Greetings, and welcome to the W&T Offshore, Inc. 2018 Third Quarter Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Lisa Elliott with Dennard Lascar. Thank you. Ms. Elliott, you may begin.

Thank you, operator, and good morning, everyone. We're glad to have you joining us for W&T's conference call to review financial and operational results for the third quarter of 2018. Before I turn the call over to the company, I'd like to remind you that information recorded on this call speaks only as of today, November 1, 2018, and therefore, time-sensitive information may no longer be accurate as of the date of any replay. Also, please refer to the third quarter 2018 financial and operational results announcement W&T released yesterday for a disclosure on forward-looking statements and reconciliations of non-GAAP measures. At this time, I'd like to turn the call over to Mr. Tracy Krohn, W&T's Chairman and CEO. Tracy?

Thanks, Lisa, and good morning, everyone, and thanks for joining us for our third quarter 2018 call. So with me today are Tom Murphy, our Chief Operations Officer; Janet Yang, our acting Chief Financial Officer; Steve Schroeder, our Chief Technical Officer; William Williford, our Vice President and General Manager, Gulf of Mexico; and Jim Hersch, our Vice President, Geosciences. They are all available to answer questions later during the call and afterwards. So we executed very well this quarter and we accomplished a number of key corporate objectives. In addition to generating substantial free cash flow and achieving really outstanding drilling success, we launched the refinancing of our balance sheet, so which we completed after the third quarter on October 18. But before we review our third quarter results and provide an operations update, I'd like to review that very important transaction. As most of you are aware, we had certain senior notes and 1 1/2% lien notes coming due in 2019, plus other notes due in 2020 and 2021. We had a goal of reducing our overall level of debt. So we addressed these items. And to simplify our capital structure, we issued $625 million of new 9 3/4% senior second lien notes due November 2023. The net proceeds from the issuance, along with cash on hand and borrowings on an updated revolving credit facility are being used to retire all of our previously outstanding notes. Some of the notes were tendered in response the offer we made on October 3, with the balance to be fully retired by November 19, 2018. So concurrently, we entered into a Sixth Amended and Restated Credit Agreement with a six member bank group that primarily includes banks from the prior group, but also includes one new bank. Our prior group was 20…

[Operator Instructions]. Our first question is from John Aschenbeck with Seaport Global Securities.

Tracy, congrats on the recent refinancing and all the hard work you guys have made over the past couple of years. Yes, so for my first one, I wanted to get you thoughts on 2019, but you pretty much addressed that in your prepared remarks. So I appreciate that color there. I did have a follow-up, just a point of clarification on my end. Kind of looking through the details of your 2019 production guidance revisions, it just seems like the majority of those changes came on the gas side, not really so much on the liquid side. I was hoping you could possibly provide some color on the driver of those changes. Was that hurricane related? Or was it perhaps something else?

Yes. I want to make it clear, I think you said 2019 guidance, I think you meant 2018. But yes, to answer your question, yes, it was a combination of hurricane guidance that helped us. We built in a little cushion for third quarter. Fourth quarter, of course we had the hurricane. We do have that built in there. There are some continuing mechanical issues that we experienced post the storm that we are trying to address now, mainly compressor rotating equipment. We are, as I mentioned, changing our production philosophy at Mahogany just a little bit in hopes of solving some of these skin issues that we're having at the wellbore interface with formation. We're doing the IP analysis, the inflow performance analysis now. We've done some treatments on a couple of these wells. We've had pretty good success for the most part. We're trying to get a more formulaic approach to that. So we're slowing the production deliberately to reduce the drawdown into the end of the wellbore, although production is up in the field from 7,200 barrels a day to about 9,000 barrels of oil equivalent per day. So production is up, but we're being careful with some of these other wells because it looks like we've got some issues at the wellbore interface that can be treated, and that we're just trying to figure out ways to eliminate it so we don't have to treat it going forward.

Okay. Great. Great color there. Appreciate that. Then last one for me. More of a high-level question. Now that you have the refinancing behind you, I was hoping you could share with us what you're most excited about in terms of, let's call it, day-to-day activity, whether that be on the operations front or in terms of potential acquisitions or something else.

Yes. Well, I think it's a really good market for acquisitions right now. And clearly, we're -- as a result of the drilling joint venture, we're looking at a pretty good quality prospect inventory that's fairly mature. We've got, I don't know, about 50 prospects right now that are fairly mature that we expect to drill. And we're working on that budget now. And we are seeing some of the properties out there that we think will meet our criteria. And I'll just say that one more time: we look for cash flow, we look for upside that we can use the drill bit to increase the value of these fields. And then we look for production workovers and facility upgrades that we can do along with that.

Great. Awesome. And actually, just to dig into that one a little bit more. I was hoping you can share your thoughts just on the longer-term strategy here. I agree, it seems like a buyer's market right now on the Gulf. A good time to be active on the buy side. But just, as you look at this thing longer term, how do you see the company evolving, maturing and then -- I don't know if I'm getting too far ahead of myself here -- but just a potential exit strategy? Or just how do you see the whole story playing out longer term?

Well, fair question. I actually believe that we'll see more acquisitions. We will see M&A increase in this marketplace. The acquisitions help drive the drilling side of it, both on development wells and exploratory wells. So we've cleaned up the balance sheet. We're cash flow positive with existing operations. We're accumulating cash. We've reduced the debt. We've got dry powder to make more acquisitions. I do expect to make more. Whether it's acquisitions by nature of assets or corporate-type acquisitions is immaterial to me, it's still assets that we're thinking about. So that's kind of the plan going forward. They're opportunistic. But I expect to see large changes in the corporation over the next 12 months.

Our next question is from Jay Spencer with Stifel.

Congrats on a solid quarter and the refi. And then I appreciate the guidance -- or the rough guidance or rough thoughts you guys have given on 2019. Clearly, the trend with LOE is down. Just -- I wanted to see if you guys could expand on if you think that'll continue? And do you think you're able to lock in some of that? Or is that not really a possibility? Just kind of want to get a sense on this momentum, the decline in LOE?

Yes. Locking it in is a harder approach, but we do have a little bit of that with some of our vendors. And I do see, going forward, that really -- there's nothing that says that prices have to continue going down. But prices going up is not something that I see in the near future. Clearly, I mean, oil got up to $70-something a barrel and we had a pretty rough time the last couple of weeks. And we've seen that once before this year already. So I think that we've got a fairly recurrent pattern. I think vendors are reticent to increased prices, except on seasonal equipment rigs and boats that are required in certain areas, which are certainly the highest cash cost items. But I keep thinking that we're about level where we should be. Like some of it -- that we're seeing on the LOE side has to do with maintenance and on platforms that we own, rotating equipment, some domain that we have to replace and we're addressing those to try to make that a little bit more efficient. We did reduce our P&A expenditures through the year. But that was intentional as a result of actions that we took in '16 and '17 to accelerate plug and abandon activity. So that now going forward, we see that as a lower number. So we can focus on those dollars on -- for the next several years, on things that actually make us money instead of things that we spend money on. So we're proud of that decision we made a couple of years ago to get that done. I don't think that, at the moment, we're seeing much price creep. We're going into winter now, so I expect prices for rigs and boats to lower slightly, and then I expect to see them raise slightly in the spring and summer months next year.

[Operator Instructions]. Our next question is from Jacob Gomolinski-Ekel with Morgan Stanley.

Just wanted -- maybe a little bit more of a procedure or administrative question, but when do you expect to receive that $65 million payment from the IRS? And then maybe just more broadly, you obviously continue to generate a fair amount of cash flow when you talk -- when you're kind of using current EBITDA numbers. So currently, so curious how you think about uses for free cash flow going forward? I know you mentioned M&A opportunities. So it'd be great to hear about sort of -- I know you talked a little about criteria on that front, but just generally, thoughts around uses for free cash flow and when do you expect to get that IRS payment?

Yes. Right now, we're targeting end of first quarter on the IRS credits. So hopefully, that's when it occurs. I mean, they have a procedure, but the good news around that is that with the $175 million of claims so far that have been completely refunded to us, we believe that there's 100% likelihood that we'll get paid on this. We just don't necessarily have the exact dates on that. But right now, we're targeting the end of first quarter. As far as what we're going to do with the money, we'll -- certainly, if there's nothing pending at the moment, then we will use that to reduce any revolver debt that we have, we'll probably have that revolver debt reduced by that time to almost zero anyway. But in the event that we have some other uses for drilling opportunities or acquisition opportunities, then that's what we have the new revolver for, which we've increased about, I think -- well, exactly $100 million on the borrowing base for that. So that's kind of where we are right now. I think it's a good acquisition market, and I think that we'll get our fair share going forward.

Got it. And then just maybe -- I know you talked a little bit about it, but either initial thoughts on sort of 2019 CapEx plans and production growth targets or if that's not been budgeted yet, then maybe sort of when you expect to share those numbers?

Yes, we haven't finished with that budget action yet. We were somewhat delayed as a result of the refi. So I had kind of all hands on that, working on that. But I expect that we'll have it out by about the normal time, around the end of January, first part of February for that budget. Right now, we're thinking $100 million to $150 million, and that will keep us level to about 5% increased production for 2019.

Mr. Krohn, there are no further questions at this time. I would like to turn the floor back over to you for closing comments.

That's all I have, operator. I appreciate everybody listening in. And I think we had a really good quarter. We look forward to talking to you in the near future.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.