W&T Offshore Announces Second Quarter 2023 Results
HOUSTON, Aug. 01, 2023 (GLOBE NEWSWIRE) -- W&T Offshore, Inc. (NYSE: WTI) (“W&T” or the “Company”) today reported operational and financial results for the second quarter of 2023. This press release includes non-GAAP financial measures, including Adjusted Net Income (Loss), Adjusted EBITDA, Free Cash Flow, Net Debt and PV-10, which are described and reconciled to the most comparable GAAP measures below in the accompanying tables under “Non-GAAP Information.”
Key highlights for the second quarter of 2023 and through the date of this press release include:
- Increased second quarter 2023 production by
14% over production in the first quarter 2023 to 37.0 thousand barrels of oil equivalent per day (“MBoe/d”) (50% liquids), or 3.4 million barrels of oil equivalent (“MMBoe”);- Production was at the midpoint of guidance and recovered from first quarter 2023 planned and unplanned downtime;
- Reported a net loss of
$12.1 million , or$0.08 per diluted share in the second quarter of 2023;- Adjusted Net Loss totaled
$12.4 million , or$0.08 per share in the second quarter of 2023, which excludes the net unrealized gain on outstanding derivative contracts and non-recurring costs related to IT services transition;
- Adjusted Net Loss totaled
- Generated Adjusted EBITDA of
$38.8 million for the second quarter of 2023; - Produced net cash from operating activities of
$26.2 million and Free Cash Flow of$9.7 million for the second quarter of 2023, the 22nd consecutive quarter of positive Free Cash Flow;- Continued the amortization of the non-recourse Mobile Bay term loan and repaid an additional
$9.6 million in second quarter 2023;
- Continued the amortization of the non-recourse Mobile Bay term loan and repaid an additional
- Maintained strong cash and cash equivalents of
$171.6 million at June 30, 2023; - Reported Net Debt of
$231.9 million as of June 30, 2023, which is down substantially from Net Debt of$331.4 million a year ago; - Continued to maintain a low leverage profile with Net Debt to trailing twelve months (“TTM”) Adjusted EBITDA of 0.9 times;
- Appointed Sameer Parasnis as Executive Vice President and Chief Financial Officer in July 2023;
- Was awarded two shallow water blocks, Eugene Island South Addition block 371 and Eugene Island South Addition block 387 in the recent Gulf of Mexico (“GOM”) Lease Sale 259 in March 2023. These two blocks cover a total of approximately 10,000 gross acres; and
- Reported mid-year SEC proved reserves, based on a reserve report prepared by Netherland, Sewell and Associates, Inc. (“NSAI”) using SEC pricing, of 157.7 MMBoe, and the present value of those SEC proved reserves discounted at
10% (“PV-10”) was$2.1 billion .
Tracy W. Krohn, W&T’s Board Chair and Chief Executive Officer, commented, “Our second quarter 2023 production volumes recovered from first quarter downtime and were up
Mr. Krohn continued, “In early July we appointed Sameer Parasnis as our new Chief Financial Officer and welcomed him to our senior leadership team. Sameer has served as a trusted financial advisor for many years, including on key strategic initiatives like our drilling joint venture, corporate debt refinancing, non-recourse term loan financing and our opportunistic At-The-Market equity offering in 2022. We are confident that his extensive experience with our business, energy markets and our leadership team will greatly benefit W&T and our shareholders.”
Mr. Krohn concluded, “With our financial flexibility and strong liquidity position, we believe we are very well positioned to take advantage of potential acquisitions that may present themselves in the near term and poised to continue delivering on our strategic vision. Our management team is closely aligned with our shareholders through our sizeable stock ownership position. We remain committed to enhancing shareholder value through a proven strategy focused on free cash flow generation and operational excellence, which we believe positions us well for the future.”
Production, Prices, and Revenue: Production for the second quarter of 2023 was 37.0 MBoe/d, which was at the midpoint of the Company’s guidance range provided for the quarter. This represented an increase of
W&T’s average realized price per barrel of oil equivalent (“Boe”) before realized derivative settlements was
Revenues for the second quarter of 2023 were
Lease Operating Expense: Lease operating expense (“LOE”), which includes base lease operating expenses, insurance premiums, workovers and facilities maintenance, was
Gathering, Transportation Costs, and Production Taxes: Gathering, transportation costs and production taxes totaled
Depreciation, Depletion, Amortization and Accretion (“DD&A”): DD&A, including accretion expense related to asset retirement obligations (“ARO”), was
General & Administrative Expenses (“G&A”): G&A was
Derivative (Gain) Loss: In the second quarter of 2023, W&T recorded a net gain of
For the remainder of 2023, W&T is approximately
A summary of the Company’s outstanding derivative positions is provided on W&T’s website in the “Investors” section under the “Financial Information” tab.
Interest Expense: Net interest expense in the second quarter of 2023 was
Income Tax: W&T recognized income tax expense of
Balance Sheet and Liquidity: As of June 30, 2023, W&T had available liquidity of
Capital Expenditures and Acquisitions: Capital expenditures (excluding changes in working capital associated with investing activities) in the second quarter of 2023 were
OPERATIONS UPDATE
Front-end Engineering and Design and permitting processes are underway on the Holy Grail well at Garden Banks 783 in the Magnolia Field.
Well Recompletions and Workovers
During the second quarter of 2023, the Company performed seven workovers that positively impacted production for the quarter. W&T plans to continue performing these low cost, short payout operations that impact both production and revenue.
Addition to Senior Management
In early July 2023, W&T appointed Sameer Parasnis to the position of Executive Vice President and Chief Financial Officer. Mr. Parasnis has 25 years of financial and operational experience, of which 20 have been in banking. He has advised companies in the Oil & Gas and Energy Transition industry on equity capital markets, debt capital markets and strategic M&A. Prior to joining W&T, Mr. Parasnis served as Managing Director of Stifel Financial Corporation’s Energy & Energy Transition team in Houston. He has served as a trusted financial advisor to W&T over the years on key strategic initiatives of the Company, including its drilling joint venture and corporate debt refinancing in 2018, the non-recourse term loan financing with Munich Re Reserve Risk Financing, Inc. in 2021 as well as its opportunistic At-The-Market equity offering in 2022.
Lease Sale 259
W&T was recently awarded a
Mid-Year 2023 Proved Reserves
As calculated by NSAI, W&T’s independent reserve engineering consultants, proved reserves using SEC pricing methodology totaled 157.7 MMBoe at June 30, 2023, compared with 165.3 MMBoe at year-end 2022. The decrease in proved reserves was primarily driven by downward price revisions of 4.8 MMBoe and 6.3 MMBoe of production in the first half of 2023, partially offset by 3.5 MMBoe of positive technical revisions related primarily to increases in performance-based projections across several producing fields. There were no reserve additions from acquisitions during the period. The mid-year proved reserves, which were
The pre-tax PV-10 of the mid-year 2023 proved reserves using SEC pricing was
Third Quarter and Full Year 2023 Production and Expense Guidance
Addressing updated guidance for the balance of 2023, Tracy Krohn commented, “We have always believed that the key to long-term sustainability is to prioritize free cash flow generation. In the first half of 2023, we have seen commodity price weakness, with much lower natural gas prices and soft oil prices. As a result, we decided to proactively reduce our current year capital budget and delay a significant portion of our drilling capital investments until 2024. We believe that the lower pricing scenario enhances acquisition opportunities, and we have a strong cash position and balance sheet to act quickly should we see the right acquisition opportunity arise. We feel that patience is important as we are looking for strategic value and free cash flow generation potential in all acquisition opportunities that we are currently evaluating. Assuming no acquisitions for the remainder of the year, we are reducing our capital expenditure plans for 2023 from a range of
The guidance for the third quarter and full year 2023 in the table below represents the Company’s current expectations. Please refer to the section entitled “Forward-Looking and Cautionary Statements” below for risk factors that could impact guidance.
Production | Third Quarter 2023 | Full Year 2023 |
Oil (MBbl) | 1,130 – 1,260 | 4,750 – 5,250 |
NGLs (MBbl) | 320 – 360 | 1,350 – 1,480 |
Natural gas (MMcf) | 9,900 – 11,000 | 36,300 – 40,200 |
Total equivalents (MBoe) | 3,100 – 3,453 | 12,150 – 13,430 |
Average daily equivalents (MBoe/d) | 34 – 37 | 33 – 37 |
Expenses | Third Quarter 2023 | Full Year 2023 |
Lease operating expense ($MM) | ||
Gathering, transportation & production taxes ($MM) | ||
General & administrative - cash ($MM) | ||
General & administrative – non-cash ($MM) | ||
DD&A ($ per Boe) | ||
We expect all taxes in 2023 to be deferred.
Conference Call Information: W&T will hold a conference call to discuss its financial and operational results on Wednesday, August 2, 2023 at 9:00 a.m. Central Time (10:00 Eastern Time). Interested parties may dial 1-844-739-3797. International parties may dial 1-412-317-5713. Participants should request to connect to the “W&T Offshore Conference Call”. This call will also be webcast and available on W&T’s website at www.wtoffshore.com under “Investors”. An audio replay will be available on the Company’s website following the call.
About W&T Offshore
W&T Offshore, Inc. is an independent oil and natural gas producer with operations offshore in the Gulf of Mexico and has grown through acquisitions, exploration and development. As of June 30, 2023, the Company had working interests in 46 fields in federal and state waters (which include 38 fields in federal waters and eight in state waters). The Company has under lease approximately 578,000 gross acres (419,000 net acres) spanning across the outer continental shelf off the coasts of Louisiana, Texas, Mississippi and Alabama, with approximately 8,000 gross acres in Alabama State waters, 416,500 gross acres on the conventional shelf and approximately 153,500 gross acres in the deepwater. A majority of the Company’s daily production is derived from wells it operates. For more information on W&T, please visit the Company’s website at www.wtoffshore.com.
Forward-Looking and Cautionary Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements, including but not limited to, any forward-looking guidance provided herein, reflect our current views with respect to future events, based on what we believe are reasonable estimates and assumptions. No assurance can be given, however, that these events will occur or that our estimates will be correct. These statements are subject to risks and uncertainties that could cause actual results to differ materially including, among other things, market conditions, commodity price volatility, uncertainties inherent in oil and gas production operations and estimating reserves, uncertainties of the timing and impact of bringing new wells online and repairing and restoring infrastructure due to hurricane damage, the ability to achieve leverage targets, unexpected future capital expenditures, competition, the success of our risk management activities, governmental regulations, uncertainties and other factors described or referenced in W&T’s Annual Report on Form 10-K for the year ended December 31, 2022 and subsequent Quarterly Reports on Form 10-Q found at www.sec.gov or on our website at www.wtoffshore.com under the Investor Relations section. Our forward-looking statements in this press release are based upon assumptions made, and information known, by the Company as of the date of this release; it should not be assumed that the Company will undertake to revise or update any such forward-looking statements as such assumptions and information changes, except as required under applicable law. Investors are urged to consider closely the disclosures and risk factors in these reports.
W&T OFFSHORE, INC. AND SUBSIDIARIES | ||||||||||||||||||||
Condensed Consolidated Statements of Operations | ||||||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||||||
June 30, | March 31, | June 30, | June 30, | |||||||||||||||||
2023 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||
Revenues: | ||||||||||||||||||||
Oil | $ | 89,982 | $ | 97,000 | $ | 159,264 | $ | 186,982 | $ | 281,966 | ||||||||||
NGLs | 10,385 | 7,795 | 16,735 | 18,180 | 30,555 | |||||||||||||||
Natural gas | 23,438 | 24,804 | 92,413 | 48,242 | 143,779 | |||||||||||||||
Other | 2,376 | 2,126 | 5,396 | 4,502 | 8,512 | |||||||||||||||
Total revenues | 126,181 | 131,725 | 273,808 | 257,906 | 464,812 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Lease operating expenses | 66,021 | 65,186 | 52,976 | 131,207 | 96,387 | |||||||||||||||
Gathering, transportation and production taxes | 6,802 | 6,136 | 9,181 | 12,938 | 14,448 | |||||||||||||||
Depreciation, depletion, amortization and accretion | 35,894 | 30,134 | 34,360 | 66,028 | 65,271 | |||||||||||||||
General and administrative expenses | 17,393 | 19,919 | 14,967 | 37,312 | 28,743 | |||||||||||||||
Total operating expenses | 126,110 | 121,375 | 111,484 | 247,485 | 204,849 | |||||||||||||||
Operating income | 71 | 10,350 | 162,324 | 10,421 | 259,963 | |||||||||||||||
Interest expense, net | 10,323 | 14,713 | 18,183 | 25,036 | 38,066 | |||||||||||||||
Derivative (gain) loss, net | (829 | ) | (39,240 | ) | (8,854 | ) | (40,069 | ) | 71,143 | |||||||||||
Other (income) expense, net | (311 | ) | 233 | (1,534 | ) | (78 | ) | (629 | ) | |||||||||||
(Loss) income before income taxes | (9,112 | ) | 34,644 | 154,529 | 25,532 | 151,383 | ||||||||||||||
Income tax expense | 2,997 | 8,639 | 31,093 | 11,636 | 30,404 | |||||||||||||||
Net (loss) income | $ | (12,109 | ) | $ | 26,005 | $ | 123,436 | $ | 13,896 | $ | 120,979 | |||||||||
Basic | $ | (0.08 | ) | $ | 0.18 | $ | 0.86 | $ | 0.09 | $ | 0.85 | |||||||||
Diluted | (0.08 | ) | 0.17 | 0.85 | 0.09 | 0.84 | ||||||||||||||
Weighted average common shares outstanding | ||||||||||||||||||||
Basic | 146,452 | 146,418 | 143,020 | 146,435 | 142,981 | |||||||||||||||
Diluted | 146,452 | 148,726 | 144,525 | 149,045 | 144,094 | |||||||||||||||
W&T OFFSHORE, INC. AND SUBSIDIARIES | ||||||||||||||||
Condensed Operating Data | ||||||||||||||||
(Unaudited) | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | March 31, | June 30, | June 30, | |||||||||||||
2023 | 2023 | 2022 | 2023 | 2022 | ||||||||||||
Net sales volumes: | ||||||||||||||||
Oil (MBbls) | 1,254 | 1,350 | 1,476 | 2,604 | 2,780 | |||||||||||
NGLs (MBbls) | 443 | 294 | 384 | 738 | 733 | |||||||||||
Natural gas (MMcf) | 10,023 | 7,677 | 11,995 | 17,699 | 22,466 | |||||||||||
Total oil and natural gas (MBoe) (1) | 3,368 | 2,924 | 3,859 | 6,292 | 7,257 | |||||||||||
Average daily equivalent sales (MBoe/d) | 37.0 | 32.5 | 42.4 | 34.8 | 40.1 | |||||||||||
Average realized sales prices (before the impact of derivative settlements): | ||||||||||||||||
Oil ($/Bbl) | $ | 71.76 | $ | 71.85 | $ | 107.90 | $ | 71.81 | $ | 101.43 | ||||||
NGLs ($/Bbl) | 23.44 | 26.51 | 43.58 | 24.63 | 41.68 | |||||||||||
Natural gas ($/Mcf) | 2.34 | 3.23 | 7.70 | 2.73 | 6.40 | |||||||||||
Barrel of oil equivalent ($/Boe) | 36.76 | 44.32 | 69.55 | 40.27 | 62.88 | |||||||||||
Average operating expenses per Boe ($/Boe): | ||||||||||||||||
Lease operating expenses | $ | 19.60 | $ | 22.29 | $ | 13.73 | $ | 20.85 | $ | 13.28 | ||||||
Gathering, transportation and production taxes | 2.02 | 2.10 | 2.38 | 2.06 | 1.99 | |||||||||||
Depreciation, depletion, amortization and accretion | 10.66 | 10.31 | 8.90 | 10.49 | 8.99 | |||||||||||
General and administrative expenses | 5.16 | 6.81 | 3.88 | 5.93 | 3.96 | |||||||||||
(1) MBoe is determined using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or NGLs (totals may not compute due to rounding). The conversion ratio does not assume price equivalency and the price on an equivalent basis for oil, NGLs and natural gas may differ significantly. |
(1) MBoe is determined using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or NGLs (totals may not compute due to rounding). The conversion ratio does not assume price equivalency and the price on an equivalent basis for oil, NGLs and natural gas may differ significantly. The realized prices presented above are volume-weighted for production in the respective period.
W&T OFFSHORE, INC. AND SUBSIDIARIES | ||||||||
Condensed Consolidated Balance Sheets | ||||||||
(In thousands) | ||||||||
(Unaudited) | ||||||||
June 30, | December 31, | |||||||
2023 | 2022 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 171,627 | $ | 461,357 | ||||
Restricted cash | 4,417 | 4,417 | ||||||
Receivables: | ||||||||
Oil and natural gas sales | 41,342 | 66,146 | ||||||
Joint interest, net | 13,875 | 14,000 | ||||||
Income taxes | 1,941 | — | ||||||
Total receivables | 57,158 | 80,146 | ||||||
Prepaid expenses and other assets | 21,365 | 24,343 | ||||||
Total current assets | 254,567 | 570,263 | ||||||
Oil and natural gas properties and other | 8,887,645 | 8,834,319 | ||||||
Less accumulated depreciation, depletion, amortization and impairment | 8,149,905 | 8,099,104 | ||||||
Oil and natural gas properties and other, net | 737,740 | 735,215 | ||||||
Restricted deposits for asset retirement obligations | 22,092 | 21,483 | ||||||
Deferred income taxes | 45,700 | 57,280 | ||||||
Other assets | 42,118 | 47,549 | ||||||
Total assets | $ | 1,102,217 | $ | 1,431,790 | ||||
Liabilities and Shareholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 67,303 | $ | 65,570 | ||||
Undistributed oil and natural gas proceeds | 31,178 | 41,934 | ||||||
Advances from joint interest partners | 3,110 | 3,181 | ||||||
Asset retirement obligations | 37,763 | 25,359 | ||||||
Accrued liabilities | 39,323 | 74,041 | ||||||
Current portion of long-term debt, net | 30,550 | 582,249 | ||||||
Total current liabilities | 209,227 | 792,334 | ||||||
Long-term debt, net | 373,021 | 111,188 | ||||||
Asset retirement obligations, less current portion | 443,069 | 441,071 | ||||||
Other liabilities | 52,109 | 79,563 | ||||||
Shareholders’ equity: | ||||||||
Common stock, | 1 | 1 | ||||||
Additional paid-in capital | 579,849 | 576,588 | ||||||
Retained deficit | (530,892 | ) | (544,788 | ) | ||||
Treasury stock, at cost; 2,869 shares for both dates presented | (24,167 | ) | (24,167 | ) | ||||
Total shareholders’ equity | 24,791 | 7,634 | ||||||
Total liabilities and shareholders’ equity | $ | 1,102,217 | $ | 1,431,790 | ||||
W&T OFFSHORE, INC. AND SUBSIDIARIES | ||||||||||||||||||||
Condensed Consolidated Statements of Cash Flows | ||||||||||||||||||||
(In thousands) | ||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||||||
June 30, | March 31, | June 30, | June 30, | |||||||||||||||||
2023 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||
Operating activities: | ||||||||||||||||||||
Net (loss) income | $ | (12,109 | ) | $ | 26,005 | $ | 123,436 | $ | 13,896 | $ | 120,979 | |||||||||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||||||||||||||||
Depreciation, depletion, amortization and accretion | 35,894 | 30,134 | 34,360 | 66,028 | 65,271 | |||||||||||||||
Amortization and write off of debt issuance costs | 1,114 | 3,249 | 1,771 | 4,363 | 4,365 | |||||||||||||||
Share-based compensation | 2,087 | 1,922 | 2,014 | 4,009 | 2,534 | |||||||||||||||
Derivative (gain) loss | (829 | ) | (39,240 | ) | (8,854 | ) | (40,069 | ) | 71,143 | |||||||||||
Derivative cash payments (receipts), net | 901 | (5,328 | ) | 100,742 | (4,427 | ) | 70,227 | |||||||||||||
Derivative cash premium payments | — | — | (46,111 | ) | — | (46,111 | ) | |||||||||||||
Deferred income taxes | 7,184 | 4,396 | 27,764 | 11,580 | 27,031 | |||||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||||||
Oil and natural gas receivables | 4,183 | 20,621 | (6,462 | ) | 24,804 | (44,236 | ) | |||||||||||||
Joint interest receivables | 3,241 | (3,116 | ) | 851 | 125 | (3,625 | ) | |||||||||||||
Prepaid expenses and other assets | (4,497 | ) | 31,489 | (17,909 | ) | 26,992 | (30,092 | ) | ||||||||||||
Income tax | (6,588 | ) | 4,243 | 3,179 | (2,345 | ) | 3,223 | |||||||||||||
Asset retirement obligation settlements | (3,199 | ) | (8,642 | ) | (34,283 | ) | (11,841 | ) | (39,775 | ) | ||||||||||
Cash advances from joint interest partners | (50 | ) | (21 | ) | (1,263 | ) | (71 | ) | (9,813 | ) | ||||||||||
Accounts payable, accrued liabilities and other | (1,135 | ) | (42,277 | ) | 30,987 | (43,412 | ) | 46,638 | ||||||||||||
Net cash provided by operating activities | 26,197 | 23,435 | 210,222 | 49,632 | 237,759 | |||||||||||||||
Investing activities: | ||||||||||||||||||||
Investment in oil and natural gas properties and equipment | (15,632 | ) | (7,367 | ) | (8,050 | ) | (22,999 | ) | (25,489 | ) | ||||||||||
Changes in operating assets and liabilities associated with investing activities | 3,453 | (5,791 | ) | (8,416 | ) | (2,338 | ) | (5,786 | ) | |||||||||||
Acquisition of property interests | — | — | (17,472 | ) | — | (47,625 | ) | |||||||||||||
Purchases of furniture, fixtures and other | (9,045 | ) | (156 | ) | — | (9,201 | ) | — | ||||||||||||
Net cash used in investing activities | (21,224 | ) | (13,314 | ) | (33,938 | ) | (34,538 | ) | (78,900 | ) | ||||||||||
Financing activities: | ||||||||||||||||||||
Repayment of Note Payable | (183 | ) | — | — | (183 | ) | — | |||||||||||||
Issuance of | — | 275,000 | — | 275,000 | — | |||||||||||||||
Repayments on | — | (552,460 | ) | — | (552,460 | ) | — | |||||||||||||
Repayments on Term Loan | (9,629 | ) | (9,552 | ) | (12,311 | ) | (19,181 | ) | (24,941 | ) | ||||||||||
Debt issuance costs | (898 | ) | (6,354 | ) | (1,290 | ) | (7,252 | ) | (1,290 | ) | ||||||||||
Other | (25 | ) | (723 | ) | (434 | ) | (748 | ) | (703 | ) | ||||||||||
Net cash used in financing activities | (10,735 | ) | (294,089 | ) | (14,035 | ) | (304,824 | ) | (26,934 | ) | ||||||||||
(Decrease) increase in cash and cash equivalents | (5,762 | ) | (283,968 | ) | 162,249 | (289,730 | ) | 131,925 | ||||||||||||
Cash and cash equivalents and restricted cash, beginning of period | 181,806 | 465,774 | 219,892 | 465,774 | 250,216 | |||||||||||||||
Cash and cash equivalents and restricted cash, end of period | $ | 176,044 | $ | 181,806 | $ | 382,141 | $ | 176,044 | $ | 382,141 | ||||||||||
W&T OFFSHORE, INC. AND SUBSIDIARIES
Non-GAAP Information
Certain financial information included in W&T’s financial results are not measures of financial performance recognized by accounting principles generally accepted in the United States, or GAAP. These non-GAAP financial measures are “Net Debt”, “Adjusted Net (Loss) Income”, “Adjusted EBITDA,” “Free Cash Flow” and “PV-10” or are derivable from a combination of these measures. Management uses these non-GAAP financial measures in its analysis of performance. These disclosures may not be viewed as a substitute for results determined in accordance with GAAP and are not necessarily comparable to non-GAAP performance measures which may be reported by other companies. Prior period amounts have been conformed to the methodology and presentation of the current period.
We calculate Net Debt as total debt (current and long-term portions), less cash and cash equivalents. Management uses Net Debt to evaluate the Company’s financial position, including its ability to service its debt obligations.
Reconciliation of Net (Loss) Income to Adjusted Net (Loss) Income
Adjusted Net (Loss) Income adjusts for certain items that the Company believes affect comparability of operating results, including items that are generally non-recurring in nature or whose timing and/or amount cannot be reasonably estimated. These items include unrealized commodity derivative (gain) loss net of derivative premiums, allowance for credit losses, write-off of debt issuance costs, non-recurring IT-transition costs, non-ARO plugging and abandonment costs, and other which are then tax effected using the Federal Statutory Rate.
Three Months Ended | Six Months Ended | |||||||||||||||||||
June 30, | March 31, | June 30, | June 30, | |||||||||||||||||
2023 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||
Net (loss) income | $ | (12,109 | ) | $ | 26,005 | $ | 123,436 | $ | 13,896 | $ | 120,979 | |||||||||
Selected items | ||||||||||||||||||||
Unrealized commodity derivative (gain) loss and effect of derivative premiums, net | (1,129 | ) | (39,470 | ) | 86,272 | (40,599 | ) | 126,768 | ||||||||||||
Allowance for credit losses | 3 | — | 181 | 3 | 299 | |||||||||||||||
Write-off debt issuance costs | — | 2,330 | — | 2,330 | — | |||||||||||||||
Non-recurring costs related to IT services transition | 1,078 | 785 | — | 1,863 | — | |||||||||||||||
Non-ARO P&A costs | — | 6 | — | 6 | — | |||||||||||||||
Other | (294 | ) | 378 | (1,534 | ) | 84 | (629 | ) | ||||||||||||
Tax effect of selected items (1) | 72 | 7,554 | (17,833 | ) | 7,626 | (26,552 | ) | |||||||||||||
Adjusted Net (loss) income | $ | (12,379 | ) | $ | (2,412 | ) | $ | 190,522 | $ | (14,791 | ) | $ | 220,865 | |||||||
Adjusted net (loss) income per common share | ||||||||||||||||||||
Basic | $ | (0.08 | ) | $ | (0.02 | ) | $ | 1.33 | $ | (0.10 | ) | $ | 1.54 | |||||||
Diluted | $ | (0.08 | ) | $ | (0.02 | ) | $ | 1.32 | $ | (0.10 | ) | $ | 1.53 | |||||||
Weighted Average Shares Outstanding | ||||||||||||||||||||
Basic | 146,452 | 146,418 | 143,020 | 146,435 | 142,981 | |||||||||||||||
Diluted | 146,452 | 146,418 | 144,525 | 146,435 | 144,094 | |||||||||||||||
(1) Selected items were tax effected with the Federal Statutory Rate of |
(1) Selected items were tax effected with the Federal Statutory Rate of
W&T OFFSHORE, INC. AND SUBSIDIARIES
Non-GAAP Information
Adjusted EBITDA/ Free Cash Flow Reconciliations
The Company also presents the non-GAAP financial measures Adjusted EBITDA and Free Cash Flow. The Company defines Adjusted EBITDA as net (loss) income plus net interest expense, income tax expense, depreciation, depletion, amortization and accretion, excluding the unrealized commodity derivative (gain) loss net of derivative premiums, allowance for credit losses, non-cash incentive compensation, non-recurring IT-transition costs, non-ARO plugging and abandonment costs, and other. Company management believes this presentation is relevant and useful because it helps investors understand W&T’s operating performance and makes it easier to compare its results with those of other companies that have different financing, capital and tax structures. Adjusted EBITDA should not be considered in isolation from or as a substitute for net income, as an indication of operating performance or cash flows from operating activities or as a measure of liquidity. Adjusted EBITDA, as W&T calculates it, may not be comparable to Adjusted EBITDA measures reported by other companies. In addition, Adjusted EBITDA does not represent funds available for discretionary use.
The Company defines Free Cash Flow as Adjusted EBITDA (defined above), less capital expenditures, plugging and abandonment costs and interest expense (all on an accrual basis). For this purpose, the Company’s definition of capital expenditures includes costs incurred related to oil and natural gas properties (such as drilling and infrastructure costs and the lease maintenance costs) and equipment, furniture and fixtures, but excludes acquisition costs of oil and gas properties from third parties that are not included in the Company’s capital expenditures guidance provided to investors. Company management believes that Free Cash Flow is an important financial performance measure for use in evaluating the performance and efficiency of its current operating activities after the impact of accrued capital expenditures, plugging and abandonment costs and interest expense and without being impacted by items such as changes associated with working capital, which can vary substantially from one period to another. There is no commonly accepted definition of Free Cash Flow within the industry. Accordingly, Free Cash Flow, as defined and calculated by the Company, may not be comparable to Free Cash Flow or other similarly named non-GAAP measures reported by other companies. While the Company includes interest expense in the calculation of Free Cash Flow, other mandatory debt service requirements of future payments of principal at maturity (if such debt is not refinanced) are excluded from the calculation of Free Cash Flow. These and other non-discretionary expenditures that are not deducted from Free Cash Flow would reduce cash available for other uses.
The following tables present (i) a reconciliation of cash flow from operating activities, a GAAP measure, to Free Cash Flow, as defined by the Company and (ii) a reconciliation of the Company’s net (loss) income, a GAAP measure, to Adjusted EBITDA and Free Cash Flow, as such terms are defined by the Company.
Three Months Ended | Six Months Ended | |||||||||||||||||||
June 30, | March 31, | June 30, | June 30, | |||||||||||||||||
2023 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||
Net (loss) income | $ | (12,109 | ) | $ | 26,005 | $ | 123,436 | $ | 13,896 | $ | 120,979 | |||||||||
Interest expense, net | 10,323 | 14,713 | 18,183 | 25,036 | 38,066 | |||||||||||||||
Income tax expense | 2,997 | 8,639 | 31,093 | 11,636 | 30,404 | |||||||||||||||
Depreciation, depletion, amortization and accretion | 35,894 | 30,134 | 34,360 | 66,028 | 65,271 | |||||||||||||||
Unrealized commodity derivative (gain) loss and effect of derivative premiums, net | (1,129 | ) | (39,470 | ) | 86,272 | (40,599 | ) | 126,768 | ||||||||||||
Allowance for credit losses | 3 | — | 181 | 3 | 299 | |||||||||||||||
Non-cash incentive compensation | 2,087 | 1,922 | 2,014 | 4,009 | 2,534 | |||||||||||||||
Non-recurring costs related to IT services transition | 1,078 | 785 | — | 1,863 | — | |||||||||||||||
Non-ARO P&A costs | — | 6 | — | 6 | — | |||||||||||||||
Other | (312 | ) | 378 | (1,534 | ) | 66 | (629 | ) | ||||||||||||
Adjusted EBITDA | $ | 38,832 | $ | 43,112 | $ | 294,005 | $ | 81,944 | $ | 383,692 | ||||||||||
Investment in oil and natural gas properties and equipment | (15,632 | ) | (7,367 | ) | (8,050 | ) | (22,999 | ) | (25,489 | ) | ||||||||||
Asset retirement obligation settlements | (3,199 | ) | (8,642 | ) | (34,283 | ) | (11,841 | ) | (39,775 | ) | ||||||||||
Interest expense, net | (10,323 | ) | (14,713 | ) | (18,183 | ) | (25,036 | ) | (38,066 | ) | ||||||||||
Free Cash Flow | $ | 9,678 | $ | 12,390 | $ | 233,489 | $ | 22,068 | $ | 280,362 | ||||||||||
Three Months Ended | Six months ended | |||||||||||||||||||
June 30, | March 31, | June 30, | June 30, | |||||||||||||||||
2023 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||
Net cash provided by operating activities | $ | 26,197 | $ | 23,435 | $ | 210,222 | $ | 49,632 | $ | 237,759 | ||||||||||
Allowance for credit losses | 3 | — | 181 | 3 | 299 | |||||||||||||||
Amortization of debt items and other items | (1,114 | ) | (3,249 | ) | (1,771 | ) | (4,363 | ) | (4,365 | ) | ||||||||||
Non-recurring costs related to IT services transition | 1,078 | 785 | — | 1,863 | — | |||||||||||||||
Current tax benefit (1) | (4,187 | ) | 4,243 | 3,329 | 56 | 3,373 | ||||||||||||||
Changes in derivatives (payable) receivable(1) | (1,202 | ) | 5,098 | 40,495 | 3,896 | 31,509 | ||||||||||||||
Non-ARO P&A costs | — | 6 | — | 6 | — | |||||||||||||||
Changes in operating assets and liabilities, excluding asset retirement obligation settlements | 4,846 | (10,939 | ) | (9,383 | ) | (6,093 | ) | 37,905 | ||||||||||||
Investment in oil and natural gas properties, equipment and other | (15,632 | ) | (7,367 | ) | (8,050 | ) | (22,999 | ) | (25,489 | ) | ||||||||||
Other | (312 | ) | 378 | (1,534 | ) | 66 | (629 | ) | ||||||||||||
Free Cash Flow | $ | 9,678 | $ | 12,390 | $ | 233,489 | $ | 22,068 | $ | 280,362 | ||||||||||
(1) A reconciliation of the adjustment used to calculate Free Cash Flow to the Condensed Consolidated Financial Statements is included below: | ||||||||||||||||||||
Current tax benefit: | ||||||||||||||||||||
Income tax expense (benefit) | $ | 2,997 | $ | 8,639 | $ | 31,093 | $ | 11,636 | $ | 30,404 | ||||||||||
Less: Deferred income taxes | 7,184 | 4,396 | 27,764 | 11,580 | 27,031 | |||||||||||||||
Current tax benefit | $ | (4,187 | ) | $ | 4,243 | $ | 3,329 | $ | 56 | $ | 3,373 | |||||||||
Changes in derivatives receivable: | ||||||||||||||||||||
Derivatives payable, end of period | $ | (677 | ) | $ | 524 | $ | (20,998 | ) | $ | (677 | ) | $ | (20,998 | ) | ||||||
Derivatives payable, beginning of period | (524 | ) | 4,574 | 15,382 | 4,574 | 6,396 | ||||||||||||||
Derivative premiums paid | — | — | 46,111 | — | 46,111 | |||||||||||||||
Change in derivatives receivable (payable) | $ | (1,201 | ) | $ | 5,098 | $ | 40,495 | $ | 3,897 | $ | 31,509 | |||||||||
Reconciliation of PV-10 to Standardized Measure
The Company also discloses PV-10, which is not a financial measure defined under GAAP. The standardized measure of discounted future net cash flows is the most directly comparable GAAP financial measure for proved reserves calculated using SEC pricing. Company management believes that the non-GAAP financial measure of PV-10 is relevant and useful for evaluating the relative monetary significance of oil and natural gas properties. PV-10 is also used internally when assessing the potential return on investment related to oil and natural gas properties and in evaluating acquisition opportunities. Company management believes that the use of PV-10 is valuable because there are many unique factors that can impact an individual company when estimating the amount of future income taxes to be paid. Additionally, Company management believes that the presentation of PV-10 provides useful information to investors because it is widely used by professional analysts and sophisticated investors in evaluating oil and natural gas companies. PV-10 is not a measure of financial or operating performance under GAAP, nor is it intended to represent the current market value of the Company’s estimated oil and natural gas reserves. PV-10 should not be considered in isolation or as substitutes for the standardized measure of discounted future net cash flows as defined under GAAP. Investors should not assume that PV-10 of the Company’s proved oil and natural gas reserves represents a current market value of the Company’s estimated oil and natural gas reserves.
With respect to PV-10 calculated as of an interim date (i.e. other than year-end), it is not practical for the Company to reconcile the PV-10 of its SEC pricing proved reserves as of June 30, 2023 because GAAP does not provide for disclosure of standardized measure on an interim basis.