W&T Offshore Q1 2025 Earnings Call Transcript

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Provided by Quartr
May 7, 2025

There are 7 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the W and T Offshore First Quarter twenty twenty five 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.

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.

Speaker 1

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 and T Offshore's first quarter twenty twenty five financial and operational results. Before we begin, I'd 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 measures.

Speaker 1

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 Krohn, our Chairman and CEO.

Speaker 2

Thank you, Al. Good morning, everyone, and welcome to our first quarter conference call for 2025. With me today are William Wilford, our Executive VP and Chief Operating Officer Sameer Parasnas, 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.

Speaker 2

We've built W and 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 decline production, meaningful EBITDA and seamlessly integrate accretive producing property acquisitions has helped W and T grow during our forty plus year history. Now before I talk about our first quarter highlights, I'd like to address an important regulatory development. In early April twenty twenty five, 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 in title and meet other conditions. This is a very positive development for W and T.

Speaker 2

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 $71,000,000 We generated $32,200,000 in adjusted EBITDA, an increase of 2% compared to the fourth quarter twenty twenty four. We also produced $10,500,000 in free cash flow.

Speaker 2

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 twenty twenty three and announced the second quarter twenty twenty five 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 and P and Moody's. So in January, we successfully closed an offering of $350,000,000 in new second lien notes due 2029 that decreased our interest rate on second lien notes by 100 basis points and allowed us to redeem our outstanding $275,000,000 of second lien notes and pay off the $114,000,000 outstanding under the term loan provided by Munich Re. This transaction reduced our total debt by $39,000,000 Now this meaningfully enhanced 2025 and future years liquidity by eliminating principal payments under the Munich Re term loan of $28,000,000 in 2025, dollars '20 '5 million in 2026, dollars '20 '3 million in 2027 and $38,000,000 in 2028.

Speaker 2

We also entered into a new $50,000,000 revolving credit facility, which matures in July 2028 that is undrawn and replaces the previous $50,000,000 credit facility provided by Calculus Lending. Additionally, in January 2025, we sold a non core interest in Garden Banks Blocks three eighty five and three eighty six, which was about 200 barrels of oil equivalent per day for $12,000,000 or over $60,000 per flowing barrel. Now in early twenty twenty five, we also received $58,500,000 in cash for an insurance settlement related to the Mobile Bay 70 Eight-one 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 collars for 50,000 MMBtus per day for March 2025 and 70 thousand million BTUs per day from April to December of this year.

Speaker 2

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 $393,000,000 and net debt of $284,000,000 At the end of the first quarter of twenty twenty five, our total debt and net debt were significantly reduced to $350,000,000 and $244,000,000 respectively. Our liquidity at March 31 was approximately 156,000,000 Capital expenditures in the first quarter of twenty twenty five were $8,500,000 and asset retirement costs totaled $3,800,000 We continue to expect our full year capital expenditures to be between $34,000,000 and $42,000,000 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.

Speaker 2

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 at an attractive price. We are now seeing additional production uplift from two fields that were previously shut in. The West Delta 73 and Maine Pass 108 Eightninety 8 fields were placed into production towards the March and into early April.

Speaker 2

We are ramping up production over the course of the second quarter of twenty twenty five 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 twenty twenty five and reiterated our full year guidance. In the second quarter of twenty twenty five, with the new fields ramping up, we are predicting the midpoint of Q2 twenty twenty five production to be around 34,500 barrels oil equivalent per day. This is an increase of 13% compared to the first quarter of twenty twenty five. So turning to our costs, our guidance for second quarter twenty twenty five LOE, gathering, transportation and production taxes costs are slightly higher than the first quarter of twenty twenty five.

Speaker 2

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're always working hard to reduce costs without impacting safety or deferring asset integrity work. Now before closing, I'd 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.

Speaker 2

Since his 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 Burgham issued a secretarial order that directed agency officials to prepare an action plan that will include steps to suspend, revise or rescind certain regulations. In addition, the Trump administration has issued a number of executive orders aimed at streamlining 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 America and expediting U. S.

Speaker 2

Natural resource development. We are very pleased with these actions that we expect will positively impact W and T and the offshore energy industry. So in closing, I'd like to thank our team at W and T 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.

Speaker 2

We will maintain our focus on operational excellence and maximizing the cash flow potential of our asset base. With that operator, we can now open the lines for questions.

Operator

Our first question comes from John White of ROTH Capital. Go ahead please.

Speaker 3

Hey, good morning and congratulations on getting the Cox assets fully online. It has a nice impact on your production guidance.

Speaker 2

Well, morning and thanks, John.

Speaker 3

Yes, sure. Reading the press release, looks like you're going to continue to focus on recompletions and workovers and there's no plans to drill a new grassroots wells. Can you confirm that?

Speaker 2

Yes, that's our current strategy. A little bit of 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.

Speaker 3

Sounds like a good approach. I'll pass it back to the operator. Thank you.

Speaker 2

Thanks, John.

Operator

Our next question comes from Derrick Whitfield of Stifel. Go ahead please.

Speaker 4

Good morning, all. Great update today.

Speaker 2

Thanks, Derrick.

Speaker 4

With the April 8 announcement from the Department of Interior, I wanted to ask if you could elaborate on the financial impact of this announcement to W and T?

Speaker 2

Yes, I can. Clearly, it means we'll have less cost 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.

Speaker 2

That should be a positive for them as well.

Speaker 4

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 want to see kind of where things peak out in Q3 or Q4?

Speaker 2

Yes, I can do that, Derek. Well, in the first quarter, we had some weather incidents and things like that. And West Delta seventy three 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.

Speaker 2

And we've got some ongoing workover and acidizing and workovers and things that we intend to get done 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.

Speaker 4

Great. Last one if I could. Regarding the non core interest in Garden Bank's blocks three eighty five and three eighty six that you guys sold earlier this year, The sales price on that was quite accretive to your valuation. I guess bigger picture, are there other opportunities across your portfolio that you could pursue?

Speaker 2

No, that's a really good question. Yes. 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.

Speaker 2

It's not necessarily a focal point, but it does raise the awareness on that as well.

Speaker 4

Perfect. I'll turn it back to the operator.

Speaker 5

Thank you.

Operator

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

Speaker 6

Thank you. Tracy, you've had the four producing fields from Cox on for roughly a year or so now. 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?

Speaker 2

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.

Speaker 5

Yes. Good morning, Jeff. That's a great question. They are definitely performing. Actually, we're looking at we've seen opportunities to increase production in some of those fields.

Speaker 5

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 So yes, to answer your question directly, yes, we are seeing what we expect to see plus we see an uplift potential as well.

Speaker 6

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

Speaker 5

No, it's always ongoing, but 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, 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.

Speaker 2

I'll elaborate on that just a little bit. I'll be a little bit less political. And 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.

Speaker 6

Tracy, 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?

Speaker 2

Yes. I mean, us, the question is always whether risk more in drilling it and anytime we have the opportunity to make acquisitions as opposed to drilling, it seems to always make more sense to acquire. 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, there's it's more exciting to drill wells and make discoveries and bring new production online.

Speaker 2

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. Having said that, we've also made some really good discoveries as well. So it's always a balance for us and but most of the time we would opt to acquire as opposed to drill.

Speaker 6

Thank you.

Speaker 2

Thank you, sir.

Operator

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 Krohn, Chairman and CEO for any closing remarks.

Speaker 2

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.

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Key Takeaways

  • W&T delivered 30,500 BOE/D in Q1—near the top of guidance—while lease operating expenses of $71 million were below guidance, driving adjusted EBITDA up 2% to $32.2 million and free cash flow of $10.5 million.
  • In January, the company issued $350 million of second-lien notes due 2029, redeemed $275 million of existing notes and paid off a $114 million term loan, reducing total debt by $39 million and enhancing 2025+ liquidity.
  • W&T sold a non-core interest for $12 million and received a $58.5 million insurance settlement, boosting cash resources to about $156 million and cutting net debt to $244 million at quarter-end.
  • The Department of Interior’s April directive limiting supplemental financial assurance in the Gulf of Mexico—except in narrow cases—eases regulatory uncertainty and reduces potential bonding costs.
  • With West Delta 73 and Main Pass 108 ramping up, Q2 production is guided to ~34,500 BOE/D (up 13% QoQ); full-year CapEx remains $34–42 million, focused on accretive, low-risk acquisitions.
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Earnings Conference Call
W&T Offshore Q1 2025
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