Speaker 1:

From the New York Stock Exchange at the corner of Wall and Broad Streets in New York City, welcome, Inside the ICE House. Our podcast from Intercontinental Exchange is your go-to for the latest on markets, leadership, vision, and business. For over 230 years, the NYSE has been the beating heart of global growth. Each week, we bring you inspiring stories of innovators, job creators, and the movers and shakers of capitalism here at the NYSE and ICE's exchanges around the world. Now, let's go inside the ICE House. Here's your host, Lance Glinn.

Lance Glinn:

The offshore oil and gas industry is a powerhouse of innovation, unlocking energy reserves hidden beneath the ocean's surface to fuel global progress. Through technology, the industry pushes the boundaries of what's possible in some of the harshest environments on earth. By powering industries, transportation and daily life, offshore energy plays a crucial role in improving lives. W&T Offshore, that's NYC ticker symbol WTI, has been a staple of the industry. Through its strategic focus on efficient and sustainable exploration and production in the Gulf of America, the company leverages technology and a strong safety culture to maximize resource recovery. Our guest today, Tracy Krohn, founded the company in 1983, and to this day, remains serving as its chairman and CEO. Over the last 42 years, an NYC listed company since 2005, he and his company have thrived in an environment filled with change and challenges. Tracy, thanks so much for joining us Inside the ICE House.

Tracy Krohn:

Thanks, man. It's a delight to be here. It's a delight to be... It's such a fun experience here at the Exchange.

Lance Glinn:

Absolutely. And we're so glad to have you and the W&T team here. So 20 years ago, in January of 2005, you brought W&T Offshore to the New York Stock Exchange listed under the ticker symbol, WTI. Now, that moment marked a milestone for the company that you founded in 1983. Now, as two decades have passed since that day, and you reflect on all that you had accomplished before and now since, what did it mean for you personally to have founded a company and then seen it through that journey? Because a lot of founders don't. So what did it mean for you to have found a company and then see it through that journey of going public?

Tracy Krohn:

Yeah, well, a lot of personal satisfaction, but you gain the awareness along the way that you can't do it by yourself. The only way you get to that point is you have a lot of people helping you that make a difference and want to achieve the same goals. We brought a pretty large group up here with us to celebrate that, and it was well-deserved. And I would tell you that the world has changed a lot in the last two decades, right, with the advent of personal communications and communications in general. I mean, news is almost instantaneous anywhere in the world. So, I think that's a benefit and also maybe a little frightening at the same time, right?

Lance Glinn:

Absolutely.

Tracy Krohn:

So the flow of information has been magnificent, really, sometimes a little tragic.

Lance Glinn:

So over the last two decades, you talk about how the world has changed, right? You've experienced market cycles, commodity price swings, regulatory shift, and just changes in investor sentiment. It's one thing to navigate these waters, these changes as a private company. But obviously, there's a whole new spotlight on you when you are a public company. Just what have been the biggest differences for you having seen the company from beginning to now where it is today? What have been the biggest differences for you between private versus public and maneuvering both the highs and lows that naturally come?

Tracy Krohn:

Mostly regulatory. That's the biggest thing that most companies deal with anyway is regulatory. In our business, we are heavily regulated, and offshore on the water, we're even more heavily regulated. So overcoming those has been difficult. A couple of the administrations that we've had in the last 20 years really didn't want us there. And a lot of the regulatory resolve by those administrations has been harmful to us and others, of course. But you have to hang around the hoop to continue to play the game. So that's what we've done. We've endured, and now we think we're in a cycle where that's going to excel.

Lance Glinn:

So I do want to quickly just take us back to 1983, just what was happening in the energy industry at the time? What was going on that led you to take this leap and found W&T? Was there a specific moment or an aha moment, for example, when you said, "I'm going to build something of my own in the Gulf of America and not just survive, but then scale it into something successful?"

Tracy Krohn:

Well, fortunately, I had already done it for someone else. I had actually a mentor, a guy named Patrick Taylor, that had funded my education at LSU in petroleum engineering. And the promise was that, "I'll fund you and then you can pay me off when you get out."

And actually when I graduated, he forgave the debt and said, "Pass it on."

So I did, and I have. But I went to work for a mobile oil company originally, and then after a few years I left. Then I went to work for Mr. Taylor, and started his acquisition program, primarily in the Gulf of America, because, that's the basin that I had worked in. I had a lot of operations expertise there. So, we started buying properties, and by the time I left, he had amassed enough properties there to make him a proper billionaire. So I thought, "Well, I did it for him. Maybe I can do it for myself." So that was the aha moment.

Lance Glinn:

There you go. So you had touched on it in a previous answer that you obviously, over the course of the last 42 years, dealt with a lot of regulatory change. And oil and gas has never really been a predictable business. And we spoke earlier in the conversation, navigating these changes, many in your industry have not been able to overcome them, right? But W&T has remained resilient and remained successful. How have you and your team just managed through all this uncertainty and been able to stay around when others haven't?

Tracy Krohn:

Yeah, the assets of the company are very strong. The net asset value of the company has always been greater than our debt and other liabilities. We haven't always traded that way. But the quality of the assets has been very good. We get good cash flow, long life. That allows us to survive some of these commodity cycles. And there's always commodity cycles. Volatility in oil and natural gas is as high as any commodity on the planet, maybe the most volatile.

So not trying to... You can never figure out what the price is going to be the next day, but you can control costs. So we focus on controlling the cost, hence controlling the margins. People ask me all the time, "What is your break-even oil price?"

Well, that's composed of a bunch of different things at any given moment. And it's a function of inflation, deflation. It's a function of manufacturing lines and such as we experienced in the pandemic and getting supplies and materials. So you have to be able to adapt. Humans are notorious for being able to adapt. That's why we're the apex species, right? Companies have to adapt as well. Hopefully, not hopefully, but I think we've been able to attract the kind of talent that understands that you have to adapt.

Lance Glinn:

Absolutely. And you mentioned that your experience came from the Gulf region, and W&T has remained committed to offshore development in that region for decades. Just what is it about it that continues to offer opportunities for growth and value creation? Is there something specific in the Gulf that keeps you staying there?

Tracy Krohn:

The cool thing about the Gulf is that it's the second largest producing basin in the US, and it is the largest basin by area. So there's always another deal. There's always another acquisition to make. There's always another well to drill. I've heard some of the pundits say, "Well, the Gulf is dead. The Gulf is dead, long live the Gulf."

Well, that's the reality. When prices drop, then activity levels drop. And instead of thinking of those as a bad thing, I think of them as a good thing. And so, we try to adapt. And if prices are low, well, how can we overcome this? What can we do to reduce costs? Well, the first thing you have to do is you have to knock on the door. You have to say, "Can you reduce those?" And if the answer comes up, no, then you got to knock a little louder.

Lance Glinn:

Sure.

Tracy Krohn:

And if the answer comes up, no, then you kick the door down, and you do something different. So a lot of it's just understanding the economic realities that prices go up, and costs of goods and services go up and down. What's important are the margins. Nominal dollars are important, but the margins are what you need to strive for.

Lance Glinn:

So you mentioned acquisitions in your last answer there, and W&T has found its ability to grow strategically a lot through acquisitions, especially in that Gulf region as we've been speaking to. How did that approach first take shape for you? And how did you build the confidence really and instinct to pursue that path, that path of acquisition as a core part of the company's growth model?

Tracy Krohn:

We've had some very strict rules about how we do acquisitions. One, we want to see cashflow. Two, we want to see associated with that, a reserve base that I can finance. And then third thing that we want to do is we want to look at the properties and figure out, "Gee, how can we make these better before we buy them?"

So what kind of workovers, recompletes? What can we do with a drill bit to enhance the value later on. What we can do with the facilities to work those such that we can get more cashflow short-term? And the answer lies in cashflow. Gulf of America has very good cashflow returns. So if then you're not seeing a cashflow stream, then you need to think about something else. It's not rocket science, but it does take attention to detail. So we pay attention to the details about how we're going to operate these properties. We've done a very good job of operating throughout the decades. I think that our operating costs are as good or better than anybody. And most of the time when we buy properties from larger companies, we do improve those costs. So, that's been real key for us.

Lance Glinn:

Now, I want to pivot the conversation really quickly away from W&T and talk about your love of racing. I know you've competed at a high level, and you own a racing team, Krohn Racing, that's based in Houston. There are hobbies, I think, and then there are passions that really become intertwined in who you are as a person. And I would think that is racing for you. Just what was it about car racing that captured your imagination at a younger age in such a deep way?

Tracy Krohn:

I've always liked to compete. I've played a lot of different sports. I tried to become a professional golfer at one point in time.

Lance Glinn:

I'm still trying.

Tracy Krohn:

And I realized the only thing I really lacked was talent.

Lance Glinn:

So am I. I'm lucky. Look, I love golf. I'm big golf guy. At this point, I'm shooting probably high 80s, which will never be a PGA Tour member.

Tracy Krohn:

Yeah.

Lance Glinn:

But, I think for me, at least my friends, I'm pretty decent.

Tracy Krohn:

Yeah. Well, it's a very competitive game. But I was actually a plus one handicap at one time.

Lance Glinn:

Oh, wow, good for you.

Tracy Krohn:

And I qualified for a pro-golf tournament. [inaudible 00:12:56] qualifier one time.

Lance Glinn:

Wow, good for you.

Tracy Krohn:

And I realized that the guys I was playing with were so much better than I was, I was never going to get to that level. And I'm thinking every once in a while, I'm going to shoot 67, 68.

Lance Glinn:

Sure.

Tracy Krohn:

These guys are shooting 67, 68, and then sometimes down to 62, 63, and that's what it takes to win. And I knew I was never going to get to that point. I tried playing racquetball professionally for a little while. Same problem. I just didn't have enough talent. But racing cars was different. And I had the ability to race with professionals even as an amateur and compete at a very high level.

So these Pro-Am races that I do are special. I've been able to... I've been to Le Mans 14 times and had three podiums there with our teams and competed at pretty high levels everywhere, all around the world. But like business, you have to manage the risk. I treat racing as a managed risk profile as well.

Lance Glinn:

Sure.

Tracy Krohn:

What are the odds you're going to make that turn and jump inside? And so, you have to learn those things along the way. And then, you have to make decisions about how you're going to drive. Unfortunately, the time that you have to make decisions is pretty minimal.

Lance Glinn:

Yeah, I would think, I would think.

Tracy Krohn:

When you're doing a buck 80 at night in the rain somewhere, it's a real decision point, right?

Lance Glinn:

Absolutely.

Tracy Krohn:

But managed risk is a part of the profile, just like it is in business.

Lance Glinn:

There are similarities, as you mentioned, between racing and running a company that includes fast decision-making, careful risk management as you were just discussing, composure under pressure.

Tracy Krohn:

Sure.

Lance Glinn:

How do you think your experiences on the track and running W&T and vice versa have impacted your instincts and your style for both?

Tracy Krohn:

Yeah, that's a great question. As I reflect on that, Lance, I think that one of the things you have to do in our business, you have to have a real objective look on quality control. You have to have a very objective look on safety. How can you make it safer? Well, you can make a lot of decisions in business that align around those two ideas of quality control and safety.

So with the race car, you want to make sure it's sound mechanically, and you want to associate with people that know how to do that, and they're very professional about it, and they have a lot of experience doing that. And the safety part of it, you get to manage that mostly yourself. There's the odd beta thing where somebody runs into you and you can't control that, or somebody has a mechanical difficulty in front of you, and you run into that, are the things that you can't control. But you want to focus on the things that you can control with a race car, just like you want to focus on the things that you can control in business.

Lance Glinn:

Sure.

Tracy Krohn:

So you can control your costs to a certain extent, but you can't control pricing. I don't get to do that. But racing is very similar to that. You can control the speed, you control some of the decisions, but you can't control the beta things that can happen.

Lance Glinn:

You can't control what other drivers are going to do.

Tracy Krohn:

Well, there's a lot of different factors you have to adjust for. So you have to adapt. If you're in the rain, you're going to drive differently than you do when it's dry. And then there's the dreaded wet-dry combination that makes it even more difficult. And then, there's just a lot of things that you have to control in business and racing.

Lance Glinn:

Absolutely. So I want to quickly touch on AI as obviously it's been a topic and a technology that has heavily influenced businesses and industries of all kind. How are you seeing it just influence generally W&T, the way you and your company explore, drill and manage offshore operations today?

Tracy Krohn:

The really cool thing about AI, for our business, particularly as it relates to exploration, is that seismic is patternistic. You're looking for patterns. Well, AI is ideally a process that you can go to looking for patterns that you don't realize. And then the machines, the intelligence is able to identify patterns and build on that. So that's the real positive thing that I see about our business on exploration. Mechanically, we can put in sensors that will give us better ideas about when these machines are going to have problems, reciprocating machinery, compressors and pumps, that sort of thing, that are going to wear. And what are the things that you can do to maximize that with AI?

Well, a lot of it's sensors, and a lot of it's data that you can fill in about what kind of materials you're using in these machines and when they're going to wear, and what kind of fluids you're putting into them, and where are you getting from the oil that you draw to test for these things?

Lance Glinn:

So since founding in 1983, W&T has operated under eight different presidential administrations, Reagan, Bush, Clinton, W. Bush, Obama, Trump, Biden, and now obviously President Trump once again. Before we speak directly to the outlook of the next three years under President Trump's second term, how do you think about managing just a business overall like W&T through all of these different presidential and regulatory cycles as well?

Tracy Krohn:

Yeah, I have a saying about that. Administrations come and go, bureaucrats are forever. So you really have to learn how to manage with the regulatory agencies. And that's been the biggest issue with all businesses on the planet, really, have been regulations. How do you deal and adapt to those changes? Again, the politicals, the administrators that are put in by different presidential administrations, they are that, they are political. They're not going to be with that agency, they're not going to stay there for a long time. Generally, they are political operatives.

So the reality is a function of those political ideas. Again, you have to adapt. For any business, you have to adapt. There's always something that's going to affect you negatively or positively with these different administrations. And very often, just because we've had an administration that doesn't necessarily like our business, doesn't mean that that's necessarily a bad thing for the pricing. So, the prices go up and down depending upon the whims of that administration. But again, it becomes a matter of how do you manage the costs.

Lance Glinn:

Absolutely.

Tracy Krohn:

So margins are important.

Lance Glinn:

So during the first Trump administration, obviously generally viewed as supportive of traditional energy sectors. So for the next three and a half years, as President Trump finishes his second term, how do you see the business environment shaping up for W&T?

Tracy Krohn:

Well, the first administration focused on, while the goal was to reduce regulation, I think the president was so occupied in the things that were happening around him that rather than reduce the regulations so much, it just wasn't enforced as much. And that was a positive. Now, I see this administration, and we've had some meetings with regulatory agencies that are very positive. "What can we do to make this less of a morass that you have to deal with?" And the results so far have been very positive. Some of this regulation is getting changed. The idea would be to see it not just regulatory, but to see it codified and put into law.

Lance Glinn:

Sure.

Tracy Krohn:

And that would be the ultimate for us. So we're spending some time with that in D.C. on the Hill and with the regulatory agencies.

Lance Glinn:

So as we begin to wrap up our conversation, will you just take a step back and think about the next 5 to 10 years, not just about W&T, but about the industry as a whole, what do you believe will be the biggest forces or trends that shape the future of oil and gas?

Tracy Krohn:

Well, clearly the attitude about regulation is going to change. That's not just this administration, that's every administration. But I think that the awareness level of not just regulatory agencies, but I think of the American people. I think the American people have started to say, "Yeah, we just have too many rules. It's time to make a change. We don't need to be regulated in our daily lives that much." So that move towards less regulation, I think, is important for not just business, but for our personal lives. So I look forward to that changing the next 5 to 10 years. I think that as we focus on the technical aspects of it, AI is going to be so disruptive.

Lance Glinn:

Absolutely.

Tracy Krohn:

And it's almost frightening. I look at it, I go, "Well, what industries are going to be affected by this and what professions?"

Lance Glinn:

And we don't even know the full capabilities of AI yet.

Tracy Krohn:

Well, yeah, and the danger is, how can that go out of control? That's the important part to think about as humans. I'd rather not be eradicated by some robot somewhere. Although, I look forward to... I do have a saying, sometimes I wish we had a few more robots than things that we had to deal with. But I think those are probably the most disruptive and unpredictable things we're going to have to deal with.

Lance Glinn:

So you've led W&T through decades of industry and administrative changes. How are you thinking about positioning the company for long-term success or continued long-term success, not just in terms of profitability, but innovation and adaptability as well, a word that you've brought up often our conversation?

Tracy Krohn:

I think that one of the things you have to do is motivate people to perform. One of the ways we manage that is by hiring very experienced people. We're not out going to the universities hiring people right out of college. We're hiring people that have experience, and then we help train them to make them even more capable. So we take the capable and we make them more capable. And I think that's important for our business model.

I don't see that changing. In fact, I'm wondering, "Gee, how can I interpret... Or, how can I get them to accept chips in their brain to make that more efficient?"

No, I'm just kidding. But that's not beyond the realm of capability, particularly where you have people that have been injured and whatnot, which one of the things that Elon Musk is working on so diligently. With the advent of AI and the changes it's going to have on society, it's going to be disruptive. Is it going to be helpful in the long run? I like to think so.

Lance Glinn:

I certainly hope so.

Tracy Krohn:

I've always been an optimist. I believe that people want to make changes that will help their families and their friends and the people that they work with and for. That's maybe too simplistic and utopian. But I do believe that people want to do the right things.

Lance Glinn:

Absolutely.

Tracy Krohn:

And yeah, there's always those forces that say, "Yeah, that's not right."

And there's always going to be that discussion among politicians about what works and what doesn't work. But I do see in the last few years a move towards more personal freedom and less rules. And so, I think that breaking bureaucracy a bit is going to be helpful for the country and the world.

Lance Glinn:

Absolutely. Well, Tracy, I'm so glad that you enjoyed your trip to the New York Stock Exchange over the last few days. And I thank you so much for joining us Inside the ICE House.

Tracy Krohn:

It's been a hoot. Thanks, Lance. Thank you very much.

Speaker 1:

That's our conversation for this week. Remember to rate, review, and subscribe wherever you listen and follow us on X at ICE House Podcast. From the New York Stock Exchange, we'll talk to you again next week Inside the ICE House.

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