Key highlights for the third quarter of 2023 include:
- Maintained strong production of 35.9 thousand barrels of oil equivalent per day (“MBoe/d”) (48% liquids), or 3.3 million barrels of oil equivalent (“MMBoe”);
- Production was above the midpoint of guidance and, coupled with improved commodity pricing, drove increases in Net Income and Adjusted EBITDA compared to the second quarter of 2023;
- Reported net income of
$2.1 million , or$0.01 per diluted share;- Adjusted Net Income totaled
$1.8 million , or$0.01 per share, which excludes the net unrealized gain on outstanding derivative contracts, non-ARO plugging and abandonment (“P&A”) costs and non-recurring costs related to IT services transition;
- Adjusted Net Income totaled
- Increased Adjusted EBITDA by 45% to
$56.3 million compared with$38.8 million in the second quarter of 2023; - Produced net cash from operating activities of
$30.0 million and Free Cash Flow of$25.4 million , the 23rd consecutive quarter of positive Free Cash Flow;- Continued the amortization of the non-recourse
Mobile Bay term loan and repaid an additional$7.1 million ;
- Continued the amortization of the non-recourse
- Completed accretive acquisition of producing properties in the
Gulf of Mexico (“GOM”) onSeptember 20, 2023 for$28.9 million , using cash on hand. The properties included approximately 3.1 MMBoe (49% oil) of proved developed reserves, which equates to a purchase price of less than$10 per barrel of oil equivalent; - Maintained cash and cash equivalents of
$149.0 million atSeptember 30, 2023 ; - Reported Net Debt of
$248.2 million as ofSeptember 30, 2023 , compared with Net Debt of$254.3 million a year ago; - Continued to maintain a low leverage profile with Net Debt to trailing twelve months (“TTM”) Adjusted EBITDA of 1.2 times;
- Added significant depth and breadth to the Company’s leadership team with the appointment of
Sameer Parasnis as Executive Vice President and Chief Financial Officer, promotion of Ford Peters to Vice President of Land and addition ofJohn Poole as Vice President Health, Safety, Environmental and Regulatory (“HSE&R”); and - Continued commitment to sustainability by publishing the 2022 Corporate Environmental, Social and Governance (“ESG”) report.
Production, Prices, and Revenue: Production for the third quarter of 2023 was 35.9 MBoe/d, which was above the midpoint of the Company’s guidance range provided for the quarter. This represented a 3% decrease from 37.0 Mboe/d for the second quarter of 2023 and a decrease of 13% from 41.5 MBoe/d for the corresponding period in 2022. The small decrease in production compared to the second quarter of 2023 was primarily driven by natural decline, which was partially offset by production optimization and workovers. Third quarter 2023 production was comprised of 13.3 MBbl/d of oil (37%), 3.8 MBbl/d of natural gas liquids (“NGLs”) (11%), and 112.6 million cubic feet per day (“MMcf/d”) of natural gas (52%).
W&T’s average realized price per barrel of oil equivalent (“Boe”) before realized derivative settlements was
Revenues for the third quarter of 2023 were
Lease Operating Expense: Lease operating expense (“LOE”), which includes base lease operating expenses, insurance premiums, workovers and facilities maintenance, was
Gathering, Transportation Costs, and Production Taxes: Gathering, transportation costs and production taxes totaled
Depreciation, Depletion, Amortization and Accretion (“DD&A”): DD&A, including accretion expense related to asset retirement obligations (“ARO”), was
General & Administrative Expenses (“G&A”): G&A was
Derivative (Gain) Loss: In the third quarter of 2023, W&T recorded a net gain of
In the fourth quarter of 2023, W&T has 71.7 MMcf/d hedged for natural gas and no existing hedges for oil. A significant portion of W&T’s natural gas hedges, in the form of sold swaps and purchased calls and puts, were entered into in conjunction with the non-recourse
A summary of the Company’s outstanding derivative positions is provided on W&T’s website in the “Investors” section under the “Financial Information” tab.
Interest Expense: Net interest expense in the third quarter of 2023 was
Other (Income) Expense, net: During 2021 and 2022, as a result of the declaration of bankruptcy by a third party that is the indirect successor in title to certain offshore interests that were previously divested by the Company, W&T recorded a contingent loss accrual related to anticipated decommissioning obligations. During the third quarter of 2023, the Company reassessed the existing decommissioning obligations, recording an additional
Income Tax: W&T recognized income tax expense of
Balance Sheet and Liquidity: As of
Capital Expenditures and Acquisitions: Capital expenditures (excluding acquisitions and changes in working capital associated with investing activities) in the third quarter of 2023 were
OPERATIONS UPDATE
Front-end Engineering and Design and permitting processes are underway on the Holy Grail well at Garden Banks 783 in the Magnolia Field.
Well Recompletions and Workovers
During the third quarter of 2023, the Company performed six workovers that positively impacted production for the quarter. W&T plans to continue performing these low cost, short payout operations that impact both production and revenue.
Accretive Acquisition of
On
- Provides additional producing properties located within W&T’s existing area of operations in water depths ranging from 25 to 265 feet;
- High average working interest of around 72%;
- Adds proved reserves of 3.1 MMBoe (49% oil) – 100% of the reserves are proved developed;
- Based on cash consideration paid of
$28.9 million this equates to less than$10 per Boe; and - Accretive gross purchase price multiple of approximately 1.0x last twelve months cash flows as of the effective date and production multiple of approximately
$13,500 per barrel of oil equivalent per day (based on production as ofSeptember 12 , 2023).
Additions to Senior Management
In
In
In early
Issued 2022 Corporate ESG Report
The 2022 ESG report provides detailed information about W&T’s ESG initiatives and provides important performance data for the four-year period from 2019 through 2022. The Company consulted the Sustainability Accounting Standards Board’s (“SASB”) Oil and Gas Exploration and Production Sustainability Accounting Standard, the Global Reporting Initiative’s (“GRI”) standard for the oil and gas sector, and other reporting guidance from industry frameworks and standards in the preparation of the report. The report is available on W&T’s website at www.wtoffshore.com/corporate-responsibility.
Highlights of the report include:
- Decreased total Scope 1 GHG emissions 20% from over 435,000 metric tons of CO2-e in 2019 to 350,000 metric tons of CO2-e in 2022;
- Decreased onshore facilities air emissions significantly from 2019 to 2022, particularly a 54% reduction in SOx emissions;
- Implemented new procedures to estimate and track all waste that is recycled, injected, or sent to landfills;
- Enacted additional substantive changes to compensation programs based on feedback from our shareholders, affirming our commitment to say on pay and performance alignment over the long-term;
- Established an ESG Committee, which will assist in setting the Company’s general strategy relating to ESG matters and in developing, implementing, and monitoring initiatives and policies based on that strategy; and
- Increased the Board of Directors to five members with Dr.
Nancy Chang , the new chair of the ESG Committee, expanding the size and diversity of the Board.
Fourth Quarter and Full Year 2023 Production and Expense Guidance
The guidance for the fourth quarter and full year 2023 in the table below represents the Company’s current expectations. Please refer to the section entitled “Forward-Looking and Cautionary Statements” below for risk factors that could impact guidance.
Production | Fourth Quarter 2023 | Full Year 2023 |
Oil (MBbl) | 1,200 – 1,320 | 4,750 – 5,250 |
NGLs (MBbl) | 330 – 370 | 1,350 – 1,480 |
Natural gas (MMcf) | 9,700 – 10,750 | 36,300 – 40,200 |
Total equivalents (MBoe) | 3,147 – 3,482 | 12,150 – 13,430 |
Average daily equivalents (MBoe/d) | 34 – 38 | 33 – 37 |
Expenses | Fourth Quarter 2023 | Full Year 2023 |
Lease operating expense ($MM) | ||
Gathering, transportation & production taxes ($MM) | ||
General & administrative - cash ($MM) | ||
General & administrative – non-cash ($MM) | ||
DD&A ($ per Boe) | ||
W&T expects substantially all taxes in 2023 to be deferred.
Conference Call Information: W&T will hold a conference call to discuss its financial and operational results on
About
Forward-Looking and Cautionary Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements, including but not limited to, any forward-looking guidance provided herein, reflect our current views with respect to future events, based on what we believe are reasonable estimates and assumptions. No assurance can be given, however, that these events will occur or that our estimates will be correct. These statements are subject to risks and uncertainties that could cause actual results to differ materially including, among other things, market conditions, commodity price volatility, uncertainties inherent in oil and gas production operations and estimating reserves, uncertainties of the timing and impact of bringing new wells online and repairing and restoring infrastructure due to hurricane damage, the ability to achieve leverage targets, unexpected future capital expenditures, competition, the success of our risk management activities, governmental regulations, uncertainties and other factors described or referenced in W&T’s Annual Report on Form 10-K for the year ended
Condensed Consolidated Statements of Operations | ||||||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||
2023 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||
Revenues: | ||||||||||||||||||||
Oil | $ | 100,331 | $ | 89,982 | $ | 130,560 | $ | 287,313 | $ | 412,526 | ||||||||||
NGLs | 7,415 | 10,385 | 16,875 | 25,595 | 47,430 | |||||||||||||||
Natural gas | 32,515 | 23,438 | 113,673 | 80,757 | 257,452 | |||||||||||||||
Other | 2,150 | 2,376 | 5,377 | 6,651 | 13,889 | |||||||||||||||
Total revenues | 142,411 | 126,181 | 266,485 | 400,316 | 731,297 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Lease operating expenses | 61,826 | 66,021 | 59,010 | 193,033 | 155,397 | |||||||||||||||
Gathering, transportation and production taxes | 6,692 | 6,802 | 12,199 | 19,630 | 26,647 | |||||||||||||||
Depreciation, depletion, amortization and accretion | 36,632 | 35,894 | 34,113 | 102,660 | 99,384 | |||||||||||||||
General and administrative expenses | 19,978 | 17,393 | 23,047 | 57,290 | 51,790 | |||||||||||||||
Total operating expenses | 125,128 | 126,110 | 128,369 | 372,613 | 333,218 | |||||||||||||||
Operating income | 17,283 | 71 | 138,116 | 27,703 | 398,079 | |||||||||||||||
Interest expense, net | 9,925 | 10,323 | 16,849 | 34,960 | 54,915 | |||||||||||||||
Derivative (gain) loss, net | (1,491 | ) | (829 | ) | 38,749 | (41,560 | ) | 109,892 | ||||||||||||
Other expense (income) , net | 1,927 | (311 | ) | (600 | ) | 1,849 | (1,229 | ) | ||||||||||||
Income (loss) before income taxes | 6,922 | (9,112 | ) | 83,118 | 32,454 | 234,501 | ||||||||||||||
Income tax expense | 4,777 | 2,997 | 16,397 | 16,413 | 46,801 | |||||||||||||||
Net income (loss) | $ | 2,145 | $ | (12,109 | ) | $ | 66,721 | $ | 16,041 | $ | 187,700 | |||||||||
Basic | $ | 0.01 | $ | (0.08 | ) | $ | 0.46 | $ | 0.11 | $ | 1.30 | |||||||||
Diluted | 0.01 | (0.08 | ) | 0.46 | 0.11 | 1.30 | ||||||||||||||
Weighted average common shares outstanding | ||||||||||||||||||||
Basic | 146,483 | 146,452 | 143,116 | 146,451 | 143,026 | |||||||||||||||
Diluted | 151,459 | 146,452 | 145,882 | 149,856 | 144,696 | |||||||||||||||
Condensed Operating Data | ||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||
2023 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||
Net sales volumes: | ||||||||||||||||||||
Oil (MBbls) | 1,227 | 1,254 | 1,447 | 3,831 | 4,227 | |||||||||||||||
NGLs (MBbls) | 348 | 443 | 454 | 1,086 | 1,187 | |||||||||||||||
Natural gas (MMcf) | 10,359 | 10,023 | 11,499 | 28,058 | 33,965 | |||||||||||||||
Total oil and natural gas (MBoe) (1) | 3,302 | 3,368 | 3,818 | 9,593 | 11,075 | |||||||||||||||
Average daily equivalent sales (MBoe/d) | 35.9 | 37.0 | 41.5 | 35.1 | 40.6 | |||||||||||||||
Average realized sales prices (before the impact of derivative settlements): | ||||||||||||||||||||
Oil ($/Bbl) | $ | 81.77 | $ | 71.76 | $ | 90.23 | $ | 75.00 | $ | 97.59 | ||||||||||
NGLs ($/Bbl) | 21.31 | 23.44 | 37.17 | 23.57 | 39.96 | |||||||||||||||
Natural gas ($/Mcf) | 3.14 | 2.34 | 9.89 | 2.88 | 7.58 | |||||||||||||||
Barrel of oil equivalent ($/Boe) | 42.48 | 36.76 | 68.39 | 41.04 | 64.78 | |||||||||||||||
Average operating expenses per Boe ($/Boe): | ||||||||||||||||||||
Lease operating expenses | $ | 18.72 | $ | 19.60 | $ | 15.46 | $ | 20.12 | $ | 14.03 | ||||||||||
Gathering, transportation and production taxes | 2.03 | 2.02 | 3.20 | 2.05 | 2.41 | |||||||||||||||
Depreciation, depletion, amortization and accretion | 11.09 | 10.66 | 8.93 | 10.70 | 8.97 | |||||||||||||||
General and administrative expenses | 6.05 | 5.16 | 6.04 | 5.97 | 4.68 | |||||||||||||||
(1) MBoe is determined using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or NGLs (totals may not compute due to rounding). The conversion ratio does not assume price equivalency and the price on an equivalent basis for oil, NGLs and natural gas may differ significantly. | ||||||||||||||||||||
Condensed Consolidated Balance Sheets | ||||||||
(In thousands) | ||||||||
(Unaudited) | ||||||||
2023 | 2022 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 148,993 | $ | 461,357 | ||||
Restricted cash | 4,417 | 4,417 | ||||||
Receivables: | ||||||||
Oil and natural gas sales | 48,522 | 66,146 | ||||||
Joint interest, net | 16,049 | 14,000 | ||||||
Income taxes | 275 | — | ||||||
Total receivables | 64,846 | 80,146 | ||||||
Prepaid expenses and other assets | 30,476 | 24,343 | ||||||
Total current assets | 248,732 | 570,263 | ||||||
Oil and natural gas properties and other | 8,951,577 | 8,834,319 | ||||||
Less accumulated depreciation, depletion, amortization and impairment | 8,180,123 | 8,099,104 | ||||||
Oil and natural gas properties and other, net | 771,454 | 735,215 | ||||||
Restricted deposits for asset retirement obligations | 22,168 | 21,483 | ||||||
Deferred income taxes | 42,633 | 57,280 | ||||||
Other assets | 40,386 | 47,549 | ||||||
Total assets | $ | 1,125,373 | $ | 1,431,790 | ||||
Liabilities and Shareholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 80,465 | $ | 65,570 | ||||
Undistributed oil and natural gas proceeds | 34,649 | 41,934 | ||||||
Advances from joint interest partners | 3,106 | 3,181 | ||||||
Asset retirement obligations | 33,169 | 25,359 | ||||||
Accrued liabilities | 34,264 | 74,041 | ||||||
Current portion of long-term debt, net | 30,015 | 582,249 | ||||||
Total current liabilities | 215,668 | 792,334 | ||||||
Long-term debt, net | 367,144 | 111,188 | ||||||
Asset retirement obligations, less current portion | 465,245 | 441,071 | ||||||
Other liabilities | 47,329 | 79,563 | ||||||
Shareholders’ equity: | — | |||||||
Common stock, | 1 | 1 | ||||||
Additional paid-in capital | 582,900 | 576,588 | ||||||
Retained deficit | (528,747 | ) | (544,788 | ) | ||||
(24,167 | ) | (24,167 | ) | |||||
Total shareholders’ equity | 29,987 | 7,634 | ||||||
Total liabilities and shareholders’ equity | $ | 1,125,373 | $ | 1,431,790 | ||||
Condensed Consolidated Statements of Cash Flows | ||||||||||||||||||||
(In thousands) | ||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||
2023 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||
Operating activities: | ||||||||||||||||||||
Net income (loss) | $ | 2,145 | $ | (12,109 | ) | $ | 66,721 | $ | 16,041 | $ | 187,700 | |||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||||||||
Depreciation, depletion, amortization and accretion | 36,632 | 35,894 | 34,113 | 102,660 | 99,384 | |||||||||||||||
Share-based compensation | 3,250 | 2,087 | 2,645 | 7,259 | 5,179 | |||||||||||||||
Amortization and write off of debt issuance costs | 1,351 | 1,114 | 1,749 | 5,714 | 6,114 | |||||||||||||||
Derivative (gain) loss | (1,491 | ) | (829 | ) | 38,749 | (41,560 | ) | 109,892 | ||||||||||||
Derivative cash payments (receipts), net | (1,696 | ) | 901 | (71,249 | ) | (6,123 | ) | (1,022 | ) | |||||||||||
Derivative cash premium payments | — | — | — | — | (46,111 | ) | ||||||||||||||
Deferred income taxes | 3,067 | 7,184 | 13,140 | 14,647 | 40,171 | |||||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||||||
Oil and natural gas receivables | (7,180 | ) | 4,183 | 9,960 | 17,624 | (34,276 | ) | |||||||||||||
Joint interest receivables | (2,174 | ) | 3,241 | (3,445 | ) | (2,049 | ) | (7,070 | ) | |||||||||||
Prepaid expenses and other assets | (1,442 | ) | (4,497 | ) | 3,276 | 25,550 | (26,816 | ) | ||||||||||||
Asset retirement obligation settlements | (13,077 | ) | (3,199 | ) | (21,510 | ) | (24,918 | ) | (61,285 | ) | ||||||||||
Cash advances from joint interest partners | (3 | ) | (50 | ) | (2,242 | ) | (74 | ) | (12,055 | ) | ||||||||||
Accounts payable, accrued liabilities and other | 8,937 | (1,135 | ) | 18,928 | (34,475 | ) | 65,566 | |||||||||||||
Income tax | 1,711 | (6,588 | ) | (1,743 | ) | (634 | ) | 1,480 | ||||||||||||
Net cash provided by operating activities | 30,030 | 26,197 | 89,092 | 79,662 | 326,851 | |||||||||||||||
Investing activities: | ||||||||||||||||||||
Investment in oil and natural gas properties and equipment | (7,960 | ) | (15,632 | ) | (4,477 | ) | (30,959 | ) | (29,966 | ) | ||||||||||
Changes in operating assets and liabilities associated with investing activities | 3,623 | 3,453 | (2,451 | ) | 1,285 | (8,237 | ) | |||||||||||||
Acquisition of property interests | (28,863 | ) | — | (3,849 | ) | (28,863 | ) | (51,474 | ) | |||||||||||
Deposit related to acqusition of property interests | (8,850 | ) | — | — | (8,850 | ) | — | |||||||||||||
Purchases of furniture, fixtures and other | (2,863 | ) | (9,045 | ) | — | (12,064 | ) | — | ||||||||||||
Net cash used in investing activities | (44,913 | ) | (21,224 | ) | (10,777 | ) | (79,451 | ) | (89,677 | ) | ||||||||||
Financing activities: | ||||||||||||||||||||
Repayment of TVPX Loan | (275 | ) | (183 | ) | — | (458 | ) | — | ||||||||||||
Issuance of 11.75% Senior Second Lien Notes | — | — | — | 275,000 | — | |||||||||||||||
Repayments on 9.75% Second Senior | — | — | — | (552,460 | ) | — | ||||||||||||||
Repayments on Term Loan | (7,148 | ) | (9,629 | ) | (8,896 | ) | (26,329 | ) | (33,837 | ) | ||||||||||
Debt issuance costs | (128 | ) | (898 | ) | (716 | ) | (7,380 | ) | (2,006 | ) | ||||||||||
Other | (200 | ) | (25 | ) | 703 | (948 | ) | — | ||||||||||||
Net cash used in financing activities | (7,751 | ) | (10,735 | ) | (8,909 | ) | (312,575 | ) | (35,843 | ) | ||||||||||
(Decrease) increase in cash and cash equivalents | (22,634 | ) | (5,762 | ) | 69,406 | (312,364 | ) | 201,331 | ||||||||||||
Cash and cash equivalents and restricted cash, beginning of period | 176,044 | 181,806 | 382,141 | 465,774 | 250,216 | |||||||||||||||
Cash and cash equivalents and restricted cash, end of period | $ | 153,410 | $ | 176,044 | $ | 451,547 | $ | 153,410 | $ | 451,547 | ||||||||||
Non-GAAP Information
Certain financial information included in W&T’s financial results are not measures of financial performance recognized by accounting principles generally accepted in
We calculate Net Debt as total debt (current and long-term portions), less cash and cash equivalents. Management uses Net Debt to evaluate the Company’s financial position, including its ability to service its debt obligations.
Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss)
Adjusted Net Income (Loss) adjusts for certain items that the Company believes affect comparability of operating results, including items that are generally non-recurring in nature or whose timing and/or amount cannot be reasonably estimated. These items include unrealized commodity derivative (gain) loss net of derivative premiums, allowance for credit losses, write-off of debt issuance costs, non-recurring IT-transition costs, non-ARO plugging and abandonment costs, and other which are then tax effected using the Federal Statutory Rate.
Three Months Ended | Nine Months Ended | |||||||||||||||||||
2023 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||
Net income (loss) | $ | 2,145 | $ | (12,109 | ) | $ | 66,721 | $ | 16,041 | $ | 187,700 | |||||||||
Selected items | ||||||||||||||||||||
Unrealized commodity derivative (gain) loss and effect of derivative premiums, net | (3,462 | ) | (1,129 | ) | (28,161 | ) | (44,061 | ) | 98,607 | |||||||||||
Allowance for credit losses | 6 | 3 | (418 | ) | 9 | (119 | ) | |||||||||||||
Write-off debt issuance costs | — | — | — | 2,330 | — | |||||||||||||||
Non-recurring costs related to IT services transition | 768 | 1,078 | 6,393 | 2,631 | 6,393 | |||||||||||||||
Non-ARO P&A costs | 2,103 | — | — | 2,109 | — | |||||||||||||||
Other | 187 | (294 | ) | (600 | ) | 271 | (1,229 | ) | ||||||||||||
Tax effect of selected items (1) | 84 | 72 | 4,785 | 7,709 | (21,767 | ) | ||||||||||||||
Adjusted Net income (loss) | $ | 1,831 | $ | (12,379 | ) | $ | 48,720 | $ | (12,961 | ) | $ | 269,585 | ||||||||
Adjusted net income (loss) per common share | ||||||||||||||||||||
Basic | $ | 0.01 | $ | (0.08 | ) | $ | 0.34 | $ | (0.09 | ) | $ | 1.88 | ||||||||
Diluted | $ | 0.01 | $ | (0.08 | ) | $ | 0.33 | $ | (0.09 | ) | $ | 1.86 | ||||||||
Weighted Average Shares Outstanding | ||||||||||||||||||||
Basic | 146,483 | 146,452 | 143,116 | 146,451 | 143,026 | |||||||||||||||
Diluted | 151,459 | 146,452 | 145,882 | 146,451 | 144,696 | |||||||||||||||
(1) Selected items were tax effected with the Federal Statutory Rate of 21% for each respective period. | ||||||||||||||||||||
Non-GAAP Information
Adjusted EBITDA/ Free Cash Flow Reconciliations
The Company also presents the non-GAAP financial measures Adjusted EBITDA and Free Cash Flow. The Company defines Adjusted EBITDA as net income (loss) plus net interest expense, income tax expense, depreciation, depletion, amortization and accretion, excluding the unrealized commodity derivative (gain) loss net of derivative premiums, allowance for credit losses, non-cash incentive compensation, non-recurring IT-transition costs, non-ARO plugging and abandonment costs, and other. Company management believes this presentation is relevant and useful because it helps investors understand W&T’s operating performance and makes it easier to compare its results with those of other companies that have different financing, capital and tax structures. Adjusted EBITDA should not be considered in isolation from or as a substitute for net income, as an indication of operating performance or cash flows from operating activities or as a measure of liquidity. Adjusted EBITDA, as W&T calculates it, may not be comparable to Adjusted EBITDA measures reported by other companies. In addition, Adjusted EBITDA does not represent funds available for discretionary use.
The Company defines Free Cash Flow as Adjusted EBITDA (defined above), less capital expenditures, plugging and abandonment costs and interest expense (all on an accrual basis). For this purpose, the Company’s definition of capital expenditures includes costs incurred related to oil and natural gas properties (such as drilling and infrastructure costs and the lease maintenance costs) and equipment, furniture and fixtures, but excludes acquisition costs of oil and gas properties from third parties that are not included in the Company’s capital expenditures guidance provided to investors. Company management believes that Free Cash Flow is an important financial performance measure for use in evaluating the performance and efficiency of its current operating activities after the impact of accrued capital expenditures, plugging and abandonment costs and interest expense and without being impacted by items such as changes associated with working capital, which can vary substantially from one period to another. There is no commonly accepted definition of Free Cash Flow within the industry. Accordingly, Free Cash Flow, as defined and calculated by the Company, may not be comparable to Free Cash Flow or other similarly named non-GAAP measures reported by other companies. While the Company includes interest expense in the calculation of Free Cash Flow, other mandatory debt service requirements of future payments of principal at maturity (if such debt is not refinanced) are excluded from the calculation of Free Cash Flow. These and other non-discretionary expenditures that are not deducted from Free Cash Flow would reduce cash available for other uses.
The following tables present (i) a reconciliation of the Company’s net income (loss), a GAAP measure, to Adjusted EBITDA and Free Cash Flow, as such terms are defined by the Company and (ii) a reconciliation of cash flow from operating activities, a GAAP measure, to Free Cash Flow, as defined by the Company.
Three Months Ended | Nine Months Ended | |||||||||||||||||||
2023 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||
Net income (loss) | $ | 2,145 | $ | (12,109 | ) | $ | 66,721 | $ | 16,041 | $ | 187,700 | |||||||||
Interest expense, net | 9,924 | 10,323 | 16,849 | 34,960 | 54,915 | |||||||||||||||
Income tax expense | 4,777 | 2,997 | 16,397 | 16,413 | 46,801 | |||||||||||||||
Depreciation, depletion, amortization and accretion | 36,632 | 35,894 | 34,113 | 102,660 | 99,384 | |||||||||||||||
Unrealized commodity derivative (gain) loss and effect of derivative premiums, net | (3,462 | ) | (1,129 | ) | (28,161 | ) | (44,061 | ) | 98,607 | |||||||||||
Allowance for credit losses | 6 | 3 | (418 | ) | 9 | (119 | ) | |||||||||||||
Non-cash incentive compensation | 3,250 | 2,087 | 2,645 | 7,259 | 5,179 | |||||||||||||||
Non-recurring costs related to IT services transition | 768 | 1,078 | 6,393 | 2,631 | 6,393 | |||||||||||||||
Non-ARO P&A costs | 2,103 | — | 1,428 | 2,109 | — | |||||||||||||||
Other | 205 | (312 | ) | (2,028 | ) | 271 | (1,229 | ) | ||||||||||||
Adjusted EBITDA | $ | 56,348 | $ | 38,832 | $ | 113,939 | $ | 138,292 | $ | 497,631 | ||||||||||
Investment in oil and natural gas properties and equipment | (7,960 | ) | (15,632 | ) | (4,477 | ) | (30,959 | ) | (29,966 | ) | ||||||||||
Asset retirement obligation settlements | (13,077 | ) | (3,199 | ) | (21,510 | ) | (24,918 | ) | (61,285 | ) | ||||||||||
Interest expense, net | (9,924 | ) | (10,323 | ) | (16,849 | ) | (34,960 | ) | (54,915 | ) | ||||||||||
Free Cash Flow | $ | 25,387 | $ | 9,678 | $ | 71,103 | $ | 47,455 | $ | 351,465 |
Three Months Ended | Nine Months Ended | |||||||||||||||||||
2023 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||
Net cash provided by operating activities | $ | 30,030 | $ | 26,197 | $ | 89,092 | $ | 79,662 | $ | 326,851 | ||||||||||
Allowance for credit losses | 6 | 3 | (418 | ) | 9 | (119 | ) | |||||||||||||
Amortization of debt items and other items | (1,351 | ) | (1,114 | ) | (1,749 | ) | (5,714 | ) | (6,114 | ) | ||||||||||
Non-recurring costs related to IT services transition | 768 | 1,078 | 6,393 | 2,631 | 6,393 | |||||||||||||||
Current tax benefit (1) | 1,710 | (4,187 | ) | 3,257 | 1,766 | 6,630 | ||||||||||||||
Changes in derivatives (payable) receivable(1) | (275 | ) | (1,201 | ) | 4,339 | 3,622 | 35,848 | |||||||||||||
Non-ARO P&A costs | 2,103 | — | — | 2,109 | — | |||||||||||||||
Changes in operating assets and liabilities, excluding asset retirement obligation settlements | 151 | 4,846 | (24,734 | ) | (5,942 | ) | 13,171 | |||||||||||||
Investment in oil and natural gas properties, equipment and other | (7,960 | ) | (15,632 | ) | (4,477 | ) | (30,959 | ) | (29,966 | ) | ||||||||||
Other | 205 | (312 | ) | (600 | ) | 271 | (1,229 | ) | ||||||||||||
Free Cash Flow | $ | 25,387 | $ | 9,678 | $ | 71,103 | $ | 47,455 | $ | 351,465 | ||||||||||
(1) A reconciliation of the adjustment used to calculate Free Cash Flow to the Condensed Consolidated Financial Statements is included below: | ||||||||||||||||||||
Current tax benefit: | ||||||||||||||||||||
Income tax expense (benefit) | $ | 4,777 | $ | 2,997 | $ | 16,397 | $ | 16,413 | $ | 46,801 | ||||||||||
Less: Deferred income taxes | 3,067 | 7,184 | 13,140 | 14,647 | 40,171 | |||||||||||||||
Current tax benefit | $ | 1,710 | $ | (4,187 | ) | $ | 3,257 | $ | 1,766 | $ | 6,630 | |||||||||
Changes in derivatives receivable: | ||||||||||||||||||||
Derivatives payable, end of period | $ | (952 | ) | $ | (677 | ) | $ | (16,659 | ) | $ | (952 | ) | $ | (16,659 | ) | |||||
Derivatives payable, beginning of period | 677 | (524 | ) | 20,998 | 4,574 | 6,396 | ||||||||||||||
Derivative premiums paid | — | — | — | — | 46,111 | |||||||||||||||
Change in derivatives receivable (payable) | $ | (275 | ) | $ | (1,201 | ) | $ | 4,339 | $ | 3,622 | $ | 35,848 | ||||||||
Source:
2023 GlobeNewswire, Inc., source