Ladies and gentlemen, thank you for standing by, and welcome to the W&T Offshore First Quarter 2023 Conference Call. [Operator Instructions] 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 call over to Al Petrie, Investor Relations Coordinator.

Thank you, Jamie. And on behalf of the management team, I'd like to welcome all of you to today's conference call to review W&T Offshore's First Quarter 2023 financial and operational results. Before we begin, I'd 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 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 to everyone, and thank you for joining us this morning. With me today are Janet Yang, our Executive VP and Chief Financial Officer; William Williford, our Executive VP and Chief Operating Officer; and Trey Hartman, our Chief Accounting Officer, who will also serve as interim CFO as we search for a Gen successor. They're all available to answer questions later during the call. So we began 2023 by redeeming all of our outstanding 2023 second lien notes and issuing new 2026 second lien notes. Significantly reducing our debt and interest payments moving forward while strengthening our balance sheet and moving forward our debt maturities. We also delivered another quarter of free cash flow generation and strong adjusted EBITDA generation. 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. Over the years, we have seamlessly integrated producing property acquisitions while maintaining strong operational excellence, and we plan to continue to do so at infinitum. I'd like to point out some key highlights and accomplishments for the first quarter. We reported net income of $26 million or $0.17 per diluted share and generated solid adjusted EBITDA of $43.1 million. We have generated positive free cash flow for 21 consecutive quarters. And in Q1 2023, we produced $12.4 million of free cash flow despite a downturn in both oil and natural gas pricing. We reported production of 32,500 barrels of oil equivalent per day. Production was temporarily diminished by planned facility and pipeline maintenance projects at Mobile Bay and by unplanned downtime at other non-operated fields. As I mentioned earlier, in January, we pull -- we fully paid off the remaining $552.5 million principal outstanding of our 2023 second lien notes and issued $275…

[Operator Instructions] Our first question today comes from John White from ROTH MKM.

Maybe getting a little ahead of things here, but let's assume if we get into August or September, and you haven't found a deal and you're not in the midst of working on a promising deal, would that be a point in time where you might pick up drilling activity throughout the latter part of 2023?

That's a possibility, yes, sir. Okay.

And you previously -- I mean you made no secret you're very active looking for acquisitions. Can you characterize the predominant sellers? Is it major oil companies selling noncore assets? Or is it private equity-backed E&P companies? Where do you see the most activity?

Yes, it's all of the above, and there will also be probably some others that will present themselves in the interim. Fortunately, what we did was we opted to boost our liquidity in anticipation of these kind of opportunities. We had the opportunity to go ahead and pay out all of our debt, but that would have been at the risk of much greater liquidity. So the decision was made that liquidity would be a good thing, and I think that was the right call.

Well, you're certainly prepared for dealmaking and you have a successful history of that. So we will stay tuned and I will pass it back to the operator.

And our next question comes from Derrick Whitfield from Stifel.

Tracy, I wanted to focus on guidance with my first question. In light of the Q2 guide and your stance on reiterating 2023 guidance despite unplanned downtime impacts in Q1. I would ask if you could speak to the trajectory you're expecting for Q3 and Q4? And if there are any material planned maintenance impacts in those quarters?

Well, let me address the maintenance first. No, we had some issues at Mobile Bay with a certain contact power and it had a little more corrosion than we had anticipated. You don't know until you open these things up and inspect them. This was a hydrogen sulfide AMI contactor. So it was very important for us to get this right. We have a little H2S production in that field. So we wanted to make sure that we had this repair. The last time it was taken down it was 10 years ago. So we wanted to make sure it wasn't taken down anytime in the near future. So as far as ramping up in Q3 and Q4, yes, that's kind of the expectation. I think that what we haven't addressed here, there's a lot of other fields that we have interest in that are non-operated as well that we would hopefully see some increases in production there. It's a little bit hard to classify that as quantitatively, but the overall feeling is that, yes, that could help us as well.

Terrific. And then with regard to carbon capture market, I wanted to circle back to your remarks from Q4. Now that you've had more time to advance your efforts, could you perhaps speak to how your thoughts are evolving on the goals that you'd like to pursue with the CCS business?

Sure. We -- of course, we've been keeping a press to this and looking at it for a long time. We have numerous reservoirs in our portfolio of saltwater reservoirs, they can accommodate this kind of injection both onshore and offshore. So we're relatively confident that this will be a part of our portfolio in the future. I don't intend to spend a great deal of money. Most of the research and effort will be the first foot from the flue stack. So that's where most of the technology is going to be. And then there will be adjustments made as to how that is done by people whose expertise is far greater than ours. We expect to be -- we don't expect that W&T is a net zero company. We buy properties from other companies in the Gulf of Mexico, and we take those properties and we produce them out for a long period of time, longer than they probably would have been produced without creating an additional carbon footprint of massive amounts of drilling, fracking, flaring, that sort of thing. So we come into the idea of thinking that we will be more of a follower than a leader in that business.

[Operator Instructions] Our next question comes from Jeff Robertson from Water Tower Research.

Tracy, can you talk about how the lease that you picked up -- can you talk about how the leases you picked up in the most recent lease sale fit into the asset base and maybe your plans not necessarily this year, but 2024 or '25.

Yes. Unfortunately, Jeff, that's a very good question. We haven't been awarded those leases yet. So while we were a high bidder, we haven't been awarded the leases. So it's a little premature for me to talk about that. I'll be happy to talk about it as soon as they are awarded.

Just do you have a feel on how long it might take the OEM to process the bids and award leases from this sale?

Yes, sir. They normally process that within about 90 days of the lease sale itself. So we're -- in the next probably 45 to 60 days, we should have a good idea about what they're going to do. And I apologize for not being able to elaborate on that. I just think that it would be premature to do so.

Okay. In terms of acquisitions, Tracy, with the balance sheet liquidity that you have, can you just talk about how you think about financing acquisitions between cash and obviously, depending on the size, how much debt you'd want to use?

Sure. In larger transactions and depends on how you define large. Well, let's say, it was a $1 billion transaction. We would lever up a little bit and then we would probably -- you should probably expect to see -- when I lever up, we would expect to see that as a temporary leverage up that we'd be paying down quickly. And then we would probably sell off a little piece of equity as well.

So obviously, in keeping with your past, you would target assets that generate a significant amount of cash flow.

Yes. Yes. This is -- the company doesn't change its policies over time that work. So yes, generating cash flow is quite essential for us. Levering up. We want to stay within pretty known bounds of leverage right now. It's usually around 1. We would probably go a little bit higher than that to accommodate that acquisition and then tamper that with selling off a bit of equity.

And ladies and gentlemen, at this point in showing no additional questions. I'd like to turn the floor back over to Tracy Krohn, Chairman and CFO for closing remarks.

Thank you very much, operator. One other little minor -- well, not minor. One other little detail that I'd like to do is I would like to publicly thank Janet Yang for her service to the company as our CFO and even before that Janet has opted to move out of the city and go somewhere else in other state actually to facilitate some family things that she needs to deal with and her family. It's an opportunity for them going forward. We're very sad to see that she's leaving. I wish it was another way but I wish you well. The whole company wishes you well, and we're going to miss her, and we hope that everything comes out 100% for her. Thank you very much.

Ladies and gentlemen, with that, we'll conclude today's conference call. We thank you for attending today's presentation. You may now disconnect your lines.