W&T Offshore, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the W&T Oxford Second 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 the two limit years questions to one and a follow-up. You can always rejoin the queue. This conference 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 Al Petrie, Investor Relations Coordinator.

Thank you, Operator. And on behalf of the management team, I'd like to welcome all of you to today's conference call to review W&T Oxford's Second 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 yesterday for disclosures on forward-looking statements and reconciliations of non-GAAP measures. With that, I'd like to turn the call over to Tracy Crone, our Chairman and CEO. Thanks, Al.

Good day to everyone. And thanks for joining us on our conference call today. So with me are William Wilford, our Executive Vice President and Chief Operating Officer, Samir Parasnis, our Executive Vice President 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 in the second quarter, we continued to report very solid operational financial results. Our focus on generating free cash flow while maintaining and optimizing our assets, including the assets we acquired in Q1, allow us to generate pre-cash flow of $18.7 million. For the past six and a half years, every quarter, we've generated positive free cash flow because we operate very efficiently and know that cash is paramount to our success. Our balance sheet continues to reflect this as we deliver strong production and meaningful adjusted EBITDA. So in the second quarter, we had a number of accomplishments that demonstrated how successfully we are doing on our strategy. First, we reported production of 34,900 barrels of oil per day, so at the midpoint of our guidance range and virtually flat to Q1. Next, we generated solid adjusted EBITDA of $45.9 million. We remain focused on cost control with the absorption of recent acquisitions. Thus, in the second quarter, we recorded lease operating expenses below the lower end of our guidance. So we continued to realize synergies from our January 2024 property acquisition and we referred some workovers and facilities maintenance expenses as well. Also, we generated strong free cash flow allowing us to increase our cash and cash equivalents at the end of the second quarter by 30% for over $123 million and decreased our net debt by 9% to $268.5 million. We continued returning cash to our shareholders, paying our third consecutive quarterly dividend and announced the third quarter 2024 payment will occur later this month. Last, we saw meaningful increases in our midyear SEC proved reserves report generated by our Netherlands Civil Associates. Proved reserves increased 15% to 141.9 million barrels of oil equivalent and the PB10 of those reserves increased 28% to $1.4 billion. So this is evidence of our ability to execute operationally and this continues to help us build cash, reduce net debt and further strengthen our balance sheet. We're in a very good financial position midway through 2024 and we remain focused on operational execution to build on these solid results. So with over 40 years of experience integrating acquisitions into our asset base, we've proven that incurring near term costs are well worth it to realize the long term potential of newly acquired assets that continue to generate cash flow for us for many years to come. Regarding the Cox asset acquisition, we've continued to make good progress integrating these new assets into W&T. During the second quarter, we successfully negotiated a new beneficial agreement with the gas processor at Mobile Bay 916 and returned the field to production on May 27th at rates consistent with expectations. With the return of that field to production, four of the six Cox fields recently acquired are now on production. For the two remaining shut-in fields, we continue to work parallel paths on each exporter return to production either through existing sales routes or alternative sales routes. We believe the short term delay is necessary to shore up the longer term viability of these fields. So in addition to the production boost from these new assets, during the second quarter of 2024, we performed three workovers and two reconciliations that positively impacted production for the quarter. We were able to maintain production virtually flat with Q1 2024 while only spending $8.8 million in capital expenditures. These type of operations are de rigueur for us and help offset our normal decline. So in our earnings release, we provided our third quarter guidance and updated our full year 2024 expectations. We're projecting third quarter production to be around 32,900 barrels of oil per day, which reflects the impact of third party pipeline issues due to the Coxback Repsic. So for the full year 2024, we adjusted our guidance to take into account these third quarter matters as well as the delays we've experienced in restoring production and a couple of the Coxfields required in January. We do plan to spend more on lease operating expenses in the third quarter as we undertake some of the projects we deferred earlier in the year. However, we lowered our full year estimated total lease operating expense to a range of $280 million to $315 million. It's a reduction of about 5% at the midpoint to take into account our ability to lower cost and the benefit of synergies from recent acquisitions. We have other operations in the area. For capex, we continue to expect to invest $35 to $45 million in 2024, excluding acquisitions. We incurred about $8.8 million in the second quarter and $11.9 million year date. These expenditures are directed primarily to facilities projects on existing fields and the new fields acquired in late 2023 and early 2024 to maximize and optimize production. So in regards to acquisitions, we've invested $80.6 million so far in 2024 and we've more than replaced reserves. So before I close the call, I would like to tell you about our midyear 2024 reserve report. The midyear 2024 we reported SEC approved reserves of 141.9 million barrels of oil equivalent, which included 21.8 million barrels of oil equivalent in acquisition additions and 3.5 million barrels of oil equivalent of positive performance revisions, partially offset by production of 6.3 million barrels of oil equivalent in the first half of 2024. The 21.8 million barrels of oil equivalent due to the acquisition is about 17% higher than what we were anticipating when we initially announced the transaction. As you can see, we believe there is tremendous potential in these new assets. We're also pleased with this midyear report again that has positive performance revisions. So deja vu all over again. So approximately 47% of midyear 2024 SEC approved reserves were liquids with 38% crude oil and 9% NGLs and we had 53% natural gas. The increase in liquids percentage was largely due to the acquisition as well, further justifying these accretive acquisitions. Reserves were classified as 54% proved developed producing, 29% proved developed non-producing and 17% proved undeveloped. The pre-tax PV-10 of the midyear 2024 proved reserves using SEC pricing was $1.4 billion. That's an increase of 28% compared with the PV-10 of $1.1 billion at year end 2023. Midyear 2024 proved reserves in PV-10 were based on average SEC 12-month crude oil and MNBTU. While year end 2023 prices were $7.821 per barrel of oil and $2.64 per MNBTU of natural gas. We believe we've built a sustainable portfolio of high performing Gulf of Mexico assets that will continue to provide meaningful cash flow for many years. In regards to our ongoing ESG initiatives, we have made a concerted effort in addressing our shareholder concerns and improving our ESG metrics. WNT's culture of success and sustainability is built on environmental stewardship, sound corporate governance and contributing positively to our employees and communities where we work and operate. In 2023, we added a new board member, Dr. Nancy Chang. Nancy is the chair of our environmental safety and governance committee that oversees our ESG efforts. Dr. Chang is helping us to guide our continuous improvement and assesses our commitment to the highest standards of ESG and corporate governance. Our ongoing commitment will be demonstrated when we issue our 2023 sustainability report in the next few weeks, which will highlight the continued progress we've made on our ESG initiatives. Now, I'd like to sincerely thank our team at WNT. We're well positioned to add value for the remainder of 2024 and into 2025. Our strong balance sheet and robust cash position enhances our optionality to potentially acquire more complementary Gulf of Mexico assets that would enhance the scale of WNT. Acquisition for Maine is a key component of our success and is our ability to integrate and enhance the assets that we acquire that's allowed us to grow reserves and production over the past 40 plus years. We'll be rolling out our proposed drilling joint venture for potential investors very soon. We'll have more on that in the not too distant future. So as the company's largest shareholder, I believe WNT is very well positioned to succeed in 2024 and beyond. Our entire management team's interests are highly aligned with those of our shareholders, given our 34% stake in WNT's equity, which is one of the highest of any public E&P company. We're focused on operational excellence, meeting our obligations, helping to serve our communities, and maximizing the cash flow potential of our asset base. So with that operated, we can open the lines for questions.

We will now begin the question and answer session. To ask a question, you may press star then 1 and you'll get a telephone keypad. If you're using a speakerphone, please pick up your handphone before pressing the key. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to send more roster. Our first question will come from John White with Roth Capital. You may now go ahead.

Good morning. Good morning, John. Yeah, congratulations on a good quarter and getting the Cox acquisition further integrated. You addressed my question during your prepared remarks, but I just want to make sure I'm not missing anything. While you've adjusted production and LOE guidance, there's no change to CAPEX or asset retirement obligations, correct?

That is correct, yeah. We've still got a little bit to invest for the rest of the year.

Okay, and on the drilling joint venture, good to hear progress on that. Will that be composed of industry partners and institutional investors?

Yes. The point is we haven't completely embedded all the wells that we want to drill and the exact timing on it. We're still hunting rigs and timing on lifting equipment and whatnot that will move platform rig around. We're rolling out this joint venture for not just industry partners but also financial investors as well. As you know, we've done this in the past. Looks like six or seven wells for sure. And I'll be able to give you more information on that dollar amount of expected expenditures going forward in pretty short order here.

Well, that's great to hear. Congratulations on that also, and I'll turn the call back to the operator.

Thank you,

sir. Our next question will come from Jeff Robertson with Water Tower Research. You may now go ahead.

Thank you. Good morning. Tracy, on production, did I hear you right that some part of the adjustment is related to some unplanned downtime issues with third-party pipelines?

Yeah, we're having some sales route difficulties with a couple of the pipeline companies that we're trying to resolve. And we have alternatives, so it's just more of a negotiation than anything at this point in time.

And you mentioned on the reserves that the Cox reserves were higher than your original estimates. Is that because of data that you had at the time those original estimates were made, or are you seeing some outperformance that's leading to performance related revisions?

Yeah, we are seeing some better performance. Also, you know, we're spending a little time making sure that we have all of our transportation routes streamlined with regard to some of our other fields and areas. We're adding people and equipment in some places and reducing people and equipment in others. So we're just smoothing out that curve a little bit so that we'll have something that's more reliable and won't have all the spiky type of production that you normally have when you first take something over.

Are some of those changes you're making also have a beneficial cost impact? Oh, you bet.

Yeah, we're going to reduce LOE. That's the intent. And we can deal with some of the more tangible transportation issues. You know, one of our biggest costs in the Gulf is transportation, boats and helicopters. So getting that lined up and optimized is important in reducing those costs. Thank you. Thank you,

sir. Again, if you have a question, please press star then one.

Okay, well, look, everyone, thank you for listening today. We appreciate it. We'll be talking to you very soon. Hopefully with some more good news. Thanks so much. Bye-bye.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.