Q3 2022 W&T Offshore Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the W. N T offshore third quarter 2022 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 to ask a question. You May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two during.
During the question and answer session. We ask that you limit your questions to one and a single 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 let's turn the conference over to Al Petrie Investor Relations coordinator. Please go ahead.
Thank you Gary and on behalf of the management team I would like to welcome all of you to today's conference call to review Wnet offshore is third quarter 'twenty to 'twenty, two 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 additional information concerning these factors are.
In our earnings release that we.
Issued yesterday as well as our public filings on forms 10-K, 10-Q, and 8-K with the SEC today's call May also contain certain non-GAAP financial measures. Please refer to the earnings release that we issued yesterday for reconciliations of non-GAAP financial measures to our GAAP results with that I would like to turn.
Turn the call over to Tracy Krohn, our chairman and CEO , Thanks, Al and good day to everyone and thank you for joining us for our third quarter 2022 conference call.
So with me today are Janet Yang, our executive VP and Chief Financial Officer.
William Wilford, another executive VP and Chief operating officer.
They're there they're both going to be available to answer questions later during the call.
So we maintained our strong financial results in the third quarter and 'twenty 'twenty. Two is on track to be one of the best years in our long and profitable history.
Our strategy has always been very simple generate free cash flow maintain a high quality conventional production and opportunistically capitalize on accretive opportunities to build shareholder value.
Our ability to execute and maintain strong operational excellence has been a significant driver in our outstanding financial results in 2022 and have continued in the third quarter.
So these are the key accomplish accomplishments we delivered in the quarter.
We maintained solid production at 41, and a half thousand barrels oil equivalent per day at the midpoint of guidance.
We reported net income of $68 2 million or 47 cents per share and generated adjusted EBITDA $113 $9 million in the third quarter.
For the 19th consecutive quarter.
And that includes throughout the Covid and supply chain disruptions and everything we had positive free cash flow in the third quarter. We produced every $1.1 billion of free cash flow.
So both adjusted EBITDA and free cash flow have grown considerably in 2022.
Year to date, we've totaled $497 $6 million and adjusted EBITDA, and 351, and a half million dollars in free cash flow, we increased cash and cash equivalents to 447 warm.
And $47 1 million up 74% from a year ago.
Go hand in hand, with our growth in cash has been a reduction in net debt.
Our net debt is down almost 50% year over year to $254 $3 million as of September 30th 2022.
And our net debt to trailing 12 months adjusted EBITDA continued to improve significantly to 0.5 times or half a turn compared to do it after charge or two and a half times a year ago, which is well below our stated goal of one times by year end.
We've maintained positive momentum with another outstanding quarter. Thanks in no small part to the ability of both our operations of course kudos to our folks off shore.
And finance team to execute at a high level.
In the third quarter, we also experienced sustained higher pricing in.
And our realized price per barrel of oil equivalent before derivative settlements was $68.39.
Down less than 2% from the second quarter.
Our average realized price for oil was $90.23 per barrel for Ngls, we realized 37 and $737.17 per barrel and for natural gas at $9.99 per Mcf.
In each case before derivatives.
Our third quarter production of 41 5000 barrels of oil equivalent per day was down only about 2% from the prior quarter, we had no new wells come online and only spent four and a half million dollars in capex in the third quarter.
The last we experienced minimal sequential production decline, thanks to our conventional asset base and successful work over rig completion program.
The combination of strong production and continued strong pricing.
<unk> and our outstanding adjusted EBITDA and free cash flow numbers.
We've now generated almost half a billion dollars of adjusted EBITDA in the first nine months of 'twenty to 'twenty two.
To put this in perspective for both years 2021 and 'twenty 'twenty combined we generated $383 $7 million of adjusted EBITDA.
Third quarter, almost also marked the 19th consecutive quarter that we've generated that a positive free cash flow.
So our free cash flow in the first nine months of 2022 or 351, and a half million is more than double the free cash flow that we generated in all of 'twenty to 'twenty and 2021 combined.
So we're clearly in a much stronger financial position today, and we remain focused on operational execution to build all these solid results.
Now moving on to operations, we did not drilling new wells during the quarter, but we did perform to re completions and five workovers that positively impact your production in third quarter. We plan to continue to perform additional workovers and re completions in 2022 that can benefit production and pay out quickly.
So because we have no long term rig commitments or near term drilling obligations, we have flexibility to ramp up or deferred capital opportunities.
Whereas we're anticipating timing deferrals related to capital spending and now expect drilling in early 'twenty. Two 'twenty three that was originally expected in late 2022.
As a result, we're reducing our capex range for 'twenty, 'twenty, two but $10 million at the midpoint at the midpoint to between 65 million and $75 million.
Now in regard to future drilling we're currently in the permitting and b processes as well as buying long term and the long lead items rather than in preparation to spud, our Holy Grail, well at Garten bags, seven to 83 and the Magnolia field in the second quarter of 2023.
This is a.
Potentially very large production increased force going into latter part of 'twenty 'twenty three so with low net debt and a meaningful amount of cash on hand, we will continue to evaluate accretive acquisition opportunities that meet our criteria, while systematically paying down debt.
Our net debt decreased by $77 $1 million in the third quarter of 2022 to 200 and fit for $3 million due to the increase in cash and cash equivalents, resulting from strong cash flows throughout the quarter driven by stable production and high oil and natural gas prices.
Now as of September 30th 2022 we had available liquidity of $497 $1 million.
Raj reported $47 1 million in cash and cash equivalents and $50 million of borrowing availability under our revolving credit facility as noted in our release yesterday, we recently amended the credit agreement for four for that facility and an expanded and extended the maturity date and revolver.
<unk> to January three 2024.
So in regard to our second our senior second lien notes due November 2023, we continue to evaluate refinancing options.
Should capital markets remain volatile we're confident that we're we're able to repay these notes prior to maturity out of future expected free cash flows.
Our substantial cash on hand, and $447 million and access to our unused $100 million at the market equity program.
Additionally, we have 50 million in liquidity on our Undrawn credit facility and natural gas calls are currently worth $30 million to $40 million that can be monetized quickly.
Looking ahead to the fourth quarter of 2022 our guidance for production is between 38 to 42000 barrels of oil equivalent per day.
Yeah.
And fourth quarter lease operating expense is expected to be between 67 million and 73 million.
Which includes increased Workover and facility expense activity cash G&A costs are expected to be between 17 million and $19 million Halloween and G&A cost estimated for the fourth quarter reflect reflect some of the same cost inflation. That's the entire industry has faced.
So our budget for capital expenditures in 2022 as yours was reduced to 65 million to 75 million for the full year, which excludes acquisition opportunities.
Included in this range of costs already incurred the wells drilled earlier this year and planned fourth quarter expenditures related to long lead items for our Holy Grail, well as well as capital cost for yourself for facilities leasehold seismic and re completions.
The reduction in our capital expenditures budget for 2022 is primarily related to receiving the permit for a riser for the Holy Grail, well later than we had previously anticipated and.
In regard to a aro expenditures given the spending incurred today, including 21 and a half million dollars in third quarter, we adjusted our range for P&I expenditures to between $65 million and $75 million.
Hindering to actively address our abandonment requirements is an important part of our ESG focus and leads to greater long term sustainability.
Minder, our all of our guidance can be found in yesterday's press release.
So in closing 2022 has been an outstanding year for us operationally and financially.
As you can see we are poised for continued success in this strong commodity price environment with stable production that we expect to support our positive outlook on continuing to generate free cash flow.
We've generated record free cash flow and adjusted EBITDA, thus far in 'twenty two.
And we expect a continued growth in the fourth quarter.
Our substantial cash position of $447 $1 million ability to generate free cash flow from operations and access to an additional $150 million to $200 million liquidity via our I'm drawn or B L. ATM equity sales program and monetization of long calls provide clear line of sight.
To either eliminate or refinance our decreasing debt position.
Our strong financial position provides us with Optionality and flexibility moving forward, we'll continue to evaluate growth opportunities both organically and inorganically.
And we're poised to execute on accretive opportunities that meet our long standing and proven criteria, while continuing to prudently manage our balance sheet.
We believe the Gulf of Mexico is and will continue to be a world class basin with strong producing assets.
Leveraging our nearly four decades of experience in the Gulf of Mexico to quickly evaluate and execute on opportunities within our focus area. There's always been a key pillar of our success.
We have a premier portfolio of both shallow water and deepwater properties in the Gulf of Mexico that have low decline rates and significant upside.
<unk> team's interests are highly aligned with those of our shareholders given our 34% stake in Wg's equity, which is one of the highest of any public E&P company.
So as a shareholder I'm excited about the right future for Debbie and team and look forward to continued success in 2020 two and beyond.
With that operator, we can now open the lines for questions.
Operator did you hear did you copy that.
Pardon me, we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad. If you were using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two please limit your questions to one and a single follow up at this.
Time, we will pause momentarily to assemble our roster.
Our first question is from John White with Roth Capital. Please go ahead.
Good morning, and congratulations on a very fine quarter.
Sean.
On the Capex reduction are the minor capex reduction is is that related to the lack of availability of oilfield services.
Service equipment, you had mentioned the Reits or sort of the Holy Grail.
No, it's really more associated with with the permitting.
We we we made a pretty good effort to to acquire long lead items.
The the riser itself is is where we wanted to focus in and had some concerns and and and and and Betsy and and examining it took a very methodical approach to it.
I can't disagree with with you know the way they've they've worked to.
To make this a as safe as possible and of course, we have the same go I think that are that we have a very in depth understanding of of what we need to do and and we're talking about a dry hole trees on a floating facility.
And single Barrett what are called single barrier risers are there that are were already in place before new regulations. So we want to make sure theyre right in and Betsy wants to make sure theyre right as well, but but but we're doing relatively well on the on the on the longer lead items. There there have been some delays.
But but not really more delays in that that would have a affected are being able to put a rig on location, where we're in that phase now working with Betsy to.
<unk> had the permits are completely buttoned up and in and start putting the rig on location.
Thanks for that detail.
Oh back out a Holy Grail, what's your working interest there.
100%.
Yeah.
Fantastic and then to the northeast.
The one S T 320 S as number one.
Your slide show that scheduled for fourth quarter 'twenty 'twenty, three how's that have that kind of thing.
Or we're going to compare that with our with our available set of opportunities as we go through the year.
And and see where that ends up.
At the end of the program with regard to the other commitments we made for drilling.
Yeah.
Okay are you.
I followed the company are covered the company for a number of years that you've never seen.
Never seen you in a stronger financial position so congratulations again.
Thanks, John and thank you very much I'll pass it back.
The next question is from Derrick Whitfield with Stifel. Please go ahead.
Good morning, all and thanks for taking my questions.
Thank you Sir.
With respect to Q4 guidance could you offer some color on the unplanned unplanned downtime at the Neptune build and temporary maintenance downtime at mobile Bay film and if that is yet to be written all before Q1.
Yeah sure we're down about 1500 barrels oil per day at the midpoint and again. This is planned downtime at our excuse me unplanned downtime at the outside operated Neptune field, there's a a blockage in one of the risers there are they're trying.
To generate a.
A work plan to to overcome that and Theyre, having some some success at doing that it's just taken longer than anybody would want to.
Wanted to take.
Temporary maintenance downtime at mobile Bay was was was a pipeline related that's a that's been resolved and the lake repaired and clamped off so we didn't see that as a continuing type of operation.
So that's that's really primarily the the causes there.
Terrific and with regard to the slight delay with the Holy Grail, well it sounds as though that's primarily attributed to the regulatory side with that do you guys. Do you guys have any sorry about that you guys have any concerns and advancing departmental or was it simply just taking longer to process.
No we're not thinking that we have concerns with advancing at a the process is taking longer are we we've actually got a permit approval subject to certain conditions, which we need to satisfy our before we start drilling a well so I'm not concerned about the the efficacy of the.
Permitting.
At this point.
I'm really Oh, we're ready to get started there there's not a.
No too much that we need to do to prep the platform in and to be putting the rig onsite.
That's helpful. Thanks for your time sure. Thank you.
Again, if you have a question. Please press Star then one.
The next question is from Jeff Robertson with water Tower Research. Please go ahead.
Thank you Tracy from a conceptual standpoint can you talk about how you think about liquidity in 2023.
With respect to refinancing the second lien notes you added $70 million in cash to the balance sheet in the third quarter.
W. T is positioned to generate a lot of free cash flow in 2023, but as you look at those notes in the balance sheet and opportunities in the capital program and also perhaps in the acquisition market.
Do you think about positioning the company to with enough dry powder to take advantage of opportunities next year.
Oh, that's a great question Geoff Thank you.
We're fortunate to be or not necessarily fortunate we planned pretty hard.
To make sure that we were able to to.
To repay these are these notes we we we've been fortunate and that are that we made some good choices with with regard to how to hedge this in and give us protection.
We picked up another $150 million or so as a result of that.
And now what was arguably a trade for a four for protective personal purposes, but it just turned out to be very successful on the the long gas calls.
With regard to the refi.
You know we're in the enviable position of of knowing that we can refi is not it's not a matter of a matter of whether we can refi. We we certainly can markets had been an influx here lately.
With with the increases in interest rates.
And our bondholders are being somewhat hesitant in the stock market being affected by the fed speak if if you will so so we're being patient here and thinking that that we know we could refi are worse, but not a worst case, but one one potential is.
But that we just hang tight and we repay the debt overtime.
And then the next one is are we we reload a somewhat too to handle any any acquisitions that might come up.
And so we're fortunately blessed with the.
With the Optionality.
And that's that's the best I can say about that is that is not oh that is not a simple feat and my my kudos to our team for making that possible.
Good to be in a position where you can do something and you don't have to do it.
Yeah.
Yeah.
I think the balance sheet appears to give you all better terms to dictate what happens as opposed to being subject to the market our market forces.
At mahogany that Holy Grail can you can you share an estimate of what that well will cost.
Yeah. They are.
The current estimates are around 80.
Drilling and completion.
And if it's spuds in the second quarter I think you said that you should you would expect it to be on in the second half of 2022 'twenty three is that correct yes.
Yes, Sir.
Well my fourth quarter, probably fourth quarter.
Okay. Thank you.
Yeah sure. Thank you.
The next question is a follow up from Derrick Whitfield of Stifel. Please go ahead.
Yeah, Hey, guys. Just one quick follow up question and really more of a build on Jeff's question I wanted to ask if you could speak to the A&D environment and in the gum at pregnant and similar to onshore are you guys seeing greater deal flow as a result of relatively strong commodity prices and a less certain economic backdrop.
Yes, I can say that I think what we have seen is greater volatility and pricing in markets.
And I think that affects everybody has thought process about how they're going to proceed with these things.
Yeah.
I've always told everyone that we make acquisitions and high pricing environments and low pricing environment.
Very often we see higher pricing environments lead to better execution on the acquisitions are Fortunately since.
Uh huh.
Nearly 25 30 years now we've had the availability of of our being able to do hedging to to help protect to protect some of those acquisitions are normally when we make a larger acquisition. We are we have some debt, but we also attached to it.
A piece of equity to it.
So with that we're very cognizant of.
Acquisitions, and making sure that they are accretive.
So so anything that we would do would be certainly accretive to our R. R.
Our our balance sheet and that we would also seek to protect our leverage ratios.
Yeah.
Terrific Thanks for color.
Yes, Sir thank you.
Showing no further questions. This concludes our question and answer session I would like to turn the conference back over to Tracy Krohn for any closing remarks.
I think it's been a very good quarter for us I'm looking forward to the rest of the year and in the years after that I like the way the company looks right now with our with our balance sheet and feels good to be in a position where you can pay off all the debt as well or carry at a further into the few.
Two with a with a modest amount of debt and leverage.
By making accretive acquisitions, we were very pleased to be where we are again. This is reflective of our of our operational and financial teams to make this happen.
So I'm I'm, just a very very delighted to be still here and are making this company stronger and nobody desert by themselves. So my my.
Sincere appreciation to our teams for getting that done so with that we will talk to you again soon.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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