At a time of falling commodity prices, especially one of the most important, oil, there is a mining company that seems to be significantly improving its performance. W&T Offshore (NYSE: WTI) is a Texas-based oil and gas production company operating since 1983, with more than 50 rigs in the Gulf of Mexico. Its business is primarily based on oil production, which accounts for 58 percent of revenues. The company has been expanding production throughout its history, and has used the cash flow it generates to pay down debt and finance further acquisitions.
W&T stock quotes
W&T Offshore's share price has risen from $3.51 to $7.53 (114.53% YTD) since the beginning of the year, but historically the company has not had the best years. Since the 2008 crisis, in which the stock peaked at around $57, the share price has fallen 90.88% to $5.26. This was during the Covid crisis, when oil prices reached their multi-year lows, which could significantly affect the company's business. However, since the outbreak of the war, the company appears to be priced low against the sector.
Sources: Conotoxia MT5, W&T Offshore, D1
W&T Offshore financial results
As Steven Cress, Head of Quantitative Strategies at Seeking Alpha, comments, "WTI is well positioned for success, showcasing a 40-year history of drilling in the Gulf and improved liquidity and leverage metrics. With record free cash flow year over year and a reduction in leverage, WTI started very strong in the first half of 2022." These words are confirmed by the company's financial results. Revenues grew by 106.13 percent year-on-year, thus achieving an earnings per share (EPS) ratio of $0.85. A similar level was historically achieved only around 2018. These results yielded a P/E ratio for Tuesday's session of 4.53, which is -23.1 percent lower than the sector average. The operating margin in relation to the sector was also positively presented, which stood at 49.15%, 6.84% points higher than the average.
Promising situation in the oil market
Source: Conotoxia MT5, XTIUSD, D1
Currently, despite WTI crude oil's decline of more than 16% since the beginning of the year, the price is stabilizing in the $80-90/b range. The release of the OPEC cartel's recent decision to reduce production, may positively affect the market price of this commodity in the future. This may be confirmed by the prediction of the US Energy Information Administration, which puts the expected average price of this commodity in 2023 at $95/b.
An increase in the price of black gold, combined with W&T Offshore's increased operating margin relative to the industry average, could have a positive impact on the company's results.
Author: Grzegorz Dróżdż, a Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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