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Executives

Floyd C. Wilson - Chairman, President and CEO

Mark J. Mize - EVP, CFO and Treasurer

Richard K. Stoneburner - EVP and COO

Analysts

Subash Chandra - Jefferies & Co.

Leo Mariani - RBC Capital Markets

Brian Kuzma - JP Morgan

Steve Berman - Pritchard Capital Partners

Dan McSpirit - BMO Capital Markets

Michael Bodino - Coker & Palmer, Inc.

Kelly Krenger - Banc of America Securities

Jeff Robertson - Lehman Brothers

Curtis Trimble - Natexis Bleichroeder, Inc.

Petrohawk Energy Corporation (HK) Q4 FY07 Earnings Call February 27, 2008 11:00 AM ET

Operator

Good morning. My name is Jodie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Petrohawk Energy Corporation's Fourth Quarter 2007 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions].

Thank you. I would now like to turn the conference over to Mr. Floyd Wilson. Please go ahead, sir.

Floyd C. Wilson - Chairman, President and Chief Executive Officer

Good morning, everyone, and thanks for joining. This conference call contains forward-looking statements intended to be covered by the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. For a detailed description of this disclaimer, see our press release issued today and posted to our website.

We've had quite a year here at Petrohawk. On January 25th, we provided an update on our operations and today we announced our outstanding results from those efforts for the fourth quarter and full year 2007. We delivered on our goals of production reserve growth and we met our financial targets for both the quarter and year. Crude reserves came in at 1.06 Bcfe, an exciting 22% year-over-year increase. We added a record 326 Bcfe due to drill bit, all but replacing 116 Bcfe of production and 273 Bcfe of divestitures.

And significant reserves were added in our core areas of North Louisiana and the Fayetteville Shale and the profile of our reserve base is changed dramatically over the course of the year, thanks to acquisitions in drilling within these low cost, low risk resources rich areas paired with our significant divestment program through the course of the year.

We also had some very nice ads in our Permian area. Our proved reserves are now 90% gas, 57% of those reserves are proved developed which when added to the significant upside, we've accumulated indicates many years of development opportunities ahead of us. Our reserve to production index has risen to 11.5 years and just as importantly the RP of our proved developed reserves increased by nearly 20% year-over-year. Operated reserves increase to 77% indicating our ability to direct our capital program in these high growth areas.

Organic finding and development costs exclusive of acquisitions was $2.38 per Mcfe. Oil and finding and development cost excluding the cost of significant acreage investments in the Fayetteville shale was approximately $2.49 per Mcfe. Organically we replaced reserves by 281% including oil sources reserve replacement totaled 318%. Watch for continued strong growth in 2008 and beyond from these great fields and play.

Our quarter operationally and financially was on target; we added significantly to your capital program in all areas and in particular in the Fayetteville shale where we ended the year with five operated rigs. We continue the development of infrastructure for the many new areas of this shale sale we have opened up. We also had a very successful effort in the Elm Grove Field in the lower Cotton Valley Taylor Sand which is 16.5 million a day well, which has led to a 20-well horizontal drilling effort for 2008 in that field.

Now to Terryville and complementing our development program in the Cotton Valley formation, seismic driven Bossier drilling has been very successful leading to an additional 100 square miles of 3D seismic at Terryville plan and an expanded Bossier drilling effort.

Production for the fourth quarter came in above guidance and we are on target for our first quarter 2008 production goal of approximately 255 million cubic feet of gas equivalents per day. All in all an exiting and successful year. I will turn this over to Mark Mize, our CFO now for a financial update.

Mark J. Mize - Executive Vice President, Chief Financial Officer and Treasurer

Thank you Floyd. For purposes of this call, I am going to focus on the result of the fourth quarter 2007 which was a great end to an excellent year here at Petrohawk and before just going through the result of operations, just a few items that we will cover briefly. First we recently completed a common stock offering at a time when everyone is well aware there is some turmoil in the marketplace. Regardless we had a very strong interest in the offering. We ended up upsizing the deal and collecting net proceeds of approximately $300 million. Additionally we increased our borrowing base from $675 million to $1 billion and at this point we are only about 50% drawn on the facility.

Both of these activities worked relatively strong supporting the robust capital program that we have laid out for '08 as well as the strengthening our balance sheet. Floyd had already touched on S&D and the result in... for the year.

We also had divested off our Gulf Coast division, the transaction was completed on November 30th and yielded total consideration of $825 million consisting of $700 million of cash and a note for $125 million. And upon closing that transaction we put the majority of the cash proceeds on an escrow-wide kind of same structure. And as of the date of this call we have redeployed all of those proceeds into oil and gas properties and we estimate that we saved or deferred a cash tax bill somewhere in the neighborhood of about $80 million.

Turning to the quarterly results. We did produce about 28 Bcfe this quarter at an average daily rate of 303 MMcfe with the high end of our guidance. We continue to effectively market our oil and gas and achieved strong price realization with realized prices of 87.93 and 716 for oil and gas respectively. Since about 90% of our production is gas, we did continue to employ a strong hedge program and taking into consideration the impact of our hedges, we realized about 751 per Mcfe.

LOE and workover per Mcfe came in at $0.51 and $0.06 which is just under the low end of our guidance and very consistent and in line with the company's strategy to continue to drive down operating cost. The taxes other than income which we evaluated as a percent of revenue came in at 6.7% which is at the low end of guidance gathering a transportation came in just slightly elevated at 35% per Mcfe.

Looking to G&A; as reported G&A per Mcfe was 91%. That amount does include a charge related to the Gulf Coast divestiture and the amount of $11.9 million. Of this amount, 2.4 was a stock base non-cash charge and the balance were... represent actual severance charges. On a per Mcfe basis, this charge equates to about 43% and when you offset that against the as reported 91 of SG&A as $0.48 which is under the low end of our guidance.

DD&A came in slightly elevated at 350. But when you look at the depletion component, we came in at $3.46. This is over the high end of our guidance and it was really driven by an increase in future development costs which if you look at the component of our puds [ph] this year and our overall reserves compared to last year, it does delve in with where we came out from our reserve expenses.

Interest expense and other as reported came in $1.17 which is in line with guidance and the final point on the... on our income statement that I will touch on is our effective tax rate which came in at 38.5 and it's substantially in line with guidance. We are in an AMT position. In '07 we anticipate being in that same position in '08 and we expect to pay cash taxes this year right around $12 million.

And with that being said, I will turn it over Dick Stoneburner.

Richard K. Stoneburner - Executive Vice President and Chief Operating Officer

Actually Mark, we are going to go right into questions; we are... we will fill in some operational details with the questions we have.

Mark J. Mize - Executive Vice President, Chief Financial Officer and Treasurer

Okay.

Richard K. Stoneburner - Executive Vice President and Chief Operating Officer

And operator we are ready if there are any questions.

Question And Answer

Operator

[Operator Instructions]. Your first question comes from the line of Subash Chandra with Jefferies. Mr. Chandra you line is now open.

Subash Chandra - Jefferies & Co.

Can you hear me?

Floyd C. Wilson - Chairman, President and Chief Executive Officer

Yes, I can hear you.

Subash Chandra - Jefferies & Co.

Well, guess the operator can't. Do you have production by area?

Floyd C. Wilson - Chairman, President and Chief Executive Officer

We... I think we have it here. We provided that at the end of January in the information we gave it by region, yes.

Subash Chandra - Jefferies & Co.

Okay. Yes... I was... okay, I was wondering if there was a current run rate, but no big deal. And in the James Lime, are you looking at that any differently and maybe if you have some sort of acreage exposure what that might be to the James Lime play.

Floyd C. Wilson - Chairman, President and Chief Executive Officer

Well we have got a nice acreage position in the play; I am trying to think how many acres. Dick do you --?

Richard K. Stoneburner - Executive Vice President and Chief Operating Officer

About 25,000 net acres in the Nacogdoches Shelby County area.

Subash Chandra - Jefferies & Co.

Are you got your hands full or is that something you're sort of looking at based on third party activity and success folks have been having.

Floyd C. Wilson - Chairman, President and Chief Executive Officer

We have budgeted operations in '08 that will continue hoping to accelerate. Today we've had modest success, but enough success to continue going forward and add value to the company so we're optimistic in '08 that we cannot only do effective James Lime horizontal drilling but also vertical type of speed [ph] drilling in the play.

Subash Chandra - Jefferies & Co.

Okay. That's all I had. Thanks.

Operator

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

Leo Mariani - RBC Capital Markets

Yes, good morning here folks. Any update on how that Taylor well is producing... the horizontal one in Elm Grove there currently?

Floyd C. Wilson - Chairman, President and Chief Executive Officer

Yes, I think the well is making about 9 million a day after about two months on line.

Richard K. Stoneburner - Executive Vice President and Chief Operating Officer

November, December 20th, it's a little more than two months.

Floyd C. Wilson - Chairman, President and Chief Executive Officer

A little over two months on line Leo.

Leo Mariani - RBC Capital Markets

Okay. Any other wells that you guys have completed this point in time... horizontal Cotton Valley well.

Floyd C. Wilson - Chairman, President and Chief Executive Officer

We have two horizontal Cotton Valley wells that would be reaching TD within the next one to two days. We have a third well that's got about two more weeks left. So we have pretty active drilling operations... the two wells that have reaching TD this week, I am not exactly sure the frac schedule but there will be frac here in the foreseeable future.

Leo Mariani - RBC Capital Markets

Okay. Any update on what you guys are doing in the Gray sands; I know you got much of seismic that you shot. Are you guys actively targeting wells there at Terryville right now?

Floyd C. Wilson - Chairman, President and Chief Executive Officer

Yes we are Leo; we are running I think four rigs down there today. Many of those rigs are drilling the need to Cotton Valley. It's turning out that when we don't have Gray sand which is the sand is not always present on these small structures, so far we are finding Bossier sand. So it's been kind of a win-win situation and in every case each well bore has Cotton Valley. So the Gray sand is probably taking a back seat to the Bossier development as outlined by the seismic of Bossier being more light spread on each of this structures and the Gray sand being more of pinpoint style exploration effort.

Leo Mariani - RBC Capital Markets

Okay.

Floyd C. Wilson - Chairman, President and Chief Executive Officer

So the Bossier wells are all coming in around 5 million a day and seem to decline slowly rather than quickly.

Leo Mariani - RBC Capital Markets

Okay. Just switching gears over to Fayetteville, how many operator wells do you folks have on stream over there these days and what's your production out there?

Floyd C. Wilson - Chairman, President and Chief Executive Officer

A little over 50 operated wells, gross operated production between 55 million and 60 million a day.

Richard K. Stoneburner - Executive Vice President and Chief Operating Officer

Leo, that's a net of around somewhere between 25 million and 30 million a day.

Floyd C. Wilson - Chairman, President and Chief Executive Officer

With an additional non-op net of around 7 million a day.

Leo Mariani - RBC Capital Markets

Okay. Thanks a lot guys, I appreciate it.

Operator

Your next question comes from the line of Brian Kuzma with JP Morgan.

Brian Kuzma - JP Morgan

I think you are throwing everyone off without the ops update. We are clueless here. And could you --

Unidentified Company Representative

[Indiscernible].

Brian Kuzma - JP Morgan

We don't know what to do; we are lost without an ops update. But my question was really on the Fayetteville. Could you comment at all in terms of what you guys saw with your vertical well program of north versus what you guys were seeing down in the Whisenhunt area?

Floyd C. Wilson - Chairman, President and Chief Executive Officer

Yes, I will let Dick pipe in. Brian, we gave a very extensive ops update just a little less than a month ago and we hated to just bore everybody by repeating everything. We are going to greatly expand on that with recent results in the analyst day that we are hosting in New York on March the 12th. But I will let Dick answer the question on the vertical wells, but I can tell you that our program exploring these new regions and Fayetteville Shale is going way better than I expected.

Richard K. Stoneburner - Executive Vice President and Chief Operating Officer

Yes as Floyd said, we are going to have a lot of detail on the Fayetteville in the upcoming meeting that we will have in early March. Basically if you just look at the public release in the AOGC with our state test data, we've got four wells up there in northern area that averaged almost 2 million a day, a very tight spread between about 1.75 million and well over 2 million a day on those state tests. As Floyd said, I am extremely encouraged with the results we have, with the kind of date in that exploratory area and I am really excited about presenting that information when we do that in March.

Brian Kuzma - JP Morgan

Okay. And then, what does a typical vertical well cost you guys to drill up there, drill and in completion?

Richard K. Stoneburner - Executive Vice President and Chief Operating Officer

Brian, it's hard for us to say typically the efficiencies that our drilling staff has developed over the past quarter or so have been so extensive that the costs are kind of screening down per well; a vertical well is going to run us somewhere between $0.5 million and $0.75 million on the frac job, and horizontal well, we are going to be somewhere between $1.5 million and $2 million, in these more shallow areas. Is that pretty aggregate [ph]?

Floyd C. Wilson - Chairman, President and Chief Executive Officer

Yes.

Brian Kuzma - JP Morgan

Okay. And do you guys have any update on the Longwood prospect? I mean, you said that it was testing, like almost 1 million a day pre-frac?

Floyd C. Wilson - Chairman, President and Chief Executive Officer

That play has kind of changed its stripes as we've gotten into it. We are hopeful it was going to become a, what I'd call a repeatable lower Cotton Valley play that would have an extensive area to develop. That really hasn't materialized. What has materialized is a more site specific upper Cotton Valley play that on a metric basis is extremely profitable, but on a sheer volume basis, it's not as impactful as we like. So really good finding cost, good deliverability issues, not as many wells that are going to be productive as we would have hoped.

Brian Kuzma - JP Morgan

Okay. So you guys don't plan on allocating much capital to that in '08?

Floyd C. Wilson - Chairman, President and Chief Executive Officer

I don't have it on top of my head. I know you just finished drilling a well yesterday for instance and we'll be completing it here in the near future; we've got about 70% interest in. I am going to say off the top of my head, we will probably drill another 5 to 7 wells, maybe 10 wells in the trend over the course of '08, but that'd be a success driven answer.

Brian Kuzma - JP Morgan

Got it. Okay, I'll let someone else hop on.

Operator

Your next question comes from the line of Steve Berman with Pritchard Capital.

Steve Berman - Pritchard Capital Partners

Good morning guys. The... one clarification and a couple of questions. When you are talking about Elm Grove, I heard you say 20 horizontal wells in '08, is that total in the play or is that 20 Taylor Sand horizontals.

Floyd C. Wilson - Chairman, President and Chief Executive Officer

That's the mixture of Taylor Sand and Davis. In fact just recently we've had a really encouraging results on our Davis horizontal drilling. The mix is early... at this point in the year, it's about half and half but, that will again be driven by a success and may end up being half and half or maybe sway towards one zone or the other thought the course of the year.

Steve Berman - Pritchard Capital Partners

Okay. And on the back in the ops update a month ago you gave a bunch of guidance. Are you still comfortable with all those numbers and no change to that as we sit here today?

Floyd C. Wilson - Chairman, President and Chief Executive Officer

Very, very comfortable.

Steve Berman - Pritchard Capital Partners

Okay. And a question for Mark. What interest rate are you currently paying on your bank line?

Mark J. Mize - Executive Vice President, Chief Financial Officer and Treasurer

On our revolving credit facility out of the entire amount drawn, only $2 million is prime, the rest is in LIBOR tranches. And with our utilization grid, we are going to be somewhere in the current LIBOR or somewhere right around 4.5%.

Steve Berman - Pritchard Capital Partners

I am sorry, 4.5%?

Mark J. Mize - Executive Vice President, Chief Financial Officer and Treasurer

Yes.

Steve Berman - Pritchard Capital Partners

I am sorry, is 4.5% plus LIBOR or over LIBOR, I am not --?

Floyd C. Wilson - Chairman, President and Chief Executive Officer

The LIBOR is somewhere in the neighborhood of 3.1% right now. We have the utilization grid, where the rates go up from there.

Richard K. Stoneburner - Executive Vice President and Chief Operating Officer

4.5% all in.

Floyd C. Wilson - Chairman, President and Chief Executive Officer

Yes 4.5% all in.

Steve Berman - Pritchard Capital Partners

Okay, thank you guys.

Operator

Your next question comes from line of Dan McSpirit with BMO Capital Markets.

Dan McSpirit - BMO Capital Markets

My questions have been answered, see you soon. Thanks.

Operator

Your next question comes from line of Michael Bodino with Coker & Palmer.

Michael Bodino - Coker & Palmer, Inc.

Good morning guys.

Floyd C. Wilson - Chairman, President and Chief Executive Officer

Hi.

Michael Bodino - Coker & Palmer, Inc.

I had a... just quick follow-up on the horizontal drilling program in North Louisiana. Are predominately most of these wells going to be on structure, are you stepping out away from the Elm Grove structure to test some of these horizontals?

Richard K. Stoneburner - Executive Vice President and Chief Operating Officer

It's a combination and it somewhat depends on which zone we are talking about. I wouldn't... Dick (sic) I don't believe they are all on structure at all. It's more of a --

Floyd C. Wilson - Chairman, President and Chief Executive Officer

Particularly in the Taylor, it's really stratographic driven play. I think as we get off structure in the Davis, the sand has become tighter. So I think there is some variability... more variability probably in the Davis as you move around on the structure. But I am not concerned about where we are on structure with the Taylor per say.

Michael Bodino - Coker & Palmer, Inc.

And as you get more data points over in Terryville, is it something you will consider in that area or is it less of a stratographic opportunity there?

Floyd C. Wilson - Chairman, President and Chief Executive Officer

We actually have our first horizontal wells planned for quite soon in Terryville and we have high hopes that they will be... we will have great response in more than one zone there.

Mark J. Mize - Executive Vice President, Chief Financial Officer and Treasurer

Yes, we actually have a couple of concepts. One is kind of taking in a partially completed reservoir and just getting a much longer pay-point in it. So, that's concept one, and then as Floyd said, we will be testing the more conventional lower Cotton Valley to see if that's a viable play as well.

Michael Bodino - Coker & Palmer, Inc.

Okay. My last question, looks to me you snapped [ph] on here. Relative to the Fayetteville, you mapped quite a bit of acreage over the last six months. What are your thoughts relative to the mid-stream business, gathering compression; are you looking to go to third party sources, own, operate or a combination thereof?

Floyd C. Wilson - Chairman, President and Chief Executive Officer

Well, by necessity of course end up being a combination thereof, but the bulk of all of our activities here are geared towards owning and operating, gathering and perhaps being in a position to provide some third party gathering for others, and certainly operating our compression facilities as well. Our intent is to create a similar price realizations as we've achieved in other areas through these types of arrangements that you have to work pretty hard to get in place. But they are multi-year in nature and once they are all set up, it flows together pretty well in terms of ultimate price realization. So, we have ambitions of building quite an operating subsidiary there in terms of the mid-stream.

Michael Bodino - Coker & Palmer, Inc.

Is... in your acreage, I know you have been through the integration process with a lot of these wells. Is there an abundance of third parties and non-op interest in there that makes that a real profitable business?

Floyd C. Wilson - Chairman, President and Chief Executive Officer

Well, first off we believe we can make it profitable by just being able to set the pattern for how the gas is ultimately marketed by our self just on a own net gap. But secondly throughout the whole play and not just on our acreage, there is an abundance royalty gas and other parties' gas that in certain areas of the field one company or another will take the lead in building infrastructure and typically we don't like to duplicate that. So we all try to make deals with each other to use the infrastructure; not build it twice.

Michael Bodino - Coker & Palmer, Inc.

Awesome. Thank guys.

Operator

Your next question comes from the line of Kelly Krenger with Banc of America Securities.

Kelly Krenger - Banc of America Securities

Good morning. Just a couple of questions on your 2008 CapEx which I think in your operating update press release you said would be $800 million predominantly for drilling. And I was curious about on that $800 million kind of if you have a target finding cost or if we should use the... kind of the $238 million that you had in '07 as kind of a proxy for what to expect for 08?

Floyd C. Wilson - Chairman, President and Chief Executive Officer

Oh, it's so early in the year, we can possibly comment on that. We certainly... we are experiencing efficiencies in all of our fields so that we hope to have a very successful year in terms of finding cost.

Kelly Krenger - Banc of America Securities

But in terms of the... I guess what you've seen so far, the drilling, the mix of the budget, that sort of thing relative to what it was in '07. It doesn't seem like it should be materially different in either direction?

Floyd C. Wilson - Chairman, President and Chief Executive Officer

Again, it's so early to say, but I can tell you that in each of our fields, it's sort of the old pattern of more experience leads to faster, better, cheaper, and seems to be the pattern now. If that relates to reserves, it's too early to tell at this time of the year.

Kelly Krenger - Banc of America Securities

Okay. And then secondly, it seems like that budget is mostly for drilling, you guys have been active in making some more acreage related purchases. What's your view on that as we go forward or should we look for more of that in 2008 as well, more acreage purchases?

Floyd C. Wilson - Chairman, President and Chief Executive Officer

We are very interested in acreage purchases in any of our key areas in the Fayetteville, North Louisiana, East Texas, et cetera. We have none on the drawing boards right now but we're certainly very interested in these areas where we think we bring some value and experience to the play. We do not have any acquisition money budgeted for 2008 within that $800 million.

Kelly Krenger - Banc of America Securities

Okay. Thank you.

Operator

Your next question comes from the line of Peter Lux [ph] with Smith Barney.

Unidentified Analyst

Hi guys, how are you doing?

Floyd C. Wilson - Chairman, President and Chief Executive Officer

Hey.

Unidentified Analyst

I hope I'm not misquoting you, but I don't know 6 or 8 months ago you guys said, perhaps the best way to get value for our stockholders was to sell the company. And I was wondering when... it's always... with the oil business it's... always the next one could be the big one, but with oil over 100 and gas over 9, I wonder if you have ever given some more thought to that at this time?

Floyd C. Wilson - Chairman, President and Chief Executive Officer

Well it's an ongoing theme in the sector that there are business combinations that occur from time to time. At this time we've got a tremendous inventory of non-book potential out in front of us that we feel we need to make sure we have the value of all of those assets identified. And so we're bearing down on the idea that we need to develop these assets quickly. I don't know if that helps with the question that you asked but we are certainly moving ahead with our... on all operational fronts.

Kelly Krenger - Banc of America Securities

Okay, thanks a lot.

Operator

Your next question comes from line of Brian Kuzma with JP Morgan.

Brian Kuzma - JP Morgan

Yes, just one final one on... in the Elm Grove area, do you guys plan on testing any of the other deeper pays like you are doing at Terryville, in 2008?

Floyd C. Wilson - Chairman, President and Chief Executive Officer

I don't know where you heard that Brain, but we just not talking about it.

Brian Kuzma - JP Morgan

Okay.

Operator

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

Leo Mariani - RBC Capital Markets

Yes, a follow-up question here on Terryville. I know you guys have kind of been sort of actually stepping out in that field over time. Just curious if you had sort of an estimate as what percentage of the acreage over there you feel comfortable is going to be successful for exploitation?

Floyd C. Wilson - Chairman, President and Chief Executive Officer

This time we saw no... we see no reason to discount any of the acreage we own in the entire holding that we had down there which includes the new 8000 acreage that we just acquired at the tail end of 2007, which we're just getting ready to move a couple of rigs toward, I think, this quarter

Mark J. Mize - Executive Vice President, Chief Financial Officer and Treasurer

Early '08, second quarter.

Floyd C. Wilson - Chairman, President and Chief Executive Officer

Early second quarter. So now we are... we have high expectations for all of our acreage in North Louisiana.

Leo Mariani - RBC Capital Markets

Okay. I guess how much of that Terryville acreage you think you've drilled in at this point of time on sort of a rough percentage basis?

Floyd C. Wilson - Chairman, President and Chief Executive Officer

Well, it's fairly lightly drilled in terms of development of the full Cotton Valley extent. I am going to say 25 or 30% is a pretty good approximation of how much we've actually developed and I wouldn't even say that the 30% was even fully developed on either 40- or 20-acre basis quite yet.

Leo Mariani - RBC Capital Markets

Okay.

Floyd C. Wilson - Chairman, President and Chief Executive Officer

The 30 days there and it's evolving quite nicely. The exciting thing is that we are finding these other pay zones that the 3D seismic has been so helpful in identifying. It gives us certainly multiple choices and multiple options in every single well bore it seems.

Leo Mariani - RBC Capital Markets

Okay. I guess have there been any areas of the Terryville field that you have drilled in that were disappointing... disappointed.

Floyd C. Wilson - Chairman, President and Chief Executive Officer

Point [ph], is that what you said?

Leo Mariani - RBC Capital Markets

That... any areas of Terryville that you have drilled in thus far that you have been disappointed with the result?

Floyd C. Wilson - Chairman, President and Chief Executive Officer

Well, we have had some disappointments here and there. In the Cotton Valley and any of these large scale developments, production and results are variable. So almost always, as soon as we have a poor result somewhere we will find the well next door, the one next door to that that may... kind of makes up for it. We've had some disappointments in the Gray Sand. We are finding that there is some sand risk on top of these deeper structures that the 3D has found. But again so far we are finding and we have no... or good quality Gray sand, we are finding Bossier sand. So right now we are very excited about everything we own out there.

Leo Mariani - RBC Capital Markets

Okay. So basically there's no portion of the acreage or anything like but substantial or contiguous that you guys have condemned?

Floyd C. Wilson - Chairman, President and Chief Executive Officer

No, we have not condemned anything.

Leo Mariani - RBC Capital Markets

Okay.

Floyd C. Wilson - Chairman, President and Chief Executive Officer

In fact you might remember we've only shot the central 30 square miles or 40 square miles of the field. We are adding 100 square miles of 3D through the close of this year, both on the western part of the field and the eastern side. And we are quite hopeful that that will lead to even more drilling.

Leo Mariani - RBC Capital Markets

Okay. A quick administrative question for you folks. I think you guys had announced the Fayetteville acquisition or some acreage on early January. Is that deal closed at this point in time?

Floyd C. Wilson - Chairman, President and Chief Executive Officer

All of our acquisitions that we've announced are closed at this time. A couple of deals in the Fayetteville and Terryville and the transaction in Elm Grove were all closed at this time.

Leo Mariani - RBC Capital Markets

Okay. So, basically that number you gave about the revolver balance around $500 million or so, that accounts for all activities you've done at this point?

Floyd C. Wilson - Chairman, President and Chief Executive Officer

Yes, Mark had given you a current view of the revolver balance and it does include all of that.

Leo Mariani - RBC Capital Markets

Okay, great. Thanks guys.

Operator

Your next question comes from the line of Jeff Robertson with Lehman Brothers.

Jeff Robertson - Lehman Brothers

Thanks. Floyd, as you look at the Fayetteville Shale over the next couple of years with roughly 270 wells to participate in this year, can you talk about activity in say '09, 10 as you build out your infrastructure and what kind of levels we should expect?

Floyd C. Wilson - Chairman, President and Chief Executive Officer

Yes, we anticipate an activity level for the next at least five years equal to or greater than the current projections for 2008. Much of that is driven by success and results and the activities of other people, but we are certainly keeping pace with our plans, with our infrastructure build-out so that we won't be facing any self created impasses with all this activity.

So we are anticipating with our large acreage position [ph], there are quite a few years of similar or greater activity.

Jeff Robertson - Lehman Brothers

With your infrastructure do you envision participating as a little more owner [ph] and facilitating a line getting built or are you mainly looking at gathering and processing?

Floyd C. Wilson - Chairman, President and Chief Executive Officer

Not much processing going on out here... we are looking at gathering and compression and then marketing arrangements on the other huge investments that have been made to traffic gas out of the region towards the east.

Jeff Robertson - Lehman Brothers

Thank you.

Floyd C. Wilson - Chairman, President and Chief Executive Officer

Art's sitting here... if you want to add to that Art or is that fair enough?

Unidentified Company Representative

No we are one of the anchor shipper on the boardwalk project. So we are very actively getting our gas moved to the premium markets.

Jeff Robertson - Lehman Brothers

Thank you.

Operator

Thank you. We have time for one last question. Our last question comes from the line of Curtis Trimble with Natexis Bleichroeder.

Curtis Trimble - Natexis Bleichroeder, Inc.

Good morning. Just wanted to drill down a little bit more on the Elm Grove with these Taylor and Davis wells. Can you give us drilling completion cost and then talk about what the subsequent three wells you hope to bring on in the next month or so. In the evolution and completion technique compared to the Horton and Achilleon [ph] wells that you previously brought on?

Floyd C. Wilson - Chairman, President and Chief Executive Officer

Curtis, $4.5 million seems to be a fair targets for drilling complete. We are using open hole packer systems, weather they be Packers Plus or Baker Frac [ph] port systems. They all in the eight stage type completion procedure. They really are very similar in the way we handle both a Davis and a Cotton Valley completion other than the fact that we will... because of the techniques of the Davis, we will pump upwards of 4 million pounds of sand in a Davis completion and somewhere in the range or maybe 2 million pounds of sands in a Taylor completion.

We will probably have, like I said, those two wells that are approaching TD, I'd think that within the next two weeks, three weeks on the outside, we would have those two wells completed.

Curtis Trimble - Natexis Bleichroeder, Inc.

Good, I appreciate it. If I may just another quick question on takeaway capacity up in Fayetteville. I know Art mentioned the boardwalk pipeline up there. If it doesn't come on as soon as folks think sometime early to mid 2009, do you think maybe you'll run into a situation where you've got a substantial number of Fayetteville wells in inventory that you can't turn to sales because of lack of takeaway capacity?

Floyd C. Wilson - Chairman, President and Chief Executive Officer

Boardwalk is scheduled to come on in August of '08, and we should see an increase in price realization just on the first small section of the... of that. So I am not worried about moving the gas now.

Curtis Trimble - Natexis Bleichroeder, Inc.

Okay.

Richard K. Stoneburner - Executive Vice President and Chief Operating Officer

And Curtis I wanted... just wanted to point out that a down drill [ph] in this horizontal drilling, there's several other operators that are drilling horizontal wells. We are in many of those wells, and as in all of these fields, whatever best practices are defined by results, we'll continue to review that and make sure that we're doing the best that we can with this brand new feature of the field.

Curtis Trimble - Natexis Bleichroeder, Inc.

I appreciate it.

Floyd C. Wilson - Chairman, President and Chief Executive Officer

Well, everyone thanks again for tuning in. We are very pleased of our results. We continue to demonstrate a pattern of delivering on our goals which we've set pretty high. In fact we are shooting for 25% production growth for 2008. We have got a fine set of talented and creative and hardworking people here at Petrohawk who are making all this happen. We have closed two significant transactions within the past 30 days or so; one in Elm Grove, one in Fayetteville. Neither of these are accounted for in our yearend reserve estimates; each is designed to increase our inventory of un-booked, low risk drilling opportunities. I encourage you to tune in or attend our analyst day on March 12th to learn more about these project. Details of that meeting can be found on our website.

Sadly the University of Kansas has lost two road games in a row. I hope they can turn that around tonight in Iowa. And we will talk again soon. Thanks.

Operator

Thank you. This concludes today's Petrohawk Energy Cooperation's fourth quarter 2007 earnings conference call. You may now disconnect.

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Source: Petrohawk Energy Corp. Q4 2007 Earnings Call Transcript
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