W&T Offshore Inc (WTI) 2016 Q1 法說會逐字稿

Greetings, and welcome to the W&T Offshore Inc. first quarter earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Lisa Elliott. Thank you, Ms. Elliott. You may begin.

Thank you Operator. Good morning everyone. We appreciate you joining us for W&T Offshore's call to review the first quarter of 2016 financial results, and for an operational update. Before I turn the call over to the Company, I have a few items that I would like to point out. If you wish to listen to a replay of today's call, it will be available in a few hours via webcast by going to the Investor Relations section of the Company's website at www.WTOffshore.Com. Or via recorded replay until May 12th. To use the replay feature, call 201-612-7415 and dial the passcode 13635554. That information is also in the press release that was released yesterday.

As a reminder, information recorded on this call speaks only as of today, May 5, 2016, and therefore time-sensitive information may no longer be accurate as of the date of any replay. Please refer to the first quarter 2016 financial results announcement we released yesterday for a disclosure on forward-looking statements and reconciliations of non-GAAP measures. At this time, I would like to turn the call over to Mr. Tracy Krohn, W&T's Chairman and CEO.

Thanks Lisa. Good morning everyone. Joining me this morning are Jamie Vazquez, our President,Danny Gibbons, our Chief Financial Officer,Tom Murphy, our Chief Operations Officer, and Steve Schroeder, our Chief Technical Officer.

Yesterday we released our financial and operations result for the first quarter and provided guidance for the second quarter and full year 2016. Also we will be filing our first quarter form 10-Q with the SEC here in a day or so. And that will have even more detailed information. This morning, I'll briefly review some key items from the release, then we will be glad to address your questions. So in the first quarter, we produced approximately 3.9 million-barrels of oil equivalent for the quarter, which about 57% was oil and liquids. Our oil production was up slightly compared to the first quarter of 2015, while our natural gas and natural gas liquids production decreased.

Our new projects over the last five years have focused almost exclusively on oil exploration and development, so we're continuing to see a shift toward a larger percentage of total production being crude oil. Production in the first quarter was slightly lower than we anticipated, as our largest oil producing field, Ship Shoal 349 Mahogany was offline for three weeks during March, as a result of a scheduled maintenance project on a third-party pipeline that services the field. And Ship Shoal 208 was down from October through the end of February due to a fire. I believe that was at Black Bayou, and resulting outage at an onshore third-party processing facility. We had a couple of other incidents that contributed to a total deferral for the quarter of about 800,000 barrels of oil equivalent.

Nonetheless, our full year production guidance remains the same. Otherwise, most of our fields performed as expected during the quarter including the ones we brought online in 2015. The only new well brought on production during the first quarter of 2016 was the Ewing Bank 954 A8 well which was completed in March. We have now demobed the rig from the Ewing Bank 910 platform, which impacted production as a result of moving the rig of course, from the entire Ewing 910 field. Which includes the South 10 320 A5 well completed last year, as well as the Ewing 954 A8 well. We did take that into account previously for purposes of developing our production guidance.

As you may recall, the A8 well reached total depth in December, and penetrated a total of 150 feet of measured depth hydrocarbon bay in two zones. We completed the well in both zones with initial production coming from the lower zone. Although the upper zone was actually the primary and larger target, we have pre-completed that upper zone. We'll place it on production later as the lower zone depletes. The A8 well achieved a gross initial production rate of approximately 3,500-barrels of oil equivalent per day from the lower sand completion, which is approximately 47% oil and 6% liquids. This is the second well in a two-well exploration program that was drilled from the Ewing 910 platform following the earlier discovery of the South 10 320 A5 well in May 2015. We have a 50% working interest in these wells. We continue to believe the field offers additional opportunities for future drilling when prices recover. The Ewing 910 field has averaged around 4,200 barrels of oil per day over the last 11 days.

With some of the pipeline outages and maintenance related items now resolved, plus the additional reduction from the Ewing 954 A8 well, we expect to be able to keep our production volumes flat in the second quarter. Pricing in the first quarter was much lower than we expected. And apparently lower than many of the analysts expected as well. First quarter 2016 prices were as low as we have seen in a decade. And February was the worst month of the quarter, when I realized crude oil price was $22.81 per barrel. Not only did we have the severe dip in February, but our oil price realizations have been under the benchmark West Texas Intermediate price this year due to large, larger rather negative price differentials at several of our major oil fields. Because pipelines that serve those fields received lower pricing.

We've also been impacted by some adjustments due to lower crude qualities associated with certain pipelines. We have had substantial barging costs at two of our fields due to a pipeline outage. That was primarily at East Cameron 321 and 338. You may recall we had a ship incident out there, where a ship dropped anchor and severed a pipeline. West Texas Intermediate crude oil prices average $33.35 per barrel for the first quarter of 2016. While we realized an average crude oil sales price of only $26.73 per barrel during the same period. This level of negative differential is unusual for us. As you may recall, we were realizing substantial premiums to WTI a few years ago.

On a combined equivalent basis, our average realized sales price for the first quarter was $19.33 per BoE compared to $28.07 per BoE in the first quarter of 2015. Oil prices have been particularly volatile so far this year. We're pleased to see them improve from the lower levels in February. We focused on lowering costs where we can which resulted in a further reduction in expenses in the first quarter,compared to the same period last year. Lease operating expenses were down 17%, and G&A was down 21%, with a reduced headcount, reduced contractor usage, and other cost-saving measures. So we expect to continue to see costs trend lower, as long as commodity prices remain at these depressed levels.

As reflected in our second quarter guidance, we anticipate higher LOE, which is associated with a higher level of maintenance work that we typically perform during the second and third quarters when weather conditions are better but full-year LOE guidance is unchanged. As we reported in yesterday's news release, adjusted EBITDA for the first quarter 2016 was $16.6 million, down from $48.3 million the same period last year, and our adjusted EBITDA margin was 21% versus 38% last year, as the drop in commodity prices outpaced the drop in the cost of goods and services. So our 2016 budget of $15 million funded the completion of the Ewing Bank A8 well. Of course, that's done now. With service costs coming down, we've already seen our estimate for our planned ARO activity in 2016 fall from $84 million to $76 million, which actually includes more projects than what made up the original $84 million estimate. In fact, we were able to revise our overall ARO obligation downward by $20 million, as we looked at our previous estimates compared to the current costs of the environment. Hopefully there will be more of that to come as we continue to refine work scope and estimates.

So during the month of February 2016, we borrowed $340 million under our credit agreement and on March 31, 2016, our cash position was about $371 million. Our March 23, 2016, the borrowing base under our credit agreement was reduced as part of the spring redetermination from $350 million to $150 million. The excess amount borrowed over the new borrowing base is required to be repaid in three installments over 90 days. We repaid $52 million on March 31 and $12 million on May 2. We have another $64 million payment due on both May 31 and June 30. So also let me bring you up to date on our ongoing discussions with the US Department of Interior's Bureau of Ocean Energy Management, the BOEM regarding certain supplemental bonding requirements for offshore decommissioning liabilities.

As a reminder in February and March 2016, the Company received several orders from BOEM demanding that the Company provide additional supplemental bonding on certain Federal offshore oil and gas leases rights of way and rights of use and easement owned and/or operated by the Company. So those outstanding orders totaled $260.8 million. We filed appeals with the interior board of land appeals regarding three of the BOEM orders totaling $227.8 million in supplemental bonding. We've had numerous discussions with the BOEM and its sister agency, the BSCE since receiving the orders. We continue to have further discussions with both agencies. The objective of the Company remains to reach a mutual agreement on the financial assurance requirements. While we can't guarantee a favorable outcome regarding an agreement, we're cautiously optimistic that an amicable solution can be reached.

With our strong oil production and some recent improvement in pricing, cash flow in the second quarter should look better than in the first quarter. Given our solid asset base of high-oil producing properties, even a small improvement in oil prices can have a meaningful impact on our cash-generating capabilities. So obviously $26 oil is a lot different from $45 oil, so assuming current pricing second quarter is going to be better. So with that, Operator, we'll open it up for questions.

Thank you. We will now begin your question-and-answer session. (Operator Instructions). One moment please while we poll for questions. Our first question comes from Jon Evans with JWEST. Please state your question.

Thanks for your time, Tracy. I appreciate it.

My pleasure.

Last quarter, you had a problem with a well. You were going to do some acid issue, et cetera, and try to get it restarted and producing. Can you give us any update on that?I don't think you mentioned that in the script?

That would have been Gladden. Actually it wasn't acid issue. It was an asphalting issue. The well at lower pressures precipitates asphalt at the well bore interface. We had a very successful, we had some downtime. We had a very successful treatment on that using xylene through a control line, a fairly novel approach. We were able to inject over about a two-week period. We did get the well back online at acceptable pressure levels. And we've put the well back on. It is slightly reduced rates. But the good news is we're back online. And as of the first of this month. I'm sorry. The first of April.

Great. And then just, you guys have done a great job on costs. Obviously you've been chasing the commodity lower. Can you just talk on the cost side?Is there more blood to squeeze out of this turnip, or do you think we've kind of come to the end?Can you help us understand kind of in SG&A and LOE?

I think about this a lot, Jon. The short answer is yes. The rationale is it takes a period of time for our vendors and contractors to precipitate a lower price for their cost of goods and services as well. So their suppliers have to respond going on down the chain. That continues to act out. We certainly saw a lowering of prices in the first quarter. So yes, the short answer is yes. That will continue as long as we have oil in these kind of price ranges.

Okay. Hey, thanks so much.

Yes, sir.

Our next question comes from Noel Parks of Ladenburg Thalmann. Please state your question.

Good morning.

Good morning, Noel.

First one, can you give any thoughts on how things look on sort of the work over and recompletion front?Just kind of what you might have in inventory at this point, and what might be ahead?

I think we have a pretty good idea of what we are going to do. There's things that we believe that we see as lower-hanging fruit. We have some things to do at Mahogany that would certainly help us as well. It's a matter of prices. If price continues to stay up, we'll take advantage of those opportunities. We did our budget based on some fairly dire assumptions. And hopefully these increases in price make a big difference. And they do. If you think about the difference between $26 and $45 oil, it doesn't take a whole lot of rocket science to figure out the revenues are going to be much better.

Right. Right. And sort of along that same line, on the non operated side, I mean the price improvement has been with us going in a couple of months now. But is there anything from any of your partners, the operators with the improvement in price, are there any stirrings of any activity maybe coming on the horizon that you didn't originally plan with the more dire oil assumption?

Not anything that I can really point a finger to right now. Clearly when we get into better weather months, people pick up activity levels, so we'll have a little better read on that after this quarter, of course. I would tell you that there are still a lot of boats and rigs and stuff stacked up at the mouth of the river and the Sabine and everything else. I'm not seeing a huge movement right now in work activity. But clearly it will get better in our better weather months.

Great. Thanks a lot.

Yes, sir. Thank you.

I will now turn the call back to Mr. Krohn for closing remarks.

Thanks everyone. We appreciate you tuning in, and we'll be talking to you next quarter if not sooner. Thanks so much.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.