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McMoRan Exploration (NYSE:MMR)

Q4 2010 Earnings Call

January 18, 2011 10:00 am ET

Executives

Kathleen Quirk - Senior Vice President and Treasurer

James Moffett - Co-Chairman, Chief Executive Officer and President

Richard Adkerson - Co-Chairman

Analysts

Eric Anderson - Analyst

Joseph Bachmann - Howard Weil Incorporated

Joan Lappin - Gramercy Capital

Joseph Allman - JP Morgan Chase & Co

Duane Grubert - Susquehanna Financial Group, LLLP

Richard Tullis - Capital One Southcoast, Inc.

Adam Duarte - Omega

Noel Parks - Ladenburg Thalmann & Co. Inc.

Nicholas Pope - Dahlman Rose & Company, LLC

Leon Cooperman - Omega Advisors, Inc.

Question-and-Answer Session

James Moffett

Well, obviously, we hope that the well we just completed at 229. We have it in our numbers. They went up to the Rob-L 10, which is a big sand that's never been produced on the north side of the Flatrock field. We don't know exactly what they intend the flow of that, but it should be a 70-million-a-day well. I don't think we put it into our projections till we had it flowing. Of course, this [indiscernible] well that we discussed assuming the damn thing will have a big flow. It's a textbook log one zone's almost 100 feet thick, and those shale breaks it ought to be a big well. It offset well produce 40 million a day. It may flow 70 million a day because it's so much bigger. It just depends on exactly how our equipment will respond. Of course that's right by production. And of course, we're also hopeful that this south Flatrock well that we're just fixing -- the redrill that was drilled last year by our partner there they got into some mechanical trouble and couldn’t get the well down. So with insurance proceeds, we're going to drill that well. We don't have that in our projection. There's opportunity that we just have that would add some numbers. But to those numbers, usually, we only got big interest in all those wells, and we call it the sausage [ph] play there. The Boudin play, which is shown in the reference map. Despite what we're drilling, all those kind of wells can go on production if you have any luck in those. So it's a voluminous projection that you see without assuming any success.

Richard Tullis - Capital One Southcoast, Inc.

Any Blueberry Hill production in the forecast?

James Moffett

Well, we had it in there with the silly mechanical issue that we got out there until we figure out what that flow rate is. I hope we can get it in there, and clean it up and find out what the heck -- why the flow capacity doesn't match the look of the log, which we've been able to predict for years especially on the [indiscernible] gamma-ray. So we had it put in the numbers that we could put in if we could get out there and find out what the hell's wrong with that well. So those are the things that would give us some upside potential because the shallow water close to facilities, et cetera, et cetera.

Richard Tullis - Capital One Southcoast, Inc.

So I guess the way to look at it, it's essentially a base production at year end plus maybe some minor development activity. But...

Kathleen Quirk

I was just going to say the same thing, Jim Bob. It's got ongoing re-completions in it but you touched on the upside that we have.

Richard Tullis - Capital One Southcoast, Inc.

What are the well costs-to-date gross level for Blackbeard and Davy Jones appraisal?

James Moffett

They're both at just about $130 million.

Operator

Your next question comes from the line of Shobhna Kumar [ph] with Jefferies and Company.

Unidentified Analyst

The first one around the budget for 2011. You haven't given a recap in terms of how much of the budget would go to the ultra-deep, do you have an estimate for that?

James Moffett

Would you say that last part again, please?

Unidentified Analyst

Yes, the presentation of the budget for 2011 that would go to the ultra-deep?

James Moffett

A significant portion that's why we gave a range of $300 million to $500 million. If we had some success out there, we would want to put some more rigs as we've discussed earlier, that's where that $200 million swing comes from.

Unidentified Analyst

And in the previous question, did you talk about when we're talking about the production guidance for 2011, I assume it did not include any significant contribution from Laphroaig No.2?

James Moffett

No. We wouldn't have -- depending on what the Laphroaig well does, as I said a while ago, if the sands at the Laphroaig were probably offsetting the sand's just thick enough, they're almost 3x thicker than what they were at that first well. So we expect in the production rig to be much higher but we couldn't project that because we haven't tested the well yet. And so there's some upside for you to -- a bigger flow rates and maybe, sneaking in there and popping one more well now because you have three different sands already. One big one and two smaller ones. And this is thicker and better developed than the other well was.

Unidentified Analyst

And the last question, do you have any result estimate for the Upper and Middle Miocene sands at Blackbeard East?

James Moffett

Yes, ma'am. The shape of the map that you see that we were comparing to Auger if those sands at 19,500 to 24,000 would recover the area that we have shown. We're talking anywhere from 300 Bcf up to 500, 800 Bcf. A lot of that will depend on whether the coverage is on the west leg or the east leg. But it's asymmetrical 360 and draw a map asserting on that like you're doing all the salt domes. That's why we have the acreage what we call Queen Anne's Revenge and we didn't know if we'd jump up higher in the Tcf range.

Unidentified Analyst

And could these results be added in 2011?

James Moffett

Certainly. We're going to follow up on those shallows. Those shallows, I keep saying shallow because of those 35-foot depth we're talking about from 19,500 to 24,000. We need to look at it in this well. We sidetrack up in another region there because there was a lot, as I said earlier, a lot less expenses. We're trying to get a straw on that we could use conventional equipment.

Unidentified Analyst

And what would be the timing of the wells in Blackbeard East?

James Moffett

As soon as we see the next 1,500 feet of hole. That way we've got any more Frio sands or possibly Wilcox sands and we'll start to focus on what we're going to do with this first well. If we're going to kick in down deep in the deep, we would move another rig in and to drill a development well, to see if we can confirm the up-dip potential of the sand, the 24,000, 19,500 in the offset wells to do. We could follow-up with the development program that surround that deep well.

Operator

Your next question comes from the line of Adam Duarte with Omega Advisors.

Adam Duarte - Omega

Quick question on Laphroaig. Is the 150 Bcf resource estimate that you have in the presentation is that based on the 140 feet of, I guess, potential pay that you noted in today's press release or is that a pre-trial estimate?

James Moffett

No, it would be based on the information we've got. We think we know as we've been talking about some of these present days that when we move we just move to a little over 3,000 feet away. We appear to be up on a pretty sizable hole. This channel sand that we have in MA that was the original completion that's still producing. In itself, if we got the important thing contrary [ph] it's much bigger now. About twice as big as the original completion. You got two more plays above that would have went in the first well, and we're not sure but we have at least one more zone. Those in MA 12 that we will try to bag them and take a look at. And then it depends on how far to the east, the darn thing goes, but the only reason why we are up for potential as of this thing is it’s one of better looking sands we've seen in this trend and the MA is a very big producer all the way across especially Gardner City. So we threw that in there just because the additional thickness was totally unexpected.

Adam Duarte - Omega

And if the incremental log data's confirmatory, when would you expect production and incremental reserves?

James Moffett

Well, fortunately, we're right there by the production facility that we have for a slower flowing in this and it's flowing about 7 million a day now making some order. This should produce at 40 million a day, so we've got plenty of room in our facility. So with that thing sitting there that close in production facility, it will be on-stream in less than 30 days.

Operator

Our final question comes from the line of Joan Lappin with Gramercy Capital.

Joan Lappin - Gramercy Capital

I guess my big question for you is your production keeps dropping and now you've raised this huge amount of cash, which is more than you've had ever, and you're talking about spending $300 million or $500 million this year. I guess part one is all of these wonderful things have happened in 2010 didn't get into the reserves. So I would assume that your highest priority for 2011 is to get all these discoveries into the reserves and booked. And as it relates to that, how do you plan to spend your cash and you just said a few minutes ago, we can only afford to be running three rigs at a time. So how do you decide where you're going to go and spend that money so it doesn't evaporate into years or so from now, we're selling more stock?

James Moffett

Here's where we come from. The reason we raised the additional money is because we doubled our position. The Plains had to make a decision to get out of the offshore and that's just the way life goes. So we felt that we should step up. We have enough information, well all these leases and we had to go out and buy leases to make the aggregation. We didn't have to do that. We already operate the darn things, so we didn't have to pick up anymore operational cost. So what we basically did is just double our bet, and Plains was a great partner. We found Flatrock together. We found Davy Jones together. And we're drilling the rest of these other prospects and boom, all of a sudden they decided to strategically after certain things happening this summer to get out. We felt like we ought to double our debt, but in order to do that, we had to have enough cash to pay for the working interest increase. We believe that these structures, we actually, to sum the size of Blackbeard East, we'd shown you the actual salvage section. But to have the whole sum to ourselves. To have 70 percentage is another thing. The big Davy Jones structure, 60% interest, 70% is there. It's a locators dream where you've got leases bought, you've got the 3D seismic done, it appears to be a fitting your model. But the answer to your question is what we hope to do this year with a couple hundred million dollars is to get those flow characteristics pinned down either Blackbeard East and West or Davy Jones or both, and we hope to see the Lafitte. I mean, the Lafitte if it's good in other words, start sand anymore than what we said about those Miocene sands there. These are going to be the same sands we have at Flatrock. These things could be completed in shallow water, close to the facility. Within a year, because we've got all this research or how to complete higher-pressured wells, we have a chance because of the salt weld is going to be above 20,000 feet or 20,000 feet is the feet. Potentially about 25,000 feet which should be a conventional completion designed in like Blackbeard. So that's why we had to put this big range in here. If we get a couple of these wells drilled that shows the immediate thickness and we get some flow rates on, getting that money we can but those kind of flows bank, which you probably couldn't do if you were in Deepwater. Like I just said, they speak for themselves. You see these announcements where people say we're going to start today only own production by 2014 and 2015 or 2020. At least, we don't have those kind of lead times. As we said to you before, raising the exploration dollars, like the money we just raised is always much tougher than raising development dollars once you got some proving hand of what the well capacities are. And that's what is causing it. We think we don't have that and that will allow us to access conventional financing as opposed to having to use equity.

Joan Lappin - Gramercy Capital

Well, if we went back to where I started as your production keeps dropping. Is that because you're paying so much attention to elephant hunting that the wells you've got are not getting the attention they should, or they were already getting worn out before you got them from whoever sold them to you? Or where do you think we are on that stuff?

James Moffett

All of the above. First of all, we haven't watched them. I understand why you would be concerned about that. But remember, we bought that 300 Bcf and we're lucky enough that we had $10 gas price for the first year, we paid off that $1 billion that we pay for that, because all of those were shallow Pleistocene wells. It had a shorter reserve length. It emphasizes deeper trends that we can get into some 10, 20, 30 year reserve line. So to answer your question, the new field properties have been running off at our pace, and as anticipated, we bought them. And so in these other fields you have, there are cloud. But lastly, we've been focusing on the home run for just reason we want to use this shorter-term production to get the shareholders some reserves that they could count for the next 25, 30 years. Is that the kind of plays these are? As I say, if these structures pan out, Joan, I can show you in 10 minutes on the maps, each big field will end up with 50 to 200 wells of the Tiger Shoal well is about Flatrock. The Tiger Shoal field had 200 wells on the darn thing. So if we're right, and the data we have to date gives us so much than we were two years, we could throw all the acreage. These are going to be some aggressive development and production will take care of itself.

Joan Lappin - Gramercy Capital

So what's the game plan to make sure that all these reserves get booked in the next 12 months?

James Moffett

To get wells down. What we need to get them booked is the following, here's our challenge: We drill Blackbeard West discovery. We were 100 miles away from any production. We drill down Davy Jones 150 miles away from any production. The SEC rules won't let you had reserves unless you have an offset field that's a lookalike, and we just don't have that because wells discoveries are so far away from us. So we need to have a standalone flow test in completion, which we're going to get this year. And then they don't worry about the analogy. But SEC rules will not let you take a field that is 100 miles away and say that we look like Tahiti, or we look like Shenandoah, or we look like Jack Field because it's too far away. And they can't be used as standalone. So we have to remember, as difficult as is understand, Joan, because it's been 100,000 wells drilled onshore and offshore on top of us but all of them stopped at 20,000 feet. So none of those wells could be used as analog. And so we’re on a standalone basis, once we get a couple of these wells completed this year and get some flow rates, then the next level we drill, we can use them as analogs. If you follow where I'm coming.

Joan Lappin - Gramercy Capital

I do. Now the new Blackbeard East, the one that's going shallower so you can produce those upper zones, it's only 2,000 feet away. I mean, that's like seven football fields. It's not very far away from the well you have down there now. I assume the shallowest up is the easy step. How long do you think it will take you? I mean, is that kind of a -- by midyear, do you think you'll be down and have evaluated what you have at the 19,000 and the 24,000 feet goal for that well?

James Moffett

To answer your question, we would hope to immediately decide, if we’re not going to [ph] get another rig in here, pop a well there, which we think we could do in about three months.

Unidentified Analyst

Once you spud, only three months and you think that will be soon?

James Moffett

You can bet that's our main focus. Nobody's more anxious than we are, Joan, to get in and get some data on this trend so we can start to report reserves.

Joan Lappin - Gramercy Capital

So just to clarify, even though you're saying it's 100 miles or 150 miles to analog wells, you do have production facilities right near these two wells, don't you? I just want to clarify that because I think people listening might not get that.

James Moffett

If you look at the platforms and sit about this Blackbeard East, it looks like I think, they're probably 400 or 500 wells we drill. It must be seven or eight platforms that sit above. Finding the production facilities for the conventional stuff is not an issue.

Joan Lappin - Gramercy Capital

And here's my last question. You showed a slide, which is unusual for you to do today that 2/3 of your reserves is gas and 1/3 is oil and condensate. Now in these wells that are going down now, do you think that you would maintain those kinds of ratios? Are you optimistic that there will be oil and/or condensate in some of these new projects?

James Moffett

In the deep, deep prospects, below 25,000 feet, we're probably going to have mostly dry gas. So that ratio made you up. That's just the nature of the beast. In the shallower prospect, shallower than 25,000 feet, if we have a good flow rate anywhere from 10,000, to 20,000, 30,000 barrels of million of hydrocarbons, condensate we call it. I don't think there'd be any pure oil prospects even in the 19,000 to 20,000-foot range but our condensate rate could certainly go up.

Operator

At this time, there are no further questions. I'll turn the conference back over to management for any concluding remarks.

Richard Adkerson

Thanks, everyone, for participating and we will continue to keep you informed and if you have follow-up questions, just call David, and we'll get them answered. Thanks for your interest.

Operator

Ladies and gentlemen, that concludes our call for today. Thank you for your participation, and you may now disconnect.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the McMoRan Exploration Fourth Quarter Conference Call. [Operator Instructions] I would now like to turn the conference over to Ms. Kathleen Quirk, Senior Vice President and Treasurer. Please go ahead, ma'am.

Kathleen Quirk

Thank you. Good morning, and welcome to the McMoRan Exploration Fourth Quarter 2010 Conference Call. Our results were released earlier this morning, and a copy of the press release is available on our website at mcmoran.com. Our call today is being broadcast live on the Internet, and anyone may listen to the conference call by accessing our website Home page and clicking on the webcast link for the conference call.

As usual, we have several slides to supplement our comments this morning, and we'll be referring to the slides during the call. They are also accessible using the webcast link on mcmoran.com. In addition to analysts and investors, the financial press has been invited to listen to today's call, and a replay of the webcast will be available on our website later today.

Before we begin today's comments, we'd like to remind everyone that today's press release and certain of our comments on this call include forward-looking statements. We'd like to remind everyone to refer to the cautionary language included in our press release and presentation materials and to the risk factors described in our SEC filings.

On the call today are McMoRan's Co-Chairmen, Jim Bob Moffett and Richard Adkerson. I'll start by briefly summarizing our financial results, and then turn the call over to Richard, who will review our recent performance and outlook, and Jim Bob will review our exploration results. As usual, after our remarks we'll open up the call for questions.

Today, McMoRan reported a net loss applicable to common stock of $77 million or $0.75 per share for the fourth quarter 2010, which compared with a net loss of $9.5 million or $0.11 per share for the fourth quarter of 2009. The fourth quarter 2010 results included a number of special items of a $52 million noncash charge was required associated with our December 2010 closing of the convertible perpetual preferred stock offering; accounting rules required us to record a special charge for the difference between the conversion price of $15 per share, which was negotiated in September, and the closing of the transaction when the price was $17.18 per share.

We had $25 million charge in the quarter and impairments to reduce certain of our field's net carrying value to fair value based on a period-end forward pricing and estimated remaining reserves. We had a one-time charge associated with the Plains transaction, transaction cost, and those were partially offset by $24 million in gains associated with insurance claims associated with losses related to the September 2008 hurricanes in the Gulf of Mexico.

Our production in the fourth quarter averaged 144 million a day net to McMoRan. Oil and gas revenues during the fourth quarter totaled $95 million. That compared to $128 million in the fourth quarter of 2009. Realized gas prices in the fourth quarter of 2010 were $4.05 per Mcf, and realized prices for oil and condensate averaged $83 per barrel in the fourth quarter 2010.

Our earnings before interest, taxes, depreciation, amortization and exploration expense or EBITDAX totaled $51.3 million in the fourth quarter of 2010 and $237 million for the year ended December 31, 2010. Operating cash flows net of $44 million in abandonment expenditures and just under $25 million in working capital requirements for a use of $21.5 million during the quarter. For the year, our operating cash flows totaled $98 million.

Capital expenditures during the fourth quarter totaled $57 million and year-to-date for the year 2010 were $217 million. Total debt at the end of December was $560 million, and that includes $260 million in convertible securities, and we ended the year with just under $906 million in cash.

During the fourth quarter, our 6 3/4% mandatory convertible preferred stock converted into 10.7 million shares of common stock. And on December 30, we were pleased to complete the previously announced acquisition of Plains Exploration & Production Company's shallow water Gulf of Mexico shelf assets and $900 million in related financing. In completing the transaction with Plains, we issued 51 million shares of common stock, and the cash consideration was $75 million. After taking into account the share issuance to Plains, our basic shares at the end of the year approximated 157 million. And then if you include the remaining outstanding convertible securities and the newly issued convertible securities, we would have approximately 221 million shares outstanding on a fully converted basis.

Now I'd like to turn the call over to Richard, who will be referring to the materials, the slide materials on our website.

Richard Adkerson

Good morning, everyone. I'm starting on Page 3 of the slides. The year 2010, very significant year for our company. It's characterized by the significant discovery that we saw at Davy Jones. We're now drilling an appraisal well at Davy Jones that Jim Bob will be talking with you about. We've seen some very interesting recent drilling results at our Blackbeard East well, which is 10 miles to the east of the original Blackbeard well that we deepened following the acquisition of that property three and a half years ago.

The information that we gained with our Blackbeard drilling and now with Davy Jones has encouraged us with respect to our ultra-deep program, and we have a whole series of prospects based on leases that we put together to test this concept. We're drilling a well called Lafitte at the present time, which we spudded in October, and it's drilling ahead. But following that, we have a whole series of prospects to test this interesting new geologic concept that we have, and Jim Bob will be talking about all that.

We're continuing with our deep gas exploration program. That's the drilling we started now almost 10 years ago of drilling between 15,000 and 25,000 feet. We have three wells that we're currently having operations engaged on, including the second well in St. Mary’s Parish in Louisiana where we're drilling our second well at our Laphroaig prospect. The first well was a significant producer and in drilling this well, we've seen some interesting sands with our LWD 2 and we are now sidetracking that well to test deeper projects. So we are continuing with our industry-leading deep gas drilling on the Shelf with Gulf of Mexico, both with our ultra-deep play and with our deep gas play.

Kathleen mentioned we were pleased by year end to complete the acquisition of the Plains' Gulf of Mexico Shelf assets, which basically allowed us to double our interest in Flatrock, which was our major discovery in our deep gas program. We've currently produced half of what we currently see as the ultimate recovery from that well. The field has produced about 200 Bs to date and has about 200 Bs of remaining crude reserves associated with it. In connection with the Plains transaction, we completed the private placement of $900 million in convertible securities, including $200 million of convertible debt and $700 million of convertible preferred securities.

We ended the year with cash of $900 million, and that gives us the financing to go forward. The Plains deal was approved by shareholders on September 30, and that transaction, we issued -- December 30, that transaction we issued 51 million shares, paid Plains $75 million of cash as part of the initial negotiated transactions and then $50 million of purchase price adjustments for cash between the effective and closing dates.

It increases our scale in the Gulf of Mexico. As I said, it added proved reserves as well as a significantly greater interest in the ultra-deep plays that we have, consolidate our ownership in our key areas, increased our reserves production, and as I said, we, conjunction with that, had $900 million of new financing. That is shown on the capital structure on Page 15 where you can see how the new convertible debt notes fit in with our existing senior notes and then with the new $700 million of equity capital in the form of convertible perpetual preferred.

Our reserve data as presented on Page 6, I want to emphasize that this does not include any reserves for Davy Jones, either of the Blackbeard wells or the positive drilling results we seen at Laphroaig. But our preliminary reserves we're reporting here is at 276 Bcf equivalent. That gives us a PV-10 for those reserves of roughly $650 million, which under SEC rules is based on the prices for the 12-month historical period, and that's $4.38 per Mcf per for gas and $79.43 for oil discounted at a 10% rate.

Page 7 shows our reserves. Roughly a quarter of our reserves are proved developed producing reserves. About half are proved developed behind pipe non-producing reserves, and that's consistent with where our properties are developed at Flatrock and for the other properties that we have in the Gulf. We’re roughly 2/3 gas and 1/3 oil with our proved reserves.

Our wells that we currently have underway drilling are described on Slide 8. As I mentioned, we have three wells in operations as part of our deep gas program. The second well at Laphroaig was spudded at the end of September. It is currently been drilled below 18,000 feet, and our LWD 2 indicated 140 feet of net pay, which will be evaluated with wireline tools. And to confirm the sands, we had a recent mechanical issue, so we're going to have to by-pass our depth now at approximately 17,350 feet. We have further targets at depth and we plan to go to 20,000 feet with this well.

The initial discovery well was drilled in 2007. As indicated, it's been a good producer. We hold a 28.5% net revenue interest in this property. In Vermilion Parish, we spudded the Platte well in mid-November. It is now drilling below 16,000 feet, with a targeted 17,000-foot target. We have a 50% working interest and a 36% net revenue interest in that well. We have a rig on site preparing to commence drilling, redrilling, I should say, of the Hurricane Deep prospect the South Marsh Island to 217. It's got a depth of 20,000 feet.

We're targeting Gyro sands up-dip to the discovery well at Hurricane Deep, and we have other targets associated with this property. This is located just south of the Flatrock structure in 12 feet of water. We're targeting these very big Gyro sands that we encountered in the original Hurricane Deep well to the south of this well in 2007. It will also allow us the opportunity to evaluate deeper potential Gyro zones. This is a redrill of a well that was abandoned in 2009 when an underground flow caused us to have to operate or step away from that. We're going to recover our cost of redrilling this well to the depth of where that had been occurred from insurance proceeds. Following the Plains transaction, we'll have a 55% working interest and a 39% net revenue interest in that property.

As I mentioned in the ultra-deep program, we are drilling the Davy Jones offset appraisal well at South Marsh Island 234. This is located 2 1/2 miles southwest of the discovery well. We began drilling this well in early April. We are now drilling below 27,000 feet with a current target of about 30,000 feet. We're expected to test similar sections up-dip to the discovery well, as well as deeper objectives, including potential additional Wilcox and possibly Tuscaloosa sections. We have a significant amount of open hole that we have not evaluated yet, and Jim Bob will be giving you an update on that in a few minutes.

As I mentioned, the Blackbeard East well at State Track 144, at South Timbalier 144, we logged 178 feet of net pay to date in the Middle and Upper Miocene. But interesting for the first time, offshore Louisiana, we've seen a Frio sand now below 30,000 feet, and that opens up a whole new set of possibilities for us that we'll be -- Jim Bob will be talking about.

As I mentioned, the next well in our ultra-deep program is being drilled at Eugene Island 223. That's the Lafitte prospect. It was spudded at the beginning of October, and now it's drilling below 16,000 feet with a depth target of 30,000 feet, targeting Middle and Lower Miocene age objectives and possibly deeper, older sands.

The completion for the Davy Jones original well is continuing. Long lead time item is being procured and we are working to get this completed, and so we can put it on stream to see flow rates by the end of 2011.

Page 10 shows the map where our current ultra-deep wells are being drilled. And then in green, you can see the whole series of future targets. These will be evaluated and pursued based on the knowledge that we gained from our drilling activities and our completion activities at Davy Jones. Very excited about this. And as I said, because of the experience we've had to date with the Blackbeard wells and Davy Jones, it's led us to put together this whole series of prospects test this new concept.

For 2011, we're looking in the first quarter to have production rates of 175 million a day. This, of course, will include the property interest we acquired from Plains for the year. We expect to average 160 million a day. Our capital expenditures are going to depend on the drilling results and development activities that we have going forward. We expect to spend at least $300 million. With success, that could grow significantly to $500 million, and that's what we hope to be spending. It's all going to be driven by the opportunities that come to us.

We're continuing to aggressively deal with reclamation and abandonment costs associated with our existing property for 2011. We expect to incur $135 million of P&A expenditures, and roughly $40 million of that will be covered by insurance. And we do have insurance claim opportunities related to the 2008 Hurricane that we're pursuing.

Cash flow sensitivity is based on current forward prices and our plans for production current cost levels. We would generate $220 million in EBITDAX. You can see the sensitivities for changes in oil and gas prices and production volumes.

With that overview, Jim Bob, I'll turn the presentation over to you to talk about our exploration geology.

James Moffett

Thank you very much, Richard. Glad to have an opportunity to update you. I'll use the slides. Start with Slide 14. The first one, of course, is Laphroaig where Richard has reported a period have a successful extension of that field to the Northwest of the original well. As you see the shape of the picture, I should caution you that we really don't know how big this thing is to the West. We've gotten significantly bigger sands than we had in the first well, and so a lot depends on the extent of this play as we go to the west. You can see we have a large acreage block here, so we'll just stay tuned.

There's a cartoon on the next page that we've tried to, as we usually do, give you some idea of what we mean when we say significant. You can see that there's one main sand, which is a textbook same with high gamma ray, how we use to be. We don't have a WD log yet. But based on that log drill time, we feel pretty confident that it's going to be typical of the process we saw in the first well. That first well flowed 40 million a day. And I say this well is substantially thicker than that, especially in that main sand, which is our base of sand. So we'll just wait and see where it'll flow 40 million a day or 70 million a day. It's one of these deep Miocene sands the reason why we drill deep gas well.

The next slide, we talk about our Davy Jones prospect. We're below 27,000 feet. We had hoped to have it logged by now. Unfortunately, we had a rig top drive to go out, which cost us about a week or hopefully we would have logged by now. We intend to log the well later this week. We're into the Wilcox. That mud log we've seen several sands, the Frio indicate we're in lower Wilcox, so the well appears to be running, as we have stated, substantially high 1,000 plus feet high to the regional well. We're anxious to get a log down through that part of the section so we can confirm the additional plays. We’re over two miles away from the original hole, so we just have to see exactly how the changes may be as you can see from the lateral side. Then we just looked at which was about a little more than half a mile offset how the sands can change, thicker or thinner. But again, based on the mud log, it's a large sand. In this interval, we have 1,200 feet open hole. We're going to try to get it down around 27 5 [ph] or as deep as recent deep. We'll take this and then we get out drilled flank [indiscernible] and be able to characterize what the offset looks for you.

The next slide, Slide 17, talks about the Blackbeard East. We updated you the information that we used to Capital One Investor Meeting. This is a map on the top of the Miocene where we have encountered two plays around 24,000 feet. You noticed series of Miocene sands about of 19,500 feet. The map portrays a salt dome with a salt keel down the middle, and production so far on the west side. The red area indicates what we think this size of the reservoir would be up-dip from this well, and the orange is the shape of what can be down-dip potential when seen in this well.

On the east side, you'll notice we've got a prospect that we [indiscernible]. [indiscernible] we acquired some additional acreage during the drilling of the Blackbeard East well. Because it appears that we've got a Eastern fault block that would be similar to the current fault block we're drilling. In other words, the other half of Blackbeard East.

On the next page, maybe to give you some more detail, you can see that we have compared this to a Frio to the southwest in the flex trend. These are processing reservoirs versus Miocene. As we've seen the shape of these features regardless of age are important. And you'll notice on the slide, it talks about, on 18, it talks about the flex trend discovery which is the Auger/Cardamom field. And the reason why it's so interesting is if you'll compare the map on 16, if our shape of what appears to be the Blackbeard East [indiscernible] salt dome, it looks better so much like the Auger/Cardamom field, even including the little salt filler that sits up at the top that you see on the cross section just in the center part of Slide 18, and you see multiple horizons.

The reason why that's interesting for us is because this [indiscernible] seminar, the operator of the Auger field when they drill the first well in [indiscernible] Auger, they actually sidetracked the well and went to salt keel, penetrated it and then straightening the hole up, and they were able to prove that whatever you see on the west side as is common in the Miocene, Paleocene, Frio on through the onshore and then Deepwater, a symmetrical flank that increases out of the field because this field is a big field, almost a Tcf and 224 barrels of oil.

Remember this Miocene so much shallower than we have but we think we have a structure that is very similar. We tried to show that to you on Page 19 where you see on the far right, the side and the cross section, which was the reason for us locating this Blackbeard East. It's one of the biggest features in terms of vertical exaggeration. It is a perishment-type [ph] dome whereas Davy Jones, which also has a lot of vertical, it appears to be just a deep-seated feature. You'll notice on the cross section to the right, which is the actual seismic line, one of the seismic lines that goes through this location. And when you see the salt on the right, if you follow that one over and look at the salt weld, you'll see some bright events, which are very easy to pick out, and that's where we have sands in 19,000 feet, 19,500 feet. And that log, pushing out the log on the left hand is the upper left-hand log that shows you those pace.

We've been spending a lot of time trying to see just exactly what the significance of the Ryder velocity events are. As you can see, they form a nice four-way over the top of this deeper-seated feature. And then the next on the same cross section, you see down about halfway the dot, and that log is represented by the middle part of the log on the left side. We have two sands, which are high-quality Miocene sands they have hydrocarbons and both have a water level in them, and you can see how we can get to those sands. And so if you look at the shape of the map on the pages prior to this, you see that it could cover a considerable area.

So the 19,500 and 24,000 production is important because it's a depth we can use conventional completions. In other words we don't have to have the 25,000-pound tree. We don't have to have the heavier recompletion equipment, the safety valves, et cetera, because the pressures there are below 22,000 pounds, so that gives you a surface pressure of less than 25,000 pounds.

So you have the upper part of this play, which looks like the four-way that we mapped on the prior map, the lower part as you get into what we call the dio period part of this feature. If this were a salt dome onshore or above the salt weld in shallow depths, you'd still see a thick salt pool. What happens to these domes below the salt weld, the salt core that's normally there as was the case in Auger/Cardamom appears to be the case here.

Actually, because of the heat temperature and pressure it becomes mobile and pops up and goes up into this tower formations. And as a matter fact, if you take a look at the map, which we don't have in our presentation, but it's readily available, there's about six platforms that show on top of this [indiscernible] that produce in the south above 12,000 feet. And that's much of growing structures that happen to be over the top of the salt dome. So you have a deeper pool type situation and of course, you have the seismic here to show you the four-way closure.

Now below the depth for just a minute, you see that the dome is standing up on end with a lot of west dip below the 24,000 feet sands we just discussed. Below that, we've seen numerous zones that have gamma-ray for some [indiscernible] but they don't quite develop in their four sands. They've had 12, 15 mud logs [indiscernible], including the most recent which is the bottom log on the left side, which is Paleo has been identified as a Frio sand. That would be approximately equivalent in the [indiscernible] section, which is known as the march tech [ph] in the onshore.

That's important because although our zones appear to be thinner, then we'd like to see them that they have really good porosity, especially in the upper log, but that appears to be over 20% by log with resistivity, gamma-ray [indiscernible]. And we think, as you can tell, as we drill this well down, we can know this thing had quite as much [indiscernible]. But as we drill inside the Paleo end, we’ve had to continue to show more East and West dip on this feature. So I hope the cartoon gives you a feel for that.

So you have two potential discoveries here, one the four-way closure about 25,000 feet and then this perishment [ph] dome feature that would be similar to the Auger/Cardamom. We continue to drill the well deeper. As you can see from this section, there's really interesting events below 30,000 feet, which is partly is where the Frio zones came in. But as you go deeper, the Wilcox, which we think we may have a chance to test. We've got a permit to drill the 34,000 feet, and we're right above 32,000 feet. So we want to go ahead and test this whole dome.

But in summary, you've had hydrocarbon accumulation involved which shows another zone from 19,500 down to 30,900 feet now. It appears to be a multi-traffic dome that was growing to the deposition of all these Miocene, Frio and Wilcox section. So stay tuned. We're going to try to get that thing. And of course, we made reference in our text that we thought this was a candidate for what we call the wedging of this -- flank of this salt dome. We see it onshore and specifically in the Deepwater to the south. We've showed you before the K2-type field, which is in Deepwater. And if you'll notice on that cross section on Page 20, the first well was drilled on the far right, had about 60 feet of sand, 50 feet, 60 feet and was really sort of laminated and shaded, not as well developed as the Frio that we see. As they went down deep, as the little diagram on the bottom right shows the sand wedge is out and became a 300-plus wedge sand with 4,500 feet of [indiscernible] because of the closure, and I think that [indiscernible] has gone over a bit in barrels in estimate. You'll notice on our cartoon, that’s similar to what our feature looks.

So there's some very interesting information that we're developing as we drill the Davy Jones well. And, of course, now the Blackbeard East well to give us basically data points to establish new objectives. In this case, the Frio which, as Richard said, is the first time people have intercepted the prolific Frio zone.

Now why is that important to our prospects, not just the Blackbeard East? If you notice in the next map, which is Slide 23, if you go to the far south, the Wilcox play that we've been discussing with you, we put a star on the Cascade for you because that's the first well that was drilled at the time. It was drilled after the Thunderhorse well, which is up to the Northeast. People thought it would be a Miocene enclosure similar to Thunderhorse. But as they drill, they realized that the Miocene was basically almost gone in that well, and the structural part of it was in the Wilcox.

It was the first well in the Deepwater to confirm Wilcox fate and of course, the rest is history because later [indiscernible] the Jack well, as you can see, to the very far south of the drill Shenandoah, Kaskida, Tiber. But all that got set off by the drilling of the Cascade well. Same thing for the Thunderhorse well, which is to the Northwest, and we've shown it with a star because of Miocene sand set off the hole Tahiti trend that's to the west. We've got that circle to the Miocene.

And of course, you remember the reason why these things go east-west, they parallel to the shore line and all the muddy Mississippi sediment that was coming in for the last 100 million years into the basin always goes to the West because of the prevailing westerly currents. And Hickory to the north, the Miocene trend was one of the first wells that set off the flex trend, and that trend -- we just mentioned the Auger/Cardamom field but there was a number of major fields. You can notice, again, how the trend was set up by the well to the first discovery, and it always paralleled the coast line.

So if you put the Blackbeard East in relation to those two, those three star, the Cascade and Hickory, and of course to the east of that, the Thunderhorse, could this be the beginning of a Frio trend? We believe that it would be very unlikely. As prolific as the Frio is, Frio is all through Central Louisiana and actually Central, Southern Louisiana and basically how long it takes to coast down to Mexico. The big Frio trend is historical, and we think that it is very unlikely that you're going to see these two sands out in the basin. We think it's a signal that the sands made out onto the shelf. Although the Frio sands were gone by the time you get to the Deepwater.

So it just adds another layer of objective at West Blackbeard, Lafitte, Barataria, Morgan, Captain Blood. We would see not only now the Miocene Wilcox in this shale trend, but now we can be on the lookout for the Frio sand. And of course, you go through the Frio to get to the Wilcox anyway. So it could be a significant bit of news.

Once again, we have three points of control so far which is Blackbeard West, the Blackbeard East and the first well at Davy Jones. The feed's not deep enough to give us a data point. It's 200 by 200 square mile area on the shelf. To try to figure it out with 3D seismic and comparing it to the wells onshore in Deepwater is quite an exploration challenge. But we think it's falling into place, and we think all of the pieces will become more obvious as we get to more data points.

On Page 22, just to refresh you of the dancing dragon and what the Frio situation that I just described to you looks like. We purposely left the purple on for the salt on Slide 22, and we only left the color on the Frio Oligocene that you can see on the left side on the Louisiana onshore, which you've got a thick Oligocene section. And now that we've seen a piece of it at Davy Jones, it's much more significant at the deposition that's at Blackbeard. That's the north south cross section. As you go further to the south, you can see the Frio just a modern-looking section. It's almost gone in the Tahiti trend, and by the time you get to Cascade, the Oligocene is completely gone.

So this is why we are excited that this could be the first Frio sand [indiscernible] this Frio trend I just outlined to you. So that's a lot of information. I hope the cartoon and the actual log data and geophysical data helped you understand what the potential of each of these prospects holds and what the trends hold.

Quickly, the Lafitte prospect, which you can see, that covers a major part of: one, 5,000 [indiscernible] and about half of the southern 5,000 [indiscernible]. We’re at 16,000 feet. We expect we've set pipe. We expect in the next three weeks to get very close to the 19,000 foot depth and anywhere below 19,000 feet, we could possibly start to see the salt weld and as we see come up-dip -- as we go through the salt weld, as we've done, we'll find out if there's any salt or whether it's just a fossil remnant of the salt and just the salt weld, which we believe that by itself [indiscernible] and you're going to see where the salt weld as it's shown on Slide #24 takes an almost vertical drop and creates a major three-way closure on the Middle and Lower Miocene. And, of course, you'll see our friend, the Oligocene Frio, which we just highlighted and then, of course, the Wilcox. So just stick into the sands, which we've talked about the Miocene and the Wilcox. Certainly, the Frio is a possible objective for prospects [indiscernible]. Hopefully in the next weeks and months, we will be the salt weld and start to get some information there which will be our fourth data point on the shelf to further define which of these zones are going to be a portion [indiscernible] and which are going to have [indiscernible]. There are other reference slides that I will suggest if you have other questions or comments or just want to look at it later, that we've included for your information.

With that, I hope that brings you up-to-date on the current exploration activities, but I'll stop there and open the call to questions for Richard and for myself or any of our staff that can help you with any questions we haven't answered. Richard?

Richard Adkerson

Thanks, Jim Bob. Operator, you want to start with the questions?

Operator

[Operator Instructions] Our first question comes from the line of Lee Cooperman with Omega Advisors.

Leon Cooperman - Omega Advisors, Inc.

Jim Bob, I guess it was about three or four months ago, you spoke at the Intercom Conference and at that time, you indicated I think, and correct me if I say anything that's off point, that you thought there's a potential for 100 Tcf of gas across, I think, 15 ultra-deep prospects. And I'm just curious given what you've learned [indiscernible] a few months, do you still think that is the ultimate outcome? Are you more confident? Less confident? Same degree of confidence? What could you say any kind of a big picture comment?

James Moffett

Well, I think what I would say is the same confidence as we talked about before. Everything that we drilled so far has given us a reason to believe that the models we've used are on target. Obviously, we'd like to have another four or five data points proved to give us the exact thicknesses of the ultimate sand section in the Miocene, now the Frio and the Wilcox, that's the least, so we need some more points for that. But each of these wells that we've drilled have had reservoir quality sands. At Blackbeard East, we think we have that at Davy Jones. At Blackbeard West, we've got Miocene. We've got Frio now at Wilcox. Maybe we'll have Tuscaloosa as we drill the Davy Jones well deeper and evaluate the Wilcox. But I would say for this 200 square mile area that we actually are more confident in some ways because we have just a couple more data points to confirm that the rocks are there, the porosity is there, the hydrocarbon is there. All we've got to do is get in here and drill enough data points where we get the flank to some of the structures drilled as well as the four-way closures. So we haven't seen any information to this date that would not be what we have in the models, and each data point make us that much more confident. So to that extent, you can add that on the plus side of the confidence since you heard my remarks in the Intercom Conference that you're referring to.

Leon Cooperman - Omega Advisors, Inc.

So how much time do you think you need to kind of prove this out to your satisfaction? Is it weeks away or longer?

James Moffett

Well, that's an interesting question, Lee, because every night that I go to bed, I wonder during the night what kind of phone call we're going to get because every foot of section that we cut could potentially open up another reservoir possibility. And of course, especially Davy Jones where we hope to have a log let's say later this month. That could be significant because it would give us an offset appraisal well as opposed to the Blackbeard East, which is 100 miles away from Davy Jones prospect. In other words, as you drill the first well into these prospects, it gives us the confidence that we're picking and choosing the highest with 3D. But as we get the offset well drilled so we can see whether or not the first well drilled had a complete section. Is there a missing section because of a fault in one of the wells that we haven't been able to pin down? So I'd say to you that every day, now that we have three wells drilling and with the Lafitte well, we're just getting down below the salt well that it can happen overnight. For instance, the sand that we just logged at Blackbeard East, the mud log has showed over 100 feet of potential section when we logged it. These two portions over there that are hydrocarbon bearing popped up, and it looks like the whole section just trying to make it into the sand. But we pull either a log out on the deeper Wilcox or another Frio sand at Blackbeard East to get some more log data at Davy Jones to further confirm what the reservoir quality is in the first well and in the field itself could be the kind of information that gets us to the next confidence level.

Operator

Our next question comes from the line of Duane Grubert with Susquehanna.

Duane Grubert - Susquehanna Financial Group, LLLP

Jim Bob, in terms of you still thinking you're going to get the Davy Jones No. 1 tested by the end of the year, if investors are looking for operating skill set and execution excellence as a key driver of a really good 2011, can you talk to us about if there's anything new on the front of equipment procurement or completion or infrastructure thinking to get that to happen by the end of the year?

James Moffett

Let me say it this way, the team of experts that we have, both internal and consulting people, are people who have completed these high pressure wells all over the world, and we're becoming more confident each month. But this is a major metallurgical and engineering study to make sure we get this done just right. And of course, all the information we're getting from the No. 2 well, which we hope to get a huge amount of information in this next section that we're drilling by getting some hopefully good log parameters and possibly, some information test on the section. If we confirm that we're [indiscernible] section, we're all waiting with bated breath for those pressures and new data on logging since we're in a bigger hole and these sands appear to be possibly 1,000 feet higher than in the first well. It could give us a huge amount of confidence as to what we've used as projected shut-in pressure at the surface. So that's why, as I said to you, the operations are going on simultaneously at each of these wells whether they're Wilcox or Miocene or Frio or Tuscaloosa. Each of these wells, when we see what the bottom hole pressures are just as we saw in the formation test we took in the Blackbeard East for about 24,000 feet. It gave us 22,000 pounds of bottom hole pressure. That's an estimate what we can expect to the surface. So I don't know how to compare what we've done. Obviously, the engineering works that was done in the ultra-deep water, which they had the complication of working with floating facilities and drilling umbilical cord wells because of the floating capacities production under harsh and some of the deeper features. I can't compare what we're doing engineering-wise, so that's almost like supernatural out there. But even having said that, since our structures are attached to the Gulf of Mexico in the case of Davy Jones, it's 27 feet of water and we have all the standard type of platform construction. At least we can take that part of the gamble out of the equation, and we just strictly on out to what is the tubing, the [indiscernible] all of which we're making, what is the safety valve requirement, the Christmas tree and the processing? We're taking the information from around the world, and this team of experts is going to give us this production presumably by the end of the year that will contain whatever service pressure we estimate. There's no doubt in anybody's mind that the equipment that's being made will be sufficient to produce all these higher pressure wells in the shelf.

Duane Grubert - Susquehanna Financial Group, LLLP

And then kind of a related question, you show one economic slide in your slide deck. And clearly, there's a lot of uncertainty around each parameter of timing and cost and so forth. But could you walk us through just basically what does that particular scenario reflect in terms of whether you might have liquids or not? And also just the timing and it's specific to a 4 Tcf gross development, I wonder how long will it take you in that scenario to actually get the last well drilled?

James Moffett

Well, what we tried to show there because of the time it takes to drill these deep wells and get onto production, and I might add by the way just as a side point, we all read earlier this quarter that the Deepwater, Cascade, Jack, same model project was going forward. I think Chevron announced they were going to spend $7.1 billion out there, and they estimated that they try to come into production in 2014 which is seven years from the time that they announced the first discovery or tested the Jack well, seven or eight years, and it took nine years to do Thunderhorse. So in relation to that, once we get the design for this production under completion and have the model and have enough information from the offset well disseminated there, they're successful and especially some of the stuff above 25,000 as we've seen at Blackbeard East. But once we have the wells, enough wells for us to start drilling [indiscernible] wells, that's when we can move in here and have three or four rigs running on each prospect even if we bring in some shallower rigs that will set the big pipe on the development wells and then move a smaller rig onto drill the deeper part of the hole, because it can run the other lighter and run the tubing and do the testing. We've got a plan that's being worked on between ourselves in Rowan to see what a 50 well scenario would look like. So right now, what we're trying to do is to drill the first wells, [indiscernible] these prospects so we can see where the objectives are and see where you have conventional objectives above 25,000 feet below the salt weld and below and then you can go to work. And obviously, if we have some conventional stuff, it doesn't require a long lead time, we go to work on that stuff immediately. So the scenario that you see in the slides you're talking about is strictly to remind us that the reason why we're taking our shareholders’ money and put our bets on this shale play is because we had the structures delineated, we have all the information in the Deepwater. It continues to confirm our model's correct. Wells we've drilled to date is showing big expanses of window of opportunity to save our first production producing sands at Blackbeard East at 19,500 and now this last that we've logged below 30,000 feet in the Frio. That's a huge vertical section that these structures can trample. And so once you start getting the confidence that you've got derisk the development locations, things are going to start to happen fast. But we want to show you the muscle of what this play can do. We're not shooting to swap dollars and drill wells that will replace this year's production, we're going for the home run here, as you know, and that's why we give you these scenarios to show what kind of cash flows going to roll out here. But again, as patient as we've had to be drilling these 30,000 foot wells and at least we have no moratorium that affects us, we've been getting our permits and we're moving ahead. But in terms of comparing the cost compared to the Deepwater and the lag time to get on production, seven to 10 years, we think this is the place to be, and we should be able to save considerable amounts of money on the development locations once we can decide which location is going to be targeted for which of the production zones that we're able to prove up. So I hope that gives you some reason why we keep trying to say, guys and gals, we know that we're spending a lot of money, but we have the deck set here. We've got the money raised to be able to complete what we've started here. We're on the acreage. We sort of have the shelf to our self, and we believe we know what we're doing, and we're exposing everybody as all the shareholders to the home run scenario so that we will have a major coming portfolio that comes together, and yet we don't have seven- to 10-year lead time with $7 billion, $10 billion cost. We can divide development for a minor percentage of that. We can deliver in two to three years as opposed to the timeframe that we talked about in the Deepwater.

Duane Grubert - Susquehanna Financial Group, LLLP

And one last thing in terms of near-term time frame, you mentioned that Lafitte might be through the salt in about four weeks. So that's certainly going to be watched. And then with Davy Jones, if equipment behaves correctly, can you just give us an idea, are you going to be in the likely zone of interest and maybe hear something in that same kind of time frame? Or what should our expectations be for Davy Jones, too?

James Moffett

The Davy Jones well is currently below 27,000 feet. Frankly, we were trying to get a log before the end of the quarter, and our rig broke down. We've been beating the drilling contract because this was a second time we've had a top drive go out and although they pick up the rig costs, we go on zero rig time. We had third party services out there. Rig cost is almost eight days. So within the week, we're trying to get below 27,500 feet, which will get us deep enough in the section. But we've been watching the Paleo. We think we know where we are. We've got the mud log. That's been logging since then, and now we've got to get in here with a drill pipe assisted log so we don't have a lot of pools and sticky areas trying to buy wireline. And just as we did at Blackbeard East, we've got a good quality log all the way to almost 31,000 feet. So with this bigger hole, we have 8.5 inch hole in this well. And the fact that we don’t have a 1,200 feet open hole, by the time we log, we'll have about 2,000 feet open hole. We hope we're going to give you some great data to be able to educate you once and for all what the middle part of Davy Jones looks like. Does it correlate exactly to the first well? Is it in a separate fall block? Are the sands thicker? Thinner? We're anxious to be able to tell you that. And literally, we hope to, if we don't have another mechanical issue, we hope to be substantially below the 27,500 and be logging sometime next week.

Operator

Our next question comes from the line of Joseph Bachmann with Howard Weil.

Joseph Bachmann - Howard Weil Incorporated

Jim Bob, on Blackbeard West, I realize you're waiting on the BOE to grant a new Suspension of Operations for that well. But I'm just wondering with everything you've learned on Blackbeard East, if you're kind of leaning towards what you're going to do with Blackbeard West here once a rig has been assigned and you know what you're going to do.

James Moffett

That's why we highlighted in our release, we've learned a tremendous amount from the Blackbeard East well as it relates to the Blackbeard East (sic) [West]. The Miocene sand that we saw productive that appear to be productive in the Blackbeard West well are equivalent to the zone that we had at 24,000 feet in the Blackbeard East well. We're running that high. So the evaluation of those is going to help us evaluate what the potential of the Miocene sands are. And now the most interesting thing that we've learned or one of the most interesting things we've learned from the Blackbeard East log is that we didn't realize we had about a 3,000-foot fault in the first Blackbeard West well. As you know, we took over that location from the former operators, and they went from the discovery of Thunderhorse in the Deepwater and the first place they went was bingo like Blackbeard West. So there's obviously a buried structure there which is very prominent on geophysics. As it turns out, after we got the well down into the depths that we've gotten in the Blackbeard East, we're at 3,000 to 4,000 feet higher than that well and going to get Paleo time. And that's when we realized that there was about 3,000 feet of mission section and the pace and the bottom of the hole actually have to fall for juxtaposition which what looks like in porosity and the Oligocene. Younger than the Frio, we call it the NOx [ph] and the Oligocene. But very interestingly now, we said we might deepen the Blackbeard West. Well, that was for the Wilcox but it's a very prominent feature, which was the original target of the original operators has never been seen. That looks like it's Wilcox. But we're going to drill through the Frio deep through there and now we've seen this productive sand at Blackbeard East. That gives us an opportunity that, that zone or zones may be present at Blackbeard West because it is, by definition, a very deep feature that the salt didn't penetrate because it doesn't have a shallow expression of the salt dome like the Blackbeard East does. So well, what that normally means if we can see in the space on the seismic is that you're going to have a potential for even thicker sands on this deep [indiscernible] because it had less vertical problem at the time of deposition as you see now. So we now got the Frio to look at below the TD of the Blackbeard West as well as the Wilcox, and we're going to be getting the information on these Miocene sands. So suffice it to say that you're exactly correct that the information from there and of course, Lafitte, which we say is going to get hopefully below the salt weld as Miocene targets, and we'll see the Frio. It will have a huge impact on the Blackbeard West Prospect because the sands we're looking for in the Rob-L, Operc, Gyrodina are exactly the same age sand and on trend to the Blackbeard West. So hopefully, as we go up on that salt weld and get below it, we're going to find out whether the Rob-L, Operc, Gyrodina and by the way, if that sounds familiar to you, those happen to be the same objectives we had at Flatrock. And by correlation, if our correlation is correct, that's where we think we're going to be testing a portion of the Rob-L, Operc, Gyrodina where we see all three are part of it in its first location will be a big piece of data to give us some confidence in the amount of sands that we may have across the area and [indiscernible] fault to that of the Blackbeard West. So every data point is important to us. But especially now that we're starting to get three or four points and then when you get five or six, but all we have is the one well drilled to 30,000 feet at a former operator of Blackbeard West when we started out there. We had to rely strictly on seismic data 200 miles to the south to the Deepwater. Now at least we've got these Paleo points, and that's the largest data, that we've got on these first data points we had and every data point. I keep re-emphasizing it, ladies and gentlemen, but when you have a 200 square mile area that got 50,000 wells that have produced billions of barrels of hydrocarbon sitting on top. But once you get below 25,000 feet, if your computer takes up all the wells or drill 25,000 feet, you don't have any wells left. So you heard me say it enough. I don't want to talk about it, but that that's the answer to your question.

Joseph Bachmann - Howard Weil Incorporated

I just had one more on Blueberry Hill, just wondering how much longer is that well going to be shut in trying to build up pressure before you go back and finally determine what happened?

James Moffett

Well, we're going to go back in there. The weather has been so bad out there. We were actually watching the weather while we were trying to recomplete the 229. The Chevron just recompleted. We just moved that rig off of -- the coast of rig off of the 229 moved on the Hurricane Deep well. But the weather's played hell with the whole operation out there. And we were trying that the well stayed shut in long enough to give the pressures a chance to build. And so we'll get a workboat, we call them lift boats, which we can get for 10% of whatever causes for the rig back. That's probably why we didn't want to try to flow test it. And frankly, I don't understand why we couldn't get the weather stabilizing the sand. As you remember the textbook sands over right at 100 feet of pay in the porosity and permeability of support and the flow rate. Porosity and permeability of that well by logging on some of the security. Some of the service companies were worried that we might need to do a sand control, which they do all the time in the Pliocene, Miocene and the offshore. But nobody had ever done one below 20,000 feet, so we didn't consider it. But I don't know whether the wells got that screening off on us, which they'll do whether there's something at the bottom of the tubing. We have to put on our thinking caps because the thickness of this sand in an area that we think it could cover seismic just doesn't fit with the way we've tracked and we kind of can get this weather to stabilize. So we've got to find out whether the restriction in the bottom whether it’s scaling or sand bridge or whether or not the reservoir. So if we know we have a shale buried to the east of this just hadn't had a chance for the pressure to rebound, what happens in these situations sometimes you have some perm barriers between the different lens of sands. So if we know all these sands in the Gyrodina are basically channel sands coming down the slope and the shell. And sometimes these channels will have some shale separated parts of the channels so it's like a maze instead of an open room, and you just have to draw these pressures down to flow the wells so the perm barriers to break down. What we have sitting there now since that pressure drew down to something like 7,000 pounds before we shut it in. We have that reservoir sitting there in a vacuum, if you will, and if there's any perm barriers or even mechanical barriers from the mud that we pumped in there, et cetera, it gives us an opportunity for it to be sitting there with that pressure differential maybe much as 6,000 to 8,000 pounds, and you just have to remember the kind of average we have. Imagine if you are in a storage tank, and had the pressure of 7,000 pounds then on the other side of the wall of the storage tank, 20,000 pounds, which is what we think the original bottom hole pressure shut in that well could have been, that's about 13,000, 14,000 pounds differential. That would squish even a thick wall of tank. So just give us a chance. We're going to put the work boat out there, and we'll go after that due because it does not make sense. The test doesn't fit and the parameters that you'd expect to come out of the log that has what we call broad shoulder gamma-ray and resistivity, it should flow much better than the original test. We try to get on it right away and see if we can get an answer and see whether if it's mechanical issue, of course there's depletion issue or just what it is, so we can get on with our business. The Gyro in the area, as you know, has been an excellent reservoir. JB Mountain's produced almost 100 Tcf to the West. That was in the same Gyro sand, but they have a lot more shale breaks in those wells than we do. This sand is clean compared to that. They've been on production there about seven years. And of course the Gyro across the whole trend has a great production history, and that's basically the same sand we're going to be drilling for in the Hurricane Deep, which is now really called the South Flatrock. That's why we've been putting a bigger potential Flatrock and so we drill the southern extension to prove that Gyrodina section there could be all part of the big rig which is known as Flatrock field.

Operator

[Operator Instructions] Next question comes from the line of Nicholas Pope with Dahlman Rose.

Nicholas Pope - Dahlman Rose & Company, LLC

I was hoping to hear from you on as you kind of talk about Blackbeard East, it seems like you all are pointing to really meaning to do a kind of a follow-up well to fully understand what's going on with the reservoir there. And I was curious, I guess, with what you all know now, where you think like the second well at Blackbeard East kind of falls in the hierarchy of all the prospects that you all have in the ultra-deep right now?

James Moffett

The upper stuff about 25,000 feet to 24,000-foot sands and the 19,000 foot sands. You can see from that seismic section there's this huge velocity environment. We thought we saw sands associated with production, and we've seen some more, by the way, since we logged this one that occurred right at the salt weld, so it would be interesting to see if they actually have the same kind of the reservoir. To answer your question, it'll be, we will evaluate this at the shallow, deep drill, from 19,000 feet down to 25,000 feet. We'll give that sort of a separate study from the deep part of the reservoirs because in that case, we can use conventional completion. We can use much smaller rigs. We have much smaller holes and hopefully, cut the costs of these wells in half and get those to both drilling and complete and try and get that on production first. A follow-up well on those zones are trying to be as good as we hope they are. And until we get them the last sand drilled in this well, if there are anymore sands, i.e.,Wilcox or another lower Frio zone, it's tough to answer that question, Nick, because one day you wake up this good porosity we have in the Frio and you'll see this big reflector wedging off to the west, you say how it's the highest point on the reservoir, it's a stronger reservoir with the kind of porosity we have and the kind of mud logs that we have it ought to flow a lot of gas what I just stick a straw in the top of reservoir, to give you a lot better feel on just how much sand maybe deposited down differently. And then another rational side of you says, we’ll wait a minute. The expensive part of this hole is the shallow part of the hole. Why don't you just take it over there like the K2 model I showed you and like most people have done in the Deepwater. When they get these reservoir to find the down-dip limit to the reservoir as the up-dip limits and as you know, you they take these wells down-dip I think the K2 will be sidetracked 5x just to get as much information as we can because of the expense of drilling the shallow part of the hole when you drill some 19,000 feet to get to that salt weld, it cost us about $70 million. And so until we get the well down and see whether we've got any figure for you of the sand below us and/or Wilcox, we might bump into one that makes that decision simple. If this well would be used as a completion and then you have to look at other developments as well. Another scenario as I say is if you take the well down-dip and you find a big Frio and you quickly get another rig in there and get on top of this full oil drill, this 19,500 and 44,000 stuff and see how much probably you can get in that part of the structure. The map we showed to give you some idea what it looks like on the East side because remember these things solve those other complete circle around them, and everything you looking at on the section you're looking at will also be north-south, Northeast, Southwest and Southwest, Northeast, et cetera. So I mean, some of these big domes in the shallower part of the offshore and the near onshore in the Miocene and probably seen some of these that give -- some of them in every 200, 300 wells of them before they get straws into other reservoirs, Nick, and that's why it's so overwhelming and you've got one well on a 20,000-acre salt weld and you tried to imagine it what the rest of the dome's going to look like. So I hope that doesn't confuse you, but that's kind of where we're headed.

Operator

Our next question comes from the line of Joe Allman with JPMorgan.

Joseph Allman - JP Morgan Chase & Co

Jim Bob, with the Davy Jones appraisal well, I know you haven't been able to do all the logging that you would like to have done. But with the mud logs, how does that well look in compared to what your expectations were at this point? I know that this well's up-dip from the discovery, and have you seen as much potential sands here as you did hydrocarbon-bearing sands as you did in the discovery well and versus your expectations or what?

James Moffett

Let's start out by saying, Joe, that we're very cautious with mud logs to begin with. As far as call the sand a hydrocarbon sand with just a mud log, I just don't go there. We've got some zones that we've logged not only here, but up above the salt weld. And you have a mud log showing the end up with a shale and where the logs as we call it as sand. So let me qualify the fact that the mud logs are doing the best job they can, but at this depth below 20,000 feet, it's very difficult to quantify how good the samples can be discerned and especially at these depths with this 18-pound mud that we have to have, some of the zones especially in the regressive parts of the sand section, we may have 17 pounds of sands that are exposed to 18-pound mud and you'll never see a mud log show on one of those sands because it just shoves the gas back in the reservoir they just cool by themselves. But having said that, to answer your question specifically, we've seen more sand on this mud log than we saw in the original well. But when we ran the log on the original well, we had several sands that the mud logger didn't see on just the mud log, which is why I continue to say we have to talk about the quality of the data not in any way saying that the mud loggers aren't excellent people. It's just the fact that the mud log at these depths has that bit of frailty. There's more sand on this mud log than we had on the original holes to answer your question specifically.

Joseph Allman - JP Morgan Chase & Co

And at Blackbeard East with the second well that you plan to drill, I think you were originally thinking about going to the East to go up-dip for the Miocene sands to get away from that water and potentially be filled with gas, those same sands. Now it seems to me now you're talking about going west to focus on the Frio sands where they could be thicker. Is my interpretation correct there? And what are your plans there?

James Moffett

We have to look at both of those options, and they're really separate options. One play is not related to the other because as you go up shallower about 25,000 feet the dome is a four-way closure. It appears that, that where the Frio is and possibly the Wilcox, the same setting up on this is really in and the old salt weld that used to be there it was the whole deal has been melted, and you weld it to the two sides together but you've got this massive closure sitting down there and like I say, if we can get to 34,000 feet and we deliver firmly into now, we have another Frio sand, another Wilcox sand if they pop in there, and they're taking up then you take out completion and you just have to look at this down-dip evaluation of the Frio in another well. But if any of that stuff in the bottom requires that we sidetrack out of this well, down-dip then what we would do is to quickly move another rig in and go ahead and evaluate this 19,500 and 24,000 foot stuff because there may be some other sands up-dip that [indiscernible] the model that we showed you that looks like the Auger Cardamom field we believe, Joe, that if we just actually know our target for this stuff between 19,500 and 24,000, that we may be able to drill the wells for just over $55 million, $60 million, and get out and have a clean boreholes and then we can start on production because of the other initials below 20,000-pound equipment. So I hope that answers your question.

Joseph Allman - JP Morgan Chase & Co

And the Frio that you're now seeing at Blackbeard East, it appears to be thicker there, thicker at Davy Jones and so -- but you never talked about the Frio at Davy Jones. So is the Frio is not as perspective across the wide area as maybe the Wilcox and the Miocene sands would be?

James Moffett

Well, what happens if you read that diagram, Joe, when you go to a Davy Jones Frio, it's much shallower. And because you're in the deepest part of the basin where we are in the Blackbeard, you look at that dancing dragon you go down-dip considerably where you see the, what would be an equivalent to the Frio up above 25,000 feet and the Davy Jones you have 30,000 feet, so that's 5,000 feet deeper in the section. And that's why it's interesting that we got the Frio sands here just like you got the deep Miocene sands on deeper in the Deepwater. So that's why we're saying that if you just imagine that birdbath bathtub that we've been talking about, we'll be at the deepest part of that the overall [ph] incline that we go down-dip from the onshore historically go up on additionally toward the other trend. So that's why there's this doughnut, this sausage of Frio and sands may lay here because they were in deep enough water to have a Deepwater type of play similar to the Miocene. By the time you get out there in the Thunderhorse, the Tahiti trend, the Frio is gone just because it's beyond the distant end. So this is a sweet spot. If we were going to find the Frio, it's going to lay right in here that's why when you look at that map and it shows Wilcox, Miocene, Pliocene, Miocene and the flex trends and the next would be the Frio and the Miocene sitting there that's because they're at the very deepest part of the Oligocene part and you have section deposit there and then maybe to the south is cut off by the salt weld to the north because of the way the salt weld wedges across the top of the section as you go up-dip.

Operator

Our next question comes from the line of Eric Anderson with Hartford Financial.

Eric Anderson - Analyst

One question I wanted to focus a little bit on is both you and your partners in the deep shelf play have talked about the potential gross area here in these three basins, possibly 100 Ts. You've got the Blackbeard, Lafitte and then the Davy Jones that you all each called strategic areas, and I was just wondering if you look at some of these name prospects in Lafitte you've got five prospects, and I calculate that's sort of like an average of 5 Ts sort of per name prospect. Blackbeard, there's eight of them that's about 4.4 average. And then when you move into Davy Jones, you've got three name prospects with a potential gross of 40 Ts or 13 Ts on average for those three, and it seems to me like the written reports that have been published by many of the analysts on this call today have looked at Davy Jones possibly as a 6 T on the high side. But I'm just trying to have you comment on 6 T seems low compared to the potential overall size of this one strategic zone.

James Moffett

What gets you to the high number, the press release if you throw in on the Wilcox. In other words, when we logged that well, if you remember we found Wilcox at 26,000 feet. Some people thought that son of a gun would be as deep as 40,000 to 50,000 feet including me before we did we got this information from the Deepwater [indiscernible]. We all assumed what was called a [indiscernible] draw. That the Miocene would go down at least 35,000 40,000 feet and of course, below that would be the Oligocene and below that would be the Wilcox. We made the time after the Blackbeard well and the information in Deepwater. But we felt very confident that this section was a lot thinner in Oligocene and Miocene. Therefore, we were able to drill and with good conscience, say that we have Wilcox as an objective. But we saw the top of that sucker at 26,000 feet. So what that'll do is not only pull the Wilcox sands up on this trend around the coastline, but it pulled those Tuscaloosa sands and as I try to say and I know anybody who's worked through the area will know this is Geology 101. In the Tuscaloosa trends, the Tuscaloosa sand, which is cretaceous was the big sand, I mean, huge reserves, 400 to 600, 700 feet to pave. And the Wilcox above it is productive, and nice and many of those Frios there that are depleted in the Cretaceous are now being redeveloped in the Wilcox. But the sand quality in the Cretaceous if it's made it this far south, and all we can do is present the likes of the rest of these sands as you get deeper in the section. The Wilcox however, has huge amounts of this section, even more than the Miocene, twice as big as the Miocene footprint. It's potentially anywhere near that kind of potential then over these same structures, we've got delineated. You end up with a scary scenario. If you end up with a well that looks like those wells up in the what's called the Fort Hudson trend, Fort Hudson trend, which is the Tuscaloosa and don't forget that the Tuscaloosa the synonym for the Tuscaloosa in Texas is the Woodbine, which is the marsh is east Texas for you that made Texas what it is. So when you've got that kind of a petroliferous site up there where [indiscernible] as we call it. And you pull the structure up high to get the Wilcox into possible commercial depth, and then the Tuscaloosa right below you. That's when the numbers go off the chart. In other words, Jim Bob, are you saying if you could have a 500 feet of Tuscaloosa sand here where you go out there in the Deepwater and get the Casino well, I haven't seen these logs but a couple of times because it is under wraps. But the few times they've been made available where people a million talks together would be these sands out there, 1,000, 1,500 feet thick. And rumor has it that a couple of wells actually have Cretaceous sands in the bottom. You have to wait until we can actually get the log and the...

Eric Anderson - Analyst

At this point, you don't know how far below the Wilcox or where the top of the Tuscaloosa would begin in Davy Jones too?

James Moffett

Yes, sir. We think if the seismic reflectors mean anything, we think we know where the base of the Wilcox is most likely to occur. And there's a definite signature that we've carried from the Deepwater all the way into Blackbeard and then all up to Davy Jones and now tied in even to the onshore. And we believe that we will see the Tuscaloosa above 30,000 feet in this well. The only reason why we're saying 30,000 feet instead of 29,000 is because we don't know until we get this doggone [indiscernible] well down at Davy Jones, whether we saw all of the Wilcox section. It may be deeper than we drill because as you know, we have that 6.25 inch hole since we sidetracked that original stone well to save us about $50 million. We just basically drilled out that hole and we wanted to get that ladder in there to protect the sands that we already had drilled out. We're not going to be in that kind of shape in this well, but we can share the 7 inch hole here. We still have a hole to drill, 34,000, we're hoping not to touch anymore pipe, but we're just drilling that 8.5 inch hole.

Eric Anderson - Analyst

Back to the presentation you made in December in your hometown industry conference, on Page 10 of the slide deck, it looks like the Calico Jack prospect is running quite a bit high than anything you've got in the whole Blackbeard complex, with the Wilcox possibly able to see it 27,000 to 28,000. Am I reading that slide correctly?

James Moffett

You're definitely reading it right.

Eric Anderson - Analyst

And so is that a high list on the prospect front in terms of timing?

James Moffett

Especially with the Frio now, if the Frio taken off the flag of this thing the Blackbeard East. Calico Jack is another monster because we considered it possibly Lower Miocene and Wilcox. But now you've got the Frio sitting in there between the Miocene and the Wilcox and we had an objective there. So it goes if I showed you some of these sections like I told some of the people, in January we would probably all have to go have a change of clothes, for these structures just go down into to a deep salvage oil head and boom, pop up into another structure or closure like the Calico Jack. We're not talking about one out of six people. Seeing as everybody will see the big [indiscernible] between Blackbeard East and East side which we're going to complete out of revenge. And you go back up to the Calico Jack feature. As you say, it looks like you can actually see the Wilcox there, a couple of thousand feet shallow than we may see it at Blackbeard East. I wish we had that mine to be drilled all over at the same, Eric. But three at a time is all we can afford right now.

Operator

Our next question comes from Noel Parks with Ladenburg Thalmann.

Noel Parks - Ladenburg Thalmann & Co. Inc.

Just to sort of summarize a lot of what I've heard. From finding the Frio where you have, if I understand right, essentially that gives you the clue that indeed the missing 3,000 feet of section at Blackbeard West really can be found at Blackbeard East and elsewhere. And then if I understand right, the Frio also is going to make you revisit the Davy Jones logs and do some more logging in the Frio. Just understand the nature of what you have there?

James Moffett

That maybe a little misunderstanding there though. But I said answering that for Joe Allman, or whoever asked the question, was that the Oligocene is 5,000 feet shallower at Davy Jones. And therefore, it doesn't have the same thickness that it appears to have at Blackbeard East, and that’s because you're at the deepest part of the basin. So the prospects are most likely if the depth of the water and the strike position of the trend is like all the other trends, which is why I labeled it on that map and show you how it's just lays in there East/West like they all do on the coastline. That depth position is where we're going to be really laying our antenna. What happens is when you try something like this Frio sand at Blackbeard, you always want to look on an east-west axis that parallels that coastline because that's where all the other trends are, both onshore and offshore. So things like the deeper part of Blackbeard West where we didn't get deep enough to see the Frio. We stopped in what we call the other marked portion of the Oligocene. When you go to the West, you've got Lafitte and Barataria and Captain Blood. If Lafitte is good at the Miocene, it has some Frio in. It just adds another window of opportunity. Whatever is in that well is going to be in Barataria and Captain Blood because they are sort of like it in little mini basin. So I hope that clarifies what you just asked me.

Noel Parks - Ladenburg Thalmann & Co. Inc.

It does. And just to follow-up just to get a sense that you what I guess just two parts, did you expect to see the Frio in Blackbeard East at all to begin with? And then since you did find it there for Blackbeard East can you give us a sense of the delta, what finding Frio there if it's productive will contribute to maybe un-risk potential as opposed to not seeing it?

James Moffett

That's a great question. Every time that people have found a well in this offshore deep play, like the Cascade well, which was the first well that saw at the Wilcox surprised everybody because it's a semi-harsh the Wilcox was just a moderate section and didn't have any potential reservoir quality. It was too far to the east, but it had a great Miocene sands. And so people saw the cash enclosure popped at one of the first onshore drill out there, thinking it was Miocene and the Miocene was just about gone and here was this beautiful sand section, which people first saw Paleocene, turns out to be a Wilcox equivalent. And that's kicked off the whole east-west trend. But you don’t go to east to one of those wells when you see it. You go west first, because all these trends start to get very alive [indiscernible] so you go east. Remember I was saying before, the reason why you have white sands in Destin, Florida and almost white beach sands in Mobile, Alabama as opposed to the amount in Mississippi because of the prevailing westerly currents that have been around 100 million years, takes all that mud to the West, and that's why you have the footprint of all these [indiscernible] is more sandy east as you go to the West of the Mississippi. That's just a documented fact. So when you see one of these darn things, first of all, we obviously, have been looking for the Frio. The reason we look for the Frio is because there are their own prolific own choice, we've got huge sand thicknesses all the way from Lafayette over to Lake Charles and then it goes on down into Texas almost to Mexico. But that's the shallower part of the Frio and probably the last surprise that I can remember, which is a long time ago is when Houston oil minerals drill the shipwreck prospect they got us in vain. And they brought the shallow Miocene field and because it was a good big closure they decided to go in and drill a deeper well and the Miocene production is down to, I don't know, 6,000, 7,000 feet. And sure enough, when they drill it down, Walter, who is now deceased who was the founder of Houston oil and minerals, former Exxon guy. He drilled that well just to see if there was some more Frio sand and that chipped off as the shipwreck Marsh Island trend. But the March text, which is what I said a while ago, the age equivalent of this Frio sand in the Blackbeard East producing all that from Louisiana down to Texas. So we were scratching our heads before we took this shale play and started drilling while the Frio sand wouldn’t be even more likely even more likely to be in the Deepwater than the Wilcox, which confounded everybody as you've heard me say before is the Wilcox footprint in the Deepwater is twice as big as the Miocene and 3x as big as the damned Frio. As you go onshore and try to look at the onshore sands that were being, [indiscernible] Information would just seems like Frio and say why haven't there been bigger Frio sand? Well, maybe we're fix it to find out.

Operator

Our next question comes from the line of Richard Tullis with Capital One South.

Richard Tullis - Capital One Southcoast, Inc.

Looking at 2011 production guidance, I know you'd mention that the guidance could go higher depending on development and exploration activities. Is there any development production in the forecast at all right now?

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