Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Julie S. Ryland - VP, IR

James T. McManus, II - Chairman and CEO

Charles W. Porter - Jr.VP, CFO and Treasurer

Analysts

Carl Kirst - BMO Capital Markets

John Freeman - Raymond James

Faisel Khan - Citigroup

Rebecca Followill - Tudor Pickering & Co. SEC

Holly Stewart - Howard Weil Inc.

Energen Corp. (EGN) Q2 FY08 Earnings Call July 24, 2008 10:30 AM ET

Operator

Good morning. My name is Jasper and I'll be your conference Operator today. At this time, I would like to welcome everyone to the Energen Quarterly 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].

I would now like to turn the call over to Ms. Julie Ryland. Ma'am, you may begin.

Julie S. Ryland - Vice President, Investor Relations

Thank you Jas, and good morning. Welcome to all of you joining us by phone and by internet. Today's conference call is being held in conjunction with Energen Corporation announcement yesterday of results of operations for the three months and year-to-date, ended June 30th, 2008.

Our prepared remarks will include statements expressing expectations of future plans, objectives and performance that constitute forward-looking statements, made pursuant to the Safe Harbor Provision of the Private Security Litigation Reform Act of 1995. Except as otherwise disclosed, the company's forward-looking statements do not reflect the impact of possible or pending acquisitions, divestitures or restructuring.

All statements based on future expectations, rather than on historical facts, are forward-looking statements, that are dependant on certain events, risks and uncertainties that maybe outside the company's control and could cause actual results to differ materially from those anticipated. A discussion of risks and uncertainties that could affect future results of Energen and its subsidiaries is included in the company's periodic reports filed with the Securities and Exchange Commission.

At this time, I would like to turn the call over to Energen Chairman and Chief Executive Officer, James McManus. James?

James T. McManus, II - Chairman and Chief Executive Officer

Thanks, Julie and good morning to everyone joining us today. Let's begin by talking about 2008. Energen Resources continues to drive our growth in 2008. Our aggregate realized sales price increased approximately 9% in the first six months year-over- year. And our production is up 1.6 Bcf equivalents, primarily in the San Juan basin, where we are benefiting from new drilling, and continued development of our proven coal properties.

While both timing and usage issues negatively affected Alagasco's earnings in the quarter and year-to-date, the timing issue shifts settle out by the end of the rate year. Accordingly, we still expect utility to earn a very respectable 12.6% return on equity for the calendar year.

For Energen, with half the year under our belt, we believe we are progressing toward another record earnings year in 2008. With that in mind, yesterday, we reaffirmed our earnings guidance for 2008, of $4.30 to $4.70 per diluted share.

Key assumptions in 2008 earnings guidance are, a hedge position that covers 75% of our estimated production for the remainder of the year, the same prices for unhedged natural gas, oil and NGL production of $10 per Mcf, $100 per barrel, and $1.30 per gallon respectively, production of 101 Bcf, capital spending of approximately 430 million, including approximately 360 million by Energen Resources and 70 million by Alagasco.

The additional capital at Energen Resources largely reflects additional drilling in the San Juan basin and North Louisiana and East Texas area, leasehold acquisitions and generally rising costs. An average DD&A rate at Energen resources of $1.27 per Mcf, LOE including production taxes of 2.45 per Mcf, G&A expense of $0.55 per Mcf, and Alagasco earning an estimated, as I mentioned earlier 12.6% on average equity of approximately 311 million. Average share outstanding of 72.1 million.

Yesterday we also affirmed our earnings guidance for 2009. That's a range of $5.15 to $5.55 per diluted share. Please bear in mind that we will begin working soon on a formal budget for 2009. Given that quickly and dramatically market conditions are changing right now, our capital budget could increase due to rising cost. Energen's earnings guidance does not include potential benefits from property acquisitions, Alabama shale's exploration or stock purchases.

Nor does the guidance make any assumptions related to potential impairment of capitalized unproved leasehold related to Alabama shale, currently that amount is approximately 40 million. For additional details on our guidance, I'll refer to our news release of yesterday.

At this time to I am going ask to Chuck to step in and review our quarter and year-to-date results and then I will return with a stash report on our Shell program and then open up the call for questions, Chuck

Charles W. Porter - Jr.Vice President, Chief Financial Officer and Treasurer

Thank you, James, In the second quarter 2008 we earned $66.9 million or $0.93 per diluted share, that was down slightly from $66.9 million of $0.94 per diluted share in the same period a year ago. Energen Resources net income in the current year, second quarter total $70.6 million and that compared with $66.9 million in the same period last year. That's a 5.5% increase and largely reflects a higher average realized sales prices for the company's natural gas, oil and natural gas liquids production as well as production growth of about 4%.

Now negatively influencing Energen Resources net income or increased LOE, DD&A exploration expense and G&A expense. Also our effective tax rate is higher due to reduced tax benefit under section 199. There is break out of our average realized sales prices by commodity and production by commodity and region that is available of course in yesterday's news release. I would point out that production was up, some 0.9 Bcf equivalent in the San Juan basin in the second quarter, year-over-year largely due to new drilling as we continue to develop our proven coal properties.

Energen Resources second quarter per unit LOE increased 15% from the same period, a year ago to $2.53 per Mcf equivalent. That increase is really driven by 54% rise in per unit production taxes resulting from increased commodity prices. DD&A stats per unit in the second quarter 2008 increased 15% over the same period last year to a $1.25 per Mcf equivalent, largely due to higher development costs.

Exploration expense in the current year second quarter increased $2.8 million over the same period a year ago, primarily due to mechanical difficulties encountered while dealing an exploratory hole on the San Juan basin. We had no dry hole calls in the prior period.

In second quarter net G&A expense in '08 rose $2.5 million over the same period in '07 and that's largely due to increased net salaries and benefits expense. And this primarily is the result of accruing [ph] adequately for our anticipated obligations under our performance based plans, along with general inflationary increases.

Energen's natural gas utility Alagasco had a net loss of $3.1 million in the second quarter of '08, as compared with net income of $1.4 million in the same period a year ago. This $4.5 million deficit year-over-year, largely reflects timing differences of approximately $2.4 million associated with rate recovery under the utilities rate setting mechanism, and we also had a decline in customer usage and other items, which would approximate $2 million.

For the six months ended June 30th, 2008. Energen's net income total of $183.6 million or $2.85 per diluted share. This is up from $171.8 million or $2.38 per diluted share, in the first half of 2007. Energen Resources net income for the year-to-date 2008, totaled $143.1 million and compared with $130.1 million in the same period last year. This 10% increase, largely reflects higher average realized sales prices, a 3% rise in production, and a one time gain from the sale of some Permian basin properties in the first quarter.

Partial offsets included higher LOE and DD&A, as well as higher effective tax rate due to our reduced tax benefits under section 199. Again, price and production breakdowns are included in our news release. Per unit LOE in the current year-to-date period increased 19% over the same period a year ago, to $2.48 for Mcf equivalent. This increase largely was due to a 45% increase in per unit production taxes, resulting from higher commodity prices, but in addition, we also had experienced some increases in compression, work overs, some weather related road maintenance, along with some environmental compliance.

DDNA expense per unit in the year-to-date 2008 increased 13% over the same period last year, to $1.23 per Mcf, also driven by higher development costs. Alagasco's year-to-date net income in 2008 was $40.6 million or a $1.1 million decline year-over-year. While the utility is earning on a higher level of equity, and is benefiting from lower O&M expenses of approximately $1.4 million after tax, these factors were more than offset by reduced customer usage and other items of approximately $2.9 million after tax.

Now that's basically a round up of Energen's financial status for the second quarter and year-to-date and with that I will kick you back to James.

James T. McManus, II - Chairman and Chief Executive Officer

Thank you, Chuck. Before we take your questions, I want to update you on status of our activity in pursuit of natural gas from Alabama shales. Energen Resources in Chesapeake now have a lease position in Alabama of approximately 654,000 acres. Our share is one half of that, or 327,000 acres. We drilled our first two test wells in Bibb County, Alabama to a total depth of between 10,005 and 12,500 feet. Bibb County is located generally southwest of Birmingham. Our third test well is nearing projected total depth of some 9,500 feet is located in Greene County, which is west and south of Bibb.

Our target shale formations are the Conasauga and Chattanooga. We are learning a lot about formations and concepts that we are looking in Alabama right now. As we mentioned in the press release, we encountered gas in each well drilled and we are working on designing what type of completion techniques that we will put on these wells to see whether this play can be turned into a commercial venture. The fact that we encountered gas is positive; you can't have a play unless you have gas in the well. So, we think that is a good thing, it doesn't mean we're home free but we do have something to work with, in each one of these wells that we've drilled.

At this point, I would like to turn the call back over to the moderator to see what type of questions that you may have.

Question And Answer

Operator

[Operator Instructions]. And your first question comes from the line of Carl Kirst with BMO Capital.

Carl Kirst - BMO Capital Markets

Hey, Good morning everybody.

Charles W. Porter - Jr.Vice President, Chief Financial Officer and Treasurer

Morning, Carl.

James T. McManus, II - Chairman and Chief Executive Officer

Good morning.

Carl Kirst - BMO Capital Markets

James, let me start kind of at the end. I know you guys can't say lot much more then what you have said in the press release, but you might be able to just clarify this for me. In the three wells where you found gas are you seeing both formations at Conasauga and Chattanooga or is each well targeting a specific zone.

James T. McManus, II - Chairman and Chief Executive Officer

Good question Carl, I don't mind answering that question. Each one is targeting a different zone. The location of both the Conasuaga and Chattanooga shale are unique from acreage perspective they are not present in the same level. That's helps

Carl Kirst - BMO Capital Markets

Okay. Thank you very much, [indiscernible] And just with respect to the Chattanooga, I mean is it something where I guess the hope is that what you will see, what you hope to see as going to be I guess something similar that is seen in Tennessee with the Chattanooga wells or can you even mention that?

James T. McManus, II - Chairman and Chief Executive Officer

Well, all I can say is the Chattanooga's present in Tennessee, we've not really... I can't really comment on that because I don't know what kind of results have been seen up there in Tennessee. As you know, Chattanooga is a Devonian shale and really going pass that, I can't make too many comments.

Carl Kirst - BMO Capital Markets

Fair enough. Just a couple of other questions like who'd really more on the cost side of the equation. Starting perhaps with the severance taxes, I guess that's what's linked to the section 199 benefit that looked like there was kind of a spike in the percentage of severance tax. I am trying to figure out what specifically was the issue there, and is that ... is that ongoing, are we going to be basically seeing now a higher level of unit production taxes going forward?

James T. McManus, II - Chairman and Chief Executive Officer

That's an excellent question. Chuck has got the explanation for that, so what I'd like to do is kick to Chuck.

Charles W. Porter - Jr.Vice President, Chief Financial Officer and Treasurer

Yeah, Carl, you make a distinction of the severance tax issue and the section 199 issue, they're two different issues.

Carl Kirst - BMO Capital Markets

Okay.

Charles W. Porter - Jr.Vice President, Chief Financial Officer and Treasurer

The severance tax is we pay severance taxes based on the unhedged commodity prices of whatever gas and oil as we pay that, then we pay the taxes on that basis, and they probably average about 7% of our revenue. It would be a pretty good guesstimate. The 199 relates to the RS [ph], that's a manufacture's tax credit, and what we did there is we tried to maximize that tax credit in 2007, and because that... at the time, it was thought that, that was going to go away, and so we capitalized our RDC and we did some other tax planning items to try to maximize the credit because again we thought it was going to go away with the newly enacted democratic congress, and since then, it does not look like it's going to go away, unless they were eliminated it for your major integrated oil companies. So we now think that we will continue to be able to get that year-after-year, and because of that, we're now experiencing our RDCs, and we also have the 50% bonus depreciation that was inactive this year, so although we have reduced Section 199, tax credits, where you actually have substantially more cash flow related to our deferred tax add as we're able to take those deductions.

Carl Kirst - BMO Capital Markets

Okay, but Chuck, just to be clear about that, 199, I mean that... that...that's coming back from the differed tax aspect there,

Charles W. Porter - Jr.Vice President, Chief Financial Officer and Treasurer

Yes.

Carl Kirst - BMO Capital Markets

Not the... okay, I appreciate that, and then... and then just last question, if I could. James, you mentioned the 30 million increase in the CapEx budget, really due to three factors that drilling leasehold and kind of the generally rising costs, is it possible you can spilt up with how those three buckets comprise not only because you sort intimated that '09 we could be seeing some uplift as kind of cost continue to just creep up here.

James T. McManus, II - Chairman and Chief Executive Officer

Yes, Carl we don't... it's hard to get total resolution on that. To give you an approximate number we think about, let's call it between $8 million to $8.5 million approximately. That is going to be increase cost or cost overruns that we had drilling wells. We are seeing a lot of increases as you guys know this sector bounces around and we are in position now where based on commodity prices, rig competition has got hot again and there are some pretty good increases that we are starting to there... double digit type increases

Carl Kirst - BMO Capital Markets

Okay thank you very much for the color, good luck guys.

James T. McManus, II - Chairman and Chief Executive Officer

Thank you, Carl.

Operator

[Operator Instructions]. Your next question comes from the line of John Freeman with Raymond James.

John Freeman - Raymond James

Good morning.

James T. McManus, II - Chairman and Chief Executive Officer

Hey John.

John Freeman - Raymond James

Hi, just a joined [ph] out a more on the LOV per unit number. My understanding at least from the first quarter when your LOV came in around 244 and you'd expected that to trend down because of lot of... you had a lot of front-end loaded expenses on the compression side, that are not going to be there the rest of the year. It sounds like there was still some more compression type expenses and I guess is there anything you can elaborate on in terms of what's driving the per unit LOV up in addition to compression. I know you mentioned a few other work over type issues and then like what we were expecting the rest of the year, those are going to continue, is it not front-end loaded maybe?

James T. McManus, II - Chairman and Chief Executive Officer

Yes. John, let me put that to Chuck, he's got some color on that.

Charles W. Porter - Jr.Vice President, Chief Financial Officer and Treasurer

Hey John. The... you are correct, the compression that we had in the first quarter was somewhat front-end loaded. So our explanation where we referred to be compression related to the year-to-date number. The quarter number actually if you were to strip out the production taxes, I think we average about $1.66 versus $1.62 in the prior rear or so it was only up 2.5%. So we were actually very pleased with the quarterly results for LOE. And of course Julie has given you our estimate for the end of the year, we are not really seeing any major run ups. I can't place my hand on what that number is immediately but, we are not really anticipating any big increases there, John did that help you.

John Freeman - Raymond James

Yes it does, Thank you. And then on the Alagasco, we've now had few quarters I think its three quarters in a row, kind of, the declining customer usage, I know you all in the past, you said that kind of nationwide trend in seeing current declining usage per customer can you just kind of talk little bit more big picture that trend continues... is that just surely just as natural gas prices are high

James T. McManus, II - Chairman and Chief Executive Officer

Yeah, John, few things, high natural gas prices clearly have resulted In some conservation, some decrease usages but in addition to that we've been hit at Alagasco in the large commercial market as well. This downturn in the economy, down turn in building, in particular. Several of the large customers are using less gas that what they have used in the past. One of the things I'm gone flip it Chuck to explain here is we do have reserve that we are going to be using in the fourth quarter of this year. It's a great reserve that's set up for just this kind of event and that's the reason that why we are going to be back at 12.6, that we believe at the end of the year. So let me do this Chuck, I let me flip it to you and you can explain how it's going to work.

Charles W. Porter - Jr.Vice President, Chief Financial Officer and Treasurer

Thank you Jamie, I'll build on that, just a little bit. Of course with the utility they got a formula based great setting mechanism where we're allowed to target our rate of return and each budget year on a regular basis we make assumptions on O&M expenses, including the timing, usage that would include cycle usage along with LC&I usage, but we think... how we think that usage will be spread through out the year so on and so forth. So those are items that have generated the timing related issues, but you look at the usage we think that on a calendar year basis, our cycle sales are probably down in the range of 2% to 3%. If you look at maybe the whole right here year-to-date which would include the early part of last years winter, we are probably down about 4% on the LC&I side, we are off there, it's off significantly from the prior year and compared to our budget I think it was off, the spend was off about 7% for the quarter.

And so what James was referring to as we have something we would call the enhanced stability reserve that was set up for things such as base [ph] usage, bankruptcies, storms those type of thinks and we anticipate tapping into that in the fourth quarter of the rate year the calendar year [indiscernible], probably on the pre tax basis somewhere between $3 million and $4 million and so that would give us the opportunity to earn that $39 million for the calendar year, which is 12.6% return on equity which we are very pleased with and wide of the economic conditions that they were facing.

And then the further good news is, under our regulatory format that we have we will when we go into the next year with the rate year beginning October 1, we will have an opportunity to re-assess those usages, both on the cycle side and else if not and call for increased rates if that what is required, to earn an allowed rate of return.

John Freeman - Raymond James

Okay. That's very helpful. And then last question I have in and then I'll turn to somebody else. Obviously you don't talk much about your North Louisiana/East Texas acreage. But activities and ramp it up recently I understand it's gone out of your control. It's non op, but, I'd be remiss if I didn't at least ask at least on the map, kind of were that acreage is located, and if there is any thoughts whether any of that [indiscernible] perspective?

James T. McManus, II - Chairman and Chief Executive Officer

John, great question. This acreage is in the battery down [ph] area, which I think one of characteristic is by repairs for. I would like relay the rest. It is not on in the heart of Haynesville trend according to the maps that I have seen is actually east of what is been talked about as a hardened trend. As you know, sometimes these things will movie your way when they expand, so we're looking to see what kind of deep rights we may have right there, but we don't know yet if there's Haynesville under that.

Again, it's not in the heart of the trend. The production is up this year, actually on the operated side. We do have an area that we do operate, there. You're right. Most of it is non-op, but we've increased our activity levels there, and our partners have shown increased activity there. So I don't want to hesitate to say what kind of anchorage position we've got there. I need to get that number before I say it.

John Freeman - Raymond James

Great, thanks guys.

James T. McManus, II - Chairman and Chief Executive Officer

Thank you, John.

Charles W. Porter - Jr.Vice President, Chief Financial Officer and Treasurer

Thank you, John.

Operator

And your next question comes from the line of Faisel Khan with Citigroup.

James T. McManus, II - Chairman and Chief Executive Officer

Hey, Faisel

Faisel Khan - Citigroup

How you're doing?

James T. McManus, II - Chairman and Chief Executive Officer

Good.

Faisel Khan - Citigroup

All right. Just a couple of follow-up questions on the Alabama shales The completion cost... or the expected completion cost, and the total completion for the three... the three wells you that you're drilling or have drilled. What was the... what were those costs?

James T. McManus, II - Chairman and Chief Executive Officer

Yeah, Faisel, we're not disclosing the cost at this point, because we're not... we're not done with any of those wells. So we're really not talking about it at this point.

Faisel Khan - Citigroup

Okay. And can... can you remind... can you remind us what the net acreage increase was versus from the first quarter appears as if --

James T. McManus, II - Chairman and Chief Executive Officer

Yeah... yeah, I can. We were at about 315,000 acres net, so we're up about 12 to us, 24 for the partnership.

Faisel Khan - Citigroup

Okay, got you. And... and was thethe Chattanooga was that sort of the shale that was undisclosed before, but now is disclosed, or --

James T. McManus, II - Chairman and Chief Executive Officer

It... it was. Good question. Now that was the one that we were talking about as a... as a stealth shale, and we got an enough acreage position in that, and there's enough talk about that, so we're just going to go back and disclose it, which is what we did this time.

Faisel Khan - Citigroup

Okay. And then in terms of the road markers between now and year end or for the shale in terms of... in terms of exploration, how many wells you've planned to further drill?

James T. McManus, II - Chairman and Chief Executive Officer

Right now Faisel, we just got three, we're going to work to complete these three, see what kind of results we get from those three. Hopefully, we'll have something to announce on those three wells later in the year, but without knowing all the variations of what those results could be, it's hard to say exactly when we'll disclose that. But right now, we just have the three on the table.

Faisel Khan - Citigroup

And is that-- will that be enough to determine whether you are going to drill further or you need further wells next year to kind of figure out whether this is going to be a commercial play or not?

James T. McManus, II - Chairman and Chief Executive Officer

Well, I'd imagine we don't need more than three wells to know but we're going to have some indications from these three as to what your level of encouragement is to drill more.

Faisel Khan - Citigroup

Okay. Got you. Can you comment on the... your natural gas liquids production down, quarter-over-quarter and what's driving that new... if you could also comment on Permian, for that seems to be a little bit decline also.

James T. McManus, II - Chairman and Chief Executive Officer

Yes. The basic drop is a shift from to culminate the introduction from conventional production, that seems to have more liquids in it. We also have plans... that was down for a while, in the shale along on the year-to-date number. It's back up now, and that resulted in a little bit less liquids production but, the real shift there is we are producing more dry gas from coal bed methane then we did heavy liquid gas, and standalones and more towards coal.

Faisel Khan - Citigroup

The increased oil production, year-over-year I think it is more coming from standardization.

James T. McManus, II - Chairman and Chief Executive Officer

No. the increased of our productions, hopefully all, Permian basin. If you remember, we've posted lower productions in the stand alone and sour gas.

Faisel Khan - Citigroup

Okay.

James T. McManus, II - Chairman and Chief Executive Officer

So that's Permian

Faisel Khan - Citigroup

Even though we've got... even though overall production is down in the Permian oil production, the Permian is actually up.

James T. McManus, II - Chairman and Chief Executive Officer

Sorry Faisel, can you repeat that question.

Faisel Khan - Citigroup

Yes, year-over-year, Permian basin production on a Bcf, your Permian basin is down 1%, but oil production up 6%. So that tells me the natural gas production on the Permian bases is down, oil production is up right?

James T. McManus, II - Chairman and Chief Executive Officer

Yes, that is true, I mean, keep in mind on the ore side we are given a lot of water play and so you sometimes have some miniature response if you complete those as a injective, but you also have kind of a delay as you have to flood the reservoir before the production comes down but the gas that you are referring to relates to a particular field that we had a gas cap blow down on we were dealing with for a number of years and it continues to declines fairly significantly.

Faisel Khan - Citigroup

Okay, understood. Thanks, guys.

James T. McManus, II - Chairman and Chief Executive Officer

Thank you.

Operator

And your next question comes from the line of Rebecca Followill with Tudor Pickering.

Rebecca Followill - Tudor Pickering & Co. SEC

Good morning

James T. McManus, II - Chairman and Chief Executive Officer

Good morning, Rebecca.

Rebecca Followill - Tudor Pickering & Co. SEC

You guys are in a difficult situation in that... your data is being posted on Alabama oil and gas, yet you didn't really want to and I understand not wanting to talk about wells but what's [indiscernible] on one the wells is posting a two feet section and then coming back at the hole and parking another two feet section swabbing and authorizing [ph] is this a function of just wanting to try some different completion techniques, or can you give us any color on that.

James T. McManus, II - Chairman and Chief Executive Officer

Yeah I'm gone give little color on that, it is quite common that when you... before you complete, as you go take section of the well that you think is actually setting you, you don't mind messing with your experiments to see what the right type completion technique might be for the rock properties. And that's exactly what we are doing there. So that is little test mini practice. That's got nothing to do with the actual target we'll be going after when we actually do the completion.

Rebecca Followill - Tudor Pickering & Co. SEC

Perfect. Thank you so much guys.

James T. McManus, II - Chairman and Chief Executive Officer

Okay.

Operator

and we have a follow-up question coming from the line of Carl Kirst with BMO Capital.

Carl Kirst - BMO Capital Markets

I think most of my questions here were asked and answered, but just one quick one. I am curious... some of the conservation usage at Alagasco over the summer, I mean this is winter dominated industry here. When were shut offs running sort of winter... at the end of winter versus last year?

Charles W. Porter - Jr.Vice President, Chief Financial Officer and Treasurer

I think our customers count is down about 3,000.

Carl Kirst - BMO Capital Markets

Okay.

James T. McManus, II - Chairman and Chief Executive Officer

Carl, let me comment as well. Some of this happens in the winter dated conservation. There has been some erosion in the fore market as well that we've seen in the summer. So, it's not just a conservation phenomenon. We had some conversion to electric from gas, no questions about it.

Carl Kirst - BMO Capital Markets

Okay, thank you.

Operator

[Operator Instructions] Your next question comes from the line of Holly Stewart with Howard Weil.

Holly Stewart - Howard Weil Inc.

Hey guys, good morning.

James T. McManus, II - Chairman and Chief Executive Officer

Good morning, Holly.

Charles W. Porter - Jr.Vice President, Chief Financial Officer and Treasurer

Good morning, Holly.

Holly Stewart - Howard Weil Inc.

Hey, can you guys just talk little about the increase in exploration expense during the quarter and then give us an idea of how may we should be thinking about it, going forward with continued drilling in the shale.

James T. McManus, II - Chairman and Chief Executive Officer

That expense is actually related to a spot well we drilled in the San Juan basin and it's just... we didn't have exploratory drive hole in a big way last year and we drill that one this quarter and we had it and... what was it, 2.9 million roughly

Charles W. Porter - Jr.Vice President, Chief Financial Officer and Treasurer

289

James T. McManus, II - Chairman and Chief Executive Officer

So that's the timing deal again, our exploratory expense we got budgeted for this year at some around 8, 8.10 and as I pointed out we don't really have any thing built in our... that 8 to 10 is just kind of may be you will have 8 to 10 of dry holes, Holly, for the exploratory stuff we drilled, its not intended cover anything and Alabama shales [ph] or lease hold impairment, as we said we got $40 million capitalized for leasehold for Alabama shales and if we had any impairment some of that can cover that, we don't have any other dry holes but it wasn't intended to try to cover that. And of course if we wind up being successful that would be very little of that experience.

Charles W. Porter - Jr.Vice President, Chief Financial Officer and Treasurer

Holly, you know that we continue to move out and test some our P2 and P3 concepts, so that $8 million to $15 million is there to try to cover that and the only thing that I would want point on this well is that we wrote it off due to mechanical issues with the well and not related anything to reservoir or any of the concepts that we were testing.

Holly Stewart - Howard Weil Inc.

And then can you give us an idea where are you staying in terms of that first $15 million of drilling cost under the JV.

Charles W. Porter - Jr.Vice President, Chief Financial Officer and Treasurer

The 15 million net to us, where we stand on that. I prefer not to comment on that.

Holly Stewart - Howard Weil Inc.

All right. Thank a bunch.

Operator

And there are no further questions at this time. Mr. James McManus are there any further closing remarks.

James T. McManus, II - Chairman and Chief Executive Officer

No, we appreciate your interest and your questions. If you are planning on being in Denver next month, we look forward to see you at the Intercomm [ph] Conference, where we will be presenting. Have a great day and thank you for your interest.

Operator

and this concludes today's conference call. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Energen Corp. Q2 2008 Earnings Call Transcript
This Transcript
All Transcripts