W&T Offshore to Acquire $200M GoM Assets From ExxonMobil

W&T Offshore, Inc. WTI recently agreed to acquire Exxon Mobil Corporation’s XOM stakes in hydrocarbon producing assets located offshore Alabama in the U.S. Gulf of Mexico (GoM). The deal, including related onshore processing facilities for properties in the eastern region of the Gulf of Mexico, is valued at $200 million.

Acquisition Highlights

The transaction encompasses nine offshore fields and an onshore treating facility. Notably, the properties lie adjoining to the company’s existing assets in the region. Total net proved reserves of the properties are estimated at 74 million barrels of oil equivalent (BOE), of which 22% is predicted to be liquids. Markedly, 99% of the reserves are classified as proved developed producing.

Daily net production from acquired assets in first-quarter 2019 was recorded at around 19,800 BOE, of which 25% was liquids. The onshore gas treatment facility is capable of treating 420 million cubic feet of gas per day. The deal is expected to close by Aug 30, 2019.

Funding

W&T Offshore plans to fund the transaction with its cash balance and revolving credit facility. As of Mar 31, 2019, the company had approximately $86.1 million in cash and cash equivalents. It also had $220.9 million remaining under the revolving bank credit facility.

Benefits

On completion of the acquisition, W&T Offshore will become the largest operator in the Mobile Bay region. The deal is expected to benefit the company with significant cost efficiencies, increased scale and synergies. It expects the acquisition of the low-decline assets to drive shareholder value. Also, the properties are expected to generate significant positive free cash flow. The company generated $255 million in free cash flow in the trailing 12 months.

ExxonMobil’s vending of Gulf of Mexico assets is in line with its divestment program of $15 billion. The company is also expected to sell its remaining stakes in Norwegian offshore oil and gas fields. The assets, which include interests in 20 producing fields and several license areas, are estimated to be valued at $3-$4 billion.

Price Performance

W&T Offshore’s shares have significantly outperformed the industry year to date. During the said period, the upstream company has gained 15.6% compared with 3.6% growth of its industry.

Stocks to Consider

The company currently has a Zacks Rank #3 (Hold). Some better-ranked players in the energy space are Approach Resources Inc. AREX and Earthstone Energy, Inc. ESTE, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Approach Resources beat estimates thrice in the trailing four quarters, delivering average positive earnings surprise of 12.7%.

Earthstone Energy’s 2019 revenues are estimated to rise 15% year over year.

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