Good day, ladies and gentlemen. Thank you for standing by. Welcome to the W&T Offshore's Fourth Quarter Earnings Conference Call. [Operator Instructions] This conference is being recorded today, February 24, 2012. I would now like to turn the conference over to Janet Yang, Finance Manager, W&T. Please go ahead, ma'am.

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 fourth quarter of 2011. 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 March 1, 2012. To use the replay feature, call (303) 590-3030 and dial the passcode 4506374 followed by the pound sign. Information recorded on this call speaks only as of today, February 24, 2012, and therefore, time-sensitive information may no longer be accurate as of the date of any replay. Please refer to our fourth quarter 2011 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, and good morning, everyone. We appreciate your dialing in for our year end 2011 earnings conference call. With me today are Jamie Vazquez, our President; Steve Schroeder, our Chief Operating Officer; and Danny Gibbons, our Chief Financial Officer. Jamie and Steve are going to walk through the details of our operations in a moment, while -- excuse me, Jamie and Steve, right? Yes. While Danny will cover some of the financial highlights for both the quarter and the year. First, I'd like to review some of the highlights for 2011, including our year-end reserve report and also, I'll discuss our capital budget for 2012. 2011 was another outstanding year for W&T. We delivered on our commitment to increase reserves and production. We continued to do a great job of generating cash flow. In fact, our operating income in 2011 was the highest in the company's history, and adjusted EBITDA grew 44% to over $646 million. We executed a successful drilling program of 54 wells, with a success rate of over 98%. And we also successfully closed 2 acquisitions, totaling $437.2 million, and achieved an all-in reserve replacement cost of $13.80 per barrel of oil equivalent. Even though we've had a consistently high oil component throughout the past 5 years at year end 2011, we are an oilier company, with oil and NGLs representing 59% of our proved reserves. And after acquiring approximately 173,000 net acres onshore, we've diversified the company's portfolio. Our proved reserves increased 44% to almost 117 million barrels of oil equivalent, with a reserve replacement ratio of 312%. Our oil and NGLs represent 59% of our total proved reserves, up dramatically from 47% last year. And needless to say, these are high-value reserves. PV-10 of our proved reserves increased to $3.1 billion, which represents a…

Thank you, Tracy. In 2011, we once again set goals for growth and profitability and our staff had executed and delivered on that strategy. Reserves, production and profits are up. We were successful in our efforts. We accomplished these results by making the right acquisitions, by operating our assets effectively to increase production, by keeping our reserve replacement cost under control, and by executing a very successful drilling program of 8 offshore and 46 onshore wells with a success rate greater than 98%. Let's talk about operational activities and first talk about Gulf of Mexico. As a significant part of our total asset base and source of cash flow, the Gulf of Mexico continues to be a focus for the company and a source of acquisitions, as well as exploration and development projects. The Fairway acquisition, along with our exploration development program in 2011, have provided us profitable opportunities, which have excellent rates of return and low funding and development cost. In 2011, we had 100% success rate in drilling our 8 offshore wells, which include 3 exploration and 5 development wells. Our offshore exploration and development programs will continue to play an important role in achieving our production and reserve goals going forward. During the fourth quarter, we successfully drilled 4 offshore wells, all located on the conventional shelf, 2 were development and 2 were exploration wells. Two of the wells were at Mahogany field, where we drilled Ship Shoal 349 A-1 exploration well and a 349 A-11 development well. These are 2 -- first 2 of the potentially 6 well drilling programs at the Mahogany field that commenced in 2011 and will continue into 2013. Both of these wells were drilled about 14,500 feet TVD, targeting oil in the P Sand, which is the main producing zone for…

Thanks, Jamie. We continue to seek opportunities to grow our production. In the fourth quarter, we did see some downtime due to weather-related issues but we're still able to maintain an average production rate of 49,800 barrels of oil equivalent per day. This is a 21.5% increase over the fourth quarter of 2010 and was at the high end of our fourth quarter guidance. We've said in the past that our goal in any acquisition is to take advantage of the upside and to find the overlooked potential. We continue to make progress in that respect with our activities in the fourth quarter. We've been focused on our compressor project at Main Pass 252 platform, where our Tahoe and Southeast Tahoe production flows. This project will allow us to reduce the reservoir abandonment pressure and accelerate production. In our year-end reserve report, the incremental gains due to the compressor project garnered an additional 11.3 Bcfe of reserves, net to our interest. This has been a very cost-effective reserve addition for us, with just $5.3 million net spend, which resulted in a reserve addition cost of just $0.47 per Mcfe. Another improvement for us at Tahoe was a change in the marketing of our natural gas liquids. As previously discussed, the incremental increase in the proved reserves associated with this project was approximately 2.3 million barrels of NGLs from the change in marketing strategy. In addition to the increase in our proved reserves, we expect to realize a $4.2 million annualized incremental revenue increase from the higher NGL production. As previously mentioned, we entered into an agreement with a third party that will allow them to process their production for a fee at Matterhorn. This will help us to reduce our cost when their production comes online in the back half…

Thank you, Steve. Revenues for the fourth quarter were $261.9 million. That's up $74.9 million from fourth quarter last year due to higher oil and NGL prices and higher production volumes. Just like in the third quarter, we greatly benefited from higher oil prices, which when coupled with higher production volumes led to higher earnings. Crude prices averaged over $112 per barrel during the fourth quarter of this year, compared to $84.04 per barrel in the fourth quarter last year. Although the Brent and WTI differentials narrowed in the fourth quarter following the announcement of the Seaway pipeline with reverse flow and it began bringing Mid-Continent barrels to the Gulf coast, NYMEX-priced WTI prices rose as a result of -- and the prices remained strong. Thus far, in 2012, the differential was widened again and recently, Brent has widened upwards to $19 per barrel of WTI. Accordingly, we are seeing excellent pricing on our Gulf Coast barrels. Not only were our realized prices higher in the quarter, but our production volumes were up as well. For the quarter, our crude oil production was 1.6 million barrels, our NGL production was nearly 613,000 barrels, and our natural gas production was 14.4 Bcf. On an oil equivalent basis, production was 49,800 barrels per day, and that's up from 41,000 barrels per day in the fourth quarter last year and is up 3.8%, sequentially. Let me move on to a discussion of expenses. For the fourth quarter, lease operating expense or LOE was $59.3 million, compared to $47.5 million in the fourth quarter of last year. Although LOE on a per barrel basis increased 2.9%, our production on a barrel of oil equivalent basis increased 21.5% and our revenues increased over 40%. Our base LOE was up $5.4 million principally because of the…

Thanks, Danny. Well, it was an active fourth quarter and it was a very active 2011. And we're expecting even more activity in 2012. We anticipate that the mix of exploration and development projects both onshore and offshore in our 2012 plan, combined with the acquisition opportunities we expect to see in the market this year, has the potential to generate substantial growth for W&T. Our goal for reserve growth is at least 18%. And although we provided production guidance with any potential acquisitions, you could expect our production growth in 2012 to exceed such guidance. We believe we're a preferred buyer in the Gulf of Mexico, with over 28 years of proven experience for safe operations. And now, we're recognized as an onshore buyer and operator as well. We're proud of our results in 2011, and we look forward to a stronger performance in 2012. This company is continuing to evolve and grow, and our numbers certainly show it. We also believe that we're accomplishing this in the proper manner by drilling within cash flow. And that by doing so, we're able to maintain good liquidity to take advantage of opportunities and acquisitions in exploration. With that, we're glad to take your questions. Operator, if you would please open the phone lines for Q&A.

[Operator Instructions] And our first question is from the line of Biju Perincheril.

Jefferies. Tracy, a couple of questions. First, on the East Texas Cotton Valley well, you mentioned there is some H2S presence there. Can you talk about how much and what's the solution there and the timing of that?

Sure. The Cotton Valley well you're talking about has pretty high H2S content.

Yes, and what -- I was wondering if you could quantify what high is?

Well, we're not exactly sure because we don't have an accurate test, but I'm going to tell you it's probably at least 20%. That's kind of the consensus. We're preparing the well for another test. We're going to have to get a different tree. It's pretty high pressure, so we need a tree trim for higher H2S content. And we just want to be very careful and do this methodically and make sure that we do it right. We've got a lot of -- we think we've got a lot of reserves there and we're going to make sure we get good test. It's going to take us a little while to get the tree. Steve, what is our current timing on this tree?

Actually, the timing on the tree is about half a year, but we should be able to actually flow test it and then figure out what facilities we need to modify, as well as the tree.

Okay. And then other than the tree, do you need special metallurgy for any of the other equipment, the downhole equipment, things like that or -- because of the high H2S?

Everything downhole was designed for high H2S. We will have to modify some of the facilities dependent on how high the H2S is.

Okay. And then as far as removing H2S, can this be sort of a simple, I mean, do you need -- or don't you need something more elaborate than then to kill the concentration?

Actually, right now, the pipeline company is allowing us to flow to them at a certain rate. And if we go over that rate, yes, we would actually have to install some additional facilities.

Okay. And then the other East Texas project, the James Lime project, you mentioned 833 Boes a day, is that the actual test rate? Or is that what you're sort of anticipating?

That's the expectation.

Okay. And how do you think about the oil, gas, NGL mix there?

We don't really have an answer for that yet. Again, we haven't put a proper flow test on the well primarily because the H2S content caught us out a little bit. So we'll get a test on it as soon as we can, but this is a very high rate gas well.

All right. I was talking about the James Lime area.

Oh, I'm sorry, excuse me. James Lime, yes, it is high liquids. We're still testing that well. We're getting ready to drill another one.

Okay. And in Q2, are there other objectives that are prospective there, like the pad? Or are you planning to test any of those other zones?

That's not our current plan.

Okay. And then on the production numbers, I think I missed it, if you mentioned it, does it include any wedge for acquisitions? Or is it only from drilling?

No. There is no wedge in there for acquisitions at all. Any acquisitions would almost certainly carry us up over our current guidance.

Okay. And one other question. The horizontal well in Perry County that you're planning on, is that -- can you talk about the target objective there?

That's Wolfberry.

Okay. So it will be the Wolfcamp section that you'll be going horizontal in?

Yes.

[Operator Instructions] And our next question is from the line of Dan McSpirit.

BMO Capital Markets. I was wondering if you could share your thoughts on pricing for the balance of this year, just in general terms at least, what you expect in terms of price realization. I ask that question in light of the potential reversal of -- or the contemplated reversal of the Seaway pipeline which may or may not narrow the spread on WTI versus Brent?

Dan, if I knew what prices were going to do, I'd pass it to something else, buddy. I don't know what prices are going to do. I don't know what world politics are going to do. I just don't. I can't prognosticate on that, but I appreciate the question.

Okay, fair enough. And any guidance here going forward, whether 2012 or beyond, on asset retirement obligations, that expense? I ask that as more capital is allocated to onshore activities and with it, greater drilling activity may be away from the Gulf of Mexico.

Yes, I think that's a fair question. ARO is something we are mindful of all the time. We do have ongoing obligations in the Gulf of Mexico. I'm with those who've been pretty adequately spelled out in all of the -- all the documents that we have right now. I would expect that it will stay on schedule. Oddly enough, as a result of some of the slowdown in the Gulf of Mexico, it's deferred some of our obligations just waiting on permits.

Okay, got it, understand. And then lastly for me. Forgive me if you covered this already, but the timing of the additional horizontals to the James Lime at your Star Project this year?

We're starting on the next well, literally building the pad as we speak. We'll probably drill at least 2 wells this year. Steve, I know you've said 3 so -- I said 2, but probably 3.

Okay, yes.

Okay. And the timing of those results, late first half 2012 then? Early 2012?

We'll have more results probably in the second half, yes.

[Operator Instructions] And our next question is from the line of Noel Parks.

It's Ladenburg Thalmann. I just had a couple of things. There was a mention earlier about a non-operated deepwater prospect that I think you said you need to spud again starting in the third quarter? I was just curious, is that something that was identified from your long-existing inventory? Or is that a prospect that you found a change here more recently?

Actually, we intended to drill that well last year. So it is deferred from existing inventory. Of course, it's an exploratory well. But yes, this has been deferred somewhat primarily due to permitting and rig conditions.

Sure. And is there going to be significant capital at -- or I should say that the 2012 budget include much capital for that? Or is most of that are hidden in 2013?

No, that's included in our budget for 2012.

Okay, great. And just a more sort of general question about your outlook on acquisition. Is it safe to assume that at this stage, you're perhaps even more concentrated on getting acquisitions done, in terms of just your prospect list being larger than it may have been in the past?

I'm not quite sure I understand the question, Noel.

Oh, sorry. I just meant -- I'm just picking up what sounds to me more focused than perhaps ever before at a time the company naturally having a list of properties that you are very actively looking at and very closely examining for acquisition. [indiscernible] being sorted in the market, but it sounds like that's really an intensified focus this year?

Well, it's not just -- it's never more of a focus one year than the other. I mean, the reality is that right now, there's a lot of people selling assets and part of that because of changes in their balance sheet. So we're just -- we're looking at a lot of different properties, onshore and offshore. And of course, we've diversified a bit more onshore. So we are seeing more opportunities onshore as well.

Our next question is from the line of Steve Berman.

Pritchard Capital. A couple of things. Tracy, with the Davy Jones on the verge of flow test results here. The first kind of ultradeep results were getting up. Does W&T have any prospective acreage for the ultradeep? And if so, do you -- can you foresee yourself putting any capital towards that in the next couple of years?

Yes and yes. We want to wish McMoRan and Plains and EXXI, all those guys, very good luck in their upcoming flow tests. We've been anticipating it very eagerly. I hope they have a rousing success. We think it certainly enhances our corporate profile.

This concludes the question and answer session. I would now like to turn the call back to Mr. Krohn for any closing remarks. Please go ahead.

Thank you very much everyone. We'll talk to you next quarter.

Ladies and gentlemen, this concludes the W&T Offshore's Fourth Quarter Earnings Conference Call. You may now disconnect.