Good day, ladies and gentlemen, and thank you for your patience. You've joined the Pure Cycle Second Quarter Earnings Call. [Operator Instructions] As a reminder, this conference may be recorded. I would now like to turn the call over to your host, President and CEO, Mr. Mark Harding. Sir, you may begin.

Thank you. Thank you, very much. I'd like to welcome you all to our 6 months earnings call. Before we get started, I do want to begin by saying our hearts go out to all of our Boston shareholders. As with all of our earnings calls, we do have a slide deck for this. You can find that on the front page of our website at purecyclewater.com. And what I'll do is I'll try and note the transition of the slides for you. You'll have to click through that to pull up the slide deck and then I'll note the transition of each of the slides as I work through the presentation. At the very first slide -- or I guess the second slide, technically, is our Safe Harbor statement, statements that are not historical facts contained or incorporated by reference in this presentation, are forward-looking statements. Actual results could differ materially from those discussed or implied in these forward-looking statements. And I would refer you to our risk factors identified in our annual report. So now that we've got the Safe Harbor statement, really, I want to begin this by giving -- for those of you who may be new to the company, I'd like to provide a brief overview of our business before we detail our financial results. And we'll start that out by the next slide where we really identify the business areas of emphasis that we have. The primary business, really, is the acquisition, the development and the delivery of water and wastewater services to various users in Colorado. And some of those users are our municipal business, where we're providing domestic water and wastewater services; our agricultural operations, where we own significant land interest and the water associated with that in Southeast Colorado that we…

[Operator Instructions] Our first question comes from Rob Young of William Smith. Rob Young - Wm Smith & Co.: How many wells can you currently service without any additional CapEx?

That's a good question. One of the things that we sought to do, we had a very long portfolio of water, as most of you know. We have significant ownership interest of water, both surface water as well as the aquifer groundwater. But we're a bit limited on our infrastructure, and so one of the things that we had done was worked with a neighboring municipality that developed a number of wells on Lowry that had acquired some -- another water supply that made that asset surplus for them. And so we probably have about 1 million, maybe 1.3 million gallons per day capacity, and that can keep up with a significant number of rigs. If you take a look at how the oil and gas operators are drilling, right now, most of their development program is still defining their geographic areas and the specifics of the parameters they're using, their seismic data that they've shot, both in terms of seismic shoots that was done in 2011, I think one that was finished up late last year. So they've got seismic information from about 400 square miles that they're determining and making their modeling on. And then each individual well, they're taking care to do a bit of science work on each well and then turning it over to a production well. So the drilling of each well is a little bit longer than what you're going to see on the timelines up in the Wattenberg Field just because they're still collecting the data. So right now, we see about a 1 well a month per rig. Conoco has given us some guidance on this, that they found some very favorable results that they announced in their earnings call and sort of highlighted that they expected to drill somewhere close to 30 wells this year. We certainly have the capacity for those 30 wells and probably up to maybe a little more than 100 wells a year with the existing capacity in our system. Rob Young - Wm Smith & Co.: Okay. And so if you need to drill another water well, how much does that cost and how many more acres, feet does that give you in terms of your capacity?

So typically, these wells are about $500,000 per well. Very expensive wells. They're large diameter wells. They go down about 1,700 feet. And typically, our wells will yield us about 250 gallons a minute. And so that gives us enough capacity to probably keep up with maybe 1.5, 2 rigs per well, depending on once they start moving to developing pad sites, their well programs, some of the operating results up in the Wattenberg Field, I think their well results were they can drill these wells in about 10 days. So what I would look at is, well, probably keeping up with one -- each well, 1.5 rigs, depending on sort of that timeline of completing those pad sites development versus one well at a time. Rob Young - Wm Smith & Co.: Okay. And then just 2 more. When you eventually transfer or transition the Sky Ranch properties over to a future developer, are you looking to just cover your bases? I think you mentioned [audio gap] dollars or there will be some excess on top of that.

There most certainly would be some opportunity on that. One of the reasons that we really went after that particular project was to vertically integrate ourselves, not only on the water side, where we got the water rights and the facilities to deliver that wholesale supply, but also being able to control the lot and the timing and the structure of the development, and having a very low basis in it as well as owning it in equity gives us a high degree of flexibility. We can probably do more than most in terms of incentivizing builders. We will look at a number of different types of structures that range from a deferred purchase of the lot until the house has been sold and get some calculation of what the lot cost in the house sale or some small upfront payment in deferred. I do expect that we will realize significantly more than our basis in it, but the fact that our basis is you make your money on your buy and I think the company was very -- our investors and our shareholders and our board was very intuitive about seeking that opportunity at the time period when others were running out of that. So they're a very good acquisition for us and we are very fortunate to have some high degree of flexibility on how we can make that land available to our future developer. Rob Young - Wm Smith & Co.: Okay. And then just one more. I know that you fully impaired your Paradise assets, but with the run that gas has been on, do you think that, that has some value in terms of doing some of the things that you are in, in the southern portion of the Wattenberg in terms of providing frac water for the potential gas drilling that might occur in that area?

Yes, you're right. I mean, there's been some recent wells where they've done some horizontal frac wells on the west slope, which is where our Paradise asset is. We do still own that. However, we did impair. That asset value took a very, I think, a very conservative approach but a good approach for us and for our shareholders. We have the diligence period on that, that's coming up in the next 14 months or so. And so we are looking for various options on that, whether we're looking to dispose of that, selling that to an oil and gas company or looking at other types of structures. We're going to pursue a number of structures over the next 6 or 8 months to see how we might able to monetize that. But overall, it's really in a disposition of an asset.

[Operator Instructions] And it appears to be no more further questions in the queue. I'd like to turn the call back to Mr. Harding for any closing remarks.

I appreciate that.

Actually, sir, apologies, we do have some questions that just popped up. All right, our next question comes from Spencer Larson of Moors & Cabot.

Just one question about the water pipeline. Can you talk at all about any sort of progress towards that or where we stand?

Which pipeline?

Where you're -- instead of delivering by truck.

Yes, yes. That's a very good question. One of the advantages, I think, that we really provide to the oil and gas operators, really Conoco more than anything else, is proximity. This is a haul-centric business. And so when you look at this frac water, first and foremost, you have to get the water supply. And so we happened to be in a supply constraint, so it's a resource-constrained environment that we're in. But then secondly, the farther away you are in this process, the more it costs you to get that. And so I'd sell my water to industrial water users for about $9, 1,000 gallons. And if you convert that into a price per barrel, because that's what the oil companies do, it's about $0.35 a barrel, $0.37 a barrel for them. Now if they have to haul it, they have to put it in a truck and deliver that to the site, it can be significantly more. I mean, even just on modest conveyance, a modest distance, because it can take as much as 15 minutes to fill that truck safely, these trucks are typically about 5,000-gallon trucks. And so it might take 15 minutes to fill it. It might take -- it doesn't come out quite as fast because our flow rate filling the truck is a little bit faster than the track will empty. But maybe another 20, 25 minutes to empty the truck and then the commute time on it. So it can cost basically $3 a barrel once you put it in a truck. And so the advantage for us is that we can deliver this to a significant number of well sites in here by just a transmission line that we lay on the ground. And we have done that, not the…

We have another question from Elliot Knight of Knight Advisors.

The Niobrara news on the 14th of April posted an article about Conoco's building a pipeline for the new Niobrara sweet spot, which is the way they're labeling that acreage position that you outlined. Now obviously, sweet spot has positive connotations. Based upon what you have heard people in the industry talk about, say, at the Wattenberg, I don't think we know anything about the producing rates of the South Wattenberg wells yet, but what is a reasonable figure to use as a sustained production rate after the initial flush production is exhausted? What's the decent figure to use per wells? I'm thinking of Sky Ranch, if we get lucky.

Well, that's certainly no softball. Good question, Elliot. Certainly, our hope is that the center of the universe on the sweet spot is going to be Sky Ranch.

Naturally.

We'll wait to see on that. What I'll probably do, and I hate to punt this one, but I'll probably refer you all to what others are saying. Anadarko has got some good decline curves in their presentation where they show what the decline yields on some of these wells are. I think it varies by formation. I think what they're seeing in some of these formations, it's they start out -- the wells do start out very high, IP, initial production, they may be over 1,000 barrels a day, and then a lot of them are declining to 300 barrels a day. And that decline curve, how long that decline curve is, how steep that decline curve, some of the decline curves are going to be dependent on the wells, on the completion, maybe even the formation. I think some of the Codell decline curves are going to be a little bit different than some of the Niobrara decline curves. You can model some sensitivities in there. It would not be out of character to take a look at a 300-barrel a day production over a period of time. And then maybe that declines a little bit as you get farther out in the curve. Some of the companies -- some of the E&P companies are looking at the opportunity to refrac some of these. Mostly, these wells are pretty new. So there's been a limited number of refracking on them, and I'm not exactly sure if refracking is the best solution for them or refracking them with water is the best solution or how they continue to stimulate most of these wells. But one of the things I do know is that they believe that there is a significant amount of oil in these shales. And so it may be that what they're seeing on their initial wells in this initial technology may only get as much as 17% of the oil, and there may be significantly more oil there that they're going to get over the next decades as their technologies improve or as their wells improve. That might give you a way to model this out, if you use some numbers like that, if that's of help. But then there's also some data points that a lot of the operators in the Wattenberg Field have shown in their presentations on what kind of these declines look like.

All right. That is per formation, and you're saying there could be 3 or 5 formations in total?

I think that's exactly right. So it may take them -- and maybe they start out and they drill one formation. And then when that formation declines, then they drill another formation and wait for that to decline to a point where it isn't as operationally effective. And before they go in and re-stimulate an existing well in a formation, maybe they try a different formation. And then we'll circle back to those formations as technology and as their information improves about how to get that oil out of the rock.

80-acre spacing, you say, that's what's normal now, and maybe 40, but 80 would be 8 wells on average?

Yes, 8 wells. Typically, we look at that as per square mile. So on a 80-acre [Technical Difficulty] per formation.

[Operator Instructions] Our next question comes from Riley McCormack of Tracer Capital.

Mark, these new slides are great. One question. I do see a proposed pipeline from the bombing [ph] range up the Sky Ranch. I assume that's necessary before development begins there, but is there an advantage to building that prior to developing Sky Ranch just to have more pipe as opposed to trucked water up there, just north of I-70?

Absolutely. Absolutely right. I mean, as more rigs come into the area, the emphasis, and particularly when you get into these areas where you don't have improved roads, there may not be good access to some of these well sites and they're going to want to have the ability of laying that pipe along the ground. They can do transfer stations. And what we are seeing is, and kind of the way we've got it set up with our oilfield service operator is, they've got some transfer stations that are about 5-mile increments. So we're delivering water to what they call these big tanks, maybe 40,000 barrel tanks, and then they have a 10-inch line that goes to the next 40,000-barrel tank and then a 10-inch line ultimately going to the rig site. So we'll see how these stage themselves out, but an additional transmission line with hydrants along the way can be a very big advantage to these. And so we will be monitoring that. And at the point where that becomes an effective tool for delivering this industrial water, we'll certainly look to try and make that investment.

And I guess that was my question. So you can do this with an above ground pipe, you can get access to the right of way? Or do you need to bury it?

Yes, so the line that I have on that particular slide will be a permanent buried line. So most of the stuff that we're going to have on the ground won't be permanent facility, won't be a company asset. It will likely be an oilfield services asset. But if we do make the investment in a line, it will be a buried line.

I guess that's my question, is what's the lead time? Because obviously, there's going to be development on Sky Ranch at some point, so you're going to need that pipe if it helps you get further north of I-70, which I imagine it would, why not start it sooner rather than later? is that just...

No, I mean, it is. So between the construction time, so there's a pretty low maintenance line. There's not a lot out there. We can probably build that line once it's permitted in maybe 120 days.

Okay, good. Okay, great. And then my second question. You mentioned earlier that seismic has been shot on 400 square miles. Obviously, Conoco has talked about their acreage at 200 square miles. Where is the additional 200? Is that north of I-70? Is that east of the Conoco stuff?

I think it's both north, east and south.

Okay. And any idea -- I mean, I know Carrizo has talked about having access there. I know you've mentioned some of the other guys, but that's just a lot of -- it's a lot of land beside Conoco would have shot seismic on. I mean, obviously, that you don't choose seismic unless you're seriously considering putting a lot of money into the ground.

That's exactly right. Conoco -- or not Conoco, Anadarko has significant interest other than what they sold to Conoco. So 150 of that square miles was actually done by Conoco in 2011 timeframe. And then I think Conoco, and I want to say others, Anadarko and others, participated to the 250 square miles shoot.

Okay, great. So the slide that you show overlaying the Conoco wells, that has 2011, 2012 seismic, that's just Conoco's seismic? There's another seismic outside of that area?

Yes, I think so. Yes.

[Operator Instructions] We have a follow-up question from Rob Young of William Smith. Rob Young - Wm Smith & Co.: Just one quick question. Relative to your cash, assuming some of these things come through, your various opportunities, what would be your ideal cash deployment strategy? Would you implement a dividend? Would you look to acquire more land and water assets? What would you be thinking about?

Boy, that's a great question. High-quality question, a high-quality problem. What would I like to do with a whole potful of money? Philosophically, I guess I'll just answer that by saying philosophically, there are some things that I think the company can invest in that would further our [Technical Difficulty] One, as the previous caller had mentioned, a pipeline that would be useful for the development of Sky Ranch, something that we're going to already end up doing. Maybe the timing of that can be facilitated and maybe it generates a little bit more interest either in the development of Sky Ranch or in the sale of additional waters that might make it a little bit easier rather than having a trucking. Some of the areas that we may take [Technical Difficulty] some infrastructure at Sky Ranch, some roads, curves and gutter to get that open and selling lots and super pad sites to build this and those sorts of things. So while we don't want to be in that business, certainly, we are incentivized to [Technical Difficulty] that. So the first thing you want us to do is deploy that in [Technical Difficulty] to facilitate monetizing some of the things that the company's been working on. The second area of emphasis, management's belief, I'll defer to my board, but management's belief is we take a look at a dividend, may take a look at a share buyback, a number of different things that we would take a look at. And all those things are going to be a function of [Technical Difficulty] investment needs of the company are.

And as there now appear to be no questions in queue, Mr. Harding, I'd like to turn it back to you for [Technical Difficulty] closing remarks.

Well, I appreciate your continued interest. We've had a very exciting quarter, a very exciting 6 months. We look forward to really starting to ramp this stuff up and really demonstrate some of the value of our assets. Our ideology has always been that water is going to be worth more tomorrow than it is today. That has been held true year-over-year since we've been in this business. It hasn't always been so apparent to you all. It's because we haven't been able to demonstrate direct monetization, and I think we're starting -- getting [Technical Difficulty] continuing to perform on that, continuing to make a good service relationship for oil and gas, a good service relationship for our domestic operations, and ultimately improving the performance of our agricultural assets. So all 3 of those areas are things that we look forward to. We look forward to continuing to add value. If any of you think of the question that you wanted to call -- wanted to ask on the call, didn't get through technologically or otherwise, don't hesitate to give me a call and follow up on this presentation or any other questions you might have. So thank you, all, for your continued support.

Thank you, Mr. Harding, and thank you, ladies and gentlemen, for your participation. That does conclude your program. You may disconnect your lines at this time. Have a great day.