TransGlobe Energy Corporation
Q4 2012 Earnings Call Transcript

Published: 7 Mar 2013

[Operator:]

All participants, please stand by your conference is ready to begin. Good morning, ladies and gentlemen, and welcome to the TransGlobe Energy Corporation Fourth Quarter and Year End 2012 Conference Call and Webcast. This webcast includes certain statements that may be deemed to be forward-looking statements within the means of the US Private Securities Litigation Reform Act of 1995. All statements in this webcast other than statements of historical facts that address future production, reserve potential, exploration drilling, exploitation activities and events or developments that the company expects are forward-looking statements. Although TransGlobe believes the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the forward-looking statements. Factors that could cause actual results to differ materially from those in forward-looking statements include oil and gas prices, well production performance, exploitation and exploration successes, continued availability of capital and financing and general economic market or business conditions. I would now like to turn the meeting over to Mr. Ross Clarkson, President and Chief Executive Officer. Please go ahead, Mr. Clarkson.

[Ross Clarkson:]

Good morning, everyone, and welcome to TransGlobe Energy Corporation’s fourth quarter 2012 conference call. This is Ross Clarkson here, President and CEO, and with me I have Mr. Lloyd Herrick, Vice President and COO, and Mr. Randy Neely, Vice President, Finance and CFO. We’re going to start out with as usually with a summary of the financial and operating highlights and then we’ll move into a discussion of some of the drilling results in our plants for the future. And then we’ll follow it with a Q&A session as normal. Randy Neely will review the financials and highlights of the quarter starting on the next slide.

[Randy Neely:]

Thanks, Ross. The company ended the year on a high financial note. We generated just under $47 million in funds flow from operations or $0.57 a share, which represented a 44% increase over Q4 2011. In addition, we collected over $76 million in outstanding amounts due from the government of Egypt or EGPC in the quarter. Also during the quarter, our crude oil productions sold for an average $98.70 a barrel which is essentially unchanged from Q4 2011 and very consistent with the average of 2012 which was $99 a barrel. From an earnings perspective, the company achieved net earnings of $34.8 million or $0.39 a share in the quarter, which represented a 14% increase over the same quarter in 2011. Moving on to the next slide, from an annual perspective the company set a number of records for the year ended 2012. First, the company achieved an average production rate of almost 17,500 barrels a day up 44% from 2011’s rate, 12,132 barrels a day. This was the result of growing Egypt’s production by 56% which was partially offset by decrease in Yemen production which was principally a result of the longer shut into Yemen during 2012 versus 2011. These record production numbers contributed to an overall 28% increase in funds flow from operations which increased from $120 million and 120 million and $1.60 a share in 2011 to $153.5 million and $2.03 a share in 2012. Earnings also increased 8% to $87.7 million, or $1.16 a share from the $81.4 million and $1.90 per share in 2011. If you take a look at the past few years in terms of fund flow from operations you can see that the company has been able to maintain outstanding growth in this area over the past four years, achieving a compounded annual growth rate of 50% on a gross basis and 43% on a per-share basis from 2009 to 2012. As we sit here today, we expect that 2013 will be very strong year as well based on our guidance that we provided previously. Looking here the next slide, the company ended the year looking at the balance sheet, the company ended the year with cash of $83 million and net working capital of $262 million, while portion of which is the accounts receivable which is outstanding at $221 million at the end of the year. As you can see, we continue to maintain a very conservative balance sheet with less than $17 million in borrowings from a bank group and almost $150 million in negative net debt or positive net capital which includes a deduction of the convertible debentures of about $98 million. Management continues to be very focused on the collection of our receivables. And while we have – we would have liked to see a receivable balance decrease, in 2012 we were reasonably satisfied with DGPC’s efforts and ultimately the collection of $157 million in 2012, which as you know outpaced our capital investments of approximately $79 million in exploration, development and acquisition costs. Now, I’ll turn it over to Lloyd who’ll go through some of the operations and reserve aspects.

[Lloyd Herrick:]

Thanks Randy. This slide shows our third party 2012 year end reserves compared to 2011 year end numbers. Our reserve category as encountered on a 2P basis, reserves increased 10% year over year 48.7 million barrels, which represents a 2012 production replacement of just over 70%. On the 2P basis, reserves and major were up 14% year-over-year, the increases were attributed to both West Garib and West Bakr. West Garib, the additions were primarily due to the lower new coal development, work performance and to growing results in West Garib. And West Bakr, the additions were due to growing results in K and H fields and the components in HQ. On the 2P basis, reserves in Yemen were down 16% year-over-year primarily due to a reclassification of above 600,000 barrels 2P reserves and also some block S1, they were reclassified to contention resources due to delays, future growth. Next slide. This slide demonstrates consistent growth in 2P reserves you’ll be here on a per barrel basis and on a per share basis. The company’s four-year compounded annual growth rate for 2P reserves is 26% per year, barrel basis, 20% per year barrel per share basis. This slide also shows the increasing impact, the system growth for Egypt Power relations. I want to note, this compounded growth in reserves is achieved apparently to compounded annual growth in production that will be 25% in the same period. While this slide summarizes the company’s F&D cost, the FD&A cost cycle net-backs and the associated recycle ratios for the past three years. This slide is one of the real particular trend of the TransGlobe as it represents our ability to consistently find, acquire and develop reserves year after year at a cost comparable which is the top tier for our industry and peer group. The F&D and FD&A numbers presented were calculated in accordance with national instrument 51.1, and net backs used for recycle ratio and current durations are after tax and after all tax expenses including G&A and interest expenses. 2012, the 2P finding and development costs were $4.46 a barrel, with an after tax recycle ratio of just under $4.95. 2012 costs were lower due to drilling success that was carried in West Packer and increased recoveries in the West Garib in Pool due to water flood performance recognition. 2012, 2P finding development and acquisition costs are $7.36 a barrel with an after tax recycle ratio of 3.0. The 2P FD&A costs were higher than the 2P F&D cost, due to the acquisitions of self-indulging of self carry in 2012. Therefore exploration investments that do not have reserves aside of them however, contingent resources were assigned to the board in 2012, where our contingent resources are contingent on the approval of development plan and therefore not classified as reserves. The company’s 2012 three-year weighted average F&D cost is $7.2 a barrel with an after-tax recycle ratio of $3.08. This is consistent with the company’s 2011 three-year weighted average F&D cost of $8.04 a barrel and recycle ratio of $2.57. This slide shows our year-over-year growth in production, in our guidance for 2013. Over the past four years coming as a compound average filter rate, 25% a year, or simply put, we have essentially doubled the company’s production in the past four years. We’re providing guidance for 2013 which is the mid-point, represents a 29% increase over 2012, which is consistent with their compounded growth rate. This slide shows our daily production by project for the past 12 months. There are a couple of items to note. During Q4, West Garib production shown on red was impacted by an eight-day legal labor project which differed about 100,000 barrels of production at the start of the quarter. At the end of the quarter, we’ve commissioned the West Bakr K station at cup terminal to receive up to 2,500 barrels a day of production from our Hanna and Hanna West fields in West Garib. This is a modest sort of increasing production of West Garib between ‘13, it’s currently around 13,400 barrels a day at March and expected to increase to 14,500 barrel day range as we bring on additional caution over the next couple of months. Production at West Bear, Packer was lower in the first quarter of 2013 averaging approximately 4,200 barrels a day in January, February. This was primarily due to a number of functions, just sampling of work orders. The West Bear factory production is currently around 4,500, actually this morning was close to the 4,900 and it’s expected to increase to the 5,000 to 5,500 barrel a day range over the next few weeks as wells are right on production. These plant additions at West Garib and West Packer expected the total company production will exceed 20,000 barrels a day in the next month or two, not including broadcast one, which could add an additional 1,800 barrels a day production capacity. Production guidance for 2013 is set at 21,000 to 24,000 barrels a day for the year, with a mid-point of 22.5. Mid-point represents 29% increase over the 2012. Range of production guidance is largely due to the uncertainty of production in quality phase 1, start data production from South Albany, development planning results and timing. Using the mid-point of guidance, and $100 brand pricing we are estimating upon to flow over 2013 of $161 million or $2.13 a share. The rent pricing remains at the $110 per barrel range in the past two years and fund for over increased $178 million or $2.36 a share in 2013. It’s important to note that the TransGlobe’s production is 100% lower and all is referenced to bring through our price. The capital inspiration for development margin for 2013 is 129 million excluding acquisitions. This represents 128% increase over 24 hour expiration development expenditures. 2013 capital expiration development program is 96% focused on Egypt. Total in the project is weighted 58% development projects which includes 28 development results and 42% expiration projects. Expiration project does not include funds for the whole new, expiration concession is awarded in Egypt this round as they are expected to be 2014 projects calling a lot of patience, a lot of in 2013. On our alternative presentation where all are upcoming projects.

[Ross Clarkson:]

Okay, we are on slide 16 which is the locator map of all over land position in Egypt and you can see now that we have a very significant land position in both the eastern and western deserts which we’ve built through acquisition and the recent did rounds which will happen in the last fall. Our total gross land position now has increased to 2.1 million acres which really places TransGlobe in the top ten in the country for land holdings. I’m going to start in the eastern desert on slide 16. The west caravan, the west backups out there are our main producing assets and are still the focus of the majority of our 2013 capital budget. The combined current production is about just over 18 thousand barrels a day of medium gravity oil that sells for breadth minus an average of approximately 12%, discount for quality differential and we’ve had two ribs that have been that have been working here for the last four years and they focus primarily on development drilling although there is an exploration component to that. The dark green globes on the map are the producing oil fields and the light green areas are exploration prospects. This is the first time we’ve presented such a detailed match showing where we see all the fields going. This updated map really gives you a flavor for what’s happening out here. The fields are extending out from our West Garib of lands on to the new exploration block, the northwest Garib block that we won in the dead round. The extensions and the undrilled structures will provide the company with several years of appraisal and exploration drilling inventory. In 2013, there is also a large focus on integrating facilities and reducing production bottle necks to allow all the new oils wells we’ve drilled to be placed on production. We recently completed multi-well batteries that Northwest area and North East and a drop receiving terminal at the key station in west backer. This facility work will be on going over the next year to increase our handling capacity toward 25,000 barrels per day and ultimately hopefully up to 3,000 barrels a day. We have a lot of work to do here with this new land coming in. flight 17 is really a zoom in on the west backer upsets. These are the oil fields and facilities we purchased from several Japanese companies at the end of 2011. We’ve drilled several new wells on the edges of these fields and we’ve found new virgin pool discoveries and the extensions to existing pools. We have 15 wells planned for 2013 on this area with one rig dedicated to the area. This is another place where we are expanding our facilities. We are now moving the hanger crude to the Key station which is the southernmost field in the backer complex and then we are shipping the oil by pipeline to the coast. And this is freed up some tracking capacity at the coastal receiving station which allows us to ship more of the outer crude than is struck down. The ultimate goal that we are working on here is to have all of our production moving through the pipeline and eliminate the tracking to the coastal station. We’ll still have some tracking within the field areas but it’s really about getting most of the oil going through the pipeline and eliminating crossing on the highway. Flight 18 will give you some flavor here of our eastern desert drawing inventory. West Garib and West Bakr still have a significant amount of appraisal drilling to fully define the existing fields and as I indicated on the previous slides, several of our fields appear to extend out on to the next West Garib block which has an exploration component also with 33 untested structures. We don’t have big numbers on the south west Garib and the south East Garib blocks because we only have vintage 2D down there. Our plan is to acquire a high quality 3D data over these blocks, which is expected to significantly increase the exploration opportunities in those two blocks. With approximately 150 locations identified and probably a lot more to come after we get the 3D done, it should be clear that the eastern desert provides lots of running room for the company to continue growing production and reserves. Moving out to slide 19 on our first Western desert block east Gaza lab. And this is our only non operated block in Egypt. We have a 50% interest. Production commenced in September 2012 from four wells on the Southwest structure and the operators now planning to move two rigs into the area in the next few weeks for a five well program. Two of the wells will be appraisal development well, on the Southwest structure and the other three will be exploration test over these structures with the light green globes on the map. Moving over to South Alamian on slide 20 which is the block that we acquired from Sepsus and El Paso in July 2012 and we have a planned out program here that is approved by EGPC. With the licenses are help up with surface acts, there is approvals from the military. We are getting lots of cooperation and assistance from the EGPC to move the approvals a long but unfortunately we have not received the military approvals yet although we are told it could happen in the next month or two. We hope to proceed with both exploration and development drilling shortly. Our forecast has bore ax starting in the 4th quarter for production contributing about 490 barrels and under 500 barrels a day on an annual basis. But then, we can’t get started out here this may slide into 2014 and we have built that into the various on our projections. On slide 21, we jump over to South Mariut and those big rig is currently drawing Al nahda up to the north of our first well and it should be completed by probably mid April. The second smaller rig that we are bringing in going to start drilling on Al Hamam which is on the West side of the block in the next week or two and that will commit our commitment wells for this block. These are both high risk exploration well. Slide 22 shows the full extent of the new confession on the eastern desert which we hoped will be ratified by year end so we can start work in 2014. As I mentioned before, there are not a lot of globes on the two southern block because we really only have two D data there and we are going to shoot 3D seismic. The North west caret block is currently the biggest production opportunity for us for the company, although that may change after we get the new data on the Southern Blocks and maybe we’ll see a lot more down there. Then the Western Desert slide, slide 23 is the South Gaza block. It’s pure exploration out here once again, but it is on the right neighborhood. There are a lot of oil field in the area. Apache and others have drilled a lot of big discoveries out here so we are optimistic that the 3D plan will show us where to go. New blocks are in excellent exploration inventory and really contribute to our five year drilling plan. And with that, a quick over view of the properties and the financials, we are going to open it up to the Q&A periods if the operator would please assist us with that.

[Operator:]

Thank you. (Operator Instructions). The first question is from Anne McQueen, of CIBC world markets, please go ahead.

[Anne McQueen:]

Thanks guys. My question, I can’t remember exactly which slide it is but you’ve identified a bunch of prospects and field extensions particularly the ones that extend from your Garib, West Garib Block and on to North West Garib. Can you describe a little bit about how you’ve identified extend like it. You can see it at the globe in the map right now, but is there a bunch of seismic coverage and is there pressure dated to support those extensions.

[Ross Clarkson:]

Yeah this is Ross here. We have 3D seismic in virtually covering all of that Northern area there where there are the Eastern all the way down to Horshia0

[Anne McQueen:]

I know that there are some challenges with interpretation of seismic so if not it’s obvious as it might be in say, western Canadian sedimentation because there is some things in the way they are good kind of intrigue the signal. So the question about the pressure data, is there good pressure data indicating extension of field beyond the boundaries as well.

[Lloyd Herrick:]

It’s Lloyd here. We don’t have any well control on the new blocks so what we can say is that the existing producing pools are not showing the expected rapid declines of pressure associated with a pool of boundaries. We don’t have any evidence to suggest that as to why were limited to a pool size.

[Randy Neely:]

And certainly the seismic isn’t that bad. This is especially in the Northern area we shot all new data in 2008/9 so it’s certainly very high quality data. We have a plan to shoot some very high density seismic data in the near future which will probably give us even better resolution but it’s not that difficult.

[Anne McQueen:]

And that’s good. I’m glad to hear that so there is obviously a lot more globes in the map and there have been issues with the transportation capacity. Can you just outline if there is a bunch more oil to find, and what your plan will be for transport to market?

[Lloyd Herrick:]

Yeah, it’s wide here. We are consorting with, not only do we have the West Bucker facilities, we are not grading some of those and expanding them now that we have confirmation whether we’ve won the bid or not or not with Gharib. We’re working towards expansion to that. We probably got close to 40,000 barrels a day of processed capacity in those two stations. Up till now we’ve been just gathering our West Gharib production from single oil batches into multiple oil batches. We have a couple more of those to bring together. Our one first gathered in the field then we can go to track it or pipeline it down through the pipeline system onto the coast. The historical bottom neck has been down on the coast. The UBC facility, we are in discussion with them we think we have found some ways to optimize the facility to great about 20,000 maybe even as high as 24,000. Another option that we are looking is expanded pipeline connections past their processing enabled it should be a bit of a bottle neck and take it more to the seal side down at the terminal. To do that of course we’ll have to put some additional investment into our existing field facilities to bring back crude oil up to to our pipelines and be solving that towards the stack. It’s all part of the master plan that maybe about a two year build up which will be about the right time for these projects to start coming on.

[Anne McQueen:]

It’s kind of a stage program with, the oil marking and upgrades along the way and obviously wording with EGPC on that.

[Lloyd Herrick:]

Absolutely.

[Anne McQueen:]

All right thanks.

[Operator:]

Thank you. The next question is from David Dudlyke of Dundee Securities, please go ahead.

[David Dudlyke:]

Yes, hello everyone. I have a follow one with regard to this discussion of the bottle necking. You talk about this additional unidentified constrained within the VPC process facilities and given that you are just about 2,000 barrels shy of this, is 20,000 barrels level you referred to. Is there a risk that you could actually have a production effect of being shut in or held back, how’s that being built into your 2013 projections? And I guess is there contingency within your own capital program 2013 to address this or maybe unidentified but have you built in some contingencies or is this constraints, are these constraints for GPC own account?

[Lloyd Herrick:]

Okay, Lloyd Herrick here. Let me just, a number of questions I’ll hold on to it but first off when we say the unidentified constraints, it is within the GPC system. We don’t have all information to know every pump and every well that’s going through there. We are part of the $60,000 belle dates to enumerate now because soon we are – so it’s difficult to predict. What I can tell you is that we feel pretty comfortable, we had some recent discussions and we probably left it at 20,000, we can probably get closer to 22 or 24 with the additional anyone small transfer pump that they have highlighted which is not a big deal for us. The other aspect remaining to our guidance, what we built into our 2013 guidance would not be impacted by the current capacities; we kept that within boundaries of what we can deliver to their systems. What we are really focused on is getting ready for the North West Gharib which can see starting to ramp up in 2014. That’s what we’ve got to be ready for so as we move beyond 20 towards 25, we keep testing that system but we are looking at a number of ways to optimize and of course to ensure contingencies that at the end of the day we have to utilize the infrastructure that’s there. We should have sufficient capacity it just needs some organization.

[David Dudlyke:]

Okay, thank you. On to another question, you referred to the discount that you derive in terms of realizations or waste carrying and protocol waste per house significantly a lot of realizations. Have you attempted to renegotiate the discount the discount to bring for West Bakr oil or is that in this process?

[Lloyd Herrick:]

I think I will categorize that as killing discussions, it’s been a long discussion. We feel that there is room to get a better discount or with West Bakr group but as we are heading up the result.

[David Dudlyke:]

Our discussion is of a politic nature, constructive and moving forward or are you just at little log jam?

[Ross Clarkson:]

Well, whatever you know, you want more and they want more. I am not sure about it but we are certainly in discussion to understand where we are coming from. It just it will take some time, I can’t tell you from a planning and guidance point of view. We always take the whole discount for discount or if we are to succeed in getting a better netback or have a discount on passing I think that will over and beyond, over and above the current guidance.

[David Dudlyke:]

Okay. And last one for me, you’ve now revealed the 3D across your North West Gharib, now can you just remind me in terms of when you expect ratification would you move, you presumably could move straight to drilling on the North West Gharib block. You don’t have to wait for three days you, do you only need seven blocks. So when could we perhaps expect the first well?

[Ross Clarkson:]

Well, probably not more than a month or two after we get ratified but that is not in our control. It has to go through the parliament, there is some discussion that they move with ahead faster but right now we are projecting end of 4th quarter for ratification and starting work in 2014. Certainly that’s consistent with what we are hearing from the government but once again it’s not in our control. But as soon as we get it, we’ll start drilling it, we don’t need to wait for size back.

[David Dudlyke:]

Okay, that’s all for me. Thank you both very much.

[Operator:]

Thank you, the next question is from David Popowich of Macquarie, please go ahead.

[David Popowich:]

Yeah, thanks guys. I just had a question about West Bakr, in the Indian you guys have some good disclosure on the Absle A through F side it looks like you have some pretty good wells especially in the A and B sands. I was just wondering if these results are in line with the expertise and better in the reservoir port or if they are better than expected?

[Ross Clarkson:]

Well I think they are in line, we did our upgrade a little bit, did the UN reserves because we did have some of the wells are built into that also in all the zones. They were part of the flight, some other zones is producing like D zone because it was on production until just in the February. So we identified some additional drilled locations in the reservoir port as well so it’s kind of hybrid.

[David Popowich:]

And just when you guys move forward to the HP of the West Bakr, I mean do you expect some more time to the initial production rates or is it a completely different kind of beast at that H field?

[Ross Clarkson:]

Yeah the H field is a little different; it’s got some different sand but still high quality sands. We don’t see the same natural pressure support that we see down on the K field, so for example we actually have a water flood 100 way at the M field when we added one of the upper zones and additional water because it doesn’t help retaining pressure support. K Field has good natural support of water handling and water floods.

[David Popowich:]

All right and then I just had one question just about business development, you guys have talked in the past about acquiring assets outside of Egypt in addition to possibly diverging your Yemen assets. Could you just comment on any business involvement opportunities you guys may be seeing outside of Egypt right now?

[Ross Clarkson:]

Well we are working on some things but I really can’t comment on them, they are not that far along yet.

[David Popowich:]

All right, well thanks very much, I appreciate it guys.

[Operator:]

Thank you. The next question is from Shahin Amini of TD Securities, please go ahead.

[Shahin Amini:]

Good morning gentlemen. Two questions if I may, noting a base common along places in Egypt because of the politics and economics, what would you consider to be an acceptable accounts receivable for 2013, and second question, can you provide an update on your efforts to diverse the Yemen assets?

[Ross Clarkson:]

Shahin, trendy, with respect to the accounts receivable our goal this year really is to hold it steady where we ended the year, given everything that’s going on in Egypt we think that’s an achievement. We are working with them on a regular basis to get a schedule put in place for the collection this year and I think we’ve disclosed in the financial statements that to date in the 1st quarter we’ve collected almost 40 million so far. And so we expect, if we can maintain that sort of page we should be able to hit at those numbers or keep the balance for receivables about the same for the year. And as far as the disposal of the Yemen assets, we are in the middle or just then, actually in the beginning of starting a process on sale, we’ve had quite a bit of interest in it but it really depends on whether we get the price we want.

[Shahin Amini:]

Thank you.

[Operator:]

Thank you. (Operator Instructions). The next question is from Gerry Donnelly of FirstEnergy Capital, please go ahead.

[Gerry Donnelly:]

All right gents, just a couple of questions if I may, just in relation to production and production targets for 2013, assuming that you meet that kind of mid production target, you effectively get low estimates in the region of kind of accelerated to 20th falls in 500 darebatts but I guess this is pretty clear in the assumption that kind of Yemen delivers 50% productions throughout the year from S1. I mean on what basis are you assuming that 50% and also on the scenario that you diverse that asset within the year, how would this impact if at all the capitals and program?

[Ross Clarkson:]

On the production side Gerry we have more than about its only one stream around 50% of the year. Really we don’t have any, very crystal poll on that, the pipeline has been repaired and damaged a number of times. We currently are expecting that a labor issue would fill this up on that facility. I think this week pipelines are actually repaired but we are not on production yet so and all the operators working on the field. If we had the rest of it, the impact to the, the operating guys would be popping around 1000 drills a day, we take into account the six month forecast.

[Lloyd Herrick:]

Okay yeah we built into the guides and quite arranged they are between 21 and 24, really accounting for some of the timing issues and also counting for the sale of Yemen. Okay being on or off stream.

[Gerry Donnelly:]

Okay, thanks gents. Next question for me, for the two upcoming exploration while in one currently kind of drilling on Nahda and also the fall, well if your exploration well, can you give us any kind of color on some of the key geological risks for these two wells and from that it doesn’t have to mean, what is a retro for Al Haman?

[Ross Clarkson:]

They are both independent of each other so there is really no retro from one to the next, it’s about finding source rock and it’s about finding you know, is this a working hydro carbon basement, it is an independent basement from the rest of the areas of Egypt. We feel that we found a truly significant mature source rock in the first well so is it migrating into the structures, the timing on the structures is appropriate and that is the primary risk.

[Gerry Donnelly:]

Okay. Just lastly, have you any guidance from the Al Haman, it may go away given but have you any guidance on the Al Haman volumetric?

[Ross Clarkson:]

It’s not a giant prospect, it’s certainly quite a bit smaller than the first one, Al Nahda but we only have two detailed there so it’s a little difficult to quantify the size accurately but it’s certainly less than half.

[Gerry Donnelly:]

Okay, thanks very much.

[Operator:]

Thank you. The next question is from Victor Vallance of Fraser Mackenzie, please go ahead.

[Victor Vallance:]

Good morning gentlemen. Just want a little more clarity with regards to the question that David was asking on the K field. Now in the relation mentioned about recovery factor, improvement in the order of 10 to 20% and if I do the math’s right, that’s looking at another 17 to 34 million barrels recoverable reserves, is that correct?

[Ross Clarkson:]

Yeah, that’s sort of the target that we have identified. Its significant offside, you know that is what, we do know there is a lot of oil in the place, we do know that under incurring the document recovery factors of, it’s just under 20% given that high quality stands on with good structural elevation and a strong up on water grade. Typically those types of reservoirs can be able to accept the more into 30 to 40% recovered pitch so we have identified that fact in acquisition, evaluation is it’s a pretty obvious target to get. With that encouragement with the first four wells, one of them carrying good cut on prices. So we think there is a lot of opportunity to have reserves. I am quite anxious to put some of these well on production but fortunately or unfortunately depending on how you look at it, we try on a lot of zones down the lops so we are going to start at the bottom all the way up.

[Victor Vallance:]

And I am just wondering over what time frame do you think you can build those additional reserves?

[Ross Clarkson:]

It will be staged currently we were going to start casting some of these out of A sounds this year. We will probably drive a couple of dedicated interim places, put them on, see how they perform. We are also updating our simulation model on that and giving some guidance on how to optimize those recoveries and based on that performance information I think we will start to see some nice out of this year and again with the following year.

[Victor Vallance:]

Okay thank you, thanks.

[Operator:]

Thank you. This concludes the question and answer session, I would now like to turn the meeting back to Mr. Clarkson.

[Ross Clarkson:]

Well thanks everyone for participating in our conference call and certainly the next update will be the Q1 report in early May, there may be some news in between that. Anyway and all results on specific exploration wells but certainly I think we are looking at May 5th for the Q1 report, Randy?

[Randy Neely:]

Yeah I think that’s right.

[Ross Clarkson:]

It is that week, okay.

[Randy Neely:]

Well, thank you everyone.

[Operator:]

Thank you. The conference has now ended please disconnect your lines at this time. And we thank you for your participation./