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Operator
Good day, ladies and gentlemen, and welcome to the Pear Day Energy Q4 2021 and year-end financial results conference call. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. I would now like to turn the meeting over to James Miller, Director, External Relations. Please go ahead, Mr. Miller.
James Miller
James Miller Thanks, Justin, and thank you, everyone. Good morning. I'd like to welcome you to Parity Energy's Q4 2021 and year-end results conference call. With me today are Chief Executive Officer Alfred Sorensen, President and Chief Operating Officer Darcy Redding, and Chief Financial Officer Adam Gray. Alfred, Darcy, and Adam will begin today with some opening comments on our financial results and certain other company developments. Please note that a slide presentation will accompany their remarks. Following their prepared remarks, we will turn the call over to the conference coordinator for your questions. In order to provide everyone with an equal opportunity to participate, we ask that you limit yourself to two questions. If you have additional questions, please re-enter the queue. Also, we ask that you focus your questions on our industry, recent developments, and key elements of our financial performance. Before Alfred begins, Let's get to my cautionary statement slide. I'd like to remind you that our remarks today will include forward-looking statements that are subject to important risks and uncertainties. For more information on these risks and uncertainties, please see the reports filed by PARADATE with Canadian securities regulators on cdar.com. With that, I will turn things over to our Chief Executive Officer, Alfred Sorensen. Alfred?
James Miller
Thank you, James, and good morning to everyone, and thank you for taking the time to listen to what we have to say today. We recognize it's been a while since we had one of these calls, and a lot has happened since our last call probably close to six or seven months ago. I'd like to first start on behalf of the Board of Directors of Parity Energy to congratulate both Darcy and Adam for our recent promotion to Darcy to our President and Chief Operating Officer, and Adam to our Chief Financial Officer. Adam was the interim CFO since last summer and over the period of the last six months has done an extraordinary job of helping us get through a very difficult period of time. And on behalf of myself and our board, we'd like to thank both of them for all their efforts during the last six to eight months. We look forward to their contributions that they will hopefully make over the next couple of years as we begin to move our company forward. We'll talk a little bit about how we see our next 18 to 24 months unfolding. We believe we have an opportunity to show the marketplace that the foothills remains an important part of the natural gas industry within the Western Sedimentary Basin, and certainly that is our goal over the next year is to bring volumes back into our plants over time. Our business itself has been very positively impacted by the changes of commodity prices, and we'll talk a little bit about how we think that the go-forward view on pricing has on the impact of our business as a whole. I'd like to talk a little bit about the strategic process that was commenced in the summer of 21 and concluded just back here in January. The goal of the process was to find strategic alternatives to enhance shareholder value. We hired Peterson Company to aid the company in finding alternatives that did not involve a continuing operation of the company. By the time we came to the end of that process, the decision was that the best alternative for the company was to go forward as an operating entity. We'd like to thank the work that Peter's did for us. I think it highlighted the quality of the assets that we have and that at the time we were looking at doing a review of our assets that the most important lesson that came out of that is that we can build a future around our existing asset base. So where do we go from here? Parity originally built a business around its view of its LNG project that was going to be a 10 metric ton facility based in the province of Nova Scotia. All of our transactions that we completed after that were very much to support that project. In June of last year, when we decided that the 10 metric ton facility was not economically feasible for a company our size, We have spent the last six months looking at an alternative to our LNG project, but in the meantime, have decided that the best foot forward for the company is to very much focus on its upstream business, which we highlight some of the important parts of our business that Darcy is going to spend his time making more profitable than they have been to date. So our main focus for 2022 is going to be around refinancing our debt. We recognize that the cost structure that we currently have is unsustainable over a longer period of time. Our original goal of taking on the debt to acquire the assets from Shell was that our LNG project would allow us to refinance that debt in a relatively short period of time. Without the larger LNG project, the original goal was not achievable, but it is now a priority of the company that now that we have changed significantly our operating status to refinance our debt as soon as we can, and looking at that as a goal for the first half of this year. Our assets have continued to operate at a very high level of efficiency, and we believe that Our results between now and the mid-year will allow us to find a good solution to ensure that the cost structure of our debt comes down substantially from where we are today. We recognize that the foothills have not been an area of significant economic activity over the last 10 years and certainly very much displaced by the Montney and other jurisdictions in North America. Our primary goal this next year is going to be to show the marketplace that the foothills remain and can become a competitive supply of gas supply in the western sedimentary basin and throughout North America. I'll leave that to Darcy to talk about how we see drilling into the future. A little bit about where we're sitting with the AER. On January 31st, we withdrew, along with Shell, our application to transfer the the licenses from Shell to Paraday. That request was approved by the AER and where we sit today is Shell and Paraday are committed to coming up with a solution. We think that it will take the better part of this year to actually enact that solution, but we are confident that with the improving economic situation of the company, how we are looking at utilizing those assets over the next year, that we will find a solution that works for Shell, for ourselves, and for the AER. We continue to own and operate the Foothills assets and remind our investors that we are the beneficial interest owners of those assets, and we will continue to be so for the foreseeable future. Only talk a little bit about COVID for a little bit. This will probably be the last time we hopefully have to speak of it. COVID did not have a significant impact on our overall business operations, but it obviously had a very significant impact on our business plan. It was primarily the results of COVID that created an environment where attempting to finance a $10 billion project became very difficult. And that is how we've ended up, one of the reasons where we ended up where we are today. On the positive side, we have run two very large turnarounds. We have kept our staff relatively safe and healthy, and we have not run into any significant operational issues as a result of COVID, and we continue to work in an environment that remains healthy and safe. All of our employees return to work the office during the month of March, and we hope that that will be the scenario from this point forward. I will talk a little bit now about where we see our LNG project going from this point forward. As I've already mentioned, our primary goal is going to be to re-establish the foothills as a prime area of exploration and development. But we also recognize that our LNG project is a part of a changing environment on a worldwide basis. The developments in the Ukraine and Russia have significantly changed the environment under which we see our project today. The government of Canada has made it very clear that they wish to see Canada play a role in removing Russia as a primary supplier of energy into the European Union and the United Kingdom. We believe that Canada can and should play a major role and we are working very hard right now to figure out how we can revitalize our project such that we have an opportunity to be part of the solution as our allies in Western Europe look for alternative supply sources that currently are unavailable and are only being served by Russia. are cognizant that there might be individuals out there or organizations that may see us as being an opportunistic company given the situation in the Ukraine today. And my response to that is that we always believe that Canada should be a part of the security supply situation. And the unfortunate situation the Ukrainian people find them in is not the reason why we feel this is an important project for Canada. We still believe we can produce an LNG project that has net zero impact on the environment over the lifetime of the LNG project. Our goal is still to be carbon neutral. We continue to work on our CO2 project here in the province of Alberta, which will be an important part of how we become carbon neutral. And we also believe that our project has the opportunity to be an important part of Canada's desire to reconcile with its First Nations. We have always, from the beginning of the project, had a positive and important relationship with the Mi'kmaq of Nova Scotia, and we believe in any new form of the LNG project that they will play a major and important role. So what does it take to get this project to be successful where we weren't in the first go-round. I think the most important thing that we were not successful in the first instance was the fact that the project was very large and we needed to have an investment partner. That will be the critical part of our go-forward plan, that we will first look for a partner to ensure that the project can reach the finish line. We are actively involved in that over the last three or four months, and we believe that we will have an announcement to make before the end of the second quarter on how we will go forward with a partner. As I already mentioned, our relationship with the Mi'kmaq First Nation is an important part of our business. It's an important part of the goals of our company in general to increase the participation of First Nations from Western Canada to Eastern Canada. One of the important parts of our project is finding a way to make their role in our project economically meaningful to their peoples themselves. The key issue on carbon emissions remains an important part of our project. As I said, our goal is to become carbon neutral by 2050 and sooner if we are able to get our carbon sequestration project up and running in that period of time. There are still issues in regards to how carbon is going to be measured and priced in Nova Scotia. That was an issue that was never resolved, and it will still need to be resolved for us to go forward. And lastly, and most importantly, to get the gas from Western Canada to Eastern Canada, we have to resolve several of the issues that remain on the pipeline. Although the whole issue behind using Western Canadian gas was the fact that TC Energy had a significant amount of capacity on its western side of its pipeline system. There are issues on the eastern side. Those issues must be resolved before the project can move forward, and we look forward to talking with TC Energy over the next month once we have an investment partner in place. So with that, I will now turn the meeting over to Darcy to talk a little bit about our fourth quarter and our annual results, and we'll take questions when we come to the end of the meeting.
James
Great. Thank you, Alfred, and good morning, everybody. Annual production of 40,562 BOE a day in 2021 was a marginal decrease of only about 3% as compared to 2020, despite the fact that we absorbed the impacts of two major gas plant turnarounds at Jumping Pound in the second quarter and at Caroline in the third quarter, and we also incurred a scheduled outage at the Waterton gas plant in the third quarter. which was scheduled to coincide with TC Energy's sales pipeline scheduled outage. Production in the fourth quarter of 2021 decreased 8% compared to the same quarter in 2020 due to a voluntary production shut-in in central Alberta due to a partner dispute, unplanned maintenance downtime at the Waterton gas plant, unseasonably cold weather in December, and, of course, normal production declines. The underlying base decline of 8% in 2021 was successfully reduced with our ongoing well and infrastructure optimization programs. These typically low-cost opportunities proved to deliver excellent results and our modest development capital investment of $7 million in 2021 was partly directed to these optimization opportunities, which helped mitigate the actual year-over-year decline down to about 3%. A 2021 accomplishment that we are very proud of, as Alfred already alluded to, were the two planned gas plant turnarounds that we successfully completed at our Jumping Pound and Caroline gas complexes. The Jumping Pound turnaround is the largest single project conducted in Paradise history, and both of these turnarounds were completed within the budget tolerance of our cost and time expectations, and with no significant HSE incidences. even though there were at times as many as almost 300 personnel on site. We are also very proud of successfully conducting these turnarounds during the COVID-19 pandemic without any material interruption to these projects, something that we credit to the following of the public health protocols and guidance and also the diligence of our staff and contractors. And most importantly, I'd like to say that completing these projects bolsters our commitment to owning and operating safe, reliable and regulatory compliant assets and running a responsible operating business. I just wanted to talk a little bit about our year-end 2021 reserves evaluation. Paraday is very pleased with our year-end 21 reserves assessment as higher pricing has favorably impacted our PDP reserve volume despite an increase in maintenance and cost assumptions. This yields a 3% higher reserve volume than at year-end 2020, although we do see a 15% decrease in PDP and PB10 using the IC4 pricing at December 31st, 2021. Note that IC4 pricing simply references the average of the four independent evaluators, those being Deloitte, Spruill, GLJ, and McDaniel. Of note, we recently evaluated a sensitivity on our reserves evaluation, using March 3rd strip pricing, which yielded a PDP NPV10 of $641 million, which is an increase of 50% and shows the significant torque of our asset base to higher commodity prices. Paraday was able to add eight additional undeveloped drilling locations to both the 1P and 2P categories, resulting in significantly increased reserve volumes of 15% and 13% in the 1P and 2P categories, respectively, and small increases in NPV10 of 5% and 3%, respectively. We now have a total of 26 gross 1P and 28 gross 2P undeveloped drilling locations in our Deloitte evaluation. Note that future development capital associated with these undeveloped drilling locations amounts to $219 million in the 1P category and $240 million in the 2P category. And lastly, I would like to point out our very attractive reserve replacement ratios ranging from 124% on a PDP basis to 306% on a 2P basis. Again, largely on the back of favorable pricing technical revisions, and additional undeveloped drilling locations. Moving forward, we will look to maintain these attractive reserve replacement ratios through our continued optimization and ultimately through developing our hydrocarbon resources through the drill. And speaking of that, I'd like to share a few details of our proposed 2022 drilling program. A very exciting opportunity for the company is in the proposed drilling program. The budget includes $21.4 million of development capital for a three-well drilling program that would commence in the fourth quarter of 2022 and would carry on through into the first half of 2023. Pear Day would consider extending this drilling program to additional locations in 2023, depending on several factors, commodity price and company cash flow, among others, the merits of which will be considered for the 2023 budget cycle. Our geotechnical and engineering teams have identified 222 net drilling locations on existing parity acreage, along with an additional 430 drilling locations on offsetting acreage that we believe will have low competition and have mineral rights that are largely available. With these identified drilling opportunities and the extremely prolific characteristics of our foothills plays, There are nearly 700 identified drilling locations that would provide the opportunity to not only profitably grow our business and make it more efficient, but they also provide the source gas for any LNG project Pear Day may be able to advance in the future. And now I would like to pass things over to our CFO, Adam Gray, who will discuss our financial performance last year, offer some detail on Pear Day's hedging program, and talk about the company's outlook for the remainder of 2022.
Alfred
Great. Thanks, Darcy. Good morning, everybody. With respect to our annual and quarterly financial results that we released this morning, I'll focus your attention on a few of the highlights. Darcy has already spoke to our production, and I'll just reiterate that we are very pleased with the decline mitigation projects undertaken during the year. Very inexpensive projects with a high IRR, and we hope to continue our focus on high return optimization in 2022 For our realized pricing, we averaged $2.90 in MCF in 2021, which is up 90 cents from last year. In Q4 of 2021, that price was $3.67. On the condensate side, our 2021 average realized price was $63.21, up $12 from 2020. As you will see, these prices were still well below the spot price for the time as a result of the hedges that were in place. I'll get into some more detail in a later slide on those hedges, as well as our outlook for 2022, now that the majority of our long-dated under-market hedge contracts have rolled off. As a reminder, when I say hedges throughout this presentation, I refer to our use of forward fixed price physical sales contracts, which we do not mark to market through our financial statements. So these prices resulted in gross revenue for the year of $353 million, up from $279 million last year. This is a healthy improvement trend, which we plan to continue in 2022. Based on our internal analysis, on a fully unhedged basis, 2021 revenue would have been $69 million higher and a further $33 million higher if we normalize for the $6 per ton sulfur marketing contract we have in place for 75% of our sulfur production. Onto the expenses, we observed an increase in our royalty and transportation cost burden in 2021, most particularly in the fourth quarter as a reflection of the increasing commodity prices through the second half of the year. We were relatively happy with our ability to control operating costs. Our controllable spend was actually down a bit during the year. I'll remind everybody that our three largest components of OPEX are power, processing fees, and people in that order. the three P's, so to speak. Both power and processing fees are subject to increases when ACO prices increase, which we certainly observed last year. We hedged our electricity cost early in 2021 in order to deal with that volatility and have now hedged nearly 93% of our electricity cost exposure for 2022 as well at just over $70 a megawatt hour. On a net back basis, our results improved from $3.31 a BOE last year to $5.68 per BOE this year, and $8.12 for BOE in Q4. I will be happy to see that number north or well north of $8 for 2022. I'll touch briefly on G&A and development expenses. The majority of our G&A is people cost, and we're down on a headcount basis throughout 2021. However, G&A was impacted during the year by about $3 million of property tax penalties, The majority of our overdue property taxes are now fully paid up, and we expect the remainder will be paid by the end of this month. Development expense, as you'll recall, reflects all the costs associated with the progression of our Goldboro LNG project. As this project was suspended at the end of Q2 last year, you'll see significant reduction in costs in the following two quarters. Alfred has spoke at length about the future possibilities of this project, so I'll leave that for the time being. Okay, net operating income, which is revenue, less royalties, transport, and OPEX, came in at $84 million last year versus $51 million in 2020. And AFFO was driven up to $58 million. We're happy to see the positive trend in cash flow. We're also happy to have an overall net income position in Q4 after taking into account finance expense, depletion, and certain other non-cash expenses. It's the first time we've seen a quarterly net profit in some time and we hope to continue that trend. On the topic of finance expense and as Alfred has mentioned, as we look at 2022 priorities, I think it's fair to say that refinancing our debt is priority number one. We certainly have a higher coupon on our debt and there's a good reason for that when you look back at the context in which the deal was originally negotiated. However, today we're focused on both reducing our overall debt level and refinancing in order to reduce our cost of debt Certainly the stable performance of our assets and the projected 2022 cash flows put us in the best position we've been in for a long time to successfully do so. We've negotiated a number of waivers and amendments to our term loan with Third Eye over the past few quarters. They've been very supportive of us during a difficult 2021. I'll draw your attention to the last two waivers effective December 31st and March 23rd, 2022. As we previously have disclosed, part of our original term loan included a $50 million deferred fee, which was originally due in October of 2021. We moved this out to January 3rd, 2022, while in the midst of the strategic review. Once we were comfortable that no major transaction was going to arise from that process, we agreed to further defer that fee to the end of the term of the debt, which is October of 2023. We're also happy that it's non-interest bearing now from January 3rd, 2022 to the end of the loan. We've also received amendments in December and again this week to defer the hedge requirement, which I'll speak to in a moment. And the final recent change to our credit agreement is the introduction of a cash suite mechanism whereby we are to repay loan principal when our working capital ratio rises above a certain level. This calc is on an adjusted basis, which we've explained in the notes to our financials. And while a cash sweep like this is a bit unconventional, it certainly does align us and our lender to be assertive in lowering our high-cost debt, should our results and our balance sheet support us doing so. I'll also really briefly mention working capital overall. Certainly, we had a challenging 2021, throughout which our working capital resources declined and pressure was exerted on the business and on our vendors. That negative trend reversed in late November of 2021, and we have and will continue to make significant progress in clearing up long-dated payables. We certainly appreciate our vendors' patience and ongoing support over the last year. I'll move to our hedging program for a moment. We have a covenant in our loan agreement, as I discussed, to have 60% of our production volumes hedged on an 18-month rolling average. As prices started to rise in late 2020 and early 2021, the mark-to-market losses on that portfolio began to climb, which impacted our ability to hedge from a credit perspective. Our lender was supportive in providing waivers against that covenant all the way through 2021, and most recently this week when we agreed to again defer it to August of 2022. At the moment, our hedge book represents an average of about 38% of our production for calendar 2022. We're finding a balance between protecting our downside while leaving us able to participate in the upside that we've certainly been witnessing. And as our market to market declines, we will be actively layering in more hedge contracts to climb back towards that 60% threshold. I'll close my remarks today on our 2022 outlook. We are happy to be presenting an outlook to the market again after being absent for a few quarters. In the context of volatility in the commodity markets, we've been relatively conservative with our guidance, using an average of $3.83 an MCF for gas and US $80.28 per barrel for WTI. We are guiding to roughly stable production as we've had quite a few optimization opportunities and no major operating plant turnarounds for the year, although there are two non-operated turnarounds which are expected to impact our production in June of this year. Net operating income is expected to be in the range of $100 to $130 million, although at today's strip, we are significantly above that. However, as you know, today's strip is not necessarily tomorrow's strip. That net operating income figure premises net back in the $8 range, with royalties and OPEX trending up a little bit due primarily to the impact of higher commodity prices. Finally, on the capital side, we're projecting sustaining capital in the range of $17 to $22 million. In that figure, we have just over $5 million of abandonment and reclamation expenditures, as well as some of the maintenance we deferred last year and non-operated capital maintenance activities we're expecting to be billed for. Development capital is split between optimization activities, which I have explained throughout the presentation today, as well as the planned drilling program that Darcy discussed earlier. This program is highly dependent, obviously, on our ability to deliver good results over the next couple of quarters. So with that, I will turn things back over to Alfred to finish this off.
James Miller
Thanks very much, Adam. We'd like to give an opportunity for people to ask questions at this point in time. As I said, we think that the overall review of our year has been one of challenge, but I think we've risen to that challenge. We have successfully managed our issues well, and we hope that this year coming up will be one of being able to make a significant impact on the foothills as an area overall. with any luck at all, that we are able to also be a significant contributor to Canada's role in making the world a safer place. So with that, we'll turn it over to James, and we'll take it from there.
James Miller
Thanks, Alfred. Appreciate it. Thanks to all the gentlemen for their comments thus far this morning. The conference coordinator will now manage the question and answer portion of our call. You can direct your questions to Alfred, Darcy, or Adam, and they are happy to answer your queries. Operator?
Operator
Thank you. We will now take questions. If you have a question and you're using a speaker phone, please lift your handset before making your selection. If you have a question, please press star 1 on your telephone keypad. If at any time you wish to cancel your question, please press the pound sign. Please press the star 1 at this time. If you have a question, there will be a brief pause while the participants register. Thank you for your patience. And our first question comes from David Nicole from FT Washington. Your line is now open.
David Nicole
All right. Thank you. Good morning, everyone. Two questions here. So this seems like the first time you explicitly called out the need for government support in any of your filings, at least that I can remember. So I'm sort of curious. What was the impetus for that, to call it out now? And then the second question, you indicated that probably before second quarter, you hope to have something on a partnership. I'm just curious, maybe wanting to confirm everything with financials. It sounds like Uniper hasn't made any decision on the contracts that they have. Is that safe to say that they're going to wait until any sort of a decision on a partnership is announced? And I assume that that applies to the UFK process as well, which I can't imagine would be terminated at this point.
James Miller
Good morning, David. As a producer, you're well prepared. So I'll start with the first question. I think when we look back over what transpired in the last month of June, certainly up until maybe March, April, that the project had relatively limited amount of controversy. That changed significantly once the ask of government to be made public, contrary to our NDAs that we had in place, and created a significant amount of turbulence. And I think when you look at what On the other side of that, where TC Energy was going through, they've written off over $5 billion of pipeline development costs and were unwilling to step up to take any more of that risk in an environment that was continuously hostile. I think in order for the project to go forward at this point in time, the Government of Canada has created the environment in which we are operating in, and they're the only ones who can solve it. and that is the message that we've sent to government consistently, is that if they wish to be seen to be helpful in the current situation, what needs to be done is they need to be seen to be resolving some of these issues. We believe we can help resolve those issues by ensuring that First Nations have an equal and fair opportunity to participate in the economic development rewards of the project, and that is really kind of how we see being able to work with TC Energy to resolve some of those issues in regards to some of the antagonism towards pipeline construction in our country. So that is the principal reason why we have been more aggressive about government assistance in this regard. It's really because our belief that, as I said already, they created the problem, therefore they must solve it. So I do believe we've made some significant progress. And as I said, I think the government of Canada has been very vocal the last few weeks as a desire to be very helpful in resolving some of these issues of security and supply. And although our original transaction was about providing Germany with an opportunity to... diversify risk away from Russia. I think the big issue really was energy was so cheap that talk was cheap as well. And we are in a totally different pricing environment. We continue to speak with Uniper on a very regular basis. And they're obviously looking at what options they may have. And I'm pleased that they still want to be a part of our project. They still want to find a way to participate and what we've kind of outlined to them as well as to the government is we have a plan in place. We think we have an opportunity to bring in at least one major investor, and that will allow for the process to move forward.
David Nicole
Awesome. Thanks so much.
James Miller
Thanks, David. Operator?
Operator
Thank you. And again, if you have a question, star one. Again, if you'd like to ask a question, that is star one. Please stand by. We compile the Q&A roster. And our next question comes from Cameron Price from Haywood Securities. Your line is now open.
spk03
Hi, guys. Congrats on a successful quarter here. I had two questions here. First question just related to the floating LNG project and the capital requirements to get this off the ground. So if you could speak to that. And then my next question is just on royalties for the fourth quarter here. Saw a dramatic increase quarter over quarter from $6 million in the third quarter to approximately $17.7 million in Q4. And if we could just speak to that a little bit, that would be great. Thank you.
Alfred
Want to take the royalties first and I'll go next? Sure, I'll start with the royalties. Certainly the Q4 had much higher royalties. Most of that is related to the underlying benchmark prices. We pay royalties for the most part on market price as opposed to our realized price. We also made some changes to our relationship with the IOGC and had an increase in royalty burden as a result of those for the gas that flows off First Nation land. But generally speaking on natural gas, it's not a linear upward movement as prices increase. It's a bit more logarithmic. So it's primarily a result of the increased underlying benchmark prices.
James Miller
And so on the second one, the process that we've been kind of going through is to try and figure what is the best alternative to – a land-based situation. And one of the primary goals that we've had is to try and make sure we can reuse everything we've already done. So we don't expect that there will be a significant amount of additional development costs, depending on whether we go with a pre-build or an outright new build. will have a difference on the overall cost structure. We expect that there will be roughly about $250 million of on-site, onshore work that needs to be done, that be the jetty, bring utilities to the site, that type of stuff, and then roughly about $2.5 billion to build the floating LNG facility. And why that we've really focused on a floating solution is that one of the big problems with our other project was that we had an absolute need to get our cost structure below $1,000 a metric ton, kind of the industry standard of where construction costs were going. A floating LNG facility, although will be smaller in size, will actually see that cost per ton come in somewhere between 500 and 600 a ton versus our 1,200 a ton where our land-based LNG project was going. So we built significant economic advantage by going with a floating solution. And because even in that business, Regas was sort of the first floating piece of the LNG business and It has really become very cookie-cutter over the last two years. Cost structure has come down significantly. Cost control in the yard is much easier to maintain than cost control in the land-based scenario. So what we end up with is a much more competitive project overall, and that's really one of the fundamental reasons of why we've gone down this path. We don't expect a floating LNG project to require any significant new regulatory cost structure to be involved. And regardless of how we go forward, we won't go forward until we have a partner that can help burden that so that we don't see our upstream business supporting the development of the LNG business. I think that that was... We tried that and it didn't work out very well. And without having additional funding, as we've already spoken about, in order to reduce our cost structure, we need to bring more gas to our facilities. So we can't pay for everything. And we're very much looking at our upstream business to fund our upstream activities and to look for new funding to fund whether it's a floating project or we may also look at a land-based project if we do something along the lines of what Global Venture has done down the Gulf Coast. But our goal right now is to avoid anything that creates any new environmental risks such that we have a cost structure that we can't finance.
spk03
Fantastic, guys. Thank you. And those costs are Canadian or U.S., sorry?
James Miller
U.S. dollars, yes, sir.
spk03
Thank you so much. Appreciate it.
James Miller
Thanks, Cameron.
Operator
And thank you. If you have a question, star 1. Again, if you would like to ask a question, that is star 1. Please stand by. We compile the Q&A roster.
James Miller
It doesn't appear we have any further questions, so I want to thank everyone for participating today. We obviously very much appreciate your interest in Parity Energy. If you have further questions, you can call us at 403-261-5900, or if you choose to email, email address is info at parityenergy.com, and we would be happy to respond. Thanks again. We look forward to speaking with you soon. Operator?
Operator
Thank you. The conference call has now ended. Please disconnect your lines at this time. We thank you for your participation.
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