June 25, 2019 - 10:24am EST by
2019 2020
Price: 4.54 EPS 0 0
Shares Out. (in M): 141 P/E 0 0
Market Cap (in $M): 640 P/FCF 0 0
Net Debt (in $M): 553 EBIT 0 0
TEV (in $M): 1,192 TEV/EBIT 0 0

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Company: W&T Offshore, Inc.


Security: WTI 9 ¾ 11/01/23 Corp at 96 (10.9% YTM)


Company Overview


Founded in 1983, W&T (WTI or the company) is an independent offshore conventional oil company, with a focus in the Gulf of Mexico. The company has 2x 2019 E leverage, is free cash flow positive down to $35/bbl of oil and has a CEO who owns 32.7% of the $655MM market cap.  



 Investment Thesis / Trade Summary




WTI is an offshore oil company in the Gulf of Mexico (GOM) with a CEO who owns 1/3rd of the market cap. The company’s strategy is conventional drilling, conservative balance sheet, and grow by acquisitions of assets that are either in bankruptcy or small and unwanted by the major oil companies. Leverage will be 2.0x by 2019, a slight increase from 1.5x in 2019 but WTI is free cash flow positive at $35/oil and has an equity cushion larger than it’s debt load with a high motivate owner/manager/investor.


Buy at 96 (10.9% YTM) and collect a 9 ¾ coupon. WTI is an off the run company with no sell side coverage. Net debt of $583MM is cushioned by $655MM market cap on this free cash flow positive E&P company, where the CEO owns nearly 1/3rd of the company’s stock.


Valuation & Structure


Capital Structure 

This year, WTI expects to produce $300MM of EBITDA and generate over $100MM of FCF. The model summary above is a bit more conservative, but not far off from the company. The company has used its free cash flow to buy small conventional offshore assets in the Gulf of Mexico that the large oil majors are exiting as they are insignificant for them to operate.


W&T has been opportunistic and acquisitive, adding to $606MM of M&A acquisitions. The value of the below combined nearly equates the bonds. W&T is expected to use FCF in 2019 to add to its asset base.  

Covenants (financial, springing liens, etc…)


Bonds are protected by a pretty tight leverage requirement as shown below: 

·        Leverage Ratio,

o   3.50 to 1.00 December 31, 2018 to March 31, 2019;

o   3.25 to 1.00 for quarters ending June 30, 2019 and September 30, 2019;

o   3.00 to 1.00 for quarters ending December 31, 2019 and thereafter.

o   In the event of a Material Acquisition, as defined in the Credit Agreement, the Leverage Ratio limit is 3.50 to 1.00 for the two quarters following a Material Acquisition.

·        PV-10 Value

o   As noted below, independent reserve experts valued WTI’s reserves at $1.1bn as of 12/31/18.

Relative Value: Compared to better covered peers, WTI (B3/B-) has less leverage and trades wider: 


Company Details




WTI has a long history of buying assets based on 1) assets the majors are exiting (Total, Shell) and 2) assets form bankrupt companies (Callon, Cobalt) as noted below.



Joint Venture


WTI has a Gulf of Mexico (GOM) Drilling Joint Venture with Baker Hughes & HarbourVest Partners and:

  • The JV pertains a $361.4 MM commitment for the development of 14 pre-identified projects in the GOM with potential to upsize program over time with additional projects

  • Essentially WTI funds 20% of capex for 30% of economics.

  • The JV allowed W&T to develop its high return drilling inventory at a faster pace with a greatly reduced capital outlay and maintain flexibility to make acquisitions and generate free cash flow.

Management / Insider transactions

1.      Mgnt owns more than 33% of shares outstanding


Risk Factors


Oil Price

·        WTI’s key risk is the price oil, the company is FCF positive to at least $35/bbl, but the bonds will trade down on any weakness in oil.


I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.


Accreative M&A, oil price stabilizes 



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