Falcon is a global energy company with projects in Hungary, Australia & South Africa
Developing large acreage positions of unconventional and conventional oil and gas resources
Message: Ye olde conference call
Transcription
Conference Call Webcast
April 26, 2006, 9:20 a.m. ET
Conference Call Webcast
April 26, 2006, 9:20 a.m. ET
Moderator: Good day, ladies and gentlemen. All sides are currently on the conference line in the listen-only mode. Right now I'd like to turn the call over to Marc A. Bruner, Chairman and CEO of Falcon Oil & Gas. Go ahead, sir.
Respondent: Thank you, ladies and gentlemen. I appreciate you joining us today. I'm the Chairman, CEO, and president of Falcon Oil & Gas. With me today are my team of people. The CFO is Evan Wasoff. He is on the call. Lyle Nelson, who is running the operation with Halliburton, he is on the call. Dr. Ben Law that I think most of you have met, he is on the call. He is a consultant with the company and happens to be our resident BCGA expert. Dr. James Edwards is the Chief Operating Officer. Tony Lotito is with us today. He assists and works with Evan Wasoff. Michael Lam is working with us in corporate finance. John Gustavson, who we work very closely with and that we actually got the licenses from, he is on the call. I believe Dr. György Szabó is going to be joining us soon if he is not on the call yet. What I thought I might do is maybe give a quick summary of, yes, we've announced that Allan Laird is resigned. I think that was two days ago. For those of you that, you know, were concerned or wondering about this, most of you probably by now realize that Allan has decided that he wants to take the summer off. Before he left, he put in place Dr. (Laurie Sibold) and Dr. (Sam Swift) to work with us to complete all the good work that he started. We also, in the same press release, announced the appointment of Dr. György Szabó. He is a director of the parent company Falcon Oil & Gas, and CEO and president of the wholly owned subsidiary TXM.Also, as of yesterday—excuse me; I guess it's this morning—we've given an operational update. The reason for this was, in terms of the timing, we just had received logs on the Szekkutas Well. We wanted to make sure that, we thought it was material that we would announce (inaudible) to that and decide at the same time to update the results on the Pusztaszer Well and the Makó-6 Well. To summarize for those of you that may have not seen the press release on the Pusztaszer Well, we at this point believe that we've got a gas-saturated section of the Szolnok, and we've essentially hit the BCGA at its northern summit. We've also got a conglomerate at the bottom that we believe is also productive. At this time also, we announced on the Makó-6 Well that, subsequent to the previous announcement that we made about what we found on the Szolnok after we ran the intermediate string of casing, we've gone down into the Endröd and encountered some fairly high pressures, and a whole lot of gas shows: C1s through C5s. We've been carrying 16-pound mud in order to be able to hold it so we can continue the drilling operations. You know, I guess, I think the general feeling at this point with probably all of this, maybe, I think at some point Lyle Nelson with Halliburton can talk about it because he is right on top of it.
Respondent: We kind of feel like we've got a tiger by the tail on the Makó-6 Well, and so far, on the well that I mentioned, the Szekkutas Well, it appears that we have about 600 metres of Szolnok that is gas saturated as well. We are in the process now of running our intermediate string of casing to drill down to the primary objective. At this point, I think that's a fair summary of where we stand. I and the rest of the gentlemen on the call are more than happy to answer your questions, so maybe someone wants to start.
Moderator: Ladies and gentlemen, at this time, if you would like to ask a question, please press '*' and '1' on your touch-tone phone. If you would like to remove your question from the queue, press the '#' key. Once again, at this time, if you would like ask a question to the group, please press '*' and '1' on your touch-tone phone now.
Moderator: We'll take our first question from the side of (Ian McQueen) from Dundee Securities.
Respondent: The base of the Pusztaszer-1 Well, is that over-pressured as well? Is it a part of the BCGA system, or do you think it's a separate system?
Respondent: I'd like to have John Gustavson to take that question.
Respondent: John Gustavson answering that question and stating that we did indeed find the Szolnok formation. We did indeed find over-pressured shows of gas, which are now being analyzed with regards specifically to the position of the overall BCGA. The answer, therefore, is that we think this is, indeed, the edge or the flank of the BCGA.
Respondent: Okay. Next question?
Moderator: Once again, ladies and gentlemen, if you would like to ask a question at this time, press '*' and '1'. We have a follow-up from (Ian McQueen) from Dundee Securities.
Respondent: The timing of any kind of fracture program, fracture-stimulation program for the Pusztaszer-1 Well or any timing on testing as well.
Respondent: Okay, let me, I think I'll take that question. What we are in the process of doing is finishing the drilling of both the Szekkutas Well and the Makó-6 location to really find out what it is we have so we can, with all of the information, design, along with Halliburton’s help and our engineers, whatever the completions need to be. I think one of the other things that we are in the process of doing as well is we would like to, when we complete these wells, hook them into the grid to be producing directly into the pipeline system. We are now on each one of the wells finding ways to hook the wells into the pipeline system. We are also going to be running facilities to be able to produce into the pipeline system until we can find out what the production rates are going to be. Then we can construct more permanent facilities that will suit the amount of production. Next question?
Moderator: Thank you. For your information, Dr. Szabó has joined.
Respondent: Yes, good morning. I'm listening too.
Respondent: Okay. One other thing. Everyone can hear me. I just want to finish one thing. My best guess is the completion on these wells is going to start about the first week of July. We think that is going to be the timeline that it's going to take us to get things in place to start the completion procedure.
Moderator: We'll take the next question from the side of (Andrew Massaru) from Bridgewell. Go ahead, please.
Respondent: Good afternoon, Marc. It's (Andrew Massaru) speaking from Bridgewell. I've just got a question on the Makó-6 Well. In terms of where you are now in completing the well and running in casing, could you just confirm to me when you expect testing on that well to begin?
Respondent: Well, I think what we first have to do is we are scheduled to drill down to 6,000 metres to test what we would call the synrift sediments that's underneath the BCGA. I guess the expectations, maybe Lyle Nelson, do you want to take that question to give him some idea of how long it’s going to take us to finish the drilling and setting pipe? My best guess would be that after that's done, I still think we are going to be into July before we actually start the completion. Lyle, what do you think in terms of the drilling down to target depth in the Makó-6?
Respondent: If I may answer that.
Respondent: Okay, Dr.Szabó, you take that.
Respondent: The actual depth is 4,880 now, eight and a half section. The penetration rate is about 10 feet per hour, so we think that in case it will be smooth and the penetration rate similar, your estimation is correct, so it will be finished by early June, middle of June.
Respondent: Mm-hmm.
Respondent: Okay?
Respondent: Thank you.
Respondent: And the next location is ready, so it's already constructed.
Respondent: What I might say to you, just so you know, we have three wells to complete, so we don't have to have the Makó-6 finished to start the completions on the Pusztaszer or the Szekkutas.
Respondent: Szekkutas.
Respondent: Next question.
Moderator: We'll take our next question from the side of (Fred Kinsley) from Kinsley Geotechnical. Go ahead, please.
Respondent: The question is, using this 16-pound mud, do you anticipate a great deal of formation damage, which will be part of your completion process?
Respondent: Okay, (Lyle), would you take that?
Respondent: May, may I take it?
Respondent: Okay, Dr. Szabó, go ahead.
Respondent: The main problem is not the mud rate but the temperature, so we are working and hopefully soon we will have the chance to change the existing 16.4 water-based mud to oil-based mud. That's why, to partially answer your question, because in that case, it will not influence the reservoir characteristic. By the way, you have to take into consideration the low permeability, so it's not the conventional reservoir why the invasion is limited. So please receive these two items. First is changing to oil-based mud, second, the invasion will be limited.
Respondent: Thank you.
Respondent: Okay, next question?
Moderator: We'll take our next question from the side of (Jaime Summerville) from MGI Securities. Go ahead, please.
Respondent: My question is regarding the gas found in the underlying basement rocks in the first well. If you could just confirm that that is actually part of the BCGA?
Respondent: Why don't you, John, why don't you?
Respondent: Okay, John Gustavson will answer that. The basement rocks that are fractured shows instead a very conventional type of trap that produces in this general area of Hungary. Therefore, it is difficult to say that that would be part of the BCGA because, actually, it would have relatively high porosity and permeability. The answer is, the good news is it looks like that can be a reservoir that may produce, but it is not a part of the defined BCGA.
Respondent: May I say, this is Ben Law, I completely agree with you, John, and I think that's a fair assessment. However, above that is the Szolnok. It is over-pressured and does have gas shows in it. However, it appears at this time that the lowermost, the basement gas-bearing interval may not be part of the BCGA, but the BCGA, the Szolnok part of the section, appears to be the updip edge of the BCGA.
Respondent: Okay? Next question?
Moderator: Once again, if you would like to ask a question, please press the '*' and '1' on your touch-tone phone.
Respondent: Actually, it's Michael Lam here. Ben, I'd like you to comment on a couple of issues that have been floating around the market. I think with everybody on the line here is a good opportunity to tell everybody at once. Could you comment on two things: one, softness of the rocks that has been talked about by some in the marketplace, and two, the relationship between sand and shale within the BCGA?
Respondent: All right, thank you, Michael. Yes, there has been some rumours floating around that we are going to have trouble testing the interval and producing from the interval because it's soft. Well, I can guarantee you from the samples from the old, hard well that this is nothing near soft rock. It is as solid or as hard as anything that produces from similar accumulations in North America. I'm not exactly sure what you mean, Michael, in terms of the relationship between the different lithologies of sand, shale. What was your?
Respondent: I guess one of the comments was, you know, the sand is where the gas would produce from. What's the relationship when you have shale commingled in with sand?
Respondent: Well, in many cases, not necessarily every, but the source for a lot of the gas does come from the interbedded organic-rich shale. However, every shale isn't organic rich, but it does form fairly good seals. We think that the source rock down in the Endröd, that's the primary source for all the oil and gas in this region. When we get up in the Szolnok, the organic richness of the interbedded shales is not as organic rich, so there probably is some contribution from the shales to the adjacent sandstones.
Respondent: Okay, next question?
Moderator: At this time, we have no questions queued. Once again, if you'd like to ask a question, please press the '*' and '1' on your touch-tone phone.
Respondent: What I'd like to do right now, since there are no questions, I would like to introduce Dr. James Edwards, our Chief Operating Officer. James, would you maybe give everyone a peak at what we are doing in terms of future drilling plans, the 3-D seismic, that kind of thing, so people can understand sort of what our program is here this year?
Respondent: I'd be glad to, Marc. Over this period of time, from now until probably the end of next year, we are in a continuous drilling phase. Obviously dependent upon a lot of the results that we get will dictate where locations of some of these wells will actually be drilled, but overall, we've planned three more seismic campaigns. These are three-dimensional seismic programs to define our basement topography and look for deep, detailed analyses within the seismic section itself to define sweet spots within the BCGA. We are just completing the program right now, and it's a key part to our next well location. Following the Makó-6, we'll have the Makó-7, and then the Makó-8 will be drilled just to the North. What our plan is is to drill a series of wells throughout the entire trough that we are exploring to define the width and breadth of this BCGA cell. It's quite critical for us, so we have a continuous drilling program. We have two rigs at the present time. We've been in discussions internally about adding additional rigs to keep the pace a little bit more—I say frantic because that's what we have to look at, but it's a fun type of frantic to be in. That's kind of, in a nutshell, what our plan is right now.
Respondent: One other thing I would like to do just briefly before the next question is introduce Lyle Nelson. Lyle, what I'd like to maybe have you do is to talk about some of the team of people that we have out here besides yourself that are, you know, doing a great job handling the drilling of these wells.
Respondent: Okay. We have a team of well-experienced people that have been experienced in the high-temperature, high-pressure regime. One of our key men is (Mike Sumtner), who I've worked with for several years. He is currently located in Budapest, and under him we have an array of well-experienced engineers and well-side supervisors, and some of these have been handpicked and are doing an excellent job. Our goal is to, currently we are kind of in an exploration mode and getting additional data cores and additional logs and to get to the process in the future of how we drill these things deeper, cheaper. We are gathering data on that, and we have a team in the field at one time of five people, a drilling superintendent and four well-side supervisors. Then, in the office, we have a team of one to two drilling engineers and the project manager over there along with our staff of nationals, Hungarians, that are well-experienced geologists and throughout the whole team. We are lucky to have Dr. Szabó with us. We work very closely with him, and he carries a wealth of knowledge. Along with that, our well-side geologist is the same person that drilled the Deep Well back in Hungary in the 1970s, so we have great information that we get from him and all the experiences and background that goes on in Hungary. We put together a real strong team.
Respondent: One other thing too, I'd like to, it's Marc Bruner again. Dr. Szabó, I'm in London right now, and the question came up in the newspaper this morning, the Financial Times, it talked about E.ON, basically, the Downstream Operations being bought out by Gasprom. There was some concern from some of the people here. I'd like for you to comment on that in terms of, you and I talked about it. Could you maybe comment on that for our listeners?
Respondent: Yes. It's not a surprising happening because we are very familiar with the good historical connection between E.ON and Gasprom. That is another important thing that Gasprom can be a competitor to us but not serious. The reason why I'm saying that is simply because Hungary is (inaudible) from the main gas stream from Russia, Siberia to EU. That's why we are a little bit (inaudible) from that stream. That's why Gasprom will be happy to pump, to impress the gas what we will replace to the EU markets, where the gas price is really nice. So that's why I don't see any problem, there is not any surprise, and I'm sure that the investors everywhere will initiate the negotiation with the local representative of Gasprom.
Respondent: You don't have any concerns about this then at all?
Respondent: Really not. Really not. We can cooperate, and don't forget that there is another thing important that our geographic area is the territory of Gaz de France. Gaz de France also will assist us. That's why I don't think that this Gasprom acquisition will disturb our market position.
Respondent: Okay. Thank you. I'm ready for the next question.
Moderator We'll take the next question from the side of (Nathan Piper) from Bridgewell. Go ahead, please.
Moderator We'll take the next question from the side of (Nathan Piper) from Bridgewell. Go ahead, please.
Respondent: Hi there. I’ve got two questions in effect. One question, which is, could you give some indication about timing, first of all, to initial production for these wells you've talked about today, but also to when you might get to some stage of more commercial-scale production? Secondly, my second set of questions is, talk about reserves. I mean, obviously, when you first went to Makó Trough you were hoping to find a certain set of reserves, and as you drilled more wells, you've been more and more comfortable with a certain number. I wouldn't guess from the drilling so far, you have to change your view, but could you update us both on the reserves side and the production developments?
Respondent: Okay. Well, I think that—it's Marc Bruner here—you have to separate the exploration phase and the exploitation phase, if you will. Now, in the exploration phase, as Dr. Edwards had indicated, we want to drill enough wells to be able to see not only the size of the deposit, but the distribution of where are the better sands and more coarser sands where we would have maybe sweet spots are. I mean, frankly, the chance of, the good news is we found, you know, a whole lot of gas-saturated sands. The chances, frankly, of finding the best place in 575,000 acres is probably very, very low, so the way you find the best places is you drill wells, okay? The nice thing that we seem to know at this point is that it's a good feeling to drill into thousands of feet of gas-saturated sands wherever you drill. I think that's what we are doing. Now, the situation is that we will begin completion, certainly in the Pusztaszer Well, here in July, and most probably, hopefully in the Szekkutas Well. We might have to wait a while on the Makó-6 because we are drilling and seem to be drilling a lot more gas pay here, and it may take, as Dr. Szabó indicated, to the middle of June to get down. Okay? The idea here is that we are going to be completing these three wells into the grid, okay, and this year we are in the exploration phase. The idea here is, certainly, we believe by the end of the summer, we will be producing these wells, these three wells. Certainly by the end of the year they should all three be into full production, and we will continue to drill step-out wells to try to find the sweet spots. My best guess is the exploitation phase will start in the next year after we have drilled some of these exploration wells and found and identified the best places to drill the exploitation wells. I hope that answers your question.
Respondent: I do appreciate that BCGA is a story of drilling many wells and your aggregate production is better, improves with time. I appreciate you need to drill a lot of wells to achieve that, and I guess using the seismic is how you’re going to achieve that quickest.
Respondent: Well, James, would you tell him what we are doing with this seismic?
Respondent: The reason we do the seismic is because the basement plays a major role in the distribution of the sand pods, so what we are looking for is where the best areas. We know most of the sequences we are looking at are turbidites, so they are transported, in general, quite a distance. They come off from the Northern area; they come off from the Western area and probably the Eastern area as well. They follow a path much like a delta, so what we are looking for seismically is where we can expect thicker pods of good sand development. Ultimately, with a number of 3-D programs that we are doing, we'll able to go to stratographic or seismic analyses and look to see if we can interpret some of the sections a little bit better. That will help us select well locations.
Respondent: What I might add is that when we log the wells that we are currently drilling and the future wells, we'll be running velocity surveys where we can build what's called synthetics to tie in to the 3D seismic. Right? Is that right, James?
Respondent: Yes, that's correct.
Respondent: Okay. I hope that's answered your question.
Respondent: Yes, thank you.
Respondent: Next question?
Moderator: We'll take our next question from the side of (Ian McQueen) from Dundee Securities. Go ahead, sir.
Respondent: Thanks very much. I'm wondering about your well commitments. You had three firm well commitments to begin with, with an option for another four wells. Have you extended or revised drilling contracts in any way? The next question is with respect to the mix of deep and shallow wells. You mentioned the Makó-7 Well, which I believe is deep. Is the Makó-8 Well a deep well, and what will be, going forward, the number of shallow or deep exploration wells you'll do?
Respondent: Okay, well, it's Marc Burner. That's about three or four questions in one. Let me see if we can split it up this way. Let me just say—John Gustavson, you correct me if I'm wrong—that we only had, in the TOPs originally, two well commitments, and we have on our own applied for commitments and voluntarily increased our commitments with the TOPs that we wanted drilled. Is that not correct?
Respondent: That's correct.
Respondent: TOP means Technical Operating Plan as it is filed with the Hungarian authorities at the beginning of every year. (Inaudible) a minimal commitment.
Respondent: Now, Dr. Edwards, could you please take the question in terms of the drilling commitments that we have self-imposed on ourselves with the drilling contractor.
Respondent: What we’ve tried to do is establish a long-term relationship with Crosco, the Croatian company that operates the rigs that we have under our guidance right now. What we've done with them is set up a commitment with our smaller rig, the 403 rig. We've actually committed to them an eight-well program. We have, obviously, established get-out points for us so we're not totally committed to it, but if we continue with our growing program as currently planned, we'll exceed that number of wells, probably by three. Then the 801, we have a pretty safeguarded program. We committed to one well with three option wells, but then we can continue on on a well-by-well basis, with a notification period. They like it. They're very happy to have this relationship with us. It really improves their performance, knowing that they’ve got something that they can continue and not have to worry about demobing and getting out.
Respondent: Okay, James, would you comment on (Ian's) question, in terms of shallow wells, deep wells that are current this-year plans?
Respondent: This year we have four wells that we'll complete with a 403 rig, and we have three wells that we'll complete with our 801 rig.
Respondent: That’s wonderful. Thank you very much. I appreciate that.
Respondent: Does that answer your question?
Respondent: It does. Thank you.
Respondent: Okay. Next question?
Moderator: We have no further questions queued at this time. Once again, ladies and gentlemen, if you'd like to ask a question, please press '*' and '1' on your touch-tone phone.
Respondent: It's Michael Lam here again. I'd like to ask the people to address a couple more issues, I think, that have been talked about on the market. One is that fracking the wells will be obviously extremely key, in terms of Astoria-Falcon. We all know, or most of us know that you don't know until you know. Who's the best to address, based on the data that's seen today, in theory, the ability to frack these rocks are as good or the same as those found in the US?
Respondent: I don't know. I think in terms of the rocks and their ability to be fracked, in terms of being the expert on BCGAs, could you comment, Ben Law, on what your thoughts are of how these reservoirs compare to reservoirs in the States? On our ability to frack them, based on what you see so far?
Respondent: Yes, pleased to, Marc. I think what, going into this program, we've found is that, for one thing, I just would like to say that the geologic age of these rocks is very young compared to anything in the US or Canada of a similar kind of accumulation. What that really implies is that we're dealing with rock sequences here that haven't been exposed to a lot of structural deformation and rock-water interactions that collectively degrade reservoir characteristics. In fact, the nets confirm by the core data from the Hod Well that indicates that we are in a sequence that has at least 10 times better permeability. Permeability is just the ability of fluids to move through a matrix. You can measure it in darcies or millidarcies. In the Makó Trough, the Szolnok—particularly the Szolnok—and the Endröd have better reservoir characteristics to start with. It is our feeling that we can bring a technology that works on much worse quality reservoirs in North America, apply them here, and experience success. Some of the preliminary information we've gotten from logs sort of confirms that feeling. I think we're really on the road to success. I know people have accused me of sometimes being overly optimistic, but having looked at a number of these kinds of accumulations throughout the world, I think we're in a great position here to experience success.
Respondent: I've got one question—it's Marc Bruner—that I would like to ask John Gustavson, because John is the person that really delivered this baby into the world; I'm just trying to get him to grow up a little bit. I'd like to ask John what his feeling is so far in terms of what we've found, how he feels about what we've got.
Respondent: Okay, thank you, Marc. First of all, I cannot take the honour of being the person who brought this baby into the world because the Hungarian scientists and engineers already, 30 years ago, knew that this was a tremendous possibility of a petroleum system. I was very fortunate during the 1990s: meeting Dr. Szabó, working with Dr. Szabó, and under his guidance, learning how to work with Hungarian Geological Survey, earning their respect, and finally, being able to get the licenses in the late 1990s. After that, of course, there were a couple of key points where I first learned that, indeed, the concept of BCGA matched those concepts that were used in the United States and in Canada. Then I think a benchmark, from a reserve or resource standpoint, was the filing with the so-called NI-51 101, about a little more than a year ago, where the public records would show that there was about a P50 chance of 11tcf. I am tremendously pleased, at this moment, that not only the deeper-lying BCGA cell around the Endröd has been found, but also that we had the 900 metres in the overlying Szolnok formation with 60 percent net sand content, which gives us about 600 metres of net pay, which really increases the resource tremendously. I cannot, at this moment, give any numbers; they are, or course, subject to checking and double-checking and so on. At this moment, I personally am of the opinion, after many, many years of work, that the number of 11tcf is small as compared with what we will now be able to show after checking and testing and so on. We will see multiples of the tens of tcfs in the recoverable amount of gas here in this area. I know I'm sticking my head out, but I think Dr. Szabó will agree that we would not have gotten to this point if we hadn't worked together. I'm very thankful to Dr. Szabó, and I want to congratulate Dr. Szabó to his appointment to president of the Hungarian company TXM that's going to carry this forward.
Respondent: Thank you very much, and wish good fortune.
Respondent: Absolutely. Do we have any other questions?
Moderator: Yes we do. We have a question from Rob Butts from Southpoint Capital. Good ahead, please.
Respondent: Hi guys. This question is to Dr. Law. Are you there?
Respondent: I am. I am, Rob.
Respondent: Originally, before y'all started drilling, your estimate of the recourse potential in the Szolnok was around, sort of a key projection of 205 sections. Now that you have incremental data from drilling, what is your new estimate for recoverable reserves from just the Szolnok alone?
Respondent: Actually, my original estimate of recoverable gas from the Szolnok ranged anywhere from 40, to even as much as 100tcf because the total in place from the Szolnok was over 140 trillion cubic feet of gas in place. However, with the new drilling that we now have, and just the area, for one thing, has to be expanded quite a bit beyond what I had originally thought would be the areal limitations. I would guess, and I haven't really sat down and methodically done this because it seems like the effort is premature even now, but I would be very comfortable in saying that a conservative recoverable gas resource from the Szolnok alone will be probably around 40tcf. I think it's important for people to realize that if we compared that number with anything in the United States, the largest gas field ever in the United States is the Hugoton gas field in Oklahoma. That is about 35 trillion cubic feet of gas, so we're indeed talking about a giant field. I'm very optimistic, as you can tell by my comments. I just feel like it's a done thing. I often tell people that we're about ready to hit a walk-off home run. For those people who don't know baseball lingo, what that means is you're in the ninth inning, and it might be a tight game, and the guy comes up to bat. He swings and hits a home run; the game is over. That might be a pretty cavalier statement, but I feel pretty confident about that.
Respondent: In your mind, is 40ts a P50 number?
Respondent: Yes. Yes. That would be a 'most likely' or something. I didn't use a probability distribution. What I've done in order to come up with that number is to use recovery factors that are commonly used in North America. Those percentage recovery numbers are publicly-available numbers.
Respondent: In places like the Peance Basin and the (inaudible) field?
Respondent: Right. Yes.
Respondent: And what is it? 60 percent or so?
Respondent: Well, it depends on the well spacing. Let's say that in any of those fields, if you go down to 10 acres, which by the way, we don't think that we're going to have to do that. If we went down to 10-acre spacing, then it's quite likely you'd get 80 percent of the in-place number. We don't think that, at this point in time, that we're going to have 10-acre spacing. We think maybe 40-acre might be the most dense drilling spacing, but that's subject to change as we get smarter about the area that we're drilling in. That could all change. If 40 acres, that's 20 percent of the 200tcf, so the total BCGA is 40 trillion cubic feet of gas.
Respondent: That gives us a pretty good movement of stock price over the next few years. Thank you.
Respondent: You bet.
Respondent: Next question?
Moderator: At this time we have no further questions.
Respondent: Well, we've been on this for what, about 40 minutes. I just wonder if we should wait? Dr. Edwards?
Respondent: Yes?
Respondent: Could you briefly comment, I mean, one of the things that's happened out here, I think a lot of people have read about the floods that have happened out in Hungary. Would you comment on that, in terms of how that could affect us in the future here?
Respondent: Actually I'd like to pass that question to Dr. Szabó. He’s been.
Respondent: Yes, thank you. It's a really terrible flood. The problem is that the peak is very long. There are three rivers influencing our territories. The Danube and the (inaudible) river Pisa, and the Maros. Our wells are in a very dangerous place. For example, close this river region through Pusztaszer, is the most dangerous location, and that's why the government declared the immediate danger notification, so the military and the helicopter and the land transportation. It influences us because of two main reasons. One is the very high water table. We had to terminate one of the basement construction because of water table, and we cannot drain the water because of the high level of flooded rivers, and the government restricted that. That is one thing, and there is another thing that the transportation is also limited because all these sand mines are kept for sand sack filling purposes. There are problems, but the forecast is that three, maximum four days would be needed to have a decrease in flood, the water level, and it will be fast because in Serbia and Romania, the river levees have been destroyed.
Respondent: Just to let everyone know, we have run pipe already and cement it in at the Pusztaszer. This doesn't represent any sort of problem later, say, in 60 days and us completing that well. Is that right?
Respondent: No, I don't think that any delay will be suffered because of that.
Moderator: Okay. All right. Do I have any other questions on the line?
Respondent: No more questions at this time, sir.
Respondent: It's Michael Lam here. Actually, since we have another couple minutes, I wouldn't mind somebody answering one more question on log data. In the press release, you talked about the fact that there's no present moveable water. Can anybody please comment on is there any presence of immovable water in the logs?
Respondent: John Gustavson can answer that and just state that in the various wells that now have been drilled where we have penetrated the Szolnok formation, we see both evidence of conventional moveable water in some parts of the formation, along what we would call the ragged edge of the BCGA where we have more conventional conditions and we see moveable water. We also, with the logging tools, are able to determine that there is immovable water. That is water that will not move and which gives us the opportunity to use the technology that has been developed in North America for producing BCGAs.
Respondent: It's Marc Bruner here, John. This moveable water is higher up in the section, not lower. Once you get below a certain point here, you don't have the moveable water. Is that not correct?
Respondent: That's generally correct in the central part of the BCGA, but towards the edges of the BCGA, which is, of course, exactly what Dr. Edwards is trying to determine with his drilling program. Along the edges, you will have interfingering formations or members of the formation where you have what we in the U.S. call "transition zones." In those zones, it will come and go, so to speak. That's why it's very important to drill along the flanks, as is being done, so that you can get a determination as you are getting of the size of the BCGA for purposes of getting an accurate mining plot from the Hungarian government.
Respondent: To what extent would there be immovable water in the heart of BCGA, and how does that affect completion?
Respondent: Let's see, I'll answer the first part and then let Lyle Nelson answer the second. It is a fact that there always will be somewhere between 20 and maybe 30 to 40 percent of water left in the pore spaces in the reservoir, which we then call immovable water. That is water that literally is stuck to the individual sand grains, and it just will not move out of there. Consequently, it does not influence production. Gas can be produced out without having that final amount of immovable water disrupt. The amount that is immovable generally varies over the range from about 20 to sometimes as high as 40, particularly if there are clay particles and so on. Without getting too scientific, I'll stop here and ask Lyle Nelson to answer the question with regard to the completion.
Respondent: What we do with that is we take the logs that we have and go through and make sure that we take a look at each interval and determine whether it's going to be movable or immovable water. I can tell you in the Peance Basin, there's a little bit of water at the top. Essentially, we typically stay away from the first three upper little intervals in there just because of the water production potential, but in what we've seen so far, there's some water up above us, but in the actual zones of interest, it appears that everything is nonmobile water, so we shouldn't get any water production with that.
Respondent: It's Marc Bruner here. What I just want to make sure, Michael Lam, you understand, in terms to answer your question, is in the central part of the basin—we're talking the Mako-6—is that if you remember the press release that we made, we basically talked about where the top of the gas is. The top of the gas that we talked about is, I think it was about 3,300 meters or something like that, 3,350, and below that is immovable water, is what we're talking about. Is that clear?
Respondent: Yes.
Moderator: Okay. Okay, thank you very much, John, and thank you Lyle. Are there any other questions?
Respondent: At this time, we have no more questions queued, sir.
Moderator: Well, how are we coming? We're getting close to where we, I think, need to be here. If there are no more questions, I think we'll wrap it up. I want to thank, ladies and gentlemen, all of you for being with us. We are extremely excited about what we're seeing now. I want to stress that as good as everything looks now, we've got a lot of work to do. We're still in the drilling phase. We're drilling the Mako-6 Well, and we're drilling the Szekkutas Well, so we've got our work cut out for us. I'm sure Lyle and his team are going to do a great job of getting us to TD, and then we'll turn it over to the completion guys, and we'll find out what we've got. Ladies and gentlemen, thank you so much, and thank you for your support, and I'm really excited. I hope the rest of you are. Thank you so much for being with us.
Moderator: Ladies and gentlemen, this concludes today's teleconference. You may disconnect at any time.
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