山脈資源 (RRC) 2007 Q1 法說會逐字稿

Welcome to the Range Resources First Quarter 2007 Financial Results Conference Call. This call is being recorded. All lines have been placed on mute to prevent any background noise. Statements contained in this conference call that are not historical facts are forward-looking statements. Such statements are subject to risks and uncertainties which would cause actual results to differ materially from those in the forward-looking statements. After the speakers' remarks there will be a question-and-answer period.

At this time, I would like to turn the call over to Mr. Rodney Waller, Senior Vice President of Range Resources. Please go ahead, sir.

Thank you operator. Good afternoon and welcome. Range reported results for the first quarter of 2007 with record revenues, cash flow and earnings. Comparing to First Call estimates Range turned in the earnings per share of $0.46 which is $0.05 better than the First Call estimates and cash low per share of a $1.13 which was $0.09 higher than First Call estimates. The record results were driven by a 19% increase in production year-over-year and a 4% increase in production over the fourth quarter of 2006. We apologize for the confusion on the reported numbers due to the reclassification of our Gulf of Mexico properties as discontinued operations in the GAAP financial statements. However, in the press release we furnished some non-GAAP statements which give you a more comparative view of our combined operations for the period. On the website in our supplemental tables for the quarter, we presented in Table 5, a summary of the reported numbers which corresponds to the analyst models taking out of the non-recurring and non-cash items. Table 5 shows concisely the amounts which compose are $0.46 fully diluted per share earnings for the quarter.

On the call with me today are John Pinkerton, President and Chief Executive Officer, Jeff Ventura, Executive Vice President and Chief Operating Officer, Roger Manny, Senior Vice President and Chief Financial Officer. Before turning the call over to John, I would like to cover a few administrative items. First, we did file the 10-Q with the SEC this morning. It's now available on the home page of our website or you can access it using the SEC's Edgar system. In addition, we have posted on the website supplemental tables which will guide you in the calculation of the non-GAAP measures of cash flow, EBITDAX, cash margins, and the reconciliations of our non-GAAP reported earnings that are discussed on the call today.

Tables are also posted on the website that will give you detailed information of our current hedge position by quarter. Second, we have just mailed our proxy for our 2007 annual meeting of stockholders and our Annual Report for 2006. We hope that you find both of the documents informative and we appreciate any comments on how we could improve either one. Copies of the proxy and the Annual Report are posted on our website. We hope that you will consider each proposal listed in the proxy and return your proxy though as soon as possible. Now, let me turn it over to John.

Thanks, Rodney. Before Roger reviews the first quarter financial results, I will review some of the key accomplishments so far for 2007. On a year-over-year basis first quarter production rose 19% beating the high-end of our guidance by 9 million a day, this marks the 17th consecutive quarter of sequential production growth.

Our drilling program was on schedule throughout the quarter as we drilled 214 wells. We continue to be very pleased with the drilling results, and we are drilling very attractive returns on capital. We currently have 41 rigs running and we are on track to drill, 1,003 wells for the year. A 19% increase in production coupled with a 9% increase in realized prices drove the results, our cash flow hit a $162 million. It is an amazing $34 million higher or 26% better than our previous quarter high of a $128 million. We are most pleased on the cost side as our operator margins increased. Our cash operating margin for the quarter is $5.80 up $0.05 year-over-year and 38% higher than fourth quarter of 2006.

By posting the record production volumes, keeping our costs in check and the benefits of a strong hedge position we set to stage for a record high operating financial results for 2007. Besides the operational progress, we initiated five transactions already in 2007, which results in at least what we consider a better more viable range. We have completed two property sales making us $237 million, the active sold were high cost material properties with little upside potential. Conversely, we have completed two small acquisitions for $59 million of consideration and we anticipate closing the $315 million Nora transaction in mid May. In all three of the acquisitions we are buying additional interest in fields where we have been very successful and will receive substantial upside.

All in all I couldn't be more pleased on what we have accomplished so early in 2007. I think it's a real testimony to the entire Range team and they should be congratulated. With that I will turn the call over to Roger to review the financial results.

Thanks, John. The first quarter of 2007 visibly illustrates the growth and cash flow generating capability of the Company, oil and gas sales for the quarter including the Gulf of Mexico properties for a record $228 million 29% higher than both last year's $176 million and the previous record of $177 million set in the fourth quarter of 2006. EBITDAX and cash flow both set new record highs for Range this quarter. What's more important than just another record high is the fact that EBITDAX for the first quarter of a $181 million was 30% higher than the previous record high of a $139 million set in the first quarter of 2006. Likewise, cash flow of $162 million was 26% higher than the previous record high of $128 million also set in the first quarter of 2006. Now, driving the results for a 19% increase of production volume and a 9% increase in realized quarterly oil and gas prices, when included in the Gulf of Mexico assets. While NYMEX oil and gas prices during the first quarter of 07 while they were lower than the NYMEX prices during the first quarter of 06 Range experienced higher prices due to its capable gas (inaudible).

John mentioned on our cash margin per Mcfe of $5.80 for the first quarter is up 5% from last year. The reason that more of this excellent top line performance didn't make it to the bottom line is that we recorded a non-cash $66 million pretax mark-to-market loss on oil and gas hedges that no longer qualify for hedge accounting and a $16 million non-cash mark-to-market expense from our employee deferred compensation plan and other stock based compensations. The first quarter of 2007 was noteworthy in another respect in that it represents the first quarter that our Gulf of Mexico properties have been classified as discontinued operations. Under the accounting rules for discontinued operations, all financial results of the property sold are condensed into a single line item appearing below net income from continuing operations. And likewise, revenue and expense for the discontinued operations is reclassified for prior periods. The Gulf of Mexico assets representing just 2% of our total crude reserves were sold on March 30, 2007 for a $155 million in cash.

They recorded a $95.6 million net pretax gain and a $62.2 million after tax deferred gain on the sale which appears on the income statement together with the net operating results as a $65 million line item for discontinued operations. The line item also included the brief sub-period of discontinued operating results attributable to the sale of Stroud Austin Chalk properties that were also sold earlier in the first quarter. Now to assist investors and truing up their prior projection, which may have included results from the assets sold. Rodney's RR team has posted detailed schedules to the Range website and a news release to assist you. One other important point regarding our first quarter asset sales relates to income taxes. The cash proceeds from the sale of the Stroud Austin Chalk properties were placed in the Section 1031 Like-Kind Property Exchange Account. Just that these proceeds will be redeployed on a tax-free basis by deferring the gain to the tax basis in acquired assets. The gain on the sales of Gulf Mexico properties will be recognized this year. And a portion of our $230 million NOL carry forward will be used to absorb the gain. As a result of these two actions, no cash taxes will be paid from the $237 million in net assets proceeds.

Before moving to the significant balance sheet improvements brought about by our asset sales, let's look under the hood of the first quarter results from continuing operations for just a minute. Listeners who may desire detailed operating results which include discontinued operations as Rodney mentioned can find these disclosures on the schedules attached to the news release and also on website. And we will be filing an 8-K next month which will reclassify all of our 2004, 2005 and 2006 historical operating results for the discontinued operations. Direct operating expense was up on a unit cost basis by $0.13 per Mcfe of the first quarter of 2007. The $0.96 versus the prior year's figure of $0.83, $0.11 of the increase is due to higher water disposal costs and $0.06 was due to higher utilities, compression and general field maintenance. At this time, last year we had no Barnett shale production so the water disposal cost associated with pulling back our successful Barnett wells plus the water handling cost from our extended CBM drilling is all incremental expense.

It is worth noting that the fourth quarter '07 direct operating costs for the domestic Gulf of Mexico properties was $2.00 in Mcf and that's more than double the Company averaged without these properties. Production taxes for the first quarter of 2007 were down $0.05 per Mcfe compared to last year as production taxes are generally paid on market prices not hedge prices. At the year-end conference call, we anticipated that direct operating costs would begin the year on the high end of the range with some relief later in the year due to productions and water handling expense from new injection wells, higher production volumes from lower operating cost areas and reductions through the asset divestitures. The same factors still hold true today and direct operating costs should vary between the $0.95 and $1 per Mcfe range going forward.

Moving to overhead costs G&A expense per Mcfe for the first quarter adjusted for non-cash compensation expense was $0.42, up $0.01 from the first quarter of '06 and up $0.03 sequentially from the fourth quarter of '06. Increase is due to the continued hiring of additional professional staff required to prove up our emerging plans including expenses relating to the new Pittsburgh office.

G&A is anticipated to stay in the low $0.40 range for the remainder of 2007. The Range stock price increased during the first quarter non-cash deferred compensation plan expense more than doubled. 4.5 million in the first quarter of last year, to 11.2 million first quarter of this year. Listeners will recall that this non-cash expense stems from the mark-to-market adjustment of equity securities held in the employee deferred compensation plan not from any additional rewards or changes to the plan. Higher debt levels in 2006 refinancing of $250 million of our short-term floating rate bank debt, more expensive long-term fixed credit notes continued to cause our interest expense to increase in '07. First quarter '07 interest expense per Mcfe was $0.71 and fell $0.24 from last year. Now there is help on the way with this cost as proceeds from our recent asset sales are used to reduce debt. But going forward in 2007 at current rates our interest per Mcfe should be about $0.58. Exploration expense adjusted for non-cash comp expense was $11 million in the first quarter of '07 compared to $8.3 million last year. The dry hope costs for the quarter were $4.4 million compared to $1.7 million last year and seismic expense was $3.5 million this year versus $4.5 million in '06. So based on our drilling plans for the rest of '07, we expect exploration expense to stay in that $10 million to $15 million range per quarter. The first quarter '07 DD&A rate was $1.80 per Mcfe compared to a $1.45 per Mcfe in the first quarter of '06. This compares to a $1.75 per Mcfe in the fourth quarter of '06.

Sale of the Gulf of Mexico properties actually reduced the first quarter DD&A by $0.04 per Mcfe. The ongoing DD&A rate for our continuing operations in '07 should be in the $1.80 to $1.85 per Mcfe range. As I mentioned earlier in my remarks, EBITDAX from the first quarter was a record $181 million and cash flow was a record $162 million. Cash flow per share for the first quarter was a $1.13 up 19% from the first quarter of '06. Cash flow per share was about $0.09 higher than the analysts' consensus estimate of a $1.04 and net income earnings per diluted share for the first quarter is $0.51 and income per diluted share calculated comparable to analysts' estimates was $0.46 or $0.07 higher than the analysts' expenses of $0.39. The reconciliations of these non-GAAP financial measures to GAAP are available as always on the Range Resources website.

Now, a quick look at our hedge position reveals that we now have an estimated 79% of our '07 gas production hedged at a floor price of $8.12 for an Mcfe. An estimated 58% of our '08 gas production measured the floor price to make $8.91 per Mcfe. And we have not changed our hedge gas volumes for '07-'08. We have raised our production guidance this resulted in a slight decrease to our hedge volume percentages. Range has traditionally had the significant portion of its near-term production volume to ensure predictable level of cash flow from capital spending and a lock-in favorable rate to return on investment capital.

Positive impact of our hedges is visible in our first quarter results. Anyone wishing to update their models or review Range's hedging position in greater detail, will always find detailed summaries of our hedge positions on the home page of Range's website. The recent events including receipt of $237 million in cash proceeds and from the divestiture of Chalk from the Gulf of Mexico property, the completion of two small acquisitions as John mentioned totaling $59 million and the pending Nora field transaction and just completed equity issuance. These will drive major changes to the Range balance sheet. But as of the end of the first quarter only some of these events are apparent on the balance sheet as proceeds from the Gulf of Mexico sale will receive too late in the day on March 30th to pay down the bank credit facility. But if you have planned the $168 million of cash on our balance sheet at the end of the quarter to debt, it results in the debt to cap ratio of 43% down from 46% at year end '06. Now, after applying proceeds from the equity offering in completion of the pending Nora field transaction, Range's debt to cap ratio will be 39% and this meets our long standing target of 40%. To ensure a strong balance sheet, all of our acquisitions since 2003, have received partial funding from the issuance of equity. The pending Nora field transaction is no different. What is different this time is of the asset sales proceeds enable us to significantly strengthen on our balance sheet which will improve our financial flexibility and our liquidity to better manage the capital demands of our emerging plays and allow for attractive complementary acquisitions, should they become available.

In summary, the first quarter of '07 was an exceptional quarter producing record oil and gas revenue, EBITDAX and cash flow combined with meaningful strengthening of the balance sheet as margins continue to increase over '06 levels that we are well on our way to another record year for Range. John I will now turn it back to you.

Thanks, Roger. Great discussion there. I will turn the call over to Jeff Ventura to talk about our drilling activities. Jeff.

Thanks, John. I will begin by reviewing production. For the first quarter production averaged 306 million per day as John mentioned a 19% increase over the first quarter of 2006 and a 4% increase over the fourth quarter of 2006. This represents the highest quarterly production rate in the Company's history in the 17th consecutive quarter of sequential production growth. As was mentioned, we are targeting 16% production growth for 2007. I will now review three of our key projects. I will start with the Barnett Shale in the Fort Worth Basin. Production currently is running about 43 million per day net. Our acreage total is about 64,000 acres net. Plans are to drill 74 wells this year and currently we have 8 drilling rigs. Our first Ellis County well has started and is drilling ahead.

This project is an attempt to push the eastern extent with the Barnett trend from Johnson County across the county line in the Western Ellis County and North Eastern Hill County where Range currently has 28,000 acres. The current eastern edge of the play here is represented by Ranger's Wordley well on our East Venus acreage which is on the far eastern edge of Johnson County and by three EOG wells in North Eastern Hill County. The extension well that we are drilling is an area that is based on 3D where our 3D survey looks quiet which means it has not carsted and has relatively wide spaced faults. It also looks like it will have a thick Barnett section on it which could be up to 400 feet. Overall, our acreage in the Barnett will continue to grow. Importantly, almost all of our 64,000 net acres are in the core or extending core part of the field.

We believe our acreage has 2 Tcf of upside met the range. Our acreage, coupled with our talented, experienced team will continue to build value for our shareholders. We're in a great position to significantly increase our Barnett production during 2007. Another very impactful low-risk project for us is our Nora area in Appalachia. Net production has grown from approximately 14 million per day at the time we acquired these properties in December of 2004 to about 29 million per day prior to our recent transaction with Equitable. The Equitable transaction adds about 14 million per day bringing our total production in this area close to 43 million per day.

There are three key horizons that we will be developing at Nora. The first is the Pennsylvanian age coals. There are currently more than 1100 existing CBM wells on our property. The average well costs about $315,000 when the drillings complete. And the average ultimate reserves to date are about 440 million cubic feet per well. Given our 50% working interest and 56% net revenue interest where we have the minerals under most of the field, our cost to find and develop for these wells is well below $1.00. Most importantly, there is 2.4 Tcf of gross gas in place in the CBM field. If we can achieve a 70% to 80% recovery factor of the gas in place gross reserves will be 1.7 to 1.9 Tcf. And at the range we would recover 0.8 to 1 Tcf. Only 200 Bcf for this gas is currently booked which gives us great low-risk upside. This upside will be achieved through continued development drilling, [infill] drilling and recompletions.

The second key horizon is the tight gas sand below the coal bed methane horizons. These Mississippian age zone exists from 4000 to 5000 feet deep and historically have reserves of about 575 million cubic foot per well. The cost to drill and complete is about $500,000 which again results in great F&D costs. They have been historically drilled on 112 acres spacing. This year we will test down spacing in this horizon. Based on current spacing it appears that we are only recovering about 52% of the gas in place. Theoretically, with continued drilling down spacing and additional stimulation we should be able to recover 75% to 80% of the gas in place. And at the range this could add over 100 Tcf net if instilled drilling is successful.

The third key horizon is the Devonian Shale which is from 5000 to 6000 feet deep. Nora is about 10 miles east of the Big Sandy Field which is directly to the west of Kentucky and has produced 2.4 Tcf from the Devonian Shale. The Devonian Shale exists across the entire 300,000 acre position and historically was completed and commingled with the tight gas sands in 37 of the existing vertical wells. One of the wells has produced 1.4 Bcf with a small bump crack and from a vertical completion and was attempted and will ultimately produce 2.2 Bcf. We will be drilling horizontal wells with multiple bump cracks and will try that new technology in the field. If successful it could add over Tcf met the range.

The third project, while higher risk represents the opportunity to more than double the company by itself. As to our Devonian shale plain in northern part of the Appalachian Basin. It represents 2.5 to 5 Tcf of upside and currently we have more than 420,000 net acres into play. We now have 22 vertical wells and two horizontal wells online. Our oldest vertical well has been online for about 17 months and two additional vertical wells were brought online shortly thereafter. Results for these wells still indicate an estimated reserve potential of between 0.6 to over 1 Bcf per vertical well. We've experimented with four different types of hydraulic fracture treatments in the 22 vertical wells that we've completed so far. It's interesting to know that in the Barnett shale, Fayetteville shale and Woodford shale, the early vertical wells were either marginally economic or uneconomic. I am encouraged that we are starting off our Devonian shale program with good results. It's also interesting to note, that after roughly more than 100 vertical wells in each of these three plays, the Barnett, the Fayetteville, and Woodford eventually turned into horizontal plays.

We've drilled three horizontal wells to date and have completed two. The first horizontal well has continued to clean up and its production has been steadily inclining. It's now been on production for about nine months and our current estimated reserves for the well was about 1.5 Bcf. The second horizontal well is still cleaning up and the third well will be completed this week. It's also important to note that in areas that we have identified that there has been approximately 400 wells drilled to or through the shale historically. Based on historical data, we have good confidence the acreage we are acquiring is in the gas window has good shale thickness, has good gas in place and is at a reasonable depth.

What we're doing is applying state of the art technology in a good gas price environment to unlock a huge gas resource. In 2007 we plan to expand the shale development program to at least 60 vertical wells and eight horizontal wells. Our next horizontal well should start before June We are currently considering increasing the percentage of horizontal well that we will drill this year. We have many other high quality exciting projects which I would be glad to talk about during the Q & A but to summarize Range is in a great position. We have a proved reserve base of 1.9 Tcf. On top of that we have identified upside of between 8 to 11 Tcf primarily in low risk coal bed methane shale gas and piped gas in plays. We have a great track record of converting that to value for our shareholders. Range is where we want it to be, a low-cost producer with a lot of low risk built-in growth with great hedges in place. In summary, we're in a terrific position to continue to build shareholder value on into the future. Back to you, John.

Thanks, Jeff. Now let's look forward a little bit here. Look into the remainder of the year we see continued strong operating financial results. However on the production side, the second quarter will be a challenge as we try to extend our quarterly production growth streak. The reason for the challenges is the Gulf of Mexico sale. The simple math is that we average 306 million a day in the first quarter including the Gulf of Mexico. At the time of the sale the Gulf of Mexico was producing 6 million in a day and we sold it effective the end of March. So April 1, we began the quarter at 290 million a day which is the 306 less the 16.

We won't be picking up the Nora acquisition volumes of 14 million a day until we close the deal in mid May. So for the second half of the quarter so far, what I mean for half of the quarter, half of the second quarter we will be without the volumes from both the Gulf of Mexico and the Nora acquisition.

We are going back to the math, assuming the Nora acquisition closes mid May. This will add 14 million a day. For the second half of the second quarter or 7 million a day on average for the entire quarter. So if we start with the 306 that we produced in the first quarter, we subtract a 16 million a day that we lost from the Gulf of Mexico for the entire quarter. And then the 7 million a day on average will pick up Nora was to really starting with the new base if you want to call it that of 297 million a day. So to beat the 306 from the first quarter, we need to add on average over 10 million a day from the drilling program in the second quarter.

After meeting with the operating team, the good news is that they are going to try to step up to the play and currently we are projecting that 11 million a day on an average in the second quarter from our drilling program. So therefore the second quarter guidance is 307 million a day. If we can accomplish that that we will extend our streak to 18 consecutive quarters of sequential production growth.

This is -- now this is really a big challenge for our team. But I have a great faith in Jeff and his team. And as you can see, we really don't have -- we have essentially no room for error. So I am going to keep my fingers crossed and hopefully our shareholders will do likewise. Irregardless of where we come out -- the sale of Gulf of Mexico properties was clearly the right thing to do as we received a fabulous price for those properties.

Turning to commodity prices assuming current futures prices in our hedges and plays we anticipate second quarter price realizations after hedging to be in a $7.40 per Mcfe range this is $0.84 higher than the $6.56 per Mcfe realized in the second quarter of 2006 but lower than the first quarter of `07 due to the shape of the futures curve.

We again anticipate production, revenues, cash flow and earnings would be substantially higher than the prior year for the second quarter. And like every quarter it starts with production which as we previously mentioned, then anticipate to rise 16% to 307 million a day. Second, realized prices our estimated to increase 13% as a result oil and gas revenues are projected to increase roughly 30% over the prior year period. On unit production bases second quarter expenses are anticipated to be slightly less than the first quarter of `07 due to the sale of a higher cost Gulf of Mexico properties.

Looking beyond the second quarter, we anticipate production continue to increase in third and fourth quarter as a result of a 1000 plus wells drilling program for the year based on the solid results for the first quarter we are well on our way to achieving solid double-digit production growth for year yet another year. In fact, for the year we are targeting 16% production growth for 2007. For the year -- due to the higher volumes -- production volumes and prices and stable costs, our cash flow from operations is then anticipated to increase by a whopping 40% over 2006.

So as you can see 2007 really shapes up to be a tremendous year. Next, while we -- while we are focused on getting our wells drilled and hit on quality production targets. We continue to, also have one eye focused on expanding our drilling inventory and our emerging plays and as Jeff said as you can tell from his presentation we have made a lot of -- lot of headway and there is some really exiting things going on there which Jeff and the technical teams. And a lot of it should be coming forth in the next one, two to three quarters. So that's pretty exciting. Over the long-term we believe shareholder value pre and peak time is determined by the degree of success an oil and gas company has in generating attractive returns to the wise investment of capital. The efforts and quality of the technical teams are critical to this process. At Range, we have built a very high quality technical team that's generating attractive opportunities in each one of our core areas. Today we have a largest drilling inventory our history with over 10,500 projects and our drilling inventory together with our emerging plays represents 8 to 11 Tcf of transparent growth potential for Range and stockholders.

We believe -- our company is unique and that for our size, we have a very large transparent drilling inventory and even larger 3 million acre gross leasehold position. We work tenaciously building and maintaining a top core top cost structure and is witnessed by the sales from the higher cost properties and some of the new properties we are drilling and extending on the drilling inventory really drive the long-term growth and profitability to company.

Our last point is going to focus on an issue that we talk about periodically net our overall production decline curve. Today Range -- we produce about 300 million a day with the sale of Gulf of Mexico, we replaced fast to climb Gulf of Mexico properties with very long life CBM and shale gas production. The result was materially flat in the overall decline curve. Four years ago roughly one third of our production came from the Gulf of Mexico and today it is zero. So we understand that as we have doubled our production reserves over the last four years. We have also materially flattened our decline curve and slowed the proverbial squirrel cage.

Importantly we have accomplished all this by the same time achieving 17 consecutive quarters of production growth. Really, a fabulous record if you actually think back about it a bit. The bottom line is -- the good news is that we -- we gotten as much flatter decline curve and we have materially reduced the overall reinvestment risks at Range and we are expanding our drilling inventory. Because of that Jeff and I and the other members of management we're confident that we can continue to post double-digit production growth year-over-year and that our confidence has increased dramatically. As I said earlier, this all makes for a better, more valuable Range Resources.

With that operator why don't we turn the call for questions?

Thank you, Mr. Pinkerton. The question and answer session will be conducted electronically. (OPERATOR INSTRUCTIONS).

Our first question is from the line of Ron Mills with Johnson Rice & Company. Please proceed with your question.

Good afternoon, John. Just a question on the production target for the first quarter, obviously the fourth quarter you had real strong organic growth and to be able to hit your target which you said really is somewhat of the stretched target, there is not much room for error. What are some of the focused activities that your operational team thinks can provide that even 9 to 11 million a day impact in the first quarter to continue that strength?

Well. I think it's just going to be a combination of all of our areas. I think, probably -- number one on a hit parade's is going to be the Barnett. We continue to have strong growth in our CBM properties up in Appalachian. And also in areas that we have not talked about much lately but continue to be little energizer bunnies at Range which include Ferman or Sterling and (inaudible) properties out in west Texas our southeastern New Mexico, gas properties, that have done so well over the last several years. So it's really going to be combination of all those things and plus the guys really working hard and we-- this is a real challenge to them. So they are running around and have been over the last 30 days doing recompletions trying to hook wells up faster than humanly possible. So it's going to be lot of little bitty things to get us there. It's never -- in our business when you drilling a thousand wells a year, it's never going to be one or two or three wells. So it's not-- the good thing about Range, Ron, as you know we are not well watch company. So it's not only one or two wells that are going to make the difference if that were the case we wouldn't had 17 consecutive quarters of production growth. So it's really a combination of that plus a very motivated team. I will be honest with you I have told the team if they get there we will make sure its worth their while.

Okay. And secondly the Devonian shale in the North yield, what's your drilling timeline in that yield as you ramp up in Pennsylvania, are you going to be pretty deliberate in the Nora, Devonian shale, as you were in the Pennsylvania in the early going?

Absolutely. That's basically the tact. We are still going to stay focused I mean clearly the lowest risk thing that to do in Nora, is just accelerate the pace of the CBM drilling which Equitable and Range will be doing along with ramping up the pipe gas sands. But we are hoping that by the end of the year we have at least one horizontal well done in Nora field and then of course we will be looking at significantly more than that next year. As I have great potential but like you say we will take a very deliberate planned approach to it.

And is the plan in there to just start with the horizontal wells as opposed to drilling vertical wells because you have such good well control or at least you have some well control covering most of your plot.

Yes. Remember we have 37 of the tight gas sand wells that are already co-mingled on that block with the Devonian shale. So we have great confidence that shale exists across here and there is gas in it and we are going to be drilling more tight gas sand wells so to drill down into the shale literally is only a few hundred feet. So we would probably be doing some testing and somewhat deeper tight gas sand wells that are vertical and then hopefully by the end of the over will come out and drill just the pure you know straight horizontal well in there to test that.

Okay. Thanks a lot and good look on to move tomorrow.

Thanks, Ron.

Our next question is from the line of Hugh Anderson with Sigma Capital. Please proceed with your question.

Hi, good afternoon. How are you?

Great.

I am just going to do some -- some simplistic math but I was looking at the Fermen in Moscow projection for wells drilled in '07 relative to the number of wells you have already drilled year to date and I am probably looking at this wrong, but it's look like you have already drilled 37 wells and you have got 70 scheduled for '07 so you get 70% of your Fermen in Moscow program done in the first quarter. Is that right are you going to actually slowdown significantly in the second half or am I miss something or I have just done the math wrong?

No. We will slowdown in the second half. That's just the function of one thing that property is all held by production so we will continue to drill there. Like John said earlier that's one of the areas where to the extent we need a little bit more right, that's an area typically at times we accelerate with the cold January we had. And really poor start for the first quarter, you know what we wanted to -- that the beauty of Range of the strong portfolio and lot of properties and quality people, so with all the cold weather we had in January and shut-ins in the Pan Handle and elsewhere we were able to do in some of our other areas than just pick them up and of course we had just a fantastic first quarter and like John said its not one project it's a surge across all projects. But as you ramp up the times then you on those HBP properties you also have the ability to just slowdown and then basically it's in the bank so we are projecting strong growth for the year at 16% gross for the year and a great portfolio. And if you look at any one project within their times would have pressed on the accelerator harder or even off at times.

So Fermen then you are saying was something you pulled forward in the first quarter?

Yes. That was one attempt to help meet or beat our first quarter guidance and again that coupled with a lot of other stuff you know made for an outstanding first quarter and again that scenario that will -- that you know where along with lot of other stuff in the second quarter will be focused on, we will probably slowdown in the second half of the year in Fermen and Moscow. But like I said all HBC acreage is going to be there for three years.

Okay. And then furthering my habit of unsophisticated math, if I look at the total rigs that were running in the first quarter of 41 and I sort of project out that if each rig is for drilling five wells a quarter, in order to get to 1000 wells for the year you have to exit the year at 55 rigs so am I in the ballpark that your average for the year is going to be closer to 48 to 50 or is it there something in the mix of how the drilling is going to go that you are not going to need to add call it 14 rigs?

Your math is way to simplistic. You're adding in -- we have got the whole thing from wells that Nora you know in the Nora area it would take literally two days to drill to deeper more complex wells that we drill oil for in the Company. You know that we still drill some deep Morrow springer wells up in Oklahoma some of those that we have drilling now literally are 20,000 feet so when you are attempting to mix 20,000 foot wells with 2,500 foot wells and everything in between. You can't do that.

Okay. So?

I guarantee we will hit our projections the team has a great track record of it. We have the appropriate rigs and teams in place to get it done.

Okay. So you would not expect that you are going to be adding a significant number of rigs throughout the year?

No.

Okay. Thanks.

Thank you.

[OPERATOR INSTRUCTIONS]. Thank you. This concludes today's question-and-answer session. I'd now like to turn the call back over to Mr. Pinkerton for his concluding comments.

Well, thank you, everybody. It's certainly -- it's certainly a pleasure. We have had a, you know a wild first four months you could say. It will be nice to quite frankly to go home and get some sleep here over the next couple of weeks. But we really have had a terrific four months of the year. We are extremely excited about the future prospects for the Company. As we have talked about a lot over the last two or three weeks with many of you especially in regard to our emerging plays whereas two to three years ago we were talking about being two to three years away. In some cases those were right on the door step and clearly our eastern extension and the Barnett's a classic example of that so we are extremely excited about that and hopefully we will have some good news here shortly to share with everybody. So that's going well. As Jeff mentioned our -- some exciting progress in terms of the Pennsylvania shale play obviously made a big commitments with the Pittsburg office in really staffing up there so that I think it shows you at least gives you some glimpse that in terms of what our expectation is there and our confidence that we are going to make a commercial play. I am not quite sure of whether it's going to be a horizontal or vertical but that it certainly is so far so good. But then I think the Nora transaction is I think, at least in my opinion one of the more creative kind of transactions done in our business and its good along a while in terms of trying to marry the strengths. They are two very capable companies that are really focused on driving the net present value of that field to the present versus waiting many years to do that and I compliment both Equitable and Range and in particular I want to compliment Chad Stevens who heads our A&D group who did a fabulous job of working on that transaction as well as the Equitable folks; they did a terrific job as well. I am sure excited to get that deal done, closed in mid May and then the real work starts which is going out there and really ramping up the drilling. As Jeff mentioned the low hanging fruits are really the coal bed methane and the tight gas. Then the home run over the fence is the shale gas and the good news on that is that you know we do have 37 well bores in the field had penetrated that formation. There are some other companies in the Basin, in the southern part of the Basin has done pretty well so we will be using some of that technology as well. So it's a really exciting progress. It's essentially putting a turbo charger on our best field. So that's pretty exciting and I think that will generate a lot of value in the very short period of time. So that's exciting as well. So at end of the day, again thank you all for attending today's call. And if there are any other questions, feel free to give any of us a call we will be happy to answer questions. Again, thanks a lot.

Thank you for your participation in today's conference. You may disconnect your lines at this time.