W&T Offshore Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 8, 2024

There are 3 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the W and 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 opened for question and answers. This conference is being recorded and a replay will be made available on the company's website following the call.

Operator

I would now like to turn the conference over to Al Petrie, Investor Relations Coordinator.

Speaker 1

Thank you, Megan. 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 Q3 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 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 would like to turn the call over to Tracy Krone, our Chairman and CEO. Thanks, Hal. Good day to everyone and thank you for joining us on our conference call. With me today are William Wilford, our Executive Vice President and Chief Operating Officer Samir Bhrastnes, our Executive Vice President and Chief Financial Officer and Trey Hartman, our Vice President and Chief Accounting Officer.

Speaker 1

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 Q1 of this year. Through September 30, 2024, we generated free cash flow of $54,900,000 on a year to date basis. For the past 7 years, we've generated positive free cash flow and it's because we operate very efficiently and know that cash is paramount to our success.

Speaker 1

Our balance sheet continues to improve as we're delivering meaningful adjusted EBITDA, which year to date totaled $122,000,000 So I'd like to begin our operational discussion by focusing on production. In the Q3, production was 31,000 barrels of oil equivalent per day. Our production was impacted by an active hurricane season in the Gulf of Mexico, seems 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 a majority of this production has been restored with our October production rate at around 34,000 barrels of oil equivalent per day.

Speaker 1

In addition, we continue to optimize production that we acquired in Q1 2024. However, only 4 of the 6 fields are currently online. We're working diligently to return the remaining 2 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 for us for many years to come. So turning to costs, our lease operating expenses for the Q3 2024 were $72,400,000 which was below the bottom end of our guidance range by 6%.

Speaker 1

In fact, costs were down 2% compared to the Q2 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. At the end of the 3rd quarter, our cash on hand rose to $126,500,000 and we lowered our net debt to $266,000,000 We also continued returning cash to our shareholders, paying our 4th consecutive quarterly dividend in August and we announced the Q4 2024 payment will occur later this month. In our earnings release, we provided our 4th quarter guidance. We're projecting production to increase compared to the 3rd quarter due to less hurricane and related downtime.

Speaker 1

Q4 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. We plan to spend a little more on lease operating expenses in the 4th quarter as we undertake some of the projects we deferred earlier in the year and we continue to bring on the other 2 new fields back online to help increase operational and financial results. For CapEx, excluding acquisitions, we invested about $9,500,000 during the quarter and about $23,300,000 in the 1st 9 months of 2024.

Speaker 1

In addition, we invested $80,600,000 in acquisitions year to date. So now we plan to invest about $25,000,000 to $35,000,000 in the full year 2024 excluding acquisitions. This is down about $10,000,000 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. 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.

Speaker 1

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 cost asset acquisition, We've had good execution toward integrating these assets into W and 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 WT systems.

Speaker 1

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 and 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 Q3, we had 0 recordable safety incidents. In fact, we've not had an employee recordable incident in the entire year.

Speaker 1

And our overall TRIR rate for 2024 is 0.09, one of the latest one of the lowest in our long history. So 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. 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 Q3. I'm also proud to announce that Devonte was named as a finalist for the best proxy statement in the smallmidcap category at the 18th Annual Corporate Governance Awards, which recognize outstanding achievements in governance risk and compliance.

Speaker 1

We're honored to receive this recognition, which serves as a testament to our dedication to shareholders to deliver clear, comprehensive and accessible communications. 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 1st place, we did get on the podium at P2. So in closing, I'd like to sincerely thank our team at W and T as we're well positioned to add value in 2025 and beyond, got cash on the balance sheet, strong balance sheet and robust cash position enhances our optionality to potentially acquire more complementary Gulf of Mexico assets to enhance the scale of W and T. Our acquisition for Maine is a key component of our success and it's our ability to integrate and enhance the assets that we acquired that has allowed us to grow reserves and production over the past 4 years.

Speaker 1

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 and 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 and T's equity, which is one of the highest of any public E and 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. The first question comes from John White with ROTH Capital. Please go ahead.

Speaker 2

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?

Speaker 1

Sure, John. And thanks and good morning to you too. Yes, 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.

Speaker 1

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 will 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.

Speaker 1

And we'll be able to address that in a more concise manner going forward. We do have wells that we want to get drilled and this will help us with trying to estimate economics going forward.

Speaker 2

And you said the acquisition market is in flux waiting on the outcome of the election?

Speaker 1

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 1st and second quarters of next year. And we see some things that are attractive.

Speaker 1

We also see some drilling opportunities that are attractive and we'll be working on some other things as well.

Speaker 2

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.

Speaker 1

Thanks, Josh.

Operator

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

Speaker 1

Thank you. Good morning. Tracy, the 2 fields that are still shut in from the Cox acquisition, what can you talk about the production mix and what kind of production contribution you would expect when those deals come back on? Yes. It will be several 1,000 barrels a day.

Speaker 1

One of them is more technically oriented with equipment at all and the other one is more of a legal challenge. So 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 2. And the mix between oil and gas?

Speaker 1

Yes, mostly oil. Okay. Just to follow-up to, I guess, John's question. Does the election resolve some issues that help further your the potential formation of a drilling partnership? I damn well hope so.

Speaker 1

Yes. 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 as well that caused the government to draw a large band between Florida and Texas through which we could we weren't allowed to run our boats at night and we weren't allowed to run them during the day more than 6 miles per hour and it would have affected our production quite a bit. There is a challenge to that lawsuit, those orders are in abeyance at this point.

Speaker 1

But yes, I mean, we've been concerned 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. It's only oil and gas companies that hit whales. So we thought that was a little absurd and still do.

Speaker 1

So we're 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 be restricted to just the oil and gas business. So hopefully that will get straightened down the courts and reasonably you would think it would. As far as the other lawsuit with regard to financial assurance, The governments 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 regulatory on the deals with Gulf of Mexico have required financial assurance in the Gulf of Mexico since the Obama administration. And it's created a problem in dealing that capacity.

Speaker 1

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. So we, by the way, have done over $1,000,000,000 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 joint and separately liable on all of these leases for the same. And that's part of it.

Speaker 1

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. But since it never has happened, there's no reason to have this financial assurance that we think. We see this as punitive to the industry. We see it as a solution to a problem that doesn't exist.

Speaker 1

Thank you. That's kind of long winded explanation, Doug. That's good though.

Operator

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

Speaker 1

Thank you, operator. Yes, we'll be back with you in the not too distant future. We've got a lot of things going on and we are encouraged. Production is 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 and although the weather reports have it going in different directions.

Speaker 1

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.

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Earnings Conference Call
W&T Offshore Q3 2024
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