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Executives

Ken Kenworthy, Jr. - Chairmen, President, & Chief Executive Officer

James Merrill - Chief Financial Officers, Secretary and Treasurer, CPA

Michael Rohleder - Vice President Corporate Development & Investor Relations

Richard Hart Jr. - Vice President, Operations, P.E.

Gary Jackson - Vice President, Land

Analysts

David Heikkinen - Tudor Pickering.

Mark Lear - Sidoti & Company.

Steve Berman - Pritchard Capital Partners

Chris Pikul - Morgan Keegan

Biju Perincheril - Jefferies Capital.

Jeff Neal - Deutsche Bank

GMX Resources Inc. (GMXR) Q1 2008 Earnings Call May 7, 2008 11:00 AM ET

Operator

Good morning ladies and gentlemen and welcome to the GMX Resources Inc. first quarter 2008 earnings release and operational update conference call. All lines are currently in a listen-only mode but following a short presentation we will open the phone lines up for a question and answer session. I would like to remind you all that this call is being recorded.

Joining me today for this call are Ken Kenworthy Jr., President, Chairmen and Chief Executive Officer; Jim Merrill, CFO; Rick Hart, Vice President of Operations; Gary Jackson, Vice President of Land and Michael Rohleder, Vice President of Corporate Development and Investor Relations.

I will now turn the call over to Michael Rohleder, Vice President of Corporate Development and Investor Relations.

Michael Rohleder

Thanks Rayon, if you have access to the Internet please visit the Company’s website at www.gmxresources.com. We will be referring to slides in the latest company presentation, which can be found under the Investor Relations tab on the website. You will be able to view and print the presentation to follow along during this call. We appreciate, as always the participation both via telephone and on the web of our shareholders throughout North America, Europe and the rest of the world including brokers, analyst in friends.

Before we begin I want to remind everyone that the conference call will contain forward-looking statements including our expectations of future results. The actual results may differ materially from those projected in these forward-looking statements. Additional information concerning factors that could cause the results to differ materially, from those forward-looking statements are contained in our press release dated May 6th, 2008, announcing our earnings, as well as from disclosures in our public reports on Form’s 10-K, Q and 8-K filed with the SEC, and available on the SEC EDGAR website, as well as those on our website.

Now I would like to introduce our Chairman, President and Chief Executive Officer Mr. Ken Kenworthy Jr. for opening remarks and an update.

Ken Kenworthy Jr.

Thanks Mike and thanks to all of you who have joined us this morning, for this first quarter ’08 earnings call.

I am happy to report that we had achieved records in many performances metric this quarter. We surpassed all of our forecasted goals and continued to deliver promise of building shareholder value and I think I’m going to call the people that work for us in the field in Marshall Texas and in the City of Marshall Texas our Zombie machine and they are powered by natural gas. So, they’ve really done well for us this quarter by helping us achieve all of these metrics and be able to accelerate and continue to lead and be best of class and cost, and best in class in growth in a lot of these metrics.

For those of you that are looking at the website, I am going to refer to the power point under Investor Relations tab and I’ll tell you what page I am on, I’m on page three. This is simply a map that shows you where the majority of the acreages for this company, it’s inside that circle in Harrison and Panola County, in East Texas and you can see that there is a lot of oil production and gas production across this map, which represents North West Louisiana and East Texas and we are located right on this, Sabine Uplift inside that circle.

We have 34,000 gross and 21,000 net acres, which we will grow this year and there is Cotton Valley development, the primary driver in this area and there is also horizontal shale development to the east of us that you can see by the starts that we have indicated there. Mike would you like to talk to them about page four.

Michael Rohleder

Thanks Ken. Our overarching strategy is to build shareholder value primarily through the development of our existing asset base, as well as a future focus on some significant upside opportunities. Each [FASID] of our reserve base has its own unique set of opportunities and values and I will take just a few minutes to navigate across this slide.

We have 435B booked in our 1P reserves, 70% of which is based on 40 acre spacing and 30% on 20 acre spacing. We have 100% drilling success across a total of 335 wells. Our strategy is simply to accelerate the drilling of this productive asset base. We have developed only 36% of the 1P reserves and have the opportunity with current staff and an increase in rig count to focus on acceleration and development.

Our objective for 2008 is to achieve a mid 40% development target. We also enjoy the lowest F&D cost in the industry. We have invested over $60 million in infrastructure that continues to pay dividend in the form of lower cost and we expect to be able to leverage that as we accelerate our drilling plans. Our 2P reserves are now a total of 690B comprised of two thirds, 20 acre spacing and one third 40 acre spacing. We have drilled over fifty 20 acre-spaced wells and expect that number to reach over 60 in 2008. Each of these 20 acre-spaced wells now show IP and EUR’s consistent with our 1P wells.

We believe the market should, and we will ultimately value these as we successfully drill additional 20 acre-spaced wells. Lastly, our 3P totaling 850B represents some of the most exciting opportunities the company is available to it. We along with Penn Virginia drilled 19 vertical test wells into the Haynesville/Bossier Shale in early 2006, and made several important discoveries.

First the 19 wells delineated our entire property basis having a significant shale opportunity. Secondly, each well initially produced between 1 million and 2 million cubic feet of gas verifying that there is a tremendous gas-in-place opportunity in this layer of our entire acreage and finally, we determined that this was a horizontal drilling opportunity, which required more investment in time and technology.

Events related to the Haynesville/Bossier Shale in the last months or so, have only serve to substantiate our results from 2006. Our 2008 and 2009 plans include more analysis and ultimately horizontal drilling into the shale. Additionally, the company is identified on the order of 50 million barrels of oil-in-place available to us in the shallower more conventional zones across our property base, 13 million barrels have already been recovered and we’re gearing up our engineering efforts to exploit this opportunity in 2008 and 2009.

Finally part of our strategy is to continue to add acreage both undeveloped and production. We added 25% to our net operated acreage last year and expect to add at least 50% more this year. Part of our strategic initiative is the fix in our own minds, what we think our stock value should be. The calculations at the bottom of the chart are simple way of looking at our value.

The current A&D market is closing deals in a range of $2.50 to $2.70 per Mcfe of proved reserves. If we risk that down to $2 per Mcfe and apply to our own current 1P reserves, it will place a market value of approximately $56 per share on GMX Resources. Our 2P consisting of 40 and 20 acres spacing given our 100% success rate, especially in our 51, 20 acre-spaced wells, could easily be valued at $1 per Mcfe resulting an additional $42 per share.

Finally, if we were to give some market value to our 3P opportunities, we could conceivably receive an additional $25 per share and while this is our own theoretical model, it is routed in the values currently being given in A&D deals.

Ken Kenworthy Jr.

Thanks Mike. If you turn to page five, I’ll start at the bottom, in the middle of the page. 36% of our reserves are Proved Developed, that’s up from 30% last year, and that’s going to move into the mid 40 range of this year, over half of our values is Proved Developed and this is based on a much lower natural gas price, that what we are receiving today, but the second order of value for this company which is not yet been valued in the stock is our 20 acres successes. We are 100% successful, 51 wells so far this year have proved to be as good as a 40 acres.

So, we have already exceed the number of wells this year, that we thought we would drill on 20 acre developments and we’ll probably continue to beat that significantly by the end of the year, because this is simply just May and I don’t know when the market decides but this 20 acre development is going to get developed by GMX and others in area. Then on top of that we have 800B’s which represents about a 12% recovery of the 6.6 Tcf of gas-in-place for the Haynesville Shale on our 21,000 acres and that is net to this company.

I fully expect that recovery factor to go up and I fully expect us to drill more than 120 acre-spaced wells in the development. It is the tighter reservoir rock than the sand that we are developing. So we are going to drill at least as many as the dense that we are drilling on the Cotton Valley Sands. Of course we’ve just come out with new guidance for our annual production, its 12.9B’s on this page and then we’ve had 16 quarters of production growth for the company and we’ve increased our guidance for the second quarter to 3B’s.

On page six, see there is a first or second question that we generally, take on the road is, where are you in the Haynesville Gas Shale play? And as Mike mentioned, we are right in the center of this map, we have 6.6 Tcf. We’ve drilled 19 vertical wells in 2006, in the first half with our joint development partner Penn Virginia. Each one of those wells had almost exactly the same rock characteristics and I have a cross-section on the website and if you were to look that cross-section it would show you nine of our wells, and it would show you the Encana well on the right and it would show you the Chesapeake wells just to the left of the Encana well.

I’ve highlighted the Haynesville section, with Blue on this cross-section. Encana well, the [JW Adcock] had 150 feet at the poor section in the Haynesville Shale, its 41 miles to the South and East of the Chesapeake well. The development of the in Caddo County that Chesapeake has ongoing, I have Chesapeake wells SRLP 29 number one on this cross-section its shows 200 feet of Haynesville Gas Shale porosity, and that is where they put their lateral and there are three laterals were 3500 to 4000 feet in length.

The depth of this shale for the Encana well, at the bottom of it is 12,600 feet in the Chesapeake well, it’s a 11,500 feet and in our wells it’s a 11,300 feet and I’d show you nine wells which are 19 miles from the Chesapeake development, across the Louisiana Boarder in the very next County, Harrison and Panola Counties.

We drilled north to south and east to west and I took the nine that drilled the deepest and these wells also show you that we have the Haynesville Shale porosity. It occurs at 11,300 feet. The thickness of our porosity is 350 feet thick and then we went just to the west of us with a well called Bethany and similar depths, similar porosities and we are in the midst of a regional study ongoing in this area and I would say from early studies it does look like the strategic changes within this section and it does appear that we do have the thickest section of porosity in the shale portion of the Bossier/Haynesville Shale.

If you turn to page seven, the company has been lining out of the Cotton Valley Sands, we have 2.3 Tcf gas-in-place. We are not only adding acreage, I think we will add more gas-in-place once we’ve finished our core study on the Cotton Valley and of course you can see the Haynesville Shale on the page as well.

On pages eight and nine, Howard Weil’s recent conference. They rated the metrics of all those companies that went to their conference. Again this company was best in class from an operational standpoint. We are the lowest cost producer. We are second best over five year’s best in ’07. We spent nearly a 100% of every dollar on organic growth.

We are number one on our five year average, number one this year and then on reserve replacement, year end reserves again we are best on a five year average and in 2007 we’re number one, and then our full cycle economics were number two on a five year average. So, this company continues to set high standards. You can see some of the comparisons on page 10 and 11. They do not have the first quarter numbers, in those calculations because everybody hasn’t reported.

Jim, would you like to talk about our financial strategy in the first quarter.

James Merrill

Sure, I’ll briefly run through our financial strategy and our first quarter results. On page 12, the way we have build shareholder values, as we previously mentioned is to grow production and cash flow and from this production and cash flow growth we have planned to use additional cash flow from these new realized, higher realized prices to accelerate the drilling of our property base.

We’ve planned to maintain a prudent leverage with targeted long-term debt capitalization ratio of 50% or less. Currently, we are at a 45% ratio. When you exclude the unrealized losses on our hedges in our equity our debt to capitalization ratio is 44% and we continue to engage in hedging of our reserves.

We have recently added in May, in this month a two cost with colors for natural gas and oil which are disclosed on page 25 of the PowerPoint. These new hedges help to protect the cash flow for our accelerated drilling program and we are also are using our owned rigs and operated rigs to develop our property base and we are focusing on monetizing our resource base and to add additional built on acquisitions, which we can utilize our resources and expertise.

On page 13 just to correlate, briefly run through our first quarter '08 financial results. Our oil and gas production was 2.7 Bcfe for the quarter, up 60% from first quarter of '07 and up 7% from the fourth quarter of '07. We had record oil and gas sales at 27.2 million up 106% from the first quarter of '07 and up 28% from the fourth quarter of '07.

General and administrative expenses for the quarter were $0.90 per Mcfe, which were down 10% from the first quarter and down 13% from the fourth quarter of '07 and going forward we see our G&A being in a range between $0.90 and $1 for the year, might see some season seasonality and some expenses in G&A. Our record non-GAAP discretionary cash flow of $17.9 million that's up 92% from the first quarter of '07 and up 33% from the fourth quarter of '07.

Diluted earnings per share, was $0.40 for this quarter up 90% from the first of '07 and up from $0.28 in the fourth quarter of '07 which is a 43% increase and other items on our financials that we are mentioning DD&A for the quarter was $2.35 per Mcfe, $2.01 was related to our oil and gas properties, which would be the amortization of our forecast pool and $0.34 was for the depreciation on machinery equipment and our gathering and compression system.

Our lease operating expenses for the quarter was $1.18 per Mcfe and here we are estimating our LOE range for the rest year $1.45 to $1.60, which will include estimated costs of processing, which really gets in the full swing here in the second quarter of '08, an estimated cost approximately about $0.30 per Mcfe. However, we are expect to see $1.30 Mcfe upgrade in our average Mcfe price. So, this is a little bit of a jump in LOE, but conceivably offset in the increase in revenue that we should see. So that’s kind of just a brief highlight of the first quarter of '08 results.

On page 14, these are some of the new and increase guidance that we should putout. We’ve putout our oil and gas revenue of $125 million, discretionary cash flow of $80 million for this year, and EBITDA for 2008 estimated of $95 million and then we’ve also recently increased our CapEx to $195 million to take in account for accelerated drilling program that we expect to commence in the second half of 2008.

Page 15, kind of give some of our financial and credit metrics not so much new here. On page 16, also kind of just gives you a recalculation of our debt to capitalization ratio, and which I’ve mentioned 45% and when you back out our unrealized losses from our derivative sales in our equity, the other comprehensive income that ratio would be about 44%.

On page 17 of the PowerPoint, had one little correction here on our sources of funds, we have $65 million there, which is our old number. The new estimated numbers $80 million of cash flow for this year, so which puts us a total sources of $205 million for this year versus that estimated capital CapEx budget of 195. So with that that’s a kind of our financial quarter, summarized and I will turn it back to Ken.

Ken Kenworthy Jr.

On page 16, we talk about the highlights of the Company. We have a large inventory of wells to drill, we’ve still drilled only about 15% of that inventory and we’re adding acreage in addition to that, so we are looking with this acceleration.

We’re looking at instead of on 11-year drilling inventory, something that’s more in the order of about 7.5 to 8 years and internal estimates from our part with gas prices that are closer to what we’re receiving today suggest that our NAV is understated by $15 based on a higher gas price in moving these inventories in year ‘08 through ‘11 into more current years. So, it's that kind of move that this Company is working on and you will probably see it in our year-end reserves at the end of this year, because of the additional rigs.

If you turn to page 20, this is one of the members of the Zombie machine. In Endeavor Pipeline, we’ve got $20 million invested in infrastructure this is part of the reason why we have predictable, repeatable natural gas production. It’s also the reason, why we give better prices. It’s also part of the reason why we are a low cost producer and continue to be best-in-class, because of our saltwater disposal and our ownership of our own compression.

On page 21, again a large element of our Zombie machine here is Diamond Blue Drilling Company, a wholly-owned subsidiary of GMXR. We’ve invested $30 million that’s our booked value in the rigs that we own. As we’ve mentioned in the press release, part of our acceleration plan, was to put top drives on these rigs, and you can see the dates when those were implemented. We also put a top drive on the unit rig and then we have another unit rig coming and they are going to put a top drive on that rig as well.

So we’ll have five rigs working this year with top drives and then of course, the other inventory you can see with Penn Virginia has and the year I think we’re looking at [Inaudible] flex rig. We are discussing it with a couple of different contractors and once we know that we’ll let you know which rig we get and what it is, but it will definitely have a top drive and it will be capable of drilling horizontal wells in the Haynesville shale and that of course, the people in the field in our Carthage, North Field office we have 150 people that work for us and they are the reason that Zombie machines are doing so well.

Our shareholder value, highlights are on page 22. I would mention that we now have over a fifty 20 acre producers, the market hasn’t given us any value for us, fully develop in this property base on the fifty, and then our 2.3 Bcf of Cotton Valley gas and place. That number should go up from and then, sometime in the future, we’ll get some value for the gas shale development.

So, that’s my presentation and coordinator, I’d like to now open it for questions.

Question-and-Answer Session

Operator

Thank you, Mr. Kenworthy. We would like to, at this time open up the phone lines for the question-and-answer session. (Operator Instructions) Our first question comes from Mr. David Heikkinen of Tudor Pickering.

David Heikkinen - Tudor Pickering

Good morning; as you had thought about volumes heading forward in your GAAP uplift because of processing. Can you talk through, what you are assuming as far as crude oil pricing now to get to the $1.30 uplift?

James Merrill

We got $0.90 David, in March and that was the information that we just received so, the MMbtu prices are rising so rapidly that the upgrade is going to probably be $0.90 or there about in the future. Gas prices go up higher that upgrades going to come down.

David Heikkinen - Tudor Pickering

And then as you think about, get down spacing and the 20 acres success you've had so far. What’s you are seeing is initial production rates and declines that match the 40 acre parents, is that the fair way of describing it given how many wells you drilled in four month or five month production history?

Richard Hart Jr.

Yes, David this is Rick Hart. We have not seen any influence between wells and the twenties are looking just like the forties to-date.

James Merrill

And we to file year’s production history on some of the wells David.

David Heikkinen - Tudor Pickering

Yes. So, over the 51 wells you're vintaging as across the field and not seeing any interference during fracing or from the production rate standpoint there, they are nice parallels between the 40 parents.

Richard Hart Jr.

Right and we didn’t anticipate and we’ve run the micro-size mix and so, it’s really no surprise, if you get the right lateral displacement that you would not see an interference issue.

David Heikkinen - Tudor Pickering

And then as I think about going back to 2006 and pulling out the notes on the Bossier Shale that’s you guys did. What change from the standpoint of what’s you’re going to complete now and where you see that potential other than offset operators that had better result?

Richard Hart Jr.

Well, it’s the time that we drill the verticals. We knew that the reservoir had abnormally high pressure and we did not know where to place the lateral or how many laterals to place in the Gas Shale, or what was going to be the optimum completion methodology and I think what we have seen through Chesapeake is that they have had a extremely good success in one or two of their wells, which suggest that were they place the lateral and the completion methodology that they used, achieved the goals that we were hoping that somebody would bring to us and that is through their know how and Gas Shale development, where to start the process of developing the Gas Shale that we have in this particular area. I think it’s pretty amazing that you have that kind of success this early in the development of this Gas Shale. Now the Gas Shale consortium that we belong to last year best-in-class was the Haynesville Shale and the EnCana well. So, the characteristics of the Shale appear to be as good as any of the other Gas Shale place that are currently in the consortium and now you've got a completion that, is well above what you would expect from a normal Gas Shale wells. So, I think there is further a core analysis across the area. I think there are further development and completion methodology and where you place these laterals.

David Heikkinen - Tudor Pickering

So, as you think about, just cautiously signed the Penn Virginia drilling, you’re planning on basically following that same path of where you’re locating your horizontal wells and that is your plan as well?

Richard Hart Jr.

I am not sure I understand your question David.

David Heikkinen - Tudor Pickering

No, you've gotten a direct offset of your lease on that’s drilling now Penn Virginia. So, as we look at what their results will be your plans would parallel with they are currently drilling as opposed to the wells the Chesapeake have drilled that our much further or less.

Richard Hart Jr.

I couldn’t make that statement. I mean we would have to see what Penn Virginia did and what the results where and then we would compare then to what Chesapeake done and we are still developing our plan, which is why we are going to, core the shale. I can’t tell you, if our plans going to be different and either one of those two companies. I would suggest its going to be most similar to what successful.

David Heikkinen - Tudor Pickering

Okay. How do you determine what successful then in the process for getting that information?

Richard Hart Jr.

Historical production would be the best thing, and …

David Heikkinen - Tudor Pickering

But actually translating it in into what you guys do. Can you walk me through the process of where you gather the information of knowing what’s successful?

Richard Hart Jr.

Well, the way we gather information in our business is the same way everybody else does. We do our own research and development then we learned from our vendors what their suggestions are and what their experiences are.

David Heikkinen - Tudor Pickering

We can talk about this outline. I’m just trying to understand, why Penn Virginia has been doing the exact thing that you are doing and why their well wouldn’t be indicative of what’s your quality would be, but we can talk about it off line.

Richard Hart Jr.

Okay. That will be fine.

Operator

Our next question comes from Mark Lear of Sidoti & Company.

Mark Lear - Sidoti & Company

Good afternoon guys. I just had a question regarding, with the recent solid performance in the stock, if your third process is changed with doing any equity?

Ken Kenworthy Jr.

Yeah, Mark this is Ken. The Company’s goal is to fund its acceleration and its acreage acquisition within our cash flow and our credit line. We paid 5% interest on that, and we are comfortable with the type of leverage that we currently have. We are hedging natural gas and oil in the future, so that we can protect that cash flow and continue that business plan. Equity for us is dear and the only way we would use equity would be if we had a meaningful accretive opportunities that exceeded our ability under our credit facility, and our cash flow and right now we are growing both of those pretty rapidly and we are doing things, we are putting together a banking group that will allow us to have stronger partners and be able to continue to grow, fairly dramatically in our credit facility.

Mark Lear - Sidoti & Company

I didn’t think that the thought process would change thought, thanks for reiterating that.

Operator

Our next question comes from Steve Berman of Pritchard Capital Partners.

Stephen Berman - Pritchard Capital Partners

Hi, good afternoon gentlemen. A follow-up to the earlier question related to Penn Virginia, I mean they have said in their release, they expect to drill two or three additional horizontal Haynesville/Bossier wells and I would think at least one of those that want to test them on the joint venture acreage. So, if you are getting ASC and your joint venture acreage I have to think it want to be apart to that. So any thoughts there

Ken Kenworthy Jr.

Well, Steve the goal for GMX is to drill successful horizontal gas shale wells. So, we have not received an ASC fee from Penn Virginia and we would like to see any tests that are done on our property base have the best plan available to achieve that goal.

Stephen Berman - Pritchard Capital Partners

Related to the second quarter 3Bcfe production guidance there was kind of a jump in your oil production in Q1 and I’m just wondering if you could give us a -- first quarter was 90% gas, if you could give us an oil gas breakdown. I guess maybe what I’m really asking is where you including the associated liquids, from these new agreements. Are you including those under gas or liquids in your guidance going forward?

Ken Kenworthy Jr.

Well, currently that that the processing the first quarter since it was, we had just a little bit, it was in our gas volumes. Going forward we are going to, as we get more information processing will make that determination where we classify that and we will disclose that weather its on our oil or gas or even in separate line item.

Stephen Berman - Pritchard Capital Partners

So, at this point you can’t say what the gas percentage of this 3B’s is going to be?

Ken Kenworthy Jr.

Well, I mean we are 94% natural gas, on our Cotton Valley development and we think we have steadily grown towards that 94%. So, most of the wells that we are adding are going to be natural gas, now we do have some oil prospects that we intent to drill sometime this year, but right now they are not in the 3B forecast.

Operator

Our next question comes from Chris Pikul of Morgan, Keegan.

Chris Pikul - Morgan, Keegan

Good morning gentlemen. I just want to get a little further clarity on the effect of 20 acre spacing. As we look forward to 2008, reserve adds are we going to see a meaningful bump as far as 20 acres goes in addition to your accelerated drill activity?

Ken Kenworthy Jr.

A meaningful bump, Chris what does that means?

Chris Pikul - Morgan, Keegan

Well from whatever you had booked in '07 versus '08 all of it being equal, are we going to see another, incremental impact from 20 acre drilling?

Ken Kenworthy Jr.

In our '08 reserves?

Chris Pikul - Morgan Keegan

Right.

Ken Kenworthy Jr.

I am not sure there is going to be a percentage change. It’s 70% 40, 30% 20 in '07 and they just have to count the offsets to see what that percentage would be, but theoretically I would think the 30 would move up and the 70 would move down overtime.

Chris Pikul - Morgan Keegan

So you are already getting a portion of the credit on the '07 you are saying?

Ken Kenworthy Jr.

Correct.

Chris Pikul - Morgan Keegan

Okay. So it's not going to be a large component of an increase in the '08 reserves?

Ken Kenworthy Jr.

No, it’s going to be part of it.

Operator

Our next question comes from the Mr. Biju Perincheril of Jefferies Capital.

Biju Perincheril - Jefferies Capital

Hi, good afternoon. The $1 million to $2 million of bill rate that you mentioned from the Bossier Shale in your 2006 campaign, can you talk a little bit about just what time period was that and what you saw as far as decline rate on that production and also was that just from the Lower Bossier Shale or if I recall I think you had three or four different horizons that you encountered?

Ken Kenworthy Jr.

Well, it's over a relatively short period of time Biju and we didn’t test beyond probably four to six months and our stabilized rates, on some of our better tests were in the maybe 200 range something like that.

Biju Perincheril - Jefferies Capital

And this was just from what you call the lower Bossier or did it also include -- I thought there were four different sections.

Ken Kenworthy Jr.

We tested all the way to the salt surface. There is probably the shale and two different line sections that we tested and we tested various intervals in those tests that were on our 100% side.

Jim Merrill

I would say the most consistent interval was the lower Shale. Not only while we drilled it in the mud log, it shows obviously on the logs, but in the completions that we did I think we attempted completion in everyone of those wells in the shale portion and those are the -- I mean they are right below 1 million Biju and I haven’t, averaged them all out, but there were a number between 1 million and 2 million a day, but we tried different frac techniques, different pressures, different pipe, different volumes, different rates, lot of different things.

Ken Kenworthy Jr.

Yes, what we are finding out is very interesting about like the Chesapeake wells that we drilled versus the various tests that we did early on in the Haynesville have very similar somewhat quasi stabilized rates, somewhere in the 200 mcf a day range and I'm not certain on that because it’s kind of third-party on the production, but we've got multi million rates out of Chesapeake Wells that are very close to verticals that tested similarly to what our test were in our area.

Operator

We have one more from Jeff Neal of Deutsche Bank.

Jeff Neal - Deutsche Bank

Good quarter. I wanted to ask a question regarding your own drilling rigs and how is that mitigating your drilling activity? Is the cost advantage that you are gaining through that direct ownership such that you would decide not to utilize outside rigs or is it such that it's adequately meeting your needs for your accelerated program?

Ken Kenworthy Jr.

Well, there is a lot of ways to answer that question. I would say that the ownership of these rigs makes us by far one of the lowest cost developers in this region, but we can blend in non-owned rigs and still be a low cost producer if not the lowest cost producer. So, from our standpoint the optimization of our rigs would be top drives and there is not much more we can do it to make it perform much better and we are completely satisfied with those rigs and we could exploit the property base with those and other rigs, but there are two or three flexes that are available out there that may also be better suited than what we currently have and in this environment our margins are very large; again we have a lot of other infrastructure. So, we would be happy to employ our third-party contract rigs to exploit this property base in conjunction with the rigs we own or fully use third-party rigs. So, the company is satisfied adding third-party rigs today that would allow us to drill multiple wells on single paths and drill directionally and drill horizontally.

Operator

At this time there are no further questions.

Ken Kenworthy Jr.

Okay, well GMX would like to thank all of you for attending our conference call and thank you for your questions and please feel free to visit our website www.gmxresources.com. If you have any additional questions please direct them to either myself, Jim Merrill or Mike Rohleder and thank you all for joining us and have a great day.

Operator

Thank you. That does conclude today's call. We appreciate your participation. You may now disconnect.

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Source: GMX Resources Inc Q1 2008 Earnings Call Transcript
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