W&T Offshore, Inc.

Q1 2024 Earnings Conference Call

5/13/2024

spk05: Ladies and gentlemen, thank you for standing by, and welcome to the W&T Offshore First Quarter 2024 Conference Call. During today's call, all parties will be in a listen-only mode. Following the company's prepared comments, the call will be open for questions and answers. During the question and answer session, we ask that you limit your questions to one and one follow-up, and you can always rejoin the queue. This conference call is being recorded, and a replay will be made available on the company's website following the call. I would now like to turn the conference over to Mr. Al Petrie of Investor Relations Coordinator. Please go ahead, sir.
spk02: Thank you, Chuck. And on behalf of the management team, I'd like to welcome all of you to today's conference call to review W&T Offshore's first quarter 2024 financial and operational results. Before we begin, I would like to remind you that our comments may include forward-looking statements. It should be noted that a variety of factors could cause W&T's actual results to differ materially from the anticipated results or expectations expressed in these forward-looking statements. Today's call may also contain certain non-GAAP financial measures. Please refer to the earnings release that we issued Friday for disclosures on forward-looking statements and reconciliations of non-GAAP measures. With that, I would like to turn the call over to Tracy Crone, our Chairman and CEO.
spk01: Thanks, Al, and good day to everyone. Thanks for joining us on our conference call. So joining us today are William Wilford, our Executive VP and Chief Operating Officer, Samir Parasnas, our Executive VP and Chief Financial Officer, and Trey Hartman, our Vice President and Chief Accounting Officer. They'll be available to answer questions later during the call. So we began 2024 with another quarter of solid operational and financial results while continuing to execute our strategic vision. We focus on generating free cash flow, maintaining and optimizing high-quality conventional assets, and opportunistically capitalizing on accretive opportunities to build shareholder value. We have a strong balance sheet, and because of our focus on generating free cash flow, we continue to build cash on hand. We have generated positive free cash flow every quarter for over six years now because we know that cash is king and it provides us with an opportunity and the optionality to capitalize on other opportunities. We prioritize operational excellence, cost controlling initiatives, prudent capital spending, and maximizing the value of our prolific asset base to deliver strong production and meaningful adjusted EBITDA. So in addition, it's our ability to successfully and seamlessly integrate producing property acquisitions that's helped W&T grow during our 40-plus year history. In the first quarter, we had a number of accomplishments that demonstrate how successfully we're executing that strategy. So in January 2024, we acquired operatorship and 100% working interest in six shallow Gulf of Mexico fields for $77.2 million that are adjacent to our existing operations. The impact of this acquisition could immediately be seen in our results. We reported production of over 35,000 barrels of oil equivalent per day. That's above the midpoint of our guiding range and up 3% from the fourth quarter. More importantly, we increased oil production by about 15% compared to the fourth quarter. Now, this helped us increase adjusted EBITDA to $49.4 million. That's a 10% increase quarter over quarter, which outpaced the 3% increase in production over the same period and benefited from higher oil production. So we remained focused on cost control. In the first quarter, we recorded lease operating expenses below the low end of our guidance, which was due in part to some deferrals of work over in facilities work. We generated $32 million in free cash flow, more than double what we generated in the fourth quarter. We continued returning cash to our shareholders, paying another dividend in the first quarter, and announced the second quarter 2024 payment will occur later this month. So the first quarter of 2024 marked the 25th consecutive quarter that we've generated free cash flow. Coupled with our cash on hand and our ATM offering of approximately $83 million, we We're in a very good financial position in 2024, and we remain focused on that operational execution to build on these solid results. Now, with over 40 years of experience integrating assets into our base, we've proven that the near-term costs are well worth it to realize the long-term potential of the newly acquired assets to generate cash flow for us for many years to come. Regarding the Cox asset acquisition, We've made good progress integrating these new assets into W&T, but we still have more work to do that we expect will increase production from these fields. We hired select Cox offshore personnel while completing all required regulatory transfers of operatorship, lease ownership, and financial responsibility. Our teams worked hard integrating accounting, production reporting, cost tracking, and other data into our existing systems. In addition, we've worked really hard to inspect all aspects of the field to ensure W&T's health, safety, and environmental norms are implemented, and we're negotiating midstream services at the newly acquired fields. We saw significant growth in our oil production in the first quarter attributed to the new fields, and we will continue to focus on increasing our production, particularly our oil production, and managing those operational costs. I also want to mention that three of the newly acquired fields were shut in during the first quarter. As a result, their expected positive impact hasn't been reflected in our operational and financial results. We're clearly focused on bringing these assets online so that W&T can benefit from the full potential of all these assets. To give you a sense of how prolific we think these assets will be, I just need to point to the updated third-party year-end engineering report on these assets. Approved SEC reserves were 21.8 million barrels of oil equivalent, which is about 17% higher than our expected amount when we announced the acquisition. So as you can see, we believe there's tremendous potential in these assets. In addition to the production boost from the new assets, during the first quarter of 2024, we performed three workovers and three recompletions that positively impacted production for the quarter. We will continue performing these low-cost short payout operations that impact both production and revenue and help to offset natural decline. So in our earnings release, we provided our second quarter guidance. We're projecting production to be around the same range as the first quarter. Second quarter 2024 production guidance reflects some expected shut-ins of selected fields due to third-party maintenance work. We do plan to spend more on lease operating expense in the second quarter as we undertake some of the projects we deferred in the first quarter, and also the weather's better, makes it easier to work on them. We continue to work on bringing the other three acquired fields back online to help increase operational and financial results. This time, we think our full year 2024 lease operating expense will be about $23 per barrel or the equivalent. So for CapEx, we continue to expect to invest $35 to $45 million in 2024. That's excluding acquisitions. And we incurred about $3.2 million in the first quarter. These expenditures are directed primarily to facilities projects on our existing fields and the fields acquired in late 2023 and early 2024 to maximize and optimize production. So before closing, I'd like to sincerely thank our team at W&T, as we are well positioned to add value throughout 2024 and beyond. Our strong balance sheet allowed us to close on the Cox acquisition, utilizing a portion of our cash on hand, and we remain focused on expanding our robust cash balance of almost $100 million. In early 23 and late 22, we were focused on managing our debt, paying off our second lien, and we struggled with should we pay off all of that second lien at that time, or should we pay it off and reissue another $275 million to maintain liquidity? That turns out to have been the proper decision, and you can see that from the acquisitions that we've made. So we continue to plan on utilizing our significant cash position and expertise in acquiring complimentary Gulf of Mexico assets to enhance the scale of W&T. Those acquisitions remain a key component of our success, And it's our ability to integrate and enhance those assets that we acquire that has allowed us to grow our reserves and production over the past 40 years. We also remain committed to increasing shareholder value and returning value to our shareholders through the quarterly dividend program that we initiated in November 2023. We believe in our proven strategy, and we expect to continue to execute operationally and financially in 2024 and beyond. So as the company's largest shareholder, I believe W&T is very well positioned to succeed. Our entire management team's interests are highly aligned with those of our shareholders, given our 34% stake in W&T's equity, which is one of the highest of any public E&P company. We're focused on operational excellence and maximizing the cash flow potential of our asset base. With that operated, we can now open the lines for questions.
spk05: Yes, sir. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. And at this time, we'll pause momentarily to assemble our roster. And the first question will come from John White with Roth Capital. Please go ahead.
spk04: Good morning, everyone, and congratulations on the nice results.
spk01: Thanks. Good morning, John.
spk04: Good morning. I noticed on the guidance, the new guidance, gathering and transportation and G&A were a little lower than I had in my estimates. Do you want to comment on that?
spk01: Yeah, some of that reason is because we have some of that production still shut in. And that reflects some of that. We're negotiating somewhat on some of the midstream issues around that. And there's still maintenance that we need to do on some of that property. And the lower GNA? Yeah.
spk04: Go ahead.
spk00: Look, the GNA was slightly higher than the midpoint just because of some one-off costs. But again, we maintain our guidance for the full year. We don't expect that to change.
spk01: Yeah, it's not unusual for us to see a little increase in LOE and G&A with acquisitions in the initial part of the production curve going forward. It helps us to bring the facilities up to standard, hire the right people, and we want to take a little care in doing that. get it right the first time, then you'll have to mess with it as much further on down the line.
spk04: I thought the numbers looked good. Thank you, and I'll pass it back to the operator. Great, thanks.
spk05: The next question will come from Jeff Robertson with Water Tower Research. Please go ahead.
spk03: Thank you. Tracy, on the COX assets, how long does it typically take to evaluate what kind of remediation work you need to do to bring the assets up to standards you're comfortable with, and then also to quantify and put a plan together for any kind of development or recompletion work to enhance the production profile of the assets?
spk01: Yeah, normally it takes a few months, Jeff. In this particular case, there wasn't the normal kind of care that we see in making these types of acquisitions. This company, the predecessor Cox, went into bankruptcy. And the maintenance wasn't what we normally would expect to see. So as a result, we're having to do some remediation primarily around corrosion, and that's taking a bit of time. It's not anything dangerous or anything. It's just something that needs to get done. and the regulatory agency certainly recognizes it, and we do too. So we're making sure that all gets done. I think that long-term that's a better strategy to make sure that we handle all the operating issues on the front end, spend a little extra money to generate better revenues and better safety conditions going forward.
spk03: Tracy, you talked on the year-end earnings call about the potential of forming a drilling partnership that would include or could include Holy Grail. Can you provide any kind of an update on where that effort stands?
spk01: Yeah, really good question. Again, as I said earlier, we struggled a little bit with late 22 and whether we should just go ahead and pay off all the debt that we had in the second lien and not do another issuance. We ultimately decided to go ahead and redeem all those notes and do another new issuance for $275 million just to make sure that we had additional liquidity. And that was the right decision. So as we look at the situation going forward, we see the ability to make more acquisitions and grow the company from that methodology. Thank you.
spk05: Again, if you have a question, please press star, then 1.
spk01: Jeff, you know, and I'm sorry, I didn't directly answer your question with regard to drilling. We did... We did focus on making the acquisitions. That's why we haven't unveiled the drilling joint venture. We mentioned it. We told shareholders and potential investors and investors that we would probably defer for about a year. We are looking at that now, and we're putting together that program. It's going to be relatively extensive. I'm very encouraged by what I'm seeing. We are seeing interest in the program. We'll start off at Holy Grail still, looking for proven reserves, actually, initially. And it looks like that's still a go for next year. And possibly... sooner if we get all the program put together in time. But I'm relatively pleased with the quality of not only the improvement reserves that we're looking for, but also the exploratory potential of several of these projects that are really, really, fairly large. So I'm expecting a drilling program in the range of $500 million to $1 billion drill complete and hookup.
spk05: There are no further questions showing at this time, so this will conclude our question and answer session. I would like to turn the conference back over to Mr. Tracy Crone for any closing remarks.
spk01: Ladies and gentlemen, we appreciate your interest in W&T. We will continue to work hard to make sure that we're increasing production reserves and cutting costs. Those are really the primary things that we need to do and work toward every day. I do want to thank the team. They've done a really good job under difficult conditions with the latest acquisition that came out of bankruptcy. Nobody's ever happy during bankruptcy, and understandably so. But it does have a nice outcome for us, and we look forward to continuing to develop these assets and continue to also look at other assets to acquire. So thank you for your attention. We'll talk to you again soon.
spk05: The conference is now concluded. thank you for attending today's presentation you may now disconnect
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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