WTI

W&T Offshore, Inc. Q1 2010 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2010. W&T Offshore, Inc. is an independent oil and natural gas producer focused on the Gulf of Mexico. The company operates approximately 77 producing fields in federal and state waters. As of May 5, 2010, there were 74,698,767 shares of common stock outstanding.

Key Financial Metrics

Production Data: Total production was 20.0 Bcfe (6.5% lower than Q1 2009). Average realized sales prices increased significantly: Oil rose 92.8% to $69.95/Bbl, and Natural Gas rose 5.9% to $5.38/Mcf.

Material Changes vs. Prior Period

• Revenue Growth: Total revenue increased 44.4% year-over-year, driven primarily by a 115.5% increase in oil revenues due to higher prices and volumes. Natural gas revenue declined 15.3% due to lower sales volumes.
• Profitability Turnaround: The company reported a net income of $42.3 million compared to a net loss of $244.6 million in Q1 2009. The prior year loss was heavily impacted by a $218.9 million ceiling test impairment of oil and natural gas properties, which did not occur in Q1 2010.
• Expense Reduction: Total operating costs decreased 69.7% to $113.9 million. Lease operating expenses dropped 29.6% to $35.4 million, aided by a $6.3 million reduction related to insurance approvals for Hurricane Ike/Gustav remediation costs.
• Derivative Gains: The company recognized a $5.9 million gain on derivatives in Q1 2010, compared to a $0.4 million loss in Q1 2009.

Outlook, Risks, and Unusual Items

• Capital Expenditures: The 2010 capital budget is $450 million, intended to be funded by internal cash flow and cash on hand. This includes $200 million for identified drilling programs and $125 million allocated for property purchases.
• Recent Acquisition: On April 30, 2010, the company closed on the acquisition of Total E&P USA, Inc.'s interest in three federal offshore lease blocks (Matterhorn and Virgo) for $150 million (adjusted to $117.5 million paid at closing). The deal added 11.6 million Boe of proved reserves.
• Market Risks: Management notes continued volatility in commodity prices. Natural gas prices remain weak (Henry Hub spot price $3.93/MMBtu), while oil prices have improved but remain below 2008 peaks. Declines in prices could trigger future ceiling test impairments or reduce borrowing base capacity.
• Deepwater Horizon Impact: The filing highlights the April 20, 2010, Deepwater Horizon incident as a material risk factor. Potential consequences include drilling moratoriums, increased government regulation, and higher insurance costs or reduced coverage availability.
• Insurance Claims: The company continues to process claims related to Hurricanes Ike and Gustav. As of March 31, 2010, insurance receivables totaled $29.9 million.

Investor Verification Checklist

• Commodity Price Sensitivity: Verify the impact of current oil and natural gas price trends on the company's borrowing base and potential for future ceiling test impairments.
• Insurance Coverage Status: Confirm the extent of coverage for future hurricane damage and well control, given the tightening market post-Deepwater Horizon and the company's $35 million retention per occurrence.
• Acquisition Integration: Monitor the integration and production performance of the newly acquired Total assets (Matterhorn and Virgo) and the associated asset retirement obligation security requirements.
• Regulatory Environment: Assess potential operational delays or cost increases resulting from new federal regulations or moratoriums on offshore drilling in the Gulf of Mexico.
• Cash Flow Sustainability: Review the ability of operating cash flows to fund the $450 million capital budget without requiring additional external financing, especially if commodity prices decline.