Range Resources Corp. Q1 2009 Earnings Call Transcript
April 29, 2009 | about stocks: RRC
seekingalpha.com
First, I’ll start with the Marcellus Shale, Appalachian Basin. With first gas process plant, which is a refrigeration plant came online last October and the capacity of that plant is 30 million per day.
The second gas processing plant the cryogenic plant came online in early April, which adds 30 million per day capacity. By the end of September, an additional 20 million per day of refrigeration capacity will be added and in early 2010, a 120 million per day cryo plant will start up. In total, we anticipate having 200 million per day of processing capacity by early next year.
Range exited 2008 producing roughly 30 million cubic feet equivalent per day net from the Marcellus Shale and had three rigs drilling. Range is on track to exit 2009 with Marcellus production at 80 million to 100 million per net. We plan on accomplishing this by entering 2009 with three drilling rigs and exiting the year with a total of six drilling rigs. The fact that we believe we reach 80 million to 100 million per day net by running so few rigs, speaks to the excellent quality of the wells that we are drilling in anticipate drilling this year.
Although, it’s very early we’re working on plans for 2010. These plans are preliminary and will be a function of future gas prices, cash flow, well performance, board approval etc., but given all of the above, our early estimate is that we’ll probably exit 2010 at double our 2009 exit rate. Two of the three rigs we have drilling in the Marcellus, are a new custom designed rigs. By year end, all six rigs will be specifically designed for our applications.
Even though we just began drilling with the new rigs, these rigs are already exceeding expectations. Typical time to move one of the old rigs between wells on the same pad was two days. Now we can move it in four hours or less expect that our team will continue to make significant headwind improving performance.
We believe the Marcellus Shale has excellent economics. We currently are estimating average reserves per well to be 3 to 4 bcfe in the areas where we’re drilling and the cost to drill and complete in a development mode to be 3 million to 4 million per well.
Assuming the midpoint of both ranges in a $7 per NYMEX gas price, the rate of return is 75% and the F and D is $1.16 per mcfe. At $5 per mcf, NYMEX flat for the life of the well, the rate of return is 46%. Assuming the same reserves in cost, NYMEX could drop three and quarter per mcf and these wells would still have 20% rate of return. Our acreage position is nearly 900,000 net acres. The 900,000 net acreage equates to more than 15 to 22 Tcfe of net on risk resource potential.
Of that, 10 tcfe to 15 tcfe are located in the southwest part of the play with the remainder in the northeast. We currently have the record for the highest rate vertical well, which is in the northeast and tested for 24 hours at a rate of 6.3 million per day.
Range also holds the record for the highest rate horizontal well in the play too which is 24.5 million cubic feet equivalent per day in the southwest part of the play. The 24.5 million cubic feet equivalent per day well actually cleaned up some after we reported it and its best rate 24 hour rate to sales was 26 million per day.
For the best 30 days to sales this will average 10.8 million per day. Our next best three wells produced two sales at rates of 10.3 million, 10.1 and 9.1 cubic feet equivalent per day for their best 24 hour rates. For the best 30 days, the averaged 4.3, 7.2 and 7.6 million cube it feet per day.
The well that we announced in our press release yesterday that was testing at $10.7 million per day continues to clean up and it look likes like its peak 24 hour rate will be 13.5 million cubic feet equivalent per day at a flowing tubing pressure of 1250 pounds. In addition in yesterday’s release we drilled and completed another Marcellus well for 7.9 million cubic feet equivalent per day.
In addition to pursuing the Marcellus Shale we’re starting the Utica, Berquette, Middlesex, Genesee and Rinestreet shales. There’s good potential for all these horizons on our existing acreage in the Appalachian basin. The perspective areas of these unexploited shales targets largely occur within Range’s core Marcellus acreage positions thus allowing for stack pay opportunities and operational efficiencies in resource development.
Range owns a total of 2.7 million gross acres or 2.3 million net acres of leasehold in the Appalachian basin. Another very impactful low risk project for us in the Appalachian basin is our Nora area in Virginia. There’s significant upside to all three horizons in Nora, CBM, tight gas sands and the Huron Shale. Range continues to drill successful CMB and tight gas sand wells in this field and has over 2,150 producing wells here.
F&D costs net to Range continue to be around $1 per mcf which is among the lowest in the country. In addition, these wells produce very little water and have low lifting cost. Given its location in the Appalachian basin these wells also receive a premium to NYMEX. The combination of low F&D and low LOE results in a very good rate of return of about 60% at a $7 per mcf NYMEX gas price.
At $5 the rate of return is 33%. Given the large number of wells which can be drilled in current spacing and assuming successful down spacing there are approximately 6,000 wells left to drill. The latest development in Nora is horizontal drilling in the Huron shale. So far we’ve drilled and completed nine wells. Of these eight wells have been turned on and have initial 24 hour rates of 1.1 million per day two sales, which is very good.
The remaining two wells will be turned to sales soon. Rinestreet shales have potential of about 1.5 tcf of net gas reserves to range. The next idea we’re testing is horizontal drilling in the Berea sandstone which we believe has excellent potential on our acreage. Our first two wells were successful and came on line at rates of 1.5 million and 1.1 million per day. We’ll be drilling 18 additional horizontal wells during the remainder of the year 13 in the Heron and five in the Berea............
n the Marcellus, we are also seeing significant cost reductions both from decreasing service cost and our own efficiencies. Rig rates are down in the Marcellus, but not near to the degree in the Barnett, since the pace of drilling is actually increasing in the Marcellus versus declining in the Barnett.
Frac costs are down significantly, though. We’ve seen a 44% reduction in costs there for the same job size. We’re also seeing considerable cost savings from efficiency improvements with the new custom rigs, new bits, reengineered mud systems, slider, new directional drilling companies, turnkey moves and improved completion designs.
We’re projecting our development wells for the second quarter of this year to reach $3.5 million to drill and complete. Going forward, Range will be able to do more with less. Our efficiency will improve not only from reduced costs, but from the high graded portfolio that we now have.
Even though Range has done a great job of growing production with top of the class all in cost structure over the last five years, it will be even better going forward. Range’s growth three to five years ago came from properties like Fuhrman, Conger, Eunice, course in the Range and complementary acquisitions.
Going forward, our growth primarily will come from the Marcellus and Nora in the core area of the Barnett. These are all relatively new editions to our portfolio and they all have significantly better economics and the ability to grow producing rates significantly better than the properties that were driving our growth previously.
I mentioned the rates of return of these projects earlier and they’re all very robust, even with low commodity prices. They’re among the best rate of return and lowest F&D costs projects in the U.S. I believe that the Marcellus is the best project in the country, particularly when you couple that with the large reserve up side that it has.
The F&D costs for the all three properties ranges from about $1 to $1.50 and LOEs from all three are low. It’s also important that two of our top three projects are in the Appalachian basin with the gas prices better than anywhere else in the U.S. Approximately 90% of our budget will be spent in these three areas......
Range today has more potential upside and lower risk upside than at any time in the company’s history. With our inventory, today we have the opportunity to grow the company more than tenfold, primarily from the Marcellus Shale, Nora, and the Barnett Shale. We believe our excellent organic growth, coupled with an excellent cost structure will result in continuing to create strong shareholder returns overtime, back to you John..........
Jeff Hayden - Rodman & Renshaw
Couple of quick questions, just curious about the, your Marcellus acreage position, you guys have kind of assumed about 900,000 for awhile, yet you’ve continued to add some acreage. Just curious has there been some acreage you’ve been weighing out of the core fairway as you continue to add or are you kind of staying conservative with the 900, we should really think entire than that?
John Pinkerton
We obviously, just to step back and we own 1.4 million net acres in the outline of the Marcellus, as you’ve pointed out, we’ve kind of, quote, high graded about 900,000 of that. We continue to add acreage. There’s some of the acreage in there, especially in the areas where we haven’t high graded part of the 500,000, so to speak. That’s expiring and/or we’re letting go or we’re selling to third parties or farming out to other operators.
All that being said, not trying to decoy, the 900,000 is still around the 900,000. In terms of all that and again, I don’t think we ought to be focused on whether it’s 925 or 875 or 880, quite frankly. I think the key is that continued to drive up production along what we’re doing.
The acreage we’re buying and I want to stress this, the acreage we’re buying; as we’re not buying any trend acreage in the play. We haven’t really done that, even last year we weren’t doing that. The acreage we’re buying or leasing or farming in is in and around these good wells that Jeff mentioned.We’re filling in all those holes; we’re trying to fill in the holes. The only problem is there’s a lot of holes and they’re pretty big. So, it’s a lot of opportunity, but we’re going to be disciplined as we go through that, but the good news is, obviously, acreage price is coming down. We’re getting it a fair amount cheaper.
Jeff Ventura
Let me just add to that a little bit, when we talk about the roughly 900,000 about 550,000 was in the Southwest, 350,000 in the Northeast. We have big positions in both areas. The other thing that’s interesting at this point in time with all the activity we’ve had, which is a large number of wells coupled with excellent results from Chesapeake and CNX and Atlas and Equitable, a lot of the risk has been taken out of that piece of the acreage.
Now, that’s a lot of reserves to Range. So, I feel good so far really a lot of the wells in that area, basically they’re all good. So, that’s exciting and just in terms of what’s been both de-risked of course you’d like to see a 1000 wells there and 10,000 wells and in time I think you’ll see that, but the risk clearly is coming down and the potential of the wells looks excellent.
Jeff Hayden - Rodman & Renshaw
Just one other real quick one, on the two recent wells you guys reported, can you give us any color on lateral length, number of frac stages, etc that you use on those?
John Pinkerton
Yes, I mean, so far we’ve not given out real specifics. We have set in general; the designs are similar to what you see in the Barnett, in terms of lateral length in number of stages, but for a little while longer I think we’ll hold on to that.
We’re still trying to work and optimize that and the guys are doing an excellent job. Obviously, we’re drilling some great wells not with just great IP, but wells that hang in there 30 days, 60 days. Our oldest horizontal well has been online and really almost two years. When we plot those wells versus the Barnett wells and we’re active in the Barnett, of course active in the Marcellus, they plot very favorably. So, real excited with what we have in and where we’re at this point in time.
Operator
Your next question comes from Tom Gardner - Simmons & Company.
Tom Gardner - Simmons & Company
In the past you have characterized the infrastructure situation in Northeast Marcellus area as more challenging. Can you walk us through those challenges and the progress you are making to overcome them and perhaps the future development timing in the area as well?
John Pinkerton
Well, yes, it’s good to put it in perspective. If you think about the how Pennsylvania in particular has been drilled out, a lot of the shallow drilling has taken place in the Southwest part of the state. So, that is where the greatest amount of pipelines and gathering systems and all that kind of stuff is.
So, even though, in some respects those lines are not capable big, high pressure wells and a big development. They do provide a good by to test wells and it’s kind of a starter kit to get started. Also that the, right of ways are already defined and you can go in there and just dig another ditch and throw the pipe in there and on down the road.
Then some of the biggest pipelines in the U.S. run right through that part of the state. So, when you take all of that, that’s the reason why we said that. When you look to the Northeast, the other thing is, people are just more used to oil and gas drilling in the Southwest than they are in the Northeast.
There tends to be, a more forest lands and more state lands up there, but all that being said, we’re working on some infrastructure from the Northeast as we speak. Cabot’s done a good job of getting their wells tied in and we’re not. So, like I’ve said all along, I think one of the misconceptions about the Marcellus play is a quote.
The infrastructure is going to take longer. I tend to disagree with that. When you think about infrastructure again, some of the biggest pipelines in the U.S. run right in the middle of this and so it’s really a midstream issue, just tying in the midstream and you’ve got huge take away capacity on those big pieces of pipe that flow to the Northeast.
Much greater, multiples greater than we started out in the Barnett and when these other places started out. So, again it’s just degrees of, we’re just talking about degrees there. I think in time all of it has a good way. As Jeff mentioned, you’re in one of the best gas markets in the world. I’ve said more than once two thirds of the people in the United States live within 350 miles around the city of Pittsburgh. So, if you have natural gas, that’s where you want to sell it.
Tom Gardner - Simmons & Company
Given what you said, the proximity to major pipelines, it appears that the processing bottled, the natural gas processing it appears to be kind of the chief bottleneck in the area. Are you focusing your drilling on dry gas areas to circumvent that bottleneck?
Jeff Ventura
Tom, I’d just point out, anything in the Northeast there is going to be dry, it doesn’t need to be processed. Even you go to the Southwest; the whole area doesn’t need to be processed. It’s just as you get off to the Western side of it. So, we’ve got a lot of acreage that’s in both areas.
So, we’ll be drilling in the wet gas. So, we’ll have Barnett really the end of this year, early next year 200 million a day of take-away capacity. We are talking about exit rate for 2010 being double, what we end this year. So, we’ll be in the capacity even if it were wet gas only, it’s going to be double what we need. So, we going to be built a year ahead of time, but we’ll also be working on take away.
We have take away capacity in some of the dry areas in the southwest and by the end of next year we’ll have take away capacity in the northeast. We ramped up in the southwest first, one because we like the area a lot as where we’ve start, and two to we had success really almost from day one with our original rinse well there and we can ramp up quicker for the reason John said, so that’s why we’re doing.
We’ll continue to ramp up in the southwest, but we’ll start drilling in the northeast as well and by the end of 2010, we’ll have production from both areas.
John Pinkerton
There is some advantages and disadvantages of wet gas. One, the disadvantage you’ve got a processes it, but that in time solves itself because you build a gas processing plant just like we did. The good news though is that because you get very high BTU gas, the economics are better and so it’s the chicken or the egg, but we think overtime those will kind of solve themselves when you’re going done the road.
Roger Manny
I’d add, even after processing in the wet gas area. The gas that we sell is still about roughly 1150 BCU and we get paid for the BCU, so you take NYMEX times 1.15, 15% up lift, which is very significant and then add the basin differential to that so.
John Pinkerton
Plus you get to share of the liquid that you get from the plant. So, there is a lot of benefit there when you’re running through your economics and you calculate the bottom line economics. All that stuff needs to be taken into account. The one thing, I’d also like to say is that, again I’ll compliment our friends over northwest is that in joint venture of them, I’ll give them all the credit, we’ve built the first large scale gas processing plant ever in the state of Pennsylvania.
We’ve been able to do it in lightning speed, so I really compliment them. It also goes to the testament, the people they want us there. The regulators, they want it done right, which we believe it. They got a after it, the permits were given in a reasonable amount of time and we got after it may have happen.
Again, basically March of last year and six months later having that gas flowing is really wasn’t incredible feed. I don’t look at that as a bottleneck as much as I really think we did it in lightning speed, so to speak.
Tom Gardner - Simmons & Company
One last quick question here with regard to the Nora well. Did you do anything different to that well to achieve that record, right and…?
John Pinkerton
I think, one again I’ll complement Jerry Grantham and his team, they are the once that force and Steve Gross looks over in that division, but or guys in general ranges, we have good partnership with [Inaudible] they worked on the CBM or work in the tied gasoline in the Shale and of course they operate it once we drilled and completed.
Our guys have done a really good job, by targeting specific areas and completely the wells a little bit different, so it’s a combination. When you get a well that good, and remember that wells are about 3400 feet deeper feet roughly, those kinds of Raven cliff wells can range from 3,000 to 4,000 feet deep.
When you find wells like that, that average over $3 million a day for 30 days to sales we get excellent economics quick pay out, so Jerry and his team have drilled a number of great wells down. We talk about CBM lot that those tight gas sand wells are great down there. Obviously, that one is not too tight because it’s doing pretty good.
Tom Gardner - Simmons & Company
Can it be a horizontal development there? Is that a possibility?
John Pinkerton
What you have is, you have and I’m trying to describe this. It would be easier if I could draw it for you. You have the CBM on top and then the traditional big horizon is Berea, and Berea we’re looking at horizontal drilling because it covers more areas, but in between the tight gasoline and Berea, so in between about 2800 feet and 5,000 feet, we have a number of other horizons, like the Raven’s Cliff and Big Lime and there is other formations.
The Raven’s Cliff tends to be channel that runs through there. So, as we continue to drill our infield drill, we’ve encountered a good Raven’s Cliff area and we’re seeing some of that before. We haven’t an announced those other wells that was just interesting because the original development of that field in those deeper sands and yet here we are 30, 40 years later and drilling the best wells ever out there.
Typically, in time you think the quality if wells with get poor, these wells are actually getting better, that’s said in the record, but the Raven’s Cliff, I don’t think a good horizontal target, its been a long answer to your question, but the Berea, I think is the Big Lime is and there is a number of other horizons there that I think will be.
Operator
Your next question comes from Ron Mills - Johnson Rice.
Ron Mills - Johnson Rice
Jeff, I think you started to touch on this activity in northeast Pennsylvania versus southwest Pennsylvania. It sounds like you’ll be wrapping up probably in the northeast Pennsylvania towards the end of the year. How do you look at your 60 plus rigs or wells that you plan to drill this year in terms of southwest versus the northeast part of the state?
Jeff Ventura
For this year they are all predominantly going to be in the southwest and it’s really early. Next year, though you’ll see significant drilling in the northeast and if we look carefully at the development plan that we want to ramp up production in order to get a good return on our investment, generate value for our shareholders and when you look at the length of the leases and the timing, getting in our market and where we started. All those things are parts of the decision that cause us to time drilling in one area versus another.
But you’ll see as drilling up in the northeast next year, like said really are best vertical well to-date, it’s up there. So, the wells we’re drilling on the southwest, I’m excited about the potential in the northeast there are a number of good wells up there. So, I think we’ve got 350,000 acres so that’s a big. If you just think of our position in the northeast, that’s pretty big position.
Ron Mills - Johnson Rice
Given the fact you have pretty nice interstate pipelines in that area, you mentioned it’s really just matter of gathering lines, but is that the biggest issue in northeast PA?
Jeff Ventura
Yes and it’s just timing and laying out our development. Gas there is going to be drives roughly 1000 BCU. So, but the guys are in the process of acquiring the firm transportation. We already have [PEP’s] and we’ve got plans for gathering and we know exactly everyone start drilling. So, we’ve got a good plan in place. I’m excited about that, this year should be really exciting, and next year should be even more exciting.
Ron Mills - Johnson Rice
Roger, for you just from a hedging standpoint. I think you would mention earlier that as you look towards the latter part of this year, you probably look to start layering in 2010 hedges. What are some of the trigger points that you’re looking for from a hedging strategy standpoint for next year?
John Pinkerton
Ron this is John. My thesis and I’ll make this clear; we’re not hedging $3 of gas. To me it’s pretty simple. We took six and a half years to increase the rig count, natural gas rig count of about 750 rigs to over 1600 rigs and it’s taken us seven months to eliminate that, plus go below that.
It’s just going to be a matter of time until you see the supply response and I think when that happens, I think gas, natural gas prices are going to respond very violently and once that occurs, then we’ll take advantage of it and get our hedging done. So, that’s kind of the theory and quite frankly, we do have some specific numbers and thoughts in mind, but we’ll keep those to ourselves a little bit.
Ron, I think you can go back. Again, not trying to, but you can go back and look at what we’ve done historically. It’s not going to be too much different from that.
Ron Mills - Johnson Rice
I tend to agree with you in terms of the gas price scenario, especially as we get to the latter part of this year. I just didn’t know if you were going to have. In the past there was someone to protect a certain amount of activity levels, just as you start looking at 2010 versus 2009, especially as northeast Pennsylvania starts to ramp up. I would assume that the outlook would be continue to ramp up your CapEx in 2010 relative to this year, at least focus on the drilling portion of it?
John Pinkerton
Well that’s a good point. Let me kind of is zero in on that, because I think you said a couple things that we need to clarify and get some clarity and to be completely transparent. As I mentioned, we are in the process of getting these asset sales, Chad Stephens and his team have done a traffic job, are in the process of getting these asset sales signed up and again, pretty soon we’ll give you some clarity on at least Furman and then the little ones we’ll probably talk about next quarter.
That is the thesis, at least in our view, that between our existing cash flow and those asset sales. We believe confidently that will generate the cash flow to generate all the capital we need for ‘09 and 2010 based on current prices; and so we feel pretty confident there.
In terms of the comment in terms of capital, again the thing I think we don’t plan on ramping up capital in 2010. We don’t need to because the capital efficiency between service prices coming down and capital efficiency that Jeff talked about and the productivity we’re getting out of our big three projects, we’re not to need to ramp up capital ‘10 over 2009 much, again to get very solid growth and hit our business plan and continue to double the production, the actual rate in the Marcellus.
So I want to be clear there, we’re not expecting a big ramp up in capital in 2010. Obviously, if prices respond -- we’re actually probably a little conservative than some, but if prices do respond higher than what we think. I mean could I see as increasing capital marginally, but not a whole lot.
Again, I think the key like Jeff said the thing that’s so exciting about the Marcellus is that you can get a lot of growth rolling just a few numbers of rigs and so we’re pretty excited about that.
Again it comes back to this whole capital efficiency issue. We can do more with less, because the FD&A and the well results have been so much better than what we hoped for and so, therefore this gives us more confidence that we can do more with less.
John Pinkerton
Let me add a little bit another example of efficiency. I was talking to the guy Ray Walker who heads up for Marcellus Shale division, right before the call and where we do a lot of pre-planning what do we want to do at first this year, next year and five and ten years out, and we were talking about it’s way early when the true numbers out, but roughly speaking we are talking about it. We doubled the number of wells in the Marcellus next year and as sensitivity.
Now that can rise how more rigs, do we need if we do that and Ray said, it depends how efficient we get. There is a chance and I’m not promising, it’s just antidotal, but you can see the cost really coming down. We may be able to drill double the wells with the similar number of rigs or maybe just a couple more. You don’t need to double the rigs to double the number our time on the well, cost per well, speed on a well is getting so much better with the way that we’re drilling.
So, it’s another efficiency I’m just pointing out, I think everybody thinks in a simplistic way of one plus one is two, but it isn’t if we can get better and better in terms of what we’re doing.
John Pinkerton
Well, I think a great example by Jeff is, what Southwest has done recently in the Fayetteville in terms of some of the progress they’ve made in terms of drilling efficiencies, quality of wells what not and that’s again, I think it’s one of the things that to me is just so encouraging, when I think of these shale plays in general in that in a traditional conventional play, as you drill the shale of well quality tends to get worse overtime after you hit kind of piece.
There must be interesting thing in the shale plays, because there’s so much gas in play as you really increase repeatability I mean, the repetitiveness you learnt and learnt and learn. You are always learned. Even in the Barnes, some of the last few wells in Barnes that we did so well on, we’re learning stuff from those that we’re applying even today.
So again, I think when we say we got to make the Marcellus real, that’s part of this whole process that we’re. We see this every day and that’s why, again we’re pretty confident in terms of when we look at our valuation and we look at our ability to exit rates and some of the things that Jeff has put before you, it’s because we’re not doing it because we hope it happens real time here, and we’re taking that and trying to project it forward and give you all the clearest view we can without giving you too much of the treasure map that we think is just so important to keep confidential until the appropriate time.
Operator
Your next question comes from Leo Mariani - RBC Capital Markets.
Leo Mariani - RBC Capital Markets
You guys commented about reducing your drilling time with some of these new fit for purpose rigs. Can you quantify that at all in terms of how long itfs going to take to drill and complete a well now in the Marcellus?
John Pinkerton
Like you said, I mentioned about 10 things or so that we’re doing differently and we’re sort of doing those all conjunction. I can talk about times per well. I think to me in more relevant statistic, as what kind of costs. I’m telling you, in this quarter I think we’ll get too. We will reach $3.5 million per development well.
That’s why I feel pretty good when I say we’re going to spend $3.5 million to $3.5 B’s. I think those are reasonable numbers because I think we’ll get there on development wells in the southwest this quarter and I think for the wells we’re drill so far 3.5 B’s is right down the middle of the Strike Zone.
I can talk about days on wells and what kind of bits we use and I know everybody wants to how long our laterals are and where we pump and which size mesh sand, but all I can tell you as I’m comfortable that will hit those numbers that we’re saying. I feel very good about the numbers that we’re putting out.....
Leo Mariani - RBC Capital Markets
This question about some of the other emerging sales you talked about in Appalachia, obviously there is some other horizons out there. Anything scheduled to get tested this year by you folks?
John Pinkerton
It most likely would be early next year when we drill those horizons, but they certainly look interesting, it’s more than just a concept with the exception of the Utica. All of the other Shale’s are above the Marcellus. So, as we drill through Marcellus, we’re drilling through the Burkett, Genesee, Middlesex, Rinestreet intervals.
So, we’ve seen those on logs, we have show data in mark data and some cases core date that indicate that there are certain area, again sort of like the Marcellus, people wave their arms over the whole play, you’ve got to be in the right spots. It’s going to be like the Barnett or Fayetteville or Woodford.
There is going to be, I think key spots you want to be and other spots you don’t, but on our existing acreage the good news is we don’t have to pick it up. We have very significant up side in those other horizon on our acreage and it’s more than just up side like we said, we’ve got a number of wells that are drilled through the intervals.
Jeff Ventura
To be completely transparent, we did have some of those science projects we were going to do this year, but again it just comes down to capital and allocating capital. Those are the things that quite frankly we cut and we just going to have to see higher gas prices and before we get to that.
Again, I think that’s where all the companies are doing. As the CEO as I talk to those, kind of projects in this environment, those are the first things that get whacked and those are [Inaudible] in the technical team up in Appalachia are screaming about trying to do those things, but they understand it just going to take sometime and we’ll get to them eventually and hopefully we’ll kick off some of those early next year and peel back that onion and see what happens.
Leo Mariani - RBC Capital Markets
Just final question on CapEx, you guys still targeting $700 million here in 2009 and does that $700 million include the $72 million spent on acreage in the first quarter?
Roger Manny
Yes, our CapEx budget is $700 million and of that we had $100 million allocated to land. So we’ve spent $72 million of the $100 million in the first quarter. Actually, we’ve spent the first half of the first quarter, they were very efficient. So yes, we’re still at $700 million and our acreage budget is still at $100 million.
I guess a lot of our land people were playing a lot of golf this summer, but I’m teasing they’ll have plenty to do, but we are going to be really, really disciplined. We are going to stick to our knitting and like all of us we are going to over the next month or tow or quarter or two to see how gas prices are doing compared to the rest of the stuff.
We’re going to be disciplined, but we’ll stay flexible as well. So, we’ll get all the proceeds in the second quarter. So again, it’s the timing of all that and feeling comfortable. We’re going to stick with this $700 million and $100 million in terms of the acreage and whatnot.
Operator
Your final question comes from Biju Perincheril - Jefferies & Company.
Biju Perincheril - Jefferies & Company
Good afternoon guys. John, 900,000 acres years and years of development and you hear a lot of talk about mergers and international companies want to use their exposure to Shale Plays from the U.S. Any thoughts along those lines maybe farming out or JV part of your acreage?
John Pinkerton
Well, when our friends in Oklahoma City did the deal with the Norwegians, obviously that got everybody, not so much of us, but it got I think a lot of the bigger companies thinking about that and we have actually entertained those calls and met with them, just like we would anything else and discussed it with them.
We’ve kind of gone through it and everything else. There are a couple of things I’ll say about it. I think in general, our strategy at range and I want going to be general to be drilling and I’ll comedown from 50,000 feet down a well, but I think our strategy range and we thought about this a long time, we talked amongst ourselves and ran numbers and really gave a lot of thought.
Our theory in life is, what we want to do is own as much as our highest quality asset as we can and overtime, divest of the more mature lower quality assets to help fund that. So, if you agree with that strategy, then what our actions should be is not to do a JV, but try to take capital out of these other projects by selling assets and using the cash flow and funding it back into these projects. So, that is kind of the overall strategy
The other thick is, I just simply think it’s too early in the play to get what I think is going to be fair value out of those joint ventures. I think obviously, the bigger guys want to get it relatively cheap and we think, given the numbers and the wells we’ve drilled, we would command a much higher price, even if we wanted to do it.
So to me, it’s too early in the play to do it and the other thing is we want to focus range at getting more of the play and not less of the play. So, I think that’s our strategy going forward and again the key, which is different than the other plays is and especially because of range because we were in there buying acreage $50 million to $100 million an acre back in 2004, 2005 is that we have very few drilling commitments, a lot of our leases are five and ten year leases with no drilling commitments with an age royalty. I think our average cost per acres is $500 bucks.
So, there’s nothing that’s pressuring us to have drill it up now or tomorrow, other than just trying to add NAV for our shareholders. So, again we will revisit that from time-to-time. We looked at what Southwestern done the Fayetteville, but once they had a really good idea and had defined the play what they did is then they high-graded their acreage and they sold some acreage off, but still we are a year or two away, at least several years away from getting to the same place when Southwestern did that we need to consider doing that in the Marcellus.
The other thing is it’s so that much bigger than the rest of plays, it’s going to take a little long to develop it out and see where the good spots and the poor spots are. So I think it’s a great question, Biju and I think clearly overtime we’ll consider all those things and we’ll take the appropriate action.
We just need more information, and the only way we are going to get that is us and the other companies just need to drill more wells and as it becomes more defined, then we’ll take action as we see appropriate.
Operator
Thank you. This concludes our question-and-answer session. I would now like to turn it back to Mr. Pinkerton for any closing remarks.
John Pinkerton |
