Comstock Resources Inc (CRK) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q4 2007 Comstock Resources Incorporated Earnings Conference Call. My name is Antoine and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS)

I would now like to turn the call over to Mr. Jay Allison, President and Chief Executive Officer of Comstock. Please proceed sir.

Thank you, Antoine, and all of you that are listening, I hope you are cold in the Midwest and East Coast. It would be really good for us since we are in the energy business. I do want to thank each of you for joining us today in the conference call. We are pleased to tell you that 2007 was one of the best years in our corporate history and really better yet, we think 2008 has the potential to be a far better year, of course subject to commodity prices because I have projected 15% to 20% growth in production in 2008, should be achieved by staying within our cash flow.

Welcome to Comstock Resources 2007 fourth quarter and year-end financial and operating results conference call. You can view a slide presentation during or after this call by going to our Web site at www.comstockresources.com and clicking Presentations. There you will find a presentation titled Fourth Quarter 2007 Results. I am Jay Allison, President of Comstock and with me this morning is Roland Burns, our Chief Financial Officer; and Mack Good, our Chief Operating Officer. During this call, I will review our 2007 fourth quarter and annual financial and operating results, as well as the results of our 2007 drilling program.

Our discussions today will include forward-looking statements within the meaning of securities laws. While we believe the expectations and such statements to be reasonable, there can be no assurance that such expectations will prove to be correct.

If you would turn to slide two. We turned in solid financial results in 2007 as shown on slide two. We had total revenues of $687 million. We generated EBITDAX of $542 million and operating cash flow of $477 million. EBITDAX and operating cash flow increased 40% over 2006. We also generated a profit of $69 million or $1.54 per share. The strong financial results in 2007 were driven by 30% production growth, higher oil prices and higher cash margins. Our onshore production increased by 27% and our offshore production is up 34% in 2007 as compared to 2006.

Our onshore drilling program had a 95% success rate. 158 out of the 165 wells we drilled onshore were successful and added 109 Bcfe of proved reserves. At Bois d'Arc, we drilled 15 wells with seven successes and eight dry holes. These discoveries added 96 Bcfe of proved reserves. We had strong reserve growth in 2007. We achieved this growth at an attractive all-in finding cost of $2.60 per Mcfe. We increased our proved reserves by 23% and replaced our production in 2007 by 326%. We also completed two strategic acquisitions in 2007, which added 79 Bcfe of proved reserves at a cost of $2.41 per Mcfe.

Slide three. On slide three, we outline our production for the last three years. In the fourth quarter of 2007, our production averaged $249 million cubic feet equivalent per day, 26% higher than our production in the fourth quarter 2006. For all of 2007, our production is up 30% over last year. You should note that substantially all of the production growth is coming from our successful drilling activities. Our onshore production averaged 133 million cubic feet equivalent per day in the fourth quarter as compared to 101 million cubic feet equivalent per day that we averaged in the fourth quarter of 2006.

East Texas/North Louisiana region, which has accounted for much of the production gains, was 74 million cubic feet equivalent per day, which was 38% higher than it was in the fourth quarter of last year. Production in South Texas was up 42% to 40 million cubic feet equivalent per day and production in our other regions was 19 million cubic feet equivalent per day. Bois d'Arc's production averaged 116 million cubic feet equivalent per day in the fourth quarter of 2007 as compared to 97 million per day in the fourth quarter of '06. Here is even better news, we expect our production to increase again in 2008. We expect to produce between 100 Bcfe and 105 Bcfe in 2008, which would represent a 15% to 20% growth over 2007. We expect to achieve this growth by staying within our cash flow.

Slide four. On slide four, we cover our oil prices. Our average oil price increased 58% in the fourth quarter of '07 to $86.01 per barrel as compared to $54.51 per barrel in the fourth quarter of '06. In 2007, our realized oil price was $69.18, which was 14% higher than our oil price of $60.93 in 2006. Our average realized oil price was 96% of the average NYMEX WTI price in 2007.

Slide five shows our average gas price. Our average gas price increased 13% in the fourth quarter to $7.29 per Mcf as compared to $6.47 in the fourth quarter of '06. Our realized gas price was 105% of the average Henry Hub NYMEX price in the fourth quarter. In 2007, our average gas price increased only 1% to $7.03 per Mcf as compared to $6.95 in 2006. Our realized gas price averaged 102% of the average Henry Hub NYMEX price for all of 2007.

Slide six. On slide six, we cover our oil and gas sales. Our sales increased 54% to $196 million in the fourth quarter due to our higher production levels and the strong oil prices. Sales from our onshore operations increased 58% to $96 million from $61 million in 2006 fourth quarter. Offshore sales increased 51% to $100 million from $66 million in 2006 fourth quarter. For all of 2007, oil and gas sales increased 34% to $687 million as compared to $512 million in 2006. Our onshore oil and gas sales increased 29% to $332 million from $257 million in '06. Offshore sales increased 40% to $355 million from $255 million in 2006.

Slide seven. Our earnings before interest, taxes, depreciation, amortization, and exploration expense, and other non-cash expenses or EBITDAX increased 66% in the fourth quarter to $154 million as compared to $93 million in last year's fourth quarter as shown on slide seven. Bois d'Arc accounted for $82 million and our onshore operations contributed $72 million. In 2007, our EBITDAX increased 40% to $542 million as compared to $387 million in 2006. Bois d'Arc contributed $291 million and our onshore operations contributed $251 million of the total EBITDAX.

Slide eight, operating cash flow. Our cash flow increased 65% in the fourth quarter to $134 million as compared to cash flow of $81 million in 2006 fourth quarter. Onshore cash flow was $63 million and offshore cash flow was $71 million in the fourth quarter. In 2007, our operating cash flow was $477 million, 37% higher than our cash flow in 2006 of $349 million. Onshore cash flow totaled $215 million and offshore cash flow was $262 million in 2007.

Earnings, on slide nine, we outline our earnings. We reported net income of $22 million or $0.48 per share for the fourth quarter of '07 as compared to $9 million or $0.19 per share in the fourth quarter of '06. In 2007, our profits totaled $69 million or $1.54 per share as compared to $63 million or $1.44 per share in 2006. We have adjusted the 2006 results presented on this slide to exclude the unrealized gains on our derivatives in '06. In the fourth quarter, we had several special items included in G&A expenses, which totaled around $4 million that were carried over from Bois d'Arc including the early vesting of stock-based incentive awards in connection with retirement of (inaudible) and cost of Bois d'Arc's strategic alternatives process including a special bonus paid to employees.

Slide 10, we outline our cost structure on slide 10. Our lifting cost in the fourth quarter averaged $1.41 per Mcfe as compared to $1.60 in the fourth quarter of 2006. The $0.19 decrease in our lifting rate relates to our higher production levels this year. Our depreciation, depletion and amortization per Mcfe produced increased to $2.82 per Mcfe in the fourth quarter of '07 as compared to $2.71 per Mcfe in 2006 fourth quarter.

Slide 11 compares cost per unit for the full year. Our lifting cost averaged $1.41 per Mcfe in 2007 as compared to $1.59 in 2006. The improved lifting rate is also due to the higher production level. Our depreciation, depletion and amortization per Mcfe produced increased to $2.77 per Mcfe in '07 as compared to $2.28 per Mcfe in 2006.

Slide 12. On slide 12, we present our capital structure at the end of 2007. At the end of the fourth quarter, we had $760 million in debt including $80 million of debt at Bois d'Arc Energy. Our bank credit facilities have a combined borrowing base of $925 million, giving us availability of $340 million. Our equity at the end of the year was up to $772 million. Our percentage of debt to our total booked capitalization after the close of our $160 million acquisition of Shell is right at 50%.

Tab 13. Slide 13, we detail our exploration and development cost in 2007 as compared to what we spent in 2006. We spent $335 million in 2007 for our onshore drilling program as compared to the $228 million that we spent in '06. We spent $302 million to drill 160 development wells in 2007; 157 of these wells were successful. We spent $14 million on five exploratory wells; only one of these were successful.

We spent an additional $9 million on acquiring leases and $9 million for workovers and recompletions and other development cost. We spent $222 million on our East Texas/North Louisiana drilling program, $80 million in South Texas and $33 million was spent in our other regions. Offshore, we spent $214 million in 2007 on exploration and development activities as compared to $231 million in 2006. Offshore, we drilled seven successful wells out of the 15 wells drilled.

Slide 14. Our consolidated proved oil and gas reserves are now over 1 trillion cubic feet equivalent of reserves as shown on slide 14. Our proved reserves at the end of 2007 are estimated at 1,049 Bcfe compared to 851 Bcfe at the end of 2006. Our reserves are 80% natural gas and 68% are proved developed. We operate 84% of the proved reserve base. The present value using a 10% discount rate is approximately $3.8 billion using oil and natural gas prices of $90.67 per barrel for oil and $6.87 per Mcfe for natural gas. We replaced 326% of our 2007 production of 87.5 Bcfe and spent $740 million on acquisitions, exploration and development activities, which added 285 Bcfe to our proved reserve base. We had an all-in finding cost of $2.60 per Mcfe in 2007. The proved reserves relating to our onshore properties are estimated at 651 Bcfe as compared to 507 Bcfe at the end of 2006. These reserves have a present value of $1.6 billion using a $6.70 gas price. Our onshore reserves are 90% natural gas and 64% are proved developed. We replaced 417% of our 2007 onshore production of 45.3 Bcfe. We spent $526 million in 2007 on onshore acquisitions, exploration and development activities, which added 189 Bcfe to our proved reserve base, resulting in an onshore all-in finding cost of $2.79 per Mcfe. Acquisitions accounted for 79 Bcfe of the additions with discoveries and extensions accounting for 105 Bcfe and revisions of previous estimates adding 5 Bcfe. Our proved offshore reserves at the end of 2007 are estimated at 398 Bcfe with a present value of $2.2 billion as compared to 344 Bcfe at the end of 2006. Natural gas reserves accounted for 63% of the offshore reserves and 74% for proved developed.

Bois d'Arc replaced 228% of its production, 42.2 Bcfe in 2007, by spending $214 million in 2007 on exploration and development activities, which added 96 Bcfe to its proved reserve base resulting in an all-in finding cost of $2.22 per Mcfe for 2007. Discoveries and extensions accounted for 38 Bcfe and proved recovered from the water flood project added 41 Bcfe, and revisions of previous estimates added 17 Bcfe. The minority interest in Bois d'Arc's proved oil and gas reserves not owned by Comstock is 202.9 Bcfe as of December 31 of 2007 with a present value of $1.1 billion.

Slide 15, our 2008 offshore drilling program. We expect to spend $276 million for our 2008 onshore drilling program as detailed on slide 15. We expect to drill approximately 110 onshore wells this year. Our East Texas/North Louisiana operating region at $149 million accounts for 54% of the 2008 budget and 74% of the wells to be drilled. This includes seven horizontal wells. We expect to spend $122 million in our South Texas region to drill 30 wells, including four wells in the properties we purchased in December from Shell. We have only budgeted $5 million to drill six wells in our other regions category.

Slide 16. On slide 16, we focus on our East Texas/North Louisiana region. We drilled 128 wells in this region in nine different fields in 2007, including one horizontal well. All of these wells were successful. These wells have been tested at a per well average rate of 1.4 million cubic feet equivalent per day. Our drilling in this region, which targets primarily the Cotton Valley and Hosston formations, has allowed us to increase our production in this region in 2007 by 38%.

Slide 17. We drilled our first horizontal Cotton Valley well in the Waskom field in Harrison County, Texas in December. On slide 17, we have a diagram of this well. The Bell #11A-H well was drilled to a total vertical depth of 9,490 feet with a 2,548 foot horizontal leg drilled through the upper and lower Taylor Cotton Valley sands. This well was successfully completed with a seven stage frac. The well was tested at an initial production rate of 8.4 million cubic feet equivalent per day, and the well cost approximately $4.8 million with a 69% working interest and a 53% net revenue interest in this successful horizontal well. We currently plan to drill seven horizontal wells this year in our East Texas/North Louisiana region, including five additional horizontal wells in the Waskom field. Mack Good, our COO, will go over this program with you a little later during this call.

Slide 18. Another area of focus for us in this region is our Hico Knowles field in Lincoln Parish in Northern Louisiana, as shown on slide 18. Our acreage is just west of the very prolific Cherry/Bell field operated by Petrohawk. We drilled nine wells in Hico Knowles in 2007 and one additional well this year. Eight of these wells are producing at per well rates ranging from 2.2 million to 6.3 million cubic feet equivalent per day. We currently have three wells drilling in this field. We have another 28 operated drill locations identified on our acreage and we have an interest in another 25 drill locations on acreage operated by Petrohawk.

Slide 19. Our South Texas region is displayed on slide 19. In our South Texas region, we drilled 20 successful wells in 2007 and we had two dry holes. These wells have been tested at a per well average rate of 5.5 million cubic feet equivalent per day. Production in this region is up 27% because of our successful drilling program. Seven of the successful wells were drilled in our Las Hermanitas field in Duval County, which we acquired last year. Five wells were drilled in the Javelina field in Hildago County, where we bought out our partner's working interest and now own 100% of that field. The remaining successful wells were in the Ball Ranch field or the nearby Tom East field. We also drilled two infield development wells in our Double A wells field in Southeast Texas.

Slide 20. On December 28, we closed an acquisition of producing properties from Shell in South Texas as displayed on slide 20. We acquired 70 producing wells in the Fandango, Rosita and Dinn Ranch fields, which are currently producing 22 million cubic feet of natural gas equivalent per day. The acquired properties have net proved reserves of approximately 70 Bcfe. All of the proved reserves are in the developed category. In addition to the proved reserves, we estimate that there are 18 drilling locations, which would add 50 Bcfe of probable and possible reserves, and we have identified 14 prospective drilling locations with 42 Bcfe of reserve potential.

Slide 21, our other regions. We drilled 15 wells in our other regions during 2007 as shown on slide 21. We drilled 13 wells in Mississippi, eight of which were successful. We also drilled two successful coal bed methane wells in New Mexico.

On slide 22, we cover our offshore drilling results in 2007. In 2007, Bois d'Arc drilled seven successful wells out of a total of 15 wells drilled with eight dry holes. The largest discoveries include a well drilled at Ship Shoal block 93, which proved up the Walleye prospect, a second well drilled at South Timbalier block 75, which extended the Doc Holliday discovery made in '05, and a ultra deep well drilled at South Timbalier block 81 which proved up the Butch Cassidy prospect. Bois d'Arc also drilled three successful wells as part of its M-8 sand water flood project in the Ship Shoal 113 unit. During the fourth quarter of 2007, Bois d'Arc drilled a successful development well at Ship Shoal block 119, which encountered 89 net feet of pay in three commercial reservoirs.

Slide 23. Bois d'Arc expects to spend $250 million in its development and exploration activities in 2008 to drill the 21 wells as outlined on slide 23. The 2008 program includes eight low risk development like projects, six moderate risk exploration projects and seven high risk high potential exploration projects. In total, our 2008 program targets 305 Bcfe of reserves. Adjusting for drilling risk, this program could add 82 Bcfe of reserves.

2008 offshore drilling results on tab 24. Bois d'Arc's 2008 drilling program is off to a strong start with two successful development wells, as shown on slide 24. Bois d'Arc drilled a successful well at Ship Shoal block 97 to a depth of 12,983 feet, which encountered 71 net feet of pay in two high quality sands. First production for the Ship Shoal 97 well is expected in February. The second successful development well was drilled to test the Perch prospect at Ship Shoal block 120. This well was drilled to a depth of 5,000 feet to develop multiple previously proven undeveloped shallow gas reservoirs within the Ship Shoal block 113 field area. The well encountered 109 feet of pay in eight [objective] sands. First production for this well is expected in the second quarter. Bois d'Arc is currently drilling an 18,500 foot exploratory well to test its Chinook prospect in South Pelto block 21.

Slide 25, the 2007 summary and the 2008 outlook. As we have been saying for the last probably 40 minutes, 2007 was one of the best years in our corporate history as shown on slide 25. Our 30% production growth which is generated primarily by our drilling program drove strong financial results in 2007. Our 2007 drilling and acquisitions activities added 285 Bcfe of proved reserves at a finding cost of $2.60 per Mcfe. Our $278 million onshore drilling program in 2008 should support continued strong production growth onshore. We are targeting 15% to 20% production growth in 2008. Bois d'Arc's planned $250 million exploration program for 2008 offers continued production and reserve growth opportunities, exposing it to over 305 Bcfe of reserves that should support continued production growth. Bois d'Arc is targeting production growth of 10% to 15% in 2008. Our balance sheet remains strong to support future growth and we expect to fund all drilling activities in 2008, exclusively with operating cash flow.

With that, I will turn it over for questions to you, Antoine.

Thank you. (OPERATOR INSTRUCTIONS) There are no questions at this time.

Well, with that, I would like to conclude the 45-minute phone call. I would like for Mack to speak a little bit about the horizontal program in 2008, so Mack, if you do that, because I told the audience that we would do that?

Sure, I would be happy to, Jay. Good morning everyone. Comstock is pretty enthusiastic and committed to the horizontal drilling program that we have scheduled this year. We have five wells that we are targeting, horizontal drilling candidates in Waskom. Our first well, as Jay mentioned in his presentation, was extremely successful. We, as a matter of fact, in the first 60 days of production is right on our tight curve meaning that it meets expectations. It is one of the top five horizontal Cotton Valley Taylor wells, horizontal wells drilled in East Texas. We are extremely pleased with those results, and as a result, in about four weeks, we plan to start our second horizontal well in Waskom. We have, as I mentioned, five scheduled for this year. We have multiple other candidates within Waskom. But, we are going to be fine-tuning our drilling and completion technologies as we go. We have other horizontal candidates that -- in other fields that we plan to drill this year. Both of those are in East Texas and we are permitting those locations as we speak, and we will probably start those in the third quarter of this year after we get through with our Waskom efforts. There is -- the advent and it hasn't been recent of horizontal technology has really opened up additional opportunities for Comstock in a number of other reservoirs and we are looking very carefully at our entire asset package for additional candidates in other reservoirs. But, for this year, we are targeting East Texas and specifically Waskom, because that's where we think we can get the biggest bang for our buck.

We do have some questions, I think, that are starting to come in, so maybe we'll take the first question.

Your first question comes from the line Jeff Robertson with Lehman Brothers. Please proceed with your question.

Thanks, good morning. Jay, can you talk a little bit about capital allocation between East Texas and South Texas with the -- in light of the acquisition that you made in the fourth quarter? And secondly, can you all also talk about the drilling inventory you have remaining in East Texas? Couple of years ago, you had a slide that had, I believe if I'm correct, 600 gross locations. Can you talk a little bit about where that stands now in light of the 2007 drilling program?

Yes, Jeff, what I would like to do is let Mack answer those questions, and if he would, go over the Shell acquisition in a little detail, because that adds to our inventory and some of the dollars that we would have historically spent in East Texas/North Louisiana have been pushed to South Texas, either into Vicksburg or Wilcox play. So, I'll let Mack go over that.

Sure, would be happy to. Jeff, our allocation on capital this year versus last, we plan to spend approximately $122 million in South Texas to drill 30 wells. Last year, we spent about $80 million to drill 20 wells. The additional wells that we plan to drill in South Texas obviously some of those are going to be targeting our Shell acquisition assets. We have additional drilling to be accomplished in both Javelina and Hermanitas, Ball Ranch, as well as exploratory prospects that [Aveco] plans to drill. So, the allocation in South Texas, obviously, is weighted toward '08 for the additional projects we plan to pursue. In the North Louisiana/East Texas region, we are reallocating some of those dollars that was spent last year to South Texas to [stay within] cash flow. We plan in '08 to spend $149 million approximately to drill 74 wells, and just as a side note, most of those 74 wells, 56 or so are going to be drilled in three fields, Hico Knowles, Waskom and Logansport. So, last year, of course, we spent about $220 million to drill 128 wells and nine fields, we were much less target specific, if you will, on a field basis last year compared to this year.

Mack, as part of the more selective drilling program in East Texas/North Louisiana, is that based on the results that you had in those three fields versus some of the results and some of the secondary fields drilled in last year?

Yes, Jeff, without a doubt the effort to stay within cash flow; that's number one and number two is we do feel we get a bigger return on investment in the three fields that we are targeting this year, Logansport and Waskom through horizontal efforts of course and Hico Knowles is a hot region with good results for us as well.

And lastly, what you are thinking ---?

We started that with a budget of about $275 million and then we increased it to $300 million and then we went to about say $330 million or so. We did that based upon success, but we did have spend our free cash flow, so what we've done this year we've set $276 million is what we project our free cash flow onshore will be and then we try to high grade those. And if you look at South Texas particularly with the acquisition of the Shell properties, we did increase our production by 22 million a day. But, we have kind of piggybacked on our [G&G] group and our reservoir group and our operations group because a year or so ago, we bought out -- we bought Las Hermanitas and there was three wells and we have since drilled about 11 wells, which is a Wilcox trend and those wells have been really good wells. We drilled seven last year, we'll drill seven in '08. And then if you look at Javelina, that's a Vicksburg trend well as I said earlier, we bought out our partners. We had had five wells, we drilled five or six more, and in '08, Javelina will drill seven of those wells and I think we will start blending in the additional Wilcox wells, which are locations that we have with the Shell acquisition maybe starting in April or May. We plan on probably drilling four of those and one of them we will take it several thousand feet deeper to test the deeper Wilcox sand which some of those may be probably about 10 Bcfe reserves and may be 20 million a day production. But, we will test something like that in '08 because of that acquisition.

Then lastly, Mack or Jay, where do you think your inventory of drilling locations stands in East Texas now?

We have an excellent inventory, Jeff. As we drilled last year, we continued to prove up additional puds there and that's one of the reasons for the reserve increases that we had in the East Texas region. So, I can't give you an exact well location number, but it's in the hundreds.

Okay, thank you.

Yes sir.

Your next question comes from the line of Jack Aydin with KeyBank Capital Markets. Please proceed with your question.

Hi guys.

Hi Jack.

Jay, you mentioned that the [$4 million] that basically was a non-recurring item, is that $4 million pretax or after-tax in the fourth quarter?

Jack, it's Roland. That's definitely a pretax number. That's the number that was included in G&A and that's in Comstock's G&A in the fourth quarter.

Okay. Second question, on the other region, with all the opportunities you have in East Texas, North Louisiana and other area, what is the big deal about having the other region, the coal bed methane one well and this and that? Why even the focus in something that is so minor?

Jack, what I think you will see is that we have only allocated like $5 million in what we call other regions. So the goal in '08 is to take some of those properties and we'll probably monetize and we'll probably sell some of those because, as Mack said earlier, we are pretty efficient on high cash margin and excellent returns in East Texas, North Louisiana and we have increased our presence in South Texas with the group that we have added in the last 18 months and we have not concentrated with a lot of success in other regions. Some of those regions, we don't operate. So, I do expect you will have some divestitures in properties located on that slide, Jack.

Okay. The other question, maybe it is unfair but let me ask anyway, I mean the big thing that basically clients ask is basically why you are not accelerating and focusing your activities more in East Texas. I assume you have a huge acreage, is it 100, 120 whatever acreage position, how do you answer that question in a way or how do you respond to that question?

I think our goal -- if you remember last year, and I had mentioned this to Jeff earlier, we started out with a CapEx budget onshore by $275 million. We increased that as the year went by because commodity prices held up at the seven and change level, we increased that by another probably $60 million. What we want to do is we want to start off the year within our free cash flow budget. As you know, we have very little gas hedge, just the production we bought from Shell, and if we need to increase that and we do have ample opportunities to spend on prospects in East Texas/North Louisiana, but we are not starting out the year doing that.

Comments on the process of Bois d'Arc?

Yes, on Bois d'Arc, in May of last year, we --- by June, Bois d'Arc was put up for sale. We went through the process for several months. We felt like we didn't have a real offer with real cash that was acceptable and we felt like the markets hurt some of the buyers, we felt like the share price, material appreciation of stock chased some of the buyers off. I think what we've done with on the Bois d'Arc side is we have secured the growth of Bois d'Arc. We had a conference call probably an hour and a half ago Jack and Bois d'Arc put in I guess the best numbers it's ever had in '07 and '08, should have a 10% to 15% production growth. Bois d'Arc should have about $350 million of free cash flow in '08 and its CapEx budget for 11 wells is $250 million. So, it is still having an additional $100 million that's not allocated and we reported on that conference call that those dollars would be used either to repurchase shares, be used to pay down debt. Bois d'Arc has about $80 million of debt now with a $350 million facility, but it will be used to enhance the value and I think we'll just see what happens between now and year end with Bois d'Arc to keep it on a really growth course for its more valuable tomorrow than it is today.

Thanks Jay.

Thank you Jack.

Your next question comes from the line of Kim Pacanovsky with Ferris Baker Watts. Please proceed with your question.

Hi, good morning everyone.

Hi, Kim.

Hi, you know what, I lost the call while I was going in an elevator and I don't know if you talked about the Bossier Shell at all, but can you mention if you did not what's going with the Bossier Shell and what you have found on your properties, maybe what the thickness are and your area versus north of you? I know Chesapeake had done some drilling and also prospective acres?

Good question and Mack is ready to answer that, Kim.

Well, we are in the process of evaluating that like a lot of other operators. We are aware of Chesapeake's drilling activity to the north. We are also familiar with some other drilling activity to the south. There has been mixed results recorded and so as with any shale play, you better be careful, and as with anything in our business, but specifically the shale plays require horizontal drilling to be successful. That's been shown in every shale play. The Bossier will be no exception. And so, as Comstock has shown in the past, we have -- we try to do our homework before we get out there with the drill bit and spend a lot of money. So, we are in the process of doing the homework. We have an excellent lease position and we are evaluating the Bossier.

We have drilled a well to test the Bossier, Kim, and Mack just now reporting results, it's a little early but we want you to know, we spent money, we deepened a well a couple of thousand feet and we got a big acreage position. And it's kind of like the horizontal wells, when we drill our first one, hopefully it's a really good one. So, we are taking the same attitude here.

Okay. And when you say big acreage position, give me an idea of what that entails?

Probably around 20,000 to 30,000 acres (inaudible).

Okay. Alright and what was the result south of you?

Well, not good. There was no reported production. Wells were drilled through the Bossier and logs were run and cores were taken and no gas rates reported. And so, that's always a bad sign.

Yeah. How far as the crow flies is that from your acreage?

It's about 10 miles.

10 miles, okay. Okay, and the special bonus that you mentioned that was paid to employees, how much was that out of the whole non-recurring part of money and what was that paid for?

It's on Bois d'Arc. I'll turn it over, Kim, to Roland.

Yes, that was about $1.7 million, so that was a good bit of the numbers and really what that was is we -- typically Bois d'Arc looked as performance bonuses and pays us in June or July, and as we exited the strategic alternatives process and since we had a retention bonus plan that wasn't going to be put in -- wasn't going to come into the fact, we decided to kind of and with Gary taking over as CEO, we decided it would be good for -- a good beginning for the guys that stuck with us down there through the process to reward them for a great year. And so --

Okay.

And after that entire process, Kim, we only lost one person, so that's pretty good.

Okay. Gosh, I wish I worked for you guys.

We try to -- we have great performance at Comstock, we definitely want to pay our people to award that, and in both companies, everything is performance based and a terrific year and then if we want to pay and then retain the best, it really creates the growth.

Right. No, there is no doubt you had a great year. And as far as Bois d'Arc is concerned, Jack asked the question about -- you answered about the budget and what the cash flow is and where you are going to put that free cash flow. If you have a 100 plus in free cash flow after CapEx expenditures, why won't you put some of that into bringing those PDNTs online and having more of a, cause more of a parity when you look at what the reserves are and what the cash flow is because there is not a parity right now because you have so many non-producing reserves?

One of the things we have looked at Bois d'Arc's business plan for this year is to improve that and I think even you saw our RP ratio came down to nine years at Bois d'Arc at the end of the year. So, it shows you it is moving in the right direction.

Yes, okay.

A large part of our budget is for development projects and you have already seen us drill three since starting this plan. And so, that's -- a lot of what we do is drilling development wells and working it. Yes, some of that we can access, some of the [behind pipe] is just more cost effective to wait and we don't want to look at production growth as the end all. We want to have our overall balance growth, but there is a bigger focus on improving production and drilling some acceleration wells, and you'll see it -- you will see it in the budget. At the same time, we are also continuing to test some of Gary's expression projects, and the biggest one right now we are drilling at Chinook, we'll have results on that soon. And that -- those results will either lead us to drill Wild Bill, one of the next deep Desperado plays or if they are not good, then we will probably revamp the budget again and maybe look at other acceleration opportunities.

Yes, my goal this year was to take that the budget in -- and of course I think one of the issues with the possible sale of Bois d'Arc was the production right, so we are trying to address that in '08. We are still trying to stay within a typical budget, which Bois d'Arc's budget for the last three years has been anywhere from say $200 million to $240 million, and this year, it is $250 million. So that's within that comfort zone. I think if you spend a lot more than that then you may have a lot more of exposure to exploration that again historically has a 20% chance of success, so we try to balance all that. At the same time, if the star dips and we have got a $100 million repurchase program approved and we've only bought a 100,000 shares back in that program, so we've not bought many shares back. But, we have tried to keep it balanced and Bois d'Arc was created, as you know, it really -- the goal was not to have any debt and it does have about $80 million of debt right now. So, we could use some of those dollars to pay down debt.

Okay. And this is sort of a discussion we have had several times before, but can you just talk about -- I know you put some hedges in place for the South Texas properties, but with gas pricing being so strong right now, is there any thought of hedging some of the gas?

Well, I think that is eight something, eight (inaudible) than nine.

We knew about taking a position in the market that we would call gas prices to go up and so that's what happened, but we will always look at hedging with acquisitions especially one that has a lot of production, stable production like the Shell properties did. I think it's a good fit for that acquisition, but I think what -- as we see gas prices strengthen here, I think there is a good chance we are going to add projects back into our capital budget. And again, we --

Okay, right.

We will get capital budget to the gas market versus vice versa trying to adjust the gas market to our capital budget. I think that's -- that's the way the Company is always grown. We remain very flexible and adapt to the price environment versus forcing something into price environment that isn't there, because again if gas prices are not real strong, then acquisitions might be a better place for our capital versus drilling wells that are -- that need a higher gas price.

Okay. And last question I promise, did you (inaudible) second Waskom wells, but probably it was just a couple of weeks ago.

No, it's waiting on a rig that we have on track, and we will be spudding it probably in about three to four weeks.

What rig is that, Mack?

It's a neighbors rig.

Neighbors rig.

Okay, okay. I thought that was, it has to go any day. Okay, thanks a lot guys.

Okay, thank you.

You are welcome.

Your next question comes from the line of Dan McSpirit with BMO Capital Markets. Please proceed with your question.

Thank you, good morning.

Hi, Dan.

How are you?

Pretty good.

Assuming success at -- [Shunark] how quickly would you follow up with the [Wild Bill]?

You are on the wrong conference call. You should ask Garry, he's not here to answer that, but I think that listening to Garry that given some of the correlations between Shunark and Wild Bill it is definitely is a confidence builders if it works and it's key to that. So --

Okay. Likely the second half of '08 is that --

I think it's a -- I would say it's kind of a mid-year probably maybe to the third quarter, but again it's -- their plans are pretty fluid, it's kind of based on what happens in the field. So --

Well, particularly the instance, they operate 98% of what they own and particularly debt play. I think it's (inaudible). If you need to see that the Shunark is a clear winner, then that will push in one way or the other toward drilling a look like.

Okay, okay. And then turning to Comstock, you talked about the bill number 11, your first horizontal, it's fitting your tight curve, it's early yet, but what do you thing that translates into an EUR?

Well, right now we are estimating about close to 4 Bcf and we are between 3.5 to 4.

Okay.

That's the way it's looking right now there.

And that well was $4.8 million.

Right.

Right, okay, great. And then one last question on Bois d'Arc's more strategic than anything. What would prompt you to revisit the sale of Bois d'Arc in 2008 or a later period?

Well, Dan, I think the -- as far as I don't think we would plan to put the company on the market in a formal method like we did last year in 2008. I think that a lot of people know the situation of Bois d' Arc and really it would be something for another party to initiate something on it so.

Okay.

We have got our focus to company on the growth and in improving like shortening reserve life like Kim said and then [building] the reserves and really focusing on some of the lower risk opportunity that it has there, at the same time it has some of the higher risk projects.

Got it.

Another thing, I think you create somewhat more valuable Bois d'Arc. I mean they drill the Butch Cassidy but it's hard to give value when it's not producing. So, you produce it. And then, same way with M-8 water floods, it's the same way with Walleye, you produce it and you start proving up some of the value there and you create a more valuable Bois d'Arc's by having maybe fewer shares or by having no debt and particularly by having a higher production rate. So, hopefully it's even a more appealing company.

Okay, got it. Thank you.

Thank you, Dan.

Your next question comes from line of [Tim O'Tool with Delta Management]. Please proceed with your question.

Hi guys. Nice job, things are really evolving well. I wanted to go through a couple of things and make sure I am on the same page though. Could you break out what your all-in finding in development cost would have looked like without the Shell acquisition, which was at the end of the year? And if you just go on a straight proved reserves basis and maybe you could talk to that also, it look like three or something. And -- but if you look at some of the potential reserves that are there that you'll be going after once you start the drilling program up, we'll look back and it will be a much lower number. So could you pass those out for me on the F&D cost for the year?

Do you want to do that Roland --

Yes, maybe Mack would give you some more exact later on if you call back, but just to give you kind of a feel for those numbers --

Yes, that's all I really want, the science project great.

I think the all-in cost for the Shell acquisition was about $2.40, which is a little lower than the total all-in cost for onshore which is $2.79 per Mcfe.

I got you, okay. So you did put some of the perspective reserves that you had to go out and you know they are there, it's just a matter of hitting them into the --

Not all the reserves on Shell are proved developed. So, the other reserves are -- that we have identified or not, they aren't part of that number yet.

They are not? Okay.

When we have our external [additives] of the Shell numbers, the numbers actually went up a little bit, one because we are in a stronger priced environment and two, that yes, really the producing wells were just really performing well and so we end up with a little higher reserves than what we had originally announced with the acquisition. But we haven't at all booked any undeveloped reserves yet on Shell. We are going to wait till we drill the wells.

Okay.

We had, Tim, of that 58 Bcfe, we ended up with 70 Bcfe. That's the difference in your number.

That's, okay, well, that's just a --

And 2 Bcfe of probable possible and perspective.

Great, okay. No, that's actually helpful and I am sure you probably put that on one of the reserve statements just something earlier but I didn't remember that.

No, it's not.

Okay. The other thing that might be helpful also around kind of South Texas in general but really about the Shell properties once you get going there, is -- could you give us some sort of a sense for what range would you project kind of the well cost, and completion cost and the kind of size of reserves you'd be looking for there, excluding going to deep Wilcox or something. It's not like there's some kind of interesting potential things and if you experiment and find something there, that could actually open up a whole in '09 -- a whole incremental high impact program your onshore business there, but just kind of the more bread and butter wells under the Shell properties where you are -- what the targets are, and the sizes that you're going after?

Right. The estimated drill and complete cost for those wells is around $5 million and the simple reserve target numbers to keep in mind for those wells is anywhere between $5 billion to $10 billion.

$5 billion to $10 billion, okay, wow, that's really good in terms of F&D cost once you start booking them.

You let.

Tim, let Mack tell you a little about the deeper test. We will drill four wells and one will be a deeper test, it could be a bust but you might go into that.

Sure, we have a deeper Wilcox objective at below 19,000 feet that we want to test toward the end of the year, and that's going to be a $10 million type well if drilling complete.

Okay.

And right now, on the timeline we are looking at probably an October or November spud. It's going to be a 60-day well to drill but that kind of potential is well north of $20 billion.

Let me ask me there also though, let's say you spend the $10 million on the well, you still got the shallower target about that, is that correct?

Well, we got a -- that's what we are trying to do, to be honest with you. We are tying to stack the shallow opportunities to allow us to drill deep and still have those bail-outs and you are exactly right.

Yes. Well, there is two ways to look at it and I don't know how this actually works operationally, but if the deep test really is not terribly successfully in that zone though, the higher zone is actually still available to go complete and bring online, is it not?

Yes, absolutely right.

Okay. So, your F&D relative to the rest of the targets there goes up, but it's still actually very economic even if that's a -- potentially even it that's a miss.

Exactly.

And I guess the second order question then is if it's successful, you could complete produce out of that deep zone, probably would want to isolate the upper zone though I would think, but then can you go back and do a re-complete even though it's still a fairly deep target I think, and whether it's six months or 18 months down the line, mingle those zones. Does that work?

Yes. Another alternative will be to do over well, so --

Well, obviously, if you find both zones, then maybe, it's perfectly economic to do that. I'm just thinking about kind of bail-out and also if it's much of -- if an inventory evolves in that direction, it's kind of an interesting way to do it and kind of be both efficient and then have good solid production performance as opposed to something that a huge early decline and then it goes to -- maybe you have to kind of [peddle] hard to keep up. You wind up then doing a work over and what very it is eight months or 15 months or something and then bring your both zones online.

You are right.

Okay.

The interesting thing, Tim, about the (inaudible) field, discovered in the late '70s early '80s, some of those wells came 40 Bcfe and then in the second generation of seismic, they came in like 15 Bcfe and today they are just 5 plus Bcfe. But it is a really exciting field that's been around quite a while and --

And it's not to say that some of those targets are actually aren't still there. It's just because they want you to -- things were not as precise on the seismic basis that long ago.

The reason we were comfortable with Shell is, again, you look at the G&G operations group and reservoir group, we were very successful. At Las Hermanitas, we were very successfully, at Javelina, again it's confidence builder in the South Texas group and then we end up with Shell. So it's -- that's why we think '08 is really set to be a great year.

And then moving to -- well, actually, I guess maybe one quick question on the Texas property or the Shell properties. Obviously, you want to go in there and study the data before you start throwing holes in the ground because they are little more expensive et cetera, the front end. And well, although if your successful there, you should be very economic. But ultimately you are targeting four wells there, but ultimately it would be interesting to see you get more aggressive. What would it take to get the [light bump] to go on there and say, "Okay, let's go forward and spend a little bit more money." Would that be -- could it be by the second half of '08 or you are really going to look through those four wells and the deep target and then see what you have and then really lay that program in '09?

Well, the time line for the drilling program out there really starts in April or May. And then, as you said you want to thoroughly evaluate the seismic length before you start turning (inaudible) drill bed, obviously. So, taking 45 days to drill the wells and then you want some production to confirm performance. I can't see us really being overly -- too much more aggressive than we already have on our plan sheet to be honest with you.

Right, right, okay. So, it's just the way the time line lays in. It doesn't make any sense you can think about getting more aggressive or even laying those plans and until sort of the fourth quarter or as you go into '09 anyway, so I guess --

Absolutely right.

The other think I wanted to try to get start in my head is on the East Texas North Louisiana drilling program, I think you mentioned 74 wells across a $150 million, but I was writing fairly quickly. Could you -- the three higher impact zones, what was the mix of wells, those zones and then some of the more, I hate to say generic but the more generic Cotton Valley verticals?

Well, we have got Waskom scheduled for eight wells, Logansports were scheduling 34 wells.

Okay, yes.

Hico Knowles, we got at 16 wells. And there is some timing differences here about spudding and so forth, and working with the rigs. We have five rigs dedicated to East Texas. That does not include a rig that we are bringing into drill horizontal zone.

Okay, right, right. Well, okay, so that interesting. So, the vast majority of those wells, of the 74 wells are actually in those higher impact zones, and that is one of the things that I thought would be useful to spend some time on because one of the things that I think that I have noticed over the last three years that I've been kind of in there and tracking you guys is that in '06 you had a -- it seemed like you had kind of blanket program, will drill anything in the Cotton Valley, virtually everything is vertical. In '07, sometime early in '07 but not probably before the middle of the year but not much before the end of first quarter, let's say, it seemed like you started to kind of move the dial over and say "Hey, let's high grade the drilling inventory and really look at better ROI projects with -- and look at the CapEx budget is more finite." And as I look at this program for '08 -- I don't know if you would be willing to kind of put targets ROI bands against those three different areas, but against doing a stock Cotton Valley well that you might have drilled when you were getting really busy and getting rigs on in '06, which could have been $0.6 billion, $0.8 billion, $1 billion per well, against -- in an ROI that might be okay, let's say, 15%, 20%, 25% some of the ROIs on some of these projects are 50% or 100%, maybe 100% plus and then you don't even want to venture I guess. Could you help -- and am I right in kind of seeing and tracking that evolution over the last sort of thee years. It sort of seems like you've turned the dial a lot in terms of what you can really do in the return profile across the Cotton Valley which has some cats and dogs and some real interesting prospects.

I think you have accurately described what's happened with our drilling program. One additional note would be that we've in '06 drilled a number of wells to test acreage that we acquired through the insight acquisition. And of course, that was -- those wells were in previously untested regions, so a number of those wells fall into that category. But then as we drill through '06, we continued to high grade and target the better performing regions. We internally do look-backs in evaluating projects, performance versus expectation and that allows us to continually process that information so we can target the higher return regions and that's what you're seeing in '08

There are no further questions at this time. I would now like to turn the call back over to Mr. Jay Allison for any closing remarks.

I guess finally, the closing statement would be 2008 is off to a really good start. And I want to highlight the fact that this 15% to 20% production growth that we expect to achieve in '08, it should be achieved by staying within our cash flow and I think that's important to have a double digit growth in production by staying within your cash flow, that's important and we'll continue to keep our strong balance sheet. And it's been a really wonderful call. Thank you. Appreciate it.

Thank you for your participation in toady's conference. This concludes the presentation, you may now disconnect.