by Loews, which continues to hold $1 billion of the preferred shares in CNA. For ‘09, Diamond Offshore posted record earnings stemming from strong day rates and utilization rates for it semisubmersible drilling rates.

Energy prices have recovered from one year ago, but the uncertain economic outlook has somewhat dampened demand for offshore drilling services and the day rates that Diamond has been able to command the new contract. Despite these market challenges, Diamond entered 2010 with a contract backlog of about $8.5 billion and with approximately 75% of its floater fleet fully committed.

As you may know, Diamond has a policy of considering the payment of special cash dividends reflecting the earnings financial position and earnings outlook for the company. In that regard, Diamond's Board of Directors last week declared a special and regular quarterly dividend together totaling $2 per share, representing a $140 million payment to Loews.

Boardwalk closed out the year with a strong fourth quarter, both in terms of progress made on its expansion projects and the positive impact these expansion projects are having on cash flow. Boardwalk has declared a cash distribution for the fourth quarter of $0.50 per unit, continuing its track record of increasing cash distribution to unitholders each quarter since its initial public offering in '05. Loews cash receipts from Boardwalk dividends last quarter was $69 million.

As previously disclosed, all of Boardwalk’s 42 inch pipeline expansion project have received approval from the pipeline and the hazardous material safety administration or PHMSA to operate at the full design capacity. On the 36 inch project, the Fayetteville and Greenville Laterals, Boardwalk is able to meet all customer requirements until mid-2011 by operating the pipelines at normal operating pressures.

The company is seeking approval from PHMSA to operate the Fayetteville Lateral at higher operating pressures, which will allow Boardwalk to further increase capacity. Given the strong demand for pipeline capacity from the Haynesville Shale production area, Boardwalk has announced two compression projects to boost capacity on its East Texas pipeline system. The planned [ph] compression project and the Haynesville project will leverage Boardwalk’s flexible and integrated pipeline system and should generate favorable project economics. One we solve this, these projects will be supported by long life contracts averaging more than 11 years.

Importantly, Boardwalk has completed all the necessary financing and has enough liquidity in place to complete all its announced projects including the newest compression projects.

With strong cash flow from our subsidiary, Loews Corporation finished 2009 with $3 billion of cash and investments and only $866 million of debt at the holding company level. During the year, we repurchased 10.5 million shares of our common stock for $348 million. This represents 2.4% of the shares outstanding at the beginning of the year. From January 1st through February 1st of this year, we bought an additional 1.6 million shares for $57 million.

And with that, I will now turn the call over to Peter Keegan, our Chief Financial Officer. Pete?

Peter Keegan

Thanks, Jim and good morning, everyone. For the fourth quarter Loews reported a net income of $403 million versus a loss of $958 million in the prior year quarter. For the full year, income from continuing operations was $566 million, versus a loss of $182 million in 20008. Loews’ interest in CNA’s fourth quarter net realized investment gains after tax and non-controlling interest was $44 million versus a loss $283 million in the fourth quarter of 2008.

This improvement reflects the realized investment gain of $217 million after tax and non-controlling interest from its sales of CNA’s common stock holdings of the risk analytics in October 2009 offset by other than temporary impairment losses.

For the full year, Loews’ interest in CNA's net realized investment losses after-tax and non-controlling interest was 505 million. These primarily consisted of other than temporary impairment losses related to asset backed and corporate securities. In 2008 Loews' interest in CNA's net investment losses was $756 million after-tax and non-controlling interest.

CNA contributed $182 million to Loews' net operating income for the quarter versus a loss of $15 million in the fourth quarter of 2008. The increase was primarily driven by improved results from limited partnership investments. For the full year CNA's contribution to net operating income was 904 million, up from 488 million in 2008. Results benefited primarily from higher investment income as well as from unusually light catastrophe losses.

Diamond Offshore's contribution to net income for the fourth quarter declined to 128 million versus 137 million in the prior year fourth quarter, primarily due to a higher effective tax rate. Average day rates to semisubmersible rigs were essentially flat as with average utilization for intermediate semisubmersibles.

Utilization for high spec floaters was down by eight percentage points, primarily because of timing of required rig surveys. For the full year Diamond's contribution to net income increased to a record 642 million from 612 million in 2008.

HighMount reported net income of 35 million in the fourth quarter versus 37 million in the prior year fourth quarter, excluding 754 million of non-cash impairment charges. Excluding non-cash impairment charges of 754 million after-tax in the fourth quarter of 2008, and of 660 million after-tax in the first quarter of 2009, HighMount's net income for the full year declined to $123 million from a $179 million in 2008, primarily because of decreased production volumes and lower natural gas prices.

Some production numbers are as follows

For 2009, HighMount reported natural gas sales of $70.8 billion cubic feet at an average realized price of $6.94 per thousand cubic feet.

Natural gas liquid’s production of 3.3 million barrels at an average realized price of $30.98 per barrel, and oil production of 363,000 barrel at an average price of $55.37 per barrel. As of December 31st, HighMount had hedges in place to cover approximately 64% of its estimated 2010 natural gas equivalent production at an equivalent price of $6.43 per Mcf and 35% of estimated 2011 production at an equivalent price of $6.49 per Mcf.

At year-end, total proved reserves were approximately 2 trillion cubic feet equivalent, down from 2.2 Tcf in the previous year. Revision is primarily related to lower average energy prices in 2009 compared to December 31st 2008, and a reclassification of some proved undeveloped reserves to a non-proven category.

Boardwalk’s contribution to Loews’ fourth quarter net income increased to $28 million from $27 million in the prior quarter, reflecting increased revenues from pipeline expansion projects and higher parking and lending revenues which benefited from favorable pricing spreads between spot and futures market prices.

For the full year, Boardwalk’ contribution to net income decreased to $67 million as compared to 125 million in 2008. The decline is because in 2009 revenues from the expansion projects were approximately 122 million lower than expected due to remediation of pipeline anomalies, but operating expenses associated with the expansion projects increased.

Loews’ hotels reported net losses of $4 million and $34 million for the quarter and full year versus net income of $4 million and $40 million for the fourth quarter full year in 2008. Average room rates for the quarter decreased to $217 from $252 in the prior year quarter. Well, occupancy decreased to 61.6% from 65.8% resulting in a 19.3% decrease in revenue per available room. Hotel bookings, of course, the entire upper upscale lodging industry was significantly lower in 2009 than in prior years.

Net investment income from Loews’ trading portfolio were 16 million for the quarter versus a net loss of 78 million in the prior year fourth quarter. For the full year investment income was 113 million versus a net loss of 33 million in 2008. Improvements were primarily from better performance in the trading portfolio in the larger cash balance. Much of the losses in 2008 related to mark-to-market losses in the equity portfolio, which has since recovered.

Holding company cash and investments as of December 31 totaled $3 billion. As Jim mentioned, during 2009 we purchased 348 million of our common stock at an average price of $33.05. Additionally, we made investments in Boardwalk Pipeline of 150 million for common units and 200 million for subordinated debt, and repaid 108 million of dividends to our shareholders.

We received $954 million in dividends from our subsidiaries and $175 million of investment income from our trading portfolio. $250 million of senior preferred stock was redeemed by CNA and $100 million of subordinated debt was repaid by Boardwalk Pipeline.

And now, I will turn the call back over to Darren.

Darren Daugherty

Thank you, Pete. Operator at this time we will open it for questions.

Question-and-Answer Session

Operator

(Operator instructions) Our first question comes from Bob Glasspiegel of Langen McAlenney.

Robert Glasspiegel – Langen McAlenney

Good morning. I was wondering, given I don’t have the 10-K, can you give me the carry-in – year-end carrying values for Diamond, Boardwalk, CNA and HighMount?

Peter Keegan

I don’t think we have it readily available, Bob.

Robert Glasspiegel – Langen McAlenney

Okay. I will wait till the 10-K.Jim, your commentary on interest rates seem to be more pronounced that the company is positioning for rates to go higher than other calls, maybe more annualized it, but in the context of expecting interest rates to go higher, how does that affect -- how you position your portfolio with apparent use of cash?

Jim Tisch

The apparent -- we don’t have much in the way of fixed income. We do from time to time trade in the government bond market, but we don’t have fixed income the way we do in CNA.

Robert Glasspiegel – Langen McAlenney

CNA, right.

Jim Tisch

And the reason I wanted to talk about book value and what’s going to happen is that I feel pretty confident that at some point in the next few years interest rates are going to go up, and CNA's book value is going to go down. And this is just a way of saying in advance, “I told you so”, and trying to make abundantly clear at a time when we don’t need to say it. What will happen to the book value, what if – and the fact that in terms of the operation and financial strength of CNA, that it’s a pretty much a non-event if the book value does go down as a result of an increase in interest rates.

Robert Glasspiegel – Langen McAlenney

What we can have is to pay at later discussion, later but. But if you have strong conviction that interest rates are going higher, it to me it would have some influence on CNA's desire to write long-term casualty business where assumption of loss cost growth factors into how you might price the product?

Jim Tisch

It much more affects us in the non-geometrical portfolio than the underwriting of insurance product. We are Tom Motamed is not at CNA to do cash flow underwriting. We are there to be in the top quartile of underwriters and to achieve a combined ratio commensurate with that. So we are looking to generate a significant underwriting income at CNA.

Robert Glasspiegel – Langen McAlenney

Well just making my point clear, I mean if you have perfect knowledge that inflation was going to be running 8% in the next three to five years, you would not want to be ready in much long-term casualty business, so it would go the other way in that, I mean, it seems to me it would make management want to be more restrictive and underwriting non aggressive?

Jim Tisch

I know, but I am more concerned about interest rates than I am in inflation?

Robert Glasspiegel – Langen McAlenney

Okay. So you think we might have interest rates going up without inflation?

Jim Tisch

Without significant amounts of inflation, I think that’s entirely possible.

Robert Glasspiegel – Langen McAlenney

Okay. Thank you. I may have some follow-ups.

Jim Tisch

Okay.

Operator

Your next question comes from Sachin Shah of Capstone Global Markets.

Sachin Shah – Capstone Global Markets

Hi, good morning. Thanks for taking my question. Just, it seems like you picked up the share repurchases a little bit more in the fourth quarter, and I think you mentioned a year that you are acquiring another $1.6 million since today’s release. So, just wanted to kind of get your thoughts on going forward, I know you have stated that you are looking to continue to share repurchases, but just as far as thought process now with kind of market condition has any of that thought process changed? Are you looking for discount to NAV or are you looking at absolute dollar amount to make these repurchases?

That’s a first part; second part is, any indication or any update on how to potentially monetize the current assets that they are being held at the holding company level, primarily high amount similar to how you did well at pipelines, you did IPO of just under 20%, doing a potential IPO or spin-off to the market doesn’t necessarily have to be a significant amount to kind of monetize that value. So, I just wanted to kind of find out your thought process on that with market conditions currently?

Jim Tisch

Well, of course with respect to repurchases, we are following the same play book that we've followed for the past four years or so. And that is, we buys the shares and when we think they are attractively prized to use a whole host of measures to do that, we look at the some of the parts evaluation, we look at earnings, we look at cash flow, we look at just about everything that any analyst would look at in determining whether the shares are cheap or deal [ph], and then we act accordingly. And I can't say how much money we would spend in the course of the year on repurchases, but the thing I can say is we will do absolutely nothing in anyway to jeopardize the financial strength of Loews.

I said in my remarks that we have $3 billion of cash, we have $866 million of debt. I think that even though we spent last year $350 million repurchasing shares, our cash balance at the end of the year was higher than at the beginning of the year. So we are very conservative in the management of that, those share repurchases.

With respect to monetizing assets, it's funny, I don’t know how to answer you, because if we were thinking about an IPO, and I would say something then we would be jumping the guns, and I can't do that. So, if I say we are not doing something then maybe that gives a different answer, and you could gain your way to figuring out what we are doing.

So, let me just say that instead we constantly look at markets, when we’ve taking businesses probably they have been for very, very specific reasons and because we thought it would be not only good for Loews but also good for the shareholders of Loews and the potential shareholders of those subsidiaries. But beyond that, I don’t want to talk about what specific plans we have for the IPOs of any of our businesses. I am sorry to say but it’s the way it has to be. You will find out as soon as file a prospectus for that business.

Sachin Shah – Capstone Global Markets

Thank you, Jim. Have a good day.

Jim Tisch

Thank you.

Operator

Your next question comes from Michael Millman at Millman Associates.

Michael Millman – Millman Associates

Thank you. I guess, maybe pushing a little bit more on the repos, fresh question is how much cash on the balance sheet at this point in time gives you comfort or to put it the other way, how much could you spend on repos given the opportunity?

Jim Tisch

First of all, in terms of how much cash gives us comfort, as you know I don’t know -- I can’t give you an exact number. I can tell if you look through history we’ve had significantly less than $3 billion and we’ve still been comfortable. So let me leave it at that.

What was the second part of your question?

Michael Millman – Millman Associates

Well, it was kind of there are three parts of that, but I think you've answered. The next question is where do you see the most or upside for Loews value over the next couple of years?

Jim Tisch

I’m reticent to answer but, what the heck, I’ll sally forth anyway. My sense is that CNA is trading at what two-thirds of book value. Is the place where there could be significant upside opportunity. It's a – the stock is a prove me or – has to prove itself to the market, but I have seen what the management is doing. I have seen what the numbers look like in and I have a sense that they’ll be able to do what they say they are going to do. As we say stay-tuned and we’ll all see.

Michael Millman – Millman Associates

Right. Given what you said before it would seem reasonable that the market is assuming that interest rates will go up, and therefore the book value will go down, do you think selling it two-thirds of book value is taking this into account?

Jim Tisch

Yeah, because right now the mark-to-market on the investment to CNA is pretty much a watch, it doesn’t have much of an effect on book value. So, I don’t think that going forward in the future that CNA’s -- that the level of interest rate will have a significant impact on the price CNA’s stock. I think people will look through book value and instead look towards the underlying operating income of the company on a quarterly and annual basis. And I think that if interest rates would have spike up and therefore the book value were to decline again, I don’t think that would be such a significant factor.

Michael Millman – Millman Associates

All right. So, basically you see opportunities for the company to do a lot better in its basic business and that would drive the stock?

Jim Tisch

The CNA, yes.

Michael Millman – Millman Associates

Okay, great. Thank you.

Operator

Your next question comes from David Adelman of Morgan Stanley.

David Adelman – Morgan Stanley

Good morning, Jim.

Jim Tisch

Good morning.

David Adelman – Morgan Stanley

Just one question and that has do with the prospect of the holding company considering of making an acquisition and if it’s this, how does it affect if at all that Loews continuing to trade at a sizable discount to its some of the part value to influence your thinking with respect to doing a large scale acquisition?

Jim Tisch

A large scale acquisition would be a use of cash, just the way share repurchases are a use of cash, and we raised the long-term benefits of all the different opportunities including share repurchases and acquisitions in trying to determine what is the best course for Loews. So, it’s sort of like going to the eye doctor and looking at the eye chart, say that A – is A more attractive or B more attractive? Can you see more clearly with A or B? And we make our decision that way. We don’t feel that we have to make an acquisition. What we feel we have to do is constantly be striving to increase the long-term value of the company, and use whatever means we can, which we believe provides the best results for our shareholders.

David Adelman – Morgan Stanley

Okay. Thank you.

Operator

Your next question comes from Stephen Velgot at Susquehanna.

Stephen Velgot – Susquehanna Financial Group

Yes, I had a couple housekeeping questions, and then I was going to ask you, if Jim could comment on what sellers expectations have generally been like in looking at acquisitions? But the housekeeping questions are the cash and investments at the holding company are excluding the $1 billion investment in CNA preferred I take it?

James Tisch

That’s correct.

Stephen Velgot – Susquehanna Financial Group

Okay. And then the second question, Peter could you just restate what Loews holds in terms of the sub debt at Boardwalk or was that all paid back?

Peter Keegan

Beyond $100 million so.

Stephen Velgot – Susquehanna Financial Group

So 100 million, okay. And then Jim, the question just about overall expectations among sellers, if you could just comment on whether or not you think expectations are too high or it probably always seems that way when you are more of a buyer but I wondered how that may have changed over the last year or so?

James Tisch

No, I don’t know what the specific expectations of sellers are. I would put it a little differently. I would say that with respect to a lot of businesses, sellers are looking to sell, based on the economics of ‘07 and early ‘08 and buyers often times are looking to buy based on the economics of late ‘08 and ‘09.

And it’s too early to tell yet exactly how that’s all going to way out and we are going to have to see as well what happen to the economy. And we have had, in general corporate profits and in for each in particular instance the profitability of those individual companies, my general sense is that we’re not going to have a robust recovery the way we had from prior recession and my reasons for that is that I believe that this what we now called great recession is different from prior recessions.

And it’s different because it didn’t come about because of the FED raised interest rates to choke off an expanding economy, rather it came about, I believe, because we as a nation had a mountain of debt that basically fell down on itself. We had debt to GDP in the 50s of a 120% and that has expanded over the past 60 years to 360% of total debt to GDP in our economy. And in ‘07 and ‘08 that mountain cracked and then crashed the economy, and when you come out of a normal recession what happens is the FED loosens up on interest rates after they choked off the inflationary expectations, and then the banks lend money, extend credit and with that extension of credit, you have that expansion phase coming off of the bottom of the economy. This time around, it is not that extension of credit. And the reason is because there’s already too much credit in the economy, either on the part of the homeowner – homeowner and consumers primarily but also the overall economy in general.

And so, I don’t believe we are going to get that boost or liftoff phase that you get for narrowly out of the – off the bottom of the recession, simply because we are not going to have the accelerant, which is the credit extension in order to finance it. So, just to bring that back to the price of buying businesses, we operate under the assumption that things are not going to get better, significantly better in the near-term, and we’ll have to see what the market is thinking with respect to the economy by looking at the prices that others are willing to pay for businesses that are up for sale.

Stephen Velgot – Susquehanna Financial Group

Okay. And then just a quick follow-up, Jim. Do you tend to expand your scope of potential acquisitions more globally of late or are you primarily focused in the U.S.?

Jim Tisch

We are primarily focused in the U.S. for a number of reasons. Number one, they are playing safe enough. Number two, they haven’t eliminated time zone. And number three, we have a though enough time understanding how to do business in the culture here in the United States. And to think that we could from a few 1000 miles away, master it in a foreign country just doesn’t really makes sense to me.

Additionally, the question always have to arise, if the opportunity is so good why aren’t the locals in that foreign country taking advantage of it. So, for all those reasons we tend to maintain our focus here in the United States. We are not afraid to have businesses that deal internationally. For example, Diamond Offshore has very substantial operations that occur outside the United States, but we are in general looking for businesses that are located here in the States.

Stephen Velgot – Susquehanna Financial Group

Thank you.

Operator

(Operator instructions) Your next question is a follow-up from Bob Glasspiegel of Langen McAlenney.

Robert Glasspiegel – Langen McAlenney

I was wondering if you can drill a little deeper into HighMount, the lateral moving parts over the last year, we’ve written down a $1 billion in the carrying value; you have got a little bit more active with the well costs coming down, the Mobil XTO transaction which, sort of, to some extent validates the carrying value of your original purchase as opposed to the write-downs, I guess the question is are things getting better or worse for that investment in the last year? Because the carrying value write-down that the account is forced on you seem unduly conservative relative to the economics and the fundamentals of the business. How should I think of what the value of this business is today?

Jim Tisch

Listen, I don’t know what the value of the business is, I do know we bought a high amount, about $1.65 per Mcf, which was at the time an attractive valuation and I still consider an attractive valuation. The write-downs that took place last year occurred because of the spot price of natural gas on one particular day. And last year the price of natural gas got down to – Henry Hub gas got down to a price with a handle of one on it. So it's like a $1.80 or $1.90, but at the end of the quarter when we had to actually determine whether there would be a write-down, the price got down to, I think $3 and change, some very low price.

In the meantime, the SEC has changed the rules for the SEC 10 ceiling test impairment charges. And so I think if these new rules had been used in the prior quarters the write-downs would not have been as significant. I’d say also that the – as you can imagine I think the business is getting better overall. Certainly gas prices are up, or at least spot gas prices are up. The 12 months strip is now trading just under $6.00 an Mcf, that’s up significantly from where it was during ‘09.

And importantly, the cost of drilling wells has come down rather significantly for us. Going back, a year and half, to drill a well in Sonora cost us an excess about a million dollars. It is, since declined to about $450,000, and now it is picking up a bit because of what’s going on with steel prices and the like, but nonetheless because the drilling is still rather low and we find especially in our major market which is Sonora we can drill wells at, what looks us to be, very attractive returns for HighMount.

Robert Glasspiegel – Langen McAlenney

It seems like, I mean, obviously the accounts make it harder to write up assets than write down assets, but if things are getting better, the fundamentals are improving and your balance sheets reflects a $1 billion hit and that doesn’t reflect economic realities, it seems like at some point the accounts would say where we are being to conservative and now we are carrying this asset?

Jim Tisch

I have never ever, ever, ever seen an accountant say you are being too conservative, and likewise, I have never ever, ever, ever seen them say gee, the value for that asset is too low on your balance sheet, why don’t you write it off? It doesn’t happen.

Peter Keegan

The way you get the benefit, Bob is because you wrote the assets down as you go forward and so guess in the future you have lower cost to average price. It will give benefit very gradually in the future.

Robert Glasspiegel – Langen McAlenney

Okay. Thank you for the education.

Jim Tisch

Well, I am going to propose you for the FASB Board!

Robert Glasspiegel – Langen McAlenney

I am testified a few times, and they could care less what they have to say so.

Operator

And your next question comes from Alan Grand [ph].

Alan Grand

Thank you. Good morning, gentleman. My question is related to the spin-off of Lorillard in 2008.

Jim Tisch

Ancient history.

Alan Grand

Yes. Generally, are you glad that given what's happened to the company since then that with the increased excise taxes that you made that decision in looking back?

Jim Tisch

I don’t like to look back. I look forward, and I think the shareholders of Loews have done well. I think the shareholders of Lorillard’s have done well. I wish Lorillard all the best luck in the world. Martin Orlowsky does a phenomenal job of running that business. But I don’t want to sit here now and second guess, should we have done those or shouldn’t we have done it? Let me just say that we are very pleased with how Loews looks today.

Alan Grand

Thank you.

Operator

Your next question comes from Adrian Day of Adrian Day Asset Management.

Adrian Day – Adrian Day Asset Management

Yes, good morning. I'd like to ask a general question if I may, sort of the opposite of what you were asked earlier about, about good things that could happen. Obviously the balance sheet lets you sleep at night, that’s great. What is it that you think could go wrong with the company or frustrates you about the circumstances?

Jim Tisch

Well, I would advise you to look at our upcoming 10-K or prior 10-Qs, then talk about certain risk factors. There is I think 30 pages of things that could go wrong, but just to mention a few -- I’d say oil prices could go down significantly, gas prices could go down both of which we have heard Diamond Offshore and also HighMount, generally that wouldn’t hurt Boardwalk too much. And likewise Boardwalk has pretty much finished its major capital project. So, it would be difficult to see what could hurt Boardwalk significantly other than a dramatic change in gas demand or something is going on intra market, in a different market that Boardwalk serve and likewise I am assuming no gas leaks or explosions which are something that could happen to anybody in the pipeline business.

When you talk about CNA that’s a work-in-progress. I think that, as I said before, that people at CNA are doing a great job, but, anything can happen there. We could have more hurricanes, and even out by the hurricanes season, earthquakes have been known to strike from time to time. So catastrophe is our significant risk as well as investment portfolio. And at the hotel business, there is the overall economic environment. There is the risk hopefully they have learned their lesson, but there is the risk that Washington can do yet more to try to kill the business, but notwithstanding all these risks, there are risks that we live with, there are risks that I am accustom to. And I feel generally comfortable taking those risks, and I feel especially comfortable that we at the holding company have the cash and financial resources in place, such that if heaven forbid some of these risks actually do come to pass that we have the ability to come through them in pretty good shape.

Adrian Day – Adrian Day Asset Management

Okay. That's great. I appreciate it. Thanks.

Operator

Your next question comes from Joe Lu [ph] of Mass Capital [ph].

Joe Lu Mass Capital

Good morning, gentlemen. Just going back to HighMount, did you say that TV10 value for the reserves were under the new SEC rules?

James Tisch

We did not say it, no.

Joe Lu Mass Capital

Okay. And what were your thoughts on hedging when you look at the curve, right now it’s going after 2011, I think it's, call it 640-ish, which is roughly inline where the Astra hedged today, just sort of thinking about strategically how the position of HighMount into maximizing value there, have you given thoughts for hedging that production there more?

Jim Tisch

We stated as a general rule that we like to be hedged one year’s worth of production over the coming two years, and that's approximately where we are now. Additionally, when we do some of these drilling programs, and in particular the programs that we did last year when gas prices were very low, we drilled the well but we didn’t complete or frac it until some time starting in December. And what we did is we hedged the first three years of production in order to be able to lock in very significant double-digit returns on those investments. So, we think that hedging is a very attractive tool that we have in order to maximize returns for HighMount.

Joe Lu Mass Capital

Understood. And also, what is the CapEx for the year for HighMount?

Jim Tisch

The CapEx, it is just here somewhere. We have Dennis Millet and Tim Parker on from HighMount, maybe they will –

Dennis Millet

Hey Jim, it's right around at $200 million from what has been in capital in 2009.

Jim Tisch

Okay.

Joe Lu Mass Capital

Thank you

Jim Tisch

Thank you.

Operator

If there are no more questions, I’ll turn the call back to management for closing remarks.

Darren Daugherty

Thank you for joining us on the call today. A replay will be available on our website loews.com at approximately 2 hours. That concludes today’s call.

Operator

Thank you for participating in today’s conference. You may now disconnect.

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Source: Loews Corporation Q4 2009 Earnings Call Transcript
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