W&T Offshore, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the W&T Offshore First Quarter 2025 Conference Call. During today's call, all parties will be in listen-only mode. Following the company's prepared comments, the call will be opened for question 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.

Thank you, Cindy. And on behalf of the management team, I would like to welcome all of you to today's conference call to review W&T Offshore's First Quarter 2025 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.

Thank you, Al. Good morning, everyone, and welcome to our first quarter conference call for 2025. With me today are William Wilthard, our Executive VP and Chief Operating Officer, Samir Parasnis, our Executive VP and Chief Financial Officer, and Trey Hartman, our Vice President and Chief Accounting Officer. They're all available to answer questions later during the call. So with strong operational and financial results, we started 2025 on a positive note, meeting or exceeding guidance in multiple metrics. We built W&T using a proven and successful strategy that is committed to profitability, operational execution, returning value to our stakeholders, and ensuring the safety of our employees and contractors. Our ability to deliver low-declined production, meaningful EBITDA, and seamlessly integrate accretive-producing property acquisitions has helped W&T grow during our 40-plus year history. Now, before I talk about our first quarter highlights, I'd like to address an important regulatory development. In early April 2025, pursuant to directives from the Trump administration, the Department of Interior indicated that it will not seek supplemental financial assurance in the Gulf of America, except in the case of sole liability properties and certain non-sole liability properties that do not have a financially strong co-owner or predecessor entitled and meet other conditions. This is a very positive development for W&T. Now, we'll go into more details later in the call, but this should alleviate some of the uncertainty that has pushed down our stock price, despite some positive results. Some of our first quarter highlights include the following. We delivered production of 30,500 barrels, oil equivalent per day, near the top end of our guidance range, despite freezing weather in January, that temporarily drove some unplanned downtime. Also, lease operating expenses came in below the low end of guidance at $71 million. We generated $32.2 million in adjusted EBITDA, an increase of 2% compared to the fourth quarter 2024. We also produced $10.5 million in free cash flow. So, we accomplished all of this while also returning value to our shareholders through our quarterly dividend. We have paid six quarterly cash dividends since initiating the dividend policy in late 2023 and announced the second quarter 2025 payment that will occur later this month. Additionally, in the first quarter of this year, we had several transactions that strengthened and simplified our balance sheet, adding material cash to the bottom line and improving our credit ratings from S&P and Moody's. So, in January, we successfully closed an offering of $350 million in new second lien notes due to 2029 that decreased our interest rate on second lien notes 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 transaction reduced our total debt by $39 million. Now, this meaningfully enhanced 2025 and future year's liquidity by eliminating principal payments under the Munich Re term loan of $28 million in 2025, $25 million in 2026, $23 million in 2027, and $38 million in 2028. We also entered into a new $50 million revolving credit facility which matures in July 2028 that is undrawn and replaces the previous $50 million credit facility provided by Calculus Lending. Additionally, in January 2025, we sold a non-core interest in Garden Banks blocks 385 and 386, which was about 200 barrels of oil equivalent per day for $12 million or over $60,000 per flowing barrel. Now, in early 2025, we also received $58.5 million in cash for an insurance settlement related to the Mobile Bay 78-1 well. All of these actions have allowed us to enhance liquidity and improve our financial flexibility. Lastly, to take advantage of the strengthening we saw in natural gas prices, we added costless colors for 50,000 MMBTUs per day for March 2025 and 70,000 million BTUs per day from April to December of this year. This helps us lock in a favorable price range for our natural gas for the remainder of 2025. So, our ability to execute our strategy has delivered very positive results to start off 2025, including an improved balance sheet, enhanced liquidity, and has positioned us for success in 2025 and beyond. At year-end 2024, the company had total debt of $393 million and net debt of $284 million. At the end of the first quarter of 2025, our total debt and net debt were significantly reduced to $350 million and $244 million respectively. Our liquidity at March 31 was approximately $156 million. Capital expenditures in the first quarter of 2025 were $8.5 million and asset retirement costs totaled $3.8 million. We continue to expect our full year of capital expenditures to be between $34 million and $42 million, which does not include potential acquisition opportunities. We will remain focused on accretive, low-risk acquisitions of producing properties rather than higher-risk drilling in the current uncertain commodity price environment. These acquisitions must meet our stringent criteria of generating free cash flow, providing a solid base of proved reserves with upside potential, and offer the ability for our experienced team to reduce costs. Now, over the years, we have consistently created significant value by methodically integrating producing property acquisitions. The assets we acquired last year added meaningful reserves and an attractive price. We are now seeing additional production uplift from two fields that were previously shut in. The West Delta 73 and Main Pass 108 slash 98 fields were placed into production towards the end of March and into early April. We are ramping up production over the course of the second quarter of 2025 and expect it to make a sizable impact to our production overall, which is indicated in our second quarter guidance. Yesterday, we provided our detailed guidance for second quarter 2025 and reiterated our full year guidance. In the second quarter of 2025, with the new fields ramping up, we are predicting the midpoint of Q2 2025 production to be around 34,500 barrels oil equivalent per day. This is an increase of 13% compared to the first quarter of 2025. So, turning to our costs, our guidance for second quarter 2025 LOE, gathering, transportation, and production taxes costs are slightly higher than the first quarter of 2025. We see some additions to LOE due to the higher production, but believe that overall we can offset some of those increases and on a per BOE basis we should see decreases. We also believe that there are more opportunities to reduce our operating costs and find synergies to drive costs lower in the long term. We are always working hard to reduce costs without impacting safety or deferring asset integrity work. Now before closing, I would like to discuss some regulatory updates in more detail. The change of Presidential Administration has provided promising developments in the oil and natural gas regulatory environment. Since its inauguration, President Trump has issued two energy-related executive orders, the first of which directed heads of agencies to review existing regulations to identify agency actions that impose an undue burden on the identification, development, or use of domestic energy resources. The second executive order stated that the United States insufficient energy production, transportation, refining, and generation constituted an unusual and extraordinary threat to the nation's economy, national security, and foreign policy. In early February, Secretary Burgum issued a secretarial order that directed agency officials to prepare an action plan that would include steps to suspend, revise, or rescind certain regulations. In addition, the Trump Administration has issued a number of executive orders aimed at stream mining regulations and reducing the regulatory burden on oil and natural gas companies, increasing federal oil and natural gas leasing, including in the Gulf of Mexico, excuse me, America, and expediting U.S. natural resource development. We are very pleased with these actions that we expect will positively impact WNT and the offshore energy industry. So in closing, I'd like to thank our team at WNT as we are well positioned to add value in 2025. We have a solid cash position and good liquidity that enables us to continue 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 a world-class basin that supports value creation. We will maintain our focus on operational excellence and maximize the cash flow potential of our asset base. With that operated, we can now open the lines for questions.

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from John White of Roth Capital. Go ahead, please.

Hey, good morning and congratulations on getting the Cox assets fully online. It has a nice impact on your production guidance. Well, good morning and thanks, John. Yeah, sure. From reading the press release, it looks like you're going to continue to focus on and there's no plans to drill a new grassroots wells. Can you confirm that?

Yeah, that's our current strategy. There's a little bit of, well, just a little bit too much volatility to us with regard to oil and gas prices, but oil is the more critical factor for us. We are still not hedged on oil. Sounds like

a good approach. I'll pass it back to the operator. Thank you. Thanks,

John.

Our next question comes from Derek Whitfield of Staple. Go ahead, please.

Good morning and great update today. Thanks, Derek. With the April 8th announcement from the Department of Interior, I wanted to ask if you could elaborate on the financial impact of this announcement to WNT.

Yeah, I can. Clearly, it means we'll have less costs for financial assurance and of course less cost in having to manage around that. We don't have any sole liability properties at this point in time, so we're looking for a pretty dramatic reduction in those FA costs, if you will. So that'll have an impact on us, plus the aggravation and overhang on our credit facilities. That should be a positive for them as well.

Great. That makes sense. And then regarding your full year 2025 guidance on production, the midpoint of your guidance implies an average second half oil production of 15,400 barrels. Could you offer some color on the production cadence across the quarters? You've got your Q2, but just wanted to see kind of where things speak out in Q3 or Q4.

Yeah, surely I can do that, Derek. Well, in the first quarter, we had some weather incidents and things like that, and West Delta 73 and Main Pass 108 were not back online as a result of some of the actions promulgated by the bankruptcy of that entity. We see the production coming up at West Delta 73 and Main Pass 108, and we continue to work to optimize that. We think there's more track room left in that endeavor as well. And we've got some ongoing work over and acidizing and workovers and things that we intend to get done. You know, during the better weather part of the year, which really is about now. So through now and the end of the summer, we'll be working out with equipment offshore to help enhance that. So we're fairly confident that we'll see good results in that leading into third quarter and early fourth quarter.

Great. Last one, if I could, regarding the non-core interest in Gartner Banks blocks 385 and 386 that you guys sold earlier this year, the sales price on that was quite a creature of valuation. I guess a bigger picture, are there other opportunities across your portfolio that you can pursue?

That's a really good question. Clearly there are. It just becomes a matter of price on that aspect of it. That was a royalty interest, and we do have other royalty interests that are kind of free floating out there that we could sell. It's not necessarily a focal point, but it does raise the awareness on that as well. Great. I'll turn it back to the operator.

Thank you. The next question comes from Jeff Robertson of Water Tower Research. Go ahead, please.

Thank you, Tracy. You've had the four producing fields from Cox on for roughly a year or so now, and with the two new ones, can you talk a little bit about how the performance on those fields is tracking versus your expectations before you made the acquisition?

You know what I'm going to do? I'm going to turn that over to our chief operating officer, because he's more intimately familiar with that.

Yeah, good morning, Jeff. That's a great question. They are definitely performing, actually. We're looking at our, we've seen opportunities to increase production in some of those fields, but as you know, when you're going in and buying stuff out of bankruptcy, there's still some operational things that we have to look at to make sure we're able to operate as efficiently as possible. So, yeah, to answer your question directly, yes, we are seeing what we expect to see, plus we see an uplift potential as well.

William, are most of the costs that you would have taken on to bring those assets up to WNT standards behind you at this point?

No, this is always ongoing, but the majority of it is behind us. As you know, when you're trying to buy an asset, some opportunities to enhance it up to our standards, it takes a little bit more time to really understand what you're dealing with. So we're pretty much there. We've probably got a little bit more left to spend to get it all the way up to our standards, but it's going in the right direction.

I'll elaborate on that just a little bit. I'll be a little bit less political. The former owner didn't spend a whole lot of money on maintenance and didn't really, in my opinion, give a damn about his personnel.

Tracy, then following up on the question around the financial assurance, does that free up any liquidity on your balance sheet or how your credit facilities work? And what impact does that have on how you can think about acquisitions, if any?

Yeah, I mean, for us, the question is always, gee, whether we risk more in drilling it than any time we have the opportunity to make acquisitions as opposed to drilling it. I think that seems to always make more sense to acquire. You know, there's not just operational risk on drilling. There's reserve risk as well. So those are always things that I get concerned about. I mean, it's more exciting to drill wells and make discoveries and bring new production online. But there's usually a lot less risk with just going ahead and finding something that makes sense and meets our criteria. And we've been doing that for decades now. So we know the formula works. And, you know, having said that, we've also made some really good discoveries as well. So it's always a balance for us. But most of the time, we would opt to acquire as opposed to drill. Thank you. Thank you,

sir. There are no additional questions at this time. This concludes our question and answer session. I would like to turn the conference back over to Tracy Crone, Chairman and CEO, for any closing remarks.

Thank you, Operator. Things rolled along pretty well this quarter. We look forward to the remainder of the year. And hopefully, we'll find some more reserves to buy in the not too distant future. Thanks so much. And we'll talk to you again soon.