W&T Offshore, Inc. - Q1 2009 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended March 31, 2009. W&T Offshore, Inc. is an independent oil and natural gas producer focused on the Gulf of Mexico. The company operates approximately 148 producing fields in federal and state waters. The financial statements are unaudited and prepared in accordance with GAAP for interim reporting.
Key Financial Metrics
| Metric | Q1 2009 | Q1 2008 |
|---|---|---|
| Revenues | $117.4 million | $356.5 million |
| Net Income (Loss) | $(230.7) million | $79.8 million |
| Operating Cash Flow | $34.4 million | $242.4 million |
| EBITDA | $57.2 million | $273.0 million |
| Cash and Equivalents | $251.0 million | $276.8 million |
| Total Debt (Long-term + Current) | $652.8 million | $653.2 million |
| Working Capital | $101.0 million | $196.9 million |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 67.1% to $117.4 million. This was driven by a 60.8% drop in average realized oil prices ($36.29/bbl vs. $92.52/bbl) and a 41.6% drop in natural gas prices ($5.08/Mcf vs. $8.70/Mcf). Production volumes also declined 30.5% due to hurricane-related shutdowns.
- Net Loss: The company reported a net loss of $230.7 million, compared to net income of $79.8 million in Q1 2008. The primary driver was a $210.2 million ceiling test impairment of oil and natural gas properties due to lower commodity prices.
- Operating Expenses: Total costs and expenses increased 58.0% to $361.9 million, primarily due to the impairment charge. Excluding impairment, operating costs were lower due to reduced production volumes and lower service costs.
- Cash Flow: Operating cash flow dropped significantly to $34.4 million from $242.4 million, reflecting lower prices and volumes. Investing cash outflows decreased to $128.6 million from $246.5 million as capital expenditures were scaled back.
Guidance, Outlook, and Risks
- Capital Expenditures: The 2009 capital expenditure budget is expected to range from $220 million to $270 million, a reduction from 2008 levels. The company intends to fund these expenditures with internally generated cash flow and cash on hand.
- Production Outlook: Approximately 26 MMcfe per day remains shut-in due to hurricane damage. Management expects the majority of this production to be reestablished in the third and fourth quarters of 2009.
- Liquidity and Debt: In April 2009, lenders reduced the borrowing base from $710 million to $405.5 million. In May 2009, the company repaid its Tranche B term loan in full using the revolving credit facility, leaving $200.1 million in availability. The company remains in compliance with financial covenants.
- Stock Repurchase: A $25 million stock repurchase program was announced in March 2009. The company purchased approximately 1.43 million shares for $9.2 million during the quarter.
- Risks: Key risks include continued volatility in oil and natural gas prices, potential for additional ceiling test impairments if prices decline further, and the cost and availability of hurricane insurance coverage.
Investor Verification Checklist
- Verify the impact of the $210.2 million ceiling test impairment on the company's asset base and future depreciation rates.
- Monitor the April 2009 borrowing base reduction to $405.5 million and its effect on future liquidity and debt capacity.
- Track the recovery of hurricane-related production (approx. 26 MMcfe/d currently shut-in) and the associated remediation costs versus insurance recoveries.
- Review the stock repurchase program execution and remaining authorization ($15.8 million remaining as of March 31).
- Assess the sustainability of the dividend ($0.03/share) given the significant net loss and reduced cash flow.