W&T Offshore Inc. Q1 2023 Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the W. E T offshore first quarter 2023 conference call.
During today's call all parties will be in a listen only mode. Following the company's prepared remarks, the call will be open for questions and answers.
During the question and answer session. We ask you please limit yourselves to one and a follow up you can always rejoin the question queue.
The conference is being recorded and a replay will be made available on the company's website following the call.
Now I'd like to turn the conference call over to Al Petrie Investor Relations coordinator.
Thank you Jamie and on behalf of the management team I'd like to welcome all of you to today's conference call to review WT offshore its first quarter 2023 financial and operational results before.
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 measure.
Please refer to the earnings release that we issued yesterday or just go toward disclosures on forward looking statements and reconciliation of non-GAAP measures.
I'd like to turn the call over to Tracy Krohn, our chairman and CEO .
Thanks Al Good day to everyone and thank you for joining us this morning.
With me today are Janet Yang, our executive VP, and Chief Financial Officer, William Williford, Our executive VP, and Chief operating Officer, and Troy Hartman, Our Chief Accounting Officer, who will also serve as interim CFO as we search for Genesis successor are they're all available to answer questions later during the call.
So we began 2023 by redeeming all of our outstanding 2023, second lien notes and issuing new 2026 second lien notes.
Significantly, reducing our debt and interest payments moving forward, while strengthening our balance sheet and moving forward our debt maturities.
Also delivered another quarter of free cash flow generation and strong adjusted EBITDA generation.
Our strategy has always been simple generate free cash flow, maintaining a high quality conventional production and opportunistically capitalize on accretive opportunities to build shareholder value.
Over the years, we have seamlessly integrated producing property acquisitions, while maintaining strong operational excellence and we plan to continue to do so adding tonight.
I'd like to point out some key highlights and accomplishments for the first quarter.
We reported net income of $26 million or <unk> 17 cents per diluted share and generated solid adjusted EBITDA of $43 $1 million.
We have generated positive free cash flow for 21 consecutive quarters and in Q1 2023, we produced $12 4 million of free cash flow. Despite a downturn in both oil and natural gas pricing.
We reported production of 32500 barrels of oil equivalent per day.
Production was temporarily diminished by planned facility and pipeline maintenance projects at mobile Bay and by unplanned downtime at other non operated fields.
As I mentioned earlier in January .
We we pull right.
We fully paid off the remaining 552.5 million principal outstanding of our 2023 second lien notes and issued $275 million in 2026 second lien notes.
This benefits us moving forward as it reduces annual interest payments by about $22 million.
And eliminates any near term maturities in our capital structure.
So we use some of our cash along with the proceeds from new notes to redeem the prior notes.
And still ended the first quarter with cash and cash equivalents of $177 $4 million.
So this decreased our overall net debt to $225 $9 million at March 31, 2023.
Our net debt to trailing 12 months adjusted EBITDA continued to improve significantly to 0.4 times compared to two and a half times, yet a year ago.
Which is well below our stated goal of less than one times.
So we're clearly adhere to our strategy and delivered a sustainable and consistent results.
I believe that our continued success is driven by the ability of both our operations and finance teams to execute at a high level and our outstanding asset best in the Gulf asset base in the Gulf of Mexico helps a great deal with that.
So again, the first quarter of 2023, Mark the twenty-first two secs reported that we've generated free cash flow through record low prices and the changing geopolitical and economic conditions. We have continued to deliver free cash flow.
Coupled with our ability to pay down debt and improve our balance sheet. We're clearly in a much stronger financial position today and we remain focused on operational execution in 'twenty to 'twenty three to continue building on our <unk>.
Outstanding results.
The last call we discussed that in the first quarter 'twenty to 'twenty three we would have planned periodic facility and pipeline maintenance projects underway at mobile Bay field that have required us to temporarily shut in the field. These activities shut in production at the mobile Bay field for 35 days compared to 25 days that we estimated in the.
The guidance range provided for the first quarter 'twenty 'twenty story.
We also experienced unplanned downtime at some non operated fields that also temporarily reduced our production volumes in the first quarter.
These two events contributed to the lower Q1, 'twenty two 'twenty three production levels, but most of the non operated fields were shut in are now back online and the maintenance project at mobile Bay was completed.
Despite the overall the local overall our production our Q1 2023 oil production of a million 350000 barrels for the quarter was above our guidance range total company production has mostly recovered and we're currently averaging approximately 38 1000 barrels oil equivalent per day.
The recovery in our production numbers or not.
Q2, 'twenty to 'twenty three production guidance.
Back to the midpoint at about 37000 barrels of oil equivalent per day.
We haven't changed our full year 'twenty three.
Our guidance.
We have focused on acquisitions over the last few years rather than on drilling many new wells are.
Our guidance reflects the low natural decline of our asset base compared with much higher declines in the unconventional onshore reservoirs.
So on the cost side, we continue to see inflationary pressures in the industry, but our first quarter results were encouraging as we were below the midpoint of guidance and for import about 4.4, 0.0% actually.
For 2022.
We remain focused on cost control and margin expansion and despite the inflationary environment. We're in.
For the second quarter, our guidance for lease operating expense is expected to be between 63 and $70 million.
We continue to control our G&A costs in the first quarter cash G&A costs were are within our guidance range at $18 million.
For the second quarter, we're expecting cash G&A to be between 16.5, and $18 5 million assessed the trend is downward.
So we will continue to manage controllable costs to help maximize our margins.
During the first quarter of 'twenty to 'twenty, three we reduced total debt by almost $300 million from year end 2022.
At the end of the first quarter, we had net debt of $225 $9 million, which was total bad at $403 $3 million net of cash and cash equivalents of $177 $4 million at the same time last year net debt was $548 million so huge reduction from them.
So that's net.
So that's not not our first rodeo and although we have opted to pay down all 552 million in the previous second loan second lien notes instead, we paid down 50% of the previous second lien notes and maintained significant cash liquidity.
Current opinion is that we're glad we did.
So as I mentioned previously the large reduction in total debt was driven by issuing 20 twenty-six second lien senior second lien notes at par totaling $2 75 million in a private offering and using the proceeds along with a portion of our considerable cash position to retire all of those 'twenty to 'twenty three senior second lien notes.
So we continue to have the flexibility and dry powder to make additional acquisitions drill our current prospects and continue to build cash all while further paying down debt.
Because we have no long term rig commitments or near term drilling obligations, you have flexibility to ramp up or deferred capital opportunities last year, we focused on reducing net debt and invested $41 6 million in capital expenditures and 51 and a half million in acquisitions.
Q1, 2023 we spent $7 4 million in Capex and continue to anticipate our capex range for 'twenty to 'twenty three to be between 90 and $110 million.
This range of planned capital expenditures are related to long lead items. Finally in engineering design for a Holy Grail prospect that Magnolia as well as three shelf wells that Oh, well considering drilling a little later on in capital cost with facilities leasehold seismic and re completions.
As always we will monitor commodity prices through the year and adjust our spending plans accordingly.
With a modest capital range in 2020, three we expect to generate meaningful free cash flow.
Which.
I had just flexibility to quickly execute on accretive opportunities.
As a as they arise.
Before I close the call I'd like to provide some more information about ongoing ESG efforts.
Environmental stewardship sound corporate governance, and contributing positively to our employees and the communities, where we work and operate our Carter the cornerstones of our culture.
Yes, G. Metrix are incorporated into our 2021 short term incentive plan and we're continuing that practice moving forward as reflected in our 'twenty to 'twenty three definitive proxy statement, we recently filed.
We've made a concerted effort in addressing shareholder concerns and improving our ESG metrics.
Last week, we announced the addition of New Board member Dr. Nancy Chang boost.
It was highly successful career in broad based experience will bring a new voice and unique perspective to our board. He is also the chair of our environmental safety and governance Committee that oversees our ESG efforts. We believe the doctrine Shang will help guide our continuous improvement and assist us in our commitment and our commitment to the highest standards of ESG and corporate.
Governance, Nancy has a world class scientists and problem solver successful business and brings a unique perspective to our business as she did to the Federal Reserve Board hearing.
Yeah.
So in closing, we're very pleased with how well we've started 223, both operationally and financially.
Like to thank our strong team at Devon date is I believe we are well positioned for continued success in 2023 and beyond.
Our strong financial position, which was which was enhanced with our net significant debt reduction and debt maturity extension, our remaining debt from 'twenty to 'twenty three 'twenty 'twenty six.
Just with Optionality and flexibility moving forward, our liquidity and cash position enables us to 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. We believe the Gulf of Mexico is and will continue to be a world class basin with strong producing assets.
Oh quickly evaluating and executing on opportunities within our.
Focus area is a 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.
So our management our management team's interests are very highly aligned with those of our shareholders given our 34% stake in diabetes equity, which is one of the highest of any public E&P company.
And as a shareholder I continue to be enthralled about diabetes bright future in 'twenty, two 'twenty three and beyond operator, we can we can open the lines for questions.
Ladies and gentlemen at this time well begin the question and answer session.
To ask a question you May press Star and then one on your Touchtone telephone.
You are using a speaker phone we ask you. Please pick up the handset prior to pressing the keys to ensure the best sound quality.
To withdraw your question you May press Star two.
That is star then one.
Ask a question at this time, we will pause momentarily to assemble the roster.
Our first question today comes from.
John White from Roth and can please go ahead with your question.
Thank you operator, and good morning, everybody.
Good morning, John .
Maybe getting a little ahead of things here, but.
Let's assume.
If we get into.
Oh August or September and you Havent found a deal.
And you're not.
In the midst of working on a on a promising deal.
Would that be a point in time, where you might pick up our drilling activity throughout the latter part of 'twenty to 'twenty three.
That's a possibility yes sir.
Okay and you've previously.
<unk> made no secret, we're very active looking for acquisitions.
Can you characterize.
The predominant our sellers is it.
The major oil companies selling noncore assets or is it.
Private equity backed E&P companies, where where do you see the most activity.
Yeah, it's all of the above and there will also be a probably a.
Some some some others will present themselves in the interim.
Fortunately, our what we did was we opted to boost our liquidity.
And in anticipation of these kind of opportunities we had the opportunity to go ahead and.
Pay out all of our debt I, but that would have been at the risk of a much greater liquidity. So so oh.
The decision was made that that liquidity would be a good thing and I think that was the right call.
Well.
You are certainly prepared for dealmaking and you'd have a successful history of that so we will stay tuned and I will pass it back to the operator.
Thank you Sir.
And our next question comes from Derrick Whitfield from Stifel. Please go ahead with your question.
Good morning, and thanks for taking my questions.
Thank you.
Tracy I wanted to focus on guidance with my first question in light of the Q2 guide and your stance on reiterating 'twenty 'twenty sneak out is despite unplanned downtime and packs in Q1 wanted to ask if you could speak to the trajectory you're expecting for Q3 and Q4 and if there are any material planned maintenance impacts in those quarters.
Well, let me let me address the maintenance first no. We are we had some some issues at mobile bay with where they are certain contact power in.
It had a little more corrosion than we had anticipated.
No until you open these things up and inspect them.
This was a hydrogen sulfide Amy contactor so.
It was.
It was it was very important for us to get this right we have little ice two as production in that field. So we wanted to make sure that we had this repair the last time it was taken down versus 10 years ago. So we want to make sure it wasn't taken down anytime in the near future.
So as far as ramping up in Q3 and Q4, yeah. That's that's kind of the expectation.
I think that what we haven't addressed here theres a lot of other fields that we have interest in that or that are non operated as well that we would we would hopefully see some increases in production there, it's a little bit hard to classify that.
As you know quantitatively.
But the overall feeling is that yeah that that could help us as well.
Terrific and then with regard to carbon capture market I wanted to circle back to your remarks in Q4 now.
Now that you've had more time to launch your efforts.
Can you perhaps speak to how your thoughts are evolving on the bowls that you'd like to pursue with the Ccs business.
Sure. We of course, we've been keeping abreast of this I'm looking at it for a long time, we have numerous reservoirs in our portfolio of saltwater reservoirs. They can accommodate this kind of injection.
Both onshore and offshore.
So we're relatively confident that this will be a part of our portfolio in the future I don't intend to spend a great deal of money. The most of the research and.
After it will be the first.
But from the flu stack.
So that's where most of the technology is going to be and then there will be adjustments made as to how.
That is done by people, whose whose expertise is far greater than ours.
We expect to be.
No. We don't expect that W. E T as a net zero company.
We buy properties from some other companies and in the Gulf of Mexico.
And we take those properties and we produce them out for a long period of time longer than they probably would have been produced without creating an additional carbon footprint.
Massive amounts of drilling now.
Cracking flaring that sort of thing so we come in we come into a the idea of thinking that that are we will be more of a follower than a leader in that business.
Perfect. Thanks for your time and responses.
Thank you Sir.
Once again, if he would like to ask a question May Press Star and then one to withdraw your question you May Press Star two.
Our next question comes from Jeff Robertson from Water Tower Research. Please go ahead with your question.
Thank you good morning, Tracey can you talk about how the language that you picked up can.
Can you talk about how the leases you picked up in the most recent lease sale fit into the asset base and maybe your plans not necessarily this year, but.
'twenty 'twenty four 'twenty five.
Yeah. Unfortunately, Jeff that's a very good question, we haven't been awarded those leases yet.
So while we were a high bidder, we haven't been awarded the leases. So it's a little premature for me to talk about that I'll I'll I'll be happy to talk about it as soon as they are awarded.
Just do you have a feel on how long it might take the OEM to process the bids and award leases from the sale.
Yes, or that they normally process that within about 90 days of the lease sale itself.
So we're in the next probably 45 to 60 days, we should have a good idea about what theyre going to do.
And in terms of backyard, yeah, I apologize for not being able to elaborate on that I, just think that it would be premature to do so.
Okay.
In terms of acquisitions Tracy with the with the balance sheet liquidity that you have can you just talk about how you think about financing acquisitions.
Between cash and obviously, depending on the size how much that you'd want to use.
Sure.
And larger transactions.
And <unk>.
Depends on how you define large.
But let's say it was a billion dollar transaction, we would we would lever up a little bit and then we would probably you should probably expect to see.
And when I say lever up that we would expect to see that as a temporary.
Leverage up that would be paying down quickly.
And then we would probably sell off little piece of equity as well.
So obviously in keeping with your past you would target assets generate significant amount of cash flow.
Oh, Yeah. Yeah. That's this is the company doesn't change its a its policies over time, Oh that worked so yeah generated cash flow. It was quite a central for us levering up a we want to stay within a pretty known balance of leverage right now it's usually around one we would probably.
Go a little bit higher than that to you accommodate that acquisition.
Then temper that with with the sell off but a bit of equity.
Thank you.
Thank you Sir.
And ladies and gentlemen at this point in showing no additional questions I'd like to turn the floor back over to Tracy Krohn, Chairman and CFO for closing remarks.
Well. Thank you very much operator, one other little minor minor one of them.
I'll detail, but I'd like to do is oh like to publicly thank Janet Yang for her service to the company as our CFO and even before that.
Janet as opted to to move out of the city and go somewhere else in the other state actually to wholesale.
So it would take.
Some family things that she needs to deal with and her family.
It's an opportunity for them.
Going forward well.
Were very sad.
To see that she's leaving.
I you know I I wish it was another way, but but but I wish you well Oh company wishes you well, we're going to Miss her and Oh, we hope that everything.
Comes out 100% for her.
Thank you very much.
Yes.
Ladies and gentlemen, with that we'll conclude today's call.
For the call. We thank you for attending today's presentation. You may now disconnect your lines.
Thank you.