In a March 8 research note, analyst Michael Scialla reported that Stifel initiated coverage on W&T Offshore Inc. (WTI:NYSE), a Gulf of Mexico pure play, oil & 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."[NLINSERT]
1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.
Disclosures from Stifel Nicolaus & Company, W&T Offshore Inc., March 7, 2019
I, Michael S. Scialla, certify that the views expressed in this research report accurately reflect my personal views about the subject securities or issuers; and I, Michael S. Scialla, certify that no part of my compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report. Our European Policy for Managing Research Conflicts of Interest is available at www.stifel.com.
For a price chart with our ratings and any applicable target price changes for WTI click here.
W&T Offshore, Inc. is a client of Stifel or an affiliate or was a client of Stifel or an affiliate within the past 12 months.
W&T Offshore, Inc. is provided with investment banking services by Stifel or an affiliate or was provided with investment banking services by Stifel or an affiliate within the past 12 months.
Stifel or an affiliate has received compensation for investment banking services from W&T Offshore, Inc. in the past 12 months.
Stifel or an affiliate expects to receive or intends to seek compensation for investment banking services from W&T Offshore, Inc. in the next 3 months.
Stifel or an affiliate managed or co-managed a public offering of securities for W&T Offshore, Inc. in the past 12 months.
Stifel or an affiliate is a market maker or liquidity provider in the securities of W&T Offshore, Inc.
The equity research analyst(s) responsible for the preparation of this report receive(s) compensation based on various factors, including Stifel's overall revenue, which includes investment banking revenue.
As a multi-disciplined financial services firm, Stifel regularly seeks investment banking assignments and compensation from issuers for services including, but not limited to, acting as an underwriter in an offering or financial advisor in a merger or acquisition, or serving as a placement agent in private transactions.