Q1 2021 W&T Offshore Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the W and T offshore first quarter 2021 conference call during.
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 during the question and answer session. We ask that you limit your questions to one and a follow up 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.
Thank you Hi, Lee 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 as first quarter 2021 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 diabetes 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 first quarter 2021 earnings release debt.
We issued 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.
Thank you al.
Good day to everyone and thank you for joining us for our first quarter 2021 conference call with me today are Janet Yang our executive Vice President and Chief Financial Officer.
And you will afford our executive Vice President and General manager Gulf of Mexico, Steve Schrader, Our senior Vice President and Chief Technical Officer, and Stuart <unk>, Our director of Geosciences. There are available to answer questions later during the call.
So 2020 was an extraordinary and difficult year for energy companies, but WT proactively took measures to reduce our cost and capital spend while we maintain free cash flow generation.
Those measures have carried into 2021.
And with an improving global outlook, we were able to meaningfully increase our free cash flow and adjusted EBITDA and the first quarter.
Operationally, we performed quite well, we exceeded guidance and several areas, we were above the midpoint and production below the midpoint and low and.
And blow the and the.
Low end of guidance for G&A.
As we look to the remainder of 2021 under the strengthening commodity price conditions, we're forecasting strong free cash flow generation and.
And we will continue to evaluate additional accretive acquisitions and opportunistically pay down debt on.
Our focus remains on operational excellence and free cash flow generation. This means that we will continue to take a measured approach to drilling while funding our capital expenditures with available cash and cash generated from operations.
We expect to use our dry powder for acquisitions, we do have significantly Oh, we do have significant flexibility to adjust our capital spending up or down at any time since we have no long term rig contract commitments or drilling obligations are.
Our lower production decline profile allows for reductions in capital expenditures without significantly impacting near term production levels.
And the first quarter 2021, we spent just $1 6 million or about $30 million to $60 million 2021 capital budget as we mentioned and our year end call. Our 2021 capital program is weighted towards the second half of the year and a corresponding production uplift will be more impactful in 2022.
Turning to our operational and financial results. We had good results on the first quarter 'twenty, one and one is we have expanded margins and operating efficiently and an improved commodity price environment.
We saw significant increases and our free cash flow and generated $40 million and free cash flow for the first quarter 2021, that's a 182% increase over the prior quarter and.
Adjusted EBITDA was higher by 63% compared to the fourth quarter of 2020 and totaled $57 $6 million and first quarter of 2021.
This was due to higher commodity prices and increased production volumes, we reported a small net loss of <unk> $7 million or.
And your share, but excluding primarily a $16 3 million unrealized commodity derivative loss and our adjusted net income was $15 $9 million or <unk> 11 per share.
So turning to production for the first quarter 2021 day.
<unk> produced 39650.
657 barrels of oil equivalent per day, or $3 6 million barrels of oil equivalent.
That's an increase of 4% compared to 38261 barrels of oil and equivalent per day and the fourth quarter of 2020.
Production was above the midpoint of our guidance due to better run time efficiency. Despite some february downtime associated with the winter storms total liquids production increased slightly to 50% of production and the first quarter of 'twenty to 'twenty one.
Looking ahead and the second quarter of 2021 were forecasting our production to be up modestly from the first quarter and averaged 38000 and 542005 hundred barrels oil equivalent per day. Our operations team is doing a good job on maintaining our production despite not having any new wells coming online until late this year or.
Full year 2021 production guidance range remains at 38000 to 42000 barrels of oil and equivalent per day.
For the first quarter of 2021 and our average realized sales price per Boe increased about 35% compared with the fourth quarter of 2020.
With meaningful increases in pricing for oil and Ngls and natural gas.
Our first quarter 2021 average realized crude oil sales price increased 32% to $56 73 per barrel from $42 80 forces per barrel and the fourth quarter of 2020.
So our NGL sales price was up 47% for the first before the fourth quarter of 2020 to $23 98 per barrel and our natural gas price was up 27% to $3 30 35 cents per.
Mcf.
So excluding the effect of hedges revenue for the first quarter increased quarter over quarter by 33% to $125 $6 million driven by higher realized pricing and increased production.
So despite the improved.
And the environment, our focus will remain steadfast on capital discipline on.
Operational excellence and most importantly free cash flow generation.
Now turning to costs would be sharp down and.
Sharp downturn in prices and the first half of 2020, we quickly implemented several successful initiatives to reduce our lease operating expenses.
We swapped or a higher cost contract personnel with full time employees reduce transportation cost by lowering the number of boats and helicopters.
Needed through operational efficiencies cut workover and facilities cost through vendor and supplier cost reductions and increased our focus on projects that maintain it.
And optimize production.
We've not reduced our commitment to safety.
Operational compliance or environmental protection with any of these actions.
Combination of those proactive cost reduction measures along with reduced expenses and certain fields are no longer on production and fewer facility projects and workovers resulted in low.
And the first quarter, 2020, one being at the low end of guidance and down 2% compared to the fourth quarter of last year.
G&A was $10 $7 million and first quarter of 2021, which was below the low end of our guidance range due to lower incentive compensation and payroll expenses and employee retention credit associated with the cares Act, while we were below our guidance range G&A costs were up compared to the $7 7 million.
And the fourth quarter of 2020, which benefited from a $2 $7 million credit related to a settlement with the.
Bureau of safety and environmental enforcement referred to as the Bessie that resolve some pending civil penalties issued by that agency.
So looking at costs through the balance of 2021, we reduced our full year G&A guidance of 49 million to $54 million from 51 million to $56 million as we continue to focus on cost containment. We did increase our annual <unk> guidance to 100, and BPA drawn and $74 million.
From $1 53 to 169 million due to increased Betsy mandated cost higher hurricane related repair costs remaining from last year and costs associated with returning some fields production that were previously shut in.
Additional results on our expense guidance or on the earnings release, we issued today.
Okay. So turning to the balance sheet and 2020, we were able to reduce debt considerably and at a significant discount and the first quarter 2021 and you continue to pay down our debt and.
Increase our liquidity position, we have remained true to our strategic vision and its guidance for nearly 40 years and maximize the value of our premier assets that are strong and stable production and generate solid free cash flow we.
We used a portion of our strong free cash flow in 2020, one pay down our credit facility by $32 million and the first quarter.
Our revolver balance is now at $48 million.
Balance on our senior notes stands at $552 $5 million compared with $625 million at year end 2019.
<unk> proved that 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 find accretive acquisitions and pay down debt.
At March 31, and 2021, and our total liquidity stood at $191 million compared are comprised of $53 4 million and cash and $137 6 million and availability under our revolving credit facility total long term debt, including $48 million and revolving credit facility borrowings is 500 and.
And $93 8 million net of unamortized debt issuance costs.
And on January 2021, <unk> Bank group completed its regularly scheduled semi annual borrowing base Redetermination and our borrowing base was set at $190 million. We remind we are we remain in compliance with all applicable covenants of our credit agreement and the second on the senior second lien notes and.
Didn't you.
We believe we continue to have a strong balance sheet and have more than sufficient liquidity to meet our needs going forward and we'll continue to look at good opportunities that may arise.
Now turning to operations during the first quarter 2020. One we performed one workover and one re completion and total added approximately 400 net barrels of oil equivalent per day to production.
Work overs and re completions are good near term projects that help to abate natural decline and we can.
We plan to continue to perform as they are all from some of the best economic projects and our portfolio.
And the successful total well that we drilled last year is currently and the development phase of the project and is expected to be on production and late 2021.
We've built a tremendous group of assets through organic growth and acquisitions.
Despite the higher commodity price environment, 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 will look to those types of opportunities moving forward.
We believe that market conditions and the golf remained very favorable for accretive acquisitions are a big balance sheet and strong cash flow generation and positioned us to actively pursue these opportunities.
Now before I close out the call I'd like to discuss our inaugural ESG report that we issued last month and is posted on our website and disclose as three years development of relevant ESG data on the on the company.
Since day, one 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. These core values have guided our success and provided the foundation for WT to grow into a trusted operator.
And the Gulf of Mexico generous partner to the communities, where we operate and good stewards to the environment.
We believe that every employee has a responsibility to ensure that we operate with the highest regards towards ESG and I believe that success is achieved with empowerment.
And that in mind, we've empowered our management and allocate resources and tools necessary to create a working environment.
On accomplishing our ESG objectives, we have a multi discipline disciplinary ESG task force that contributed to creating our initial ESG report.
And that had those folks have the ongoing responsibility to monitor our adherence to our ESG standards and to formally committed communicate their findings on to me and our board and suggest opportunities for further improvements and we look forward to keeping you apprised of our progress and we remain committed to.
Empowering our power and <unk>.
Erica safely and in a more sustainable manager for another 40 years.
And closing the rising pricing environment presents many opportunities for WD.
We have a premier portfolio of both shallow water and deepwater properties and the Gulf of Mexico, with low decline rates and significant upside there.
And many opportunities for acquisitions, and our focus area and we constantly look at any of that could meet our stringent criteria our.
And our disciplined approach to growth has allowed us to navigate many cycles and the past.
We remain opportunistic and we will look for ways that we can add value to WT through controlling costs and closely managing our capital spending.
We remain focused on generating free cash flow by operating efficiently and executing our long term strategy to maximize shareholder value.
Hello, and management teams interest are highly aligned with those of our shareholders given on a 30 or 34% stake and WD as equity, which is one of the highest of any public E&P company.
And this alignment of interest insurers were truly incentivize to maximize shareholder value and mitigate risk.
With that operator, we can now open the lines for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
And you are using a speakerphone please pick up your handset before pressing Nicky.
A reminder, we do ask that you limit yourself to one question and one follow up and then you can rejoin the queue for further questions.
To withdraw your question. Please press Star then channel.
Our first question today and will come from John White with Roth capital.
Good morning, and.
Oh, Yeah, Warner debt offer congratulations not only on and the results for the quarter, but also your ESG report and it's nice to see you getting out in front on that.
Thanks, John.
And with crude back up.
In the $60 range, Howard the fees and expenses for the boats and and.
And the helicopters.
No we're running about level with where we are where we were.
I'm not I'm, not seeing a great deal and good inflation and those costs at this point.
Okay. Thanks, I'll pass it on and not perhaps come back.
Sure.
And.
Our next question comes from Michael <unk> with Stifel.
Hi, good morning to everybody.
Tracy I was little surprised you had.
Some sequential growth from fourth quarter, you mentioned, the better run time and I don't know if you had any.
The numbers to go with that to compare to what the run time was and the fourth quarter and then.
You mentioned last quarter.
A little bolt on acquisition, just wondering if debt that contributed to the growth at all and also just kind of wondering where the the base decline rate is right now so I guess kind of three questions rolled into one.
Well, let me let me.
And through the quarter over quarter question.
I don't have those figures in front of me obviously it was it was up a little bit.
But partially because of weather.
Weather conditions and also.
The bolt on and I'm sure contributed zone.
We had.
We had some some pretty awful weather and the fourth quarter as well.
I'm, sorry, and the first quarter as well.
So that was that was disturbing to us and.
And I'm sorry, Michael what were on the two questions pardon me.
No you answered two of them on just one or not and the.
On the base decline rate, if you had a sense of where that is right now.
Yeah, I mean traditionally in the Gulf of Mexico, where normally.
About five but our reserve strength since the norm is R. Over P is about.
Nine at this point so that's about a.
10% to 15%.
Decline rate.
One of the things that I would point out on that that I think is very important to note.
And and I do this and our normal presentations when we go to conferences and things like that as I pull out a slide of.
Hum.
Of our probable reserves and.
And how much probable reserves and Capex and excuse me.
How much cash flow, we generate from probable reserves without having to spend any capex. So youre seeing some of that effect over over a long period of time that reduces debt decline rate.
And and we don't get credit for those barrels as a function of our proven reserves of course, but the cash flow comes.
And it comes in and quite handy so so.
Time passes we increase our reserves and some of these.
Reservoirs.
And have that probable reserves component to them.
So that's an important part of our cash flow and and reserve picture going forward.
And then along those lines I mean.
Didn't spend hardly.
At all and the first quarter and still had some some growth I was wondering.
Second quarter Capex can you.
Should we anticipate something similar to the first quarter.
Or is it going to be a little bit more on the workover and re completion.
And I believe Youll see something go up and also we're working on on the <unk>.
On the coda completion as well.
And so you'll start to see some effects on that and second and third quarter as well.
Okay.
And then just lastly, I wanted to ask you talked about the ESG report.
Just wondering if you see any potential economic opportunities come and that are coming out of that on the environmental side and.
And maybe along those lines. If you had any thoughts on what you do on the <unk>.
On plans for carbon capture and.
And the Gulf region.
Well.
That's a fairly general question. The short answer is yes, I do see opportunity.
Second short answer is no.
And I'm not trying to compete with Exxon.
[laughter] that's good to hear.
They're pretty tough competitor.
But I do see I do see possibilities and.
For a potential sequestration and the Gulf of Mexico.
Good to hear thanks Tracy.
Thank you Sir.
As a reminder, if you'd like to ask a question. Please press star and then one to join our P. M.
Our next question is a follow up from John White with Roth capital.
Well and your public comments.
You've made it no secret debt.
We are active.
<unk> looking for acquisitions and.
With the way you're setting up the balance sheet debt debt lines up with that that that objective and I realized you probably can't talk too much about it but you want to just touch on deal activity and deal flow.
Sure John and thanks for the questions. Yes, we're actively involved and several data rooms right now I expect this to be a good year for acquisitions.
I cant really provide you with details on I'm sure you're sensitive to that as well.
But I'm very confident.
The balance sheet is setting up nicely.
I would point out.
And I think it's very important to note. This.
And we're.
We do understand.
The value and protecting this balance sheet and making it strongly going forward so anything that would be.
Size.
That would really have a significant impact on us I think you would expect to see potential.
And making sure that.
You would see the the company taking.
Measures to protect our financial covenants and you might see some some issuance of.
Equity in that case.
Well that was more detailed than I was expecting so thank you very much.
Well yeah.
You always ask pretty pretty good question, Jon So I do appreciate it but yeah and you know when we have.
When you when you think about doing larger acquisitions.
It often makes sense to sell a little bit of equity along with it.
Thanks again thank.
Thank you Sir.
Our next question is a follow up from Michael P Allen with Stifel.
And I just wanted to see if you were you talked about the Codell well.
Coming on towards the end of the year or are you still thinking kind of three to four.
And new drills and the second half and.
And if so.
And you can see there as to where those might be understand if it's too early or if you don't want to see for competitive reasons, but just anything you can say about those would.
And would be of interest.
Yeah, I haven't commented on on additional wells, yet Michael but.
Certainly with coda.
And <unk>.
One of the good things about that debt.
Completion and net debt project is it that we focused a lot on the long long lead items and that.
And.
One of them one of the things we did we were able to purchase and older.
Our platform.
And and reefer, and where and the process of refurbishing that now so that's accelerated.
That's accelerated the completion and placement of that platform and the Gulf oil along with the.
Jack and.
And the.
The production deck, so pipelines and test it out and good in good shape. So we're.
We're excited to be going forward. So we're just working on re program and the platform at this point in time.
And so I'm quite confident we will have that out before the end of the year.
Any sense of.
And the expectations that well it turns out to be what you hope in terms of what it could could do for your production heading into next year. Yeah. I think that's going to be a really nice completion and one of the things that we saw and we reserves which are of interest.
Seismic.
As we thought about it.
The fault complex.
And in that area.
<unk> tends to include the seismic signature a little bit.
And so we've got a bright spot.
And what I'm, saying is that.
Actually the deeper sand.
Didn't didn't really light up the entire area and the.
Block, but we think it's just because that signature has been included.
As a result of defaulting, so we expect to see bigger reserves and what we would.
You know what the proven reserves would indicate.
Very good.
Thank you Tracy Thank you Sir.
This concludes our question and answer session I would like to turn the call back over to Tracy Krohn for any closing remarks.
Well. Thank you very much operator, and thank you all for listening today and I'm sure we'll be back in touch with.
And.
More news as we run.
Run through the quarter and into next quarter. Thanks, So much.
Yes.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.