Mariner Energy, Inc. Q1 2009 Earnings Call Transcript

Mariner Energy, Inc. (ME)

Q1 2009 Earnings Call

May 12, 2009 11:00 am ET

Executives

Patrick Cassidy - Director of IR

Scott Josey - President, Chairman and CEO

John Karnes - SVP, CFO and Treasurer

Analysts

Michael Jacobs - Tudor, Pickering, Holt & Co., LLC

Neal Dingmann - Dahlman Rose & Co.

Anne Cameron - JP Morgan

Richard Tullis - Capital One Southcoast, Inc.

Philip Dodge - [Unidentified Firm]

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the first quarter 2009 Mariner Energy, Inc. earnings conference call. My name is [Josh] and I'll be your coordinator for today. (Operator Instructions)

I'd now like to turn the presentation over to our host for today's call, the Director of Investor Relations, Patrick Cassidy. You may proceed, sir.

Patrick Cassidy

Thank you, Josh. Good morning and welcome to Mariner Energy's 2009 first quarter earnings conference call.

Today's call is being webcast and a replay will be available on the Mariner website following this call for the next 10 days.

This is Patrick Cassidy, Director of Investor Relations for Mariner Energy. On the call today are Scott Josey, Chairman and Chief Executive Officer and President of Mariner Energy, and John Karnes, Senior Vice President, Chief Financial Officer and Treasurer.

The news release announcing the company's results was issued yesterday and it is available on our website. In today's call Scott will provide opening remarks and an operational update. John will discuss the company's overall financial performance, and you are welcome to ask questions after we complete our prepared remarks.

Before Scott begins his review, please note a caveat about non-GAAP measures forward-looking statements in today's presentation. Our press release issued yesterday reconciles non-GAAP measures, adjusted net income and operating cash flow. Today's presentation may include forward-looking statements reflecting Mariner's view about future events and their impact on company performance. All remarks other than statements of historical fact that address activities that Mariner assumes, plans, expects, estimates or anticipates and other similar expressions, such as will, should or may occur in the future, including our guidance, are forward-looking statements.

Such forward-looking information may involve risks and uncertainties that could affect the company's operations and financial results, causing our actual results to differ from our forward-looking statements. These risks and uncertainties are described in Mariner's filings with the Securities and Exchange Commission, including our Form 10-K as amended for the year ended December 31, 2008.

The SEC generally has permitted oil and gas companies in their SEC filings to disclose only proved reserves. Mariner uses the terms probable, possible and non-proved reserves, reserve potential or upside and other descriptions of volumes of reserves potentially recoverable that the SEC may prohibit in SEC filings. These estimates are by their nature more speculative than estimates of proved reserves and accordingly are subject to substantially greater risk of actually being realized by Mariner.

Information disclosed during this conference call does not constitute an offer to sell or a solicitation of an offer to buy any of Mariner's securities.

Before I turn the call over to Scott Josey I want to note that in our news release issued last night Mariner reported a loss of $424.1 million or $4.77 per basic and fully diluted share for the quarter ended March 31, 2009. The quarterly result reflects the impact of non-cash impairments and other items. These include assuming test impairment of approximately $704 million. These are purely financial statement events and do not affect Mariner's actual original oil and gas reserves in the ground, its cash flows or cash balances.

Now I will turn the call over to Scott Josey.

Scott Josey

Thanks, Patrick. Good morning.

Mariner's off to an excellent start in 2009. We have mostly recovered from the effects of Hurricane Ike, we've made discoveries offshore at Heidelberg, Bushwood, Smoothie, and South Marsh Island Block 150. We brought Smoothie online on May 2, less than four months from discovery, and qualified for royalty relief for gas production, a significant achievement by our shelf team.

We've had gaffes to the platform at Gopher since mid-April and have been waiting on finalization of pipeline repairs on the Stingray export line. We've been advised that production should commence as early as Thursday, which will be online in less than a year from discovery, a significant achievement by our deepwater team. We've continued to expand our position in our Deadwood project in the Permian Basin and are witnessing encouraging results in our delineation of this field.

With the exception of low commodity prices, particularly for natural gas, we're very pleased with our progress to date.

Our production for the quarter was 29.5 Bcf equivalents, an average of approximately 328 million cubic feet equivalents per day, of which 75% was natural gas. This is off 6% from the same period last year, but up 25% sequentially from last quarter as we recovered from Ike. Our deepwater assets contributed 11.1 Bcf equivalents, roughly 38%; shelf was 14.2 Bcf, roughly 48%; and the Permian Basin contributed 4.2 Bcf or 14% of the total.

Although we have experienced continued delays in restoration of hurricane-affected production and online dates for Gopher, we maintain our production guidance for the year of 135 to 150 Bcf equivalents. Our current production is approximately 335 million cubic feet equivalents per day, which does not include Smoothie, which should produce 1,000 to 1,500 barrels of oil per day net. We still have approximately 8 to 15 million cubic feet equivalents per day shut in due to hurricane-related repairs and our SMI 150 project should come online in the next week, producing 10 to 20 million a day net to the company.

Moving on to exploration, at Lease Sale 208 held on March 17th Mariner was among the most active companies, being the apparent high bidder on 12 blocks, exposing $7.3 million net to the company. Three of these leases have been awarded to date. Two are conventional amplitude deepwater prospects with potential of 50 to 100 Bcf equivalents each. The first is Calcite at Atwater Valley 133 and Cobalite at Mississippi Canyon 493. And one is a conventional shelf prospect, Zircon, at [inaudible] 318.

We are currently drilling a deep shelf exploration well on Cordage at West Cam 207 that should reach TD later this quarter, after which we plan to move the rig to our Sherwood deep shelf prospect at Highland 133. The Ocean America rig is on location at Arden, located at Garden Banks 949, which we view as a similar prospect to Gopher.

At Heidelberg we expect an appraisal well to be drilled in the second half of the year. As you are aware, this is Mariner's first discovery in the sub-salt Miocene play and we're very excited about its potential. The initial well was drilled off structure and found hydrocarbons full to base, so we've yet to identify the oil water contact. Objectives for the second well include determining the lateral extent of the field as well as testing a deeper prospect in the lower Miocene. Anadarko operates Heidelberg and we hold a 12.5% interest in the project. Development continues at Daniel Boone and the VK 821 projects. We should be online in the second half of this year, most likely in the latter part of the third quarter.

Onshore most recently we established an AMI with a private company that covers 27 square miles in Glasscock County around our Deadwood project, adding 4,200 net acres. We have a 50% working interest and operate on this position. The transaction strengthens our position around Deadwood, which lies northeast of Midland. Our plan for this year has been to further delineate Deadwood as well as the Blue Plate prospect to build a backlog of drilling locations such that when the rate of returns are at a more reasonable level we can ratchet up our activity and have a steady inventory of proved undeveloped locations to drill.

So far this year we have drilled six wells at Deadwood and the initial rates are encouraging, with total flow rates of 440 barrels of oil per day and about 1,100 million cubic feet of natural gas. We expect to drill several more wells in this field this year and evaluate the results. Assuming the wells perform as expected, we'll have significant infill drilling to pursue in the years to come. During the first quarter of 2009 we drilled 12 wells onshore, all of which were successful, and for the year we expect to drill 20 to 25 wells total.

We continue to focus on maintaining capital discipline, targeting capital spending of approximately $450 million, well below our expected cash flow, while increasing our production and exposing our shareholders to significant upside.

And with that I'll turn the call over to our Chief Financial Officer, John Karnes, to highlight financial results.

John Karnes

Thanks, Scott.

As Scott mentioned, even with lingering shut in remnant from Hurricane Ike last year and falling natural gas prices, Mariner nevertheless continued to turn in solid core financial performance during the first quarter of 2009. While oil prices held relatively steady during the first quarter, natural gas prices of course decreased significantly, falling approximately 36% during the quarter. These falling prices impacted not only Mariner's quarterly results in terms of lower realizations but also significantly reduced our [PD 10,] which directly affected our full cost ceiling test. This is especially true last quarter since our ceiling test writedown at year end left the company with no ceiling test cushion going into the year.

Since the book value of our properties exceeded our ceiling test value at the end of the quarter - due, again, to falling gas prices - we took a ceiling test writedown on March 31 in the amount of $704 million. This, as Pat mentioned, is a non-cash item. It does not affect reserve quantities and will result in lower D&A going forward in the future.

Giving affect to our ceiling test impairment, Mariner did report a net loss in the first quarter of $424 million compared to net income of $72 million for the first quarter of last year. This equates to a loss of $4.77 per basic and fully diluted share compared with earnings of $0.83 and $0.82, respectively, a year ago.

Included in net income for the quarter is a nonrecurring gain of $16.6 million or $10.7 million after-tax - that's $0.12 per fully diluted share - relating to an arbitration award in Mariner's favor settling certain post-closing adjustments remaining with respect to Mariner's 2006 shelf acquisition.

Adjusted net income per share computed without regard to those items typically excluded for comparability in financial analysis would have been $19.8 million positive, which equates to positive net income of $0.22 per share on a fully diluted basis.

Revenues for the first quarter of 2009 were $243 million, down approximately 23% from the $316 million recorded for the same period last year. Year-over-year the decline in revenue was primarily attributable to lower natural gas prices compared to last year and to a lesser extent continued shut in production from Hurricane Ike.

Our average realized prices during the first quarter were $6.95 per Mcf of natural gas, $62.81 per barrel of oil, and $23.70 per NGL barrel. In the fourth quarter last year these were $7.44, $65.29 for oil, and $26.63 for NGLs, decreases of 6%, 4%, and 11%, respectively.

These prices reflect settlements during the period under Mariner's hedging program. For the first quarter of 2009 we realized net hedging gains of $57.5 million, derivative gains on oil swaps settled in January of $6.5 million, and a net cash loss of $179,000 relating to hedging ineffectiveness.

In this regard you will note from our Q that we supplemented our 2009 hedge position during January, adding natural gas swaps on 19.6 million MMBTU averaging about 59,000 MMBTU per day at an average of $6.18 and after quarter end we began layering hedges for 2010 and 2011, swapping 3,500 barrels a day of oil for 2010 and 2,500 barrels a day for the first half of 2011, with an 18-month average price of $63.16 per barrel. On the natural gas side we swapped an average of 35,000 MMBTU a day for 2010 and 25,000 MMBTU for the first half of 2011, at again a weighted average 18-month price of $6.18.

Turning to expenses, our lease operating expense for the first quarter was $53.4 million or $1.81 per Mcf equivalent, which was up $0.35 a unit year-over-year. Our LOE in the first quarter included $5.1 million of Hurricane Ike repairs, equating to about $0.17 per Mcf, reflecting costs not yet determined to be reimbursable under our wind storm coverage. Backing out these hurricane costs for an apples-to-apples comparison, LOE for the quarter was $1.64 per Mcf equivalent, midpoint in our 2009 guidance of $1.60 to $1.70 per Mcf equivalent. Assuming next quarter these costs are ultimately determined to be reimbursable from our carriers, we'll then credit LOE, backing out the cost and setting up a corresponding receivable.

Our G&A expense for the quarter was about $17.4 million, up from $11.1 million the prior year. This equates to $0.59 per Mcf equivalent versus $0.35 for the same period in 2008. Our first quarter G&A reflects an increase in stock compensation expense of approximately $4.2 million or about $0.14 per Mcf equivalent related to our performance-based restricted stock plan approved last summer, which as you may recall only begins vesting if Mariner stock attains progressive trading thresholds of $38 and $46 per share.

Depreciation, depletion and amortization expense decreased during the first quarter to about $95.7 million, $3.21 per Mcf equivalent, compared to $119 million or $3.81 for the first quarter last year. The year-over-year decrease in our DD&A rate is primarily a function of our ceiling test writedowns over the past two quarters, which is line with the recent low commodity prices we've experienced.

Finally, in terms of our balance sheet we exited the quarter with just under $640 million of net debt under our credit facility, allowing us over $200 million of undrawn borrowing capacity under our $850 million borrowing base.

As previously discussed, our plan is to pay down debt during the course of the year through excess cash flow from our operations and collection of insurance proceeds related to costs incurred in Hurricanes Rita and Katrina. In this regard, based on discussions with our insurance provider, we are anticipating a payment on account of these two storms later in Q2 or early Q3 of between $50 and $75 million and hope to have these two claims substantially wrapped up this year. We also hope to receive up to $20 million of hurricane proceeds from Ike this year, probably in the fourth quarter.

This concludes our prepared remarks and Scott and I will now open up the line for questions.

Scott Josey

Excuse me, Operator. This is Scott Josey. I want to correct something I may have misstated. Deadwood, our flow rates are 440 barrels of oil per day and 1.1 million cubic feet equivalents of natural gas. I may have said 11 million; if I did, I apologize. But anyway, I do want to correct that if I misstated it.

Operator, we will now open the line up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Michael Jacobs - Tudor, Pickering, Holt & Co., LLC.

Michael Jacobs - Tudor, Pickering, Holt & Co., LLC

I wanted to start with the onshore and just follow up on those six wells. If I'm doing my math right it seems like you're producing on average a little over 100 barrels equivalent per day per well. Is that right?

Scott Josey

I think that's about right. Some wells are going to be better than others. It's a statistical play, but on average that's correct.

Michael Jacobs - Tudor, Pickering, Holt & Co., LLC

So if I think about that in the context of kind of the typical Sprayberry wells where you see initial rates below 50 barrels equivalent a day, can you give us a little bit of guidance on how we can reconcile that to what ultimate recoveries could be?

Scott Josey

Well, it's still very early in the play. We have substantial acreage position there at Deadwood, roughly 30,000 net acres, and we've only drilled 6 wells, so we're still a long ways from knowing what the ultimate outcome of this project is going to be. The results we have thus far, we're encouraged by them and we're going to drill another 3 or 4 wells this year, we're going to produce them probably for the rest of the year and then based on those results we'll be able to determine how we go forward.

Our expectations are that these are going to be wells that will produce in the 150,000 barrel equivalents plus range so, to the extent that well tests that we get over the year bears that out, then we believe that we'll have a significant program there going forward.

Michael Jacobs - Tudor, Pickering, Holt & Co., LLC

And then what are your current costs per well?

Scott Josey

Those wells started towards the end of last year around the $1.2 million range but they are around $1 million to $1.1 million right now and we believe that those numbers could continue to drop a bit before the year is out.

Part of the analysis consists of once these wells come online we go back and test zones, either through production logs or individually testing zones, to try to figure out which zones are contributing the most, also trying to make sure that we know where the frac went by interval. We may be tweaking the fracs as we proceed, so in some cases we may drill these wells for less; in other cases we may increase the frac jobs and spend a little bit more. But hopefully we'll get more recovery if we do so.

Michael Jacobs - Tudor, Pickering, Holt & Co., LLC

And then just moving on Smoothie, I think in your prepared comments you said you expect 1,000 to 1,500 barrels of oil. Does that suggest that Smoothie's all oil and if so what are the implications for royalty relief?

Scott Josey

Well, it turned out to be more oily than gas, which we view positive. We do not get royalty relief for oil; we get royalty relief for gas, so that is still positive. But also the fact that it's oil and oil prices on a relative basis are better than natural gas prices, we'll take it even if we don't have the royalty relief on the oil.

Michael Jacobs - Tudor, Pickering, Holt & Co., LLC

With the 20/10 strip close to 650 an M, how do you think about hedging next year's production and when could we see you add additional hedges?

Scott Josey

Well, as John mentioned, we've already added some hedges for 2010. We think it's a relatively small part of our production for 2010 at this point. We have been encouraged by what we've seen with the increase in commodity prices. I think as you know we typically end up being around 40% to 50% hedged each year in the current year. So I suspect that we'll just continue to monitor the curve and may add additional hedges before the year goes out, but I can't guarantee that. We'll just watch it and see.

We use hedging really as a way to protect our balance sheet, try to protect our cash flows, protect our borrowing base, and we felt that, one, by adding the hedges when we did there was a substantial disconnect between where the bank borrowing base price [inaudible] were and where we could hedge, and so that was also part of the reason that we added the hedges that we did in order to increase our borrowing basis.

Operator

Your next question comes from Neal Dingmann - Wunderlich Securities.

Neal Dingmann - Wunderlich Securities

Scott, a quick question. You had mentioned now that everything or most everything has recovered since the storms last year. Anything different as we go into storm season in June or so this year? Is infrastructure or anything changed, built up, can withstand anything different, or is it just still more dependent on the third party?

Scott Josey

Well, we think as we go into hurricane season we should have virtually all of our production back online. I think the initial forecast thus far are that they're expecting a little bit less active hurricane season for 2009. Of course, you never know.

I think it's important to note that our facilities really did not receive much damage in either Ike or Gustav. We were ready to come back online with most of our properties fairly soon. And I think as everyone in the industry knows, most of the damage had to do with the infrastructure, the third-party flow lines, the sub sea infrastructure.

Recently I was in London and one of our insurers made the comment that maybe after Rita/Katrina the topsides have been repaired better to withstand hurricanes and now maybe after Gustav and Ike maybe the sub sea has been repaired, and so maybe going forward we'll be in a little bit better shape. But you never know.

Neal Dingmann - Wunderlich Securities

And then looking at your CapEx it sounded like you've drilled about 12 wells year-to-date and maybe about 13 more. How flexible - let's assume that prices continue to rally like they have the last week or so - is that CapEx, including maybe some of the blocks that you've recently won? Maybe this year would be a bit premature on those, but just wondering, I guess, two questions there - the flexibility behind this year's CapEx and then on the recent lease block wins when could you see activity around those?

Scott Josey

Well, Neal, our main focus this year with our capital spending is really to try to further improve our liquidity. As John mentioned, we still have very good liquidity at the end of the quarter; that has improved since and we see it for the rest of the year continuing to improve. So that is really our main focus.

We have numerous projects that we could be doing in this commodity price environment, but until we have a little bit better sense of where the capital markets are, where commodity prices are headed, and stability with the banks, we really want to just focus on further increasing our liquidity. That will also give us the ability to pursue other opportunities to the extent that they materialize, whether that's within our existing portfolio or with other prospects that we see that are offered to us or even as part of our onshore expansion. So really the focus is on liquidity.

I don't see us pursuing these two or three recent awards this year. Typically it takes, once they've been awarded, sort of at the minimum it takes about six months or longer in order to get partners and to get rig slots, etc., so these won't be 2009 events. I think they'll be more like 2010 events.

And Neal, if I can go back to your earlier question about the hurricanes and the effects, I think it's noteworthy about Mariner that, with our asset base, that it is very diverse. We are diversified from east to west in the Gulf and north to south, that is, from the shallow to the deep. So with the diversity of our asset base, also our deepwater properties tend to weather these events usually a little bit better than some of our shelf properties, we also have good insurance through OIL as well as good excess coverage, so although we hope that we don't have to deal with a significant hurricane season, we have generally been able to weather these things pretty well.

Neal Dingmann - Wunderlich Securities

Just wondering on Heidelberg, you mentioned the first sub-sale Miocene. Do you foresee more of that, going after more of that type of play?

Scott Josey

Oh, absolutely, Neal. I think, as you'll recall, a few years ago we made that part of our business plan as far as expanding the deepwater. We studied the trend. It looked like the success rates were good. We expanded our seismic data set to include the depth migrated data to evaluate these sub-salt opportunities, and then we added additional expertise within the firm to be able to evaluate these opportunities. We were very active at the two prior sales, as you know, and we picked up a number of sub-salt and salt overhang type of prospects. So absolutely we intend to pursue more of these types of prospects.

And also some of the ones at the current Lease Sale 208 that we're still waiting to be awarded, some of those are sub-salt prospects as well.

Operator

(Operator Instructions) Your next question comes from Anne Cameron - JP Morgan.

Anne Cameron - JP Morgan

Could you talk a bit about how you expect your production to ramp up over the year sort of on a quarter-by-quarter basis?

Scott Josey

Well, the best I can is that we're currently sitting at around 330 to 340. As we mentioned, we have Smoothie - that doesn't include Smoothie - which will be, as I mentioned, the 1,000 to 1,500 barrels of oil per day. In another week or so we should have SMI 150 on in the 10 to 20 million a day range. Gopher should be on by the end of the week hopefully, although we've been waiting for that project to come online now for roughly a month, and that should produce in the 120 plus million a day range, which we have a 60% interest in that. And then later you see Daniel Boone and VK 821.

Just those projects alone are well north of 100 to 115 million a day of new production that's coming online over the course of the next several months, so the production should move up substantial here over the next week or so and then it should continue to build throughout the year. We think that we should average north of 400 million a day, equivalents a day, for the rest of the year.

The timing of these projects, though, are not certain. Sometimes they come on a little sooner than we think; sometimes in the case of like Gopher they come on a little later than we think. But we have just substantial production that's getting ready to come online.

Anne Cameron - JP Morgan

And also did I hear a $450 million CapEx number that you said just a few minutes ago?

Scott Josey

Yes.

Anne Cameron - JP Morgan

Why the change from $430 million? Where's the $20 million going?

Scott Josey

That's less than 5%. With the kinds of projects that we pursue, first off, capital spending can vary. Secondly, we've had success this year at Smoothie in bringing that project online, we've had success at SMI 150, just about to bring that project online, so it's very easy for our capital program to vary by those amounts. But the main answer to your question is it's because of success.

Operator

Your next question comes from Richard Tullis - Capital One Southcoast, Inc..

Richard Tullis - Capital One Southcoast, Inc.

I just wanted to touch on Cordage for a moment if I could. What's the drilling depth right now?

Scott Josey

It's probably, Richard, I think it's sitting around 17,000 feet or so. We've got a TD that's in the vicinity of 19,500 or so. So we're not too terribly far away. I believe we're looking at whether or not we need to set a string of casing or not, so hopefully we'll know something on that well here in the next few weeks.

Richard Tullis - Capital One Southcoast, Inc.

What's been the cost on the well thus far?

Scott Josey

It's in line with our AFE. It's actually, I think, running below our AFE cost, which I don't recall off the top of my head. I think it was in kind of the $25 million or so range. Thus far it looks like it's going to come in below our cost estimate, but as soon as you start to think that then something will go wrong.

Richard Tullis - Capital One Southcoast, Inc.

Speaking of cost, what are you seeing on recent cost trends for drilling both Permian outside of Deadwood and the Gulf?

Scott Josey

Well, we are seeing costs trend down in the Permian. We still think it maybe has a little bit further to go. As we've said a lot here lately in various meetings with folks is that one of two things has to happen, either costs have to come down or the commodity prices have to improve. And we're seeing a little bit of both, so maybe we'll find some balance here fairly soon.

On the shelf, a lot of activity has dropped substantially on the shelf and so costs have come down a little bit further there. In the deepwater rig rates are still pretty pricey, although there are some rigs that are available and we're seeing some costs drop there. But you're seeing some drops in steel and cement and things like that, but in the deepwater it's still a pretty expensive to do business. But it has significant potential and to the extent these prospects work then we're still in very good shape.

Richard Tullis - Capital One Southcoast, Inc.

What's your rate on the Ocean America?

Scott Josey

It's about $0.5 million a day and it runs through roughly the end of this year, starting now that - the rig has been in dry dock doing I think it's a five-year Coast Guard-ordered routine inspection that's done every five years - and it's just now coming out of dry dock and is headed to Arden, in fact, it's there, and we're in the process of setting anchor. So we'll have about eight or nine months of rig time on the Ocean America after which we'll be done with that. That contract will terminate and then we'll look at whether we'll do something else going forward.

Richard Tullis - Capital One Southcoast, Inc.

What's your typical well in the Permian running you right now?

Scott Josey

Well, the only wells we're really drilling are the ones there at Deadwood and those are in the million dollar range. And then we are drilling a few Sprayberry wells at our Scottish Rite Hospital and those are in the kind of $800,000 range, which is down a little bit from where they were, so we are seeing some cost reduction in the Permian.

But we're not very active in the Permian this year. The plan was really just to delineate Deadwood, begin to test Blue Plate, do some delineation of some of the Sprayberry acreage that we have picked up, so we don't really have a very active program this year.

Richard Tullis - Capital One Southcoast, Inc.

I know from other calls the rates or just the total drilling costs have been dropping pretty significantly out there in West Texas and with the rise in oil prices do you see an opportunity to maybe pick up activity in that area?

Scott Josey

Well, we could pick up activity any time the projects make sense from a rate of return standpoint, but as I mentioned earlier really the primary focus for the company this year is on liquidity and we're doing everything we can to try to generate significant excess cash flow while still increasing production and adding reserves. So the company has lots of opportunities, whether it's in the Permian, the shelf or the deepwater, but until we feel a little bit better about liquidity and also sort of where things are headed that's really our main focus. Once we can relax a little bit then we've got plenty of things to go do, lots of organic opportunities within the company.

Operator

Your next question comes from Philip Dodge - [Unidentified Firm].

Philip Dodge - Unidentified Firm

Given that you've brought in Smoothie so quickly I'm curious about the logistics on Cordage and Sherwood, if they were successful, how you soon do you think you could bring them into production?

Scott Josey

Well, those are deep shelf projects. The water's pretty shallow; you've got a lot of infrastructure in the area. More than likely you're going to have to set a platform. And so you're looking probably at the minimum probably five/six months. So I think it would be in a five to nine-month timeframe. Clearly, our shelf as well as our deepwater teams are very capable of doing things in short order and so once these wells are down and we've had a chance to assess them to the extent that we and our partners want, I think we can move pretty quickly as far as developing them.

Philip Dodge - [Unidentified Firm]

So they are near infrastructure, as was Smoothie, apparently?

Scott Josey

Yes, yes.

Operator

And at this time we are showing no further questions available. Mr. Cassidy, you may proceed.

Patrick Cassidy

Thank you, Josh.

As a final note I would remind you that the conference call will be posted on the company's website later today and will be available for replay through May 22, 2009.

Thank you for participating in our call this morning.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.

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