Executives
Jaime Brito - Director of IR
Scott Josey - Chairman, CEO and President
John Karnes - SVP, CFO and Treasurer
Analysts
Neal Dingmann - Dahlman Rose
Brian Singer - Goldman Sachs
Joe Allman - JPMorgan
Richard Tullis - Capital One Southcoast
Rehan Rashid - FBR
Dan McSpirit - BMO Capital Markets
Mariner Energy Inc. (ME) Q4 2007 Earnings Call February 22, 2008 10:00 AM ET
Operator
Good day, ladies and gentlemen, and welcome to the fourth quarter 2007 Mariner Energy, Inc. Earnings Call. My name is Chantilly, and I will be your facilitator for today's call. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.
I would now like to turn the presentation over to your host for today' call, Mr. Jaime Brito, Director of Investor Relations. Please proceed, sir.
Jaime Brito
Good morning, and welcome to Mariner Energy's fourth quarter and full year 2007 results and 2008 guidance conference call. Today's call is being webcast, and a replay will be available on our website for 10 days. Joining me today are Scott Josey, our Chairman, CEO and President, and John Karnes, our Senior Vice President, CFO and Treasurer.
The press release announcing our 2007 results and 2008 guidance is available on our website. In today's call Scott will provide opening remarks and update you on our operations as well as provide production and capital spending guidance for 2008. John will discuss our overall operating performance and financial position for three months and full year ended December 31, 2007, and will provide cost guidance for 2008. We will welcome questions after we completed our prepared remarks.
Before turning the call over to Scott, I would like to remind our audience that some of today's conference may include forward-looking statements reflecting Mariner's view about future events and the potential impact on our performance. All statements other than statements of historical fact that address activities that Mariner assumes, plans, expects, estimates or anticipates, or other similar expressions will, should or may occur in the future, are forward-looking statements.
Such forward-looking information may involve risks and uncertainties that could affect the Company's operations and financial results and cause our actual results to differ from our forward-looking statements. These risks and uncertainties are described in Mariner's filings with the Securities and Exchange Commission, including our Form 10-K for the year ended December 31, 2006.
The SEC has generally permitted oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by the actual production or conclusive formation test to be economical and legally producible under existing economic and operating conditions. Mariner uses the terms probable, possible and non-proved reserves, reserve potential or upside or other descriptions of volumes of reserves potentially recoverable through additional drilling or recovering techniques that the SEC's guidelines may prohibit it from including in filings with the SEC. These estimates are by their nature more speculative than estimates of proved reserves and accordingly are subject to substantially greater risk of being actually realized by the company.
Information disclosed in this conference call does not constitute an offer to sell or solicitation of an offer to buy any of Mariner's securities.
Now, I will turn the call over to Scott Josey
Scott Josey
Good morning. As you have seen in our press release, 2007 was another solid year for Mariner. Production increased 25%, reserves increased 17% to 836 Bcf equivalents. This amount does not include the recent StatoilHydro acquisition that closed on January 31, 2008, if included our reserves would be 888 Bcf equivalents. Our reserve replacement rate was 222% and all-in sources cost of $3.49 per Mcf equivalents.
Our cash flow from operations increased 27%. We bolstered our West Texas position with a significant transaction and the acreage additions in a variety of play types as well as added technical personnel. West Texas is no longer just a field operation but a key division of the company. And we believe that we've laid the groundwork for another strong year in 2008 with the commencement of production from Bass Lite and Northwest Nansen as well as lease sale awards, and the closing of the StatoilHydro transaction.
As you have seen our Bass Lite project recently commenced production and is producing approximately 60 million cubic feet equivalents per day from one well as part of the early production system. We will bring on the second well shortly, but our rate will be limited to around 60 million to 75 million cubic feet equivalents per day until additional production facilities are installed on the top side by the operator of the Devils Tower spar.
We anticipate producing a full rate during the second half of 2008. However, the ramp-up in production is outside of Mariner's control. This project is online, well ahead of our original expectations of those slightly behind the schedule we mentioned in November due to weather. The same cold fronts that have resulted in higher gas prices affect our ability to conduct operations in the Gulf. This was the very challenging project and was dormant until Mariner assumed operator shift.
A 6,750 water depth that ranks in the top 10 of the deepest deepwater developments, it is we believe the second longest flow line for a gap subsea tie-back and the longest utilizing fiber optics for primary control and umbilical for the Gulf of Mexico. It is an impressive accomplishment by our deepwater team and this project further evidence as the strong technical expertise that exist within our company and I believe it is one of the areas that distinguishes Mariner from its peers.
Additional good news included the commencement of production at Northwest Nansen, which is operated by Anadarko. Production from the project begin earlier this week from the first of four wells, currently two wells are on production at a combined rate of 57 million cubic feet per day and 7,000 barrels of oil per day. The target rate has been approximately 12,000 barrels of oil per day and 50 million cubic feet of gas a day, once all wells are online, which should occur by next week. This is obviously another significant milestone for our company and we are pleased with the venture that we have with Anadarko, that along with participating in three new wells also enabled us to convert our formerly dormant with LaSalle project into a viable commercial partnership.
We closed the Statoil transaction scheduled on January 31st. We believe this will be a nice bolt-on transaction within our shelf asset base with good upside. The transition has been very smooth as we expected and we appreciate the opportunity to work with Statoil on the transaction.
Our current rate of production is approximately $375 million to $385 million cubic feet equivalents per day. We should increase further as the remaining wells in Northwest Nansen are brought online. Our production guidance for 2008 is 130 Bcf equivalents to 140 Bcf equivalents, a 30% to 40% increase over last year, continued strong growth for a Gulf of Mexico focus company. Our guidance forecast includes normal downtime for hurricane and assumes a ramp-up in Bass Lite production in the second half of the year.
As far as capital spending, we designed our capital spending excluding acquisitions and hurricane repairs to be within our cash flow. Our NYMEX budget pricing assumptions for 2008 was 750 per Mmbtu and $80 per barrel. The current program is approximately $760 million excluding acquisitions and hurricane repairs, which is significantly below our budget cash flow forecast. However, with expected success our spending could approach $900 million, which is still within our budget cash flow expectations and what currently appears to be conservative commodity price assumptions. If current commodity prices continue our cash flow will be significantly higher. We continue to be opportunity rich and have numerous additional projects to pursue, if we desire, depending upon cash flow, success rates, commodity prices, et cetera.
The budget is allocated approximately 85% to the Gulf of Mexico and approximately 50% to exploration. In the Gulf, we expect to drill up to 28 explorations and four development wells. Although, the schedule may vary during the year, we expect nine wells will be deepwater wells, two to three of which will pursue subsalt targets, two deep shelf wells, and 21 shelf wells. We've extended our contract on the Diamond Ocean America rig through mid 2009, in order to assure that we can execute our deepwater prospect inventory.
We have been awarded 21 of 23 leases, on which we were the higher bidder at the recent October lease sale. The remaining two bids have been rejected by the MMS. The 21 awarded leases contained 15 prospects, of which five are conventional shelf, one deep shelf, four conventional deepwater, and five subsalt. We estimate that the net unrisked potential is around is 2 Tcf equivalents. We are pleased with the results of the sale and our partnership with LLOG. Our explorationists are hard at work evaluating the leases available in the upcoming March Lease Sale in which we expect to be an active participant.
We continue to expand our position in West Texas. Our current acreage position is approaching 80,000 net acres, up 15,000 net acres since yearend and we're no longer just as primary player. We now have sizable positions in the Wolfberry, Fusselman, Wolfcamp Detrital and Devonian plays. We have expanded our technical staff and expect to drill several exploration wells in 2008 along with over a 100 infill development wells. Last year we drilled a 117 wells.
As I previously mentioned, our yearend improved reserves were 836 Bcf equivalents. In addition to the 17% increase in our proved reserves, 67.5% approved developed versus 57.1% a year ago. The current composition of the proved reserves is 46% oil and liquid versus about 40% a year ago. I feel that its also note worthy that 47% almost half of our proved reserves are now in West Texas providing stable long life production to somewhat counterbalance the shorter life of Gulf of Mexico properties. We intend to further diversify the company by expanding our onshore footprint in West Texas as well as other areas.
Our probable reserves, approximately half of which are fully engineered by Ryder Scott increased by 33% to 403 Bcf equivalents at yearend 2007. One of our goals this year is to strengthen in our balance sheet by reducing related debt levels, which will occur using a combination of the following; either through excess cash flow. Secondly, asset sales, which I discussed just the second -- after completing a large portion of the field studies on our shelf assets, we are in the final stage of preparing a divestiture package, which we should commence marketing very shortly.
Thirdly, hurricane repair reimbursements. We believe we will begin receiving significant reimbursements of hurricane repairs, which currently to-date, we have spend about a $135 million. So we believe during the year, we should begin to see significant reimbursements for that. And fourthly, a continued efficient growth of the company such that our debt metrics improve. In other words, grow the company past the debt.
I will now turn the call over to John.
John Karnes
Thanks, Scott. Last night, we reported fourth quarter of 2007 net income of $50.2 million or $0.58 per fully diluted share, this versus $43.2 million or $0.50 per share in the 2006 quarter. This increase is primarily driven by an approximate 130,000 barrel increase in oil production quarter-over-quarter and an increase in our realized oil price of nearly $16 per barrel offset to some extent by higher lease operating expenses and to a lesser extent by higher general and administrative expense.
For the year ended December 31, 2007, net income was $143.9 million compared to $121.5 million in 2006. This increase was due to a combination of increased production owing to the fourth Gulf of Mexico acquisition during 2006 as well as several projects coming online during 2006 and 2007, offset again by higher LOE and higher DD&A. Fully diluted earnings per share for the year was $1.67 per share compared to $1.58 per share for 2006, a year in which there were about 12% fewer weighted average shares outstanding due to the large non-stock issued in connection with the fourth shelf acquisition.
Our fourth quarter 2007 production totaled 27.1 billion cubic feet equivalents versus 26 Bcfe for the same quarter in 2006. This production increase was primarily oil largely coming from our Pluto, Black Widow North deepwater fields as well as our West Texas drilling program. About 68% of the total production for the quarter was natural gas.
For 2007, Mariner produced approximately 100.3 billion cubic feet equivalent representing a 25% increase over 2006, which included only about 10 months of production from our shelf acquisition. Production for 2007 was bolstered by a number of deals which came online during the '06/'07 timeframe or saw increased rates during 2007. These deals include West Cameron 110, where Mariner increased it's interest late in 2006, then drilled two wells added compression and over double production year-over-year.
Another example is High Island A467 where our three very successful wells from our '07 drilling program contributed over 3 Bcf for the year. Other fields including Pluto, Black Widow North and Capricorn came on during 2006 but produced for only a partial year and then again, were steady producers contributing a full 12 months of production throughout 2007. Last but not the least our Spraberry field, where we saw a year-over-year increase of over 2.5 billion cubic feet equivalent in response to our very active infill drilling program there.
Price realizations net of hedging in the fourth quarter of 2007 averaged $8.7 per Mcf for natural gas, $79.64 per barrel for oil and $55.32 per barrels for NGLs. Price realizations net of hedging in 2007 averaged $7.88 per Mcf for natural gas, $67.50 for barrel of oil and $45.16 per barrel for NGLs. For the full year our hedging program resulted in a $45.1 million hedge gain.
On the expense side, lease operating expense was $42.5 million for the fourth quarter or $1.50 per Mcf equivalent, and $152.6 million or $1.52 per Mcf equivalents for the full year of 2007. LOE was up period-over-period $0.46 for the quarter and $0.38 per Mcfe for the full year. The year-over-year increase is attributable generally to the overall higher operating costs structure of the fourth shelf assets and our expanding operating is based in West Texas, as well as higher fuel, transportation and chemical costs. 2007 LOE was also impacted by, either the commencement of production or the increase in activities levels in a number of fields including South Pass 24 and Grand Isle 75, both of which were restored production in 2006 after a Hurricane Katrina and were included for a full year in 2007's LOE.
Again, West Cameron 110, where as our activity level has doubled production and we're at the very active ongoing drilling program in 2008. And as I mentioned earlier, Pluto, Black Widow North and Capricorn, which ramped up in 2006 but only incurred partial LOE for that year. Also, as we've discussed throughout the year, LOE for 2007 also reflects increase windstorm insurance premiums of about $9.7 million.
Depreciation, depletion and amortization expense for the fourth quarter 2007 was approximately $101.5 million. This is essentially flat year-over-year. Our DD&A rate for the quarter was $3.71 per Mcf equivalent, this was actually down from $3.84 in the same quarter of 2006. For the full year 2007, DD&A totaled $384.3 million or $3.83 per Mcf equivalents versus $292 million, or $3.63 per Mcf equivalent in 2006.
General and administrative expense excluding stock comp expense was $6 million for the fourth quarter of 2007 or about $0.22 per Mcf equivalent. This compares the G&A net of stock comp expense of about $7.1 million or $0.27 per Mcf equivalent in the same period of 2006. For the full year, G&A, again, excluding stock comp expense totaled $30.2 million or $0.30 per Mcf equivalent versus $23.1 million or $0.29 per Mcf equivalent in 2006.
Stock comp expense was $10.9 million or $0.11 per Mcf equivalent for the full year 2007. This compares to $10.2 million or $0.13 per Mcf equivalent for 2006. Quarter-over-quarter stock comp expense was $0.18 per Mcf this year versus $0.05 in 2006. As Scott mention for 2007 operating cash flow before working capital of changes totaled about $622.6 million, up 27% from 2006. In this regard I would refer you to our press release for reconciliation of the non-GAAP measure operating cash flow.
Looking at the balance sheet at yearend 2007, we had $18.6 million in cash and about $779 million in long-term debt. This includes $179 million drawn under our bank revolver. Debt-to-total capitalization at yearend was about 36%. As you many recall, during January we amended our credit agreement increasing the size of the facility to $1 billion extending its turn to January of 2012 and fixing the borrowing base at $750 million. Since that time, we closed on the StatoilHydro Gulf of Mexico acquisition, paid leased bonuses on 17 of the 21 offshore leases, awarded the last resale and invested in additional office space, all bringing the balance of the revolver to just about $500 million.
Summarizing our current hedged positions, which will be detailed in our 10-K filing next week, we have hedges in place for 2008 on about 50.4 billion cubic feet equivalent of natural gas, 38.7 swapped at a weighted average fixed cost of about $8.46, 11.8 Bs collared with a floor price of 783 and a ceiling of 14.60. We also have about 3.5 million barrels of oil hedge, 2.3 million barrels swapped at a weighted average fixed price of $78.99 and 1.2 million barrels collared with a floor of 61.66 and a ceiling of 86.81. Based on our 2008 production guidance of 130 billion cubic feet equivalent to 140 billion cubic feet equivalent, we ramp around 50% of our plan in 2008 production hedged.
Now turning to 2008's guidance. As I mentioned we're currently budgeting for 2008 production in the range of a 130 Bs to 140 Bs. Approximately 68% of this is expected to be natural gas. We expect LOE including workovers to range between a $1.55 and a $1.65 per Mcf equivalent owing to very active workover program and production handling fees on new deepwater production. We expect production to access to continue to range between $0.11 and $0.15 per Mcf equivalent, and transportation should range between $0.11 and $0.15.
Net G&A excluding stock comp expense is expected to range between $0.25 and $0.35 per Mcf equivalent with the stock comp expense on top ranging between $0.08 and $0.12 per Mcf equivalent. We estimate our DD&A will range between $3.90 and $4.20 per Mcf equivalent. Lastly, we are budging a 35% federal income tax rate for the year, substantially all of which will be deferred.
With that, Scott and I will be glad to entertain questions.
Question-and-Answer Session
Operator
(Operator Instruction) Your first question comes from the line of Mr. Neal Dingmann of Dahlman Rose. Please proceed, Sir.
Neal Dingmann - Dahlman Rose
Good morning, guys. Good quarter.
Scott Josey
Good morning.
Neal Dingmann - Dahlman Rose
Scott, I was wondering, it looks like in West Texas the opportunities are really increasing there, any plans -- you mention the rigs they're running now is that going to be for the full year or is that as you sort of go along and drill this February in some of these areas with that change?
Scott Josey
Neal, I had a little difficulty hearing you, but I understood you to say, just wanted kind of more explanation about kind of what we're doing in West Texas. And as you know, West Texas, was five years ago, it really just a field office where we had about 12,000 net acres. And we've had a good program in the Sprayberry. We've had significant positions in the Sprayberry. But I'd say over the last one to two years, we have been expanding into these other plays.
We've also expanded our technical staff. We picked up some explorationist. They were formally part of the Pogo team and believe we've now converted that office into a real part of our company, it's a real division. And so we've got substantial positions and a number of these other plays, which we will -- we started doing some of which last year but we will ramp that up significantly this year. And we expect to continue expanding our acreage in 2008 as well.
Neal Dingmann - Dahlman Rose
Okay. And then on the that asset divestiture that you mentioned is that just some different shelf areas that just didn't meet or kind of what you're looking for or what, how big should we look for that to be?
Scott Josey
When we acquired the assets from Forest, we mentioned that it would probably take us, a couple of years or so to get through all the field reviews. We are still, we are not completely finished with the field reviews but we are pretty far down the road near over 50%, probably close to 60%, 70% at this point. And as you go through those and you find something that maybe you don't believe are going -- necessarily going to be core properties for you going forward.
And so what we would like to do as to be able to carve out some of those properties, market those, and use those proceeds to just increase our capital cushion and/or use those to reduce debt. I suspect the size of the package will be in the 30 to 50 Bcf equivalents range. That might be a little bit bigger than that as we finished, but we expect that to be with a market or sometime here the next probably 30 days.
Neal Dingmann - Dahlman Rose
Okay. Then last question probably for John. John, I was just wondering now that the hurricanes have passed the couple of years and you've gone through now had more than a full year to go through the forest properties, could we see now on LOE that tick down on a per margin basis, or are we at a pretty good run rate now from this quarter forward?
John Karnes
I feel like we have a pretty good run rate and we've now got 18 months of experience in managing the forest properties. So I mean, this year we have a more active workover program of the 155 to 165 LOE we're guiding for, probably $0.15 to $0.20 on that is workover this year, which as you know is kind of lumpy and may or may not be recurring. But by and large, we think we've got the operating direct costs down. We're continuing to pay higher than we would expect insurance premiums and we're hoping that we'll see some relief in that mid-year as we begin to look through our energy package this year. But by and large, I think we're where we're at on a base LOE cost structure.
Neal Dingmann - Dahlman Rose
All right. That's all I had. Thanks, guys. Next quarter
Scott Josey
Thank you
Operator
Your next question comes from the line of Brian Singer of Goldman Sachs. Please proceed, Sir.
Brian Singer - Goldman Sachs
Thank you. Good morning.
Scott Josey
Good morning
Brian Singer - Goldman Sachs
With many of your key fields are coming online this year what are your expectations for how long you can maintain production before considering declines in the places like Bass Lite and Nansen?
Scott Josey
Brain, the production rates for the year should be fairly flat. What we see happening is a -- with a slight growth throughout the end of the year, it will be a little lower in this first quarter because of the -- with the StatoilHydro acquisition, we don't get to book the month of February. It closed, even though it was effective January 1st, we don't get to book the production until we closed it beginning February 1st.
So the second and third quarters ought to be about the same, a little bit of growth in the third quarter relative to the second but generally flat. And then we should see an increase in the fourth quarter and the main reason for that is because we assume, we're going to have more downtime in the second and third quarters really just due to hurricane.
We're starting to see some success in the beginning of the year with some of the shelf drilling program. We should have those assets online in the second half of the year. And then, also, Bass Lite, once the top sties work is finish there then we'll see additional production coming online. That should offset some of the decline that we see, day-in and day-out around here.
The Northwest Nansen is, even though we've got four very good wells there, each of those wells, I guess at least three of the wells have multiple completion. So there is, if I am not mistaken there are seven different zones in those four wells and so as individual zones decline, we'll switch over to new one.
So, those properties may have more of a Sawtooth type of a pattern to them. So, I know I am trying to cover all the basis with you but production should grow slightly kind of each quarter with some affect of hurricanes with the second and third. And we think the fourth quarter will be pretty strong.
Brian Singer - Goldman Sachs
That's helpful. If we think, I guess, if we think longer term kind of 2009, 2010 and I know that sometime that's very difficult, should we expect to flattening or even a slight decline in total company growth just once you kind of get all of these fields on as you absorb normal course declines, I guess until maybe you get some of the subsalt exploration success to you have a greater impact?
John Karnes
Brian, what will happen in 2009 and 2010 will lot less is going to be a function of how well we perform in 2008. I can't see the future, but we're dealing with a fairly high decline rate environment here as you know. To-date, we've been able to outrun the treadmill. We think we have some good projects that we are finalizing here fairly soon, that will help us arrest the decline and actually allow us to continue to grow through 2009 and hopefully into 2010.
I have a better feel for that kind of here over the course of the next six months. But it is a challenge when you deal with the decline rates that we deal with to be able to continue to grow at 20% and 25% and 30% rates a year. I viewed as a pretty significant achievement by our company that each year we've been able to deliver this significant double-digit growth. And we're going to continue to do everything we can to continue to do that. But it is a challenge and it may begin to flatten, but we're going to keep at it.
Brian Singer - Goldman Sachs
Great. Thank you very much, gentlemen.
Scott Josey
Sure. Thank you.
Operator
Your next question comes from the line of Mr. Joe Allman of JPMorgan. Please proceed, Sir.
Joe Allman - JPMorgan
Thank you. Good morning everybody.
Scott Josey
Good morning.
Joe Allman - JPMorgan
Hey, Scott, I apologize that I totally missed your prepared remarks and so I'm sure you covered a couple of these things, but in terms of your deepwater program this year. Could you just tell us how many wells you planned to drill on the deepwater? It sounds like you've got some subsalt plans, what specifically do you plan to drill on the subsalt?
Scott Josey
Yeah. Joe, what we said was that we would drill -- that we have about roughly nine wells in the deepwater, two to three of those will be subsalt targets, a couple of deepshelf and about 21 shelf wells. And unfortunately, I can't go into a lot of detail right now about our deepwater, particularly our subsalt program because we're still putting together our partners and rig schedules and all of that. But we believe that it should be something like that.
One of the projects that we hope to drill by yearend is our surge prospect which is in Garden Banks 334. That is a subsalt or salt overhang prospect, and it's in the 100 to 200 Bcf range. So that is one that we hope to drill but it will probably be more towards the end of the year as we, again, work it into rig schedule and put partners together.
Joe Allman - JPMorgan
Okay. And is that 100 to 200 Bcf a year or 100 million to 200 million barrels?
Scott Josey
100 to 200 Bcf equivalents. We have some other ones that we'll be able to talk more about probably on our next call once all the plans are finalized. And I know you want us to talk more about it right now and we will as soon as we can be definitive about it.
Joe Allman - JPMorgan
Would you be operating that surge prospect?
Scott Josey
It will probably either be, I think more than likely we will be the operator of it. This was one of the projects that we bought in our partnership with LLOG and so we alternate operatorship of certain prospects, but I believe we are the operator of that one.
Joe Allman - JPMorgan
You're looking at approximately nine total deepwater wells and two or three of those subsalt and if that's right, how many of those would be exploration wells and how many would be development wells?
John Karnes
All of those would exploration wells.
Joe Allman - JPMorgan
And I am not sure, if you've covered what your current production is?
John Karnes
Current production is 375 million to 385 million cubic feet equivalence per day and it should be higher than that next week as the rest of the Northwest Nansen comes online.
Joe Allman - JPMorgan
And I guess hurricane risk, I know you've referred to some hurricane risk put in there, so I mean what do you basically do? You make an assumption about a certain percentage of your total production in the Gulf of Mexico being down for 10 days or 15 days or something, is that how you factor that in?
Scott Josey
Right. Having -- for me personally operated in the Gulf for now almost seven years. We look at it each year and assign a percentage and then spread that out over the hurricane season. So, we feel like that we've got a reasonable amounts assumed for hurricane downtime. And it's also worth noting that even though -- even last year, when there was virtually no hurricane seasons, every time now there is the threat of hurricanes or the threat of significant storms, a lot of times our partners as well as we do, will take precautions and still shut in production and move people off of platforms. And so even though nothing materializes, you still have hurricane downtime even when there is virtually no hurricane season.
Joe Allman - JPMorgan
That's great. And then, with Bass Lite and Northwest Nansen, for Bass Lite, I mean you're basically -- that you are still expecting basically a doubling of what the 60 million today is?
Scott Josey
Well that's our expectations is that the production would go up roughly double in the second half of the year but that is solely up to the operator of the Devils Tower platform to finish up some of the top sides work. And we believe that is on schedule and so we believe we're using a reasonable assumptions in our forecast.
Joe Allman - JPMorgan
So like second half of the year, do you think it's -- that other 60 million or 70 million a day will beyond say--?
Scott Josey
We assume it's going to be around July 1st.
Joe Allman - JPMorgan
And then for Northwest Nansen, I mean you're pretty close to a 100 million day equivalent right now. What's your expectation for the kind of peak rate there once you get these other wells on?
Scott Josey
Well, the target rate has been, as our understanding from Anadarko is around 12,000 barrels oil per day and around 50 million cubic feet equivalents per day. It could be more than that, provided the topside facilities allow. I mean currently we're making more gas than what we thought and now that we're at 57 million cubic equivalents. As these other wells come on there is going to be more gas and to the extent they can handle it, we can see an increase rate. And I'm sure Anadarko will have more information about that next week, although, I don't know if Anadarko will issue a press release.
Joe Allman - JPMorgan
Got you. Is that one or I think it's one out of the three oil wells it's online, is that one doing better than expected as well?
Scott Josey
Yeah. The properties are within our expectation and doing very well.
Joe Allman - JPMorgan
And what are you guys seeing general, just in terms of drilling and completion cost? What's the trend these days?
Scott Josey
Well, in the deepwater, I would say, we feel like we have -- there has been some stabilization, still slight increases but at least some stabilization of rig rates and other costs. On the shelf we have seen some decreases in rig rates there. Other services are probably about flat maybe slightly down but generally about flat. In West Texas, I would say, our things there have been kind of a moderate increase each year but not as significant as what we have seen in past years.
Joe Allman - JPMorgan
Okay. Are you seeing any declining costs for services out in West Texas?
Scott Josey
I wouldn't say sort of, I mean I would say, at best we've seen maybe some flattening but not any material declines.
Joe Allman - JPMorgan
Thanks. I got some more, but I'll get back in the queue.
Scott Josey
Okay. Thank you
Operator
Your next question comes from the line of Mr. Richard Tullis of Capital One Southcoast. Please proceed, Sir.
Richard Tullis - Capital One Southcoast
Hi. Good morning. Real nice sequential for growth there in the fourth quarter.
Scott Josey
Good morning. Thank you.
Richard Tullis - Capital One Southcoast
Scott, if you could talk about the current drilling program. I know you said you had two wells drilling out in the Gulf of Mexico, I guess one, Sophia?
Scott Josey
No, we drilled Sophia last quarter.
Richard Tullis - Capital One Southcoast
Okay. Would you have gone on up?
Scott Josey
Right now what's mainly drilling is 1.3 million -- excuse me a second -- see we have one at -- well we're drilling with shell and then we're also drilling some wells at SMI 76.
Richard Tullis - Capital One Southcoast
Okay
Scott Josey
We have a very active program this year, particularly, on the shelf mainly due to the efforts of our development teams that have been working the properties that we acquired a couple of years ago. They've got to just identify numerous opportunities and so we'll have a very active program there. We have some additional wells to drill at Eugene Island 342, where we've had success. We've got things to, I think several wells to drill at Vermillion 380, where we're having success. So we're going to have a very active shelf program this year as well.
Richard Tullis - Capital One Southcoast
Okay. For the exploration program for '08, what are you looking at for a range of targeted potential reserves there?
Scott Josey
I think we'll be able -- once we finalized our program and I am not trying to avoid the question, is just until we get all the things lined up on the deepwater program with partners and rigs schedules, its hard for me to answer that question. I think I'll be able to give you better view on our call in May. I hate to defer the question but you can just give me a couple of months, I think I can give you a much better answer.
But our shelf type program, we're looking at wells that are usually around the 10 Bcf equivalents or 15 Bcf equivalents range or in the $1 million to $2 million barrels per wells type of range. Deep shelf opportunities are typically in the 25 Bcf equivalents as much as the 100 Bcf equivalents range. And then the deepwater program is usually a kind of the minimum in the 50 Bcf provided we're close to infrastructure, but as these are subsalt leases come together, some of those are in the 100 million barrel plus range.
So, once we have a better feel for it, what we will do as we did last year is put out some type of risk adjusted assessment of what we think the program would do.
Richard Tullis - Capital One Southcoast
Okay. For the '07 reserves, did you book anything for Bass Lite, Northwest Nansen and those reserve numbers?
Scott Josey
We didn't book anything additional at Northwest Nansen. We were able to -- as a result of drilling the second well at Bass Lite, we were able to further approve up that reservoir. And so we're able to pick up I think kind of in 10 Bcf to 15 Bcf additional range of reserves, approved reserves at Bass Lite. But as you'll recall, the 3P reserves at Bass Lite are in the vicinity of 300 Bcf. So if the program works as we hope that it will, there is still a significant amount of upside potential in that project.
Richard Tullis - Capital One Southcoast
Okay. Let see what are your production expectations from West Texas in '08, just in general?
Scott Josey
Now, it's in the 25 million cubic feet equivalents per day type of range and it's been growing year-to-year.
Richard Tullis - Capital One Southcoast
Including your recent acquisitions you ought to be--?
Scott Josey
Yeah. That added about another I think 8 million a day. So I'm sorry, so it's probably going to be a little bit north of 30. 30, 35 is probably a better number.
Richard Tullis - Capital One Southcoast
Okay. I think that's all I have right now, Scott. Thank you.
Scott Josey
Okay. Richard, thank you.
Operator
Your next question comes from the line of Rehan Rashid of FBR. Please proceed.
Rehan Rashid - FBR
Good morning, Scott.
Scott Josey
Good morning, Rehan.
Rehan Rashid - FBR
A couple of questions on the modeling side and then I would have to come back to the deepwater thought. Also the Nansen, Bass Lite, could you kind of walk us through in terms of for both how long maybe you will be able to keep production flat? And second on Bass Lite, what will you have to see or how long will you have to monitor production performance before you book some portion of the remaining upside?
Scott Josey
Sure, On Bass Lite, we think that the rate will be fairly flat from now through until the time that, which will increase the production once the additional topsides work is done. At that point, we should see the production roughly double and what we're assuming is that it has just a very modest decline. Sometimes towards the end of the year, we would expect to have compressions installed at the facility, which enables us to sustain the rate. And if it's -- but like our models, we still assume there is going to be a slight to modest decline for the next two to three years timeframe.
It's hard to know exactly what the reservoir is going to do, but if it performs like we think it's will be fairly modest, and then it will probably go on a very decline and be done assuming it's a water driver reservoir.
Rehan Rashid - FBR
Okay. And for Bass Lite, what will you have to see to get comfortable with days remaining upside?
Scott Josey
I think as you know, Rehan, once these projects are online and Ryder Scott can get comfortable with the performance of the properties then we're able to go in and better asses. So, we need probably four to six months of production and then we're able to go make a -- have a discussion with them. And you've got just much -- the more data you get, the better that we and they are able to make these assessments, so typically, four to six months, nine months of productions. In this case, we're going to have almost 12 months of production by the end of the year. And so we should have a pretty good idea of our ability to convert additional proved or possible reserves.
Rehan Rashid - FBR
Then I am sorry and mind me, are you producing from three zones there?
Scott Josey
Not yet. We currently only have one well on. We want to get it on and make sure that it was performing properly and then we'll start to bring on the second well probably sometime this next week. And then at that point, all three reservoirs will be producing. But so far the first well is producing very well. But also, just remind everybody even through we'll have the second well on, we'll still be limited to this 60 million, 70 million a day until the work is completed.
Rehan Rashid - FBR
Got it. Going back to deepwater and your initial guesstimation on the CapEx side, you had mentioned $900 million if certain exploratory things work up from 760 currently. What exactly are you referring to here? What program would kind of lead you to bump up your CapEx by that much or could?
Scott Josey
In our program, Rehan is, its really broken into kind of three components; the exploratory side, the exploitation and then our development fees. What we've put forth in the 760 is really just the exploration and the exploitation development part of our program. In the event that -- and so what we did instead of assuming some kind of model success, what we've assume so far is really just modest success on our development exploitation program. If our exploratory success is as we expect then there is going to be another 150 or so million dollars that we're going to need to spend this year on development programs. So once the, again, I'm not trying to avoid the question. It's just once the deepwater program is completely finalized and is still moving around just a bit and if we have success that we expect then it could be higher.
Rehan Rashid - FBR
Got it. The only reason I'm asking is maybe it's my notes, I need to go take a look at it but $140 million of CapEx bump could be pretty material and I'm not remembering what exact such high impact project that you might be working on apart from the nine wells that you talked about that could lift this.
Scott Josey
We are always looking at new opportunities and so as some new opportunities -- we're working on some of those new opportunities and so to the extent that we can get those drilled as well as some of the things that are already on our list that some of which are based on these recent lease sale awards that we haven't had an opportunity to discuss.
Rehan Rashid - FBR
Okay.
Scott Josey
That's what what's driving it. And also, Rehan, another thing I think for you and others to consider is that the lease sale, we never really know exactly how much we're going to spend at the lease sales. So we do intend to be an active player and we could get shut out completely or we could have a -- or we could win everything. So it's hard to model that as well.
Rehan Rashid - FBR
Got it. So some of the doubt that could be the lease sales.
Scott Josey
Right
Rehan Rashid - FBR
Okay. One real quick question on the production guidance front, does that net out the divestiture that you have planned?
Scott Josey
No it does not at this point just simply because we don't -- you never know for sure whether those will occur. I think it would -- if it does, if we're successful, I think it would be only a modest adjustment to our guidance.
Rehan Rashid - FBR
Okay. All right. That's all I had. Thank you.
Scott Josey
All right. Thank you, Rehan.
Operator
Next question comes from the line of Mr. Dan McSpirit of BMO Capital Markets. Please proceed, Sir.
Dan McSpirit - BMO Capital Markets
Yes. Good morning. My questions have been answered. I look forward to seeing you guys invest a $150 million more in 2008. Thank you.
Scott Josey
Thank you, Dan
Operator
Your next question comes from the line of Mr. Joe Allman from JPMorgan. Please proceed, Sir.
Joe Allman - JPMorgan
Hi again, guys. In terms of Bass Lite, at this point, what you've booked there in terms of reserves?
Scott Josey
Joe, I think what we had booked originally was around 30 or so Bcf and plus we added around another 13 Bcf or 14 Bcf. So we're probably in the vicinity around 40 -- 40ish, -- 40 Bcf, 42 Bcf, 43 Bcf approved reserves at this point.
Joe Allman - JPMorgan
Okay. And then at Northwest Nansen, what have you booked at this point?
Scott Josey
Joe, I believe that's in a 10 to 15 Bcf equivalents range.
Joe Allman - JPMorgan
And so Bass Lite, I mean I guess the way we figure you've got 42.2%, I guess we take 87% or so percent of that for the royalty. So you could have some meaningful a reserve out of Bass Lite this year, is that right?
Scott Josey
Absolutely. We wouldn't have done the project if we didn't think that there was more to it than 40 Bcf to our interest.
Joe Allman - JPMorgan
And do you think, I mean, if in fact, I think you said it's a 300 Bcf -- 3P I mean, I know that's the gross number but is there a possibility you could get the bulk of the reserves booked at yearend 2008?
Scott Josey
I think typically, Joe, it takes two, sometimes even three years to see all of those conversions to the extent that they are there. I don't want to get ahead of ourselves. I mean we believe this is a very good project. And it's performing, just the one well is doing very well, so far so good. If it performs like we think then we should see some conversions this year, as it continues to perform we should see some conversions in 2009 and hopefully we'll see even more in 2010.
Joe Allman - JPMorgan
Okay. And then Northwest Nansen, what's the 3P estimate over there gross?
Scott Josey
Joe, I don't have that number at my finger tips. We have 50% interest in one well and a third interest in three other wells. So it's probably -- just don't have number right now.
Joe Allman - JPMorgan
Okay. But its north of a 100 Bs, I mean is it north of -- can you just give us a range or I know you don't have the numbers but…
Scott Josey
I would probably defer to Anadarko for a number like that. I mean we do believe there is significant probable and possible upside in the properties.
Joe Allman - JPMorgan
Sound as if you could potentially get some meaningful reserves added there this year as well?
Scott Josey
Well, we hope so. The difference between Bass Lite and Northwest Nansen is that with Bass Lite, we drilled two wells in a single reservoir. We're able to prove it up and make the arguments that the reservoir had continuity and as such what Ryder Scott agreed with those that you could book some additional reserves even without performance.
With northwest Nansen we are dealing with four single wells. Although as I mentioned multiple zones in three of the wells and so it's really just going to be up to performance. There was no additional information that we could bring to Ryder Scott in order to justify the booking of additional reserves until we have performance. So this year with performance there is the possibility that we could see some reserve upside.
Joe Allman - JPMorgan
And then if you just think beyond Bass Lite and beyond Northwest Nansen and not factoring in kind of new exploration. Are there any other areas where you've already had some success where we could see some meaningful reserve adds?
Scott Josey
Well we have our there is our Daniel Boone project that we have a little bit of reserves booked there, that is as you know operated by WNT Offshore. We are hopeful that we'll see that project begin to be sanctioned and move towards development, so that's one where we already have a discovery that's just waiting to be a connected. Then I think the other things will be performance in our existing deepwater properties and I still have a lot of things to do on the shelf and then from there it moves to our exploration program. We have to be successful at our exploration to add new things and then I'll say last but not least is acquisitions whether it's in the Gulf, West Texas or some other areas.
Joe Allman - JPMorgan
What's the latest on the Daniel Boone, what we are we waiting for there?
Scott Josey
Yeah you would have to talk to WNT, we're not the operator of that project. I am not avoiding the question Joe, I just it's really up to WNT to answer those questions.
Joe Allman - JPMorgan
I would appreciate that, and then you mentioned some additional acquisition opportunities I guess you've just made two sizable acquisitions relatively speaking. Are you guys looking at some more right away or you want to just digest these couple of acquisitions?
Scott Josey
Well we're always looking at acquisitions, have been for the last couple of years and we'll continue to do so that is becoming an increasingly meaningful part of our company. The two that we closed, both of those came to our attention really at year end and we knew the property in West Texas and so we were able to act quickly. I am very pleased with the result of that transaction.
Then the StatoilHydro opportunity also came to us very late in the year and we were able to access it quickly and able to get that one closed and we think there is a lot of potential on both. Having gotten those we believe that we can easily incorporate those into our operations, we already knew the West Texas properties and the offshore package, we think we can -- already the transition has been very smooth and so we're not going to have any issues taking over operations there.
Joe Allman - JPMorgan
The fact, you did two acquisitions fairly quickly. Did that say something about the acquisition environment? Has it gotten better, do the assets look better in terms of quality or overall what you think the market is kind of frothy and its not likely that you'll do kind of two in a row as you did at the end of last year and the beginning of this year?
Scott Josey
Its difficult to predict acquisitions. You can work on [jillion] of them and have no success and then all of a sudden two come together. So I wish we could predict when we are going to do acquisitions. I would have told you in October, early November we had no earthly idea about those two particularly acquisitions and they came around and we were -- I think its one of the strengths of our company is that we can assess things properly very quickly and we can execute.
So hopefully we'll see some more but we don't model on and we don't budget for them, because we don't know when they are going to happen. And as we've said numerous times, Mariner continues to be opportunity rich. We are not compelled to do acquisitions, but we do have the ability to do them.
Joe Allman - JPMorgan
Got you, and then Scott, you mentioned you are expecting a modest decline at Bass Lite and imagine same might be true at Northwest Nansen. When you say modest decline, you're talking like 10% per year is that in the range of what you're thinking when you say that?
Scott Josey
Well, I think its something like that. I view that really in a positive sense. I mean, you are with Gulf of Mexico, particularly deepwater properties. They have very low R to P ratios and the fact that, we think that we can keep the decline rate fairly modest at Bass Lite over hopefully a period of time I think is very positive, I mean that's a typical. As far as our Northwest Nansen I think it's going to have more of soft Sawtooth type patterns, more typical in the Gulf of Mexico that as zones come on they decline and then we switch to other zones.
Joe Allman - JPMorgan
But when you said modest you are thinking somewhere in the neighborhood of 10%?
Scott Josey
I think at Bass Lite, I think we would see something we don't expect to see the typical 30 plus percent and that also assumes that we have a water dried reservoir, which we won't know for sure until it's been on for a while.
Joe Allman - JPMorgan
Then you noticed that your percentage of proved developed reserves increased and I guess is there something beyond just the Bass Lite factor there, or I mean what caused that to happen actually?
Scott Josey
Say that again.
Joe Allman - JPMorgan
The trend from those companies over the past couple of year?
Scott Josey
I'm sorry Joe could you repeat the question?
Joe Allman - JPMorgan
I think if I am not mistaken the percentage of your proved developed or your proved developed percentage?
Scott Josey
Right.
Joe Allman - JPMorgan
Versus your total reserves increased?
Scott Josey
We've said this all along is that we convert our PUDs and we don't have PUDs on the books that are not going to get drilled. And the other thing is that our proves -- in the Gulf of Mexico when you have a successful well it goes into the proved undeveloped category even though you eliminate the reserve risk it still goes into the PUD category, so I think with Bass Lite we were able to move them into Bass Lite and Northwest Nansen where it moves them from PUDs into the shut-in or shut-in behind pipe something like that and now they've gone into the PDP category. And then as far as West Texas I mean all the PUDs that we are actively drilling with four to five six wells, six rig program.
Joe Allman - JPMorgan
Okay, I was just -- I have seen that with several companies this year we've seen the percentage of proved developed reserves increased as a percentage of total reserves and understand what you guys are doing. Are the reservoir engineers being anymore strict about letting at out PUDs than they had been in the past?
Scott Josey
Well we've used the same firm for many years and that's one of the things we bring to the table is a high degree of integrity on our reserve base. Our reserve base is fully engineered and I don't see any difference.
Joe Allman - JPMorgan
Appreciate and just two quick ones then additional dollars you need to spend at Bass Lite, Northwest Nansen do you have an estimate how much you need to continue?
John Kranes
We have virtually no additional capital to spend
Joe Allman - JPMorgan
Okay and then lastly production growth for '08 besides the incremental production from Bass Lite, Northwest Nansen. What other fields are you expecting besides having a exploration success and kind of just general development success. Any other fields where you kind of very good visibility on some incremental production?
Scott Josey
Well we are having success at Eugene Island 342, we are having success at Vermilion 380. So we think those are big contributors this year, hopefully we'll see some probable reserve conversions from the StatoilHydro properties that we've picked up this year although those are very high decline rate properties, we did say we thought there was a significant amount of probable reserves and so we are hopeful to see some conversions there. So that's probably about all I can speak to at this point Joe, just as well as continued steady growth in West Texas.
Joe Allman - JPMorgan
Thanks for your time, very helpful.
Scott Josey
Sure thanks Joe.
Operator
Your next question comes from the line of Mr. Richard Tullis from Capital One Southcoast, please proceed sir
Richard Tullis - Capital One Southcoast
Yes guys just one or two more questions. I know you have the Ocean America contracted for '08 and what else do you have currently lined up on the rig side?
Scott Josey
We still have time remaining on the Lorris Bouzigard or Noble rig and I think that goes through this year and we're always looking at possible extensions of that or those or other kinds of rigs. So, that one goes through mid year this year. And then on the shelf, I don't believe we have a rig under contract right now, but we typically entered to get more short term type of arrangements there and we also use a lot of platform rigs for these multi well development programs that we have on the shelf.
Richard Tullis - Capital One Southcoast
Okay. The three wells that you drilled in the first quarter all successful, those were all considered exploratory?
Scott Josey
Yeah they were kind of a combination of exploratory and sometimes with, I mean one was PUD, two were exploratory.
Richard Tullis - Capital One Southcoast
Okay. They were all in the 10 to 15?
Scott Josey
Yes. They are really in the kind of one million to two million barrel range.
Richard Tullis - Capital One Southcoast
Okay. So they're all oil projects?
Scott Josey
Kind of, they are more on the oily side.
Richard Tullis - Capital One Southcoast
Okay. Alright, I think that's all from me. Thanks so much, gentlemen.
Scott Josey
Sure. Thank you.
Operator
At this time there are no further questions in the queue.
Scott Josey
Thank you very much. We look forward to speaking with you on our next call.
Operator
Thank you for your participation in today's conference. This concludes the presentation you may now disconnect. Good day.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!