W&T Offshore today reported operational and financial results for the second quarter 2021.

Key highlights included:

• Produced 40,888 barrels of oil equivalent per day (“Boe/d”), or 3.7 million Boe (45% liquids), in the second quarter of 2021, above the midpoint of W&T’s guidance range and reflecting a 3% increase from the first quarter of 2021;
• Reported net loss of $51.7 million or $0.36 per share and Adjusted Net Income of $2.2 million or $0.02 per share in the second quarter of 2021;
• Generated Adjusted EBITDA1 of $49.8 million for the second quarter of 2021;
• Generated Free Cash Flow of $18.7 million in the second quarter of 2021; for the first half of 2021 W&T has generated $58.7 million of free cash flow;
• Reported mid-year 2021 SEC proved reserves, based on a reserve report prepared by Netherland, Sewell and Associates, Inc. (“NSAI”), were 158.9 MMBoe, representing a reserve replacement ratio of nearly 300% of production for the first half of 2021. Proved reserves include upward revisions due to higher SEC base pricing and positive reserve revisions from field performance, partially offset by year-to-date production;
  • Utilizing NYMEX strip pricing as of July 1, 2021, mid-year proved reserves were 165.7 MMBoe;
• Calculated the present value discounted at 10% (“PV-10”) of mid-year 2021 proved reserves of $1.0 billion (before consideration of cash outflows related to asset retirement obligations), an increase of 39% compared with $741 million at year-end 2020;
  • Utilizing NYMEX strip pricing as of July 1, 2021, mid-year PV-10 was $1.5 billion, (before consideration of cash outflows related to asset retirement obligations);
• Enhanced capital structure with a $215 million first-lien secured term loan that is non-recourse to the W&T parent company and its subsidiaries (other than its Mobile Bay subsidiaries) and amortized over seven years at a fixed interest rate of 7%;
  • Transaction significantly increased the Company’s cash position and paid down the reserve-based lending facility (“RBL”) completely; and
• Announced participation in drilling of a high potential, lower risk deepwater exploratory prospect in the Mississippi Canyon area.

Tracy W. Krohn, W&T's Chairman and Chief Executive Officer, stated,
“We continued to deliver strong operational and financial results in the second quarter and believe that the improved commodity price environment and our commitment to expanding margins will lead to a very good second half of 2021. We continue to generate strong Adjusted EBITDA and free cash flow with $58.7 million of free cash flow generated thus far in 2021. As a reminder, during the first quarter of this year, we paid down $32 million of our RBL with a portion of that free cash flow. In addition to the strong quarterly results, we completed a financial transaction in May that meaningfully improved our financial flexibility by more efficiently utilizing the collateral value of our Mobile Bay Area assets, allowing us to pay off our existing RBL balance of $48 million, and adding significant cash to the balance sheet. This transaction does not impact us operationally or affect our ability to generate significant free cash flow and it allows us to take advantage of the long-lived nature of our Mobile Bay assets. Importantly, it provides us the dry powder we need to continue to accretively grow W&T through attractive producing property acquisitions. We believe that market conditions in the Gulf of Mexico remain very favorable for accretive acquisitions.”

“After a difficult pricing environment in 2020, we have seen a strong recovery in crude oil and natural gas prices that has positively impacted our reserves and the PV-10 value of our reserves. We remain confident in our strong asset base which is evident in our mid-year 2021 reserve report that included 6.5 MMBoe of positive revisions due to field performance which nearly offset our year-to-date production of 7.3 MMBoe and we saw a positive revision of 15.3 MMBoe due to improved prices. The PV-10 of our reserves increased 39% using mid-year SEC pricing and increased 102% using July 1, 2021 NYMEX strip pricing.”

”With our further improved balance sheet, increased cash position and strong projected cash flow generation, we have positioned W&T to actively pursue opportunities and continue to deliver on our strategic vision,” concluded Mr. Krohn.

For the second quarter of 2021, W&T reported a net loss of $51.7 million, or $0.36 per share. After primarily excluding a $66.1 million unrealized commodity derivative loss, the Company’s Adjusted Net Income was $2.2 million, or $0.02 per share. In the second quarter of 2020, W&T reported a net loss of $5.9 million, or $0.04 per share, which included a $38.0 million unrealized commodity derivative loss, a $29.0 million non-cash gain on debt transaction, and $8.7 million of deferred tax benefit. Adjusted Net Loss for the second quarter of 2020 was $2.2 million, or $0.02 per share. In the first quarter of 2021, net loss was $0.7 million, or $0.01 per share, which included a $16.3 million unrealized commodity derivative loss. For that same period, Adjusted Net Income was $15.9 million or $0.11 per share.

Adjusted EBITDA for the second quarter of 2021 totaled $49.8 million, a decrease of 14% compared to $57.6 million in the first quarter of 2021 primarily due to increased operating expenses related to increased activity, employee retention credit received during the first quarter but not during the second quarter of 2021, and realized derivatives losses. Second quarter 2021 Adjusted EBITDA increased 18% from $42.1 million in the second quarter of 2020 primarily due to higher commodity prices, partially offset by higher expenses as a result of reductions in credits to expense from prior period royalty adjustments and Paycheck Protection Program (“PPP”) funds, higher incentive compensation costs in the second quarter of 2021 compared to the prior year period, and realized derivative losses.

Free Cash Flow for the second quarter of 2021 totaled $18.7 million, a slight decrease compared with $20.8 million in the second quarter of 2020, and down from $40.0 million in the first quarter of 2021, primarily driven by higher asset retirement obligation (“ARO”) settlements, increased capital expenditures and other factors that similarly affected Adjusted EBITDA as previously described.

Production, Prices and Revenues: Production for the second quarter of 2021 was 40,888 Boe/d or 3.7 MMBoe, an increase of 3% compared to 39,657 Boe/d in the first quarter of 2021 and down 3% versus 42,037 Boe/d in the second quarter of 2020. Production for the second quarter of 2021 was above the midpoint of guidance due to better run time efficiency and uplift from a successful workover. Second quarter 2021 production was comprised of 1.4 million barrels (“MMBbls”) of oil, 0.3 MMBbls of natural gas liquids (“NGLs”) and 12.2 billion cubic feet (“Bcf”) of natural gas. Liquids production comprised 45% of total production in the second quarter of 2021.

For the second quarter of 2021, W&T’s average realized crude oil sales price was $65.11 per barrel, average realized NGL sales price was $26.18 per barrel and average realized natural gas sales price was $2.66 per Mcf. The Company’s combined average realized sales price for the second quarter of 2021 was $34.75 per Boe, which was in line with $34.66 per Boe that was realized in the first quarter of 2021 and an increase of 147% compared to $14.10 per Boe in the second quarter of 2020.

Revenues for the second quarter of 2021 increased 6% to $132.8 million compared to $125.6 million in the first quarter of 2021, and increased by 140% compared to $55.2 million in the second quarter of 2020. The quarter-over-quarter increase was driven primarily by increased production and slightly higher realized commodity prices.  The year-over-year increase was driven by significantly improved commodity prices, despite slightly lower production.

Enhancement to Capital Structure

In May 2021, W&T enhanced its capital structure by entering into a transaction with its wholly-owned special purpose vehicles (the “SPVs”) and Munich Re Reserve Risk Financing, Inc. ("MRRF"). In this transaction, the Company transferred 100% of its Mobile Bay Area producing assets (the “Mobile Bay Assets”) and related gas treatment facilities to the SPVs in return for the net cash proceeds from a $215 million first-lien non-recourse term loan to the SPVs provided by MRRF. Through its 100% ownership in the SPVs, W&T retains the upside value in the Mobile Bay Assets. The term loan is non-recourse to W&T and is amortized over seven years at a fixed interest rate of 7%. The transaction provides long-term capital without maintenance covenants or borrowing base redetermination requirements and with no covenants at the parent level. It more efficiently utilizes existing collateral value to generate larger front-end cash proceeds to better capitalize the Company, as this term loan offers a greater loan-to-value amount than W&T’s RBL, at a reasonable cost.

A portion of the proceeds to the Company from the transaction were used to repay the $48 million outstanding balance on its RBL and to enter into commodity hedging contracts related to the anticipated future production of the Mobile Bay Assets, that are included in the hedging tables below. The majority of the proceeds to W&T are expected to be used for general corporate purposes, including oil and gas acquisitions, development activities, and other opportunities to grow W&T’s broader asset base. The Company anticipates an adjustment to its borrowing base under its RBL as a result of the transfer of the Mobile Bay Assets to the SPVs. The combination of the cash provided by this transaction along with the amended RBL is expected to provide the Company significant liquidity.

Since the SPVs are consolidated into W&T, there are no changes in the reporting of production, earnings, cash flow, or reserves. Second quarter 2021 results reflect the additional interest expense associated with the term loan.

Mid-Year 2021 Proved Reserves

As calculated by NSAI, W&T’s independent reserve engineering consultants, SEC proved reserves as of June 30, 2021 totaled 158.9 MMBoe compared with 144.4 MMBoe at year-end 2020. Strong positive revisions of previous estimates from field performance of 6.5 MMBoe in the first six months of 2021 nearly offset year-to-date 2021 production of 7.3 MMBoe, without any additional drilling to-date in 2021. W&T also recorded positive revisions due to SEC price changes of 15.3 MMBoe. The mid-year 2021 reserves, which were 87% proved developed producing and proved developed non-producing, were 36% liquids.  Utilizing NYMEX strip pricing as of July 1, 2021, mid-year proved reserves were 165.7 MMBoe.

The PV-10 of mid-year 2021 proved reserves utilizing SEC pricing was $1.0 billion (before consideration of cash outflows related to asset retirement obligations), an increase of 39% compared with $741 million at year-end 2020. Utilizing NYMEX strip pricing as of July 1, 2021, mid-year PV-10 was $1.5 billion, (before consideration of cash outflows related to asset retirement obligations).

Mid-year 2021 SEC reserves and PV-10 were based on an average crude oil price of $47.78 per barrel (compared with $37.78 at year-end 2020) and an average natural gas price of $2.50 per Mcf (compared with $2.05 at year-end 2020), after adjustments for quality, transportation fees, energy content, and regional price differentials and excludes provision for asset retirement obligations or income taxes. Mid-year 2021 NYMEX strip pricing as of July 1, 2021 was based on an average crude oil price of $57.80 per barrel and an average natural gas price of $2.96 per Mcf.

OPERATIONS UPDATE

W&T continues development operations on the Cota well at East Cameron 338/349 that was drilled in 2020, with initial production expected in the fourth quarter of 2021. The well is in over 290 feet of water and was drilled to a total depth of over 6,000 feet and encountered approximately 100 feet of net oil pay. The Company has an initial 30% working interest in the Cota well but the interest will increase to 38.4% once the well is brought online and certain performance thresholds are met. W&T did not initiate new drilling activity in the first half of 2021 as it plans for its capital investment program to be weighted toward the second half of 2021.

While W&T continues to proceed with preparing its internally generated prospects for potential drilling later this year and into 2022, the Company recently became a working interest owner in a third-party operated exploratory opportunity in the deepwater Mississippi Canyon area. Based on its internal assessment, W&T believes the well is a high potential but relatively lower risk opportunity located in the “Flex Trend” area, where W&T has had significant experience and success. Furthermore, assuming success, it could de-risk additional drilling opportunities that W&T has in the area. This prospect was identified using high-quality 3D seismic and reprocessing and has multiple objectives located beneath a salt overhang. This high potential oil play ties directly to analogous fields in the area and has significant upside. W&T has a 25% working interest and the well has just recently spudded.

Well Recompletions and Workovers: During the second quarter of 2021, the Company performed one workover that in total added approximately 700 net Boe/d to production. W&T currently plans to continue to perform recompletions and workovers that meet economic thresholds.

KeyFacts Energy: W&T Offshore US Gulf of Mexico country profile