Ladies and gentlemen, thank you for standing by, and welcome to the W&T Offshore Second Quarter 2023 Conference Call. During today’s call, all parties will be in a listen-only mode. Following the company’s prepared remarks, the call will be open for questions. [Operator Instructions] This conference is being recorded, and a replay will be made available on the company's website following the call. I would now like to turn the conference over to Al Petrie, Investor Relations Coordinator.

Thank you, Joe. And on behalf of the management team, I would like to welcome all of you to today's conference call to review W&T Offshore's second quarter 2023 financial and operational results. Before we begin, I would like to remind you that our comments may include forward-looking statements. It should be noted that a variety of factors could cause W&T's actual results to differ materially from the anticipated results or expectations expressed in these forward-looking statements. Today's call may also contain certain non-GAAP financial measures. Please refer to the earnings release that we issued yesterday for disclosures on forward-looking statements and the reconciliations of non-GAAP measures. With that, I'd like to turn the call over to Tracy Krohn, our Chairman and CEO.

Thanks, Al. Good day, everyone, and thanks for joining us this morning. With me today are William Williford, our Executive Vice President and Chief Operating Officer; Sameer Parasnis, our new Executive Vice President and Chief Financial Officer; and Trey Hartman, our Chief Accounting Officer, will be available to answer questions later. But before I get into the operational and financial results, I would like to welcome Sameer Parasnis, who joined us as our new CFO in earthy July. We've been working with Sameer for years. He was a trusted adviser at Stifel and instrumental in helping W&T complete some key strategic initiatives. Some of these included our drilling joint venture and corporate debt refinancing in 2018, term loan financing in 2021 and the at-the-market equity offering in 2022. Needless to say, Sameer already has a strong working relationship with our senior leadership team and his extensive capital markets and financial experience will be valuable to W&T moving forward. So let me begin by reviewing our long-standing and successful strategic rationale. Our strategy has always been simple, generate free cash flow, maintain high quality conventional production and opportunistically capitalize on accretive opportunities to build shareholder value. We delivered 22 consecutive quarters of free cash flow because we prioritize cash flow, prudently invest capital and have a valuable asset base that delivers strong production and generates meaningful adjusted EBITDA. Let me put that into perspective for you. We have generated positive free cash flow for every quarter since the beginning of 2018, successfully navigating through the COVID-19 pandemic, highly volatile commodity prices and several economic cycles. So by prioritizing cash flow, we ensure we maintained a strong balance sheet and ample cash to opportunistically acquire complementary assets. So we began 2023 by redeeming all of our outstanding 2023 senior second lien notes…

[Operator Instructions] And our first question will come from John White with ROTH. Please go ahead.

Good morning. Thanks for taking my question. I was wondering, does the reduction in capital expenditures for the remainder of the year, does that in some way reflect increased optimism about potential acquisitions?

Well, in a word, yes. And as usual, John, you put your finger on a very substantial portion of the thinking. We’re always going to look out for different opportunities. They ebb and flow a little bit, but yes, that is a substantial part of the thought process here.

Okay. That’s – I appreciate the straightforward answer. I’ll pass the call back to the operator. Thank you.

Thanks, John.

Our next question will come from Nate Pendleton with Stifel. Please go ahead.

Good morning, all. Congrats on the strong quarter.

Thanks, Nate.

Could you offer some more color on the service environment that you alluded to earlier in the GOM and its impact on your capital investment decisions?

Sure. We are in the process – or one, we’re in the process of servicing and refurbishing a drilling rig – a platform rig that’ll go out to Magnolia to drill our Holy Grail prospect. We decided to defer on that a little bit not only because of winter months coming up, but also because there’s a good bit of uncertainty on pricing at the moment. I hear a lot of different opinions. I have opinions of my own and we do see some inflation in pricing, particularly in transportation, which is one of our key components. Folks are more expensive. They’re more difficult to get. A lot of this is seasonal and that breaks a little bit in the wintertime because of the weather. People often think that issues with drilling occur in the summer due to hurricanes, but they’re really more obvious in the winter because of continued wave activity and wind and whatnot that affects our vessels and helicopters out there. I do see upward inflation pressure with personnel and the costs and in fact, in some cases with regard to quality. I think that’s a little bit more empirical but it’s still a factor for us. I think that we’re seeing the supply chains get a little better, so I think as the cost of goods is concerned that we’re seeing a plateau there at this point in time. Services are a little bit of a different story. So we want to make sure that we’re well ahead of the curve in getting personnel and equipment where we need to have them at the right time. And so that’s part of the equation plus the continued softening in commodity prices makes it more difficult for everyone.

Thanks for the detail. And regarding your prior comments exploring CCS, can you speak to what you see as the advantages of W&T and the potential of doing offshore CCS versus onshore?

Yes, sure. I mean, we’ve got the infrastructure to do it. What people need to be aware of with regard to underground sequestration is that it takes a long time to get the permits. And until that changes I don’t feel the need to go out and do a great deal of effort on that. The real technology is the technology coming off flue-gas stack, and how to separate that out and get it offshore. And people think that it’s just CO2 and it’s not. There’s a whole slew of gases in particulates that come along with that. And it has to be separated out before you start dumping just pure CO2 in the ground. And it’s doubtful that it’ll just be pure CO2. There will probably be some other components, maybe nitration and sulfur dioxide is of course compound of these two gas emissions. So I don’t really see the value in going out and spending a great deal of money. We already have reservoirs that fit the description of what you need to be able to encapsulate huge volumes of CO2 in the ground. So the real problem, again, tends to be the permitting. There isn’t premise in Louisiana or Texas at this point in time or Alabama for that matter. So I think that until that permitting process speeds up, it’s a little bit of a waste of our energy. I’d rather focus on things that generate cash flow at this point in time.

Got it. Thanks for taking my question.

Yes, sir.

Our next question will come from Jeff Robertson with Water Tower Research. Please go ahead.

Thank you. Good morning, Tracy. You talked a little bit about your pricing outlook and maybe some of the volatility that you see and you see other people talk about affecting your decision on capital spending. Are you seeing pricing volatility concerns play their way into valuations in the acquisition market?

Yes, we are. Clearly, it's almost week by week, week, maybe even day by day, factor in everything that we do. Oil and gas commodity projects are always affected by price the most. So we do see that. I can't tell you what the price is going to be a week from now, but I can tell you that we are not hedged on oil at this point in time. We're pretty heavily hedged on gas at our Mobile Bay facility. But all the rest of the corporate company gas is not hedged and the oil isn't hedged either. I don't know which way prices are going to go, but my perception is for the short-term, they're going up.

You all have at June 30, $170 million – or a little over $170 million of cash on the balance sheet. Can you talk about funding considerations for an acquisition if you just assume do one with all cash, would you use debt? I'm sure it all depends on the size of the opportunity. But can you just share your thoughts around how that plays out?

Yes. We look at them all as individual entities for purchase, not necessarily on a corporate basis, but as properties, we think of them as all hybrids. Some of them have more proved producing reserves. Some of them have more proved undeveloped reserves, some of them have in pipe in disproportionate numbers. Some of them have better cash flow than others. Some of them have more abandonment decommissioning liabilities. So they're all different. And of course, then there's the size, size does matter here. And I think it's important that you understand the liabilities around the properties very well. We've done over $1 billion of decommissioning over the years. We think that's an important consideration that a lot of the private equity entities that have gotten involved in this business really have not paid that much attention to. Perhaps it's more because they're concerned about – they're not as concerned about that because they're not strategic players. But I would tell you that the ideal situation is a property, good cash flow and something that we can consider upside with the drill bit that we might be able to drill and bring to fruition. And then the rest is workovers, recompletions, facility upgrades that we can do to generate cash flow short-term. So they're all a little bit different. They're – we've seen a bunch of different properties over the years. So we have a pretty good appreciation of the things that have value and also take away from value.

Thank you.

[Operator Instructions] Our next question is a follow-up from John White with ROTH MKM. Please go ahead.

Yes. I wanted to come back on and had another question, but I also wanted to offer my congratulations to Sameer on his recent appointment, and I look forward to working with him going forward.

Thank you, John. I appreciate it. I look forward to working with you as well.

Great. Tracy, did your previous comments on Holy Grail, do those comments indicate that well has been pushed into 2024?

Yes, sir. Yes, that's – we expect to begin there around February of 2024.

Okay, thank you. I’ll turn it back to the operator.

This will conclude our question-and-answer session. I would now like to turn the conference back over to Tracy Krohn for any closing remarks.

Thanks, operator. Look, we appreciate your attention. Hopefully, we'll have some other news before our next conference call. We look forward to talking with you again soon. Thank you very much.

The conference has now concluded. Thank you very much for attending today's presentation. And you may now disconnect your lines.