W&T sets sights on Mahogany, GoM wells

W&T Offshore has received approval for a capex of US$125 million that will set up the Houston-based company to drill six to eight wells in the Gulf of Mexico this year, with its priority going to its Mahogany field.

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The capex budget, which excludes potential acquisitions, includes completing the Ship Shoal 349 Mahogany A-18 well, which was brought online earlier this month. It also includes the drilling and completion of three additional wells in the Mahogany field that are expected to achieve a rate of return in excess of 100%, with a relatively quick payback. 

The Mahogany field is on the Shelf, 80mi off Louisiana at 375ft water depth on Ship Shoal Blocks 349 and 359. It was discovered in 1993, and was the industry's first commercial Gulf of Mexico sub-salt discovery.

"Our Mahogany field is expected to be an important part of our capital program in 2017, with a substantial inventory of projects to choose from, including low-risk development drilling, exploration that could continue to extend the field's size, and quick payout projects such as recompletions and sidetrack drilling,” Tracy Krohn, W&T chairman and CEO says. “We have multiple 'P' Sand, 'T' Sand and 'U' Sand targets in our Mahogany field, which will provide drilling opportunities into 2018 and beyond.  The thick stacked pay sands that we are de-risking in the field also offer extensive recompletion opportunities as we exploit the proven non-producing zones in the field.  To more precisely target the formations, we will be utilizing our recent analysis of our new WAZ seismic data over the field that has produced a much clearer image of the sub-salt formations.  The vast majority of the value in the 2017 plan should be generated at Mahogany, so we feel confident that our capital will achieve above-average rates of return.”

During the year, W&T says it expects to drill six to eight wells in the Gulf of Mexico that will stike a balance between exploration and development projects, and between wells on the Shelf and in deepwater. All have the ability to boost the company’s production levels in 2017 or early 2018.

Plans also include the drilling and completion of two wells at the Ewing Bank 910 field, which are expected to average a rate of return in excess of 100%, with an average projected payout in approximately one year.

The company’s 2017 plan will see between 20-25 recompletions at a cost of approximately $26 million, in which W&T believes these recompletions on average are projected to have very good rates of return and short payback cycles. The company has directed about two-thirds of its entire capital budget at projects that will come online and start producing in 2017.

"Due to the recent improvement in commodity prices, combined with our continued success at reducing costs and optimizing our operations, we expect to realize higher adjusted EBITDA and better adjusted EBITDA margins in 2017 than what we experienced in 2015 and 2016.  As a result, we are substantially increasing our capital spending in 2017 over 2016 levels; at the same time we expect to build cash on hand while maintaining the flexibility to adjust our spending plans as market conditions change.  We intend to drill within our net cash flow generating capabilities, as well as maintain and build liquidity,” Krohn says.

"Our 2017 capital program is focused on projects with an excellent probability of success and rates of return of between 80% to well over 100%.  The projects are also located near existing infrastructure and can be brought on production quickly, offering immediate cash generation,” Krohn says.

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