Interoil Corp Earnings Q4 2012 Earnings Call Teleconference IOC

2013-02-28 14:39:24.16 GMT

Event Date: 02/28/2013

Company Name: Interoil Corp

Event Description:Q4 2012 Earnings Call

Source: Interoil Corp

For more event information and transcripts,

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                             Q4 2012 Earnings Call

MANAGEMENT DISCUSSION SECTION

  Operator:

  Ladies and gentlemen, thank you for standing by, and welcome to the

  InterOil's Fourth Quarter Financial and Operating Results Conference Call. At

  this time, all participants are in a listen-only mode. Later we will conduct,

  the question-and-answer session. Instructions will be given at that time.

  [Operator Instructions] As a reminder, today's conference is being recorded.

  I would now like to turn the conference over to our host Wayne Andrews.

  Please go ahead.

  Wayne W. Andrews:

  Thank you, Judy [ph], and hello, everyone. This is Wayne Andrews, VP of

  Capital Markets for InterOil Corporation.

  Before we start, I want to briefly remind everyone that some of the

  statements made during this conference call constitute forward-looking

  statements within the meanings of the U.S. Securities laws, including such

  statements as those regarding expectations of future results, general

  financial performance, future business prospects and strategies.

  These statements are based on management's current expectations and are

  subject to a number of risks and uncertainties, which could cause actual

  results to differ materially from those described in the forward-looking

  statements. Investors are cautioned not to place undue reliance on these

  statements.

  Additional information about factors that could cause our results to differ

  materially from those in the forward-looking statements can be found in the

  company's filings with the U.S. Securities and Exchange Commission and SEDAR.

  The speakers from management on the call today are Phil Mulacek, our CEO;

  Bill Jasper, President; Collin Visaggio, CFO; and Dave Holland, our Upstream

  Manager. Also Gaylen Byker, our Chairman is with us today. We have a

  presentation to accompany our comments today. The presentation can be

  accessed on our website at www.interoil.com. You can find the link under the

  Investor Relations section on the homepage.

  At this time I'd like to turn the call over to Mr. Phil Mulacek, our CEO. Go

  ahead, Phil.

  Phil E. Mulacek:

  Thank you, Wayne. I'd like to thank everyone for joining us today, and

  participating in today's conference call and summary of our fourth quarter

  2012 and 2012 annual results.

  Fourth quarter, we saw a stable upgradation of accrual phases resulted in

  improved refinery crack spreads and the solid combination of volume growth in

  the Downstream sector. These provided a consolidated group net profit of

  about 18.5 million and approximately 26 million EBITDA from the fourth

  quarter with an overall year end 1.9 net profit with a rough EBITDA of around

  36 million per year in 2012.

  Growth in the PNG accounting has been the strong contributor in the earnings

  space for our Mid and Downstream business. The free cash flow from these

  operations were targeted and spend on a Upstream technology [ph] activities

  to improve the overall value of the company and our shareholders.

  On the LNG front, we are very excited at these times. During the fourth

  quarter of 2012 we were the first LNG developer to proactively have the PNG

  government to clear it's 25% equity in kind from the Elk and Antelope field.

  This is dedicated for local power and natural gas related industries. This is

  a key and transforming event for the country at PNG and the standard

  delivered of those in the Gulf area. The PNG government has reiterated its

  desire to control cost, accelerate our production, create jobs and under

  pending revenues sources from our LNG development activities, and support of

  InterOil to demonstrate the importance of this key industry for PNG, today

  the Prime Minister of PNG, the Ministry of Finance, Ministry of Labor, Chief

  Secretary and the Governor visited our upstream operations including our

  logistics centers the Elk and Antelope fields, related infrastructure.

  The delegation was impressed with our overall upstream activity, overall

  operations of building roads, bridges, camps, the assistance in eight pros

  and Wabo community centers for new teachers and local police. The LNG

  capacity sizing 3.8 million tons, supported by the PNG government has created

  enhanced interest by several new parties, which engaged in the process as we

  reached and we are in the final stages of our partner selection.

  IOCs, NOCs and utilities have all moved forward and we look forward to this

  partner selection for us all at InterOil and all related stakeholders. The

  Management and Board are ready to take the company into a stronger dimension

  through a transpiration of exploration and appraisal to long-term LNG

  revenue.

  On the upstream side, we've just completed operations in Antelope-3. This

  well provided greater understanding of the central core of the Antelope

  structure, adding knowledge to the LNG partners for the sell-down process.

  Our new drilling rig, Rig 3, has now rigged up, and on location at Elk-3,

  which is one of two commitment wells we have scheduled at Elk and Antelope

  over the next 12 months.

  Triceratops-2, proved to a successful discovery just west of Elk and Antelope

  with our new partner Pacific Rubiales. Similar to the process we executed in

  moving from Elk-1 to Antelope-1 and Antelope-4, that meant we went from

  drilling the front well to targeting the top of the reef that we saw in

  seismic. The next well Antelope-3 is also planning to move up deep [ph] from

  Triceratops-2 and drill the top of the reef location on the Triceratops

  structure.

  Overall, the two wells Antelope-3 and Triceratops-2 provided solid results to

  increase the overall 2C [ph] gas resource reported by GLJ by about 10%,

  around 358 Bcf and now about 10 million or 10 Tcf total.

  On to other business at hand, I would like to turn the call over to our CFO,

  Collin Visaggio, to cover the financial in more detail.

  Collin F. Visaggio:

  Thanks Phil and welcome to everyone listening to today's presentation. You

  can see from our filed financials, we continue to progress and expand on the

  Gulf LNG project to monetize existing resources, and we also continue to

  invest in our exploration portfolio, which David Holland will cover in more

  detail.

  I know that you are all eagerly awaiting the announcement from the assets

  sell down process and I can assure you that we're all excited about our

  future, especially given the certified resources that we've.

  As publically disclosed and highlighted by Phil, the final bid solicitation

  period for the partnering process will close today and our boarding teams to

  meet our advisors during March for the purpose of evaluating the proposals

  received and selecting our partner for the development of the LNG Project.

  The assets sell down once completed, we will fund the Gulf LNG project and

  our longer term exploration program. The timing and execution of the

  agreements will be advised in accordance with our continues disclosure

  requirement. Also we may not extend existing agreements as we move forward

  towards an integrated LNG project and conclude documentation with the

  selected strategic partner.

  Net profit for the quarter ended December the 31, 2012 was 18.5 million which

  is contributed to us achieving an annually net profit for the year ended

  December the 31, 2012 of 1.6 million. The operating segments Corporate,

  Midstream, Refinery and Downstream collectively drive a net profit for the

  year of 61.2 million, mainly due to an increase in gross margins attributable

  to the positive crude and product price movements and higher margins from

  export cargos.

  Our balance sheet remains robust, with our debt-to-capital ratio at 19%. As

  of the 31 December 2012, our total book assets amounted to 1.3 billion and

  our total liabilities amounted to 524 million. Our current ratio and quick

  ratio were 1.3 times and 0.7 times respectively. These ratios were below our

  internal target of above 1.5 times for the current ratio and one time for the

  quick ratio.

  The completion of the Pacific Rubiales Energy Farm-In transaction in the

  coming days and the closing of the sell down interest in the Elk and Antelope

  fields and the LNG project will bring these ratios well within our internal

  targets.

  On the 16 October, 2012, the company entered into a five-year amortizing 100

  million secured term loan facility with BNP Paribas Singapore, the Bank of

  South Pacific Limited, and the Australian and New Zealand Banking Group.

  Borrowings under the facility had been used to repay all outstanding amounts

  under the term loan granted by the overseas private investment corporation. I

  would like to thank the overseas private investment corporation for their

  long-term support, which has resulted in PNG for its secondary production

  facility providing strategy fuel supply and field employment in the refining

  business to the country. It is very pleasing that we recently achieved our

  100th cargo and Bill Jasper will elaborate on this.

  Firstly, summarizing our results of the group. As mentioned, our operating

  business segments had a combined net profit of 61.2 million and the

  investments in our developing business segment resulted in a net loss of 59.6

  million.

  Our EBITDA for the year was 35.9 million. The decreasing impact for the year

  compared to 2011 of 16.1 million was mainly due to 25.1 million decrease in

  foreign exchange gain due to the Kina being relatively flat through the year

  ended December 31st 2012 compared to the same period in 2011 when it

  strengthened significantly.

  A 9.8 million increase in interest expense resulting from the 9.7 million

  interest reporting tax paid in November 2012 to certain inter company loan

  interest accrued from January 2007 to October 2012 and settled in that period

  and a 6.3 million decrease in derivate gains primary from the losses incurred

  for the commodity contract.

  These decreases were partly offset by 10 million increase in income tax

  benefits resulting mainly from the current years result and interest

  deductibility recognized subsequent to the payment from the interest

  withholding tax. A 4.5 million reduction in exploration cost incurred through

  seismic activity for PPL 236, a 4.4 million increase in gain on conveyance of

  oil and gas properties which was recognized from the sale of the interest in

  PPL 237 to Pacific Rubiales Energy and the waiver or forfeiture of the 1.5%

  IPI interest conversion rate into common share.

  In addition, an improvement of 3.3 million in gross margin and increasing

  downstream domestic sales volumes resulting from the supply to various

  development projects. The total volume of oil products sold by us was 8.5

  million barrels for 2012, compared to 7.4 million barrels in 2011. I see

  brilliant increase. A full detailed analysis for your review is available in

  the press release and in the filed financials and MD&A.

  Analyzing the cash position of the group, as of the 31st December, 2012, we

  had cash, cash equivalents and cash restricted of 99 million. Since the start

  of 2012, we've spent 38 million on Triceratops-2 drilling and testing works.

  25 million on Antelope-3 site preparation, pre-spud and drilling works, 9

  million on Antelope-3 site preparation and pre-spud, 14 million on seismic

  activity, and 112 million on the Gulf LNG project and 37 million on operating

  business maintenance upgrades.

  As of 31st December, 2012, the company has capacity to increase debt levels.

  Based on existing book values, gearing 50% allows open debt of some 600

  million more than sufficiently available cash as we continue progress towards

  achieving our near-term strategic objectives.

  Our previous shelf expand in September 2012 and like all prudent company, we

  will be looking at replacing it given the open debt levels as this will add

  to our financial flexibility. On July, the 27th 2012, we executed the farm-in

  agreement with Pacific Rubiales energy relating to the Triceratops structure

  and the participating interest in PPL 237 license. As December, the 31, 2012,

  Pacific Rubiales has paid us 40 million of the stage cash payments. The first

  20 million was paid on May the 3rd 2012 in accordance with the Heads of

  Agreement and became non-refundable on execution of the farm-in agreement.

  The first new cash payment of 12 million was paid on September the 26th 2012

  in accordance with the farm-in agreement under the advance payment facility.

  Subsequent to year-end on January the 9th 2012 Pacific Rubiales Energy paid a

  third cash payment of 20 million under the advance payment facility.

  or the next 56 million is expected in the coming days along completion of all

  conditions placements. As advised previously Pacific LNG operations limited

  their partner is participating on the processing in equity vices as

  accredited against joint venture cash cost and billings.

  In terms of investment so far as of December 31st 2012, 371 million has been

  spent on the Elk and Antelope fields of which InterOil has contributed 255

  million and Upstream JV partners with 116 million. In addition, 75 million is

  being spent on the Triceratops-2 field of which Ero [ph] has contributed 61

  million and Upstream JV partners 14 million. The LNG joint venture has spend

  approximately 50 million, 140 million has been spend on the construction

  equipment, road construction, logistics and site work associated with the

  upstream development sites and 53 million has been spent on the condensate

  shipping, front-end engineering and design.

  We are focused on our strategic plan to monetize the Elk and Antelope fields

  through an integrated development project. We are also working very closely

  with the Government of PNG to keep them updated on all key developments in

  relation to the project's early works, strategic partnering process, and the

  PDL application.

  We have successfully negotiated the transaction with Pacific Rubiales Energy

  bringing a new strong and respected player at PNG.

  We have delivered our very successful well in Triceratops which all goes well

  for the future exploration portfolio. We have secured new long term debt

  financing arrangements and we are very excited about the opportunity ahead of

  us and looking forward to maintaining the maintenance and selecting a

  strategic partner and completing the requirements with the government and

  stakeholders to proceed to FID on the Gulf Energy project.

  With that I will hand back to Phil.

  Phil E. Mulacek:

  Thank you, Collin. Moving to Refinery and Downstream Operations, I would like

  to pass the call over to our President, Bill Jasper.

  William J. Jasper:

  Thanks, Phil, and good morning, everyone. I'm pleased to report that the

  fourth quarter was another consecutive quarter of good gross refining margin

  for the refinery and the 17.5 million gross refining margins translates to

  about $9 a barrel. This result is a combination of the more stable crude

  price environment together with the modest improvement in ITT margins.

  Naptha cracks have also shown a significant improvement in the fourth quarter

  with almost a $6 a barrel increase compared to the same period in 2011 which

  together with the much improved premiums associated with our current term

  naptha buyer gives us of vastly improved position for sales. In fact this has

  changed our evaluation of crudes and is partly why we are running more naptha

  rich crudes as of late it's in our carrier GRM debt versus the higher middle

  distilled crudes.

  It is also pleasing to see that domestic sales for this quarter continue to

  exceed the level for the same period in 2011 being 14% higher for the quarter

  or 9% higher for the year. This reflects that growth in PNG mining and other

  construction activities.

  During the fourth quarter 2012, we purchased our 100th crude cargo which

  interestingly enough was a shipment of Kutubu, PNG's only [ph] indigenous

  crude. This marks the major milestone for the refinery of more 56 million

  barrels of crude with a value over $4.9 billion processed since our first

  cargo discharge in June of 2004. All this took place without a single

  loss-time injury and I personally don't know a single plant anywhere in the

  world that can make such a bold statement.

  Our downstream total sales volume for the fourth quarter of 2012 were 220

  million liters, which is a 5% increase on the volume sold in the same quarter

  of 2011. The volume for 12 months at 863 million liters is also up 16%

  compared with the same 12 months in 2011.

  Our downstream team has done a great job managing this very diverse business

  and we continue to be the PNG leader of quality product sales and service. We

  strive to look for opportunities to grow this business and serve the country

  better. As mentioned in last quarter this growth is largely due to various

  oil, natural gas and mining project that we being pursued in various parts of

  the country, together with a general increase in retail business activities.

  Our safety record at the end of 2012 as the refinery achieving a total of 5

  million man hours without a loss-time injury, this fantastic milestone was a

  result of a lot of dedication and focus from every one of the 126 employees

  at the refinery. With a total 8.1 million man hours for the corporation,

  safety remains as our top focus for all of our operations.

  And with that I'll turn it back to Phil.

  Phil E. Mulacek:

  Thank you, Bill. I'd like to take a special margin to thank all the refinery

  group and everybody in the downstream as well. They've done great job to

  underpin our feature and really supply the cash flow for the company.

  And I'd like to move to exploration production and hand the call over to our

  General Manager of Exploration, Mr. Dave Holland.

  David Holland:

  Yeah, thanks, Phil, and good morning everyone. As we present the financials

  for 2012, it is time to reflect on a busy year for InterOil's exploration

  group. 2012 saw the resumption of drilling after 15 months in which we

  concentrated on construction and development of key in-field infrastructure

  and the acquisition and interpretation of airborne potential field and

  seismic data.

  In January, we spotted the Triceratops-2 well, which was declared a new

  discovery by the Department of Petroleum and Energy in June 2012. This was a

  great result. The Triceratops-2 discovery is a third successive discovery for

  InterOil after the discovery of Elk in with the Elk-1 well in 2006 and the

  Antelope discovery in 2008 Elk-4 well.

  As many follow the InterOil story will remember a true magnitude of the

  Antelope resource was not fully understood until later in 2008 and early in

  2009 when we drilled well then tested the Antelope-1 well.

  The appraisal and the delineation operations at seismic and drilling take

  time effort and resources. Results are not instantaneous nor easily won. And

  as we review 2012 we are in a position where we have begun a new journey with

  the Triceratops-2 discovery and taken a new big step forward with Antelope-3,

  for Elk and Antelope.

  At year-end 2012, with the completion of the independent third-party resource

  assessment by GLJ Petroleum Consultants, the use result -- the results of our

  used work are on the table. In this assessment we have seen an increase in

  the contingent gas resource on a P50 or C2 bases of 858.3 billion cubic feet

  of gas and 16.7 million barrels of condensate.

  This equates to a 157.7 barrels of oil equivalent which is an increase of

  10.1% over our 2011. In anyone's language this is a great result from only

  two wells and brings the contingent resource net through each well to over 1

  billion barrels of oil equivalent.

  As shown on slide 18, 858 million barrels of oil equivalent of this increase

  or approximately 54% came from the Antelope field and 71.9 barrels oil

  equivalent or 46% from the Triceratops field.

  As summarized and shown on slide 16 and 17, the Antelope-3 well came in high

  to the predrill prognosis made by InterOil and [indiscernible] reservoir and

  also high to the previous making by GLJ in 2011. This has resulted in an

  increase in gross volume of the reservoir within the gas pay and this is a

  key factor in driving the improved contingent resource investment by GLJ

  Petroleum Resources.

  The 2012 results brings the total contingent resource for the Elk and

  Antelope fields on a C2 basis to 1,646 million barrels of oil equivalent of

  this 964.7 million barrels is net to InterOil.

  As said above, GLJ Petroleum Consultants as for the first time completed the

  resources for Triceratops gas field. And the aim in 2013 and 2014 with the

  PPL joint venture and their main Pacific Rubiales Energy will be to build on

  this great start.

  The seismic acquisition and additional wells, we hope to gradually convert

  perspective resource potential into contingent resources. By way of a

  comparison, I think it's helpful to compare Elk and Antelope that are at a

  similar stage of appraisal.

  In 2007 in one of the first independent assessment completed on Elk and

  Antelope fields, the P50 or P2 contingent resource assessment was 187 Bcf for

  Elk and on a prospective resource assessment 841 Bcf recoverable from

  Antelope.

  Triceratops in the first resource assessment has shown on slide 19 of the

  presentation. We've a P50 or P2 contingent resource for Triceratops of 382.6

  billion cubic feet and 8.2 million barrels of common space. This contingent

  resource is shown on slide 20 and is calculated from a restricted reservoir

  volume in the each of those portion of the field around the Bwata-1 by

  Triceratops-1 and Triceratops-2 well.

  Our original PRE drilling assessment of Triceratops resource potential of

  approximately 4 Tcf of gas in place has not changed. Clearly, there is a

  similar result and at a similar stage of development at 4 Triceratops

  compared to Elk and Antelope. The clear objectives of our forward appraisal

  program for Triceratops, which complete additional seismic to extend seismic

  coverage to the west and define the western units of the field and into a

  seismic within the current seismic footprint to help identify and locate the

  source of the repo material identified in Triceratops too.

  And also to identify further a shallow marine that is in accumulations claim

  to release north and west of Triceratops. With the similar philosophy, our

  next appraisals roles will be to drill a well in the Triceratops. Update [ph]

  from Triceratops to targeting more proximal repo basis, where we have the

  seismic control. In efficient, after we have completed the next phase of

  seismic.

  As a joint venture, we will select a location for a second and a more

  significance did that well. This well will target respective reservoir volume

  to confirm harder problems and reservoir quality. In the step wise session,

  we will intuitively increase - attempt to intuitively increase our continued

  resource base for Triceratops as we linked our next commercial threshold. We

  are confident and believe we see the potential as well conclude this approval

  to build a resource based to meet or exceed the appraisal estimates.

  At the end for 2012, my first year - my first full year and my current job is

  the General Manager, Rig [ph] Supply Exploration. I would like to take this

  opportunity and at this time of the year to stop and reflect on 2012. I would

  like to take this opportunity to congratulate our exploration GLJ drilling

  and engineering teams and deliver all operations finance teams to support us

  on our job well done.

  With a special mention to those who toil away at the call sites in the jungle

  right from families and in optimum yet difficult conditions. Collectively

  they've both reached an important and psychological milestone this year. In

  2012 each world has at least one billion barrels of oil equivalent on a

  contingent basis net to the company.

  That said we still have a lot to do and a busy 2013 ahead of us. I am

  reminded of this when I look at slide 22 on the map. I look forward to

  talking to you in a short time when we end up this quarter results and then

  we will have the opportunity to present our forward plans for new exploration

  of prices and further exploration in the appraisal wells. And we work to

  unlock the perspective potential of their licenses. Thank you.

  Phil E. Mulacek:

  Thank you, Dave. I'd like to add some closing statements. As stated earlier

  everyone is excited to be at the final stage in our LNG Partners selection.

  The components to be understood are risk LTV value for the company including

  clarifications and the evaluation of any conditions, price very basic.

  Size of participation LNG cost approach, timing to first LNG cash flow and

  the risk of completion. With the Prime Minister's statement of support and

  approval for 3.8 million ton capacity project and the need to balance PNG

  domestic demand and gas supply the sell-down process of Elk and Antelope is

  now competitive and moving ahead and we are sticking towards our own

  timelines to go forward.

  Antelope management and the Board is firmly committed to our shareholders

  where we transform discovered gas to a gas monetization stream. We're all

  focused on the commercial drivers to close a sale for part of Elk and

  Antelope assets and retain the partial state.

  In the Elk and Antelope LNG revenues, we understand the balance expected

  between price sale and forward revenue as being the helpful drivers for our

  shareholders. Recapping Triceratops two for day, as we entered that early

  stages Triceratops, I know the comparison when we discovered Elk in 2006 I

  was asked in the call what are the possible estimates in gas volume? I stated

  Elk and Antelope could be between one and 4 Tcf.

  The numbers as Dave stated were around 200 Bcf and 800 perspective by

  conservative third parties. Yet today we are almost 10 Tcf, TC gas

  incumbency, again a remarkable feet for any company. I'd like to thank our

  shareholders, all the staff and coworkers and the PNG government and the

  continued support and we have a great year ahead of us.

  Before I begun the Q&A session, I'd like to state that we all miss

  [indiscernible] who had vast experience in energy sectors and analyst and we

  wish his family our deep sincere apology and condolences.

  And after that I think we're ready for to open the call for questions. Thank

  you.

Q&A

  Operator:

  Thank you. [Operator Instructions] We'll go to the line of Evan Calio with

  Morgan Stanley. Please go ahead.

  <Q - Evan Calio>: Good morning guys. I love the core-tuning exciting month of

  March. My first question relates to -- it's a question for Dave, I didn't

  know if you could -- give us more color on which wells will be next in

  exploration front. If there had been any shift to drilling more development

  [indiscernible] versus exploration balance--?

  <A - David Holland>: Yeah, sure. I think it's still said -- have value on

  Elk-3 and that will obviously the first thing that we approach. And we will

  move on in 2013 to meet the world obligations that we have with the

  government. At this stage, the final timing of those will depend on progress

  at Elk-3 and as we decide to move forward.

  <Q - Evan Calio>: Are you moving the affordable rig from Antelope-3 to

  [indiscernible] or is sustained field in bigger terms?

  <A>: Yeah, we're currently in some discussions with the government on the

  balancing of our portfolio. Cleary, while we're in this process, it's a --

  everybody is really keen to make some progress the appraisal of Elk and

  Antelope. But currently that's been fluxed, but we're having ongoing

  conversations with the government about that.

  <Q - Evan Calio>: Great. And my last question that's more fulfill and maybe

  it's a premature question, but my question relates to the comment by PNG

  government lets you take incremental amount potentially they'll be able to

  deal above the [indiscernible] involve. I'm just curious if there is any

  update or outlook for that potential or that should bring the choice at this

  juncture?

  <A>: It's a little premature. They are really - I mean, they are basically

  more interested in making sure that they get the activity going for the

  economy, and workings at the project will generate it. And the Prime

  Minister, it's important enough as I said, they just - they're physically

  their today. And I think they are actually they were thinking of sleeping out

  into the field, and I don't know if they hold negotiation. But I had a call

  just before this call, and that's why we added that update. I mean, they are

  extremely excited after they seen the benefits of the ExxonMobil project to

  the economy. So, they really want to ramp this up.

  <Q - Evan Calio>: Great. Look forward to your next call on March, guys.

  <A>: Thanks.

  Operator:

  Thank you. We'll go to the line of Pavel Molchanov with Raymond James. Please

  go ahead.

  <Q - Pavel Molchanov>: Hi, guys. Phil, a question for you. How long do you

  anticipate the board deliberations on selecting a partner?

  <A - Phil E. Mulacek>: It's a little - yeah, somebody is saying that how long

  is the piece of string. We haven't got that coming in today, so we'll know a

  lot more, and then the advisors need time to review everything, do their

  analysis, qualify Q&A. I mean, I'm sure we're going to have a number of

  meeting with them, while we're in this final evaluation, I mean, it's a

  one-time event and we - until we know what, as I stated in my clarification,

  any conditions that is have is just way too premature.

  <Q - Pavel Molchanov>: Okay. And then, you know, assuming the process move

  forward as you are anticipating, what do you think is the realistic timeframe

  to physically begin construction of the LNG facility?

  <A>: You know probably we have to get with them and sit down and map it out,

  but one of the key is, what process are they going to use, from the stick

  belt, and we have discussions from 36 months to 60 plus. So, I mean, everyone

  has different project, that's to build it. So everybody has different

  concept, some maybe portfolio issues that maybe that they are really in need

  of a strategic supply of near-term fuel. So, as I said, I mean, we -- that

  process is going to kick-off in earnest in the next 24 hours. We are going to

  know a lot more over the next 30 and 60 days. So that's what we would like to

  - that's all I can say.

  <Q - Pavel Molchanov>: Okay. Last question from me on a different topic. Did

  all of the increase in the resource estimate from a year ago to this latest

  one comes from Triceratops, or was there some change in Elk and Antelope as

  well?

  <A>: Yes, the right share was to discuss that -- that the increase -- 54% of

  the increase came from the Antelope field. And 46% of the increase came from

  Triceratops.

  <Q - Pavel Molchanov>: Okay, understood. Appreciate it guys.

  <A>: Thank you./

  Operator:

  Thank you. [Operator Instructions] We'll go to the line of Chris McDougall

  with Westlake Securities. Please go ahead.

  <Q - Chris McDougall>: Thank you for taking the question and look forward to

  hearing the results from a bidding process. I want to understand a little bit

  of the process when communicating with the market over the next few months,

  will it be kind of one, updated to in when you accept to bid or will there be

  some interim uptick?

  <A>: I mean, as we need to disclose under a law we will complete and comply

  with the proper disclosure, but we really hit this. I don't want say its too

  premature but we don't want talk and be predaditial [ph] or any comments

  effect of final outcome. I mean, we have waited this long. We have never had

  better interest. LNG prices has - winner have been some of the highest. We

  saw over $20, we saw 19 earlier this month 1950 and when everyone was

  claiming six months ago are we're going to see some new parity and that was

  an absolute fall suite. So I mean, we're coming together at a timing that

  nobody - we don't want to jeopardize there. So as we have requirements we'll

  complete and will announce to the market.

  <Q - Chris McDougall>: Okay. Great. Thanks. So then on a separate topic, the

  Rubiales payments are certainly a welcome news. I want to understand if there

  will be a cash tax burden on this payments or if you have enough deferred tax

  losses and such to offset those?

  <A>: The reason on a capital gains tax...

  <Q - Chris McDougall>: Okay.

  <A>: And this a sale of an interest in an asset

  <Q - Chris McDougall>: Okay. Great. So there will be no tax for the year. And

  then on the Refinery, a question there, what do you see as kind of the

  current market for crude, you had talked in previous quarters about as the

  LNG - PNG LNG project rolls off the construction there then on - then you

  might see a little low in demand for some of the products, are you seeing

  that in the first part of the year or is it kind of continuing to grow?

  <A>: We're seeing just kind of continuous demand. We have seen spikes and fix

  and valleys is different parts of their project is ramped up and completed.

  But there is still quite a bit of other projects going on in the country with

  the mining activity. So it's a fairly cost of growth right now.

  <Q - Chris McDougall>: Okay, great. And what do you see as kind of the

  operating leverage in that asset. I mean typically is there half fixed assets

  and as the volume grows you can see some good cash gains.

  <A>: We're currently only operating at about 60% of capacity and - so we've

  got plenty of room for growth. And with that increased capacity utilization

  comes better economies that we see in our operations.

  <Q - Chris McDougall>: Great, thanks. And on the E&P side, with the

  Triceratops estimate that came in at the end of the year. Could you just

  remind us kind of what results from well or seismic of other sources were

  incorporated into that re-choice [ph] estimate? I feel like it was very early

  in the kind of space of your result for that assessment.

  <A>: Yeah. I guess, we've completed about 140 kilometers of seismic coverage

  and that's really helped define kind of the [indiscernible] and southern and

  northern closure and we still have to close out the western ends of the

  structure with seismic. There was one legacy well that we had which was

  quarter one which was filled in 959 which was a gas condensate discovery. We

  drilled the Triceratops-1 well in 2005 in which we penetrated just into the

  transition line below the gas. And then obviously we felt Triceratops-2, so

  the results of three wells and 140 square kilometers of seismic is what we've

  incorporated into the review.

  <Q - Chris McDougall>: Okay. Great, thanks a lot guys. Look forward to

  hearing the update.

  Operator:

  And due to time constraints I'll turn the conference back over to the

  speakers for any final closing remark.

  Phil E. Mulacek:

  We like to thank everybody, really want to thank again the refinery downturn

  for just phenomenal steady pace for the company  and congratulations to their

  group for a hundred cargo crude oil that cash flow is really underpinned all

  of our activities and helped to build the company to what it is today. And

  special thanks for the exploration really transforming. We are all totally

  excited on the upcoming event. We're almost unkindled the needle so if there

  are lot of people we can get or lets say we're chopping off the bid to get

  going. And with that, thank everybody for participating today and look

  forward to communicating in the near future.

  Operator:

  Thank you. And ladies and gentlemen, that does conclude your conference for

  today. Thank you for your participation and for using the AT&T executive

  teleconference. You may now disconnect.

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Listening to it was painful. Reading it, it becomes comical.

Case in point, this exchange between Pavel and Phil:

Pavel:": Hi, guys. Phil, a question for you. How long do you anticipate the board deliberations on selecting a partner?

Phil:    It's a little - yeah, somebody is saying that how long is the piece of string. We haven't got that coming in today, so we'll know a lot more, and then the advisors need time to review everything, do their analysis, qualify Q&A. I mean, I'm sure we're going to have a number of meeting with them, while we're in this final evaluation, I mean, it's a one-time event and we - until we know what, as I stated in my clarification, any conditions that is have is just way too premature." 

Lots of words; just not strung together in a manner that makes them coherent.

'Spartina' pid='17960' datel Wrote:LOL JFT - Tree and I were wondering if Phil was going to mention anything about Sal today. I was glad he did. Phil is a class act, always has been.

Spartina I thought I was saying Phil has been brilliant taking nada and making something grand from it. Phil is quite the guy we can agree.

Reading between the lines -is Exxon submitted a good bid, Jkm didn't. My take on the Pm site visit  -  I expect a story quoting an unnamed source to name at least some of the bidders and the mainstream business press to pick up the story.

[q in a bid foruote='jft310' pid='17969' dateline='1362077569'] David- I guess the 36 mth to production time period is Exxon and the 60 plus months is Kogas.Others in the middle. I assume EWC is not in the hunt here at E/A , maybe later. Exxon needs NG for a third train everyone should know that. [/quote]

Exxon put in a bid for gas."So everybody has different

  concept, some maybe portfolio issues that maybe that they are really in need

  of a strategic supply of near-term fuel. "