GMXR 4Q08 Pre Call Note

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GMXR Reported In Line Result; Promising Haynesville/Bossier Completions

Talk about a story that has gotten simpler. Think 25 Haynesville wells in 2009 consuming 98% of the budget and leading to a back end loaded year with 2009 growing 86% over 2008 levels.

  • The 4Q Numbers:
    • Production: 35.7 MMcfepd (a bit higher than recently reduced guidance)
    • Revenue: reported $24.1 mm vs $21 expected
    • EPS of ($0.63) vs $0.06 expected
    • CFPS of $0.63 vs $0.61 expected
  • Guidance:
    • 1Q09
      • Production: 2.8 Bcfe or 31 MMcfepd.
    • 2009
      • Production: 24 Bcfe or 65.8 MMcfepd, up 86% over 2008 levels. This down slightly from previous press release guidance of 24.7 Bcfe or 67.7 MMcfepd but will still be best in class among the small cap E&P's. They had put the 24 Bcfe number in their most recent presentation a few days ago so its probably not a big shock.
      • EBITDA of $114.1 mm vs Street Consensus EBITDA of $119 mm
  • Hedges: 41% hedged at a $7.77 gas price.
  • Operations Update:
    • Haynesville/Bossier horizontal wells to date:
      • 1st well IP of 7.8 MMcfepd with a 2,000 foot lateral (previously announced as a December completion)
      • 2nd well IP of 7.6 MMcfepd with a 3,100 foot lateral that was positioned in the A&B sub-layers of the Haynesville. These guys did a lot of work with vertical wells to understand the geology here prior to drilling these horizontals.
      • 3rd well IP of 8.7 MMcfepd with a 4,400 foot lateral positioned in the A sub-layer. You get the picture, longer laterals and better positioning = better well.
      • 4th through 7th wells still drilling, all being postioned in the A sub-layer. Results of these wells expected in April (first 3) and May for the last.
      • They plan to complete 6 wells in 1H09 (#2 through #7 outlined above),
      • and then 15 to 19 wells in 2H09 which will result in a bit of a hockey stick profile for the year with an end of year high exit rate.
  • Nutshell: Story getting pretty simple, like GDP they had growing pains as they transitioned from a Cotton Valley program to a horizontal Haynesville/Bossier program which caused them to come in a little light on the 4Q volumes and will cause a little lighter 1Q before the Haynesville wells give them proper footing. Previous guidance was a bit higher for 2009 but not markedly so and it was based on a much lower assumed Haynesville per well IP than what we are seeing in these wells.
  • Conference Call: 11 am EST

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