W&T Offshore, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the W&T Offshore Fourth Quarter and Full Year 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 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. Please go ahead.

Thank you, Wyatt. 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 fourth quarter and full year 2024 financial and operational results. Before we begin, I would like to remind you that our comments may include far-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 morning, everyone, and welcome to our year-end 2024 conference calls. So with me today are William Wilford, our Executive Vice President and Chief Operating Officer, Samir Parastas, our Executive Vice President and Chief Financial Officer, and Trey Hartman, our Vice President and Chief Accounting Officer. They're available to answer questions later during the call. So our proven strategy is simple and effective. We focus on generating free cash flow, maintaining and optimizing our high-quality conventional assets, and opportunistically capitalize on accretive opportunities to build shareholder value. We have a strong balance sheet and further enhanced it in early 2025. We've built a sustainable business with a long-term vision that's committed to profitability, operational execution, returning value to our stakeholders, and ensuring the safety of our employees and contractors. Our ability to deliver low-decline production, meaningful EBITDA, and integrate accretive property acquisitions has helped W&T grow during our four-year-plus history. Over the past year, we've accomplished many things that I'd like to highlight now. In January 2024, we invested about $77 million of cash to purchase 100% working interest in six shallow water Gulf of America fields from COCS, which added 21.7 million barrels of oil equivalent of 2024 approved reserves. This equates to a price of about $3.38 per barrel oil equivalent when accounting for 2024 production from these fields. Those properties are adjacent to our existing operations, which provides the ability for us to capture synergies regarding personnel, well optimization, gathering, and transportation. While this helped us by adding about 3,500 barrels of oil equivalent per day to production in 2024, several fields were offline for most of 2024. As we announced in January, we expect to return the remaining three fields to production in the second quarter of 2025. Benefit of that production increase is included in our guidance for fiscal year 2025. So, while we're busy integrating our acquisition, we also continue to execute operationally. So for the full year 2024, we generated $154 million in adjusted EBITDA and $45 million in free cash flow. We delivered production of 33,300 barrels of oil equivalent per day despite impacts from hurricanes and other downtime related to the Cox acquisition. We've paid $5.4 million in cash given in since initiating the dividend policy in late 2023 and announced the first and announced the first quarter 2025 payment that will occur later this month. We carried this momentum into 2025 and started this year with several transactions that have strengthened and simplified our balance sheet, added material cash to the bottom line, and improved our credit ratings from S&P and Moody's. So in January, we closed $350 million in new second lien notes that decreased our interest rate by 100 basis points and allowed us to redeem our outstanding $275 million of second lien notes and pay off the $114 million outstanding under the term loan provided by Munich Re. This also reduced debt by $39 million. We entered into a new credit agreement for a $50 million revolving credit facility, which matures in July 2028. That's undrawn. and replaces the previous credit facility provided by Calculus Lending. Additionally, in January 2025, we sold a non-core interest in Garden Banks Block 385 and 386, which was about 200 barrels of oil equipment per day for $12 million or over $60,000 per flowing barrel. In early 2025, we also received $58.5 million in cash for an insurance settlement related to the Mobile Bay 78-1 well. Lastly, to take advantage of the uptick in natural gas prices, we recently added costless collars for $50 million per day from March to December that helps us lock in a favorable price range for our natural gas. Our ability to execute our strategy has delivered very positive results. It has improved our balance sheet, expanded our asset base, and positioned us for success in 2025 and beyond. Turning to our year-end reserve results, I'd like to point out that we continue to see positive performance in technical revisions, which demonstrates the strength of our world-class conventional Gulf of America assets. While total proven reserves at SEC pricing increased 3% year-over-year to 127 million barrels of oil equivalent, our oil reserves increased by 39 percent. This was driven by the oil weighted cost tax acquisition and positive performance revisions. For 2024, our reserves increased by 21.7 million barrels of oil equivalent due to acquisitions and 5 million barrels of oil equivalent from positive performance revisions, which were partially offset by 12.2 million barrels of oil equivalent of production in 2024. This translates to a reserve replacement of 219% of 2024 production. Devon T's reserve life ratio at year-end 24 based on year-end 24 approved reserves and 24 production was 10.4 years. So while we had strong performance from the factors that we can control, we did see a decrease of 10.5 million barrels of oil equivalent due to pricing revisions as we saw SEC natural gas pricing decrease by 19% in 2023, and SEC oil pricing declined by about 3%. As a result, the majority of the price revisions impacted our natural gas reserves. So because the pricing impact was weighted more toward natural gas, our overall PV10 value wasn't impacted as much. Plus, we benefited from a meaningful increase in oil reserves. We're pleased that the PB10 value of our SEC-approved reserves at year-end 2024 increased by almost $150 million, or 14%, to $1.2 billion, despite the lower SEC pricing. So approximately 51% of year-end 2024 SEC-approved reserves were liquids. with 41% crude oil and 10% NGLs, and we had 49% natural gas. The reserves were classified as 52% proved developed producing, 31% proved developed non-producing, and 17% proved undeveloped. So over the years, we've consistently created significant value by methodically integrating producing property acquisitions. After we close any acquisition, we take time to assess and inspect the newly acquired fields, which potentially requires refurbishing some of the fields in the process. We have a large footprint across the Gulf of America, so we look for ways to optimize operations, increase production, and utilize that large footprint where we can to reduce costs and maximize value. Our focus on cost control and capturing synergies associated with our asset acquisitions contributed to our lease operating expense coming in at the low end of our reduced guidance range. In addition, we're expecting further production uplift associated with the remaining fields from the Cox acquisition coming online in the second quarter of 2025 that were previously shut in. So as I mentioned previously, in early 2025, we strengthened and simplified our balance sheet by closing the new senior second lien notes offering and entering into a new revolving credit facility. I'd like to thank our banks, We're running such a smooth process. TCB is leading that facility. The new senior second lien notes, which received improved credit ratings from S&P and Moody's, had a broad distribution. We were oversubscribed. This included international investors and was significantly oversubscribed. further demonstrating the investment community's confidence in W&T's underlying asset base. We likewise are pleased to now have access to the bank revolver market again. At year-end 2024, the company had total debt of $393 million and net debt of $284 million with liquidity of $159 million. Assuming the debt refinance, asset sale, and insurance settlement, had occurred on December 31, 2024, on a pro forma basis, our cash and cash equivalents would have been about $350 million, and net debt would have been about $245 million, which reflects the improvements made to our balance sheet. Yesterday, we also provided our detailed guidance for 2025. In the first quarter of 2025, we had several planned facility and pipeline maintenance projects, as well as unplanned downtime at several fields due to multiple winter freezes that have temporarily reduced our production volumes. We're predicting the midpoint of Q1 2025 production to be around 29,000 barrels or equivalent per day, but with the expected restarting of fields in the second quarter of 2025 related to the COC acquisition, as well as additional workover and facility upgrades, our full-year 2025 production midpoint is about 34,000 barrels of oil equivalent per day, which is about 6% higher than our Q4 2024 production. Despite projecting to spend only about $34 to $42 million in CapEx in 2025, we believe the additional field is coming online from the COPS acquisitions. will help us offset natural decline and grow production this year. We focus more on acquisitions over the last few years rather than on drilling many new wells. Our ability to maintain low decline production is a testament to our culture of operational excellence and the strength of our 2P reserves, which are manifested by cash flow and future 1P reserves that do not require additional CapEx. So turning to our costs, Our guidance for 2025 LOE, gathering, transportation, and production taxes and G&A costs are in line with 2024. We see some additions to LOE, but believe that overall we can offset some of those increases with lower G&A and G&T expenses, so gathering and transportation. With that said, we do believe that there are more opportunities to reduce our operating costs and find synergies to drive costs lower in the long term. So we're always working hard to reduce costs without impacting safety or deferring asset integrity work. I also want to congratulate our folks offshore for achieving zero accidents in 2024. Well done, everyone. Our first quarter LOE is expected to be between $72.5 million and $80.5 million, which reflects some of the increased maintenance and repair costs, as well as additional facilities upgrade work. First quarter cash G&A costs are expected to be between $17.8 million and $19.8 million. I want to sincerely thank our team at W&T as we're well positioned to add value in 2025. We have a solid cash position and good liquidity that enables us to evaluate growth opportunities both organically and inorganically. We have a long track record. of successfully integrating assets into our portfolio, and we continue to believe that the Gulf of America is and will continue to be a world-class basin. We will maintain our focus on operational excellence and maximizing the cash flow potential of our asset base. As the company's largest shareholder, I believe W&T is very well positioned to succeed in 2025 and beyond. 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. So with that operated, we can now open the lines for questions.