Ladies and gentlemen, thank you for standing by. Welcome to the W&T Offshore Second Quarter 2019 Conference Call. [Operator Instructions]. This conference is being recorded, and a replay will be available on the company's website following the call. I will now turn the call over to Al Petrie, Investor Relations Coordinator. Please go ahead.

Thank you, Christie. On behalf of the management team, I would like to welcome all of you to today's conference call to review W&T Offshore's Second Quarter 2019 Financial And Operating results. Before we begin, I would like to remind you that our comments may include forward-looking statements. It should be noted that a variety of factors could cause W&T's actual results to differ materially from the anticipated results or expectations expressed in these forward-looking statements. Today's call may also contain certain non-GAAP financial measures. Please refer to the second quarter 2019 earnings release that we 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 Tracy Krohn, W&T's Chairman and CEO.

Thanks, Al. Good morning, everyone, and thanks for joining us for our second quarter 2019 conference call. With me today are Janet Yang, our Executive VP and Chief Financial Officer; and David Bump, our Executive VP of Drilling, Completions and Facilities; and Steve Schroeder, our Chief Technical Officer. They're all available to answer questions later during the call. So before I discuss our strong second quarter earnings, I would like to give you more detail on our highly accretive Gulf of Mexico Mobile Bay acquisition that we announced on June 27. This acquisition met all of our stringent investment criteria to grow shareholder value as we've outlined in the past and consists of working interest in nine shallow water producing fields and related operatorship in Mobile Bay area. It includes net proved reserves of 74 million barrels of oil equivalent, which are 99% proved developed producing as well as related equipment facilities. The purchase price is $200 million subject to post January 1 effective date adjustments and will be fund at the closing with cash and availability under our revolving credit facility. These low-decline assets are free cash flow positive and adjacent to our current operations, and that provides us the opportunity to recognize increased scale, rationalized operations and capture cost efficiencies to further grow cash flow. The total discounted P&A liabilities associated with these properties, very low at $26 million, and the abandonment costs don't occur until well into the future due to the long-live nature of these assets. We have the opportunity for future growth in reserves from potential field life extensions, with little or no capital as well, and also through drilling a facility, upgrade opportunities. The transaction will expand W&T's presence to become the largest operator in the area. Closing is expected at the end of…

[Operator Instructions]. Your first question comes from Mike Scialla of Stifel.

So could you talk at all about the acquisition? Just wondering in terms of the timing of potentially consolidating the gas plants, how quickly could you do that? And what the savings there might be? And any plans to drill on the new properties at all?

I'll address the first part of that question, I actually went to Mobile Bay last week and toward both of those plants and talked to some of the -- talked to our own folks and some back [indiscernible] folks. Actually, we have plans to think about consolidating. But I temper that with the idea that we will be drilling in the future. I hope that it supports, fully utilizing the Exxon GOM plant, assuming success. And I would hope that potentially making additional acquisitions in the area will fill up our Yellowhammer plant. So my ideal situation is it we use both plants so -- and because we're generating a lot of production. So in the event that we're not able to accomplish that within a reasonable amount of time, we would consolidate the plants. Okay. So on -- and that answers part of your question, your second part of your question about drilling. We do have prospects that we've looked at, that we want to drill, and we're working toward that goal now. I can't give you the exact date on that yet. We're actually meeting with the Alabama Oil and Gas Board today to see that firming up some of that and what we need to do. It's just been a long time since any wells have been drilled in this field. I actually worked for Mobile many years ago, when we made the discovery here. I like to tell people, I've been working on this transaction for about 40 years. So the wells were deep and high pressured, and they had some unique challenges in these northward producers. So we'll make sure that when we commit, we'll do it right, and move forward with that program.

That sounds good. You mentioned you're still reviewing acquisitions, I want to see if I could, kind of, gauge your appetite for doing another one potentially this year? Or do you need to take a breather and focus on fully integrating the Mobile Bay deal? And it sounds like you see additional opportunity in that area, specifically, is that something that you could get done this year? Or is that further down the road?

I absolutely intend to do more acquisitions before the end of the year. We're wide open. We believe that our balance sheet's in good shape. And then we have the financial wherewithal to do it.

Very good. One last one for me, I -- can you talk at all about the timing of getting Gladden Deep completed? You mentioned you should have it online in the fourth quarter with the tieback. But just wondering if -- you announced the discovery a couple of months ago, wondering if there were any issues there in getting it completed? Or are we doing any sort of extensive testing? Or is that just, sort of, the normal time frame to get a well like that completed?

Well, I'm going to put my VP Drilling Completions and Facilities on the hotspot right now, since he's right out here looking at me. So, David, you want to answer that?

Yes. Sure enough. This is David Bump. We're in the middle of -- we're doing a completion right now. It's -- it began from a plan of singles-owned completion to a two zoned completion. So that's adding some time as well as the -- a delay from the Hurricane Barry as well caused some delays. However, we're on track to have the well completed by the middle of -- the end of August. And It's a 60-foot tieback, [indiscernible] already has existing infrastructure. And we already have that prepared for early to mid-September, to meet our early fourth quarter target.

And your next question is from Mike Kelly at Seaport Global.

Great quarter. And I was hoping maybe you could give us a little bit of a preview for what you're going to tap for 2020. If -- just in kind of broad brush terms, which is vacant in terms of the CapEx program, what we could expect potentially for organic growth? I know you've got kind of a number of balls in the air, some moving parts. But let me just frame it as it stands right now.

Yes. That's a great question. We're actually right in the middle of that budget process as we speak here today, I have better answers on that for you, Mike. First part of the year, I will tell you that, clearly, production's going up. I will tell you that, clearly, I would think that our budget goes up. I can't forecast how much at this point in time. But we see more acquisitions on the horizon, and we're trying to figure out what is an appropriate way to budget for those. We don't normally budget for acquisitions but I think that there's a good enough market going forward that we need to be thinking about that.

Got it. Appreciate that. Maybe you could shift gears a little bit and talk about exploration. You mentioned that you'll have an exploration rig in the second half of '19, and maybe if you could just give us a sense of what you're really targeting on the exploration front. And then just remind us, in the success case scenario, how quickly can exploration turned into development to online production?

Yes. The well we're referencing is a deepwater well. I'm expecting that online within a couple of years, max, I would say. My drilling guys are saying, well, maybe even a little sooner than that. But I'm going to be a little bit more conservative and call it a couple of years. We're assuming we find reserves there, it will be reasonably substantial.

And your next question is from Zack Pancraft with DRZ [ph].

Congrats on a great quarter. I understand the appetite for acquisitions, given how accretive the acquisitions you have made year-to-date, especially on the Exxon's position here recently. But with your stock at -- in the low $4 range, at what point does it make sense to start buying back your own stock with the free cash flow you're currently generating? Just kind of your opinions on that, given, I imagine you're not happy with where the stocks trade at.

No. Well, no. It's in our job to never be happy where it's trading at. But I will tell you that buying back stock is an option for us, I don't dismiss it nor do I dismiss paying dividends. I have to look at this as opportunity. I mean, I don't have an unending budget that we need to consider as a never-ending cash flow source. But I will tell you that we're pretty creative. We've been able to buy back stock in the past. I would look at all of this as a function of our acquisition ability. I think the reserves are relatively readily available. And we're putting a lot of attention on that. So I don't quite know how to answer your question. I'm not sure exactly how it will proceed in the next several months, but feel really good about the acquisition side of it, and I feel really good that we'll continue to be cash flow positive. So as a shareholder, as the largest shareholder, I'm certainly going to be in the camp of trying to increase that value.

Your next question comes from John Evans of S&P Capital.

I'm just curious from the standpoint of the Exxon infrastructure. So one of the things that's hampered you guys over the last couple of years is you've been able to produce more than you've basically been able to sell because of the issues with the infrastructure in the Gulf that you put some of your stuff through? And can you move some of that to the Exxon acquisition and be able to really maximize your throughput and sell. I mean, is this one of the big benefits, too?

There is a possibility of thinking about this field -- preowned this treating facility as excess capacity. So, yes, we'll be looking at that. I think it's important to think about it as a possibility. I don't know quite how to answer your question at this point in time because we haven't really assimilated this -- the -- these properties yet. Right now, what we want to do is make sure that we have a smooth transition. And that we understand requirements of exactly what day-to-day operations are. But yes, I don't -- I'm really hoping that we'll fill up both plants and have a capacity problem for both of them.

Okay. And then the Exxon acquisition was more gassy than the rest of your portfolio. Is that just a switch at all? And what you think is -- has the most value in the acquisition market? Or is it just this is too good of a deal. So can you just kind of give us your thoughts of like potentially going forward?

Sure. I mean it's very normal to look at oil as being the dominant class of asset that you want to try to acquire a drill for. We're pretty agnostic. We don't care whether it's oil and gas, we don't care whether it's deepwater, shallow water or even onshore, for that matter. What we do care about is value. We believe we have very good value here. We believe it's accretive in every way. It meets all of our criteria. The first criteria is, is it a good, solid crude base; second, is there something that we can do to enhance the value with the drill bit; and last, is there something we can do in the way of workovers, recompletions and facilities upgrades to make the properties more valuable near term. The answers to all those questions with the Exxon acquisition are yes. So given that vein in our processes of over three decades, this meets all the -- this -- we check every box on this acquisition for that mantra. So I'm very pleased that we're making this gas acquisition. I know that people look at gas as not being as valuable as a liquids on a volume basis than they aren't. But it doesn't make any difference to us, this is cash flow positive, and that's what we really think about and value as well, of course.

Okay. And then the last question is, once you close the deal, and you're getting the $54 million back of cash from the IRS, do you expect your revolver to increase in size? And do you have any thought process of when potentially that might happen?

Well, the short answer to that is damn right, I expect it to increase. I'm not sure that I necessarily want it to increase because if there's not an immediate requirement for the funds, then you're just paying for the privilege of having your credit line, not getting any real value for it. But I'm not particularly concerned either way. When good deals come around, we've been able to figure out ways to resolve all the financing questions for over three decades now. We've done a whole lot with practically nothing. So now we feel like we can do practically anything with nothing at all.

[Operator Instructions].

Okay, operator, looks like we're done now. So we appreciate it, and we'll talk to everyone soon. Thank you.

And thank you all for participating in this morning's conference. You may now disconnect.