Q2 2006 Operational Update Commentary

It seems finding oil bearing acquisitions in TX or NM that meet all the criteria has been difficult for ARD. The company is nibbling on additional acreage in KS with little or no fanfare.

The best part about ARD today is that they are not "boxed in." By this I mean they are NOT pressed to buy unless the deal favors ARD. The reason ARD is not hard pressed to acquire TODAY or in the next 2-3 years is because they have over 540 drilling locations. 300 of the 540 are on the Fuhrman-Mascho Property. This figure for 300 drilling locations on F-M assumes 20 acre spacing. Keep in mind that ARD's neighbor Range Resources (RRC) have already been approved and are drilling on 10 acre spacing. With this being the case ARD has over 600 possible drilling locations at F-M alone if you figure 10 acre spacing down the road at ARD.

130 drilling locations in 2006
260 drilling locations in 2007
450 drilling locations in 2008
...............................
840 drilling locations between now and year-end 2008
(even with an aggressive drilling program.)

Today Capex was increased by 17%. Wells to be drilled in FY 2006 were increased from 120 to 130. Re-fracs for FY 2006 were boosted from 36 to 60. This is no doubt good news and will certainly reap big rewards for ARD shareholders. If oil prices continue to drift higher I wouldn't be surprised to see CAPEX increased again in 2006. This would especially be true if ARD is given the opportunity to acquire and own a second drilling rig. Tim Rochford stated that he would be open to this possibility if the economics favor such an acquisition (acquiring a second rig) in the Q4'05 and FY2005 C.C. on March 17, 2006.

You gotta love ARD.Keep your eyes on net margin. I'm targeting 42% net margin on 15.225mm shares fully diluted for an EPS of $0.40. If ARD can come in with a higher net margin and/or a smaller fully diluted share count then we could easily see some FABULOUS numbers. I just hope there are no big "other expenses" in the income statement.

Also I'd like to say that I"m a bit suspicious of the production figures of 240,000 BOE and $14.5 million in revenue. If ARD really did produce 240,000 BOE then I would have expected something higher than $14.5 given my projection of about 87% production in oil. Unless the Yates Gas formation on the F-M was adding significant amounts of increased incremental BOE then I would have expected the revenue number to be higher. Wouldn't it be a treat if we read the Q2 Earnings to find that revenues were actually closer to $15 million???