Q1 2022 W&T Offshore Inc Earnings Call
Good day and welcome to the W. N P offshore first quarter 2022 earnings conference call.
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At this time I'd like to turn the conference over to Brent Collins Director of Investor Relations. Please go ahead.
Thank you operator and on behalf of the management team I would like to welcome all of you to today's conference call, Turkey Uwp.
WC offshore first quarter 2022 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 earnings release that we have.
Yesterday, our disclosures on forward looking statements and reconciliations of non-GAAP measures with that I would like to turn the call over to Tracy Krohn, our chairman and CEO , Thanks, Brian and good day to everyone and thanks for joining us for our first quarter 2022 conference call with me today are Janet Yang our executive Vice President and Chief financial.
Sure.
Youre welcome our executive Vice President and Chief operating Officer.
Steve Schrader, our senior Vice President and Chief Technical Officer are all available to answer questions. Later on during the call. So I'm pleased with the very strong operational financial results in the first quarter, which provided a solid foundation for an exciting year.
Our strategy is simple generate free cash flow maintain high quality conventional production and capitalize on accretive opportunities to build shareholder value.
Here are all the things that were delivered in the quarter.
What are our production was at the high end of guidance.
Ooh Hello, it costs were below the low end of guidance.
We grew adjusted EBITDA by 37% to $89 $7 million and more than doubled our free cash flow to $46 9 million.
Compared to the fourth quarter.
I would note that this marks the 17th consecutive quarter of WMC has generated free cash flow.
And fourth we paid down $10 $6 million in debt.
Yes, we brought the codell well at East Cameron all lines at a gross production rate of 2600 barrels oil equivalent per day and last.
We closed an accretive acquisition of producing properties in February and then bought the remaining interest in those properties very shortly after the end of the first quarter.
So as you can see our operations and finance team executed at an exceptionally high level and we believe the rest of the year can be even better in the first quarter. We also experienced sustained our pricing where all three commodities on a sequential basis our.
Production was up 2% over the prior quarter to almost 38000 barrels of oil equivalent per day.
Average realized price per barrel of equivalent before the impact of hedges increased by 16% to $55 and 29% up from $47 76 in the fourth quarter. We also did a good job managing our key cost during the quarter coming in below the low end of our guidance and below the midpoint of the room.
For G&A.
A combination of strong production and favorable pricing.
Cost control resulted in a 37% increase in adjusted EBITDA and allowed us to more than double our free cash flow compared to the fourth quarter 2021.
So we're clearly in a much stronger financial position today, and we remain focused on operational execution to build on the solid first quarter results.
So earlier this week, we announced a memorandum a memorandum of understanding with Korean National Oil Corporation that formalizes the intention for the two entities to work together to pursue various opportunities in upstream oil and gas in North America and this could include other opportunities as well so very excited about this agreement for a couple of brief.
First <unk> is a highly respected campaign in our industry and this agreement allows us to consider opportunities that we likely wouldn't on her own due to the scale second it allows us to look at opportunities and methodology that can be made even more successful.
By combining our respective technical strikes and working together.
These projects could raise from carbon capture projects to drilling opportunities and acquisitions.
I'm I'm really confident that this mou will be mutually beneficial to both companies' respective shareholders.
So a large part of our past success and integral to our strategy is the continued evaluation complementary and accretive acquisitions, then closing those selected opportunities quickly.
In February we closed the amcor acquisition, which included shallow water producing properties, providing a solid base of proved reserves and strong free cash flow both of which are key factors when we consider any acquisition opportunity.
So in April we purchased the remaining working interest in those properties for approximately 17, and a half million dollars, which brings <unk> total working interest in the assets to 100%.
So assuming strip pricing as of April 18, 2022 we estimate year end 2021 proved in two P reserves for diabetes, 100% working interest in the properties it.
It would be approximately $6 7 million barrels oil equivalent with 70% oil and nine and a half million barrels oil equivalent of which 75% oil respectively.
So net production did that mean case interest at quarter end was approximately four to 5000 barrels oil equivalent per day.
We believe these assets are highly accretive to the deputy and we can use our operational expertise as well as our existing infrastructure and scale to drive down cost and make these assets even more economic.
So moving on to operations, the Codell, well that we drilled successfully and 'twenty Charlie at East Cameron three.
<unk> 38, $3 49 was completed recently turned to sales in early March well is performing very well with current gross production of about 2600.
Barrels oil equivalent per day.
So as a reminder, we encountered approximately 100 net feet of oil pay during drilling we have an additional 30% working interest in the well.
But our our interest can increase to 38, 4% once certain performance thresholds are met.
During the first quarter of 2020 to perform to re completions that positively impacted production in the quarter. We plan to continue perform workovers and re completions in 2022 that we.
Economic thresholds.
And with that I'll turn the call over to Janet Thank.
Thank you Tracy and good morning, everyone capital expenditure, excluding changes in working capital associated with investing activities was $17 $4 million in the first quarter at 2022.
This is primarily attributed to the completion cost for the Codell well drilling costs are exploring sorry, while we discussed last quarter.
Even with that capital spending we generated $46 9 million and free cash flow and paid down $10 $6 million of debt in the first quarter net debt, which is total debt less cash and cash equivalents was $504 $8 million at the end of the first quarter.
Net debt to trailing 12 months adjusted EBITDA is about two times, which is a dramatic improvement compared to three four times a year ago.
Our current forecast, which is seen visa direct features pipe at no additional acquisitions this year and no equity issuances under our ATM program shows us exiting 2022 with net debt to TTM adjusted EBITDA at below one time.
With the strong balance sheet and a meaningful amount of cash on hand, we will continue to evaluate accretive opportunities that meet our criteria, while systematically paying down debt our revolving credit facility, which was extended until January 2023 during the quarter and our ATM program, which was filed during the quarter and have not been you goodbye.
The additional financial flexibility, if we need it.
As of March 31, 2022, we had available liquidity of $265 5 million comprised of $215 5 million in cash and cash equivalents and 50 million of borrowing availability under our revolving credit facility.
Any of you on the call earlier I senior second lien notes mature in November 2023, and we intend to commence discussions with potential lenders and institutional investors regarding the refinancing of all or a portion of those notes prior to maturity.
We added some additional disclosures in our earnings release yesterday that will help facilitate the discussion.
Looking ahead to the second quarter of 2022, our guidance for production is between $38, one and $42 1000, Boe's per day, which is an increase of approximately 6% quarter over quarter at the midpoint compared with second compared with first quarter actual production.
We also increased our full year production guidance is 38 to 42.2 thousand Boe per day.
Which reflects the benefit of the acquisitions, we have closed so far this year.
Remainder of 2022 we are hedged 28% for oil and we're fully hedged for natural gas. The company also purchased call options with strike prices ranging from $3 to $5 for M. B P. U that cover approximately 88% of its anticipated natural gas production for the remainder of the year. These call options positively offset a significant.
Part of our other natural gas hedges, which youll recall were entered into as part of our mobile Bay transaction with Munich re to provide downside price protection and allow that E&P to capture a substantial amount of natural gas price increases.
Taking into account our recent acquisitions second quarter lease operating expense is expected to be between $59 million and $65 million, while cash G&A costs are expected to be between $13 3 million and $714 7 million.
Yeah.
Our budget for capital expenditures in 2022 remains unchanged at $70 million to $90 million for the full year, which excludes acquisition opportunity.
<unk> is included in this range, our planned drilling completions and long lead cost expenditure related to deepwater and shelf wells as well as capital costs for facilities leasehold seismic and re completion.
Clearly the range for P&A expenditures remain unchanged at $55 million to $75 million you spent about $5 5 million an ear of a settlement in the first quarter of 2022 is.
As a reminder, all of our guidance can be found in yesterday's press release with that I will turn it over to Tracy it yet.
So before I close out the call I would like to talk to you about our ongoing ESG efforts.
Continuing to demonstrate strong commitment to a high quality ESG effort with the current report.
Environmental stewardship sound corporate government and are contributing positively to our employees and the communities, where we work and operate are cornerstones of our culture.
We believe that ESG is not just the responsibility of the board and our executive leadership, but also extends to our employees.
As such we have ESG metrics incorporate it into our incentive plan and we intend to continue with that practice moving forward.
So in closing, we're very pleased with how well we started 2022, both operationally and financially.
That'd be T is well positioned with a meaningful cash position and strong liquidity the current price environment.
Which presents many opportunities for WD, we've generated significant cash flow and EBITDA in quarter, one and expect that to continue throughout 2022, we have a number of organic drilling opportunities like drove the well that we plan to drill in 'twenty to 'twenty two and beyond.
Additionally, we are constantly evaluating the Gulf of Mexico's basketball a S. S four accretive acquisitions within our focus area.
So quickly evaluating and executing on opportunities like amcor is a pillar of our success well well established shop, where he was a premier portfolio of both shallow water and deepwater properties in the Gulf of Mexico that have low decline rates and significant upside. Our success is made possible by executing on our long term strategy, which is centered on maximizing.
Shareholder value.
Our management team's interests are highly aligned with those of our shareholders given our 34% stake indemnities that group, which is one of the highest of any public E&P company.
So as a shareholder I see a bright future for WT and look forward to continued success in 2022 and with that operator, we can now open the lines for questions.
Great. Thank you.
We will now begin the question and answer session.
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Our first question today will come from Michael scalar with Stifel. Please go ahead.
Hey, good morning, everybody.
Interesting.
Even even though it is just a memorandum of understanding at this point just wanted to ask about.
Tracy what do you think it is that motivated qunar to.
Internet in agreement with you are they looking to partner with you on acquisitions in the Gulf of Mexico are they looking to partner with you on that.
Drilling inventory or anything more you can see as to what motivates them to enter this deal.
Yeah, Yeah, we we've been talking to them and we've talked to them in the past we met some of their executive management. We are we had a very good experience with them with regard to the.
<unk> that we purchased through <unk> core, which is our us book.
KNOC.
And it it gradually developed into a.
A good relationship and I think Oh, it's it's good to have a relationship with an international oil company.
And the fact that we've been around for a long time in the Gulf of Mexico in this basin.
We've been around for a long time period.
I think the fact that you have a management team that is highly invested in the shares of the company moving forward I think it gives us a different perspective that we can deliver and and talking to them about technical aspects of things we might do.
They are an international company and they have assets.
Other countries.
And that that has some interest for us as well.
So I just see.
A lot of synergy here with this with this company and and the relationships have been very good. So I think we're very fortunate to have this relationship.
We look forward to seeing how that unfolds.
John you mentioned that the.
Potential to refinance the <unk> the.
The second lien notes.
I know you also.
Also mentioned some.
Referenced is that in the release.
Maybe just any update on how you see that opportunity and anything else you might want to do with the balance sheet given the.
It looks like you are going to go as you mentioned below one times.
That leverage this year.
Anything else you see as an opportunity to do things with the balance sheet. This year.
Sure Yeah, we certainly are looking at refinancing our debt I mean, we do have some time in 2023, but not until November of 2023.
But you know.
Prices are up our financials are strong and so.
We are out there.
We're definitely looking at opportunities to refinance those notes opportunistically.
Again, we're not under the gun.
Right.
And yes, we're very excited about that leverage point down based on recent pricing without kind of any additional acquisitions or just based on our current.
Assumptions going forward without the ATM or anything like that going on at one time. So you know our goal is to delever, but we also realize that there's a lot of good opportunities are of low risk like this angkor mm acquisition and many others like that that are low risk with a lot of cash flow. So we went to also have the dry powder to be able to go out.
There and take advantage of it.
The company and grow them.
But suggested a way so we're kind of balancing that right now.
Very good well it wasn't more related if I could just tag on to that it is there any option to repay the term loan early or is that not part of the Oh no.
Not being considered we certainly can yeah, we certainly can do that as well I think.
It's a good interest rate, we don't we're not necessarily thinking that we will do that but we certainly can.
Very good thank you.
Again to ask a question. Please press Star and then one the next question comes from John White of Roth Capital. Please go ahead.
Good morning, everybody and Oh, John Good morning, Congratulations on the very strong results. It looks like you're firing on all cylinders Angkor looks strong and the production guide.
Favorable.
The the.
The onshore companies are talking about shortage in the oil service sector talking about shortly.
The equipment and personnel.
Are you experiencing that yeah in the Gulf Coast.
Well first thanks John .
Yeah. The short answer is yes, we are we're seeing it more in transportation.
Just about anything at this point and and we see it in personnel.
So.
Personnel.
It's been a little bit problematic in different areas.
Mainly mainly with our boats and and crews for specialty work so.
You know you had COVID-19 you had.
Some some some supply chain issues, but but really it. It's it's I think more of the people who have adjusted in there they're doing other things.
And in May not necessarily be coming back to our business. This is this is not an unusual problem. We've we've certainly had this problem before although for different reasons.
Mainly related to a recessionary issues.
But I I think that Oh, well, we'll we'll motorola through it and generally we see about a nine month lag.
When prices are going down.
And about the same when prices go up.
The market to adjust to our.
Personnel and materials.
We've got some some drilling to do later on this year that we've had to put some long we were Fortunately we've we've done a lot of work on on long lead items. So I think we will still be a good in that.
Particular incidents with our well we plan to drill deepwater later on started later on this year early next year. So.
L O.
And G&A and Capex and G&A are all going to be affected by this so the idea is to control the margins not not just the cost.
The margins EBITDA margins.
Okay. Thanks for that detail I appreciate it and I'll pass it along.
Thank you.
And again, if you would like to ask a question. Please press star and then one.
Yeah.
Our next question is a follow up from Michael <unk> of Stifel. Please go ahead.
Yeah, Tracy you mentioned, the well at Magnolia or around the end of the year or are you still planning the three shelf wells this year and given the tightness that you you mentioned and any sense on timing of those.
Yeah. So Michael this is this is William I'll answer that question for you essentially we are doing it themselves mostly on that is associated with long lead items.
We arent doing platform rigs. So there's things that we have to do in order to prepare to get those rigs on those platforms in order to drill in 2023.
Okay.
William any sense on timing.
Do you think you'll get them all.
None this year.
Now as far as the long lead items, yes, we will be best of a movement. We actually got got it started already we arent spending doll's here those platforms and we feel pretty confident we'll be able to get those for me.
'twenty three because most deals.
Got it okay.
And in terms of the capital spend for this year is that still anticipated to be fairly equally weighted across the year.
Oh, that's great.
We said, we will see a little ramp up once we start drilling on the wholly grill, well that'd be water well.
Later in the year.
Right.
And you.
You'd mentioned you initiated some re completion opportunities.
Tanker assets can you give any sense of the size of the opportunity set there or is that just a couple of wells are.
That's something that could keep you busy for a while.
Maybe.
Please go ahead maam.
It started out with a couple of wells.
And next thing we would add a few more that we're looking at right now is as you as everyone.
I noticed in the industry as prices go up we should give us a quick opportunity to spend capital and see a return and that investment right away. So we're looking not only at anchor but at other opportunities as well with our portfolio.
Good and Tracy you mentioned the LOE came in at the low end of guidance.
I assume the U.
So those anchor assets had a higher L O N E.
Is that something you'd been able to attack.
Yet with those assets or was that just a near our legacy assets, where you were able to lower the L O.
Yes.
We are able to reduce that L O.
We just took over.
Operations officially on May one.
So there was a transition period for those operations effective date of course was different.
But now that we are we have our own boats and helicopters in the area of which we should see positive results with regard to L. O now of course.
The the restraint on that is is inflationary and supply changes in personnel and all that stuff, but but but again, that's why I always tried to focus people on margins. What we tried to do is maintain the margins.
Hum.
As opposed to a specific cost, but right now we're thinking because of our footprint in the area that we should be able to hold line on the other way.
I guess with those assets too as it relates to margins. Thank.
He has had mentioned when you looked at the assets.
You saw an opportunity to maybe improve on some of the contracts there or anything you can.
Say about any work you've done there.
Yeah. We've done this is William again, we leave but we basically took that head on as soon as we got it.
Some of the things that we're looking at right now is definitely on the transportation cost less marketing transportation costs.
With the pipelines were looking at opportunities the more that we can do that.
A fairly short period of time, we are also going out and looking at additional bids.
On on sell in hydrocarbons, and we've seen opportunities to add value there as well. So those are the things that we're looking at as far as quick hits, along with what Tracy mentioned before as far as I'm looking at some of the.
Lowering our cost with the elite side of things.
Got it and then just one last one for me.
I know you have it in kind of your long term plan for a deepwater well at Magnolia.
Is there a.
Any update.
Yes, it would be.
Have to be in conjunction with our I think if you were to us.
Jonas that Youre currently not looking to.
Repay that term loan.
Early but.
Is there even with seven dollar or eat daughter gas prices now any thoughts on maybe accelerating.
Well in that field.
I'm, sorry would you repeat the question Sir.
Got distracted for a moment.
Yes.
Given the given the high gas prices are.
No it looks like.
Yeah, I think you had put in a plan to drill a well there in 2028 kind of when the term loan expired, but is there any thought about with given the high gas prices maybe trying.
Trying to accelerate that.
Oh, yes, absolutely.
$8 gas makes a big difference.
We had a cost prior to this it was a pretty high cost and certainly.
That makes this.
A lot more doable.
With.
$8 gas and.
The issue is of course, we own them.
All of the interest there and there's this is a very expensive well, albeit shallow water.
This is this is a deep high pressure.
Well at a high pressure and high temperature.
And so we will have to get.
Some pretty high pressure equipment as well so that's.
Those are the real strides on that it's not at this point, it's not price.
Okay, and it would be would you need to repay the term loan before you would want to do that or.
Separate.
Not at all it would be a separately okay.
Great.
You guys.
Thanks, Mike.
And ladies and gentlemen at this time, we will conclude our question and answer session I would like to turn the conference back over to Tracy Krumme, Chairman and CEO for closing remarks.
Well, thank you operator.
Again, a very good quarter.
We're happy to.
You see a little bit better pricing regime and.
We look forward to talking to you.
In the near future.
Thank you very much.
The conference has now concluded we thank you for attending today's presentation and you may now disconnect your lines.