Recycling Cash Flow in Acquisitions
We hosted a fireside chat with Chairman, President, and CEO Tracy Krohn on March 27, 2024, to discuss the company’s acquisition-driven strategy in the Gulf of Mexico. This report contains a transcript of the conversation, which can be accessed on demand. Link accessible in our full report. Since September 2023, W&T has closed two producing property acquisitions in the Gulf of Mexico for combined cash considerations of ~$104 million. In the most recent closing, the company acquired six shallow-water fields from entities affiliated with Cox Offshore in a bankruptcy proceeding for $72 million, with estimated proved reserves of 18.7 MMBOE (62% liquids) as of January 1, 2024, equating to a proved reserve purchase price of ~$3.85/BOE. Management believes the fields expose W&T to material upside with estimated proved plus probable reserves of 60.6 MMBOE (62% liquids) as of January 1, 2024. W&T has been an acquisitive operator and asset developer in the Gulf of Mexico for more than 40 years. Management concentrates its efforts on assets that generate current cash flow to recycle into incremental acquisitions and development on acquired assets. The Cox acquisition brings material exposure to probable and possible reserves that could add future cash flow. The Gulf of Mexico is expected to remain fertile ground for consolidation opportunities. Announced transactions among some of the largest companies with Gulf assets could result in portfolio rationalization putting more assets into the marketplace. W&T’s focus on cash flow and its strong liquidity position the company to remain opportunistic. W&T is working to structure a drilling joint venture that would include a package of proved undeveloped and exploration prospects that could be part of a 2025 capital program. Management indicated the total gross drilling program could be in the $500 million to $1 billion range, including completion and tie-in costs. W&T generated adjusted EBITDA of $49.4 million from average production of 35.1 MBOE/d (55% liquids in 1Q24. Free cash flow totaled $32.4 million. 2Q24 production guidance is 32.7-37.3 MBOE/d and FY24 guidance is 33.9-39.9 MBOE/d. As of March 31, 2024, the company had $94.8 million of cash on the balance sheet and $399.9 million of long-term debt. The leverage ratio was 1.6x based on TTM adjusted EBITDA.
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