Question-and-Answer Session
Operator
(Operator instructions) Our first question will come from the line of Gil Yang with Citigroup.
Gil Yang – Citigroup
Thank you. Good morning or good afternoon to you in Denver. I think you said that your budget was based on 5% cost savings since I guess year end I would assume. Is that right?
J.C. Ridens
Yes, that's based on 2008 average well cost, Gil.
Gil Yang – Citigroup
Average well cost.
J.C. Ridens
Yes.
Gil Yang – Citigroup
What would happen if costs come down sort of to the 20% level that I think you mentioned you sort of expect would you spend that on more drilling or pay down debt?
Dave Keyte
If you are talking about a difference in average it goes from zero to 20 versus zero to 10 like we think. You are talking about 25 million bucks so I don't have an answer for that specific amount of money, Gil. I think we get it in here and see what we do there get it in here.
J.C. Ridens
I would say debt or you would have to reallocate it to the more successful areas. One thing I will say is if you do see a 20% reduction for that matter a 10, a lot of projects that fell out at four dollar and five dollar gas come back in again, you get a huge benefit in the rate of return. You get back some of the margin you probably lost in the last few years. So I want to incent those cost reductions on those wells and that's why we are continuing to drill some.
Gil Yang – Citigroup
Can you in that domain, you say you stress test your projects down to 450 and $40 oil. Can you describe what you mean by stress test, does that mean a 10% rate of return or is there something else that you're thinking of?
Dave Keyte
No, in order to make the capital budget this year, the well has to be either a commitment well or it has to achieve a 20% rate of return at those levels.
Gil Yang – Citigroup
Okay. Alright. Great. And last question is how much data do you have on Hamilton County and can you compare what you think is there versus what you saw in Red River?
J.C. Ridens
Actually that's Harrison County.
Gil Yang – Citigroup
- To read the full transcript on Seeking Alpha, click here »
