Newfield Exploration Co. Q1 2008 Earnings Call Transcript

Apr.24.08 | About: Newfield Exploration (NFX)

Newfield Exploration Co. (NYSE:NFX)

Q1 2008 Earnings Call

April 24, 2008, 9:30 AM ET

Executives

David A. Trice - Chairman, President and CEO

Gary D. Packer - VP Rocky Mountains

George T. Dunn - VP Mid-Continent

Analysts

David Kistler - Simmons & Company

David Heikkinen - Tudor Pickering & Co.

Joseph Allman - JPMorgan

Brian Singer - Goldman Sachs

Gil Yang - Citigroup

Irene Haas - Canaccord Adams

Shannon Nome - Deutsche Bank

Rehan Rashid - FBR Capital Markets

Operator

Good day everyone and welcome to Newfield Exploration first quarter 2008 conference call. Just a reminder, today's call is being recorded. And before we get started, one housekeeping matter. Our discussion with you today will contain forward-looking statements such as production targets, planned capital expenditures and drilling plans. Although we believe that the expectations reflected in these statements are reasonable, they are based upon assumptions and anticipated results that are subject to numerous uncertainties and risks. Please see our most annual report on Form 10-K for a discussion of certain risk factors that may cause actual results to vary.

And at this time for opening remarks, I would like to turn the conference over to the Chairman, President, and Chief Executive Officer Mr. David Trice. Please go ahead, sir.

David A. Trice - Chairman, President and Chief Executive Officer

Good morning, everyone, and thanks for joining us on our first quarter conference call. We are off to a great start, as you know, in 2008. I know that you've all seen our results that were posted last night as well as our @NFX publication. I know many of you talked to Steve last night, so we'll try to keep our remarks relatively brief this morning and hold more time for Q&A at the end. Most of our executives are on the call today, including Gary Packer calling in from Denver, and George Dunn calling in from Tulsa, so will be ready and willing to take any questions that you have.

Let me open today's call with few takeaways from our first quarter financial and operating results. Our production was strong and above the upper end of our guidance for the first quarter of 2008. We reported production of 55.1 Bcfe. When adjusting volumes for assets sold and acquired, our first quarter 2008 production was up more than 20% over pro forma production in the first quarter of 2007. Our significant growth in the quarter is attributable to the Woodford higher oil liftings in Malaysia and better than expected volumes from the deepwater Gulf of Mexico. But each and everyone of our business units are growing production above budget this year.

The strength of our production in the first quarter led to earnings of $0.87 per diluted share before the effect of FAS 133 and charges associated with the resetting of a portion of our 2010 oil hedges. Our $0.87 compares to First Call consensus of $0.73 per diluted share.

We are raising our full year production forecast to 224 to 234 Bcfe, which is up 18% to 23% over pro forma 2007 production. This increase reflects the strength of current production, a recent bolt-on acquisition in South Texas and additional rigs in the Woodford and Monument Butte fields. The acquisition will close at the end of the month and current production is approximately 19 million cubic feet equivalent per day.

The goal of our management team is to execute and deliver top-tier performance in 2008, and we are well on our way. We announced three operated exploration discoveries today, two in the deepwater Gulf of Mexico and one offshore China. In addition, we drilled a significant step-out well in South Texas that expands the known limits of our Sarita Field.

Our Anduin West and Gladden wells in the deepwater Gulf of Mexico were both successful. Anduin West found 30 feet of net gas and condensate pay and sits adjacent to a discovery that we drilled in 2005 and monetized last year. It's located near the Gomez production facility, which has agreed to accept our production. We expect first production late next year and we have a 50% interest in this play.

Gladden found 80 feet of net oil pay. This production will also go to the Gomez facility and we also expect oil sales here in late 2009. We have a 47.5% working interest in this new development. Both Anduin West and Gladden should be capable of producing 30 to 40 million cubic feet equivalent per day each.

We often talk about our deepwater Gulf of Mexico exploration strategy and its two components. The first focuses on lower risk seismic amplitude supported prospects near infrastructure. The second component would encompass larger prospects with stand-alone developments such as subsalt and foldbelt plays. Anduin West and Gladden are both in the former category. They are similar to our Rigel and Wrigley fields that are currently online, as well as PowerPlay and Fastball which are underdevelopment. PowerPlay is expected to commence production in the third quarter of this year and Fastball in the second half of 2009.

In the most recent Gulf of Mexico lease sale, we were high bidder on 14 prospects in deepwater with net bids of $54 million. We have a great inventory of prospects that will allow us to drill four to five wells per year for the next several years, and we have already lined up a rig for our 2009 deepwater drilling program.

Our third exploration success was offshore China in the Pearl River Mouth Basin. Our LF7-2-1 exploration well found about 60 feet of net oil pay. The estimated size of this discovery is about 10 million barrels. What's exciting about this discovery is that there are a number of nearby structures and we plan to test those structures later this year or in early 2009. We operate the discovery with a 100% interest subject to CNOC's 51% back end at development.

Under our Exxon-Mobil joint venture in South Texas, we recently drilled the Sarita B-94, a 7000 foot step-out to the south of our existing wells. The well found a 150 feet of net gas pay and has the potential to materially increase the 250 to 300 Bcf of reserves that we have already added on the JV area. The B-94 well also has positive implications for a JV signed in 2007, with a private company and that JV covers 42,000 acres to the south and east of Sarita. The first of two high potential exploration wells planned under this JV (inaudible) next week.

Moving along to development project updates, the late story remains the Woodford. Our Mid-Continent team has done a fantastic job of lowering completed well cost, demonstrating the benefits of extended laterals and delivering production growth. We will have additional details a little bit later and particularly on Q&A, but here are the highlights.

Our Woodford production in the first quarter set a record of 187 million cubic feet per day on a gross operated basis, that's up from a 165 million cubic feet a day at the end of 2007 and up from about 85 million cubic feet a day at the end of 2006. We expect to exit this year north of 250 million cubic feet a day, up 50% over 2007. Our growth in this play is just beginning, as we are in the early stages of a multi-year development.

We signed an additional 100 million cubic feet of firm transportation beginning in 2009, which takes our firm total up to 350 million cubic feet a per day and we have an agreement in place today to increase this to 450 million cubic feet a day when its needed. We have a gathering infrastructure necessary through our 2006 MarkWest Alliance. These steps have helped to ensure that we will receive the best pricing for our Woodford gas by capturing firm transportation. The most recent extended reach lateral wells have been drilled and completed for about $6.7 million, have initial production rates of 7 million cubic feet equivalent per day and estimated EURs of greater than 4.5 Bcfe.

These results demonstrate sub $2 per Mcf finding and development cost. We have 20 extended lateral wells producing today, some of which have as much as 450 days of production.

In addition, we have six extended laterals that came online late last week and are cleaning up after fracture stimulation. There are 10 additional long laterals that have been drilled and will commence production within the next 30 days. These will keep our volumes moving up into the right. We're adding the 12-operated rig in our Woodford development and expect to further increase our operated rig count in 2009.

In the first quarter, we signed an agreement to acquire a package of South Texas properties from a private company for $227 million. These fields are right in the heart of our operations in the wheel cogs and expand our presence in the big spur. This deal will add about 90 million cubic feet a day of production. Risked proved and probable reserves for the acquisition are 100 Bcfe, about half of which is classified as proved under SEC guidelines.

Newfield has identified more than 100 drilling locations on the acquired acreage. And we see the potential to add more than 200 Bcf of total reserves from this acquisition. There is additional potential on exploratory acreage that comes with the deal as well. We'll finance this transaction under our revolver and expect to close the deal next week.

The South Texas acquisition, our bidding success in the recent deepwater Gulf of Mexico lease sale, the development of our new exploration discoveries and the addition of rigs in the Woodford and at Monument Butte are leading us to increase our capital budget this year to $2 billion. Our cash flow will also increase substantially due to recent acquisition, higher production volumes and higher commodity prices.

Let me move now to an update on the Rocky Mountains and what we are doing particularly at Monument Butte. Monument Butte remains the center of our activity in the Rockies. We continue to have great success with our ongoing 20-acre spacing program as well as with recent wells on the Ute Tribal lands to the north of Monument Butte. We drilled 65 successful wells now on 20-acre spacing and 22 successful wells on the Ute Indian lands. We now have a rig dedicated to drilling development wells on our 47,000 acres under the Ute alliance.

Demand for black wax crude has increased and we have recently reached agreements on additional term contracts with area refiners. These new contracts have led us to add the fifth rig in the field. Our current production exceeds 15,000 barrels of oil a day and we expect to exit 2008 at more than 16,000 barrels a day, or an increase of 15% over last year and a doubling of production since we acquired this field in August of 2004.

The addition of production will help meet higher demand for our crude brought on by our recent refining contracts. To-date, we have drilled 65 wells on 20-acre spacing and the results continue to exceed our expectations. Monument Butte is a giant water flood and we have more than a 1000 producing wells and 450 water injectors on 40-acre spacing. We are in the early stages of reducing field spacing to 20 acres. We have the potential to drill an additional 1000 to 2500 wells in the field to reduce spacing to 20 acres, in addition to the 1000 or more locations that we have remaining on 40-acre spacing.

We drilled 680 wells on the field since acquiring Monument Butte in 2004 and now believe that we will ultimately recover somewhere between 18% and 20% of the more than 2 million barrels of oil in place in this giant field. That equates to 400 million barrels of gross recoverable oil. Less than 40 million barrels of gross has been produced today. And at year-end gross book reserves were under a 100 million barrels or 80 million barrels net equivalent to Newfield. We have a long way to go and this oil is discovered.

We are currently drilling the first well under recent deep gas exploration agreement with Red Technology Alliance. This well has a planned TD of 16,600 feet. That agreement was signed earlier this year and covers more than 70,000 acres in the western portion of the Monument Butte Field. The prospective targets include the Wasatch, Mesa Verde, Blackhawk and Mancos Shale. In addition to this well, we also have a 58% interest in two Mancos Shale wells that are completing today on the eastern portion of our Monument Butte acreage under a separate joint venture. We expect to have test results from these wells in the next few weeks. In addition we expect to drill several operated wells in this eastern section during the second half of 2008. This area, which we consider an exploitation area, encompasses 10,700 net acres within the Monument Butte Field and we excluded that acreage from the deep gas joint venture. We have an approximately 85% working interest in this area.

Although the Mancos Shale is in the early assessment phases, it has the potential to be significant due to its rich organic content thickness and natural fracturing. In addition to the Mancos, we have prospective formations and shallow horizons and we have a 100,000 plus acre position in this play. Through our Stone acquisition in 2007, we added 42,500 net acres and now control an average of 83% working interest in the deep play beneath Monument Butte. And we control the timing because substantially all of this acreage is held by our shallow oil production. The deep gas play has been actively made throughout the Uinta Basin and the net potential to us could be several trillion cubic feet. We look forward to reporting on our progress throughout 2008.

In the Williston Basin, we are currently in process of drilling our third Bakken well along the Nesson Anticline. This well is in our Lost Bear prospect area. The closest horizontal Bakken well is within two miles and tested at over 500 barrels of oil a day from a horizontal re-entry.

We are in the process of testing our second and third well… second well drilled under JV with another company, covering additional acreage along the Nesson in our Westberg prospect area. We will have results on wells oil drilled here in the next couple of weeks. We have quietly assembled about 240,000 gross acres or nearly 160,000 net acres in the Williston Basin over the last three years targeting Bakken, Madison and Red River formations. We expect to drill 10 wells in the area in 2008, in addition to participating in several outside operated wells targeting the same formations. Our current net production from the area is about 2600 barrels a day equivalent, most of which is coming from the Bakken and the Elm Coulee field in Richland County, Montana. We have a great portfolio investment projects, backed by strong balance sheet. 2008 is off to a great start and it's going to be a great year. We have an inventory visible development projects that will allow for significant growth over the next five years.

At a recent Employee Meeting at Newfield, I did a presentation entitled 'Lots of good stuff is going on at Newfield.' This presentation covered many other things that we have discussed in our press release yesterday and in the call this morning, as well as up here we can't talk about yet. We'll have more good stuff to report in our second quarter earnings call and well into the future.

Operator, at this point we're ready for any questions.

Question And Answer

Operator

Thank you. (Operator Instructions). Our first question is from David Kistler from Simmons & Company.

David Kistler - Simmons & Company

Good morning, guys.

David A. Trice - Chairman, President and Chief Executive Officer

Good morning.

David Kistler - Simmons & Company

I want to focus a little bit on the Woodford here and specifically with 80% of the wells that you're going to drill this year focused on longer laterals. How do I think about that for modeling purposes going forward? Will we continue to see that higher mix? Just obviously the economics of those wells versus the shorter laterals are very different. If we could just get a little more color on how to think about it over the next couple of years?

David A. Trice - Chairman, President and Chief Executive Officer

Sure. The big difference for us has been expanded 3D coverage and having that 3D in-house and interpreted and a great geosteering crew that we have in our office in Tulsa. And we're basically what we've been able to do is use the 3D to geosteer across walls and stay in the formation and the ability to be able to see with 3D is obviously critical to that. As we look at the 3Ds that we have in-house and we got a couple of more coming in. Our expectation now is probably somewhere between 70% and 80% of this field, will be able to be developed on extended laterals.

David Kistler - Simmons & Company

Okay, that's helpful. On the same extended laterals for a second, I know you only have about seven or so that are on for… well I think there is actually more than that, that are on for 150 days or so. But the production on those looks well above the current 4.5 Bcf type curve that you are giving. How many would it take for you guys to start thinking about adjusting that type curve?

David A. Trice - Chairman, President and Chief Executive Officer

I think we just need to see a lot more experience at this point. A lot of those wells were drilled, standalone, first well on a 640-acre section as you infill. We just need to see those results. I think at this point, we are reasonably comfortable that 4.5 Bcf for extended lateral well is a reasonable number. Well, we will just… hopefully in a year or later we will be able to raise those numbers, but we just have to wait on the data.

David Kistler - Simmons & Company

Okay, great. One other question on that same data that you are looking at, it looks like these longer lateral wells plateau a little sooner than a traditional well. The declines really aren't as pronounced after about 50 days. Same sort of thing we just to have wait on the data?

David A. Trice - Chairman, President and Chief Executive Officer

We just need history and we will have a lot better feel for this. But what you need then is old data, not new data.

David Kistler - Simmons & Company

Okay, great. Well, thank you for the color. Good stuff.

David A. Trice - Chairman, President and Chief Executive Officer

All right. Thanks, David.

Operator

And moving on, we will take a question from David Heikkinen from Tudor Pickering.

David Heikkinen - Tudor Pickering & Co.

Just a follow-up on the Woodford. Still expecting each stage frac to deliver around sixth-tenth of P [ph]?

David A. Trice - Chairman, President and Chief Executive Officer

I think the focus that we had in our last conference call was more on foot of extended lateral. And I don't have those numbers. It's not going come… it's not going to be materially different from that. But that's what our focus is, is how much of the reservoir that were being exposed in the horizontal section of the well? And we think that's really going to be the key in the future. We'll give you more color on that probably in the next quarter call, David.

David Heikkinen - Tudor Pickering & Co.

Okay. And then, on the deepwater discoveries that you just made, you talked about 30 million to 40 million cubic feet a day, that's a gross number I assume?

David A. Trice - Chairman, President and Chief Executive Officer

That's a gross number, right.

David Heikkinen - Tudor Pickering & Co.

And then, when you think about continued drilling in China and similar size prospects that you are going to drill 10 million barrels or do you have anything larger than that that comes to us… comes on?

David A. Trice - Chairman, President and Chief Executive Officer

It depends on, if you have only four way closures or you have faults so you would really need to see a display of this ridge that we are going to be drilling up and all the prospects that exist on it, but there are different trap types along that and that's what we really like. It clearly has a potential to be a string of pearls. There were couple things in there that could be larger if faults trap. But we are happy with the start because it proves that we've got oil in the system. There is lot of kitchen area around this ridge and we'll just see where we go from here.

David Heikkinen - Tudor Pickering & Co.

Okay. And then just one question on refining capacity at Monument Butte. As you look forward, how can you commit to as far as securing capacity to make sure that you have a full capacity as you grow that field's production?

David A. Trice - Chairman, President and Chief Executive Officer

Gary, do you want to take that question?

Gary D. Packer - Vice President Rocky Mountains

I think we've got a track record David over the last couple of year of working with our refining partners in Salt Lake. What we have done in every case, we have added three additional purchasers from the one that we started with. In an each case, we sit down with them at beginning of the year, we talk about our capital programs and we commit dollars and wells and they commit capacity. I think it's worked out well thus far. We think there is additional capacity to be added in the Basin as long as both of us were able to look forward and make those type of commitments. And that's our plan forward.

David Heikkinen - Tudor Pickering & Co.

And from a competitive standpoint, we see other companies ramping capacity as well, do you think that competition for access is increasing?

Gary D. Packer - Vice President Rocky Mountains

No, I am not real worried about that. I think we are still the largest producer in the Uinta Basin. I still think that gives us certain competitive advantages, my understanding with the additional refined product export line going into Las Vegas, that further incentivize growth from the refiners in the Salt Lake City Basin. And then if you ever look too far out, you don't feel like you can get there with what's on the slate and that would be our preference.

David Heikkinen - Tudor Pickering & Co.

Okay.

Gary D. Packer - Vice President Rocky Mountains

There is always the opportunity if… I think there is sufficient incentive out there to build another refinery if that's what it comes to.

David Heikkinen - Tudor Pickering & Co.

Okay. Thanks for all the answers.

Operator

And moving on, we will take our next question from Joe Allman from JPMorgan.

Joseph Allman - JPMorgan

Good morning, everybody. Could you give us the estimated size in terms of reserves of the three offshore discoveries you announced?

David A. Trice - Chairman, President and Chief Executive Officer

The two in the Gulf were pre-drilled by the 10 million barrel discoveries and they are probably in that range, probably toward the lower end of that range. But it's early to tell. I mean we just have early results. We're sidetracking one of those discoveries up dip now, we'll know more about it in the couple of weeks in terms of size. But they are not company movers, but they are just nice commercial projects that lay good production in 2009 and 2010. In China, we mentioned our estimate on the one structure that we've drilled along this structural ridge is about 10 million barrels.

Joseph Allman - JPMorgan

And just to clarify in terms of the rates you are expecting, could you go over those again, is it 30 to 40 million a day each, or is that--?

David A. Trice - Chairman, President and Chief Executive Officer

That's each for the two Gulf of Mexico discoveries and we are a long way from knowing exactly what we're going to do in China yet. That was probably be a development with horizontal wells and wells in nearby areas produce pretty high rates, but we're way early on that one.

Joseph Allman - JPMorgan

Got you. And back to the Woodford for a second. In terms of costs as you move further along in the development of the Woodford, what are you expecting in terms of sustainable drilling complete cost per well for both the extended lateral and for the standard wells?

David A. Trice - Chairman, President and Chief Executive Officer

Well, we have made big progress and I can give you some Woodford fun facts. I mean drilling from pads has saved about $350,000 of the drilling cost alone. They experienced a learning curve factor that we've talked about which I think you'll continue to see improvement on. If you look at our results today, the second well on the section, on the drilling cost per lateral put it down 16% over the first well and then the third well is down 25% over the first well. So I think you'll see learning curve benefits continue. On the pad side that $350,000 is probably what we'll do. But I think you'll continue to see improvements as you're in the development phase. I should have videotaped the presentation our drilling group made in Tulsa when we were up there a couple weeks ago, like they were trying all kinds of things. There is portions of the field that they have identified. They are going to eliminate a casing string. Obviously that saves lot of money. In areas where they can't, they are currently using drilling with casing methods and we are going to continue these refinements, that's going to continue push cost down as we move into development section. Same thing on the completion side. So completions are down a $0.5 million. Part of that is because pressure pumping services are down. But a significant portion of it is refinement and optimization of the completions and I think you will continue to see improvement on that. So we are happy that with the movement we've had but we certainly expect to see continued improvement in our cost structure and I know that's what our drilling and completions team expects to deliver for us.

Joseph Allman - JPMorgan

Got you. And could you comment on what you are seeing in other areas in terms of what's the current trend for drilling and completion costs?

David A. Trice - Chairman, President and Chief Executive Officer

I would say that the only thing that where we haven't seen some decrease this year would be in deepwater, where obviously costs continued to go up as opposed to go down. I would say we are seeing costs stabilized at this point with exception of steel but we feel good about the cost guidance we've given for this year at this point.

Joseph Allman - JPMorgan

Okay. So previously you were seeing costs softening that now you are seeing costs stabilized?

David A. Trice - Chairman, President and Chief Executive Officer

Yeah, I think that's right. And I think, so we are focused on efficiency and I know Gary Packer on Monument Butte continues to take… it's hard to take days out of your drilling curve when you are drilling wells in 5.5 days. But I know you originally did a couple under four plus day range. So it's a focus on efficiency, but we are also looking for every penny that we can pick up along the way.

Joseph Allman - JPMorgan

Got you. And lastly, on the Gulf of Mexico lease sale, could you… sounds like you got 14 deepwater and I am assuming five are shallow water. Could you give some of the highlights of what you picked up there?

David A. Trice - Chairman, President and Chief Executive Officer

Yeah, I'll tell you in the deepwater, our number one prospect, it was (inaudible) in the Western Green Canyon area. It's a very large subsalt four way feature that was a bed with woodside, that was a $42 million bed. We have 42.5% interest in that woodside Stone and our partners. That was our number one prospect and we are pleased to capture it. There were a number of other significant amplitude size prospects in Auger Mini-Basin and we picked up I think three prospects there that we like a lot. There are amplitude supported, things that we could drill pretty quickly because you've got infrastructure that you can tie back into. But basically throughout the area that we are evolved in from this Miss Canyon, Green Canyon and the Garden Banks, we were able to pick up most of the top prospects that we had in deepwater. The importance of it as you well know, the last two sales were the big turns and if you didn't buy leases in the two sales, it's going to be tough to establish a deepwater inventory. Well, we have done that and we are very happy with it. On the shelf we bought five prospects, I think they are really interesting prospects. I don't have them at the tip of my tongue right now. They probably range in size from 15 Bcf to 25 Bcf. They range from deep shelf prospects to amplitude supported prospects and the nice thing about those wells is you can drill them for $10 million instead of a $100 million, but we like the portfolio that we put together and really proud of what our shelf team has been able to come up with in terms of continuing our selective investment there.

Joseph Allman - JPMorgan

Okay, very helpful. Thank you.

David A. Trice - Chairman, President and Chief Executive Officer

You bet.

Operator

(Operator Instructions) And our next question is from Brian Singer from Goldman Sachs.

Brian Singer - Goldman Sachs

Thanks. Good morning.

David A. Trice - Chairman, President and Chief Executive Officer

Hi, Brian.

Brian Singer - Goldman Sachs

David, when we look at the capital expense on the lease sale and the South Texas acquisition. What are your latest thoughts regarding the right balance for Newfield between offshore and onshore, conventional versus unconventional?

David A. Trice - Chairman, President and Chief Executive Officer

Well, we've had a lot of discussions in our management team about that and I think what we would tell you is that we like that the fact that we have a variety in our portfolio that we got the chance to hit a home run to subsalt play or deepwater play in Malaysia. We like the fact that deepwater in some of our international stuff gives us exposure to oil that most resource plays are going to be gas oriented, not all of them, but most of them. Monument Butte is a nice example, something that's a, oil resource play. But we've had lots of debates, but we are at a 13-year reserve right now. We are pretty comfortable. And I would tell you overall we like the portfolio we developed, we look out today. We've got our portfolio projects that add up to 35 trillion cubic feet unrisk and about 15 trillion cubic feet risk and we hope to continue to add to that portfolio as we move forward. But we like it the way it is.

Brian Singer - Goldman Sachs

When you look at your leverage ratio, where you are right now? Are you happy with that or would you look down the road potentially for some further acquisition activity if you are more comfortable with higher leverage rate?

David A. Trice - Chairman, President and Chief Executive Officer

Well, I mean you can argue we are under leveraged. I mean we are under 25% debt to book cap and our book cap is probably artificially low due to FAS 133. So you look at all of our credit metrics and we clearly have room to expand. So if we find right things to do, we're certainly not opposed to adding additional debt capacity because we can certainly handle it.

Brian Singer - Goldman Sachs

Okay. Thank you.

Operator

And our next question is from Gil Yang from Citi.

Gil Yang - Citigroup

Hi. Your guidance for Asia sequentially shows the decline. Yet, there is a bunch of projects ramping up. Can you comment on the source of that?

David A. Trice - Chairman, President and Chief Executive Officer

Yeah. I thought we probably covered that in our review. But we've got to shut in some facilities when we were tying in. The Puteri platform probably results in a shut in and a lot of this is related to the timing of liftings. So it has nothing to do with well performance or anything else but has to do with the mechanics of tying a new production.

Gil Yang - Citigroup

Can you give an early view on what the third quarter look like then if there is no shut ins?

David A. Trice - Chairman, President and Chief Executive Officer

We're going to ramp up to about over 40,000 barrels a day of gross production from our two Peninsular Malaysia contracts. And exactly when we get there Gil, I can't tell you that right now. But we should be starting around the end of next month production from Puteri which we expect to ramp up to 6000 to 8000 barrels a day. We should start the Chermingat platform about the same time. Chermingat should ramp up to 8000 to 10,000 barrels a day. And then we'll be continuing to drill horizontal wells of East Belumut platform and as they are added, they should come in at 800 to 1000 barrels a day each. We can't give you precise timing but certainly about the fourth quarter, we expect to be at the 40,000 barrel a day rate for Malaysia.

Gil Yang - Citigroup

Okay, great. For the Woodford, a couple of questions, hitting 200 cubic million a day would suggest that you're going to accelerate from where you are. And I guess given that you've got a bunch of wells that are completed but not yet tied in and not yet flowing, is that… that would seem reasonable I guess. Is that what's going to happen?

David A. Trice - Chairman, President and Chief Executive Officer

That's what going to happen at least and we've got six wells that are currently cleaning up from fracs, 10 to be fraced and we are moving a 12th rig into the field. So, we certainly expect to hit that 250 million a day number before the end of the year.

Gil Yang - Citigroup

Okay. The six wells are not part of the 20 that are in the type curve?

David A. Trice - Chairman, President and Chief Executive Officer

No.

Gil Yang - Citigroup

Okay. The last question I have got then is that, you said that several of the last wells have IP'd at over 7 million or so. Yet, when I compare your first quarter type curve that you just put out and the fourth quarter type curve, I can't tell that there has been 7 million wells in there unless they are offset by a whole bunch of --?

David A. Trice - Chairman, President and Chief Executive Officer

Well, they are probably not in there yet, Gil, because those wells just came online within the last two weeks.

Gil Yang - Citigroup

Well, but I would… that curve seems to indicate the almost daily data and I don't see a spike at the first part. Is that… I mean you got daily data in there looks like and it's hard to see a spike in the early part of the curve?

David A. Trice - Chairman, President and Chief Executive Officer

We've had a number of wells that have IP'd well north of 10 million a day. But when you prepare those curves, you would adjust that noise out, so you don't get a strange looking type curve chart. I would tell you the most important part of that chart is looking at day 100, day 150 and looking at the longer-term patterns of what that tells you. That's a 4.5 Bcf type curve and we are performing well above it.

Gil Yang - Citigroup

Okay. So you have actually filtered this data, is what you are saying?

David A. Trice - Chairman, President and Chief Executive Officer

We made it what we think is more accurate along the type curve.

Gil Yang - Citigroup

Okay.

David A. Trice - Chairman, President and Chief Executive Officer

IP'd rates don't mean a lot in isolation.

Gil Yang - Citigroup

All right. Steve, I will call you later and talk about that. Thanks.

David A. Trice - Chairman, President and Chief Executive Officer

Yeah.

Operator

And we will go next to Irene Haas from Canaccord Adams.

Irene Haas - Canaccord Adams

Hi, guys. Question really regarding Gulf of Mexico. It sounds like you guys have got your acres in your back pocket. You got a rig ready to go. My question is sort of what is your mix versus your lower risk near infrastructure type prospect versus the bigger targets high dollar type wells, like for example, if you are going to drill 4 to 5 wells per year, how many would be in the high dollar category?

David A. Trice - Chairman, President and Chief Executive Officer

Well, our inventory is probably about 50/50 Irene and I think as we move forward, it's a question of managing capital and managing risk in on our subsalt plays. Our expectation is that we probably would have no more than a 20% to 25% interest in those wells. We need partners and our amplitude related plays were prepared to take much higher percentage, particularly the ones that we can get online relatively promptly because they are near infrastructure. But, our focus is to drill really our top prospects first. So we don't have a five-year plan laid out. I think it will be a question of which prospects mature, number of the subsalt plays really need to be refined by data. We are acquiring some of the (inaudible) data now. It's really helpful and maturing those prospects. So it's a question of when the prospects ready to drill and when your partnerships are organized, but we are very comfortable that we will in that three to five wells per year, probably Newfield operating two or three and then two or three non-operated.

Irene Haas - Canaccord Adams

Thank you.

David A. Trice - Chairman, President and Chief Executive Officer

You bet.

Operator

(Operator Instructions) Our next question comes from Shannon Nome from Deutsche Bank.

Shannon Nome - Deutsche Bank

Hi. Just a quick one on the Mancos. Trying to get sense for your net acreage exposure there and it looks the numbers in your release… in your add up in effects are net. So, is it accurate just to add the two and assume you've got about 82,000 net acres of exposure to the Mancos Shale or is that over simplify?

David A. Trice - Chairman, President and Chief Executive Officer

I think that's right. Is that right, Gary?

Gary D. Packer - Vice President Rocky Mountains

Yes, that would be accurate.

Shannon Nome - Deutsche Bank

Thank you

Operator

Our next question is from Rehan Rashid [ph] from FBR Capital Markets.

Rehan Rashid - FBR Capital Markets

Good morning, David

David A. Trice - Chairman, President and Chief Executive Officer

Rehan, I heard you called lot of things but that's a new one.

Rehan Rashid - FBR Capital Markets

Well, on the Woodford, we had talked about initially condemning 25% of the acreage and that's gone kind of the rough, that's what the resource potential range was based on. Any further indications on whether the 25% is still the right number or there has been some kind of progress on that thought?

David A. Trice - Chairman, President and Chief Executive Officer

I would say within the core area, we think that's a very high number and that number is going to be though moving towards zero. We think all the core area works. Not all of our acreage is within the core area, but most of it is. So, I think the 25% number we would tell you is high. Whether it should be 10% or 15%, I really can't comment on that today.

Rehan Rashid - FBR Capital Markets

So, what proportion would you consider to be core?

David A. Trice - Chairman, President and Chief Executive Officer

Core is probably. George will you help me ask 80%.

George T. Dunn - Vice President Mid-Continent

Yeah, 75, 70 to 80. And other thing is we need the other 3Ds to really firm that up. That's probably the critical thing. The 3Ds will get to the rest of the year.

Rehan Rashid - FBR Capital Markets

Got you. And one more quick question on Woodford. Any incremental kind of sings work, I think I had remembered you guys talking about maybe a dual lateral at some point this year. Is that still on track?

David A. Trice - Chairman, President and Chief Executive Officer

George, do you want to comment on that?

George T. Dunn - Vice President Mid-Continent

Yeah, we will start that well probably mid-to-late July so it will be results like fourth quarter or the start of results anyway.

Rehan Rashid - FBR Capital Markets

Got it. And what the rough cost for that dual lateral?

George T. Dunn - Vice President Mid-Continent

We don't have final numbers in. But it will probably be in 10 millionish range.

Rehan Rashid - FBR Capital Markets

Okay. Will it be extended or standard rich?

George T. Dunn - Vice President Mid-Continent

That will be extended.

Rehan Rashid - FBR Capital Markets

Perfect. Okay. And on Mancos Shale, just some thoughts on well design how much are you going to frac it, some thoughts along those lines?

David A. Trice - Chairman, President and Chief Executive Officer

Gary, why don't you comment on that and also comment on some of the technology enhancements or advances we expect to see from the RTA deal?

Gary D. Packer - Vice President Rocky Mountains

Great. Well, I guess first of all, I'd remind you that all the acreage that we're going to be drilling in the Mancos area is in fact HPP or certainly a majority of it is. I think we got to be careful also referring to this just as a Mancos play. Remember Mancos is just the deepest objective in a formation, that's in a series of sand formation from the Wasatch, Mesa Verde, and Blackhawk, which we've already drilled a number of wells and that are successful. So this is just something that enhances the economics of the play. And we're not viewing it as something that is strictly standalone.

As far as the well cost or the designs, we are targeting the middle Mancos section which allows us to significantly reduce the well costs in these wells. We're just starting out right now. We're drilling our first well within the RTA deal. And we expect to drill in that program a minimum of two to three wells this year. David's referenced to the technology, that was one of the things that we are really excited about. As you know, Halliburton is one of the partners within the RTA group. And the thoughts of being able to work with them and having access to the R&D within their organization was exciting to us and they've got some really unique and creative ideas regarding stimulation techniques that would significantly improve results relative to maybe some others. So, anyway we are excited about it and we got to have some results on this program later this year as well.

Rehan Rashid - FBR Capital Markets

Got it. And are the fracs going to be somewhat similar to what we hear about in other Shale plays and maybe how many stages, something like that. Is that relevant at this point?

Gary D. Packer - Vice President Rocky Mountains

Well, it's premature, but it's certainly relevant. I think the anticipation would be that we would have more individual stages of probably less volume but accessing more age [ph].

Rehan Rashid - FBR Capital Markets

Okay, thank you.

Operator

And we have a follow-up question from David Kistler from Simmons & Company.

David Kistler - Simmons & Company

Hi, guys. I can certainly take this offline, but you mentioned one thing with respect to drilling technique in the Woodford that I want to ask about. You talked about drilling with casing. Specifically, can you give me a little color as to why you think that works there, what are the benefits of it? Or if you want to take it offline, I am happy to do that.

David A. Trice - Chairman, President and Chief Executive Officer

George, why don't you just hit that real quick?

George T. Dunn - Vice President Mid-Continent

Well, it's dominantly where we are utilizing that as where there is shallower zones in the vertical section that causes loss circulation problems and by drilling with casing, you can avoid the loss circulation problems. Theoretically, it creates a smear across the zones that take your fluid as you drill through with the casing, because it's essentially so close to the wall, it rubs in the mud and the cuttings and stops loss circulation and then the penetration rate today have been very good relative to drilling with casing and so you are saving time of flat spots when you get into troubles of loss circulations so that cuts your cost.

David Kistler - Simmons & Company

Okay. So essentially whether it is shallow or depleted zones, you've initially started by drilling with casing and then move into something different?

George T. Dunn - Vice President Mid-Continent

Correct. You drill down the casing to that casing point and if you just go ahead and cement it in, you get it to its casing point, you cement it in and then move on a normal fashion.

David Kistler - Simmons & Company

Great. Well, thank you for that additional color. I appreciate it, guys.

George T. Dunn - Vice President Mid-Continent

You bet.

Operator

(Operator Instructions) And we have another follow-up from Shannon Nome from Deutsche Bank.

Shannon Nome - Deutsche Bank

Hi, just one more to clean up on the Mancos area. Is there anything in terms of topography or what are sort of the challenges of operating in that region?

David A. Trice - Chairman, President and Chief Executive Officer

The area that we would be developing and exploring for the Mancos is pretty the benign topographically. Remember, this lies right underneath our Monument Butte Field, where we already got in excess of 1500 wells, an infrastructure of pipelines across the entire area. So while there is always issues in very limited areas, it's pretty flat and no real challenges presented.

Shannon Nome - Deutsche Bank

Thanks.

Gary D. Packer - Vice President Rocky Mountains

Shannon, I was going to just tell come out and see it if that's the best way.

Shannon Nome - Deutsche Bank

Sounds like a plan.

Operator

And there are no further questions at this time. Speakers, I'll turn conference back over to you.

David A. Trice - Chairman, President and Chief Executive Officer

Thanks very much, operator. And thank you all for you questions this morning. I think in the future we'll try to keep up our remarks brief and try to make this more of Q&A call. Thanks for you interest in Newfield and if we didn't answer your question on the call this morning, feel free to give any of us a call and we'll be happy to do so. Have a great day. Thanks.

Operator

And that does conclude our conference call today. Thank you all for you participation.

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