Q1 2020 W&T Offshore Inc Earnings Call
Ladies and gentlemen, thank you for standing by.
Welcome to the W.M.T. offshore first quarter 2020 conference call.
During today's call all parties will be in listen only mode.
Following the company's prepared comments the call will be open for questions and answers.
During the question answer session. We ask you limit your questions to one follow up.
No you can always rejoin the question Q.
This conference is being recorded and a replay will be made available on the company's website following the call.
At this time I'd like to turn the conference call over to how featuring Investor Relations coordinator, Sir you may begin.
Thank you operator on behalf of the management team I'd like to welcome all of you to today's conference call to review WMT Offshores first quarter 2020 financial and operational result.
Before we begin I would like to remind you that our comments may include forward looking statement.
It should be noted that a variety of factors could cause diabetes actual results to differ materially from the anticipated results were expectations expressed in these forward looking statements in today's call May also contain certain non-GAAP financial measures. Please refer to the first quarter 2020 earnings release.
That we released yesterday for a disclosure on forward looking statements and reconciliations of non-GAAP measures.
This time I would like to turn the call. It would have Tracy krohn diabetes, chairman and CEO.
Thanks.
Good morning, everyone and thank you for joining us for our first quarter 2020 conference call.
So with me today, our Jerry Yang, our executive Vice President and Chief Financial Officer, well, even with <unk>.
Second a vice President and general manager Gulf of Mexico.
Steve Schrader, our Chief Technical Officer, Jim Hirsch, our vice President of Geosciences, they're all available to answer questions later during Nicole.
Over the last several months to global Cobot, Nike pandemic, coupled with supply demand imbalances, certainly created an environment of uncertainty cross the oil sector.
We've reacted decisively to those conditions by significantly reducing their capital expenditure budget for the remainder 2020.
Lowering our lease operating expenses without compromising safety or operational capabilities in temporarily shutting in some lower margin operated and non operated oil weighted properties.
As always we remain committed to the health and safety of our employees and contractors.
And our corporate offices, we implemented a mandatory work from home policy.
In March and only recently reopened our corporate office, despite being back the office, we continue to monitor the situation will follow the advice of government health leaders.
Well our field operations, we instituted screening of all personnel prior to introduce teleports ensure basis as well as our two gas plant in Alabama.
We are conducting daily temperature screenings and implemented procedures for distancing hygiene at our field locations. We're very pleased that thus far none of our onshore or offshore employees have tested positive for covert Nike.
For nearly 40 years, we've been able to persevere through multiple pricing cycles, because our focus some strategy has always been to maximize cash flow you, possibly improve the profitability of our assets that commodity price. We expect to continue to find value add acquisitions, especially those that provide a solid.
Foundation for our ability to generate free cash flow even in the current pricing environment.
Weve built WT through the right combination of attractive property acquisitions methodical integration exploitation of those acquisitions and successful development it exploratory drilling on our legacy fields.
With the well time Imobile Bay acquisition in 2019, our production mix has shifted and we now produce significantly greater volumes of natural gas, we expect to experienced less when in fact, the energy downturn. The many of our peers since natural gas has not been impacted by the same market forces as crude oil and believe we.
Could benefit from higher natural gas prices as associated natural gas production ROI wells decreases.
So turning to our first quarter results.
We're pleased with our performance, we've integrated acquired assets it a imobile bay and it Magnolia.
And that's after closing the acquisition of the remaining 25% of that deepwater fields.
Maintained a high level of production continued generating strong adjusted EBITDA cash flow.
Our costs all came in within or below the guidance. We gave you the first quarter.
Adjusted EBITDA was $62.1 million, despite a weaker pricing environment.
We invested nine the half million dollars in 22, any capex and $24 million him cost related to the 2090 capital program excluding acquisitions.
This is very important because on a cash basis, we continue to create significant value by generating nearly 30 million more of adjusted EBITDA versus our capex, which enabled us to reduce long term debt at a substantial discount.
One of the pillars of our success is our ability to generate positive cash flow.
In the first quarter of 2020, our production averaged 53553 barrels oil equivalent per day were 4.9 million barrels of oil equivalent.
It was up 61% compared with the first quarter 2019, and up slightly compared to the fourth quarter 29 too.
This was near the high end of our first quarter guidance range included a full three months of production from both the Imobile Bay acquisition.
The initial 75% interest acquired in the Magnolia field in 2019.
Total liquids production comprised 48% of production in the first quarter 22 way.
So in late April we announced that we had temporarily shut in approximately 3300 barrels oil equivalent per day of net production in selected oil weighted feels operated by US and also received notice of production curtailments from third party operators totaling approximately 3400 barrels oil equivalent per day met to Whnt.
Recently about 2900 BOE per day of those third party shut in volumes were returned to production and we continue to monitor the market to determine the appropriate time to return.
Operated production curtailments to production.
In addition, we temporarily shut in a portion of our production due to tropical storm Crystal ball with an estimated net impact of about 110000 net barrels oil equivalent.
Deferred production in the second quarter, we did not experience any material damage to our facilities do the storm.
As a reminder.
We have withdrawn our production cost guidance for the balance of 2020 due to the combination of ongoing uncertainty in commodity markets production curtailments and proactive efforts to continually reduce costs in this lower price environment, we intend to again provide guidance once we have greater visibility.
Where markets are headed.
So for the first quarter 2020, our average realized sales price per barrels oil equivalent declined about 20%.
Paired with the fourth quarter with declines in pricing for oil Ngls and natural gas.
Average realized crude oil sales price was 46033 cents per barrel, which once again compared favorably with average W.T.I. pricing $45 in 34 cents per barrel during a period.
Our NGL sales price was 13003 cents per barrel and our natural gas price was $1.91 per Mcf.
Revenues for the first quarter decrease quarter over quarter by 18%.
Hundred $24.1 million.
The decrease was driven by lower realized pricing despite the slight increase in sales volumes.
Our first quarter L., we came in at $54.8 million, which was within guidance, but higher than both the first and fourth quarters in 2019 due to additional operating costs associated with our two recent acquisitions.
Since the sharp downturn prices in the first quarter.
We have developed even more ways to reduce our ellery costs. This includes actions such as reducing our contract labor costs, reducing transportation costs by consolidation of transit to offshore locations and working with our suppliers to achieve cost savings in maintenance Workover and facility expenses.
We will not reduce our commitment to safety operational compliance or environmental protection. Many of these actions in total we expect to reduce our ela way by about 15% to 25% from prior levels.
I will give you more details on the results of these efforts during our second quarter coal.
Our gionee expense in the first quarter 2020 was $14 million, which was well below our guidance of 15 have to 17 million the decline from 17.6 million Gina in the fourth quarter 2019 was due primarily to higher fourth quarter 2090 accrual adjustments for incentive compensation and.
Lower legal costs during the first quarter 2020.
We continue to look at how we can further reduce our gionee costs.
We reported net income in first quarter 2020 of $66 million or 46 cents per share, which included 52 and a half million dollars unrealized commodity derivative gain.
18.5 million noncash gain associated with the debt reduction transaction.
Our adjusted net income was $5.8 million or four cents per share.
So another way that we've responded to this current environment is by using some of our free cash flow to repurchase a portion of our outstanding nine in three quarters for seniors second lien notes in the first quarter, we repurchased 27 million in principle of our outstanding notes for a half million dollars, which.
Led to the noncash gain thus far in the second quarter 2020, we've repurchased an additional $45.1 million. Those same note for $15.3 million, that's about 72, and a half million of long term debt that we've repurchased year to date for just under $24 million.
Which has reduced our annualized interest expense by over $7 million.
We believe that this was a very good use of free cash will help place WMT, even better financial footing moving forward.
Wses Bank group recently completed its regularly scheduled spring borrowing base redetermination.
Borrowing base was set by the bank group at $215 million down modestly from $250 million.
Additionally, the amended agreement provides for the suspension of the total leverage Covenant and the addition of a first lien covenant of two to one through year end 2021.
Additional details can be found in our 10-Q.
The next regularly scheduled redetermination is in the fall of 2020.
Additionally, we have added several oil and natural gas hedges since our last call on a detailed schedule is in yesterdays release.
So after all these actions so far this year as of June 17th 2020, our total liquidity stood at $156 million comprise of about 27 made cash how didnt $29 million availability under our revolving credit facility.
Our long term debt remaining on our senior notes has declined to 552 and a half maybe the others from $625 million. We believe we continue to have a strong balance sheet and have more than sufficient liquidity to meet our needs going forward.
And to continue to look at good opportunities that may arise in this downturn.
Turning now to operations, we successfully drilled one well in the first quarter 2020 at East Cameron 338, slashed 349, but decided to suspend all other drilling activity due to the current uncertain pricing environment.
We remain confident in our extensive inventory of high quality prospects and we're encouraged by the recent improvement in crude oil prices and the outlook for natural gas price improvements. This winter with that said, we remain focused on cash flow generation near and long term and we will continue to evaluate when it is best for WT.
To resume drilling but at this time, we have no active drilling and completions operations.
The first quarter Dakota, well the East Cameron 338 size 349 feel we successfully drilled in over 290 feet of water and to a total depth of over 6000 feet.
We've counted approximately 100 feet of net oil pay and currently own a 20% interest and go to well, which will increase to 38.4% wants to wells brought online and performance thresholds are met initial production is planned for the first half 2021 subject to the commodity price environment and the completion of certain.
Infrastructure projects.
So during the first quarter, we performed one well recompletion and for workers that resulted.
In an additional 700 net Boe per day.
As we previously announced WT was the apparent high bidder on two blocks in the Gulf of Mexico lease sale to 54 held by the be OEM on March 18, which included one deepwater block in one shallow water block. These two blocks cover a total of approximately 10760 acres and if awarded.
We will pay approximately $700000 for 100% working interest in the awarded thinks is combined.
So in closing.
We remain optimistic about future production team, we have a premier portfolio, both shallow water and deepwater properties in the Gulf of Mexico, with low decline rates and significant upside.
The proactive actions that we have undertaken this year to reduce capex. Another week, coupled with our strong hedge book offering downside protection on commodity prices should allow us to continue to generate strong cash flow even in a lower pricing environment.
We remain opportunistic in this environment and we'll look for ways that we can add value to WT as we've done this foreign twentytwenty, reducing lowi cost and closely managing our capital spending.
We remain focused on operating efficiently executing our long term strategy, while maintaining our strong balance sheet to maximize shareholder value.
Our management teams interests are highly aligned with those of our shareholders given our 34% stake in diabetes equity, which is one of the highest of any public in peak company.
This alignment of interest ensures that we are truly incentivized to maximize shareholder value and mitigate risk shareholders should expect to see more acquisitions in the future as well with that operator, we can open up the lines for questions.
Ladies and gentlemen at this time will begin the question and answer session.
Ask a question you May press Star and then why do you think you touched on telephone.
Your questions you may prestart too.
If you are using speakerphone, please pick up your handset before passing the key eastern shore the best sound quality.
So with all your questions. Once again, you May press star and too.
And our first question today comes from John White from Roth Capital. Please go ahead with your question.
Good morning, and thank you congratulations.
We certainly know the playbook during a downturn.
Thanks, John.
Yes.
Looking back.
Very opportunistic very good no.
You mentioned I believe he said.
Further 2020 activity.
New wells are planning, but just wanted to from that and.
So I take it that means most activity.
Continued recompletions and Workovers.
Yes, I think Thats why we see it right now of course of prices pre bought up and then we'll open up pocket book, a little bit and be able to gets more work done.
With the drill bit.
And you mentioned more.
More acquisition.
Sure.
How would you describe.
Go.
Correct.
Well I think there's a lot of opportunity there.
Most of the other companies that.
We've had problems are going to.
Eliminated or absorbed.
The ones that down are going to continue to succeed.
Okay well.
Thanks very much.
Thank you Sir.
Our next question comes from Richard Tullis from capital One Securities. Please go ahead with your question.
Hey, Thanks, good morning, everyone.
Richard.
Tracy I know you with true growth guidance for the full year and just had a couple of comments on with the last.
Color on.
Activity, but.
What do you think it takes to kind of get back.
Even in a moderate growth mode say, the second half of the year and entered 2021, what's sort of oil price would you'd be looking added combination of service cost reductions.
Well, that's a fairly complex question Richard it's got many.
Moving parts to it if I was going to gas a price I'd tell you something around 50.
I would would make us feel pretty comfortable.
We we recognize that service companies that had their issues as well everybody struggling with with personnel and and I hand, the pandemic of course.
But I do think that Oh, the futures is pretty good long term.
That's what that's what we're looking to add we realize that there's some things that.
Need to happen and ours and in this basin to make it better for everyone.
So we're we're waiting to see.
What what pricing is going to do that's the biggest driver I wish I could tell you that it isn't but but it is I think we're adequately hedged at this point or close to it so.
So I'm confident that we can with with.
Stan just about do that course every time I say that something else nasty happens, so I guess, I, probably ought to stop saying that but but.
I think we're pretty well protected at this point.
No. Thank you for that that's helpful and then from a from a follow up.
Got it what does that corporate decline rate at this point given the.
The reduction in Capex.
Corporate decline rate I'm not sure I understand that term do you mean, the production decline rate of corporate I don't know corporate decline.
For the.
Production base.
Our piece about 10.
Okay.
Yes.
Okay Tracy Thank you, yes, Sir.
Our next question comes from Mike.
From Stifel. Please Kevin's question.
Hi, good morning, everybody.
Mentioned.
Something around 50 before you got active again with a drill bit wondering kind of along the same lines.
It's kind of price or can you had been a price on what you'd need to see before he bring the.
In volumes back on line.
Well actually we're starting to begin to bring those shut in volumes back online now.
So that should give you some encouragement.
Some of them couple of these feels that there were near end of life anyway.
And we're just kind of hanging on.
Those probably won't be coming back online so.
I think we'll get up fairly quickly with that with the production of other stuff that was was.
Brought online that does not just anemic.
Okay, good and.
What do your thoughts on.
Free cash flow, obviously very opportunistic as was pointed out on.
The second lien.
Looking forward would that be the preference.
Between.
On the revolver since now you have the.
The Covenant is just focused on first lien debt and also any any restrictions on.
Being down either of those two.
Well actually the latter part of your questions there is more.
Our conducive to what we're likely to do we don't have the.
First lien capability of going out and spending more money to buy debt apparently the RBL. So don't like you're buying debt from other people and and put in there is at risk. So that's that is the other covenant with regard to buy more more our second lien debt.
Hey, good. Thank you, yes, Sir thank you.
Our next question comes from Patrick Fitzgerald from Baird. Please go ahead with your question.
Hi, guys, Yeah I Echo.
I echo the sentiment on the debt repurchase well done.
[music].
So a lot of my questions have been asked but I wanted to ask I.
I guess Janet.
Working capital.
For the remainder of the year you that was a nice source of cash this quarter.
Well, how do you expect that to unfold for the remainder of 20.
Hi, Thanks.
Thank you.
We don't.
We generally.
Okay.
Okay.
Yes.
Okay.
Okay.
And then on.
Your plugging abandonment your current portion of that on the balance sheet.
Declined.
From 22 to three.
Is that just a timing issue what and if you could.
Talk about how you see that unfolding in 20, and I guess any further than that would be helpful. Thank you.
The timing.
Yes.
Yes.
Yes, there is no overwhelming obligation to do.
Our work as a as as we forecasted it so far for the rest of year.
Okay, all right. Thanks, a lot.
Thank you Sir.
Our next question comes from Ray Deacon from Petro, let US analytics. Please go ahead with your question.
Yeah, Hey, good morning, Tracy Hey, right. So wondering if I'm good good thanks.
I was wondering how the three and a half year roughly payout on repurchasing debt compares to the Recompletions.
That you're planning to do this year in terms of.
Kind of Richard.
Oh, you finally, I asked the right question, how did you compare to other things that we might want to do very good right. Yeah. Yeah now you got it [laughter].
More debt backward or we go out and try to make more money doing acquisitions and drilling wells, that's really do the turtle question for us right.
So that that's exactly how we're looking at you got it.
What makes more sense and and it's a pretty perfunctory function. When you when you when you get to the bottom of it.
What is more profitable so it's really it's running fairly it was a fairly easy give to say all right well, we're we're not going to buyback any more debt. We're going to we're going to go ahead and do more work. So we're approaching that kind of marginality.
With that decision, which way do you go so as the price goes up the decision gets really easy.
Okay.
Then just what's the update on the JV I think you've drilled nine out of 14 wells was last number I'd seen is that kind of the first thing you go after once you get back to drilling.
Yes.
Okay.
Great. Thank you.
Sorry.
Our next question comes from Neal Dingmann from Suntrust. Please go ahead with your question.
Good morning, Miss Crown and team Hey deal how are you.
Good good my first question that just building on what Ray was saying Tracy I like the.
Acquisition did that you I guess you closed in early March where you did the purchase and sale agreement to quite acquire that 25% remaining working interest to me. That's always seems to be most economical when you can continue to do that.
You know again do you have other opportunities too.
Add working interest like that mean to me obviously, you don't have to use anymore.
<unk> expenses to do so now it seems to be the most economic so.
Just wondering if you add more opportunities like that in the portfolio.
Let me see if I can.
Play in this.
Very concisely you can bet you're asked on is okay, [laughter] affected beacon side.
Very good and that just my follow up to that would be.
Just given what we see now in this environment, we've certainly seen onshore prices on services come down could you just talk color on.
When you go back to work, what you're seeing in prices today versus even six or 12 months ago.
Yes.
I commented on this last year when people were telling me that prices were going up oil was $67 a barrel and service costs were going up and I always thought that was seasonal and sure enough. It was not always seasonal unfortunately prices began to drop as well so activity went down so.
Yes, there's.
There's certainly a point at which you can't go any lower because your suppliers just can't get there.
There are cost down any further so we don't want to see that happen, we won't be able to people to be able to operated a profit.
On the other him.
The hard part for US is is making sure that we have access to quality personnel and equipment I think we're we're pretty close to that.
Margin right now so it's got to be some some.
Sort of rebalancing going along and it really has more the biggest impact is transportation.
Boats and helicopters.
And again no insurance mid personnel.
Got it got at very good thanks, nice cash flow.
Sure. Thank you.
Once again, if you would like to ask a question. Please press star one. Our next question comes from Duston Tillman from Wells Fargo. Please go ahead with your question.
Hi, Thanks for taking my call.
Yes, I thought the surety market, we've seen in some instances some of your competitors, where securities are asking for collateral, including one scenario, where the company suing or the charity suing the company.
What do you see the health of the surety market any changes that are happening there as some of your competitors are under pressure.
Well again without knowing the specifics it's hard for me to answer that we haven't we haven't experienced in issues with our securities factory experience has been quite the opposite.
Other countries in good shape, we're meeting all of our obligations and and we'll be able to do so for.
Hopefully for the rest of my lifetime.
So I don't really see any AXT among maturities.
Markets.
No rates go up and down a little bit depending upon how the markets are but other than that were not experiencing any any anxiety at all.
So they're not asking theres no calls for collateral from the surety no Sir.
Okay, Great and can I wanted to follow up on one of the previous questions that was asked about.
PNM obligations and maybe for.
You can just help us better understand usually.
Thinking about.
Shutting in wells.
And having you talked about some production that won't come back online.
Most people would expect that that would result in more near term DNA spend and it sounds like you you're saying that you have the ability to push some of that off. So can you just explain or help us understand the timeframe of when that CNH work would have to be done now generally after you scratch cease production you require.
To plug and abandonment within a year.
So im sorry, excuse me 18 months.
So, yes, I wonder at least 18 months down the line.
Clearly if you go out and you put a field back online you got to go out make these these visits every once a while anyway.
So if prices go up high enough you put them back online and then you defer for yet another 18 months.
But were at least 18 months or close to that away from from having to do any of those abandonments on those marginal fields.
Okay, and that's why the the.
Current DNA liability was that these.
Because the view is that can be delayed.
That's correct.
Thank you very much yes, sorry, thank you.
And ladies and gentlemen at this time and showing no additional questions. We'll end today's question answer session I'd like to turn the conference call back over to Tracy Krohn for any closing remarks.
Thanks for listening everyone. We appreciate it and we'll have another conversation next quarter, if not sooner. Thanks, so much goodbye.
Ladies and gentlemen, the company has now concluded with you. Thank you for attending today's presentation. You may now disconnect your lines.
[noise].