Amplify Energy Corp. (AMPY) Q3 2013 Earnings Report, Transcript and Summary

Good morning. My name is Arnica and I will be your conference operator today. At this time, I’d like to welcome everyone to the Midstates Third Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. I would now like to turn the call over to, Mr. Petrie, Investor Relations Coordinator.

Good morning, everyone and welcome to Midstates Petroleum’s third quarter 2013 earnings conference call. Joining me today is speakers on our call are John Crum, Chairman, President and CEO and Tom Mitchell our Executive Vice President and CFO. John will begin today’s call with highlights of the third quarter, a review of operations and plans for the balance of 2013. Tom will follow with key financial highlights of the third quarter and provide guidance for the fourth quarter. John will then wrap up with some closing comments. Before we begin, let’s get the administrative details out of the way with our Safe Harbor statement. This conference call may contain forward-looking information and statements regarding Midstates. Any statements included in this conference call, or in our press release that address activities, events or developments that Midstates expects, believes, plans, projects, estimates or anticipates will or may occur in the future are forward-looking statements. These include statements regarding reserve and production estimates, oil and natural gas prices, the impact of derivative position, production expense estimate, cash flow estimate, future financial performance, plan capital expenditures and other matters that are discussed in the Midstates filings with the SEC. These statements are based on current expectations and projections about our future events and involve known and unknown risks, uncertainties and other factors that may cause actual results and performance to be materially different from any future results or performance expressed or implied by these forward-looking statements. Please refer to Midstates filings with the SEC and the third quarter Form 10-Q that would be filed shortly, for a discussion of these risks. Also please note that any non-GAAP financial measures discussed in this call are defined and reconciled to the most directly comparable GAAP measure in the tables in the yesterday’s earnings release. I will now turn the call over to John for his comments.

Thanks, Al. Good morning everyone and thank you for joining us today. I’ve been looking forward to this call for a while now. The third quarter of 2013 was a very exciting one for all of us here in Midstates. Most importantly, we hit the significant milestone of exceeding $100 million in adjusted EBITDA. We continue to see strong production growth and lower unit cost and expenses, allowing us to comfortably meet production and cost guidance targets for the quarter. Drilling and completion activity reached record levels in the quarter. We spud 39 wells and brought 40 new wells online and at the end of the quarter with 10 active rigs drilling under contracts. Our Mississippi Lime program is clearly delivering on the promise we envisioned when we acquired the asset just one year ago. The recently acquired Anadarko Basin assets are now providing us with additional low risk proven drilling targets, primarily in the Cleveland sands as well as upside in the numerous pay intervals present in the Anadarko Basin. Our Gulf Coast program continues to provide its exposure to high value, oily production targets to round out our portfolio. Production growth remains our focus and we’re pleased to report today’s production was over 32,000 BOEs per day, up 385% in our short 19 month public life. We are especially proud of the progress we made in the Mississippi Lime acquisition, closed just over one year ago on October 01, 2012. At closing, those properties were making 7,200 BOEs per day and just one year we have those same assets producing over 17,000 barrels equivalent per day. This strong year-over-year growth demonstrates our ability to execute. We expect to execute similarly on our newly acquired Anadarko Basin assets. Overall, the company averaged 28,464 barrels per day in the third quarter from our diversified three state asset base. In spite of the significant weather related downtime we had earlier this year, we expect to average at least 24,000 barrels equivalent for 2013, up 140% year-on-year. We remain firmly focused on efficient execution of our development plans across our asset base to drive further growth. During the quarter, our Mississippian Lime and Hunt production grew to 14,364 barrels equivalent per day, up almost 38% from the second quarter. This growth was driven by an active five rig drilling program in the Mississippian Lime where we have been concentrating on our most prolific acreage. We believe drilling results continue to support the fact that our acreage position is among the best in the play. We now have 115 Mississippian wells have been on production more than 30 days, with an average 30 day initial production rate of 570 BOEs per day. During the quarter, we invested $105 million and spud 22 operated wells and completed 29 operated wells. Given the issues we faced earlier this year with snow and thunderstorms, a key focus was to increase the reliability of our power grid. During the quarter, we continue to transition our rental generation fleet from diesel to natural gas, with 80% of our generated electricity now coming from low cost natural gas generators. By the end of the year, we expect to bring in five megawatts of new power from the main grid through a new substation we recently built in cooperation with another operator. An additional five megawatts power will be available through the same substation this coming spring. We have also purchased a new five megawatt gas fire generator that will be in place by early ‘14. These additions will greatly reduce the stress on the local core ops for our growing demand and significantly reduce the need for rental generator sets. In addition to mitigate the downtime we experience from lightning strikes, we had a big program installing overhead lightening protection and tight matter grounding on all of our facility sites. As a result of these efforts, there have been no shutdowns due to lightning strikes since the program was implemented. Another area of improvement is with our produced water. To accommodate the increased water volumes, we have upgraded our saltwater disposal system with main trunk lines, looping and automation and level controls in our most active areas to avoid system redundancy. Those infrastructure improvements which are substantially complete, have helped to reduce lease operating cost in the third quarter and will allow us to experience less downtime in the future. If you’ve seen our release, operating cost per BOE in the Mississippian dropped to the low $6 range and believe this is a sustainable number going forward. Since assuming control with properties, Midstates is employing a number of different technologies in the Mississippian Lime, which includes 3D seismic, pad drilling and a variety of completion techniques to maximize the value of our asset base. We’re actively working the high resolution 3D seismic survey covering our core acreage position in Woods and Alfalfa counties and we’re already seeing the benefits of this data. Specifically, we are utilizing the data to high grade our inventory, in order to identify and test unique structural and stratigraphic features. We’re also using it to guide the placement of our horizontal wellbores in the most geologically attractive intervals within the Mississippian section and perhaps just as importantly avoiding potential trouble areas such as major faults. Pad drilling has also been a key driver in our success and gaining efficiency and providing drilling and completion cost savings. We are realizing cost savings of about $400,000 for well based on rig time and share facilities. We are typically building pad sites for six well capacity, but currently only drilling to four per pad in an effort to minimize the amount of time to bring the new wells on production. The timing from spud to first well of the four wells being brought on production to all of the wells being brought on production is roughly 100 days. As we’ve indicated in the past, this process will lead to some fluctuations in the number of wells brought online in any given quarter. We are continuing to examine different completion techniques in Mississippian Lime, trying to optimize fluids sand volumes frac sizes and – frac stages sizes and numbers. We’re also in the early stages of testing open hole completions and seeing some encouraging results. We hope to save as much as 40% of drilling and completion cost and reduce cycle times in a subset of our wells particularly those with good access to high permeability streaks and/or natural fracturing as well as on the other end, wells with high initial water rates. Potentially, this technique can make some of our more general areas more active. Those lower costs could also make down spacing more economical and result in higher ultimate coverage per section. For the fourth quarter, we plan drilling completions of approximately to 85 million in the Mississippian, completing those drilled in the third quarters and spudding 20 to 25 new wells. In the Anadarko Basin, we have made meaningful strides with our efforts to integrate and grow the asset. As we’ve discussed, the entire Panther staff is under a [indiscernible] and services agreement which terminates at the end of this month. We’re pleased to announce that 51 of Panther staff have agreed to continue their career in Midstates, ensuring that we retain their learnings from Panther’s successes over the past eight years. At the beginning of the third quarter, we had three operated rigs drilling primarily Cleveland sand targets. We added a fourth rig in July and a fifth rig in August to primarily focus on the Marmaton, Tonkawa and Cottage Grove prospects on our acreage. We invested 32 million and spud 16 operated wells and completed 10 operated wells during the quarter. Nine of those targets – nine of those wells targeted the Cleveland and one the Marmaton formation. We will continue to drill our low risk Cleveland sands inventory and are pleased with the early results. We’ve been experimenting with increasing sand – stage volumes for sand and fluid to see if we can improve performance. As of today, we have 11 Cleveland wells that have been on production more than 30 days since closing the acquisition and have gross 30 day initial production rate of 387 BOEs per day. We are encouraged by these results, as this flow rate is above the range of 270 BOEs to 360 BOEs per day that we had used in our type curve when we – that we utilized during the acquisition. Importantly, the best five of those wells averaged 629 BOEs per day, giving us reason to believe that as we continue to optimize our frac parameters, we can bring the overall average up. We’re just getting started with the evaluation of the potential upside that we see in the Marmaton, the Tonkawa and Cottage Grove acreage holdings. Our first Marmaton well tested 413 BOEs per day for its first 30 days. We will have more results to share from all of those targets during the fourth quarter. For the fourth quarter, we plan to spend $45 million, this encompasses completing the wells that are in progress at the end of the quarter and spudding 20 new wells about 12 of which will be Cleveland, the remainder a combination of Marmaton, Cottage Grove and Tonkawa targets. Moving on to the Gulf Coast, as previously discussed, we’re taking a measured approach to the development of our horizontal program in North Cowards Gully and South Bearhead Creek. We completed the Musser Davis 27 HC-1 at South Bearhead Creek on September 10, 2013 targeting the Lower Wilcox D. The well is currently producing at restricted rates of 483 BOEs per day, 85% liquids with a flowing tubing pressure 1,300 PSI after two months on production. We now have successful completions in both Lower Wilcox C and D intervals at South Bearhead Creek demonstrating the potential for stacked horizontal development in the field. The Wood 10H-1 sidetrack at North Cowards Gully was drilled in the third quarter and came online in early October. After one month of production, the well is currently producing at a restricted rate of 375 BOEs per day, 83% liquids, with a flowing tubing pressure of 2,300 PSI. In Pine Prairie, we’re continuing to work the recently acquired 3D data to high grade locations and build inventory for the future. The 3D results indicate good potential to extend the productive of the Wilcox on the east side of the dome [ph] and a similar fashion to our earlier successes on the west side. We’ve also filed an application to start injection for a pilot water flood project and anticipate proceeding in early 2014. In the Fleetwood area, we have completed our interpretation of the 200 square mile 3D survey and have identified numerous leads and prospects. We’re currently high grading the opportunities set identified and expect to drill the first prospect as early as Q1 of 2014 followed by additional tests as land and partnerships are finalized. For the fourth quarter, we have no rigs active in the Gulf Coast, but we will continue to evaluate our opportunity set and certainly expect a number of these projects will compete strongly for future capital. I’m pleased with our third quarter results and proud of the job our team has done to integrate another major acquisition and continue to grow our business. We will stay focused on execution to help drive growth. I’m confident that many of the initiatives mentioned above, will deliver the production growth, cost savings and attractive rates of return to create the most value for our shareholders. I’ll now turn the call over to Tom to provide you with some detailed information on our financial results.

Good morning everyone. As is customary, my comments today will focus primarily on the third quarter financial highlights and providing fourth quarter guidance. Like John, I’m very pleased with the solid quarter that we’ve turned in. And again, adjusted EBITDA was 101.6 million, nearly double at 53.4 million reported in the second quarter. The sharp rise in adjusted EBITDA was the result of strong organic growth in the volumes in Mississippian Lime and the Anadarko as well as a full quarter production from the new Anadarko Basin assets. Exceeding 100 million during the quarter is a significant milestone for us. As reported, the net loss of 23.6 million before preferred dividends compares with net income of 3.3 million for the quarter. Adjusted net income for the third quarter which excludes the impact of unrealized losses on derivatives as well as the Panther acquisition in transaction cost was a net loss of 800,000 or a penny per share. Production in the third quarter rose 45% to 28,464 BOE per day from 19,634 BOE in the prior quarter. 50% of the third quarter volumes came from our Mississippian Lime and from properties; 30% from our Anadarko Basin asset and 20% from the Gulf Coast area. Included in the third quarter volumes was a 751 BOE per day imbalance settlement related to prior period Mississippi Lime natural gas production. We exceeded the midpoint of our production guidance range with production of 27,713 BOE per day, even after excluding that prior period adjustment from third quarter volumes. The product breakdown was what we had anticipated. As we discussed during the last call, pad drilling in Oklahoma resulted in a number of wells coming online concurrently in September which led to a nice increment in production that has carried over into the fourth quarter. We are currently producing about 32,000 BOE per day. Going forward, we will continue to see the impact of pad drilling in Oklahoma resulting in some unevenness in production volume mix [ph]. Looking ahead to the fourth quarter, we expect production to be in the range of 31,500 BOE to 32,500 BOE per day with about 55% for the Mississippian, 30% from our new Anadarko Basin properties and remainder from Louisiana. That fourth quarter guidance gets you into the annual range that we established earlier this year. The regional product breakdowns as well as expected realization differentials including transportation remain unchanged from prior guidance and all reflected in the updated guidance summary that we posted in the website for you. You will notice a new line item in our income statement for gathering and transportation. These expenses are likely to commencement of an amended gas transportation gathering and processing contract in the Mississippi Lime region that we discussed on the last call. Midstates entered into a new gas processing agreement with [indiscernible] effective June 1st which gives us 155 million per day of cryogenic processing capacity under a feed based processing agreement. Previously, we had only 30 million per day capacity. So the new plant provides firm capacity and increased efficiency for our current volumes and future growth. This allows us to process our gas and receive the associated incrementing value of about $0.60 per Mmbtu which is reflected in our NGL realization as opposed to selling the gas wet. Turning to the review of expenses, total cash operating expenses which includes LOE production taxes and SG&A but excludes the acquisition and transaction cost decreased 19% to $16.98 per BOE from $21.07 per BOE in the second quarter. This reduction was driven by cost efficiencies and strong production growth. Our lease operating and work over expenses fell to $8.32 per BOE for the third quarter which was better than our expectations of $8.50 to $8.75 per BOE and 15% below the second quarter rate at $9.83 per BOE. Even after excluding the prior period imbalance settlement, we would have been at the very bottom of the range at $8.54 per BOE. In addition to the benefit of higher volumes during the quarter, this improvement is driven by cost savings from investments beginning earlier in the year, to reduce saltwater disposal expenses in the Gulf Coast and Mississippian Lime as well as utilizing new natural gas generators rather than diesel generators when needed to maintain productions during power outages in Oklahoma. For the fourth quarter, we expect our LOE and work over expenses to be in the range of $7 to $7.50 per BOE. This lower rate reflects our growth in Mid-Continent volumes as well as continuing benefits from our cost efficiencies. Severance and ad valorem taxes were 5.2% of sales revenue before derivatives, a bit lower than the 6% to 7% rate we guided for the quarter. For the fourth quarter, we are maintaining the same guidance of 6% to 7%. Third quarter general and administration expense was 13.9 million which was at the bottom of our guidance of 14 million to 15 million. On a BOE basis, our third quarter G&A up $5.31 per BOE was 38% lower than the second quarter rate of $8.55. The third quarter included non-cash compensation of 1.9 million. We expect G&A in the fourth quarter to be in the range of 12 million to 13 million with about 10% 15% in non-cash. Our DD&A rate in the quarter of $28.56 per BOE was in line with our guidance of $28 to $30 per BOE. For the fourth quarter, we also expect that same range. We added another expense line item in the income statement this quarter for $500,000 to $600,000 loss on disposal of field equipment inventory that was no longer essential to our operations. From time to time, we may incur some inventory clean up, but this is largely a non-recurring type item and not expected to be material in the future. Total interest expense incurred in the third quarter was 35.6 million. Of that, we capitalized 9.6 million and expensed 26 million. For the fourth quarter, we expect to again capitalize about 10 million to [indiscernible] properties. The only incremental interest expense we expect in the near term will be for additional borrowings under our credit facility. The tax rate utilized for the quarter was 36% as lowered in the 40% we’ve booked in earlier quarters but for the fourth quarter, we would send the typical 40% rate with all being non-cash. During the third quarter, excluding capitalized interest, we invested approximately 164 million in capitalized expenditures, with 105 million on our Mississippi line, 32 million in the Anadarko Basin property and the remainder in the Gulf Coast. For the fourth quarter, we expect to invest 130 million to 140 million, with about 65% in the Mississippian, 30% in the Anadarko and the balance in the Gulf Coast. The full year guidance is unchanged. During our September borrowing base redetermination, we experienced a very nice increase to the borrowing base from 425 million to 500 million. We’re pleased with that redetermination which reflects the 2013 production growth that we have achieved. We expect to have similarly positive revolver increases in the future as we continue to grow volumes and reserves. Our next regular redetermination date is April 01, 2014. On September 30, liquidity was $219 million consisting of $194 million available under the credit facility and $25 million of cash. In conclusion, I would like to reiterate my satisfaction with the quarter. Obviously we’ve been busy, extremely busy since our IPO with making two significant acquisitions. It’s very nice to have a relatively normal quarter with strong performance and achieving our guidance targets. And with that, let me turn the call back over to John.

Thanks, Tom. As you’ve heard today, we had a great quarter both operationally and financially, which we believe clearly illustrates the benefits derived from our focus on execution. We’re currently working on the 2014 capital budget which will be submitted to our board later this year. Once that budget is approved we will come back to you with spending plans for 2014 as well as a production outlook and an operational update. We believe we’ve made great strides with extracted value from our expanded asset base and as Tom indicated, believe that with continued execution, our revolver growth will provide us sufficient liquidity to fund our capital programs in the coming years. That said, we are evaluating options to create additional cushion on the balance sheet. Those options include possible joint ventures on our properties, farm-outs and even outright sales of some assets. It’s still too early to provide any specific details or timing of actions we may take. As always we will keep you informed of our progress. Now before we take any questions, I’d like to introduce you to our new member of our IR team that will be talking to you quite a bit in the future. Danielle Burkhart was recently named Vice President of Investor Relations. Danielle joined Midstates in 2010 while before we went public. She owns degree in petroleum engineering and an MBA. I won’t say how long she’s been working in the industry, but I will say she started with Texaco at Hobbs so you could run with that. We think her technical background will be a great value to helping us communicate our story. With that Al, I think we’re ready for questions.

Okay, John. Thank you. Please limit your questions to one and a follow up and operator we’re now ready to take questions.

[Operator Instructions]. Your first question comes from Neal Dingmann with SunTrust. Neal Dingmann – SunTrust: Good morning guys. Good quarter nice production ramp. John, just wondered obviously results with Mississippi continue to improve just wanted to know some others than your peers. I know you previously talked about potentially some other formations there. I wondered on your upside with the five rigs on the Mississippi in particularly what your target both the formation wise and then sort of your geographic regions?

Well thanks, Neal and appreciate the support. We obviously have some interest in testing a variety of intervals especially this kind of second and third Mississippian within the – that kind of 300 400 of Mississippi and then we hold. We have been concentrating on kind of the first cross of the interval in the Mississippian trying to get volumes up as we talked about earlier, just working on our EBITDA right now. But we do have plans to evaluate Woodford as well as deeper sections within the Mississippian. Neal Dingmann – SunTrust: Okay. And then just to follow up, over on to the Gulf Coast, you certainly have become focused over there I know you got a lot of seismic things going on. Is the plan just to wait to some of that data to come out and then decide how you’ll progress with both the horizontal and the vertical program or any color John, as far as the next couple of quarters how you could see activity in that region?

Yeah Neal we’re still putting together our plans for 2014. And I guess as we’ve indicated to you in the past, we’re pretty pleased with what we’re seeing out of this horizontal program, but we do want to get months of production rather than days of production before we make future investment decisions there. So we’re pretty excited by the potential that we can have for water flooding at Pine Prairie. We’ve done a pretty significant study there and feel like that has some real good potential. And as I indicated, the 3D at Pine Prairie sure looks like we’re going to be able to pull that Wilcox down the east side just like we did on the west side earlier. Neal Dingmann – SunTrust: All right guys. Look forward to all that activity.

Thank you, Neal.

Your next question comes from Brad Carpenter with Wells Fargo.

Good morning, Brad. Brad Carpenter – Wells Fargo: Hi good morning everyone and nice quarter everyone. Just curious on your cash operating expenses, they did a nice sequential decline and LOE had an impressive decline on a per unit basis. Are you pointing out that cost efficiencies were one of the reasons behind the move? And specifically relating to LOE, the reduction in saltwater disposal cost helped that this year, but I was hoping you could offer some additional details on the decline and how we should think about LOE going forward, that is the majority of benefits from investments didn’t realize already or is there more improvement to come?

Yeah, I think you should look to our guidance for where we think the things are going. Last quarter, we told you about some of the things we had done in Louisiana where our cost were frankly getting out of line certainly in the first half of the year. And those were associated with water hauling and we’ve got that completely behind us now and with chemical use and we’ve resolved that with a variety of different techniques. So we feel like the numbers lying in front of you are pretty good way to look at while we think go forward case. You’ll recall also in the Mid-Continent with the storms and things we went through early this year, we ended up having to put out some kind of emergency generation and we’re having to run that stuff on diesel. And you could imagine the cost of that I think I’ve indicated you guys in the past the diesel fire generation cost about $0.45 kilowatt hour. So, it’s horribly expensive. So moving to natural gas for our kind of expected needs and more importantly time into the grid with a large portion of it on a more reliable system is going to make a big difference on operating cost there. Brad Carpenter – Wells Fargo: Okay, great. And then my follow up would be a bigger picture I guess. You continue to see success in Miss Lime and Anadarko, while you’ve moved capital from Louisiana and as you mentioned there is no further activity down there for 2013. I know you are still evaluating opportunities down there in Louisiana and have some Q1 activity planned, but John, you touched on evaluating options to bolster the balance sheet and I was curious how you think about Louisiana longer term and how it fits into your portfolio going forward?

Well, I get that question a lot basically would you consider selling Louisiana and I guess the way I usually answer that is we’d consider selling anything. But certainly the case the rate of return that we’re seeing out of our program that we’re putting on to the Mid-Continent now, appear to be stronger than what we’re seeing on our Louisiana portfolio and that’s why you’re seeing the capital shift. I think hopefully that does what you’re asking. Brad Carpenter – Wells Fargo: Yes that’s very helpful. I appreciate it and once again great quarter.

Thank you, Brad.

Your next question comes from Leo Mariani with RBC.

Good morning, Leo. Leo Mariani – RBC: Good morning. Just a follow up on your prepared comments regarding potential JV, assets sales, – downs, is that something we’ll get decision on kind of by the end of the year, in terms of trying to buy some additional liquidity into the company?

Leo, we’re working it really hard I got to tell you. From a whole range of ideas and I just can’t tell you when it happened. We’re not in a position where we’re going to give something away. So we need to make sure if we do something that we’re getting the right value for it and so we’re going to continue to work it. All I can tell you is that we recognized some increased liquidity would be useful to us and make all of you a little more comfortable. So we’re focused on it very clearly. Leo Mariani – RBC: Okay that’s helpful. I guess just jumping over to the Mississippian, can you give us a sense of what your current well costs are out there? And may be where do you think those could go if there is any room to kind of increase efficiencies and shape those down in 2014?

Yeah, I think I mentioned, we feel like we’re down about 400,000 from kind of the first half of the year in this quarter. That’s primarily associated with pad drilling and with some changed in our completion techniques, but we think we have further potential to continue to drive those down. We’re continuing to experiment with different completion techniques which should give us some more . We feel like our drilling days we may be have kind of maximized that sort of be around some other efficiency with rig moves and things like that will help us on the drilling side. Leo Mariani – RBC: All right. So what is the current well cost then?

We averaged three four in the last quarter. Leo Mariani – RBC: Okay. Thanks.

Your next question comes from Drew Venker with Morgan Stanley.

Good morning, Drew. Drew Venker – Morgan Stanley: Good morning, guys. I was hoping you could speak to may be the incremental activity you might expect across your different plays where you’d be most interested to either increase or decrease into 2014?

Yeah I apologize but I really like to come back with another month or so after we kind of finalize these plans. I mean right now we’re pretty happy with the rate we’re drilling at in the Mid-Continent we’ve got five rigs in the Anadarko and five in the Miss. But we’ve got to kind of plan this out and see where we go and obviously some of the things we’re doing now experimenting with some of the place in the Anadarko as well as their watching performance in the Mississippi and even in the Louisiana is going to affect the ultimate decision on where our 2014 capital would go. Drew Venker – Morgan Stanley: Okay. John and I guess following up on efficiency if you’re talking about the Mississippian, could you speak to where you see service costs I guess independent of drilling efficiencies between the Mississippi and Anadarko Basin in general?

Yeah, again I think our real gains are up there more in just getting down the number of days and the amount of time it takes to do something. We certainly have, I’ve mentioned this in the past a lot more easy access to the equipment we need to do the work which in itself actually helps with the cost because you’re not standing by waiting on something when you’re really needed. So I think those are continue to help I have not seen the rates actually drop that much from over this last year, but it’s just getting more efficient which is right answer for all of us including the service companies. Drew Venker – Morgan Stanley: And I guess as a follow up to that, can you speak to the impact of the open hole completions?

Yeah, I didn’t talk a lot about it and I guess I’m somewhat love to get too carried away because this is a pretty early experiment. I will tell you, we feel pretty good about what we’re seeing and I think what it’s pointing to is we don’t understand everything we’d like to understand about the Mississippian in general. So this is going to help us quite a bit in getting our arms around some of the technical details. Ultimately, the way we kind of see this is there will be some wells that we could kind of look at and say, I wouldn’t want to waste a fracture stimulation on a well that’s already making pick a number 5,000 barrels water and 50 barrels of oil. So that’s the way we kind of started looking at this as we have some areas that produces high gas cuts and higher water cuts and perhaps the way to make those look better economically is not spend the money on fracture stimulation, because we don’t know that it’s actually improving the overall takes on those. Drew Venker – Morgan Stanley: Okay. So is this just naturally flowing?

No we’re pumping them. We’re just pumping them in an open hole. Drew Venker – Morgan Stanley: Okay. Thanks for the color.

Thank you.

Your next question comes from Stephen Shepherd with Simmons & Company.

Hey Steven. Stephen Shepherd – Simmons & Company: Hey good morning guys.

Good morning. Stephen Shepherd – Simmons & Company: Just one from me, during the earning season it seems like more than one misfocused has been reported and impressive gas production growth but directionally lower oil production growth, which to me doesn’t come as a big surprise given the little decline rate in the play are steeper just from a type curve perspective and decline rates. I’m just curious to get your thoughts regarding whether or not you think is ultimately going to lead to an uptick in the gas production mix going forward relative to kind of your 45% cut that you’re seeing in the play right now?

Well I guess first of all if you looked at our numbers, you would see probably we got a pretty good cut and interestingly, as we focus in the better areas it also has a solid oil cuts. I have said in the past, I would never argue again somebody saying that in tight formation if you would expect your GOR to increase as time goes on, but I think sometimes people believe it’s going to gas out that’s not going to happen. We’re going to talk about some change in GOR moving from may be 4,000 to 6,000 over a number of years. So we would expect to have every well, well paid out by then and may be not an issue so. The issue I think is geography matters in the play and so there are areas that are oilier and there is areas that are gassier and it depends on what you’re drilling. Stephen Shepherd – Simmons & Company: Okay thanks. Appreciate it.

Your next question comes from Matt Portillo with TPH. Matt Portillo – TPH: Good morning guys.

Hey Matt. Matt Portillo – TPH: Just two quick questions for me the first on the Miss. You guys now have over 100 wells with a 30 day average rate about 570 barrels a day which is almost double your peers, but you’re using pretty similar EURs in terms of your type curve. I was just curious if you could comment a little bit around how you think about kind of find the decline on these wells and how you guys are thinking about the type curve you previously talked about in the play?

We study that all the time and I guess what I would say is that I hope our peers are right, because it would imply that the B factor is pretty high and that these things are going to flatten out. We have – we are trying to be conservative and we’re running with this is perhaps lower B factors and therefore declining a little harder than what our peers are showing. But there is no question our IP rates are significantly higher than our peers. So we study it but we’re not prepared to move our numbers up, but we have some hope that, that is ultimately going to be the answer after a little history behind us. Matt Portillo – TPH: Great. Thank you. And just a second question in regards to the Cleveland you mentioned that five of your wells showed some stand out production and you’re changing some of your completions in the play. Are those five wells under a different completion technique or was that kind of a concentrated part of the field? And then I guess secondly alongside that you’ve kind of made the expand a little bit more in terms of what you are testing in terms of incremental sand and stages on the Cleveland? Thank you.

Actually three of those we did upsize the standard completion that has been done in the past by about 50% of our sand volumes and water volumes. But I have to say, two of the others two of that group kind of the original completions. So back to the original premise, geology matters so if you’re in the right place lots of things work. But we do have some faith, I think other operators are routinely using more sand and fluid in their fracs and actually more stages as well. So those are kind of the pieces we’re using and we’re watching what the industry is doing as well. It’s one of the fun things about but in the Mid-Continent I got to say, we can actually learn from others instead of carrying the can on R&D. Matt Portillo – TPH: Great. Thank you very much.

Thank you.

[Operator Instructions]. Your next question comes from Jeb Bachmann with Howard Wiel. Jeb Bachmann – Howard Wiel: Good morning guys.

Hello Jeb. How are you? Jeb Bachmann – Howard Wiel: Good. Just had a few questions looking at the comment on the JV partnerships just wondering, if you’d be looking at different dynamic partnership you would go in not only in current assets, but also in future opportunities down the road?

Jeb that’s one of the scenarios we’ve laid out as well. So when I said we’re looking at lots of different things, I was dead serious. I mean I don’t know how many options Curtis and others are looking at right now, but it’s a wide range of potential ways of doing this. And we’re considering them all but like I said just a little too early to tell you where we think end up landing. Jeb Bachmann – Howard Wiel: Okay. Then looking at the Wood well done in Gulf Coast, just wondering what kind of pressure draw down did you guys see on the well with the sidetrack versus the original hole or the original wellbore?

We didn’t really see any difference in the pressure, in fact, honestly it was slightly higher on initial rate but I don’t know if that means anything. You’ll remember the original wood collapsed within a few weeks coming on production. So that’s not a surprise to me that we wouldn’t have a depletion problem. And so that is why we’re flowing them at reduced rates trying to kind of make sure that we bring that pressure down slowly. Jeb Bachmann – Howard Wiel: Okay. And then I might have missed this during the call but on production for the year guidance has come down from prior expectations just curious what that was due to?

It’s come down from – wait we’ve been kind of been in this 24 range I think I told you last quarter that given what we went through in the first part of the year 25,000 which was kind of the midpoint of our original guidance was going to be difficult and so in fact, that is the case. So we would expect to crawl over that 24,000 for the [indiscernible] Jeb Bachmann – Howard Wiel: Okay. And then last one for me, John I know you said you’ve been working on the project for next year, but just curious you guys still targeting kind of 2.5 to 2.7 times debt to EBITDA in ‘14?

Well that would be a little hard for us to get to Jeb. We don’t see any way we could get below the three next year and we’d expect the number to be closer to probably 3.5. Jeb Bachmann – Howard Wiel: Okay. Great. Thanks John.

Thank you.

At this time, there are no further questions.

Well if there are no further questions I really appreciate you guys being there. I hope the message that came through today is we are pretty excited about what we’ve been able to accomplish certainly in the Mid-Continent as we’ve continued to integrate both the original Eagle assets and the Panther assets. We’re excited by the new team coming together and for those of you get a chance to get Tulsa go visit that office it’s pretty exciting operation up there. They’re wound up because they are really making numbers very quickly. I appreciate your time and you can call Al and Danielle and rest of us after the call if you have any other questions. Thank you.

Ladies and gentlemen, this concludes today’s conference call. You may now disconnect.