Q3 2019 Earnings Call

Ladies and gentlemen, thank you for standing by welcome to the W.M.T. offshore third quarter 2019 conference call.

During today's call parties will be and listen only mode.

Following the company's prepared comments I will be open for questions and answers. During the question answer session. We actually you limit your questions to one and a follow up you can always rejoin the queue.

This conference call is being recorded and a replay will be available on the company's website. Following the call I'd now like to turn cost over the al Petrie Investor Relations manager.

Thank you operator and on behalf of the management team I would like to welcome all of your to todays conference call to review WT Offshores third quarter 2019 financial and operating results.

Well, we've again I'd like to remind you that our comments may include forward looking statement.

It should be noted that a variety of factors could cause diabetes 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 third quarter 2019 earnings release today, we issued yesterday for a disclosure on forward looking statements and reconciliations of non-GAAP measures at this time I would like to turn the call over to Tracy Krohn diabetes, Chairman and CEO .

Thanks Al Good morning, everyone and thank you for joining us for our third quarter 2019 conference call.

With me today, our Gen, our executive Vice President and Chief Financial Officer, William Wilford, Our executive Vice President and General manager Gulf of Mexico, Steve Schrader, Our Chief Technical Officer, and Jim Kirsch.

President Geosciences.

We're all available to answer questions later during the call.

So before I discuss our strong third quarter earnings I'd like to elaborate on our continued strategy to use free cash flow and our good balance sheet to purchase offshore assets.

So as we outlined in the past we have a procedure for making acquisitions in the Gulf of Mexico first thing, we look for properties that have cash flow.

A good reserve base.

One thing we look for properties that we can enhance would the drill bit then last thing we look for our Workovers Recompletions facility upgrades that we can do to increase near term cash flow.

Answered all those things are positive and those are properties that we want to pursue assets that we want to pursue.

So it's important to note that we built our success by focusing on cash flow positive projects, whether that's where the drill bit or whether that's making acquisitions or both we use of cash regenerate to pad drilling and make more acquisition to consistently grow back.

So on that note on August Thirtyth 2019, we close the shallow water Gulf of Mexico mobile by acquisition for $167.6 million.

This is an accretive acquisition that include working interest in nine shallow water producing fields and related operatorship as well as offshore and onshore facilities and infrastructure.

WMT is now the largest operator in the mobile Bay area. These low decline assets, our free cash flow positive and adjacent to our current operations, thereby providing us the opportunity to recognize increase scale rationalize operations and capture cost efficiencies to further grow cash flow.

We also have the opportunity for further growth in reserves from potential field life extension was little additional capital as well as through drilling facility upgrade opportunities.

So at the beginning of year I told you that we were looking closely at acquisition opportunities and that the current environment for acquisitions in the Gulf of Mexico is as good as I've ever seen it.

We have executed the great transaction in 2019 in the market remains one of the best I've ever seen.

We will continue to actively pursue opportunities that meet our criteria and are accretive to delve into.

So turning to our third quarter results were pleased with our performance in particular with the increases in production closing of Imobile by acquisition and our organic drilling success.

We have maintained strong adjusted EBITDA of $72 million, despite a weaker pricing environment, while investing $30.3 million and capital expenditures, excluding acquisitions and maintains an active drilling program in the Geo him were four rigs running.

This is very important as we continue to create significant value by generating over $40 million more of adjusted EBITDA versus our Capex one of the pillars of our success is our ability to generate positive cash flow.

During the third quarter 2019.

Production increased 17% to 41149 barrels oil equivalent per day, or 3.8 million barrels of oil equivalent compared to the second quarter 2019. This included one month of production from our new mobile Bay assets.

Total liquids production comprised 53% production in third quarter 2019.

Production for the first three quarters of 29 team we're within production guidance. Despite non operated and third party downtime issues impact due to weather as well as facility downtime.

For the fourth quarter 2019.

Wses production guidance is expected to be between 49350 4500 barrels oil equivalent per day, which includes a full quarter production of mobile bag.

For the third quarter 2019 prices decline for oil Ngls and natural gas.

Average realized crude oil sales price was 59024 cents per barrel with realized NGL sales price of $15.45 per barrel and natural gas price of 2023 cents per Mcf.

Crude differentials in the third quarter averaged about 2009 cents per barrel higher average WT pushing spot prices, which reflects increased demand for GE OEM oil production for coastal refiners.

Revenues for the third quarter decline quarter over quarter slightly.

About 2% to $132.2 million, despite higher sales volumes revenues decreased slightly due to the decline in realized commodity sales prices.

So our third quarter Ela, we came in at $47.2 million, which was below our guidance range, primarily due to lower workover costs and non operated facility maintenance expense, resulting from delays in the timing of planned projects.

On a quarter over quarter basis, where we costs were up due to additional costs associated with the Gulf of Mexico Mobile Bay acquisition.

Our gionee costs also came in lower than guidance yesterday's release includes our updated production and cost guidance for the balance of this year.

So we reported net income and third quarter 2019, $75.9 billion or 53 cents per share which include a noncash tax benefit of 55 and a half million dollars were 39 cents per share primarily due to the reduction of a valuation allowance previously recorded against net debt.

Third tax assets, our adjusted net income was 18 half million dollars or 13 cents per share.

So at September Thirtyth, we had total liquidity of $179.5 million, which was comprised of $41.7 billion in cash and cash equivalents and 137.8 million of availability under our 250 million revolving bank facility.

We utilized our credit facility to fund a 150 million of the mobile Bay acquisition cost at closing then subsequently paid the revolver down $45 million before the ended the quarter.

In the third quarter, we received a cash refund of income taxes totaling $16.9 million related to the carry back and we know wells in 2012 through 2014, we received an additional $34.9 million in refunds due in early October and there's also a $2 million.

Refund remaining do.

Turning now to operations, we continue to have strong results via the drill bit.

At our mahogany field, we filed our recently successfully 19, well targeting the T sand with the.

Ships, all 359, a six sidetrack, which is a P. Sand completion. The basic sidetrack was successfully drilled and third quarter and will be brought online in the fourth quarter 2019.

At the Ewing Bank 910, deepwater fields last year, we completed the south Timbalier 328, two well that logged approximately 163 feet of net bay, which exceeded pre drill estimates.

We brought that well online in December and in late June well was producing at a rate of approximately 7100 barrels oil equivalent per day.

The South Tim 311, Athree, well was successfully drilled in the first quarter of 2019 and discovered two high quality sands.

The operator completed the well in third quarter 2019.

Well is producing approximately 5500 barrels oil equivalent per day.

Both of these wells are in the Monza joint venture drilling program.

So on June 5th we announced an attractive oil discovery at our first two exploration well in 2019 at Gladden deepened approximately 3000, Buda water recounted 201 freedom net oil pay.

70 operated well, which is one of the 14 wells planned for the drilling program under the Monza JV The company owned a 17.25% interest in the discovery.

This well was completed and placed on production well ahead of schedule in third quarter and is currently producing approximately 4600 barrels oil equivalent per day, and that's about 89%.

In addition to that we successfully drilled the ship Shoal 28 number 41 in the East Cameron 321 be eight sidetrack well in third quarter. Both wells are expected to be online by the end of year and both are in the JV drilling program.

So WT was recently awarded leases for too shallow water blocks ship Shoal 332, and 367 from the Gulf of Mexico, Regionwide lease sale to 53 held on August 21, 2019. These two blocks cover approximately 10300 acres and the company.

Paid about point 3 million for the awarded leases, so $300000, which reflects a 100% working interest in the acreage and royalty rate of 12.5%.

The leases will be effective November one 2019 with a five year lease term and are in close proximity to current whnt acreage.

Now looking ahead to rest of 2019 and into 2020, our focus remains on generating significant free cash flow, which means that we will take a measured approach drilling while continuing to fund our capital expenditures.

Excluding acquisitions with available cash and cash generated from operations.

We narrowed our capital expenditure guidance range for full year 2018 to 130 million to 150 million from our previous estimate of 125 to 155 million excluding acquisitions.

We are well into our 2020 budget process and will provide details on next year's plans early in 2020, we still see a good market for Gulf of Mexico acquisitions, and we'll continue to review new opportunities that meet our criteria and allow us to further grow cash flow in shareholder value.

So we continue to be optimistic about the future for WMT, despite weak commodity prices.

We've got a good balance sheet premier portfolio, both shallow water and deepwater properties with significant upside that will be further enhanced through acquisitions and organic drilling.

We're well positioned to generate sustainable growth within cash flows and we believe that the Gulf of Mexico is an excellent basin, which to achieve that growth.

We remain focused on executing our long term strategy, while maintaining our strong balance sheet.

Continuing to deliver near term results by operating efficiently and mitigating risk to maximize shareholder value.

So operator with that we can now open the lines for questions.

Yes. Thank you we will now begin the question and answer session.

Last question.

Then one on your Touchtone phone.

Hey, Speakerphone, please pick up perhaps that before pricing that he's just trying to question you My quest stars on too.

Questions on line, please hold while we assemble our roster.

And the first question comes from John why with Roth capital.

Good morning, and congratulations on a strong quarter.

Thanks, John .

Right and a real tight ship I would add as expenses came in well below expectations.

It might be a little early to ask this question, but.

About how would you talk about mobile Bay 20, Twond eight activity how would you characterize that is.

Yes that percentage of total activity or are you are you at that point yet.

Sure. That's good that's great question, John we're still assimilating that property.

No. We've added several people out there were still transitioning typically with transition process is like this you have a little bit of duplications.

Personnel and operations that sort of thing so.

KEPCO will that were the larger acquisition of this short this guide.

Well those are all things that overcome and and smoothed out.

We have.

Undertaken to.

Go through the permitting process for one or two wells Imobile by area will we expect get those permits.

And 2020, I don't think we'll be drilling any wells in 2020, but we'll at least be done with the permitting process or well well in advance on it so.

We'll just have to see I think the state of Alabama is eager to see some more activity out there that has many drilling activity long time.

And then we will sort out the the.

The plants there we have a plant currently a yellow hammer that we operate that.

Albeit by and then of course, we we've now.

Acquired the.

The plant from from Exxon, the former operated and so were assimilating, both those and figured out.

What we're going to do with both those those plants.

I thought is to fill in both up that would be the ideal and then if that's not possible. Then, we'll we'll see where we need to combine and reduce those costs, but you'll see lower costs.

Before the end of the year here in fact, I'm sure well for that.

They see a few.

Higher costs, just before that while we transition.

But the net effect of it is it for long run offs will go down we expect production to go up.

Thanks to the details.

Did you say that subsequent to September Thirtyth, Hey, Hey, down 40 million on the revolver.

That's correct we did.

Right, Okay large I'm, sorry, that's right now.

Okay. So the balance on the on the balance sheet is is what it is today yes.

Okay. Thanks very much.

Thank you Sir.

Thank you and your next question comes from Nice Carroll with Stifel.

Good morning.

Hi, Mike.

I wanted to ask you about your guidance for the rest of the year looks like.

In the midpoint stayed pretty well on change, but you did reduce.

Oil and NGL guidance a bit for the year just want to see what contributed to that.

Well part of it is that that we've got we've added a bunch of gas reserves here, but some of it was work that we had to do out in the field primarily associated with our mahogany field, we had some some.

Alex upset out there we had.

One well it bumped up a bunch of sand, we had to clean that out and chefs platform in for two or three days and then get it back online. So I think thats, what you're seeing.

The slight reduction in oil production as a function of that.

Got you okay.

And you've been.

We'll open about your desire.

Or an acquisition given our tried to the market looks if for whatever reason you couldn't get something done there.

How would you prioritize the use of the free cash flow would you just continue to.

Pilot cash flow for a while until you do see the acquisition that you like are there anything else you can do that free cash flow in the meantime.

Well in any advantage to quality problem in that.

The.

It's not that we're running short on on things to do.

We would take a look at them see what pricing was at the time.

Early if prices continue to go down and that puts a little bit of stymie on on our new drill projects.

Things remain style things remain static.

I would expect to see a little bit above.

Very good thank you.

Thank you Sir.

Thank you.

Our next question customer should help us with capital one securities.

Hey, good morning, Tracy Janet.

Just a couple of quick questions.

Good day.

Do you see daily production from that.

That said included in the fourth Q for Doug Fourq guidance and.

We see associated oil percentage.

With those assets in Fourq.

Okay.

Sorry, sorry, I apologize would you repeat the question. Please yes, sorry Tracy.

Regarding automobile Bay, how much production from that asset is.

Q guidance in which the oil percentage associated with that production.

I don't have will have that right at my hand.

It's mostly it's mostly gas it's about 4500 barrels a day of liquids.

Ngls.

Okay, so roughly 25%.

Hey, good progress Nat gas yes.

Okay.

And then.

Don't run the M&A side Tracy.

What scale on the properties currently available.

We're likely to become available over the next several quarters, just trying to gauge what the magnitude of the potential deals could be as far as production at scale.

Well.

Assets available.

Or.

The things that we imagine that are available.

In the Gulf of Mexico. It ranges from a few million to a few billion.

It's a big range, there's a lot of properties out there.

So you can you can kind of use your imagination is to who might be selling those properties and.

And go from there but.

It's it's inevitable that most of these properties are going to trade trade hands in the Gulf of Mexico. Okay.

Well, that's all I have today Tracy. Thanks, so much thank you Sir.

Thank you and your next question is a follow up on Mike's yellow with Stifel.

Yes, Sir.

Yes.

And it's happened with the I think you're going through borrowing base redetermination.

When completed yet and so where does that Stan.

No. It hadnt been completed yet, but we're getting close I should have an announced around that and the next couple of weeks.

Okay.

And I know you guys.

Yeah. The bottom line is I think we'll get what we need out of it.

Yes, okay.

And you guys did a lot of work on improving the balance sheet after the price collapse in 2014.

Got it strong balance sheet now just wondering if there's anything more.

I would like to do with the balance sheet or is it.

Is it didnt spot, where you're comfortable now.

I like what we what we do is continue to two to affect the.

The plan they were on we're trying to keep things cash flow positive.

We're doing that in spite of some some pricing.

Negatives.

So so as we as we go through these cycles will adjust accordingly, but I see pretty good cash flow going forward. So the bigger decisions are what to do with that cash.

And.

When we were in in.

These kind of times the present different opportunities.

It's nice to have really good options either in any event.

Yes, okay.

No I wanted to ask Ken I'm glad and deep.

Production rate there obviously.

Nice I know you've been pretty cautious with some of your.

Your other wells is that a rate that youd anticipate kind of keeping that well out for a while or is there.

Any potential the ramp that overtime.

I hope Thats, a quality problem I don't really have good information, we we haven't been flowing the well that law. So we're cautious with these wells in what we do intend to be is conservative as we can because.

Wellbores and completions are when you think about it they're fairly small in diameter, there several inches in diameter, but but they're not beaten diameter. Okay. So there are small.

Type of Radioshack, and so when you when you draw down the Wellbore you need to be careful and how you produce that so if you if you pull it too hard you'll you'll damage the the screens and screw up to completion. So we're very we're very cognizant.

The.

Delta pressure into the Wellbores. So that's kind of what really guides well not kind of that is what guides out how we produced a well.

Understood and last one from me I'd, probably a long shot here I don't know.

Yeah.

Something that would.

Cause you to.

It's okay I again in the long shot business sometimes.

Hi, good right.

I'll just ask.

I doubt you want to answer but.

It's going to give up any proprietary information, but has made an interesting looking discovery in Mississippi Canyon, just wonder if theres anything.

That you can draw from that is that supportive for any of the prospects that you have in that area.

Well I really can't comment on that just yet because I don't really have all the details of that well in the area but.

Thats that's.

I always like see people have success and we tend to draw upon the success of others as well. So so I'm sure that'll that'll be something that is that our goes we'll be looking at.

Great. Thanks Tracy.

Thank you Sir.

Thank you and the next question I'll follow up from I should tell us with capital one securities Yeah, Tracy just one more in keeping with the exploration team.

I know you havent prepared the budget, yet, but what do you think it on the expiration front for next year, how active could you be there how many wells might you drill.

Yes, I don't have really good answers for you on that a lot of that Richard is is a function of the pricing. So we're trying to figure out markets and making our guess is on that and what we want to do we stick with cash and we're certainly.

One of the things that we want to preserve liquidity.

Tend to I tend to find it in these periods of down pricing that are there a sustained during a period of time those usually represent really good opportunities. So if it if it's harder to buy properties than than will most will shift to the drill bit if it if it's.

No if the plethora is.

The opportunity centers around acquisitions, and I believe that thats, probably going to be the case I'm pretty optimistic about America.

As.

I've explained that will happen in the in the in the earnings call here, but but I really I really do believe that I think now is a good opportune time, we're we're not seeing a whole lot of properties being sold here in the last couple of months.

But I really believe that that's going to change and that will represent good news for us.

That's helpful. Tracy. Thank you appreciate it.

Thank you Sir.

Thank you.

I would like to kind of Florida management for closing comments.

Thank you Sir that's all for now hopefully we'll be talking too.

In the not too distant future and.

Nicole news is fairly good right now so hopefully we continue that as well. Thank you so much and we'll look forward talk a decent alright.

Thank you that does conclude today's teleconference. Thank you. So much rotate today's presentation may now disconnect your lines.