W&T Offshore, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2021, compared with the corresponding 2020 periods. W&T is an independent Gulf of Mexico oil and natural gas producer with interests in 42 offshore fields and approximately 611,000 gross leased acres.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Total revenue | $133.9 million | $72.5 million | $392.4 million | $251.9 million |
| Operating income (loss) | $(25.0) million | $(19.5) million | $(57.8) million | $24.3 million |
| Net income (loss) | $(38.0) million | $(13.3) million | $(90.4) million | $46.7 million |
| EPS | $(0.27) | $(0.09) | $(0.64) | $0.33 |
| Cash flow from operations | Not separately provided | Not separately provided | $111.3 million | $114.7 million |
| Capital expenditures | Not separately provided | Not separately provided | $16.0 million | $13.0 million |
Q3 operating and net margins were approximately negative 18.6% and 28.3%, respectively; nine-month operating and net margins were approximately negative 14.7% and 23.0%, respectively. Revenue benefited from substantially higher commodity prices, while derivative losses more than offset the improvement in realized pricing.
- Production: Nine-month sales volume declined 11.2% on a Boe-per-day basis to 38,444 Boe/day. Q3 volume increased 1.1% to 34,846 Boe/day.
- Realized prices: Nine-month oil, NGL and natural gas prices increased to $63.07/Bbl, $27.51/Bbl and $3.40/Mcf, respectively, from $37.17/Bbl, $9.78/Bbl and $1.88/Mcf.
- Derivatives: Derivative losses were $73.1 million in Q3 and $179.2 million for nine months, compared with a $35.3 million gain in the 2020 nine-month period. Realized derivative effects reduced nine-month prices to $54.35/Bbl for oil and $2.79/Mcf for natural gas.
- Cash: Cash and cash equivalents were $257.6 million at September 30, 2021, up from $43.7 million at December 31, 2020. The increase primarily reflected term-loan proceeds and operating cash flow.
- Debt: Net debt was $742.4 million, consisting primarily of a $203.2 million term loan and $552.5 million of 9.75% Senior Second Lien Notes. The term loan matures in 2028; the second-lien notes mature in November 2023. No borrowings were outstanding under the revolving credit facility at quarter-end.
- Shareholders’ deficit: The deficit increased to $296.9 million from $208.3 million at year-end 2020, primarily due to the nine-month net loss.
Material changes versus the prior comparable period
- Revenue increased 84.7% in Q3 and 55.8% for nine months, driven by higher oil, NGL and natural gas prices, despite lower nine-month production volumes.
- The company moved from nine-month operating income of $24.3 million in 2020 to an operating loss of $57.8 million in 2021, primarily because of the $214.5 million year-over-year deterioration in derivative results and higher operating costs.
- Operating cash flow declined modestly despite higher revenue because of $39.6 million of net derivative settlement payments, $32.4 million of derivative premium payments and $19.7 million of asset-retirement-obligation settlements.
- W&T completed the Mobile Bay transaction in May 2021. Subsidiaries borrowed $215.0 million under a non-recourse term loan and acquired Mobile Bay properties and related midstream assets from the company.
- The $8.4 million Paycheck Protection Program loan was forgiven in June 2021. The company also recognized a $2.1 million employee retention credit.
Guidance, outlook, risks and unusual items
- Management estimated 2021 capital expenditures, excluding acquisitions and plugging and abandonment expenditures, of $30 million to $60 million, and asset-retirement-obligation spending of $25 million to $35 million.
- Hurricane Ida temporarily shut in or deferred as much as approximately 80% of production. Most production returned during September, but some production remained affected into Q4 2021. The company expects remaining impacted production to return by year-end, subject partly to third-party operators and infrastructure.
- As of September 30, 2021, asset-retirement obligations totaled $407.9 million, including $380.3 million classified as long-term.
- On November 2, 2021, the prior commercial-bank revolving facility was effectively terminated and replaced with a $100 million first-priority revolving facility, subject to a $50 million borrowing base, from Calculus Lending, an affiliate controlled by the company’s chairman and CEO. The facility matures April 30, 2022, and had no borrowings outstanding at the filing date.
- Management stated that cash on hand, operating cash flow and other available liquidity were expected to meet cash requirements over the following 12 months, while also noting plans to pursue longer-term financing and potential refinancing of the 2023 second-lien notes.
- Key risks include commodity-price volatility, unfavorable hedge settlements, offshore production interruptions, hurricane exposure, decommissioning and financial-assurance requirements, insurance availability, counterparty concentration and refinancing risk.
- Pending matters include an ONRR royalty appeal, royalty “unbundling” reviews with an undetermined potential exposure, civil-penalty matters and other ordinary-course claims. Management does not currently expect these matters to have a material adverse effect, but certain amounts cannot be estimated.
Investor verification points
- Verify the timing and terms of refinancing or repayment for the $552.5 million of second-lien notes due November 2023.
- Assess the liquidity impact and related-party governance of the Calculus Lending facility, including its April 2022 maturity and covenant requirements.
- Review the economic effect of the company’s oil and natural gas hedges, including future volumes, fixed prices and potential cash settlements.
- Monitor Hurricane Ida production restoration, 2021 capital spending and asset-retirement expenditures.
- Evaluate the $407.9 million asset-retirement obligation and potential additional BOEM or surety-collateral requirements.
- Review ONRR royalty proceedings, the pending appeal and the unresolved range of potential additional royalties.