Good day, ladies and gentlemen, and welcome to the Pure Cycle Corporation Q1 2015 Earnings Call. At this time all participants are in a listen only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder today's call maybe recorded. I would now like to introduce your host for today's conference Mark Harding, President and CEO. Sir, you may begin.

Thank you. Thank you very much. I'd like to welcome you all to Pure Cycle Corporation's first quarter November 30 2014 first quarter fiscal 2015 earnings call. Before we get started, we do have slide deck for this presentation which can be found on our website, you have to go to the website and then right there on the front page at the bottom of the screen it will talk about the presentation, click on that, that will bring up the presentation and then you can follow along with me and I'll try and note the transition of the slides as we move through each of the slide. Also before we get started, I want to say that we're all, here in Denver still morning over our performance of the AFC West divisional playoff first night. We had a hopeful opportunity for advancing and being now here this year, but unfortunately we of course had different play book in mind. With that said, let me talk about Pure Cycle, there is number of exciting things that we want to highlight and also give you guys an update as to what our expectations are for the year and some of the moving parts that have been occurring relative to oil and gas and some of the company's operations. So our first slide here is our Safe Harbor statement which identifies that statements are not historical facts, that are not historical facts contained in here by reference by this presentation are forward-looking statements within that meaning of the SEC Reform Act of 1995. With that said, let me talk to slide three, talk a little bit about the milestone achievements for our first quarter 2015. We had three real areas of emphasis we want to talk about and really drill down on…

Thank you. [Operator Instructions] We do have a question from Brent Rystrom with Feltl. Your line is now open.

Hi. Good afternoon, Mark. Just a couple of quick ones. When you listed the options for Sky Ranch the development of it, are you looking at all at any self development options or just the ones that you kind of identified in your prepared comments?

Yes. We continue to look at that. One of the things that we want to try and look at is, the best structure and then also the best way to develop it. So, if somebody ways the magic wand and says okay, here is $10 million to invest in the project, how would you put that to years, and that give us an understanding of how to best fees it, how to best look at the start of where those money's would be best spend. And so we've spent sometime working with partners and developers to understand those types of questions and then see about how that partnering would work and if it’s not a partnering you know how the company would look at it. There are opportunities where we may find an opportunity to make some investments along those lines. We're very, as you know, we're very cautious of invested capital, very cautious of our equity capita. So those things play very heavily [indiscernible] just as well as our board’s analysis. But there are phase opportunities for us to take a look at there. So we tried to take a way the issue of cost of capital and really look at it as use of the capital and make sure that we understand the project and its fundamentals on each element of that and more and more re-address the areas of cost to capital, because we certainly appreciate a start of that project has tremendous opportunities for us, within how we develop the utility franchise. And so, there maybe opportunities for us to leverage each of those to make this an opportunity in how we move this thing forward with our partners.

Okay. Quick follow up to that, as you're looking at that, any headcount additions as you value with Sky Ranch that you could see coming in 2015?

I do not see that. We have – I think we have adequate staffing for that, matter of fact we have adequate staffing. We're going to be putting some water transmission lines in the ground that we've already purchased. We've got the existing staff to be able to do that. So there is some incremental investment that we are able to do where we can add service capacity to the property without having any additional staff.

Right. And final question, any particular thoughts, any sense on what the major developer, the Niobrara is telling you, as far as whole payments versus drilling, any visibility at all for that?

No, I don’t. I do know that, if I just do the back of the envelope math for myself, and take a look at some of the leases that we're familiar with, they have a substantial amount of wells that they would need to consider over the next couple of years to be able holding most of those by production. There maybe as many as 30 wells, if my numbers are correct on Lowry, and then maybe 20, 30 wells off of Lowry that hold all those leases by production. So the 40 wells that they've been drilling to date, I think give them a substantial look at what the field is and in all relations to the footprint that they have. So they have a very large, they have 200 square mile footprint that about 130, 5000 acres that I think they have a pretty good idea of what this field is going to look like over that, over and across that field. So it seems to be fairly attractive given what they've announced in their results. And so I think this is one of those domestic plays that is a good long-term play and we look for them to be a continued operator out here for very, very long time. So there maybe that will be some pull back. I know there is going to be pull back in 2015, I don’t know to what extent they'll have additional wells in 2015. But I think they still look at this field is a very attractive long-term field.

Thank you.

Our next question comes from Jeffrey Scot [indiscernible] Asset Management. Your line is now open.

Hi, Mark.

Hi, Jeffrey.

There have been three wells drilled to date, right?

On Sky Ranch is actually two wells drilled on Sky Ranch.

Okay. All right. And those are non-royalty wells?

They are royalty wells.

They are royalty wells?

Yes. So if you look at that slide, let me get to the slide number, eight, that shows you the two royalty wells that we have on Sky Ranch. I mean, there is a total of maybe 40 wells in the field.

Okay.

And our two royalty wells, we've got 120 acres of the property reserve one. That’s one quarter section where we have a royalty interest and then 480 acres of the royalty section in the Sky Ranch well. So each of those 1280 acre interest.

At least the ones that go into production in February?

Yes.

When will you know the amount of the royalty checks?

Probably when I get them. I really don’t have a feel for that process yet, just because we're still new that process. I am assuming that as they complete those and those come online, those are based on days of production that they will report and then we get a royalty computation based on what they sell that product for.

Okay. All right. The permits that are being requested, how long is a permit good for?

They are actually – I think they are good for 1 year with a 1 year extension. So call it 2 years.

So even though people are not drilling now, they are still going to the permitting process which gives them 2 years to actually stick some metal on the ground?

I think that true. I mean, what they want to do and I do know that it’s been a little – they have had a little longer lead time on some of the permitting then they have in other areas of operations. So what they want to do is get an inventory of permits available, so that they can be more aggressive and be more efficient about how they are attacking the field.

Okay. The CapEx for fiscal 2015, what is your current expectation of total CapEx?

Its $1.2 million.

Pardon?

$1.2 million.

$1.2 million in total?

Yes.

And virtually of that is for WISE project?

Correct. Yes.

There is very little other than WISE?

That’s correct. Very little other than WISE.

Okay. On the Sky Ranch development, would you expect to make a firm decision in – calendar of 2015, 2016, 2017? What kind of timeframe are we looking at?

Great question, and I wish I had some more specificity to it. Based on the conversations that we've got going, I am fairly bullish about our 2015 clarity, but I've successfully predicted that for the last 2 years. The market continues to grow well Jeff, and I think it really does given the level of interest I think there is some opportunity for us to be more specific about that, I just don’t know if I got a sense of where and how that’s all going to come together.

Okay. You have one main driller, how many other drillers do you talk to about their activities in the Niobrara?

So there is basically three, one main, but we have basically three lease hold interest areas within our area of influence…

Yes.

And so we have talked with two of the three in that and you know, its pretty similar story. They – it is a price per barrel function. It is necessarily taking a look at lining our permits and making sure that all the regulatory stuff that they need to get done are done and available to them. So I think a consistent story that – its not – has nothing to do with the field or the attractiveness of the field that has everything to do with the price of oil.

The latest baker [ph] used drill count shows that the activity in Niobrara is down from 58 rigs working down to 56, it doesn’t show any huge drop, is that kind of what you've been seeing?

I think that’s consistent, if we take a look at it from the northern field and what I would say most of the press coming out of the Niobrara formation has been that they will drill the same number of wells. They are not going to expand the number of wells that they are looking at year-over-year, where they may have had some expansions where they may have gone from 58 rigs to 70 rigs that’s not going to happen. I now at least our main operator has released the one rig that they have, but they also have the ability to bring that back or bring multiple rigs back to pick later in the year, or pick up in 2016. So I think its going to be, everybody is going to look at sort of a steady state of what's going on in the core Wattenberg field. We'll see what happens with our operator in sort of the Southern Wattenberg field, but nothing seems to be catastrophic now. I am learning about the oil and gas business. We're water company, but it is an important component or has been an important component for us and it’s very interesting and we've got plenty of capacity that we can provide water to this – for this particular function in a water short area. I mean, that’s – water happens to be one of the critical elements in this field to be able to secure. And so I think we have demonstrated our capacities to a very high degree of success with a great deal of success for the operators that are working in the field. So we'll see how the price of oil influences much of that CapEx We try and look at though quarter-over-quarter, but maybe you know, how does target a range in the next 3 to 5 years. And I think it looks very attractive for us and while may see some of that decline in our third and fourth quarters, we're also going to see new source of revenue being royalty revenue. So we're still very bullish about our overall profitability for 2015.

All right. For the November quarter, how many drilling wells were you supplying with water, during that three months of quarter?

We just had the one rig working, so I think there was 3 maybe 4 wells. We're running about a $100,000 a well given the water deliveries per well, that 9 to 10 million gallons of well.

Okay. And so your – but there is no drill operating as of today?

Right. And we still have about 3 more wells to frac, so our Q2 will look very similar to our Q1.

And Q3 will drop off if there is no activity initiated?

Yes. You are likely to see pick up in royalty revenue in Q3.

Yes. Okay. Thanks very much.

Yes.

Our next question comes from David [indiscernible] Your line is open.

Hey Mark, how you're doing?

I am great, David. Good to hear your voice.

Yes, I am sort of getting back in the suite of things here a little bit. I mean, you alluded to this a little bit and I know you guys have done a lot of things over the last years to kind of diversify the story a little bit. But I am still kind of interested in your view of just of sort of the 10,000 foot [ph] view, I mean, I think that the narrative for the long time and the story was really just kind of just deep water value in a really place where water was likely to become more and more scarce. And I guess I've always looked at the company from that perspective, but if go the other things you're doing there great. But is that – you still view that near to this is – as you know, largely intact I mean, that notion that you have this company that controls a great deal of water in a place where water is likely to become more and more scarce and ultimately more and more valuable, is that still, is that nearer to still apply here in spite of all the diversifications, some of the other things that you're doing?

It really does, I mean, our genealogy, the core of the company continues to be a water utility company. That we – I think we did very well on some acquisitions. We know we did very well with the Land acquisition on Sky Ranch that vertically integrated ourselves. The property is a very attractive piece of property. Its located in a great spot, has an interchange right up the interstate and we acquired that and are really for to at as time. That said, not a lot of people were buying raw land in that timeframe. So it worked well for us in terms of the opportunities that we now have on the land development side, but it really was a fundamental utility acquisition. We were protecting our utility franchise on that because anybody that was going to pick up the land was going to pick up the benefit of our utility and there was no value of that utility in the land value when it was in bankruptcy. So, while we have, you're exactly right, I mean, the company has exactly focused on some of those diversifications, whether that was diversify way from a core dependency on having another water provider, take actions, we know we still are a wholesale water provider and are working on relationships where we can provide also water service to a number of different communities, by picking up some raw land and being able to control the timing of development of that raw land more consistent with the market principles and the market went soft on us. But at the end of the day, the market is very robust in the Denver as you know and then the oil and gas opportunity was terrific for us because it was a very large customer where…

And there is no particular reason to believe that the water issues that have plagued the eastern slope for how ever long, that those are any less acute today then they've ever been?

No. I mean, they may have been deferred for a period of time just because of the weakening in the real estate market. But there is just – at some price if you look at it, at some price if you are on a costal area, there is a water supply available. We just don’t have that options here. There is no additional new water that’s available and you have to reach further and further away where we have go on the west slope or where we have to continue to reach further and further away for agriculture water right. Those are the – there is no unallocated water in the city of Colorado. Its all spoken for year and anybody that’s looking at increasing water supplies are in the competitive market of buying existing water rights, so I think it’s going to continue to increase in value.

Perfect. Thanks a lot.

You bet. Thanks for the question.

[Operator Instructions] Our next question comes from Elliot Knight with Knight Advisors [ph]. Your line is open.

Hi, Mark.

Hi, Elliot.

Its time to drop down from 10,000 suite to ground level.

Okay.

You commented, you mentioned two names, Wattenberg and South Wattenberg and first question is in talking with people in the industry, answer was north of the drilling done so far are these two separate fields or are they, or is really just one big field?

That’s a good question, Elliot.

Well, let me tell you why I am asking. Because the follow on is if they are two separate fields then the next question is, are there any differences in the production characteristics the decline of the wells in Wattenberg versus the south Wattenberg area that’s where the question is growing?

Yes. That’s – and it’s a really spot light, my deficiencies and understanding oil and gas. In a layman's term you know, I always look at the Niobrara as a singular shale deposit and it was created by a marine deposit and so all of Colorado was a marine see floor and so I think of this as a Niobrara being uniform formation whether that’s in the Wattenberg field or the Southern Wattenberg field. That said, I do know that there are areas that are better produces than others and I don’t know why that necessarily is the case and I would even presume even within the field that we have that there are probably wells that are producing than others. I don’t know if that’s because they continue to tweak how they are drilling, how they are completing what the orientation is, what the type of water they use for frac, or what the formulae is for the frac, probably all of those are variables in completing any given well into the field that will tell you whether the decline curve is consistent with what the operators are seeing across the Niobrara deposits or otherwise. So I want to say its based on that level of my understanding and you probably have a better understanding as a recovered oil and gas analyst that it is the same type of formation, and the geography of the field is really only to orientate to as where one particular operator is versus another.

Well, what I don’t know and what I am thinking about is what you may hear sort of as settle but from people, as anybody says hey, the wells down here are, very [indiscernible] around up in the one verdict or the better or they are not quite as good that’s really where I was going if they are not, what you say about its being one field deposits – the depositions certainly makes good sense?

Got it, and I am going to say it’s a consistent field than the results are going to be from an operators art in being able to drill and complete and that sort of stuff.

Okay. So there was no reason to expect any difference in the natural decline, it has to be pretty rapid?

Yes, I think so, and I guess we'll, the more wells you get the more information you get, so that probably will continue to define itself as we get more specificity into this location versus maybe things that are few miles north of us.

Okay. Let me just offer one observation because yes I did use to be an oil analyst. The first royalty check that comes in, there maybe a temptation to be disappointed in it because the chance was of it being less than a four months share of the production are pretty good.

Yes.

So, we just need to take that first months check with a grain of salt I think?

Yes, and ultimately of might be of how they report that, as this how many days of operation that sort of stuff, but having never participated in that, I am yet to – yet to understand how that will actually come to us.

Yes. Well, when you talk about it, if you put it on the days of production and may check through it then I think…

Yes…

Will refer to everybody…

Just because everybody has the same data points.

Yes, right.

That’s good.

Thank you, sir.

Yes.

That’s all.

Thank you.

Our next question comes from Robert Kirkpatrick with Cardinal Capital. Your line is open.

Hi, Mark.

Hi, Rob.

Could you talk about the prosper community which is located and has been I guess approved by various [indiscernible] that’s going to be located adjacent to Sky Ranch?

Yes. So that’s an assemblage, I think it’s about 5000 acres assemblage directly east of where we're at. And so what they are looking at doing is getting a land used application similar to ours as where it’s a preliminary development plan, where they are looking at having a number of different types of development, whether that’s residential, really a mixed used development. It has residential, commercial, retail all the same elements that we have. It’s about twice the size of what we're looking at Sky Ranch. They have a quite a bit more acreage but about the actual development is about twice the size of Sky Ranch. And they've been working away to the process; we look at that as a very favorable addition because it continues to drive interest. It’s for east of us. So logically speaking if the metropolitan area grows from west to east as it has historically, that continues to demonstrate demand for the market. So again is another opportunity for us, its an opportunity we certainly would like to work with them on the water issues, they still need water service and so we have been discussions with them about opportunities for water availability, they are developer, they have developed some retail space and commercial space, so if there an opportunity for us to find a relationship with them on the development side. So there is a number of joint opportunities that that particular development may per trend for us, but still very early on in the process I think I'll get there, they will get their zoning probably some time this month on that and then we'll see where they want to head with that. But that’s as much as I know about it.

Great. Thank you so much.

You bet.

I am showing no further questions. I'd like to hand the call back to Mark Harding for closing remarks. End of Q&A

Okay. I do want to thank you all. Again, really over time of the call here, as I just wanted to bring everybody current on some of the moving targets that we have, whether that was some of the activity on the oil gas side, we do look at some of the pull back on that relative to the number of wells that will be drilled in 2015, but still feel that 2015 will continue to demonstrate our trend towards profitability, so we're very excited about that. We want to continue to emphasize our water utility operations and that we will continue to grow and develop that business as one of the calls earlier, we are water utility company and that continues to be our primary focus and Denver continues to be one of the best areas to be one of those companies and have a long portfolio of water that you can put to beneficial use and really opportunities for us are in the expansion of infrastructure and so we've got a couple of very exciting opportunities that have come to fruition after couple of years of work that we're very excited about. So if you didn’t get a call, or if you didn’t get the chance to ask a question or you didn’t want to ask on the call, certainly don’t hesitate to give me a shout, happy to give you what ever insights that we have with the company and what we're doing. But thank you again for your continued support and we will continue to keep you apprised.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone have a great day.