W&T Offshore, Inc.
Q1 2021 Earnings Call Transcript

Published: 5 May 2021

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the W&T Offshore First Quarter 2021 Conference Call. This 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 over to Al Petrie, Investor Relations Coordinator. Please go ahead.

[Al Petrie:]

Thank you, Eileen, and on behalf of the management team, I would like to welcome all of you to today's conference call to review W&T Offshore's first quarter 2021 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.

[Tracy Krohn:]

Thank you, Al. Good day to everyone and thank you for joining us for our first quarter 2021 conference call. With me today are Janet Yang, our Executive VP and Chief Financial Officer; William Williford, our Executive VP and General Manager of Gulf of Mexico; Steve Schroeder, our Senior Vice President and Chief Technical Officer; and Stu Obkirchner, our Director of Geosciences. They're all available to answer questions today later during the call. So 2020 was an extraordinary and difficult year for energy companies but W&T proactively took measures to reduce our costs and capital spend while we maintain free cash flow generation. Those measures have carried into 2021 and with an improving global outlook, we were able to meaningfully increase our free cash flow and adjusted EBITDA in the first quarter. Operationally, we performed quite well. We exceeded guidance in several areas. We were above the midpoint in production, below the midpoint in LOE and below the end - the low end of guidance for G&A. As we look to the remainder of 2021, under the strengthening commodity price conditions, we're forecasting strong free cash flow generation, and we will continue to evaluate additional accretive acquisitions and opportunistically pay down debt. Our focus remains on operational excellence and free cash flow generation. This means that we will continue to take a measured approach to drilling, while funding our capital expenditures with available cash and cash generated from operations. We expect to use our dry powder for acquisitions. We do have significant flexibility to adjust our capital spending up or down at any time since we have no long-term rig contract movements or drilling obligations. Our lower production decline profile allows for reductions in capital expenditures without significantly impacting near-term production levels. In the first quarter of 2021, we spent just 1.6 million of our 30 to 60 million 2021 capital budget. As we mentioned in our year end call, our 2021 capital program is weighted toward the second half of the year and of course funding production uplift will be more impactful in 2022 Turning to our operational and financial results, we had good results in the first quarter of 2021 as we have expanded margins and operated efficiently in an improved commodity price environment. We saw significant increases in our free cash flow and generated $40 million in free cash flow for the first quarter of 2021. That's a 182% increase over the prior quarter. Adjusted EBITDA was higher by 63% compared to the fourth quarter of 2020 and totaled $57.6 million in first quarter 2021. This was due to higher commodity prices and increased production volumes. We reported a small net loss of $0.7 million or a penny a share, but excluding primarily a 16.3 million unrealized commodity derivative loss, our adjusted net income was $15.9 million or $0.11 per share.

[Operator:]

We will now begin the question-and-answer session. Our first question today will come from John White with Roth Capital.

[John White:]

Good morning. Yeah, I wanted to offer congratulations, not only on the results for the quarter, but also your ESG report. It's nice to see you getting out in front on that.

[Tracy Krohn:]

Thanks, John.

[John White:]

With crude back up in the $60 range, how're the fees and expenses for the boats and in the helicopters?

[Tracy Krohn:]

No, we're running about level with where we were. I'm not seeing a great deal of inflation in those costs at this point.

[John White:]

Okay, thanks. I'll pass it on and perhaps come back.

[Tracy Krohn:]

Sure.

[Operator:]

Our next question comes from Michael Scialla with Stifel.

[Michael Scialla:]

Hi. Good morning, everybody. Tracy, I was little surprised you had some sequential growth from fourth quarter, you mentioned the better runtime. I don't know if you had any numbers to go with that compared to what the runtime was in the fourth quarter. And then I know you mentioned last quarter, you had a little bolt on acquisition, just wondering if that contributed to the growth at all. And also just kind of wondering where the base decline rate is right now. So I guess kind of three questions rolled into one.

[Tracy Krohn:]

Well, let me answer the quarter-over-quarter question. I don't have those figures in front of me. Obviously, it was it was up a little bit but partially, because of weather conditions and also the bolt on, I'm sure, contributed some. We had some pretty awful weather in the fourth quarter as well - I'm sorry, in the first quarter as well. So that was disturbing to us. And I'm sorry, Michael, what were you other two questions? Pardon me.

[Michael Scialla:]

No, you answered two of them. I was just wondering on the base decline rate, if he had a sense of where that is right now.

[Tracy Krohn:]

Yeah, I mean, traditionally, in the Gulf of Mexico, we're normally about five but our reserve strength since the norm is is about nine at this point. So that's about a 10% to 15% decline rate. One of the things that I would point out on that, that I think is very important to note and I do this in our normal presentations when we go to conferences and things like that. I pull out a slide of our probable reserves and how much probable reserves and CapEx - excuse me, how much cash flow we generate from probable reserves without having to spend any CapEx. So you're seeing some of that effect over a long period of time that reduces that decline rate. And we don't get credit for those barrels as a function of our proven reserves, of course, but the cash flow comes in quite handy. So as time passes, we increase our reserves in some of these reservoirs that have that probable reserve component to them, so that's an important part of our cash flow and reserve picture going forward.

[Michael Scialla:]

Yep. And then along those lines, I mean, you didn't spend hardly much at all in the first quarter and still had some growth. I just wondered, second quarter CapEx, can you - should we anticipate something similar to first quarter or is there going to be a little bit more on the work over and recompletion activity?

[Tracy Krohn:]

No, I believe you'll see second go up and also, we're working on the cook - on the code of completion as well. So you'll start to see some effects on that in the second and third quarter as well.

[Michael Scialla:]

Okay. And then just lastly, I wanted to ask, you talked about the ESG report. Just wondering if you see any potential economic opportunities come in that - coming out of that on the environmental side? And maybe along those lines, if you had any thoughts, if you do on Exxon's plants for carbon capture in the in the Gulf region?

[Tracy Krohn:]

Well that's a fairly general question. The short answer is yes, I do see opportunity. Second short answer is, I'm not trying to compete with Exxon.

[Michael Scialla:]

That's good to hear.

[Tracy Krohn:]

They're pretty tough competitors. But I do see possibilities for potential sequestration in the Gulf of Mexico.

[Michael Scialla:]

Good to hear. Thanks, Tracy.

[Tracy Krohn:]

Thank you, sir.

[Operator:]

Our next question is a follow up from John White with Roth Capital.

[John White:]

Well, in your public comments, you've made it no secret that you're actively looking for acquisitions. And with the way you're setting up the balance sheet that that lines up with that objective, and I realize you probably can't talk too much about it. But you want to just touch on deal activity and deal flow.

[Tracy Krohn:]

Sure, John. Thanks for the questions. Yeah, we're actively involved in several dialogues right now. I expect this to be a good year for acquisitions. I can't really provide you with the details. I'm sure you're sensitive to that as well. But I'm very confident the balance sheet is setting out nicely. I would point out that - and I think it's very important to note this, we're - we do understand the value in protecting this balance sheet and making it stronger going forward. So anything that would be of size that would really have a significant impact on us, I think you would expect to see potential of making sure that - you would see the company taking measures to protect our financial covenants and you might see some issuance of equity in that case.

[John White:]

Well, that was more detailed than I was expecting, so thank you very much.

[Tracy Krohn:]

Well, you always ask pretty good questions, John, so I do appreciate it. But yeah, when you think about doing larger acquisitions, it often makes sense to sell a little bit of equity along with it.

[John White:]

Thanks again.

[Tracy Krohn:]

Thank you, sir.

[Operator:]

Our next question is a follow up from Michael Scialla with Stifel.

[Michael Scialla:]

Just wanted to see if you were - you talked about the Cota well coming on towards the end of the year. Are you still thinking kind of three to four new drills in the second half? And if so, anything you see there as to where those might be, I understand if it's too earlier, you don't want to say for competitive reasons, but just anything you can say about those would be of interest.

[Tracy Krohn:]

Yeah, I haven't comment on additional wells yet Michael, but certainly with Cota, one of the good things about that completion and that project is it that we focused a lot on long lead items and that one of the things we did, we were able to purchase an older platform and refurb - and we're in the process of refurbishing that now. So that's accelerated the completion and placement of that platform in the Gulf along with the jack up in the production deck. So, pipelines have tested out and in good shape, so we're excited to be going forward. So we're just working on refurbishing the platform at this point in time. So I'm quite confident we'll have that out for the end of the year.

[Michael Scialla:]

A sense of the expectations if that well turns out to be what you hope in terms of what it could do for your production heading into next year?

[Tracy Krohn:]

Yeah, I think that's going to be a really nice completion. One of the things that we saw in the reserves, looking at the seismic, as we thought about it, the fault complex in that area tends to occlude the seismic signature a little bit. So we've got bright spot that in what I'm saying is that actually the deeper shale that didn't really light up the entire area, in the fault block. But we think it's just because that that signature has been included as a result of the faulting. So we expect to see bigger reserves then what we would - what the proven reserves would indicate.

[Michael Scialla:]

Very good. Thanks, Tracy.

[Tracy Krohn:]

Thank you, sir.

[Operator:]

This concludes our question-and-answer session. I'd like to turn the call back over to Tracy Krohn for any closing remarks.

[Tracy Krohn:]

Well, thank you very much, operator and thank you all for listening today. I'm sure we'll be back in touch with more news, as we run through the quarter and into next quarter. Thanks so much.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.