W&T Offshore Inc. recently transferred producing assets in the eastern Gulf of Mexico in a transaction with Munich Re Reserve Risk Financing Inc. that W&T CEO Tracy W. Krohn said provides the company with the dry powder needed to continue to accretively grow through “attractive producing property acquisitions.”

“We believe that market conditions in the Gulf remain very favorable for accretive acquisitions,” Krohn said in a statement on May 20. “With our further improved balance sheet, increased cash position and strong projected cash flow generation, we have positioned W&T to actively pursue opportunities and continue to deliver on our strategic vision.”

According to a company release, W&T transferred 100% of its Mobile Bay area assets and related gas treatment facilities located offshore Alabama in the eastern U.S. Gulf of Mexico to special purpose vehicles (SPVs) wholly owned by W&T. In exchange, W&T received net cash proceeds from a $215 million first-lien non-recourse term loan to the SPVs provided by Munich Re.

In 2019, W&T bolstered its Gulf of Mexico footprint offshore Alabama through a $200 million acquisition of Exxon Mobil Corp.’s Mobile Bay asset.

W&T Offshore Mobile Bay Acquisition Asset Map
W&T Offshore Mobile Bay Acquisition Asset Map (Source: W&T Offshore Inc. June 2019 Investor Presentation)

Despite the transaction with Munich Re, W&T will continue to operate the Mobile Bay assets under a master services agreement, retaining the upside value in the assets.

W&T said it used a portion of proceeds from the transfer to repay the $48 million outstanding balance on its reserve-based lending (RBL) facility and commodity hedging contracts related to the anticipated future production of the Mobile Bay assets.

A majority of the proceeds, however, will be used for general corporate purposes that the company said include “oil and gas acquisitions, development activities and other opportunities to grow W&T’s broader asset base.”

“We believe this transaction meaningfully improves our financial flexibility moving forward by more efficiently utilizing the collateral value of our Mobile Bay area assets, allowing us to pay off our existing RBL balance, and adding cash to the balance sheet,”

The loan with Munich Re is non-recourse to W&T and amortized over seven years at a fixed interest rate of 7%.
“These are low decline, conventional producing assets with considerable free cash flows and hence are particularly suitable to our amortizing term loan structure,” commented Vikram Nath, managing director of Munich Re Reserve Risk Financing.

Munich Re Reserve Risk Financing Inc., a Houston-based, subsidiary of global insurance company Munich Re, is focused on alternative debt financing for upstream oil and gas.

“Moreover,” Nath continued, “our organization is fully committed to energy transition and the Mobile Bay assets are heavily natural gas weighted, which we view as critical for energy transition.”

W&T Offshore, based in Houston, currently has working interests in 42 producing fields in federal and state waters and has under lease approximately 709,000 gross acres, including about 500,000 gross acres on the Gulf of Mexico Shelf and approximately 209,000 gross acres in the Gulf of Mexico deepwater, according to its release.

Law firm Latham & Watkins LLP represents W&T Offshore in the Munich Re transaction with a Houston-based team led by partners David Miller, Pamela Kellet and Jeff Munoz.