W&T Offshore, Inc. announced production guidance for the first quarter of 2013 in a range of 4.3 million barrels of oil equivalent (MMboe) to 4.8 MMboe and for the full year of 2013 in a range of 17.0 MMboe to 18.7 MMboe.
W&T Offshore began 2013 with a high level of activity that was heavily weighted toward exploration projects and currently have four rigs working in the Gulf of Mexico. W&T Offshore believes its offshore exploration program offers solid opportunities for organic reserve and production growth, as well as building on recent successes.
At its highly successful Mahogany field, the fifth well in the multi-well drilling program, the Ship Shoal ("SS") 349 A-9 development well was brought on production in mid-January at an initial rate of approximately 2,700 barrels of oil equivalent per day (boepd) from the P-sand, which has traditionally been the field's principal productive reservoir. The A-9 well exceeded pre-drill expectations in the main target. Additionally, it discovered another upside reservoir which was also completed and will be retained as a future zone change, increasing total proved reserves for the field. Current average daily gross production from the Mahogany field is approximately 9,150 barrels of oil equivalent (approximately 75% crude oil) which is up from about 1,300 boepd gross in late 2011, an increase of approximately 700% over the last 15 months.
On January 15, 2013, W&T Offshore spud the SS 349 A-14 well, the sixth well in the multi-well drilling program at its Mahogany field, which is an exploration well designed to test the T-sand, a deep play located beneath the main reservoir. If successful, it will expand its proved reserves and possibly create additional development opportunities in the field. The A-14 well also holds proved reserves in the P-sand level, serving as a robust back-up to the exploratory T-sand test. Following the SS 349 A-14 well, W&T Offshore plans to drill the SS 349 A-15 well which is planned to target multiple stacked amplitudes in the sub-salt section. The A-15 also has additional field expansion potential in the P-sand and if successful will further expand the P-sand reservoir limits. W&T Offshore continues to have excellent drilling results to date in this high impact oil field and in the reserve and production expansion potential this field has for the Company.
In addition, W&T Offshore is currently drilling two exploration wells in the Main Pass ("MP") Area. One is located at the MP 108 field, being the MP 108 B-1 well targeting the Tex W-6 sand. W&T Offshore plans to drill another well, the MP 108 B-2 well, immediately following operations on the MP 108 B-1 well. The company recently drilled the MP 159 #1 well to TD but have deemed the well non-commercial. The well is currently being plugged.
W&T Offshore anticipates drilling at least one additional deepwater exploration well in 2013, and will provide the details for that well in the future. W&T Offshore expects to have additional capital expenditures in 2013 on the Mississippi Canyon ("MC") 698 "Big Bend" deepwater discovery that reached total depth in late 2012, once it is sanctioned. Additionally, the company is currently evaluating the 65 deepwater leasehold blocks it acquired in the Newfield property acquisition in the fourth quarter of last year. As a result of the high level of interest in those undeveloped leases, W&T Offshore is currently working on several joint venture arrangements.
The company's development activity in the Gulf of Mexico includes the MC 243 "Matterhorn" A-2 ST well which is currently drilling in the deepwater and expected to add approximately 1,000 boepd production of initial rate.W&T Offshore expects to follow this well with the planned MC 243 A-5 well, a water injection well that will be used for pressure maintenance in the field. The A-5 well is expected to increase the ultimate recovery of the eastern sector of the field, add reserves and assuming success, would lead to additional secondary reserves expansion in other areas of the field.
Other development wells on the 2013 schedule include the High Island 21 A-1 well targeting the LH-20 sand which will twin the previously producing High Island 21 A-3 well. W&T Offshore also expects to finish the tie-back and hook up of the West Cameron 73, a 2012 shelf discovery well with first production expected in the third quarter of 2013.
Onshore Operations Update
Onshore, as a result of the company's success with both the Wolfcamp horizontal drilling program and the 40-acre infill spacing, W&T Offshore added value to its Yellow Rose project in the Permian Basin (Martin, Dawson, Gaines and Andrews counties). The 2013 budget provides for the drilling of seven horizontal and 20 vertical wells and it currently has two rigs running in the field.
During the fourth quarter of 2012, the company completed 18 new wells at the Yellow Rose project, bringing the total completed wells for 2012 to 64 wells. During 2012, W&T focused on three specific areas to add value to the Yellow Rose Wolfberry development, which were: (1) enhanced 80 acre vertical development drilling program, (2) down-spaced pilot program to 40 acre spacing vertical development, and (3) exploring the horizontal development potential in the Wolfcamp. Tactically, W&T Offshore focused on field optimization, as well as on continuous and aggressive stimulation development and deployment in the company's vertical and horizontal campaigns. Current production rate for the Yellow Rose project is approximately 5,150 boepd gross which is 100% above field production rates a year ago. This production performance improvement is driven by several factors including attractive vertical well completion performance, continued improvements in the field uptime and effectiveness, attractive results from the 40-acre infill program and, most recently, encouraging results from the new Wolfcamp horizontal wells.
The more recent vertical wells have seen improved initial production rates with the latest wells averaging approximately 67 boepd (average 30 day production rate) as it continues to refine its fracture stimulation program, with vertical well costs averaging approximately $ 2.3 million. Prior to year end 2012, the company carried no "proved" reserves associated with down-spaced 40 acre locations. A portion of its 2012 drilling capital was aimed at infill drilling specific pilot areas to 40 acre vertical well spacing and the company had good success with the down-spacing program, observing positive incremental production and incremental reserves in its 40 acre pilot areas. At year end, W&T Offshore began booking a portion of its 40 acre infill locations into "proved" and expect that trend to continue into 2013, 2014 and beyond. Should it be able to fully develop its acreage on 40 acre locations, the company would possess a total of 200 to 300 40-acre locations across the Yellow Rose project.
Complementing its vertical development, during 2012 W&T Offshore drilled and brought on line two new horizontal Wolfcamp wells, with one well achieving an initial production ("IP") rate of 485 boepd and another well achieving 346 boepd. W&T's longest Wolfcamp horizontal has been a 7,482' lateral with a 23 stage frac treatment. The most recent horizontal well, currently on flowback, has just been stimulated with a 28 stage frac treatment. W&T Offshore is pleased with its initial horizontal well results and the leading completion practices in this emerging play. As a result of the successful horizontal exploration tests of the Wolfcamp formation, W&T Offshore has budgeted to drill and complete seven horizontal Wolfcamp wells for 2013. These wells are designed to have an average lateral length of 5,400 feet completed with between 20 and 22 hydraulic fracturing stages at a total well cost of approximately $ 6.0 million to $7.0 million, depending on the length of the lateral. Based on the early evaluation of the program, W&T Offshore expects IP rates of 350 to 400 boepd and estimated ultimate recoveries ("EUR") of 300 to 450 MMboe, also depending on the length of the lateral. Assuming continued success with this program, W&T Offshore anticipates expanding its horizontal operations in the Wolfcamp formation and potentially testing additional horizontal levels (benches) in other formations on its acreage position. Ultimately, W&T Offshore may consider further vertical well down spacing to 20-acre spacing or even less, adding even greater development potential for its acreage position.
In Terry County, West Texas, the horizontal drilling program is progressing with two wells fracture stimulated and on flowback. To date, the company does not have enough information on the flowbacks to determine its future development plans. W&T Offshore anticipates having more information within the next few months.
In East Texas at the Star Prospect, W&T Offshore completed drilling and fracture stimulation of the third and fourth wells of its initial delineation program. Both of those wells are now on flowback, and the company should be able to determine its future plans on this project in the near term.
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