先鋒自然資源 (PXD) 2003 Q3 法說會逐字稿

Good morning, my name is Jeff and I will be your conference facilitator. At this time I would like to welcome everyone to the Evergreen Resources third quarter 2003 operating and financial results conference call. All lines have been placed on mute to prevent any background noise.

After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during that time, simply press star then the number 1 on your telephone key pad. If you would like to withdraw your question, press the pound key. Thank you. I would now like to turn the conference over to John Kelso, Director of Investor Relations. Please go ahead, Sir.

Thanks, Jeff . Thanks to everyone for joining us today for our third quarter 2003 conference call. We certainly appreciate your interest. I would like to start off by mentioning this call is being broadcast live over the internet, with the company slide show. Go to our webcast newly designed web site at Evergreen gas.com. Over the next half hour, Evergreen management will discuss the press release which provided operational and financial results for the third quarter of 2003. As well as estimates for the remainder of 2003 and for the fiscal year ending December 31, 2004. These forward-looking statements are made under safe harbor provisions, established by the Securities and Exchange Commission. The risks and uncertainties involved with these forward-looking statements are describe in more detail in the company's most recent annual report on form 10k, which is filed with the SEC. With, that I would like to turn it over to our Chief Financial Officer, Kevin Collins.

Thanks, John. Good morning. Today our call is going to consist of three areas from my standpoint: First of all, highlights of the third quarter results and guidance for the fourth quarter of 2003. A overview of the completion of the Carbon Energy acquisition, which was completed yesterday, guidance for the fourth quarter will include Carbon Energy for the months of November and December as well as 2004. Then we will also talk about an overview of the guidance for 2004.

One thing I would like you to note that is the two for one stock split that became effective on September 16th, we have reflected in our information provided both in our financial statements and our 10Q and press release, all the per share information has been restated to reflect the adjustment for the two-for-one stock split.

On slide 3 of the webcast, Evergreen had an excellent quarter, we reported net income of $19.6 million, 49 cents per diluted share. On both, on slide 4 you can see our breakdown on a per MCF basis and the production and weighted average shares outstanding. On slide 5 you can see the historical trends for this year, they're all heading in the right direction, going north. On slide 6 you can see our per diluted share is increasing also, going from 43 at the beginning of the year to 49 cents as of the end of the third quarter. On slide 7 our actual production for the quarter was 11.75 BCF. Our guidance for the quarter that we have been given giving out all year was 11.6 to 11.8. Our production was on the higher side of our guidance provided. On slide 8 we have listed out the historical net daily net quarterly production, as you can see production in Raton Basin increased significantly since we started the project in 1995 through September of 2003.

On slide 9, our third quarter average daily net production was 128 million cubic feet. With this, the quarter, the daily quarter average net production is now increased from 34 consecutive quarters. On slide 10, our production for October was anticipated to be a little over 4 BCF, our current production is 130 million cubic feet per day. Our actual rate for the fourth quarter production is estimated to be 131 to 132 million cubic feet per day. Production estimates for the Raton Basin in the fourth quarter are 11.9 to 12.1 BCF.

If you'll turn to slide 12, slide 12 has a recap of our estimated production for 2003. On January 13th of this year we provided guidance to the street and we had our production estimates of 44 to 46 BCF. We will end this year between 45.3 and 45.5 BCF, right in the middle of the fare way of production guidance we gave at the beginning of this year.

Turn back to slide 10. Last conference call we discussed, we were not providing guidance for the potential, for some of the carbon assets due to a potential sale of those U.S. assets. However, Evergreen decided to keep and develop these assets for a number of reasons.

First reason is that this is a very large acreage position, the results of this year's drilling, recompletion programs. Three, the CBM potential in this region, four, narrowing of the basis differential in recent months from a gas marketing standpoint and five, this places Evergreen unconventional expiration production model.

The following is guidance for carbon by area for November and December. We anticipate that the carbon U.S. properties will produce about .2 to .3 BCF and the Canadian properties of carbon will produce .7 to .9 BCF. Therefore, on page, slide 11, total production for the quarter is estimated to be 12.8 to 13.3 BCF for the fourth quarter of 2003.

Turning to slide 13, with the addition of carbon for the last two months of '03 and the production from the Raton Basin, we estimate this year's production to be in the 46.2 to 46.7 range, which represent as 19% year over year increase from '02 to '03. Slide 14, we have listed out our net actual realized prices for the year for the first three-quarters, for Q4 in the last, about three weeks ago we added about 45 million in cubic feet a day in hedges at net realized price of $5.36. We anticipated catching the spike for gas prices two, three weeks ago and locked in some gas. Therefore, for the fourth quarter we have hedged about 92% of our production. This 45 million cubic feet a day with 270 million cubic feet a day that we had hedged at 4.37 and the 20 million cubic feet a day we have hedged at a collar of 3.26 to 5.02, which provides an anticipated gas price of $4.55 to $4.60 for the first quarter.

On slide 15 we have listed out our LOE expenses, our LOE costs decrease was noted in the press release. However, due to projected operating cost for Raton Basin guidance for the fourth quarter should be in the 46 to 48 cents range and including the LOE from Carbon U.S.A. at 55 to 58 cents and Carbon Canada at 65 to 68 cents per mcfe, estimated consolidated LOE for fourth quarter will be 49 cents to 51 cents.

On slide 16 we have noted the fourth quarter cost estimates. G&A cost for the fourth quarter anticipate that for the fourth quarter, including carbon for the months of November and December our G&A will be in the 30 to 32 cents per MCF. DD&A has gone up somewhat from our previous historical DD&A rate because of including the Carbon acquisition as of November and December. Our DD&A rates will be in the 68 to 69 cent range. Our interest expense per MCF is in line with previous guidance. Our current debt levels were 232 million at 93003, with the completion of the Carbon acquisition and certain transaction costs yesterday, our current debt level as of this morning was 254 million dollars. We estimate that year end debt levels will be in the $265 to $275 million range.

On slide 17, our capital expenditures were 46.6 million for the third quarter. This amount is a little different than previous guidance in that the closing of carbon didn't happen in the third quarter as originally anticipated. It happened in the fourth quarter and therefore, some of the dollars moved from Q3 to Q4. We anticipate the fourth quarter cost to be 140.6 million. However, of that 146 million, 82 million is a non-cash item due to the stock transaction for the acquisition of carbon. We estimate the total capital expenditures for 2003 will be 265 million dollars, which is about 10 million dollars less than our capital budget for, our adjusted capital budget for this year of $275 million. That decrease is primarily due to capital expenditures that we're not going to be able to spend for carbon due to the timing of that acquisition.

On slide 18 we projected our year end reserves. Our guidance for the Raton Basin is generally remained unchanged for the year, we are tightening up the lower end of the guidance from, to about 1.4 to 1.25 TCF. And our guidance for the carbon energy reserves will be 100 BCF to 105 BCF. Leaving us with about 1.5 to about 1.5 TCF for the year. We estimate that 2004 guidance for reserves will be about 1.675 to 1.75 TCF.

On slide 19, this is normally a slide we wouldn't include in our quarterly presentation. However due to a number of transactions that have transpired or could transpire in the fourth quarter, we have listed out how to potentially calculate the weighted average diluted shares for the fourth quarter. The key items to look for are the closing of the Carbon transaction, yesterday, therefore the Carbon shares will be outstanding for approximately 2/3 of the quarter. Therefore, we would need the add approximately 2.4 million shares to the outstanding diluted calculation. And also because of the nice run-up in Evergreen stock price as part of the convertible debenture that we did two years ago, the financing, one of the provisions of that convertible debenture was a contingent conversion feature, which means that any time our stock increases 110% over the conversion price and that stock is outstanding for at least 20 trading days in the first 30 trading day period of a quarter, then the convertible debenture shares need to be included in our diluted share calculation. And this is done on an if-converted basis.

So as an example, if we have currently through yesterday traded 16 days above 27.50, we need four more days within the next few days to exceed that 20-day period, and if that happens, then the four million shares that are currently under our convertible debenture, some portion of that will need to be included in the diluted share calculation. It is only included in the diluted share calculation for the period that those debentures are convertible, which would be first time that those would be convertible to the company would be after the first 30 trading days of a quarter. So beginning with November 11 of this year through the December 31st of this year, you would take roughly 2/3 of the four million shares outstanding and add those to the diluted share calculation. If those are clued in the diluted share calculation, interest expense related to that would have to be added back to net income to effect the earnings per share calculation.

Following in the first quarter of 2004, then, the contingent shares would also be included in the first 40 days of the 2004 weighted average share calculation and so forth. So we would have to, we will evaluate this on a quarter to quarter basis to see if our stock prices continually exceeding $27.50.

On slide 20, the acquisition of Carbon Energy completed yesterday. The total purchase price will be $89.1 million, approximately, with the assumption of about $20 million in debt. We issued almost 3.5 million shares as of the closing yesterday, carbon's gross acreage position is 150,000 gross acres in the United States, 130,000 gross acres in Canada, and when we first started looking at the transaction, Carbon Energy, the total reserves at 123102 were 56 BCF in the United States and 31 BCF in Canada. As of 10-31, prepared reserve estimates and is that 59 BCF in the United States and 38 BCF in Canada.

The slide on page 20 is to provide you with some guidance in terms of what the balance sheet for Evergreen Resources will potentially look like. We don't have updated numbers for everything, since this closed yesterday. But using evergreen's September 30th numbers and allocating the purchase price of Carbon, we would be approximately 832 million dollars for property and equipment, our notes payable would have increased, increases to 256 million, deferred income taxes increases to 90 million, and stockholders equity increases to 468 million. Please note the information on the bottom, these numbers are subject to change upon the final determination of the purchase price consideration and the final allocation of the purchase price to the acquired net assets.

On slide 21, our drilling program for 2004 is laid out for you. We anticipate drilling 165 wells in the Raton Basin, which is consistent with drilling program for the last two years. Next item is Kansas properties, we have adjusted our drilling program to 150 wells for 2004. This is a reduction from our original estimate of about 300 wells that we talked about in the first quarter of 2003. Of the 150 wells, 144 are producing and six are disposal wells.

We have reduced our drilling program in Kansas for the following reasons initially we were not sure we would retain the Piceance properties of Carbon Energy. But as previously noted we decided to keep those properties and develop them. And because of this we needed to reallocate resources from Kansas to the Piceance and Uintah in both capital and personnel. The Carbon properties that we acquired in the U.S. are going to require more attention, remedial work overs, a lot of these carbon wells were completed using old technology. Evergreen will use state of the art structure stimulation techniques and as a result we anticipate substantial gains in production from these wells. Because of remedial workovers we do not have enough equipment available for completion of a 300 well drilling program in Kansas. And we also wanted to scale back initial drilling practice because of large acreage position we acquired throughout the year, felt we would be prudent to test a number of different pilot programs in the acreage position to adequately look at all possibilities for the development of the Kansas properties. In addition, we have gone from 160 wells of drilling in 2003 to over 442 wells of drilling in 2004.

Slide 22, production estimate for 2004 is 66 to 69 BCFE, we made some minor adjustments from our 72, from our 70 to 72 BCFE guidance as we discussed in our first quarter conference call of 2003. The 66 to 69 represents an increase of 45% year to year over the 46.2 to 46.7 that's estimated for 2003.

Reviewing details of production guidance, not really change, there's been no significant change in guidance for the Raton Basin. When we gave guidance on the 11303 guidance call we projected 52 to 55 BCF for the Raton Basin. We tightened lower end of the guidance to 54 because of the positive production increases in 2003 and then the higher than expected production exit rate for 2003 in to 2004.

Kansas, our initial guidance was around 7 BCF. Based on a 300 well drilling program. However, we reduced this to 1.2 to 1.9 BCF due to timing and drilling of the Kansas wells in 2004. However, there's been no change to our initial estimated production profile or reserve potential per well. The Canada Carbon, the Carbon U.S. and Carbon Canada production for next year is due to a full-year of drilling in 2004 and also the remedial program that will be put in to place.

Slide 23 has our production guidance by quarter and by area. Moving to slide 24, our 2004 hedging position. It's currently, we're about 23% hedged for Q1, 21% for Q2, 20% for Q3 and 19% for Q4. We have entered into a couple hedges recently and those are noted in our press release and also in our 10Q that was filed yesterday. Our net realized price hedged portion of the items noted on slide 24 is about $4.16. This is a net-net realized price to Evergreen. We have not included the collar that we have for 2004 in our hedged piece of the 2004 production.

Slide 25 contains our estimated operating cost for '04. Our LOE costs for '04 are a little higher than we estimate for '03 and this is primarily due to a full year of the Carbon properties for both Canada and the U.S. We anticipate a 55 to 58-cent LOE cost in the U.S. and 65 to 68 cent cost in Canada. Until we can get in and start operating properties we're really unsure how much we can effect and reduce these costs, but we'll continue to update this on a quarterly basis.

For Canada, LOE costs initially high until we can get some economies of scale in that area. We estimate LOE costs are in the 75 to 80-cent range. Hopefully that will keep, continue to come down once we develop and expand the Kansas properties. And then the Raton Basin we are keeping those, keeping our LOE costs in the 42 to 44-cent range for '04.

DD&A costs for '04 are higher than they are in the fourth quarter. This is primarily due to the acquisition of Carbon. That acquisition would then be shown for a full year in our DD&A calculation for '04 versus two months for DD&A calculation in '03.

Next year we will start showing, I'm looking at item 2 on slide 25 regarding income taxes. In the past we have been completely showing deferred taxes for our tax expense. In '04 with the acquisition of the Carbon properties in Canada, a significant portion of our taxable income will be current taxes in Canada as we are not able to shelter as much taxable income as we are in the U.S. with our, with our drilling program, Canadian tax laws are a little different and we will have higher taxable income.

To help your modeling efforts, we would anticipate that the average tax rate for total income tax expense would be about 37% of net income before taxes. Of that 37%, approximately 10 to 15% of those taxes would be shown as current. The difference would then be shown as deferred.

On slide 26, we have listed out our capital budget for 2004. We anticipate capex budget of $220 million. Depending on gas prices and based on our production, we think we can be fairly close to cash flow in our capex budget for '04, but again, that's predicated upon gas prices being 4.50 or more net to Evergreen.

Raton Basin drilling program for next year on cap jek is about 90.4 million dollars. We have had no change in our total cost per well, which is still averaging about 400,000 dollars and that includes both drilling and completion and pro-rated gathering costs. In other costs in the Raton Basin we have approximately 14.4 million dollars allocated to our well remediation program. We have been getting excellent results from 2002 and 2003 program, we'll continue that program in to 2004.

Kansas, anticipate spending approximately $58 million during 2004. All-in cost for a Kansas well, approximately 170 to $180,000 per well. This includes both the drilling and completion costs, and also pro-rated gathering costs. The other significant item in Kansas is the collection and compression and also we added a new fracture stimulation fleet and related equipment.

On page 27, slide 27, we have put together an aggressive program to develop the basin and Canada for 2004, we will drill approximately 55 wells, which is a net 40 wells to Evergreen and in Piceance and Uintah, 72 wells, a net 50 wells in Canada. Our Alaska project, we anticipate six producing wells in 2004. That completes our guidance and review of the third quarter 2003 results. Also our fourth quarter guidance. I'll turn the conference call over to Mark now.

Thank you, Kevin and nice format and a lot of information. As Kevin indicated, we decided not to divest the Piceance and Uintah Basin assets acquired from carbon because we see significant upside in those properties through future development. Valuation has been supported by results of our joint operations with carbon, we're very pleased at the early results and that's why we made a strong capital commitment for carbon energy over this next year.

Alaska, while we're disappointed with our initial drilling results on the pioneer unit, we're by no means slowing down on the entire Alaska, we're not down on the Alaska project, where are slowing down a little because we're very encouraged by potential of additional 230,000 acres of leases we recently acquired in the Matenewska and Susitna valley. We would have drilled there first in that area, since this was the original play concept for Evergreen but took us 3 ½ years to get the leases. We originally applied for these shallow gas licenses and leases in February of 2000.

Along the way while we were working on the play concept in May of 2001, we had the opportunity to acquire the pioneer unit and we decided to take a shot at it. So what we're going to do going forward in Alaska is we're drilling five core holes now, we're spacing them out throughout the entire 300,000 acre position, based on the results of that core hole drilling program and testing coal that's are deeper than the coal that's we originally encountered in the pioneer unit, since all of these wells will be drilled on the north side of the Castle Mountain fault, which is a 3,000-foot fault, coals we would encounter at 3700 feet on the south side of the fault in the pioneer unit, we would encounter at 700 feet and will be a whole other series of coal that's quite honestly we thought were more attractive. So that's the original play concept. We're going to test it very diligently with core holes.

These core holes will not be producing wells. If we like the results of one of the core holes, we will go ahead and put in and drill six wells next year and plan to put in a small compressor station to get production online. And obviously we'll know a lot more on that after we get the results of the five core holes, which will probably have some time in January, February, we'll be finished.

In Kansas, we began drilling in the four city Basin of eastern Kansas in early Ocotber. Today we actually have 11 wells, ten coalbed methane wells and one water disposal well. As reflected in the third quarter earnings release, we reduced the planned number of wells to be drilled in Kansas in 2004 to 150 wells. Largely because of all the aggressive drilling we'll be doing on the carbon properties. I’ll remind you that we'll still be drilling over 440 wells next year in this program as opposed to the 200 wells that we will have drilled this year. With that, Jeff, we're going to open it up for questions.

At this time I would like to remind everyone in order to ask a question, please press star then the number one our telephone key pad. We'll pause for just a moment to compile the Q&A roster

Your first question comes from Brian Singer with Goldman Sachs.

Good morning. I just wanted to ask a couple questions on the Carbon properties.

We can barely hear you Brian. Can you speak up, please?

Sure. Is this better?

Thank you.

Great Great. Couple questions on the carbon properties. First with regards to the U.S. given your decision now to go ahead about the drilling program, do you feel like you have critical mass now? Or are you looking to acquire more acreage and more assets in the area? And secondly, could you just talk about Canada and your thoughts there in terms of M&A and the ultimate plan?

The answer is yes and yes. We do have critical mass and we are looking to acquire more and we have several ideas on how we would like to do that. As relates to Canada, we're always very interested in carbon, largely for the strategic positioning it gave to us get a foothold in Canada. We think coalbed methane and unconventional gas will be a big play in the next few years in Canada and we want to be part of it. We already are talking to companies there that could help us get very active in Canadian CBM in a big way.

Could you give any more details on the costs coming out of carbon and the ability to potentially do some cost-cutting there?

Well, obviously we think we can do some cost-cutting, we do have some economies of scale. Carbon was not an inefficient company but it was constrained by the size it was at and where it was in its growth stage. You know, quite honestly we're going to be able to lend more support especially through Evergreen well service and through, just having more resources than Carbon did did. Probably the biggest opportunity is that given the improvements in the gas marketing situation in western Colorado and eastern Utah and given our large position on CIG, we believe we will have a lot more flexibility in getting better prices for Carbon properties than Carbon was able to.

Great. Great. Thank you.

Thank you. Brian.

Your next question comes from Greg McMichael of A.G. Edwards.

Good morning, Mark, Kevin.

Hi, Greg.

Hi, Greg.

Just a couple of questions here. First of all, Kevin, in terms of your capital needs for '04, do you see the, given the 220 million dollar capex budget, which probably looks like it's going to exceed cash flow, at least our estimate of cash flow, do you see the company needing any additional equity next year or can you finance all of the spending with your balance sheet?

We have more than adequate capacity within our bank line to fund any drilling needs for next year. I don't see any need for equity. We tentatively could move our bank line up to 300 million dollars very quickly, so we have a lot of flexibility I think in terms of how we finance our project next year.

Also I would like the add that although the budget is stated at 220 million, about 60 million of that budget is purely discretionary on our part and based quite honestly on very positive results we expect to get. So if we decide we don't like the results we're getting, we will cut back the budget and I don't think we'll be exceeding cash flow by very much next year in our capex.

Okay. On the guidance issue for '04, just want to clarify in my mind how we went from 70, 72 to 60 to 69. I guess carbon, the timing of Carbon is one aspect of that and then less wells in Kansas. How would you break that down between those two components of the 5% reduction?

Well, majority would have been in Kansas. We stated before we thought we would be somewhere around 7 BCF and we adjusted that backwards to 1.2 to 1.9. I think generally we have kept Raton Basin the same in all guidance and I think that we generally kept Carbon the same same. We increased that just a little bit for '04, just because of some good results that we're seeing right now in the drilling program this year year. So I think the majority to answer your question, I think the majority just came from the Kansas properties.

Okay. And then with regard to '05, are you changing your guidance for '05?

We haven't really focused too much on '05 yet. We initially had, I don't know that we have talked about '05 really in terms of production guidance, we have just been focusing on getting our programs in place for next year and really trying to figure out how we're going to get all of this completed with 442 wells we plan on drilling. So our '05 budget really will be predicated upon some results we see in '04.

However, we will probably be able to give you -- we did put out an anticipated number a couple quarters ago, looking out. And it was speculative but shows a great deal of growth and we expect to have a great deal of growth and I think we can give you better guidance, we can give you some '05 guidance in the next quarterly conference call. On a preliminary basis, because one of the things that we pointed out that Kevin pointed out, is that we pretty much hit the numbers this year that we said we would in the first quarter of this year and we have given guidance for next year. We'll reiterate that guidance in every quarterly conference call. But we are expecting very aggressive growth in '04 and '05.

Okay. With regard to production costs, Kevin, we were surprised to see and come in so low, the all-in number about 91 cents in MCF, including the taxes. As noted in your press release, you deferred some of these costs into the fourth quarter. What was the reason for the switch from the third to the fourth quarter? Because it was my understanding that most of that repair and maintenance occurred in the third quarter.

A lot of our, we had anticipated a lot of repairs and maintenance in the third quarter when we talked about it in our guidance call call. Two of the areas where we had compressors we wanted to do the top end overhauls, it was just due to availability and timing of getting the work done. We were focused quite a bit on getting production in the third quarter and we just didn't have the time to get the maintenance done. And also CIG is scheduled a shut down during this quarter and we wanted to take advantage of that while they were shutting their system down for a little bit, we wanted to take advantage and repair or do the maintenance on these compressors while we would be shut down anyway. Therefore, helped our production profile in the third quarter. That was really, just an operational issue that switched from Q3 to Q4.

Okay. You have indicated your production currently is 130 million a day and that your exit rate at the end of the year would be 131 to 132, this is Raton, I guess. Is the reason that it's only up slightly from now because of the CIG shut down?

I think some of it is due, if you look at the historical curve plats of where Evergreen has been in the last few months of a year, we tended to flatten out a little bit in November and December. And I think that's consistent with our projections. If we can enhance that, we will. But historically, when we look out over the past several years, we have always flattened out in the last two months of the year going in to the first part of next year.

And that's really due to reduction in our, at that point in time our drilling programs pretty much completed. Right now we're at 145 wells, we should be completed with that drilling program early next, early in November and as such we'll not see the significant increases that we have seen during the year.

Okay. In terms of your capex in the Raton next year, 90.4 million, almost 18 million is for other costs. What are those other costs?

I was running through the costs for the various projects, about 14.4 million in other costs is related to our remediation program, for our existing wells, where we're going back and refracing those to different depths and refracing some of the coal seams that's we didn't frac the first time we drilled the wells. We have seen nice results as we're doing that seen production increase and reserve increases by doing this. So we have about 160 wells that are scheduled next year to be for this remediation and recompletion program.

Okay. So those are going, those items will not be expensed, in other words?

Those are capitalized workovers.

Okay. And then lastly on Raton, you've got 32 million for collection and compression. It was my, I guess my perception that the gathering charges and compression charges were going to decline in future years, still seems like that's a high number. What, what's your thoughts there?

We looked at this very hard, Greg. I think every year over the past couple years, kind of changed our thought process a little bit. As we continue to drill more and more wells, we still have a tremendous inventory of wells to drill over the next several years. We're still adding some compression in certain areas, we're adding large diameter pipe and we are also upgrading some compression stations. So we don't really see a lot of increases in it, but I don't think we see tremendous decreases in our capex going forward and we have also had to upgrade our system to accommodate the low pressures we need in the basin to increase production.

So I think it's efficient dollars, if that's the question. We have not increased our average cost for the past several years and this is good money that's spent to help increase and enhance our production profile.

I think Kevin keyed on it, Greg, when he said that when we originally did our plans, we were thinking that we would have, you know, about, ultimately about 1500 wells in the area. Now that we have 1000 producing wells and we have quite a few more than 500 wells left to drill, we're now planning on what are the next 8 to 1200 wells look like added to the system? So upgrades we're making now are because, are good news and reflect our confidence in the larger number of future wells that we will be drilling in the basin.

Okay. Mark, question for you on Forest City. Says you drilled ten of the 40 wells you will drill this quarter quarter. What are you seeing there at this point? Is it in line with expectations? Are there any surprises? And what are your costs per well all-in?

The aggregate coal thicknesses running 6 to 25 feet which is what we expected with seams, typical seams being one to four feet thick, also what we expected. One pleasant surprise that we have seen is the gas sands are coming in aggregate about 15 to 30 feet thick. A little high on the range of what we expected, but still in line. Right now things look just fine. We really won't know how good the project is going to be until we complete the wells, but at this early stage drilling we're seeing pretty much what we did expect to see in the Basin.

Coal quality looks very good from a qualitative sense. We're seeing good cleating and we believe we'll have good permeability we think we're exactly the right group to come in and complete these very thin, hopefully high permeability coals. You know, without gathering, you know, our four wells we think are coming in around 100, 135,000 dollars a well, just initially. Those are what the AFEs were. You know, the producers are actually cheaper, they're around 100,000. The wells that we're coring are a little more expensive. They're about 135,000. So producers are coming in right about 100,000, it's what we expected. That means we'll be pro-rating 70 to 80,000 dollars in gathering on top of that to come in with the total cost of 170 to $180,000 that Kevin mentioned earlier.

Okay. Mark, if do you the simple math our budget for next year, 58 million in Kansas and you divide that by 150 wells, you come up with $386,000 a well. What's the difference there?

Well, it's the timing of a lot of the -- go ahead, Kevin.

Generally, Greg, if you look at it, our well costs, we just stated. When you allocate some of the gathering come preing, we have allocated additional costs in gathering compression because of unknowns, we don't know what were going to run into in certain areas, so we overallocated costs for gathering compression for 2004 but generally our costs will be in the 170 to 180 range. We also included in there frac equipment and other equipment of 10 million dollars and we have some other acquisitions we would like to make in the area too of, we have allocated you know 10 to 12 million dollars for that also.

Other costs related to future acquisitions but timing element I was referring to is when do you a gathering system, you know, it's not perfectly linear. It's a little lumpy when do you a start-up program. If you have the timing, you have to get all the infrastructure in up-front, you have to have enough encouragement from the producers and what you're going to get to put in to pay the money to start the gathering system at a higher level. The higher the level, the more you're willing to spend on gathering, the more efficient it's going to be early on. It's really just a timing issue that you need to spend the money up front for a lot of these wells.

Well, congratulations on a great quarter. And thank you again for beating our estimates.

Our pleasure.

Your next question comes from David Tameron of Stifel Nicolaus.

Good morning. Greg picked up my questions there. Couple more questions for you, Mark. Up in Alaska, you know, there was a ruling that came out, I guess it was last month regarding, you know, drilling permits up there in that area. Can you talk a little bit about that? I know it didn't effect your pilot wells, but kind of what your outlook and what your feel for that is going forward as far as environmental hurdles you have to jump through?

The issues that were raised related to some of the citizens in the Mathaska Suisitna valley believed there wasn't enough time for them to respond to this new shallow gas leasing program. So the current administration has simply decided to go a little slower on new leasing and is going to make sure that everyone has adequate time to comment.

We are not planning to drill a producer well right away. We're going to drill these five core holes, they're fine. They're going to give us the scientific date data that we and the government and citizens in the area are going to want to see.

As far as permitting a pilot program in Alaska on the 300,000 acres, I really don't anticipate a problem. And I think that some of what we saw was just a response to new legislation and the fact that the DNR and AOGCC need to get together and say these are the rules that govern shallow gas licenses and that's pretty much what House Bill 69 did, it gave them the authority to come up with the new rules and regulations and some of what we saw was just the people saying wait a minute, those rules and regulations aren't in place yet. That's a true statement. They were, although there are plenty of rules and regulations in Alaska that govern oil and gas drilling, we can go forward under the old rules just fine. The new rules are being designed specifically to accommodate shallow gas drilling. We don't see a problem. We have slowed our pace there a little to get a little more data and to do the core hole program and by the time that's done, I think all the rules and regs will be in place that people are looking for. I don't really see a problem. It's part of the reason why we're going a little slower next year in Alaska.

Okay. .

Give everybody a chance to get comfortable it with, see how, see what this really is and what it's going to look like. They will be very pleased with the results of this, if it's economic. .

a Bigger macro type question, as you go new basins, obviously, you know, experienced personnel is short rather than long at the moment as far as getting other people. Are you seeing rising costs and difficulty in attracting, you know, new talent to Evergreen as you expand these basins? How would you, you know, look at it, the overall job market on the energy side of it? What's the recruiting process like and are you looking to additional staff going forward?

Well, based on the number of resumes we have been flooded with, you wouldn't see that problem. A lot of our people that are in the Raton Basin also think it would be fun to go to Kansas and have also expressed some interest there. So, you know, we know that we need to staff up and gear up to do it right, but we have had a lot of -- one of the reasons our G&A costs went up this year is guess what? We were staffing up, gearing up to do the work that we're going to be doing next year. So we have been anticipating it, we have been gearing up, we have been putting the people in place we knee and we have a lot of people have expressed interest in getting on board.

So the answer is we have to manage the growth, but we don't perceive a shortage of people or talent. Keep in mind we offer something that's unique to a lot of people. If you're in the well service business, you get to live where, you get to work where you live, you get to go out and frac wells and come home to your family every night and there are very few places service company personnel can say or do that that. So we offer something unique to people who want it it.

We have a lot of people who want to get on board and our issue is simply not the talent available and not is it attractive to Evergreen and attracted to Evergreen, but simply, you know, managing the growth. It's one of the reasons why we cut back four city Basin. We still have a total of 440 wells to drill next year, so we'll be busy.

Couple questions for Kevin, I will let everybody else jumpo Kevin, the other item on the income statement of I guess it was 1.673?

Yes.

What is that?

Majority of that is, we have hired a couple of investments in other companies that we entered into for various reasons and what we had done during the quarter is, we have been trying to monetize all those investments to get them, well in the money, so there is 2.3 million dollars in gain from the sale of stock in the third quarter.

Okay. And last question, you mentioned some numbers in the carbon drilling between U.S. and Canada. Can I get those from you again, if you don't mind?

Carbon drilling for…?

For 2004, the Piceance and Uintah? .

The drilling budget, the cost?

The actual well count. I think you said 72 wells in Canada.

55 wells in the U.S. and 72 wells in Canada.

Okay. And those mainly Piceance?

And Uintah.

Both Piceance and Uintah, okay. Thank you very much.

You bet.

Your next question comes from Ellen Hannan of Bear Stearns.

I think most of mine have been answered. Just quickly on Carbon Canada, the wells that you're going to drill, are you drilling in the conventional sand stones or developing coalbed methane?

We're principally, the budget is based on the conventional carbon has been very good, very efficient efficient. Coming up with conventional reserves and we will be not only accelerating a that development, but we will also start aggressively start testing for unconventional. We still have to put acreage together for the unconventional.

Thanks very much.

You bet.

Your next question comes from David Heikkinen of Hibernia.

All my questions have been asked and answered. Thanks a lot.

Thank you.

Once again, if would you like to ask a question, please press star then the number one on your telephone key pad. There are no further questions at this time.

Well, thank you all, as usual, four your support. And and hopefully you found this enhanced guidance and reporting format useful, if there's anything we didn't tell you, it wasn't because we didn't try. But things continue to go well, we're very pleased with the results, we feel we're right on target where we want to be, actually a little ahead of the game in some respects. All the trends look good and 2003 is going to be a record year for us and looks like 2004 is positioned to be another record year for us.

And we'll talk to you all again in about three months. Thank you all for your support and interest in Evergreen Resources. This concludes today’s 2003 third quarter conference call. .

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