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Northwest Natural Gas Company (NYSE:NWN)

Q2 2012 Earnings Call

August 3, 2012 11:00 AM ET

Executives

Bob Hess – Head, IR

Gregg Kantor – President and CEO

David Anderson – SVP and CFO

Analysts

Dan Fidell – US Capital Advisors

Michael Bates – DA Davidson

Spencer Joyce – Hilliard Lyons

John Hanson – Praesidis

Operator

Good morning and welcome to the Northwest Natural Gas Second Quarter Conference Call. All participants will be in a listen-only mode. (Operator Instructions) After today’s presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded.

Now, I’d like to turn the conference over to Bob Hess, Head of Investor Relations. Please go ahead.

Bob Hess

Thank you, Emily. Good morning, everybody, and again, welcome to our second quarter and year-to-date earnings call for 2012.

As a reminder, some of the things that will be said this morning contain forward-looking statements. They are based on management’s assumptions, which may or may not come true, and you should refer to the language at the end of our press release for the appropriate cautionary statements and also our SEC filings for additional information. We expect to file our 10-Q later today.

As mentioned, this teleconference is being recorded and will be available on our website following the call. Please note that these conference calls are designed for financial community. If you’re an individual investor and have questions, please contact me directly at 1-800-422-4012, extension 2388.

Speaking this morning are Gregg Kantor, President and Chief Executive Officer; and David Anderson, Senior Vice President and Chief Financial Officer. Gregg and David have some opening remarks and then we’ll be available to answer your questions. Also, joining us today are other members of our executive team, who will be available to help answer your questions.

With that, let me turn you over to Gregg.

Gregg Kantor

Good morning, everyone. Thank you for joining us for our second quarter earnings call. This morning, I’ll give you a brief overview of the quarter and then turn it over to David to provide more detail on the financials before wrapping up and taking your questions.

Performance in the second quarter was as expected. Differences in our year-over-year financial results for the period were primarily driven by weather that was slightly colder than average in 2012, compared to a very cold 2011. In addition, we had higher O&M costs and I’ll touch on that in a moment.

From a customer perspective, headline for the second quarter was the 10-year low in wholesale natural gas prices and the bonus of an early gas savings credit. In May, Commissioners approved our request to refund accumulated gas cost savings to customers earlier than our annual purchase gas adjustment in November. As a result, Washington customers received $4 million back and Oregon customers received $35 million back as a credit in their June bills.

Over the last several months, we’ve continued to lock-in lower priced gas compared to what’s currently set in rates. So, at this point, we’re optimistic that we’ll be able to follow up the $39 million credit to customers with a decrease to the gas price portion of rates this fall, making it the fourth consecutive year of lower commodity costs.

On the growth side, new construction activity remained relatively unchanged with new customer additions consistent at just under 1%. Not surprisingly, the low and stable gas prices that position us well for our housing market rebound also continue to impact storage values. Financial results for the storage business were slightly lower in the quarter compared to last year. While there’s no doubt this is a tough environment for storage, operations at our facilities continue to meet our expectations.

Now, before I turn it over to David, let me give you an update on the status of our Oregon rate case. In early July, the company, the Oregon PUC staff and other parties filed a partial settlement in the case. While we were pleased to be able to settle out some of the smaller items, we were unable to reach an agreement on key matters, such as ROE, recovery of pension expenses and our proposed environmental cost recovery mechanism. Even with the partial settlement, our case moving forward still includes a $35.9 million revenue request, which would mean an overall increase of about 5%.

Approval of the environmental cost recovery mechanism would also mean an additional 1% to 3% increase, depending on the clean-up project costs and insurance recovery at the time new rates are set. On July 20, OPUC staff and other parties filed rebuttal testimony that highlights, as you’d expect, a number of disagreements.

As I’ve said before, we feel very good about how we’ve managed this company over the last decade. We’ve held costs down for our customers, while maintaining a safe, reliable system and quality service. But after 10 years and the changing regulatory environment, we have reached a point where rising utility costs simply have to be addressed.

For example, to respond the new pipeline – federal pipeline safety legislation and system integrity requirements, the company has added staff in the areas of pipeline maintenance, emergency response, compliance, training and field services. These resources and associated costs in O&M ensure we can continue to support the utility system and the service quality our regulators and customers have come to expect from us.

The next step in the rate case process will be the filing of our surrebuttal testimony on August 9. Hearings are scheduled for late August with a Commission decision in late October. While there are always opportunities to reach settlement on some or all of the remaining issues, we are ready to make our case to the Commissioners.

Now, let me turn it over to David to go over the financial details. David?

David Anderson

Thanks, Gregg, and good morning, everybody and welcome. As we talk about the quarter results, please remember that our second and third quarters reflect lower customer usage due to the warmer summer months. Second quarter net income was $1.4 million, or $0.05 per share. And this compares to net income last year of $2.2 million, or $0.08 per share. Utility Operations, our largest segment, in the quarter generated $300,000 of net income, which compared to $1.1 million of net income last year.

Gas storage contributed net income of $1.1 million, essentially flat to last year’s $1.3 million of net income. Total gas deliveries in the second quarter were 219 million therms that compares to 243 million therms last year. The decrease over last year was mainly due to weather, which was 3% warmer than average, but 25% warmer than last year. As a result, sales of gas to residential and commercial customers in the quarter were 108 million therms, which compares to 130 million therms last year. Gas deliveries to industrial customers were essentially flat with last year at 101 million therms in the quarter.

Total utility margin in the quarter increased 2% to $61 million from $60 million last year. The margin increase in 2012 largely – is largely because of the one-time pre-tax $7.4 million charge taken in the second quarter of last year for the repeal of an Oregon Utility tax law, better known as Senate Bill 408. As you may recall, this negatively impacted our second quarter and six months results in 2011. Excluding this charge, margin for the second quarter of 2012 decreased by $6.1 million and again that’s primarily due to the positive impact of colder weather in the second quarter of last year.

The company’s weather and decoupling mechanisms in Oregon adjusted margins down by $200,000 this quarter compared to a margin adjustment decrease of $2.6 million last year. Operations and maintenance costs for the second quarter were $1.8 million higher than last year. The primary reasons for the increase were higher utility and payroll and benefit costs related to additional field employees for pipeline safety and customer service work. And that was partially offset by a small decrease in bad debt expense.

For the year-to-date period ended June 30, 2012, net income was $42 million, or $1.56 per share, which is essentially flat to last year’s $43 million, or $1.61 per share. Our utility operations contributed net income of $40 million, again, essentially flat to last year, and our gas storage contributed $1.9 million of net income versus $2 million last year.

Total gas sales and transportation deliveries through June, excluding gas stored for others, totaled 627 million therms, which was down 3% from 644 million therms last year. The decrease in usage was mainly due to weather that was 9% warmer than a year ago and 4% colder than average. Margin for the year-to-date period was $195 million versus $189 million last year. Results, last year, reflect the Senate Bill 408 charge I discussed earlier and, of course, the very cold weather last year. Customer growth increased slightly to 0.9% versus 0.8% last year.

Sales volumes to residential and commercial customers were 384 million therms compared to 403 million therms last year. Again, that’s mainly due to weather that was 9% warmer than last year. Margin totaled $174 million in this segment, which includes weather and decoupling adjustments, reflecting a 2% decrease over margin of $178 million last year.

Our weather and decoupling mechanisms adjusted margin up by $2.6 million in the first six months of 2012, compared to a margin adjustment increase of $300,000 last year. Gas deliveries to industrial customers were essentially flat with last year at 243 million therms.

Our gas cost incentive sharing mechanism in Oregon provided a margin contribution of $3.1 million in the first six months of this year, compared to a contribution of $1.1 million last year. Year-to-date, O&M expenses were about $5 million higher. This was primarily due to higher utility payroll and benefit costs related to an increase in field service employees, higher utility costs for new employee training and expenses related to the Oregon general rate case. Our bad debt expense, as a percent of revenue, remained well below 1% at 0.22% for the 12 months ended June 30.

Cash provided by operations in the first six months of 2012 was $175 million, which compares to around $169 million last year, with the increases mainly due to working capital changes. Cash requirements for investing activities totaled $89 million, which is up from $64 million last year, with the increase reflecting upgrades to the company’s utility facilities and investments in gas reserves during the first six months of 2012.

Our capitalization at June 30 continues to be strong and reflects a 49% common equity ratio, 43% long-term debt and 8% short-term debt. This compares last year’s – to last year’s numbers of 48% common equity, 37% long-term debt and 15% short-term debt.

Turning to our 2012 earnings guidance, we reaffirmed guidance today to be in the range of $2.35 per share to $2.55 per share. This guidance assumes a continued weak economic recovery and customer growth, normal weather conditions and no further significant changes in prevailing legislative and/or regulatory policies or outcomes.

With that, I’ll turn it back over to Gregg to wrap things up.

Gregg Kantor

Thanks, David. On the last call, I mentioned the growing recognition that natural gas has an essential role to play in supporting the economy, enhancing our national security and reducing carbon emissions from oil and coal. To that end, we hit a national milestone in April, with natural gas generating as much electricity in the U.S. as coal. But first, since the federal government started keeping track in 1973, and this shift to gas from coal for generation is clearly a focus in the Pacific Northwest, which means a growing reliance on natural gas infrastructure. As we mentioned before, our Mist storage facility in Oregon is uniquely positioned to offer the kind of flexible gas supplies electric generators require to replace coal and backup wind.

In previous calls, we’ve mentioned our efforts to assess the right timing of an expansion at Mist. And this morning, I have a quick update. During the second quarter of 2012, Portland General Electric sent out a request for proposals to provide additional electric generation. Part of this process, PGE submitted their own self-build proposal that competing bids will need to beat.

At a recent public meeting, it was reported that PGE and Northwest Natural have an agreement to provide storage services from our Mist facility as part of their flexible resource bid, a bid essentially related to propose peaking generation needs.

And at this point, we don’t expect to know who the winning bidder will be until December at the earliest. PGE were to win with their flexible resource bid. The incremental demand will be supportive of further development at Mist. We’ll be monitoring the process as it unfolds and we’ll let you know the outcome.

The last item I wanted to touch on this morning is the release of Governor Kitzhaber’s draft 10-year energy plan for Oregon. Earlier this year, the Governor created several teams, representing a cross-section of advisors with a broad range of backgrounds and expertise, including two executives from Northwest Natural. The goal was to develop a plan that would provide a comprehensive and integrated roadmap for energy investment in the state, aimed at maximizing energy efficiency and conservation, upgrading key infrastructure and moving to a cleaner transportation system.

There are number of areas where the draft plan outlines the important advantages of natural – that natural gas can provide for Oregon’s energy future. It provides – it acknowledges the benefits of direct use for homes and businesses and the critical role gas will play in supporting renewables while shifting away from coal for electric generation. It also calls out the use of CNG and LNG for fleets to reduce emissions in the transportation sector, the single largest contributor of Oregon’s carbon emissions.

And importantly, the draft 10-year plan acknowledges that in order for us to meet our energy goals, we need adequate natural gas infrastructure that’s built with our future in mind. I believe this draft has the potential to be a constructive step forward in making sure Oregon has the foundation for achieving its clean energy goals. But at this point, it is still a draft plan with the Governor’s office currently gathering comments from a multitude of sources.

The plan is expected to be finalized this fall, with the potential for some actions taken in the next legislative session to execute the plan. We’ll be staying involved and we’ll keep you informed of its status.

With that, thanks again for joining us this morning. And now I’ll open it up for questions.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) And our first question is Dan Fidell of US Capital Advisors. Please go ahead.

Dan Fidell – US Capital Advisors

Good morning.

Gregg Kantor

Good morning, Dan.

Dan Fidell – US Capital Advisors

Just a couple of questions on my side. First of all, good news on PGE here. Just looking for a little bit more detail, if you could provide it, in terms of scale. Assuming they’re successful in their attempts there, you said that you should know by this December. Can you give us some size or some general scale for a potential upgrade at Mist?

Gregg Kantor

I really can’t. And the reason I can’t is because it’s a bid process. We’ve signed a confidentiality agreement around all of the information related to the bid. And so, I really can’t go into any kind of detail about the size of it. Sorry about that, Dan.

Dan Fidell – US Capital Advisors

Okay. That’s okay. In terms of just general thoughts though, if December is – does start to move forward in December, would 2013 be kind of the expansion timing for Mist kind of in service 2014. Am I thinking about that right?

Gregg Kantor

No. I think you’re – whatever happens, I think PGE has said, maybe Keith, their timeline for their project is 2015.

Dan Fidell – US Capital Advisors

Okay.

Gregg Kantor

Probably, late 2015.

Dan Fidell – US Capital Advisors

Great. Thank you. That’s very helpful. Just a couple of other side questions, I guess. On the partial settlement that you have in Oregon, kind of – maybe just a little bit more color. How should we be reconciling, I guess, staff’s position versus the Commission here rate casing pretty straightforward? And has – since the beginning, I thought is the – you said the hang-up is sort of environmental cleanup cost driven or – maybe just a little more color on kind of what the staff is balking about?

Gregg Kantor

I’d say, on the color side of it, we’ve been out for 10 years. And I think that’s a part of the issue of why we haven’t maybe settled some more of the issues. That’s one piece of it. We haven’t been – we’ve got some new staff, who generally focuses on the electric side. They haven’t seen us for a long time. They’ve got a lot of questions. They’ve a lot of data requests. We’re trying to work through the issues. We’re trying – part of it is they’re educating us, we’re educating them and that’s taking some time.

I’d say the other part of this, though, is that it’s – I think we said at the beginning, this is less about earnings as it is about sort of major policy issues. So, we’re talking about decoupling – rate design, in general, decoupling, WARM, System Integrity Program and renewing all of those. We’re talking about pensions and a whole new approach to treating pensions and rates. We’re talking about this environmental recovery mechanism, which is also brand new. So, we’ve got – the policy issues are a big part of this. They’re complicated and many of them are new, particularly on the pension and environmental side. So, I think that’s – my color would be that’s sort of the issues that are kind of taking more time maybe than you’d expect.

Dan Fidell – US Capital Advisors

Is it your sense that the Commission, overall, has a – has their arms wrapped around those issues, maybe, in a little different way?

Gregg Kantor

Well, the Commission has clearly got experience with decoupling and WARM and the SIP. And I feel good about how they’ve handled us in the past, and I really feel good about the record we’ve put together through the different phases of our presentation and rebuttal, and we’re going to be filing a surrebuttal here in about a week or so. So, I feel really good about the record. I feel good about kind of how we’ve been treated in the past with decoupling and WARM and SIP. So, I’m optimistic going into the – presenting it to customers.

I think, as I said in my remarks, we’ve got really high customer satisfaction. We’ve managed our costs well. Even with this rate increase, our customers will be paying less than they were paying in 2005. And I feel good about kind of the work we have put into our proposals around the pension and the environmental recovery mechanism. And those are the two new areas that I think the record is going to be really important and our rate staff and Steve Feltz have really worked hard on the testimony, and I think it’s very compelling.

Dan Fidell – US Capital Advisors

Great. Thank you, Gregg. And maybe just one final question either for you or for David, maybe, any kind of color or guidance you can give us on the gas cost sharing side with all that’s going on? How should we be thinking about the impact for the year?

David Anderson

Yeah, Dan, this is David. As I indicated, we have gains of around $3 million year-to-date. And currently, as you know, we set prices in the PGA in the November time period, so fairly consistently, across the board, all months from a pricing perspective are below the PGA. So, barring some kind of unusual event, we will continue to buy gas at amounts less then we have set in the PGA.

Dan Fidell – US Capital Advisors

Okay. Great. Thank you. Very helpful. That’s all for me for now. Thanks.

Operator

Our next question comes from Michael Bates of DA Davidson. Please go ahead.

Michael Bates – DA Davidson

Hey. Good morning, guys. I just wanted to follow on to Dan’s first question about the potential Mist expansion. Just to clarify for me, would Northwest Natural’s participation – would that be depended on PGE in its own self-build option in this RFP?

Gregg Kantor

Correct. That was our comment this morning that we are part of their – PGE’s bid on – to self-build, to go ahead and build the generation themselves. And so, all the other bidders will have to compete against their proposal.

Michael Bates – DA Davidson

Great. All right. Thank you.

Gregg Kantor

Sure.

Operator

Our next question comes from Spencer Joyce of Hilliard Lyons. Please go ahead.

Spencer Joyce – Hilliard Lyons

Hey. Good morning, guys. How are you?

Gregg Kantor

Good morning. Good.

Spencer Joyce – Hilliard Lyons

All right. A couple of quick questions here, and Bob, I may have to give you a call. I haven’t had a whole lot of time to go through things yet. I wanted to talk about storage for just a second? I saw the $40 million of additional long-term debt – or I guess my question is, is the interest expense from additional debt load, that’s not a variable rate there or anything. Is that right?

Gregg Kantor

No. There are two parts of that debt. The $40 million debt, half of it is fixed rate and half is a variable rate. But there is a floor and the current rates are below the floor.

Spencer Joyce – Hilliard Lyons

Okay. Got you. And also, on the storage side, kind of a bigger picture question. Have you all seen, maybe even since the end of the quarter, or maybe can you project a little going forward, if you have seen or will see any benefit from gas – raw gas cost bouncing a bit, maybe any sort of projected turn there for storage in general?

Gregg Kantor

I’m not – I would say the month-to-month sort of bounces that you’re seeing now are not – don’t have a big impact on our storage revenues, largely because we contract out most, if not all, of our capacity. So, there is a little bit of optimization that gets done. But it’s not a big driver.

Spencer Joyce – Hilliard Lyons

Okay. Yeah. That makes sense.

Gregg Kantor

I can – our Storage President is giving me a thumbs-up. So, I’m...

Spencer Joyce – Hilliard Lyons

Okay. Good deal. Also, some of the additional hiring that we did, just to clarify, most of that was towards the end of last year or done in Q1, correct?

Gregg Kantor

Yeah. I…

Spencer Joyce – Hilliard Lyons

It hasn’t increased O&M?

Gregg Kantor

It was beginning last year, the problem for us in the hiring is that we do try and promote internally. So, when we start hiring, we go through a fairly long process of hosting internally, seeing who we can get inside and that creates this ripple effect before we end up hiring outside the company. So, you see this lag – while the positions are being hired internally, you’re seeing this lag and drop-off, as people move up and through the ranks. And we’ve had a lot of success at promoting people internally in this company.

Spencer Joyce – Hilliard Lyons

Okay. Sounds good. And one other one – one last question to kind of switch gears here. The $0.05 from this quarter versus the $0.08 from a year ago, that’s a clean comp, isn’t it? I just want to make sure that I’m understanding the $0.17 tax issue from last year correctly. But we wouldn’t be looking at $0.05 versus, say, a $0.25 from a year ago?

David Anderson

Right. This is, David. When we – you’re correct. And the quarter – this quarter, from a perspective of what you’re referring to is clean, is fairly clean. I mean, there is a little bit of weather and a little bit of WACOG, but essentially, it’s a clean quarter. When you look at the quarter last year that we reported $0.08, as we’ve indicated in our prepared remarks, is a very cold quarter. And despite having tremendous coverage on weather normalization, we still benefited $0.12 of earnings per share in that second quarter, and then we also had the $0.17 charge. So, if you are really lining things up on kind of a purist basis operating to operating, you’re probably looking at a $0.13 quarter last year versus, call it, the $0.06 or depending on what you want to in WACOG this quarter.

Spencer Joyce – Hilliard Lyons

Okay. That’s good. All right. Thanks guys. That’s all I had.

Gregg Kantor

Welcome.

Operator

The next question comes from John Hanson of Praesidis. Please go ahead.

John Hanson – Praesidis

Good morning.

Gregg Kantor

Good morning, John.

John Hanson – Praesidis

Just one follow-up and couple of questions on storage. You have part interest in the California storage. Right?

Gregg Kantor

Correct.

John Hanson – Praesidis

Down there, AGL has the Central Valley storage that’s been coming on line, is that anywhere being with you guys?

Gregg Kantor

Is it anywhere near us?

John Hanson – Praesidis

Yes. So, does it compete with you?

Gregg Kantor

Is it a competing?

John Hanson – Praesidis

Yeah.

Gregg Kantor

Yes, yes.

John Hanson – Praesidis

Okay. They were talking about some – trying to get that termed up and some issues along that. What’s your status with the contracting they’re doing at Gill Ranch?

Gregg Kantor

We are contracted out for the 2012, 2013 gas year, storage year. And we are quickly beginning to work on the coming year, the 2013 through 2014, which really begins April 1 of next year. So, we’re just starting our contracting efforts for next gas year.

David Anderson

There are bits of our portfolio that have longer-term contracts and not all the capacity is coming up for renewal next year.

John Hanson – Praesidis

What I’m trying to get to is that they were experiencing some kind of lower rates. I wondered if – what the status was in terms of the contracts you might have rolling off and versus what you’re seeing in the market.

Gregg Kantor

Well, we really don’t provide results on contract-by-contract basis. But I think the market itself has been – it kind of hit its low last year and actually had been improving last year. And it’s – I would say, it’s improved some and then stabilized over the last couple of months. So, I’m not sure what you’re referring to related to them. That may have not met their expectations, since they’re fairly new to the marketplace. But – from what – that’s what they may be referring to is when they started building, that’s same with us, because we started building Gill Ranch, the marketplace was much higher than it is today. And if you’re starting brand new, as they are, I think, trying to term up in the market, you’re experiencing a very different situation than when you started building that facility.

John Hanson – Praesidis

Okay. But as yours roll off, you’re going to be probably in the same market as they are down there. So, we’ll see how that all plays out. Now, up at Mist, contracts up there, what’s the situation terms there? Are you pretty well termed up for longer periods up there?

Gregg Kantor

We have some longer-term contracts. Mist is a very different situation. Gill Ranch is driven a lot by the marketers of natural gas. Mist is really driven by electric utilities and gas utilities, who are buying capacity on a longer-term basis and who are willing to pay essentially something less than pipeline capacity. So, rather than being driven by EVs and IDs, it’s really about what is the value of that storage to a utility in avoiding additional pipeline capacity charges. So, the prices are much stronger, probably more stable and we end up with longer-term contracts – have in the past.

John Hanson – Praesidis

And big roll-offs in the next couple of years in that?

Gregg Kantor

We really don’t kind of release the specifics of our individual contracts.

John Hanson – Praesidis

Okay. I appreciate that. I just know there has been, what was it, gas moving in different directions nowadays, there’s different changes in the pipelines and all that kind of thing.

Gregg Kantor

Yeah.

John Hanson – Praesidis

Okay. Good, thanks.

Gregg Kantor

Sure.

Operator

(Operator Instructions) And our next question is from – a follow-up from Dan Fidell of U.S. Capital Advisors. Please go ahead.

Dan Fidell – US Capital Advisors

Thanks. Just maybe if you could give us an update on Encana. Just in general, are they executing pretty well on their side and then any kind of color you can give us on optics for follow-on or potential follow-on agreements? Thanks.

Gregg Kantor

Yeah. Good question, Dan. It’s going well. It’s going as expected. The gas is flowing the way we thought. The wells are going in on schedule. And it is – we’re now – we started last May. So, we’re a little over a year into it and it’s operating as expected and we’re – I think both sides are pleased. On the question of is there another follow-on investment to be made in gas reserves, we’re not ruling it out. We are looking at what the right time is. Certainly, prices are low. The question is whether you can actually translate today’s low prices into a purchase at those prices. Our producers are willing to give up reserves at the prices you see today.

So, would have – to do a deal would have to be good for our customers, probably have to be lower than the deal that we did with them last year. And so, I’d tell you, we continue to look at it. I can’t guarantee that we’ll do another deal. I think the timing has to be right for our customers as well, for the customer groups and the Commission. But we continue to look at it and we’re not ruling it out.

Dan Fidell – US Capital Advisors

Great. Thanks. And then just a final question. Just can you remind us again, just in general terms, about what you see geology-wise for the total expandable ability at Mist? Is it another 15 Bcf that could potentially be layered in, without going into specifics, is that kind of just the expandable capacity at Mist?

Gregg Kantor

The great thing about Mist is it’s got a lot of small incremental 2 Bcf, 3 Bcf approaches. Right now, what we know of is probably less than 10 Bcf expansion in probably smaller different increments. There’s also some issues that we have to deal with. We’ve got some reservoirs that have low Btu gas in them that if we can figure out how to kind of deal with that, we’re kind of at our maximum capacity in terms of mixing low Btu gas in our gas stream. So, we’ve got some issues there to deal with. But I’d say right now, things change, as you learn more about the reservoirs and you learn more about the geology there, I’d say something less than 10 Bcf.

There is also another company who does production out of the field, and because prices have been so low, there hasn’t been a lot of production. So, we learn more about the geology as they do the production. And without a lot of production going on, there isn’t a lot of new learnings on whether there’s additional reservoirs or not. So, right now, I’d say, it’s safe for me to say, it’s something less than 10.

Dan Fidell – US Capital Advisors

Appreciate the color. Thanks, Gregg.

Gregg Kantor

Sure.

Operator

This concludes our question-and-answer session. I’d like to turn the conference back over to Mr. Kantor for any closing remarks.

Gregg Kantor

That will do it. Thanks again for joining us. Have a great rest of your summer.

Operator

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.

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