Aubrey K. McClendon: We’ve seen the market get in oversupply almost every year for the last four or five. You get a gas price collapse the last three years that has occurred each year a month earlier than the month last. If you think about 2006, it occurred in the October contracts, if you think about last year it occurred in the September contracts, this year it occurred in the August contract and there are some reasons for that. But, if you were to get a further decline from here, you would see the rig count start to go down and our experience from 07, 06 and going back to 2001 shows you that the industry doesn’t stable or breakeven very long and whether or not that’s a month or two it just doesn’t happen and people can get very negative on gas prices in a hurry. This is an industry that always spends its cash flow, oftentimes more than its cash flow and if we don’t have the cash we can’t spend it so you’ll see 40% first year declines kick in and the market correct.
Every time we go through one of these draw downs in gas prices, the floor is higher than it was before, as it should be, because of higher coal prices and higher industry planning costs and higher oil prices. So, I would suspect those people looking for $6 and $7 gas prices out of this draw down are likely to be disappointed.
Joe Allman (JP Morgan Securities, Inc.): On the issue of natural gas demand from transportation, what do you think the likelihood of that happening in the time table? And, what are the key triggers for that to happen in your view?
Aubrey K. McClendon: In some ways it’s already happening. Close to 20% of America’s bus fleets already run on natural gas, many municipal fleets cars and trucks go to 100% natural gas by the end of this year. Kenworth and Peter Built are coming out with tractor Trailer cabs that are natural gas, those will be out by the end of this year. So, if you’re a shipper of a good across this country and for the last couple of years you’ve been hit by fuel surcharges, you’re going to be asking your trucking company why they haven’t bought natural gas engine trucks to haul your products because when they do so you’ve got diesel prices at $5 and natural gas price equivalency of about $2. I think there will be enormous pressure for the shipping sector here, for the truck fleet to move to natural gas very quickly.
The market is recognizing this. You’ve got a fuel that’s half the price of gasoline, it’s at least two thirds cleaner and it’s made in America. Everybody would want something like that. So, my goal and working with congressional leaders is to get the market moving more quickly and the reason for the urgency is I think we could wake up six months from now, a year from now, two years from now and not be grabbling with $4 gasoline prices but maybe with $6 or $8 if something blows up in the Middle East. I think there’s a real sense of national urgency here.
The Emanuel Born Bill will provide financial incentives for service station owners to install C&G pumps, for car manufacturers to make C&G cars and for consumers to buy C&G cars and also to install them in our garages. The bill calls for basically 1% per year transition from traditional fuels over to natural gas. I’d love to see that accelerate by a factor of two or three but I think at least 1% per year is certainly a reasonable possibility.
Joe Allman (JP Morgan Securities, Inc.): Would you be involved in investing in the infrastructure just to get that going faster?
Aubrey K. McClendon: I don’t think it’s necessary and it’s not the best place for us to spend money. Now, we will look at investing in L&G export facilities and we are studying that right now. We’ve got to figure out a way to get some linkage to the world market and we are dedicated to trying to find a way to achieve that linkage.
Joe Allman (JP Morgan Securities, Inc.): What’s the extent that you’re seeing in terms of rising service costs?
Marcus C. Rowland: Frac costs have turned and are headed a little bit up if for no other reason than they’ve got a little bit of transportation they’re trying to pass along and I think those are in the 0 to 5% range on a per annum basis. We mentioned Steel prices which have easily doubled. And you heard our comments earlier probably that maybe they’re at a peak right now. Drilling rig cost have been going up for the new rigs that are new builds.
Steven C. Dixon: I don’t know if overall inflation will be that high besides steel and diesel. But, we want to remind you that Chesapeake’s unit cost will be going down.
Marcus C. Rowland: It’s an ideal time to own a fleet – we have 83 operating today and we have 25 - 27 on the way. It makes our plan operationally to have the rigs available to move them around and to have them be custom made for the play types that we put them in. It’s smart but it is also just a terrific hedge against the demand in the business to put more rigs out that cost a lot more today and some people will pay a lot more for those. Plus, you can finance them basically 100% and get them paid for in three plus years or so.
Steven C. Dixon: We’ve been using sales lease backs to convey tax benefits that we have not previously been able to use so those have come at implied capital cost of anywhere from 4.5% to 5% on basically eight year financing plans.
David Snow (Energy Equities): Is there any chance your rate of equity increase will slowdown as you monetize in the sale of assets?
Aubrey K. McClendon: The whole point in doing these monetizations is to get out of the equity issuance business. The problem for us is that we had this enormous mismatch this year between the cash needs of what we had to get done in the Haynesville and how to get these asset monetizations done. In the first half of the year we had to spend or commit to spend around $4 billion for the Haynesville at the same time we were ramping up leasing in the Marcellus and the Barnett as well and then all of our asset monetizations with the exception of 1 VPP and 1 Woodford sale, basically all but $1 billion of our asset monetizations came in the second half of the year.
We just had an enormous mismatch of cash flows this year which required us to go out and kind of underpin the fundamental financial strength of the company with equity. We had to do that twice this year and that’s the right thing to do but going forward we are moving in to a timeframe where we are going to be generating cash as a result of these asset monetization programs and don’t see another shale play on the horizon that has any capital demand, anything remotely close to what we had to go through with the Haynesville this year.
Brian Singer (Goldman Sachs): It just looks like if we assume some of the well performance that you’ve seen in the Haynesville and assume you go up to 60 rigs by the end of 2010, that your guidance for cap ex and for production growth in 2009 and 2010 would both seem low. What is your perspective on that and are you shifting rigs out of other areas that would then lower the spending and rig count and cap ex in those areas?
Aubrey K. McClendon: We hope you’re right that we’ve understated production growth. But, in terms of thinking about going forward, remember that is 60 rigs by the end of 2010. I think we talked about being at 30 rigs at the end of 09 so an average rig count in 2010 of course won’t be 60, probably in the 40s. Also, those will function as 40 plus rigs in our production ramp up but in our cost half of those costs will be paid by PXP so we get quite a bit of bang for the buck there and don’t spend so much when we add an incremental rig.
Then, we are laying down some other rigs as we ramp up in Haynesville. Our overall rig count will not go up that much as we peal some rigs off from other areas in the company that are drilling on HBP units right now. And we’re losing rigs on some of these plays that we’re selling. We’re going to sell the Woodford, that’s five rigs. We may lay off other assets from time-to-time that have rigs on them today. So, a combination of some asset sales as well as moderating our drilling on HBP assets in Oklahoma and Texas will enable us to accommodate increases in rig count in the Fayetteville and in the Haynesville that will not pressure our cap ex the way maybe you would think that it might.
Jason Gammel (Macquarie Research Equities): I wanted to talk about the specifics at Haynesville. You mentioned the eight stages of frac, I’m assuming that’s going to be about a 4,000 lateral roughly. Would you be able to talk about potential completed well costs?
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