Aubrey McClendon: I''d like to emphasize that the bias would be towards keeping hedges on because I think we have to run the business with more attention to the downside than the upside. Having said that, there could be gas prices in 2009 that could guarantee recovery in 2010 that we''d need to take advantage of. That will be rig driven as well. I don''t know what this week''s rig reduction will be but of course we''re running at the rate of almost 200 rigs a month over the last couple of months and so it doesn''t take much more of that to get to a point where you can really regain some confidence about what''s going to happen in 2010 to 2011. Everybody''s looking for historical precedents to see where the rig count goes to but I would remind folks that this is the first time that I can recall in 25 years that you have not only a bad commodity price environment but you''ve got enormously restricted access to credit and those two factors together will absolutely drive the rig count down probably further than most people thought.
We started to say late last fall that we thought that the credit market might be a larger factor on driving the rig count down than even gas prices. That has certainly accelerated that. The rig count decline has accelerated in the last couple of months and it''ll continue for at least the next couple of months.
Eric Calamares (Wachovia): Where would you see the need for increased capital as we head into the rest of 2009 and specifically the first half of 2009 and under what conditions might you go back to the marketplace?
Marc Rowland: We don''t see need for any capital market activities at this point. We took advantage of a very robust recovery in the debt markets and feel like we''re very well positioned at this point and have not only no thoughts of doing anything but see no need to do anything either.
Monroe Helm (CM Energy Partners): If you went to your four big shale plays, what kind of 12month NYMEX price would cause you to think about not being able to drill in those four particular basins to meet your required return? Can you go by basin as to what kind of minimum NYMEX 12-month price you need to keep the drilling going and without concerning the hedges?
Aubrey McClendon: Yes, we really look at numbers in those bases without hedges, but we certainly look at them with carries for the context of your question. In a play like the Fayetteville where we will spend no money this year and BP will pay all of our expenses, obviously we''ll drill there no matter what gas prices are.
With regard to the Haynesville and Marcellus plays, again, in the Haynesville, 50% of our costs are being picked up and so we think our finding costs are going to be about 65 cents to 70 cents an Mcf this year. In the Marcellus, Statoil''s picking up 75% of our costs and we think our finding and development costs will be about 30 cents an Mcfe there. Hence you can see that there''s really not a gas price that can be imagined that''s going to affect our activity in those three shale plays.
Where it could affect our activity further is in the Barnett if we don''t do a joint venture there, don''t pick up some carries and gas prices get weaker from here. Then we''ll continue to cut in the Barnett and we''ll continue to cut in other areas of the company.
Going forward, I would just say that if you just run an average finding cost for those plays for us without carries of less than $1.50 an Mcfe and look at LOE for those areas and look at differentials, you can see that those areas will be successful at some low gas prices. However it''s what''s happening at the opposite end of the asset quality spectrum that''s going to determine gas prices in 2009 and 2010.
Monroe Helm (CM Energy Partners): Your September balance sheet had $11 billion of unevaluated properties. Do you know what that number was at the end of the year and is part of the impairment charge related to the unevaluated properties?
Aubrey McClendon: It was right at $11 billion as well on unevaluated leaseholds. Whatever we added during the fourth quarter, an equivalent amount got moved to the full cost pool. With regard to acreage that was impaired, I''m certain that we impaired all of our Alabama acreage, that we move it into the full cost pool. I think that was $100 and some odd million.
Jeff Davis (Waterstone Capital): What''s the $100 million increase in other PP&E?
Marc Rowland: The increase in other PP&E is rig compressors, computers, just the general.
Jeff Davis (Waterstone Capital): How would you characterize the M&A market today?
Aubrey McClendon: We don''t need to sell assets. We are selling some assets in the context of a potential joint venture because we would like to build additional liquidity this year. To the extent that troubled companies put assets up for sale, we''re not going to be competing with that. The international companies that we''re working with are not going to look for $100 million of bad assets from some company. They''re looking for something that Chesapeake uniquely has, which are big-time shale positions in all four of the best shale plays in America and with a management team that knows how to put together some of these joint ventures and with a JV template that works for both us and them.
Hence we can''t comment on the M&A market. We''re not engaged in it and don''t intend to be engaged in it. We''re focused on one market, a market of our making, which is the international joint venture market.
Marc Rowland: Our midstream, for example, while we haven''t put anything together yet, is not oil and gas price dependent. Actually, it has improved as steel prices and other costs have come down. We''re investing fewer dollars per foot of pipe in the ground and it''s all volumetrically determined based on a fixed-fee arrangement. That asset particularly probably has gotten better, not worse, in this price environment. Several of our joint ventures won''t peak in production until 10 or 15 years out and so I don''t think price decks on a long term have really changed from the investor''s perspective.
Biju Perincheril (Jefferies & Co.): In East Texas, can you give some additional color on your plans for the rest of the year in terms of the number wells you''ve planned?
Aubrey McClendon: We''re planning on keeping two rigs running in East Texas to evaluate our Haynesville position there.
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