Having operated there for greater than 35 years, W&T Offshore believes the Gulf of Mexico is the premier basin in the US for producing sturdy, sustainable money flows
Author: Tracy Krohn, CEO, W&T Offshore
March 2, 2020
W&T Offshore has been lively in the Gulf of Mexico (GOM) for greater than 35 years, and is aware of the basin extraordinarily nicely in consequence of our eager focus in the area. We have all the time prioritised free money circulate technology and consider the GOM is the premier basin in the US for producing sturdy, sustainable money flows. While different power corporations have moved onshore, now we have repeatedly elevated our place in the area via a collection of profitable acquisitions and drilling initiatives.
We have operations in each shallow and deepwater areas in the GOM and intend to stay lively in each sectors. We will obtain this via a mixture of acquisitions, lease sale participation, and exploration and growth drilling on properties we already personal or can entry through farm-ins. In phrases of exploratory drilling, we have a tendency to be extra targeted on prospects close current infrastructure so we are able to put profitable wells on-line shortly. We prioritise initiatives primarily based on financial returns and money circulate technology, regardless of whether or not they’re in shallow or deepwater areas.
W&T Offshore prioritises initiatives primarily based on financial returns and money circulate technology, regardless of whether or not they’re in shallow or deepwater areas
Being targeted on the GOM for therefore lengthy makes a giant distinction. Over this era, now we have developed a powerful popularity with different operators in the GOM in addition to with property sellers. We additionally work nicely with all the related federal and state regulatory businesses. We are proud of our security document and have a really sturdy drilling success document. We consider our confident operational monitor document, mixed with an ongoing profitable acquisition technique, has enabled us to thrive and create worth for our shareholders. It’s a popularity that we intend to keep and bolster over many extra years working in the area.
Having a discipline day
Over almost 4 a long time working in the GOM, now we have loved a quantity of successes. In the shallow water sector, an awesome instance is our Mahogany discipline. Since buying the discipline in 2011, now we have considerably expanded its dimension and depth by drilling or sidetracking 13 new manufacturing places. The discipline is one of our key property, and now we have a top quality stock of future drilling initiatives that may allow us to prolong the reservoir even additional. We have elevated manufacturing greater than 10 instances since buying the discipline.
In the deepwater area, a very good instance is the Gladden Deep nicely, which we found in June 2019. The nicely was drilled in roughly 3,000ft of water that encountered 201ft of internet oil pay. W&T operates the nicely and owns a 17.25 % stake in the discovery. The nicely was accomplished and positioned on manufacturing forward of schedule in Q3 2019, and is at the moment producing roughly 4,600 gross barrels of oil equal per day, with 89 % of manufacturing being oil. We are proud of how shortly and effectively we had been ready to get the nicely drilled and on-line regardless of it being a deepwater website, which used to take for much longer to drill and begin producing.
As nicely as these successes, now we have been granted extra offshore leases, which now we have excessive hopes for. We have been lively in federal lease gross sales for a quantity of years and took part in two that had been held earlier in 2019. We had been awarded 15 leases in the first sale in March, once we acquired seven leases in shallow water and eight in deepwater. In August, each leases we acquired had been in shallow water. We paid lower than $4m for all 17 blocks, overlaying 83,800 acres. We intend to proceed taking part in future lease gross sales, as this can be a low-cost method to add new drilling alternatives that complement our current
operations in close by fields.
Investing in data
We have a fairly easy technique for acquisitions. We search for properties that meet three standards: first, they should have confident money circulate and a very good reserve base; second, they need to have alternatives the place drilling can add worth; and third, they have to enable us to make an influence concerning workovers, recompletions and facility upgrades that may enhance near-term money circulate.
ExxonMobil’s Mobile Bay property met all these standards, and our buy of them made us the largest operator in the space. We additionally perceive the Mobile Bay property very nicely as we personal and function the Fairway discipline, which is adjoining to the acquired property. At the Fairway discipline, now we have greater than tripled confirmed reserves since we acquired it in 2011 by considerably lowering working prices and enhancing manufacturing, with out drilling a single nicely. We consider comparable low-risk, high-upside alternatives exist in the Mobile Bay property.
Currently, one of our priorities is maximising the potential of these new properties. We are taking a look at how we are able to enhance effectivity and scale back working prices. W&T Offshore additionally has an onshore gasoline plant that’s close the one ExxonMobil owned, so we’re taking a look at how to make use of that elevated capability. We have recognized a number of thrilling drilling alternatives on these property and will probably be in search of drilling permits to probably start drilling them in late 2020.
Making the most of our present and future property additionally includes exploring any new technological developments that emerge. We are dedicated to utilizing technology in all sides of our operations, significantly in choosing our prospects and ongoing drilling actions. We have invested closely in seismic predictors and have developed the experience in home to totally utilise that technology. Our use of 3D seismic knowledge has considerably diminished our drilling chance and elevated our drilling success fee to about 94 % on all wells since 2011.
Unlike onshore shale performs, the place buying knowledge over massive performs from quite a few sources will be helpful, each offshore discipline and reservoir is completely different. Data gathered over a big space in the GOM is just not almost as costly as it’s over a shale play onshore. The processing of 3D seismic knowledge is a serious key to our success and we’ll proceed to make investments in technology and a workforce that may greatest use that technology.
Different from the relaxation
In latest years, the growth of the onshore US shale market has dramatically restructured the international oil and gasoline market. At W&T, our capacity to constantly generate free money circulate helps us differentiate ourselves from rivals. All of the wells we drill in the GOM are standard wells, in contrast with unconventional wells in the shale performs. Unconventional wells decline at a a lot steeper fee, and shale performs require significantly extra capital to keep or develop.
Offshore, we are able to modify our capital investments when oil costs fall, whereas the excessive porosity and permeability of offshore reservoirs usually requires fewer wells to produce massive reserves of oil and gasoline. We have been cash-flow-positive for many of the time, and our technique is targeted on staying that method. We have the luxurious of deciding whether or not to make investments our free money circulate in acquisitions, drilling, lowering debt or paying dividends to shareholders. Most onshore exploration and manufacturing companies in the shale performs have to hold reinvesting in drilling wells and try to grow to be free-cash-flow-positive.
The big development in the shale performs has actually had an influence on the quantity of oil and gasoline the US produces. As an business, we’re exporting extra oil and growing liquefied pure gasoline infrastructure alongside the Gulf Coast so we are able to export pure gasoline as nicely. For onshore gamers, this has brought about pricing points when there isn’t enough pipeline capability to transfer onshore oil and gasoline manufacturing to the proper places. At W&T, we’re nicely positioned to obtain beneficial pricing as our crude is required at Gulf Coast refineries, whereas our pure gasoline advantages from good Henry Hub pricing as a result of of our entry to a quantity of pipelines alongside the Gulf Coast.
As nicely as competing towards onshore shale gamers, W&T additionally makes positive to differentiate itself from its offshore friends. To achieve this, we’re primarily targeted on acquisitions and staying inside the GOM. We consider this strategy has served us nicely in the previous, because it has minimised our chance and allowed us to use our experience to scale back prices, enhance money circulate and discover extra reserves that had been left behind by sellers who’ve moved onshore and offered their properties to us. We will drill exploratory wells, however our main focus is on constructing worth via acquisitions. We suppose our monitor document in that regard speaks for itself.