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W&T Offshore (NYSE:WTI)

Q4 2013 Earnings Conference Call

March 7, 2014 09:30 ET

Executives

Mark Brewer - IR

Tracy Krohn - President & CEO

Jamie Vazquez - President

Analysts

Neal Dingmann - SunTrust Robinson Humphrey

Curtis Trimble - Global Hunter Securities

Biju Perincheril - Jefferies

Gail Nicholson - KLR Group

Noel Parks - Ladenburg Thalmann

Richard Tullis - Capital One Southcoast

Michael Glick - Johnson Rice & Company

Operator

Welcome to the W&T Offshore Fourth Quarter Earnings Conference Call. (Operator Instructions). This conference is being recorded today, March 7, 2014.

I would now like to turn the conference over to Mr. Mark Brewer, Manager of Investor Relations. Please go ahead, sir.

Mark Brewer

Thank you, operator, and good morning, everyone. We appreciate you joining us for W&T Offshore's conference call to review the results of the fourth quarter and full year of 2013.

Before I turn the call over to management, I have a few items I'd like to point out. If you wish to listen to a replay of today's call, it will be available in a few hours via webcast by going to the Investor Relations section of the company's website at www.wtoffshore.com or via recorded replay until March 14. To use the replay feature, call 303-590-3030 and dial the passcode 4665733#. Information recorded on this call speaks only as of today, March 7, 2014, and therefore, time-sensitive information may no longer be accurate as of the date of any replay. Please refer to our fourth quarter 2013 earnings release for a disclosure on forward-looking statements.

At this time, I'd like to turn the call over to Tracy Krohn, W&T’s Chairman and CEO.

Tracy Krohn

Thanks Mark. Good morning everyone. Thanks for joining us this morning on our fourth quarter call. With me is Jamie Vazquez, our President, Danny Gibbons, our Chief Financial Officer, Tom Murphy, our Chief Operations Officer and Steve Schroeder, our Chief Technical Officer.

Yesterday we released our financial operating results and news release. So this morning we will review some of the key items before we take your questions. 2013 was a dynamic year, we marked a very significant exploration and development success. The acquisition with prolific oil field and the deepwater and further realization of the substantial potential of our acreage in West Texas.

I will talk a little bit about our overall strategy. We’re on path to create more multi-year projects that gives us better visibility in the future production reserve additions. Our exploration success last year in the deepwater and the deep shelf and in West Texas is the foundation of a multi-year development project that we will add value for years to come. So let’s talk a little bit about onshore. Our sizeable position was approximately 26,000 net acres in West Texas. Midland Basin is in the heart of one of most attractive place in the U.S.

We were an early player in the northern portion of this basin and established a continuous acreage position which is well suited for multizone development. So for each bench think about adding another 26,000 acres effectively.

Offset operators are having good results in the Wolfcamp A, B, D and Spraberry and we have all of those benches in our acreage. We approach this field evaluation very carefully and majority of our leasehold is now held by production as a result of our vertical drilling program.

Meanwhile we’re taking advantage of it and benefiting from the high level of industry drilling activity that is now surrounding our field. We along with offset and nearby operators are announcing significant well results across multiple stack targets. Earlier this week we provided an upgrade on our first operating Wolfcamp B cap well in our Yellow Rose Field, the Chablis 9H, and we now see 24 hour production rate of 549 barrels of oil equivalent per day which approximately 73% is crude oil. We’re always completing the effective lateral length of 5905 feet and that was in 22 stages using the hybrid frac treatment. So if we normalize these results to a 7500 lateral length this equates to rate of about 697 barrels of oil equivalent per day. We’re pleased with the results of the well and we will continue to analyze our operations to determine maximum drilling and completion techniques as we move forward.

We believe we may be in the core of a highly prolific Wolfcamp, Spraberry play and have an acreage position that can support 100s of horizontal locations in multiple horizons.

Let's talk a little bit about offshore. Our increased focus on participating in high impact deepwater projects is yielding some superb results. Adding to our Big Bend discovery late 2012 we had two successful discoveries nearby Troubadour and Dantzler, those will contribute reserves and production in future years. These projects take a big upfront CapEx commitment but they can pay huge dividends later on as well as providing the visibility and the sustained growth profiles.

Over the past two years on the Mahogany field remains a highlight of our growth discussion. This storage keeps getting bigger and bigger with each new well drilled. We’re enthusiastic about having this field well and developed for long term program with eight productive horizons discovered so far, these successful wells in place and more come. We concentrated lot of manpower and capital on this field and engineers and geoscientist working to understand the full potential of this prolific sub-salt play.

In 2010 we developed a reservoir simulation model to determine the most optimal future development plan for the Mahogany field and we subsequently drilled 7 highly successful wells not including A15 that’s currently drilling. As a result production grew substantially from an average of about 1509 barrels oil equivalent per day in 2011 to current production of about 10,000 barrels oil equivalent per day. We believe field has a great deal of mode offer so we’re in the process of obtaining new Wide Azimuth 3D seismic or WAZ over the field provide even more clarity on a long term potential of Mahogany.

We’re also working through identifying more multi-year projects like Mahogany and in the comp sense we’re paying new Wide Azimuth over some of our other fields in the Gulf of Mexico. It's one of the largest holders of acreage on the shelf we believe as we could identify and develop additional prospects of potentially discover additional productive horizons that could deliver multiwell long term opportunities on our existing acreage.

Our acquisition strategy has always supported a long return focus as we general target the acquisitions of fields with additional exploration development potential. Others talk about it we have been doing it that for nearly 30 years, our acquisition of Callon Gulf of Mexico assets is a perfect example, Medusa field is offering numerous identified drilling opportunities and we potentially provide multiwell and multiyear reserve and production additions.

Organic reserve additions let’s talk a little bit about organic growth, even as we continue shift to a longer term plan throughout 2013 we’re able to replace a 100% of our production and maintain steady reserve volumes in 2013 year-end reserves to 117.7 million barrels of oil equivalent.

Most of our reserve additions came from organic activity, as extension discoveries of crude reserves in 20.1 million barrels of oil equivalent for 2013. Exploration drilling result in an 8 of 9 projects being successful commercial wells, development drilling was a 100% productive, 37 wells drilling being successful.

As we continue to expand onshore and deepwater presence we are seeing our forward-looking three year depletion rate for our crude reserves drop from upwards of 52% through our 39%, this equates to a longer term reserve life profile and supports our strategic efforts to provide better long term visibility for the market.

Exploration discoveries were made offshore on the conventional shelf production at our Ship Shoal 349 Mahogany field and at our Main Pass 108 field. In the deepwater Gulf of Mexico we have reserve additions from the Mississippi Canyon 698 Big Bend but we booked less than a quarter of that reserves because we believe ultimately we will be recover from our interest in that discovery. We think that it's prudent to wait until we get the field online before we book any more of those.

We haven't booked any reserves for Troubadour and Dantzler or Mississippi Canyon 698. On shore we have had substantial reserve additions from our Yellow Rose Field with crude reserves associated with our interest increasing from 31.6 million barrels oil equivalent at year-end 2012 to 38.2 million barrels oil equivalent at year-end 2013.

Our planned continuation of the exploration program to contribute new crude reserves in 2013. We booked 2.1 million barrels oil equivalent our crude reserves or acquisition of Callon Gulf of Mexico assets with a focal point of the group being the Medusa field. Let’s say very prolific deepwater oilfield is currently producing about 6300 barrels oil equivalent per day gross or 945 barrels oil equivalent per day net to our 15% working interest.

With that I will turn it over to Jamie.

Jamie Vazquez

Thank you Tracy. Total production for the fourth quarter of 2013, volumes were up 14.4% over the fourth quarter of 2012 to an average of 56,001 barrels of oil equivalent per day. Production volumes were split 35% oil, 11% natural gas liquids and 54% natural gas. Production for the year was up 5%. We have been able to drive our oil reserves 5% higher and oil production 16.3% higher over last year. Our 2014 capital programs will continue to focus on oil projects which are driven by current economics.

Revenues in the fourth quarter were $244.9 million up 3.3% over the fourth quarter of last year primarily due to higher oil production. Reserves for the full year 2013 were $984 million, an increase of 12.5% over 2012 due to higher oil production and higher natural gas prices. For the year adjusted EBITDA was almost $600 million, an increase of over 10% compared to 2012. Net cash provided by operating activities for 2013 were $561.4 million, an increase of 45.8% over 2012.

Of course this would have been higher if we had unusually high levels of differed production. We also incurred an enormous high level of work over cost in 2013. We had two very expensive rig work overs, with one being at Main Pass 69 and the other one in our Mahogany field on the A-12. Those two projects cover the cost of those two projects were over $30 million. Both of these wells were facing pressure issues.

We did very few work overs with drilling rig so 2013 was highly unusual in both the work and the cost. After operating in the Gulf of Mexico for over 30 years we have a solid track record for excellent and are continuously looking at ways to perform even better. As we previously reported we’re currently working closely with governmental agencies to address two issues we initially received in November. Regarding the BOEM notice concerning potential increases in our supplemental bonding requirement. We were granted a stay until April 15, 2014 to facilitate ongoing negotiations which we had said are in progress.

We’re also continuing to actively work with EPA regarding their notices of proposed debarment relating to the environmental violations that occurred in 2009. At this time we do not have any update to report. We take very seriously our responsibility to operate safely, properly and reliably. That is demonstrated every day on every project. As a result of this focus and continuous effort by our team members this past year we were awarded the Special Marine Safety Award from American Equity Underwriters for having the best safety record from among more than 200 other members in our classifications.

We continue to strive for this level of excellence and know that our personnel are focused on meeting these high standards. Capital expenditures in 2013 were $634.4 million, including $82.4 million which was spent on the acquisition of Callon's Gulf of Mexico assets. Our initial capital budget of 450 million was increased to 550 to allow participation in another or second deepwater exploration Dantzler [ph] and we drilled additional wells onshore in our Yellow Rose Field.

We also experienced a significantly excess rate with our exploration drilling which led to additional well completions that were not part of the original budgets.

Our 2014 capital budget is $450 million approximately 42% is expected to be for exploratory activities and 52% is allocated to oil focused development activities. With the remaining 6% to be utilized for seismic and leasehold. Our success last year with the budget that was heavily weighted towards exploration has resulted in a budget this year that is more heavily weighted towards the development of those exploration discovery. Approximately 1/3 of the budget is focused on deepwater activity in the Gulf of Mexico. This includes significant capital for development of new Mississippi Canyon 698 Big Bend and a planned deepwater well in Medusa.

Currently 68% of the 2014 budget is allocated for projects in the Gulf of Mexico and 32% of the project onshore in Texas.

Now I would like to walkthrough the projects that are planned to be a part of our 2014 programs. As a continuation of our 2011, 2012, 2013 program we continue to have a drilling rig on location at Mahogany and expect to keep that rig onsite through 2014 and into 2015 with current drilling of A-15 well being followed by a recompletion and two additional wells later this year.

Total productions in this field is holding steady at just below 10,000 barrels of oil equivalent per day of which 79% is oil and NGL. The A-15 well is an exploratory well that is a long-reach, step-out well designed to test and penetrate new stack sand in the southern end of the field. Our enthusiasm for this well is reinforced by the fact that we have already logged some pay in the well.

We should reach our total depth near the end of the quarter and have this well on production to second quarter. After the drilling the A-15 well the rig is scheduled to conduct a recompletion in the A-6 well to new zone. Following the A-6 recompletion activity we will plan to proceed with the drilling of the A-16 well which targets reserves in the M, N, O and P sands identified during the logging of the A-14 exploration well last year and additional exploration well the A-17 is in early planning stages and it's likely spud toward the end of the year.

As another carryover from 2013 program the Mississippi Canyon 243 A-5 well our Matterhorn field was completed and brought on production during early January is currently producing approximately 1150 barrels of oil and 1.1 million cubic feet of natural gas per day net to W&T.

As a remainder the A-5 was designed as an as an injection well to provide pressure support to the reservoir in the eastern portion of the field. But due to significant pay that was logged the decision was made to commercially produce the well before returning it to the original injection plan.

Additionally from the 2013 program we continue our drilling operations in East Cameron 321 field, with the A-2 side track well drilling at about 6900 feet and total depth is expected to be in a few weeks. This is an exploration well and our initial production estimates for this well are approximately 850 barrels of oil equivalent per day net to W&T of which about 60% of the production was expected to be crude oil. Assuming success we expect first production to be in second quarter 2014.

As Big Bend we currently completing the discovery well and the operator is moving forward with development activities. First production is expected late 2015. Later this year we expect to participate in the drilling of a new exploration well at the Medusa field. As Tracy mentioned earlier we acquired 15% of this prolific oil producer and we’re attracted by it's up size potential.

Timing of this well is dependent on the operator obtaining a rig and receiving all the appropriate permits but we expect the well to spud sometime in the fourth quarter and a net cost to W&T and about $18 million. This one exploratory well representing potential new reserves in addition in two separate sand intervals for W&T.

In addition our budget includes another deepwater exploration well. We’re currently valuing several opportunities in the particular to that project will be provided once our commitment is in place to move forward. Onshore the Yellow Rose Field we’re very encouraged by the response of our first operating Wolfcamp B well. We’re currently planning to spud a second horizontal Wolfcamp B well in mid-March.

Also as reported in our February 14 news release we’re participating with an adjacent operator in a joint venture well which began drilling a non-operated Wolfcamp B well in early February. Drilling of this well is complete and we expect to operate and frac the well towards the end of the month. We would expect to have results to share sometime during the second quarter.

Our 2014 budget accounts for seven horizontal wells at Yellow Rose many of which were focused on the Wolfcamp B. Given the recent successes in the nearby acreage we expect to test additional horizontal benches this year with the Spraberry and the Wolfcamp B as most likely target at this time.

Additional our budget includes the drilling of approximately 20 vertical wells many of which will continue to prove up our 40 acre in-field positions and continue to hold more of our acreage by production.

Well with that I would like to turn it back over to Tracy.

Tracy Krohn

As I said before our early success and the success of operators on nearby acreage and numerous benches supports our confidence in value of acquisition north midland basin. We believe that there will be tremendous long term exploration deployment opportunities in our Yellow Rose Field which along with our deepwater and deep shelf success will create value for our shareholders. As a side note our 2014 production guidance that was in our press release yesterday assumes some minor success with the many acquisitions we’re pursuing at this point.

And now operator we’re ready to take questions.

Question-and-Answer Session

Operator

(Operator Instructions). And our first question does come from the line of Neal Dingmann. Please go ahead.

Neal Dingmann - SunTrust Robinson Humphrey

Tracy obviously just cash flow story again and it continues to be, with the success you had obviously on Wolfcamp B why not go ahead and throw some more obviously developed that a bit quicker given the success and given the cash flow that you’re sitting on.

Tracy Krohn

It's a function of our internal budget Neal. Fortunately we don’t have a gun to our head and yeah we could probably get out there and throw more money and more rigs at it and get the production up but I would prefer to balance that a little bit more without production out in the Gulf and generate the cash flow to cover that so don’t have to borrow more money or sell equity to cover them up.

Neal Dingmann - SunTrust Robinson Humphrey

Got it and then just one follow-up, you know talking about offshore, just your thoughts in general Tracy about M&A is it generally, are you still seeing a number of deals and then if you can just comment on infrastructure does it seem like you all, I know somebody in the past of isolated infrastructure out there hurt them you don't continue to any of those if you can just comment on M&A and infrastructure offshore.

Tracy Krohn

M&A is looking pretty good, offshore is mostly A, as opposed to M part of that equation. I think we’re seeing quite a bit strong. I mean we have some sale last year in well and some a little bit other. We have got opportunities on the shelf, we have got opportunities in the deepwater. We have got opportunities onshore as well. So that whole market is beginning to heat up and that’s not a surprise to us. We saw a lot of activity last year and we think the it makes a pretty compelling argument for us that we will have some more acquisitions this year.

As far as infrastructure clearly as more operators are involved in the deepwater Gulf of Mexico that basically continues to get more and more mature and it's easier to get the product to shore. That's one of the things we recognize, I mean we think about deepwater is being fairly new but we have been out there for 2.5 decades and now the industry has.

Operator

And our next question does come from the line of Curtis Trimble with Global Hunter.

Curtis Trimble - Global Hunter Securities

Going back following up on Neal’s question on the Permian. Obviously it's fairly stock I think with respect what you guys are, looks like in terms of value for the share price and some of the other deals we have seen out there. Tracy in terms of continuum the development side vis-à-vis and maybe just selling this off. Can you go through your that process given some of the data points that have been posted over the past few months out there?

Tracy Krohn

I didn’t get your question.

Curtis Trimble - Global Hunter Securities

Basically just looking at what data points you’re looking to see from the Wolfcamp the B, the D, the Spraberry possibly to motivate your attention [ph] and continued development versus just the straight sale of the property given some of the fairly healthy valuations we have seen from all but analog [ph] areas?

Tracy Krohn

Again I don’t mean to be flipping here, I’m just trying to boil down your question. You said a lot of things but you didn’t actually entail the question. Can you just ask it so that I can figure out what you’re trying to tell me? Please sir.

Curtis Trimble - Global Hunter Securities

Sure. What type of well performance are you looking for to retain the Permian as opposed to divest it.

Tracy Krohn

I always want wells to make money. At the end of the day you want to do something that makes cash flow. So our optimal strategy anywhere is to be able to generate cash flow from operations whether it's on shore or offshore.

Curtis Trimble - Global Hunter Securities

Okay and in terms of rate of return you’re looking for, is it 20%, 40%, can you get some detail on that?

Tracy Krohn

I want as big a returns I can possibly get everywhere we’re. I don’t settle limits all right.

Curtis Trimble - Global Hunter Securities

Okay but in terms of boil down just not going to talk about that?

Tracy Krohn

I’m not sure what your question is, if you’re asking me will I put a limit on my production?

Curtis Trimble - Global Hunter Securities

Just lower down on it, wells returned 20% is that large enough to want your risk in drilling wells just with the lower bound of that hurdle rate is for your rate of return, your desired rate of return, your lower bound of it.

Tracy Krohn

That’s true. Rate of return is always a balance for us. We’re not just in the Permian basin, so we look at our entire portfolio and determine where we want to push money to maximize cash flow.

Curtis Trimble - Global Hunter Securities

Very good. Now looking offshore on the Medusa…

Tracy Krohn

Sir, I have got a lot of other people on the line can we move on please?

Curtis Trimble - Global Hunter Securities

Sure.

Tracy Krohn

Thank you.

Operator

And our next question comes from the line of Biju Perincheril with Jefferies.

Biju Perincheril - Jefferies

Just a couple of questions on Permian you’ve that JV for one well, I was just wondering how do you think about possibly a JV larger scale and if you do go down that route how do you think about retaining operator shift versus a non-operator joint venture.

Tracy Krohn

For me it's not really philosophical issue, sir. It's again it's about making money. As long as we feel like an operator is confident that’s not an issue for me.

Biju Perincheril - Jefferies

And then follow-up what was your production in the fourth quarter and can you talk about what are you assuming for ’14 out of the Permian?

Tracy Krohn

Out of the Permian it was about 100 barrels of oil equivalent per day gross or so. I think that’s 3700 or 3800 barrels a day net. Expectations for the Permian basin for next year is a function of kind of what we drill in the next quarter or so to figure out where we’re going to focus our energy.

Biju Perincheril - Jefferies

If I can have one more question on the verticals in the Permian, it looks like it's a slightly lower activity levels. Are these verticals now in areas where you don’t expect to drill horizontals because of lease or what have you or how do you think about slowing down the vertical program in anticipation of a horizontal ramp up.

Tracy Krohn

Yeah I mean we do drill some vertical wells to make sure that we maintain acreage, fortunately we have a pretty good contiguous out in the Yellow Rose Field so that allows for some longer laterals. Of course whenever you get to a situation where you’re doing pad drilling or you’re drilling horizontal wells across some lease acreage you’re going to have that blind spot where you need to put some vertical wells in-line. So the program will include a number of vertical wells in the ultimate scheme of things. It would certainly make us or certainly behoove us to drill some vertical wells to make sure that we get full coverage on all those acreage positions and also we do have some priority on reducing acreage from 40 acres to 20 acres and in some of these vertical plays that we will make it and it will certainly push up our reserves in production.

Operator

And our next question does come from the line of Gail Nicholson with KLR Group.

Gail Nicholson - KLR Group

Just quick questions, looking at the horizontals in the Permian what are the current well cost running you and then off the seven horizontals are you guys planning to do 7500 foot laterals or will it be kind of a mixture there?

Tracy Krohn

The short answer is yeah we’re planning on doing some more horizontal drilling in the Wolfcamp B. I don’t know that we have necessarily optimized or designed there. We think I mean we did have a good result with the first Wolfcamp B well we drilled. It's an iterative process and when we started that we assumed that we probably had to drill 15 to 20 horizontal wells before we felt comfortable with the more or less standard formula and I don’t think all of these wells are just necessarily at standard formula. Sometimes you start pumping into one of these zones and you realize that you’re going to get up to a certain pressure and then you change the formula from a slick water to gel type of frac [ph]. So we’re setting stone, we’re going to do it as the conditions would warrant. But generally we’re looking more at a slick water type of approach than we’re to gel approach for most of the stuff that we’re looking at.

As far as geographic representation on the 7500 lateral, I mean that’s kind of what we think is made with the sweet spot 7500 feet and many of the lease configurations that we have will accommodate that so that’s kind of what I would like to get to, it doesn’t mean we can build on all of the leases that we have tied together but that’s kind of what we’re looking at.

Gail Nicholson - KLR Group

And just regarding the seismic studies that are being done in the Gulf, will you have it back later in late ’14 or is that somewhat early ’15 timeframe?

Tracy Krohn

I think that it will be late ’14 and frankly we have got some predata now I think we will have a pretty good idea first quarter 2015 where we’re going.

Operator

And our next question does come from the line of Noel Parks with Ladenburg Thalmann.

Noel Parks - Ladenburg Thalmann

One of the last items you mentioned as far upcoming plans. Was that you were looking at another deepwater well that I guess was just in the planning stages. Is that operated or non-operated opportunity?

Tracy Krohn

We’re not sure yet.

Noel Parks - Ladenburg Thalmann

Okay. Just making sense so I can take from that operation is a possibility at least?

Tracy Krohn

Yes sir.

Noel Parks - Ladenburg Thalmann

And then the new Mahogany A-17 well exploratory well that you mentioned, what are you targeting there and do you’ve any predrilled thinking about how much that might contribute at work?

Tracy Krohn

We’re working on that stack pay analysis, I don’t have that answer yet.

Noel Parks - Ladenburg Thalmann

But similar to, I guess it was at the A-14 which was last year 's successful exploration well, so similar to that, just looking for additional zones?

Tracy Krohn

Yeah that’s true and also had to stack them as we go through the process of drilling these wells. We find these sands [ph] in various positions. So what we would like to do and what we have been doing is as we get more data we tie that in with the seismic and we look for aerial extent [ph] and then we look how we can stack the pays with the directional drilling profile.

Operator

And our next question does come from the line of Richard Tullis with Capital One.

Richard Tullis - Capital One Southcoast

Just a couple quick questions. Tracy, what do you expect the development cost to average net to WTI, say over the next couple of years for the deep water discoveries, Big Bend, Dantzler, Troubadour?

Tracy Krohn

Dantzler and Troubadour I don’t know that I have that full answer for you yet. We’re not the operator yet and we haven't sanctioned Dantzler or Troubadour at this point. In 2014 we have got about a third of our budget dedicated to offshore most of that of course is in the deepwater.

Richard Tullis - Capital One Southcoast

Okay. Then looking at the LOE guidance for 2014, how much work-over activity is factored into that guidance?

Tracy Krohn

Hold on, we’re coming up with that answer just give me a second I will be able get that up for you. We will get back to you. I will answer, or else you will just have to hold on the phone here. I will come back with that answer just shortly.

Richard Tullis - Capital One Southcoast

Then lastly, Tracy, how much storm down-time is factored into the 2014 production guidance?

Tracy Krohn

It's just a few days, it's about the same as it was last year.

Operator

And our next question comes from the line of Michael Glick with Johnson Rice.

Michael Glick - Johnson Rice & Company

Just a follow-up on an earlier question on the Permian, specifically. Considering valuations in the basin are pretty hot right now, are you considering monetizing Yellow Rose?

Tracy Krohn

Yeah there was a sale south of there, it would be silly not to even think about it. Yeah I mean I guess that would be a reasonable statement. And let me interrupt you just a moment Michael and answer you the previous question about the work overs from lower, it's about $25 million is what we dedicate it for our work overs for 2014.

Michael Glick - Johnson Rice & Company

I know this is kind of a hypothetical scenario right now, but in the event that you were to sell it, how should we think about those proceeds? Is it pay down debt or special dividend, or fund deep-water development?

Tracy Krohn

I’m sorry, please repeat the question.

Michael Glick - Johnson Rice & Company

Just talking hypothetical, in the event that you were to sell Yellow Rose, how should we think about use of proceeds?

Tracy Krohn

If I were to sell Yellow Rose Field how much would I get for it?

Michael Glick - Johnson Rice & Company

You tell me.

Tracy Krohn

I don’t know, that is hypothetical question. We would have to take a look at anything just like we would with any disposition of any asset anywhere. We look at it and analyze it as a function of what we think our portfolio requires. We have been doing this for a long time. So hopefully we would apply in something it would help our shareholders and help expand the company.

Michael Glick - Johnson Rice & Company

Got you. Just kind of a quick housekeeping question. On the Gulf, what type of P&A budget should we model in for this year?

Tracy Krohn

We have been running around 70ish to 80ish per year. So somewhere in that range has been for the last few years about what we have been doing.

Operator

(Operator Instructions). And our next question comes from, it is a follow-up question from the line of Noel Parks with Ladenburg Thalmann.

Noel Parks - Ladenburg Thalmann

Sorry if I missed this, I've got on a little late. But do you have any updated thoughts on East Texas, the James lime out there?

Tracy Krohn

Yeah we have finished drilling the 5th horizontal well. We have we will continue to test the same. When we went into this project in East Texas we were thinking it would probably take 15 to 20 wells across the acreage we had to come up with a plan to continue and accelerate development. So that’s kind of where we’re. I don’t have a whole lot of production data for you at this time that I want to share. We’re looking at it as a to proceed on towards 15 to 20 wells on the horizontal side of it and make that determination on whether we should make that determination a little bit sooner or whether we should just move on. So I don’t have a definitive answer for you but we know we have got more work to do if it's something we’re going to continue to pursue.

Noel Parks - Ladenburg Thalmann

Sorry about that, so that 15, I did hear you mention the 15 to 20 well program needed to establish that. I thought you were talking about the Permian, but that was actually east Texas, is that right?

Tracy Krohn

That was both.

Noel Parks - Ladenburg Thalmann

Okay.

Tracy Krohn

And we would assume that if we were going to go ahead and do a real development type program such as what we’re going to do out in West Texas, then we would need 15 to 20 wells to evaluate the acreage position we have in the area. We haven't made that decision yet. We’re all in the 5th well, we’re still evaluating those results, and trying to determine if this is something we want to carry forward with or not.

Noel Parks - Ladenburg Thalmann

Great. At this point, where are you on the ticking clock of lease expirations out there? I can't remember exactly when you guys entered the play?

Tracy Krohn

We don’t have any real serious consideration about maintaining acreage out there other than whether or not we want to continue drilling. It's more of a drilling obligation than anything else. So it's not, you got to jump out there and drill 100 wells or something like that. It's a very limited obligation.

Operator

And at this time there are no further questions. I would like to turn the call back over to management for any closing comments.

Tracy Krohn

That’s it. Operator I appreciate it and we will talk to you after the markets again either on our next call or before. Thank you so much.

Operator

Thank you. Ladies and gentlemen that will conclude the conference for today. We do thank you for your participation. You may now disconnect your lines at this time.

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Source: W&T Offshore's CEO Discusses Q4 2013 Results - Earnings Call Transcript

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