W&T Offshore Inc. grew its proved reserves by 31% last year, thanks largely to two big acquisitions from Shell Offshore Inc. and a U.S. unit of Total SA. And more deals will likely be in the offing this year, according to CEO Tracy Krohn.

During a conference call with financial analysts Wednesday, Krohn -- who in the past has expressed indifference to whether growth comes from the drillbit or the checkbook -- said he also does not necessarily prefer oil over natural gas, despite the disparity in their respective prices.

While oil reserves might be more attractive based only on commodity prices, deal economics might favor gas. "Gas seems like it might be easier to purchase than oil," said Krohn, noting that he is "fairly contrarian."

At year-end W&T total proved reserves were 485.4 Bcfe, compared to 371 Bcfe at the end of 2009. Besides acquisitions, success with the drillbit and positive revisions, which were partially offset by production, were also credited. Year-end 2010 proved reserves are composed of 53% natural gas and 47% oil and natural gas liquids (NGL).

In November W&T said it would acquire stakes in six offshore producing fields in the Gulf of Mexico (GOM) from Shell for an estimated $450 million in cash and $50 million in debt (see Daily GPI, Nov. 8, 2010). This followed the April announcement that W&T would take stakes in three GOM properties from the U.S. subsidiary of Total (see Daily GPI, April 9, 2010) for an undisclosed price.

"We were able to increase reserves in 2010 with two different acquisitions, which we expect to lead to increased production in 2011 as a result," Krohn said. "We funded our entire capital expenditure program, including both acquisitions, with internally generated cash flow. As a result, we did not have to increase our debt levels nor did we need to sell any equity to accomplish these transactions.

"We believe there continue to be important growth opportunities in the marketplace that will make sense for us and allow us to grow reserves and production and increase shareholder value. Our liquidity continues to be very strong, allowing us the ability to complete acquisitions when the right opportunity comes along."

The company's capital expenditure budget for 2011 is $310 million excluding acquisitions and includes $161 million to drill and evaluate 10 exploration and four development wells. The 14 wells are comprised of five on the GOM conventional shelf, one in the deepwater, two on the deep shelf and six onshore. Three of the 14 wells are in progress. The remainder of the budget is allocated to well completions, facilities capital, recompletions, seismic and leasehold items.

Net income for 2010 was $117.9 million, or $1.58/share, on revenues of $705.8 million, compared to a net loss in 2009 of $187.9 million, or minus $2.51/share, on revenues of $611.0 million. Adjusted net income was $116.7 million, or $1.57/share, compared to a net loss of $82.3 million, or minus $1.10/share, in 2009.

"The dramatic increase in earnings between periods is primarily due to an increase in our average realized sales prices, mainly due to oil price increases, and a reduction in most of our expenses," the company said. "In addition, the 2009 period included a ceiling test impairment of $218.9 million. For 2010, lease operating expenses; depreciation, depletion, amortization and accretion; and a derivative loss were all lower."

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