W&T Offshore represents a mine of opportunities in the Gulf
Gulf of Mexico
Interview with: Tracy W. Krohn, President and CEO, W&T Offshore
December 7, 2021
An independent producer of oil and natural gas, concentrated in the Gulf of Mexico in the United States, W&T Offshore has resisted the pandemic and is well positioned in the market. Armed with over $ 250 million in cash, an inventory of high-quality development and exploration opportunities, and a history of profitable acquisitions, the company is well positioned to navigate an operating environment. evolving in the United States. W&T Offshore CEO Tracy W. Krohn discussed pandemic management, ESG integration and the future of the industry, with World Finance.
Focusing on the Gulf of Mexico for over 35 years, the company has developed the ability to operate effectively and efficiently in the basin amid various shocks such as commodity price fluctuations and hurricanes. Currently, W&T is active in 41 production fields in federal and state waters and has under lease approximately 611,000 gross acres, of which approximately 424,000 gross acres are on the Gulf of Mexico Shelf and approximately 187,000 gross acres in the deep waters of the Gulf of Mexico. The majority of the company’s daily production comes from the wells it operates. Krohn commented, “Our focus on the Gulf of Mexico has been the key to our success. Because of our expertise, other operators ask us to find partners. We have attracted and maintained an excellent technical team with extensive experience in the Gulf. We have also developed good relationships with state and federal regulatory agencies and have an excellent safety record. All of these contribute to our leadership position in the Gulf of Mexico.
For the oil and gas industry, change and adaptation have been part of its evolution. In the Gulf of Mexico, W&T has seen significant changes relative to its peers in the basin. Years ago, the area was primarily a reserve of large corporations that focused on shallow water. These operators then moved on to drilling at greater depths and in deeper water. This was motivated by the enormous amounts of capital and technology required to pursue these higher risk and higher potential opportunities. Today, the players are fewer and the big independents and majors mainly focus on ultra-deep or onshore waters, and W&T flourished as more emerged from the Gulf of Mexico. “Throughout our history, W&T has capitalized on the opportunities that have presented themselves in the Gulf. We built the business through a combination of two main strategies. First, opportunistic and accretive acquisitions and the successful exploitation of acquired properties. And second, a very successful exploration and development drilling program. Going forward, we’ll continue to look at both and the relative benefits each offers, ”Krohn said.
The new policies of President Biden’s administration have also presented changes for the oil and gas industry. In January, the administration announced a moratorium on new oil and gas rentals on federal lands and waters (which was later blocked by a federal judge in Louisiana in June). Despite such political challenges, Krohn is optimistic. He noted: “W&T has operated successfully under Republican and Democratic administrations for decades. The managers and regulators we work with on a daily basis are good, pragmatic people. Rules and regulations change, but we’ve always been able to find a way to work together. W&T does not lose sight of the need to remain relevant amid widespread calls for changes in the energy mix in the United States. When asked about the transition from fossil fuels, Krohn offered a pragmatic perspective. “People will have different views on what our energy mix should look like in the future and how quickly we need to make changes to achieve that mix. However, any transition will take time and the oil and gas industry should play a role in successfully managing this change. It shouldn’t be a controversial statement. I think there will be ramifications if renewable energy sources cannot deliver on their promises and if they are proven reliable energy sources like oil and gas continue to be deprived of investment at one point. degree such that they can not meet the gap demand. Political leaders should take into account the unintended consequences of this type of scenario. “
In fact, we have been successfully managing ESG elements for a long time; we just communicate about them differently today
Likewise, companies are now learning to navigate an increasing focus on sustainability. The company understands that the environment, social and governance (ESG) are becoming increasingly important to many of its stakeholders. To successfully enter the credit or equity markets today, ESG is an important consideration. Krohn continued, “We have been successfully managing ESG elements for a long time; we just communicate about them differently today. For example, we have an excellent track record of responsible and safe operations that respect the environment and protect workers. It hasn’t started recently because of ESG. What has changed is that our processes and reports are now more formalized and we communicate more effectively with our stakeholders.
W&T published its first ESG report this year and has demonstrated its commitment to improving its ESG performance and transparency by adding ESG objectives to its executive compensation program. The industry is recovering from the impacts of COVID-19 which triggered a collapse in prices, slowed down activity and hurt the financial position of many companies. W&T was able to resolve the situation more effectively than most. “At the start of the pandemic, when oil prices turned negative, we adjusted our capital spending and temporarily closed properties that were not economical at very low prices. It was not the first time that we have seen a rapid and sharp drop in prices. We knew what we needed to do and acted quickly. Our properties are all conventional estates. They have shallower declines and we can cut expenses for a period of time without a major financial impact, ”Krohn said.
Fight a hurricane
In November, the company released its third quarter results showing strong operating and financial results reflecting improving economy. In the third quarter of 2021, the company reported an 85% increase in revenue for the quarter to $ 133.9 million, from $ 72.5 million in the same period last year. Production for the quarter was 3.2 million barrels of oil equivalent, including 1.1 million barrels of oil, 0.4 million barrels of natural gas liquids and 10.5 billion cubic feet. of natural gas. Production for the period was reduced by approximately 5,500 barrels per day due to the postponement of production related to Hurricane Ida, with about 80% of the company’s production halted at some point due to the storm. . Fortunately for W&T, its assets and infrastructure have not suffered any significant damage. This stems from the fact that the company has operated in the Gulf of Mexico for years and has seen – and dealt with – numerous hurricanes. “Hurricane Ida was the biggest weather event in the Gulf of Mexico this year. When it became clear that it was coming to the Gulf and that it would be close to our assets, we did what we always do in these situations: temporarily shut down production, secure the facilities to drastically reduce the potential for an environmental incident, and evacuate our employees and contractors. What has affected us the most is the lack of onshore electricity for the refiners and processors who buy our production. They were down and we had to wait for them to come back online, ”Krohn noted.
The company announced that its cash at the end of the third quarter of 2021 stood at more than $ 250 million, largely thanks to a creative securitization deal with Munich Re in May. For many years, W&T has used a Reserve Based Credit Facility (RBL) which was underwritten by a banking group and secured by its proven reserve base. Over the years, the market for RBL installations has become less attractive, especially offshore. Due to losses caused by falling commodity prices, many banks withdrew from the market. The latter few now offer less flexible and onerous trading terms, which have generally become harsher and less attractive to oil and gas companies. Krohn commented, “Fortunately for W&T, one of our biggest assets is our Mobile Bay complex. These assets have a long lifespan and have low declines, which is an excellent profile for lenders. Using Mobile Bay as collateral, we were able to work with Munich Re to structure a senior secured term loan that appropriately valued the collateral at an attractive cost of capital. The transaction gave us much more financial flexibility and dry powder to pursue attractive acquisition opportunities and consider additional exploratory drilling. Asked about the current state of the mergers and acquisitions market in the Gulf of Mexico, he explained: “The increase in commodity prices in the second half of 2021 has widened supply-demand a bit, making it slightly more difficult at the moment. Generally speaking, however, it is a good environment for mergers and acquisitions. Many larger operators are rationalizing their portfolios and for some of them the Gulf is no longer a core asset. Other operators have balance sheet issues they are trying to resolve in the wake of the pandemic and a period of low commodity prices. “
While doomsday prophets predict the end of the oil and gas industry, the industry veteran believes the industry will continue to exist for years to come. Krohn said: “The transition from the energy mix to one that relies more on renewables will take time. Natural gas in particular can play a very important role during this transition. There is no doubt that there will be changes, but I am confident in the ability of people in our industry to adapt.