Q4 2020 W&T Offshore Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by welcome to the WMC offshore fourth quarter and full year, 2020 conference call.
During today's call all parties will be in a listen only mode. Following the company's prepared comments the call will be opened for questions and answers.
And our question and answer session. We ask that you limit your questions to one and a follow on you can always rejoin the queue. This conference is being recorded and a replay will be made available on the company's website. Following the call I would now like to turn the conference over to Al Petrie Investor Relations coordinator. Please go ahead.
Thank you Kate and on behalf of the management team I would like to welcome all of you to today's conference call to review W. And T offshore is fourth quarter and full year 2020 financial and operational results before.
Before we begin I'd 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 and these forward looking statements. Today's call may also contain certain non-GAAP for.
<unk> measures. Please refer to the fourth quarter 2020 earnings release that we released yesterday for disclosures on forward looking statements and reconciliations of non-GAAP measures at this time I would like to turn the call over to Tracy Krohn, our chairman and CEO.
Good day to everyone and thanks for joining us for our 2020 year and conference call. So we've made the day, our Janet Yang our executive VP and Chief Financial Officer, William Williford, Our executive VP and general manager of Gulf of Mexico.
Stuart hub Kirshner, our director of Geosciences, Jim Hersch.
Actually do titled for him and Vice President of New ventures.
Available and they're all available to answer questions day life during the call.
So the 2020 one.
The extraordinary difficult year for energy companies to say, the least we saw oil prices and production impacted by the global COVID-19 pandemic.
Supply and demand imbalances and one of the most active tropical storm seasons of the Gulf of Mexico has ever seen.
Nonetheless and the.
Uh huh.
And the interim every quarter of 2020, and we produced positive free cash flow Inc.
<unk> $14 2 million and the fourth quarter.
Our operations team did an excellent job returning leased properties. The production of the fourth quarter ahead of schedule, which helped us exceed our guidance. In addition, we were able to keep our operating and overhead costs low and despite the additional work required to restore production.
Our success has always been based on maximizing free cash flow generation operating efficiently and striving to constantly improve the profitability of our assets and any commodity price. This past year was no different.
We also continued to take steps throughout the last year and into 2020, one to protect our employees and contractors during the pandemic.
Turning to our operational and financial results of this.
Spike the multiple challenges we faced last year, we generated significant adjusted EBITDA and continue to generate free cash flow.
By adjusting quickly to the changing environment early in 2020, and reducing our planned capital expenditures, we generated $76 million and free cash flow for the full year 2020 of.
And which was actually higher than the 74 million and we generated in 2019.
We reported of $159 million and adjusted EBITDA in 'twenty, and 'twenty and our cash capital expenditures were held the only $17 $6 million for the full year at the low end of our <unk>.
<unk> 2020 budget of 15 million to $25 million.
This is very important because on the cash basis, we continued to create significant value by generating substantially higher adjusted EBITDA compared to our capex for the.
The lower decline profile of our conventional asset base allows for reductions in capex to ly with changes and the pricing environment without significantly impacting near term production levels.
Yeah.
But we also capitalized on opportunities in 2020 by utilizing a portion of our 2020 free cash flow and retire $72 $5 million of our senior notes for.
The total cost of $23 $9 million, thereby saving over $7 $1 million and annualized interest and preserving long term debt.
From January one 2020 through yesterday, we have reduced net debt by $135 $3 million.
This year and have a stronger balance excuse me 2020 and this year and have a stronger balance sheet now and in 2019.
Our revolver balance is about $48 million and the balance of our senior notes has been reduced to 552 and a half million dollars.
I can't emphasize enough for one of the keys of our ongoing success has been our ability to generate positive free cash flow and to use that free cash flow wisely to fund the accretive acquisitions and pay down debt.
And we continue to look for ways to reduce cost and improve to increase our cash flow. We recently completed the consolidation of our two natural gas treatment facility to serve the mobile Bay area into a single facility with more than enough capacity for our current operations as well as production from future natural gas.
Oil and projects and the area.
The consolidation of these facilities is expected to reduce our results rather than the approximately $5 million per year and savings.
Beginning this year and it is the attitude of the added benefit of reducing our carbon footprint by lowering our scope one emissions and that's.
Primarily the Cotwo methane and natural.
So turning to the largest factor impacting the third and fourth quarter production. There was an unusually large number of named storms and the Gulf of Mexico, and trying to draw on it which caused significant production shut ins by the WD and the other operators.
We're very pleased that they are resulted in minimal physical damage to our facilities and we already incurred about the four $7 million and divisional fourth quarter of Palo Verde and restore production.
I'm proud of our operations team, who met those challenges from the storms, which included multiple evacuation from our platforms and the did so with no injuries or adverse and impact of our people, while remaining COVID-19, rather while maintaining and COVID-19 protocols.
So of production for the fourth quarter 2020 was 38261 barrels of oil equivalent per day for $3 5 million barrels of oil equivalent.
And as an increase of 11% compared to 34.
450, and add barrels of oil equivalent per day, and the third quarter.
Production for the fourth quarter was above the high end of our guidance due to faster than expected recovery from hurricane downtime and.
And that's primarily due to the child of these efforts of operational personnel and did a great job.
Liquids production remained steady at 47% of production and the fourth quarter of 2020.
And for the full year 2020 production was 42046 barrels of oil equivalent per day or $15 4 million barrels of oil.
Production declined throughout the year due to several factors, including the large number of named storms and the golf and the second half of the year capital expenditure reductions due to the decline in oil prices and both operated and non.
Operated production that was shut in due to low prices as well as natural flow.
Now for the fourth quarter of 2020, our average realized sales price per Boe increased about 16% compared with third quarter with increases in pricing for oil Ngls and natural gas.
Our average realized crude oil sales price of $42 84 per barrel compared with average WT oil prices during the quarter of $42.52 per barrel slightly higher so.
Our NGL sales price was up almost 50% from the third quarter of 2020 to 16, and 30 $16 30 per barrel and our natural gas price was up 36% to $2 $66 63 per Mcf.
And we're excluding the effects of hedges revenues for the fourth quarter increased quarter over quarter by 31% to $94 7 million.
Driven by higher realized pricing and increase production.
For the full year 2020 realized pricing per Boe.
It was lower by about 39% from 2019.
However, we've seen the strong recovery and pricing since the low and the second quarter of 2020 and pricing continues to trend higher actually up about $100 since the low of.
2020, despite this improved pricing environment, our focus will remain steadfast on capital discipline operational excellence and mostly most importantly free cash flow generation.
The alternative cost with the sharp downturn in prices and the first half of 'twenty John.
We quickly implemented several successful initiatives to reduce oil recalls.
Swapped out higher cost contract first of all with full time employees.
The transportation of course cost by lowering the number of boats and helicopters needed through operational efficiencies cutting workover and facilities cost through vendor and supplier cost reductions and increasing our focus on projects that maintain and optimize production.
We have not reduced our commitment to safety and operational compliance or environmental protection with any of these actions.
So as a result of these cost savings and initiatives and shut ins of certain fields. As result of downtime events. Our full year of 'twenty joined the low was $162 9 million compared to $184 3.002 million 19.
For the fourth quarter low where he was at the low end of guidance at $43 $3 million. Despite an additional $4 $7 million that was spent on hurricane.
So as I mentioned earlier, we recently consolidated our consolidated our facilities onshore and mobile body that is expected to result in annual savings of $5 million beginning in 2020 one.
And we will help to reduce our carbon.
Footprint by lowering our scope one emissions.
Now for the full year 2020, G&A was $41 7 million Thats down, 24% compared with full year 2019, G&A of about $55 $1 billion the.
The decrease year over year is primarily due to lower employee benefits and salary cost, resulting from payroll protection program funds received in April 'twenty, and 'twenty and lower incentive comp words.
The G&A per barrel of oil equivalent was $2 71, and 2020 down 27% from $3 72 and.
2019.
G&A was $7 $7 million from the fourth quarter of 2020, well below our guidance range of $11 7 million to $12 $9 million.
The fourth quarter of 2020 has benefited from a $2 $7 million credit related to a settlement with the bureau of safety and environmental enforcement and referred to as the Betsy.
And that resolve some pending civil penalties issued by the agency and.
And the fourth quarter, we moved our headquarters just up the road and Houston, where we will have about the same amount of space, but will reduce our cost by <unk>.
More than half and save about $1 $72 million per year annually.
Beginning in.
2021.
On a full year basis for 2020, we reported net income of $37 $8 million or 26 per share adjusted net loss of $22 $9 million or <unk> <unk> per share for the fourth quarter of 2020, WT reported a net loss of $8 9 million or <unk> <unk> per share.
Excluding the primarily and 11 $5 million of unrealized commodity derivative losses of $6 9 million.
Non cash tax move it and the $2 $7 million credit related to the vessels settlement.
Adjusted net loss of $6 $7 million or <unk> per share.
Net.
So at December 31, 2020.
Our total liquidity stood at $174 $3 million comprised of about $43 7 million and cash and hazard $30 6 million and availability under our reserves our.
Our revolving credit facility.
And our long term debt remaining on our senior notes declined in 2020 to $552 $5 million of December 31 from $625 million at year end 2019, total long term debt, including $80 million revolving credit facility borrowings.
The $625 3 million net of unamortized debt issuance costs.
On January 2021, <unk> Bank group completed its regularly scheduled semi annual borrowing base Redetermination and the borrowing base was set at the housing $90 million as of March 3rd as of March three 2021 of the borrowings against the facility had been reduced by 32 million and the.
Ordinary course of business this year, 'twenty, and 'twenty $1 million to $48 million the.
The next regularly scheduled Redetermination is in the spring of 2021, we remain in compliance with all applicable covenants of our credit agreement and the senior second lien notes indenture. We believe we continue to have a strong balance sheet and.
And have more than sufficient liquidity to meet our needs going forward and we continue to look at good opportunities that may arise.
Turning now to operations during the fourth quarter of 2020.
We performed two Workovers and total added approximately 800 net barrels of oil equivalent per day. The production, we believe that Workovers and re completions of good near term projects that help to abate natural decline and we plan to continue to perform as long as they meet the economic thresholds and the current pricing environment.
The successful Codell well that we drilled last year's currently and the development phase of the project and is expected to be on production of the latter part of 2021.
So looking at our 2020 of yearend Reserve report WTS and SEC proved reserves were down modestly from 2019, primarily due to lower commodity prices.
About 34% of year end 2020 reserves were liquids and the balance was natural gas at year and approximately 83% of 2020 proved reserves were classified as proved developed producing.
8% is proved developed non producing and 9% is proved undeveloped.
<unk> Reserve life Reserve life ratio at year end 2020 based on year end 2020, SEC proved reserves and 2020 production was nine four years.
So the PV 10 value of <unk> SEC proved reserves at year end 2019 was $741 million down.
And the out of about 43% from year end 2019. This was driven by reduced pricing with the 2020 SEC PV 10, using an average realized crude oil price of $37 78 per barrel and and average realized natural gas price of $2.05 per Mcf for you.
Utilizing realized the Nymex strip pricing as of December 31, and 2020 of $44 43 per barrel of oil and $2 66 per Mcf for natural gas. The PV 10 would have been $1 1 billion.
And for the three year period of 2018 through 2020 <unk> all in reserve replacement cost was $4 and 62 per barrel of oil equivalents we.
Think thats very competitive cost for any of the U S E&P and reinforces the value of both of the acquisitions and drilling prospects that WT has developed.
So we continue to look at acquisitions that meet our criteria, especially those that provide a solid foundation for our ability to generate free cash flow.
We've integrated two strong acquisitions over the past 18 months and we look for those types of of apposite.
[laughter] opportunities going forward, we have built the <unk> through the right combination of the tragic rugby acquisitions methodical integration.
And exploitation of those acquisitions and the successful development and exploratory drilling on our legacy fields.
Now looking forward to 2021 under this strengthening commodity pricing condition that we're experiencing now we are forecasting strong free cash flow generation and we will continue to evaluate additional accretive acquisitions and opportunistically pay down debt. This means that we will.
Take a measured approach to drilling.
While continuing to fund our capital expenditures, excluding acquisitions with available cash and cash generated from operations.
Our preliminary capital expenditure value for 2020, one is expected to be and the range of $30 million and $60 million and we will be focused on low risk high return projects. This preliminary budget excludes opportunistic acquisitions of oil and gas properties from third parties.
And we're forecasting 2021 spending of between $17 million to $21 million on asset retirement obligations.
We have significant flexibility to adjust our capital spending up or down in the time since we know we have no long term rig contract commitments of our drilling obligations are lower production decline profile allows for reductions in capex without significantly impacting our near term production levels with two.
21, and capital program will also be weighted towards the second half of the year, that's the production of it.
Uplift from the same there will be more impactful in 2022.
And our full year 2021 production guidance range is.
The 38.
I'm, sorry, 38500 barrels to 42000.
Barrels of oil equivalent per.
Per day, which is only modestly lower than 2020 with the midpoint of above our fourth quarter production rate.
We also expect our low <unk> to be in line with oil decreased slightly on an absolute basis compared to 2020.
We'll continue to control the cost of we can to minimize our margins and generate significant cash flow from operations. Our release issued yesterday has.
More details on our 2021 first quarter and full year guidance.
So before I flow out closeout this call I'd like to discuss our upcoming inaugural ESG report.
We found the WT nearly 40 years ago and from day, one and we've been committed to developing and producing oil and gas resources and a.
Safe and environmentally responsible manner, while meeting or exceeding all regulatory requirements of.
These core values of guided our success and provided the foundation for WT to grow into a trusted operator, and the Gulf of Mexico generous partner of the communities, where we operate and good stewards to the environment.
We believe that every employee has responsibility and to to ensure that we operate with the highest regard toward the ESG and we've empowered our management to allocate resources and tools necessary to create of working environment focused on accomplishing our ESG objectives in 2020.
We've created and ESG task forces comprised of management Representatives from operations Hs and the legal human resources.
The Investor Relations and finance debt is charged with the responsibility of the monitor is either.
To our ESG standards and formally communicate their findings on an ongoing basis to me and our board.
All of a module report will be released later this month and <unk>.
<unk> to our website along with our annual report and include the key metrics for the past three years.
We remain committed to sustainability and we hope to continue powering America's safely and.
And in a more sustainable matter for another four years.
So in closing the rising price.
Environment presents many opportunities for WT.
We have of premier portfolio of both shallow water and deepwater properties and the Gulf of Mexico, with low decline rates and significant upside.
There are many opportunities for acquisitions and our.
Focus areas and we constantly look at any of that can meet our stringent criteria.
We will continue to proactively manage our capex and the low <unk> in line with the current pricing environment to ensure that we're generating free cash flow.
Our disciplined approach to growth has allowed us to navigate and many cycles and the past.
We remain opportunistic and we'll look for ways that we can add value WT as we did in 2020 by controlling these operating expense and overhead costs and closely managing our capital spending.
We do remain focused on generating free cash flow by operating efficiently and executing our long term strategy to maximize shareholder value.
Now is the uncertainty that we and many other E&P companies face regarding limitations on the future drilling on federal lands and and Federal Awards.
And we're working closely with our industry groups to provide feedback to our elected officials on the impact of those yet those are those actions could have on our energy, Japan independents and on the people who work and live in and along the Gulf of Mexico that have a strong commitment to the energy industry.
As we await any further clarification.
The business as usual for us.
Our management team's interest of our lives for aligned and those of all of our shareholders.
And our 35% stake and WTS accurate.
That's one of the highest of any public E&P company.
And this alignment of interest and ensures that we are.
Julie and always incentivize to maximize shareholder value and mitigate risk.
With that operator, we can open the lines for questions.
We will now begin the question and answer session to ask a question and you May Press Star then one on you touched on the call.
And using a speakerphone please pick up your handset before pressing the key to withdraw from your question queue. Please press Star then Kim as a reminder, we ask that you limit your questions do you want and the fall.
The first question comes from Michael <unk> of Stifel. Please go ahead.
Well the Tracy.
Hi, good morning, and Michael.
Just wanted to ask on the 'twenty one budget you got a pretty wide range there at least on a percentage basis.
Talk a little bit about the gating factors on what would cause you.
And to spend towards the low and versus the high and is it oil.
Oil price or timing of getting permits or or something else.
And it's primarily pricing.
And permits could take a bit longer, but thats, not really going to be the drivers primarily going to be pricing.
And in terms of the number of wells any color you could at.
And that there are any new wells other than the total well you mentioned you'd be bringing on the second half, but any other wells you could be potentially bringing on this year.
Yes, possibly up to for more.
Okay, and if I could just sneak one more in.
And any being inside the.
The JV this year planned or.
And where do you kind of stand with the.
With the number of wells that are left within the JV.
Yes.
The the code of well is one of the wells and the JV and.
And we may drill one or two more of of that JV as well.
Great. Thank you.
Yes, Sir.
The next question is from Richard Tullis with capital one. Please go ahead.
Hey, Thanks, good morning, everyone.
And I see go on with the M&A theme.
Perhaps provide an update on on the current landscape there and any impact on.
Property offerings that you see and following the recent oil price rebound is it is it.
The impact in <unk>.
The deal flow or at least what's offered or what are you seeing there.
Well as usual Richard you ask a very very good questions and valid questions.
Yes.
And with.
The New administration comes uncertainty.
<unk> hate uncertainty.
I do see that debt.
There's going to be some struggle with regard to leasing going forward on new leases.
Apparently of the existing leases.
Are just going to take a little bit longer to get things done.
And I I don't really.
Worry about that very much.
Think of that.
As we go through the year and succeeding years will resolve all of those issues and and the process will get streamlined.
But with regard to M&A, yes, I mean, clearly we're going to see more M&A and the Gulf of Mexico.
And I think that's not just a function of pricing I think it's.
More because everybody was kind of holding their breath and 2020 to see what was going to happen and.
Now there is a little bit more confidence and clarity with pricing. So so companies are able to plan a little bit better 2020 was a particularly difficult year to plan and the Gulf of Mexico.
The COVID-19 drastic reduction in price of the Saudis and the Russians raising hell of a one another.
And eight storms I mean that was debt was that was a lot to take and one year.
So it's very difficult to plan around that and then.
Another shocking day and in April.
The minus $37 oil.
Kind of it kind of shapes your confidence and makes it hard to plan, but we got through all of that is did just about everyone else.
<unk>.
But I will tell you that it made it difficult to plan going forward. So, yes, I do see more M&A activity and.
In two.
2021, and beyond just for those reasons.
Alright. Thank Tracy that's helpful. Thank you and just as a follow up.
And as you mentioned, the big storm impact and the second half of last year production rebounded nicely and the fourth quarter are you able to say what you exited 20.
20 oil production rate or maybe with the oil production rate is currently.
Yes, we exited around.
38000 of 40000 barrels today I don't remember the exact number on December 31, but that's about where it was.
Alright, thanks very much sure.
As a reminder, if you have a question. Please press Star then one the next question is from Ray Deacon of Petro Lotus analytics. Please go ahead.
Yeah, Hey, good morning Tracy.
Can you can you give a little bit of color around the debt.
The guidance relative to your production and the worst about a 20% beat versus your guidance was that just getting wells turned on sooner or was there anything tied to in the quarter.
I'm, sorry, and you are just referring to production is that right exactly right on the production side.
And tightened.
Yeah, Yeah, we did have to do a little bit of planning around around.
The storms and stuff and things that we needed to clear.
Clear up as follow up we did have a little bit of damage and a little bit of loss production as a result of that book.
But we were able to clean that up fairly quickly.
And I.
Do think that.
Most of the bar production news on while I know that most of our production is back on line we have one one.
Pipeline issue that we're still dealing with its primary the onshore.
Ready to come on now will probably work and all of us.
As we speak it's coming off of literally all day.
Got it and we're there.
Okay, great great and.
On your G&A guidance for next year looks like kind.
Kind of roughly double the <unk> level.
Yes.
Is there anything next year that is.
It sounded as though your costs would be down year over year on.
On the G&A, but.
The <unk> was unusually low.
Yeah. It was.
Somewhat caused by the PPP and and bonuses okay. Okay great.
Great.
Got it and just the last thing I saw there was a small acquisition was that of producing properties.
Yeah. It was a bolt on on producing property you're right.
Okay got it.
Thanks.
Thank you Sir.
There are no additional questions at this time. This concludes our question and answer session I would like to turn the conference back over I'm, sorry, we do have a follow up would you like me to take that yeah.
Yes. Please.
We have a follow up from Michael Gallo of.
Stifel. Please go ahead.
Yeah. Thanks, I just had a couple of more.
And I'm just curious on.
Magnolia and do you see any drilling opportunities there or is that gonna be more of the.
Workovers and kind of looking for operational and permits.
Yes, and yes.
Okay.
Yes.
Yes.
Alright.
Due to the more activity out there and.
Michael and we'll give some more color on that.
Later on as we get more prepared.
Gotcha Okay.
And this one.
And probably sound like a total of softball question and I apologize upfront, but.
And a lot of companies we follow didn't replace production with proved reserve additions last year and I don't think even complete any wells you've managed to.
More than offset production was upward revision.
Is that just conservative bookings on your part or was there anything.
More specific to the positive revisions you had last year.
It's just magic.
Yeah.
And it really has a lot to do with.
And how we manage our our properties and how we are <unk>.
Spend our money and how we lower cost so a lot of that a lot of that dish and came out of the mobile Bay.
And and we were like we did with the fairway when we bought that and mobile Bay, we increased reserves without ever drilling the well we were able to manage cost and we also of course.
And we're working on consolidating the two gas plants and we've accomplished that now and that'll that'll stay of some more more money going forward and a 21 and beyond.
Very good thanks Tracy.
Thank you Sir.
This concludes our question and answer session I would like to turn the conference back over to Tracy Krohn for closing remarks.
Thank you operator.
We appreciate you listening to US today, we're very pleased with the performance that we.
We did in 2020 is regarding all.
All the all of the difficulties that the us and everyone else faced we continue to seek.
Opportunities and the Gulf of Mexico. This.
And this year and going forward and we see it.
As a result of very robust basin basin, and we will continue to do that so with that I'll turn it over and thank you very much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.