W&T Offshore Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 7, 2024

There are 4 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the W and C Offshore Second 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 the 2 limiters' questions to 1 and a follow-up.

Operator

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.

Speaker 1

Thank you, operator. 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 Q2 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'd like to turn the call over to Tracy Krone, our Chairman and CEO. Thanks, Al. Good day to everyone and thanks for joining us on our conference call today. So with me are William Willeford, our Executive Vice President and Chief Operating Officer Sameer Parousness, our Executive Vice President and Chief Financial Officer and Trey Hartman, our Vice President and Chief Accounting Officer.

Speaker 1

They'll be available to answer questions later during the call. So in the Q2, we continued to report very solid operational and financial results. Our focus on generating free cash flow while maintaining and optimizing our assets, including the assets we acquired in Q1, allow us to generate free cash flow of $18,700,000 For the past 6.5 years every quarter, we've generated positive free cash flow because we operate very efficiently and know that cash is paramount to our success. Our balance sheet continues to reflect this as we deliver strong production and meaningful adjusted EBITDA. So in the Q2, we had a number of accomplishments that demonstrated how successfully we are doing on our strategy.

Speaker 1

First, we reported production of 34,900 barrels of oil equivalent per day, so at the midpoint of our guidance range and virtually flat to Q1. Next, we generated solid adjusted EBITDA of $45,900,000 We remain focused on cost control with the absorption of recent acquisitions. Thus in the Q2, we recorded lease operating expenses below the low end of our guidance. So we continue to realize synergies from our January 2024 property acquisition and deferred some workovers in facilities maintenance expenses as well. Also we generated strong free cash flow allowing us to increase our cash and cash equivalents at the end of the second quarter by 30% totaled $123,000,000 and decreased our net debt by 9% to $268,500,000 We continued returning cash to our shareholders paying our 3rd consecutive quarterly dividend and announced the Q3 2024 payment will occur later this month.

Speaker 1

Last, we saw meaningful increases in our mid year SEC proved reserves report generated by our Netherland Sewell and Associates. Proved reserves increased 15% to 141,900,000 barrels of oil equivalent and the PV-ten of those reserves increased 28% to $1,400,000,000 So this is evidence of our ability to execute operationally and this continues to help us build cash, reduce net debt and further strengthen our balance sheet. We're in a very good financial position midway through 2024 and we remain focused on operational execution to build on these solid results. So with over 40 years of experience integrating acquisitions in our asset base, we've proven that incurring near term costs are well worth it to realize the long term potential of newly acquired assets that continue to generate cash flow for us for many years to come. Regarding the Cox asset acquisition, we continue to make good progress integrating these new assets into W and T.

Speaker 1

During the Q2, we successfully negotiated a new beneficial agreement with a gas processor at Mobile Bay 916 and returned the field to production on May 27 at rates consistent with expectations. With the return of that field production, 4 of the 6 COX fields recently acquired are now on production. With the 2 remaining shut in fields, we continue to work parallel pass on each to expedite their return to production either through existing sales rates excuse me, sales routes or alternative sales routes. We believe the short term delay is necessary to shore up the longer term viability of these fields. So in addition to the production boost from these new assets, during the Q2 of 2024, we performed 3 workovers and 2 recompletions that positively impacted production for the quarter.

Speaker 1

We were able to maintain production virtually flat in Q1 2024, while only spending $8,800,000 in capital expenditures. These type of operations are a de rigueur for us and help offset our normal decline. So in our earnings release, we provided our Q3 guidance and updated our full year 2024 expectations. We're projecting Q3 production to be around 32,900 barrels of oil per day, which reflects the impact of third party pipeline issues due to the COGS bankruptcy. So for the full year 2024, we adjusted our guidance to take into account these 3rd quarter matters as well as the delays we've experienced in restoring production at a couple of the Cox fields we acquired in January.

Speaker 1

We do plan to spend more on lease operating expenses in the Q3 as we undertake some of the projects we deferred earlier in the year. However, we lowered our full year estimated total lease operating expense to a range of $280,000,000 to $315,000,000 It's a reduction of about 5% at the midpoint to take into account our ability to lower cost and the benefit of synergies from recent acquisitions. We have other operations in the area. For CapEx, we continue to expect to invest $35,000,000 to $45,000,000 in 2024, excluding acquisitions. We incurred about $8,800,000 in the 2nd quarter and $11,900,000 year to date.

Speaker 1

These expenditures are directed primarily to facilities projects on our existing fields and the new fields acquired in late 2023 early 2024 to maximize and optimize production. So in regards to acquisitions, we've invested $80,600,000 so far in 2024 and we've more than replaced reserves. So before I close the call, I would like to tell you about our mid year 2024 reserve report. For mid year 2024, we reported SEC proved reserves of 141,900,000 barrels of oil equivalent, which included 21,800,000 barrels of oil equivalent in acquisition additions and 3,500,000 barrels of oil equivalent of positive performance revisions, partially offset by production of 6,300,000 barrels oil equivalent in the first half of twenty twenty four. The 21,800,000 barrels oil equivalent due to the acquisition is about 17% higher than what we were anticipating when we initially announced the transaction.

Speaker 1

As you can see, we believe there is tremendous potential in these new assets. We're also pleased with this mid year report again that has positive performance revisions. So deja vu all over again. Approximately 47% of mid year 2024 SEC crude reserves were liquids with 38% crude oil and 9% NGLs, we had 53% natural gas. The increase in liquids percentage was largely due to the acquisition as well, further justifying these accretive acquisitions.

Speaker 1

Reserves were classified as 54% proved developed producing, 29% proved developed non producing and 17% proved undeveloped. The pre tax PV-ten of the mid year 2024 proved reserves using SEC pricing was $1,400,000,000 that's an increase of 28% compared with the PV-ten of $1,100,000,000 at year end 2023. Mid year 2024 proved reserves in PV-ten were based on average SEC 12 month crude oil and natural gas prices of $79.45 per barrel and $2.32 per MMBtu. While year end 'twenty three prices were $78.21 per barrel of oil and 2.64 dollars per MMBtu of natural gas. We believe we've built a sustainable portfolio of high performing Gulf of Mexico assets that will continue to provide meaningful cash flow for many years.

Speaker 1

In regard to our ongoing ESG initiatives, we have made a concerted effort in addressing shareholder concerns and improving our ESG metrics. 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. In 2023, we added a new board member, Doctor. Nancy Chang. Nancy is the chair of our Environmental Safety and Governance Committee that oversees our ESG efforts.

Speaker 1

Doctor. Chang is helping us to guide our continuous improvement and assess us in our commitment to the high standards of ESG and corporate governance. Our ongoing commitment will be demonstrated when we issue our 2023 sustainability report in the next few weeks, which will highlight the continued progress we've made on our ESG initiatives. Now, I'd like to sincerely thank our team at W and T as we're well positioned to add value for the remainder of 2024 and into 2025. Our strong balance sheet and robust cash position enhances our optionality to potentially acquire more complementary Gulf of Mexico assets that would enhance the scale of W and T.

Speaker 1

Acquisition remain a key component of our success and is our ability to integrate and enhance the assets that we acquired that's allowed us to grow reserves and production over the past 40 plus years. We'll be rolling out our proposed drilling joint venture for potential investors very soon. We'll have more on that in the not too distant future. So as the company's largest shareholder, I believe W and T is very well positioned to succeed in 2024 and beyond. 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.

Speaker 1

We're focused on operational excellence, meeting our obligations, helping to serve our communities and maximizing the cash flow potential of our asset base. So with that, operator, we can open the lines for questions.

Operator

We will now begin the question and answer session. Our first question will come from John White with Roth Capital. You may now go ahead.

Speaker 2

Good morning.

Speaker 1

Good morning, John.

Speaker 2

Yes. Congratulations on a good quarter and getting the Cox acquisition further integrated. You addressed my question during your prepared remarks, I just want to make sure I'm not missing anything. While you've adjusted production and LOE guidance, there's no change to CapEx or asset retirement obligations, correct?

Speaker 1

That is correct. Yes. We've still got a little bit to invest for the rest of the year.

Speaker 2

Okay. And on the drilling joint venture, good to hear progress on that. Will that be composed of industry partners and institutional investors?

Speaker 1

Yes. The point is we haven't completely embedded all the wells that we want to drill and the exact timing on it. We're still hunting rigs and timing on lifting equipment and whatnot that will move platform rig around. We're rolling out this joint venture for not just industry partners, but also financial investors as well. As you know, we've done this in the past.

Speaker 1

Looks like 6 or 7 wells for sure, And I'll be able to give you more information on the that dollar amount of expected expenditures going forward in pretty short order here.

Speaker 2

Well, that's great to hear. Congratulations on that also. And I'll turn the call back to the operator.

Speaker 1

Thank you, sir.

Operator

Our next question will come from Jeff Robertson with Water Tower Research. You may now go ahead.

Speaker 3

Thank you. Good morning. Tracy, on production, did I hear you right that you all that some part of the adjustment is related to some

Speaker 1

having some sales route difficulties with a couple of the pipeline companies that we're trying to resolve. And we have alternatives. So it's just more of a negotiation than anything at this point in time.

Speaker 3

And you mentioned on the reserves that the COGS reserves were higher than pardon me, than your original estimates. Is that because of data that you had at the time those original estimates were made or are you seeing some outperformance that's leading to performance related revisions?

Speaker 1

Yes, we are seeing some better performance. Also, we're spending a little time making sure that we have all of our transportation routes streamlined with regard to some of our other fields in the areas. We're adding people and equipment in some places and reducing people and equipment in others. So we're just smoothing out that curve a little bit so that we'll have something that's more reliable and won't have all the spiky type of production that you normally have when you first take something over.

Speaker 3

Are some of those changes you're making also have a beneficial cost impact?

Speaker 1

Oh, you bet. Yes, we're going to reduce LOE. That's the intent. And we can deal with some of the more tangible transportation issues. One of our biggest costs in the Gulf is transportation, boats and helicopters.

Speaker 1

So getting that lined out and optimized is important in reducing those costs. Thank you. Thank you, sir. Okay. Well, look, everyone, thank you for listening today.

Speaker 1

We appreciate it. We'll be talking to you very soon, hopefully with some more good news. Thanks so much. Bye bye.

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 Q2 2024
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