W&T Offshore Q3 2024 Earnings Call Transcript

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Provided by Quartr
November 8, 2024

Key Takeaways

  • W&T generated $54.9 million of free cash flow through Q3 and raised cash on hand to $126.5 million while reducing net debt to $266 million, underpinning its ability to pay dividends and pursue new opportunities.
  • Q3 production averaged 31,000 BOE/d—within guidance despite 3,500 BOE/d of hurricane-related downtime—with October rates rebounding to ~34,000 BOE/d and Q4 guidance centered on 33,600 BOE/d.
  • Lease operating expenses came in at $72.4 million in Q3, 6% below guidance and down 2% sequentially, reflecting ongoing cost‐control efforts and synergies from recent acquisitions.
  • W&T achieved zero recordable safety incidents in 2024 and reported a TRIR of 0.09, one of the lowest in its history, highlighting strong ESG and operational discipline.
  • Ongoing legal challenges over whale‐protection vessel restrictions and new financial assurance requirements in the Gulf of Mexico pose regulatory headwinds that could constrain drilling and operations.
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Earnings Conference Call
W&T Offshore Q3 2024
00:00 / 00:00

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Operator

Ladies and gentlemen, thank you for standing by. Welcome to the W&T Offshore Third 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 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.

Al Petrie
Al Petrie
Investor Relations Coordinator at W&T Offshore

Thank you, Megan. 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 Third 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 would like to turn the call over to Tracy Krohn, our Chairman and CEO.

Tracy Krohn
Tracy Krohn
Chairman and CEO at W&T Offshore

Thanks, Al. Good day, everyone, and thank you for joining us on our conference call, so with me today are William Williford, our Executive Vice President and Chief Operating Officer, Sameer Parasnis, our Executive Vice President 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 we continue to report solid operational and financial results while continuing to execute our strategic vision. Our focus is always on generating free cash flow while maintaining and optimizing our assets, including the assets that we acquired in the first quarter of this year. During September 30th, 2024, we've generated free cash flow of $54.9 million on a year-to-date basis. For the past seven years, we've generated positive free cash flow, and that's because we operate very efficiently and know that cash is paramount to our success.

Tracy Krohn
Tracy Krohn
Chairman and CEO at W&T Offshore

Our balance sheet continues to improve as we're delivering meaningful adjusted EBITDA, which year-to-date totaled $122 million. So I'd like to begin our operational discussion by focusing on production. In the third quarter, production was 31,000 barrels of oil equivalent per day. Our production was impacted by an active hurricane season in the Gulf of Mexico. It seems that that continues as we speak. Thus, we saw about 3,500 barrels of oil equivalent per day shut in associated with hurricanes and other downtime. Despite this, our production was within our guidance range, and the majority of this production has been restored with our October production rate at around 34,000 barrels of oil equivalent per day. In addition, we continue to optimize production that we acquired in Q1 2024. However, only four of the six fields are currently online.

Tracy Krohn
Tracy Krohn
Chairman and CEO at W&T Offshore

We're working diligently to return the remaining two fields to production, which should provide a boost to production in 2025. With over 40 years of experience integrating acquisitions into our asset base, we've proven that the near-term costs are well worth it to realize the long-term potential of the newly acquired assets generating cash flow for us for many years to come. So turning to costs, our lease operating expenses for the third quarter of 2024 were $72.4 million, which was below the bottom end of our guidance range by 6%. In fact, costs were down 2% compared to the second quarter of 2024. Our continued attention to controlling costs and capturing synergies from our acquisitions helps us to generate strong free cash flow, pay down debt, and build our cash balance.

Tracy Krohn
Tracy Krohn
Chairman and CEO at W&T Offshore

At the end of the third quarter, our cash on hand rose to $126.5 million, and we lowered our net debt to $266 million. We also continued returning cash to our shareholders, paying our fourth consecutive quarterly dividend in August, and we announced the fourth quarter 2024 payment will occur later this month. In our earnings release, we provided our fourth quarter guidance. We're projecting production to increase compared to the third quarter due to less hurricane and related downtime. Fourth quarter 2024 production guidance has a midpoint of 33,600 barrels of oil equivalent per day. Again, we do have a storm out in the Gulf of Mexico kind of meandering around. We're not quite sure how that will affect us or even if it will affect us at this point in time.

Tracy Krohn
Tracy Krohn
Chairman and CEO at W&T Offshore

We plan to spend a little more on lease operating expenses in the fourth quarter as we undertake some of the projects we deferred earlier in the year, and we continue to bring on the other two new fields back online to help increase operational and financial results. For CapEx, excluding acquisitions, we invested about $9.5 million during the quarter and about $23.3 million in the first nine months of 2024. In addition, we invested $80.6 million in acquisitions year-to-date. So now we plan to invest about $25 million-$35 million in the full year of 2024, excluding acquisitions. This is down about $10 million at the midpoint from our prior 2024 estimate. These expenditures are directed primarily to facilities projects on our existing fields and the new fields acquired in late 2023 and early 2024 to maximize and optimize production.

Tracy Krohn
Tracy Krohn
Chairman and CEO at W&T Offshore

So as you can see, our ability to execute operationally continues to help us build cash, reduce net debt, and further strengthen the balance sheet. We're in a very good financial position as we close out 2024, and we remain focused on operational execution to build on these solid results. Regarding the Cox asset acquisition, we've had good execution toward integrating these assets into W&T. We still have more work to do that should help to increase production from these new fields. We hired select Cox Offshore personnel while completing all regulatory transfers of operatorship, lease ownership, and financial responsibility. Our team has worked really hard integrating accounting, production reporting, cost tracking, and other data into existing W&T systems.

Tracy Krohn
Tracy Krohn
Chairman and CEO at W&T Offshore

Those records weren't really in that good order in recognizing that these assets were bought out of bankruptcy and the company was indeed bankrupt, and getting some of this data has taken a little bit of time to assimilate and put in a proper order so that we can maintain it going forward. In addition, we've worked to inspect all aspects of the fields to ensure W&T's health, safety, and environmental standards are implemented, and we're negotiating midstream services at the newly acquired fields. Safety is a key component to our ongoing commitment to ESG, and 2024 has been an outstanding safety year. Despite all the hurricanes and shut-ins and restarting production in the third quarter, we had zero recordable safety incidents. In fact, we've not had an employee recordable incident in the entire year.

Tracy Krohn
Tracy Krohn
Chairman and CEO at W&T Offshore

Our overall TRIR rate for 2024 is 0.09, one of the lowest in our long history. W&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. We've made a concerted effort in addressing shareholder concerns and improving our ESG metrics. Our ongoing sustainability commitment and additional details regarding our recent accomplishments can be seen in our 2023 ESG report that we issued in the third quarter. I'm also proud to announce that W&T was named as a finalist for the Best Proxy Statement in the Small-Mid Cap Credit category at the 18th Annual Corporate Governance Awards, which recognized outstanding achievements in governance, risk, and compliance. We're honored to receive this recognition, which serves as a testament to our dedication to shareholders to deliver clear, comprehensive, and accessible communications.

Tracy Krohn
Tracy Krohn
Chairman and CEO at W&T Offshore

We believe in open communication with our stakeholders and directly engage our largest shareholders to ensure alignment. Oh, and by the way, we didn't accomplish first place. We did get on the podium at P2. So in closing, I'd like to sincerely thank our team at W&T as we're well positioned to add value in 2025 and beyond. We've got cash on the balance sheet, strong balance sheet, and robust cash position enhances our optionality, potentially acquiring more complementary Gulf of Mexico assets to enhance the scale of W&T. Acquisitions remain a key component of our success, and it's our ability to integrate and enhance the assets that we acquire that has allowed us to grow reserves and production over the past four years.

Tracy Krohn
Tracy Krohn
Chairman and CEO at W&T Offshore

We also remain committed to increasing shareholder value and returning value to our shareholders through the quarterly dividend program that we initiated in November of last year. We believe in our proven strategy, and as the company's largest shareholder, I believe W&T is very well positioned to succeed going forward. 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 making and maximizing the cash flow potential of our asset base. So with that, operator, we can now open the lines for questions.

Operator

We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you are 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 two. Please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. The first question comes from John White with Roth Capital. Please go ahead.

John White
John White
Senior Research Analyst at ROTH Capital

Good morning, and congratulations on following your plan. You're generating free cash flow, integrating your recent acquisitions, and reducing debt. With not a lot of drilling activity going on, you want to offer some generalized comments on what you're seeing in the acquisition market?

Tracy Krohn
Tracy Krohn
Chairman and CEO at W&T Offshore

Sure, John, and thanks, and good morning to you too. Yeah. Things are in a bit of flux. I think people were standing down a little bit trying to figure out what was going on with the elections, and we think that that's a positive for our industry. Drilling has been a challenge in the Gulf of Mexico, primarily due to regulatory requirements. There's more than one lawsuit out there dealing with regulations that seem to be a penalty to our industry, and so hopefully that'll get sorted out a bit more and make it easier to have line of sight on additional drilling, and we certainly will take that into consideration. We're working on our budget as we speak, and we'll be able to address that in a more concise manner going forward.

Tracy Krohn
Tracy Krohn
Chairman and CEO at W&T Offshore

We do have wells that we want to get drilled, and this will help us with trying to estimate economics going forward.

John White
John White
Senior Research Analyst at ROTH Capital

You said the acquisition market has been in flux, waiting on the outcome of the election?

Tracy Krohn
Tracy Krohn
Chairman and CEO at W&T Offshore

You bet. People are trying to figure out what pricing is and what their properties are worth. We are faced with the same responsibility. So I think that you'll see an uptick in acquisitions, certainly through the first and second quarters of next year. And we see some things that are attractive. We also see some drilling opportunities that are attractive, and we'll be working on some other things as well.

John White
John White
Senior Research Analyst at ROTH Capital

Okay. Thanks for that, and good luck on making some deals and getting your wells drilled. I'll turn the call back to the operator.

Tracy Krohn
Tracy Krohn
Chairman and CEO at W&T Offshore

Thanks, John.

Operator

Again, if you have a question, please press star, then one. The next question comes from Jeff Robertson with Water Tower Research. Please go ahead.

Jeff Robertson
Managing Director at Water Tower Research

Thank you. Good morning. Tracy, the two fields that are still shut in from the Cox acquisition, can you talk about the production mix and what kind of production contribution you would expect when those fields come back on?

Tracy Krohn
Tracy Krohn
Chairman and CEO at W&T Offshore

Yeah. It'll be several thousand barrels a day. One of them is more technically oriented with equipment at all, and the other one is more of a legal challenge. And I'm not going to address the legal challenge part of it. The operational issues aren't too hard to overcome, and I think one of them will be back online in the near future, probably within the next week or two.

Jeff Robertson
Managing Director at Water Tower Research

And the mix between oil and gas?

Tracy Krohn
Tracy Krohn
Chairman and CEO at W&T Offshore

Yeah, it's mostly oil.

Jeff Robertson
Managing Director at Water Tower Research

Okay. Just to follow up to, I guess, John's question, does the election resolve some issues that help further the potential formation of a drilling partnership?

Tracy Krohn
Tracy Krohn
Chairman and CEO at W&T Offshore

I damn well hope so. Yeah. Yeah. I think we're getting a lot of resistance, mainly because of. I shouldn't say a lot. We're getting some concern with regard to regulatory issues. There's an issue out there with the Rice's whale that caused the government to draw a large band between Florida and Texas through which we weren't allowed to run our boats at night, and we weren't allowed to run them during the day more than six miles per hour, and it would have affected our production quite a bit. There's a challenge to that lawsuit. Those orders are in abeyance at this point, but yeah, I mean, there was a big concern that this was going to affect our operations, and incidentally, it was only germane to oil and gas companies, so apparently, cruise ships and commercial fishing vessels and recreational vessels don't hit whales.

Tracy Krohn
Tracy Krohn
Chairman and CEO at W&T Offshore

It's only oil and gas companies that hit whales. So we thought that was a little absurd and still do. So clearly, this was an attempt to stymie production in the Gulf of Mexico as the previous administration, seemingly, would want to do. Why else would you restrict it to just the oil and gas business? So hopefully that'll get straightened out in the courts, and reasonably, you would think it would. As far as the other lawsuit with regard to financial assurance, the government or the taxpayers never come out of pocket to abandon any field in the Gulf of Mexico. So the government has (and I say the government, it's the regulatory arm that deals with the Gulf of Mexico) had required financial assurance in the Gulf of Mexico since really since the Obama administration. And it's created a problem in getting that capacity.

Tracy Krohn
Tracy Krohn
Chairman and CEO at W&T Offshore

There have been some bankruptcies in the Gulf of Mexico that have affected the surety market, and surety markets are a little bit muddled right now as to what to do. We, by the way, have done over $1 billion of abandonment in the Gulf of Mexico since inception, and we've never failed to meet all of our obligations. We feel like financial assurance in the Gulf of Mexico since we have, as an industry, we're jointly and severally liable on all of these leases for the abandonment of same, and that's part of the—that's the biggest reason why there hadn't been an issue with regard to plugging and abandoning all of these wells. That's the point of the financial assurance. Since it never has happened, there's no reason to have this financial assurance, we think. We see this as punitive to the industry.

Tracy Krohn
Tracy Krohn
Chairman and CEO at W&T Offshore

We see it as a solution to a problem that doesn't exist.

Jeff Robertson
Managing Director at Water Tower Research

Thank you.

Tracy Krohn
Tracy Krohn
Chairman and CEO at W&T Offshore

That's kind of a long-winded explanation, buddy.

Jeff Robertson
Managing Director at Water Tower Research

That's good, though.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Tracy Krohn, Chairman and CEO, for any closing remarks.

Tracy Krohn
Tracy Krohn
Chairman and CEO at W&T Offshore

Thank you, Operator. Yeah. We'll be back with you in not too distant future. We've got a lot of things going on, and we are encouraged. Production's down a bit, but some of that stuff we can't control. Hopefully, this next little storm out in the Gulf of Mexico is going to fizzle out, although the weather reports have it going different directions. So we want to make sure that we don't put our personnel in harm's way. But anyway, we'll be back with you shortly, and thank you so much for your attention.

Operator

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

Executives
    • Al Petrie
      Al Petrie
      Investor Relations Coordinator
    • Tracy Krohn
      Tracy Krohn
      Chairman and CEO
Analysts
    • Jeff Robertson
      Managing Director at Water Tower Research
    • John White
      Senior Research Analyst at ROTH Capital
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