W&T Offshore - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 revenue was $120.3M, diluted EPS was $(0.16), and Adjusted EBITDA was $31.6M; production was 32.1 MBoe/d and within guidance despite hurricane-related and third‑party downtime.
• Lease operating expense (“LOE”) materially beat guidance: $64.3M vs prior guidance of $73.0–$81.0M, driven by synergies, favorable audit adjustments, royalty credits, and lower repairs/maintenance; realized price per Boe declined to $39.86.
• 2025 outlook introduced: Q1 2025 production 27.6–30.6 MBoe/d (maintenance/freeze downtime) and FY 2025 32.8–36.3 MBoe/d with Cox fields returning; LOE guided higher near 2024 levels (Q1: $72.5–$80.5M; FY: $280–$310M).
• Balance sheet strengthened post-quarter: $350M 10.75% notes due 2029, term loan repaid, gross debt reduced by ~$39M, and $58.5M insurance settlement; dividend maintained at $0.01/share.

What Went Well and What Went Wrong

What Went Well

• LOE executed well below guidance at $64.3M (12% below the low end), reflecting acquisition synergies and favorable items; LOE per Boe fell Q/Q to $21.76.
• Proved reserves increased to 127.0 MMBoe at year‑end; PV‑10 rose 14% to $1.2B despite lower SEC pricing (“oil reserves +39%” YoY).
• Management emphasized sustained free cash flow strategy and accretive acquisitions, with Q4 Adjusted EBITDA of $31.6M and five consecutive quarterly dividends since inception.
• Quote: “We delivered solid results in 2024 thanks to our continued commitment to executing on our strategic vision focused on free cash flow generation, maintaining solid production and maximizing margins.” — Tracy W. Krohn.

What Went Wrong

• Net loss of $(23.4)M in Q4 and revenue down ~9% YoY on lower realized prices and volumes; realized price per Boe dropped to $39.86.
• Derivative result turned to a net loss of $2.1M in Q4 (realized losses $2.6M, small unrealized gain) versus gains in Q3 and Q4 2023.
• Q1 2025 production guide reflects planned maintenance and unplanned winter freeze downtime; LOE expected higher Q/Q in Q1 due to facility upgrades.

Transcript

Operator (participant)

Ladies and gentlemen, thank you for standing by. Welcome to the W&T Offshore Fourth Quarter and Full Year 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. Please go ahead.

Al Petrie (Investor Relations Coordinator)

Thank you, Wyatt. On behalf of the management team, I'd like to welcome all of you to today's conference call to review W&T Offshore's fourth quarter and full year 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'd like to turn the call over to Tracy Krohn, our Chairman and CEO.

Tracy Krohn (Chairman and CEO)

Thanks, Al. Good morning, everyone, and welcome to our year-end 2024 conference call. 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 are available to answer questions later during the call. Our proven strategy is simple and effective. We focus on generating free cash flow, maintaining and optimizing our high-quality conventional assets, and opportunistically capitalize on accretive opportunities to build shareholder value. We have a strong balance sheet and further enhanced it in early 2025. We have built a sustainable business with a long-term vision 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 integrate accretive property acquisitions has helped W&T grow during our 40-year-plus history. Over the past year, we've accomplished many things that I'd like to highlight now. In January 2024, we invested about $77 million of cash to purchase 100% working interest in six shallow water Gulf of Mexico, excuse me, Gulf of America fields from Cox, which added 21.7 million barrels of oil equivalent of 2024 approved reserves. This equates to a price of about $3.38 per barrel oil equivalent booked when accounting for 2024 production from these fields. Those properties are adjacent to our existing operations, which provides the ability for us to capture synergies regarding personnel, well optimization, gathering, and transportation. While this helped us by adding about 3,500 barrels of oil equivalent per day to production in 2024, several fields were offline for most of 2024.

As we announced in January, we expect to return the remaining three fields to production in the second quarter of 2025. The benefit of that production increase is included in our guidance for fiscal year 2025. While we were busy integrating our acquisition, we also continued to execute operationally. For the full year 2024, we generated $154 million in adjusted EBITDA and $45 million in free cash flow. We delivered production of 33,300 barrels of oil equivalent per day despite impacts from hurricanes and other downtime related to the Cox acquisition. We have paid five quarterly cash dividends since initiating the dividend policy in late 2023 and announced the first quarter 2025 payment that will occur later this month.

We carried this momentum into 2025 and started this year with several transactions that have strengthened and simplified our balance sheet, added material cash to the bottom line, and improved our credit ratings from S&P and Moody's. In January, we closed $350 million in new second lien notes that decreased our interest rate by 100 basis points and allowed us to redeem our outstanding $275 million of second lien notes and pay off the $114 million outstanding under the term loan provided by Munich Re. This also reduced debt by $39 million. We entered into a new credit agreement for a $50 million revolving credit facility, which matures in July 2028, that's undrawn and replaces the previous credit facility provided by Calculus Lending.

Additionally, in January 2025, we sold a non-core interest in Garden Banks block 385 and 386, which was about 200 barrels of oil equivalent per day for $12 million or over $60,000 per flowing barrel. In early 2025, we also received $58.5 million in cash for an insurance settlement related to the Mobile Bay 78-1 well. Lastly, to take advantage of the uptick in natural gas prices, we recently added costless collars for 50 million per day from March to December. That helps us lock in a favorable price range for our natural gas. Our ability to execute our strategy has delivered very positive results that have improved our balance sheet, expanded our asset base, and positioned us for success in 2025 and beyond.

Turning to our year-end reserve results, I'd like to point out that we continue to see positive performance in technical revisions, which demonstrates the strength of our world-class conventional Gulf of Mexico assets. While total proven reserves at SEC pricing increased 3% year over year to 127 million barrels of oil equivalent, our oil reserves increased by 39%. This was driven by the oil-weighted Cox acquisition and positive performance revisions. For 2024, our reserves increased by 21.7 million barrels of oil equivalent due to acquisitions and 5 million barrels of oil equivalent from positive performance revisions, which were partially offset by 12.2 million barrels of oil equivalent of production in 2024. This translates to a reserve replacement of 219% of 2024 production. W&T's reserve life ratio at year-end 2024, based on year-end 2024 approved reserves and 2024 production, was 10.4 years.

While we had strong performance from the factors that we can control, we did see a decrease of 10.5 million barrels of oil equivalent due to pricing revisions as we saw SEC natural gas pricing decrease by 19% from 2023, and SEC oil pricing declined by about 3%. As a result, the majority of the price revisions impacted our natural gas reserves. Because the pricing impact was weighted more toward natural gas, our overall PV-10 value was not impacted as much. Plus, we benefited from a meaningful increase in oil reserves. We are pleased that the PV-10 value of our SEC approved reserves at year-end 2024 increased by almost $150 million, or 14% to $1.2 billion, despite the lower SEC pricing. Approximately 51% of year-end 2024 SEC approved reserves were liquids, with 41% crude oil and 10% NGLs, and we had 49% natural gas.

The reserves were classified as 52% proved developed producing, 31% proved developed nonproducing, and 17% proved undeveloped. Over the years, we've consistently created significant value by methodically integrating producing property acquisitions. After we close any acquisition, we take time to assess and inspect the newly acquired fields, which potentially requires refurbishing some of the fields in the process. We have a large footprint across the Gulf of Mexico, so we look for ways to optimize operations, increase production, and utilize that large footprint where we can to reduce costs and maximize value. Our focus on cost control and capturing synergies associated with our asset acquisitions contributed to our lease operating expense coming in at the low end of our reduced guidance range.

In addition, we're expecting further production uplift associated with the remaining fields from the Cox acquisition coming online in the second quarter of 2025 that were previously shut in. As I mentioned previously, in early 2025, we strengthened and simplified our balance sheet by closing the new senior second lien notes offering and entering into a new revolving credit facility. I'd like to thank our banks for running such a smooth process. Texas Capital Bank is leading that facility. The new senior second lien notes, which received improved credit ratings from S&P and Moody's, had a broad distribution. We were oversubscribed. This included international investors and was significantly oversubscribed, further demonstrating the investment community's confidence in W&T's underlying asset base. We likewise are pleased to now have access to the bank revolving market again.

At year-end 2024, the company had total debt of $393 million and net debt of $284 million, with liquidity of $159 million. Assuming the debt refinance, asset sale, and insurance settlement had occurred on December 31, 2024, on a pro forma basis, our cash and cash equivalents would have been about $350 million, and net debt would have been about $245 million, which reflects the improvements made to our balance sheet. Yesterday, we also provided our detailed guidance for 2025. In the first quarter of 2025, we had several planned facility and pipeline maintenance projects, as well as unplanned downtime at several fields due to multiple winter freezes that have temporarily reduced our production volumes.

We're predicting the midpoint of Q1 2025 production to be around 29,000 barrels of oil equivalent per day, but with the expected restarting of fields in the second quarter of 2025 related to the Cox acquisition, as well as additional workover and facility upgrades, our full year 2025 production midpoint is about 34,000 barrels of oil equivalent per day, which is about 6% higher than our Q4 2024 production. Despite projecting to spend only about $34-$42 million in CapEx in 2025, we believe the additional fields coming online from the Cox acquisitions will help us offset natural decline and grow production this year. We focus more on acquisitions over the last few years rather than on drilling many new wells.

Our ability to maintain low-decline production is a testament to our culture of operational excellence and the strength of our 2P reserves, which are manifested by cash flow and future 1P reserves that do not require additional CapEx. Turning to our costs, our guidance for 2025 LOE, gathering, transportation, and production taxes and G&A costs are in line with 2024. We see some additions to LOE, but believe that overall we can offset some of those increases with lower G&A and G&T expenses for gathering and transportation. With that said, we do believe that there are more opportunities to reduce our operating costs and find synergies to drive costs lower in the long term. We are always working hard to reduce costs without impacting safety or deferring asset integrity work. I also want to congratulate our folks offshore for achieving zero accidents in 2024. Well done, everyone.

Our first quarter LOE is expected to be between $72.5 million and $80.5 million, which reflects some of the increased maintenance and repair costs, as well as additional facilities upgrade work. First quarter cash G&A costs are expected to be between $17.8 million and $19.8 million. I want to sincerely thank our team at W&T as we're well positioned to add value in 2025. We have a solid cash position and good liquidity that enables us 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 Mexico is and will continue to be a world-class basin. We will maintain our focus on operational excellence and maximizing the cash flow potential of our asset base.

As the company's largest shareholder, I believe W&T is very well positioned to succeed in 2025 and beyond. 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. With that operator, we can now open the lines for questions. Thank you.

Operator (participant)

We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. Again, please limit yourself to one question and one follow-up. If you have further questions, you may re-enter the question queue. At this time, we will pause momentarily to assemble our roster.

Tracy Krohn (Chairman and CEO)

The first question will come from John White with Roth Capital. Please go ahead.

John White (Senior Research Analyst)

Good morning and congratulations on the nice results and the very nice approved reserve report. Well done.

Tracy Krohn (Chairman and CEO)

Thanks, John. Good morning.

John White (Senior Research Analyst)

Good morning. The midpoint of your full year production guidance shows some nice growth. Is that all coming from restarting of fields that were shut in in the first quarter and recompletions and workovers? I did not see any mention of new drilling in the press release.

Tracy Krohn (Chairman and CEO)

Yeah, you're correct, John. That does not include any new drilling. Does not mean we're not going to do any. We are faced with a quality dilemma. We're seeing assets come available in the market. We're contemplating working on the asset acquisitions that we're seeing. That may change our thought process with regards to additional drilling this year.

We still expect to be drilling in 2026, but it could defer something in 2025, scheduled for late 2025, as opposed to chasing some acquisitions that we think would be a nice addition to our portfolio.

John White (Senior Research Analyst)

Okay. Thanks for that detail and good luck with your transactions. I'll turn it back to the operator.

Tracy Krohn (Chairman and CEO)

Thanks, John.

Operator (participant)

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

Jeff Robertson (Managing Director)

Thank you. Tracy, to follow up on the drilling comments, can you provide or can you share an update on the drilling partnership that you spoke about in 2024?

Tracy Krohn (Chairman and CEO)

Yeah, we're continuing to follow through on that. That still looks like first, well, we would want to drill is at Holy Grail, which is our Magnolia field. It's a floating vessel out there. We'll have to put a platform rig on it.

Fortunately, those are proved reserves that we would be chasing there. And then we have another prospect lined up right after that with potentially with the same drilling rig. Fortunately, we have a choice on the second structure over at what we're calling our Caiman prospect. Yeah, we're still moving forward with a drilling program. The only thing that, again, as I just told John, that might change that is the potential for additional acquisitions. That market seems to be getting a little bit looser, if you will.

Jeff Robertson (Managing Director)

On the acquisition front, is your preference still that that adds immediate cash flow as you add producing properties rather than obviously running the risk of drilling and adding cash flow 12 to 18 months or longer after you drilled a well?

Tracy Krohn (Chairman and CEO)

Yeah, you bet, Jeff.

I mean, anytime we can substitute acquisitions for drilling, that's probably the better thing to do, primarily because you take so much of the risk out of it. There's a lot of good to be had with organic growth. There's also risk with it. We think that prices on oil are stabilizing around $70 over the long term. We think that gas has real potential for moving up. And we've made some hedges accordingly just recently as a result of that.

Jeff Robertson (Managing Director)

Thank you.

Operator (participant)

No further questions. 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 (Chairman and CEO)

Yeah, it looks like we have one more question, operator, from Jeff Robertson.

Operator (participant)

Jeff Robertson, you may go ahead.

Jeff Robertson (Managing Director)

Thanks, Tracy. A question on the operating expenses.

How much progress did you all make in 2024 on the refurbishment on the Cox assets? How much is left to do in 2025? Can you provide some color around the range of $280-$310 million for lease operating expenses in 2025?

Tracy Krohn (Chairman and CEO)

Jeff, just so happens I have the guys responsible for that to help you answer that question. William Williford, our Chief Operating Officer.

William Williford (EVP and COO)

Yeah, thanks, Tracy. Good morning, Jeff. We made a huge dent in that from an LOE standpoint. We still got quite a few things to do in 2025 to get these platforms up to W&T standards. They're still ongoing, but we should see a lot of that completed in 2025. That's a good question.

Jeff Robertson (Managing Director)

On the two West Delta and the Main Pass fields that are scheduled to come on in the second quarter, do those facilities need much work, or have you all already done whatever work is required there?

William Williford (EVP and COO)

The main pass stuff is actually something that got caught up in the Cox issue with the bankruptcy. We've already had work done there. Essentially, we're just waiting to get that back online once we get everything squared away with the bankruptcy. As far as West Delta 73, all of that is just maintenance and work we're getting done to get that field back online. The majority of that is done.

Jeff Robertson (Managing Director)

Okay. Thank you.

William Williford (EVP and COO)

Thank you, sir.

Operator (participant)

Now, with no further questions, 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 (Chairman and CEO)

Thanks, operator.

Last but not least, we've spent several years repaying all the debt the company had and managing that in spite of a lot of changes in our business and changes throughout the world with regard to fossil fuels and the philosophy around usage of same. Also the fact that we've had some change in leadership in the country and a lot of random things that we couldn't have predicted. The good news is that we've managed to get that debt down in spite of all that. We've refinanced the remainder, which is in pretty good shape now. The company is poised to turn that corner. In fact, we are turning that corner and moving forward in 2025 as a growth entity.

Now we think that we'll be able to start carrying on business more as usual with regard to making acquisitions, dispositions, and drilling wells in the Gulf of Mexico. With that, we'll terminate this call today, but look forward to hearing from us again in the very near future. Thanks so much. Bye-bye.

Operator (participant)

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