W&T Offshore, Inc. — 2021 Form 10-K Summary
Business context and reporting period
W&T Offshore is an independent oil and natural gas producer focused on exploration, development and acquisitions in the Gulf of Mexico. The filing covers the fiscal year ended December 31, 2021, and was filed March 9, 2022. The company operated as a single reporting segment, with interests in 43 offshore producing fields and approximately 412,000 net acres.
Key financial metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenue | $558.0 million | $346.6 million | +61.0% |
| Operating income | $189.7 million | $0.8 million | Improved materially |
| Net income (loss) | $(41.5) million | $37.8 million | Declined |
| Basic EPS | $(0.29) | $0.26 | Declined |
| Cash flow from operations | $133.7 million | $108.5 million | +23.2% |
| Capital investment in oil and gas properties and equipment | $32.1 million cash basis | $17.6 million | Increased |
| Production | 13.9 MMBoe | 15.4 MMBoe | -9.6% |
| Average realized price | $39.36/Boe before derivatives; $32.52/Boe including realized derivatives | $21.76/Boe before derivatives; $24.70/Boe including realized derivatives | Higher before and after derivatives |
Revenue growth was driven by higher realized prices: oil increased to $65.94 per barrel from $38.45, NGLs to $30.59 per barrel from $11.26, and natural gas to $3.88 per Mcf from $2.05. Production declined because of Hurricane Ida-related shut-ins, maintenance and natural declines.
Operating expenses totaled $368.3 million, including $174.6 million of lease operating expense, $113.4 million of DD&A and accretion, and $52.4 million of general and administrative expense. Operating costs increased despite lower production. The filing presents margin commentary using non-GAAP Adjusted EBITDA; investors should reconcile that measure to GAAP results because the narrative contains inconsistent statements regarding the direction of the 2021 margin change.
Liquidity, debt and reserves
- Cash and cash equivalents were $245.8 million at December 31, 2021, with restricted cash of $4.4 million.
- Available borrowing capacity was $50.0 million under the Calculus Lending facility; there were no borrowings outstanding under the revolving Credit Agreement at year-end.
- Senior Second Lien Notes had $552.5 million of principal outstanding, bear interest at 9.75%, and mature November 1, 2023.
- The Mobile Bay-related Term Loan had $190.9 million of principal outstanding, bears fixed interest at 7%, requires quarterly amortization and matures May 19, 2028. It is non-recourse to the parent company except for specified subsidiaries.
- Total principal debt was approximately $743.3 million, including $43.0 million due in 2022 and approximately $586.2 million due in 2023.
- Asset retirement obligations were $424.5 million at year-end, compared with $392.7 million in 2020. The company spent $27.3 million on ARO activities in 2021.
- Proved reserves increased to 157.6 MMBoe from 144.4 MMBoe, primarily from price-related revisions. PV-10 increased to $1.62 billion from $740.9 million; standardized measure increased to $1.16 billion from $493.7 million.
Material changes versus the prior comparable period
- Commodity price recovery substantially increased revenue and operating income, but higher derivative losses, interest expense and operating costs resulted in a $41.5 million net loss.
- Derivative loss was $175.3 million in 2021, compared with a $23.8 million gain in 2020. The 2021 loss included $95.2 million of realized loss and $80.1 million of unrealized loss.
- The company completed the Mobile Bay Transaction in May 2021. Subsidiaries raised an initial $215.0 million Term Loan and acquired Mobile Bay properties and midstream assets from the parent.
- Financing cash flow was positive $100.3 million, primarily due to Term Loan proceeds, compared with negative $49.6 million in 2020.
- Cash flow was affected by $81.3 million of net derivative settlement payments, $40.5 million of derivative premium payments and $27.3 million of ARO settlements.
- The company recorded an $11.1 million benefit from release of restrictions on the Black Elk escrow funds and a $2.1 million employee retention credit.
- No dividends were paid in 2021 or 2020, and the dividend suspension remains in effect.
Guidance, outlook, risks and unusual items
- Preliminary 2022 capital expenditure guidance is $70 million to $90 million, excluding acquisitions. Management expects operating cash flow to fund planned capital expenditures, ARO spending and other obligations at current commodity prices.
- Estimated 2022 ARO spending is $55 million to $75 million.
- Management expects flexibility to reduce capital spending if commodity prices decline, but the business remains highly sensitive to oil, NGL and natural gas prices.
- Major risks include commodity-price volatility, derivative losses or capped upside, hurricanes and offshore operating disruptions, third-party pipeline and processing dependence, cybersecurity incidents, environmental liabilities, climate-related regulation, insurance availability and substantial decommissioning obligations.
- The company was in compliance with applicable debt covenants and BOEM financial-assurance obligations at the filing date, but future BOEM requirements or surety collateral demands could materially reduce liquidity.
- The company had approximately $401.8 million of surety bonds outstanding, primarily for plugging and abandonment obligations, and no business interruption insurance.
- The company recorded a $4.5 million contingency for potential decommissioning obligations related to previously divested properties. The ONRR royalty appeal remained pending; the company estimated its related liability at approximately $4.7 million, while another royalty-in-kind matter was reserved at no more than $0.25 million.
- Subsequent to year-end, the company acquired Gulf of Mexico properties for approximately $30.2 million in cash and extended the Calculus Lending facility maturity and commitment to January 3, 2023.
Most important facts for investors to verify
- Whether operating cash flow and liquidity are sufficient to address the large 2023 Senior Second Lien Notes maturity, ongoing ARO spending and planned capital expenditures.
- The sensitivity of earnings and cash flow to commodity prices and the effect of outstanding oil and natural gas derivatives on realized prices.
- The assumptions supporting the $1.62 billion PV-10 and 157.6 MMBoe proved reserve estimate, which depend heavily on 2021 SEC pricing.
- The timing and ultimate cost of the $424.5 million ARO balance, BOEM financial-assurance requirements and potential surety collateral demands.
- The impact of Hurricane Ida, future hurricanes, production declines and third-party infrastructure availability on production volumes.
- The terms, governance and related-party implications of the Calculus Lending facility controlled by CEO Tracy W. Krohn.
- The resolution and potential cash impact of the ONRR appeal, retained decommissioning liabilities and other regulatory contingencies.