W&T Offshore has struck a $366 million deal to acquire acreage in the Permian basin of west Texas to help the Gulf of Mexico-focused player revive lagging liquids production from its mature asset portfolio.
The company, which saw its net income more than halved in the first quarter, has been looking to make fresh acquisitions after stating last month that most of its producing properties had reached saturation point, hitting its share price.
Its production profile has been further dented by a third-party pipeline outage at its key Main Pass 108 field in the Gulf of Mexico, which only came back online at the end of the last quarter having been shut in since June 2010.
The properties are currently producing at 2800 barrels of oil equivalent per day, and W&T expects ongoing drilling activities to deliver further output increases this year.
Analysts had earlier reacted negatively to W&T’s acquisition of some of Shell’s assets in November, which had comprised mainly gas while most companies were switiching to liquids-rich plays. This had given the company few drilling opportunities to lift output, they said.
Oil prices have soared beyond $110 a barrel while NGLs, which can be stripped of components such as ethane, sell at a premium to dry gas.
W&T said the Permian basin purchase has “significant upside potential… with hundreds of proved undeveloped and probable well locations”.
The company raised its production forecast for 2011 on the back of the deal to 87 billion to 101.1 billion cubic feet equivalent, up from the previous prognosis of 83.2 to 96.7 Bcfe.
The company is targeting capital expenditure of $35 million to $40 million this year on development work on the newly acquired acreage. Closure of the acquisition is expected in the second quarter.
“We believe that there are many more attractive acquisition opportunities for us both onshore and offshore,” said chief executive Tracy Krohn.
The company saw its net income including special items fall in the first quarter to $18.6 million, or $0.25 per common share, down from $42.3 million, or $0.57 per common share, a year ago. Revenues, however, were up 24% year-on-year at $210.9 million.
The weaker quarterly result was attributed by W&T to to a derivative loss of $23.8 million in the first quarter as well as a higher effective tax rate on profits.
Krohn said higher production volumes as a result of deep-water asset acquisitions from Shell and Total, as well as high oil prices, helped to offset the net income decline.
Total sales volume increased 14% to 22.7 Bcfe from 20 Bcfe in the first quarter of 2010.
“Our oil and natural gas liquids production, which represented 48% of our total production on a thousand cubic feet equivalent basis in the quarter, continues to contribute substantially to our revenues in this higher price environment,” Krohn said.
The Main Pass 108 field is currently producing 46 million cubic feet equivalent per day of gas after coming back online, with the company expecting output to rise by another 8 to 10 MMcfe when the Main Pass 108 E-3 well starts producing.
Shares in W&T on the New York Stock Exchange were up 81 cents to $23.57 after the Permian basin deal was announced.