ATP Oil and Gas Corporation Q2 2008 Earnings Call Transcript

Executives

Paul Bulmahn – Chairman and CEO

Leland Tate – President

Al Reese – CFO

Analysts

Gary Nuschler – Jefferies & Co.

Steve Towns [ph] – Pool Capital [ph]

Vance Shaw – Credit Suisse

Daniel Senneff – RBC Capital Markets

Don Cris [ph] – Johnson Rice

Michael Bodino – Coker & Palmer

Greg Bordelon [ph] – Decade Capital

John Anderson – Bodell Overcash Anderson & Co.

Leo Mariani – RBC Capital Markets

ATP Oil and Gas Corporation (ATPG) Q2 2008 Earnings Call Transcript August 7, 2008 11:00 AM ET

Operator

Good day and welcome to the ATP Oil and Gas Corporation second quarter 2008 results conference call. Today's call is being recorded and all participants are in a listen-only mode. At the request of the company, we will open the conference up for questions and answers after the presentation.

I will now turn the conference over to T. Paul Bulmahn, Chief Executive Officer of ATP Oil and Gas Corporation. Please, go ahead, sir.

Paul Bulmahn

Thank you. And thank you for joining us for ATP Oil and Gas Corporation's second quarter 2008 results conference call. My name is Paul Bulmahn, Chairman and CEO of ATP. Joining me today is Leland Tate, President, and Al Reese, Chief Financial Officer.

Yesterday, we issued our press release reporting our second quarter 2008 results. I wish to remind everyone that this conference call is subject to the Safe Harbor language included in our press release and our recent Form 10-Q. Following our formal presentation, we will have a question-and-answer session.

As Houston learned this week, it is better to be prepared and have a non-event than to not be prepared and have an event where weather is concerned. Houston needed a heavy rain and the weather provided just that. ATP also strives to be prepared for all contingencies and the second quarter provides an example of that.

We entered into a new, long-term senior secured term loan facility, extending our maturity out to 2014, reduced our blended interest rate in the process, and further obtained flexibility to reduce our debt as we monetized slivers and slices of specific assets. We also obtained some costless oil collars for 2010 and 2011, with a $105 per barrel floor and a ceiling of $187 to $197 per barrel. But the weather has been even better than we anticipated and we had a quarterly production increase of 26% and revenue increase of 45% year-on-year. ATP continues to execute its business plan year-on-year artfully.

Quietly, we secured all of the drilling rigs for 17 of our 18 planned wells through the end of 2009. So, again, we are prepared to weather whatever these next two years will bring with our development. And because of the advances of science and engineering of which ATP utilizes them adeptly, we can bring a level of assurance of our two year growth projections unmatched by any exploration company drilling wildcat wells.

From time to time I am asked, in fact, on Friday I was asked by Wahid Tabani of the Wall Street Transcript, are you able to identify opportunities to increase your reserves and add to your drilling activity as easily as you were able to about three or four years ago. My response was immediate. It keeps getting easier, because we are becoming more experienced. Finding the kind of opportunities that lend themselves to our formula and those opportunities are dramatically stronger, larger, and more impactful today than they have ever been.

This quarter provides yet another example of a stellar deep water project with proved reserves which we will operate with the 55% working interest acquired for a minimal up front investment. That is the discovery of Clipper, Green Canyon Blocks 299 and 300. And our technological capabilities as a very successful deep water operator were quite persuasive in the acquisition process.

As most of you know, this quarter we launched a plan to deliver value to our shareholders by monetizing pieces of our assets. We engaged the firm of Scotia Waterous who assist us in that process and are moving forward with an interest level which appears to be high from a number of players who have already spent time in our open data rooms in the U.S. and the U.K. The bid process will close August 28.

Separate and apart from that effort, ATP sold for $82 million, a 4.5% interest in our Gomez Hub proved reserves as of 12/31/07. I believe that transaction already sends a message about value and I'll leave it at that. There are more messages to come. Shorts, we love you, but we won't miss you.

This quarter, another event transpired and it cannot go unnoticed. ATP does not have a sexy tale to tell about our next exploration project, that one TCF (inaudible) wildcat well which never seems to get explained by the explorationists after its drilled. We are about execution of a development strategy. There is not a lot that is sexy about blue collar hard work.

ATP made a change this quarter. In May, we promoted a new President who has spent his career successfully executing on offshore project strategies. Leland Tate, formerly President of an ARCO subsidiary, who spent a number of years heading up ARCO's offshore operations in the Gulf of Mexico in the North Sea before he became ATP's Chief of Operations for the last eight years, was named President of ATP.

I have the privilege of having worked alongside of him for the last eight years. And since our business plan is about execution, about making positive things happen, there is no one better prepared to step in as President than Leland Tate. And if I may note, the passing of the baton happened months ago in May and ATP has not missed a beat. That transition has gone smoothly and all of our developments continue to be on track.

Leland, if you could elaborate on that?

Leland Tate

Thank you, Paul. Good morning, everyone. Thanks for the comments. There's a good team behind us here and I think we'll continue to do what we say we're going to do.

During the second quarter, we've continued to move forward with our developments at the Telemark Hub, the Gomez Hub, at Cheviot, and the Gulf of Mexico shelf projects at South Marsh Island 190 and High Island 589.

On the shelf, the South Marsh Island 190 and High Island 589 programs are in the final stages of hookup and commissioning and should be ready to start production within the month. At the Gomez Hub, we are beginning to focus on bringing the Mississippi Canyon 754, the Anduin West project and Mississippi Canyon 800, the Gladden discovery to production through the ATP innovator in late 2009.

At the Telemark Hub, the Seadrill West Sirius DP drilling rig has spudded the first Morgus well. That's at Mississippi Canyon 942. The rig will be onsite until late this year. As soon as the rig has cleared the site and potential interference is eliminated, the MinDOC will be towed out and installed.

Initial production startup continues for the first half of 2009. Utilizing the DP drilling rig serves two purposes for us. First, the large floating drilling unit can more quickly and efficiently complete the uphold drilling portion of the wells than the platform drilling rig that will be installed on the MinDOC when it arrives.

And second, by using the DP rig, ATP can allow for additional time for construction of MinDOC 1 while preserving the schedule for startup. Optimization of this ongoing work program will continue to ensure that the hull and the top sides for MinDOC 1 will leave the dry dock in the first quarter of 2009.

As I mentioned earlier, our forecast is to commence production during the first half of 2009 with the first well at Mississippi Canyon 942. And for MinDOC 2, we have acquired the steel and we're on schedule to commence the construction of the hull later this year.

At Cheviot, we continue to work through the regulatory process with the UK agency. The project activity primarily revolves around the hull and the construction of the hull and it continues on schedule.

And finally, as you may have seen in recent press releases, we have secured rigs to meet our plan to commence 17 of 18 wells on our drilling schedule in 2008 and 2009. This enhances our comfort that our projects can be completed without risk of delay due to the drilling equipment.

In production operations, production operations in the second quarter were much as expected except for a few more maintenance days than we had actually planned at Gomez and some unscheduled work in the North Sea.

Also, during the quarter, as Paul mentioned, ATP sold a cap override at Gomez and that resulted in reducing our second quarter 2008 production volumes by about 0.5 Bcf or 5 million cubic feet to 6 million cubic feet a day average for the quarter. Production for the quarter averaged, despite this, averaged about 203 million a day, which, as Paul said, was a 26% increase over the same quarter in 2007, even despite the sale at Gomez.

In the UK, the planned maintenance, summer maintenance program at Wenlock has been completed in July with the planned Tors program scheduled in September. After adjusting 2008 production for the override sale at Gomez, I estimate that we will produce between 75 Bcfe and 80 Bcfe for the year, roughly a 17% to 25% increase over 2007. Quite a good growth rate.

Now, this is about 4 Bcf to 5 Bcf lower than what I said at the last call for the year, and that results primarily from the sale of the override. And so that has caused us to bring our 80 to 85, down to 75 to 80. You should see somewhere around 190 to 200 million a day in the third quarter and 200 to 210 million a day in the fourth quarter, as we add the South Marsh Island 190 and the High Island 589 wells in the third and fourth quarters.

In the area of acquisitions, Paul has mentioned our recent acquisition of the 55% working interest at Clipper, the Green Canyon 299 and 300 Block. ATP expects that proved reserves will be assigned by third-party reserves engineers by year-end and we're pursuing an aggressive development plan to bring Clipper to production by the end of 2009.

Additionally, ATP was awarded a lease at Mississippi Canyon Block 304, expanding – further expanding our Canyon Express Hub. We believe that these properties will help support our efforts to strengthen our hub concept.

The acquisition market, as Paul mentioned, continues to provide us with excellent opportunities to continue our long-term growth and to add value for our shareholders.

With that, I will look forward to reporting further to you next year – the rest of the year as we go forward. And with that, I'll turn it over to Al Reese, our CFO.

Al Reese

Thank you, Leland. Thank you, Paul. As always, I will be going through the press release, trying to hit on the financial impact of the quarter and also for the year. I do not intend to go over every number by any means, but try to give as much color as I can on the numbers that are presented as well as color for the remainder of the year. Our remarks will be shorter than normal. We want to try to give as much time as we can for Q&A.

Referring to page three, the selected operating statistics, Leland has mentioned production, couple of highlights on production, oil continues to be a major component of our production for five quarters since the second quarter of '07. Oil has comprised greater than 40% of our production, 46% for the second quarter of '08.

The North Sea, in spite of the programs, the maintenance programs that Leland mentioned, they have remained strong, about 25% of our production for the first quarter and second quarter of this year. Average about 50 million a day for the second quarter of this year, that is essentially all gas.

There is some condensate in the North Sea, but it is essentially a 100% gas play for us at this point, prior to Cheviot. Second half, as Leland has already mentioned, about 35 Bcfe to 40 Bcfe for the second half of this year with the fourth quarter exceeding that of the third quarter.

Revenue, $192 million for the second quarter. That's a 45% increase over same quarter of last year, a 51% increase first half of this year compared to the first half of next year. Even though oil only comprised 46% of our production, it has comprised 57% of our revenue, primarily because of the disconnect between the six to one ratio of oil prices to gas prices. Four consecutive quarters now, oil has made up greater than 50% of our revenues.

As we look forward, oil will continue to make up the larger component of our revenues, our deep water plays at Gulf of Mexico, Gomez is more than 50% oil, Telemark, when it begins its production ramp in 2009, it is predominantly an oil project above Morgus, Mirage, and Telemark and Cheviot in the North Sea is predominantly an oil project.

Realized prices, records for the Gulf of Mexico, that's not surprising with the oil prices that we've had and the gas prices we've had in the Gulf of Mexico. North Sea, clearly, not what we were hoping for there. North Sea, realized price was heavily impacted by our hedge program. I'll talk about that a little bit later.

Expenses, lease operating expenses, $1.29 for the second quarter, $1.21 for the first half of the year. Except for the first quarter of '08, this is the lowest LOE per unit we have had since 2006. I commend our entire operations crew for that. In a period of rising prices, we've been able to maintain what I think are fairly attractive LOE numbers. On the last call, and I will repeat it this time, the remainder of 2008, we still expect these causes to trend higher, but we have enjoyed some fairly reasonable LOE costs in comparison to others.

Something I talk about each time is our operating margin. In a period of high cost or high prices, low cost and low margin, our margin continues to be in the 80% plus. We were at 87% and that's realized price minus LOE. That's the second highest quarterly margin we have ever had in both the Gulf of Mexico or as a company wide, with the first quarter of '08 being the highest.

Into the DD&A, the non-cash components, Gulf of Mexico continues to be in the $3.00 plus range, has been since the beginning of 2006, low at $3.11, high of $3.87. As we begin to bring projects on, I think you will see a higher – trend toward a higher DD&A rate, but as these projects continue to produce, as we continue to bring the probable reserves into the proved category, remember, DD&A is calculated on proved, it's not calculated on expected. I think you will begin to see these DD&A numbers come down on a project by project basis.

Not included in here, but again, a little color, for example, at Garden Banks 409, our Ladybug project, the DD&A rate there is $2.74. At Gomez, it's $3.36. North Sea, clearly impacted by Wenlock, a very good well, now that it has stabilized in the 15 million per day to 20 million per day. Leland talked a little bit about the program we'll be doing there later this year. Wenlock has an $8.72 DD&A rate. Tors, on the other hand, is $5.48.

Drilling programs in the North Sea both at Wenlock and potentially at Tors, as those projects begin to have new reserves transferred from the probable category into the proved category, as these projects begin to bring higher production rates from what we're currently expecting, I would see those DD&A rates to trend down as we move into 2009.

Flipping now to page five, the balance sheet, talked very briefly about the new debt. An 8-K was put out, the entire credit agreement is on the web. $1.05 billion, as Paul has mentioned, that's January 2014 maturity. Very, very pleased with that particular transaction. It gives us the flexibility to move forward with our entire development program from now through that period of time.

We also have a $0.6 billion, what we refer to as the asset monetization piece. Paul has already mentioned the Scotia Waters data room process, some of the other initiatives that we have going on. We expect to have that paid down by the middle of next year is when we would like to have it gone, to be able to meet the “Home Sweet Home” Challenge, even though it does have January 2011 maturity.

There is a new item on the balance sheet this time. That's the differed revenue category. The $82 million override that was mentioned, even though that was a true sale, it was a true override that was sold. Because of accounting rules and regulations we are not able to recognize the gain on the sale of that. And so what you see on the balance sheet is roughly a $75 million deferred revenue. That will be recognized over roughly the next year as production from that override is recognized by the purchases. The remainder of the balance sheet I'll leave for the Q&A session. I'd be happy to address anything there.

Going now to the income statement, general and administrative, $8.8 million for the second quarter, that's down from the first quarter of $9.2 million. 123R, the stock-based compensation, all non-cash was $2.9 million for the quarter, very similar to what we had in the first quarter of this year and we would expect that number, $2.9 million to continue for the remainder of the third quarter, and essentially for the fourth quarter of this year.

The remainder of 2008, G&A, I would expect it to be very similar to what we've incurred in the first half of 2008. Interest expense, approximately 7.5% for the first half of this year, not included in the interest expense line, but shown in the loss on debt extinguishment to $24.2 million. That was the non-cash charge riding off the old costs associated with the old debt facilities that we have. That is a one-time charge and you should not see that again in the third or fourth quarter of this year.

Derivative expense, this is a new item for us. $50.2 million, of which $49.2 million is a non-cash item. This is a result of reforecasting production, oil here in the Gulf of Mexico, primarily at Gomez. And the UK shifting of some production forecast. As we did this, the hedges that were associated with this were no longer qualified under FASB 133. I won't get into the detail of that, but essentially it ended up being a mark-to-market of roughly about a $49.2 million non-cash item. That will be an item that you will begin to see on our income statement. It will continue to be non-cash except for the realized portion.

One of the things we did though, we took this opportunity to redeploy some of our hedges. We shifted about 2.2 Bcf from hedges from the October '08 and March '09 period of time at $7.35 equivalency. We moved that into the '09 and '10 period of time, increased the average price from $7.35 to $9.28, roughly a 26% increase and all this was done on a costless basis.

Also, speaking of costless, we've added some costless oil collars. We're beginning to look now into the 2009, '10, and '11 periods of time when Telemark is beginning to show up with its production floor rates. We had floors of $105, ceilings of $187 to $197.

Income tax rates, while not shown on here, not intuitive, 35% for the US, 45% for the UK. We did have a profit for tax purposes in the US, and a loss in the North Sea, primarily as a result of the redoing of the hedges over in the North Sea.

Earnings per share, excluding the non-cash charges that I mentioned, excluding the debt, excluding the hedge mark-to-market, $30.8 million, $0.87 per share. It's always tried to – tried and hard to find what the actual consensus is. Consensus seem to be around $0.86 to $0.90 with most of the analysts. So, we are essentially inline with the estimates that were previously out there.

Last item to talk about is the cash flow from operations. $164 million from operations. If you add back the changes in assets, $290 million before changes in assets and liabilities. That is the historical largest six month we've ever had at $8.11 per share. Nice, nice cash flow per share.

Next week, we will be in Denver. There will be a large contingent out there. Paul will be there. Leland will be there. I will be there. Gerry Schlief will be there. And Brian Nelson will be there. All five of us will be at the EnerCom Conference.

We present on Wednesday morning at 10:30. We have a dinner on Wednesday night that I encourage those that are at the conference to come to. It's a lot of fun, opportunity to chat with the people. And you'll begin to see a new presentation as we begin to focus on the true valuation that we have, revealing some of the reserves that we honestly believe are here inside of the company. New presentation will be available next week.

With that, I'll turn it back to Paul for questions and answers.

Paul Bulmahn

Thank you, Al. We're prepared for the first question.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) We'll take our first question from Gary Nuschler with Jefferies and Company.

Gary Nuschler – Jefferies & Co.

Thanks. Good morning.

Paul Bulmahn

Good morning.

Gary Nuschler – Jefferies & Co.

First question, at Tors, it sounds like the compression project has been delayed a little bit. Can you remind us again what you're doing there and what the cause for the delay is?

Leland Tate

Yes. This is Leland Tate. Just to remind you, at Tors, we are – we have two platforms that we operate or actually are operated by a host and we flow through a host platform operated by another operator. The compression is on the host platform and they have two compressors there and have been having quite a lot of problems with both of them. They're new compression. They've been able to keep one running and the other has been sent back to the U.S. for repair of the rotor and the shaft and will be returned to the UK. We think that will not occur now until early November. And, yes, we have been impacted. We should see a – I'll use 30% to 50% increase in production at Tors just from adding compression. We have not been able to achieve that because of the difficulties that the third party host has had with their compression.

Gary Nuschler – Jefferies & Co.

And then you provided some production guidance for the third and fourth quarters which I very much appreciate. In terms of the North Sea production, how should we expect to see that progress over the back half of the year?

Leland Tate

I think we will be – it's Leland. I think we will be between 40 million a day and 50 million a day, to the upper end of that range in the third quarter and 50 million a day to 55 million a day in the fourth quarter as we're able to bring in the compression at Tors. So, those give you the quarterly numbers.

Gary Nuschler – Jefferies & Co.

And then last question, in your ops update, a couple weeks ago, you described, you said you might be drilling a third well at Wenlock and then said you might be looking at some prospects over in the Tors area. Can you give us a little color what you're doing there?

Leland Tate

Yes. It's Leland Tate. We have a rig that we have contracted. We said in our recent press release, the Ensco 72. We'll be bringing it in, in the October time frame. It's after another operator, so, that can move around a little bit. We bring it in, in October, and we will move to Wenlock first. Our intention is to drill two wells at Wenlock. One is the Wenlock II well, the other is a project, we call Bodbury. And then, after we finish that, we will move the rig over to Tors and actually drill a second well over at Garrow. So, we'll have two wells at Wenlock and one well at Garrow.

Gary Nuschler – Jefferies & Co.

Thanks. Look forward to the presentation next week.

Paul Bulmahn

Thank you.

Operator

We'll take our next question from Steve Towns [ph] with Pool Capital [ph].

Steve Towns – Pool Capital

I guess you gave an update on Wenlock there, but what is the pricing of your gas like in the UK going forward? Do you have a different hedge matrix over there or have those prices held up a lot better than the US prices?

Al Reese

This is Al Reese. I'll comment just on the hedge and then I'll let Leland come in on the current prices. If you look toward the back of the presentation, we actually have laid out all of our hedge prices that we have. It's roughly $6.65 equivalent in the second quarter, $8.55 in the third quarter. And mid to high $8 as you look into 2009. Leland? You want to go through the actuals?

Leland Tate

Yes. Just following up on the drilling also, we will be able to bring that first well on early first quarter, second well, the second quarter, and so on, to take advantage of the high priced market there. It has held up much better than in the U.S. For instance, in the fourth quarter of this year, the actual price is about somewhere around $16, just over $16. First quarter next year, it's $18. It's actually about $18.50. And then it stays in the $16 range, $15 range in the summer, and then goes back up to the $18 range. So, it's holding really well. Our hedge volumes are going down at a bit lower prices that you saw that Al talked about. And we are adding volume at the same time. So, we should get a double whammy on being able to get higher price and higher volume next year.

Steve Towns – Pool Capital

And the second thing is at Wenlock, of course I guess the production has been pretty disappointing. Did you refer what the problem was in the whole well structure there, the compression or the zone or whatever that caused that to be so disappointing?

Leland Tate

It's Leland. The initial rates on the well actually were not too bad. You remember we were at 60 million a day, and we had a rapid decline. The reserves are still in place. Production will actually ultimately be achieved. What happened is that the rate declined rapidly. We're still producing over 15 million cubic feet a day from the well. So, it's still – it's not a good well, but it is a disappointing well. The thing that we found is we were able to get out there last month with a wireline and went into the well and discovered that we have some sort of an obstruction down hole. It's our intent with the rig, as soon as we get there to actually reenter that well and determine what that obstruction might be, and then go ahead with our drilling program, and then determine what we need to do in terms of cleaning out an obstruction if that is the problem, or actually drilling a new well to a new location to help recover those reserves. So, part of that answer will come when we actually get the rig onsite and collect the information.

Steve Towns – Pool Capital

Thank you.

Paul Bulmahn

Thanks, Steve.

Operator

We'll take our next question from Vance Shaw with Credit Suisse.

Vance Shaw – Credit Suisse

Hi, guys. Good morning. First question is the sale of the interest in Gomez. Will those proceeds go to taking down the asset bridge loan?

Al Reese

This is Al Reese. No. They would – that sale actually took place before the new asset bridge loan was put in place and at this particular point, there's no intent to do that. We could use the proceeds if we choose to. But there's no intent of that right now.

Vance Shaw – Credit Suisse

I see. Thank you.

Paul Bulmahn

Thanks.

Operator

Thank you. (Operator instructions) We'll go next to Daniel Senneff with RBC Capital Markets.

Daniel Senneff – RBC Capital Markets

Hi. The Gulf of Mexico, you guys were down 11% after considering the sale at Gomez. And you also had some maintenance around Gomez that caused that. Now that all that maintenance is behind you, where is Gomez producing now?

Leland Tate

This is Leland Tate. I would like to back up just a little and reiterate those volumes and percentages that we're down. What I said at the last call is that we would be down in the 5% to 10% range. We were actually, quarter on quarter, down about 14.5%. 2.5% to 3% of that was the sale. So, that gets you down to say, 11.5% to 12% as you suggested. Another 2.5% resulted from the incremental maintenance at Gomez. We had to move back to the center location and it took a bit longer than we thought it was going to. And then we lost another 2% of that down to in the North Sea with work that was ongoing at Tors and Wenlock, and then a small – an additional decline at Wenlock. That gets us down in the 7.5% range. I just wanted to reiterate those things and so it would be clear what caused the 14.5% decline. I think it's describable, not one that we're totally happy with. But most of it, or some portion of it was the sale and that will continue throughout the rest of the year. Gomez itself is producing between 14,500 barrels a day and 15,000 barrels a day of gross and 38 a day cubic feet of gas to 40 million a day cubic feet of gas. And so, I haven't gone to an MMcfe basis, but that will give you the gross rates that we're producing from Gomez.

Daniel Senneff – RBC Capital Markets

And with Tors, what's your current production at Tors?

Leland Tate

The Tors production is running, let's see. I know the total North Sea is about 45 million a day. And that's a net basis. So, most of that is from Tors. So – I think we're around 50 million a day total, about 35 million a day at Tors.

Daniel Senneff – RBC Capital Markets

Thank you very much.

Paul Bulmahn

Thanks, Dan.

Operator

We'll go next to Don Cris [ph] with Johnson Rice.

Don Cris – Johnson Rice

Good morning, guys.

Paul Bulmahn

Good morning, Don.

Don Cris – Johnson Rice

As far as the royalty, the override royalty is concerned, how long do you expect it to be impacted with that, with half of being sold in the second quarter?

Al Reese

This is Al Reese. Based on current production profile, it looks as if it will be extinguished sometime in the third or fourth quarter of 2009. So, roughly about a 15 to 18 month program.

Leland Tate

It's Leland. The current impact of that is somewhere between 15 million a day and 16 million a day. So, as the field declines, and it has a fairly shallow decline, we'll be subtracting that impact off of our quarterly volumes as we go throughout the rest of the year.

Don Cris – Johnson Rice

Great. And as far as the MinDOC 1 timing is concerned, with the pre-drill, with the floater is concerned, how do you think the timing is going to shake out with that. Do you think it's going to be sooner or later or on schedule or what?

Leland Tate

I believe we will be able to complete the work with the floater somewhere right around the end of the year. Actually, it's positive in this regard if it moves on into the first part of the year, because that means we accomplished more of the less efficient work that we had to do. So, if we don't go out there until the last of January, early February, that means we'll have a lot more of the drilling done and it will actually accelerate the startup of the production after we get the MinDOC installed. It also means that the second well and the third well would be able to come on little earlier because we will have completed some portion of the work on those wells, perhaps down to almost 14,000 feet, the 13, and (inaudible) casing point.

Don Cris – Johnson Rice

Thanks a lot, guys.

Paul Bulmahn

Thanks, Don.

Operator

We'll take our next question from Michael Bodino with Coker and Palmer.