W&T Offshore has reported operational and financial results for the second quarter 2020.

Key highlights included:

• Produced 42,037 barrels of oil equivalent per day (“Boe/d”), or 3.8 million Boe (48% liquids), in the second quarter of 2020, reflecting a 20% increase from the second quarter of 2019;
• Reported a net loss of $5.9 million or $0.04 per share and Adjusted Net Loss of $2.2 million or $0.02 per share in the second quarter of 2020;
• Generated Adjusted EBITDA of $42.1 million for the second quarter of 2020, despite a significantly lower pricing environment, and capital expenditures were held to just $6.4 million; Adjusted EBITDA for the first six months of 2020 totaled $104.2 million;
• Reported mid-year 2020 SEC proved reserves, based on a reserve report prepared by Netherland, Sewell and Associates, Inc. (“NSAI”), were 157.5 MMBoe, essentially unchanged from 157.4 MMBoe at year-end 2019, that included positive reserve revisions from field performance that were offset by revisions due to lower SEC base pricing and year-to-date production;
• Reduced long-term debt associated with its Senior Second Lien Notes since year-end 2019 by $72.5 million for a total cost of $23.9 million, resulting in annualized interest savings of $7.1 million;
• Awarded two blocks on which W&T was the apparent high bidder in the recent Gulf of Mexico Lease Sale 254 held by the Bureau of Ocean Energy Management ("BOEM") on March 18, 2020, which includes Eugene Island 345 and Garden Banks 782;
• Responded to the current low oil price environment with definitive actions to maintain financial flexibility, protect cash flow and preserve future value:
  • Suspended all drilling activities and significantly reduced its estimate of 2020 capital expenditures to $15 million to $25 million;
  • Proactively curtailed production at selected oil-weighted fields operated by W&T;
  • Implemented reductions in lease operating expenses (“LOE”) without compromising safety or operational capabilities that resulted in LOE per Boe declining significantly from the first quarter of 2020; and
• Completed the semi-annual redetermination of the borrowing base under the revolving credit facility in June 2020 which was reduced modestly from $250 million to $215 million.

Tracy W. Krohn, W&T's Chairman and Chief Executive Officer, stated,
“The continued global COVID-19 pandemic coupled with supply and demand imbalances created an environment of uncertainty across the oil sector and temporarily reduced oil prices to unprecedented low levels in the second quarter of 2020. Despite numerous downturns in the past, we have succeeded for nearly 40 years in this cyclical business by focusing on cash flow and operating efficiently.  We quickly responded to the most recent commodity price decline and stopped all drilling and completion activity, shut-in oil-weighted operated properties and experienced production curtailments from non-operated oil and gas properties, and reduced LOE per Boe over 25% without compromising safety or our operational capabilities, and lowered our G&A expense.  In addition, we completed our semi-annual borrowing base redetermination, which resulted in a modest reduction to the revolving credit facility with more manageable covenants in light of changes in oil prices and continues to provide us with liquidity and financial flexibility in the current environment.  We also capitalized on the opportunity to retire $72.5 million of senior notes for a total cost of $23.9 million, thereby saving over $7 million in annualized interest and preserving long-term capital.”

“After successfully addressing the unprecedented sharp decline in oil prices in March and April, we are encouraged by the recent stabilization in crude oil prices and the outlook for natural gas prices.  We remain confident in our strong asset base and I am proud of how we continue to operate in this environment, which is a testament to our operations team.  This was clearly evident in our mid-year 2020 reserve report that included 17.6 MMBoe of positive revisions due to field performance which was more than double our year-to-date production of 8.7 MMBoe.” 

“We have completed accretive acquisitions over the past year and we will continue to evaluate opportunities presented by the current market backdrop that meet all the criteria we have outlined in the past which target producing properties that generate free cash flow with upside potential.  We believe that we are well positioned to deliver near-term and long-term value creation at W&T,” concluded Mr. Krohn. 

For the second quarter of 2020, W&T reported a net loss of $5.9 million, or $0.04 per share.  The Company’s Adjusted Net Loss was $2.2 million, or $0.02 per share, primarily excluding a $38.0 million unrealized commodity derivative loss, a $29.0 million non-cash gain on debt transaction, and $8.7 million of deferred tax benefit. In the second quarter of 2019, W&T reported net income of $36.4 million, or $0.25  per share, which included a $3.8 million unrealized commodity derivative gain. Adjusted Net Income for the second quarter of 2019 was $36.5 million, or $0.25 per share. In the first quarter of 2020, net income was $66.0 million, or $0.46 per share, which included a $52.5 million unrealized commodity derivative gain and an $18.5 million non-cash gain on debt transaction. For that same period, Adjusted Net Income was $5.8 million or $0.04 per share.

Adjusted EBITDA for the second quarter of 2020 totaled $42.1 million, a decrease of 44% compared to $75.0 million in the second quarter of 2019 primarily due to lower commodity prices that were partially offset by significantly higher production volumes. Second quarter 2020 Adjusted EBITDA declined 32% from $62.1 million in the first quarter of 2020 primarily due to lower commodity prices and curtailed volumes.

Adjusted Net Income and Adjusted EBITDA are non-GAAP financial measures

Production, Prices and Revenues: Production for the second quarter of 2020 was 42,037 Boe/d or 3.8 million Boe, up 20% versus 35,045 Boe/d in the second quarter of 2019 and a decrease of 22% compared to 53,553 Boe/d in the first quarter of 2020.  Second quarter 2020 production increased from the same period a year ago due to the 2019 acquisitions.  The decline in production from the first quarter of 2020 was due to a combination of operated and non-operated production that was shut-in due to the decline in oil prices, production curtailments related to Tropical Storm Cristobal, proactive reservoir management, and, to a lesser extent, natural decline.  Second quarter 2020 production was comprised of 1.4 million barrels (“MMBbls”) of oil, 0.4 MMBbls of natural gas liquids (“NGLs”) and 12.0 billion cubic feet (“Bcf”) of natural gas.  Liquids production comprised 48% of total production in the second quarter of 2020.  W&T has restored the majority of its non-operated production that was previously shut-in due to the decline in oil prices, as well as volumes impacted by Tropical Storm Cristobal.  The Company was also able to restore some of its operated production that was shut-in due to low oil prices, but continues to monitor commodity prices to determine the appropriate time to return the remaining fields online.  As disclosed below under “Guidance”, production in the third quarter of 2020 will continue to be impacted by W&T-operated volumes that remain shut-in due to low commodity prices, proactive reservoir management during a period of continued low prices, planned downtime at the Magnolia Field due to turnaround activity at the third-party operated platform that processes production from the field, and natural decline. 

For the second quarter of 2020, W&T’s average realized crude oil sales price was $21.67 per barrel. The Company’s realized NGL sales price was $4.67 per barrel and its realized natural gas sales price was $1.78 per Mcf.  The Company’s combined average realized sales price for the quarter was $14.10 per Boe, which represents a 66% decrease from $41.83 per Boe that was realized in the second quarter of 2019 and a decrease of 43% compared to $24.71 per Boe in the first quarter of 2020. 

Revenues for the second quarter of 2020 decreased 59% to $55.2 million compared to $134.7 million in the second quarter of 2019, and decreased 56% compared to $124.1 million in the first quarter of 2020.  The decreases compared to prior quarters were driven primarily by significantly lower commodity prices.

Capital Expenditures:  Due to the uncertain commodity outlook in the light of the COVID-19 pandemic, W&T suspended drilling and completion activities in March and significantly reduced its estimate of 2020 capital expenditures to $15 million to $25 million from its prior level of $50 million to $100 million.  Capital expenditures for oil and gas properties in the second quarter of 2020 (excluding acquisitions) were $6.4 million related to its 2020 capital budget.   

Mid-Year 2020 Proved Reserves:  As calculated by NSAI, W&T’s independent reserve engineering consultants, SEC proved reserves as of June 30, 2020 totaled 157.5 MMBoe compared with 157.4 MMBoe at year-end 2019. Strong positive revisions of previous estimates from field performance of 17.6 MMBoe in the first six months of 2020 was offset by a combination of negative revisions due to SEC price changes of 9.9 MMBoe and year-to-date 2020 production of 8.7 MMBoe. The mid-year 2020 reserves, which were 85% proved developed producing and proved developed non-producing, were 34% liquids.  The PV-10 of those proved reserves was $1.0 billion, before consideration of cash outflows related to asset retirement obligations, compared with $1.3 billion at year-end 2019. The mid-year SEC PV-10 was based on an average crude oil price of $48.84 per barrel (compared with $58.11 at year-end 2019) and an average natural gas price of $2.09 per Mcf (compared with $2.63 at year-end 2019), after adjustments for quality, transportation fees, energy content, and regional price differentials and excludes provision for asset retirement obligations or income taxes.

OPERATIONS UPDATE 

W&T successfully drilled one well in the first quarter of 2020 at East Cameron 338/349 but has since suspended all other drilling activity in the current uncertain pricing environment.

Well Recompletions and Workovers:  During the second quarter of 2020, the Company performed three recompletions and two workovers that in total added approximately 600 net Boe/d to production.  W&T currently plans to continue to perform recompletions and workovers that meet economic thresholds. 

Gulf of Mexico Lease Sale 254:

W&T was awarded two blocks on which it was the apparent high bidder in the Gulf of Mexico Lease Sale 254 held by the BOEM on March 18, 2020, which included one deepwater block, Garden Banks block 782, and one shallow water block, Eugene Island Area South Addition block 345.

Guidance

Due to the recent sharp decline in oil prices, W&T significantly reduced its 2020 capital spending expectations to $15 million to $25 million and has also reduced its planned asset retirement expenditures to $2 million to $4 million.  As of April 20, 2020, W&T temporarily shut-in production of approximately 3,300 Boe/d in selected oil-weighted fields operated by the Company. W&T also experienced shut-in production at third-party operated fields that totaled approximately 3,400 Boe/d.  Lastly, W&T temporarily shut-in a portion of its production due to Tropical Storm Cristobal which resulted in a total of approximately 110,000 net Boe of deferred production.  W&T has recently restored production associated with the tropical storm as well as the majority of its non-operated production, but third quarter 2020 volumes will be impacted by W&T-operated fields that remain shut-in due to low commodity prices, proactive reservoir management during a period of continued low prices, planned downtime of 41 days at the Magnolia Field due to turnaround activity at the third-party operated platform that processes production from the field, and natural decline.  The Company expects third quarter 2020 LOE will be higher than second quarter as field work levels return to more normal levels but third quarter LOE is still expected to be about 20% to 25% lower than the first quarter of 2020.

KeyFacts Energy: W&T Offshore US Gulf of Mexico country profile