W&T Offshore, Inc.
Q4 2020 Earnings Call Transcript

Published: 4 Mar 2021

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the W&T Offshore Fourth Quarter and Full Year 2020 Conference Call. During today's call all parties will be in a listen only mode. Following the company's prepared comments the call will be opened for questions and answers. 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 Kate 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 fourth quarter and full year 2020 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:]

Thanks Al, good day to everyone and thanks for joining us for our 2020 year-end conference call. So 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. Stu Obkirchner, our Director of Geosciences. Jim Hersch actually new title for him Vice President New Ventures they're all available to answer questions today later during the call. So 2020 was an extraordinary difficult year for energy companies to say the least. We saw oil prices and production impacted by the global COVID-19 pandemic. Supply and demand imbalances and one of the most active tropical storm seasons that the Gulf of Mexico has ever seen. Nonetheless in the interim every quarter of 2020 we produced positive free cash flow including 14.2 million in the fourth quarter. Our operations team did an excellent job returning these properties to production in the fourth quarter ahead of schedule which helped us succeed our guidance. In addition we were able to keep our operating and overhead costs low despite the additional work required to restore production. Our success has always been based on maximizing free cash flow generation, operating efficiently and striving to constantly improve the profitability of our assets at any commodity price. This past year was no different. We also continued to take steps throughout the last year and into 2021 to protect our employees and contractors during the pandemic. Turning to our operational and financial results. Despite the multiple challenges we faced last year we generated significant adjusted EBITDA and continued to generate free cash flow by adjusting quickly to the changing environment early in 2020 and reducing our planned capital expenditures. We generated $76 million in free cash flow for the full year 2020 which was actually higher than the 74 million we generated in 2019. We reported $159 million in adjusted EBITDA in 2020 and our cash capital expenditures were held to only 17.6 million for the full year at the low end of our reduced 2020 budget of 15 million to 25 million. This is very important because on cash basis we continue to create significant value by generating substantially higher adjust EBITDA compared to our CapEx. So the lower decline profile of our conventional asset base allows for reductions in CapEx to align with changes in the pricing environment without significantly impacting near-term production levels.

[Operator:]

We will now begin the question and answer session. The first question comes from Michael Scialla of Stifel. Please go ahead.

[Michael Scialla:]

Morning Tracy.

[Tracy Krohn:]

Hi, good morning Michael.

[Michael Scialla:]

Just wanted to ask on the 21 budget. You got a pretty wide range there at least on a percentage basis. Can you talk a little bit about the gating factors on what would cause you to spend toward the low end versus the high end? Is it oil price or timing of getting permits or something else?

[Tracy Krohn:]

It's primarily pricing. Permits could take a bit longer but that's not really going to be the driver. It's primarily going to be pricing.

[Michael Scialla:]

And in terms of a number of wells any color you could add there? Any new wells other than the Cota well you mentioned you'd be bringing on the second half but any other wells you could be potentially bringing on this year?

[Tracy Krohn:]

Yes possibly up to four more.

[Michael Scialla:]

Okay. And if I could just sneak one more in. Anything inside the JV this year planned or and where do you kind of stand with the number of wells that are left within the JV?

[Tracy Krohn:]

Yes the Cota well is one of the wells in the JV and we may drill one or two more with that JV as well.

[Michael Scialla:]

Great. Thank you.

[Tracy Krohn:]

Yes. Sure.

[Operator:]

The next question is from Richard Tullis of Capital One.

[Richard Tullis:]

Hey thanks. Good morning everyone. Tracy going with the M&A theme perhaps provide an update on the current landscape there and any impact on property offerings that you're seeing following the recent oil price rebound? Is it impact and what the deal flow or at least what's offered or what do you see in there?

[Tracy Krohn:]

Well as usual Richard you asked very good questions and valid questions. With the new administration comes uncertainty. Business hates uncertainty. I do see that that there's going to be some struggle with regard to leasing going forward on new leases. Apparently the existing leases are just going to take a little bit longer to get things done and I don't really worry about that very much. I think that as we go through the year and succeeding years we'll resolve all those issues and the process will get streamlined but with regard to M&A yes I mean clearly we're going to see more M&A in the Gulf of Mexico and I think that's not just a function of pricing I think it's more because everybody was kind of holding their breath in 2020 to see what was going to happen and now there is a little bit more confidence and clarity with pricing. So companies are able to plan a little bit better. 2020 was a particularly difficult year to plan in the Gulf of Mexico I mean COVID-19, drastic reduction in price, the Saudis and the Russians raising hell with one another and eight storms I mean that was a lot to take in one year. So it's very difficult to plan around that and then a rather shocking day in April of $-37 oil kind of kind of shakes your confidence and makes it hard to plan, but we got through all that as did just about everyone else but I will tell you that it made it difficult to plan going forward. So yes I do see more M&A activity in 2021 and beyond just for those reasons.

[Richard Tullis:]

All right Tracy. That's helpful. Thank you. And us as a follow-up I mean as you mentioned the big storm impact in the second half of last year, production rebounded nicely in the fourth quarter. Are you able to say what you exited 2020 oil production rate or maybe what the oil production rate is currently?

[Tracy Krohn:]

Yes. We exited around 38,000 to 40,000 barrels per day. I don't remember the exact number on December 31 but that's about where it was.

[Richard Tullis:]

Okay. All right. Thanks very much.

[Tracy Krohn:]

Sure.

[Operator:]

The next question is from Ray Deacon of Petro Lotus Analytics. Please go ahead.

[Ray Deacon:]

Yes. Hey. Good morning Tracy. Can you can you give a little bit of color around the guidance relative to your production? There was about a 20% beat versus your guidance was that just getting wells turned on sooner or was there anything caught in the quarter.

[Tracy Krohn:]

I am sorry, are you just referring to production is that right Ray?

[Ray Deacon:]

Exactly right. On the production side which was there anything tied in?

[Tracy Krohn:]

Yes. We did have to do a little bit of planning around the storms and stuff and things that we needed to clear up as is follow-up. We did have a little bit of damage and a little bit of loss production as a result of that but we were able to clean that up fairly quickly and I do think that most of our production is on well. I don't think I know that most of our production is back online. We have one pipeline issue that we're still dealing with its primarily onshore that's ready to come on now. We're probably working on as we speak its coming on literally.

[Ray Deacon:]

Okay. Great. And your G&guidance for next year looks kind of roughly double the 4Q level. Is there anything next year that is it sounded as though your cost would be down year-over-year on G&A but I guess the 4Q was unusually low?

[Tracy Krohn:]

Yes it was but it's somewhat caused by PPP and bonuses. Okay.

[Ray Deacon:]

Okay. Great. Got it. And just the last thing I saw there was a small acquisition. Was that of producing properties or?

[Tracy Krohn:]

Yes. It was a bolt-on on producing property you're right.

[Ray Deacon:]

Okay. Got it. Well thank you.

[Tracy Krohn:]

Thank you sir.

[Operator:]

There are no additional questions at this time. This concludes our question-and-answer session. I would like to turn the conference back over, I'm sorry we do have a follow-up. Would you like me to take that?

[Tracy Krohn:]

Yes please.

[Operator:]

Okay. We have a follow-up from Michael Scialla of Stifel. Please go ahead.

[Michael Scialla:]

Yes. Thanks. I just had a couple more. I was curious on Magnolia. Do you see any drilling opportunities there or is that going to be more of work-overs and kind of looking for operational improvements?

[Tracy Krohn:]

Yes. And yes.

[Michael Scialla:]

Okay.

[Tracy Krohn:]

Yes. We do see more activity out there and, Michael and we will give some more color on that later on as we get more prepared.

[Michael Scialla:]

Got you. Okay. And this one it probably sounded like a total softball question, I apologize up front but I know a lot of companies we follow didn't replace production with pre-reserve editions last year and I don't think you even completed any wells. You managed to more than offset production with upward revisions. Is that just conservative bookings on your part or was there anything more specific to the positive revisions you had last year?

[Tracy Krohn:]

No it's just magic. No it really has a lot to do with how we manage our properties and how we spend our money and how we lower costs. So a lot of that addition came out of the Mobile Bay and we were like we did with Fairway when we bought that in Mobile Bay we increased reserves without ever drilling well. We were able to manage costs and we also of course were working on consolidating the two gas plants and we've accomplished that now and that'll save some more money going forward and 21 and beyond.

[Michael Scialla:]

Very good. Thanks Tracy.

[Tracy Krohn:]

Thank you sir.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back over to Tracy Krohn for closing remarks.

[Tracy Krohn:]

Thank you operator. We appreciate you listening to us today. We were very pleased with the performance that we did in 2020 as regarding all the difficulties that us and everyone else faced. We continue to seek opportunities in the Gulf of Mexico this year and going forward and we see it as a very robust basin and we'll continue to do that. So with that I'll turn it over. Thank you very much.

[Operator:]

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