Question-and-Answer Session
Operator
(Operator Instructions) The first question comes from Jason Wangler – Dahlman Rose.
Neal Dingman – Dahlman Rose
You did touch a bit on service costs and I’m wondering what you are seeing on costs now? Obviously what you have going on now with Giddings and two of the other new plays, will you kind of keep your I guess style the same going forward as far as contracting rigs or are rigs tight enough now especially with Giddings do you have to lock that rig in for awhile and I’m just wondering what you are seeing more on the costs there.
Sterling McDonald
The service costs are definitely elastic to what is going on in the oil and gas commodity price but there is a time lag involved. Obviously we like to see service costs come down. We haven’t seen that yet. I anticipate they will as long as gas prices stay down in the $8 or $7.50 range. The type of rig we use for our re-entry program in the Giddings field is not the same rig that is in high demand, for example, up in the Hanesville play so we haven’t seen a lot of rig-on-rig competition. We are confident and actually have our first rig lined up and ready to go. We don’t anticipate entering into a long-term contract. We don’t think at this point in time it is a benefit to us or necessary and we like to retain the flexibility to try and reap maybe some future reductions in service pricing.
Neal Dingman – Dahlman Rose
I know you all are always looking at a lot of different things with your staff. The market, obviously we are in a volatile commodity market, and I’m just kind of curious what kind of plays you are looking at? Costs out there you are looking at, are they still the same as they were three months ago? Are they still looking up? Are we seeing a lot of difference if you are looking at Giddings area versus your Oklahoma area? Are you seeing a lot of variance in sort of costs of different plays? I’m just kind of curious as to the overall M&A market as you are seeing it out there?
Robert Herlin
We are really not in the M&A market. Our mode of operation is to develop projects where we can acquire acreage at a low price. We don’t get into competing with other people in Hanesville or [Barnett] or whatever paying $15,000 or $20,000 an acre. We like to get in at much, much cheaper costs. I did allude to our latest project. It is an oil based project. It represents an area where we can acquire leases at a very low price and the price of oil that we need to be successful is far, far lower than current prices. So whether or not oil is $100, $110 or $120 or $90 really does not impact the economics. So we are somewhat indifferent in terms of going forward on these projects. Obviously it does have an impact in terms of what cash flows are generated going forward that we can use to fund projects but I think like a lot of people we have projected lower oil and gas prices in terms of tackling or estimating what kind of cash flows we have to work with.
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