Between its acquisition of Devon Energy's (NYSE: DVN) shelf properties and its takeover offer for midsized Mariner Energy (NYSE: ME), Apache (NYSE: APA) sure made some big waves in the Gulf of Mexico this month.

The moves prompted me to assess how ATP Oil & Gas (Nasdaq: ATPG) stacks up from a comparable valuation perspective. ATP Oil & Gas shareholders are far from the only ones wondering whether they're sitting on the next Gulf gusher, however. A reader asked me to opine on W&T Offshore (NYSE: WTI), and I'm happy to oblige.

If you're not familiar with W&T Offshore, this is a company that's focused on the Gulf of Mexico shelf. Of the company's top 10 fields at year's end, only one was out in the deepwater. W&T Offshore recently reported holding an interest in 77 producing fields spread across the Gulf, so its asset base is far less concentrated than that of ATP Oil & Gas or Contango Oil & Gas (AMEX: MCF). Production is 53% natural gas-weighted, and clocks in at around 220 million cubic feet equivalent (Mmcfe) per day. Reserves dropped to 371 billion cubic feet equivalent (Bcfe) last year, largely on account of low average gas prices.

Let's start with a reserve-based comparison. If we apply last week's two Apache transaction multiples to W&T Offshore's reserves, we get an estimated value range of $1.3 billion to $1.6 billion. This comes in somewhat above W&T Offshore's enterprise value (market cap plus net debt) of $1.25 billion, but is nothing exciting.

Slightly complicating matters is the recently proposed acquisition of two operated deepwater fields from Total (NYSE: TOT). It's possible that W&T Offshore will get a lot more value than the $150 million it's spending here, but the company didn't disclose much information. I'm hoping W&T Offshore clues us in to the nature of the assets acquired once the deal closes. Until then, it's hard to make an informed adjustment to our reserve number.

Moving to production, the Devon shelf properties sold for around $55,000 per flowing barrel and Mariner went for around $62,000 per daily barrel equivalent of production. The Devon asset is a better match for W&T Offshore's production profile, so let's use that as our guide. Again, production from the Total assets is something of a question mark, because we only know the assets' year-end gross production averages. If this deal closes, W&T Offshore should be producing somewhere around 250 Mmcfe per day. That would suggest a value of around $2.29 billion, compared with a pro forma enterprise value of $1.4 billion.

This latter comparison suggests that W&T Offshore is priced at a significant discount to recent transaction multiples. There are many reasons why a discount might be warranted, though:

  • The company hasn't managed much growth over the past five years.
  • Profitability has dropped (though management sees margins moving closer to historical levels in 2010).
  • Insiders control 58% of the stock, and the man in the big chair might not feel like giving up his $1 million base salary anytime soon.

If the company's not for sale, that would render this comparable transaction-based valuation approach rather moot. Please consider all of the foregoing a starting point, rather than a definitive judgment on the value offered here.

W&T Offshore is a Motley Fool Hidden Gems selection. Total is a Motley Fool Income Investor recommendation. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his Motley Fool CAPS profile or follow his articles using Twitter or RSS. The Motley Fool has a disclosure policy.