Question-and-Answer Session
Operator
(Operator Instructions) Our first question comes from Joseph Allman - J.P. Morgan.
Joseph Allman - J.P. Morgan
I think this one’s for you C.W. On that impairment the price is on September 30 I guess you cited 712 and just over $100. Those prices aren’t a whole lot different than where the prices were at year end ’07. What’s the big difference that caused the impairment? Is it the realized prices at the wellhead or could you talk some more about that?
Charles W. MacLeod
I think it’s a combination of the realized prices at the wellhead and then the revisions that you saw or will see as we move forward and the capital costs going into the wells that we had.
Joseph Allman - J.P. Morgan
One issue is the wellhead prices and then the capital costs. Are the capital costs greater than what you had estimated with year-end ’07 reserve report?
John O. Tugwell
As you know the costs have continued to go up through the course of the year. I would hope that we could maybe adjust some of those back down as commodity prices have fallen and the cost structure out there maybe comes back into equilibrium with where prices are right now. But that is part of it. The costs have gone up dramatically since the end of last year.
Joseph Allman - J.P. Morgan
Besides the 87% of it that was that factor, were there some performance related issues anywhere in particular on top of that?
John O. Tugwell
I don’t think anywhere in particular. There were a few kind of spread out amongst different areas just in some of the base decline rates on a few wells out there. Nothing really concentrated in one area.
Charles W. MacLeod
I think that what you’ll see is as we down space in the Flores/Bloomberg some of those revisions associated with that but we’ve got infield drilling that we were able to do and will recapture those reserves with new wells on the infield drilling schedule.
Joseph Allman - J.P. Morgan
Given where we are with costs right now and given pricing, what would you say in your portfolio are the more marginal properties that you had been working on this year but maybe just really aren’t looking too good economically at this point?
John O. Tugwell
I would say that Flores/Bloomberg is still a very strong project from an economic standpoint. We have a very good rate of return there on the wells we’ve drilled. There may be a few of the wells at Chapman Ranch that as prices come down get a little more marginal based just on what we have proven, but we’ve also got some upside to what we have as a proven volume there. That’s probably about it as far as what’s in the proven areas right now. Of course in the non-proven areas as prices come down the shale gas plays get very marginal at today’s prices and lower. But we really don’t have anything significant in the proven category there.
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