W&T Offshore Inc (WTI) 2021 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the W&T Offshore First Quarter 2021 Conference Call. (Operator Instructions) 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.

Thank you, Ilene. 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 would 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. Today's call may also contain certain non-GAAP financial measures. Please refer to the first quarter 2021 earnings release that we issued yesterday for disclosures on forward-looking statements and reconciliations of non-GAAP measures.

At this time I'd like to turn the call over to Tracy Krohn, our Chairman and CEO.

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 Vice President and Chief Financial Officer; William Williford, our Executive Vice President and General Manager, Gulf of Mexico; Steve Schroeder, our Senior Vice President and Chief Technical Officer; and Stuart Obkirchner, our Director of Geosciences. They're available to answer questions 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 maintained 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 low end of guidance for G&A.

As we look to the remainder of 2021, under the strengthening commodity price conditions, we are 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 commitments 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 million 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 the corresponding 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 of 2021. This was due to higher commodity prices and increased production volumes. We reported a small net loss of $0.7 million or $0.01 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.

So turning to production, for the first quarter of 2021, W&T produced 39,657 barrels of oil equivalent per day or 3.6 million barrels of oil equivalent, that's an increase of 4% compared to 38,261 barrels of oil equivalent per day in the fourth quarter of 2020. Production was above the midpoint of our guidance due to better run time efficiency, despite some February downtime associated with the winter storms.

Total liquids production increased slightly to 50% of production in the first quarter of 2021. Looking ahead to the second quarter of 2021, we're forecasting our production to be up modestly from the first quarter and average 38,500 to 42,500 barrels oil equivalent per day. Our operations team is doing a good job of maintaining our production, despite not having any new wells coming online until late this year. Our full year 2021 production guidance range remains at 38,000 to 42,000 barrels of oil equivalent per day.

For the first quarter of 2021, our average realized sales price per BOE increased about 35% compared with the fourth quarter of 2020, with meaningful increases in pricing for oil, NGLs and natural gas. Our first quarter 2021 average realized crude oil sales price increased 32% to $56.73 per barrel from $42.84 per barrel in the fourth quarter of 2020. So our NGL sales price was up 47% for the fourth quarter of 2020 to $23.88 per barrel. And our natural gas price was up 27% to $3.35 per Mcf. So excluding the effect of hedges, revenue for the first quarter increased quarter-over-quarter by 33% to $125.6 million, driven by higher realized pricing and increased production. So despite the improved pricing environment, our focus will remain steadfast on capital discipline, operational excellence, most importantly free cash flow generation.

Now turning to cost, with the sharp downturn in prices in the first half of 2020, we quickly implemented several successful initiatives to reduce our lease operating expenses. We swapped our higher cost contract personnel with full-time employees, reduced transportation costs by lowering the number of boats and helicopters needed through operational efficiencies, cut workover and facilities costs through vendor and supplier cost reductions and increased our focus on projects that maintained an optimized production.

We've not reduced our commitment to safety, operational compliance or environmental protection with any of these actions. A combination of those proactive cost reduction measures along with reduced expenses from certain fields no longer on production and fewer facility projects and workovers resulted in LOE in the first quarter of 2021 being at the low end of guidance and down 2% compared to the fourth quarter of last year.

Our G&A was $10.7 million in the first quarter of 2021, which was below the low end of our guidance range due to lower incentive compensation and payroll expenses and the employee retention credit associated with the Cares Act. While we were below our guidance range, G&A costs were up compared to the $7.7 million in the fourth quarter of 2020, which benefited from a $2.7 million credit related to a settlement with the Bureau of Safety and Environmental Enforcement, referred to as a BSEE, that resolved some pending civil penalties issued by that agency.

Looking at costs for the balance of 2021, we reduced our full year G&A guidance of $49 million to $54 million, from $51 million to $56 million as we continue to focus on cost containment. We did increased our annual LOE guidance to $158 million to $174 million from $153 million to $169 million, due to increased BSEE-mandated costs, higher hurricane-related repair costs remaining from last year and cost associated with returning some fields to production that were previously shut-in. Additional results on our expense guidance are in the earnings release we issued today.

Okay, so turning to the balance sheet. In 2020, we were able to reduce debt considerably and at a significant discount. The first quarter of 2021 we continued to pay down our debt and increase our liquidity position. We have remained true to our strategic vision that has guided us for nearly 40 years to maximize the value of our premier assets that have strong, stable production and generate solid free cash flow. We used a portion of our strong free cash flow in 2021 to pay down our credit facility by $32 million in the first quarter.

Our revolver balance is now at $48 million. Balance on our senior note stands at $552.5 million compared with $625 million at year-end 2019. [Dispositive] prove that one of the keys of our ongoing success has been our ability to generate positive free cash flow and to use that free cash flow wisely to find accretive acquisitions and pay down debt. At March 31, 2021, our total liquidity stood at $191 million, comprised of $53.4 million in cash and $137.6 million in availability under our revolving credit facility. Total long-term debt, including $48 million in revolving credit facility borrowings, is $593.8 million net of unamortized debt issuance costs.

On January 2021, W&T's bank group completed its regularly scheduled semiannual borrowing base redetermination, and the borrowing base was set at $190 million. We remain in compliance with all applicable covenants of our credit agreement and the senior second lien notes and denture. We believe we continue to have a strong balance sheet and have more than sufficient liquidity to meet our needs going forward, and we continue to look at good opportunities that may arise.

Now turning to operations. During the first quarter of 2021, we performed one workover and one recompletion that in total added approximately 400 net barrels of oil equivalent per day to production. Workovers and recompletions are good near-term projects that help to abate natural decline, and we plan to continue to perform them as they are often some of the best economic projects in our portfolio.

The successful Cota well that we drilled last year is currently in the development phase of the project and is expected to be on production in late 2021. We've built a tremendous group of assets through organic growth and acquisitions. Despite the higher commodity price environment, we continue to look at acquisitions that meet our criteria, especially those that provide a solid foundation for our ability to generate free cash flow. We've integrated two strong acquisitions over the past 18 months and will look to those types of opportunities moving forward. We believe that market conditions in the Gulf remain very favorable for accretive acquisitions and our improved balance sheet and strong cash flow generation have positioned us to actively pursue these opportunities.

Now before I close out the call, I'd like to discuss our inaugural ESG report that we issued last month and is posted on our website that discloses 3 years of relevant ESG data on the company. Since day 1, we've been committed to developing and producing oil and gas resources in a safe and environmentally responsive manner, while meeting or exceeding all regulatory requirements. These core values have guided our success and provided the foundation for W&T to grow into a trusted operator in the Gulf of Mexico, a generous partner to the communities where we operate and good stewards to the environment.

We believe that every employee has a responsibility to ensure that we operate with the highest regards toward ESG, I believe that success is achieved with empowerment. With that in mind, we've empowered our management to allocate resources and tools necessary to create a working environment focused on accomplishing our ESG objectives. We have a multidisciplinary ESG task force that contributes to creating our initial ESG report. And those folks have the ongoing responsibility to monitor our adherence to our ESG standards and to formally communicate their findings on to me and our Board and suggest opportunities for further improvements. We look forward to keeping you apprised of our progress, and we remain committed to empowering -- powering America safely in a more sustainable manager for another 40 years.

In closing the rising pricing environment presents many opportunities for W&T. We have a premier portfolio of both shallow water and deepwater properties in the Gulf of Mexico, with low decline rates and significant upside. There are many opportunities for acquisitions in our focus area, and we're constantly looking at any that could meet our stringent criteria. Our disciplined approach to growth has allowed us to navigate many cycles in the past. We remain opportunistic and we'll look for ways that we can add value to W&T through controlling costs and closely managing our capital spending.

We remain focused on generating free cash flow by operating efficiently and executing our long-term strategy to maximize shareholder value. Our management team's interests are highly aligned with those of our shareholders, given our 34% stake in W&T's equity, which is one of the highest of any public E&P company. This alignment of interest ensures that we're truly incentivized to maximize shareholder value and mitigate risk.

With that, operator, we can now open the lines for questions.

(Operator Instructions) Our first question today will come from John White with ROTH Capital.

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

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.

Our next question comes from Michael Scialla with Stifel.

Tracy, I was a little surprised you had some sequential growth from fourth quarter. You mentioned the better run time, I don't know if you had any numbers to go with that to compare to what the run time 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 3 questions rolled into one.

Well, let me answer the quarter-over-quarter question. I don't have those figures in front of me, obviously 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 your other 2 questions? Pardon me.

No, you answered 2 of them. I was just wondering on the base decline rate if you had a sense where that is right now?

Yes. I mean traditionally in the Gulf of Mexico, we're normally about 5, but our reserve strength since the norm is R/P is about 9 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 is 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 had that probable reserve component to them. So that's an important part of our cash flow and reserve picture going forward.

Yes. 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 was wondering second quarter CapEx, can you -- should we anticipate something similar to the first quarter or is it going to be a little bit more on the workover and recompletion activities?

No, I believe you will see something go up. And also, we're working on the Cota completion as well. So you'll start to see some effects on that in second and third quarters as well.

Okay. And then just lastly I wanted to ask, you talked about the ESG report. I'm just wondering if you see any potential economic opportunities coming out of that on the environmental side? And maybe along those lines if you had any thoughts, I don't know if you do, on Exxon's plans for carbon capture in the Gulf region?

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

(Operator Instructions) Our next question is a follow-up from John White with ROTH Capital.

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 lines up with that objective. And I realize you probably can't talk too much about it but do you want to just touch on deal activity and deal flow?

Sure, John. Thanks for the question. Yes, we're actively involved in several data rooms right now. I expect this to be a good year for acquisitions. I can't really provide you with details, I'm sure you're sensitive to that as well. But I'm very confident the balance sheet is setting up nicely. I would point out that -- and I think it's very important to note this, I mean, 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 a 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.

Well, that was more detailed than I was expecting.

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

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

I just want 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 3 to 4 new drills in the second half? And if so, anything you can say there as to where those might be? I understand if it's too early or if you don't want to say for competitive reasons, but just anything you can say about those would be of interest.

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

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

Yes, 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've thought about is that the fault complex in that area tends to occlude the seismic signature a little bit. So we've got bright spot that -- in one of the sands that -- actually the deeper sand, that didn't really light up the entire area in the fault block, but we think it's just because that signature has been occluded as a result of the faulting. So we expect to see bigger reserves than what we would -- what the proven reserves would indicate.

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

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.

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