Mar 11, 2009
Executives
Fred L. Callon – Chairman & Chief Executive Officer Terry Trovato – Investor Relations B.F.
Weatherly – Executive Vice President & Chief Financial Officer
Analysts
Ronald Mills – Johnson Rice & Company Richard Tullis – Capital One Southcoast Evan Templeton - Jefferies & Company Chris Pikul – Morgan Keegan & Company
Operator
Ladies and gentlemen thank you very much for standing by. And welcome to the Callon Petroleum Company fourth quarter and full year 2008 results conference call.
During this presentation all participants are in a listen-only mode. Afterwards we will conduct a question-and-answer session.
(Operator Instructions). As a reminder this conference is being recorded on Wednesday, March 11, 2009.
It's now my pleasure to turn the conference over to Fred Callon, Chairman and Chief Executive Officer at Callon Petroleum Company. Please go ahead sir.
Fred L. Callon
Thank you. Good morning and thank you taking time to call in for our fourth quarter and year-end results call.
Before we begin the formal portion of our presentation, I’d like as always to ask Terry Trovato, who heads our Investor Relations to make his comments.
Terry Trovato
Thank you, Fred. We’d like to remind everyone that some of the comments made during this call will be considered forward-looking statements.
As such no assurances can be given that these events will occur or that the projections will be attained. Please refer to the cautionary language included in our news release and in the risk factors described in our SEC filings.
We undertake no obligation to publicly update or revise such forward-looking statements. It is also important to note that the SEC permits us in our filings with them to disclose only proved reserves that we have demonstrated by actual production or conclusive formation tests to be economically and legally produceable under existing economic and operating conditions.
During today’s discussion, we may use terms like reserve potential and probable reserves that the SEC’s guidelines strictly prohibit us from using in our filings with them. These estimates are by their nature more speculative than estimates of proved reserves and accordingly are subject to a substantially greater risk of being actually realized by the company.
Finally, today we will be discussing 2008 cash flow, which is considered a non-GAAP financial measure. Reconciliation and calculation schedules for the non-GAAP financial measure were stated in our fourth quarter and full year 2008 results news release and can be referenced there on our website at www.callon.com for subsequent review.
Fred?
Fred L. Callon
Thank you, Terry. Before I begin my discussion of the company’s current operations and our plans for 2009, I would like to take a minute to share with you my current view of economic conditions and how I think Callon can navigate successfully through these challenging times for our industry.
As most of you know, Callon has been around since 1950 operating almost 60 years from our base here in Natchez, Mississippi. Our team has weathered many storms together and we are ready to face this current economic climate.
All of us at Callon have seen the industry in worst shape than what we are experiencing today, we've operated successfully when oil and natural gas prices were much lower. During the 1980s when oil prices collapsed, we were hit hard along with the rest of the industry, but we found ways to succeed, by focusing on liquidity and building long-term value.
Today, we at Callon are approaching this current down cycle with our perspective that we have gained that [moves] prior crisis by focusing on liquidity and making tough decisions that we need to succeed. I believe we have the financial strength, technical expertise and focus to thrive during this downturn and emerge stronger.
We've seen some dark days in the past and we will survive this period that would be better for [us]. As a fit one of the keys to success in this environment for us and for our peers will be having adequate liquidity.
At Callon managing liquidity has been most important element of our financial strategy in the past two years and I think that strategy is serviced well. Beginning in mid-2007 and throughout 2008, we carefully managed our liquidity position.
In the summer 2008, we put in place hedges for our legacy oil production that covers approximately 45% of our expected production for 2009 using collars with the floor of $110. These hedges provide us significant downside price protection in the current environment and had the value in excess of 21 million at year-end.
As a result, despite our challenges and the turmoil in the financial markets, we find ourselves with strong liquidity position and the financial resources to be opportunistic during this economic down turn. We do not have any significant required capital expenditures for 2009, so we have the flexibility to use our cash flow and credit facility to fund producing property acquisitions to grow the company’s reserves and production over the next several years.
Turing now to operations, let me give you an update beginning first with the recap of our Entrada Field project. At the time of our last conference call, we reported the after dealing with delays brought on by the failure of the VLA anchor system that we required to use by the MMS and two back-to-back hurricanes resulting in the evacuation of our drilling rig on both occasions.
We were drilling at that time at 18,240 feet on the number three well. We subsequently drilled the well to total debt of 21,100 feet and after review of the drilling result we determined this well needed to be sidetracked back towards the original discovery well in the block.
However, after discussions with our partner CIECO Energy, concerning significantly higher than expected drilling and development cost incurred on the project to-date that resulted from extra cost of the failed VLA anchor system, down hole mechanical problems, delays brought about by the back-to-back hurricanes coupled with significant and rapid decline in commodity prices, a decision was reached to suspend operations at Entrada. As regrettable as the decision was the facts remain that underlying economies of the project had deteriorated dramatically with the declining commodity prices and the significantly increasing cost estimated for the final project.
After the suspension, we explored other possibilities to extend leases or find another solution to avoid banning the project altogether, but to-date no viable alternative has been found. With the final lease expiration currently anticipated to be in June of 2009 is unlikely that we will be able to resume commercial operations.
As a result we have been working to wind down the project and negotiate outstanding contractual commitments and dispose of the tangible equipment that we acquired for the project. These operations are ongoing, which we largely resolve early in the second quarter.
Now let's review our ongoing operations. First after Hurricanes Gustav and Ike, all of our major Gulf of Mexico producing properties were back online by mid-December.
However, we did defer production of approximately 18 million cubic feet of gas a day from the fourth quarter because of hurricane related downtime. At Medusa, where we have eight wells currently producing 14,200 barrels of oil and 12 million cubic feet of gas a day, the problem with workovers and the drilling on additional well has been deferred from 2009 to 2010 because of current commodity prices as you recall we have a 15% interest at Medusa and Murphy is the operator.
At Habanero the field is producing 6,000 barrels of oil and 9 million cubic feet of gas a day from the two wells both producing from Hab 52 oil reservoir, we have a 11.25% interest in the number 2 well and a 25% interest in number 1 well. At West Cameron 295, the field is producing 19 million cubic feet of gas a day, and a 120 barrels of oil, an additional well maybe drilled on the block here in 2010 depending on well performance.
The number 2 and 4 wells are operated by Mariner, while the number 3 well is operated by Cimarex. Callon owns a 20.5% working interest in the wells.
First production at our East Cameron 2, inside North Pronghorn field commenced in October and currently the field is producing 7 million cubic feet of gas a day and a 100 barrels of oil. Apache is the operator and Callon owns a 42.5% working interest.
At our East Cameron 257 field it is currently producing 5 million cubic feet of gas a day, SPN Resources is the operator and we own a 50% interest there. As I mentioned earlier in this current low commodity price environment coupled with relatively half service cost, we are not planning in 2009 to actively pursue drilling prospects that we have high graded from our inventory of Gulf of Mexico prospects.
That inventory includes non-drill ready prospects with unrisk reserve potential in excess of 280 Bcfe. We are constantly monitoring market conditions and we see project economics improve as a result of some combination of increasing commodity prices or reduction in service cost in the Gulf we will of course revisit our drilling plants.
But also limited our required property expenditures in 2009 to approximately $10 million or scheduled plugging and abandonment expenditures. So, with minimal required capital expenditures, we plan to use our cash flow from operations in our bank credit facility to fund the acquisition of producing properties, which we think will become more and more available during this year.
We have been spending a great deal of time evaluating both asset and corporate acquisition opportunities, potential acquisition targets include onshore properties where Callon has decades of experience and the technical staff operate effectively and economically. Any acquisition we made will certainly fit our criteria of being producing properties with low reinvestment requirements and multi-year development opportunities by prudently using our liquidity patiently and opportunistically pursuing acquisitions in this environment, we plan to add quality reserves, which will serve as the catalyst for growth we think over the next several years.
With that I will turn the call over to Bob Weatherly and for a recap of our fourth quarter and full year 2008 financial results and first quarter guidance. Following Bob’s remarks, we will open for questions.
B.F. Weatherly
Thank you, Fred. As we reported in our press release for the year ended December 31, 2008 the company reported a net loss of $438.9 million or $20.68 per share.
This loss was primarily the result of reporting the non-cash charge of $482.4 million for the impairment of oil and gas properties under the full cost accounting rules. This charge is calculated as the excess of book value of the company's oil and gas properties over the PV-10 value of reserves at December 31, 2008 adjusted for tax impact.
This excess resulted from sharply lower oil and natural gas prices used at year-end 2008 to calculate PV-10 value of reserves as well as the suspension of the Entrada project. The oil and gas prices used in the reserve report were $36.80 for oil and $6.36 for natural gas.
Excluding this non-cash charge related to the impairment of oil and gas properties, the company would have generated about pretax income of $40.7 million for 2008. Also at year-end we reported an income tax expense charge of a $128.1 million as required by SFAS 109 "Accounting for Income Taxes".
The 2008 results compared to net income of $15.2 million, or $0.71 per share for 2007. For the quarter ended December 31, 2008, the company reported a net loss of $457.5 million, or $21.19 per diluted share, compared to a net income of $4.5 million, or $0.21 per diluted share reported for the same three-month period of 2007.
For the year ended December 31, 2008, we reported oil and gas sales of $141.3 million, which was down by 17% from 2007 sales of a $170.8 million. Average production for 2008 was within the range of previously issued guidance at 31.4 million cubic feet of natural gas equivalent per day and was comprised of 5.8 billion cubic feet of natural gas and 942,000 barrels of oil.
This compares to 2007 production of 12.3 billion cubic feet of gas and 1,63,000 barrels of oil or an equivalent 51.3 million cubic feet of natural gas equivalent per day. Our operating results for 2008 were negatively impacted by the combination of lower commodity prices and the impact of hurricane activity.
Several of our deepwater and shelf fields were shut in, in late August due to the approach of Hurricane Gustav followed by Hurricane Ike. As a result of damage to third-party transition line and downstream facilities these fields remained shut in until late in the fourth quarter of 2008, significantly impacting our operating results for that period as well.
Oil and gas sales for the fourth quarter of 2008 of $15.5 million, compared to $43.9 million for the fourth quarter of 2007. Production for the fourth quarter of 2008 was 20.7 million cubic feet of natural gas equivalent per day and included 926 million cubic feet of natural gas and a 162,000 barrels of oil.
Production was 2.5 billion cubic feet of natural gas and 289,000 barrels of oil during the fourth quarter of 2007. The average realized price for the fourth quarter of 2008 was $55.23 per barrel, which was significantly less than the realized oil price in the same quarter of 2007 at $82.47 per barrel.
Oil hedging positions increased our average realized price by $30.45 per barrel of oil in 2007 period. The benchmark oil price for the fourth quarter of 2008 as measured by the average closing price of NYMEX contracts or delivery of WTI was $58.76 per barrel.
For the year 2008, the average realized oil price was $88.07 per barrel, which was $20.44 higher than the realized oil price in 2007 of $67.63 per barrel. Oil hedging positions decreased our average realized price in 2008 by $9.30 per barrel of oil.
Benchmark oil price for the period measured by the average closing price of NYMEX contracts or delivery of WTI was $99.67 per barrel. As a reminder the spread between the benchmark oil price and our averaged realized oil price is primarily due to quality adjustments incurred in the sale of our production from Medusa and Habanero, which accounted for 94% of our fourth quarter oil production.
Natural gas realization averaged $7.12 per Mcf for the fourth quarter of 2008, this compares to $8.18 per Mcf for the fourth quarter of 2007. Natural gas hedging position increased our average realized price by $0.81 per Mcf for the three-month period ended December 31, 2008.
For the year, natural gas price realization averaged $9.99 per Mcf, which is up of the 2007 price of $8.01. Natural gas hedging positions decreased our average realized price by $0.11 per Mcf in 2008.
On the expense side, LOE for the fourth quarter of 2008 was $5.5 million. For the year ended December 31, 2008, LOE was $19.2 million or $1.67 per equivalent Mcf of production and was just under our guidance range of $19.5 million to $20.5 million.
G&A expense was $2.5 million and $9.6 million for the fourth quarter and full year of 2008 respectively. Interest expense for the quarter was $7 million, which was a 33% decrease from the fourth quarter of 2007 amount of $10.4 million.
For the full year 2008, interest expense was $26.7 million. Depletion, depreciation and amortization for the fourth quarter of 2008 totaled $22.3 million, an increase from the fourth quarter of 2007 of $16.2 million.
For the full year 2008, DD&A was $64.1 million, compared to $72.8 million in 2007. Discretionary cash flow is a non-GAAP measure and we have provided reconciliation to cash provided by operating activities on our news release.
Discretionary cash flow in the fourth quarter totaled $3.8 million or $0.17 per share. Discretionary cash flow for the full year totaled $84.9 million or $4 per share.
Available cash and cash flow from operations along with loan drawn under the CIECO credit facility funded our capital expenditure and abandonment obligations for 2008. Our estimated net proved reserves at December 31, 2008 were 54.8 billion cubic feet of natural gas equivalent.
This represents a decline in our reserves of 208.8 Bcfe as compared to year-end 2007. The decline is due to a combination of factors, first was the sale of a 50% working interest in the Entrada Field to CIECO Energy in April 2008, which accounted for 45% of the decrease.
Previously announced suspension of operations at the Entrada Field in November 2008 accounted for 47% of the decrease and 2008 production and other changes account for the remaining 8% of this decline. PV-10 value of our reserves at December 31, 2008 was $86.6 million.
Following is a summary of the guidance for the first quarter and full year of 2009 that we've provided in our news release. For the first quarter, we are projecting a daily production rate of 29 million to 33 million cubic feet equivalent per day and 27 million to 35 million cubic feet equivalent per day for the full year 2009.
Approximately, 50% of projected production will be oil. Lease operating expense should be approximately $5 million to $5.5 million and $17 million to $22 million for the first quarter and full year of 2009 respectively.
G&A expense should be between $3 million and $3.5 million for the first quarter and $12 million to $13 million for the full year 2009. Interest expense should range from $6 million to $7 million for the first quarter and between $22 million and $24 million for the full year of 2009.
With regard to DD&A, we are projecting ranges of $8 million to $9 million for the first quarter and for the full year $30 million to $38 million. In the first quarter of 2009, 300 million cubic feet of natural gas was hedged using collars with an average ceiling price of $20 and floor of $11.
Most of our production is sold in the general area of Henry hub, which is comparable to NYMEX. We have no gas hedges to place at this time for the remainder of 2009.
For the year, we have 360,000 barrels of oil hedged using collars with an average ceiling price of a $175.75 and an average floor of a $110. Just to remind you that realized oil prices will continue to be affected by quality differentials and transportation costs.
We anticipate transportation costs should average about $1.15 to $1.30 per barrel. Now we will take your questions.
Operator
Thank you, sir. (Operator Instructions).
And our first question comes from the line of Ron Mills of Johnson Rice. Please go ahead sir.
Your line is open.
Ronald Mills – Johnson Rice & Company
Good morning, Fred and Bob. Really just to follow-up on a couple of clarification and then ask a question.
You talked about $10 million Fred from a CapEx standpoint this year primarily for P&A work?
Fred L. Callon
Right.
Ronald Mills – Johnson Rice & Company
Is that number correct and is that exclusive of your capitalized cost?
Fred L. Callon
Yes it is. I’m sorry that's, you are right that's miscellaneous P&A with several properties, therefore we had just some scheduled P&A.
So, yes that is just strictly P&A.
Ronald Mills – Johnson Rice & Company
Okay. And from a capitalized standpoint, are your capitalized cost, should they still remain in that $15 million to $20 million range or will those come down..
Fred L. Callon
I think capitalized interest and G&A should be around 15, yeah 15.
Ronald Mills – Johnson Rice & Company
Okay. And then in terms of, since the producing property acquisitions is the primary focus at least that's what it seems like right now, how is that market looking to you all right now, how are conversations going, how is the deal flow just get a sense as to what you all are seeing to be pursuant in that…
Fred L. Callon
Sure. Right.
As I mentioned, we've been looking kind of at the market, for quite some time actually almost a year then, it quite frankly started last spring as we, at the time, we were anticipating and tried to be in a line in looking at the cash flow and where we are going to direct that cash flow and we are starting to looking at some more onshore opportunities and so we've been looking at various opportunities for total different climate now as to issues back then, when things were so heated up, but in recent times I think we are certainly seeing opportunities I think it's, the deal flow is I don't say its starting to pick up, it has been somewhat slow, but again for us, and we are a small company, so there are plenty of opportunities for us to be evaluating looking at, as you might expect and this has happened every time we go through one of these cycles, it just takes some time for buyers and sellers to figure out where the clearing price is on some of these properties, and that's the reason I think it's important to be patient. Obviously, we would like to close on an acquisition sooner rather then later, but I think it's just it's very important to have the patience because I mean I think there are some opportunities out there, and unfortunately it just takes a little time for sellers to basically kind of group, kind of where the market is and in fact frankly the buyers are sellers really don’t know where that clearing price is, and I think we are starting to see that I guess come together I think we will literally in the next probably 30, 60 days even, see more and more and we are certainly seeing an increase in properties out there and I’m sure that will continue.
And so I think there are going to be a number of opportunities and its just, it’s the issues like a year or two ago, acquisitions you were paying for probables and maybe possible sometime and today, not only, you're not paying for that, but we are seeing opportunities where you may not have to pay for, some of the projects as well so. The whole market is shifting and so we think if we are patient and we’re careful and do our homework that we are going to be able find some opportunities this year that allow us to build some value for the next coming years.
Ronald Mills – Johnson Rice & Company
Okay. And just from a production guidance standpoint, given that you're not drilling any wells or it didn't sound like really performing recompletions or anything either?
Fred L. Callon
Correct.
Ronald Mills – Johnson Rice & Company
So, I am a little surprised that how resilient your production would appear to be from a quarterly basis obviously going down, but holding in there pretty well what is it about your properties that allow for that?
Fred L. Callon
I think kind of looking I think.
B.F. Weatherly
Hurricane.
Fred L. Callon
Yeah. I was going to say, I am thinking, some of it was of course the hurricane, which delayed some production, comparing back and, we brought, production when you are comparing kind of this year versus last year, we brought on North Pronghorn and, with…
Ronald Mills – Johnson Rice & Company
I guess I was talking from the first quarter guidance to where your full year guidance is?
Fred L. Callon
I'm sorry.
Ronald Mills – Johnson Rice & Company
It's minimal. You'd forecast minimal declines, which is a little bit better than what I would have thought if you weren’t putting any new capital into anything.
Fred L. Callon
Yeah. And I think keep in mind our production profile is dominated by Medusa and Habanero, which don't have quite the decline rate that you would associate with the shelf, just a typical, maybe shelf well.
Ronald Mills – Johnson Rice & Company
Right. Okay, well I just want to make sure that I understood that, I'll let someone else to jump in.
Operator
And thank you for your question Mr. Mills.
Continuing on our next question comes from the line of Richard Tullis of Capital One Southcoast. Please go ahead sir.
Your line is open.
Richard Tullis – Capital One Southcoast
Thank you, good morning.
Fred L. Callon
Hi, Rich.
Richard Tullis – Capital One Southcoast
Looking at the balance sheet Fred or Bob what's the status on the non-recourse loan that's still listed on the balance sheet I think it was $78 million at year-end?
B.F. Weatherly
Yeah. I think Richard the non-recourse loan will remain there until we cancel the credit agreement, and that will be available before we get everything resolved there.
Richard Tullis – Capital One Southcoast
What’s your expectations overall on this loan, I mean do you foresee CIECO paying this at a 100% or is there any discussions that maybe they won’t be paying forward in full?
Fred L. Callon
No.
B.F. Weatherly
Well, first of all what booked is cash that we received.
Fred L. Callon
It's liability.
B.F. Weatherly
We've not booked the receivable related to that loan.
Richard Tullis – Capital One Southcoast
Okay. So, you foresee the whole liability going away?
B.F. Weatherly
Yes.
Fred L. Callon
Yeah, absolutely.
B.F. Weatherly
Yeah.
Fred L. Callon
Yeah. It is non-recourse.
B.F. Weatherly
But remember that's the piece of debt in Callon, Entrada.
Richard Tullis – Capital One Southcoast
Right, right. But there is no discussions or dispute on CIECO’s part on any of the cost related to the project?
B.F. Weatherly
Well I think in terms of the abandonment cost that we’re going through right now CIECO is up-to-date with all cash calls, with the exception and where we have cash call that's due I think that's [probably], and we have one contract settlement issue that we are still discussing with them, we believe we will resolve that. And I think we have on our loan request, they were all funded up with the exception of two, which we are continuing to discuss with.
Richard Tullis – Capital One Southcoast
Okay.
Fred L. Callon
But I think with respect to the non-recourse loan I know you say because it surprise me a little bit, that that stays on there, but that is it is non-recourse and like that it was recourse owing to the lease so…
B.F. Weatherly
Which has not expired.
Fred L. Callon
Which has not expired so we certainly would anticipate that going away, at some point not here, but the first quarter, second quarter and certainly I’d think by the time the lease expires and that would just go away.
Richard Tullis – Capital One Southcoast
Okay.
Fred L. Callon
And that's not disputed.
Richard Tullis – Capital One Southcoast
What about the bank current, bank credit facility, could you talk about that a bit what's the current base and how much is borrowed?
B.F. Weatherly
Sure. As you remember back last September, we redid our credit facility, and that was set with a $70 million borrowing base, after that we issued a $15 million letter of credit to Diamond in our capacity as a operator in the Entrada Field, and so we have had since then $55 million net availability under that loan.
As we wind up the project, and as we complete paying Diamond, we believe that that letter of credit will be released. We are presently in the process with the bank of the schedule redetermination, we believe that will be completed some time this month, and if we continued our discussions and we believe that even though, we don’t know what the borrowing base will be exactly, we've had constructive discussions with them, but with the commodity price decline it's the probability that the $70 million borrowing base will decline.
We have nothing, we had nothing drawn on the line at December 31 and we have nothing drawn on the line to-date.
Richard Tullis – Capital One Southcoast
Okay. Good.
Do you anticipate any additional obligations related to Entrada that aren't reflected on the balance sheet as of December 31?
B.F. Weatherly
No.
Richard Tullis – Capital One Southcoast
Okay. How much cash do you have on hand right now?
B.F. Weatherly
A 15 million something like that I think it I have, I didn't look at the balance today, but it's probably in the $12 million to $15 million range.
Richard Tullis – Capital One Southcoast
Okay. And I guess lastly what level of acquisitions in total do you think you could reasonably handle funding this year?
Fred L. Callon
I think our target is $50 million, and I mean that's something we've kind of look at, we think that that we could fund just by, just from our cash flow and under our credit facility, and with, beyond that I think we're certainly looking at some other opportunities for additional financing that could expand that and, but in terms of just acquisition certainly our plan is focusing on properties with certainly a significant PDP component, which we think working with our bank group and they have certainly indicated interest in funding such acquisitions and so, but I think beyond that we continue to look at some other sources of financing maybe able to expand that.
Richard Tullis – Capital One Southcoast
Okay. Well thanks very much.
I appreciate it.
Fred L. Callon
Thank you.
Operator
Thank you for your question sir. Continuing on our next question comes from the line of Evan Templeton of Jefferies & Company.
Please go ahead sir. Your line is open.
Evan Templeton – Jefferies & Company
Great. Thank you.
Just a question on the reserves and PV-10. First of all, you may have already given it, but did you give the proved developed component of reserves at year-end?
B.F. Weatherly
No, I don't think I did in the narrative, we will refer to that.
Evan Templeton – Jefferies & Company
And along those lines also wondering if you maybe have the PV-10 value, for PDP or PDNP.
B.F. Weatherly
PDP I think was $87.7 million or $86.7 million.
Evan Templeton – Jefferies & Company
I am sorry what was that figure again?
B.F. Weatherly
Let me try to give you the right number.
Evan Templeton – Jefferies & Company
Sure.
B.F. Weatherly
It is $86.6 million PV-10 at December 31 based on $36 and 636.
Evan Templeton – Jefferies &Company
And that figure is for, that’s total?
B.F. Weatherly
Yeah.
Evan Templeton – Jefferies & Company
Do you have the PDP component of that?
B.F. Weatherly
No I don’t, I get it for you Evan.
Evan Templeton – Jefferies & Company
Okay great. I will talk to you off-line.
And then also did you also take a stab at PV-10 based strip pricing?
B.F. Weatherly
We did and, I think it was 120, 125 something on that level.
Evan Templeton – Jefferies & Company
Okay, great. And then just one other point I know you addressed it a little bit, but what was the total anticipated 2009 CapEx then?
B.F. Weatherly
I am sorry, what?
Evan Templeton – Jefferies & Company
Just 2009 CapEx?
B.F. Weatherly
176.
Evan Templeton – Jefferies & Company
That’s for 2009?
B.F. Weatherly
I’m sorry, I was looking down the paper for 2008, 2009 CapEx we have two components there that would show up it's CapEx one is $10 million worth of plugging, abandonment costs and we estimate the capitalized G&A interest geological will be about $14 million, $15 million.
Evan Templeton – Jefferies & Company
Okay, great. And nothing else planned.
B.F. Weatherly
The total is 24, 25 and we have I think as Fred said just based on our property profile and work that we have done at Medusa and Habanero over the last couple of years, we don’t have any CapEx that we have any idea of in either one of those in 2009. In 2010, I think there is some talk of doing some work at West Cam 295 and at Medusa.
Evan Templeton – Jefferies & Company
Okay. Great.
Thanks a lot.
B.F. Weatherly
Yeah.
Fred L. Callon
Sure.
Operator
Thank you, Mr. Templeton for your question.
(Operator Instructions). And our next question comes from the line of Chris Pikul of Morgan Keegan.
Please go ahead sir.
Chris Pikul – Morgan Keegan & Company
Yeah, good morning gentlemen. Most of my questions have been asked, but I wanted to just verify Bob, are there any covenant issues that we need to be made aware of that is might be tight for you guys?
B.F. Weatherly
Absolutely not.
Fred L. Callon
No, no.
Chris Pikul – Morgan Keegan & Company
And then just as we look forward into 2010, I think we talked about this before, but just want to hear your current thinking on those notes coming due, what a lot continues between now and then, but what are sort of your options as you think about what to do with those notes?
Fred L. Callon
Yeah. Chris the.
Yeah, clearly we are keenly mindful of the notes and, I think the answer is we plan to have a dialog if you will with our note holders sooner rather than later, certainly as we get, at year-end we plan to sit down with them and talk about what we can do in terms of restructuring those notes. We don’t, you are right a lot can change for now and then, but at the same time, we don't want to wait till kind of to the last minute, and we think there are opportunities that can benefit us and benefit our note holders to particularly in this environment as we talked about in terms of acquisition of properties and building value.
So, I guess the short answer is we certainly anticipate talking to our note holders here in the coming months, and, I am optimistic that we're going to be able to come up with a, if you will a new structure on those earlier rather than late until 2010.
Chris Pikul – Morgan Keegan & Company
Okay. So, you're just kind to look to extend the terms of those hopefully or that's…
Fred L. Callon
Certainly, looking to sit down and just talk to them about what make sense for both of us.
Chris Pikul – Morgan Keegan & Company
All right. Just a couple more questions.
I just want to kind of confirm, it sounds like that basically given what I think a reasonable cash flow number is that your cash balance should be building throughout the year, I mean is that kind of where you guys see the liquidity going?
Fred L. Callon
Yeah. Certainly, and that's absent any acquisitions it certainly will be.
Chris Pikul – Morgan Keegan & Company
All right. So, the strategy seems to be here, we're going to keep spending to a minimum or still going to be cash flowing, we are going to be building our cash position and then hopefully if there is any kind of recovery in prices then you were able to put a little more money to work in 2010, I mean is that kind of safe to…
B.F. Weatherly
It was pretty good...
Chris Pikul – Morgan Keegan & Company
The [key] strategy.
Fred L. Callon
Yeah. No, absolutely, and like I said it's just impatient this year and unfortunately, in these times and, just think there are going to be some opportunities to pick up some properties that, not only will provide good cash flow, but quite frankly pay for some, not have to pay for some upside, but that you probably would had to pay for a year ago that will be there for us, when commodity prices come back whenever that is.
B.F. Weatherly
And I think Chris just a comment to follow on to that point is that as you said and Fred said in his discussion earlier is that because of the strategy we've taken over the last couple of years focusing on our liquidity, and we find ourselves now in a unique position where we have good liquidity relative to our size, and we have – we don’t have the drilling obligations that, in another year we may have or if we had a different strategy before we would have and so we have, whereas we had to deal with some issues we do have great financial stability right now and we have good flexibility.
Chris Pikul – Morgan Keegan & Company
No, that’s certainly good point Bob, and I think are commendable on the job you guys are doing given the way things turned out in Entrada that you're still have a company here, with all the same done. Just one more question Fred you mentioned, in thinking about some sort of acquisitions, you think you might be able to do up to a $50 million deal, and you mentioned sort of other sorts of financing, could you add any clarification on that?
Fred L. Callon
Well, yeah. Other financing being some of the if you will mezzanine financing sources and certainly we all know in this environment, a lot of sources that were there a year ago were no longer available, but as we kind of getting this year, as we go round and visit with different financing sources, I mean I think there are still some pockets of capital out there that, I think pocket capital, still some significant dollars that, I will be careful I think are interesting in putting to work on kind of reserve based lending perhaps on the mezzanine level and as well as, if you will institutional partners to maybe to join in the acquisition of producing properties, which allow you to sort of leverage up some of the things, you are doing.
So, we are talking, we talk to a couple of sources and I think nothing they would be out there. The question is going to be can you find the right property that, where money like that’s going to be more expensive and so you got to be sure you are making the right property that has the right returns that we are bringing in some money that's maybe a little more expensive, make sense.
Chris Pikul – Morgan Keegan & Company
Great. Thank you guys for your time.
Fred L. Callon
Thanks Chris
Operator
Thank you for your question. (Operator Instructions).
And gentlemen we now have a follow-up from the line of Mr. Ron Mills of Johnson Rice.
Mr. Mills Please go ahead your line is open.
Ronald Mills – Johnson Rice & Company
Just on the P&A CapEx that you talked about this year is that work expected to be spread pretty evenly throughout the year?
Fred L. Callon
Yes, Ron. Yes.
Ronald Mills – Johnson Rice & Company
Okay.
Fred L. Callon
I'm looking at Bob and he's confirming it. So, yes.
Ronald Mills – Johnson Rice & Company
Okay. Good.
And then with the $50 million that's out on the letter of credit to Diamond, when does that get satisfied?
Fred L. Callon
I would think that that would go away sometime in the next 30 days.
Ronald Mills – Johnson Rice & Company
All right.
Fred L. Callon
Okay.
Ronald Mills – Johnson Rice & Company
Thank you very much.
Fred L. Callon
Thank you, sir.
Operator
And thank you once again Mr. Mills for your question.
Mr. Callon I'll turn the presentation back to you.
It appears our audience has no further questions. We'll turn it back to you for your continuation or your concluding remarks.
Fred L. Callon
Thank you so much. Again we thank you for taking time to call in today.
I know it’s a difficult time for everyone, please note we are here anytime anybody has any questions feel free to give any of us a call. Thanks so much.
Operator
Thank you Mr. Callon.
Ladies and gentlemen that does conclude the conference call for today. We thank you all for your participation and ask that you please disconnect.
Thank you once again. Have a good day.