Ladies and gentlemen, thank you for standing by. Welcome to the W&T Offshore Third Quarter 2019 Conference Call. During today's call, all parties will be in listen-only mode. Following the company's prepared comments, the call will be open for questions and answers. During the question-and-answer session, we ask that you limit your questions to one and a follow-up. You can always rejoin the queue. This conference call is being recorded, and a replay will be made available on the company's website following the call. I would now like to turn the conference over to Al Petrie, Investor Relations Manager.

Thank you, operator. And 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 third 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 third quarter 2019 earnings release that we issued yesterday for a disclosure on forward-looking statements and reconciliations of non-GAAP measures. At this time, I would like to turn the call over to Tracy Krohn, W&T's Chairman and CEO.

Thanks, Al. Good morning, everyone, and thank you for joining us for our third quarter 2019 conference call. With me today are Janet Yang, our Executive Vice President and Chief Financial Officer; William Williford, our Executive Vice President and General Manager, Gulf of Mexico; Steve Schroeder, our Chief Technical Officer; and Jim Hersch, Vice President, Geosciences. They're all available to answer questions later during the call. So, before I discuss our strong third quarter earnings, I'd like to elaborate on our continued strategy to use free cash flow and our good balance sheet to purchase offshore assets. So, as we've outlined in the past, we have a procedure for making acquisitions in the Gulf of Mexico. First thing we look for, properties that have cash flow and a good reserve base. Second thing we look for, properties that we can enhance with the drill bit. And then, the last thing we look for are workovers, recompletions and facility upgrades that we can do to increase near-term cash flow. The answer to all those things are positive and those are properties that we want to pursue assets that we want to pursue. So, it's important to note that we built our success by focusing on cash flow positive projects, whether that's with the drill bit or whether that's making acquisitions or both. We use the cash we generate to fund drilling and make more acquisitions to consistently grow value. So, on that note, on August 30, 2019, we closed the shallow water Gulf of Mexico Mobile Bay acquisition for $167.6 million. This is an accretive acquisition that included working interest in nine shallow water producing fields and related operatorship, as well as offshore and onshore facilities and infrastructure. W&T is now the largest operator in the Mobile Bay area. These low…

Yeah. Thank you. [Operator instructions]. And the first question comes from John White with ROTH Capital.

Good morning and congratulations on a strong quarter.

Thanks, John.

You're running a real tight ship over there as expenses came in well below expectations. It might be a little early to ask this question, but how would you talk about Mobile Bay 2020 activity? How would you characterize that as a percentage of total activity or are you at that point yet?

Sure. That's great question. John, we're still assimilating that property. We've added several people out there. We're still transitioning. Typically, with transition processes like this, you have a little bit of duplication of personnel and operations, that sort of thing. So, typical with a larger acquisition of this kind. Those are all things that you overcome and smooth out. We have undertaken to go through the permitting process for one or two wells in the Mobile Bay area. We expect to get those permits in 2020. I don't think we'll be drilling any wells in 2020, but we'll at least be done with the permitting process well in advance on it. So, we'll just have to see. I think the state of Alabama is eager to see some more activity out there. There hasn't been any drilling activity in a long time. And then, we will sort out the plants there. We have a plant currently, Yellowhammer, that we operate at Mobile Bay and then, of course, we've now acquired the plant from Exxon, the former operator. And so, we're assimilating both of those and figuring out what we're going to do with both those plants. First thought is to fill them both up. That would be the ideal. And then, if that's not possible, then we'll see where we need to combine and reduce those costs. But you'll see lower costs before the end of the year here. In fact, I'm sure, well before that. You may see a few higher costs just before that while we transition. But the net effect of it is that, for the long run, costs will go down and we expect production to go up.

Thanks for the details. Did you say that, subsequent to September 30, you paid down $40 million on the revolver?

That's correct. We did.

Prior to.

Prior to, I'm sorry. Yeah, that's right.

Not subsequent.

Okay. So, the balance on the balance sheet is what it is today?

Yeah.

Okay. Thanks very much.

Thank you, sir.

Thank you. And the next question comes from Mike Scialla with Stifel.

Good morning, Tracy.

Hi, Mike.

I wanted to ask you about your guidance for the rest of the year. It looks like the midpoint stayed pretty well unchanged, but you did reduce oil and NGL guidance a bit for the year. Just want to see what contributed to that.

Well, part of it is that we've added a bunch of gas reserves here, but some of it was work that we had to do out in the field, primarily associated with our Mahogany Field. We had some production upset out there. We had one well that burnt up a bunch of sand. We had to clean that out and shut the platform in for two or three days, and then get it back online. So, I think that's what you're seeing, the slight reduction in oil production as a function of that.

Got you. Okay. And you've been real open about your desire for an acquisition, given how attractive the market looks. If, for whatever reason, you couldn't get something done there, how would you prioritize the use of the free cash flow? Would you just continue to pile up cash flow for a while until you do see the acquisition that you like or is there anything else you could do with that free cash flow in the meantime?

Well, in any event, it's a quality problem, isn't it?

It is.

It's not that we're running short on things to do. We would take a look at it and see what pricing was at the time. Clearly, if prices continue to go down – and that puts a little bit of a stymie on new drill projects – that if things remain static, then I would expect to see a little bit of both.

Very good. Thank you.

Thank you, sir.

Thank you. And the next question comes from Richard Tullis with Capital One Securities.

Hey. Good morning, Tracy and Janet. Just a couple of quick questions. Mobile Bay, what is the daily production from that acquired asset included in the Q4 guidance? What's the associated oil percentage with those assets in 4Q?

I'm sorry, sir. I apologize. Would you repeat the question, please?

Yeah, sorry, Tracy. Regarding Mobile Bay, how much production from that asset is included in the 4Q guidance and what's the oil percentage associated with that production?

I don't have that right at my hand. It's mostly gas. It's about 4,500 barrels a day of liquids, NGLs.

Okay.

So, roughly 25% liquids.

And the rest is nat gas?

Yeah. Yes, sir.

Okay. And then, just over on the M&A side, Tracy, what scale of the properties currently available or likely to become available over the next several quarters? Just trying to gauge what the magnitude of the potential deals could be as far as production adds go?

Well, assets available or things that we imagine that are available in the Gulf of Mexico, it ranges from a few million to a few billion. It's a big range. There's a lot of properties out there. So, you can kind of use your imagination as to who might be selling those properties and go from there. It's inevitable that most of these properties are going to trade hands in the Gulf of Mexico.

Okay. Well, that's all I have today, Tracy. Thanks so much.

Thank you, sir.

Thank you. And the next question is a follow-up from Mike Scialla with Stifel.

Yes, sir.

I wanted to see what has happened with the – I think you're going through a borrowing base redetermination. Has that been completed yet? And if so, where does that stand?

No. It hasn't been completed yet, but we're getting close. I should have an announcement on that in the next couple of weeks.

Okay. And I know you guys – go ahead.

Yeah. The bottom line is I think we'll get what we need out of it.

Yeah. Okay. And you guys did a lot of work on improving the balance sheet after the price collapse in 2014. You've, obviously, got a strong balance sheet now. I just wondered if there's anything more you'd like to do with the balance sheet or is it in a spot where you're comfortable now?

I think what we do, is continue to effect the plan that we're on. We're trying to keep things cash flow positive. We're doing that in spite of some pricing negatives. So, as we go through these cycles, we'll adjust accordingly. But I see pretty good cash flow going forward. So, the bigger decisions are, what to do with that cash? And when we're in these kind of times that present different opportunities, it's nice to have really good options in any event.

Yeah. Okay. And I wanted to ask you on Gladden Deep. The production rate there is, obviously, pretty nice, but I know you've been pretty cautious with some of your other wells. Is that a rate that you'd anticipate kind of keeping that well at for a while or is there any potential to ramp that over time?

Well, I hope that's a quality problem. I don't really have good information. We haven't been flowing a well that long. So, we're cautious with these wells and what we do and tend to be as conservative as we can because wellbores and completions are – when you think about it, they're fairly small in diameter. They're several inches in diameter, but they're not feet in diameter, okay? So, they're small type of radii. And so, when you draw down the wellbore, you need to be careful in how you produce that. So, if you pull it too hard, you'll damage the screens and screw up the completion. So, we're very cognizant of the delta pressure into the wellbores. So, that's kind of what really guides – well, not kind of, that is what guides how we produce the well.

Understood. And last one for me. It's probably a long shot here. I don't want to – if it's something that would cause you to…

It's okay, Mike. We're in the long-shot business sometimes, you know. I get it.

All right. All good. I'll just ask it. I doubt you want to answer and don't want to give up any proprietary information, but Hess made an interesting looking discovery in Mississippi Canyon. Just wonder if there's anything that you can draw from that. Is that supportive for any of the prospects that you have in that area?

Well, I really can't comment on that just yet because I don't really have all the details of that well in the area. I always like to see people have success and we tend to draw upon the success of others as well. So, I'm sure that will be something that our CEOs will be looking at.

Great. Thanks, Tracy.

Thank you, sir.

Thank you. And the next question is a follow-up from Richard Tullis with Capital One Securities.

Yeah. Tracy, just one more. And keeping with the exploration theme, I know you haven't prepared the budget yet, but what are you thinking on the exploration front for next year? How active could you be there? How many wells might you drill?

Yeah. I don't have really good answers for you on that. A lot of that, Richard, is a function of the pricing. So, we're trying to figure out markets and making our guesses on that and what we want to do with cash. And certainly, one of the things that we want to preserve is liquidity. I tend to find that, in these periods of down pricing that are sustained for a period of time, those usually represent really good opportunities. So, if it's harder to buy properties, then we'll shift to the drill bit. If the plethora of opportunity centers around acquisitions, and I believe that that's probably going to be the case, I'm pretty optimistic about it. And I think I've explained that well enough in the earnings call here. But I really do believe that I think now is a good opportunity time. We're not seeing a whole lot of properties being sold here in the last couple of months. But I really believe that that's going to change and that that will represent good news for us.

Well, that's helpful, Tracy. Thank you. Appreciate it.

Thank you, sir.

Thank you. And at this time, I would like to return the floor to management for any closing comments.

Thank you, sir. That's all for now. Hopefully, we'll be talking to you in the not-too-distant future. And I think all the news is fairly good right now. So, hopefully, we continue that as well. Thank you so much and we look forward to talking to you soon.

Thank you. That does conclude today's teleconference. Thank you so much for attending today's presentation. You may now disconnect your lines.