W&T Offshore this week reported operational and financial results for the fourth quarter and full year 2023. Key highlights for the fourth quarter and full year 2023 and since year-end 2023 included:

• Completed two accretive acquisitions of producing properties for a total of $99.4 million, or approximately $4.75 per barrel of oil equivalent (“Boe”);
• Acquired six shallow water Gulf of Mexico (“GOM”) fields in January 2024 (“the Cox acquisition”), all of which are 100% working interest and located adjacent to existing W&T operations, for $72.0 million;
• Purchased working interests in eight shallow water GOM fields in September 2023 for $27.4 million;
• Both acquisitions were funded with cash on hand, which increases proved reserves, production and Free Cash Flow per share;
• Delivered strong production in full year 2023 of 34.9 thousand barrels of oil equivalent per day (“MBoe/d”) (51% liquids), or 12.7 million barrels of oil equivalent (“MMBoe”), at the midpoint of latest guidance;
• Production was 34.1 Mboe/d (49% liquids), or 3.1 MMBoe in the fourth quarter of 2023;
• Reported net income for full year 2023 of $15.6 million, or $0.11 per diluted share and fourth quarter 2023 net loss of $0.4 million or ($0.00) per diluted share;
• Adjusted Net Loss totaled $21.7 million, or ($0.15) per share for full year 2023 and $8.7 million, or ($0.06) per share for the fourth quarter 2023, which excludes the net unrealized gain on outstanding derivative contracts, non-ARO plugging and abandonment (“P&A”) costs and non-recurring costs related to the Company’s IT services transition;
• Generated solid Adjusted EBITDA in the fourth quarter 2023 of $44.9 million and $183.2 million in full year 2023;
• Produced net cash from operating activities of $35.7 million and Free Cash Flow of $15.8 million in the fourth quarter 2023, marking the 24th consecutive quarter of positive Free Cash Flow;
• In full year 2023, generated net cash from operating activities of $115.3 million and $63.3 million of Free Cash Flow, further strengthening the balance sheet and allowing W&T to fund accretive acquisitions;
• Grew cash and cash equivalents to $173.3 million at December 31, 2023 from $149.0 million at September 30,2023;
• Reported Net Debt of $217.3 million as of December 31, 2023, compared with Net Debt of $232.1 million a year ago;
• Continued to maintain a low leverage profile with Net Debt to trailing twelve months (“TTM”) Adjusted EBITDA of 1.2 times;
• Adopted a quarterly cash dividend policy in November 2023 and paid initial dividend of $0.01 per common share on December 22, 2023;
• Declared first quarter 2024 dividend of $0.01 per share which will be payable on March 25, 2024 to stockholders of record on March 18, 2024; and
• Announced 2024 guidance including a capital spending budget of $35 to $45 million.

Tracy W. Krohn, W&T’s Board Chair and Chief Executive Officer, commented, 
“We continued to deliver solid results in 2023, while executing on our strategic vision focused on Free Cash Flow generation. We have reported 24 consecutive quarters of positive Free Cash Flow and generated Adjusted EBITDA of $183.2 million in 2023. In early 2023, we strengthened our balance sheet by issuing new 2026 Senior Second Lien Notes and repurchasing all of our outstanding 2023 Senior Second Lien Notes. These notes are trading at a premium of approximately 3% to par value as of February 29, 2024. Our strong balance sheet has allowed us to close on two accretive acquisitions utilizing a portion of our cash on hand, which we expect will meaningfully boost our production and reserve base. We believe these acquisitions will bolster our per share metrics, increase shareholder value and provide additional Free Cash Flow, all without using any debt or equity. We plan to continue to utilize our significant cash position and expertise in acquiring complementary GOM assets to enhance the scale of W&T. Acquisitions have been a key component of how we have grown reserves and production at W&T, and we remain well positioned to continue to enhance our portfolio through additional attractive opportunities.”

Mr. Krohn continued, 
“Turning to our year-end reserve results, I would like to point out that the recent acquisition in January 2024, which added 18.7 MMBoe of proved reserves, is not reflected in these numbers. While the decline in SEC pricing led to downward revisions in proved reserves, we continue to see positive well performance resulting in positive technical revisions. This clearly demonstrates our ability to enhance production and reserves through operational excellence. In 2023, we had 4.0 MMBoe of positive performance revisions and an increase of 2.6 MMBoe related to the acquisition we closed in September. We have built a sustainable group of high performing GOM assets with good production diversity that is almost evenly distributed between liquids and natural gas. We expect that our assets and operational excellence will continue to provide meaningful cash flow to our shareholders for many years.”

Mr. Krohn concluded, 
“Looking at 2024 and beyond, we are integrating our recent acquisitions and believe that we can materially increase production and reduce costs at the 14 additional fields that we now operate. We are deferring some of our drilling plans while we complete the integration of those assets and are exploring a Drilling Joint Venture, similar to the Monza Energy LLC Joint Venture, which closed in 2018. The new drilling Joint Venture may include certain of the Company’s 100% owned and operated deepwater wells, including the Holy Grail well. We remain very well positioned to take advantage of potential acquisitions that become available and poised to continue delivering on our strategic vision. We have a successful track record of accretive growth through both acquisitions and drilling success. We remain committed to enhancing shareholder value and returning value to our shareholders through the quarterly dividend announced in November 2023. Our proven strategy focused on Free Cash Flow generation and operational excellence has proven to be sustainable over the past 40 years, and we are well-positioned to continue to successfully execute it in the future.”

W&T acreage in the Gulf of Mexico

Production, Prices, and Revenue: Production for the fourth quarter of 2023 was 34.1 MBoe/d compared with 35.9 Mboe/d for the third quarter of 2023 and 38.6 MBoe/d for the corresponding period in 2022. The small decrease in production compared to the third quarter of 2023 was primarily driven by natural decline and some unplanned downtime, which was partially offset by production optimization and workovers. Fourth quarter 2023 production was comprised of 13.3 MBbl/d of oil (39%), 3.6 MBbl/d of natural gas liquids (“NGLs”) (10%), and 103.6 million cubic feet per day (“MMcf/d”) of natural gas (51%).

W&T’s average realized price per Boe before realized derivative settlements was $41.55 per Boe in the fourth quarter of 2023, a decrease of 2% from $42.48 per Boe in the third quarter of 2023 and a decrease of 21% from $52.82 per Boe in the fourth quarter of 2022. Fourth quarter 2023 crude oil, NGL, and natural gas prices before realized derivative settlements were $77.17 per barrel, $20.82 per barrel, and $3.08 per Mcf, respectively.

Revenues for the fourth quarter of 2023 were $132.3 million, which was 7% lower than third quarter 2023 revenue of $142.4 million due to lower production volumes coupled with slightly lower realized prices. Fourth quarter 2023 revenue was lower than $189.7 million of revenue in the fourth quarter of 2022 due to significantly lower realized prices and lower production volumes.

Lease Operating Expense: Lease operating expense (“LOE”), which includes base lease operating expenses, insurance premiums, workovers and facilities maintenance, was $64.6 million in the fourth quarter of 2023, which was at the midpoint of the previously provided guidance range. LOE for the fourth quarter of 2023 was 5% higher compared to $61.8 million in the third quarter of 2023, primarily due to higher workover and base lease operating expenses related to a full quarter of the September acquisition, offset by lower facility expenses, and lower than the $69.0 million for the corresponding period in 2022. On a component basis for the fourth quarter of 2023, base LOE and insurance premiums were $52.4 million, workovers were $6.7 million, and facilities maintenance and other expenses were $5.5 million. On a unit of production basis, LOE was $20.61 per Boe in the fourth quarter of 2023. This compares to $18.72 per Boe for the third quarter of 2023 and $19.42 per Boe for the fourth quarter of 2022.

Gathering, Transportation Costs, and Production Taxes: Gathering, transportation costs and production taxes totaled $6.6 million ($2.11 per Boe) in the fourth quarter of 2023, compared to $6.7 million ($2.03 per Boe) in the third quarter of 2023 and $8.5 million ($2.39 per Boe) in the fourth quarter of 2022. Gathering, transportation costs and production taxes decreased by $1.9 million year-over-year due to decreases in realized pricing and production volumes.

Depreciation, Depletion, Amortization and Accretion (“DD&A”): DD&A, including accretion expense related to asset retirement obligations (“ARO”), was $13.08 per Boe in the fourth quarter of 2023. This compares to $11.09 per Boe and $9.64 per Boe for the third quarter of 2023 and the fourth quarter of 2022, respectively.

General & Administrative Expenses (“G&A”): G&A was $18.3 million for the fourth quarter of 2023, which decreased from $20.0 million in the third quarter of 2023 primarily due to lower salary and benefits costs and lower legal expenses. G&A decreased by $3.7 million year-over-year from $22.0 million in the fourth quarter of 2022 likewise due primarily to lower salary and benefits costs and lower legal expenses. On a unit of production basis, G&A was $5.82 per Boe in the fourth quarter of 2023 compared to $6.05 per Boe in the third quarter of 2023 and $6.18 per Boe in the corresponding period of 2022. G&A in the fourth quarter of 2023 included $3.1 million of non-cash compensation expense compared with $3.3 million in the third quarter of 2023 and $2.7 million in the fourth quarter of 2022.

Derivative (Gain) Loss: In the fourth quarter of 2023, W&T recorded a net gain of $13.2 million related to commodity derivative contracts comprised of a $14.8 million unrealized gain related to the increase in fair value of open contracts, offset by $1.6 million of realized losses. The Company recognized a net gain of $1.5 million in the third quarter of 2023 and a net gain of $24.4 million in the fourth quarter of 2022 related to commodity derivative activities.

As of December 31, 2023, W&T has 65.9 MMcf/d hedged for the first quarter of 2024 for natural gas and no existing hedges for oil. A significant portion of W&T’s natural gas hedges, in the form of sold swaps and purchased calls and puts, were entered into in conjunction with the non-recourse Mobile Bay term loan entered into by borrowers owned by the Company’s wholly-owned subsidiary Aquasition Energy LLC, with the terms of such hedges corresponding to the maturity of such Term Loan.

Interest Expense: Net interest expense in the fourth quarter of 2023 was $9.7 million compared to $9.9 million in the third quarter of 2023 and $14.5 million in the fourth quarter of 2022. The large decrease in interest expense in the fourth quarter of 2023 compared with the fourth quarter of 2022 was due to the full redemption of the 9.75% Senior Second Lien Notes which occurred in February 2023, lower interest expense on the lower outstanding principal balance of the Term Loan and increased interest income. These decreases were partially offset by interest expense incurred on the 11.75% Senior Second Lien Notes issued in late January 2023.  

Other (Income) Expense, net: During 2021 and 2022, as a result of the declaration of bankruptcy by a third party that is the indirect successor in title to certain offshore interests that were previously divested by the Company, W&T recorded a contingent loss accrual related to anticipated ARO. During the fourth quarter of 2023, the Company reassessed the existing ARO, recording an additional $4.1 million.

Income Tax: W&T recognized income tax expense of $1.9 million in the fourth quarter of 2023. This compares to the recognition of income tax expense of $4.8 million and $6.9 million for the quarters ended September 30, 2023 and December 31, 2022, respectively.

Balance Sheet and Liquidity: As of December 31, 2023, W&T had available liquidity of $223.3 million comprised of $173.3 million in cash and cash equivalents and $50.0 million of borrowing availability under W&T’s first priority secured revolving facility provided by Calculus Lending LLC (“Calculus”). At year-end, the Company had total debt of $390.6 million and Net Debt of $217.3 million. Of the Company’s total debt of $390.6 million, only $279.5 million is recourse to W&T. The remaining $111.1 million is held at W&T’s subsidiary, Aquasition Energy LLC, and is non-recourse to W&T. As of December 31, 2023, Net Debt to TTM Adjusted EBITDA was 1.2x.

Capital Expenditures: Capital expenditures (excluding acquisitions and changes in working capital associated with investing activities) in the fourth quarter of 2023 were $10.3 million, and asset retirement costs totaled $9.1 million. For the full year 2023, capital expenditures (excluding acquisitions and changes in working capital associated with investing activities) totaled $41.3 million, which was below the lower end of W&T’s updated 2023 capital expenditure guidance of $50 million to $70 million. Plugging and abandonment costs for full year 2023 were $34 million, which were within the Company’s latest guidance for 2023 of $25 million to $35 million.

Accretive Acquisitions of Producing Properties in the GOM

In January 2024, W&T was the successful bidder for six fields in the Gulf of Mexico, including Eugene Island 064, Main Pass 061, Mobile 904, Mobile 916, South Pass 049 and West Delta 073, all of which include a 100% working interest and an average 82% net revenue interest. They are located in water depths ranging between approximately 15 and 400 feet. Their proximity to W&T’s areas of existing operations provide the ability for W&T to capture synergies. The final purchase price for the assets was $72.0 million, excluding certain closing costs, which was funded from the Company’s cash on hand. Key highlights of the transaction are as follows:

• Adds significant proved reserves of 18.7 MMBoe1 (62% liquids) with a present value discounted at 10% (“PV-10”) value of $250.4 million based on an independent engineering report prepared by Netherland Sewell and Associates (“NSAI”);
• Based on the cash consideration paid of $72 million, this equates to a price of $3.85 per Boe of proved reserves;
• As it has done after prior acquisitions, W&T is assessing, inspecting and optimizing the newly acquired fields, which requires shutting in some of the fields in the near term;
• Field logistics are being examined to see if more cost-effective tie-ins and throughput can be done with existing W&T facilities adjacent to the newly acquired fields; and
• The Company believes that it will increase production on these properties through workovers, recompletions and facility upgrades.

In September 2023, the Company announced that it had completed the acquisition of working interests in eight shallow water oil and gas producing assets in the central and eastern shelf region of the GOM from an undisclosed private seller. The assets were acquired for a gross consideration of $32.0 million, and after normal and customary post-effective date adjustments (including net operating cash flow attributable to the properties from the effective date of June 1, 2023 to the closing date), cash consideration of $27.4 million was paid to the sellers. W&T used its cash on hand to pay the net purchase price. This acquisition has high average working interest of approximately 72% and provides additional producing properties located within W&T’s existing area of operations in water depths ranging from 25 to 265 feet.

(1) Reserves as of January 1, 2024 using year-end 2023 SEC pricing.

Full Year-End 2023 Financial Review

W&T reported net income for the full year 2023 of $15.6 million, or $0.11 per diluted share, and Adjusted Net Loss of $21.7 million, or ($0.15) per diluted share. For the full year 2022, the Company reported net income of $231.1 million, or $1.59 per diluted share, and Adjusted Net Income of $284.8 million, or $1.96 per diluted share. W&T generated Adjusted EBITDA of $183.2 million for the full year 2023 compared to $563.7 million in 2022. The year-over-year decrease was primarily driven by lower commodity prices and decreased oil production. Revenues totaled $532.7 million for 2023 compared with $921.0 million in 2022. Net Cash provided by operating activities for the twelve months ended December 31, 2023 was $115.3 million compared with $339.5 million for the same period in 2022. Free Cash Flow totaled $63.3 million in 2023 compared with $376.4 million in 2022.

Production for 2023 averaged 34.9 MBoe/d for a total of 12.7 MMBoe, comprised of 5.1 MMBbl of oil, 1.4 MMBbl of NGLs and 37.6 Bcf of natural gas. Full year 2022 production averaged 40.1 MBoe/d or 14.6 MMBoe in total and was comprised of 5.6 MMBbl of oil, 1.6 MMBbl of NGLs and 44.8 Bcf of natural gas.

For the full year 2023, W&T’s average realized sales price per barrel of crude oil was $75.52, $22.93 per barrel of NGLs, and $2.93 per Mcf of natural gas. The equivalent sales price for 2023 was $41.16 per Boe, which was 33% lower than the equivalent price of $61.89 per Boe realized in 2022. For 2022, the Company’s realized crude oil sales price was $93.59 per barrel, NGL sales price was $36.66 per barrel, and natural gas price was $7.23 per Mcf.

For the full year 2023, LOE was $257.7 million compared to $224.4 million in 2022. The increase in LOE in 2023 reflects increased workover and facility investments at Mobile Bay, the impact of the acquisition of additional properties in September 2023, and inflationary pressures.

Gathering, transportation, and production taxes totaled $26.3 million in 2023, a decrease from the $35.1 million in 2022. Lower realized prices for natural gas and NGLs drove severance tax expense down year-over-year.

For the full year 2023, G&A was $75.5 million, which was a minor increase over the $73.7 million reported in 2022. The increase year-over-year is primarily due to increased salary and benefits costs that were somewhat offset by lower legal expenses. On a per unit basis, G&A per Boe was $5.93 in 2023, up from $5.04 per Boe in 2022. G&A increased on a per Boe basis primarily due to lower production.  

Year-End 2023 Proved Reserves

The Company’s year-end 2023 SEC proved reserves were 123.0 MMBoe, compared with 165.3 MMBoe at year-end 2022. The W&T year-end 2023 proved reserves do not include the 18.7 MMBoe of proved reserves acquired in early January 2024 for $72 million. In 2023, W&T recorded positive performance revisions of 4.0 MMBoe, and acquisitions of reserves of 2.6 MMBoe, which were more than offset by 36.2 MMBoe of negative price revisions and by 12.7 MMBoe of production for the year. During 2023, W&T continued to focus on reducing Net Debt and identifying and executing attractive acquisitions. Successful workovers, operational excellence and acquisitions allowed W&T to replace 52% of production with new reserves.

Approximately 41% of year-end 2023 proved reserves were liquids (30% crude oil and 11% NGLs) and 59% natural gas. The reserves were classified as 67% proved developed producing, 17% proved developed non-producing, and 16% proved undeveloped. W&T’s reserve life ratio at year-end 2023, based on year-end 2023 proved reserves and 2023 production, was 9.7 years.

2024 Capital Investment Program

W&T’s capital expenditure budget for 2024 is expected to be in the range of $35 million to $45 million, which excludes potential acquisition opportunities. Included in this range are planned expenditures related to integrations as well as ongoing costs related to the acquisitions for facilities, leasehold, seismic, and recompletions. 

Plugging and abandonment expenditures are expected to be in the range of $30 million to $40 million. The Company spent approximately $34 million on these costs in 2023.

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