Good day, ladies and gentlemen. Thank you for standing by. Welcome to the W&T Offshore's First Quarter Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Wednesday, May 9, 2012. I would now like to turn the conference over to Janet Yang, Manager of Finance. Please go ahead.

Thank you, operator, and good morning, everyone. We appreciate you joining us for W&T Offshore's conference call to review the results of the first quarter of 2012. Before I turn the call over to management, I have a few items to point out. If you wish to listen to a replay of today's call, it will be available in a few hours via webcast by going to the Investor Relations section of the company's website at www.wtoffshore.com or via a recorded replay until May 16, 2012. To use the replay feature, call (303) 590-3030 and dial the passcode 4532663 followed by the pound sign. Information recorded on this call speaks only as of today, May 9, 2012, and therefore, time-sensitive information may no longer be accurate as of the date of any replay. Please refer to our first quarter 2012 earnings release for a disclosure on forward-looking statements. Now I would like to turn the call over to Mr. Tracy Krohn, W&T's Chairman and CEO.

Thanks, Janet. Good morning to all. As always, we appreciate your interest in W&T and our first quarter 2012 earnings conference call. I have with me today are Jamie Vazquez, our President; Steve Schroeder, our Chief Operating Officer; and Danny Gibbons, our Chief Financial Officer. In a moment, Jamie and Steve will provide a review of our first quarter operating activity and guidance, and then Danny will go over some of the financial highlights for the quarter. The first quarter clearly demonstrates many of the company's strengths such as the company's ability to generate significant cash from or Gulf of Mexico assets, our oil production receives premium pricing there. In the first quarter, our adjusted EBITDA which is a measure of cash flow, was $146.5 million and was driven by a substantial production of oil and natural gas liquids. In fact, in the first quarter of 2012, about 83% of our total revenues were from oil and NGLs. We use our strong cash flow to fund our drilling activity. That means that we don't borrow money to drill with. Second, the company has an outstanding liquidity position. We just recently added 7 more lenders to our existing bank facility and increased our borrowing base from $575 million to $650 million. This really is a bode of confidence from our banks. We have excellent support and we expect to use the available capital to fund acquisitions and/or development projects. The market is very active with many interesting assets available and it's likely to get better. Turmoil in commodity markets often creates excellent opportunities. As gas-heavy operators look to raise capital, offset decline in cash flow from dry gas projects, or other types of operators spread across through many basins refocus their strategies, we think the M&A markets will get even more…

Thank you, Tracy. We are working to achieve our growth objective with a balanced approach. We expect to achieve both reserve and production growth in 2012 from our exploration and production activities and through acquisitions. We continue to have great success with the drill bit. So far, in 2012, we have a success rate of 100% on the 18 completed wells located onshore of which 9 were exploration wells. Historically, W&T has made accretive acquisitions, which have played a major role in our strategy -- growth strategy. We focus on identifying properties in which we can make money, as well as where we can enhance the value of the assets using our many years of operating expertise. Offshore Gulf of Mexico. We have 2 active rig operations in progress. Currently, we are operating with 100% working interest, a rig on the Mississippi Canyon 243, A-4 side track well located in our Matterhorn field, which is a deepwater development well. This well has reached a total depth of 6,781 feet total vertical depth and we are currently completing a well in an oil sand that is expected to add 3,500 barrels of oil equivalent per day net to our interest in mid-June. The estimated cost to drill and complete this well is $35 million net, which provides an IRR in excess of 100%. Since acquiring the Matterhorn field in the spring of 2010, we have increased production by an impressive 54%. Our second operated rig is conducting operations on the Ship Shoal 349 A-13 well located on the shelf in our Mahogany field. We just completed drilling A-13 development well to a total depth of 15,343 feet and we are currently completing the well in the P Sand, where we found a net 106 feet of oil pay. The A-13 well…

Thanks, Jamie. 2012 is off to a good start with our firstly quarter daily production averaging 49,200 barrels of oil equivalent per day as compared to about 42,000 barrels of oil equivalent per day in the first quarter of 2011. In spite of unscheduled downtime associated with pipeline outages and new facilities installations, this is a 17% increase over the first quarter of 2011 with 47% of the production coming from oil and natural gas liquids. We expect to maintain solid production rates from our properties as we bring on additional wells at Mahogany and Matterhorn during the second and third quarters. These oil-rich development targets coupled with continued growth onshore should help us continue to grow production this year, while at the same time, take advantage of oil prices in the continued strong Gulf Coast oil premium. During the first quarter, we completed a combined total of 39 workovers and recompletions. The total cost net to W&T during the first quarter was $9 million and resulted in a combined net production increase or net initial production rate of 2,260 barrels per day of oil equivalent. As in the past, we will continue to utilize a strong workover and recompletion program throughout the year to maintain our production. Moving to our onshore operations. At our Yellow Rose properties in the Permian Basin, we continue to see efficiencies such as reducing our overall drilling time and have been averaging between 15 and 16 days of drilling time on a spud-to-spud basis. We are currently producing around 3,060 barrels of oil equivalent per day gross. It is our goal to increase production over 2011 by 5% or more -- 5% or more in 2012. As you know, we produced 29,200 barrels of oil equivalent per day in the first quarter. During the…

Thank you, Steve. Let me start off with the discussion of revenue and pricing. Revenues for the first quarter were $235.9 million, presenting a 12% increase over the first quarter of 2011. We continue to benefit from higher oil prices and oil price premium that we realized on the sale of our Gulf Coast barrels. Our average realized sales price for oil $110.39 per barrel, a $12.49 per barrel increase over the 2011 period. Keep in mind that about 85% of our oil is priced on the Gulf Coast where prices are most closely resemble Brent pricing which is trading at that significant premium to NYMEX pricing for WTI. Conversely, natural gas liquid prices decreased $1.63 per barrel during the quarter to $48.51 and the relationship to our realized crude price declined to 44%. In addition, natural gas prices dropped $1.62 per Mcf to $2.67 per Mcf in the quarter. As a result, our average realized sales price was $52.41 per barrel of oil equivalent or $8.74 per Mcfe in the first quarter of 2012, and that's down about 5.8% in the first quarter of 2011. Contributing to higher revenues during the quarter was higher production volumes, which were up for all the products that we sell. In fact, our production averaged over 49,200 barrels of oil equivalent per day, which is up 7,200 barrels per day over the first quarter of 2011. Let me move on to discussion of some of our expenses. Lease operating expenses, which include base LOE, insurance, workovers, maintenance on our facilities and hurricane or remediation costs net of insurance claims increased $4.3 million to $56.7 million in the first quarter of 2012 compared to the first quarter of 2011. On a per barrel of equivalent basis, LOE decreased to $12.65 per Boe during the…

Thanks, Danny. We continue to believe that 2012 will be another great year for us with both the drill bit and acquisitions. We position the company to maintain strong liquidity and to continue to generate positive cash flow largely as a result of not borrowing money to drill. As a result, we can move strongly and decisively when opportunity knocks at the door. We think there's going to be plenty of opportunity this year. Operator, please open the door -- open the lines for questions.

[Operator Instructions] Our first question is from the line of Phil McPherson with Global Hunter Securities.

I had a few questions and I'll queue back in for some other ones, but I was just curious on your definition of development versus exploration in the Yellow Rose area. The 14 wells all look good and then, I guess, 5 of them were exploratory. So could you explain to us, I guess, are these nonPUDs or things that weren't bookend and does that set up more PUDs kind of going forward?

Yes, and yes. That's exactly what it does. They're on acreage that is not booked as PUDs and then as we drill that acreage, we very often will prove up additional acreage.

And the acreage out there, what's the split between what's booked and what's not booked or how do we think about that from an inventory perspective?

Not sure I have a great answer for that, Phil. I'd have to think about that a little bit.

That's fine. And I was just kind of curious on the -- Jamie, you went through the offshore stuff kind of quick. And on the A-13 Mahogany, I think you give us the cost on the Matterhorn but you didn't give us the cost on the Mahogany. I was wondering what the net -- or maybe the gross or the net cost on those wells are out there.

It's about $21 million to drill the well, and 5 or 6 to complete it.

I'll queue back in and I just want one more quick question. On the litigation expense, what was that litigation and why was it kind of a surprise to us for the quarter?

Yes. That's a litigation expense related to a lawsuit in Louisiana. And I believe that we've certainly recognized more than enough to cover it but I'm not going to comment on it other than to tell you that I think we've recognize more than enough to cover it.

The next question is from the line of Richard Tullis with Capital One Southcoast.

Tracy, I know you're not in a position at this time to give too many details on the potential deepwater exploration well, but what still needs to be lined up to get the well spudded this year? Is the rig set up, all permits?

Yes, I believe we'll get it done this year, Richard. Right now, we're just waiting on a couple of items and I think one of those is in fact a permit. But I expect we'll spud here within the next 2 to 3 months.

Okay. And how much CapEx is in your 2012 budget related to this well?

Hold on just 1 minute, we'll get the number here for you. I'm going to say around $20 million to $25 million just off the top of my head here.

Okay. And then lastly, for me, and I'll jump back in the queue, how are the rig rates in general in the Gulf of Mexico trending?

I think right now, they're pretty sideways. They jumped up a little bit in the first part of the year and in which they normally do as we head into the summer season because activity picks up, but I'm not seeing any other increases at this point in time. I'm not necessarily seeing these decreases. I just call it sideways.

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

Just a couple of things. Did I understand right that -- I'm just looking for the note here, the 3,500-barrel a day rate that you anticipate for Matterhorn, is that new? I thought I remembered the number being more like 20-some-hundred before like [indiscernible] something like that.

I think it's been the same, it's 3,500 is what we anticipate.

Okay. I may have had some net, gross confusion or something. And the other thing I wanted to ask you, let's see, sorry, I am getting my notes a little bit shuffled up here. Looking at your inventory in the Gulf and as you sort of weigh it against or as you high grade it and weigh it against the onshore opportunities, what -- has the move onshore sort of changed your priorities regarding the offshore in terms of, I don't know, maybe onshore being a priority just because the lease explorations or are you avoiding your higher risk but higher return projects offshore because it looks like you have this growing inventory onshore?

Let me answer that with the idea that we're constantly reevaluating our portfolio. That's something we do on just about a daily basis. I would tell you that with regard to onshore, certainly that's a lower rate of return on a per well basis but very substantial reserves as well. The offshore stuff that we're seeing that we're drilling is very high cash flow, which we've done for many, many years. So no real change in philosophy here. It's still all about full-cycle economics and that's really what we're trying to assure ourselves in both areas is that onshore, that we do this in a manner that is befitting full-cycle economics. We're still not going to borrow money to drill with, okay?

The next question is from the line of Michael Glick with Johnson Rice.

Just had a quick question on horizontals is in the Permian. Is it fair to look at 2012 as kind of exploration mode with a potential shifting into development mode in 2013? Or should we look at the exploration potentially continuing into next year?

I think a little bit of both. I mean, we're getting ready to kick off our horizontal program out in West Texas. So these wells aren't going to take the rest of the year to drill, so we'll start looking at it and figuring out what we have. And then 2013 will certainly be a more definitive year.

Okay. And then I think some other operators had success kind of in the Southeast of your acreage position targeting the Cline shale? Just wondering if you guys see any potential for the Cline on your position.

Yes. People -- and again, as you think about what the different formations are called, different operators call them different things. So a Cline shale may in fact be a Wolfcamp formation in different areas of this basin. So I'm not sure if I can really give you a fair answer on that without being able to sit down with the logs and compare them.

The next question is from a follow-up of the line of Phil McPherson with Global Hunter Securities.

Tracy, I just -- kind of a quick question. You're obviously generating way more cash flow than your spendings and so when you sit down and think about things -- the difference between acquiring more properties or accelerating what you're doing in the Permian, how do you kind of go through that thought process and is there anything kind of holding you back in the West Texas part to add more rigs?

No, the consideration is opportunistic. Clearly, we think that this year is an opportunity year for acquisitions. I mean, prices are bouncing around and we're seeing some other operators that did things a little bit different from us in the way of managing their cash flow that are going to need to be selling assets. We positioned ourselves with quite a bit of liquidity and I feel pretty confident that that's going to prove to be a good thing for us.

And then taking that into context, if you didn't acquire something, is there anything from a logistics standpoint in West Texas from you doubling your rig count in 2013 if you wanted to?

No, nothing really prevents us from that.

Okay, great. And jumping back to the offshore. On the Matterhorn, you talked about the Mahogany that it's the third of the 6 potential wells to do. At Matterhorn, what kind of inventory is left there to do drill?

We continue to find more inventory out there as we get better data. This latest round of drilling was generated off of some better data, more data that we purchased and reprocessed. And also some additional field study that we did with reservoir simulation. It's been 100% successful so far. So we feel pretty good and we'll finish drilling this round of wells, and then we'll take another look at it as we go forward. But big fields tend to get bigger, we keep finding reserves out here.

[Operator Instructions] The next question is a follow-up from the line of Richard Tullis with Capital One Southcoast.

Tracy, just to verify the potential timeline for announcing the initial results for the Star Project in Terry County, could you go over that again, please?

Sure. We've got -- we're on the second horizontal well. We probably got a couple of more to drill before we'll have anything really definitive for the markets. So I would look to hear more definition toward the end of the year on this.

Okay. And that would be both of those at the same time, both of those project areas?

Yes, I think that's appropriate. Yes.

The next question is from the line of Dan McSpirit with BMO Capital Markets.

Your decision to move onshore and to further diversify the asset base certainly appears to be working from an operational and a financial point of view. But do you think it's working from on equity valuation point of view? And if not, what do you think it takes to get recognized for that hybrid model to be better recognized and to generate multiple expansion?

I think I'd take a little homework from you, Dan, figuring out what the value of our equity is. And we'll be happy to work with you on that.

The next question is a follow-up from the line of Michael Glick with Johnson Rice.

So just a quick question on the shelf. I think you guys had planned 5 exploration wells in the shelf this year. Just kind of wondering where that program stands, and what the timing is associated with it.

I'm sorry, would you repeat the question?

I think you guys had planned 5 exploration wells on the shelf this year. I'm just curious where the program stands.

Let's see. I think we're through well #3 now, exploratory.

We have a couple of wells in -- scheduled to spud -- set late second quarter, early third quarter. And then 2 more at the end of the year in the fourth quarter with the current schedule. Several of those are nonoperated, so we are not in complete control of it. But all indications are that that's the schedule.

There are no further questions at this time. I will turn the conference back over to Mr. Krohn for any closing remarks.

Okay. Thank you very much. I appreciate it. We will talk to you next quarter.

Ladies and gentlemen, this does conclude the conference call. If you would like to listen to a replay of today's conference please dial (303) 590-3030 and enter in the access code of 4532663. Thank you for your participation. You may now disconnect.