W&T Offshore Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 8, 2023

There are 6 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the W and T Offshore Third Quarter 2023 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 opened for questions and answers. You can always rejoin the queue.

Operator

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.

Speaker 1

Thank you, Sarah. And on behalf of the management team, I'd like to welcome all of you to today's conference call to review W and T Offshore's 3rd quarter 2023 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 and 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 measurements.

Speaker 1

Please refer to the earnings release that we issued yesterday for disclosures on forward looking statements and reconciliations of non GAAP financial measures. With that, I would like to turn the call over to Tracy Krone, our Chairman and CEO.

Speaker 2

Thanks, Al. Good day, everyone, and thanks for joining us this morning. With me today are William Willeford, our Executive VP and Chief Operating Officer Sameer Parasnes, our Executive VP and Chief Financial Officer and Trey Hartman, our Chief Accounting Officer. They're all available to answer questions later during the call. But before I get into the operational and financial results, I would like to begin by reviewing our long standing and successful strategic rationale.

Speaker 2

Our strategy has always been simple, generate free cash flow, maintain high quality conventional production and opportunistically capitalize on accretive opportunities to build We've delivered 23 consecutive quarters of free cash flow because we prioritize cash flow through our operational and cost controlling initiatives. We have a prolific asset base that delivers strong production and generates meaningful EBITDA. We have generated positive free cash flow every quarter since the beginning of 2018. And in Q3 2020 We delivered over $25,000,000 in free cash flow. So by prioritizing cash flow, we built a strong balance sheet with ample cash to navigate our cyclical business, Opportunistically acquire complementary assets and now be able to pay a quarterly cash dividend on our common stock.

Speaker 2

Our Board this week adopted a program to report to return a portion of our strong cash flow that we generate each quarter directly to our shareholders To enhance the return on their investment, our first dividend of $0.01 per share will be paid on December 22 to shareholders of record on November 28, 2023. So we began 2023 by making a decision with regard to how we were going to manage our debt going forward. We had the ability to pay it all off, but we know that in times of uncertainty, maintaining liquidity is extremely important. So we redeemed all of our existing second lien notes in the amount of $552,000,000 and did a new issuance of $275,000,000 due in 2026, thus significantly reducing our debt and interest payments going forward, while also strengthening our balance sheet. We have a low leverage profile of 1.2 times net debt to trailing months adjusted EBITDA, which coupled with the significant cash we have on hand, provides us with financial flexibility to act quickly should we see the right acquisition opportunity arise.

Speaker 2

Over the years, we've created significant value by seamlessly integrating producing property acquisitions, while maintaining strong operational excellence. In the Q3, we were pleased to complete another acquisition. In late September, we finalized the purchase of 8 shallow water producing properties for $28,900,000 net of purchase price adjustments that immediately added free cash flow to W and T after the closing date, while increasing our production reserves. These properties are in our existing areas of operation in the Central and Eastern Gulf of Mexico and met our acquisition criteria of generating free cash flow, a solid base of proved reserves with upside potential and the ability to reduce costs. We funded the acquisition with cash on hand and still ended the quarter with nearly $150,000,000 of cash.

Speaker 2

We have the experience and expertise Now we believe that we are very well positioned to continue to make acquisitions, but we also feel that patience is important as we look for strategic value and free cash flow generation potential in all acquisition opportunities that we are continuously evaluating. So we can make acquisitions that add value and we believe that there are numerous opportunities arising that will allow us to continue with that strategy. Now turning to our outstanding 3rd quarter results, I'd like to point out some key highlights and accomplishments. We reported net income of $2,100,000 or $0.01 per diluted share in the Q3 of 2023 compared to a net loss of $12,100,000 in the Q2 of 2023. We increased adjusted EBITDA by 45% quarter over quarter to $56,300,000 These increases were primarily driven by our ability to maintain production levels with highly economic workovers and cash flow associated with probable reserves that are not currently booked as proven reserves.

Speaker 2

We also benefited in the quarter from increased realized oil and natural gas pricing. These factors helped us generate $25,100,000 of free cash flow, our 23rd consecutive quarter of free cash flow. So we adhere to our strategy to achieve sustainable and consistent results. I believe that our continued success is driven by the ability of both our operations and finance teams to execute at a high level and our outstanding asset base in the Gulf of Mexico. Our ability to pay down debt and improve our balance sheet has put us in a favorable position today, and we remain focused on operational execution in 'twenty three and beyond to continue building on our already outstanding results.

Speaker 2

So in Q3 of 2023, we reported strong production of nearly 36,000 barrels oil equivalent per day. Our production was above the midpoint of guidance with 1,230,000 barrels of oil, 348,000 barrels of NGLs and 10.4 Bcf of natural gas for the quarter. We focused on acquisitions over the last few years rather than on drilling many new wells. For the Q4 of 2023, we expect production to be in the range of $34,000 $38,000 barrels of oil equivalent per day. This reflects the benefit of the acquisition we closed in late September that has helped mitigate the low natural production decline of our asset base compared with much higher declines in unconventional onshore reservoirs.

Speaker 2

We saw the benefit of 6 workovers during the 3rd quarter and will continue to focus on High returning work over and recompletions to help mitigate production decline going forward. On the cost side, While we continue to see inflationary pressures in the industry, our 3rd quarter results were very encouraging as we lowered our lease operating expense on an absolute basis and on a per share basis quarter over quarter. Our per barrel equivalent LOE declined from $19.60 in Q2 2023 to $18.72 in Q3 2023. We remain focused on cost control And margin expansion despite the current inflationary environment. For the Q4, our guidance for lease operating expense is expected to be between $60,500,000 $67,000,000 So we also continue to control our G and A cost In the Q3, we reported cash G and A of $16,700,000 which was within our guidance range.

Speaker 2

For the Q4, we expect cash G and A to be During 2023, we've reduced total debt by almost $300,000,000 from year end 2022.

Speaker 3

At the

Speaker 2

end of the Q3, we had net debt of $248,200,000 which was total debt of over of $397,200,000 net of cash and cash equivalents of $149,000,000 So as I mentioned Previously, the large reduction in total debt was driven by issuing new 2026 senior secured lien notes in January 2023. Those were issued at par totaling $275,000,000 in a private offering and using the proceeds along with a portion of our considerable cash position to retire all of our outstanding 2023 senior second lien notes. We continue to have the flexibility in dry powder to make additional acquisitions, continue to build cash and all the while further paying down debt. Now in quarter 3, 2023, we spent $8,000,000 in CapEx and have invested $31,000,000 for the 1st 9 months of this year. As I mentioned in our Q2 call, we lowered our CapEx range for 2023 by about $40,000,000 to be in a range of $50,000,000 $70,000,000 Included in this range are planned expenditures related to long lead drilling related items, capital costs for facilities, leasehold, seismic and recompletions.

Speaker 2

We expect to continue generating meaningful free cash flow, which provides us flexibility to execute on accretive opportunities very quickly. So as we look to next year, we plan to begin drilling again. We'll provide additional details on our 2024 capital investment plan during our year end call in early March. In the meantime, we plan to spud our Deepwater Holy Grail prospect at Magnolia in the Q1 of 2024. We have the rig under contract and expect the well to take around 6 to 8 months to drill and complete.

Speaker 2

It will be drilled off the Magnolia platform, which will allow the well to be We identified this proved undeveloped opportunity after we acquired Magnolia in December 2019. We believe it's a low risk opportunity with large production potential for us since we are the sole leaseholder. We are hoping to further advance our outstanding results through the recent acquisition of significant depth and breadth to our Leadership team. Over the past several months, we've appointed or promoted several members to our leadership team that I believe will be great additions and help maintain W and T's successful efforts into the future. So as I mentioned on the last call in early July, we appointed Sameer Parasnes This is our new Chief Financial Officer and welcomed him to our senior leadership team.

Speaker 2

In early September, we promoted Ford Peters to Vice President of Land. In early October, we appointed John Poole as our new Vice President of HSE and R. John's experience will be particularly important toward enhancing our commitment to sustainability. So before I close the call, I'd like to tell you about our 2022 ESG report that we issued in mid August. W and T's culture of success and sustainability is built on environmental stewardship, sound corporate governance and contributing positively to our employees and the communities where we work and operate.

Speaker 2

Ongoing commitment to ESG includes making a concerted effort and reaching out to our major shareholders for feedback and addressing their concerns while continuously improving our ESG metrics and transparency. To assist with development, implementation and monitoring of ESG initiatives and policies, we've established an ESG committee with our newest board member, Doctor. Nancy Chang, As the Chair of the Committee, we believe that Doctor. Chang will help guide our continuous improvement and assist us in our commitment So since our inaugural 2019 report, we've seen our total Scope 1 GHG emissions decreased by 20%. Our onshore facility air We're also reaching out to our shareholders to elicit feedback on stay on pay, Performance alignment and ESG initiatives.

Speaker 2

In 2023, we've enacted additional substantive changes to compensation programs Based on this feedback, we plan to continue to engage with our major shareholders to ensure alignment. So in closing, we're very pleased with how well we performed thus far in 2023, both operationally and financially. I'd like to thank our team at W and T as I believe we're well positioned for continued success in the future. Our strong financial position provides us with optionality and flexibility moving forward. Our liquidity and cash position Enables us to continue to evaluate growth opportunities, both organically and inorganically.

Speaker 2

And we're poised to Executing on accretive opportunities that meet our long standing improving criteria. We believe the Gulf of Mexico is and will continue to be World class basin with strong producing assets. Quickly evaluating and executing on opportunities within our focus area is a pillar of our success. We have a premier portfolio of both shallow water and deepwater properties in the Gulf of Mexico that have low decline rates And significant upside. Our management team's interests are highly aligned with those of our shareholders, given our 34% stake in W and D's equity, which is one of the highest of any public E and P company.

Speaker 2

We welcome the positive mood and improved outlook for our industry. I believe W and T will continue to build value for shareholders as we execute our strategy. We're happy to be returning value again to shareholders in cash. With that, operator, we can open the lines for questions.

Operator

Thank you. We will now begin the question and answer session. Our first question comes from Nate Pendleton with Stifel. Please go ahead.

Speaker 4

Good morning, all. Congrats on another strong quarter and the new dividend.

Speaker 2

Thanks, Nate.

Speaker 4

My first question, With your continued success in the M and A market, I wanted to get your thoughts on the opportunity set and the size of the packages you are seeing on the market today?

Speaker 2

The opportunity set is always good. It's a matter of pricing and timing As the price of oil and natural gas float up and down, it makes it difficult for people to make decisions about How they want to move forward. We recognize that. We're patient. We just we adhere to the principles that we've established over time.

Speaker 2

And that carries us through and but it does require some patience. I think that the company is well positioned Going forward to either make acquisitions or drill. And we'll have a little bit more on that later on in the year.

Speaker 4

Thanks. And given your ability to optimize production and use workovers to mitigate decline rates in the quarter, Can you provide us any details on what you are able to do from an optimization perspective and how much more running room you have for further initiatives?

Speaker 5

Yes. This is William Williford. I'll answer that. Essentially, we kind of base it on Projects that we can think we can turn cash flow around pretty quickly and get good production associated with it. That's why you can see us Just from a strong cash flow position, you'll see a lot of expenses going out versus the cash we have going in.

Speaker 5

We kind of plan it out accordingly. So that's kind of how we So we can be efficiently spend our cash effectively.

Speaker 4

Got it. Thanks for taking my questions.

Operator

Our next question comes from Jeff Robertson with Water Tower Research. Please go ahead.

Speaker 3

Thank you. Good morning. Tracy, can you provide any update on the Cox situation and the acquisition that you all talked about that I think is just tied up in court?

Speaker 2

Yes. Good morning, Jeff. Yes, that's a very good question. The bankruptcy process is a Particularly difficult one. There's a lot of emotion.

Speaker 2

There's a lot of debts that haven't been paid. Otherwise, they wouldn't be there. So the process is at best variable as to how it proceeds. We were the high bidder at the auction. And Since then and we'd actually gotten to the point where we signed a PSA with the debtor.

Speaker 2

However, there are other interests that weren't interested in it because it didn't relay a Particularly good return to them. But it's really a hard situation for everyone. Nobody's happy. Everybody's Usually, in a position where they're losing money and nobody likes to lose, I think it just will require more patience. I can't tell you that I fully understand the process.

Speaker 2

I'm not sure if anyone fully understands the process. We've been in this Position before looking for properties through bankruptcy courts. It's a difficult Situation for all and the best thing to do is just be patient and see what develops because There's going to be changes all along the way. So I think it's going to take a little while longer to sort it out. We don't know 100% if this is something that will happen favorably toward us or how it will end up In the next several weeks.

Speaker 3

Tracy, the acquisition that you did close in the 3rd quarter. Can you talk about what impact, if any, that has on W and T's overall corporate decline?

Speaker 5

Yes. Essentially, if you looked at the press release we put out there, I think we said it was around 2,400 Barrels associated with quarter north once we had it at full production. I think when we first got the asset Under our roof, we actually kind of look at it and see what we can do. As far as efficient things that we get more efficient, optimize production and that sort of thing, sometimes we We got to look at some of the facilities and do some spend some costs there to kind of look at the future And maintaining production over time. And with that increase, that kind of helps maintain our overall decline for the company.

Speaker 2

I'll add to that just a little bit, Jeff, in that very often when we first make these acquisitions, The seller isn't spending a lot of money on maintenance and the other things that they would normally spend money on.

Speaker 3

Lastly, Tracy, are you willing to share an AFE for Holy Grail?

Speaker 2

Well, I don't think I have those total dollar amounts yet. We're still working on some of the longer lead items that We need to resolve the rig will be coming from the bank to get offshore. So I'll probably be able to give you a little more clarity on that in after the 1st of the year.

Speaker 3

Thanks. And to be clear, the longer lead items Some of the items that would allow you to tie this in pretty quickly, right?

Speaker 2

Yes. Thank you. Thank you, sir.

Operator

Showing no further questions, I would like

Speaker 3

to turn the conference back over to Tracy Krant for any closing remarks.

Speaker 2

Thank you, operator. Thanks for joining us this quarter. We're happy that we're on a really good track For this year and also very happy to be returning dividends again to shareholders. So we look forward to that for a long time. And we appreciate your attendance and we'll talk to you very soon.

Speaker 2

Thank you.

Operator

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

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Key Takeaways

  • W&T initiated a $0.01 per share quarterly cash dividend, to be paid December 22, reflecting its commitment to return strong cash flow to shareholders.
  • The company redeemed $552 million of second lien notes and issued $275 million of 2026 senior secured notes, reducing leverage to 1.2x net debt/adjusted EBITDA and maintaining approximately $150 million in cash.
  • In Q3, W&T reported net income of $2.1 million, a 45% rise in adjusted EBITDA to $56.3 million, and generated $25.1 million of free cash flow for the 23rd consecutive quarter.
  • W&T acquired eight shallow‐water Gulf of Mexico properties for $28.9 million, adding about 2,400 BOE/d of production and immediately boosting free cash flow post‐closing.
  • The company maintained production guidance of 34–38 kbd for Q4 while reducing LOE per BOE to $18.72 (from $19.60) and keeping cash G&A within guidance ranges.
AI Generated. May Contain Errors.
Earnings Conference Call
W&T Offshore Q3 2023
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