Newfield Exploration Co. Q2 2008 Earnings Call Transcript

Newfield Exploration Co. (NFX)

Q2 FY08 Earnings Call

July 24, 2008, 09:30 AM ET

Executives

David A. Trice - Chairman, President and CEO

George T. Dunn - VP – Mid-Continent

Gary D. Packer - VP, Rocky Mountain

Analysts

David Kistler - Simmons & Company

Joseph Allman - JPMorgan

Gil Yang - Citigroup

Irene Haas - Canaccord Adams

John Boland - Maple Capital Management

Wei Romualdo - Stone Harbor

David Heikkinen - Tudor Pickering

Rehan Rashid - Friedman Billings Ramsey

Joseph Magner - Tristone Capital

Presentation

Operator

Good day, everyone and welcome to the Newfield Explorations Second Quarter 2008 conference call. Just a reminder, today's call is being recorded. And before we get started, one housekeeping matter.

Our discussion with you today will contain forward-looking statements, such estimated production and timing, drilling and development plans, expected cost reductions, and planned capital expenditures. Although, we believe that the expectations reflected in these statements are reasonable. They are based upon assumptions and anticipated results so they're subject to numerous uncertainties and risks.

Please see Newfield's most recent Annual Report on Form 10-K and Quarterly Report on 10-… Form 10-Q. For a discussion of factors that may cause actual results to vary. In addition reconciliation's of non-GAAP financial measures to GAAP financial measures, together with Newfield's earnings release and any other applicable disclosures are available on the Investor Relations page at Newfield's website at www.newfield.com.

At this time for opening remarks and introductions, I'd like to turn the call over to the Chairman, President and Chief Executive Officer, Mr. David Trice. Please go ahead, sir.

David A. Trice - Chairman, President and Chief Executive Officer

Thank you very much. Good morning, everyone. We're coming to you today live from our Monument Butte field in Utah, where we are holding our Board of Directors meeting later today. Gary Packer has a comprehensive tour planned for our Board. Monument Butte is a great asset and with all of the good news here, we felt it was a great location for a Board meeting. We will welcome your visits to the field as well, and if you really want to come, call Steve. It's really a great place to see the oil business going on, on a daily basis.

We'll keep our prepared remarks short today and leave ample time at the end to take your questions. Today, we'll discuss just three main topics. A recap of our second quarter results, results exceeded first call estimates, due to stronger than expected production and operating expenses at the lower end of guidance. Second, an update on our '08 projects, including the Woodford, Monument Butte, and Malaysia. And finally, we'll conclude with a few updates on visible growth projects underpinning our future.

Let's start with second quarter results, which were strong operationally and financially. As we said in the beginning of the year, 2008, is about execution, and we are delivering. We've raised our production guidance twice this year, and estimate that our organic production growth will be up by nearly 25% in 2008.

For the second quarter, we had earnings of $1.06 per diluted share before the effect of FAS 133 and the reset of our 2009 and 2010 oil hedges. Our $1.06 compares to first call consensus of $0.98 per diluted share. Reported earnings were negatively impacted by a net after-tax unrealized loss on commodity derivatives of $384 million. For the quarter, we had a loss of $1.89 per share. Our revenues in the second quarter were $691 million.

In June, we announced that we've reset our 2009 and '10 crude oil hedges. This resulted in a cash payment of approximately $500 million and is reflected in operating activities in our statement of cash flow. You'll recall that these hedges originated through our 2004 acquisition of Monument Butte, and our position was largely capped at about $50 per barrel.

Following the reset, we now have 3.3 million barrels in 2009, swapped at $129 a barrel, and 3.3 million barrels with a put at $107 per barrel. For 2003, we have 3.3 million barrels collared between $128 and $170 and 360,000 barrels swapped at $93.40. These instruments provide us with downside protection and significant upside exposure. Complete details at NFX.

Due to the hedge reset, net cash used in operating activities before changes and operating assets and liabilities was $98 million. We have approximately $900 million of borrowing capacity under our credit arrangements today, so our liquidity is in good shape. Our second quarter production was to 57.6 Bcfe, and was once again above the upper end of guidance and our cost structure was solidly within guidance. When adjusting volumes for assets sold and acquired, our second quarter 2008 production was up more than 20% over the second quarter of 2007.

Moving along to the major projects driving our growth, the first and most important is the Woodford Shale. The Chesapeake sale of core acreage to BP that was announced last week, provided some valuation markers for our Woodford position. A large portion of the Chesapeake acreage was core and directly overlaps our acreage. We operate a significant portion of that production and know these assets as well as anyone.

On a flowing Mcfe basis, Chesapeake is selling those assets for about $35,000 per flowing Mcfe. Using this metric for current… our current net deliverability of 131 million cubic feet equivalent per day, our Woodford assets would be valued at $4.6 billion. Strictly on an acreage basis, the transaction equates to more than $20,000 per acre, and on that basis, our acreage alone is valued at more than $3.5 billion.

We've said all along that we think the Woodford is a great asset. We got there first, we leased the best acreage for an all in cost today of about $550 per acre, and we drilled the most wells. We are at a great point in the development of this play. We have nearly all of our acreage covered by 3D seismic, we have substantially all our acreage held by production and we have thousands of wells to drill that will ultimately take our operated production to multiples of the 250 million cubic feet a day that we will be operating by the end of this year.

Year-to-date, our Woodford volumes have been running ahead of expectations. Our gross operated Woodford productions set a record of more than 200 million cubic feet per day in the quarter. That's up from 165 million a day at year-end. There are 18 additional extended laterals that have been drilled and are waiting to be completed.

We are clearly in development mode. 85% of our wells this year have been drilled from common pads. Our completed well costs continue to decrease and our finding and development costs in this play on a net basis are expected to be $2 an Mcf or below. We have 43 extended lateral wells producing today.

We've drilled and completed laterals as long as 4600 feet with nine frac stages. About 90% of the wells we drill this year, will be extended reach laterals with superb economics. Over 600 horizontal Woodford wells have now been drilled, and Newfield has operated more than 200 of these wells. There are now 46 active rigs in the play, and we estimate the total Woodford production is above 400 million cubic feet per day.

Based upon our results today, we expect that our Woodford acreage on average will be developed on 60 acre spacing or less. We recently added a 12th rig in the Woodford, and we have plans in place to accelerate development. We have contracts on three additional rigs, which will take our rig fleet to 15 rigs in early 2009.

We're contracting two new built rigs to be delivered in the second half of 2009, which will take our rig… operated rig count up to 17. Our plan is to move to 24 operated rigs over the next two to three years. As we've said, time and time again, this is a great play that is getting better and better and we remain the dominant player.

Let's switch to the Rockies now, specifically, Monument Butte. Our field trip today will focus on the scope of this giant oil resource and the technological advances we are making to grow production and maximize recovery. We've now drilled 82 successful wells on 20 acre spacing and are now confident that the majority of the field will be drilled down to 20 acres.

We expect that our reserve bookings at the end of this year will start to incorporate this reduced spacing for ultimate development. We have more than a thousand locations remaining to take the field to 40 acre spacing, and as many as 2500 additional locations to develop the field on 20.

Our estimated number of locations does not include the 47,000 acres covered under our original alliance with the Ute Indian Tribe. We now drilled 30 successful wells on this acreage. We've recently expanded our agreement with the Ute Tribe to cover an additional 15,000 acres, increasing the total acreage under this deal to 62,000 acres.

Keep in mind that none of our forecasts for reserve upside at Monument Butte incorporate anything for the Ute acreage, and after 30 successful wells and results that closely mirror the main field, we are encouraged by the potential to develop a significant portion of this acreage.

Demand for Black wax crude is strong and has allowed us to sign additional term contracts with area refineries that attract differentials. Production is up to 15,600 barrels per day and by the end of the year, we expect production will be 16,500 barrels per day, or up nearly 20%.

We believe that we will ultimately recover 18% to 20% of the more than 2 billion barrels of oil in place. That equates to 400 million barrels of gross recoverable oil, less than 40 million barrels gross has been produced to date. At year-end, gross book reserves are under 100 million barrels, or 80 million barrels, net equivalent to Newfield, obviously with we got lots more reserves to book in this field for years to come.

Switching now to Malaysia. Our gross production is 34,000 barrels of oil per day and should reach 45,000 barrels per day later this year. The bump in production is coming from first oil at our East Belumut, Chermingat and Puteri fields.

In deepwater, production commenced to Powerplay. The field is operated by Anadarko and is producing more than 6,000 barrels of oil per day and 15 million cubic feet per day. We have a 35% working interest in Powerplay. We have three fields under development, and an inventory in deepwater that will allow us to drill several wells per year for the next several years.

Our last topic includes an update on other 2009 growth projects and some of the programs under way that offer significant upside. A few of these include parts of our portfolio that probably don't get enough recognition, but their impact in the future could be significant. We remain very active in South Texas where we have nearly 500,000 gross lease acres and remain one of the region's largest producers.

The most recent headline from this division was our second joint venture with Exxon-Mobile in South Texas. This joint venture, announced in the first quarter covers 87,000 contiguous acres in the Vicksburg trend. We have identified 20 to 25 prospects and expect to run a two to three rig program on this acreage for the next several years. We have not forecasted any production for success under this joint venture in 2008.

In our Sarita field area, which includes our initial joint venture with Exxon-Mobile. We are producing around 65 million cubic feet a day and have three additional wells under completion. We've drilled 28 straight successful wells and have a remaining inventory of about 20 locations. From an engineering standpoint, we've proved up more than 300 Bcfe of gas and we have high hopes that our second joint venture with Exxon-Mobile will be just as successful.

Our deepwater team kicked off the year with two discoveries: These discoveries provide visible growth in late 2009 and mainly in 2010. We now have three operated discoveries under development: Anduin West, Gladden and Fastball. These wells are each expected to produce 30 to 50 million cubic feet equivalent per day gross. We have a 50% interest in Anduin West, a 47.5% interest at Gladden and a 66% interest in Fastball.

After better than expected sidetrack results at Gladden, we now estimate that the deal has gross reserves of 10 million barrels of oil at 10 Bcf of gas. Our deepwater team has been successful at recent lease sales and has assembled a great and deep inventory of prospects. We have been awarded all of the leases on which we were high bidder at the March OCS lease sale and that includes 14 blocks in the deepwater and five blocks on the shelf. We expect to drill four to six deepwater wells in 2009.

Looking forward, one of the plays we're assessing today with significant upside is the deep gas play beneath Monument Butte, our first well under our deep gas exploration agreement with Red Technology Alliance has reached TD at 16,700 feet and is preparing to test. A second deep well under the alliance is now drilling. This agreement covers over 71,000 net acres and our interest in the initial drilling is substantially carried. Perspective targets include the Wasatch, Mesa Verde, Black Hawk, and the Mancos shale.

In addition to this well, we also have a 58% interest in the two wells, the TD in the Mancos, both have been completed, are producing from just one or two of the multiple gas producing zones. The wells are located in the eastern portion of our Monument Butte field under a separate joint venture.

We've been encouraged enough by recent results to further increase our activity and have contracted another rig that is now drilling our first operated deep gas test with an 85% working interest. This well is located in the Eastern portion of the field and an area that covers 10,700 net acres. We expect to drill several additional operated tests in this area to test the entire geological section, including the Mancos. This area was excluded from the deep gas joint venture with RTA.

In Malaysia, we are moving forward with plans to develop our Lariat field on PM323. Based on drilling to date, we estimate proved reserves of 12 to 15 million barrels of oil. We will be drilling an appraisal well at Lariat in the third quarter, which could substantially increase these reserves. Based on the results, we expect to file a development plan and work on development, could commence in 2009, with first production by 2011 or 2012, again more visible production growth.

As promised, our remarks today were brief. We'll be hosting an Investor Day on September 9th, at the St. Regis in New York City. Our Management team will have a great show for you and we look forward to seeing each of you there. Watch your index… in box for more details in the coming days.

Operator, we are now ready for any questions.

QUESTION AND ANSWER

Operator

Thank you, sir. [Operator Instructions]. Go ahead and take our first question from David Kistler with Simmons & Company.

David Kistler - Simmons & Company

Good morning, guys.

David A. Trice - Chairman, President and Chief Executive Officer

Good morning.

David Kistler - Simmons & Company

Looking at the recent costs on those last three Woodford wells, about $5.7 million. Last call, you talked about pad drilling will effectively reduce that by $350,000. I'm wondering where the rest of the differential came from the averages. If you could give some color on how we're driving those costs down. That would be great.

David A. Trice - Chairman, President and Chief Executive Officer

George Dunn is on the phone. I'll let him comment. But I'll try to hit the highlights. I think it's a learning curve. We're just going to get better and better and drive the costs down. These wells were in the northern portion of our acreage, which is probably one of our lower cost areas.

But again, we're seeing demonstrated improvements every time we drill another well on a section where we've already drilled. So I would say, it's just continuing to refine, looking at new ways, eliminating casing strings, drilling with casings during a whole variety of things that are allowing us to take cost out of the system. George, do you have anything else to add?

George T. Dunn - Vice President – Mid-Continent

No, I think that covers it. It's drilling multiple wells on the section and most of the improvements in the vertical section, which covers the casing reduction and drilling with casing, etcetera. So, I think you covered it.

David Kistler - Simmons & Company

Okay. Typically, when you guys are given us these new costs you're also providing us with additional IPs and estimated ultimate recoveries. Can you give us any color on those?

David A. Trice - Chairman, President and Chief Executive Officer

Well, the IPs from most of our wells have been running between 5 and 6 million cubic feet a day on average, and that's been pretty consistent. Again it varies a bit throughout our acreage, but an EUR is still running in the 4.5 feet range on average.

David Kistler - Simmons & Company

Okay. And then with your new contracts in Monument Butte for the high wax crude, can you tell us what you're baking in now for differentials there?

David A. Trice - Chairman, President and Chief Executive Officer

What are we looking at, Gary?

Gary D. Packer - Vice President, Rocky Mountains

Posted prices are somewhere in the high 13's through $15 range, off of NYMEX. Keep in mind that differential includes transportation from the field and trucks to the refiners, which is probably in the $4 to $5 barrel range. The true differential is just about $9.

David Kistler - Simmons & Company

Okay, great. Well, I'll let somebody else hop on. Thanks, guys, and enjoy it up there at Monument Butte.

David A. Trice - Chairman, President and Chief Executive Officer

It's a great day here.

Operator

Thank you. Let's go ahead and take our next question from Joe Allman with JPMorgan.

Joseph Allman - JPMorgan

Hi, good morning, everybody.

David A. Trice - Chairman, President and Chief Executive Officer

Good morning.

Joseph Allman - JPMorgan

David, I missed the very beginning of your prepared remarks but… and I'm not sure if you covered, what you expect to be a sustainable level of cost for the Woodford Wells. Can you address that?

David A. Trice - Chairman, President and Chief Executive Officer

It's probably better to look at just because some areas we get higher EURs so we're very comfortable now with an F&D cost out here of under $2 an Mcf equivalent.

Joseph Allman - JPMorgan

Okay. So, you've driven the cost down, and I know that you may move to dual laterals and you're doing your first one there, but that level you had before of $6.7 million per well, are you still seeing some of those or are they really pretty much all your wells are getting driven down closer to six or I guess your average in the second quarter is 6.3?

David A. Trice - Chairman, President and Chief Executive Officer

The wells are a little more expensive in the South where it's deeper and higher pressure. That's also where we get the highest EURs. Again, that's why it's important to just look at the F&D cost. Down there we may get 5.5 Bcf per well and the well may cost a little more, so on average again we're running under $2 an Mcf equivalent.

Joseph Allman - JPMorgan

Okay, got you. Okay. And then with the dual lateral, what do you expect, I know it's just your first one, there's probably science in there, but what are you expecting in terms of cost and rates and EURs with that dual lateral program?

David A. Trice - Chairman, President and Chief Executive Officer

George, do you want to comment on that?

George T. Dunn - Vice President – Mid-Continent

Yeah. I think you hit it right, in terms of science and so our estimate cost wise is not significantly below drilling two wells at this point, but we'll see as we drill it and that includes some science in it. Currently, we're in our first lateral and, well expectations would be like having two wells at less cost. In terms of EUR.

Joseph Allman - JPMorgan

Okay. Got you, and then just quickly on the Bakken, in terms of your acreage, how much of your acreage do you think is perspective for the Three Forks Sanish?

David A. Trice - Chairman, President and Chief Executive Officer

The scope of that play is still being defined, Joe, as we go forward. You know, on the Nesson Anticline we probably have about 30% of our acreage position and that appears to be perspective, but we're also seeing play expand quite a bit. So, I think it would be real premature to put this thing in a box and think we know exactly where it's going to be.

Joseph Allman - JPMorgan

Okay, appreciate it. Thank you everybody.

Operator

We'll take our next question from Gil Yang with Citi.

Gil Yang - Citigroup

Hi. About the rigs in the Woodford, can you just comment on for those rigs that are doubling the rig count next year. Do you have any visibility on what the rig rates are going to be, and secondly, are they, they're new build rigs, presumably are they fit for purpose for that region?

David A. Trice - Chairman, President and Chief Executive Officer

George, do you want to comment? I know the rates right now are pretty flat with what we've seen over the last two to three years, but the two that we're contracting that are being rebuilt?

George T. Dunn - Vice President – Mid-Continent

That would be the way to say it. We're working with the drilling contractor to fit them for our purpose, yes. And your comment's right. Everything so far is relatively flat.

Gil Yang - Citigroup

And the perspective look on the contract you're signing as those rigs come on in the last couple of years it will still be flat versus what we're seeing?

David A. Trice - Chairman, President and Chief Executive Officer

Yes.

Gil Yang - Citigroup

Okay. And the fit for purpose, are the rigs different from the rigs you have today or are they just more or less clones of the existing rigs?

David A. Trice - Chairman, President and Chief Executive Officer

Basically clones. It's just fit relative to top drives, skiddable for pad, things like that. Everything we've done with the existing rig fleet to optimize it for the area, but it's not new drilling technology. It just fits the area.

Gil Yang - Citigroup

Okay, great. And then in Monument Butte, I know there's been some new refining capacity for Black Wax but is there anything else driving the strong demand for Black Wax? Is there any… are there any refining benefits given the strong value of distillate versus gasoline that refineries are looking for?

David A. Trice - Chairman, President and Chief Executive Officer

I don't have a clue. We just… we're seeing greater demand than we've ever seen and greater interest in more Black Wax barrels. We could actually sell more if we could produce it today.

Gil Yang - Citigroup

Okay. And then last question is how big do the Monument Butte deep gas wells need to be to make them economic in a development program?

Gary D. Packer - Vice President, Rocky Mountains

We believe and it really ultimately depends on how deep we end up drilling into the section, Gil, 2 to 2.5 Bcf wells will work just fine out there as long as we're not having to drill to the Dakotas. Our vision for these wells is somewhere around you're drilling something just through the Black Hawk, if you can drill those wells for $3.5 million and do 2, or 2.5 Bcf, those are going to work all day long and be very repeatable and a very considerable resource.

This next well that we're drilling right now with RTA is going to be a test drill to about 17,000 feet and we'll be seeing the entire section through the Dakotas, and now we've added a considerable resource upside to us and those wells cost more but we'll find more presumably. So, we need to get this first phase of our drilling program complete. As David alluded to, by year-end, we believe we will have six new tests of the deep gas at Monument Butte and that will give us an opportunity to assess the scope and what we found and get some good production data and then we'll put a program together for 2009 and see where it takes us.

Gil Yang - Citigroup

Okay. Thank you. Thank you very much.

Gary D. Packer - Vice President, Rocky Mountains

Okay.

Operator

We'll take our next question from Irene Haas with Canaccord Adams.

Irene Haas - Canaccord Adams

Hi, guys, following up on the Monument Butte deep gas play, sounds like you guys actually have a pretty nice Resource play in the making. So, you have talked about rough economics. How is transportation getting out to that part of the country? What is the basis, etcetera, etcetera?

David A. Trice - Chairman, President and Chief Executive Officer

It's something that's evolving quite a bit, Irene. Right now, we produced out through the Questar system, but there's a number of new pipeline projects that are in play right now. We're talking to a few parties that would actually be laying additional lines, actually through the field and give us access to multiple markets. So, we think that number is going to, we think there's going to be quite a bit of improvement on that.

Irene Haas - Canaccord Adams

You can move West and East and all that good stuff?

David A. Trice - Chairman, President and Chief Executive Officer

Once these additional lines are in place with we could.

Irene Haas - Canaccord Adams

Thank you.

Operator

We'll take our next question from John Boland with Maple Capital Management.

John Boland - Maple Capital Management

Hello. I just wanted to clarify on the repricing of the hedges. Was this, when you went through, was it a net repricing or was there an increase or a decrease under the new terms?

David A. Trice - Chairman, President and Chief Executive Officer

Well, basically, what we did was reset the hedges at that moment, so we took the value of them at that point in time, settled those hedges and put swaps or bought puts at market price at that point in time.

John Boland - Maple Capital Management

Okay. So, no additional production was covered by anything?

David A. Trice - Chairman, President and Chief Executive Officer

Not in the process of doing the reset per se.

John Boland - Maple Capital Management

Right.

David A. Trice - Chairman, President and Chief Executive Officer

In addition to that, we purchased puts on a portion of our 2009 volume, the 3.3 million barrels a day we mentioned that has a put, at $107 a barrel. Those were new volumes that were added, so if you looked at the volumes we had under contract for '09 at the end of '07 versus today, those volumes would be… would have been added in the process of doing that.

John Boland - Maple Capital Management

Okay. And at this point, what percentage of your '09 production do you feel you have hedged right now?

David A. Trice - Chairman, President and Chief Executive Officer

Oil production. Oil would be in the range of 55 type percent… 50 to 60% range of our total oil production for the year and half that would be in the form of a swap near $130 a barrel and half would be in the form of a put at 107.

John Boland - Maple Capital Management

Okay, great. And could you just comment on the operating structure, the ownership structure in the Williston Basin properties at this point?

David A. Trice - Chairman, President and Chief Executive Officer

We operate in excess of 80% of our acreage position.

John Boland - Maple Capital Management

Okay. Thank you.

Operator

We'll take our next question from Wei Romualdo with Stone Harbor.

Wei Romualdo - Stone Harbor

Yeah, I just like to follow on, I'm not sure I got everything. Could you just review your current hedging spend for the rest of the year, what does it look like for oil and gas and also going into next year for gas, you mentioned just on the oil now and what prices they're at?

David A. Trice - Chairman, President and Chief Executive Officer

All of the details can be found online at NFX, we will go through it in great detail.

Wei Romualdo - Stone Harbor

Under, all right, I was just there and I couldn't see anything. Under Investor Relations?

David A. Trice - Chairman, President and Chief Executive Officer

No. It's under publication called at NFX.

George T. Dunn - Vice President – Mid-Continent

It's on the home page and you'll see a link in the bottom right hand corner of the homepage.

Wei Romualdo - Stone Harbor

Oh, okay, all right. Thank you.

George T. Dunn - Vice President – Mid-Continent

Sure.

David A. Trice - Chairman, President and Chief Executive Officer

You bet.

Operator

We'll take our next question from David Heikkinen with Tudor Pickering.

David Heikkinen - Tudor Pickering

I had one follow-up on the deep tests that you're drilling with RTA, 17,000 feet. What would be the well cost for that?

David A. Trice - Chairman, President and Chief Executive Officer

That's something that we have no capital in, David. So, we've not been privileged to the AP at this point.

David Heikkinen - Tudor Pickering

Okay.

David A. Trice - Chairman, President and Chief Executive Officer

A lot of science going on in these wells, David.

David Heikkinen - Tudor Pickering

Yeah, and thinking about the RTA alliance, can you talk some about that kind of technology they're bringing to the play, what you guys are learning from it and how you're applying that to the rest of your testing?

David A. Trice - Chairman, President and Chief Executive Officer

Well, we haven't applied really any of it yet. We just got our first well down. We're going to be meeting with them next week and talking about completion plans for that well. Obviously, Halliburton has a lot of experience and has done a lot of R&D. We'll have… we'll take a look at the results in this first well that we'll be completing and we'll have an opportunity to apply that in the well that we're just, we've just recently spud.

David Heikkinen - Tudor Pickering

Okay.

David A. Trice - Chairman, President and Chief Executive Officer

It's kind of premature at this point.

David Heikkinen - Tudor Pickering

Fair enough, and then on the Ute Tribe acreage, up to 62,000 net acres, at 30 wells, whenever you start thinking about the number of wells that you have in the area, a thousand to 2500 already, you start adding in 40 and 20 acre spacing there, how do you think about the inventory and optimizing the present value of that inventory on your existing acreage versus this new Ute Tribe and how much production growth can you really see over time?

Gary D. Packer - Vice President, Rocky Mountains

Well David, we could talk about that for quite a while. First of all, on the acreage that we put together, we've done two transactions as David alluded to. This is extending the field to the North and we have enjoyed great success so far, but it's really yet to be determined how far we could push this thing beyond the reaches of our field. So, I don't think you can proportionally ratio up the acreage position relative to what we have today at Monument Butte in the 3500 locations we have. As far as the net present value, the marketing piece we can kind of check that box as being handled today. The next piece of it is the Federal Government and how quick we can get wells permitted and add additional rigs to our fleet. We've added another rig this year as you're aware, we've taken it up to five. We like what's been done with the tribe because it gives us a different permitting structure than through the BLM, and we believe that that will give us maybe an opportunity to add another rig, but that's premature at this point.

David Heikkinen - Tudor Pickering

Okay. And when you think about 30 wells, when do you think about reserve booking and defining this extension of the field, you kind of have two knobs you're turning, the 20 acre reserve booking but also the extension to the North on to this acreage. Just trying to think about going into year-end. Will you be able to define how much of that you can book and what that does to overall cost and finding cost?

David A. Trice - Chairman, President and Chief Executive Officer

I don't think we can really define how much we'll be able to book on the tribal acreage. We will start to drill some more step outs in 2009 but it is a delicate balance. I would look for most of the drive to our 2008 reserve bookings to be in the 20 acre area as we prove up the concept within the various water flood units. Another big piece that you'll see and look for in 2009, is the unitization of the field and that also gives us quite a bit more flexibility in that regard.

David Heikkinen - Tudor Pickering

Just shifting gears and I know the Chesapeake BP deal hasn't closed, but I know you operate a percentage of that production, how are you expecting the relationship between Newfield and BP to go forward? How much of that will you actually truly operate and drill and how much will BP be developing? I mean, if you look at that.

David A. Trice - Chairman, President and Chief Executive Officer

Well, there's probably reasonable, Chesapeake was running five rigs and we were running 12, I think those proportions are about right.

David Heikkinen - Tudor Pickering

Okay. That's useful, thank you.

Operator

We'll take our next question from Rehan Rashid with FBR.

Rehan Rashid - Friedman Billings Ramsey

Good morning, David.

David A. Trice - Chairman, President and Chief Executive Officer

Hi, Rehan.

Rehan Rashid - Friedman Billings Ramsey

Congratulations on executing across-the-board.

David A. Trice - Chairman, President and Chief Executive Officer

Thank you.

Rehan Rashid - Friedman Billings Ramsey

On the Woodford, could you kind of maybe walk us through call it the variables of logistics in terms of ramping it up to 24 rig count that you talk about, tubulars, fracking, and everything else that goes along with it, how are you kind of planning for it?

David A. Trice - Chairman, President and Chief Executive Officer

Well, and those were all good questions and that's planning that we have in progress right now, I think on the rig side obviously, we'll be moving the 17 rigs next year, so that's a big step forward. The two key variables here are people and capital, I think, pipe has been in short supply this year, but we have pipe alliances throughout the areas that, we operate in and give it our operating history, in the number of rigs we have working we really think we are in the preferred customer status. While it's not something we take lightly, we certainly think we'll be able to meet our pipe needs out here.

We have had a contract for the last few years with Halliburton and they've been doing all of our fracs in that area and would expect them to continue to do that but obviously as all the shale plays ramp up, you'll have a lot of competition for people, pipe, rigs and everything. So, I think it's getting out front and getting some term contracts in place. You've seen us do that in the Mark West deal. We've done that in firm transportation, and we'll be continuing to try to look forward and capture all of those items that we can execute the program.

Rehan Rashid - Friedman Billings Ramsey

What are the service providers telling you across the board, how are they thinking through all of the things ramping up and kind of how far behind or ahead will they be on different fronts and what would be kind of one or two kind of sources of your concerns for bottlenecks and not getting what you need maybe?

David A. Trice - Chairman, President and Chief Executive Officer

Well let me let the business unit leaders that are here today answer that. George and Gary are here. Maybe they can comment. I'm not hearing a lot of things from the service providers other than that they want to have Newfield as a customer. So Gary, want to start?

Gary D. Packer - Vice President, Rocky Mountains

I guess as far as the rigs go, we're finding good access to the rigs still, to add to our fleets as required. As far as the tubulars go, I'd say on those programs that are in the development stage and very predictable such as the Woodford and Monument Butte and our Williston program, we're certainly finding all of the tubulars that we require.

The challenge has become in one off wells where you don't see them coming months in advance and thus far, we haven't, we've been able to get everything we needed but sometimes it's kind of short. I'd say the only thing that we've run into recently in certain areas is frac sand. That's something that seems to have some regional constraints upon it and in certain areas, we've had to delay a few operations as a result of that. George?

George T. Dunn - Vice President – Mid-Continent

Yeah, I mean, I think the answer is long-term planning. You just have to stay out in front of it. I think the biggest bottleneck concern probably across the industry right now is tubulars and so you jump out and you try to be out there six months to a year ahead and then with drilling contractors, etcetera, same kind of thing, in terms of getting rigs.

And then the advantage we have as far as the Woodford goes, is we've been there long enough, we're the dominant operator, the growth is visible to the service companies and so they move to get in there and get as much of the business as they can and so we've seen a lot of both the major service companies and smaller independents popping up out there now. To date, no major concern about supply on the stimulation side, so really tubulars is the biggest concern probably and staying ahead with our plans.

Rehan Rashid - Friedman Billings Ramsey

Got it. One last quick question on the infrastructure side still. So as you kind of ramp up, you will obviously have take away capacity needs. How far ahead do you need to think if you want to add let's just say $200 million a day of capacity, Dunn? Will it take two years worth of advance planning, three years worth of advance planning or something less?

George T. Dunn - Vice President – Mid-Continent

Five.

Rehan Rashid - Friedman Billings Ramsey

Five, okay.

George T. Dunn - Vice President – Mid-Continent

That's what we're looking at.

Gary D. Packer - Vice President, Rocky Mountains

Rehan, when we think about those, we look at what our expectations are in terms of growth and we have actually been trying to provide for that growth and take away capacity. So, we're thinking as David said, three to five years out, not two years just because process and having the certainty that when the pipe is built to capacity will be there, it takes that kind of planning on their side as well.

Rehan Rashid - Friedman Billings Ramsey

Okay. Thank you.

Gary D. Packer - Vice President, Rocky Mountains

You bet.

Operator

[Operator Instructions]. We'll take our next question from Joe Magner with Tristone Capital.

Joseph Magner - Tristone Capital

Good morning. Just wondering if you had an update on the number of wells you plan to drill in the Woodford with the additional 12 rigs for '08?

David A. Trice - Chairman, President and Chief Executive Officer

George, do you have a number?

George T. Dunn - Vice President – Mid-Continent

Well, that additional rig will only add like three or four wells this year. So, it's a minor increase this year. It will be what it adds next year, it just the about its first well. Are you looking for a total?

Joseph Magner - Tristone Capital

No, I'm just curious, it was around 80 at the last update that was provided I think.

George T. Dunn - Vice President – Mid-Continent

Yeah, it will be 85 to 90.

Joseph Magner - Tristone Capital

Okay. Operated wells.

George T. Dunn - Vice President – Mid-Continent

Correct.

Joseph Magner - Tristone Capital

Okay. And Gary, just curious going back to the deep gas program. I guess just reviewing sort of the upper Mancos targets and now the plan to drill a well all the way through the Dakotas, just going back through my notes I think the cost to drill those wells to the Dakotas are about 2x the cost to drill an upper Mancos well.

It seems a bit early given I guess the limited number of results or wells that have been reported out of the upper Mancos. Was this just an opportunity because under the RTA Alliance they wanted to drill a deeper well or I guess kind of walk me through the logic on how that program might be…

Gary D. Packer - Vice President, Rocky Mountains

By virtue of the agreement they were obligated to drill that well, Joe.

Joseph Magner - Tristone Capital

Okay. So, no real change in the overall economics or recovery thoughts on the upper versus…

Gary D. Packer - Vice President, Rocky Mountains

No, Joe. This is just an opportunity early in the assessment phase to get us a log and hopefully a test across the entire section to allow us to better plan our '09 program.

Joseph Magner - Tristone Capital

Okay. And then any changes to the '08 CapEx plan that is around $1.8 billion or thereabouts, you've added a rig in Woodford, five rugs in Monument Butte, added another deep rig to the program. Any changes to the overall…

David A. Trice - Chairman, President and Chief Executive Officer

We previously increased our capital program to $2 billion and we see the number now being slightly up from that so it would be probably in the $2.2 billion range. The 1.8 to 2 was the United acquisition for $225 million, that we announced in the second quarter, earlier in the second quarter, so that was all that increase. And then we've added a fifth rig in Monument Butte, a 12th rig at the Woodford. We spent more money than we budgeted for the OCS lease sale, a number of things factor into those higher numbers.

Joseph Magner - Tristone Capital

Any preliminary thoughts on '09 at this point?

David A. Trice - Chairman, President and Chief Executive Officer

In the same range, I think, that $2 billion plus or minus.

Joseph Magner - Tristone Capital

Okay. Thank you. That's all I had.

Operator

[Operator Instructions]. And Mr. Trice, it appears we have no further questions. I will turn the conference back over to you for any additional closing remarks.

David A. Trice - Chairman, President and Chief Executive Officer

Great. Thank you, operator and thanks everybody for listening in this morning. We're actually quite serious about your visits to Monument Butte. It really is a great place to see everything that goes on in the business. So just give Steve a call, if you'd like to come out and these guys will be well practiced after showing the field to our Directors today and they will be ready to show you. So, just let them know, but again thanks for listening in today and thanks for your support. We look forward to seeing you soon. Goodbye.

Operator

Thank you. Ladies and Gentlemen, this does conclude today's conference call. We appreciate your cooperation. Have a wonderful day. You may disconnect.

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