Q1 2020 Earnings Call

This time, all participants I know listen only mode.

So the speaker presentation, it'll be a question and answer session.

Ask a question. During this session you want me to press Star one on your telephone if you're quite any further west and East Coast stars Yeah, I would now like in the comp. It's just because today, Derek Jeter, President and Chief Executive Officer. Please go ahead Sir.

[music], Okay with extra ROE and good morning, ladies and gentlemen, thanks for tuning into Tito's first quarter 2020, <unk> results conference call.

Before we get started today, we'd like to remind everybody all statements made by the company. During this call are subject to the same forward looking disclaimer in advisory we set forth in the company's news release yesterday.

All right in the room with me today in honoring our two meters spacing rules, we got full management team.

Got you would be the shops, our VP of engineering and Chief operating officer Catheters honest here with our Chief operating officer.

Thomas our VP of exploration is here talk Burdick RVP it production.

Recurring RVP, a drilling and completions to moving RVP land and we've got Scott Robinson or be a business development here. So the whole team is here for your questions.

[music] before I get started though with my comments today about our results we'd like to recognize the extraordinary efforts and perhaps even the bravery shown by the entire peto team.

Including our field personnel over the first quarter.

Our team set aside there appears with respect to that.

Derek and continue to provide albertans with the critical energy that's required to keep our households, warm unsafe and the power or ever so important hospitals in critical care facilities. During this call will pandemic.

It was a scary times for everyone, but we were all extremely careful and successfully golf the job.

[music] because we were what we produce a pado obviously is very essential in critical at our society and we're very much reminded about talk these days.

It's very important that we keep all our employees and the key service provider is healthy and save especially during this time.

So congratulations to the whole team and a job well done.

I'd also like take this opportunity to thank all of our front line healthcare workers in the province, who are also putting their lives at risk everyday to ensure that we have the full capacity of the health care system available to all those albertans that are in need.

[music] so onto our first quarter results.

Obviously, the first quarter proved to be very challenging period for peyto with.

Very sudden and dramatic drop in oil prices during the quarter.

At a pretty consistent erosion, even in natural gas prices throughout the quarter.

So not only did we have to deal with the pandemic him all of the things that I brought we had to deal with some rather.

A terrible commodity prices to this was quite the reversal from the fourth quarter segment, where we were very optimistic on where gas prices were going in.

Talk that a we expect to 2020 to be a bigger and better year than 20 young team.

I suppose so far that's not in the case.

However are growing our team here at Theodore remain very nimble and we responded to these new challenges as we always have.

With a straight head on.

As we saw the winter heating season failed to materialize and the gas prices, particularly the Nymex price in the U.S., which were a much more exposed to.

We saw that Nymex prices are basically a road away in the quarter.

We decided we needed to slow down or winter program.

A little bit and defer some of the capital that we had planned in the earlier part of the year to later in the year wouldn't be could see prices tighten up a little bit.

We did that I think in February by a.

Dropping some drilling rigs.

Then in March of course, the oil price crashed on the demand impact due to cope with my team and.

And we had the price war between Russia, and Saudi Arabia.

Where they were threatening to flood the market was a whole bunch production.

So a lot of changes we had to completely reassess our drilling plans.

For the year in light of the the impact where economics that those body braces brought so we quickly shifted our focus away from the more liquids rich cardium opportunities. We've been chasing all of 2019 to now the more leaner drier gas spirit river opportunities that we have within our portfolio.

I think you know, it's a real testament to peyto in its nimbleness to be able to do that so quickly and so efficiently.

Well the ended the quarter, a we've revised our capital plans for the year, we rebuilt our entire drilling schedule with a more of a focus on leaner gas opportunities.

Also by the end of March we saw a new commodity strip evolving with some real interesting developments on the oil supply side.

So now we have potential shut ins or.

Being promoted the storage was feeling rapidly the Opex plus plus group was talking about taking a lot of volumes offline.

As opposed to flooding the market in a there was an interesting sort of follow on effect with respect to associated gas being shut in and therefore, causing gas prices rise.

And that last effect really was the silver lining for us as a gas producer and we started to focus on that one.

However, we had to be a little bit careful because we also produce condensate and we had to think about what would happen to that condensate and heavy oil in Alberta, we shut in.

So there were a lot of a sort of exterior market considerations to think about in the first quarter that kept us on our toes. Those are all the things going on outside of Peto that we don't really control inside a peto, though I think.

The things that we do control or we're going quite well.

We drilled some very nice wells in the first quarter finished up a large threed seismic program over a big block in the southern area Greater Sundance, We built a large diameter pipelines that opens up a brand new area in south browse OCO chambers.

We continue to see improvements in our capital costs leaves here. This morning, hopefully you can talk a little bit horrible how those might evolve this year.

Operating in the costs operating costs in the quarter were little harder than a normal mostly due to our preparations really for cobot 19 supply chain disruptions and few other things, but we've got some great initiatives for the rest of the year, which you should see those coming down taught can talk about the those a little more.

From a production perspective things ran pretty smoothly.

As a book propane in gas prices changing throughout the quarter, we were inclined to toggle or deep cut on and off.

Depending on whether propylene prices were two week in gas prices were stronger than gas prices weakened and propane prices got stronger.

We seem to be getting better and better at this though so it's nice that we have that flexibility to target the best price possible and put the production in the right form to attract that best price.

As I mentioned.

We were concerned with our condensate would be priced in handled a if a lot of that heavy oil demand disappeared, then so too with the demand for condensate so.

We collected all of our tanks, we rented a bunch more tanks and we've built a couple of key tank farms on a couple of plant sites to store about 80000 barrels of condensate.

Just two to three weeks worth of production.

Just in case, there was a major disruption to the condensate markets is it likely more of an insurance policy did anything so we don't have to shut in all of our production gas condensate and Ngls, if there's a problem with getting our condensate market.

It's fairly inexpensive to build this capacity and this insurance. So I think it's the right move and we don't know yet whether we're going to use the full capacity you're not we're we're definitely not through the oil storage problem yet it is still continuing to Mount out there. So.

It's a good bit of insurance out on her pocket.

Financially for the quarter commodity prices, where some of the lowest we've ever seen a pado. Unfortunately and delivered the lowest per unit revenue in our entire 21 your history.

So even with our LOE costs, a that translated into the lowest netback in our history as well.

These low prices caused the independent reservoir engineering firms to drop their price deck substantially.

That caused a significant impact to the perceived value of our reserve assets.

Compare that to what we spent on those reserves, we ended up having to record a small non cash impairment.

Around $80 million and that.

In turn results in a loss for the quarter.

This is the first impairment we've ever taken as a company and it's the first quarterly loss, we posted in the last 15 years.

It wasn't really a record I want it to break a unfortunately, but it is a sign of the times.

We'd expect that a as oil and gas prices rise in the resin reservoir engineering firms increase their price forecast back up to this impairment reversal.

So unfortunately, the extreme volatility in commodity prices translated into fairly extreme volatility in our earnings.

Oh, so they would that was Ah you know basically it for the quarter.

It was a bit of a tough quarter, but we managed to make it through intact and I think we're looking forward to some improvement for the rest of the year.

Well, perhaps oh, we could throw the wide open and just take some questions from those listening.

Thank you.

As a reminder to ask the question you will need to press star one on utility.

So withdraw your question press the pound key piece and I will be compared to Q1 day last night.

[noise] I question first question comes from.

We live or somebody else.

Your line is now.

All right, that's fine here or there and I just want to talk overbooked impairment tests performed and.

It does it reflect the catch or your hedges in place and they.

Diversification arrangement.

Yes. It does those arrangements were included in the reserve.

Evaluation.

So depending on what the commodity prices at those various hubs are that are forecast by their independent reservoir engineers.

And that translates into a what our realized prices would be.

Obviously, our reserve report.

Somewhat a tailored a little bit to the commodity prices that we perceive at the time when we did it at year end.

We we had a lot of cardium drilling at the front end because gas prices were weaker in oil prices were stronger and so you know naturally that's the way that we built a drilling forecast going out picking from the inventory that we have we don't populate the entire reserve report with all the inventory that we have.

The future obviously, we have a couple of thousand or more locations, obviously to choose from.

And independent reservoir engineering firm will pick from those.

For the next five or so years to populate it to forecast of Oh development. It only takes a fraction of our of our undeveloped locations that and puts it in the reserve report, but we you know we tried to direct I'm a little bit as to what's the most profitable looking species that we're drilling problem and so for the last year or two.

In the Cardium with its height liquid yields so we brought those to the forefront and put those first up I think you know realistically though.

If we were to rebuild the complete reserve report today reflective of the change the dramatic change in the commodity price, we would bring a lot more of our drier gas opportunities forward earlier in.

The forecast for development so.

You know, there's there's little sort of changes within the the way. The reserve reports are constructed that don't.

Adapt to such a dramatic change in commodity prices obviously.

But.

Yeah. The reserve report is relatively full something that it reflects all the parts of our business.

Okay hurt that's card the more my follow up what kind of go it's like it looks like one of the criticism that they.

Reserve.

Internally because at the price assumptions or.

Evaluation companies that the price of comfort in the years has always see it could be.

Quite aggressive relative to where the floor scripts are where current prices are currently the debt looks.

When you felt like Dan Dan looks a lot more realistic.

So in terms of about your book value, which is posted I guess $10 per share is that cars.

It seems like am I interpreting correctly when it looks like it gets more representative the the NPV based on this current price deck. That's outside your mdna because that's the way to think about [laughter]. Obviously that comes stuff that you had to that are not included not report.

Oh.

Yeah, although.

You know still.

It's very difficult obviously for the independent Rias reservoir engineering firms to come up with a forecast as well right now.

There's been so much change going on that you're right. We criticize a maybe a little bit that their forecasts are offered.

Optimistic relative to strip, sometimes when we look at it but you have to remember that these are the same guys that do look at everybody's F. In d. cost they do look at everyone supply cost so.

When they're looking forward and forecasting what commodities basic commodity prices are going to be.

Yeah of course, they I'm sure incorporate what the strip is going to look like.

They also know what the industry supply cost is and so they.

In some ways. They know what the commodity price has to be in order for people to have economic drilling prospects in order for the industry to.

To move forward, replacing its depletion.

And so you.

In a way we have to kind of believe.

What they what they believe in somewhat because they they do know what the industry's cost structures like you know what I mean, so in some ways. We can we can criticize them for for their belief in the quality price being different than the strip but.

But the reality is strip, sometimes isn't all that right either in maybe the strip isn't as knowledgeable as the independent engineering firms are of what People's actual costs have been to convert new reserves into production.

You know what I mean so.

You know, we we'd like to beat on them Guy those guys because.

You know they make a forecast to commodity prices and everybody who makes the forecasted commodity prices is generally wrong.

Nobody really knows what the forecast is gonna be but these guys go out on a limb and they do.

In their defense they do see what everybody's conversion costs are.

And from that I'm sure they determine what the commodity price needs to be.

And so maybe you know when we look at the independent engineering firms and we see a forecast that's higher than the strip today, what that what we really should conclude from that is that the supply cost is actually higher than the strip today and so.

One would expect that activity levels would probably drop off if those strip prices continue to persist.

And they have to get above what the.

Company supply costs really are.

To be manageable.

Okay. So I'm, sorry that doesn't really answer your question I mean, it's a little bit more background, perhaps information on those those independent engineering firms, but.

You know I'm, just wondering is changing quite rapidly and next quarter, we're probably going to see.

Significantly different forecast from those guys and that's going to flow through to a significantly different impact on our reserve values.

And.

One would expect and I think most people do expect in the industry that as commodity prices.

Turning around that a lot of the impairments obviously that the industry has had to take this quarter are going to be version.

Okay, but.

At the book value of.

Your assets now it seems like with impairment and they change to that seem to match, the you're marking to market almost a bit too you know to the assumptions.

Laid out by the reserve.

Does that kind of the way to think about it.

I don't know is that how you would look at it can cause I don't think from a book value perspective.

I'm not really quick.

[noise], sorry, five I'm not sure what you're getting out but yeah.

Oh really about a follow up offline with you.

Thanks.

One thing to just out there.

Well the reserve companies.

Began to calibrate your term prices a lot closer to this.

The strip that at the end of the year is.

Just.

Erroneous to just lucky and.

Current momentary strips that ended the year can vary quite a bit over the course of the year depending on the season.

I think.

Reserve Engineers as you stated are trying to look at the big picture and the true supply demand.

On the out years, while calibrating years in the near years closer to that strip.

Okay.

Okay fair enough. Thanks.

Thanks.

Thank you. Our next question comes from Doug Young has been with CIBC World markets. Your line is now open.

Yes. Thank you for taking my call lots of moving parts not always fun, but it's never boring right.

[laughter] you say, so Doug [laughter].

I mentioned higher cost in the quarter due to cope with preparation.

So I'm presuming those are expense costs, but over time to elaborate gout.

In future quarters, I'm hope or where they sort of one off additional costs.

No that's right.

You know I would say winter season operating costs generally tend to be higher we have to obviously you use more methanol keep wells from freezing off.

Got a lot of snow removal that we're looking at road meat and tends to be higher than in the summer taught you want to jump in there what else do we had those pointed out there.

You know typically in the winter as well methanol prices typically go up because supply or demand goes up a in Alberta, Phil Gold Q O Q1 is typically higher and then this year you know we add to flat we weren't too sure what the supply chain might do so we did.

Purchase a few things lubricating oil that's sort of stuff just just in the off chest that there was a disruption and we wouldn't be able to make it through a couple of months Phil.

It accounted for some but not a lot and it will average out into Q2 that steps, we didnt use anymore, it's just kind of sitting in inventory.

Sure Yes.

We had been able to foresee that the oil price was going to drop so dramatically. We could have weighed isn't bought our lube oil when it was cheaper.

[laughter] don't make too many people thought that weren't coming yet.

Thanks.

We are anticipating lubricating oil go down.

They it's not a one to one correlation with oil prices obviously.

Tied to the U.S. producer price Index, which did go down actually went up in January and then it's come down but.

As well, it's tied to the Canadian dollar so.

Sure.

Okay. Thanks, guys.

I just was wondering if it was more of a pulling forward some expenses.

And that you will regain sort of in in future quarters or get back in future quarters.

Something that's more curious to me is what's going on with world LNG in natural gas prices and will that.

Ultimately.

Translate backwards into North American prices I mean.

The sort of simple view is you know Qatar can't sell its gas at a reasonable price. So they've got a surplus so maybe some of the export capacity out of.

Continental USA is going to get backed up or is backing up.

Which then effects Canadian prices, which will settle for volumes moving so.

Is that.

Potential scenario two Canadian prices are north American prices.

You bet it is Doug.

What's the sort of counter argument to the positive more bullish thesis that we're short supply with all the associated gas offline in North America, and so therefore with the demand looks like it's pretty robust sales even with cobot.

Got prices moving upwards because of this thesis that were short supply and then the counter argument of course is but the world is long gas and there's a lot of cheap LNG on the water and does that mean that that LNG backup into North America and helps.

Sort of counter that.

The short supply in North America. So that's the various case for for gas in North America is the return of the LNG that supposed to be going out now that being said.

There was also some reports of a Asian countries that have been switching over to a more and more LNG to replace their call I.

I think one of the things that Dave experienced with all of the isolation shutdown of the economies and is that they've got cleaner skies over there and they've got cleaner air to Breeze and now all of a sudden the direct linkage between that dirty year, they were breathing and the cold they're burning becomes more evidence and does that change.

Public sentiment and government behavior in a way that they push harder to convert more coal to LNG.

And burn more gas.

And now start to draw some of that excess gas. It's on the water if you will over into those countries.

A more significant way.

Good point that you still silver lining there.

Yeah for sure you know in the in the very short term of course, maybe that stuff doesn't happen map out because you've got to convert coal to gas.

Power generation and how quickly can that happened I mean, we saw in the U.S. that happened over a period of years, but.

You know in the short term, it's really probably more about the contracts and whether or not there is the take away contracts to ensure that that gas keeps flowing out of the Gulf of Mexico and out of those contracted.

Right LNG facilities you know.

Is that over the next six months for instance is that enough to keep the pull on.

On the LNG there.

To prevent it from really backing up too much into into the Gulf coast in back into North America.

Just one more moving part.

Last question.

So.

Other than condensate.

Our your natural gas prices or your natural gas liquids prices being negatively affected by the volatility in oil prices I know, there's some linkage there.

But to what extent are they being affected I know you're moving away you you're constantly doing this balancing act between lean gas it.

Liquids rich gas.

So I presume, there's some effect there other than just to the Constance condensate portion of your liquids.

No you're right.

Well, we sell our butane typically as a percentage of oil price. We've tried to link it to WT ISO that that we can actually hedge the oil price and we get a direct butane hedge the easiest way for us to do that butane, though is typically move used in the refiners refineries.

To.

Produce transportation fuels and the other products at the refineries use so we sell it locally here too a lot of the refineries in Alberta.

And if obviously demand for gasoline is way down the jet fuels way down in the products that they produce are way down then they're not going to be needing the same amount of feedstock.

Demand for butane could fall a little bit.

Propane.

Yes.

Somewhat the.

The pricing in the demand supply situation for propane is somewhat driven by the U.S.

Although we are seeing a little more opportunity for Canadian propane to get exported to the far East LT gases project for instance off really island.

Gets us some volume up to that far east pricing I think generally just.

Overall global demand is soft because of the coated and so prices generally have fallen a little bit but.

We look at a propane and butane storage levels in Western Canada, they're very low.

So we don't have a lot of that product in storage, which is good.

In the U.S.

Propane stocks for instance are still I think at the high end of their normal storage levels, but they're falling quite quickly and again you know if you take a bunch of U.S. gas offline, then you're taking a bunch of the products that come from U.S. gas offline. So a lot less propane gets produced and.

Perhaps those.

Storage levels for propane rebalance quite quickly.

We'll see how demand comes back for propane.

Arguably the demand for plastic products seems to be up so.

Maybe a lot of the things that we make out of those natural gas liquids.

Demands for that for those products are going to continue to rise and be strong and so therefore, we'll keep.

Keep needing a lot of those NGL products.

The Pembina.

Project to I believe.

On the new year horizon here with respect to exporting propane off.

Wesco, so that'll add to really.

Ultragaz really island export I think eminent boats will be going in South America.

<unk>.

That will that will add another pull from western Canadian propane here.

In 2021 is one that's going on.

Did in your pipe.

Something on their PDH plant to they're still proceeding but.

Lower in higher cost so.

Something.

Yeah, the cost of steel.

They're looking for another partner to try to help absorb some of that cost.

Can't remember the startup do.

The 22.

Yes.

And Thats another 27000 barrels.

Lot of good.

Positive constructive things on the near term horizon with regard to the propane Mark in Western Canada.

Gentlemen, thank you.

You bet.

Thank you. Our next question comes from and go Coskey with TD Securities. Your line is now open.

Thanks morning, guys. I was just curious you are one of the few companies to proactively build some internal condensate storage as sounds pretty since I've announced shut ins have you guys actually seen volumes being shut in producing into those storage facility.

Any color on that'd be helpful.

Thanks Aaron.

We haven't yet.

We haven't started to fill any of the condensate Georgia.

We saw last month, some apportionments err on the pipelines that take our condensate away. We did manage to get all of our volumes put to market and I think for the most part we've been watching that very closely and there still seems to be a good opportunity to get our volumes to market of course prices are going to be.

Perhaps another thing that gets determined and we may have to live with some very weak prices, but as long as we can sort of get our condensate to market that we can at least make that color on the price.

We were more concerned I think with this condensate storage.

Tank farm that we bill that we wouldn't actually be able to move forward product at all and that would be really disastrous because then we'd have to shut in all our production. So.

You don't really this was a somewhat insurance against.

The pipeline is really getting full.

You know we've seen a fair amount of oil supply shut in obviously on the heavy oil side I think up to 1 million or so barrels a day is shut in now in Alberta, there is oh.

Knock on impact for sure on condensate demand.

What I've heard from at least one heavy oil producer, though was that they were actually continuing to stockpile condensate.

A little bit because the price was was attractive to them and they had some tankage and rather than fill up their tankage with their own production. They were using some of that tankage actually to store condensate. So in some ways.

With that maybe that condensate market has been artificially propped up.

By the heavy oil producers, who are continuing to buy even though they're not producing.

But all this could still come to ahead at any point right. We've got a lot of volumes that are shut in we've got a lot of storage as being rapidly filled up and so we needed to be prepared we thought this was a pretty cheap bit of insurance that we could put in place for.

That would cover us for a short period of time, while we reacted to what was going on.

Perfect. Thanks for that.

Yep.

Thank you.

Then my dad to ask a question you will need to press star one on your tell US on our next question comes from Chad as to what with National Bank Financial Your line is now open.

Yeah, Good morning, guys.

Darren in your opening remarks, you mentioned kind.

Kind of costs, both on the capital and operating cost side. So I thought that he set that up to to address that so could you talk about.

The Controllables that you have here in terms of where where and how low capital could go through kind of Q2 to Q4, where you would be comfortable how low that could possibly be and then kind of where where we could see savings on on the operating cost side and perhaps even.

On on the transportation cost side as you were talking about some of that.

The pipeline issues, taking place at the moment.

You bet, maybe Leo hitch up for just some color on.

Capital cost savings, what we've seen in Q1, and maybe what we might see for the rest of your shirt.

I guess just start you know our.

Our species diversity with lots of little little bit of ground because of.

Redeploying our fleet.

Efforts directed toward some deeper Gassier spirit river species so.

With that we've we starting to heighten or frac intensity and so we've lost a little bit of ground on our our per well cost on that front, but.

But.

We continue to see a lot of performance gains offsetting a lot of that is.

A lot higher pad efficiencies and as we.

As we recalibrate on that with with kind of new service cost.

Portfolios, we were starting to realize that our pad efficiencies or.

Perhaps much greater than than what we.

Realized historically.

So it's kind of got to Recalibrated model on that and our scheduled coming up reflects a lot a lot more pad.

Operations.

In our in our schedule.

On top of that it's it's a pretty delicate balance right now with with our financial health.

As we consider the financial health of our of our service contractor sleep and we do recognize that a number of these guys are.

I really just extensions of our company and we need them to survive and so we have a lotta really open transparent conversations.

You know and we worked together we've seen a lot of oil based inputs like diesel fuel and drilling fluid base oil fall.

In excess of 25%. So that's that's a pretty pretty easy easy cost reduction too.

Understand.

Drilling rig day rates continue to reduce well testing.

Chasing those types of major inputs that.

[music].

Comp.

Comprise a lot of our capital cost structure have come down knowing the and the high single digit to low double digit numbers.

This industry is is hypercompetitive right now the fact that there is only less than 25 rigs running.

Everybody's really.

Spinning up where they can it's there's been a lot of employment loss as a result, but but everybody is really working together not only to.

Defined the bottom line margins that we can work within but but to really but.

Their minds, together and find ways to align with our staff and our engineers on on improving efficiencies and so we look at this performance curves that we go through.

Every every quarter every couple of quarters and every time, we look at it would just be sometimes get a little amazed that we still continue to see these performance gains despite.

Drilling 1000 these things.

And it's really a function of just.

You know everybody kind of putting their best heads together and and finding.

Finding ways to to improve those.

Improve those timelines.

So thats a so in general I think.

We're conservatively anticipating overall, 10% reduction and that's really surrounding what we're seeing on in the near term on just service cost pricing reductions so.

With some continued efforts on on performance improvement hopefully that improves.

And between that and deficiencies hopefully we can offset so.

The bulk majority if not more than that cost increase we see from from increased frac intensity and some deeper longer laterals.

Okay, So thats the capital side Charles.

Can you put some color on the op costs.

Shifting to reduce those.

For sure like lead mentioned.

We've been talking with service providers and.

The been willing to reduce costs in some areas. So so we're going to see that through the year.

Basically since 2018, we began negotiating road use costs with road owners and we've seen some pretty good gains on that we at the end of last year.

We had two significant reductions.

A large number of our wealth with two road owners now due to the lag in billing, we won't really see those cost benefits until Q2, but they are they will continue in perpetuity sale.

We will continue to work on that throughout this year.

We're talking to a couple other road user road owners as well so hopefully we can get them to move a little bit on their rates.

As I mentioned lubricating oils, we expect those to fall.

And again.

Methanol.

We expect that to Paul we've already seen about a 16% drop in the methanol price from Q1 into Q2 here.

So we expect to see that ball throughout the year and that we usually renegotiate or a contract that somewhat floats on on.

The Canadian dollar, but renegotiate that usually in the summertime at the low price points. So.

Got it benefit from that.

And then as well here early in Q3, we plan to commission, our water disposal and.

What I suppose a well and facility so that should.

That should help us.

If a modest reduction in our water handling costs for the rest of the year and going forward.

And then I guess, a bigger point finally, we're starting to see some reduction in government fixed costs.

The our admin fee has been reduced for 2020, we have in indications that property taxes will be reduced.

We don't know exactly what that number will be yet we've got.

Hoping that it's significant where cap it's been asking in working with the government for quite some time.

About a year and a half here.

So hopefully, we'll see something meaningful come from that.

Something beyond 2020.

I think with E. R. I think they've agreed that their budget will be reduced going forward. So that will be something thats not just 2020.

Yes.

Okay. Good job he's got answered most of that yes, that's great. Thank you.

Thank you next question comes from day, one go with a private Investor. Your line is now open.

Yes, two questions I came in late I apologize I am one women the balance sheet published in two was there any change the dividend.

No change to the dividend this quarter, obviously, we announced prior to coming into the quarter that we are reducing the dividends significantly that was really on the heels of a lot of the opex plus.

Activity and.

The further impact of Koby 19 on demand when we finally started to see the evolution of the commodity prices tape after all that change in Q1.

We announced that we were taking the dividend down to one penny a quarter.

Pullback by 50 million Bucks.

Midpoint of guidance. So we've made those adjustments really coming into the quarter.

With respect to balance sheet.

Are you talking about the banks and.

And our bank liquidity and that kind of thing or no I'm just talking about the balance sheet in general I didn't see it on the press release and I don't see it on SEDAR.

It's not exceed our filed it is on our website if you.

Going to the press release and click on the link.

At the end of the press release, it will take you directly to the financial statements answer to Mdna. Alternatively, you can go directly to our website www dot dot com and.

You can get to the financial report under financial updates Theres a link on the front page that will take you right to the financial statement.

Thank you I'm sorry.

No problem.

Thank you I'm not showing any further questions at this time I would now like to turn the call back over to Dan G. for closing remarks.

Okay.

Thanks to well is there one more question there.

Yes.

And the question comes from Stephen Young with a private Investor. Your line is now open.

Thank you for taking my call.

I think new and expect to equal crisis, but do so well relative to the north American prices.

But.

So diversification hedging goodwill ourselves very quick.

I guess notice that the type.

Buying activity costs about 80 cents, which is slightly better than previous quarters.

Could you elaborate more about.

And we'll keep on going.

And if itself.

Benefits of the location.

Thank you.

Steven that's a great question.

So in the winter months our basis.

Differential between AECO and Nymex that we locked in is about 10 cents cheaper than in the summer months.

So that's part of the reason that.

Maybe the diversification activities are getting a little bit cheaper but.

Also weve diversified to a couple of other hubs. So we've got some diversification not just to Nymex, but also to venture Emerson valve actually going forward out it on some mullin diversification as well.

You know.

All of this is still very expensive relative to the existing basis today as you pointed out the eco market strength and a lot more than anybody really expected and that tightened the basis differential between aiko a nymex.

We put a lot of these basis diversification deals in place.

A year or two ago, when eco was at all or 50, a nymex was $3 and so at the time that was the cost to get to get out of veeco and get to some of these other hubs.

And at the time, we Didnt know eco is going to be reconnected are fixed.

Was very much a broken market for about two years.

We were suffering through that significantly.

We couldnt hedge few forward out at AK coal because we were at prices that were too low lot of times, there, we even negative prices. So.

We really had to to direct our gas elsewhere in the cost to get elsewhere. It was very expensive.

We took short term.

Diversification initiatives rather than sign up for 10 years worth of pipe contracts for instance to get our gas physically all the way to market elsewhere.

We took some synthetic short term financial.

Basis deals that put our gas.

Next.

But they were very expensive and we're now paying the price for that.

And we'll for for probably another year, but.

The fact that they were short term and they were financial means we can work with them.

When Nymex has been strong enough, we've definitely been hedging to fix the price.

IMAX, so that back combined with that basis gives us a fixed equivalent price Bakken.

Alberta, and if we can get anything over really $2 Canadian.

Doing just fine at Vito.

The dollar 50 that was obviously a bit of us tough slug for us, but yeah going forward eco looks very good.

Arguably if we could just direct all our gas to the acre market today, we'd be doing even a lot better on the gas price realizations and the cash flows.

But.

Hindsight's always 2020 and.

Nobody really knew that the market it eco could could be fixed this significantly.

The strong.

Arguably you might suggest that the two years of $1.50 Aiko. We're obviously driving a lot of producer behavior. There was a lot less gas being developed in RBC and so now we find ourselves a bit short in the basin, which is providing strength in the price, whereas now you know, it's only really in the last six month.

So that the U.S. market has seen these very soft gas prices that are now driving producer behavior and so they're all starting to.

Slow down and invest less and their supply is starting to turn over and.

This was really before the associated gas shut ins came along we.

We were starting to see this thesis down in the U.S., so they're going through.

Arguably a transition similar to how we had two in in Western Canada.

So hopefully on the on the back end to both of those transitions were going to see much more constructive gas prices in both markets.

I think.

We're still a little bit shy of vehicle market, knowing what we've been through and having experienced it you know where we're still a bit cautious directing all of our concept that market.

You know I think we still believe in the diversification of our of our gas portfolio the way we habit.

So a good portion to the U.S. market a portion to the Canadian market and quite frankly, the we'd love to even increased the proportion that we have that's directly connected to industry in Alberta.

It completely avoids the pipe.

That way, we can share the economic rent with the consumer ultimately directly and I think thats going to benefit US a lot you know as an example.

This past winter, particularly in January we had some extremely cold weather that drove power prices up in Alberta, if if we had been connected at that time to the.

Cascade power plant that.

We are going to be direct connected to in a couple of years time.

Scott what were you looking at the.

Power prices versus the gas prices it made a fortune.

Yes.

Got a power price Pete to the maximum thousand Bucks.

Yes for about a week or just under we can generate but it's interesting for January overall, the average we wouldn't be 10 Bucks a.

Get you too.

Round number for our guests for that portion.

Would have sold had been running.

For the first quarter, we would have made the right around $5.

Based on.

The power prices that Alberta experience.

And our pricing.

Sure.

For the gas, we deliver and above and beyond that we receive.

Whatever 2020 to 40 cents of transportation costs by putting biggest directly into those into that power plant awesome.

The.

System.

So those are very promising future.

Aspects to to our market diversification haven't kicked in yet but they are.

We're excited about them and they are on the horizon and there's a real will in Alberta to see natural gas and power.

Become more prevalent.

Our.

Power delivery.

We're part of the LNG consortium as well and that's another thing there on the horizon that.

Theres some earlier discussion on the soft LNG prices, but.

Alluded to the fact that.

You should countries, although we've had a bit of a soft winter and it's been compounded by the.

And destruction with Covance Theres still a really strong too.

Natural gas substitution of cool.

A lot of these facilities are going to feed into that.

We'd like to be part of that if you ingredients are right for that particular.

Marketing opportunity.

Yes, so thats a little more color on the diversification Stephen do that answers your question.

Thank you answered.

Thank you I'm not showing any further questions at this time I would now like to turn the call back over to Dan G. for closing remarks.

Okay, well, thanks, dwell and thanks, everybody for listening in this morning and for a lot of those good questions.

You know, we're hopefully through the worst of it now with respect to the both depend dynamic and.

Perhaps some of the commodity market disruption and hopefully we're on the recovery.

Slows it may be.

Right spot for natural gas, obviously is as we take oil offline because we've got too much in storage then the associated gas comes off and and were short guests in North America. So pado, so pretty excited about that prospect and finally, getting some more constructive gas prices moving forward.

Obviously were gas company with 85% of our production basically focused on natural gas so.

All of that is.

Very very good for our cash flows and makes us a quite a bit stronger.

We're looking forward to getting through the summer into next winter, where we can even enjoy.

Stronger gas prices again so.

Well you actually in Q2 to let you know how Ah breakups gone in Oh, we got back out in the field hopefully the spring rains won't be too bad and.

We back taking advantage of some of these great opportunities that we see on the horizon, So stay tuned and.

We'll talk to after the second quarter.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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