Business Overview

W&T Offshore, Inc. (NYSE:WTI) reported strong financial and operational results for the first quarter of 2024, demonstrating the company's ability to execute its strategic vision and deliver value to shareholders.

W&T Offshore is an independent oil and natural gas producer, active in the exploration, development and acquisition of oil and natural gas properties in the Gulf of Mexico. As of March 31, 2024, the company holds working interests in 63 producing offshore fields in federal and state waters. W&T currently has under lease approximately 693,900 gross acres (536,200 net acres) spanning across the outer continental shelf off the coasts of Louisiana, Texas, Mississippi and Alabama.

The company's financial and operational performance in the first quarter of 2024 highlights its focus on generating free cash flow, maintaining and optimizing high-quality conventional assets, and capitalizing on accretive opportunities to build shareholder value. W&T reported production of over 35,000 barrels of oil equivalent per day in Q1 2024, which was above the midpoint of its guidance range and up 3% from the fourth quarter of 2023. Importantly, the company increased oil production by around 15% compared to the prior quarter.

This production growth, coupled with effective cost control, enabled W&T to report adjusted EBITDA of $49.4 million in Q1 2024, a 10% increase quarter-over-quarter. The company generated $32 million in free cash flow during the quarter, more than double the amount generated in Q4 2023. W&T's strong balance sheet and cash position, along with its "at-the-market" equity offering program, provide the company with ample liquidity to fund its operations and pursue strategic acquisitions.

Acquisitions and Integration

A key component of W&T's success has been its ability to identify and integrate complementary Gulf of Mexico assets. In January 2024, the company acquired operatorship and a 100% working interest in 6 shallow Gulf of Mexico fields for $77.2 million. This acquisition, which is adjacent to W&T's existing operations, immediately contributed to the company's strong first quarter results.

The integration of the newly acquired assets has been a priority for W&T. The company has worked diligently to inspect all aspects of the fields, ensure safety and environmental standards are met, and negotiate midstream services. While there have been some initial costs associated with this integration process, W&T believes the long-term potential of these assets will justify the near-term investments.

Importantly, the updated third-party year-end engineering report on the acquired assets showed proved SEC reserves of 21.8 million barrels of oil equivalent, which is about 17% higher than W&T's initial expectations. This underscores the significant upside potential of these assets and the company's ability to unlock value through its operational expertise.

Financials

For the full year 2023, W&T reported annual net income of $15,598,000, annual revenue of $532,656,000, annual operating cash flow of $115,326,000, and annual free cash flow of $34,253,000.

In the first quarter of 2024, the company continued to deliver strong financial results. Revenue increased to $140,787,000, up from $131,725,000 in the same period of 2023. This was driven by a 15% increase in oil production and higher realized oil prices, partially offset by lower natural gas prices.

W&T's operating expenses were well-managed, with lease operating expenses coming in below the low end of the company's guidance range. This, combined with the higher production and revenue, led to a 10% increase in adjusted EBITDA to $49.4 million in Q1 2024.

The company's focus on cost control and capital discipline enabled it to generate $32 million in free cash flow during the quarter, more than double the amount generated in Q4 2023. W&T's strong cash position, with $94.8 million in cash and cash equivalents as of March 31, 2024, provides the company with ample liquidity to fund its operations and pursue strategic growth opportunities.

Outlook

For the second quarter of 2024, W&T expects production to be around the same range as the first quarter. This guidance reflects some expected shut-ins of selected fields due to third-party maintenance work. The company plans to spend more on lease operating expenses in Q2 2024 as it undertakes some deferred projects from the first quarter and benefits from improved weather conditions.

For the full year 2024, W&T expects its lease operating expenses to be around $23 per barrel of oil equivalent. The company plans to invest $35 million to $45 million in capital expenditures, excluding acquisitions, with a focus on facilities projects on its existing fields and the recently acquired assets to maximize and optimize production.

Shareholder Returns

In addition to its operational and financial achievements, W&T has demonstrated a commitment to returning value to its shareholders. In the first quarter of 2024, the company paid a regular quarterly dividend of $0.01 per share of common stock. The company has also announced that the second quarter 2024 dividend will be paid later this month.

As the company's largest shareholder, with a 34% stake in W&T's equity, the management team's interests are highly aligned with those of its shareholders. This, combined with the company's focus on operational excellence and cash flow generation, positions W&T well to continue delivering value to its investors.

Risks and Challenges

While W&T has delivered strong results, the company faces several risks and challenges common to the oil and gas industry. These include volatility in commodity prices, regulatory changes, and the inherent risks associated with offshore operations. The company's ability to successfully integrate and optimize acquired assets is also crucial to its long-term success.

Conclusion

W&T Offshore's first quarter 2024 results demonstrate the company's ability to execute its strategic vision and deliver value to shareholders. The company's focus on generating free cash flow, maintaining and optimizing high-quality assets, and capitalizing on accretive acquisition opportunities has positioned it for continued success. With a strong balance sheet, ample liquidity, and an experienced management team, W&T is well-equipped to navigate the challenges of the industry and continue creating value for its shareholders.

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