W&T Offshore Announces Closing of Accretive Acquisition of Six Gulf of Mexico Fields
W&T Offshore, Inc. announces a successful acquisition of six fields in shallow waters of the Gulf of Mexico. The purchase price was $72.0 million, excluding certain closing costs, funded from the Company’s cash on hand. The fields acquired include Eugene Island 064, Main Pass 061, Mobile 904, Mobile 916, South Pass 049, and West Delta 073, with estimated production ranging from 3,700 to 5,700 barrels of oil equivalent per day. The acquisition adds significant proved reserves of 18.7 million barrels of oil equivalent and material upside with proved plus probable reserves of 60.6 MMBOE. The transaction is expected to be accretive and provide strong producing properties, with the potential for increased production through workovers, recompletions, and facility repairs.
Positive
Successful acquisition of six fields in the Gulf of Mexico
Purchase price of $72.0 million funded from the Company’s cash on hand
Estimated production ranging from 3,700 to 5,700 barrels of oil equivalent per day
Significant proved reserves of 18.7 million barrels of oil equivalent
Material upside with proved plus probable reserves of 60.6 MMBOE
Expected to be accretive and provide strong producing properties
The acquisition of six fields by W&T Offshore signifies a strategic expansion in the Gulf of Mexico, leveraging the company's existing operational framework. The transaction's accretive nature suggests immediate additive effects to W&T's earnings, a key point for investors. The cash multiple of approximately 1.0x indicates that the purchase price is in line with the assets' generated cash flow, which can be an indicator of a prudent investment, especially in an industry where overpaying for assets is a common pitfall.
Moreover, the production multiple of approximately $16,950 per BOEPD provides a benchmark against industry standards for similar transactions. The increase in proved reserves (1P) by 18.7 MMBOE and proved plus probable reserves (2P) by 60.6 MMBOE at a PV-10 value significantly higher than the purchase price reflects a substantial addition to the company's asset base, which can lead to increased borrowing capacity and potentially enhance shareholder value.
However, the ability to increase production through workovers, recompletions and facility repairs will be critical to realizing the projected value and should be monitored closely by investors. The company's track record with similar past acquisitions and operational synergies will be a determinant in the successful integration of these assets.
From a technical perspective, the acquisition of fields with 100% working interest and an average of 82% net revenue interest is significant. Full control over operations can lead to more efficient decision-making and potentially lower operational costs. The fields' production profile, with a majority in liquids, is advantageous given the generally higher market value of liquids compared to gas.
The mention of estimated production ranging from 3,700 to 5,700 BOEPD and past production of 8,300 BOEPD pre-bankruptcy indicates a potential for production optimization. The focus on capital-efficient, low-cost projects is a prudent approach in the current economic climate where cost control is paramount.
Understanding the condition of the existing infrastructure and the specifics of the workovers, recompletions and facility repairs needed will be essential to evaluate the feasibility and timing of the production increase. The proximity to existing operations could indeed allow for operational synergies, but the actual realization of these benefits will depend on the execution of the integration strategy.
W&T Offshore's acquisition aligns with broader industry trends where companies focus on consolidation and portfolio optimization . The deal's timing, post-bankruptcy of the selling entities, could indicate a favorable purchase price in a distressed sale, which is often an opportunity for buyers to expand their portfolios at a discount.
The Gulf of Mexico remains a strategic location with significant hydrocarbon resources and W&T's investment could signal confidence in the region's stability and profitability. Additionally, the acquisition may have a positive impact on the company's stock performance, as the market generally reacts favorably to growth through strategic acquisitions, especially when they are accretive and well-integrated.
However, the long-term success of this acquisition will also hinge on external factors such as oil prices, regulatory changes and advancements in renewable energy sources, which could impact the profitability and longevity of hydrocarbon investments. Stakeholders should consider these broader market dynamics when evaluating the potential success of the acquisition.
01/22/2024 - 06:45 AM
HOUSTON, Jan. 22, 2024 (GLOBE NEWSWIRE) -- W&T Offshore, Inc. (NYSE: WTI) (the “Company” or “W&T”) today announced that the Company has completed the accretive acquisition of six fields in shallow waters of the Gulf of Mexico. W&T was the successful bidder for certain synergistic assets in the Gulf of Mexico offered by MLCJR LLC, Cox Oil Offshore, L.L.C., Cox Operating, L.L.C., Energy XXI GOM, LLC, Energy XXI Gulf Coast, LLC, EPL Oil & Gas, LLC and M21K, LLC (collectively, the “Debtors”), as described in the Order Approving the Purchase And Sale Agreement With W&T Offshore, Inc. issued on January 16, 2024, the closing and effective date of the transaction. The final purchase price for the assets was $72.0 million , excluding certain closing costs, which was funded from the Company’s cash on hand. Key highlights of the transaction are as follows:
Provides strong producing properties, all of which are 100% working interest (average 82% net revenue interest) and are located adjacent to W&T existing area of operations; The six fields acquired include Eugene Island 064, Main Pass 061, Mobile 904, Mobile 916, South Pass 049 and West Delta 073; Includes estimated production that has ranged from approximately 3,700 to 5,700 barrels of oil equivalent per day ("BOEPD") (around 68% liquids) during the period month-to-date January 19, 2024. The Company believes that it can meaningfully increase production on these properties through workovers, recompletions and facility repairs; The six fields acquired produced approximately 8,300 BOEPD (48% liquids) on average in April 2023, the month prior to the bankruptcy filing by the Debtors in May 2023; Adds significant proved reserves (“1P”) of 18.7 million barrels of oil equivalent (“MMBOE”) (62% liquids) as of January 1, 2024 at year-end 2023 SEC pricing with a present value discounted at 10% (“PV-10”) value of $250.4 million 1 based on an independent engineering report prepared by Netherland Sewell and Associates (“NSAI”); Provides material upside with proved plus probable reserves (“2P”) of 60.6 MMBOE (78% liquids) as of January 1, 2024 at year-end 2023 SEC pricing with a PV-10 value of $629.2 million 1 based on an independent engineering report prepared by NSAI; and Accretive cash multiple of approximately 1.0x last twelve months asset cash flows as of October 31, 20232 , and production multiple of approximately $16,950 per BOEPD based on average estimated production range for the period month-to-date January 19, 2024. Tracy W. Krohn, Chairman, President and CEO, commented, “We are very pleased to announce our second accretive acquisition of GOM producing properties in the last four months. As was the case with the purchase announced in September 2023, the producing properties included in the acquisition announced today meet the time-tested investment criteria we have used for all acquisitions. These assets have attractive production rates, are generating positive free cash flow, and have a solid base of proved developed reserves and identified upside potential with strong 2P reserves. We plan to increase production in the near-term with capital-efficient, low-cost workover, recompletion and maintenance projects. We expect to realize synergies on these new assets due to their close proximity to our existing fields, which can reduce operating costs and further increase free cash flow. Combined with our acquisition last fall, we have added almost 22 million barrels of oil equivalent of proved reserves for about $104 million , or around $4.75 per BOE, which we believe is a very attractive price for properties with significant upside. We plan to continue to utilize our strong balance sheet and expertise in acquiring complementary GOM assets to further enhance the scale of W&T. Acquisitions continue to be a key component of how we build and grow value, reserves and production at W&T, and we are well positioned to continue to execute on our successful strategy.”
The six fields acquired include Eugene Island 064, Main Pass 061, Mobile 904, Mobile 916, South Pass 049 and West Delta 073, all of which include a 100% working interest and an average 82% net revenue interest. They are located in water depths ranging between approximately 15 and 400 feet. Their proximity to W&T’s areas of existing operations provide the ability for W&T to capture synergies. Recent estimated production for the fields has ranged from approximately 3,700 to 5,700 BOEPD (around 68% liquids) during the period month-to-date January 19, 2024. W&T plans to implement a series of workovers, recompletions and general maintenance work that the Company expects will increase total production from the fields.
As a result of this additional accretive acquisition, W&T plans to invest additional funds for increasing production and reducing costs in these assets long term. The Company now plans to defer the drilling of Holy Grail, which is a proven undeveloped well in our Magnolia field. The Company will be exploring a Drilling Joint Venture, similar to what it did with investors in 2018 through Monza Energy LLC, that may include certain of the Company’s 100% owned and operated deepwater wells, including Holy Grail (approximately 3,900 feet of water), Thunderbolt (approximately 500 feet of water), Zeus (approximately 500 feet of water) and Redbolt (approximately 500 feet of water). Additionally, the Company plans to drill at least one shelf exploratory well in the Drilling Joint Venture. We believe that such a structure aligns investor interests and provides ongoing liquidity through cash distributions. Additional information and expectations from the acquisitions will be incorporated into W&T’s 2024 guidance that will be discussed during the Company’s year-end 2023 conference call in early March.
About W&T Offshore
W&T Offshore, Inc. is an independent oil and natural gas producer with operations offshore in the Gulf of Mexico and has grown through acquisitions, exploration and development. As of September 30, 2023, the Company had working interests in 54 fields in federal and state waters (which include 45 fields in federal waters and nine in state waters). The Company has under lease approximately 602,100 gross acres (446,800 net acres) spanning across the outer continental shelf off the coasts of Louisiana, Texas, Mississippi and Alabama, with approximately 440,600 gross acres on the conventional shelf, approximately 153,500 gross acres in the deepwater and 8,000 gross acres in Alabama onshore. A majority of the Company’s daily production is derived from wells it operates. For more information on W&T, please visit the Company’s website at www.wtoffshore.com .
Cautionary Note Regarding Forward Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements, including but not limited to, statements regarding the benefits of the acquisition, expected synergies, expected production and increases in production, expected cash flow generated by the assets, uses of capital, drilling and operations plans and potential joint ventures and financing structures, and other statements herein, reflect our current views with respect to future events, based on what we believe are reasonable estimates and assumptions. No assurance can be given, however, that these events will occur or that our expectations will be correct. These statements are subject to risks and uncertainties that could cause actual results to differ materially including, among other things, risks pertaining to the integration of the assets, market conditions, commodity price volatility, uncertainties inherent in oil and gas production operations and estimating reserves, uncertainties of the timing and impact of bringing new wells online and repairing and restoring infrastructure due to hurricane damage, the ability to achieve leverage targets, unexpected future capital expenditures, competition, the success of our risk management activities, governmental regulations, uncertainties and other factors described or referenced in W&T’s Annual Report on Form 10-K for the year ended December 31, 2022, and subsequent Quarterly Reports on Form 10-Q found at www.sec.gov or on our website at www.wtoffshore.com under the Investor Relations section. Our forward-looking statements in this press release are based upon assumptions made, and information known, by the Company as of the date of this release; the Company does not undertake, and specifically disclaims, any obligation to revise or update any such forward-looking statements as such assumptions and information changes, except as required under applicable law. Investors are urged to consider closely the disclosures and risk factors in these reports.
W&T OFFSHORE, INC. AND SUBSIDIARIES
Non-GAAP Information
The Company has disclosed the present value of future net pre-tax cash flows attributable to estimated net proved (1P) and net probable (2P) reserves, discounted at 10% (PV-10), which is not a financial measure defined under GAAP. Both PV-10 and PV-10 after Asset Retirement Obligation (ARO) are computed on the same basis as the standardized measure of discounted future net cash flows but does not include a provision for federal income taxes. Management believes that PV-10 and PV-10 after ARO are relevant and useful for evaluating the relative monetary significance of oil and natural gas properties. PV-10 and PV-10 after ARO are used internally when assessing the potential return on investment related to oil and natural gas properties and in evaluating acquisition opportunities. W&T believes the use of pre-tax measures, including PV-10, is valuable because there are many unique factors that can impact an individual company when estimating the amount of future income taxes to be paid. Management believes that both PV-10 and PV-10 after ARO provide useful information to investors because they are widely used by professional analysts and sophisticated investors in evaluating oil and natural gas companies. PV-10 and PV-10 after ARO are not measures of financial or operating performance under GAAP, nor is it intended to represent the current market value of W&T’s estimated oil and natural gas reserves. PV-10 and PV-10 after ARO should not be considered in isolation or as substitutes for the standardized measure of discounted future net cash flows as defined under GAAP.
The table below provides a reconciliation of PV-10 and PV-10 after ARO to the standardized measure of discounted future net cash flows (in millions of dollars):
1P 2P Standardized measure $ 184.2 $ 472.3 Future income taxes, discounted at 10% 43.2 132.5 PV-10 after ARO (Non-GAAP) 227.4 604.8 Present value of estimated ARO, discounted at 10% 3 23.0 24.4 PV-10 (Non-GAAP) $ 250.4 $ 629.2
CONTACTS: Al Petrie Sameer Parasnis Investor Relations Coordinator Executive VP and CFO investorrelations@wtoffshore.com sparasnis@wtoffshore.com 713-297-8024 713-513-8654
1 PV-10 is a non-GAAP financial measure, which is described and reconciled to the most comparable GAAP measure below in the accompanying table under “Non-GAAP Information.”2 Based on the latest available lease operating statement provided by the Debtors.3 Estimates for Asset Retirement Obligation are internal management estimates and subject to change.
What fields did W&T Offshore, Inc. acquire in the Gulf of Mexico?
W&T Offshore, Inc. acquired Eugene Island 064, Main Pass 061, Mobile 904, Mobile 916, South Pass 049, and West Delta 073.
What was the purchase price for the acquisition?
The purchase price for the acquisition was $72.0 million, excluding certain closing costs.
How was the acquisition funded?
The acquisition was funded from the Company’s cash on hand.
What is the estimated production range for the acquired fields?
The estimated production ranges from approximately 3,700 to 5,700 barrels of oil equivalent per day.
What are the proved reserves acquired by W&T Offshore, Inc.?
W&T Offshore, Inc. acquired significant proved reserves of 18.7 million barrels of oil equivalent.
What is the material upside with proved plus probable reserves?
The material upside with proved plus probable reserves is 60.6 MMBOE.
