W&T Offshore, Inc. 2022 Form 10-K Summary
Business context and reporting period
W&T Offshore is an independent oil, natural gas and NGL producer focused on acquisition, exploration and development of offshore properties in the Gulf of Mexico. The filing covers the fiscal year ended December 31, 2022, rather than a standalone fourth quarter. The Company held interests in 47 offshore producing fields, with average production of 40,067 Boe per day.
Key financial and operating metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Total revenue | $921.0 million | $558.0 million | +65.1% |
| Operating income | $454.1 million | $189.7 million | +139.4% |
| Net income (loss) | $231.1 million | $(41.5) million | Improved |
| Diluted EPS | $1.59 | $(0.29) | Improved |
| Net cash from operations | $339.5 million | $133.7 million | +154.0% |
| Net cash used in investing | $(95.1) million | $(27.4) million | Higher use |
| Cash and cash equivalents | $461.4 million | $245.8 million | +87.7% |
| Total production | 14.624 MMBoe | 13.913 MMBoe | +5.1% |
| Proved reserves | 165.3 MMBoe | 157.6 MMBoe | +4.9% |
Average realized prices increased to $93.59 per barrel for oil, $36.66 per barrel for NGLs and $7.23 per Mcf for natural gas, compared with $65.94, $30.59 and $3.88, respectively, in 2021. Realized prices including commodity derivatives were $81.24 per barrel for oil and $7.88 per Mcf for natural gas.
Operating expenses were $466.9 million, including lease operating expense of $224.4 million, DD&A and ARO accretion of $133.6 million, and general and administrative expense of $73.7 million. Total operating expense per Boe increased to $31.93 from $26.47. The filing does not provide a clearly labeled GAAP gross or net margin; operating income as a percentage of revenue was approximately 49.3% in 2022 versus 34.0% in 2021.
Derivative loss declined to $85.5 million from $175.3 million. The 2022 amount included $125.1 million of realized losses and premium payments, offset by a $39.6 million unrealized gain and $105.3 million of net cash proceeds from restructuring certain natural gas call positions. The Company had no open oil derivative contracts at year-end but had natural gas contracts extending through April 2028.
Debt, liquidity and capital allocation
- At December 31, 2022, principal debt included $552.5 million of 9.75% Senior Second Lien Notes due 2023 and $147.9 million of a 7.0% fixed-rate Term Loan due 2028. No borrowings were outstanding under the revolving Credit Agreement; available capacity was $50.0 million based on the borrowing base.
- On January 27, 2023, the Company issued $275.0 million of 11.75% Senior Second Lien Notes due 2026. On February 8, 2023, it redeemed the $552.5 million of 9.75% notes using the new debt proceeds and $296.1 million of cash.
- 2022 capital investments on an accrual basis were $93.1 million, including $51.5 million for acquisitions. The preliminary 2023 capital expenditure budget is $90 million to $110 million, excluding acquisitions.
- Asset retirement obligations were $466.4 million at year-end, with expected 2023 ARO spending of approximately $25 million to $35 million. The Company had approximately $438 million of surety bonds outstanding and no surety collateral posted at year-end.
- Dividends remained suspended, and no share repurchases occurred. The Company sold 2.97 million shares through its ATM program for net proceeds of $16.5 million.
Material changes versus the prior comparable period
- Revenue and operating income increased substantially because of higher commodity prices and a 5.1% production increase. Production growth primarily reflected acquisitions of the Ship Shoal 230, South Marsh Island 27/Vermilion 191 and South Marsh Island 73 fields.
- Lease operating expense increased $49.8 million, and G&A increased $21.3 million. G&A included non-recurring professional, legal and information-technology transition costs, as well as higher compensation and inflation-related costs.
- Operating cash flow increased $205.9 million, despite ARO settlements of $76.2 million compared with $27.3 million in 2021.
- Proved reserves increased by 7.7 MMBoe, consisting primarily of 16.3 MMBoe of revisions, 6.0 MMBoe of purchased reserves and 14.6 MMBoe of production depletion. The revisions were primarily attributable to higher commodity prices.
- Standardized measure of discounted future net cash flows increased to $2.263 billion from $1.156 billion, based on SEC pricing and not intended to represent market value.
- The Company recorded a $15.4 million additional contingency accrual for potential decommissioning obligations associated with previously divested properties.
Guidance, outlook, commentary and risks
Management expects cash flow from operations to fund the 2023 capital program, ARO spending and other obligations under current pricing assumptions. Management also expects flexibility to reduce investment if commodity prices decline and intends to pursue strategic acquisitions. The filing does not provide formal production or earnings guidance.
Management cited favorable 2022 commodity pricing but noted substantial uncertainty. The filing references EIA forecasts for lower average 2023 WTI and Henry Hub prices, approximately $77.84 per barrel and $3.40 per MMBtu, respectively. A 10% decline in 2022 realized commodity prices would have reduced revenue by approximately $106 million, assuming no other changes.
- Commodity-price volatility could reduce revenue, cash flow, reserves, borrowing-base availability and the value of oil and gas properties. Lower prices could also trigger full-cost ceiling-test impairments.
- Operations are concentrated in the Gulf of Mexico and are exposed to hurricanes, severe weather, offshore operating hazards, pipeline and processing constraints, and uninsured or underinsured losses. The Company does not carry business-interruption insurance.
- Decommissioning, ARO and BOEM financial-assurance requirements may increase. The Company states that it was in compliance with BOEM requirements at year-end and had no outstanding BOEM financial-assurance orders.
- The Inflation Reduction Act includes higher royalty rates for new offshore leases and a methane emissions charge beginning with 2024 emissions, potentially increasing costs.
- The Company completed a substantial transition of information-technology services after its primary provider, AAIT, sought to terminate services. The transition was substantially complete at year-end, but involved litigation, additional costs and operational risk.
- An ONRR royalty-deduction dispute remains pending in federal court. The disputed reductions were approximately $4.7 million, and the Company had an $8.5 million surety bond posted.
- Debt agreements contain restrictive covenants, and a portion of the Company’s liquidity and collateral base is subject to subsidiary, secured-debt and related-party arrangements. The revolving facility lender, Calculus, is affiliated with the CEO.
Most important facts for investors to verify
- Confirm the post-year-end refinancing, including the February 2023 redemption of the 9.75% notes, the $275.0 million 11.75% notes, remaining Term Loan balances and available revolving capacity.
- Reconcile cash availability after the $296.1 million note redemption funding, including cash held at unrestricted subsidiaries and restricted cash.
- Assess sensitivity to lower oil, natural gas and NGL prices, including derivative positions, ceiling-test impairment risk and reserve revisions.
- Review the $466.4 million ARO balance, planned 2023 spending, surety-bond requirements and potential future BOEM demands.
- Evaluate whether production growth from 2022 acquisitions offsets natural declines, deferred production of approximately 2.3 MMBoe and the need to replace reserves.
- Review the ONRR litigation, contingent decommissioning obligations, AAIT-related matters and other legal contingencies.
- Consider the impact of suspended dividends, ATM equity issuance, related-party transactions and the CEO-affiliated revolving lender on shareholder returns and governance.