SandRidge Energy Inc (SD) 2008 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the SandRidge Energy first quarter 2008 earnings conference call. My name is Sylvana. I'll be your coordinator today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of the conference. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Mr. Dirk Van Doren, Chief Financial Officer. You may proceed.

Thank you, Sylvana. Good morning. This is Dirk Van Doren, before I turn the call to Tom Ward, our Chairman, President and CEO, I need to make a few opening remarks. Last night, the company issued a press release detailing SandRidge's financial and operating performance for the first quarter of 2008 and we also filed our 10Q. We have also issued a press release about the pending sale of Piceance assets. If you do not have a copy of the release you can find one on the company's website, www.SandRidgeenergy.com.

Also you can sign up for releases that will automatically be sent to you and this is located under their investor relation's tab. Now for our forward-looking statement. Please keep in mind that during today's call our company will be making forward-looking statements, which are subject to risks and uncertainties. Actual results might differ materially from those projected in these forward-looking statements. Additional information concerning risk factors that could cause such differences are detailed in the company's filings with the SEC. Today's presentation will include information regarding adjusted net income, adjusted EBITDA and other nonGAAP financial measures. As required by SEC rules, a reconciliation to the most directly comparable GAAP measures are available on our website under the Investor Relations tab. Now let me turn the call over to Tom Ward. Tom?

Thank you, Dirk. Welcome to our first quarter 2008 earnings conference call. Joining Dirk and me in our office is Matt Grubb, our Chief Operating Officer. We've now posted our first quarter numbers on our website and Dirk will discuss those momentarily. I will now discuss the quarter's operations. During the quarter we had several conference presentations and also an investor presentation. Therefore, there's not too much information that we've not already shared.

However, we will discuss the first cab development and each quarter from this point forward will give you an update on exploration outside of the Pinon Field in the West Texas Overthrust. We currently have 41 rigs operating and 31 of those rigs drilling in the West Texas Overthrust, of which 28 are drilling in the Pinon Field. We've now divided the Pinon Field into three areas. 16 rigs are working on the western side developing the [testnas] which is a Pennsylvanian sands and the lower Caballos reservoirs. Five of those 16 rigs are drilling to 4,500 to 5,000 feet for the testnas sands while the other 11 rigs drill for the lower Caballos sweet methane production. We continue to expand the limits of the second cab, both vertically and by drilling deeper and geographically by stepping out of the existing proven area. Two rigs are drilling the high CO2 first Caballos in the southern portion of the Pinon Field, where we've found crude -- above pro forma first cab production with CO2 percentages in the 60% range. The last well drilled in this high CO2 region is producing at a rate of 12 million cubic feet of gas a day with 55% CO2 and 45% methane. The pro forma first cab high CO2 well delivers seven Bcf of total gas of which 2.1 Bcf is methane or 30% and has an initial IP of approximately three million cubic feet of gas a day. 10 rigs are drilling on the eastern side of Pinon. Two are drilling for sweet methane gas in the second cab, four drilling for the first and second cab combination in the CO2 transition zone for the first cab, and four are drilling in the first cab and the sweet methane gas fault block.

As we have discussed previously, we have drilled and completed two wells in the first cab in the eastern portion of the Pinon Field that are currently producing a combined rate of nearly 18 million cube feet of gas a day of methane gas without CO2. We've also tested one well in what we call the CO2 transition zone. In this transition area from high CO2 to sweet, we have one well producing 3.5 million cubic feet of gas a day at 60% methane and 40% CO2. We're now completing two wells in what we describe as the nonCO2 fault block and have three additional wells that have been drilled and cased through this zone and awaiting completion. We found at least one fault block where the first cab produces methane without CO2. This is the same prolific reservoir that produces in the other parts of the Pinon field with an average of 60% to 70% CO2. So this fault block is producing CO2 free, but it's the same zone that produces back to the west. This reservoir's been producing for over 20 years. However, the lack of CO2 processing capacity has been a hindrance to further exploration. Our belief is that we can find additional fault blocks as we move east that will have the same reservoir but will be sourced with sweet gas.

The first Caballos reservoir is remarkable. In Pinon Field, the depth is approximately 6,000 feet and the average reserves are at least seven Bcf per well. As we move to the east the reservoir is at 8,000 to 9,000 feet deep and appears to have the same reservoir characteristics, except there's no CO2. We'll be only able to prove our theory by drilling wells, as 3D seismic will not delineate what kind of gas is in the reservoir. Therefore, the transition of high CO2 to no CO2 in the first cab is the big story for the first quarter of 2008. We plan to drill 10 additional wells in a 12 section area that could add more than 200 Bcf net of proved reserves and an additional 1.2 Tcf net of 3P reserves by year-end. We also continue to exploit our high CO2 reservoir. We believe we have over a Tcf of recoverable methane gas just within the area of known gas in the Pinon Field with high CO2 reservoir. We're rate constrained in our delivery of CO2 as our processing capacity is limited to just over 200 million cubic feet of total volume gas per day of which we produce approximately 65 million cubic feet of gas of methane per day.

We anticipate adding an incremental 100 million a day of treating capacity by the end of the year, therefore producing just over 100 million cubic feet of methane per day from the high CO2 reservoirs by the end of 2008. We're currently evaluating proposals from third parties to partner in the construction of the new century plan and related CO2 infrastructure expansions. This will add incremental treating capacity of over 700 million cubic feet of gas per day allowing us to extract an additional 250 million cubic feet per day from the high CO2 reservoirs by the end of 2010. We'll then start to ramp up our development of the high CO2 first cab reservoir to produce the one Bcf of total volume gas by 2015, of which 350 million of that gas is sweet. As you can see, we have a very long time horizon for our participation in the Pinon Field and we are making the capital commitment and plans today to ensure long-term future growth.

As we expand the Pinon Field, we continue to find more reservoirs both geographically and vertically. We continue to drill deeper on the western side and will soon explore for the second cab under the prolific cab in the eastern portion of Pinon Field. Our WTO exploration program began in the first quarter and we now have three rigs drilling outside the Pinon field. The areas we've chosen first to explore are areas where we shot 3D seismic last year. We now have a 17,000 foot test drilling in the big canyon area and two 11,000 to 12,000 foot tests being drilled in south Sabino. None of these wells have reached total depth, but we do hope to have some information by the time we have our second quarter conference call in August. Each quarter after that, we should be able to provide information on the wells that we have tested. Our goal will be to wait until we have either tested gas or have a confirmed dry hole to release information. These three tests are the first wells to be drilled using our 3D seismic. We do continue to shoot the West Texas Overthrust 3D seismic and are now up to 650 square miles acquired. After we acquire it does take a few months to fully process. Therefore we continue to pick our locations from the 389 square miles that we shot in 2007. By the end of 2008, we will have shot 1,000 of our 1,400 square miles.

We continue to be encouraged by the data we are working, but only the drill bit would determine if Pinon Field is unique in its geological setting. We have now determined that we will spud at least 12 exploration wells outside of the Pinon Field in 2008 using our proprietary 3D. We've also planned for exploration success in our model and assuming we'll move up to 40 rigs in the West Texas Overthrust by the end of 2008. Therefore, we have moved our budget up from $1.25 billion to $1.5 billion in 2008. Our mid stream group comprises over 120 employees whose job is to keep up with our production growth by timely building infrastructure and maintaining our processing plants. We build a new 67 horsepower compressor station every quarter, which moves 25 million cubic feet of gas a day. Our Cedar compression station will come on this month and the Juniper compression station will be completed in July. Each time we add compression, we do experience an increase in production due to lowering the line pressure.

Other areas of activity include five rigs in east Texas, three rigs operating in Oklahoma, one rig operating in our west Texas oil position and one rig in the Gulf Coast. In east Texas we continue to develop our 30,000 acres of Cotton Valley acreage and have 566 locations left to drill on 40 acre spacing. Our wells continue to perform in line with our expectations and we anticipate moving to 20 acre spacing this year and that will double the number of remaining locations. We're also cognizant of Haynesville Shale drilling near our east Texas acreage, but do not have plans in our budget to drill this time of well. Our east Texas block is now up to 40 million feet of gas per day net to SandRidge and continues to be a great resource for us to develop. SandRidge and our partners have also announced the sale of our Piceance assets to The Williams Companies for $285 million gross or approximately $140 million net to SandRidge.

We produced less than 700 Mcf of gas and will lose less than 12 Bcf of total volume of reserves. We believe there's a tremendous amount of gas to be found on this acreage block in the Piceance, however we believe also that the West Texas Overthrust is our future for long term growth and the area where we can find gas at the lowest finding cost. As we've stated before, the only asset that is sacred to SandRidge is the WTO. Therefore all other assets are subject to be reviewed for possible divestiture to help fund our aggressive capital programs. Our production for the first quarter was 22.8 Bcfe up 78% from 12.8% Bcf year-over-year.

We currently are producing approximately 270 million cubic feet of gas per day. Our reserves also grew during the quarter to 1.7 Tcf up from 1.5 Tcf at year-end. Our finding costs continue to come in within our budget. The first quarter finding cost was $1.50 per Mcfe on the drilling side, and $1.73 per Mcfe all in. Our PV-10 also increased to $5.5 billion from $3.5 billion at year end. We are now prepared to increase projected production to 100 Bcfe for 2008 due to our continued drilling success within Pinon Field. We've also been aggressive in hedging our production for approximately one year out. This quarter those hedges resulted in our unrealized mark to market loss of $144 million. We remained very bullish on natural gas but continue to feel the obligation to hedge for short durations at prices above our model for the time period that we are cash flow negative. We are currently hedged on 75% of our 2008 production at $8.89 per Mcfe and 12% of 2009 production at $9.80 per Mcfe. I believe this highlights our quarter operationally, so I'll turn the call over to Dirk to discuss the quarter financially.

Thanks, Tom. I'll focus on a few first quarter highlights, our current financial position and our 2008 projections. The key major matrices we look at in the company are production, operating costs, EBITDA, free cash flow, and funding needs if any. Production was above expectations and costs were slightly below our guidance as our main area of growth is the one with the lowest LOE expense, the WTO. Adjusted EBITDA was $167.6 million for the first quarter, which was above our guidance and our internal model. Our quarterly capital expenditures were $418.7 million and hence we had negative free cash flow. This was covered with the $63 million of cash we had on hand at year-end as well as $215 million of borrowings on our revolving credit facility. At the end of the quarter, we had $1.279 billion of debt and less than $1 million cash.

Looking at subsequent of events we experienced a very active second quarter. In early April, we increased our credit facility to $1.75 billion from $750 million and our borrowing base is now $1.2 billion up from $700 million. This has greatly enhanced our financial flexibility. On May 1st, we successfully exchanged 100% of our our billion-dollar term loans to senior notes. Those notes are now trading in the high yield market. On May 7th, we achieved all the requirements to force convert all the preferred stock. That equates to $381 million in preferred stock and 18.8 million shares. And yesterday we announced, we had signed the PSA to sell the Piceance assets. Our currently debt position as of May 7th was $410 million drawn on our revolver and $1.47 billion of total debt, which doesn't include proceeds for from the Piceance sale. Our net cash position is under $100 million. Additionally as Tom mentioned from our last call we have added slightly to our hedge position with 3.1 Bcf in 2008 and 8.5 Bcf in 2009. We are currently about 75% hedged in '08 at 889.

Let's look at 2008 guidance presented in the press release. We've changed four things in our guidance: production, crude oil differential, shares outstanding and capital expenditures. Production is up to 100 Bcf from 95 Bcf as a result of our WTO success. The crude oil differential is up NGLs are a slightly larger portion of our crude oil component. The outstanding share count will be up slightly as we refine that number. And capital expenditures have increased to $1.5 billion from $1.25 billion. Half of that increase will be paid with increased internally generated funds and higher proceeds than we had expected from the Piceance sale and half will be funded with debt.

The last thing to address is our floats and lock-ups which we are frequently asked about. We have about 165 million shares fully diluted. All the lock-ups have ended except for the 15-day booster period because we have reported numbers near when that lock-up was going to end. That booster period applies to management, the Board of Directors and some former employees. That group accounts for 80 million shares and that lock-up ends over the Memorial Day weekend. Therefore, there are 85 million shares freely tradable as of today. Looking to the remainder of the second quarter, we have a few conferences in the next few weeks that we're going to attend. And you can look at our website for the times and dates of those presentations. We are currently planning to release our second quarter results on Thursday August 7th, after the market closes and have a conference call the following day at 9:00 AM eastern. That ends our prepared remarks. Sylvana, we're ready to open up the call for questions.

(OPERATOR INSTRUCTIONS) Questions will be taken in the order received. (OPERATOR INSTRUCTIONS) And the first question comes from the line of David Kistler from Simmons and Company. You may proceed.

Good morning guys.

Good morning.

Last conference call you gave us a little bit of an update on the extent of the Pinon, kind of as you've been testing the northeast, south and west areas of it. Have you taken that any further than the last call? It's still about 60,000 acres defining the Pinons?

We still define Pinon as 65,000 acres, that includes several stepout wells at the last quarter. What we've done more is infield within those stepouts. The field does continue to expand somewhat to the west and we haven't drilled any further wells south. We continue to have very good wells there. And we're stepping out to the east as we discussed with our first cab production, we haven't drilled second cab yet out to the very eastern edges of the field. And so, a mild stepout though if you think of this, you can drill a lot of wells in each section because we basically look at this as 40 acre spacing. So we do continue to stepout, but we haven't increased the acreage amount in Pinon field.

Okay. And building on the thought of stepping out, but stepping out into the WTO in aggregate with 12 exploration wells, can you define how those are going to be spread out at this point? I think the last time when you were talking about seven, you had, I want to say six of them or so going to the east of the Pinon and only one going to the west. Does that apply to the 12 as well? Does it concentrate more to the east?

Well, the way I think of it is that we had in 2007, we shot 389 square miles, and out of that there've been a number of potential locations that we can drill or approved prospects. And as we get in new 3D in 2008 those might move around some. But it's our goal to test all of the outside areas being from Allison Ranch all the way to McKay Creek within the next year. Some of those might spud in 2009. We could move those around. We have a lot of prospects that if we find gas that we could drill. So I can't really answer your question because those, those locations could move depending on success or lack of success we have on each exploration area. I can say that most of them are miles apart from each other, so as we learn, we'll learn a lot with the wells that we're drilling and we'll take that knowledge and try to pick other places on our 3D that look like that or different from it.

And then last question, with respect to the Pinon specifically, can you talk about cost per well and how that's changed really in the last three or six months?

Not changed much in the last quarter. We had a dramatic change of about $400,000 per well, less year-over-year and drilling about 1,400 feet deeper. But in the last quarter, I would say the costs are maintaining fairly flat. We went through a drilling curve that has increased. We've done better over time, so maybe we're at a point that that is more at the bottom side of the bell curve.

Great, well thank you guys so much. Good quarter.

Thank you.

And your next question comes from the line of Joe Allman from JPMorgan. You may proceed.

Hi. Thank you, good morning, everybody.

Hey, Joe.

Tom. Just a follow-up to David's question about stepping out in the Pinon Field. If I'm not mistaken, you had planned 40 wells, that would be extension wells in the Pinon, if I remember, on the map, it seemed to be stepping out in all different directions. Could you clarify that?

The north end of the Pinon is not as easily to step out in because we've defined where the thrust is on the north end of the Pinon Field. I kind of look at this as stepping out to the west towards Allison Ranch. Stepping out to the east, we'll probably -- we will cross the major wrench fault and drill in South Sabino, and stepping out to the south in higher CO2 areas that are being very productive in Pinon Field. So south -- it's kind of the southwest area of Pinon.

Okay, so at some point this year, or maybe early next year, we can look forward to potentially Pinon getting extended in different directions?

Yes, what will happen is that if our model is correct, the Pinon will move into Allison Ranch and South Sabino and even though it's one continuous field, we've divided up along wrench faults.

Okay. And on the west side you were going in and drilling the, I guess it was the second cab and hitting it twice? Could you give us an update on that?

Yes, we continue to drill those wells and there's really not much has changed. We -- as we drill wells there, it's easier for us to model where that lower limb is, it'll be even more helpful when we get our 3D in over the field which should be in July. We actually have it shot and we're processing, so we should have that data in June or July.

Okay, that's helpful. And then on the east side of Pinon, the upper cab wells, the no CO2 wells, what's your estimate for reserves per well in that area of Pinon?

We've stayed with seven Bcfe per well as long as we hit the first cab. That's a very good type curve, that's been used over -- I think our type curve has over 7,500 wells. Several hundred wells drilled through the first cab. But our type curve is over 20 years old from the oldest well and it's -- what I believe is actually we're a little conservative at seven Bcfe. Its a tremendous reservoir, what we would call world-class reservoir at this depth. The only issue has been in the past that it had too much CO2 in it to produce.

Got you. Okay. And then lastly, Tom you gave numbers in your prepared remarks about how much production you're going to get, I think you said by year-end from the high CO2 reservoir. Could you give that number again?

Okay, you're talking about how much we're going to move from in the high CO2? We're at 200 million a day, total volume gas a day, and we'll move that to 300 million a day total volume gas. And we project about 30% of that is methane. About 100 million a day net of methane production at year-end.

Okay, great. Great, thanks very much.

Thank you

And the next question comes from the line of Brian Singer from Goldman Sachs. You may proceed.

Thank you, good morning. Can you talk more about the CO2 transition zone, I think you said there's one well producing at 3.5 million a day? What are your expectations there? And how vast is that zone versus the sweets with the high CO2?

We think it's the same reservoir that produces to the west of it at 60% CO2 and there are some wells go as high as 80% CO2 on further west. And then as we move east, you move more into what we call the transition zone. We tested one well that I think today is making 4.2 million a day. It's been online 20 days. And the CO2 volume is 45%. And then another mile to the east, we cross a fault and that ends up being in the fault block that we're now producing no CO2 at those same types of rates or even better. So it really is what we call a transition zone, it's a fault block that has less CO2 in it than the fault blocks to the west. Our theory is that it's a sourcing mechanism that we're being sourced as you move to the east, the source changes from a high CO2 source to a sweet gas source.

Great. Can you talk about your well costs and where they're trending right now?

Well costs are basically flat, but I'll let Matt take that one.

Well costs -- last year, when we ramp add up our costs through mid-year '07, but they've been steadily going back down from mid-year '07 to Q4 '07 and we've been flat the last two quarters. Really, and the positive thing about that is we remain flat, but we're about to drill deeper, so I think, I look forward drilling to where we are with costs. We model $1.75 drilling costs and we beat that the last two quarters.

I guess if you get seven Bcf wells without CO2, I assume that the [F&D] costs would be significantly lower?

We model those about $0.60 an Mcf.

Great. Last question--

I'm sorry, that's with the wells that averages about a 3 million a day IP on a 13.5% exponential decline.

Okay, any changes in your ability or interest in monetizing CO2 if you are finding more nonCO2 opportunities as petro resource in the CO2 business become any less strategic?

It's not any less strategic. We think the petro source continues to add value to the company. The projects that we have there have not started to receive or start making oil out of, we're still injecting CO2. I think if we did monetize, it'd be too early. It's not -- it would not be an asset that we'd look to monetize any more or less than the other assets outside the West Texas Overthrust. However, any of these assets as we continue to grow on finding methane gas, which is our goal, we'll look at that versus -- I've been very clear that next year we're going to need to either issue equity or sell assets, and so everything outside the West Texas Overthrust we'll take a look at.

Great, thank you.

Thank you.

And the next question comes from the line of David Heikkinen from Tudor, Pickering, Holt. You may proceed.

Good morning. Just a question around the low CO2 cab one. You talked about running four rigs in that area and 12 sections at 40 acre spacing, is that the current plan for developing that overall acreage area?

We might extend that a bit. If we continue to have the success that we have right now, there's really not a better place that I know of on earth to drill wells. So we'll -- we have six rigs running in it now and so we'll continue to look at that, and hopefully if we can cross a wrench fault here and still find another fault block or find more fault blocks that have this same type of reservoir, we'll add accordingly.

I remember at the analyst meeting you talked about the 831 well, how many stepouts have you made towards the east as you approach the wrench fault?

We have now two producing and we have two that are being completed and we have three that are down encased and all have the reservoir. Only two wells that are actually only producing sweet gas today.

And those are all about a quarter mile apart if I'm remembering right when you talked about plans?

Two wells producing are basically 40 acre offsets and actually the bottom whole drifted close to the other location at part of it. So you could almost look at the two wells producing as being very close together and then you can, the transition well is a mile away to the west. It's producing 45% CO2 and we have a well that's about probably 3/4 of a mile to the southeast. That kind of expanse. They're not all 40 acre offsets, but they're not all stepouts.

Okay. And 12 sections is your currently defined area, and your thought is as you go to South Sabino potentially you may have low CO2 there as well because of Woodford being the source?

Well the 12 sections I look at is really the expansion into South Sabino. It has a lot of projection in it.

Okay, that's helpful. Okay, thank you

And the next question comes from the line of Jeff Robertson with Lehman Brothers. You may proceed.

Tom, as a follow-up to your comments on the CO2 transition zone in your idea that it's partly due to sourcing, have you all been able to take that and use it in your exploration program as you try to identify your better chance of finding sweet gas is?

I don't think so yet. I think what we'll have to do is drill several wells and get logs and then to understand how this all fits together. For example, it's very complex, as you know, so if you step out 30 miles and drill a well, we won't know until we actually see production whether we're in the first, whether it's first cab or second cab. It might be the first occurrence of cab in the big canyon, but it not be the same Caballos as in the Pinon Field. So there's years ahead of us as to how this all fits together. I'll say with every well we drill and get a log on, we'll tie that back into seismic, but the seismic is a very good indicator of trying to find the trap. It's not a good indicator, or not nearly as good as a well bore to, that has a log on it, and has production to understand what we're really seeing. So it's hard for us to correlate off of seismic what Pinon Field, what exact zones might be projected up to the east and west.

Secondly, in the exploration program, how many wells do you think you will actually get, get to total depth on this year with the way you lay out your plans?

We know that, I think, we know we're going to spud 12 and I'm assuming we'll have five or six, probably half of them this year.

Okay, thank you.

Thank you.

(OPERATOR INSTRUCTIONS) And our next question comes from the line of Joe Allman of JPMorgan. You may proceed.

Thank you, just a follow up. Tom, I know you mentioned you have no plans to develop the Haynesville Shale, but could you share with us what you think about the Haynesville Shale, what data do you have this point?

We don't have much data as we don't work it, but we were fortunate to have, prior to us getting here, we own 13,000 acres that sits in the middle of it in northwest Louisiana. We'll sit on that and watch what happens around us, and then we know, just from other conference calls that there are people drilling, or I guess it's [Cabot] that's drilling in the Menden Field, has drilled some vertical Haynesville tests, that's where our east Texas production is, is fairly close to that field. In fact, we own some in Menden ourselves. That was a comment to say we have acreage near where other people have seemed to be doing very well and we wish them all the best.

Okay, appreciate that thanks.

And the next question comes from the line of Ellen Hannan from Bear Stearns. You may proceed.

Thank you, good morning.

Good morning.

Tom, just a couple follow-ups. On the fault block that you found now that has no CO2, any idea of the aerial extent of that?

We projected each of these as [tariff] faults, they could be miles in length north or south and as you cross these tariff faults and as they're abutted by major ridge faults, the ridge fault systems are larger and they go further north/south. They are in areas that are maybe a couple miles in the east to west, west length.

Okay. And just another question on your CapEx, you're increasing your CapEx this year, how should we think of that, the increasing kind of in proportion to the way your spending was in the first quarter in terms of drilling versus mid stream versus other?

We can think about it exactly if you'd like Ellen.

Okay, even better.

There we go. The numbers, as I read down are rough numbers, call it $960 million now for E&P, that's up from $860 million. Oil field service goes up to $66 million from $53 million. Midstream goes to $158 million from $106 million. Our tertiary business, we have legally changed the name of Petro Source to SandRidge Tertiary now, tertiary business is the same at $33 million. Land and seismic is $242 million from $194 million. And other is -- was zero, it's now $37 million and other is really our building as we continue to renovate our headquarters which we have 200 people in now and we expect to have north of 400 people when we fully move in, in December, January, of -- a couple months from now. That should get you to $1.5 billion from $1.25 billion.

Thank you very much.

And I would like to clarify what I was talking about earlier, there are multiple faults in between basically each of the wells, even on 40 acre spacing, so I didn't want to make it sound like there's one tariff fault that defines a field. So every time we drill a well and get a log, it is , it does change the way we look at the field. And in fact Todd just brought me something here that says, we look at the size of the new fault block as being about 7,700 acres in the high, that has the no CO2 fault block in Pinon '08. That doesn't cross over into South

And the next question comes from the line of Scott Hanold from RBC Capital Markets. You may proceed.

Good morning. Tom, I think you indicated, and just to clarify, I think you said if these sweet CO2 blocks continue to work, that could add, I think you said 1.2 Tcf of potential, is that just specific to that 7,700 acre block in the Pinon Field?

No that extends -- that would be an extension over into South Sabino.

Okay, and then currently, with when you look at sort of Pinon, I know the last number you threw out was four, 4.2 Tcf of potential on a risk basis. How big could this become in sort of the known area if you look at it -- if this sweet CO2 area works?

Okay, the 3P potential would be drilling 10 stepout wells for you to have the 3P definition. One well offsetting proven and I mean. Obviously if we were fortunate enough that all of this would be sweet , it could be several Tcfe, but we're -- I'm a little hesitant to even through out the first, because we haven't drilled outside of this fault block. So I'm -- there's a lot of gas out here, I'm not sure how much more Tcfs there

Okay. Fair enough. And just one quick question on the Piceance sale, I think there was a small amount of production, if memory serves me right, it's probably just around a million a day? Is that correct?

Little less than a million. I think we were yesterday about 680 Mcf.

All right, thank you.

Thank you.

And at this time we don't have any further questions in the queue. I will pass the call over to management for closing remarks.

As always, we're thankful to have you spend your time with us and appreciate everything that all of our holders do for us. Thank you very much.

Thank you, ladies and gentlemen, this concludes the presentation. You may now disconnect.