Ladies and gentlemen, thank you for standing by. Welcome to the W&T Offshore Second Quarter Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Tuesday, July 31, 2012. I would now like to turn the call over to Mark Brewer. 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 second 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 recorded replay until August 7, 2012. To use the replay feature call (303) 590-3030 and dial the passcode 4549376. Information recorded on this call speaks only as of today, July 31, 2012, and therefore, time-sensitive information may no longer be accurate as of the date of any replay. Please refer to our second 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, Mark. Good morning, everyone. We appreciate your interest in W&T and we thank you for joining us on our second quarter 2012 earnings conference call. Here with me today are several members of our management, including Jamie Vazquez, our President; Danny Gibbons, our Chief Financial Officer; Steve Schroeder, our Chief Technical Officer; and I'd also like to introduce Tom Murphy, who joined W&T in June as Senior Vice President and Chief Operations Officer. Tom obtained a BS in Petroleum Engineering from the Colorado School of Mines. Over the last 28 years, he's gained extensive operating and management expertise, while working at companies such as Woodside Energy, PetroQuest, Devon and ARCO. He's held a variety of engineering, operational and commercial positions domestically and internationally, onshore and offshore, including Gulf of Mexico deepwater and the onshore unconventional plays. Steve Schroeder has agreed to take on the newly created position of Chief Technical Officer, where he can lend his technical expertise to the company, with specific focus on our acquisitions and other special projects. Now historically, during our quarterly conference calls, various members of our management team deliver prepared remarks regarding our quarterly results and operating activities. This quarter, we thought it would be a bit more efficient to include a lot of the information in the earnings release that we would normally provide in our conference calls to facilitate your review and understanding. This way, you have the information in advance, which should help facilitate a more active question-and-answer session. So we're assuming you've had a chance to review the release we put out yesterday. And hopefully, we'll spend most of our time on this call addressing your questions. I'll provide a brief review of some of the quarter's key highlights and I'll update you on current events and plans then…

[Operator Instructions] Your first question comes from the line of Noel Parks of Ladenburg Thalmann & Co.

I had a couple of questions. In the James Lime, I seem to remember that you had previously commented that you expected rich gas out of it. I noticed in the operations update that it described it as an oil-rich play. Are you thinking more it's going to be oil or condensate as opposed to NGLs?

You're very observant. The answer to that is yes.

Okay. And has anything changed in your understanding that leads you to that conclusion?

Yes.

Could you be a little more specific?

No. Actually, we're in the process of flowing the second well back. We changed it to oil rigs because we've noticed some crude in that flowback.

Okay. Great. And then I just wanted to check, I guess, a little bit of housekeeping. I noticed there was a pretty big asset retirement item for the quarter in the cash flow statement. And if I read it right, it looked like it was a cash item. Is that something in particular or something nonrecurring this quarter or something we should see more of going forward?

I'd appreciate if you'd be a little bit more specific what that is, Noel.

I'm sorry. In the statement of cash flows for the quarter, it looked like there was a $20 million-or-so item for asset retirement and it was just a larger amount than I'm used to seeing in a given quarter. So I just wondered if there's anything particular behind that.

No. We've got ongoing obligations to plug and abandon. And either we do the work or the work gets deferred, depending upon what the rest of our schedule is. So I don't think that's unusual. The item that I think you're looking at was approximately the same as it was in 2011 as well.

Our next question comes from the line of Michael Glick with Johnson Rice.

Just a quick question on Yellow Rose. What's kind of the potential timeline for releasing results from the first horizontal well there? And two, if you like what you see, any plans to drill additional horizontals out there this year?

Right now, we're doing the frac. So as soon as we get the frac done and we get flowback on it, we can establish some sort of result, then we'll evaluate that. But I do expect that we'll be drilling more horizontal wells in West Texas. That's kind of the point. We've got 2 more wells that we got scheduled to drill before the end of the year.

And is the rig going from Yellow Rose to Terry County to drill the horizontals out there?

No. No, those are separate rigs.

Okay. And Terry County, is that also going to be a Wolfcamp test?

What's that?

Is Terry County also going to be a Wolfcamp test?

We haven't announced that, but I will tell you that, that rig is moving on 1st of September.

Our next question comes from the line of Richard Tullis with Capital One Southcoast.

Tracy, jumping over to the acquisitions front, I mean how likely do you see it as having something to announce by year end on that front, whether it's onshore or offshore?

I never know how to answer that question. People ask me that question a lot. When are you going to do the next one? What we're seeing is a pretty big disparity in bid ask. And I think a lot of that's a little bit of a sticker shock from the reduction in prices of oil and gas. And then they're all different types of transactions. All I know is that we're in a lot of data rooms, there's a lot more assets for sale than there have traditionally been in the past. And I just have to believe that we'll get our fair share of them -- I believe that we'll get something done by the end of the year, but I'm certainly not going to warrant that.

Sure. And with that $600 million in liquidity or thereabouts, what would you be comfortable doing size-wise?

Well, it really kind of depends on the size of the deal. I mean, if mortgaged it like you do your house. When you put a 20% downpayment, well then about $3 billion. If it's something that doesn't have a lot of cash flow, then of course it will be less than that. But it's really -- every single deal is a bit of a hybrid.

Our next question comes from the line of Biju Perincheril with Jefferies.

Tracy, have you guys done a midyear reserve update? Can you give us some color there?

We haven't included the midyear reserve update.

Okay. At the Yellow Rose project, have you drilled any 40-acre wells, what is the timing offsetting that and can you remind us again how much -- what's the reserves you booked so far at Yellow Rose?

Well, since we haven't given a midyear update, we haven't updated reserves at Yellow Rose in particular. Year end reserves were about 28.1 million barrels. We are currently evaluating 40-acre spacing and even down to 20 acres as well.

So you do have 40-acre and 20-acre wells producing currently?

We believe that this particular field will operate as low as 20 acres. We haven't booked it like that, but that's our belief in house. We think that it's there. And that's of course on a purely vertical case. So when you throw in horizontal wells, you have to make that determination on how many wells you're going to drill horizontally and how many vertically. That's what we're really trying to evaluate right now.

And at this point, is your expectation that this entire area could be prospective for horizontal development?

Well, not all of the acreage, because it doesn't all fit in a nice little box for horizontal drilling. So if you can imagine this, if you had a horizontal well going North and South and East and West from a single point, because of the curvature of the wells, you'd still have to drill a vertical well right in the middle of those 4 wells, so that you could recover the wells that are encapsulated in that area between the curvature of all those wells going North, South, East and West. That's the case. But there will be cases where we will still drill vertical wells, but we believe that we'll get more efficient with the horizontal wells.

Okay. And then one last question. On your NGL barrels, can you give us a breakdown of how much ethane do you have and the heavier molecules?

I'm not sure if I have that breakdown for you handy. I've asked that question before, I just don't remember the numbers. Ethane is probably a larger component than anything else. Probably I seem to remember about 30% ethane. I could be wrong on that, but I think that's what it is.

Our next question comes from the line of Adam France with 1492 Capital.

Tracy, any details you could give us as to the size of these 3 exploration wells you're going to be chasing in the Main Pass area? Or any more details on your Deepwater test?

We don't normally give out reserves prior to drilling exploration wells, but I will tell you that with regard to the Deepwater well, that I'm hoping we'll get that thing spudded in the third quarter. I can't warrant that because we're not the operator, but that's what I kind of gut feel. That's what I think we'll end up doing.

Anything about these 3 exploration wells in Main Pass that's particularly more difficult than what you usually do out there?

We'll update that when it gets a little bit closer. Right now is probably not appropriate to do that. But no, I don't see anything terribly different.

Our next question comes from the line of Phil McPherson with Global Hunter Securities.

Since you've trued up there on the deepwater spud in the third quarter, I was wondering do you think that's something that you would then press release or put an 8-K out and tell us when it's been spudded or give us more details once that kind of occurs?

I'm sure that we will. Yes.

Okay. Great. And as far as the West Texas stuff on the -- would you think you'd include the horizontal wells? Since so many people are kind of focused on that, do you think you'd give us results before the next quarter on that well or will you kind of stick to just doing your quarterly operations update?

In West Texas, if we can get all the results by next quarter, I'll give that out. It takes a period of time for these things to flow back. And flowback is sometimes relative to whether you're flowing it or pumping it. So if we get results before then, I'll give it out.

[Operator Instructions] And our next question comes from the line of Jeff Bachmann with Howard Weil.

A quick question for me. Have you guys looked at doing any horizontal drilling on your shelf properties to increase the recovery of the oil and gas in place?

That's not an unusual function for offshore. Sometimes you don't necessarily call them horizontal wells, but that's primarily what we do in the Gulf, is drill directional wells. A lot of times you'll see them in shallower depths, particularly for shallower gas sands. But where you have areas that will warrant horizontal drilling and will justify the additional costs in that, it makes sense.

[Operator Instructions] At this time, I'm not showing any further questions. I would now like to turn it back to Mr. Krohn for any closing remarks. Please go ahead.

Thank you, operator. I think we're done. We'll talk to everyone next quarter, if not sooner. Thank you very much.

Thank you, ladies and gentlemen. That does conclude our conference call for today. If you would like to listen to the replay of today's call, you may do so by dialing (303) 590-3030 using the access code 4549376. Thank you for your participation. You may now disconnect.