Q3 2020 W&T Offshore Inc Earnings Call
Good morning, and welcome to the W. In Ti offshore third quarter 2020 earnings conference call.
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Now like turn the conference over to Al Petrie Investor Relations coordinator. Please go ahead.
Thank you Brandon and on behalf of the management team I would like to welcome all of you to todays conference call to review WT Offshores third quarter 2020 financial and operational results before we begin I would like to remind you that our comments may include forward looking statements. It should be noted that a variety of factors.
Could cause <unk> actual results to differ materially from the anticipated results or expectations expressed in these forward looking statements. Today's call may also contain certain non-GAAP financial measures. Please refer to the third quarter 2020 earnings release that we released yesterday for disclosure is <unk>.
Forward looking statements and reconciliations of non-GAAP measure.
At this time I'd like to turn the call over to Tracy Krohn, our chairman and CEO.
Thanks, Alex.
Good day, everyone and thanks for joining us for our third quarter 2020 conference call.
With me today are Jan <unk>, our executive VP, and Chief and Chief Financial Officer.
We will refer to our executive VP and general manager Gulf of Mexico, and Jim Kirsch, Our VP Geo science.
They're all available to answer questions later during the call.
Well 2020 has been an extraordinary a difficult year for energy Capex, we've seen oil prices and production impacted by the global COVID-19 pandemic supply demand imbalances and more recently one of the most active tropical storm seasons, the Gulf of Mexico has ever seen.
These these events have created an environment of uncertainty, but this is not the first downturn, we've weather than last 37 years, and we have certainly experienced active hurricane seasons in the past.
Our success has always been based on maximizing free cash flow generation.
Operating efficiently and striving to constantly improve the profitability of our assets at any commodity price. This time spent no different every.
Every quarter so far in 2020, we have produced positive cash flow and we continue to produce positive adjusted EBITDA.
So turning to the largest factor impacting third and fourth quarter production.
There's been an unusually large number of named storms in the Gulf of Mexico in 2020, which of course significant production shut ins by WD and other operators in the Gulf, but we're pleased that we resolved.
And minimal physical damage to our facilities. These.
These storms and unplanned downtime imobile by adversely affected our third quarter 2020 production by nearly 9000 barrels oil equivalent per day.
We've continued to experience an impact to our production for the quarter. Both earlier storms in those we've experienced in October.
This initial impact coupled with the uncertainty around when Magnolia and other fields are restored production.
Impact of additional shutdowns imobile by including consolidation of the gas plant and any additional tropical whether this quarter is why we got into our fourth quarter production to be between 31500 35000 barrels oil equivalent per day.
While the storms impacted production.
We have experienced no material damage to devotees platforms or infrastructure through October.
Having said that we do expect to incur in the fourth quarter 2020, approximately $5 million in additional lease operating expenses relating to repairs and restoring production since June we've had.
Eight.
Eight eight evacuations personnel from our platforms that were in the path of the storm.
I'm proud of our operations team, who met that challenge multiple times, and then told no injuries or adverse impact to our people and continue to maintain our COVID-19 protocols.
Turning to our third quarter results.
Despite the impact from a from a historically accurate tropical storm seasons, the OEM and a continued low pricing environment, we generally.
Well, we generated positive adjusted EBITDA and continued to generate free cash flow.
Adjusted EBITDA was 19 and a half million dollars. Despite a continued weak pricing environment and.
Our capital expenditures were held to only $1.2 million. This is very important because on a cash basis, we continue to create significant value by generating over $18 million more of adjusted EBIT da versus our Capex.
Earlier this year in response to the uncertainty oil prices, we suspended our drilling and completion activities and reduced our estimate about 2020 capex to 15 to 25 million to preserve cash flow and we're continuing with that plan.
Beginning with yesterday's release.
We added the calculation of free cash flow, which is our adjusted EBIT da less accrual basis, Capex plug and abandonment costs and net interest expense, we've focused on free cash flow for a long time, well before because it became a major popular issue with the investment community.
For the third for the third quarter 2020, we generated $5.9 million in the same period in 2019, he was 13.3 million and.
And then the second important 2020 was $20.8 million.
Oh periods, we reported were positive for the first nine months of 2020, we generated a total of $61.8 million, which is particularly meaningful considering the challenges we face low and also negative order prices and the impact from the storms.
I'd like to remind you that we've also capitalize on opportunities in 2020, we purchased over 72 million, our senior notes and a substantial discount of just under $24 million.
Saving 70.1 million.
And annualized interest in preserving long term gap.
Year to date, we've reduced our net debt, which we defined as total debt principal less cash $521.6 million I can't emphasize enough. The one of the keys of our own ongoing success has been our ability to generate positive cash flow.
Third quarter to 2020.
Our production averaged 34000 board and 59 barrels oil equivalent per day, or 3.2 million barrels of oil equivalent.
That was a decrease of 16% year over year due to the extraordinary 2020 hurricane season and to a lesser extent unplanned unplanned downtime imobile by planned downtime at the Magnolia field and a combination of operated and non operated production that remains shut in due to the decline in oil prices total liquids.
Production remains steady at 48% of production in the third quarter 2020.
Oh for the third quarter and 2020, our average realized sales price per barrel of oil equivalent increased about 50% compared with the second quarter with increases in pricing for oil Ngls and natural gas.
Average realized crude oil sales price was 41081 cents per barrel compared with average W.T.I. prices during the quarter and $40 in 89 cents per barrel, our NGL sales price more than doubled since the second quarter to 10 99 per barrel and our natural gas price was $1.94 Ramsey.
Excluding the effects of hedges or revenues for the third quarter increased quarter over quarter by 31% to 72, and a half million dollars due to higher realized pricing somewhat offset by lower volumes.
Well now turn the call the sharp downturn in prices, we quickly implemented several successful initiatives to reduce our Halloween callers. This.
This included replacing higher cost contract personnel with full time employees, reducing transportation cost by lowering the number of boats and helicopters needed through operational efficiencies cutting workover and facilities costs through vendor and supplier cost reductions and increasing our focus on projects that maintain optimize production we've now.
Reduced our commitment to safety operational compliance or environmental protection with any of these actions.
As a result of these cost saving initiatives, our third quarter 2020, Halloween was $36.4 million, that's down about 23% from third quarter 2019.
While it was lower year over year was up compared with $28.3 million in this years second quarter.
We mentioned on our last conference call, our second quarter L.. He was somewhat lower due to BBB funds that offset cost or nor are we finding other factors.
So in prior calls we mentioned.
We were analyzing rather keep our two natural gas treatment plants that serve as the mobile bay area or combine them into one we've completed that review and have decided to consolidate the two facilities into the onshore treating facility. We acquired 2019 from Exxon Mobil, and we'll close our yellow Cameron plant.
The LTL.
Oh sure we're treating onshore treating facility has more than sufficient capacity to meet our current and expected needs as we further develop mobile by other regional natural gas into the future. The consolidation of the facilities is expected to result in savings of approximately 5 million per year beginning in 2021.
Today was 14 and a half million dollars for the third quarter 20, joining compared to 10.1 million last years third quarter and 5.6 million this year second quarter.
The increase in third quarter 2020 July expense compared to the same period in 2019 was driven primarily by additional legal costs I encourage you to review potential acquisition opportunities and higher benefits costs you.
The increase in this year's third quarter compared to the second quarter was driven primarily by compensation cost. It returned to normal levels. After benefiting from credits in the comp in the prior quarter from our BBB bonds and by increased legal and higher benefits costs, we expect our DNA cost moving forward to be about 15% lower than this.
Your third quarter.
Earlier this year, we entered into a new lease agreement for our headquarters here in Houston.
We're moving just up the road later this month, where we will have about the same amount of space, but we'll reduce our real cost by nearly half insights about $2 million in 2021.
We reported a net loss of $13.3 million or nine cents per share for the third quarter, which included a non cash tax benefit of $21.2 million in the third.
13.1 be realized commodity derivative loss.
Our adjusted net loss was $19.9 million or 14 cents per share during the third quarter. We added a number of oil and natural gas hedges, which were detailed in yesterday's earnings release and are located on our website.
Well as of September Thirtyth 2020, our total liquidity stood at $187.1 million comprised of 56, and a half million cash and how did the 30.6 main availability under our revolving credit facility our.
Our long term debt remaining on our senior notes has declined to 552 and a half million dollars at September 30 from 625 million at year end 2019 total.
Total long term debt, including 80 million revolving <unk> revolving credit facility borrowings was $624.7 million net unamortized debt issuance costs.
We remain in compliance with all applicable covenants of our credit agreement and the senior second lien notes indenture we.
We believe we will 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 during the third quarter 2020, we perform two recompletions and five workovers that'd be dealt with in total added approximately 500 net Boe per day to production, we believe it workovers recompletes or good near term projects and help to abate natural decline and we plan to continue form them as long as they meet economic threshold.
In the current pricing environment.
Well, we temporarily suspended our drilling and completion operations, we remain confident in our extensive inventory of high quality prospects in our asset base.
Integrating acquisitions, reducing alwy cost and closely managing our capital spending.
We remain firmly focused on operating efficiently and executing our long term strategy in order to maximize shareholder value.
Our management team's interest are highly aligned with those of our shareholders given our 34% stake in deputies equity, which is one of the highest of any other in the company.
This alignment of interest ensures that we are truly incentivized to maximize shareholder value and mitigate risk.
So with that operator, we can now to the lines for questions.
Thank you we will now begin the question answer session to ask a question. You May proceed Star then one on your Touchtone phone if you are.
Using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two police.
Please limit your questions to one and one follow up at this time, we will pause momentarily to assemble our roster.
Our first question comes from John White with Roth Capital. Please go ahead.
Good morning, and thanks for taking my question.
<unk>.
Well thanks John.
You bet Airbus.
Yeah.
Congratulations on managing your way through this dreadful a tropical storm in hurricane season.
[laughter] given the holiday [laughter].
Yeah I know.
Good news on consolidating that Imobile Bay gas plant, Oh that looks like a significant amount of.
Expense savings.
Did you want to comment on what kind of Capex is needed for that I would guess, it's probably minimal or you would have mentioned it.
Yeah. It really has been minimal I I believe it's under a couple of million dollars.
We basically.
Between two and $3 million is now Oh, yes were sports forecast.
You just asked shutting down the one plan and then doing some plumbing work to to re route.
That is correct.
Okay.
Thanks, very much I appreciate it.
Thank you John.
Our next question comes from Michael C. Allah with Stifel. Please go ahead.
Hey, this is William how filling in for Mike see either.
It's on participating in November of federal lease sales given the potential of a body part as president tick.
Sure we're going to participate.
Well, there's no reason not to this thing.
Federal Federal a fairway says, we don't do fracking out in the Gulf of Mexico.
As I as a routine event.
I don't I don't see why that should be a concern we still need the energy for the kind of for the country and it generates really good ER royalties for the federal government, apparently they need money to operate.
So I think that's a that's an action plan in a I think we are we have a proven safety record, we don't flared gas in the Gulf of Mexico.
And we haven't done that for every since my career.
We've been we've been.
Versado, except for very short periods of time from why we test the well or something like that it is theres a system upset and we're geared up to go to manage that.
Great. Thanks for the color I guess my other question would just be can you talk about a little bit more about the decision to consolidate plants at mobile Bay is that and I say with great potential are you thinking more about improving margins and reducing debt and keeping costs.
No I I believe it's increasing margins and reducing costs both plants or are you know treat a free to gas others. There was a question early on about the.
Increasing or total production area.
We we believe that that after further study the.
The gas plant that we have a that we acquired from mobile adequate to to manage our production over years, even with a discovery or even to Oh that we hope will we hope to drill in the not too distant future.
And couple that with the with the overall decline rate in the field. We believe that if we got to the to the maximum capacity existing plant, we'd be really really happy about that.
Great. Thanks for the color.
Sure.
As a reminder, if you would like to ask a question. Please press Star then one.
All right then operator, I think I got it I appreciate everybody listening in this.
This this year or this quarter, rather we'll talk to you again next quarter and hopefully we'll have some more good news for you. Thanks so much.
The conference is now concluded. Thank you for attending today's presentation you may now disconnect.
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