A Stifel report discussed the positive attributes of this Texas-based exploration and development corporation.
In a March 8 research note, analyst Michael Scialla reported that Stifel initiated coverage on W&T Offshore Inc (NYSE:WTI), a Gulf of Mexico pure play, oil and gas explorer and developer, with a Buy rating and a $10 per share price target. This compares to the company's current share price of $5.24.
The company's assets include 330,000 net acres, 250,000 on the continental shelf and 80,000 in deepwater, the analyst relayed. W&T Offshore's proven reserves as of year-end 2018 were 84 million barrels of oil equivalent, made up of 47% oil, 12% natural gas liquids and 41% natural gas.
"W&T offshore exposes investors to one of the strongest free cash flow and debt-adjusted production growth per share profiles in our small and mid-cap exploration and production universe," Scialla commented. "The company is well positioned to augment this growth with accretive acquisitions in a region where high-quality assets will solicit a short list of competitive bidders."
Having developed offshore assets for 35 years, W&T Offshore has history and experience on its side, Scialla highlighted. The oil and gas company is proving naysayers wrong by continuing to show that Gulf of Mexico assets can compete with shale. For instance, it drilled more than 40 wells since 2020 with a greater-than-90% success rate. "The proved reserves assigned to the 21 wells WTI completed between 2013 and 2017 were more than double the company's predrill estimates while nonprice reserve revisions have been positive for its offshore assets in seven of the past eight years," noted Scialla.
Also going for W&T is its long-term discipline in spending less than the cash flow it generates and the likelihood it will improve even further in this regard. Since 2016 the energy company's free cash flow yield has remained at 21%, much higher than the average 24% level of Stifel's small and midcap universe. "Over the next three years, we expect the company to remain the leader in our peer group with a free cash flow yield of 24%," Scialla highlighted.
In addition, its more robust balance sheet will allow W&T Offshore to grow, though it may only be "modest" and single digit to start, Scialla pointed out. "However, the company should generate a 2018 to 2020 debt-adjusted production growth per share of 32%, the strongest in our small and midcap group, where the average is projected to be 0%."
That growth could come through accretive acquisitions, particularly in the Gulf of Mexico where the current market favors buyers after numerous operators have left the region, Scialla indicated. W&T Offshore is well positioned financially to pursue such opportunities. He added, "We believe W&T's proven track record of exploiting similar out-of-favor assets, its strong balance sheet and a short list of potential buyers could yield attractive acquisitions for the company."
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