HK Analyst Meeting 3/12/08 – Just Notes

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From the comments section: 

Horizontal Taylor sand wells in Elm Grove field, should be another 2 completed in next two weeks. 3rd drilling, these can add big rate fast.

New Shale Play. Now talking about a deeper (10.500 to 13,000 feet) Shale Play at Elm Grove, 200 feet thick, rock work says its viable. Encana is in the area.

HK Elm Grove shale sounds like Bossier. just below the Taylor sand - Reefguy

Reef, they said it was between the Bossier and the Smackover

The only shale there is the Buckner. Start section is Bossier-Haynesville(Cotton Valley Lime)-Buckner-Smackover - Reefguy

HK should take a break soon, down to talking about the non-core w. Tx stuff. Should allow the analysts a chance to call in and get on their lunch squawk box calls. Stock has not yet moved, think First Call notes here tomorrow morning will be positive.

my Notepad Notes from 3/12/08:

HK presentation:

4.7 Tcfe total resource potential vs 1.1 T proved (4.5 in the 3 core areas

cheap on p/cf; EV/proved reserves ($/mcfe)

LOE very low 0.56 / mcfe 2007; .92 4Q

high realizations 103% of nymex

at $6.50 gas price realization, >50% cash margin (gas -loe,workover-prod tax, g&a, interest

rigs 21 operated
elm grove:8
terry: 4
western: 1
other: 1

elm grove & terryville: horizontal, downspacing + expansion, new zone exploration

Elm Grove

horizontal: davis and taylor sands

34,000 net acres, 1500 locs at 20 acre spacing
LOE of $0.30
plan 20 hz wells 08,
developing haynesville shale play
this year focused on the top of the structure in the field, right in the core
lot of low hanging fruit in terms of Hosston for the recent acquisition as the old owner had not done any recompletions to it.
adding the upper cotton valley to the recompletion program

Taylor: 30 ft zone, porosity, perm, pressure a little better than davis
Davis: 250 thick but tighter than the Taylor. (as such takes double the frac - 4 mm pounds sand)

Taylor Sand current stuff:
completing next few weeks
Roos #8
Killen #13-4

Another well Knighton #14-5, drilling, td next few weeks

Davis Sand
smaller wells, plan 5 wells first half, nothing drilling now.

Haynesville Shale:
> 200 feet thick, below El Grove at 10,000 to 13,500 feet, ECA (had 4mm/d test), CHK (2.7 mm/d), STR Camterra, JW...this is a big area looking at the logs, could be uniform over 1200 sq miles.

Elm Grove Wrap: 1.5 Tcfe estimated resource potential not currently in the numbers from a combination of the CV / Hosston recompletions and the Haynesville.

50 sq mile 3D is "amazing"
LOE is $0.15 / Mcfe here
thoughts here: horizontal exploitation, gray sand exploration, bossier exploration
900 locations on 20 acre sp on 42,000 net acres.
will have 2/3 shot on 3D by the fall, looks like they will shoot the eastern thrid next.

Lower CV - big blocky sands
Bossier - thick but laminate sands

Terryville extension (year end 2007) - western 3D ongoing - get it late 3Q/4Q
only 3 penetrations for LCV, 2 were in the 1940s, 1 in the 1980s which made half a B
big faulted structure - about to drill 2 wells here on 2D before the 3D comes in.
8000 acres

on the Bossier - average IP 5.6 mme/d only drilled 5 or 6 wells, plan 7 or 8 more 1H

Gray Sand - drilling offset to a 11.5 IP well, sand pinches out to the east, still make a nice wells in the LCV and Bossier on those as bailout.

Reserve potential: estimated resource pot of 1.0 Tcfe not in the numbers.

Fayetteville Shale

est resource pot: 2.0 Tcfe
155,000 net acres - adding daily
yields 6,600 risked locations on 60 acre spacing
cost per well $1.75 to 2.75 mm
EUR: 1 to 4 Bcfe/well
operated 90%
LOE $0.35 / Mcfe
shooting more 2D and 3D - just to id the faults and stay away from them

production goes from 10 to 50 Mmcfepd, current rate is 70mm/d gross; was at 42 mm/d
nice production ramp graph on page 35---
the hiccup in the chart was due to pipeline constraint and gathering
their acreage is in the area where existing wells IP'd at 1mm/d or more

Northern Area:
1st 2 wells, not good, learning fuction, fault problems in first, both had too small frac,
3rd well much better and so on, still getting the completion recipe right,
on their eastern most well they actually got a flare, highly faulted
at present they have 19 wells producing 27 mm/d (1.5 to 2.0 Bcfe)

Southern Area:
26 wells producing 40 mm/d (2 Bcfe/well)
very thick in the center

slide 46 is pretty good well cost
shallow in north (~1,000 feet)
moving to deeper in the south (5,500 to 8,500')
$1.7 mm cost for 1- 2 Bcfe in the north
2.7 mm cost in south for 1 - 4 (3.41 - .85 dev cots per mcfe @ 80% nri)

seeing some nice results on simulfrac - slide 48
cut costs by 45% on sub 5,000' MD wells (smaller casing, spudder rig, etc)
dropped the days from 28 to 11 from Feb 2007 to Jan 2008
deeper wells cut costs by 35%
plan is 155 wells this year with 5 rigs, 2.5 wells/month/rig

Western Region - west Tx
This is their cash cow.

hedge on 65-70% of expected '08 gas at about $7.20.
similar volumes (less as % of exp) at $7.37


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