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Penn West Energy Trust (NYSE:PWE)

Q4 2009 Earnings Call

February 18, 2010 12:00 pm ET

Executives

William Andrew – Chief Executive Officer

Murray Nunns – President, Chief Operating Officer

Bob Shepherd - Senior Vice President, Exploration & Development

Hilary Foulkes – Senior Vice President, Business Development

Todd Takeyasu – Executive Vice President, Chief Financial Officer

Analysts

Jonathan Fleming – Cormark Securities

Greg Shaw – TD Securities

Kyle Preston – Canaccord Adams

Fergal Kelly – RBC Capital Markets

Gordon Tait – BMO Nesbitt Burns

Cliff Griffith – Private Investor

Operator

Welcome to the Penn West Energy Trust fourth quarter and year-end conference call and webcast. I would now like to turn the call over to Mr. William Andrew, CEO of Penn West Energy. Mr. Andrew please go ahead, Sir.

William Andrew

Thank you. Good morning. Welcome to our 2009 fourth quarter and year-end financial and operating results conference call. With me this morning at Penn West’s office in Calgary is our President and Chief Operating Officer, Murray Nunns as well as our Chief Financial Officer, Todd Takeyasu. We have members of our senior management team around the table as well this morning.

Penn West Trust units are traded both on the New York Stock Exchange under the symbol PWE and on the Toronto Stock Exchange under the symbol PWT.UN. All references during this conference call are in Canadian dollars unless otherwise indicated and all conversions of natural gas to barrels of oil equivalent are done on a 6 to 1 conversion ratio.

2009 was a successful year for Penn West. Our daily production exceeded our guidance and the renewed focus and energy of our teams lead to significant improvements in capital efficiencies. These efficiencies and improved efficiencies provide a solid platform for more a aggressive capital program in 2010 and into the future.

As we have positioned the company for transition to a conventional exploration company we have continued to work hard to unlock the potential of our assets as we believe we have the assets to add considerable value to our investors. As a corporation Penn West will focus on total shareholder return. This will consist of both growth and income from dividends. The growth will be achieved through increased focus and attention on our resource in place.

Certain information regarding Penn West and the transactions and results discussed in this conference call including management’s assessment of future plans and operations may constitute forward-looking statements under applicable securities laws and necessarily involve risks. Participants are directed to Penn West’s news release issued early this morning and they are also asked to review the advisory notice therein. Participants are also cautioned that the included list of risk factors are not exhaustive. Official information on these other risk factors that could affect Penn West’s operations or financial results are included in reports on file with Canadian and U.S. regulatory authorities and may be accessed through the SEDAR website at www.SEDAR.com and the SEC website at www.sec.gov. We always welcome you to come to our website, www.pennwest.com. There you will see all that information.

You will see a tremendous amount of information about the company as well as our most recent investor materials including the presentation that either Murray or I are carrying on the road to present the company to potential investors. In addition during this conference call certain reference to non-GAAP terms may be made. Participants are directed to Penn West’s MD&A and financial statements available on our website as well as filings available on the websites noted earlier to review disclosures concerning non-GAAP items.

Following the text part of the conference call this morning and our update we would like to open up the phone lines at which time we would be pleased to answer your questions. With that and with no hesitation we will turn the call over to our President and COO, Murray Nunns.

Murray Nunns

Thank you Bill. As Bill mentioned Penn West’s 2009 results exceeded expectations. This morning we will devote some time to our strong results in 2009.

But, the important message for 2010 is Penn West’s focus on being a leader in conventional oil plays across the western Canadian sedimentary basin. We are going to accomplish this through disciplined resource evaluation and consistent resource development strategies. As we transition to an E&P company Penn West is as well positioned as any comparable entity to provide investors with a strong combination of cash yield and growth.

Let’s take a quick run through our financial results. Funds flow for the fourth quarter was $366 million or $0.86 per unit. WTI averaged just over $76 per barrel in the fourth quarter compared to just under $50 per barrel in the same period for 2008. For natural gas our average shale for the fourth quarter were $4.39 per mcf compared to $7.03 per mcf during the fourth quarter of 2008 prior to the effects of hedging.

Net debt including working capital was reduced by approximately $822 million in 2009. In addition to that, last month Penn West closed a property swap which saw an additional $434 million applied to the company debt. Penn West’s total debt on a pro forma basis stands at slightly over $3 billion. Let’s put that in perspective. Of the last 18 months through one of the toughest downturns the economy has seen in recent memory, or extended memory, Penn West has de-leveraged the company by approximately $1.3 billion which positions our balance sheet well for the transition to an E&P company.

On the hedging side of the equation for 2010 we have 35% of our liquids hedged at a floor of $60 with a net average price of about $75 U.S. On the gas side of the equation approximately 20% of our 2010 natural gas production is hedged with an average floor of $6.35 per mcf and an average ceiling of $8.74 per mcf.

We have also hedged 85% of our 2010 electricity at a price of $70.65 a megawatt hour and 2011 and 2012 we have also hedged out now taking advantage of the current energy pricing with 80% of our power consumption at approximately $58 per megawatt hour.

On the operations side of the equation our 2009 production guidance was 171,500 barrels to 176,500 barrels per day and that was net of property dispositions. Penn West averaged 177,000 boe per day for the full year, exceeding guidance as Bill had noted. Net of dispositions production in the fourth quarter averaged just over 170,000 boe per day.

Let’s move into the capital realm. That is really where it points to the focus of the company on a forward basis. Looking at our capital investments, excluding A&D activity Penn West spend $196,000 in the fourth quarter bringing 2009 development capital spending to $688 million which was within our full-year guidance of $650-700 million. The resulting finding costs of our 2009 program were $13.75 per boe before changes in FDC, future development capital. This is a significant reduction from $18.94 in 2008.

Underlying our strong operational results is effective use of capital and consistent execution of development strategies. We can and will add value to the drill bit. On that note let’s highlight three plays moving from east to west across Western Canada. We will start off in Manitoba, or the far eastern side of the western Canadian basin. In the lower Amaranth zone of the Waskada in Manitoba we have expanded our drill program in 2010 to between 35-50 multi-stage horizontal fractured wells. This expansion is fueled by our positive results in 2009.

Last year we drilled 7 horizontal wells which achieved an average 3-month production rate in excess of 100 boe per day per well. In the Viking play at Dodsland in southwestern Saskatchewan, Penn West completed the first delineation phase of drilling in 2009 which has included 35 horizontal oil wells. Initial production from these wells was in excess of 3,000 boe per day. We are pleased with the progress on this play and we anticipate drilling at least an additional 45-50 horizontal development and delineation wells in 2010.

In the Cardium zone which extends across west central Alberta, the 2010 development plan includes the drilling of 35-50 horizontal wells. These locations will expand our work being done inside the known Pembina field while targeting areas within our large land position in the surrounding acreage or halo portions of the trend. Encouraging well results from some of our recent development work inside the known pool has indicated there is much potential to be unlocked in our position of more than 570,000 net acres on the trend which dwarfs anyone else’s holdings on the Cardium trend.

Some of the areas we will be active in will include obviously Pembina and West Pembina as well as Williston Green, Buck Lake and in [Garrington]. We will be active across the trend.

Overall for 2010 we anticipate spending $700-850 million on our exploration development programs. We believe this will result in production of approximately 165-173,000 boe per day taking into account the last transaction of swap and disposition at the Leitchville properties on a volume basis. However, and the one point I will make about the capital spending, the 2010 drilling program will expand to a level commensurate to the growth potential of our assets. Where and how much we spend from April through the end of the year will be greatly influenced by the results of our first quarter 2010 drill program.

Just an additional note, if you are going to transition to being an E&P company one of the things you have to have is an exploration arm. As Penn West accelerates capital investment into our deep inventory of resource development projects we are taking a number of steps to also ensure the long-term viability of our strategies. Complimenting today’s extensive resource play development we have added an exploration team which is actively evaluating prospects to find new resource plays as well.

2010 is shaping up to be an exciting year for Penn West with increasing financial flexibility. Our focus on large scale resource development which will be complimented by an expanding inventory of promising projects. Just before we take some calls I would like to let everyone know that in addition to William Andrew and Todd Takeyasu joining us this morning in the room are a number of Penn West’s senior management team.

The people that really make the wheels turn are: David Middleton, the Executive VP of Engineering and Corporate Development; Mark Fitzgerald, Senior VP of Production; Hilary Foulkes, Senior VP of Business Development; Bob Shephard, Senior VP of Exploration and Development; Keith Luft, General Counsel and Senior VP of Stakeholder Relations; Dave Sterna, VP of Marketing and Jeff Kern, VP of accounting and reporting.

I will now turn this call over to the operator and open up the phone lines to callers.

Question and Answer Session

Operator

(Operator Instructions) The first question comes from the line of Jonathan Fleming – Cormark Securities.

Jonathan Fleming – Cormark Securities

Looking at this 800 barrel per day well you drilled into the water flood part of the Pembina pool I am wondering how long that well has been on production? Can you give some color around if there is any water cut in that well and where you would see the reserves on that type well go relative to the type curve that you had at your investor day? Finally, are you going to have any follow-up type wells on that in the water flood part of the pool?

Bob Shepherd

The well in question has been on a relatively short time. We have just over a week’s production from the well. It is currently being evaluated and we are very encouraged by those early results. I would want to emphasize we have tremendous amount of follow-up potential both to this well in the interior parts of the field in PCU9 and as Murray mentioned we are extending the program well beyond that. It is the first of many I think you are going to see and it is early days in the well but very encouraging production rates.

Murray Nunns

I will follow-up to that a little bit. Overall if you look at our holding approximately 30% are what we classify as pool centered and about 70% are either perimeter or halo positions. I think our program will have a slight bend to the perimeter halos but we will continue to evaluate and develop on the interior pools because what we have seen is there is a good spread of results on the interior pools and we believe in the long run this technique will work for both areas.

It will work for the interior of the pools and it will work for the perimeter and the halos. So we are encouraged on both sides and we think this well in particular can be equal to or exceed anything that has been found in the trend to date. It is just an indicator in an area where there is a little bit of pressure in the center of these pools there is ample opportunity for us to develop those as well as our perimeter and halo positions.

Jonathan Fleming – Cormark Securities

I am wondering as well how much activity would it take for you to decide you really want to ramp up this program? Would it be a certain amount of capital spending I should look for? Do you say you need to spend $50 million or drill 25 wells or what is the sort of magic to deciding okay this program really works in the Cardium and we are going to see it really go hard?

Murray Nunns

I will take a step back from that question and say what should you be looking for as we transition to an E&P company. We believe we will be in a position by later this year to be drilling plus or minus 500-700 wells a year in terms of both inventory depth and execution capability. That is what we see as a requirement for the future and we believe we have both the depth of inventory and the teams and personnel in place to do exactly that.

In terms of any particular play, I think as we cross the threshold from 25 plus wells you can anticipate basically an acceleration. Just given the size of the Pembina field and the Cardium trend as a whole that number may be a little bit higher for that trend. I think as we exceed the 50-75 wells out there we will have a series of projects that will accelerate and our numbers should grow exponentially on appropriate plays.

Jonathan Fleming – Cormark Securities

On your F&D, sort of $16 including FDC this year which is a very big improvement year-over-year and congratulations on that. Is that a representative number of what we should be looking for going forward, all things being equal obviously? Commodity prices changing a lot could change how those costs go.

Murray Nunns

As we step back from the overall program we believe that a $14-16 window is appropriate for finding costs on these style plays which yields a very solid recycle ratio at the $75 oil mark. So we see that as really a logical sweet spot for a lot of our inventory. That is an appropriate level for us to achieve. The one underlying point I would really like to drive is even at these levels when you look at our reserve book that is included or released now I think the one thing you should understand is less than 5% of that reserve book is attributable to horizontal impact. Most of that book is still tied to just vertical development of these fields. We believe there is a tremendous upside in our overall reserve book for the long run.

Operator

The next question comes from the line of Greg Shaw – TD Securities.

Greg Shaw – TD Securities

Following up on the question on the Cardium, in terms of your reserve bookings in 2009 can you break out were there any key drivers of the reserve increases this year?

Hilary Foulkes

One of the biggest areas of reserve growth this year was through horizontal drilling in the Leitchville area and then just generally across all of the properties we are putting an additional focus on. So there was probably a little bit heavier weighting towards Leitchville and then really the development programs once they start to kick in and the properties Murray was referring to earlier.

Murray Nunns

One thing we did see is we did see good horizontal bookings in all of the areas we are active and we are quite comfortable that we haven’t extended those in the slightest yet in terms of our overall book position.

Greg Shaw – TD Securities

On the horizontal bookings you would have seen can you quote any numbers for the ¾ areas?

Murray Nunns

I don’t think we have those right at hand.

Operator

The next question comes from the line of Kyle Preston – Canaccord Adams.

Kyle Preston – Canaccord Adams

To follow-on the 800 barrel per day Cardium well. Can you speak to was there anything different you saw with respect to reservoir characteristics on that spot? Was that area currently under water floor or was that an area that maybe was not swept from the water flood?

William Andrew

We have been in that area for about 1.5-2 years now. Our initial focus was on the enhancement of water injection. If you look at Pembina there is a small area, 1-2% of the total extent of the sand that has really produced a good portion of oil. Recoveries in that area are over 30%. There is an area immediately surrounding that which would represent 5-6% of the pool. You end up picking up recoveries there of about 25-30%. We are just beyond that. We have been focusing primarily on Pembina Cardium Unit 9 and the area surrounding that. We have been looking at water injection.

We had geared our wells towards injecting water. We were getting rates of up to 500 barrels per day of water injection initially. This compared with vertical injection rates of 40-50 barrels per day. We were very pleased with the fact the injection rate stayed up a good rates over the period of 1-1.5 years. What we decided to do last year was let’s take a couple of these water wells or injection wells and see how much oil we can get out of them. We were very encouraged. We weren’t getting the rates that are being reported in some of the halo wells recently but we were taking wells from basically nothing and taking them up into the range of 60-90 barrels per day.

Bob and the team said let’s try just a straight oil well in the area and completed [four] oil. This is our first one in an area that I think is being widely dismissed because it has some pressure maintenance activity. It came in. We cleaned it up for seven days. We have had it on flow for about another seven days. I think as Murray said it is making in the range of 700-800 barrels of clean oil per day plus some [solution gas].

So there is lots of room in the area. If you look at our land map it is pretty much Penn West color in and around where this well is. Murray as well talked about the amount of land that people are really focused on right now which is the perimeter and the halo. I think as having been in Pembina now for 15 years what we find is every time you turn over a sheet of paper you see something new. It is a tremendous resource. It is the largest aerial extensive oil field in North America. The largest conventional oil field in Canada and I think there is a lot of oil there.

Kyle Preston – Canaccord Adams

Can you also talk about any additional wells you drilled in the halo area and what kind of results you have gotten on that?

William Andrew

We haven’t drilled any yet.

Kyle Preston – Canaccord Adams

With respect to future asset sales are you still planning more there and also what about your distribution policy go forward?

Murray Nunns

The first part in terms of asset sales, we now feel the balance sheet is at a point where we are reasonably well positioned. I think as we see opportunities to clean up the asset base a little bit we now have pretty well defined buckets of which plays we want to be in and which areas we are really focusing in. So there may be some selective divestiture going forward but we are not rushing things out the door by any means. It really is to operationally streamline the company and focus our operations. Also I think we are much more at a balance point now where we want to be adding selectively in our core areas where we get the appropriate pricing or get ahead of a play we are going to be adding in selectively into those areas and really consolidating places where we are first movers on plays. So that is a key focus for us as we move forward through 2010.

William Andrew

Another board meeting yesterday and last night on the press release we voted to continue the distribution at $0.15 per unit per month for the next three months. We will update that again at the end of the second quarter. What we are doing is basically as we come up the curve and Murray and Bob and the team have got us coming up the curve very rapidly a year and a half or two years ago after we went through a spate of acquisitions we knew we had to revamp and revitalize our exploration and exploitation efforts.

We have done that. We have gotten to the point now where we know we can keep it flat and maintain the current distribution but we also know we have got the properties right now that it makes sense to put a growth component into the story and into Penn West. Our belief is we will ease into that growth. We will look at efficiencies. We will look at commodity prices. Those things will affect the distribution going forward and the dividend going into the period when we convert to a conventional corporation. In the interim we will keep the distribution where it is but as I say we will be having another review of that at the end of the first quarter. So expect something in May we will talk about it a little more.

Kyle Preston – Canaccord Adams

With respect to are you seeing any cost pressure? We are hearing from some of the other producers that they are seeing some uptick in costs especially from the pressure pumpers and the like.

Murray Nunns

On an overall basis no. We have seen occasional equipment pinches but they seem to be very localized and very short-term. What we are seeing actually is the other side of the equation. What we are seeing is as you start to ramp up these programs your real gain is on the efficiency side. The ability to go to a manufacturing model and execute continuously and frankly we believe on the average play from first well to 10th well we see an efficiency gain of between 30-40% in terms of cost reduction.

So frankly we are seeing the opposite trend. I think one of the keys to be understood relative to shale gas plays, shale gas plays take 200-300 ton fracs. They take small swaths of pumping equipment out of play for an extended period. Our typical fracs while we are doing these are in the range of I want to say anywhere from 10-25 tons. So we need about 1/10 of the equipment. We are a lot more mobile and a lot quicker in those operations.

Our drilling is dealing with smaller rigs typically. Our drill ranges we are dealing much more in the 1,500 meters vertical top end, between 1,000 and 1,500 vertical and 8-1,500 meters horizontal. So we are dealing with smaller rigs, shorter ranges, smaller fracs. Again all of that adds to the efficiency of our operation in total.

William Andrew

The big thing too as we move through the trust model and go through a period where we are doing primary acquisitions and didn’t have tremendous amount of activity going. Now we are becoming a very active company with lots of operations going on. Lots of wells. Purchasing power comes into effect and as we start to flex that I believe people have to recognize as a senior independent. We are among the most active in Canada. So we have a lot of say and we have a reasonable amount of control over pricing. That is because of the amount of work we are doing.

Murray Nunns

The other area where it has been really advantageous for us is infrastructure. In all of these fields we control the infrastructure. We are the highest working interest owner whether it is Waskada or Dodsland. We have got the existing capacity to tie into. We have got control of that so we can really keep our costs down. We go to Pembina and we own the heart of it. That is a field that had 100,000 barrels going through it at one time. It now has 15-20,000. So we have ample capacity to run our operations through these. So again there are a variety of efficiencies we gain all over the place as we ramp up these programs.

Operator

The next question comes from the line of Fergal Kelly – RBC Capital Markets.

Fergal Kelly – RBC Capital Markets

I was wondering if you could give us some color on what your plans are in 2010 for both the greater Swan Hills area and also July Lake?

Murray Nunns

There are two significant areas that are not in the top three in terms of our overall programs but are areas we are paying particular attention to. For the Swan Hills area, we are out there testing a few things. We are doing some obvious development work on the front of the [reefs]. We are also kind of taking a look at the platform. There is enough interest there that we think there is some application for the horizontal but we are just not exactly certain how it grades out yet. We have a very extensive position so it is a bit more of an exploration, poke and evaluate type exercise.

Up at July Lakes or on the Cordova [inaudible] which is an extension of the Horn River basin in that area what we are doing is we are continuing evaluation expanding out from our known universe. We already have two wells on stream and we will have a series of strat wells that extend us out across the basin so we have a very good understanding of where that play is at. Probably about the best in the industry I would suspect at this point on that particular portion of the play. What we really want to do is let that one unfold. We have to see exactly where it fits in terms of cost structures. We know we have a big prize. There is no question about that.

This will help what we are doing this year in terms of strat wells will quantify that prize. Then we will see how the gas market shakes out in North America and how a play like this truly fits within our inventory.

Fergal Kelly – RBC Capital Markets

On the topic of exploration how much have you budgeted for land and seismic in 2010?

Bob Shepherd

Roughly $60 million. Between $60-70 million.

Operator

The next question comes from the line of Gordon Tait – BMO Nesbitt Burns.

Gordon Tait – BMO Nesbitt Burns

I was looking at your overall sustaining CapEx or decline rates. It looks like the difference in production between 2008 and 2009 I think was about a 12,000 barrel per day decrease. In your release I think you said 3,500 of that was because of sales. Is that correct?

Murray Nunns

That is based on an average over the year as opposed to it is really a timing issue with regard to that average. Just to make that clear. There was obviously more volume divested but the average effect, a lot of it was late in the year.

Gordon Tait – BMO Nesbitt Burns

Would it be safe to say I think we are looking at annual production and then you annualize that sales rate. Would it be 8,500 boe per day of natural decline? Is that correct?

William Andrew

The declines we are seeing we have got 17.5-18% decline on the company. So it is about 30,000 barrels per day we have to replace each year to keep it flat.

Gordon Tait – BMO Nesbitt Burns

Your spending is just going up a little over where it was last year in your guidance. I presume you are looking at higher capital efficiencies coming out of these horizontal wells. Is that why you are…you are going to lose another 3,000 I think in January, is that right?

William Andrew

That is the big thing. Last year we went into it as you know we came off numbers that were less than pretty in 2007 and 2008 on the heels of our acquisition. So capital efficiency Murray and crew really tuned it up last year and we just really got going with the horizontal drilling so as we move into an area and basically the move you will see leech land get replaced primarily by Waskada as that would be the area that is the farthest up the list right now in terms of where we are. Dodsland is a very close second. So we will push more wells in there, much more into what we call a development phase rather than an initial development phase. That will absolutely help our capital efficiency.

Gordon Tait – BMO Nesbitt Burns

Once these wells sort of settle out or stabilize what do you reckon your efficiency on replacing daily barrels will be?

William Andrew

I think basically you are going to have the front end coming in to the [inaudible] and the way that the teams look at it are basically there are three phases to it. One, and Murray talked about the exploration front end, that is the new resource plays coming in. The second is our initial development phase. It is not much of an exploration phase anymore because you are not doing a whole lot of seismic here. Basically you are putting a bit in the ground and seeing what happens. When you hit it with the horizontal well and multi-frac and Bob and Murray talked about that and being somewhere between 25-75 wells depending on the aerial extent of the play.

Then you are into a mode where you are in-field drilling. Areas like Waskada, the thought right now is 10-12 horizontals per section. We think roughly the same at Dodsland as we move through the Cardium. I don’t think we have hit the right number yet but it might be 6 and it might 8 wells per section. When we start multiplying by the number of wells per section, I think you have the ability to continue that capital efficiency and even improve on it.

The only thing we really haven’t had the impact of and both Murray and I and other members of the team have had experience of doing large exploration and development programs before, is it is a heck of a lot different going out and drilling 400-500 wells than it is 100 because you have the ability and purchasing power to go out and control your capital efficiency as well.

I think yes we know the wells part of horizontal drilling is the decline in the first year and decline subsequently but as long as you have a solid inventory on the front end that wall is not going to hit you for a long, long time.

Gordon Tait – BMO Nesbitt Burns

With your three top plays, Cardium, Dodsland and Waskada, just approximately you have outlined the number of wells you expect to drill, what sort of dollars would go along with each of those areas?

William Andrew

The wells at Dodsland are costing us all in between $1-1.2 million. At Waskada we are a little higher than that right now. We will bring Waskada costs down but they are more in a range of $1.5 million a well. In Pembina the current costs are in the $3-3.3 million range. Again we have cost gaining opportunities there but I think we should be able to pull that down a bit but that should give you some rough guidance.

Gordon Tait – BMO Nesbitt Burns

You didn’t say anything about [Seals]. Do you have any plans there? What are you thinking about [Seal]?

William Andrew

We are drilling between 25-30 strat wells this year. We are convinced, we spent a lot of time doing those primary, do you look at color, do you look at water flood and we have come to the conclusion the best thing to do is to take an approach that includes thermal. Before we do that we felt we had better go out and see exactly how extensive this sand is. We know the sand itself is very extensive. We want to know exactly what it is like over the bulk of the 200,000 acres we have on the southern block.

We are out this winter and summer drilling and into the fall 25-30 wells. After that we will work on some thermal pilots and then go forward. For us it is always kind of falling into this dark hole because the short-term economics are tough in [Seal]. You are looking at some primary recovery but you are dealing with very viscous oil. You are dealing with high costs to get it out of the area to get it to market. If you look at those types of returns versus what else we have been putting on, other plays that Murray and the team have been putting on the deck over the last couple of years, [Seal] kind of gets put back on the back burner. We know we need to change that.

I think and we have made no bones about this as well that you could very well see us take a back seat on that play and see somebody come in and basically give us a hand to move it forward.

Bob Shepherd

Coming back to your question on costs too I just wanted to come back and emphasize those are the kinds of costs we are seeing now and really Dodsland is the only one of those where we have enough wells in the program to be close to optimized. So I would really expect for Westgate and Pembina as Murray mentioned as we drill more wells we have seen this on every program where we have taken 30% out of these costs. I would expect you are going to see that on the numbers I gave you for Westgate and Dodsland if you build a long-term model that is more of the way you should be thinking.

Operator

The next question comes from the line of Cliff Griffith – Private Investor.

Cliff Griffith – Private Investor

If somebody came a knocking and wanted to buy the company out what in your opinion would be a fair value for the units?

Murray Nunns

I don’t think we would sell them for what they are trading at.

Cliff Griffith – Private Investor

I’m sorry?

Murray Nunns

I don’t think we would sell them for what they are trading at.

Cliff Griffith – Private Investor

I hope you wouldn’t.

William Andrew

That is something that we don’t really concern ourselves much with day to day. A lot more than what it was worth this time last year. Let’s put it that way. The teams worked hard. They have got capital efficiencies in order. Defining costs are down. We are on the front end of development on a lot of plays. We are seeing great results. Todd and team really went to work with Hilary and we got the debt down. It is not perfect but it is a heck of a lot better than it was.

I think if we were in the selling game we have got a lot cleaner and nicer house to sell than we had a year ago. I am not going to speculate on a price.

Cliff Griffith – Private Investor

Regarding the debt, are you right on target for reducing the debt and what do you expect the debt to be by the end of this year?

William Andrew

Our ideal debt is in a range of $2.5-3 billion. I give you a fairly wide range because we don’t have a lot of control on commodity prices. In an ideal world we would like to see debt at about 1.5-1.7 times EBITDA. We are running right now at about 1.85. If we could peel another little bit off the debt it is not like we have been doing, Murray talked about taking $1.3-1.4 billion off really in the last year and a half. We are not going to go at that pace but Hillary still has a little bit of cleaning up to do with some properties.

When we look at the company there is probably 80% of the assets that we are pretty keen on holding and moving forward with. Of that probably 100,000-120,000 barrels per day that are core, and as you look to the other 30-50,000 barrels per day there is some of that we are just not going to have the time to go after or it is just really too small to fit on the radar screen.

What we are seeing right now and has been very good compared to a year ago as well is you are starting to see some activity on the acquisition side. We expect Hillary will be able to move a little bit of property over the next year or so and right now we are looking at if we sell it do you go on and buy something else or do you put it all towards the debt or a little bit towards the debt. So the plan is a little bit off of that but not certainly the level we were moving money off the debt the last couple of years.

Cliff Griffith – Private Investor

Your target then for the end of this year would be 1.7?

William Andrew

Yes 1.7 times EBITDA. I think that would be slightly less than $3 billion.

Cliff Griffith – Private Investor

Have you set a date for conversion to a corp?

William Andrew

We have talked about it and basically our guidance right now is we are two months into the year. We talked about 18 months at the beginning of the year. So the logical time would be the end of the year this year if not early in 2011. We are looking at not only ourselves but we are looking at the rest of the trust players as well and looking at their intentions. It looks to be there will be a movement that would be in and around the date of the change of the introduction to the [SIV] tax and that would be at the end of the year or the first of January next year. We intend to be in and around that date as well but the range we are giving right now is between 10-16 months.

Operator

There are no further questions. I will return the meeting back to you Mr. William Andrew.

William Andrew

Murray is suffering from a bit of a head cold today. That’s why I barged in a little bit. Thank you very much for listening to us on the call. If there are any questions don’t hesitate to call Jason or I or Murray or Todd. We will attempt to answer them. Thank you.

Operator

The conference call has concluded. You may disconnect your telephone lines at this time. We thank you for your participation.

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Source: Penn West Energy Trust Q4 2009 Earnings Call Transcript
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