2013 Annual Report








Creating Future Value... Today




Working today for a better tomorrow

Over the past few years, we along with others have seen significant change in the energy industry. As a result, we have sought to position the company to take advantage of many of these changes. More often than not, the question that arises in our discussions with investors is, “So what is next for W&T?” The majority of our recent efforts have focused on projects that create the visibility to answer that question well beyond the next fiscal year. We have made strategic decisions regarding how to allocate our capital and which projects support our long-term goals of continuing to grow the company with less reliance upon acquisitions to feed that growth. Our view is that sustainable long-term growth is served best by a blend of projects that cover all three of our primary operating basins that we are currently working: the Permian Basin, the Gulf of Mexico shelf, and the deepwater GOM.


The re-emergence of the Permian Basin as a premier oil play has been quite possibly the most talked about energy topic of 2013. Our move into West Texas, which actually began in 2010 with exploration activity in Terry County in the North Midland Basin, has allowed us to diversify operations and focus on developing an asset, our Yellow Rose field, which has tremendous future potential and provides a steady and predictable growth profile. In 2013, we have been pleased to see an extraordinary amount of capital deployed by operators in the north Midland basin over the past year, which has helped to de-risk much of our acreage and unearth new opportunities for horizontal development at a variety of depths. We recently completed our first Wolfcamp “B” horizontal and are planning our second operated well. We also are participating in a joint operating agreement with a nearby operator and should have results during the first half of 2014 on our first non-operated Wolfcamp “B” well. As more exploration and development takes place in the West Texas counties surrounding our Yellow Rose field, more discoveries are being made and the results have translated into premium pricing to acquire an acreage position.


We have made a giant step forward in the pursuit of a larger and more productive deepwater program in the Gulf of Mexico with the numerous acquisitions and joint participation agreements we have made since 2010. Our proved reserves in the deepwater GOM have more than doubled in the past three years and those figures don’t begin to account for the unbooked reserve potential of our recent discoveries at Big Bend, Troubadour, and Dantzler. We have been able to extract additional value through a variety of projects from our acquired deepwater Matterhorn and Tahoe fields and continue to see more opportunities to increase the ultimate recoveries from these fields. We will be adding another deepwater well at our Medusa field, acquired in 2013, to our 2014 capital plan and are in discussions for additional drilling opportunities in 2015 and beyond.


The emergence of better seismic imaging due to advances in re-processing techniques and more readily available wide-azimuth surveys (“WAZ”) have renewed interest in the potential for sub-salt and near salt plays on the Gulf of Mexico shelf. Our continued success in the drilling program at our sub-salt Ship Shoal 349 “Mahogany” field is a perfect example of the opportunities that arise from applying better techniques to earlier generations of seismic data. What started as a two to three well drilling program in mid-2011 has evolved into what is quickly approaching a potential 10 well program that could see the rig on location through 2015. Mahogany’s daily production continues to increase, as it has for several years, cresting above 10,000 Boe per day throughout the fourth quarter of 2013. Boosting even further the potential of this high value field requires obtaining WAZ data at Ship Shoal 349, which should be completed in 2014. We have high expectations for the results and believe it will help us maximize our success for years to come in this field. Even better news is that we have more potential in other fields that we already own to utilize this next round of advanced data around existing salt features. We have been utilizing this same thought process with great success for nearly three decades.


In combination, these three distinctly different basins are providing us with a balance of near term catalysts, but more importantly provide the basis for a multi-year growth pattern that should elevate W&T beyond the market’s perspective of a traditional Gulf of Mexico shelf operator.


While market conditions seem to change more rapidly these days, the fundamentals of this business have not. Companies must be able to find new prospects, ensure that those prospects are economically viable, group various projects together to achieve a balance between revenues and expenses, and ultimately convert reserves into cash flow to continue advancing long-term growth. The capital we have allocated and time spent the past few years adding high quality assets both in the Permian Basin and in the Gulf of Mexico to support our long term growth. Our adoption of the latest seismic reprocessing techniques and the significant amount of wide-azimuth data we are purchasing will be instrumental to the creation of meaningful future value. Our success has been and will continue to be the product of working to identify, evaluate, plan, and execute capital programs that provide the best available returns for our shareholders. The accomplishments of 2013 provide a solid foundation for the growth we expect to achieve as our multi-year vision for W&T comes into focus. From one shareholder to another, I thank you for supporting us and hope you too share in the excitement of W&T’s future.


Tracy W. Krohn,

Chief Executive Officer



Creating Opportunities to Grow Through Technology and Expertise

Since 2010, our exploration team at W&T has progressively strengthened the way we identify opportunity sets before us by employing the latest techniques in seismic interpretation and reprocessing. We have been acquiring the latest generation 3-D seismic and wide-azimuth data in order to re-evaluate our current fields. The early results of these efforts have lead us to opportunities like our multi-well drilling campaign at Ship Shoal 349 “Mahogany” and our deepwater discoveries at Big Bend, Troubadour, and Dantzler. The key to identifying such successful and valueadded prospects as these is having the right people in place with the requisite knowledge and providing them with the tools to unearth projects with potential to fuel organic growth for the company.


We have continued our acquisition trend over the past two years of adding properties to our deepwater portfolio as we see assets that meet our specific criteria. In 2013, we were able to obtain additional Gulf of Mexico assets which were particularly appealing due to the inclusion of the Mississippi Canyon 582 “Medusa” field and deepwater spar. While the acquisition resulted in additional production and roughly two million barrels of oil equivalent of proved reserves, it was the identification of unexploited exploration and development drilling opportunities in the Medusa field that spurred the purchase. We expect to participate in the drilling of the first of those additional deepwater opportunities in 2014.


Our presence onshore is actually the result of exploration activity as well. Our 2010 purchase of an exploratory well in lease acreage in Terry County in West Texas for exploration drilling was one of the factors that led us to our eventual decision to acquire the Yellow Rose field roughly one hundred miles south in mid-2011. As we have continued to employ new technology including 3-D seismic and micro-seismic across our Yellow Rose field, we have been able to better understand the immense potential within our roughly 26,000 acre position which has become a “sweetspot” of the Midland basin. Since our entrance into the basin, we have begun to identify new zones which should serve as future targets for additional reserve and production growth.




Enhancing the probability of success by applying the "RIGHT" criteria

A critical element for any E&P company is to determine which projects fit with the goals of the company and have the potential to provide significant value to the shareholders. Striking the right balance between projects that provide

immediate returns and those that require longer capital outlays but have significant upside that can “move the needle” for W&T is where we find ourselves as we move into 2014. Our decision to expand to an onshore basin

such as the Permian that provides steady long-term reserve and production growth opportunities while expanding operations in the deepwater of the Gulf of Mexico, which offers high-impact long term projects, is creating more long-term balance and visibility for W&T.


Over the past few years, we have taken more of a multi-disciplinary approach to evaluating prospects and projects, which now allows members of drilling, facilities, reservoir engineering, production, marketing, and land to collaborate

and provide different viewpoints simultaneously on each of our projects. In addition to our cross-functional team, methodology and project evaluation have moved to a more advanced and technical state of review.


When evaluating an onshore project like the Permian basin, the cross-functional team concept has played a key role in making decisions that work best for the long term development of the Yellow Rose field. The effective combination of lease expiration management, field exploration, geoscience analysis, production management, facilities installation, and marketing of oil and gas is critical to the success of an asset that lies in one of the fastest growing shale plays in the United States. Our initial efforts to maintain our lease acreage through vertical drilling while taking a measured approach to a horizontal drilling program have allowed us to reap the benefit of other operators moving into the area and helping to delineate the economically producible capacity of various zones.


The offshore presents a different set of obstacles, although many of the same concepts apply. Lease management, marketing and pipeline tie-back arrangements, project timing, geologic risk analysis, future development potential, and eventual plugging and abandonment liabilities must be taken into consideration. One of the more significant factors we face is the obligation that comes with success. It’s hard to imagine, but making a huge discovery does bear certain risk. Having to allocate significant amounts of capital to a project that may not see production for a number of years can weigh heavily on a company’s capital allocation and project selection. The need to mitigate this type of risk has led us to take a more measured approach to our involvement in the deepwater Gulf of Mexico. By limiting our involvement to a smaller working interest, likely in the twenty percent range in exploration projects, we still maintain the upside that comes with a large discovery, but are well positioned to handle the future development costs. The key is to evaluate the appropriate risk profile, considering both project size and timing, and to stick to an overall capital plan that keeps the cash flowing in at the same time capital is flowing out.



Laying out a path for success that focuses on both long and short term

goals, but allows for flexibility to change when the need arises

Much like other companies that were focused on the Gulf of Mexico shelf, W&T has historically been driven to replace prior year production and look for acquisitive opportunities that will boost production and add additional reserves. Our continued expansion into the deepwater and the addition of our onshore acreage in the Permian Basin are bolstering our efforts to become less reliant on acquisitions for year after year growth, and to become more attuned to organic growth opportunities that allow for multi-year planning cycles in both the exploration and development phases of our business. Once we identify and evaluate our universe of potential projects, we focus on designing long-term exploration, development, and capital allocation programs that will deliver consistent growth, solid production, and still be capable of preserving the equity of our shareholders while maintaining a manageable level of debt. New project opportunities, like the Dantzler well in 2013, may arise and present a very desirable addition to current project line-up. As we’ve seen in prior years, numerous asset packages come to market and present a timely and cost-advantaged window to growth as well. Maintaining flexibility in our planning process offers us the opportunity to exploit market opportunities and shield ourselves from certain risks at the same time.


With proper planning comes a focus on both safety and the environment. W&T continues to put the highest priority on these very important areas in all of our planning. This past year we were awarded the Special Marine Safety Award from American Equity Underwriters for having the best record of safety from among more than 200 other members in our classification. We continue to strive for this level of excellence and know that our operations personnel are focused on meeting these high standards.


Our 2014 capital expenditure budget is reflective of our belief that a blend of projects from all three of our primary operating basins; the Permian Basin onshore, the Gulf of Mexico shelf, and the Deepwater GOM, all are playing a

significant role in our organic, long-term growth efforts. As you might suspect, our budget has the capital allocated for 2014 quite evenly among these three areas.

2014 Capital Expenditure Budget by Area $450 million





       Seismic & Leasehold




Safely, efficiently, and effectively creating results that benefit our

shareholders and support our long-term vision for the company

Ensco 8501 semi-submersible drilling rig (photo courtesy of Ensco PLC)

An inventory of projects that have been clearly identified, well vetted, and make sense in your long term growth plan are irrelevant unless you can execute. Managing drilling projects offshore and having the knowledge and experience to select the proper course of action is critical to creating a successful outcome. As we delve deeper at our Mahogany field, our drilling engineers have begun employing techniques such as managed pressure drilling to reach nearly 3,000 feet below the previous lowest known producing horizon. The result was an exploration discovery in the “T” Sand of the A-14 well that has opened up additional opportunities in a field which seems to grow larger with every well we drill.


Onshore, it becomes imperative to quickly glean knowledge from nearby operators and to analyze well results to enhance techniques to employ. Our team is continually re-evaluating the results of the down-hole well design,

drilling schedule, marketing arrangements, and frac design to achieve better and better results. Changing the completion design on our vertical wells in the Permian Basin to achieve an almost 100% growth rate in the 30 day

initial production rate is evidence of solid execution.


Execution risk in the deepwater is significant given the extraordinary cost of drilling and developing new fields that are thousands of feet below the water’s surface. Proper management of that execution risk often hinges on long lead times, permitting, and choosing the proper equipment for the job. Suffice to say, we are quite pleased with our decisions which resulted in the successful exploration wells at Big Bend, Troubadour, and Dantzler. We look forward to our continued participation in the development of these high impact discoveries and expect that there are more opportunities like these in the near future.


During 2013, we saw 20 percent growth in our reserves and a multi-year growth rate of over 70 percent in our net sales volumes at Yellow Rose. The net sales volumes from our Mahogany field have grown nearly 470 percent in the last two years. Our deepwater operations have seen a prolific change with production more than doubling between 2010 and 2013, and proved reserves growing nearly ten-fold. This does not account for the significant unbooked reserves associated with our success in the exploration wells at Big Bend, Troubadour, and Dantzler. 2014 promises to be a year where we expect to see more exploration discoveries, make meaningful progress in the development of our deepwater projects, and continue to build upon the success of our exploration and development activity onshore. We will keep driving the business forward with the same fundamentals that got us here and expect to see our business grow and our company value reflect the quality of our decisions and our ability to execute.