Callon Petroleum Co (CPE) 2008 Q4 法說會逐字稿

Ladies and gentlemen, thank you very much for standing by, and welcome to the Callon Petroleum Company fourth quarter and full year 2008 results conference call. During this presentation, all participants are in a listen-only mode. Afterwards, we will conduct a question and answer session. (Operator Instructions). As a reminder this, conference is being recorded on Wednesday, March 11, 2009.

It's now my pleasure to turn the conference over to Fred Callon, Chairman and Chief Executive Officer at Callon Petroleum Company. Please go ahead, sir.

Thank you. Good morning, and thank you for taking time to call in for our fourth quarter and year end results call. Before we begin the formal portion of our presentation, I would like, as always, to ask Terry Trovato, who heads our Investor Relations, to make his comments.

Thank you, Fred. We would like to remind everyone that some of the comments made during this call will be considered forward-looking statements. As such, no assurances can be given that these events will occur or that the projections will be obtained. Please refer to the cautionary language included in our news release and in the risk factors described in our SEC filings. We undertake no obligation to publicly update or revise such forward-looking statements. It is also important to note that the SEC permits us in our filings with them to disclose only proved reserves that we have demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions.

During today's discussion, we may use terms like reserve potential and probable reserves that the SEC's guidelines strictly prohibit us from using in our filings with them. These estimates are by their nature more speculative than estimates of proved reserves and accordingly, are subject to a substantially greater risk of being actually realized by the company. Finally, today we will be discussing 2008's cash flow, which is considered a non-GAAP financial measure. Reconciliation and calculation schedules for the non-GAAP financial measure were stated in our fourth quarter and full year 2008 results news release and can be referenced there on our website at www.Callon.com for subsequent review.

Fred?

Thank you, Terry. Before I begin my discussion of the company's current operations and our plans for 2009, I would like to take a minute to share with you my current view of economic conditions and how I think Callon can navigate successfully through these challenging times for our industry. As most of you know, Callon has been around since 1950, operating almost 60 years from our base here in Natchez, Mississippi. Our team has weathered many storms together and we're ready to face this current economic climate. All of us at Callon have seen the industry in worse shape than what we are experiencing today. We've operated successfully when oil and natural gas prices were much lower. During the 1980s when oil prices collapsed, we were hit hard along with the rest of the industry, but we found ways to succeed by focusing on liquidity and building long-term value.

Today, we at Callon are approaching this current down cycle with our perspective that we have gained through prior crisis by-- tough decisions we need to succeed. I believe we have the financial strength, technical expertise and focus to thrive during this downturn and emerge stronger. We've seen some dark days in the past and survived and will survive this period and will be better for it. As I said, one of the keys to success in this environment for us and for our peers will be having adequate liquidity. At Callon, managing liquidity has been the most important element of our financial strategy the past two years and I think that strategy has served us well. Beginning in mid 2007 and throughout 2008, we carefully managed our liquidity position.

In the summer of 2008, we put in place hedges for our legacy oil production that covers approximately 45% of our expected production for 2009, using collars with a floor of $110. These hedges provide a significant downside price protection in the current environment and had a value in excess of $21 million at year end. As a result, despite our challenges in the turmoil in the financial markets, we find ourselves with a strong liquidity position and the financial resources to be opportunistic during this economic downturn. We do not have any significant required capital expenditures for 2009, so we have the flexibility to use our cash flow and credit facility to fund producing property acquisitions to help grow the company's reserves and production over the next several years.

Turning now to operations, let me give you an update beginning first with a recap of our Entrada field project. At the time of our last conference call, we reported that after dealing with delays brought on by the failure of the VLA anchor system that we were required to use by MMS and two back to back hurricanes, resulting in the evacuation of our drilling rig on both occasions, we were drilling at that time at 18,240 feet on the number 3 well. We subsequently drilled a well that totaled out at 21,100 feet, and after a review of the drilling results, we determined this well needed to be sidetracked back toward the original discovery well on the block. However, after discussions with our partner, CIECO Energy, concerning significantly higher than expected drilling and development costs incurred on the project to date that resulted from extra costs of the failed VLA anchor system, downhole mechanical problems, delays brought about by the back to back hurricanes, coupled with significant and rapid decline in commodity prices, a decision was reached to suspend operations at Entrada.

As regrettable as this decision was, the fact remained that the underlying economics of the project had deteriorated dramatically with the declining commodity prices and the significantly increasing costs estimated for the final project. After the suspension, we explored other possibilities to extend the leases or find another solution to avoid abandoning the project all together, but to date, no viable alternative has been found. With a final lease expiration currently anticipated to be in June 2009, it is unlikely that we will be able to resume commercial operations. As a result, we've been working to wind down the project and negotiate outstanding contractual commitments and dispose of the tangible equipment that we acquired for the project. These operations were ongoing, but should be largely resolved by early in the second quarter.

Now let's review our ongoing operations. First, after Hurricanes Gustav and Ike, all of our major Gulf of Mexico producing properties were back online by mid-December. However, we did defer production of approximately 18 million cubic feet of gas a day from the fourth quarter because of hurricane-related downtime. At Medusa, where we have eight wells currently producing 13,200 barrels of oil and 12 million cubic feet of gas a day, a program of workovers and the drilling of additional wells has been deferred from 2009 to 2010 because of current commodity prices. As you recall, we have a 15% interest at Medusa and Murphy is the operator. At Habanero, the field is producing 6,000 barrels of oil and 9 million cubic feet of gas a day from the two wells, both producing from the HAB 52 reservoir. We have 11.25% interest in the number two well and a 25% interest in the number one well.

At West Cameron 295, the field is producing 19 million cubic feet of gas a day and 120 barrels of oil. An additional well may be drilled on the block during 2010, depending on well performance. The number 2 and 4 wells are operated by Mariner, while the number 3 well is operated by Cimarex. Callon owns a 20.5% working interest in the wells. First production at our East Cameron 2, that's our North Pronghorn field, commenced in October and currently the field is producing 7 million cubic feet of gas a day and 100 barrels of oil. Apache is the operator and Callon owns a 42.5% working interest. At our East Cameron 257 field it, is currently producing 5 million cubic feet of gas a day, SPN is the resources is the operator and we own a 50% interest there.

As I mentioned earlier in this current low commodity price environment, coupled with relatively high service costs, we are not planning in 2009 to actively pursue drilling prospects that we have hydrated from our inventory of Gulf of Mexico prospects. That inventory includes nine drill-ready prospects, with unrisked reserve potential in excess of 280 Bcfe. We're constantly monitoring market conditions and we see project economics improve as a result of some combination of increasing commodity prices or reduction in service costs in the Gulf. We will of course revisit our drilling plans. We've also limited our required property expenditures in 2009 to approximately $10 million or scheduled plugging and abandonment expenditures.

So with minimal required capital expenditures, we plan to use our cash flow from operations and our bank credit facility to fund the acquisition of producing properties, which we think will become more and more available during this year. We've been spending a great deal of time evaluating both asset and corporate acquisition opportunities, potential acquisition targets include onshore properties where Callon has decades of experience, and the technical staff to operate effectively and economically. Any acquisition we make will certainly fit our criteria of being producing properties with low reinvestment requirements and multiyear development opportunities. By prudently using our liquidity and patiently and opportunistically pursuing acquisitions in this environment, we plan to add quality reserves, which will serve as a catalyst for growth we think over the next several years.

With that, I'll turn the call over to Bob Weatherly for a recap of our fourth quarter and full year 2008 financial results and first quarter guidance. Following Bob's remarks, we'll look forward to questions.

Thank you, Fred.

As we reported in our press release for the year ended December 31, 2008, the company reported a net loss of $438.9 million, or $20.68 per share. This loss was primarily the result of recording a noncash charge of $482.4 million for the impairment of oil and gas properties under the full cost accounting rules. This charge is calculated as the excess of book value of the company's oil and gas properties over the PB 10 value of reserves at December 31, 2008, adjusted for tax impact. This excess resulted from sharply lower oil and natural gas prices used at year end 2008 to calculate the PV 10 value of reserves, as well as the suspension of the Entrada project. The oil and gas prices used in the reserve report were $36.80 for oil and $6.36 for natural gas. Excluding this noncash charge related to the impairment of oil and gas properties, the company would have generated about pretax income of $40.7 million for 2008. Also at year end, we recorded an income tax expense charge of $128.1 million as required by SFAS 109 accounting for income taxes.

The 2008 results compared to net income of $15.2 million, or $0.71 per share for 2007. For the quarter ended December 31, 2008, the company reported a net loss of $457.5 million, or $21.19 per diluted share. Compared to a net income of $4.5 million, or $0.21 per diluted share reported for the same three-month period of 2007. For the year ended December 31, 2008, we reported oil and gas sales of $141.3 million, which was down by 17% from 2007 sales of $170.8 million. Average production for 2008 was within the range of previously issued guidance at 31.4 million cubic feet of natural gas equivalent per day and was comprised of 5.8 billion cubic feet of natural gas and 942,000 barrels of oil. This compares to 2007 production of 12.3 billion cubic feet of gas and 1.063 million barrels of oil, or an equivalent 51.3 million cubic feet of natural gas equivalent per day.

Our operating results for 2008 were negatively impacted by the combination of lower commodity prices and the impact of hurricane activity. Several of our deep water and shelf fields were shut in in late August due to the approach of Hurricane Gustav followed by Hurricane Ike. As a result to damage to third party transition lines and downstream facilities, these fields remained shut in until late in the fourth quarter of 2008, significantly impacting our operating results for that period as well. Oil and gas sales for the fourth quarter of 2008 were $15.5 million compared to $43.9 million for the fourth quarter of 2007. Production for the fourth quarter of 2008 was 20.7 million cubic feet of natural gas equivalent per day and included 926 million cubic feet of natural gas and 162,000 barrels of oil. Production was 2.5 billion cubic feet of natural gas and 289,000 barrels of oil during the fourth quarter of 2007. The average realized price for the fourth quarter of 2008 was $55.23 per barrel, which was significantly less than the realized oil price in the same quarter of 2007 at $82.47 per barrel.

Oil hedging positions increased our averaged realized price by $13.45 per barrel of oil in the 2007 period. The benchmark oil price for the fourth quarter of 2008, as measured by the average closing price of NYMEX contracts for delivery of WTI was $58.76 per barrel. For the year 2008, the average realized oil price was $88.07 per barrel, which was $20.44 higher than the realized oil price in 2007 of $67.63 per barrel. Oil hedging positions decrease our average realized price in 2008 by $9.30 per barrel of oil. Benchmark oil price for the period measured by the average closing price of NYMEX contracts for delivery of WTI was $99.67 per barrel. As a reminder, the spread between the benchmark oil price and our average realized oil price is primarily due to quality adjustments incurred in the sale of our production from Medusa and Habanero, which accounted for 94% of our fourth quarter oil production.

Natural gas realization averaged $7.12 per Mcf for the fourth quarter of 2008. This compares to $8.18 per Mcf for the fourth quarter of 2007. Natural gas hedging position increased our average realized price by $0.81 per Mcf for the three-month period ended December 31, 2008. For the year, natural gas price realization averaged $9.99 per Mcf, which is up from the 2007 price of $8.01. Natural gas hedging positions decreased our averaged realized price by $0.11 per Mcf in 2008.

On the expense side, LOE for the fourth quarter of 2008 was $5.5 million. For the year ended December 31, 2008, LOE was $19.2 million, or $1.67 per equivalent Mcf of production and was just under our guidance range of $19.5 million to $20.5 million. G&A expense was $2.5 million and 9.6 million for the fourth quarter and full year of 2008 respectively. Interest expense for the quarter was $7 million, which was a 33% decrease from fourth quarter of 2007 amount of $10.4 million. For the full year 2008, interest expense was $26.7 million. Depletion, depreciation and amortization for the fourth quarter of 2008 totaled $22.3 million, an increase from the fourth quarter 2007 of $16.2 million. For the full year 2008, DD&A was $64.1 million compared to $72.8 million in 2007.

Discretionary cash flow is a non-GAAP measure, and we have provided reconciliation to cash provided by operating activities and discretionary cash flow in the fourth quarter totaled $3.8 million, or $0.17 per share. Discretionary cash flow for the full year totaled $84.9 million, or $4 per share. Available cash and cash flow from operations, along with loan draws under the CIECO credit facility funded our capital expenditures and abandonment obligations for 2008. Our estimated net proved reserves at December 31, 2008 were 54.8 billion cubic feet of natural gas equivalent. This represents a decline in our reserves of 208.8 Bcfe as compared to year end 2007. The decline is due to a combination of factors. First was the sale of a 50% working interest in the Entrada field to CIECO Energy in April, 2008 which accounted for 45% of the decrease. A previously announced suspension of operations at the Entrada field in November 2008 accounted for 47% of the decrease and 2008 production and other changes account for the remaining 8% of the decline. PB10 value of the reserves at December 31, 2008 was $86.6 million.

Following is a summary of the guidance for the first quarter and full year 2009 that we provided in our news release. For the first quarter, we are projecting daily production rate of 29 to 33 million cubic feet equivalent per day and 27 to 35 million cubic feet equivalent per day for the full year 2009. Approximately 50% of the projected production will be oil. Lease operating expense should be approximately $5 million to $5.5 million and $17 million to $22 million for the first quarter and full year of 2009 respectively. G&A expense should be between $3 million and $3.5 million for the first quarter and $12 million to $13 million for the full year 2009. Interest expense should range from $6 million to $7 million for the first quarter and between $22 million and $24 million for the full year 2009. With regard to DD&A, we are projecting ranges of $8 million to $9 million for the first quarter and for the full year, $30 million to $38 million.

For the first quarter of 2009, 300 million cubic feet of natural gas is hedged, using collars with an average ceiling price of $20 and a floor of $11. Most of our gas production is sold in the general area Henry Hub, which is comparable to NYMEX. We have no gas hedges in place at this time for the remainder of 2009. For the year, we have 360,000 barrels of oil hedged, using collars with an average ceiling price of $175.75 and an average floor of $110. Just a reminder that realized oil prices will continue to be affected by quality differentials and transportation costs. We anticipate transportation costs should average about $1.15 to $1.30 per barrel.

Now we'll take your questions.

(Operator Instructions) And our first question comes from the line of Ron Mills of Johnson Rice. Please go ahead, sir. Your line is open.

Good morning, Fred, and Bob. Really just to follow up on a clarification and ask a question. You talked about $10 million spread from a CapEx standpoint this year, primarily for P and A work.

Right.

Is that number correct and is that exclusive of your capitalized costs?

Yes, it is. I'm sorry. That's just -- you're right, that's miscellaneous P&A over several properties where we had just some scheduled P&A. Yes, that is just strictly P&A.

Okay, and from a capitalized standpoint, are your capitalized costs, should they still remain in that 15 to 20 million range, or will those come down?

I think capitalized interest and G&A should be around 15. Yeah. 15.

Okay, and then in terms of -- since the producing property acquisitions is the primary focus, at least that's what it seems like right now, how is that market looking to you all right now? How are conversations going? How's the deal flow? Just get a sense as to what y'all are seeing to be pursuing that avenue.

Sure, right. As I mentioned, we have been looking kind of at the market quite sometime, actually almost a year, quite frankly started last spring at the time we were anticipating Entrada being on line and looking at cash flow and where we are going to direct that cash flow and we started looking at some more onshore opportunities and so we have been looking at various opportunities, of course totally different environment now as to the issues back then when things were so heated up. But in recent times, I think, we're certainly seeing opportunities. I think it's, the deal flow is -- I don't want to say it's starting to pick up. It has been somewhat slow but again, for us, we're a small company, so there are plenty of opportunities for us to be evaluating, looking at, as you might expect this has happened every time we go through one of these cycles, it just takes some time for buyers and sellers to figure out where the clearing price is on some of these properties and that's the reason I think it's important to be patient.

Obviously we would like to close on an acquisition sooner rather than later, but I think it's just very important to have the patience because there are opportunities out there and unfortunately it takes a little time for sellers to basically come to grips with kind of where the market is and quite frankly, the buyers and sellers really don't know where that clearing price is. And I think we're starting to see that come together. I think we will literally in the next probably 30, 60 days even see more and more. We're certainly seeing an increase in properties out there and I'm sure that will continue. And so I think there are going to be a number of opportunities and it's just to issues like year or two ago, acquisitions, you were paying for probables and maybe possible sometime.

And today, not only are you not paying for that, but you're seeing opportunities where you may not have to pay for some of the pods as well and the whole market is shifting and so we think if we're patient and we're careful and do our homework that we're going to be able to find some opportunities this year that allow us to build some value for the next coming years.

Okay, and just from a production guidance standpoint, given that you're not drilling any wells, didn't sound like performing recompletions either, I guess I'm a little surprised at how resilient your production would appear to be from a quarterly basis obviously going down, but holding in there pretty well. What is it about your properties that allow for that?

I think -- kind of looking--

Hurricane--

Yeah, I was going to say, I'm thinking of course some of it was the hurricane which delayed some production when we are comparing back, and we brought production when you are comparing kind of this year versus last year we brought on North Pronghorn and, with--

I guess I was talking from the first quarter guidance to where your full year guidance is.

Oh, I'm sorry.

It's minimal. It would forecast minimal declines, which is a little bit better than what I would have thought if you weren't putting any new capital into anything.

Yeah, and I think -- keep in mind, our production profile is dominated by Medusa and Habanero, which don't have quite the decline rate that you would associate with the shelf -- just a typical maybe shelf well.

Right. Okay. Well, I just wanted to make sure that I understood that. I'll let someone else jump in.

And thank you for your question, Mr. Mills. Continuing on, our next question comes from the line of Richard Tullis of Capital One Southcoast. Go ahead, sir. Your line is open.

Good morning.

Hi, Richard.

Looking at the balance sheet, Fred or Bob, what's the status on the non-recourse loan that's still listed on the balance sheet? I thank it was $78 million at year end.

Yeah, I think, Richard, the non-recourse loan will remain there until we cancel the credit agreement and that will be a while before we get everything resolved there.

What's your expectations overall on this loan? I mean do you foresee CIECO paying this at 100%, or is there any discussions that maybe they won't be paying for it in full?

Well, first of all, what's booked is cash that we've received.

It's liability.

We've not booked any receivable related to that loan.

Okay. So you foresee the whole liability going away?

Yes.

Oh, absolutely. It is non-recourse.

Remember, that's a piece of debt for Callon Entrada.

Right, but there's no discussions or dispute on CIECO's part on any of the costs related to the project?

Well, I think in terms of the abandonment costs that we're going through right now, CIECO is up to date with all cash costs, with the exception we have a cash call that's due Friday and we have one contract settlement issue that we're still discussing with them. We believe we'll resolve that and I think we have, on our loan requests, they were all funded out with the exception of two, which we're continuing to discuss with them.

Okay, but I think with respect to the non-recourse loan, I know what you're saying, Richard, because it surprised me a little that that stays on there. But that is non-recourse and like I said, it was recourse only to the lease.

Which has not expired.

Which has not expired, so we certainly would anticipate that going away at some point. Not sure if it's first quarter or second quarter and certainly I would think by the time the lease expires, then that would just go away.

Okay.

And that's not disputed.

What about the bank, current bank credit facility? Could you talk about that a bit? What's the current base and how much is borrowed?

Sure. As you'll remember back last September, we redid our credit facility and that was set with a $70 million borrowing base. After that, we issued a $15 million letter of credit to Diamond in our capacity as operator in the Entrada field and so we have -- have had since then $55 million net availability under that loan. We, as we wind up the project and as we complete paying Diamond, we believe that that letter of credit will be released. We are presently in the process with the bank of the schedule redetermination. We believe that will be completed sometime this month and as we continue our discussions. And we believe that even though we don't know what the borrowing base will be exactly, we've had constructive discussions with them. But with the commodity price decline, it is a probability that the $70 million borrowing base will decline. We have nothing drawn on the line at December 31 and we have nothing drawn on the line today.

Okay, good. Do you anticipate any additional obligations related to Entrada that aren't reflected on the balance sheet as of December 31?

No.

Okay. How much cash do you have on hand right now?

$15 million? Something like that. I think -- I would have to look at the balance today, but it would probably be in the 12 to $15 million range.

Okay. And I guess lastly, what level of acquisitions in total do you think you could reasonably handle funding this year?

I think our target is $50 million and I mean that's something we've kind of looked at. We think that we could, that we could fund just by, just from our cash flow and under our credit facility and with beyond that, I think we're certainly looking at some other opportunities for additional financing that could expand that, but in terms of just acquisitions, certainly our plan is focusing on properties with certainly a significant PDT component, which we think working with our bank group, they have certainly indicated interest in funding such acquisitions and so -- but I think beyond that, we'll continue to look at some other sources of financing that may be able to expand that.

Okay. Well, thanks very much. Appreciate it.

Thank you.

Thank you for your question sir. Continuing on, our next question comes from the line of Evan Templeton of Jefferies & Company. Please go ahead, sir. Your line is open.

Great, thank you. Just a question on reserves and PD 10, first of all, you may have already given it, but did you give the proved development reserves component at year end?

No, I don't think I did in the narrative. We'll figure that out.

And along those lines, also wondering if you maybe have the PD10 value for PDP or PDNP.

PDP I think was $87.7 million, or $86.7 million.

I'm sorry. What was that figure again?

Make sure I give you the right number.

Sure.

It is $86.6 million. PB 10 at December 31 based on $36 and $6.36.

And that figure is for -- that's total?

Yes.

Do you have the PDP component of that?

No, I don't. I can get it for you.

Okay, great. I'll talk to you offline. And then also, did you also take a stab at PD10 based on strip pricing?

We did and I think it was 120, 125, something on that level.

Okay, great. And then just one other point. I know you addressed it a little bit, but what was the total anticipated 2009 CapEx spend?

I'm sorry, what?

The just 2009 CapEx?

176.

That's for 2009?

I'm sorry, I was looking down at my paper. It's 2008. 2009 CapEx, we have two components there that would show up as CapEx. One is $10 million worth of plug and abandonment costs and we estimate the capitalized G&A interest, geological will be about 14, $15 million.

Okay, great. And nothing else planned?

Total is 24, 25, and we have -- I think as Fred said, just based on our property profile and work that was done at Medusa and Habanero over the last couple of years, we don't have any CapEx that we have any idea of either one of those in 2009. In 2010, I think there's some talk of doing some work at West Cam 295 and at Medusa.

Okay. Great. Thanks a lot.

Thank you, Mr. Templeton for your question. (Operator Instructions). And our next question comes from the line of Chris Pikul of Morgan Keegan. Please go ahead, sir.

Yes, good morning, gentlemen. Most of my questions have been asked, but I wanted to just verify, Bob, are there any covenant issues that we need to be made aware of that might be tight for you guys?

Absolutely none.

Nope.

And then just as we look forward into 2010, I think we talked about this before, just want to hear your current thinking. On those notes coming due what -- a lot can change between now and then, but what are sort of your options as you think about what to do with those notes?

Yes, Chris, clearly we're keenly mindful of the notes and the answer is, we plan to have a dialogue, if you will, with note holders sooner rather than later, certainly as we get past year end we plan to sit down with them and talk about what we can do in terms of restructuring those notes. You're right. A lot can change between now and then, but at the same time, we don't want to wait until the last minute and we think there are opportunities that can benefit us and and benefit our note holders to, particularly in this this environment as we talked about in terms of acquisition of properties and building value. So I guess short answer is we certainly anticipate talking to our note holders here in the coming months and I'm optimistic that we're going to be able to come up with a new structural nose earlier rather than waiting until 2010.

Okay. So you're going to look to extend the terms of those?

Certainly looking to sit down and just talk to them about what makes sense for both of us.

All right. Just a couple more questions. I just want to confirm, it sounds like basically given a reasonable cash flow number that your cash balance should be building throughout the year. Is that kind of where you see the liquidity going?

Yes, certainly and that's absent any acquisitions, it certainly will be.

All right. So the strategy seems to be here we're going keep spending to a minimum, still going to be cash flowing, still going to be building our cash position and hopefully if there is any kind of recovery in prices, you're able to put the money to work in 2010. Is that kind of safe--

Pretty good.

In your strategy?

No, absolutely. Like I said being patient this year and unfortunately during these times and I just think there's going to be some opportunities to pick up some properties that will not only provide good cash flow, but quite frankly not have to pay for some upside you probably would have had to pay for a year ago that will be there for us when commodity prices come back, whenever that is.

And I think, Chris, just to kind of follow on to that point is as you said, and Fred said in his discussion earlier is that because of the strategy we have taken over the last couple of years of focusing on our liquidity, and we find ourselves now in a unique position where we have good liquidity relative to our side and we don't have the drilling obligations that in another year we may have or if we had a different strategy before we would have and so we have, whereas we've had to deal with some issues, we do have great financial stability right now and we have good flexibility.

No, that's certainly a good point, Bob, and I think commendable on the job you guys have done, given the way things turned out at Entrada that you still have a company here when all is said and done. Just one more question. Fred, you mentioned in thinking about some sort of acquisitions you think you might be able to do up to a $50 million deal and you mentioned sort of other sorts of financing. Could you add any clarification?

Yes, other financing being some some of the mezzanine financing sources and certainly we all know in this environment a lot of sources that were there a year ago are no longer available, but as we have kind of get into each year, as we go out and visit with different financing sources, I think there are still some pockets of capital out there that that -- say pockets of capital, still some significant dollars that, albeit careful, are interested in putting to work on kind of reserve base lending, perhaps on the mezzanine level as well as, if you will, institutional partners to maybe join in the acquisition of producing properties, which allow you to leverage up some of the things you're doing. We're talking to a couple of those sources and I think they would be out there. The question's going to be can you find the right property where money like that's going to be more expensive and so you've got to be sure you mention the right property that has the right returns that we are bringing in some money that's more expensive--

Great. Thank you, guys for your time.

Thank you for your question. (OPERATOR INSTRUCTIONS) Gentlemen, we now have a follow-up from the line of Mr. Ron Mills from Johnson Rice. Go ahead, Mr. Mills. Your line is open.

Just on the P&A CapEx that you talked about this year, is that work expected to be spread pretty evenly throughout the year?

Yes, Ron. I'm looking at Bob and he's confirming it. Yes.

Okay, good, and then with the $15 million, is that on the letter of credit to Diamond, when does that get satisfied?

I would think that that would go away sometime in the next 30 days.

All right. Thank you very much.

Thank you, sir.

And thank you once again, Mr. Mills, for your question. Mr. Callon, I'll turn the presentation back to you. It appears our audience has no further questions. We'll turn it back to you for your continuation or your concluding remarks.

Well, thank you so much. Again, we thank you for taking time to call in today. I know it's a difficult time for everyone. Please know we are here any time anybody has any questions. Feel free to give any of us a call. Thank you so much.

Thank you, Mr. Callon. Ladies and gentlemen, that does conclude the conference call for today. We thank you all for your participation and ask that you please disconnect. Thank you once again. Have a good day.