Ring Energy Inc (REI) 2014 Q4 法說會逐字稿

Greetings and welcome to the Ring Energy fourth-quarter 2014 year-end financial and operating results conference call. (Operator Instructions). As a reminder, this conference is being recorded. I would now like to turn the call over to our host, Mr. Tim Rochford, Chairman of the Board of Directors for Ring Energy. Thank you, sir, you may begin.

Thank you, Melissa. We appreciate that. We would like to welcome all of our listeners to our fourth-quarter and year-end 2014 financial operations conference call for Ring Energy, Inc. Along with me this morning on the call will be again myself, Tim Rochford, Chairman of the Board; Kelly Hoffman, our Chief Executive Officer; David Fowler, our President; along with also Randy Broaddrick, our Chief Financial Officer.

So today, we are going to cover the financials and operations for fourth quarter and 12 months ended 12-31-2014. We will review our results and provide some insight into our current progress so far in the first quarter 2015. At the conclusion of our overview, we will open up the call, turn it back to the operator for any questions that you may have.

With that said, I am going to go ahead and again introduce Randy Broaddrick, our Chief Financial Officer and Randy, if you would be kind enough to review the financials for us.

Thank you, Tim. Before we begin, I would like to make reference that any forward-looking statements, which may be made during this call, are within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. For a complete explanation, I would refer you to our release issued this morning. If you do not have a copy of the release, one is posted on our Company website at www.RingEnergy.com.

For the three months ended December 31, 2014, the Company had oil and gas revenues of $9.98 million and net income of $2.7 million as compared to revenues of $5.1 million and net income of $1.5 million in the fourth quarter of 2013. This represents an increase of 98% on revenues and 76% on net income.

For the year ended December 31, 2014, the Company had oil and gas revenues of $38.1 million and net income of $8.4 million as compared to revenues of $10.3 million and a net loss of $452,000 in 2013. This represents an increase of 269% on revenues and a change from a net loss to net income. The increases in revenues for both the fourth quarter and the year 2014 are primarily the result of our development activity during 2014. The increases in net income are primarily a result of those higher revenues.

For the three months ended 12-31-2014, our oil price received was $66.39 per barrel, a decrease of 27% from 2013 and our gas price received was $2.36 per MCF, a 50% decrease from 2013. On a per BOE basis, the fourth-quarter 2014 price received was $65.48, a decrease of 26% from the 2013 price.

For the year ended December 31, 2014, our oil price received was $83.06, a decrease of 11%, and our gas price received was $3.53, an 8% decrease from 2013. On a per BOE basis, our average price for the year was $82.18, an 8% decrease for the year.

Production cost per BOE for the three months ended 12-31-2014 increased to $11.78 in 2014 as compared to $9.87 in 2013. The reason for this increase is relatively small increases across a variety of expenses. For the year ended December 31, 2014, our LOE per BOE increased slightly to $10.77 per BOE as compared to $10.44 for the same period in 2013.

As to production taxes, most production taxes are based on values of oil and gas sold, so our production tax expense is directly correlated to the commodity prices received. Our production taxes as a percentage of revenues remained relatively flat and should continue to be. Our total DD&A, including accretion of asset retirement obligation per BOE, increased for both the three months and the year ended December 31, 2014 as compared to the same periods in 2013. The depletion calculated on our oil and gas properties subject to amortization constitutes the bulk of these amounts. For the three months, we increased from $11.32 in 2013 to $15.45 in 2014. For the year, we increased from $20.21 to $25.81.

Our overall general and administrative expense decreased for the three months ended December 31, 2014 as compared to the same period in 2013 and increased slightly for the year. On a per BOE basis for the three months ended 2014, G&A decreased from $35.27 to $11.72 and for the year ended 2014 decreased from $57.77 to $14.68. The decrease in total for the three months versus 2013 is primarily a result of a reduction in stock-based compensation expense. The decreases and per BOE rates for both the three months and the year are primarily a result of increased production.

On a diluted basis, the earnings per share for the three months ended December 31, 2014 were $0.10 or $0.12 per share excluding a $587,000 non-cash charge for share-based compensation. This compares to $0.08 for 2013 or $0.12 excluding an $891,000 non-cash charge for share-based compensation in 2013.

For the year ended December 31, 2014, earnings per share were $0.33 or $0.42 per share excluding a $2.5 million non-cash share-based expense as opposed to a net loss of $0.03 per share in 2013 or earnings of $0.19 per share excluding a $3.5 million non-cash charge for share-based compensation.

As of December 31, we have not used any of the $40 million borrowing base on our credit facility. Subsequent to year-end, we have drawn down $5 million and will likely need to draw additional funds to satisfy a short-term funding gap. With that, I will turn it back over to Tim.

Thank you, Randy. Good job. Appreciate that. At this time, I would like to again introduce Kelly Hoffman, our Chief Executive Officer and I would like to ask Kelly to review our operational and update for fourth quarter as well as the full year of 2014. Kelly?

Thanks, Tim and welcome, everyone. Although the latter half of 2014 turned out to be a challenge for basically any E&P operator, we ended the year with substantial growth and added value. In the fourth quarter, we drilled 43 wells, all of which were on our Permian basin properties. This brought our total in 2014 in Texas to 135. We started the year with one drilling rig, added a second rig in April and brought in a third rig at the end of September. As a result, we have seen the number of new wells drilled increase from 24 in the first quarter to 36 in the second quarter and then 32 in the third quarter and 43 in the fourth.

In addition to the wells drilled, of course, we refracked five existing wells in the fourth quarter and continued some upgrades and leasehold infrastructure improvements. In the fourth quarter, our sales as a result of production were 152,500 barrels of oil equivalent. This is an increase of 168% over the same period in 2013, a 21% increase over the third quarter of 2014. We ended the fourth quarter with net daily sales of 1658 barrels of oil equivalent.

For the 12 months ending December 31, 2014, our sales as a result of production were 463,495 barrels of oil equivalent, an increase of 301% over the prior year. Our average net daily sales increased by approximately 1270 BOEs per day. Total capital expenditures for 2014 were approximately $105 million, which included about $15 million for acquisitions and leasing with the remaining $90 million for development infrastructure and reworks. Overall, our 2014 year-end reserves were 10,400,000 barrels of oil equivalent as compared to 2013 of 7,300,000, which was an increase year-over-year of 43%.

Now talking about 2015 as a status, last year, we used and ended up with a $515,000 cost on a per well basis for 2014 and we have been continuing to drop that cost down to a low at a cost of 25% number at this point in time and we anticipate that we will see the number come down even further as we head towards our goal.

One of the ways we grew the Company last year was through our leasing efforts. We took advantage of several opportunities, ended up for the year with over 2400 plus potential locations. We plan to continue that aggressive approach to leasing this year. It is a great time to improve our net ownership positions. We are taking advantage of that as we move across the 2015 calendar. We continue to look for ways to reduce costs across all of our platforms to take advantage of the current lower commodity price and lastly, we are well-positioned and very hungry for that possible acquisition.

I am going to introduce David Fowler at this time. David is our President and Head of Business Development. David, why don't you update us on the future growth and acquisition opportunities moving forward.

Thank you, Kelly. Last year, we more than doubled our acreage position in the Permian Basin core areas in Andrews and Gaines County by acquiring 15,362 gross acres to end the year with a total of 29,738 acres, a 107% increase over our 2013 ending total of just over 14,000 acres. Of the increase of over 15,000 acres in 2014, approximately 5000 came from six acquisitions of producing leases we acquired in Andrews County that added a significant amount of reserves and some production that we acquired from mostly small offset operators. The remaining 10,000 acres came from our aggressive leasing program in and around our core areas that now extend into southern Gaines County.

I believe it is important to note that the six acquisitions that we closed in 2014 were individually targeted and consummated as a result of our existing relationships in the Permian and we also achieved all those acquisitions absent of any (inaudible). Our outlook for growth through accretive acquisitions and leasing in 2015 is extremely optimistic. It is important to note, with any significant drop in commodity prices, there is always going to occur a widening gap between buyers' and sellers' expectations, which slows the A&D market as we have already experienced.

As commodity prices stabilize though, that gap begins to lessen and you will see an uptick in A&D activity. An indication that that is occurring is that we have seen more substantive deals in the last 30 to 45 days than in the past six months and believe that that trend will continue to pick up steam. What is important is to remain proactive and not just reactive. The Permian basin is our backyard and we are open to all opportunities that come our way and complement what we already own. So Ring's acquisition stance for 2015 is that we are well-positioned financially and are actively seeking accretive acquisition opportunities. At this point, I would like to turn it back to our Chairman, Tim Rochford.

Thank you, David and Kelly, thank you as well. As mentioned, we are seeing increased opportunities on the acquisition front, no doubt about that. That is going to continue to compound, as well as impacting improvement on our finding and development costs. So our goal is to see our planning and development costs push down to a level where we can bring growth to all categories at $50 or sub $50 oil. So that is a real primary goal of ours. The operations team has been doing a terrific job pushing those costs down. As Kelly mentioned earlier, we have already exceeded more than 25% improvement in those costs and we continue to have a goal to see an even better percentage of decreased price than that.

As David pointed out, numerous opportunities are really developing on the horizon. We have a strong balance sheet, we have the opportunity to raise capital through equity if we need to. Capital markets certainly have shown signs to us that they are there for us if that, in fact, turns out to be a direction we want to consider. I will ensure you this, that any kind of future offering that would take place in relationship to an acquisition or possibly an active drilling program once again when those prices are at a point where it makes sense to get busy that, it will only be because it is an accretive move on our part to do so.

So with that, we thank everybody. We are going to turn this back over to Melissa and she is going to open it up to all of you for any questions that you may have. Melissa?

(Operator Instructions). Noel Parks, Ladenburg Thalmann.

Good morning. In terms of cost improvements, (inaudible) the normal bid ask back and forth process you have with vendors, would you say you have pretty much completed the current round of what you think you can get back from vendors or do you think there is still a good bit ahead in the near term?

I think there is a little bit of room here depending on the price, of course. If price continues to be where it is now or even flattens to where it is or goes down any, I think there is definitely room for improvement. We are going to continue to do this across all platforms, so it's the cost both on the LOE side, as well as the drilling. So to answer your question, yes, I think there is some room for improvement and we are going to continue to take advantage of that.

Great. You mentioned or David mentioned that the last 30, 45 days have seen more movement as far as deal activity. Can you just talk a little bit about how that came about and where it stands right now?

Thank you, Noel. One of the things that we have been able to see over the last 30, 45 days is as prices have stayed down, as I mentioned in my talk just a minute ago, you do see a period of time where there is what we call denial and I think we are pretty well past that. I think that we are seeing companies now beginning to realize that the way to reduce debt besides raising equity is to sell or reduce staff. And as prices remain down, I think the realization that they are going to have to sell and have to take what offers they get are going to become more realistic. And even though no one wants to sell in a down market obviously, as the market stays down and if we don't really see a recovery in the near future, I think we are going to see more acquisitions come to us and I think the reason why, Noel, is because we do have a clean balance sheet and people see us as a great candidate for acquisitions.

Great. Can you kind of characterize maybe how much of a decrease in, I don't know, on either a per acre basis or any metric you have seen since maybe the peak of costs in the middle of last year?

Noel, yes, our costs probably come close to dropping in half when it comes to leasing activity in the Permian and as far as acquisitions are concerned, we are not really seeing a lot of -- some of the acquisitions that we are pursuing we're still working on obviously and as we see commodity prices stay suppressed, again I think that we are going to continue to see that margin between buyers and sellers decrease and we will be able to see more and more acquisitions begin to take place.

Great. That is all for me. Thanks a lot.

John White, ROTH Capital Partners.

Good morning and congratulations on the very nice results on production and reserves. Really just three quick ones. Kelly, you talked about a 25% reduction in completed well costs. So is a figure of about 375,000, is that a ballpark type figure for current completed -- currents ASCs?

Yes, I think that is fine.

And on the acquisitions, the six producing property acquisitions, is the 5000 acres mentioned, is that net or gross acreage?

That is gross acreage.

Okay, thank you. It looked like, just to confirm in the press release, you have no rigs running right now?

Right, we do not.

Okay, well nice going and thanks again.

Richard Tullis, Capital One Securities.

Thanks. Good morning, everyone. Kelly, looking at the borrowing base, I know you mentioned you just have about $5 million drawn on it. When is that up for redetermination? Have you had any indication of how it might move if at all?

Currently, I think that we could say that we might expect internally -- we are anticipating that that number has a possibility to be adjusted to the point of about 25 million plus. Obviously that is a work in progress as we speak, but I think that is probably a fair assessment internally that we are using.

Okay.

Richard, this is Tim. If I may add to that as well, that is a process that is taking place as we speak. Of course, our key bank has all that information with third-party engineering numbers, etc. but just turned over to them here just a few weeks ago. As Kelly mentioned, we do anticipate that we think worst-case scenario it is in that range of 25, 30. But I would like to add to that, it is not our plan right at this moment, although we have taken a draw on that $5 million. It is not our plan that we are going to continue to need to do that. We are in a nice positive cash flow position even at these lower prices. So there were a couple of reasons that really prompted us to do that draw, to take that draw down that were kind of out of the ordinary day-to-day stuff. So keep in mind as you are thinking about this is that even though that is under redetermination, it is not an important component to get from here to year-end on the pace that we are at.

Thank you, Tim. That is helpful. You had spoken a little bit about the acquisition landscape. I am assuming that you are referring to central basin platform deals, is that correct?

Yes, it is. But to add to that, we are looking at all opportunities whether it be in the Midland or Delaware basin as well.

Okay, that is what I was going to follow up with. Given your balance sheet and your long-term position in the Permian, so you are open to expanding to Midland and Delaware size as well?

Absolutely.

We are open to anything that compliments what we are doing currently and that is a big backyard, the Permian basin and that is our backyard.

If you went that avenue would you shift to horizontal drilling, would that be your preferred method if you got into the Midland and/or Delaware basins?

The potential shift, I should say, to something that would be horizontal would be more directed depending on where the properties were. We are not afraid of horizontal. We are familiar with it and our opinion in certain areas, it makes all the sense in the world and in other areas it does not.

And then what combination of oil price and further service cost reductions are you looking for, ballpark, to sort of resume your drilling activity this year?

I think we are looking at both of those sides of the coin simultaneously. As Tim mentioned, we are cash flow-positive. We are doing really well even at these lower numbers, but when you look for costs to come down even more and try to close that gap for us and obviously, we have a multitude of sensitivities if it stays at $45 or $50 or if it is $55, so it is kind of hard to peg that at this time, but I can tell you that with a small amount of help on the price side and continued help on the cost side it could put us back to work in the latter half of the year. I want to reference the fact that you probably already know how quickly we can ramp up and how fast we can drill wells with just one or two rigs when the second half of the year we entered the third quarter, put on a couple of rigs rather quickly and suddenly drilled 100 plus wells, so that is a luxury that we have in our model that others don't.

And then just lastly, any update on the Kansas acreage and activity there?

Yes, we drilled seven wells up there, we have got production, we have got an extensive size program involving seismic going on as we speak. We don't have the results from that yet, we are looking positively towards those results and as soon as we get them back and have a chance to evaluate all of that, that will give us some great insights in starting the program back up again.

All right. That is all from me. Thank you.

Jeff Grampp, Northland Capital.

Thanks for hosting the call and taking my questions. Just maybe wanted to start on the reserve report. I guess from my side of things, I was thinking how aggressive you guys were in 2014 that maybe volume growth would have been a little bit higher. Was there maybe some conservatism by the reserve engineer with EURs or maybe you guys conservative with PUD bookings given current commodity prices or just some color on the reserve report would be helpful.

I think your position that you just stated is absolutely one of the things that we looked at and were confronted with in that. There was a conservative approach to it. A lot of things that we have in the PUD category side and then we weren't given credit for some items that are actually in the probable side. You may remember that last year we took some substrate off of the possible probable category right into PDP. As the year before, we work with a conservative firm, as you know and so as a result of that, I think the answer is there are some items that probably are over on that side of the ledger that easily we would drill and convert over to a PDP.

Okay, that is helpful. And then, obviously, you guys are highlighting a lot of opportunities here both through organic leasing and some larger producing acquisitions. On the organic side, do you guys have any kind of target or goal that you've set out for yourself over the next say 6 to 12 months in terms of organic acreage growth that you guys could accomplish?

No, not specifically. Obviously, last year, I think you might remember, Jeff, that we mentioned at the very beginning of the year that we were hoping by the end of 2014 we would be somewhere in that gross acreage position of 18,000 to 20,000 acres because that would have been phenomenal growth for us and we ended up almost 50% higher than that. So we have a target; it is not a specific number. The target is to take our current estimated almost 30,000 acres and see if we can make it 40,000 or 50,000 or 60,000 and barring an acquisition, we are going to be very aggressive. We are obviously in a very, very mature well-known extremely competitive county where we have already proven our ability to be successful in that type of an environment. We are after it if we can find it and we can get it.

Okay, fair enough. Last one for me, is there any kind of current production or maybe production quarter-to-date number that you guys would be willing to share here?

Probably not. So much of that is -- again, just because it is such a work in progress for us and it is so subject to change on almost a daily basis. We put out a year-end report, you have seen that. You have seen what our first-quarter operations, you haven't seen the first-quarter operations yet, but you will here coming soon. So I would just say be patient with us in that regard and we will put something out that kind of tells where we are going at the end of this quarter.

Fair enough. Thought I would try. Thanks for the time, guys.

Phil Dodge, Noble Financial.

Hello, everybody. Thanks for the update. Staying with the acquisition program, can you give us an idea how much of what you are looking at is in your home field of Andrews County and how much and what other parts of the Permian you are also interested in?

Just in the last 30 to 45 days, what we have seen has been in Andrews County and has been offsetting us and I think that obviously we would love to see a larger acquisition, something of size versus continuing to -- of course, we are not going to take our eyes off of the smaller ones as well that are really accretive to us. But one of the things that we are having to do is really be patient, realizing that time can really be our friend here if prices stay down and as a result, we are not wanting to act too aggressively or too quickly. But in light of what has just happened this last week, I think it is good that we have kind of stayed and watched and observed. But we are continuing to work different angles I guess is maybe the best way to put it where we have got our flag up, you might say, that we are making known in the Permian basin that we are definitely looking for acquisitions.

To answer the second part of your question pertaining to the different basins to our East and West, we have seen some opportunities that just haven't been quite to our liking and once -- and those came to us actually a little earlier on and we felt that as time went on, there would be a little bit more to choose from. And so we are just -- we are looking at those opportunities on a deal by deal basis and are hoping that we are going to be able to get our hands around something here pretty soon.

Okay. One more and you may have already answered no, but when you shut down the rigs, at what point looking ahead would you expect production to actually taper off?

That is a great question. We are pretty surprised at various times. Of course, as you well know, the area that we like to play in happens to have a 60 to 80-year history so and we have got quite a bit of experience at it, so it is a difficult question to predict. When we look out through the course of the year, I think we would be comfortable saying that we are maybe in that 80% to 90% of production range over the course of the year, but we are going to see the first part of this quarter and the second quarter I think we have got some more work to do out there and some efficiencies and we have got some more wells that we need to go ahead and complete and some refrac ideas (inaudible), but down on the pump change side and all types of things that we can do on the efficiency side.

So we think production is going to hold in pretty strong. We think that we might be able to stand shoulder to shoulder for the most part barring any more bad weather. We have had some really bad weather that hit us in the first quarter of this year for several days, but we think that we are going to be able to stand shoulder to shoulder in production barring that weather with how we ended up the year.

Okay, all the best.

Joel Musante, Euro Pacific Capital.

Good morning, everybody. On the wells that were completed in the first quarter, how many -- I'm not sure if I got that number right or if you put out a number from the beginning of the year, what have you completed so far?

From the beginning of 2015?

Yes.

We haven't said, Joel. We have a few wells that carried over and we probably have six or eight of those that still need to be done as we speak. We're just getting to them appropriately, but we didn't give out a number on those, but that gives you a feel for it.

All right. I know you are postponing the drilling program, but do you have any CapEx allocated to anything that you can give us a number for?

Let me take that one, if I may, Joel. This is Tim. We have not put forth a formal CapEx for the obvious reasons that we have been discussing. I can share with you that within a reasonable period of time -- of course, define reasonable -- but within a reasonable period of time, we are going to come to the Street with a formalized CapEx. We are just kind of biding our time. I like what David said earlier, we are being patient and sometimes that is a little easier said than done, but we are being patient because there are acquisitions that are on the horizon and we are becoming closer and closer to these F&D costs, getting to a point where they need to be for us at this $50 range and the combination of the both of those is going to require capital. There is no doubt about that.

Now as mentioned earlier, we have positive cash flow, no question about that. We have a credit facility, which we can in fact reach out to and we have the opportunity to go to the capital markets. So a combination of all those are eventually going to probably come together when we can in fact either organically or through the acquisition or a combination of both bring those to a point where we can lay out a CapEx, lay out a budget and that would, at the same time, include our leasing budget, as well as to some degree discussions with reference to Kansas.

As Kelly mentioned, we are in the process of interpreting all of that seismic that was just completed and that will be forthcoming as well. So give us a little more time on that and I promise you won't be too long we will be coming to the Street with that information.

Okay, great. And just looking ahead on just LOE and DD&A costs, your fourth-quarter numbers might have had some adjustments. What should we use going forward for those items?

I think one thing that we might ask is Randy to jump in on that, but keep in mind, and maybe, Randy, you can touch on it, what we did last year with the (inaudible). So you want to maybe hit that for Joel and --?

On the LOE, for the last two years, the fourth quarter has been hit with the full year's worth of ad valorem taxes. Going forward, we are going to allocate those over the full year so that it will even things out a little bit. I would expect for the year at least the LOEs to be in the range of $10 to $11.

For DD&A, I think we will see this fairly even maybe going up slightly throughout the year because of a conservative approach that we take, but obviously that can be affected dramatically based on acquisitions or other reserves added through leasing, but barring those items, I think a slight increase over the year is to be expected.

Okay, so that would be an increase from the year average number or from the fourth-quarter number?

It would be from the year number.

Okay, great. Thanks a lot. I appreciate it.

Patrick Rigamer, Global Hunter Securities.

Good morning. Thank you for taking my call. I guess you guys are looking at opportunities through acquisitions and leasing. I'm curious if you are looking at additional opportunities on your existing acreage, whether it is your different formations or different targets, different ways of drilling? I don't want to ask about horizontal drilling, but if you are looking at anything different there?

We own a lot of deep [rides] out here and we are seeing some very interesting things happen up on the platform where a lot of those deep rides exist. So to answer your question, yes, I think there could possibly be a point in time when we could and would want to take advantage of those potential ideas that are going on out there right now. There are offset operators to us that are experimenting and doing some very interesting work and having some moderate successes around us and we are watching that very closely.

And that would be targeting other formations other than the San Andreas or --?

Yes, it would. All of those formations are below the San Andreas, much deeper. Some not so much and those are all of a vertical nature at the current point in time.

Well, I think my other questions have been answered so thank you.

(Operator Instructions). Mike (inaudible), (inaudible) Capital.

On the Kansas acreage, if the 3-D seismic comes in looking interesting enough, would you go ahead and drill there regardless of your timetable in Texas?

That is another good question. It is hard to guess at what that seismic is going to come in looking like, but let's assume that it looks spectacular. If it did, we could give consideration to that. It is really hard to say. The seismic, if it does come back and it does show us a lot of different things, it is going to open up an enormous amount of opportunities for us.

Okay. Is it possible you may hold off on the drilling and acquire more leases before showing your hand?

I think so. I mean that is certainly a possibility. We have got good long-term leases up there and what we don't have long-term leases on, we have got the possibility for extension and things of that nature, so we have got a lot of options available to us up there and as we have said, and as you have noted, we are not in a big hurry. We want to take the right approach at the right time.

Okay. And then one other question, if you saw a decent acquisition anywhere, would you spend $20 million, $50 million? What would be your upper limit if this is a really good prospect?

David and I are looking at one another, either one of us could answer this, but, at the end of the day, we look for acquisitions that match who we are to some extent, but certainly and most certainly that makes sense at today's commodity prices and we look at some predictable repeatable type concepts. That is kind of what we like to do and that way we get a chance to come to the Street and say, hey, we have got a lot of running room and we can make it work for us the way we know how. I don't think it is restricted to size, no.

Okay, thank you.

John White, ROTH Capital Partners.

Just I know we are not going to get guidance out of you, so I'm not going to ask for any numbers, but I know your style. But as I heard you talk about 2015 and with the first quarter pretty much done, from a conceptual standpoint, am I hearing that probably at the current oil price let cash build during the second quarter while you are doing some refracs, changing out some pumps, completing a couple of wells that may not have been completed and then depending on where the oil prices are get some rigs going in the second half of the year? Is that conceptually on track?

Yes, it is. I would add to that, and I think you touched on it, but I would add to that our concentration of reducing costs. We can reduce costs and all of the above that you mentioned and we've touched on earlier in the conversation, but we can also work on efficiency out in the field from a well by well standpoint. Gives you an opportunity to take the breadth and really test things and really take a good hard look at them and find the most optimal way to produce the wells.

Thanks again.

Noel Parks, Ladenburg Thalmann.

I just had a couple of things I wanted to follow up on. Totally understand what you are saying about wanting a little more time to formulate a full-year CapEx budget. As I was doing my modeling, I was thinking about being in this period where you don't have a rig going. Do you have a sense of kind of what the absolute baseline maintenance capital number might be either on a quarterly or annual basis just for the basics of fixing things that break down and so forth?

I can't say that we have a specific number that we use. It is just again it is on a lease by lease basis really. If you are asking, Noel, whether we have a number going forward to fill in the blank on that particular side of the cost ledger, is that your question?

Sure.

We don't have a specific one and as I mentioned earlier with this time period being more price -- commodity price is right now and us looking at ways to increase efficiencies, any number that I might use might be completely wrong at this moment because we are obviously going to take advantage of those things as we see them come up this year.

Fair enough. And then back on the topic of acquisitions, just sort of a general question. Right there in your backyard, I know you guys have a lot of experience and a lot of scrutiny on what might be available. To the degree that you are seeing broad opportunities in the newer unconventional plays, horizontal plays, Midland basin, Delaware basin, etc., do you have the sense that for the assets out there they are mostly lacking expertise, good operating teams to kind of keep the ball rolling or are you seeing stuff more where it is just a lack of capital that is holding people up and bringing them to the table and making them consider selling?

I think that it is all of the above, Noel, that just mentioned. We have got companies out here that have been private equity funded that are kind of toward the end of what they have been given as far as a dollar amount to spend and a lot of those missed that windows at the end of last year to get sold. And as a result, I won't say they are stuck, but they are in a situation where I think that time is going to determine what they are going to have to do and it really depends upon I think not only on the provider of private equity, but how is that going to play out. And I don't know if anybody really knows an answer to that just yet.

But the other thing too is some of those areas may have some lease explorations coming up that could come into play as well. So we are just keeping our ear to the ground on all fronts. We know the different groups that are out here, how they are funded and it is going to be interesting to see really honestly if prices stay down how this is going to play out and I don't know if anybody really has an answer yet, kind of like oil prices. Really can't predict it, but that is where the time comes into play that we really feel like that is on our side.

Thanks, that is what I was looking for. That is it for me.

Mr. Rochford, there are no further questions at this time. I would like to turn the floor back to you for any final remarks.

Thank you, Melissa. We appreciate that. We want to thank all of our listeners today. We know that your time is important and so we appreciate you taking the time to listen to our review this morning. As mentioned earlier on the call, our first quarter is just about to complete here. Shortly thereafter we will have an operational update as it relates to that quarter and a few more of your questions will be answered of course at that time and of course we will keep you abreast as things are moving forward on the acquisition and getting back to the drilling front. So once again have a good day and appreciate your time. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.