We are an independent exploration, development and production company that utilizes advanced exploration, drilling and completion technologies to systematically explore for, develop and produce domestic onshore oil and natural gas reserves. We focus our activities in provinces where we believe these technologies, including horizontal drilling, multi-stage isolated fracture stimulations and 3-D seismic imaging, can be used to effectively maximize our return on invested capital.
Historically, our exploration and development activities have been focused in the Onshore Gulf Coast, the Anadarko Basin and West Texas. We also regularly evaluate opportunities to expand our activities to areas that may offer attractive exploration and development potential. In response to this strategy, in late 2005 we began acquiring acreage within the Williston Basin in North Dakota and Montana and as of December 31, 2009, we have approximately 453,147 gross and 282,584 net leasehold acres in the Williston Basin. In late 2007, the majority of our drilling capital expenditures shifted from our historically active areas in the Onshore Gulf Coast, the Anadarko Basin and West Texas to the Williston Basin, where we are currently targeting the Bakken, Three Forks and Red River objectives. Through year-end 2009, we have invested in excess of $222 million on drilling, land and seismic in this region.
At December 31, 2009, our estimated proved reserves of 27.7 MMBoe had a standardized measure of $246.5 million and a pre-tax PV10% value of $254.1 million. Approximately 60% of our proved reserves are oil and we operate approximately 74% of our proved reserves. Our average daily production volumes for 2009 were 5,034 Boe, which represents a 5% decrease from those in 2008.
MMBoe is defined as one million barrels of oil equivalent determined using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
The prices used to calculate this measure were $61.18 per barrel of oil and $3.87 per MMbtu of natural gas. The prices represent the average prices per barrel of oil and per MMbtu of natural gas at the beginning of each month in the 12-month period prior to the end of the reporting period. These prices were adjusted to reflect applicable transportation and quality differentials on a well-by-well basis to arrive at realized sales prices used to estimate our reserves at this date.
The standardized measure for our proved reserves at December 31, 2009 was $246.5 million. See “Item 2. Properties — Reconciliation of Standardized Measure to Pre-tax PV10%” for a definition of pre-tax PV10% and a reconciliation of our standardized measure to our pre-tax PV10% value.
Average daily production volumes calculated based on 360 day year. Includes approximately 16,475 barrels of oil produced in the Williston Basin during 2009 and recorded as inventory at year-end 2009. Ending inventory at year end 2008 and 2007 was not material. Adjusting the production volumes for amounts included in inventory would result in average daily sales volumes in the Rocky Mountains and in total of 1,770 and 4,988 barrels of oil equivalent, respectively.
As a result of our exploration and development activities, since inception we have drilled, completed, or are completing 885 gross wells, consisting of 524 exploration and 361 development wells with an average completion rate of 76%. Over the three year period ended December 31, 2009, we drilled, completed, or were completing 154 gross wells, consisting of 19 exploratory and 135 development wells with an average completion rate of 93%. Our improved completion rate over the past three years compared to that since inception is attributable to our increased level of activity in the Williston Basin, which is an unconventional resource basin generally providing more predictable drilling results. During 2009, we drilled, completed or were completing 57 gross wells, consisting of two exploratory wells and 55 development wells with an average completion rate of 98%. Our higher level of development drilling and higher completion rate in 2009 as compared to 2007 and 2008 is also attributable to our increased level of activity in the Williston Basin.
Since inception, we have retained an average working interest of approximately 34% in our wells. Over the last three years, we have retained an average working interest of approximately 25% in our wells. In 2009, we retained an average working interest of approximately 15% in our wells. The decrease in our working interest retained during 2009 was attributable to the reduction in our operated drilling activity during the first half of 2009 (outlined below) and the increased level of non-operated activity in the Williston Basin, where we participated in a number of lower working interest wells in Mountrail County, North Dakota.
Over the three year period ended December 31, 2009, we have spent approximately $291.2 million on drilling capital expenditures and approximately $55.1 million on land and seismic. In 2009, we spent a total of approximately $58.2 million on drilling capital expenditures and approximately $1.8 million on land and seismic. Our 2009 spending on drilling, land and seismic represents a 65% decrease from that in 2008, as we curtailed our operated drilling and completion activity in the first half of 2009. The decline in operated activity was triggered by the financial crisis and recession, which depressed commodity prices, and high drilling and completion costs, the reduction of which typically lags commodity price decreases as operators must phase in drilling activity reductions. For 2010, we anticipate spending approximately $183.7 million on drilling capital expenditures and approximately $15.6 million on land and seismic. The increase in our 2010 capital expenditure budget as compared to that for 2009 is a result of the improvement in crude oil prices and the reduction in drilling and completion costs, both of which have led to improved rates of return for our Williston Basin drilling program. Our increased level of activity is also attributable to our improved liquidity position, as a result of our May and October 2009 equity offerings, and our improved Williston Basin drilling results, which reflect our recent innovation in how we drill and complete horizontal wells. Our activity in 2010 will largely be focused in the Williston Basin where we are targeting the Bakken and Three Forks formations, which are primarily unconventional oil resource plays.
Our business strategy is to create value for our stockholders by growing reserves, production volumes and cash flow utilizing advanced exploration, drilling and completion technologies to systematically explore for, develop and produce domestic onshore oil and natural gas reserves. Key elements of our business strategy include: Focus on Provinces. We plan to concentrate the majority of our near term capital expenditures in the Williston Basin, where we believe our approximately 282,584 net acres and the application of advanced drilling and completion techniques provide us with a significant competitive advantage in developing both the Bakken and Three Forks formations. In addition to the Williston Basin, we have a multi-year inventory of drilling prospects in the following three provinces: Onshore Gulf Coast, Anadarko Basin and West Texas. Our projects in these provinces provide us with important future drilling investment diversification.
Leverage our Engineering and Operational Expertise. Our staff is proficient with state-of-the-art drilling and completion technologies, including directional drilling, horizontal drilling and multi-stage isolated fracture stimulations. Our drilling and completion techniques in the Williston Basin have rapidly evolved from drilling and completing long lateral wells with single large uncontrolled fracture stimulations in late 2006 to drilling long lateral wells with 20 isolated fracture stimulation stages in the fourth quarter 2008 and first quarter 2009. Most recently, we have completed long lateral wells with up to 32 isolated fracture stimulation stages. We will continue to refine our drilling and completion techniques in order to attempt to enhance well performance and the associated estimated ultimate recoveries and rates of return.
Capitalize on Internally Generated Exploration Successes Through Disciplined Development Activities. From 1990 to 1999, we grew our reserves and production volumes primarily through successful exploration drilling. In recent years, our exploratory drilling success has generated a multi-year inventory of development drilling locations. We have a 19 year track record of successfully generating and drilling exploration wells in new oil and natural gas plays. We are particularly interested in those plays with attractive exploration and development potential that complement our current exploration, development and production activities. After identifying such a play, we will often selectively build an acreage position in the play. Our current inventory of drilling locations in the Williston Basin, Vicksburg and Hunton plays are examples of successful projects where our position in the play was internally identified and originated.
Enhance Returns Through Operational Control. We typically leverage our technical and operational expertise by seeking to maintain operational control of our exploration and drilling activities. As operator, we retain more control over the timing, selection and process of drilling prospects, which enhances our ability to maximize our return on invested capital. Since we generate most of our own projects, we generally have the ability to retain operational control over all phases of our exploration and development activities.
Exploration and Development Staff
Our experienced exploration staff includes 11 geologists, six geophysicists, two computer applications specialists and five geological technicians. Our geologists and geophysicists have varied, but complementary backgrounds. Their diversity of experience in a wide-range of geological and geophysical settings, combined with various technical specializations (from hardware and systems to software and seismic data processing), provides us with valuable technical, intellectual resources. Our geologists and geophysicists have an average of more than 19 years of experience in the industry. We have assembled our team of geologists and geophysicists with backgrounds that complement the areas where we focus our exploration and development activities. By integrating both geologic and geophysical expertise within our project teams, we believe we possess a competitive advantage in our exploration approach.
Our land department staff includes four landmen with an average of more than 22 years of experience, primarily within our core provinces, and four lease and division order analysts. Our land department contributed to pioneering many of the innovations that have facilitated exploration using large 3-D seismic projects.
Operations and Operations Staff
In an effort to retain better control of our project timing, drilling, operational costs and production volumes, we attempt to operate as many of the wells we drill as possible. We operated 26% of the gross wells and 83% of the net wells that we drilled during 2009, as compared with 10% of the gross wells and 17% of the net wells we drilled during 1996. In 2010, we anticipate we will operate an increased number of wells as we currently have four operated rigs running in the Williston Basin and, subject to commodity price risk, service costs and other factors, anticipate retaining those rigs throughout the year. As a result of our increased operational control, wells operated by us constituted 74% of our proved reserves at year-end 2009, as compared to only 5% at year-end 1996.
Our operations staff includes seven engineers who have an average of 15 years of experience in drilling, reservoir, operations or environmental engineering primarily within our four core operating provinces. These engineers work closely with our geologists and geophysicists and are integrally involved in all phases of the exploration and development process, including preparation of pre- and post-drill reserve estimates, well design, production management and analysis of full cycle risked drilling economics. We conduct field operations for our operated oil and natural gas properties through a combination of our field and third party contract personnel. We recently opened a field office in Mountrail County, North Dakota in order to more effectively oversee our Williston Basin activities, which we expect to account for the majority of our capital expenditure budget for 2010.
Oil and Natural Gas Market and Major Customers
In an effort to improve price realizations from the sale of our oil and natural gas, we manage our commodities marketing activities in-house, which enables us to market and sell our oil and natural gas to a broader universe of potential purchasers. Due to the availability of other markets and pipeline connections, we do not believe that the loss of any single oil or natural gas customer would have a material adverse effect on our results of operations or cash flows.
We sell our oil and condensate at the lease to a variety of purchasers at prevailing market prices under short-term contracts that normally provide for us to receive a market based price, which incorporates regional differentials that include but are not limited to transportation costs and adjustments for product quality.
Our natural gas production is sold to various purchasers including intrastate pipeline purchasers, operators of processing plants, and marketing companies under both monthly spot market contracts and multi-year arrangements. The vast majority of our natural gas sales are based on related natural gas index pricing. In some cases, our gas is processed at a plant and we receive a percentage of the value the plant operator receives from the resale of the natural gas liquids recovered and the remaining residue gas.
Since most of our oil and natural gas production is sold under price sensitive or spot market contracts, the revenues generated by our operations are highly dependent upon the prices of and demand for oil and natural gas. The price we receive for our oil and natural gas production depends upon numerous factors beyond our control, including but not limited to seasonality, weather, competition, the condition of the United States economy, foreign imports, political conditions in other oil-producing and natural gas-producing countries, the actions of the Organization of Petroleum Exporting Countries, and domestic government regulation, legislation and policies. See “Item 1A. Risk Factors — Oil and natural gas prices are volatile and thus could be subject to further reduction, which would adversely affect our results and the price of our common stock.” Furthermore, a decrease in the price of oil and natural gas could have an adverse effect on the carrying value of our proved reserves and on our revenues, profitability and cash flow. See “Item 1A. Risk Factors — Lower oil and natural gas prices may cause us to record ceiling limitation writedowns, which would reduce our stockholders’ equity.”
Although we are not currently experiencing any significant involuntary curtailment of our oil or natural gas production, market, economic and regulatory factors may in the future materially affect our ability to sell our oil or natural gas production. The marketability of our oil and natural gas production depends on services and facilities that we typically do not own or control. The failure or inaccessibility of any such services or facilities could affect market based prices or result in a curtailment of production and revenues.”