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Plains Exploration & Production Company (NYSE:PXP)

Q4 2009 Earnings Call Transcript

February 25, 2010 9:00 am ET

Executives

Scott Winters – VP, Corporate Communications

Jim Flores – Chairman, President and CEO

Winston Talbert – EVP and CFO

Analysts

David Heikkinen – Tudor, Pickering, Holt

David Kistler – Simmons & Company

Leo Mariani – RBC

Joe Allman – JP Morgan

Nicholas Pope – Dahlman Rose

Brian Corales – Howard Weil

Rehan Rashid – FBR Capital Markets

Michael Bodino – Madison Williams

Jeff Robertson – Barclays Capital

Eric Anderson – Hartford Financials

Operator

Good morning. My name is Crystal, and I will be your conference operator today. At this time, I would like to welcome everyone to the 2009 fourth quarter and year-end results conference call. All lines have been placed on mute to prevent any background noise. And after the speakers’ remarks, there will be a question-and-answer session. (Operator instructions) Thank you. I will now turn the conference over to Mr. Scott Winters, Vice President of Corporate Communications. Please go ahead, sir.

Scott Winters

Crystal, thank you very much. And good morning, everyone. Welcome to PXP’s 2009 quarterly earnings conference call, which is also being broadcast live on the Internet. Anyone may listen to the call or the replay by accessing the company’s website at pxp.com. Also located on the website are the earnings release, a slide presentation, and the 10-K.

Before we begin today’s quarterly comments, I’d like to remind everyone that during this call there will be forward-looking statements as defined by the SEC. These statements are based on our current expectations and projections about future events and involve certain assumptions, known as well as unknown risks, uncertainties and other factors that could cause our actual results to differ materially.

Please refer to our forms 10-K, 10-Q and 8-K filed with the SEC for a complete discussion on forward-looking statements. In our press release and in our prepared comments this morning, we do present non-GAAP measures. A reconciliation of non-GAAP financial measures to comparable GAAP financial measures is included with the press release.

On the call today is Jim Flores, our Chairman, President and Chief Executive Officer; Doss Bourgeois, our Executive Vice President of Exploration & Production; Winston Talbert, our Executive Vice President and Chief Financial Officer; John Wombwell, our Executive Vice President and General Counsel; and Hance Myers, our Vice President of Investor Relations.

For the quarter, revenues of $367.7 million generated $48.1 million of net income, or $0.34 per diluted share. For the year, revenues of $1.2 billion generated $136.3 million of net income, or $1.09 per diluted share. The quarterly and full year results include certain items affecting comparability of operating results. Those items consist of realized and unrealized gains and losses on our mark-to-market derivative contracts and other items. When considering these items, net income for the fourth quarter was $192.6 million or $1.37 per diluted share, and $676 million or $5.40 per diluted share for the year. This is a non-GAAP measure.

Net cash provided by operating activities for the quarter was $189.2 million, and for the year, $499 million. Operating cash flow for the quarter was $465.5 million and for the year, $1.6 billion. This is a non-GAAP measure.

Sales price realizations before derivative transactions were 84% for oil and 99% for natural gas during the quarter. For the 12-month period, sales price realizations before derivative transactions were 83% for oil and 94% natural gas.

Fourth quarter oil and gas revenues when compared to the fourth quarter of 2008 were higher due primarily to higher realized oil prices before derivatives. For the year, oil and gas revenues decreased approximately 50% compared to 2008, primarily due to $32.78 per barrel of oil equivalent decrease in average realized prices and a decrease in sales volumes related to asset divestments.

Excluding the impact of our divestments, production from the Haynesville Shale and Flatrock properties is responsible for an 8% increase in year-over-year sales volumes. For the quarter, average daily sales volumes were 86,400 BOEs, of which oil represented 54%. For the year, average daily sales volumes were 82,700 BOEs, of which oil represented 58%.

The 2009 full-year daily rate exceeded our published targets. Total production costs were $12.89 per BOE for the fourth quarter, a 32% reduction to the fourth quarter of 2008, and averaged $14.03 per BOE for the year compared to $18.91 per BOE in 2008. The full year average for 2009 was well below our published target.

A quick review of the components of total production costs for the quarter is as follows. Lease operating expense decreased 38% to $7.09 per BOE versus $11.40 per BOE in the fourth quarter of 2008, due primarily to the implementation of the cost reduction program. Lower steam gas cost per unit primarily reflects lower volume and price of gas used in steam generation.

Lower electricity cost per unit primarily reflects lower electricity rates primarily in California. Lower taxes, both production and ad valorem, per unit primarily reflect lower natural gas prices and the divestments in 2008. Higher gathering and transportation expenses on a per unit basis reflect an increase in production from our Haynesville Shale and Flatrock properties.

There have been no changes in our open derivatives position since our third quarter report. Approximately 68% of our 2010 estimated sales volumes using the midpoint of our annual guidance are protected. A summary table is included in the release. Uncertain financial conditions and a deteriorated commodity price environment affected our interest rate during 2009 and continue to be at the forefront of our thinking as we move into 2010. We are mindful of our need to protect our balance sheet, liquidity and operating efficiencies, as we continue to pursue our balanced operating strategy.

During 2009, PXP monetized $1.1 billion in commodity derivative gains, which accelerated cash receipts, entered into 2010 crude oil derivative positions and acquired natural gas collars for 2010 to maintain the company's derivative position, issued senior notes and common stock, prepaid the Haynesville Shale drilling carry in order to unlock potential capital for PXP's other high-quality assets, and reduced general and administrative costs and lease operating costs exceeding the stated targets. PXP ended the year with no near-term debt maturities and approximately $990 million available under its revolving credit facility.

Today we released more information regarding 2009 estimated proved reserves, costs incurred, and a brief description of the impacts of the new SEC guidelines for reserve reporting. A full discussion is included in the press release and Form 10-K, but here are a few quick facts.

Proved reserves increased 23% during 2009 to 359.5 million BOEs. Reserve replacement was 320%. Finding and development costs, excluding acquisition costs, which are primarily related to the Haynesville Shale drilling carry pre-payment, and the Haynesville Shale promoted well costs, were $12.61 per BOE. PXP had approximately

PXP had approximately 57 million BOE of extensions and discoveries, including approximately 53 million BOE in the Haynesville Shale resulting from successful drilling during 2009 that extended and developed the proved acreage and approximately 2 million BOE of extensions and discoveries in the Gulf of Mexico, primarily attributable to the continued success in the Flatrock area.

PXP had a total of 2 million BOE of proved reserve additions related to interests acquired in the Haynesville Shale and had net positive revisions of approximately 39 million BOEs. Positive revisions of 77 million BOE were primarily related to higher oil prices principally at PXP's California properties and negative revisions of 13 million BOE mostly related to lower gas prices. The balance of the revision is associated with certain of PXP’s undeveloped locations scheduled to be developed beyond five years and excluded from our proved reserves.

Of the estimated proved reserves, 60% was comprised of oil, 64% proved developed. Total proved reserve life is approximately 11 years. Proved developed reserve life is seven years. Despite the turbulence in commodity in financial markets, we produced solid results. As I mentioned, full-year average daily sales volumes increased 8% compared to 2008, excluding the impact of our 2008 divestments, and proved reserves increased 23% over 2008 year-end amount.

In addition, our Gulf of Mexico exploration program, a cornerstone to our strategy of adding to our future development project inventory, delivered a number of discoveries. Because of this success, we are increasing our average annual production growth target to 15% through 2014, up from 10%. In California, while drilling activity was less than in previous years, PXP maintained an active development program on onshore and made progress on several permitting issues.

We continue our strategy of maintaining our strong production volumes, while simultaneously developing our incremental diatomite, non-diatomite and Miocene projects. California onshore is PXP's largest asset area with proved reserves of approximately 204 million barrels of oil equivalent at year-end 2009. With a multi-year inventory identified in the San Joaquin Valley, the Arroyo Grande Field, and the Los Angeles Basin, these assets will sustain years of drilling, providing future reserves, production and free cash flow.

The Haynesville Shale, drilling results have been outstanding. Fourth quarter average daily production of approximately 75 million cubic feet equivalent net to PXP represents a 436% increase in the first quarter of 2009. And production is expected to continue to increase to approximately 125 million cubic feet equivalent net per day by year-end 2010. At year-end 2009, PXP’s net acreage position was over 111,000 acres. And with approximately 1,400 potential net well locations, this asset area is expected to be a significant driver of future production and reserve growth.

In the Gulf of Mexico, we viewed 2009 as a year of identification and look to 2010 as the year of confirmation. Our Flatrock development contributed meaningful sales volume growth during the year, and our exploration program has been dynamic.

PXP announced Friesian delineation drilling success and participated in discoveries at Davy Jones, Lucius, and Blueberry Hill. For Friesian, early stage commercialization initiatives for production are under study. The Lucius discovery announced in 2009, of December, was followed by a successful appraisal well in late January 2010 which confirmed a major oil discovery.

We are planning follow-up drilling at our Davy Jones and Lucius discoveries and new drilling at our Blackbeard East and Phobos exploration opportunities, in which PXP has a 26.25% and 50% working interest, respectively. We are drilling Blueberry Hill to expand upon our Flatrock success. These projects have the potential to provide significant incremental future production and reserve growth.

In the Texas Panhandle, South Texas and Gulf Coast assets areas, PXP focused on technical evaluations, leasing, permitting, and other related activities in preparation for more drilling activity. In the Texas Panhandle, we look forward to drilling our Granite and Atoka Wash positions in which PXP holds approximately 19,500 net acres. We recently spud our first horizontal test well and expect to spud a second test well in early second quarter 2010. A total of 14 wells are planned in 2010 out of approximately 58 primary Granite Wash locations.

In the Gulf Coast, we received the necessary permits to test our Big Mac prospect in Southeast Texas during the second quarter of this year. And in South Texas, we drilled

Several successful infill development wells and high-graded the drilling inventory.

Our corporate goal is to double production and reserves by year-end 2014, remain balanced between oil and gas, and continue reducing total production costs per BOE. We began 2010 positioned to continue efficiently growing production and reserves per share with contribution from multiple asset areas over the next several years. Our base production will continue to benefit from the stable California production and Haynesville Shale growth.

Our Granite Wash, Blueberry Hill and Big Mac opportunities support near-term incremental growth targets while our Friesian, Davy Jones and Lucius projects support our longer-term growth targets. We believe our balanced portfolio of assets, our 2009 deleveraging transactions, and ongoing hedging program position us well for both the current commodity price environment and future potential upside as we develop our attractive resource opportunities.

For 2010, our $1.2 billion capital spending plan leverages on PXP’s 2009 accomplishments and the contribution from multiple assets. Our resources will be primarily directed to the Haynesville Shale, continued development activities in California, South Texas and the Panhandle, and our exploration and development projects in the Gulf Coast and Gulf of Mexico.

As our industry faced commodity price volatility and significant economic uncertainty throughout the year, we applied our experience, remained focused on our long-term growth platform, and executed our strategic plans. The quality of our people and portfolio continue to standout, as we reported significant progress in growing production and reserves, lowering costs, strengthening liquidity and expanding our resource potential during today's challenging environment.

With that, I will turn it over to Jim.

Jim Flores

Thank you, Scott. Good morning, everyone. We have a lot of data, a long and thorough report from Scott and the company, we have accomplished a lot of things last year that put us on track we think for a very predictable strong growth rate, both from reserves, production, earnings and cash flow. So I will keep my comments to a minimum because there are a lot of questions, I know, all the data we sent out, and then I’ll just wrap up with a few comments.

So operator, we’re going to open it up for questions and we can get started.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from the line of David Heikkinen with Tudor, Pickering, Holt.

David Heikkinen – Tudor, Pickering, Holt

Hi, guys.

Jim Flores

Hi, Dave.

David Heikkinen – Tudor, Pickering, Holt

A question about your doubling of production and reserves between now and 2014. Can you walk us through the timing of thinking about the longer-term targets of Friesian development study now and could it be online, Lucius and Davy Jones?

Jim Flores

Dave, it’s really the key part of our report. Appreciate you focusing on it. There is a lot of fluidity to what the timing is on those projects. And what we did is think about it in a risked model of what could happen? And we assume that one project would be coming on in 2012, one additional project in 2013, and one additional project in 2014. We think that’s very, very easy to do a reasonable, if you can say that in these size projects, but also the possibilities of having two or more projects coming on in sometime in 2012 is also reasonable as well depending on different variabilities like production facilities at Davy Jones, production handling agreements with offset, production facilities at Friesian, and also Red Hawk’s far usage at Lucius, Phobos.

So our aspect is, we felt like this plan of a 15% production growth CAGR in the next five years would be easily attainable and that it could accelerate into three years or four years depending on how the execution goes on bringing these projects forward. But we think we have a good shot at getting couple of these projects in 2012 on. So we feel comfortable about the 2012 and ’13 number, and then ’14 is more of a -- could easily be a high flat number with ’13 because we got all the production on, on those three projects by 2013. So from our standpoint, we think there is some upside to this number. We’re not ready to forecast that yet. We have a lot of things influx right now with all the parties involved in the wells and projects themselves, but also in the production scenarios that all look very positive at this point in time. And so we think we’ve got it modeled very reasonable with some potential upside for acceleration.

David Heikkinen – Tudor, Pickering, Holt

Okay. And then as you think about the 2010 plans and -- it looks like 14% or so of your CapEx goes to exploration. Can you walk us through the appraisal on exploration for Lucius, Phobos, Davy Jones, and Blackberry, just kind of timing of when you think those things will happen?

Jim Flores

Success begets success. And this is follow-on exploration, which we hope is less risky than initial exploration, following our commercial success as it looks like at Davy Jones and Lucius and so forth. So the expansion of Davy Jones is really the development of the structure with the Davy Jones number two well, which will be moving the rig there shortly once we finish final casing here on number one. And then the next project there, close to Davy Jones, is a project we did talk about with John Paul Jones that should be an early 2011 drill, which we’re excited about it because it’s going to be costing about half as much with the barge rig versus the jackup rig out there to the north. Then that’s really the offset exploration or contingent exploration to Davy Jones that we’re going to be following up with.

The Blackbeard East and possibly a drill at Lafitte this year, which we have a contingency for starting later in the year, so we have very small CapEx add this year. It’s really part of our 2011 program. Those two projects were de-risked with our Blackbeard West well. We wanted to find out what the balance of the Davy Jones drilling was and what our Wilcox program would be before we went back to tackle the subsalt Miocene and Blackbeard East, and also Lafitte. But those two wells will be key to determine the commerciality of the subsalt Miocene play that we have with (inaudible) and Energy XXI and the rest of the people there. So that’s going to be a key component. If those are successful, we would have follow-up prospects to those so that the two subsalt Eocene play with Davy Jones and the subsalt Miocene play could continue to grow for numerous years with contingent exploration.

The Lucius, Phobos projects -- Phobos, I think, is scheduled later this year with operators finalizing some rig plays and so forth, Anadarko. They will be coming up with some more details there. It’s really expanding on that Paleocene, Miocene strategy we had out there, and we have some other opportunities that we are pursuing in that area as well. So I would expect at least the Phobos drill this year and possibly additional development work at Lucius in that area, plus maybe some other opportunities that we’re searching -- we're seeing because of the success we have out there. Both of these plays are -- or all three plays are going to be very expansive for us and really soak up a lot of exploration expertise and time and capital for the next couple of years, we believe.

David Heikkinen – Tudor, Pickering, Holt

When you think about capital for each one, is there any waiting towards any of them that any one of the prospects has more capital going to it than others, just trying to get an idea of splits of that?

Jim Flores

Yes. We’re trying to keep everything between the $40 million and $50 million category. Phobos will be a little more. So our interest is large, and we’ll probably take that well down to the Wilcox as an exploratory [ph] tail. But that will be one, and some of the other wells will be in the high 30s and 40s. So kind of use of $40 million to $50 million is kind of an average. We think that’s kind of the right mix for us.

David Heikkinen – Tudor, Pickering, Holt

Thanks.

Jim Flores

Sure.

Operator

Your next question comes from the line of David Kistler with Simmons & Company.

David Kistler – Simmons & Company

Thinking more towards 2010 a little bit and focusing on the Granite Wash, when you guys have your budget split out with what you’re doing there, is that captured in the exploration portion or in the development portion?

Jim Flores

That’s captured in the development portion, Dave. We’ve got two rigs running up in the Granite Wash right now. We are drilling in the middle of our fields that have significant vertical Granite Wash production. So we think -- we look at these as production acceleration wells although we’re looking at new zones in both the Granite and the Atoka Wash and so forth. And still we’ve got a lot of work to do and potential there to exploit with the horizontal drilling. But we’ve got in that category, and therefore we’ve got planned as much as $67 million of -- no, $100 million. We upped it to $100 million of Granite Wash capital this year that we’re going to be able to get out the door, pending some good commercial success with the horizontal flow rates that can -- we can add to accelerate the rig program there.

David Kistler – Simmons & Company

Great. And then kind of building off of that, you guys I think highlighted 58 potential locations for horizontals in the Granite Wash. Are those all targeting the same zones? Can you just give us any specific color on what zones you’re going after, given that you already have some vertical well results et cetera?

Jim Flores

Yes. I think the way to think about it is, those are really focused primarily and weighted toward our Wheeler area, which is where most of the activity has been by the industry. The well that kind of watched for upside there is our Marvin Lake wells (inaudible). We hope to extend the trend. Some of the zones get a little thinner up there, some were better developed, but there is more unknown. We could add as many as 100 locations in the Marvin Lake area if the well does what we think is going to do that we’re presently drilling up there. So we’re -- I think we have as many as five zones we are talking about; three in the Granite Wash, couple in the Atoka. We’ve got a lot of data from our vertical wells and so forth. We’d rather wait until we get some well results and kind of some additional plans of what the drilling tells us and what our expectations are there, because we’ve got it ranged all over the map. But if it’s correlated with the rest of industry, there ought to be some pretty good numbers.

David Kistler – Simmons & Company

Great. And I assume if you start realizing several different zones, that number of locations actually goes up dramatically. Is that a fair assumption or some of these are lying on top of each other?

Jim Flores

Exactly, and that’s the reason why I’m hesitating, because the numbers get pretty big because of the -- once you’re on those porosity highs, you can do a lot of layer taking in there with the horizontals. And it’s just we have infrastructure there and production and facilities, and we can add rigs quickly and really make it a big part of a near-term production driver. We’re looking at the Granite Wash to hopefully do that along with hopefully our Blueberry hill drilling.

We’re still above objectives in the Blueberry Hill but get very close to start seeing some objectives action there. So those couple projects, plus we’re doing some exploitation work at our Big Mac project in Southeast Texas, which is a Vicksburg notice area bright spot play that we have a big 3D on that’s -- that looks like it has lot of potential, but we are drilling the first well that spuds here at the end of the first quarter. So at the end of the second quarter we’ll know whether that project is de-risked as well, which will help us in all of our near-term production expansion in 2011 and early 2012 and awaiting all that big projects. So that kind of capsulates our near-term production kind of layers on top of the Haynesville growth that we’re already seeing with the Chesapeake deal.

David Kistler – Simmons & Company

Great. And then just one CapEx question. With the CapEx budget increasing, is a portion of that associated with just an expectation also for higher service costs this next year or was that already previously included in your guidance?

Jim Flores

We’re hoping for lower service costs in some of the exploratory well. We get a lot of rig attention with the drilling that we are doing the subsalt plays. Lot of people used to be surprised the rigs are showing up around the world that have the mud pump and hook load capability that a lot of companies I’ve never heard of with different nationalities are calling up, can we build a rig for you and drill these wells and capture some of these day rates. So we actually see some pressure on those types of competition services. We don’t have a situation, a big frac program other than in the Haynesville with Chesapeake, and I know that off and on could be very articulate about what they see, but we -- the service costs and so forth are kind of flat at gas price is stable at $5 for a little while, next six months or so, then service costs are going to have to adjust -- continue to adjust as well. So we don’t have a whole lot change in here for service costs. And California is still static that we feel pretty comfortable about that.

David Kistler – Simmons & Company

Great. Thanks so much, guys. Appreciate it.

Operator

Your next question comes from the line of Leo Mariani with RBC.

Leo Mariani – RBC

Yes. Good morning here, guys.

Jim Flores

Good morning.

Leo Mariani – RBC

Want to see if there is any update on Hurricane Deep.

Jim Flores

Hurricane Deep, we ran into some well problems right above the objectives, and we liked to abandoned the well. We had an underground blowout with the Chevron operator, and we’re probably going to be drilling new wells here, probably later this year, early next year to replace it. It’s an insurance claim. We have made an insurance claim a long time, but we should have net-net no loss of capital. Our opportunity is just going to be a timing issue that we didn’t get down on the well. We had some casing failure issues that we couldn’t avoid.

Leo Mariani – RBC

Okay. With respect to T-Ridge, is there kind of any update and you all thinking? I know there has been a lot of discussion in the press lately, I guess, Lieutenant Governor Maldonado did not get confirmation. I guess my understanding is that Schwarzenegger put them up for reappoint here, and I guess he was also publicly out there kind of making some comments. Just wanted to kind of get your thoughts on developments at T-Ridge.

Jim Flores

We are just as amazed as everyone else. We’re trying to focus on geology and engineering around here, less on political science I can tell you, because we’re learning new chapter every day. So our people in California on the situation monitoring it and reacting to whatever California decides to go, but we have no control over that.

Leo Mariani – RBC

Okay. I’m curious as to what you guys think dry hole cost would be at Blackbeard East.

Jim Flores

We’re looking at gross dry hole cost at about $125 million. And I think that’s kind of consistent at Blackbeard East and Davy Jones 2, and if we drill another well -- another well start at Lafitte late this year.

Leo Mariani – RBC

Okay. Obviously you guys are doing some appraisal work this year. Davy Jones, Lucius, clearly some pretty solid discoveries. I guess is it kind of too early to start thinking about what type of development capital you could have to expand in the next couple of years for these particular wells?

Jim Flores

No, it’s definitely not too early to talk about it. We’ve been thinking about that a lot now here. It’s going to be a big question. And we look at our capital budget as really kind of evolving, because in what we call a normalized gas well, 6, 6.50 gas, sometime late ’11, early ’12, our Haynesville is free cash flowing. And there are two things that happen there. One, you get the incremental free cash flow of the Haynesville, but the big thing is your California free cash flow that we have that’s so sacred here in this company has not been allocated to the Haynesville. So we see our development dollars as it ramping up in ’12 and ’13 to accomplish our production goals being able to internally fund this development that we have on our plate here now. And we think the ratable grade of exploration delineation of additional structures, we’re going to drill some dry holes on those projects.

We’re going to drill successful ones. We’re going to continue to learn what’s happening on this trend. So we think we have some type of risk success there that we will be able to fund that as well additionally. Our committed CapEx budget that includes development of all these projects plus some delineation exploration drilling on additional structure, the next five years is $1.2 billion kind of on average. Now, we get production -- two of these big projects are in 2012. We may have a bump in 2012 of capital of course will be reduced for the next year. So we played with the model on different ways. And if you just want -- if you want to look at it and take our production plan, our reserve plan, we’re proud of being able to grow reserves at the same rate even though we’re accelerating production growth rate almost 50%, from 10% to 15%. We think $1.2 billion average committed capital gets that job done from every way we’ve looked at it on accelerated plan or on this risk timing plan that we have out in front of everybody.

Leo Mariani – RBC

Okay. Just any thoughts on kind of progress on your onshore California? I know that you guys have increased CapEx in 2010. Just trying to get a sense of how activity is going on out there. And I know you talked about potentially getting some production increases out there maybe in 2011. Just curious of any update on how things are going.

Jim Flores

Things are going quite well out there. The execution is -- we are ahead of plan on some of our efficiencies, rig days, rig time, implementation, and also costs and so forth. We’re continuing to get the implementation right. The response will be obviously delayed later this year in 2011. So it’s hard to tell about the response, but everything seems to be going according to plan that we’ve seen, and the guys have done a great job out there. It’s kind of good to -- almost like everybody took a year off to study everything. So deployment of capital has really had a lot of scrutiny. So they are really doing a fine job out there. I know Doss and his team are going out there this week, spend some time looking at everything.

And based on what we hear so far, it looks good. One other thing I want to talk about on development capital, one thing that’s been on our mind is really what our revenues will be. And I want to highlight one thing that we haven’t discussed yet is our hedging program. We’ve been consistently buying puts and so forth in the market. Now it’s -- the market has moved tremendously. So we’re going to continue to ensure that we have the capital to develop all these projects and so forth with our put strategy. We think the bull [ph] market is still crazy, there could be some political upside, upheaval, or there could be another market squeeze like we had in 2008 or whatever. There is a lot of moving parts. So our put strategy is very successful. We’ve made a tremendous amount of money last year with our put strategy in a time of very uncertain time. So we’ll be adding and layering that stuff on through the second and third quarter and so forth, but I want everybody to kind of model in a consistent put strategy going forward of cost of the puts and the associated protection with them. So we make sure we’ll be able to deploy our capital and execute our plan appropriately.

Leo Mariani – RBC

Okay. Thanks, Jim.

Jim Flores

Thank you very much.

Operator

Your next question comes from the line of Joe Allman with JP Morgan.

Joe Allman – JP Morgan

Good morning, everybody.

Jim Flores

Good morning, Joe.

Joe Allman – JP Morgan

Hey, Jim, first with the Granite Wash, increasing the rig or the number of wells from four to 14, is that based on what you are seeing in the first well?

Jim Flores

No, it’s not based on what we see in the first well. It’s really -- we came out of the capital crunch we put everybody in last year. Our development group was happy to just get four wells. But as we went through further review, I mean, the things got a lot of potential. We are very confident that we’re going to be doing a lot more Granite Wash activity. So we went out and exposed it to our Board and got approval for it. And we’re just communicating back to you guys. It’s probably where the program should have been recognized in the beginning, Jeff.

Joe Allman – JP Morgan

Okay. All right. That’s helpful. And then to the Gulf of Mexico, any update on drilling deeper with Davy Jones number one?

Jim Flores

No, no -- no newsworthy aspect. We drilled basically some rat hole. We’ve got some sandier shale section. We are still in the Eocene. We don’t feel like we had to face these change or (inaudible) change, so there could be stuff ahead of us. We’ve had this well bore open now for probably about three months. So we’re kind of all anxious to get -- we're on the eve of running casing out there and getting this behind us. This well was really interesting. We entered a well -- our last casing point was at 23,000 and the TD is 29,000. We have 6,000 open hole in the Gulf Coast. It’s been amazingly stable for the amount of months that we’ve had it open and so forth.

So we’re more excited about the second well, having it plumbed correctly for a lot of diagnostic work because we hope to do is have -- with the top of Wilcox, say, at 28,000 feet, I’m just using numbers, we hope to have pipes set at 27,500 to where we can do a lot more diagnostic work in the Wilcox, and obviously take the second well deeper to the lower sections and maybe the Tuscaloosa and higher on structure. So we’ve done about all the diagnostic work we can do in this well. And the key is try to come up with a production facility -- production testing scenario. We can flow test the well in the facilities with (inaudible) locations got to be a lot to it. But our group headed up by McMoRan and all the other companies in there put together a first class completion team, first class group of people on all of those things, because there is going to be new production frontier for the Gulf of Mexico.

We have a group that is modeling our production facilities out there after the Miskar field offshore Tunisia. It’s a British gas field. It’s one of the largest gas fields in the Mediterranean that supplies lot of the gas over to the pipeline at Southern France. But Miskar that it’s got hot gas, it’s got some H2S and CO2, and it’s tough that we haven’t seen yet, but we think with the temperatures and so forth, we will be prepared for in the right metallurgies and so forth. And so we’re really -- the only difference is that’s a smaller facility that’s about 350 million a day versus what we’d be talking about in probably a near-term development size of 500 million a day. But that gives us kind of an analogous production scenario to what we have at Davy Jones. And so we’re kind of present for with that and those type of plants on the backs of hopefully getting some good results on the number two well or the flow test on number one.

Joe Allman – JP Morgan

So drilling the additional 400 feet deeper from the last update, you didn’t see any good quality sand that would add additionally in that space to Davy Jones.

Jim Flores

I don’t think on a commercial standpoint. We found some sands that looked just as productive as in the center and I don’t think there is anything noteworthy to talk about from that standpoint. Just more Eocene section, but one additional commercial sands, how about that.

Joe Allman – JP Morgan

Okay. And then in terms of still with Davy Jones, when do you think you will be able to flow test it? Do you think it’s going to be three or four months from now, or you think it’s going to be later in the year?

Jim Flores

I think it will be later in the year. We’re not going to talk about flow testing. We haven’t got casing to bottom yet. But assume we got casing to bottom, don’t call us superstitious in this business. It always happens. But assume we got casing to bottom, then we will be putting up maybe sometime later this year. But I mean, I will tell you, as good a geologist is Jim Bob is, he is an amazing leader and motivator of timing of issues and so forth. So I would listen closely to his time schedule and I would put a lot of weight at it because he continues to outperform on all these fronts.

Joe Allman – JP Morgan

Got it. And then just thinking about the development in production, so just -- your production growth this year is high-single digits, next year high-single digits, correct me if I’m wrong there. So does that imply that in 2012, 2013, 2014, your year-over-year production growth is going to be minimum in the 20s --?

Jim Flores

Yes, that’s correct with the Davy Jones and Friesian and Lucius. There is big, big production inflows. What 2011 doesn’t have, and I kind of reverse engineer it, it doesn’t have an unrisked Granite Wash potential in it or accelerated Granite Wash potential from that standpoint. It doesn’t have an unrisked Blueberry Hill potential. It does not have an unrisked Big Mac potential. All these projects have the risk into the near-term 2011 outlook. So I want to follow those projects. But on the 2012, if we modeled it where we hope to have it, where we have Friesian and Davy Jones, both coming on in 2012, the numbers get pretty big. And the capital gets lumpy. And so that’s really what the variable is to what the plan is out in front of you guys.

Joe Allman – JP Morgan

Got you. So just -- in terms of the development of the good sized Gulf of Mexico projects, what’s your bet about which one will come on first? So --

Jim Flores

There is a lot of money betting all three of them come on at the same time. How is that, Joe? But from the standpoint -- there is a lot of incentive around here. I think what -- one interesting thing is flow testing the Davy Jones number one well, we have about 100 million a day capacity into our Tiger Shoals facility where our Flatrock production goes in. So we’ve got some excess capacity in the facility and so forth. So that’s going to be a little easier than thought of when you think about just trying to flow test the well and build facilities for flow testing. So I think that’s also some near-term upside there, but -- our guys are going to be working on the Friesian project. Anadarko is going to be working on the Lucius, Phobos. We’ve got the Red Hawk stocks bar right there, and Jim Bob is going to be pushing hard with our team on Davy Jones. So we’ve got everybody playing the right position, it looks like.

Joe Allman – JP Morgan

That sounds like -- you did a flow test later this year. You’ll get some Davy Jones gas to sales maybe early next year.

Jim Flores

I think that’s probably the scenario there everybody is working off of.

Joe Allman – JP Morgan

Okay. Thanks for your time.

Jim Flores

Okay.

Operator

The next question comes from the line of Nicholas Pope with Dahlman Rose.

Nicholas Pope – Dahlman Rose

Quick question. Just back to Davy Jones, you made a comment about concerns about H2 and CO2. There have been some discussion about a production test, fluid test and do a little more rigorous, that’s been on what was going on in the reservoir. With that -- did you all have success with that or is there -- have you all had some difficulty with doing that fluid testing?

Jim Flores

We didn’t get an opportunity to do it. The whole conditions above the Wilcox zone, the shale started slopping a little too much, Nick, and we kind of -- we're going down and we kind of banged the tool and got a connection, lost connection with the tools, we’re pulling it up, which had a lot of -- let's get some pipe in the whole. I’m going to re-drill this thing. So we’re just going to go straight to the flow test.

Nicholas Pope – Dahlman Rose

Okay. And just like -- back to that issue with H2S and CO2, I mean, did you all see that in any kind of significant quantity? Like, how do you view that in terms of like in a production well when you --?

Jim Flores

For instance, we probably could -- we're assuming we’re going to have CO2 and H2S. We’re just going to assume that because of the heat in the temperature and so forth, but we have no idea from a standpoint we had a flow test. So right now, our production scenarios, we’re thinking -- it may cost us $100 million to $125 million to get up to 200 million a day production facilities. But to get the 500 million a day, our number is at somewhere around $300 million. And that’s with all the top light metallurgies. And that’s why I pointed toward that (inaudible). What was the field we are modeling this off of, and this field Tunisia has got 30% H2S. I mean, it’s got huge amount of H2S, huge amount of CO2 corrosives and so forth. It’s great.

That’s an outside band, and that’s kind of the numbers that our facilities engineers are coming up with, and also the timing aspect. Inside of two years, they can develop that kind of scenario. So from our standpoint, we want to ensure success and let timing take care of itself. If we’re able to flow test to get some production on here and we have some CO2 and H2S, obviously we wouldn’t be able to flow the well consistently until we have the facilities in hand to handle that. But what I’m telling you today is that we feel very confident that we’ll have an opportunity to have those facilities delivered and the production on within the 2012 timeframe, even if it has H2S or CO2. So we’re just planning contingencies at this point in time.

Nicholas Pope – Dahlman Rose

Okay. Maybe Jim Bob can market the sulfur there I guess.

Jim Flores

He loves sulfur. He has made -- over the years, he has made a lot of money on the sulfur.

Nicholas Pope – Dahlman Rose

And then just trying to -- a little more clarification on that production growth ramp-up you have, the base case, did you say that has a risk piece of some of that Granite Wash or is all that Granite Wash, all the newer stuff, is that in the upside case?

Jim Flores

What we do -- before we come on, we have a risk sliver of production. So really the upside there is an unrisked program where we saw unrisking the wells and then you also -- the opportunity at Granite Wash is also a rig acceleration as well to really be a dominant force. We think for the next two or three-year inventory, if we draw up to 100, 150 Granite Wash wells, we can draw some pretty big volumes and good returns to this [ph] company because of the liquid content. We are not prepared to say that with two horizontals drilling -- first two horizontals drilling. We may be the third quarter talk in just that way. I’m just highlighting the fact that that is one of the upsides to the near-term production that we haven’t forecasted to you guys yet.

Nicholas Pope – Dahlman Rose

Okay, it’s helpful. And California, with your CapEx budget, do you think you could keep production somewhat flat in California?

Jim Flores

This year we’re coming off of last year’s capital star budget. So this year, we think, is going to be softer in production to 2009, but we think the growth will turn around in 2011 with the capital. But in fact, we’re very confident we will in the next years. You will see a big growth rate from -- on 2011 from 2010, but that’s coming off of soft 2010 due to the capital star in 2009. So -- and we expect that growth rates continue for several years as we deploy about $50 million to $75 million of expansion capital out of that $200 million of capital spending out there.

Nicholas Pope – Dahlman Rose

Right. That’s all I got. Thanks very much.

Jim Flores

Thank you.

Operator

Your next question comes from the line of Brian Corales with Howard Weil.

Brian Corales – Howard Weil

Hey, guys. Most of my questions have been answered, but have you all given thoughts or -- maybe pursuing selling down some of the Gulf of Mexico success or potentially monetizing some of those assets?

Jim Flores

We haven’t really thought about it because of the production scenarios that we have are so close by. We (inaudible) around here over the long-term. We are near-term gas bears as Winston steps on my foot. So -- I'm sorry, Winston is a cash boar [ph], I’m gas bear. So I guess we’re gas neutral -- is the right deal [ph]. So we think the gas -- the lower gas price is going to be right now the more valuable they’re going to be in ’11 and ’12. So we are right where we want to be. We have the capital. Our big thing when we saw production before in the Gulf of Mexico was because we did not have any near-term growth to accomplish it. So we were going to be taking all of our cash flow and putting it in long-term growth. It was an unbalanced program.

Our program today is very balanced. It’s accelerating due to those discoveries and bring in forward that production and with the strong balance sheet, the strong credit facility we have, and Winston will talk about that, our financial capabilities that we think we are in perfect shape. We are operating one of the properties. Our friends in Anadarko operate the others. And they have the same accelerated production mindset that we’d have as independents. And then we have the Chesapeake operate in the Haynesville and McMoRan operating with us and had us heavily involved in the subsalt Eocene and subsalt Miocene. We think we’re well balanced from an operating and execution to deliver or accelerate the plan that we’ve put out today. So Winston, do you want to talk about our financial?

Winston Talbert

Yes. If you look at what we did in 2009, we’ve paid off all of our bank debt at the beginning of the year. We paid off the Chesapeake carry early at a discount. What we are doing, we are setting up for what we see are some pretty major opportunities going forward. We want to make sure that we can sort of keep the balance sheet solid without any maturities and be able to free up our cash flow to spend on these types of opportunities. And I don’t -- we don’t see the big need to monetize them right now or in the near future because we think we’ve got the balance sheet to take care of it.

Jim Flores

Brian, we also look at $1 billion of bank liquidity. We can only enhance that with hedging in 2011 and ’12 from a put standpoint. And that liquidity had changed dramatically.

Winston Talbert

Our bond base is extremely stable because of all the California oil production and what we see is kind of a growing Haynesville wedge on our barn base. So we feel very good about where our barn based is, and even without any sort of hedge uplift right now. So we’re in really good shape as far as that is concerned.

Brian Corales – Howard Weil

All right, guys. Thank you.

Jim Flores

Thank you.

Operator

Your next question comes from the line of Rehan Rashid with FBR Capital Markets.

Rehan Rashid – FBR Capital Markets

On your Lucius, any thoughts -- there are pretty big numbers being talked about, any thoughts what has to happen on the appraisal well for some upper end kind of guestimations to materialize?

Jim Flores

Well, there is always area. We’ve got a discovery well up that side track. We’ve got a down-dip side track to prove area and also continue levels of porosity and production. So I think it’s just volume at this point in time. That’s going to be the big difference there as far as, as close to the gap on those -- on that spread of reserve estimates we’ve been talking about.

Rehan Rashid – FBR Capital Markets

Okay. Okay. And on Phobos, any kind of pre-drill estimates there?

Jim Flores

Well, the pre-drill estimates that we’re using is in the Paleocene, 2 Tcfe gross and on the Wilcox, 300 million barrels gross. And we have half interest of Anadarko.

Rehan Rashid – FBR Capital Markets

Okay, okay. And on the Haynesville, Chesapeake talked about Bossier. Any thoughts for me on that front?

Jim Flores

We love the Bossier. We are all in it. We have 20% of whatever Chesapeake is saying out there. So we are all in it. It’s -- that's going be an interesting development question, interesting development scenario as gas prices get stronger in the year -- it is how much -- I think what Chesapeake is highlighting is, we can deliver as much gas as the world needs out of Haynesville and Bossier right there unless we got our infrastructure build. I mean, gosh, you could talk about the pipeline situation and the type of size, infrastructure that we’ve got at Haynesville to deliver.

Winston Talbert

They negotiated and signed contracts on some more takeaway capacity for land pipelines. One of the lines is currently at middle of the delay due to weather. So there has been a little bit of a backlog of wells maybe brought on. But once that line gets repaired or finished being built out, which should be in a couple of weeks with the weather subsiding, kind of up to date on the weather, they have been hit with a lot and lot of (inaudible) this year. Then we will see another big surge in production come over.

Jim Flores

We’ve got so much questions already with the operation, with the pads and the rigs and so forth that the Bossier is going to be quite the contributor at the Haynesville. Some portion of that Haynesville is (inaudible).

Rehan Rashid – FBR Capital Markets

All right, got it. Just going back to Lucius and the Phobos real quick, just to make sure I understand, 2 Tcf plus 300 million barrels, is that kind of what it is? 300 --?

Jim Flores

That’s correct. The 2 Ts in the Paleocene has kind of upped it to the Exxon, ENI, Petrobras drill. And we think we see some good size of continuity there. And the 300 million barrels is in the deeper Wilcox section, kind of correlates the Chevron’s Buckskin discovery just to the Northwest.

Rehan Rashid – FBR Capital Markets

Got it, got it. But so much of our control in the area, what kind of probability of success? Is it too early to think about that?

Jim Flores

Well, we -- after last year on thinking that the three wells that were dry holes were low risk and the highest risk wells at Davy Jones were the low risk wells. Our risk model is not right very credible right now. So probably need to wait a year. Let’s get our confidence back on risking these projects, but we are confident in the Phobos project because of the close proximity of what’s going on.

Rehan Rashid – FBR Capital Markets

Got you. And then again I apologize, Lucius, does that have a Wilcox leg to it also?

Jim Flores

We don’t think so, no.

Rehan Rashid – FBR Capital Markets

Okay, thank you.

Jim Flores

Thank you.

Operator

The next question comes from the line of Michael Bodino with Madison Williams.

Michael Bodino – Madison Williams

Good morning, guys.

Jim Flores

Good morning, Michael.

Michael Bodino – Madison Williams

I have about three questions. A lot of the other ones have been answered. Just big picture, CapEx for next few years to achieve this incremental growth, you got a lot of big projects in there. But what kind of dollars for facilities, for wells incrementally should we expect to hit the budget next few years relative to that over and beyond what we are seeing the Haynesville?

Jim Flores

We talked about early in the macro standpoint, just $1.2 billion is what we have modeled. And we call it committed CapEx that’s got the development for all these projects and so forth. But you’ve got about $600 million to $650 million of base, California, everything, and then you’ve got about $300 million to $325 million of Haynesville, and you’ve got $200 million to $300 million of incremental spending we have here in these projects. And that’s just to kind of give you some ranges. And if you use $1.2 billion as a top end, then you could fit all that in and loose around it, as you know. And the only change here, Michael, as I highlighted, is it may -- we may have a year. 2012 might be $1.4 billion, $1.5 billion. That just means we brought two projects in 2012 (inaudible) to ’12, ’13 and ’14 and maybe the corresponding production growth will be there the following year as well as the lower CapEx. So we will have the financial flexibility to do that.

Michael Bodino – Madison Williams

Thinking about these big projects, you’re kind of somewhere between $1.2 billion to $1.5 billion for Davy Jones, Friesian, Lucius, for the development of those three projects over the next four or five years -- four years?

Jim Flores

One more 900 -- one more 800 to 900 on net interest on those projects. 200 to 300 on those projects. That’s four years. Plus we add [ph] five, it would be more of $1 billion to $1.2 billion, I guess. We didn’t count 2010 and -- when you count 2010, you’re right, $1 billion to $1.2 billion.

Michael Bodino – Madison Williams

Okay. And then move forward, Big Mac, you said a program to start there in the second quarter in your press release. Could you give us a little detail for that program, how many wells you plan on drilling, kind of what your thoughts are there?

Jim Flores

Well, right now we’ve got over 60 projects that we have identified there. We just haven’t -- we haven’t drilled any well since the 3D was shot and so forth. The industry is not drilling a lot of wells to the north to correlate the seismic amplitudes with the production scenarios. Right now we have two wells permitted. We have one rig that should be out there at the end of March, and we’ve just got started on identification of it. But it could be a significant add in 2011 to production and somewhat in the reserves just because we own 100%. And if we de-risk that project, we’ll have a lot to do, and we’ll be adding rigs and activity there as warranted.

Michael Bodino – Madison Williams

So you always get the first couple wells drilled, make sure the seismic is interpreted correctly and then maybe look at the program beyond that?

Jim Flores

Yes. We could get really excited if we have success there because it’s a nice -- very rich wells of condensate and great flow rates and good returns. You just got to get your consistency down, and that’s what’s going to help de-risk it with the seismic should we have to process correctly. And just kind of a traditional aspect, but it’s -- we could have a good run there for a few years if we get it right.

Michael Bodino – Madison Williams

All right. And my last question, I noticed one of the A&D houses out there has some packages for sale. Don’t want to talk about any specific package, but general thoughts. Is this just portfolio cleanup? Do you expect any significant dollars to come in from these package sales? Are there any -- is there anything else out there that you’re going to clean up and sell potentially this year?

Jim Flores

If you’re talking about the Haynesville acreage and so forth, yes, we are just a team player in that. And I think there is -- a lot of people had banged on Chesapeake for form-outs of the stuffs. I think it’s just more of just trimming. We’ve always planned on about 15% of that portfolio being rationalized somehow. And I think that’s part of it, but they are driving that. And I don’t think there is any significant revenue. It’s more of just good business.

Michael Bodino – Madison Williams

And I think you had some other packages, Panhandle, Austin Chalk, Bakken acreage?

Jim Flores

Yes, that was years ago. That’s just slivers.

Michael Bodino – Madison Williams

Okay.

Jim Flores

That’s cleaning out landfalls.

Michael Bodino – Madison Williams

All right. Appreciate it. Thanks, guys.

Jim Flores

Thank you, Michael.

Operator

Your next question comes from the line of Jeff Robertson with Barclays Capital.

Jeff Robertson – Barclays Capital

Just a follow-up on Big Mac. You mentioned I think what the reservoir target, can you remind me what those were?

Jim Flores

More (inaudible) notice area, kind of some of the traditional stuff you’re seeing up there. And (inaudible) we’ve got a nice discovery up there, the Beaumont Airport and so forth. It’s those types of things. We are in a down dip environment, hopefully a little more expanded sections. So we’ll see what happens with the drill bit, and hopefully have a lot to talk about.

Jeff Robertson – Barclays Capital

Okay. So that is similar to the play to that Yegua/Cook Mountain play that some of those other companies have had a lot of success with, last six months or so?

Jim Flores

We hope it’s exactly like that. That’s affirmative.

Jeff Robertson – Barclays Capital

All right. Do you still --

Jim Flores

We just need to get confirmed by the drill bit hopefully.

Jeff Robertson – Barclays Capital

Do you still hold Bob Simpson dinner if you make a discovery down there?

Jim Flores

According to him, that was a lot more than dinner, but yes, I hope I get away with just dinner.

Jeff Robertson – Barclays Capital

Okay, thanks a lot.

Jim Flores

Okay.

Operator

Your next question comes from the line of Eric Anderson with Hartford Financials.

Eric Anderson – Hartford Financials

At this point, do you think there is any possibility for condensate on the production in Davy Jones?

Jim Flores

There will be some element of condensate, but maybe guessing some -- I give you a typical Gulf Coast range is more of a 5 to 20 barrels per million type situation.

Eric Anderson – Hartford Financials

You are not as high as what you are seeing on a Flatrock?

Jim Flores

Flatrock is about 10 to 12. It’s kind of -- it depends on what the reservoir make-up [ph] is going to be. So yes, I guess it may be consistent there, but we really don’t know.

Eric Anderson – Hartford Financials

Okay. What’s the planned total depth for Blackbeard East?

Jim Flores

Interesting question, you drill with Jim Bob. The planned total depth, well, we think it’s 29,950 right now, the AFE [ph] depth.

Eric Anderson – Hartford Financials

There is nothing close to the original Blackbeard well though.

Jim Flores

Initially that’s correct. I’m saying that tongue and cheek because these wells are -- we don’t know what we’re going to counter and what (inaudible) and so forth. But we think at this point in time, we plan on seeing the Miocene section. See, Blackbeard West, we just saw the lower Miocene section, the salt had truncated out (inaudible) upper Miocene. We think both Blackbeard East and Lafitte, we’re going to have excellent opportunities to seize that are 3,000 feet of Miocene section below to salt 7,000 feet of vertical Miocene section, which should have the upper, middle, and lower section. And then we still have obviously the Wilcox below it, but gas in the $5 range, we will probably just try to establish production in the Miocene and save the Wilcox for the next part. So Wilcox there we think would be somewhere as deep as Blackberry West, 33,000 to 35,000 feet.

Eric Anderson – Hartford Financials

Are they two separate structures or are they one big structure?

Jim Flores

Well, we don’t know yet. The Blackbeard West is the lowest structure in the middle of the environment as depicted by a cross section in our slides, and we are moving east on Blackbeard East and also to the west at significant direction, significant length on Lafitte, just testing what we think is the higher, more sediment, latent, a more pronounced structure. So with Blackbeard West success, our additional success that found sands that we take a production on a log test and so forth, we did find the thickest of the sands like we found in Davy Jones, which is obviously something that we feel much more talking about commerciality that Blackbeard -- we will not -- Blackbeard East and Lafitte would be real wildcats without the de-risking for Blackbeard West. So Blackbeard West will always be a significant well as proved in the drilling technology and also proven that you can find productive for sands, we think, below the salt wells. So playing off of Blackbeard West, we will always be talking about that as some correlation of what we are doing here on this new frontier play.

Eric Anderson – Hartford Financials

Is a seismic for John Paul Jones looks similar to Davy Jones?

Jim Flores

It’s a same data set. It’s a different type structure. It’s -- Davy Jones is a mountain, if you will, subsurfacely. And it’s a very pronounced four-way. John Paul Jones is a more subtle structure, but the aspect of it is it’s got -- we think it’s even in a thicker part of the sand fairways. We map it as -- if you can map a sand fairway with one data point, but we’re seeing a pretty fit wedging over there and we see the structure. We see east-west collars here. We see it up and get salt. So we have a lot of confidence that John Paul Jones will be a great place to drill a well here, probably next year.

Eric Anderson – Hartford Financials

And can you do the whole thing with a barge rig or do you have to do with some combination of a jackup and barge?

Jim Flores

No, no. John Paul Jones is in 10 feet of water. It’s actually north of Flatrock We developed all the Flatrock with a barge rig.

Eric Anderson – Hartford Financials

But in terms of getting -- in terms of getting down to total depth, Jim Bob talks about hook load being important for those casings. Can you do that with a barge rig?

Jim Flores

There is several barge rig to have that hook load. There is several contractors who are anxious to do that work.

Eric Anderson – Hartford Financials

Okay. That’s great news. And last question is, what’s the status of the Blueberry Hill second well that you’ve been working on?

Jim Flores

We are basically right above the objective section and running high. We just need to get to drill that a little more faster. So it’s a matter of timing.

Eric Anderson – Hartford Financials

And do you expect to produce from the first Blackbeard well or Blueberry Hill well or will all the production be coming out of the second one?

Jim Flores

(inaudible) only thing waiting on is the second well (inaudible) to see what type of production facilities to set up. Initially we are going to take that 100 million at Tiger Shoals. I’m sure we use that at Blueberry Hill. We finally say that for Davy Jones now. So we’re moving our production around and using our facilities as prudent as possible. But the second well at Blueberry Hill drills like we think we will probably need some new facilities there anyway. So we kind of use -- we're looking at that as a 2011 production event.

Eric Anderson – Hartford Financials

Thank you.

Operator

(Operator instructions)

Jim Flores

Operator?

Operator

Yes, sir.

Jim Flores

This is Jim Flores. We think we’ve got all the questions. I’m going to wrap it up, okay?

Operator

Okay.

Jim Flores

Everyone, thank you very much for your interest. And 2009 was quite a year as far as putting the company in great position. We are very proud of our position, where we are and our discipline going forward and executing on this plan. Stay tuned for further news on all of these fronts because we’re going to be real busy getting the work done around here. So look forward to see everybody coming by Houston,, and we will be on the road talking to everybody. I think we’re going to be at the Simmons this week and moving around. So we look forward to keep everybody informed. Thank you very much.

Operator

This concludes today’s 2009 fourth quarter and year-end results conference call. You may now disconnect.

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Source: Plains Exploration & Production Company Q4 2009 Earnings Call Transcript
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