McMoRan Exploration's CEO Discusses Q1 2012 Results - Earnings Call Transcript

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McMoRan Exploration (NYSE:MMR)

Q1 2012 Earnings Call

April 17, 2012 10:00 am ET

Executives

Kathleen L. Quirk - Senior Vice President and Treasurer

Richard C. Adkerson - Co-Chairman

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

Analysts

Leon G. Cooperman - Omega Advisors, Inc.

Noel A. Parks - Ladenburg Thalmann & Co. Inc., Research Division

Joseph D. Allman - JP Morgan Chase & Co, Research Division

Joan E. Lappin - Gramercy Capital Management Corp.

Gregg Brody - JP Morgan Chase & Co, Research Division

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the McMoRan Exploration 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 L. Quirk

Thank you, and good morning, everyone. Welcome to the McMoRan Exploration First Quarter 2012 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 conference 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 will be referring to these slides during the call. The slides are also accessible using our webcast link at 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 our 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 refer everyone 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 I should turn the call over to Richard, who will be reviewing our recent performance and outlook. As usual after our remarks, we'll open up the call for questions.

Today, McMoRan reported a net loss applicable to common stock of $4.9 million or $0.03 per share for the first quarter of 2012 compared with a net loss applicable to common stock of $27.6 million, $0.17 per share for the first quarter of 2011. Our first quarter 2012 results included $7.1 million in impairment charges to reduce certain fields' net carrying value to fair value. The first quarter 2012 production averaged 156 million cubic feet of equivalents per day net to McMoRan compared with 195 million cubic feet of equivalent in the first quarter of 2011. Our first quarter 2012 production was in line with our previously reported estimate of 155 million a day. Our first quarter 2012 oil and gas revenues totaled $107 million compared to $134 million during the first quarter of 2011. Our realized gas prices in the first quarter of 2012 were $2.59 per Mcf compared with $4.54 per Mcf in the year-ago period. And our realized prices for oil and condensate averaged $113 per barrel in the first quarter of 2012, which were higher than last year's period of $97 per barrel. Our earnings before interest, taxes, depreciation and exploration expense, or EBITDAX, totaled $61 million in the first quarter of 2012, and our operating cash flows, which were net of $11.7 million in abandonment expenditures and $4.9 million in working capital requirements, totaled $38.8 million for the first quarter of 2012. Our capital expenditures totaled $165 million in the first quarter of 2012, and we ended the quarter with total debt of $555 million, which included $255 million in convertible securities. And we ended the quarter at March 31, 2012, with $432 million in cash. And now I'd like to turn the call over to Richard, who'll be referring to the materials on our website.

Richard C. Adkerson

Good morning, everyone. I'll review the slides and Jim Bob is here to then follow-up with his comments and to answer questions. Where we are today, of course, is that we have had success with our geologic model in identifying these major new sub-salt trends, which go over 200-plus miles in the shelf of the Gulf of Mexico and extend onshore in to South Louisiana. We are targeting prospects on very larger sub-salt structures that have multi-Tcf potential. Drilling these wells has been a process of developing new technology to be able to drill and ultimately produce these wells. And we've made very significant advances in drilling where the industry has not drilled before. Success will provide us an opportunity to have a very large low-cost, long-term source of natural gas. Kathleen has reviewed our first quarter financial data, which is shown on Page 4. Our production was in line with our outlook. Our loss reflected these impairment charges. We had just under $40 million of operating cash flows, which we combined with our available cash to fund $165 million of CapEx. And we ended the quarter with $432 million of cash.

Page 5 shows our ultra-deep findings to date. It was over 10 years ago that we started with McMoRan to drill above salt to test Miocene targets that had been known to be productive onshore. Then with our transaction with new field just under 4 years ago, we began -- we got access to the Blackbeard West No. 1 well, which had been drilled and suspended by consortium. We reentered that well and reached a total depth of roughly 33,000 feet, saw potentially productive Miocene sands, Oligocene sands and established that we could drill in this kind of high-pressure, high-temperature environment. The Davy Jones No. 1 well then extended this concept by seeing 200 feet of Wilcox Age Sands in a well that was drilled 29,000 feet. The Davy Jones No. 2 well, which we're in the process of testing the No. 1 well, the No. 2 well. We then saw a whole suite of sands in the Wilcox, the Tuscaloosa and the Lower Cretaceous. Drilling in the Blackbeard complex, we have drilled the Blackbeard East well, which saw significant sands in the Miocene, and it reached over 33,000 feet in the Eocene and we saw a 300-feet section in the Sparta Carbonate. The Lafitte well, which we recently released information for us, saw a whole suite of sands at shallower depths in the Miocene and extended all the way through the Eocene into the Sparta. So the theory of tying in these productive horizons that have been so successful onshore with the deepwater drilling is a theory that's holding together. We're showing technically we can identify these structures and drill them in a way that can be done safely.

On Page 6, we -- as I said, we've been really pleased with the progress our technical team has made in being able to drill below the salt weld successfully. We've had 8 formations now that we've seen below salts that confirm our geologic model. We've prove that they are high-quality reservoir with good sand development and large structural features. All of these things are new information for the industry in areas that had not been drilled before. Of course, the next step is to establish flow initially at the Davy Jones well. That's been a challenge because that well was drilled by entering a dry hole well to give us a start economically to drill deeper. It ended up with a limited hole in which to conduct testing, and that's been a challenge, but we are now moving to -- with a process that we believe will allow us to test this well and establish commercial production. Successful flow test then leads us to the ability to recognize reserves, which even though we have good logs and good geological analysis, without the flow test, we can't book reserves. Reserves will ultimately depend on additional delineation drilling because these are very large structures. And then that would allow us then to go forward and -- with our large inventory of prospects in the sub-salt.

Page 7 shows the Davy Jones log. It was a major engineering milestone in being able to complete this first high-pressure, high-temperature, I should say, ultra high-pressure, ultra high-temperature sub-salt well on the shelf. That was a very significant technical achievement. On Page 8 is the timeline, which we talked about on our April 9 call. That call is available, for those of you who may have missed it, on our website under Presentations. And that gave us the state of where we are now. In March we were attempting to establish perforations in the F-sand, which was the largest sand in the suite of sands that we saw. We were using a special hydraulic perforating gun. That, unfortunately miss -- malfunctioned. We then had 2 options. One was to remove the tubing from the hole to give us the ability then to use a perforating gun that would be based on going through the casing as opposed to going through the tubing. Before doing that, we made an attempt to perforate higher sands, the "C" and "D" sands, with smaller perforating guns to go through the tubing. We attempted to do that in the D-Sand. When we did use these guns, we saw a positive pressure build up. We had gas to flow with a -- when we saw our gas player, it allowed us to test the gas itself for its chemistry and we saw that it was high-quality gas with little SO2, CO2. But unfortunately, because of blockage in the well from prior drilling activities, we were unable to sustain a flow to allow us to measure it. We tried to perforate the C-Sand, but the blockage didn't allow us to do that. At that point, we had 2 options: one was to try to clear the blockage; or two, was go back and work over the well by pulling the tubing and given us a bigger hole so that we could use more powerful wireline casing guns capable of giving us deeper reservoir penetration and that's the option that we chose. We had to apply for permit approval to do that. We got that on April 6, and now we're engaged in these operations to allow us to pull the tubing out of the hole, use more conventional, more powerful, larger perforating guns. And we will attempt to perforate all of these sands and commingle them and give us a good flow test.

What can you say about where we've done to date? On Page 9, we've listed it. We've successfully completed this well in our high-pressure, high-temperature environment. That's very significant. The -- all of our analysis shows that the perforating gun's malfunction is -- malfunction was a mechanical issue, not a reserve issue. The complications of having the obstructions in the hole prevented us from successfully perforating and testing the lower -- the higher sands. Again, we were dealing with this through tubing smaller facilities, which is complications. Everything we've done in this whole process has been complicated. We believe this is just another step which requires some time and some money to allow us to get a successful test. This, of course, is not our only -- this is only our first prospect to test. And it has its special challenges by being first and with a small hole. But on Page 10, you can see the physical location of where we are with the Davy Jones, the No. 2 well -- the No. 1 well. We're talking about the No. 2 well. The drilling in the Lafitte well, which we drilled to 34,000 feet; the Blackbeard West well and the Blackbeard East well, and then we now have a joint venture with the Chevron-operated well, that's to the northwest of Davy Jones field, just onshore, called Lineham Creek. The Lineham Creek prospect is shown and its relationship to Davy Jones is in Cameron Parish, a large area of potential closure. We started drilling right at year end. We're now just under 14,000 feet. We're going to be targeting Eocene and Paleocene objectives below the salt well. Current plans are to drill it to 29,000 feet.

The chart that we see on Page 12 presents an overview of what we're doing with our prospects. We've outlined them roughly in terms of geologic targets. You can see Davy Jones to the north, the Lineham Creek northwest of that, and then our England and John Paul Jones prospects and this is the Wilcox Cretaceous play. You can see the Blackbeard complex which is outlined in red, it's the Miocene Wilcox play where we had the original Blackbeard West well and a series on the Blackbeard East well. And that sets up a whole series of other prospects with the Lafitte well, which had the big 170-foot Miocene mid and lower play, the Cris R play, the big Sparta sand that we saw at the bottom of that hole, which sets up the Captain Blood prospect just to the south of Barataria prospect to the southwest. And now the success we've seen in the Blackbeard East play, which sets up the whole series of suites that we've seen with our Queen Anne's Revenge, Calico Jack and Barbosa prospects, as well as others. All of these things tie the geologic concept together. We've had greater success in drilling these wells, and we look forward to following up with it. It's important to note that this -- the prospectivity of these sub-salt plays extend onshore. The Lineham Creek well is onshore. In Cameron Parish, we have other prospects that we've established that gives us the chance to test these prospects at shallower depths and to drill onshore using cheaper drilling equipment and drilling services.

For 2012, our outlook is for annual average production of 135 million a day. We're not -- that does not include any potential production from Davy Jones. Successful flow test there allows us to get production onstream very quickly because of its physical location, one of the benefits of drilling for these prospects on the shelf as opposed to having to access into the deepwater. In the second quarter, our production rate is estimated 145 million a day. Our capital expenditures are always a function of activities and decisions that we make as we learn about our exploration development activities. We currently think that we'll be in the range of $500 million for 2012. We're also continuing to progress with dealing with our abandonment obligations and expect to spend about $60 million on abandonment this year. Our cash flow sensitivity, the prices shown on the chart on Page 14, where we see that our current EBITDAX is $135 million a day and how that might change with different levels of production and different levels of prices.

In summary, our exploration results have consistently, let me say, consistently progressed our geologic model, provided this new information on these sands structures that not too many years ago were not thought to be available on the shelf of the Gulf of Mexico. Drilling them is a challenge. We've met those challenges by investing in new technology and learning as we've gone along. This allows us to move up that learning curve as we go forward in drilling wells. We have opportunities now to apply this model and this technology on drilling that we've gained to unlock additional values from this significant acreage prospect inventory that we've put together. And success will allow us to add really large reserves, production asset values for our shareholders. Jim Bob, that completes the review of our slide presentation. Would you like to make comments or open the line for questions?

James R. Moffett

Just open the line for questions.

Richard C. Adkerson

All right.

Question-and-Answer Session

Operator

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

Leon G. Cooperman - Omega Advisors, Inc.

It would have to be a run-on sentence. But there's so much data that you provide, which is helpful, but is hard to interpret. So I'd ask you kind of like the bottom line question. The original play was to spend $1 billion to create something between $50 billion to $100 billion in value. So I would ask -- we have to obviously modify that to some degree because nobody foresaw a $2 an Mcf gas. But are we on that program? Are we are on that trajectory? Have you seen what you're supposed to see to give you the confidence that the program will be an enormous success, whether it's $25 billion, $50 billion or $100 billion? And secondly, related to that, some run on sentences, the production costs associated with the gas that we're producing? The third, the ability or the financial footings we have to see the projects to the end, do we have that -- the financial depth of the balance sheet to handle this kind of expenditure? And lastly, the merits of bringing in an industry partner deep to de-risk the shareholders to some degree. So make believe that's one question, if you have to answer it.

James R. Moffett

Thank you, Leon. Well, first of all, I think the slide, which is #5, that Richard went over, have which -- then what we set out to do. When you look at the fact that in deepwater, all of the big structures that we're drilling had -- both for hydrocarbons. We drill Davy Jones, Blackbeard West, Blackbeard East in the feet. And every one of those structures are what we consider to be promising structures. As you can see, we've had hydrocarbons on every prospect. And what we had hoped to do is to prove up new trends because of the fact that, for instance, the Frio sand, Oligocene sand is not developed in deepwater. Never been seen more than almost over 100 miles to the north. So where we found the Wilcox at 26,000 feet in the Davy Jones, frankly, that redefined the whole shelf. And that was going from deepwater to Blackbeard West to Davy Jones almost onshore. We had been able to detect that data and leverage the onshore possibilities, which was not all in the picture when we first started this. So if you look at the most we're arriving in the Paleocene, they have hydrocarbons and they've had [indiscernible] that we've seen on the primary structures. Other than not having flow test, we probably couldn't have drawn a more positive outlook to have all of our prospects. The transformations at the depths that we had predicted I guess, as you're looking at 34,000 feet, has been sort of a barrier to go deeper. We proved that the shelf had objectives above 34,000 feet in as much as 5 or 6 sand packages. So that's the part for you question, Lee. As you say, what do you do with this going forward? We still got $400-and-something million in the bank. That's going to be important to get to the flow test at Davy Jones that we discussed that interim item as still being important for us to continue to pursue the prospects, especially the ones now that we have onshore because the costs, I might point out that at Blackbeard West No. 2, which is currently drilling just below 20,000 feet. We drill in that well and we've got $45 million in that well. So it gives us -- it shows us how we reduce the size of the service hole and how we have been able to reach that point where we think we can get these Wilcox down by as much as half with the information that we've learned so far. So all of that added up emphasize that the reason why Davy Jones in the fleet and Blackbeard East and future prospects like Captain Blood and some of these onshore things that we're working on. All these prospects are mountains, just like the ones we drill. And now that we have good data to be able to project reservoir over those big structures, it's just a matter of getting in the bank. We've learned how to drill cheaper. We've learned how to evaluate cheaper i.e. log, and now we've built the first equipment that could test a well and has a kind of bottom-hole pressures that we're looking at. We had to build that from scratch. So we proved with the image and test we got from the Davy Jones and all that equipment functions just as we thought it would. So as far as where we'd go from here, the prospects are Wilcox prospects. Anybody who looks at this and sees these structures that like the Davy Jones or Blackbeard East or Lafitte are the other structures we haven't drilled yet. Anybody who sees these structures is overwhelmed with them because they're so large compared to the structures we've been drilling above the salt well for all these years. So all of our structures so far are multiple hydrocarbons, major plays, I think that they're going to have their time and that the data plus the value in acreage on what we drill and what we haven't drilled would fit nicely into any major world-class play. So I hope it gives us a lot of different ways to raise more finance and to use it as we need it.

Operator

The next question will come from the line of Noel Parks with Ladenburg Thalmann.

Noel A. Parks - Ladenburg Thalmann & Co. Inc., Research Division

My main question, and I'm sorry if you touched on this earlier, I got on the call a little late. I thought Blackbeard West looks like it made -- the No. 2 well looks like it's made good progress. I think the last update was about 3 weeks ago. And I just wondered if you could update us on how that's going, how it's proceeding versus your plan? And anything else you see ahead in the drilling at the No. 2?

James R. Moffett

It's hard as the ship shows 188 well now [ph]. We're just below 20,000 feet, 20,180 feet to be exact. And we drilled over that, and to that depth. We got that $45.5 million in the well to date. We think we may be able to finish this without any pipe, and so we have an excellent chance of getting down to 22,500, 23,000 for around $50 million. And if we have any mechanical problems getting through the salt well, we will see. Remember this is a cupola [ph] play and we’re going to be drilling, trying to find gas trapped right under the salt well, which could come in this well anywhere from 23,000 feet to -- from 20,300 feet to 21,000 feet. And so we're getting awfully close. And depending on what we see, who have we got Barbosa. This is northwest ridges. Davy and the Blackbeard West anywhere [ph]. So to answer your question, we'd be able to drill the 20,182 feet for less than $50 million is a big achievement for us. And -- but that's the update on it, Noel.

Operator

Your next question will come from the line of Joe Allman with JPMorgan.

Joseph D. Allman - JP Morgan Chase & Co, Research Division

Jim Bob, regarding the Davy Jones No. 2 flow test, do you think that likely will be a second half 2012 event? Or do you think the flow test will be in 2013?

James R. Moffett

Are you talking about the No. 2 well?

Joseph D. Allman - JP Morgan Chase & Co, Research Division

The No. 2 well, yes, sorry.

James R. Moffett

Yes, depending on just our progress goes for No. 1, Joe, if we had anything -- we had some delays already, it could delay us. But frankly, we’re as anxious to get the No. 2 on, as we are No. 1 so we have production facilities. So in trying to answer that question, let's see if we can get -- actually here, and have something go right for us on this work over and get the flow test. But the production equipment is there and can take the No. 2 well and it would be very important to get it on production. So we can add the production to our production date.

Operator

Your next question will come from the line of Joan Lappin with Gramercy Capital.

Joan E. Lappin - Gramercy Capital Management Corp.

I'm -- I mean, I guess this reverts to Leon's question and I guess you answered it. We've got world-class discoveries and so forth. But the -- a couple -- when you bought in the planes' trust in our project, you now have very huge percentage interest in several of the wells. And the idea was that you would own them so that if you then sold off a percentage interest, we would retain a large percentage interest. But at some point, I mean, is it reasonable for us to expect that something is going to happen this year because otherwise, you're going to have to raise cash again? And the question is, how long are you wanting to hold out before you turn this world-class play to a major or to bring in other partners?

James R. Moffett

I'm not sure, whatever. What I said just now and will repeat, that flow test being delayed has been very frustrating, but we can't overlook the fact that if we can get that flow test, very prudent, we got plain gas, don’t have CO2, don’t have H2S, have a hint that with the pressure buildup we saw in limited flow in the deep and then we get these thing perforated, we have a nice flow rate. At that point, Joan, what we'll do is to take stock of not only Davy Jones but all the other things that we've got listed on Page 5 because a flow test at this depth it's got to unlock a lot of potential, even though the other sands or Miocene and Frio and Jackson or Cretaceous. And what we do then depends on what kind of financing might be available from the banks, and what kind of financing might be done with a private equity partner, what kind of financing might be done involve with a measure. We've done it all and what we do know is and I think you know this about us, that we always responded to a way to try to take our assets and create shareholder value. And that'll be a driving force in what we try to do. But unfortunately during [ph] this flow test, which is stuff that we're working diligently every day to get done, it's hard to answer your question about where we go as far as partnering, et cetera. But let me assure you that we'd know how to do that and we've got the right kind of portfolio put together that [indiscernible] reserves actually open the door to a lot of places.

Joan E. Lappin - Gramercy Capital Management Corp.

Would it be fair to assume then -- I know you were very encouraged by the flow test that we had before you had to move the Cantilever Rig back. So how realistic is this, I don't know, kind of 4- to 6-week estimate that you've put out there? I mean, is that really a possibility? Are we really talking June? Or I know nothing has gone out -- I think we should change Murphy's Law to Jim Bob's Law of the ultra-deep. But what is your realistic expectation as to when we think that we can flow Davy?

James R. Moffett

The fact is we've now gotten a big [indiscernible] back on the rig. We had take 3 apart and we bring this big [indiscernible] back. If you've seen them, they're messy. But you got them on the well, the Frio and now we get ready to start putting the tubing and the things that could take us more time, there's a gun sitting down there in the [indiscernible] sand's drill though. We got to go [indiscernible] and put it out of the hole everybody see the way it was built. It should unlatch and come out of the hole. If that goes smoothly and the last thing we do is go over to perforating gun and we perforate the "A", "B", "C", "D" that is casing hole gun, which as I've explained before, that gives about almost 2.5x the penetration into the tubing guns that we try to perforate within the last attempt. All that means is if we can get that past and assume damage, absorb [indiscernible] drill this well, we've got an actual chance to see the ultimate flow rate from all these sands. These sands perforation and [indiscernible] test was important for 2 reasons: improves all of our equipment, increases perforated well that had to flow and [indiscernible] gas service. Everything works just right, they're supposed to, so we don't have the exposure of wanting where that is from placing as we design and build the most new equipment for each stage. And it all works out and we're very confident of that so we've cautiously [indiscernible] if we can put out the perforating gun again to the fire to [indiscernible] The "A" or "C" and "D" and "B" sand perforated with a bigger gun and get some more communication with the reservoir and we'll see where that takes us. But I appreciate exactly about why you wanted that. If there's somebody out there who's going to come in with a truck full of money, we know how to do that because I know you are aware that we will be -- depending on the circumstances, and those things are -- for me to be sea sail right now. We are paying money to get us through this year, and we're managing that situation very carefully. And if we see some good results here in these tests in the Wilcox sands, that'll be easy for us because it gives us the one thing we haven't had for long to compare the actual processing. So I hope that helps you, Joan.

Operator

[Operator Instructions] Your next question will come from the line of Gregg Brody with JPMorgan.

Gregg Brody - JP Morgan Chase & Co, Research Division

Just 2 quick questions for you. First one, looks like you increased your production slightly. I wasn't sure if you mentioned what was driving that. And then could you comment just on your borrowing base if there's any concerns about your borrowing base being reduced?

Kathleen L. Quirk

Gregg, this is Kathleen. We raised our production outlook. We were previously at 130 million a day, and we've had some favorable production performance and have increased that to 135 million a day. And as we noted, that does not include any production from Davy Jones. With respect to the borrowing base, we'll continue to work with our banks. We've got semi-annual lease terminations, and we don't have any current expectations about this next view. The banks are waiting like all of us, and updating reserves for all the geologic success we've had in the ultra-deep. So we'll continue to work with our bank groups but don't have an expectation of significant changes in the borrowing base.

Gregg Brody - JP Morgan Chase & Co, Research Division

Just with the increased production, what areas are you seeing particular improvement?

Kathleen L. Quirk

It's a combination of things, but we've had some favorable performance at Flatrock. It's a lot of things [ph].

Operator

Your next question will come from the line of Joe Allman with JPMorgan.

Joseph D. Allman - JP Morgan Chase & Co, Research Division

So Kathleen, just a follow-up there. So are you going through a borrowing base redetermination now? Or you're just -- are you going to hold off on that until you get the results from Davy Jones?

Kathleen L. Quirk

It's scheduled for the spring. And so we'll work on that and the timing with Davy Jones. We've got a very supportive bank group and they understand the status of where we are.

Joseph D. Allman - JP Morgan Chase & Co, Research Division

Got you. Okay, very helpful. And then just a question about the 10-K and your year-end reserves. So at the end of 2011, more than half of the proved reserves were proved developed nonproducing. Could you talk about -- is there a concentration of that at Flatrock or in a couple of different fields? Can you just talk about that?

Richard C. Adkerson

Joe, this is Richard. A significant part of those proved developing nonproducing reserves are at Flatrock. And what happens at Flatrock, we've got stack sands. We produce the sand until we reach the economic limit, and then we go back in and recomplete for these others, other sands. So as you see, production over time, as we've seen historically, we'll have production at a certain level. It'll fall off, and then we'll restore it to a higher level, and that's what we're going to be doing with this as we go forward. And it's just a function of having these stack sands.

Joseph D. Allman - JP Morgan Chase & Co, Research Division

Okay, very helpful. And then just back to the question about the Davy Jones No. 2 flow test. Are you going through a process now of getting specialized equipment ready for the Davy Jones No. 2 flow test? Or did you pretty much finish that in preparation for the Davy Jones No. 1 flow test? And are you doing anything different given what happened at Davy Jones No. 1?

Richard C. Adkerson

Well, we are -- we have that process of procuring the equipment for the Davy 2 -- Davy Jones No. 2 well. With fiscal operations, we are focused on the No. 1 flow test, and then we'll move over to the No. 2. But it's been a process of procuring the equipment and getting prepared to test it. Physical activities are focused on the No. 1 well right now.

Operator

At this time, I will turn the call back over to management for any closing remarks.

Richard C. Adkerson

We appreciate everyone's participation in the call. We look forward to reporting our progress, and thank you for your interest.

Operator

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

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