US Energy Corp (USEG) 2011 Q1 法說會逐字稿

Good morning. My name is Huey and I'll be your conference operator today. At this time I'd like to welcome everyone to the US Energy Corporation's first quarter 2011 operational and financial results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions) I will now turn the conference over to Mr. Mark Larsen, President and Chief Operating Officer of US Energy Corporation. Sir, you in a begin your conference.

Thank you, Huey, and good morning ladies and gentlemen. With me this morning are Keith Larsen, Chief Executive Officer, and Scott Lorimor, our Chief Financial Officer. In terms of an agenda for today's call, we will review our operational and financial results for the first quarter ended March 31, 2011, as well as the period subsequent to quarter end. We will also provide you with an update on our various operating initiatives, and will conduct a brief financial review before taking your questions.

Before I turn the call over to Keith I'd like to note that we may make forward-looking statements which may be identified by the words will, anticipate, expect and similar words that are based on the beliefs and assumptions of US Energy's management, and on information available to the Company within the meaning of Section 21E of the Securities and Exchange Commission Act of 1934. You should consider the information provided by officers in the context of the disclosures provided in the Form 10-Q for the quarter ended March 31, 2011, which we filed on Monday, May 9, 2011, including the cautionary statement regarding forward-looking statements.

I'd now like to turn the call over to Keith Larsen, CEO of US Energy Corp.

Thank you, Mark, and good morning ladies and gentlemen, and thank you for joining us on our call this morning. I would like to begin the call this morning with an overview of our first quarter 2011 operational highlights. During the first quarter in the Williston Basin we completed one gross well with Brigham Exploration, and subsequent to quarter end, the Brad Olson number 3 well was completed with an initial production rate 2,357 BOE per day. This brings our current total well count to 14 producing wells under the Brigham program.

Two additional wells, the McMaster and Kalil Farms are currently being simultaneously fracted and are expected to begin production in the coming days. One additional well, the Hovde is also being completed at this time. These four completions should add meaningful production during the second quarter of 2011. In addition, drilling commenced under the Zavanna program during the quarter. To date we've drilled three gross wells and completion activities for these wells are expected to commence in the second quarter.

In late February Zavanna contracted a precision drilling rig for the 12 month period starting in June, 2011. With this rig we now plan to drill approximately one well every 30 to 40 days from June, 2011 through June, 2012. It is estimated that six of the new wells will be drilled in the Yellowstone acreage block, and four will be drilled in the SE HR acreage block during this time frame. Zavanna interest in the first 15 wells currently planned in the Zavanna drilling program -- the average interest in the first 15 wells is 22.5% working interest, and 17.3% net revenue.

Additionally during the quarter we participated in the drilling of a Bakken well with Murex Petroleum Corporation in the Yellowstone AMI. This well is a result of an acreage trade within the Yellowstone lease sold between Zavanna and Murex, whereby Murex will operate the well. Our interest in this well is 9% working interest and 7% NRI. At this time we expect to drill four to six additional wells with Brigham, five to six additional wells with Zavanna, and one additional well with Murex in the Williston Basin during the balance of 2011.

Based on our four Bakken and four Three Forks wells per unit, we believe that we have the potential to participate in 368 gross drilling locations in our two above-mentioned programs. Our total acreage position in the Williston basin now totals approximately 65,000 gross, and 25,000 net acres. In the Gulf Coast we drilled three gross wells during the first quarter of 2011. One well drilled with PetroQuest, the LL Bean, is currently being completed and production is expected to commence in the second quarter. With an estimated initial production rate of 3 million to 5 million Mcfe per day.

The other two wells were determined to be nonproductive. Also during the first quarter of 2011 PetroQuest notified us that the lower zone of the ALMI number 8 well had been depleted, and recommended moving up hole to complete the upper zone which encountered approximately 54 feet of net pave during drilling. Currently the well is flowing to sales at a rate of approximately 5.5 million cubic foot equivalent per day, and 200 barrels of oil, or an equivalent of 1,100 barrels of oil per day. We have a 50% working interest, 36% net revenue interest in this well.

In January, 2011 the Weyerhaeuser 57 number 2 well operated by Yuma and located in southern Louisiana began producing at a rate of 125 barrels of oil per day. We have a working interest of 4.8%, 3.6% net revenue interest in the well, and the greater program consisting of 138 square mile 3-D seismic chute. A development well at this prospect the Weyerhaeuser number 3 is scheduled to be drilled in the second quarter. In addition, the Weyerhaeuser 19 number 1 well in the Bandelier prospect is also planned to be drilled in the second quarter.

Another significant event during the quarter was our Eagle Ford acreage acquisition. On February 18, 2011 we entered into a participation agreement with Crimson Exploration to acquire a 30% work interesting in an oil prospect in Zavala County, Texas. Our initial target formation is the Eagle Ford shale. Under the terms of the agreement we will earn a 30% working interest, 22.5% NRI, and approximately 4,675 gross, 1,400 net contiguous acres through a combination of a cash payment and a commitment well carry.

Crimson operates the prospect and all future drilling and leasing will be on a heads up basis. The first well, the KM Ranch Number 1 was spud in April and is currently drilling in the horizontal portion of the well board. The well was being drilled to a total measured depth of approximately 12,500 feet, which is 6,000-foot vertical and 6,500-foot horizontal, and is planned to be completed with 14 fracture stimulation stages. If successful the initial well is planned to be put on production to evaluate well performance, and if production warrants, we anticipate that Crimson will propose an aggressive Eagle Ford drilling program in 2012.

It's estimated that under current spacing in the area that there is a possible for up to 26 gross, 7.8 net drilling locations on the acreage. US Energy and Crimson are also active live seeking additional opportunities to jointly develop in the Eagle Ford oil window, with the intent of expanding our inventory for future development in the play. In the San Joaquin basin of California the first well in the Moose Prospect with Cirque Resources is now expected to spud in June or July due to unanticipated delays. The project is a Miocene target with an expected total drilling depth of approximately 13,000 feet.

The commitment well is targeting up to 1,300 feet of layered Stevens sands in a statographic trap on the flank of a prolific oil producing field in the basin. Based on the results of the commitment well, additional seismic analysis may be applied to further delineate the overall prospect, and prospective drilling program. Geologic evaluation and current spacing suggest potential for up to 40 additional drilling locations. At our Apache prospect located in southeastern Colorado, we anticipate spudding the initial test well in the prospect in late June or early July of this year targeting the Mississippian formation. The well is planned to be drilled to approximately 6,500 feet, and is a conventional vertical well.

If the initial test well is successful, we believe that there is the potential for an additional 40 wells on the acreage based on 80-acre spacing. We see this expansion into operatorship as an opportunity to drive our own growth internally and control our own pace of development. Current estimates of dry hole costs for each well is $400,000, so we view this project as one that represents a low risk high potential return if successful, and we look forward to reporting results from the program in the coming months.

During the quarter we recognize revenues from oil and natural gas production of $6.7 million. We produced 101,000 BOE or 1,123 BOE per day, which is down sequentially from the fourth quarter of 2010 by 12% primarily as a result of normal declines of producing wells and extended work over on one well in the Bakken and lack of new completions during the quarter. We realize an average oil price in the first quarter of $83.27 per barrel, excluding the impact of our hedges, or $8.89 per barrel higher than the first quarter of 2010. Our average natural gas price realized during the year was $4.82 per MCF, $1.28 per MCF lower than the first quarter of 2010.

I would now like to discuss the status of our Mount Emmons molybdenum project. On April 25, 2011, Thompson Creek Metals Company terminated its option agreement with US Energy to develop the Mount Emmons molybdenum deposit project located in Gunnison County, Colorado. Although we were disappointed at the news, we very much appreciate Thompson Creek's work in the project, and the first class approach they took every step of the way towards advancement of project. In notifying the company, Thompson Creek sighted more immediate developing priorities in its portfolio of assets, including its shovel ready Mount Milligan project, expansion of its Endako project and the Berg project. We wish Thompson Creek the best in their endeavors going forward.

At this time we are in the early stages of evaluating the next steps for the project, but we fully plan to continue ongoing baseline plan of operations permitting, as well as other related permitting activities going forward. And while we continue to direct our focus primarily towards our oil and gas operations, we have also already initiated efforts to reach out to the mining and banking sectors. In this effort we will look to capitalize on the wealth of information provided by Thompson Creek and others that was generated over the course of the last two years. Looking forward we ultimately plan to file a plan of operations for the project in 2012 or early 2013.

Before passing the call on to Scott I'd also like to touch base briefly on the Remington Village apartment complex located in Gillette, Wyoming. As we've previously stated, it is our intention to monetize and ultimately sell the asset this year, and direct the proceeds into our growing oil and gas programs. In that regard I'd like to report that on May 2 the company listed the complex for sale with a commercial realtor, and on May 5 the Company obtained a $10 million long term loan from a regional commercial bank on the asset. With this loan we now have access to over $29.5 million in debt facilities, coupled with our strong cash position and our ongoing cash flow, the Company is in a strong position to continue its pattern of growth throughout 2011. I'd like to now turn the call over to Scott Lorimor, the company's CFO, to review the financial portion of the call.

Thank you, Keith. When comparing the first quarter of 2011 to 2010, net revenues from oil and gas decreased to $4.9 million during the quarter ended March 31, 2011, as compared to revenues of $7.7 million during the quarter ended March 31, 2010. This decrease is from three separate factors. Number one, decreased oil and gas revenues due to normal declines in production, and only one well being completed during the quarter. Number two, a loss from our risk management hedges. And three, increased operating costs associated primarily with one work over of one well.

We did have -- we did not have any hedges in place during the quarter ended March 31, 2010. The three hedges we have in place at March 31, 2011, resulted in a net -- in a realized loss of $555,000, and an unrealized loss of $1.2 million, for a total loss from our risk management hedges of $1.8 million during the quarter ended March 31, 2011. The hedge losses are as a result of increased prices in excess of our hedges during the quarter ended March 31, 2011.

The decrease in our oil and gas revenues caused by lower production was partially offset by improved oil and gas prices. Our oil production increased 14% to approximately 101,000 barrels of oil equivalent. Oil and gas operating expenses increased from $1.1 million in 2010 to $4.1 million in 2011 primarily as a result of our share of a 2.5 -- or our share, which was $2.5 million in work over costs on one well in the Bakken.

As Keith mentioned during the quarter, we elected to sell our real estate complex in Gillette, Wyoming. The property has been listed as -- listed for sale with a commercial realtor, and therefore was moved to discontinued operations in the income statement and statement of cash flows. Subsequent to the end of quarter, we obtained a $10 million loan from a commercial bank to pledge Remington Village as collateral on that loan. The proceeds from the loan will be used to fund our oil and gas programs and overhead expenses.

As disclosed in our 10-K for the year ended December 31, 2010, we borrowed $3 million under our senior credit facility with BNP Paribas in February of 2011. The $3 million borrowed under the BNP senior credit facility was used to purchase our interest in our Eagle Ford oil properties. During the quarter ended March 31, 2011, we recorded a net loss after taxes of $2.2 million, or $0.08 per share as compared to income of $1.5 million, or $0.06 per share for the quarter ended March 31, 2010. Our balance sheet remains strong at March 31, 2011, with working capital of $20.8 million, and very little debt. We had cash and cash equivalents of $7.7 million, plus marketable securities of $8.2 million at March 31, 2011. I'd now like to turn the call back over to Keith Larsen.

Thank you, Scott. I'd like to close the call today by mentioning that while we experienced issues during the quarter that worked against our bottom line, we continue to believe our projects will deliver strong results in the coming quarters. To recap the key points from today's call, I'd like to mention that we anticipate new production from coming online in the second quarter, and have multiple opportunities to expand our core programs through the drill bit.

We've announced a second successful infield well with the Brad Olson unit with Brigham. We currently have two wells simultaneously being completed, and anticipate production results from three Bakken wells by the middle of this month. the Zavanna drilling program is also underway in the Williston Basin, and we look forward to the next step in the program which will be to begin completion initiatives on our inventory of wells in July, with completion initiatives to continue throughout the year. We expanded our exposure to oil and established a new partnership through the Crimson Eagle Ford deal announced in February, and anticipate initial results from this program in July.

We're also looking forward to kicking off our program with Cirque in California in the near term, and we are actively gearing up for operatorship in the Colorado project for mid-summer. In this regard we continue to add technical staff to our team. In the past few months we have hired a senior land man and a contract drilling engineer who will work alongside our in-house senior geologist who has made many contributions to the direction of our programs during his tenure over the past year.

Our new land man Pat Curvin joined US Energy in April. Mr. Curvin has over 25 years of experience in various basins and plays throughout the US, and previously worked for Quantum Resources and Chevron Texaco. Mr. Curvin earned a JD degree from Oklahoma City School of Law, and a BA degree in the Petroleum Land Management program from the University of Texas at Austin.

Bill Duncan has been retained as a full-time contracting consult an as a drilling engineer for the Colorado Apache project. Mr. Duncan is a veteran in the oil and gas industry with more than 40 years of experience in petroleum engineering, drilling, and operations design and management, and previous employers include Mobile Oil Company and Union Oil. He's a graduate of the University of Wyoming with a BS in Petroleum Engineering. Mr. Duncan will provide strength of drilling and production leadership.

Lastly we have also recently hired Arthur Evans to succeed Scott Lorimor as the Company's Chief Financial Officer effective July 1, 2011. Prior to joining US Energy Mr. Evans was the Chief Financial Officer, Treasurer, and Chief Compliant Officer for Tri-Valley Corp., a publicly traded oil exploration and production company. Through his many years of experience, Mr. Evans brings a full range of accounting, SEC compliance, financial management in mergers and acquisitions, experience to the US Energy management team. Mr. Evans has a Bachelor of Science in Accounting from Webber State University, an MBA in Finance from Golden Gate University, and an MS in Systems Management from the University of Southern California. His professional designations included Certified Public Accountant, Certified Management Accountant, and Certified Financial Manager.

As I stated on this morning's press release I am pleased to work with -- pleased to welcome Art to our team, and look forward to working with him in the coming weeks as we transition towards Scott's retirement. Art has extensive SEC reporting experience, combined with a full range of transactional experience. He will be a tremendous asset to the US Energy team.

We look forward to each of these gentlemen's contributions as we continue to transition to an operating company in the coming months and years ahead. That concludes our prepared remarks for today. Operator, could you please begin the Q&A session?

Yes, sir. (Operator Instructions) Our first question in queue is Rhys Williams with Global Hunter Securities. Please go ahead.

Morning, gentlemen.

Good morning.

A quick question about your drilling in Zavala, Crimson, just to clarify, do you already have other wells in the hopper planned, or is it really all dependent on the results of the KM Ranch #1?

Basically right now Rhys, by the way this is Mark, is we want to drill this first well. We're not going to complete it until July. That's when the completion crew is coming on, and we want to test it, basically throughout the course of the year, at least according to Crimson at this time. If we see positive results, we plan on gearing up in the latter third quarter and fourth quarter of this year for an aggressive drilling program next year. That's what's planned at this time.

Okay. Thanks, Mark. And do you all have any long term thoughts regarding your investment in the geothermal company, or maybe divesture possibly or timing of that or anything of that, any color on that?

Well, Rhys, because it's a private company and we have a minority interest, we can't give you a definite, but I believe the value of the properties is still there, and we are actively seeking to find ways to monetize various pieces of the property. I think with oil prices up, then the renewable sector is getting a different look, and getting a little bit more visibility, if you will. So, I believe that they will be continuing. I'm sorry, I can't give you more definitive numbers, but I think within the next two years we should have it monetized.

Got it. And as far as the process regarding Mount Emmons, you mentioned, going forward with that potentially. Are you actively talking to other mining companies at this point, or is that kind of a -- going to be happening down the road?

We are. We've already reached out to various entities that have expressed an interest and certain entities have contacted us as well. So, I'm pretty confident. It's definitely a known resource. It's not an exploration risk. It's a permitting issue. So, we'll bring somebody in.

Sure. Thanks a lot, guys.

Thanks, Rhys.

Thank you, Rhys.

Thank you, sir. Our next questioner in our queue is Jeff Hayden with Rodman & Renshaw. Please go ahead.

Hello, guys.

Morning, Jeff.

Hi, Jeff.

Just a couple questions here. One, make sure I heard it right. The Zavanna contract, that's now going out through June of next year? The drilling contract?

It is. There was about a 45 day delay, Jeff, because of some work that needed to be done on the rig. We anticipated starting drilling in mid-April, but it looks like it's going to be late May or early June before we get the rig on the first location.

Okay. And then, just looking at the Bakken acreage, could you give me the split right now as far as how that 25,000 net acres breaks down between the stuff you all have in Montana, kind of versus the stuff in North Dakota?

It's roughly about half and half, about 12,000 to 13,000 -- 12,500 in the core area of the Bakken, and another 12,500 in the northeast Montana acreage.

Okay. Did you guys leave some stuff in Montana outside of the Brigham and the Zavanna deals? I thought that was about 11,500 to 12,000 net acres?

Yes. But we've been picking up some additional acreage, not a tremendous amount, but we've been filling in some of the core area of our holdings in Northeast Montana.

Okay, great. And last one for me here real fast, Q1 production, what was the split between the Bakken and then kind of the Gulf Coast production?

You know, Jeff, let me look that up for you. I don't have it at my fingertips, but I'm thinking it was probably around 60/40, Bakken.

I'd say around 800 in the Bakken and 400 in the Gulf Coast -- BOE. It's going to be roughly that, those figures. Scott, would you agree?

That's about right.

Okay. Thanks a lot, guys.

Thank you, Jeff.

Thank you, sir. Our next questioner in queue is Noel Parks with Ladenburg Thalmann. Please go ahead.

Good morning.

Good morning, Noel.

Just a couple things and sorry if I missed this, but in California, is it basically those seasonal water issues going on up there? And is that -- are they tracking about the same time frame as you expected, or taking a little longer?

There's a couple issues, Noel. One, we're waiting for a final sign off from the US Fish and Wildlife Service on a survey that was done for one of the species out there. We didn't find any of the species and it's -- we're running it through the traps there dealing with California regulation, but we feel that we're very close with them. We're in close contact with Cirque on a weekly basis, essentially, and we're expecting to get that final approval any day now.

Secondly, you kind of touched on it with the water issues out there. This year with the extreme amounts of water that have occurred in the mountains of the west, including California, the Kern River aqueduct is moving a lot of water. There's a practice out there in the Kern River Valley where they actually take excess water and put it onto lands to recharge the aquifers in the area. And the lands that we plan to drill are one of those nominated lands for aquifer recharging. So, that land has been underwater for about the last 45 days.

Although the weather has cleared and it's evaporating, we're expecting that to come down, and Cirque is telling us now that June or, perhaps, July time frame. So, it depends on the weather, depends on the recharge of that aquifer, and other than that we have all of the other necessary permits in hand. So, it's been a little bit frustrating waiting for it, but we believe it's going to be worth the wait.

Okay, thanks. And just talking about Colorado, you hired Bill Duncan, in the press release it said, to consult for you out there. What's kind of the next steps, or what's he going to be working on? Or what is he working on right now there as far as those preparations?

Basically what he's done is he's came in and picked up where our staff had taken it to a certain point. He came on about two weeks ago. He's very qualified in drilling operations. I'd like to point out he was pleased with everything that we handed off to him. Of course, he's in touch with all the vendors lining up all the schedules, all of the facilities that we need, all the services that we need, and the permit is in progress.

We expect to get the permit, I would estimate, in early June and right now we have a window scheduled for mid-June to early July where we would spud the well. That time frame can slip, but we're holding fast to that, and we've got a confident gentleman here to complement the team that we had working on it up to his arrival. And so, of course, we meet on it frequently, and it looks to me that everything is moving smoothly now and we're looking forward to getting that well spud.

Okay. Thanks. I think that's it for me.

Thank you, Noel.

Thank you, sir. Our next questioner in queue is Marco Rodriguez with Stonegate Securities. Your questions, please.

Good afternoon, guys. Thank you for taking my questions. Really quick, I was wondering if you might be able to give us a better breakdown on the $9.5 million of CapEx that's been spent in Q1, how much was to the Bakken and to other prospects?

Part of it was land acquisition. The money was expended to purchase land out in the Eagle Ford properties, and the balance was primarily Bakken, but there was some money that was expended for PetroQuest. I don't have those numbers right before me, but that's basically what it was.

Okay. And then if you can just confirm something for me. You mentioned you had one producing well, or one well that started generating for you in Q1, but I'm trying to -- I'm having a problem with my math, I guess. I'm showing in your queue you've got 19 producing wells, and I believe that your K said 17. Am I missing something there?

Well, in the Bakken we have 14 producing wells, Gulf Coast -- .

The one that came on was the Lloyd well --.

Yes.

Gulf Coast on the five, and then we brought on the Lloyd well in the first quarter, which brought it to 14. And then, of course, the one work over was down for an extended period of time and it's now back onstream.

Would you classify, then, the sequential decline in production, is it primarily a function of that work over?

That contributed to it. Certainly, it contributed to it.

Can you give us a sense as far as what was decline rate and what was the work over in terms of a ratio?

We don't have those, Marco.

Okay, okay. And then lastly, I know it's obviously very difficult for you to provide expectations as far as when wells start to come online, but I was wondering if you might be able to give us any sort of sense. Any sort of high level thought in regard to the wells you think you'll be producing next quarter, and then how that kind of ramps through year. Thank you.

Well, Marco, I think, you know, the wells we've announced with Brigham that are being completed, certainly they're going to add meaningfully, as we've said, and the Zavanna wells are not going to be fracked until July. So, that will be the next quarter. And then, you know, the timing again for our operated wells down in Colorado are probably going to come on in the third quarter as well. So, apart from those four wells, and a couple small wells with Yuma, that's about the extent of it.

Well, as well as Crimson. We'll see that first well come on in July.

So, we'll have 18 Bakken wells -- 17 Bakken, one Three Forks producing in the second quarter this year with the three completions that are underway. And then, we expect a surge in July when we start completing Zavanna and the Crimson wells and completions to take place in the Bakken and Zavanna program with more Brigham wells coming on in the third and fourth quarter this year.

Thank you very much.

Thank you, Marco.

Thank you, sir. Our next questioner in queue is Robert Carlson with Janney Montgomery Scott. Please go ahead.

Hi, guys, wonder if you could comment on the wells we have with Brigham. When we initiated these programs we [weren't] going to pay or get an accelerated payout, until we reached 100% of our costs. How many wells have we been paid back fully on, so we're getting a declining revenue base now. And when do you think, if none, when does the first one come and when does the last one go?

To date none of the wells have paid back completely, and under our structured program the first six wells will be paid back before the Bakken comes in. And certainly, the first well we drilled is the one that we did the extensive work over on. So, that's going to lengthen the time that the pay back's going to come there. The next one, is the next four wells. They will be paid out, and then the final five are on a one well by one well basis. And, of course, they're the youngest wells so, they're further out from being paid off as well.

The first one to go off, though, will go off when? This coming quarter, the coming quarter, the next quarter?

well, again it's not the first one. It's the first six.

Okay.

That it's a pooling of those first six wells. And to give you an idea of, we're not sure when that's going to happen, especially in light of the $2.5 million work over costs. It's going to be lengthened. We're hopeful that it will happen this year.

Okay, thank you.

Thank you, sir. Our next questioner in queue is George Gaspar who is a private investor. Your line is now open.

Yes. Good morning everyone.

Good morning, George.

Follow-up question on the ALMI #8 with PetroQuest.

Yes?

You indicated that it's about 5.5 million a day. I believe that the target originally was 10 million to 12 million on that upper zone. What's the prospect for getting it there, and maybe why isn't it there already?

It has not been as exciting a well as we had anticipated the initial test work that was done after we completed the well. The pressures have come down quicker. So, we don't anticipate it going up to 10 million, George. The 5 million is looks like it's going to be in those ranges.

Okay. All right. And then the -- in the one work over that you did with Brigham in the Bakken -- North Dakota Bakken, the $2.5 million costs, or whatever it was, why was the cost so high relative -- what was your interest in that particular project to generate that much cost?

Our interest was 60%, the total cost on it was $4 million, we lost fish in the hole, and we ended up jarring on it for a long period of time. The good news is we finally got finished with it, put it back on production, and it came on at about 450 barrels a day.

I see. I see.

It was offline for over three months.

Okay, all right. And then in the Crimson well, you should be fairly well out on the horizontal at this point in time. Is there any indication of what you're seeing so far?

There is. We get shows. We logged the hole and they're encouraging results, much like every one of the wells we drilled with Brigham is encouraging. You just don't know until you frac them and see what the production's going to be, but we do have encouraging results there and we are near the end. I would anticipate within the next two or three days we'll have drilled it, and we'll start running a liner in it.

Okay. And then, just on the North Dakota, you're in completion, you're in the fracking stage on the -- on two at this point with Brigham and one to follow. Is that correct?

That is correct. The Brad Olson #3 we brought on and have announced about 2,400 BOE. The McMaster and the Kalil Farms is just about complete, George. I've looked at it and there are 33 stages, and they're on that stage. So, within the next few days we'll get the flow back. And then the Hovde they are completing it, and we anticipate later this month they will frac it as well.

I see. And then the other well, the name skips me that you have going in North Dakota at this point in time, how's that doing? Is that through completion -- or through drilling now?

You may be speaking of the Murex well.

Yes. Excuse me.

This has been TD'ed and that one is scheduled, as far as we know, to also complete, likely, in July.

I see. Okay.

I think everybody may be aware of this, it's but I'll just mention the winter has been a terrible winter in the Bakken, and there's also been a lot of competition for fracking services. Brigham added another frac crew, and Zavanna is also working with a couple of companies to get a dedicated crew for our project. So, it's coming through, but the winter was brutal. It was a lot of snow, cold weather, and it affected the drilling and completion. Not only us, but I think across the board to everybody up there.

Okay. All right. Thank you.

Thanks, George.

Thank you, sir. (Operator Instructions) We do have another question in queue, Jeff Hayden with Rodman & Renshaw. Please go ahead.

Hello, guys, just kind of given some of the delays on the Zavanna rig going, just wondering if there are any updates to the CapEx budget for the year, or if you're just kind of making up for that CapEx with other activity elsewhere?

Yes. I think that we're sticking to our budget, Jeff, although there has been some delays. We are looking at some additional acquisitions. So, I still think the $45 million number is a good number.

Okay. That's it for me, guys. Thanks.

Thanks again, Jeff.

Thank you, sir. We do have another question in queue, George Gaspar, who is the private investor. Please go ahead.

Thank you. Just a follow-up on the Zavanna well drilling activity. You've got three completed, in terms of drilling, ready to frac into the third quarter. What's your best estimate at this point in terms of well drilling completions that you can accomplish with Zavanna by December 31 of this year, beyond the three that are set to frac in the third, early third quarter?

You know what? Again, George, with the competition for the frac crews we're a little hesitant, but I think it's fair to say we'll have those three plus an additional four or five by year-end online.

Okay. And -- but the idea is still to drill one a month? Is that --

One every 30 to 45 days.

30 to 45 days. Okay. And that contract again, as somebody else asked, is good through a year from now? Is it December -- or excuse me, June of '12?

It's a one year contract, that's correct.

One year contract.

June 1 through June 1.

And it's an annualized contract as opposed to a certain specific number of wells?

That is correct.

Okay, all right. Thank you.

Thank you, sir. (Operator Instructions) There appears to be no further questions at this time. Do you have any closing remarks?

Thank you, everybody, for joining us. I know there's probably some disappointment, as we are, watching our stock. We continue to go out. We attended the conference, the IPAA in New York. We'll be attending another conference next month.

We're doing road shows with various investment bankers that have invited us out. We continue to think that we're undervalued. In fact, I thought we were undervalued when we were at six bucks, but I think if you look at some of the other stocks today that are in our sector, for some reason oil is getting hit, but I think with the completions, the additions to our production, that we're going to see some daylight. So, thank you for all of your support and thank you very much for calling in today.

Thank you, gentlemen. Ladies and gentlemen, this does conclude today's conference call. You may now disconnect.