W&T Offshore Inc (WTI) 2008 Q1 法說會逐字稿

Good morning, ladies and gentlemen, thank you for standing by. Welcome to the W & T Offshore first quarter earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation the conference will be open for questions. (OPERATOR INSTRUCTIONS) This conference call is being recorded today Tuesday May 6, 2008.

I would like to turn the conference over to Manny Mondragon, VP of Finance. Please go ahead sir.

Thank you, Operator. Good morning everyone. We appreciate you joining us for W & T Offshore's conference call to review the first quarter 2008 results. Before I turn the call over, I have a few items to go over. If you would like to be on the Company's E-mail distribution list to receive future releases, or you are experiencing a technical problem and did not receive yours, please call DRG&E's office at 713-529-6600, and someone will be glad to help you.

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 May 13, 2008. To use the replay feature, call 303-590-3000, and dial the passcode 11112873. Information recorded on this call speaks only as of today, May 6th, 2008, and therefore, time sensitive information may no longer be accurate as of the date of any replay.

Today management is going to discuss certain topics that contain forward-looking information, which is based on management's belief, as well as assumptions made by and information currently available to management. Forward-looking information includes statements regarding expected production expenses for first quarter 2008 and beyond. Although management believes that the expectations reflected in such forward-looking statements are reasonable, they can give no assurance that such expectations will prove to be correct.

Such statements are subject to certain risks, uncertainties and assumptions, including among other things, market conditions, oil and gas price volatility, uncertainties inherent in oil and gas production operations, and estimated reserves. Unexpected future capital expenditures, competition, the success of risk management activities, governmental regulations, and other factors described in the Company's most recent Annual Report on Form 10-K, and subsequent filings with the Securities and Exchange Commission. Should one or more of these risks materialize, and should underlying assumptions prove incorrect, accurate results may differ materially from those expected.

Please also note that this conference call contains references to nonGAAP financial measures, you can find reconciliations of those nonGAAP financial measures to GAAP financial measures, in the Form 8-K filed by the Company earlier today, as well as in this morning's press release.

Now I would like to turn the call over to Mr. Tracy Krohn.

Thanks Manny. Good morning everyone. Thanks again for joining us for our first quarter 2008 conference call. Again, I am Tracy Krohn, and this morning I will review the key events that took place in the first quarter 2008, and expand upon our expectations for the remainder of the year.

With me today is Danny Gibbons, our Chief Financial Officer, who will review financial results for the first quarter 2008, Steve Schroeder, our Chief Operating Officer. Steve is going to talk about our 2008 operations, and Jeff Durrant, our Senior VP of Exploration and Geoscience, will update you on our 2008 drilling successes, and preview our next quarter's drilling plans. Following our formal presentation, we will also have a Q&A session.

Let's talk about earnings per share versus Consensus. As you saw on this morning's press release, we have earnings per share of $1.05 for the first quarter 2008. Our adjusted earnings per share were $1.10 for the first quarter 2008, which is our highest single quarter's earnings per share. Additionally, we beat the Wall Street consensus earnings per share of $0.90 for the first quarter.

We realized a higher price of $11.57 per Mcfe, and that is significantly higher than the Street price debts. I realize that some of the difference is higher realized price, but exceeding the high side of production guidance also helps. Production was 5.1 million barrels of oil equivalent, or 30.8 Bcf equivalent. Part of the reason we produced more than we expected was due to the success we have had with our exploration, recompletes, and workover programs. We are very pleased with the initial results from these programs, and expect good results throughout the year.

We would also like to point out that because of these programs, and the work that formed at Ship Shoal 349, our Mahogany field, oil sales now represent 57% of our revenue, compared to 40% in the same quarter last year. We will go into more detail about these programs shortly.

Also in the first quarter we drilled 4 exploration wells for 100% success, continuing on our excellent track record. Since the end of the quarter, we drilled 4 additional wells, and also had a 100% success rate. We have a lot of momentum going-forward, and we are pretty excited about it.

We currently have 11 rigs active, as we have mentioned in our presentations, we have several multiple well programs scheduled for the second and third quarter of this year, and we are beginning on some of those programs now, we have a 3-to-6 well program starting in the Main Pass area. And multiwell program at Ewing Banks 910 area, getting ready to start drilling shortly.

I would also like to mention that we are not reducing activity during the hurricane season, that starts June 1st. As a matter of fact, W&T generally increases activity during the summer, due to the much better weather conditions, relative to the winter months. Steve will give you details behind that activity, but as promised, drilling activity has significantly ramped up.

I guess I will turn that back over to Danny, you are up next.

Thanks, Tracy. Revenue for the first quarter was $356 million, that is a $110 million increase over the same period in 2007. Our average realized price was $8.70 per Mcfe for natural gas, and $92.52 per barrel for crude oil and natural gas liquids. This resulted in an all-in realized price of $11.57 per Mcfe. That is almost a $4 improvement over the $7.67 per Mcfe that we realized in the first quarter of 2007.

Moving on to a discussion of expenses, let me start with lease operating expense, or LOE. LOE for the first quarter of 2008 was 49.8 million, compared to 63.6 million in the first quarter of 2007. Lease operating expense per Mcfe in the first quarter was $1.62, compared to $1.98 in the first quarter of 2007. Lease operating expense decreased this year, due to lower workover and facility expenses, a reduction in insurance premiums, and the completion of all hurricane remediation efforts by the end of 2007.

Depreciation, Depletion, Amortization & Accretion, which we refer to as DD&A was $145.5, million, or $4.72 per Mcfe in the first quarter of 2008. That is an increase of 21.3 million over the comparable 2007 period. Factors leading to the DD&A increase were capital expenditures, an increase in future development costs, and an increase in our estimated asset retirement obligations. This was partially offset by the edition of reserves, as a result of the acquisition of Apache's interest in Ship Shoal 349 Mahogany effective January 1st, 2008.

Moving on to General & Administrative expenses, for the first quarter of 2008, G&A expenses were $12.6 million, compared to 11.9 million in the first quarter of 2007. On a per Mcfe basis, G&A was $0.41 in 2008, compared to $0.37 in 2007. G&A increased primarily due to an increase in the number of employees, and compensation increases offset by a decrease in professional fees.

Let me talk about interest for a moment. Interest incurred decreased 3.4 million in the first quarter of 2008, primarily due to lower interest rates and decreased debt outstanding. Capitalized interest declined 1.2 million, due to a decrease in unevaluated properties. Interest income increased $2 million, due to higher cash balances. Income tax expense was $41.4 million in the first quarter of 2008.

Our effective tax rate for the first quarter was approximately 34%, and we expect that the rate for 2008 to be around 34%. Going forward, we believe that our deferred tax rate for both the second quarter and full year will be in the 60% range. This is a function of our anticipated IDC, and accelerated depreciation under the new Economic Stimulus Act of 2008.

Net income for the first quarter of 2008 was $79.8 million, or $1.05 per diluted share. This compares to net income of $13 million, or $0.17 per share for the first quarter last year. Included in the first quarter 2008 results are unrealized derivative losses of $2.3 million on our open commodity derivative positions. We also incurred an unrealized loss of 3.9 million, related to our open interest rate swap that was de-designated as a cash flow ledge.

In the first quarter of 2007 we had un unrealized derivative loss of 13.9 million, related to our then open commodity derivative contracts. Accordingly, adjusted net income for 2008, or net income adjusted to exclude the after tax effect of unrealized losses on derivatives was $83.9 million, or $1.10 per share for the first quarter of 2008. Adjusted net income for the first quarter of 2007 which excludes unrealized derivative losses, was $22.1 million, or $0.29 per share.

Moving on to cash flow. Net cash provided by operating activities was $242.4 million for the first quarter of 2008, and adjusted EBITDA was $279.2 million. That is a 66% increase over the comparable period 2007. The increase over 2007 was due to a significant increase in sales, primarily due to higher commodity prices. By the way, our adjusted EBITDA margin for the first quarter 2008 was 78%. That is a 10% increase over the first quarter of 2007, and is much more in-line with our historical average.

Moving on to capital expenditures for the first quarter 2008, our capital expenditures were $245.8 million, that is including $116.7 million to acquire Apache's interest in Mahogany, $74.4 million for development activities, $41.3 million for exploration, and $13.4 million for seismic leasehold costs and other capital items.

Let me conclude with a few balance sheet items. March 31, 2008 we had $276 million in cash and cash equivalents. Total assets were over $2.9 billion, and total debt was 654.4 million. Our debt to total book capitalization ratios stood at 34.7%. And net debt to booked cap ratio was an impressive 23.5%. Our adjusted EBITDA, the interest coverage, was over 17 times interest expense.

Now let me turn the call over to Steve Schroeder. Steve?

Thanks, Danny. As noted in our operations update, and consistent with our budget, we have dramatically increased our drilling activity. We currently have 11 active rigs, as far as operated, we have 3 Mat Cantilever, 3 independent leg jack-ups, and 2 platform rigs. Most of these rigs lines have multiple wells scheduled to be drilled, especially the platform rigs, which are projected to have 3 or more wells. Relative to nonoperated rig activity, 3 rigs are running, 1 Mat Cantilever, and 2 independent leg jack-ups.

One question we get asked while talking with investors is how our activity level will change during hurricane season. As stated in the past, we plan to stay active during hurricane season, and let me explain why. Relative to downtime caused by weather, more downtime caused by weather occurs in the winter, than during the summer and fall.

One significant factor is sea conditions, based on historical information, there is typically half a day in the month of July with greater than 10 foot waves, compared to approximately 6 days in the month of January. If we have to shut down our drilling for four days in the event of a hurricane, we are statistically better to conduct drilling operations during the hurricane season. Also given the longer days, there are more operations occurring during daylight hours, which we believe increases efficiency.

To elaborate on our drilling program, Jeff mentioned in our previous conference call of the high quality oil sand we were drilling in Ship Shoal 314-A-4 sidetrack. The well was placed online in early April, and is currently producing at a gross rate of 2,200 barrels of oil per day, and 1.7 million cubic feet per day. The Ship Shoal 300-A2 and Ship Shoal 224-E18 wells are currently being completed, and we expect to be producing shortly. Jeff will provide more details on the Ship Shoal 314-A2 and Eugene Island 175-H5 later in the call, but we project these wells to be completed and online within the next month or so.

High Island A376 #7 was a successful exploration test in approximately 300 feet of water, currently plans are to build a minimal platform, and flow production back to the main processing platform, in the lease approximately 1.5 miles away. The development plan is still evolving, but oil production from the #7 well is projected to begin during the first quarter of 2009.

I would like to give a brief update of our operations at Mahogany. Last quarter we discussed the increase in production in the A-4 from our stimulation program. During the first quarter of 2008, we expanded the program to the A-5 well, and increased the gross production in the well from 350 barrels of oil per day, to over 1,000 barrels of oil per day. Our production engineers are reviewing the production characteristics, and obtaining additional information, and we believe at this time there may be additional opportunities.

At the end of the first quarter, the A-11 well was recompleted into the main field pay, the well is currently producing at a gross production rate of more than 2,000 barrels of oil per day, and 3 million cubic feet per day. Including our Cypress well, which continues to produce approximately 2,000 barrels of oil per day gross. The Mahogany platform is selling 6,000 barrels of oil per day, and 9.5 million cubic feet per day, or 4,500 barrels of oil per day gross, more than at the beginning of December 2007.

In our last conference call, we suggested production would drop from the first quarter to the second, I am pleased to report that based on the aforementioned exploration success, and successful workover and recomplete programs, we believe production will be steady, or increase slightly from the first quarter to the second quarter. Production mix in the first quarter 2008 was 44% oil, versus 37% in the first quarter of 2007. Additionally we produced 17% more liquid volume than first quarter 2007.

Needless to say, with only 10% of our oil hedged, we are receiving significant benefits of the higher oil prices. Realized price for product sales were $92.52 per Boe in the first quarter 2008, compared to $51 per barrel in the first quarter 2007. For the second quarter of 2008, the Company anticipates production to be between 2.2 and 2.4 million barrels of oil and natural gas liquids, and 17.2 and 18.5 billion cubic feet of natural gas, or a total of between 30.7 and 32.9 billion cubic feet of natural gas equivalent.

Based on our early year success, the Company is raising the lower end of the annual production guidance to 115 billion cubic feet of natural gas equivalent. The upper end of our production guidance remains a function of future success, but the production mix has been modified, due to our increase in oil sales. Lease operating expenses for the first quarter, decreased by $16 million from the fourth quarter 2007. This is mainly due to the reduced workover facility expense, slightly lower base LOE, and completion of the major hurricane remediation efforts in 2007.

For the second quarter of 2008, we expect LOE to show a slight increase over the first quarter, due to seasonal timing of certain expenses, such as sand blasting and painting, and our Level 2 and 3 inspections, which are required by the Minerals Management Service, the governing body for the Federal Gulf of Mexico leases. Our year end guidance will not change.

Gathering transportation and [several] tax was $8.8 million, and slightly above guidance. The increase was due to new wells at West Cameron 181, [Ajunip], and East Cameron 373, increased transportation costs, especially for NGLs, and an increased production in state waters of Texas from our Highland 24-L wells.

Now I will turn the call over to Jeff Durant to discuss first quarter exploration success and future drilling plans.

Thanks, Steve. As Tracy and Steve just discussed we are off to a great start with the bids in 2008. All four of our first quarter exploration wells were successful. And three of these wells are currently producing, with the fourth well scheduled to come online shortly. These three wells are flowing at a combined gross rate of 2,500 barrels of oil per day, and 18.8 million cubic feet of gas per day, or 20.8 million cubic feet equivalent per day, net to W&T.

All four of these conventional shelf wells were drilled from existing infrastructure, as are the large majority of our planned 2008 drilling program. In our previous conference call, I outlined our successes, including the 50% working interest SouthTim 217-A3, and 100% working interest Ship Shoal 315-A3 sidetrack. Both of these wells are still producing at or above our expectations.

Two other wells, the 100% working interest Ship Shoal 300-A2, and the 100% working interest Ship Shoal 314-A4 sidetrack were in progress at that time, and we have now completed the drilling on each of them. The A2 sidetrack and the Ship Shoal 300 had found about 100 feet of oil in two shallower sands. We then deepened the well, and found an additional 60 feet of oil sand in the [chris S] section. The well is currently being completed and we hope to have this thing online very shortly.

The fourth well, the Ship Shoal 314-A4 sidetrack continued drilling deeper, and we found 92 feet of very high quality oil sand. About double what we had reported earlier. This well which had results at the high end of our expectations has now been completed, and is currently producing at a gross rate of 2,200 barrels of oil per day, 1.7 million cubic feet of gas per day, which nets out to about 11.5 million cubic feet equivalent per day to W&T.

Following the close of the quarter, our exploration drilling program continued to have positive results, with 4 additional successful exploratory wells, which included the 30% working interest, High Island A-376 #7, this well successfully drilled, cased, temporarily suspended in April, this open water location is in about 300 feet of water, and we found approximately 150 feet of oil in three zones, once facilities are in place, additional exploration wells may be drilled from the structure next year.

A second success is a 47% working interest well in Ship Shoal 224, the E-18 deep shelf well, that was drilled to a measured depth of over 18,000 feet. Our shallower exploratory objectives between 11,000 and about 13,000 feet, found 70 feet of oil and gas sand in 3 sands. The deeper objectives however, despite encountering oil and gas shows, did not find commercial quantities of oil or gas, and the well has since been plugged back, with completion operations currently underway in the shallower zones, with first production expected soon.

A third exploratory discovery is in our core Ship Shoal area, it is the 75% working interest Ship Shoal 314-A2 sidetrack. This is a conventional shelf well, where we have found 40 feet of good quality chris s age oil sand, full to base. Right now following our mechanical sidetrack, we expect completion operations to begin, with production to follow soon.

Our most recent drilling success is the 25% working interest Eugene Island 175-H5 conventional shelf oil. This well encountered 170 feet of oil and gas in 5 sands, and so far, drilling operations are continuing towards deeper objectives.

As Steve just described, our exploration drilling program is really just beginning to gear up. With multiple well drilling programs, active at Main Pass 283, Main Pass 108, and Ewing Bank 910. Additional drilling we expect to complete this quarter includes the currently drilling High Island 110-A11, Main Pass 266-A5, Ship Shoal 317 #1, Eugene Island 175-H5, and Eugene Island 175-I2 sidetrack.

Our other drilling we expect to begin before the end of the second quarter includes the Eugene Island 186 # 1, Eugene Island 44 #1, Ship Shoal 232-B-2 sidetrack, South Timbalier 230-A7 sidetrack, and [Viasconol] 519 #1. So including the wells we drilled to date, plus those wells we expect to finish during the second quarter, and those wells we plan to spud before the end of the quarter, we will have drilled or be drilling 18 total wells through the first half of the year. 10 of those 18 wells are on former Kerr-McGee properties.

It is clear to me that the efforts of our exploration and engineering teams are paying off, with excellent exploration and development prospects from the Kerr-McGee acquisition. And in fact, going back to the effective date of the Kerr-McGee transaction, we have now been successful in 13 out of the 14 wells drilled on former Kerr-McGee properties.

With that, I will turn it back to you, Tracy.

Thanks, Jeff. We spent $129 million in the first quarter from our budget of $800 million, we have also spent an additional $116 million for the acquisition of Mahogany. As we have mentioned in the past, we don't budget for acquisitions, but we get our fair share of acquisition opportunities. We also were awarded a lease at Grand Isle 108, for which we were the high bidder in the last March OCS lease sale by the MMS. We were actually the high bidder on four leases, so this is the first one that has been awarded to us. We are pleased with that.

Late last year we announced our plan to drill 44 exploration and 6 development well, and I am pleased with the progress made, and where we stand today with 11 active rigs. I was happy to see that we beat our production guidance, the team is not only doing a great job identifying wells on former Kerr-McGee properties, but we are also planning these extra reserves and production, which has added value, especially at these commodity prices.

We continue to be focused on the fundamentals of finding oil and gas reserves on the conventional shelf. Our high success rates are what allow us to continue to generate industry leading cash flows. I know that some folks in the investment community remain skeptical about our opportunities in the Gulf of Mexico.

I have heard the same mantra for the last 25 years, we keep on doing what we are doing, we keep finding reserves, we believe that the Gulf of Mexico still offers huge opportunities for us to grow our Company, increase cash flow, and build shareholder value. And in 2008, we are really, really putting our money where our mouth is. We don't see it as high risk, we see it as managed risk. Our drilling success rate is a demonstration by our ability to develop quality prospects, remember from 2000 through 2007, we have an overall success rate of 82% with the drill bit, and of course we are exceeding that now.

With an interest in over 155 fields in the Gulf of Mexico. We believe we can continue to develop quality prospects for the future. Couple that with the continuing acquisitions program, and lease sale participation, and I think the future is really bright for WTI.

That concludes our remarks today, and we are ready to take your questions. Operator, if you would, please open the phone lines for Q&A.

Thank you. Ladies and gentlemen, at this time we will be begin the question-and-answer session. (OPERATOR INSTRUCTIONS) One moment please.

Your first question comes from Jason Wangler, Dahlman Rose, please go ahead.

Good morning guys, great quarter. When you guys set that cash flow budget, obviously the 800 million in CapEx, commodity prices were not where they are at now, is there any idea what to do with that extra money going to be coming in? Obviously it might be tough to ramp any further with the aggressive drilling program, but is there any kind of thought so far what to do with that?

That is a quality problem isn't it?

Yes, definitely.

There are other opportunities, all it does in the long run of course, and in the short run for that matter, is fill our war chest for other acquisition opportunities, and potential consolidations. That is one of the things that we see. We have always got the opportunity to pay down some of our Term B debt, which is pretty low interest rate, so that is kind of further down the list. If other things come along that make sense, we did a special dividend last year.

We really haven't made that decision, because I think that the acquisitions market is heating up pretty well. And we certainly positioned the balance sheet to participate in that in the future, with all of our actions last year.

The market beat us up pretty bad for some of the decisions that we made last year to cut back on drilling, and position our balance sheet to take care of some of what we thought were future activities, but so far this year, it has proven that those were the right decisions, and so that is kind of the future that I see, immediate future, and I hope to have this discussion many times with our staff, and worry about a quality problem like having too much money.

Sure, and then, just kind of jumping around on you, but for the rigs that are going to be coming on with 18 done kind of after this quarter, or at least drilling, are those all contracted for all 50 wells, or are they all set in stone pretty much, at the windows and everything, or are there still going to be some time to possibly move around, and get the rigs going at the right times?

Well, let me tell you how that usually works. We don't normally do long term contracts for rigs. So that we have flexibility as we see things in our program that are more enticing or less enticing. Sometimes schedules slip. Sometimes things have to be moved around.

That target is continuing to move around a little bit. But in general, the answer is yes, there is still plenty of availability in the rig types that we need. To complete our program, certainly we didn't necessarily expect commodity pricing, well we didn't expect commodity prices to be where they are now, but so far, it hasn't really affected our ability to contract rigs, so we are still in very good shape with that.

Thanks, guys.

Thank you. Our next question comes from Richard Tullis with Capital One Southcoast. Please go ahead.

Hey, good morning, nice quarter. I guess first question, what kind of cost trends are you seeing for rigs these days, Tracy?

In the deep water, I mean, it is just a totally different market than what we are really faced with here for the majority of our projects.

On the conventional shelf, it appears that things have kind of leveled out seasonally, normally in spring and summer you will see more activity, so you expect maybe you will get some increase, maybe not. Part of the issue appears to be that a lot of people spend a lot of their budget when things were really high last year, we were fortunate in that we didn't follow that trend. Rather we positioned ourselves for a little bit further on, and now we are reaping the benefits of that. But in general, I am seeing kind of a bottom on rig prices right now.

Okay. What would the risk reserves associated with the 8 successful wells drilled so far this year?

I am not sure if I can tell you exactly on those eight wells, I don't have an answer on that.

That is fine.

I am sorry.

That is okay. Any update on Healey?

Yes, we are continuing to do flow analysis there. We have got some things that we need to look at, in the way of how we want to hard pipe this thing, whether we want to send it to another platform. Whether we want to an FBS or and FBSO, we are still working on those details, and a lot of that will come out of the flow analysis that we are doing on that, I expect we will have that by probably in July or so. Something like that.

Okay. Thank you, I will jump back in the queue. I appreciate it.

Sure, thank you.

Thank you, your next question comes from the line of Scott Hanold, RBC Capital Markets, please go ahead.

Thanks, good morning. I guess I am going to hit on kind of your drilling just to clarify, you are going to 18 wells drilled in the first half of the year, that is a total of 50 for the full year, that would imply 32 wells in the back half of the year, is that correct?

Right now that is the plan. We will be drilled or drilling on those first 18 wells by the end of the second half.

Okay. And, kind of going back --

Second quarter, excuse me.

Okay. And then going back to sort of a prior question, on whether or not you are looking to potentially ramp up activity even more, because of the strong commodity price, and obviously the good performance you have all had. What is the internal capacity to do something like that?

I think it is a function of everything else that we have going on. I don't know quite how to answer that. If we were to do a fairly sizable transaction, or something that could affect that, our commodity prices are going to continue to be the same, is the cost of goods and services going to stay about the same, or is it going to ramp up?

I don't really have a firm answer for that, but certainly we are always trying to maximize whatever our activity levels are going to be. I think that if we needed to continue to ramp up, we are looking at a position where we would have to get some folks to help us, probably outside resources.

Okay. And then when you look into sort of '09, could you looking at your second half '08 type of run rate, could you run at that similar type of a rate into '09 through most of '09?

That is kind of the current plan. We are continuing to drill wells, we have got a lot of things to do, and although I don't have anything firmed up for '09, I expect that we will have very high activity rates going forward.

And one last question, can you give us your thoughts on deep water activity, and whether you get a little bit more active there at some point?

Yes, it is an opportunity-driven thing with deep water, I mean, we do have some deep water operations, certainly we have got everything on our plate that we need to have right now. But we certainly can operate in the deep water, we can certainly buy properties in the deep water as well. It is just a matter of what is driving the rate of return for the dollars that we want to put in the ground.

Okay, thank you.

Thank you, sir.

Thank you. (OPERATOR INSTRUCTIONS) One moment, please. Our next question comes from David Adams with Jefferies and Company, please go ahead.

Hi, guys, great quarter. Real quickly, you have had excellent success in the first quarter from an exploration standpoint. Can you give us a sense of the risk profile for the remainder of the year in terms of the exploration portfolio, in terms of working interest as well as the percentage of high potential prospects you are going to drill?

Yes, I mean we have a pretty nice mix of things that we are looking at. We have some singles and doubles to look at. We have got some triples and home runs, but I would tell you as far as what we think is feasible, and where we are going to go with it this year, I mean I don't like to set up profiles where we have people looking at single wells as impact wells, we certainly have that. I don't particularly care to announce that, because I like to look at it as an entire portfolio. So that is something I consciously try to minimize.

I mean, there are people that do it a little bit differently from what we do. Certainly if it is a significant impact, and something that I need to tell the market about I will. But as a normal activity, we don't try to identify just single projects, as hyping the stock, or anything like that, that is not what I seek to do. I seek to do it as a planned activity over a long period of time. I have been doing this for a while. I just think it is better to look at your entire portfolio.

Right. And your average working interest going forward, and on a per well basis?

Yes, I am sorry, I forgot that part of the question. Normally we try to generate about 50% or greater working interest. We prefer to have operations. But we certainly have laid off some, and expect that we will have between 50 and 100% working interest on most of the wells that we do.

Okay. Great. Thanks.

Sure.

Thank you, our next question comes from Noel Parks, Ladenburg Thalmann & Co., please go ahead.

Good morning.

Good morning, Noel, thanks.

You know, I apologize if this came up already. I had to drop off for a minute earlier in the call. Could you talk about what your thoughts are on the deeper test at Mahogany?

I am sorry, say that again?

I was wondering if you had talked about doing the deeper test to the Miocene at Mahogany, I know that has been on your mind for a while, I was just wondering if that was something we might see at the end of this year, or sometime next year?

Yes, I will be happy to talk about it. Mahogany of course was the first really commercially successful sub-salt play in the Gulf. We are very excited about potential deeper prospects there. We have not drilled to the Miocene, that is one of our goals, we are studying potential well plans right now.

We have certainly looked at some of the seismic, reprocess seismic, that give us great encouragement. So I would like to drill a deeper well out there, that would explore the Miocene and that is going to be fairly deep. Exactly how deep, I don't know at this point in time. But certainly something well in excess of 20,000 feet.

Do you think that would be a first half '09 type event?

Probably. Could be a little bit sooner than that, depending on what type of rig we figure we want to drill it with, and what that economic run gives us.

Got you. That is all I have. Thanks.

Thank you. (OPERATOR INSTRUCTIONS) One moment please. And I am showing that there are no further questions, I will turn the call back over to Mr. Krohn for closing comments. Please go ahead sir.

Thank you Operator. Thank you all for listening this morning. It has been a very good quarter. My congratulations to the staff at W & T, they all work really hard, they work long hours, and it shows up in the results. We made some decisions last year that have proven to be the correct ones. We continue on this quest to find more reserves, and more production, and managing our F&D costs. Thank you, and we will talk to you in about three months.

Thank you. Ladies and gentlemen, that will conclude today's teleconference. If you would like to listen to today's teleconference, please dial 303-590-3000, and enter the access code of 11112873 followed by the pound sign.

We thank you again for your participation in today's conference, and at this time you may disconnect.