Petroleum Development Q4 2008 Earnings Call Transcript

Mar. 3.09 | About: PDC Energy, (PDCE)

Petroleum Development Corporation (PETD) Q4 2008 Earnings Call March 3, 2009 11:00 AM ET

Executives

Richard W. McCullough - Chief Executive Officer and Chairman of the Board

Barton R. Brookman - Senior Vice President Exploration and Production

Gysle R. Shellum - Chief Financial Officer

Analysts

Michael Hall - Stifel Nicolaus & Company, Inc.

Mark Lear - Sidoti & Company LLC

Philip McPherson - Global Hunter Securities

Operator

Thank you for joining today's Petroleum Development Corp. Fourth Quarter 2008 Year End Conference Call.

As you are going to be viewing the webcast for today's conference, please go to www.petd.com. On the home page, at the top left hand corner, you'll see click here to join the webcast. Once clicking on that link, you'll be on the landing page for conference calls and webcast with our links to click to join the webcast. Once you click on that link, you will see a link that says click here, download slides, and the slides for this presentation will be right around (ph).

At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this call is being recorded.

It is now my pleasure to introduce your host, Richard McCullough, Chairman and CEO of Petroleum Development Corporation.

Thank you. Mr. McCullough, you may now begin.

Richard W. McCullough

Thank you operator. And good morning everybody and welcome to the 2008 earnings teleconference.

With me today is Gysle Shellum our Chief Financial Officer; and Bart Brookman, our Senior Vice President of Exploration and Production.

I am going to tick off this morning's call with just a few brief comments and then ask Bart to give us an operational update of the 2008 results and then ask Gysle to give us a financial update.

The first thing that I'd like to do is just say how pleased I am; this was another timely filing of our 10-K. Those of you, who have followed the company for a number of years, know what an accomplishment that is and in particularly, we are filing almost three weeks earlier than last year. So I'd would like to congratulate Gysle and the entire financial team for that.

We will be making some forward-looking statements this morning so I encourage you to read the disclaimer on page two.

And with that I am going to begin my comments around the fundamentals as shown on the table on page four. You can see that again it's another successful year of 2008 from a production and a revenue point of view. The realized gas prices in the fourth quarter were challenging and remain challenging in 2009, but we exited the year at a very high overall level of $8.66. A lot of it... as you know, is due to the financial hedging that we did during 2008, and I know Gysle will cover that in more depth during his comments.

Adjusted cash flow from operations, I just would point out the $200 million for the current year. And you see how substantially the increase between 2006 and 2008 bear in both in the adjusted cash flow per share numbers. This is really due to the transition that we've been making as a company away from the limited partnerships drilling for our own account, the substantial growth in our drilling and production and the realized gas pricing.

If you look at the next page, can't really talk about 2008 without some focus on 2009. While we had solid growth in 2008 in all of these areas, 2009 will be a challenging year for PDC and for other E&P companies. Probably when you look at our company, the things is that we could fight for your attention to as kind of some of the steps that we've taken that we think have well positioned the company to deal with this economic and financial downturn.

One is the valuable our hedges in place. You see this both in the realized pricing that we had in 2008, but as of the balance sheet, if you took all of our hedges through 2009, '10 and '11 and beyond and mark them to market, we have a total net aggregate asset of $153.5 million. So our hedges are very much in the money and will service very well for 2009 and beyond.

We did disclose in our 10-K the specific counterparties that these hedges are with as you might suspect those are issues that are more important this kind of market, and we are very comfortable with the quality and strength of our counterparties.

As we previously announced 2009 capital, we reduced it by about 50 to 60% over 2008 levels. We are expecting to spend within the 120 to $140 million range, Bart is going to cover that a little bit more detail.

We have discontinued spending already in 2009 and beyond because of the low realize pricing that we're seeing there. We feel like we're in a strong liquidity position. We'll talk about that, Gysle will talk about where we are on bank line, what we are expecting in bank redetermination during 2009. But we're committed as a management team to spend within our operating cash flows, and we'll continually focus on our liquidity position.

And like others, as we've drawn back and reduced our drilling efforts, we've really renewed our efforts in looking at cost reductions and operational enhancement efforts. And while we don't have specifics to share today, we plan to bring some of that information forward at our Analyst Day upcoming in, I think it's March 19th in New York City.

So with those brief comments, I'd like to turn it over to Bart. He is going to give us a brief operational update.

Barton R. Brookman

Thank you, Rick.

Today, I would like to show how our teams once again executed on a record for the company 2008, implementing our operating plan, but more importantly, show we have made the necessary reductions and we're very flexible in our operations over the past several months and slowing things down in light of the deteriorating commodity pricing market.

2009 will be a slower year for the company. There will be more focus on production optimization, production engineering, cost controls and cost reduction both in our CapEx and in our LOE areas, and implementing a modest capital budget relative to prior years.

Let me start by just going through the core operating regions, which I believe is slide 7. Michigan, primarily, a PDP property for us, small contributor to our overall production. Not a lot of unbuilt opportunity in that area.

Appalachia contributes 10% of our production, 15% of our reserves and currently provides the company one of our best exploration opportunities in the Marcellus Shale.

The Rockies will be referring to primarily three areas, NECO or Northeast Colorado, which is on the Northeastern Colorado-Kansas border; shallow Niobrara plate of Wattenberg, which is just north of Denver; J Sand and Codell, Niobrara and the Piceance Basin, which is in Western Colorado. These three basins together combined for 80 to 90% of our reserves in production.

Some operating highlights, next slide. Production 38% improvement in 2008 to 38.7 Bcf; all of this was organic in nature. And it really was a blend of growth in all of our major operating areas. Our proved reserves increased 10% and I will give more detail on this later in the presentation.

2008 activity levels, we have 379 wells drilled; a record for the company. And as you can see graphically 2009 activity levels as planned substantially below those levels at 155 wells. And you give a quick breakout of that 155 wells, 65 operating wells in the Wattenberg deal, 28 wells in Wattenberg that are non-operative; 50 wells currently planned on two prospects and we're very excited about in NECO, Northeast Colorado and 12 wells in the Appalachia area.

These 12 wells will also repel a extension into the Marcellus, where we will be getting a good look at our opportunities in that zone. The 155 wells does not include the 11 wells that were originally budgeted on our early January approved budget levels. At the end of January, the company elected to lay down our third drilling rig in Piceance based on the deteriorating gas prices.

Next slide; production shares are 38.7 Bcf. 2008 production levels and are anticipated 2009 production levels of 43 to 44 Bcf equivalent that 43 to 44 Bcf is after the decision to lay down the third drilling rig in the Piceance Basin.

Next slide; just an outline of our production by basin. Some highlights on this, you can see nice growth across all areas in 2008. In 2009, we've got the modest growth in the Eastern area of 9%. That is really a reflection of a fairly extensive frac program in the second half of the year and the 12 wells that we are going to planning to drill in 2009.

Wattenberg is holding flat production lines, really a reflection of having 2 to 3 drilling range running the last two to three years, creating a fairly steep decline, reducing a recount to 1 for 2009 throughout the year continuously resulting in flat production.

The onshore growth, this is really a reflection of the timing of the fracs in those operations. We entered 2009 with 17 completions related to 2008. Drilling, which the team is currently in the process of fracing and bringing online.

Northeast Colorado, you can see modest growth there that is related to some of the later fracs in 2008 and the 50 wells Sarita plant (ph) throughout the year in 2009.

Overall, you can see we've got 11 to 14% production growth. The teams are also working on some production optimization, production engineering and well review processors that we hope to push this number closer to 15% growth.

Next slide to give some more detail on our reserves. Let me just see if I can give some explanation on overall movements. First of all, we had a 10% increase in our overall proved. That was really a contribution from both the Rockies and Appalachia. PDP improved 6% from the year-end 2007 levels.

75 Bcf approximately were less due to the decline in pricing environment and some of the increased costs on our CapEx and LOE side. We have 41 Bcf added due to performance revisions or our projects performing at a better level than they were at on book said, and we had a 139 Bcf of expansions and additions to our reserves.

We did have... due to the reserve guidelines and interpretation of the ship from PDMP to the PUD category of our recompletion refracts in the Wattenberg basin.

Next slide give a little more breakout of our total proved; just a few things to note here in Appalachia area, you can see our PDP was impacted. This is primarily due to the very long-term long life nature of these reserves and the decreased pricing and using a flat pricing scenario under SEC guidelines.

You can see in the PUD area for the eastern group, we had a nice reserve increase that is due to some successful bounce spacing efforts in the West Virginia area. In Wattenberg, you can see the shift from the PDNP to the PUD category. Piceance shows really a nice bunk across all areas. And then in NECO, again the nature of those reserve has been extremely long life reserves. The decrease in pricing had an impact. But overall should note that PDP has held at about 40% level, where the PDNP and PUD combined is about 60% and that is not a dramatic shift from prior years.

Next slide, touch on the 3P, just a few things to note here. The Wattenberg, you can see a reduction. This is primarily with some pricing impacts in the seven North area, the very northern portion of the Wattenberg Field is very oil based. And the year-end '07, the year-end oil pricing went from about $80 per barrel to, I believe, $38 a barrel. So we've lost a significant number of locations in our 3P category.

NECO, again the pricing impacts on this long term reserves, but overall you can see the 3P is holding just over 1 Tcf for the company; again some impacts from cost increases, LOE increases and lower oil and gas prices.

To talk about finding and development, fairly simple year given the growth was primarily organic. We have minimum acquisition for $13 million, you do see is really some minor lease purchases, some overwriting, some royalty purchases, and some strait up royalty purchases than we have throughout the year.

But the growth was primarily through our development, drilling and re-completion programs. Approximately $290 million were dedicated towards explorations and development, calculated reserve additions due to that at about 107 Bcf to give an F&D cost of about $2.69 an Mcf.

Repeat on some of our major guidance items; 2009 production is anticipated to be 43 to 44 Bcf net to the company. The capital level currently on the low end of that range at 120. Again that is without any significant drilling in the Piceance Basin.

Approximately 155 wells are planned, a significant CapEx slowdown across the company and really in all basins. Very, very strong efforts underway and we will give some updates as Rich said at our Analyst Day on capital reduction efforts and LOE reduction efforts, really for all basins.

We are managing our CapEx, keeping our eye on prices, running economics on almost every project weekly as we keep our eye on the market right now. And managing overall CapEx to be inline with our anticipated cash flows for the company.

And last, we've been very flexible in slowing this down as a company, very quickly over a couple of month period really with minimum cost because of the nature of our drilling contracts. But we are also fully prepared to give this back up as this market recovers. And some things look like that may be low in the next year, but the operating teams are fully prepared to gear back as need be.

Other major items just to touch on four Marcellus tests currently are drilled in West Virginia. We'll be updating on the production at the analyst meeting on that. The first two are online, still showing some clean up characteristics related to their frac. One well is on flow back, should be put online I think over the next week.

One well is waiting on completion and we have nine total vertical tests in the Marcellus really to define our opportunity here plan for 2009. We're also in the process of beginning the engineering on our first horizontal well. That will, from the technical standpoint, most likely not be implemented until late this year or early next year.

The compression curtailment issues that were noted in prior calls in the Piceance Basin that really impacted fourth quarter were collected by our primary gather in early 2009. Our Piceance team has experienced normal winter time slowdown impacts to production of what the actual one-time in capacity of the compressor station has not been a determent to our production.

We have one rig currently, running full time continuous in Wattenberg, and remember, over the year, we will be drilling in the Northeast Colorado, Appalachia areas.

And last, we have one exploration Bakken test, horizontal test that is TD with run pipe, and we're waiting on completion. This is part of the joint venture. We've entered into with the third party, where PDC has minimum capital exposure to test the exploration potential over the Bakken.

With that, I will turn this over to Gysle to cover the financials.

Gysle R. Shellum

Thank you, Bart.

Before I begin, I'd like to remind everybody that we filed our earnings release earlier this morning. I would encourage everyone to look at that and read it for a more complete discussion of quarterly results and year-end results along with our 10-K that was filed last Friday.

Starting with the quarterly highlights, fourth quarter production increased 33% over the comparable quarter in '07 and 11% over our third quarter '08. The increase in '08 was all from the drill bit and increase for the whole year was all from drill bit this year.

Secondly, the first half of the year we showed hedge losses as prices increased during the year and then in the second half of the year those losses turned into gains. Fourth quarter, we've recognized the $102.5 million of unrealized hedge gains in the income statement.

And as Rick had mentioned, the net value of our hedge is on the balance sheet, a $12.31 and $153.5 million. Key metrics for the fourth quarter, our revenue doubled over the fourth quarter '07 aided by hedging gains.

Average realized price per equivalent Mcf was $5 in the fourth quarter. That includes our realized hedging gains; that's the picture for the pricing in the fourth quarter dropping off fairly substantially. Fourth quarter '07 was $6.75 by comparison.

Adjusted cash flow from operations, which is a non-GAAP measure representing net income, adjusted for non-cash items including DD&A, deferred taxes, unrealized gains on hedges and impairments increased in fourth quarter '08, a little over 50% from the fourth quarter '07 and more than double year-over-year. Adjusted cash flow was 41.4 million in the fourth quarter '08 compared to 27.4 in the fourth quarter '07 and compared to 59.1 million in the third quarter '08.

The next slide, summary of financial operations; all measures wee up quarter-over-quarter and year-over-year primarily indication of pricings in 2008 or unrealized gains from hedging contracts were 102 million as I mentioned in the quarter and 127 million for the year.

2008 mark-to-mark gains were offset by 20 million of impairments in the fourth quarter and 42 million of impairments for the year. Impairments for the year included 25 million in leasehold impairments certainly in dry hole cost and the rest were geological and geophysical costs and other miscellaneous items.

Next slide, additional financial results; as I mentioned earlier, pricing declined in the current quarter compared to fourth quarter '07 and that coupled with our production increases, left our oil and gas revenue relatively flat quarter-over-quarter. Production cost increased slightly for the comparable quarters and net of those two resulted in operating margins shrinking slightly in the current quarter compared to the prior quarter.. compared to the quarter '07.

The decrease in margins drove $6 million decline in adjusted net income, which is another non-GAAP measure we use and that includes net income adjusted for after tax impact of unrealized hedging gains and losses. Adjusted cash flow from operations, which is another non-GAAP measure, cash flow adjusted for changes in working capital increased $14 million in quarter and more than double year-over-year due to production increases and average prices for the year 2008 versus 2007.

DD&A increased in the comparable quarters and year-over-year due to increased production and G&A was up slightly in the fourth quarter '08 compared to fourth quarter '07. Year-over-year increase in G&A was due primarily to onetime payments to retiring executives.

Next slide, debt maturity schedule, this is first and foremost in most people's mind in this environment. Our revolver matures in November 2010. We don't intend to let that go current. We'll be renewing it this year, probably sooner rather than later.

At the end of the year, we had 180 million of availability in the revolver and that is where we are currently as well. And we had 51 million of cash on hand at the end of the year.

Our borrowing base redetermination on our revolver is coming up this April. We're comfortable with our cushion at this time of 180 million. And don't really plan on dipping any further into the availability in the foreseeable future. As Bart mentioned, our drilling programs are scaled to match our cash flow from operations for 2008.

A high yield due in 2018 was put in place in February this year, and then in February 2008, in January of 2009, we filed a shale statement to allow for additional offerings if the market conditions improve and if there is an opportunity to... and a need to do that.

Next slide; energy market exposures, in Bart's comments, you saw, where Rockies represents roughly 85% of our production and the CIG index, which is the index that has the typically the broadest basis differential to NYMEX is 39% of the total company sales. So a lot of that Rockies gas is not going to the CIG index.

In December, we entered in to a three year basis swap that begins in April 2010. The swap was for 80% of our current production for a term of roughly three years and it locks our CIG differential at $1.88 from NYMEX. As we proceed through this year and next year, we'll be layering NYMEX hedges on top of these basis hedges to pick our prices in CIG in the future.

Next slide, oil & gas hedges in place; if you've followed our company, you've seen this slide more than once or twice. What this represents is the impact of our hedges on pricing assuming the forward strip price at December 31st 2008. I hope you understand what this slide presents, let's focus on the 2009 column here.

It shows the ceiling and floor on our collars and assuming that our realized price for gas is at the floor for 2009 and our slot, which are displayed here, but are in our 10-K. Our price and their price and everything that is not hedged is market price based on the strip. Our blended price for the year 2009 will be $7.10 per Mcfe.

If you assume that we have 15% growth in 2009 and that growth is sold at the strip as well, then our blended price for the year would be $6.86. As you heard before, we're only allowed to hedge 80% of our current production under our lending agreements and that's the difference between the hedge price and the $7.10 that we repeat that are hedged will be sold at strip.

Next slide, CapEx spending; Bart went over the development spending in his discussion. Total CapEx for the year was 323 million. What you see in the slide in 2007 and 2008 does not include acquisition capital.

Those numbers were substantial in 2007 and 2006. Organic growth in 2008 was 38% year-over-year and that was all by the drill bit. There was no acquisition growth in 2008, 2007 it was 32%, in 2006 it was 20%.

Adjusted cash flow from operations, this is historic perspective, the higher prices in the first half of the year carried the year in 2008, and we will take... we will talk more about our outlook for this in other financial measures in 2009 in our guidance and analyst meeting on the 19 of this month.

Next slide, EBITDA; realized oil and gas prices after impact of hedging gains and losses for the year 2008 were over the 30% higher on an Mcf basis in 2007, $8.42 versus $6.26. 2007 and 2006 include 33 million and 328 million respectively again on sale of leasehold. That's why, 2006 bar is so much higher than the 2007 and 2008.

Next slide, average annual cost related to oil and gas drilling, lifting cost per unit were up slightly, only slightly during the year and quarter-over-quarter. DD&A per unit is up in the fourth quarter due to the impact of the downward revisions in the fourth quarter. If you exclude that revision, DD&A for the fourth quarter would be right on top of where it was for the year-ended December 2008 at $2.50.

The appendix part of this document is for your reading pleasure. We won't go into or discuss those particular numbers. There is a reconciliation of net income to EBITDA and adjusted cash flow reconciliation and adjusted per income reconciliation.

That concludes my comments. Operator, we are now ready to take questions.

Question-and-Answer Session

Operator

Thank you. We'll now be conducting a question-and-answer session. (Operator Instructions). Our first question is coming from the Michael Hall from Stifel Nicolaus. Please pose your question.

Michael Hall - Stifel Nicolaus & Company, Inc.

Thank you, good morning.

Richard McCullough

Good morning, Michael.

Michael Hall - Stifel Nicolaus & Company, Inc.

Just real quick, just for my own clarity here; just to make sure the CapEx that you are talking about then 120 to 140 million that excludes and EPS. Is that right?

Gysle Shellum

The 120 million is without Piceance growing. We are anticipating the CapEx is going to be again without any drilling in Piceance will be at that 120 level, and the low end of that range, yeah.

Michael Hall - Stifel Nicolaus & Company, Inc.

Okay. And then, I guess maybe what kind of price environment would encourage you to start spending up in the Piceance again?

Barton Brookman

These are approximate, but I would say, we need to be over $4 of that at well.

Michael Hall - Stifel Nicolaus & Company, Inc.

Okay. And then hopping over to Appalachia real quick; you talked about two wells inline. Have you talked about slow rates on those two Marcellus wells?

Barton Brookman

We will have something to discuss at our Analyst Day at the end of month.

Michael Hall - Stifel Nicolaus & Company, Inc.

Okay. And then in the Bakken, any more detail on the terms of the joint venture?

Barton Brookman

Nothing what we can really disclose based on the contract.

Michael Hall - Stifel Nicolaus & Company, Inc.

Okay. And I think there are indicators for additional wells planned in 2009. Is that accurate?

Barton Brookman

The agreement allows for up to four wells to be drilled total.

Michael Hall - Stifel Nicolaus & Company, Inc.

Okay.

Barton Brookman

So, as I said, we've got first of the four drills, not completed.

Michael Hall - Stifel Nicolaus & Company, Inc.

Okay. All right, and then finally just on G&A; would you expect that to kind of remain at a similar run rate in 2009, on a quarterly basis or maybe somewhere around between third and fourth quarter?

Gysle Shellum

Our plan right now is shows that and running at a similar rate; however, we think we can be better than that in an area 10%.

Michael Hall - Stifel Nicolaus & Company, Inc.

And similar dollar rate for quarter or...

Gysle Shellum

Similar dollar rate for the year.

Michael Hall - Stifel Nicolaus & Company, Inc.

Okay, that's all. Thank you very much.

Operator

Thank you. Our next question is coming from Mark Lear from Sidoti & Company.

Mark Lear - Sidoti & Company LLC

Good morning. Focusing on Appalachia again, have you guys discussed where you're going to be drilling test wells? Are you kind of diversifying over your acreage base or targeting certain counties? What would those counties be?

Richard McCullough

And the answer is we are diversifying it amongst right now all the counties, primarily three in West Virginia and a couple in Pennsylvania. So the nine wells will be spread out. I don't have all the names off the top of my head. But we are going to be diversifying now to really define from a geological standpoint.

We're also starting a small bits of data on something having with other operator. So we're using that to make the best decision. There is just not a lot of public information available. So our strategy is really to geologically define us for the company across our acreage and then expand that in 2010.

Mark Lear - Sidoti & Company LLC

And any chance of a horizontal test in this year?

Richard McCullough

The technical team is currently working on that. We've received a lot of fairly interesting data on the success of horizontal drilling. You've got to look at the cost side and the reserve obviously. So yes, we are in the process of planning for our first horizontal. And I think as I mentioned in the main talk, that is something we make out to management and as for approval in the fourth quarter, but most likely will end up in the first quarter of '10 project.

Mark Lear - Sidoti & Company LLC

And then I guess just looking at LOE for the fourth quarter, it seems to differ bit at least sequentially. Is that a good level to kind of look at going forward that I guess was a better buck in the hat?

Richard McCullough

Let me help me out here; this is much more like seven (ph). And the answer is I think the fourth quarter was fairly reflective, nothing abnormal going on our operations. The Wattenberg deal continues to have significant cost related to some environmental new regulations on ozone control. And in the Piceance, we continue to work diligently to improve our road cost. But I thing overall that fourth quarter is reflective of where costs had gone in '07 and '08.

One thing, we are working on very diligently with all the suppliers and service companies is improvements in the overall cost structure. I think everyone is fully aware the '06, '07, '08 period with prices running up. All of those pieces and parts of LOE and CapEx at dramatic cost increases. So we are currently working on improving those. I think... that's reflected as far as nothing abnormal being there, but I would say that '09, I am hoping that we can show some overall improvement in our total LOE.

Mark Lear - Sidoti & Company LLC

Thanks a lot.

Operator

Thank you. (Operator Instructions). Our next question is coming from John Rezavino (ph) from Wachovia. Mr. Rezavino, your line is live.

Unidentified Analyst

Can you guys hear me?

Richard McCullough

Yes, John.

Unidentified Analyst

I apologize with that. Let me just start off with a big picture question. Looking at service cost in the Piceance, the rig rates come down quite a bit. Can you give me idea of what you are seeing as far as day rates out there?

Richard McCullough

Everything I have heard on day rates, I can speak to '08 levels. You had everything from the high teens to near $30,000 a day, and that is just the rig rate that doesn't include all the other variables. I think your total variables on a rig are somewhere in the 35 to 60 range. Are we seeing motion on the on the day rates right now? I am hearing different things, I think everyone is aware; I believe the last I check, which is a couple of weeks ago, rig count Piceance had dropped from over 80 rigs, down into the high 20s. So, with the... somewhere 50 to 60 drilling rate steams right now, I can assure you over the next 12 months, you are going to see dramatic improvement and not only the non rig related variables, but also those day rates.

Unidentified Analyst

You gave a number on percentage overall costs?

Richard McCullough

No; I probably couldn't do that right now. I think we are going to be able to provide some guidance in our Analyst Day on PDCs cost improvements. I can tell you that as you talk to all the other operators and fundamentally a lot of the suppliers had to go through some pain and realization before they come back and start reducing their costs. But I think the Piceance in the Western U.S., has been dramatically impacted, but the Piceance is probably the next number of list as far as the overall impacts, so I would anticipate those numbers to be fairly dramatic.

Unidentified Analyst

Okay, great. Thank you. You mentioned a bunch of cost initiatives that were going forward in 2009; do you care to elaborate on any specific or is there something I should wait for the Analyst Day?

Richard McCullough

Analyst's Day, we're going to give some more flavor on it. I can't tell you, the completion side, the drilling side, the service side, and the in-house efficiencies how we are running... we are looking on almost every aspects of our operations and trying to optimize and find ways to improve forward-looking outside of PDC on a good portion of those, so it's really across the board. And again, yes, I will be able to give probably a global update at the end of March when we all get together.

Unidentified Analyst

Okay. And one final one; I hate to beat a dead horse, but going back over to the Marcellus. Given the environment in the Rockies here and the question is already as to whether or not we're going to see any strength in pricing at least on a regional basis until maybe 2011 would be. How do you feel about maybe ramping up activity there given the premium pricing in some of the more positive results that has been seen across industry. I realize you guys aren't really exploratory company, but still far and seen a lot of great positive data points I would indicate it might be worth picking up Piceance basin?

Unidentified Analyst

I guess my answer to your question is absolutely we will give a full consideration. Our strategy in the Marcellus is not as much as we can. As quickly as possible, get up the technical learning curve to find our opportunity. And then if the opportunity exist for us to accelerate and look capital into that project especially if the Rockies continues to be depressed, and Rick could jump in here, but I fully would expect that something we would do.

Unidentified Analyst

Okay, great. Thanks very much. I appreciate the color.

Operator

Thank you. We do have a follow up question coming from Michael Hall from Stifel Nicolaus.

Michael Hall - Stifel Nicolaus & Company, Inc.

Thanks. I appreciate the follow up. I guess first actually real quick hopping back into the Piceance. You talked about the lower end of CapEx assuming no Piceance. Has that also then lower end of production guidance? Should I assume that's without Piceance?

Richard McCullough

Yes.

Gysle Shellum

The 43 to 44 is our engineering projections without those Piceance wells.

Michael Hall - Stifel Nicolaus & Company, Inc.

Okay. So, both of those points exclude Piceance.

Gysle Shellum

That is great.

Michael Hall - Stifel Nicolaus & Company, Inc.

Okay. And then just curious on... in past reviews, your partnership as a source of acquisition and acquisition base, low cost acquisitions. Is that something you need to care to take a look at the next year 18 months and can you just remind me where are the remaining partnership interests are those reserves loss?

Richard McCullough

The remained partnerships are all Rockies based.

Michael Hall - Stifel Nicolaus & Company, Inc.

Okay.

Richard McCullough

And we've got somewhere on the order of probably 31 of them. And so, as we've said in the past, I think that continues to be something that we would look at. As you probably know, we are I the midst of a compliant effort to catch up on the SEC reporting on a number of the public partnerships. And so some of the initiatives provided to acquisitions would have to go down partial with that catch up effort.

Michael Hall - Stifel Nicolaus & Company, Inc.

Can you elaborate a little bit actually on that, a catch up effort? Refresh me.

Richard McCullough

Yeah, we've got a number of the partnerships because of the corporate restatements that took place in 2004 and 2005. They triggered restatements within the partnerships. And so, we are doing a comprehensive catch up and had been filing a number of partnership filings this year and are hopeful that will wrap up most of that compliance effort 2009.

Michael Hall - Stifel Nicolaus & Company, Inc.

Okay. So until that's finished up and kind of acquisitions of those partnerships are out of the question; is that accurate?

Richard McCullough

It's much more difficult.

Michael Hall - Stifel Nicolaus & Company, Inc.

Okay. Okay, thank you.

Operator

Thank you. Our next question as a follow-up from John Rezavino (ph) from Wachovia.

Unidentified Analyst

Hi, one more for you guys. Just thinking about the Bakken, could you give me a little bit of a refresher on the commitment and the timing and given current oil prices up there, large differentials. It seems like that made it north of $50 oil price in order to search a work; would it be safe to say that you would be less inclined to push forward with an additional four wells after this first one is getting done.

Richard McCullough

The answer is yes. The deal is really structured. And don't hold me to me to the exact number, but I believe we have somewhere around 50,000 net acres in Burke County that provides some unique, and I'll request (ph) this as exploration opportunity for the company. When we looked at capital requirements of investigating the Bakken, the deal was to drill up to four wells at minimal cost exposure to PDC. Really the objective of the deal was to define the opportunity there from a reserve standpoint and potential adding value and adding to our 3P reserves.

Unidentified Analyst

Can you just give me a quick refresher on what county is that acreage wise?

Richard McCullough

It's in Burk County.

Unidentified Analyst

Okay, perfect. Thank you very much.

Richard McCullough

So the next step after this based on the success of what these first four wells would be is exactly what you said, John, as to evaluate, look at the economics and given the current pricing environment, it potentially could delay any type of developmental certainly in that area?

Unidentified Analyst

Okay. Thank you.

Operator

Thank you. Our next question is coming from Philip McPherson from Global Hunter.

Philip McPherson - Global Hunter Securities

Hi, good morning guys. What was the total CapEx number for 2008?

Gysle Shellum

Are you looking for grow back CapEx or total CapEx?

Philip McPherson - Global Hunter Securities

Yeah, global and total, I take more than less.

Richard McCullough

Grow back development on the net expiration and drilling re-complete is approximately $290 million.

Gysle Shellum

And total was 323 million; that's all in.

Philip McPherson - Global Hunter Securities

And thanks. And can we talk about your asset (ph) and kind of where you're at with that; I know you're producing little bit there, but is it a price issue or is it well performance issue as far as...

Richard McCullough

I think everyone is aware we took an impairment on those properties. And the answer, Philip, to your question is just combination of all. The results we achieved and I would classify our implementation of the project, I was extremely pleased with the drilling products in the completion. The reserves came in at approximately 40, maybe 50% below where we've really wanted them to be. And we drilled four wells, I believe, and that coupled with the extreme price declines in late '08 or early '09, really just with this project on really indefinite hold for us.

Philip McPherson - Global Hunter Securities

And on those four wells, can you give us more details, would at vertical, horizontal, how long the horizontals work?

Richard McCullough

They were all horizontals. Don't hold me to, but I believe we are about 4,000 foot. And our average IP on those wells is somewhere around 4 to 500 Mcf and as everyone knows, they declined now pretty quick.

Philip McPherson - Global Hunter Securities

Great. I think that's all I had. Everything else is answered. Keep up with your work, guys. Thanks.

Operator

Thank you. At this time, we have no further questions. I'd like to turn the call back over to speakers for any closing comments.

Richard McCullough

Thank you operator. Just again, I want to thank everybody for the participation today and their continued support to the company. And we look forward to future calls. Thank you operator.

Operator

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

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