UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
For the transition period from _______________ to ________________
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Registrant’s telephone number, including area code: (
Securities registered pursuant to section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every interactive data file required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
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Non-accelerated filer ☐ |
| Smaller reporting company | |
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| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company. Yes
As of April 30, 2024, there were
W&T OFFSHORE, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
W&T OFFSHORE, INC.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
March 31, | December 31, | |||||
| 2024 |
| 2023 | |||
Assets |
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Current assets: |
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Cash and cash equivalents | $ | | $ | | ||
Restricted cash | | | ||||
Accounts receivable: |
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Oil, NGL and natural gas sales |
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Joint interest, net of allowance for credit losses of $ |
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Other |
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Prepaid expenses and other current assets (Note 11) |
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Total current assets |
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Oil and natural gas properties and other, net of accumulated depreciation, depletion and amortization of $ |
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Restricted deposits for asset retirement obligations |
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Deferred income taxes |
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Other assets |
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Total assets | $ | | $ | | ||
Liabilities and Shareholders’ Equity |
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Current liabilities: |
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Accounts payable | $ | | $ | | ||
Accrued liabilities (Note 11) |
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Undistributed oil and natural gas proceeds |
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Advances from joint interest partners |
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Current portion of asset retirement obligations (Note 5) |
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Current portion of long-term debt, net (Note 3) | | | ||||
Total current liabilities |
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Asset retirement obligations (Note 5) |
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Long-term debt, net (Note 3) |
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Other liabilities | | | ||||
Commitments and contingencies (Note 6) |
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Shareholders’ equity: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Retained deficit |
| ( |
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Treasury stock, at cost; |
| ( |
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Total shareholders’ equity |
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Total liabilities and shareholders’ equity | $ | | $ | | ||
See Notes to Condensed Consolidated Financial Statements.
1
W&T OFFSHORE, INC.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended March 31, | |||||||
| 2024 |
| 2023 |
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Revenues: |
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Oil | $ | | $ | | |||
NGLs |
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Natural gas |
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Other |
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Total revenues |
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Operating expenses: |
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Lease operating expenses |
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Gathering, transportation and production taxes | | | |||||
Depreciation, depletion, and amortization |
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Asset retirement obligations accretion | | | |||||
General and administrative expenses |
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Total operating expenses |
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Operating (loss) income |
| ( |
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Interest expense, net |
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Derivative gain, net |
| ( |
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Other expense, net |
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(Loss) income before income taxes |
| ( |
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Income tax expense |
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Net (loss) income | $ | ( | $ | | |||
Net (loss) income per common share: | |||||||
Basic | $ | ( | $ | | |||
Diluted | $ | ( | $ | | |||
Weighted average common shares outstanding: | |||||||
Basic | | | |||||
Diluted | | | |||||
See Notes to Condensed Consolidated Financial Statements.
2
W&T OFFSHORE, INC.
Condensed Consolidated Statements of Changes in Shareholders’ Equity
(In thousands)
(Unaudited)
| Common Stock |
| Additional |
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| Total | ||||||||||
Outstanding | Paid-In | Retained | Treasury Stock | Shareholders’ | |||||||||||||||
| Shares |
| Value |
| Capital |
| Deficit |
| Shares |
| Value |
| Equity | ||||||
Balances at December 31, 2023 |
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| $ | |
| $ | |
| $ | ( |
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| $ | ( |
| $ | |
Cash dividends | — | — | — | ( | — | — | ( | ||||||||||||
Share-based compensation |
| — |
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| — |
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| — |
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Stock issued |
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Shares withheld related to net settlement of equity awards |
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| ( |
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| — |
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Net loss |
| — |
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| — |
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| ( |
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| — |
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| ( |
Balances at March 31, 2024 |
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| $ | |
| $ | |
| $ | ( |
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| $ | ( |
| $ | |
| Common Stock |
| Additional |
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| Total | ||||||||||
Outstanding | Paid-In | Retained | Treasury Stock | Shareholders’ | |||||||||||||||
| Shares |
| Value |
| Capital |
| Deficit |
| Shares |
| Value |
| Equity | ||||||
Balances at December 31, 2022 |
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| $ | |
| $ | |
| $ | ( |
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| $ | ( |
| $ | |
Share-based compensation |
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Stock issued |
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Shares withheld related to net settlement of equity awards |
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Net income |
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Balances at March 31, 2023 |
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| $ | |
| $ | |
| $ | ( |
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| $ | ( |
| $ | |
See Notes to Condensed Consolidated Financial Statements.
3
W&T OFFSHORE, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended March 31, | |||||||
| 2024 |
| 2023 |
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Operating activities: |
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Net income | $ | ( | $ | | |||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation, depletion, amortization and accretion |
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Share-based compensation |
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Amortization and write off of debt issuance costs |
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Derivative gain, net |
| ( |
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Derivative cash settlements, net |
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Deferred income taxes |
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Changes in operating assets and liabilities: |
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Accounts receivable |
| ( |
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Prepaid expenses and other current assets |
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Accounts payable, accrued liabilities and other | ( | ( | |||||
Asset retirement obligation settlements |
| ( |
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Net cash provided by operating activities |
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Investing activities: |
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Investment in oil and natural gas properties and equipment |
| ( |
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Acquisition of property interests |
| ( |
| — | |||
Purchases of furniture, fixtures and other | ( | ( | |||||
Net cash used in investing activities |
| ( |
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Financing activities: |
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Proceeds from issuance of | — | | |||||
Repayment of | — | ( | |||||
Repayments of Term Loan | — | ( | |||||
Repayments of TVPX Loan | ( | — | |||||
Debt issuance costs |
| ( |
| ( | |||
Payment of dividends | ( | — | |||||
Other |
| ( |
| ( | |||
Net cash used in financing activities |
| ( |
| ( | |||
Change in cash, cash equivalents and restricted cash |
| ( |
| ( | |||
Cash, cash equivalents and restricted cash, beginning of year |
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Cash, cash equivalents and restricted cash, end of period | $ | | $ | | |||
See Notes to Condensed Consolidated Financial Statements.
4
NOTE 1 — NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Nature of Operations
W&T Offshore, Inc. (with subsidiaries referred to herein as the “Company”) is an independent oil and natural gas producer with substantially all of its operations offshore in the Gulf of Mexico. The Company is active in the exploration, development and acquisition of oil and natural gas properties. The Company operates in
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and an interest in Monza Energy LLC (“Monza”), which is accounted for under the proportional consolidation method. All intercompany accounts and transactions have been eliminated in consolidation. These condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.
Operating results for interim periods are not necessarily indicative of the results that may be expected for the entire year. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in Part II, Item 8. Financial Statements and Supplementary Data of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report”).
Certain reclassifications have been made to the prior year’s condensed consolidated financial statements to conform to the current year’s presentation. On the Condensed Consolidated Balance Sheets, the Company has combined Income tax payable with Accrued liabilities and Deferred income taxes with Other liabilities. On the Condensed Consolidated Statements of Cash Flows, the Company has combined lines within each category of cash flows. These reclassifications had no effect on the Company’s results of operations, financial position or cash flows.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
NOTE 2 — ACQUISITION
On December 13, 2023, the Company entered into a purchase and sale agreement to acquire rights, titles and interest in and to certain leases, wells and personal property in the central shelf region of the Gulf of Mexico, among other assets, for $
The acquisition was accounted for as an asset acquisition, which requires that the total purchase price, including transaction costs, be allocated to the assets acquired and the liabilities assumed based on their relative fair values. The fair value measurements of the oil and natural gas properties acquired and ARO assumed were derived utilizing an income approach and based, in part, on significant inputs not observable in the market. These inputs represent Level 3 measurements in the fair value hierarchy and include, but are not limited to, estimates of reserves, future operating and development costs, future commodity prices, estimated future cash flows and appropriate discount rates. These inputs required significant judgments and estimates by the Company’s management at the time of the valuation.
5
The following table presents the Company’s allocation of total purchase consideration to the identifiable assets acquired and liabilities assumed based on the fair values on the date of acquisition (in thousands):
|
| January | |||||||
Oil and natural gas properties and other, net | $ | | |||||||
Asset retirement obligations |
| ( | |||||||
Allocated purchase price | $ | | |||||||
In February 2024, the Company received a final settlement statement for its September 2023 acquisition of working interest in certain oil and natural gas producing properties in the central and eastern shelf region of the Gulf of Mexico and recorded an additional $
NOTE 3 — DEBT
The components comprising the Company’s debt are presented in the following table (in thousands):
March 31, |
| December 31, | ||||
2024 | 2023 | |||||
Term Loan: | ||||||
Principal | $ | | $ | | ||
Unamortized debt issuance costs | ( | ( | ||||
Total |
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Principal |
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Unamortized debt issuance costs |
| ( |
| ( | ||
Total |
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TVPX Loan: | ||||||
Principal | | | ||||
Unamortized discount | ( | ( | ||||
Unamortized debt issuance costs |
| ( | ( | |||
Total |
| | | |||
Total debt, net | | | ||||
Less current portion, net | ( | ( | ||||
Long-term debt, net | $ | | $ | | ||
On March 17, 2024, the term loan provided for by the credit agreement entered into by Aquasition LLC and Aquasition II LLC (the “Term Loan”) was amended to provide for (i) the deferral of $
6
During the three months ended March 31, 2024, the Company entered into a series of amendments to extend the maturity date of the Sixth Amended and Restated Credit Agreement (the “Credit Agreement”) with the most recent being the Sixteenth Amendment, to extend the maturity date to April 30, 2024. As of March 31, 2024, there were
As of March 31, 2024 and for all prior measurement periods presented, the Company was in compliance with all applicable covenants.
NOTE 4 — FINANCIAL INSTRUMENTS
The Company’s financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities, derivative instruments and debt.
Derivative Instruments
The following table reflects the contracted volumes and weighted average prices under the terms of the Company’s open derivative contracts as of March 31, 2024:
Average | |||||||||||||||
Instrument | Daily | Total | Weighted | Weighted | Weighted | ||||||||||
Period |
| Type |
| Volumes (1) |
| Volumes (1) |
| Strike Price |
| Put Price |
| Call Price | |||
Natural Gas - Henry Hub (NYMEX) | (Mmbtu) | (Mmbtu) | ($/Mmbtu) | ($/Mmbtu) | ($/Mmbtu) | ||||||||||
Apr 2024 - Dec 2024 | calls | | | $ | — | $ | — | $ | | ||||||
Jan 2025 - Mar 2025 | calls | | | $ | — | $ | — | $ | | ||||||
Apr 2024 - Dec 2024 (1) | swaps | | | $ | | $ | — | $ | — | ||||||
Jan 2025 - Mar 2025 (1) | swaps | | | $ | | $ | — | $ | — | ||||||
Apr 2025 - Dec 2025 (1) | puts | | | $ | — | $ | | $ | — | ||||||
Jan 2026 - Dec 2026 (1) | puts | | | $ | — | $ | | $ | — | ||||||
Jan 2027 - Dec 2027 (1) | puts | | | $ | — | $ | | $ | — | ||||||
Jan 2028 - Apr 2028 (1) | puts | | | $ | — | $ | | $ | — | ||||||
(1) | MMbtu – Million British Thermal Units |
The Company has elected not to designate its derivative instruments contracts for hedge accounting. Accordingly, commodity derivatives are recorded on the Condensed Consolidated Balance Sheets at fair value with settlements of such contracts, and changes in the unrealized fair value, recorded as Derivative gain, net on the Condensed Consolidated Statements of Operations in each period presented.
The fair value of the Company’s derivative financial instruments was recorded in the Condensed Consolidated Balance Sheets as follows (in thousands):
| March 31, |
| December 31, | |||
2024 | 2023 | |||||
$ | | $ | | |||
| |
| | |||
| |
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— | | |||||
7
The Company measures the fair value of its derivative instruments by applying the income approach, using models with inputs that are classified within Level 2 of the valuation hierarchy. The income approach converts expected future cash flows to a present value amount based on market expectations. The inputs used for the fair value measurement of derivative financial instruments are the exercise price, the expiration date, the settlement date, notional quantities, the implied volatility, the discount curve with spreads and published commodity future prices.
Although the Company has master netting arrangements with its counterparties, the amounts recorded on the Condensed Consolidated Balance Sheets are on a gross basis.
The impact of commodity derivative contracts on the Condensed Consolidated Statements of Operations were as follows (in thousands):
Three Months Ended March 31, | |||||||
| 2024 |
| 2023 |
| |||
Realized (gain) loss | $ | ( | $ | | |||
Unrealized gain | ( | ( | |||||
Derivative gain, net | $ | ( | $ | ( | |||
Debt
The following table presents the net values and estimated fair values of the Company’s debt (in thousands):
| March 31, 2024 |
| December 31, 2023 | |||||||||
Net Value |
| Fair Value |
| Net Value |
| Fair Value | ||||||
Term Loan | $ | | $ | | $ | | $ | | ||||
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| |
| |
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TVPX Loan | | | | | ||||||||
Total | $ | | $ | | $ | | $ | | ||||
The fair value of the TVPX Loan and the Term Loan were measured using a discounted cash flows model and current market rates. The fair value of the
NOTE 5 — ASSET RETIREMENT OBLIGATIONS
AROs represent the estimated present value of the amount incurred to plug, abandon and remediate the Company’s properties at the end of their productive lives.
Three Months Ended March 31, | ||||||
| 2024 |
| 2023 | |||
Asset retirement obligations, beginning of period | $ | | $ | | ||
Liabilities settled |
| ( |
| ( | ||
Accretion expense |
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Liabilities acquired |
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| — | ||
Liabilities incurred | — | | ||||
Revisions of estimated liabilities |
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Asset retirement obligations, end of period | | | ||||
Less: Current portion |
| ( |
| ( | ||
Long-term | $ | | $ | | ||
8
NOTE 6 — CONTINGENCIES
Appeal with the Office of Natural Resources Revenue
In 2009, the Company recognized allowable reductions of cash payments for royalties owed to the Office of Natural Resources Revenue (the “ONRR”) for transportation of its deepwater production through subsea pipeline systems owned by the Company. In 2010, the ONRR audited calculations and support related to this usage fee, and ONRR notified the Company that they had disallowed approximately $
The Company has continued to pursue its legal rights and, at present, the case is in front of the U.S. District Court for the Eastern District of Louisiana where both parties have filed cross-motions for summary judgment and opposition briefs. The Company has filed a Reply in support of its Motion for Summary Judgment, and the government has in turn filed its Reply brief. With briefing now completed, the Company is waiting for the district court’s ruling on the merits.
ONRR Audit of Historical Refund Claims
In 2023, the Company received notification from the ONRR regarding results of an audit performed on the Company’s historical refund claims taken on various properties for alleged royalties owed to the ONRR. The review process is ongoing, and the Company does not believe any accrual is necessary at this time.
Contingent Decommissioning Obligations
The Company may be subject to retained liabilities with respect to certain divested property interests by operation of law. Certain counterparties in past divestiture transactions or third parties in existing leases that have filed for bankruptcy protection or undergone associated reorganizations may not be able to perform required abandonment obligations. Due to operation of law, the Company may be required to assume decommissioning obligations for those interests. The Company may be held jointly and severally liable for the decommissioning of various facilities and related wells. The Company no longer owns these assets, nor are they related to current operations.
During the three months ended March 31, 2024, the Company incurred $
Although it is reasonably possible that the Company could receive state or federal decommissioning orders in the future or be notified of defaulting third parties in existing leases, the Company cannot predict with certainty, if, how or when such orders or notices will be resolved or estimate a possible loss or range of loss that may result from such orders. However, the Company could incur judgments, enter into settlements or revise the Company’s opinion regarding the outcome of certain notices or matters, and such developments could have a material adverse effect on the Company’s results of operations in the period in which the amounts are accrued and the Company’s cash flows in the period in which the amounts are paid. To the extent that the Company does incur costs associated with these properties in future periods, the Company intends to seek contribution from other parties that owned an interest in the facilities.
Other Claims
In the ordinary course of business, the Company is a party to various pending or threatened claims and complaints seeking damages or other remedies concerning commercial operations and other matters. In addition, claims or contingencies may arise related to matters occurring prior to the Company’s acquisition of properties or related to matters occurring subsequent to the Company’s sale of properties. In certain cases, the Company has indemnified the sellers of properties acquired, and in other cases, has indemnified the buyers of properties sold. The Company is also subject to federal and state administrative proceedings conducted in the ordinary course of business including matters
9
related to alleged royalty underpayments on certain federal-owned properties. Although the Company can give no assurance about the outcome of pending legal and federal or state administrative proceedings and the effect such an outcome may have, the Company believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by insurance, will not have a material adverse effect on the consolidated financial position, results of operations or liquidity of the Company.
NOTE 7 — INVESTMENT IN MONZA
In March 2018, the Company and other members formed and funded Monza, which jointly participates with the Company in the exploration, drilling and development of certain drilling projects (“Joint Venture Drilling Program”) in the Gulf of Mexico. The total commitments by all members, including the Company’s commitment to fund its retained interest in Monza projects held outside of Monza, was $
The members of Monza are third-party investors, the Company and an entity owned and controlled by the Company’s Chief Executive Officer (“CEO”). The entity affiliated with the Company’s CEO invested as a minority investor on the same terms and conditions as the third-party investors.
The Company’s interest in Monza is considered to be a variable interest that is proportionally consolidated. The Company does not fully consolidate Monza because the Company is not considered the primary beneficiary of Monza.
The following table presents the amounts recorded by the Company on the Condensed Consolidated Balance Sheets related to the consolidation of the proportional interest in Monza’s operations (in thousands):
March 31, | December 31, | |||||
2024 | 2023 | |||||
Working capital | $ | | $ | | ||
Oil and natural gas properties and other, net |
| |
| | ||
Other assets | | | ||||
Asset retirement obligations | | | ||||
The following table presents the amounts recorded by the Company in the Condensed Consolidated Statements of Operations related to the consolidation of the proportional interest in Monza’s operations (in thousands):
Three Months Ended March 31, | ||||||
2024 | 2023 | |||||
Total revenues | $ | | $ | | ||
Total operating expenses |
| |
| | ||
Interest income |
| |
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As required, the Company may call on Monza to provide cash to fund its portion of certain projects in advance of capital expenditure spending. As of March 31, 2024 and December 31, 2023, the unused advances were $
During the three months ended March 31, 2024, Monza paid a cash distribution of $
10
NOTE 8 — STOCKHOLDERS’ EQUITY
On March 5, 2024, the Company’s board of directors declared a regular quarterly dividend of $
On May 10, 2024, the Company’s board of directors declared a regular quarterly dividend of $
NOTE 9 — INCOME TAXES
The Company records income taxes for interim periods based on an estimated annual effective tax rate. The estimated annual effective rate is recomputed on a quarterly basis and may fluctuate due to changes in forecasted annual operating income, positive or negative changes to the valuation allowance for net deferred tax assets and changes to actual or forecasted permanent book to tax differences.
The Company’s effective tax rate for the three months ended March 31, 2024 was (
As of March 31, 2024 and December 31, 2023, the Company had a valuation allowance of $
NOTE 10 — NET (LOSS) INCOME PER SHARE
The following table presents the calculation of basic and diluted net (loss) income per common share (in thousands, except per share amounts):
Three Months Ended March 31, | ||||||
| 2024 |
| 2023 | |||
Net (loss) income | $ | ( | $ | | ||
Weighted average common shares outstanding - basic |
| |
| | ||
Dilutive effect of securities | — | | ||||
Weighted average common shares outstanding - diluted | | | ||||
Net (loss) income per common share: | ||||||
Basic | $ | ( | $ | | ||
Diluted | ( | | ||||
Shares excluded due to being anti-dilutive | | — | ||||
11
NOTE 11 — OTHER SUPPLEMENTAL INFORMATION
Condensed Consolidated Balance Sheet Details
Prepaid expenses and other current assets consisted of the following (in thousands):
March 31, | December 31, | |||||
2024 | 2023 | |||||
Derivatives | $ | | $ | | ||
Insurance/bond premiums |
| |
| | ||
Prepaid deposits related to royalties |
| |
| | ||
Prepayments to vendors |
| |
| | ||
Other |
| |
| | ||
Prepaid expenses and other current assets | $ | | $ | | ||
Accrued liabilities consisted of the following (in thousands):
March 31, |
| December 31, | ||||
2024 | 2023 | |||||
Accrued interest | $ | | $ | | ||
Accrued salaries/payroll taxes/benefits |
| |
| | ||
Operating lease liabilities |
| |
| | ||
Derivatives |
| |
| | ||
Other |
| |
| | ||
Total accrued liabilities | $ | | $ | | ||
Condensed Consolidated Statements of Cash Flows Information
Supplemental statements of cash flows information consisted of the following (in thousands):
March 31, | December 31, | |||||
| 2024 |
| 2023 | |||
Cash and cash equivalents | $ | | $ | | ||
Restricted cash | | | ||||
Cash, cash equivalents and restricted cash | | | ||||
Three Months Ended March 31, | ||||||
| 2024 |
| 2023 | |||
Non-cash investing activities: |
|
|
| |||
Accruals of property and equipment |
| |
| | ||
Dividends declared but not paid on unvested share-based awards | | — | ||||
ARO - acquisitions, additions and revisions, net |
| |
| | ||
NOTE 12 — SUBSIDIARY BORROWERS
Aquasition LLC and Aquasition II, LLC (collectively, the “Subsidiary Borrowers”) are indirect, wholly-owned subsidiaries of the Company. The Subsidiary Borrowers used the net proceeds from the Term Loan (see Note 3 – Debt) to acquire all of the Company’s interests in certain oil and gas leasehold interests and associated wells and units located in State of Alabama waters and U.S. federal waters in the offshore Gulf of Mexico, Mobile Bay region and the Company’s interest in certain gathering and processing assets located offshore Gulf of Mexico, Mobile Bay region and onshore near Mobile, Alabama, including offshore gathering pipelines, an onshore crude oil treating and sweetening facility, an onshore gathering pipeline, and associated assets.
12
The assets of the Subsidiary Borrowers are not available to satisfy the debt or contractual obligations of any other entities, including debt securities or other contractual obligations of the Company, and the Subsidiary Borrowers do not bear any liability for the indebtedness or other contractual obligations of any other entities, and vice versa.
The following table presents the amounts recorded by the Company on the Condensed Consolidated Balance Sheets related to the consolidation of Aquasition Energy LLC, the parent of the Subsidiary Borrowers (the “Subsidiary Parent”), and the Subsidiary Borrowers (in thousands):
March 31, | December 31, | |||||
2024 | 2023 | |||||
Assets: |
|
|
|
| ||
Cash and cash equivalents | $ | | $ | | ||
Receivables: |
|
|
|
| ||
Oil and natural gas sales |
| |
| | ||
Joint interest, net |
| ( |
| ( | ||
Prepaid expenses and other current assets |
| |
| | ||
Oil and natural gas properties and other, net |
| |
| | ||
Other assets |
| |
| | ||
Liabilities: |
|
|
|
| ||
Accounts payable | | | ||||
Accrued liabilities |
| |
| | ||
Undistributed oil and natural gas proceeds |
| |
| | ||
Current portion of asset retirement obligations | | — | ||||
Current portion of long-term debt, net | | | ||||
Asset retirement obligations |
| |
| | ||
Long-term debt, net |
| |
| | ||
Other liabilities |
| |
| | ||
The following table presents the amounts recorded by the Company in the Condensed Consolidated Statements of Operations related to the consolidation of the operations of the Subsidiary Borrowers and the Subsidiary Parent (in thousands):
Three Months Ended March 31, | ||||||
2024 | 2023 | |||||
Total revenues | $ | | $ | | ||
Total operating expenses |
| |
| | ||
Interest expense, net |
| |
| | ||
Derivative gain, net |
| ( |
| ( | ||
NOTE 13 — SUBSEQUENT EVENT
On April 29, 2024, the Company entered into a Seventeenth Amendment to the Credit Agreement to extend the maturity date of the Credit Agreement to May 31, 2024. The Company is currently in discussions regarding a potential longer-term extension of the Credit Agreement. The terms of such extension could vary significantly from those under the Credit Agreement.
13
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes included in Part I, Item 1. Financial Statements, of this Quarterly Report, as well as our audited consolidated financial statements and the notes thereto in the 2023 Annual Report and the related MD&A included in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our 2023 Annual Report. Unless otherwise indicated or the context otherwise requires, references in this Quarterly Report to “us,” “we” and “our” are to W&T Offshore, Inc. and its wholly owned subsidiaries.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
The information in this Quarterly Report includes “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 (the “Exchange Act”). All statements, other than statements of historical fact included in this Quarterly Report, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. These forward-looking statements are based on certain assumptions and analyses made by us in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. Although we believe that these forward-looking statements are based upon reasonable assumptions, they are subject to several risks and uncertainties and are made in light of information currently available to us. If the risks or uncertainties materialize or the assumptions prove incorrect, our results may differ materially from those expressed or implied by such forward-looking statements and assumptions. When used in this Quarterly Report, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” “forecast,” “may,” “objective,” “plan,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We assume no obligation, nor do we intend, to update these forward-looking statements, unless required by law.
The information included in this Quarterly Report includes forward-looking statements that involve risks and uncertainties that could materially affect our expected results of operations, liquidity, cash flows and business prospects. Such statements specifically include our expectations as to our future financial position, liquidity, cash flows, results of operations and business strategy, potential acquisition opportunities, other plans and objectives for operations, capital for sustained production levels, expected production and operating costs, reserves, hedging activities, capital expenditures, return of capital, improvement of recovery factors and other guidance. Actual results may differ from anticipated results, sometimes materially, and reported results should not be considered an indication of future performance. For any such forward-looking statement that includes a statement of the assumptions or bases underlying such forward-looking statement, we caution that, while we believe such assumptions or bases to be reasonable and make them in good faith, assumed facts or bases almost always vary from actual results, sometimes materially. Known material risks that may affect our financial condition and results of operations are discussed in Part I, Item 1A. Risk Factors, and market risks are discussed in Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk, of our 2023 Annual Report, and may be discussed or updated from time to time in subsequent reports filed with the SEC.
Reserve engineering is a process of estimating underground accumulations of crude oil, NGLs and natural gas that cannot be measured in an exact manner. The accuracy of any reserve estimate depends on the quality of available data, the interpretation of such data, and the price and cost assumptions made by reservoir engineers. In addition, the results of drilling, testing, and production activities, or changes in commodity prices, may justify revisions of estimates that were made previously. If significant, such revisions would change the schedule of any further production and development drilling. Accordingly, reserve estimates may differ significantly from the quantities of crude oil, NGLs and natural gas that are ultimately recovered.
All forward-looking statements, expressed or implied, included in this Quarterly Report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.
14
BUSINESS OVERVIEW
We are an independent oil and natural gas producer, active in the exploration, development and acquisition of oil and natural gas properties in the Gulf of Mexico. As of March 31, 2024, we hold working interests in 63 producing offshore fields in federal and state waters (which include 54 fields in federal waters and 9 in state waters). We currently have under lease approximately 693,900 gross acres (536,200 net acres) spanning across the outer continental shelf off the coasts of Louisiana, Texas, Mississippi and Alabama, with approximately 8,000 gross acres in Alabama state waters, 532,400 gross acres on the conventional shelf and approximately 153,500 gross acres in the deepwater. A majority of our daily production is derived from wells we operate.
Recent Developments
On January 16, 2024, we closed on our acquisition of rights, titles and interest in and to certain leases, wells and personal property in the central shelf region of the Gulf of Mexico, among other assets, for $77.2 million (including closing fees and other transaction costs). The acquisition was funded using cash on hand. We also assumed the related AROs associated with these assets.
On March 17, 2024, we amended the Term Loan to provide for (i) the deferral of $30.1 million of principal repayments during 2024; (ii) the resumption of principal repayments in the first quarter of 2025 with the option, but not obligation, to catch up on deferred amortization through excess cash flow sweep; (iii) the payment of cash interest each quarter on the remaining principal balance; (iv) the payment of an amendment fee of $200,000 to be paid in four quarterly installments of $50,000 each, starting in first quarter of 2024; and (v) the modification of the optional prepayment schedule as follows: redemption at 103% of par from May 2024 to May 2026, redemption at 102% of par from May 2026 up to May 2027, and 101% of par from May 2027 up to maturity in May 2028. The premium will be applicable to the aggregate principal amount outstanding at the time of any optional redemption.
On March 28, 2024, we amended the Credit Agreement to extend the maturity date to April 30, 2024.
In April 2024, the Bureau of Ocean Energy Management (“BOEM”) released a final rule that changes the way BOEM evaluates the financial health of companies and offshore assets in setting financial assurance requirements. Under the new rule, BOEM streamlined the criteria used to evaluate the financial health of an energy company down to two factors: (i) the company’s credit rating, and (ii) the ratio of the company’s proved reserves to decommissioning liability associated with the reserves. The new rule also codifies the usage of Bureau of Safety and Environmental Enforcement decommissioning estimates to evaluate financial assurance requirements and allows third party guarantors (upon agreement with BOEM) to provide limited guarantees to specific amounts or specific leases instead of the blanket guarantees that have been used in the past. Finally, the new rule also requires a base financial assurance requirement of $500,000 for federal rights-of-use and easements (“RUEs”) to match the requirement for state RUEs. To provide the industry with flexibility to meet the new financial assurance requirements, BOEM will allow current lessees and grant holders to request phased-in payments over a three-year period. BOEM estimates that the industry will be required to provide $6.9 billion in new financial assurances under the new rule, which will take effect on June 24, 2024.
On May 10, 2024, we declared a regular quarterly dividend of $0.01 per share for the second quarter of 2024. We expect to pay the dividend on May 31, 2024, to stockholders of record as of the close of business on May 24, 2024.
Business Outlook
Our financial condition, cash flow and results of operations are significantly affected by the volume of our oil, NGLs and natural gas production and the prices that we receive for such production. Changes in the prices that we receive for our production impact all aspects of our business; most notably our cash flows from operations, revenues, capital allocation and budgeting decisions and our reserves volumes. Prices of oil, NGLs and natural gas have historically been volatile and can fluctuate significantly over short periods of time for many factors outside of our control, including changes in market supply and demand, which are impacted by weather conditions, pipeline capacity constraints, inventory storage levels, domestic production activities and political issues, and international geopolitical and economic events.
15
The U.S. Energy Information Administration (“EIA”) published its latest Short-Term Energy Outlook in April 2024. Spot prices for West Texas Intermediate (“WTI”) oil averaged $81.28 per barrel in March 2024, an increase of $4.03 per barrel compared with February 2024 and the third consecutive month when the WTI price increased. The EIA is forecasting WTI spot prices will rise in the coming months as a result of heightened geopolitical risk related to attacks targeting commercial ships transiting through the Red Sea shipping channel and general elevated tensions around the region. In addition, the recent extension of the Organization of the Petroleum Exporting Countries and Russia voluntary production cuts add to upward price pressure at the time of the year when oil demand typically increases because of the spring and summer driving seasons in the Northern Hemisphere. As a result of the combination of flat production and rising consumption, the EIA is forecasting that WTI spot prices are expected to average $85.78 per barrel for the remainder of 2024.
Spot prices for Henry Hub natural gas averaged $1.49 per MMBtu in March 2024. The U.S. winter natural gas withdrawal season ended with 39% more natural gas in storage compared with the five-year average. The EIA is forecasting that from April 2024 through October 2024, less natural gas will be injected into storage than is typical, largely because the EIA is expecting the U.S. to produce less natural gas on average in the second and third quarters of 2024 compared with the first quarter of 2024. Despite the lower production, the EIA still expects the U.S. will have the most natural gas in storage on record when the winter withdrawal season begins in November. As of result of high inventories, the EIA expects the Henry Hub spot price to average less than $2.00 per MMBtu in the second quarter of 2024 before increasing slightly to $2.15 per MMBtu in the third quarter of 2024. The EIA forecasts that the average spot price for Henry Hub in 2024 will be $2.16 per MMBtu.
In addition to the impact of volatile commodity prices on our operations, continuing inflation could also impact our sales margins and profitability. The annual inflation rate for March 2024 was 3.5%, a slight increase from February 2024. In the last few years, these inflationary pressures have caused the Federal Reserve to tighten monetary policy by approving a series of increases to the Federal Funds Rate. As of March 31, 2024, the Federal Reserve benchmark rate ranged from 5.25% to 5.50%. Although the Federal Reserve has stated that they will begin reducing the benchmark rate in 2024, if inflation were to continue to rise, it is possible the Federal Reserve would continue to take action they deem necessary to bring inflation down and to ensure price stability, including further rate increases, which could have the effects of raising the cost of capital and depressing economic growth, either or both of which could negatively impact our business.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023
Revenues
The following table presents information regarding our revenues, production volumes and average realized sales prices (which exclude the effect of hedging unless otherwise stated) for the three months ended March 31, 2024 and 2023 (in thousands, except average realized sales prices data):
16
Three Months Ended March 31, | |||||||||
| 2024 |
| 2023 |
| Change | ||||
Revenues: | |||||||||
Oil | $ | 107,015 | $ | 97,000 | $ | 10,015 | |||
NGLs |
| 7,469 |
| 7,795 |
| (326) | |||
Natural gas |
| 21,616 |
| 24,804 |
| (3,188) | |||
Other |
| 4,687 |
| 2,126 |
| 2,561 | |||
Total revenues |
| 140,787 |
| 131,725 |
| 9,062 | |||
Production Volumes: |
|
|
|
|
|
| |||
Oil (MBbls) (1) |
| 1,400 |
| 1,350 |
| 50 | |||
NGLs (MBbls) |
| 343 |
| 294 |
| 49 | |||
Natural gas (MMcf) (2) |
| 8,733 |
| 7,677 |
| 1,056 | |||
Total oil equivalent (MBoe) (3) |
| 3,199 |
| 2,924 |
| 275 | |||
Average daily equivalent sales (Boe/day) | 35,148 | 32,489 | 2,659 | ||||||
Average realized sales prices: |
|
|
|
|
| ||||
Oil ($/Bbl) | $ | 76.44 | $ | 71.85 | $ | 4.59 | |||
NGLs ($/Bbl) |
| 21.78 |
| 26.51 |
| (4.73) | |||
Natural gas ($/Mcf) |
| 2.48 |
| 3.23 |
| (0.75) | |||
Oil equivalent ($/Boe) | 42.55 | 44.32 | (1.77) | ||||||
Oil equivalent ($/Boe), including realized commodity derivatives |
| 42.97 |
| 44.24 |
| (1.27) | |||
| (1) | MBbls — thousands of barrels of oil, condensate or NGLs |
| (2) | MMcf — million cubic feet |
| (3) | MBoe — thousand barrels of oil equivalent |
Changes in average sales prices and production volumes caused the following changes to our oil, NGL and natural gas revenues between the three months ended March 31, 2024 and 2023 (in thousands):
Price |
| Volume | Total | |||||
Oil | $ | 6,396 | $ | 3,619 | $ | 10,015 | ||
NGLs |
| (1,611) | 1,285 |
| (326) | |||
Natural gas |
| (6,601) | 3,413 |
| (3,188) | |||
$ | (1,816) | $ | 8,317 | $ | 6,501 | |||
Our average realized sales price for oil and natural gas differs from the WTI average price and the NYMEX Henry Hub average price, respectively, primarily due to premiums or discounts, quality adjustments, location adjustments and volume weighting (collectively referred to as differentials). Oil price differentials primarily represent the transportation costs in moving produced oil at the wellhead to a refinery and are based on the availability of pipeline, rail and other transportation. Natural gas price differentials are strongly impacted by local market fundamentals, availability of transportation capacity from producing areas and seasonal impacts. Prices and differentials for NGLs are related to the supply and demand for the products making up these liquids. Some of them more typically correlate to the price of oil while others are affected by natural gas prices as well as the demand for certain chemical products which are used as feedstock.
Production volumes increased by 275 Mboe to 3,199 Mboe during the three months ended March 31, 2024 compared to the same period in 2023, primarily due to both the January 2024 and the September 2023 acquisitions, partially offset by normal production decline on existing wells.
17
Operating Expenses
The following table presents information regarding costs and expenses and selected average costs and expenses per Boe sold for the periods presented and corresponding changes (in thousands, except average data):
Three Months Ended March 31, | |||||||||
| 2024 |
| 2023 |
| Change | ||||
Operating expenses: | |||||||||
Lease operating expenses | $ | 70,830 | $ | 65,186 | $ | 5,644 | |||
Gathering, transportation and production taxes | 7,540 | 6,136 | 1,404 | ||||||
Depreciation, depletion and amortization |
| 33,937 | 22,624 |
| 11,313 | ||||
Asset retirement obligations accretion | 7,969 | 7,510 | 459 | ||||||
General and administrative expenses | 20,515 | 19,919 | 596 | ||||||
Total operating expenses | $ | 140,791 | $ | 121,375 | $ | 19,416 | |||
Average per Boe ($/Boe): |
|
|
|
|
|
| |||
Lease operating expenses | $ | 22.14 | $ | 22.29 | $ | (0.15) | |||
Gathering, transportation and production taxes |
| 2.36 | 2.10 |
| 0.26 | ||||
Depreciation, depletion and amortization |
| 10.61 | 7.74 |
| 2.87 | ||||
Asset retirement obligations accretion | 2.49 | 2.57 | (0.08) | ||||||
General and administrative expenses |
| 6.41 | 6.81 |
| (0.40) | ||||
Total operating expenses | $ | 44.01 | $ | 41.51 | $ | 2.50 | |||
Lease operating expenses – Lease operating expenses, which include base lease operating expenses, workovers, and facilities maintenance expense, increased $5.6 million to $70.8 million during the three months ended March 31, 2024 compared to the same period in 2023. On a component basis, base lease operating expenses increased $13.1 million, workover expenses decreased $2.0 million, and facilities maintenance expense decreased $5.5 million.
Expenses for direct labor, materials, supplies, repair, third-party costs and insurance comprise the most significant portion of our base lease operating expense. Base lease operating expenses increased primarily due to three months of expenses at the fields acquired in January 2024 and September 2023, as well as higher repair, maintenance and labor costs at other fields.
Workover and facilities maintenance expenses consist of costs associated with major remedial operations on completed wells to restore, maintain or improve the well’s production. Since these remedial operations are not regularly scheduled, workover and maintenance expense are not necessarily comparable from period to period. The decreases in workover expenses and facilities maintenance expenses were due to a decrease in projects undertaken.
Gathering, transportation and production taxes – Gathering, transportation and production taxes increased $1.4 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 primarily due to higher natural gas production volumes partially offset by the decrease in realized prices for natural gas.
Depreciation, depletion and amortization (“DD&A”) – DD&A increased $11.3 million for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. The DD&A rate increased to $10.61 per Boe for the three months ended March 31, 2024 from $7.74 per Boe for the three months ended March 31, 2023. The DD&A rate per Boe increased primarily as a result of a higher depreciable base due to our January 2024 acquisition, increases in capital expenditures, future development costs and capitalized ARO and lower proved reserves.
Asset retirement obligations accretion expense – Accretion expense is the expensing of the changes in value of our ARO as a result of the passage of time over the estimated productive life of the related assets as the discounted liabilities are accreted to their expected settlement values. Accretion expense increased $0.5 million in the three months ended March 31, 2024 compared to the same period in 2023 primarily due to the increase in our ARO liability.
18
General and administrative expenses (“G&A”) – G&A increased $0.6 million, to $20.5 million for the three months ended March 31, 2024 as compared to $19.9 million for the three months ended March 31, 2023. The increase is primarily due to higher medical claims offset by a decrease in legal expenses.
Other Income and Expense Items
The following table presents the components of other income and expense items for the periods presented and corresponding changes (in thousands):
Three Months Ended March 31, | |||||||||
| 2024 |
| 2023 |
| Change | ||||
Interest expense, net |
| $ | 10,072 | $ | 14,713 |
| (4,641) | ||
Derivative gain, net | (4,877) | (39,240) | $ | 34,363 | |||||
Other expense, net |
| 5,230 | 233 |
| 4,997 | ||||
Income tax expense |
| 1,045 | 8,639 |
| (7,594) | ||||
Interest expense, net – Interest expense, net, decreased $4.6 million for three months ended March 31, 2024 compared to the same period in 2023 due to the redemption of the 9.75% Notes in February 2023 and lower interest expense on the lower outstanding principal balance of the Term Loan, partially offset by interest expense incurred on the 11.75% Notes issued in late January 2023.
Derivative gain, net – During the three months ended March 31, 2024, we recorded a $4.9 million derivative gain for our natural gas derivative contracts consisting of $1.1 million of unrealized gain from the increase in the fair value of our open natural gas contracts and $3.8 million of realized gains. During the three months ended March 31, 2023, we recorded a $39.2 million derivative gain for our natural gas derivative contracts consisting of $0.2 million in realized losses and $39.4 million of unrealized gain from the increase in the fair value of our open natural gas contracts.
Unrealized gains or losses on open derivative contracts are recorded as a gain or loss on our Condensed Consolidated Statements of Operations at the end of each month. As a result of the derivative contracts we have on our anticipated production volumes through April 2028, we expect these activities to continue to impact net income (loss) based on fluctuations in market prices for natural gas. See Part I, Item 1. Financial Statements – Note 4 – Financial Instruments of this Quarterly Report for additional information.
Other expense, net – Other expense, net increased $5.0 million for the three months ended March 31, 2024 compared to the same period in 2023 primarily related to the accrual of additional expenses for net abandonment obligations pertaining to a number of legacy Gulf of Mexico properties.
Income tax expense – Our effective tax rates for the three months ended March 31, 2024 and 2023 were (10.0)% and 25.0%, respectively. The effective tax rates differed from the statutory federal tax rate primarily due to the impact of state income taxes, nondeductible compensation, and adjustments to the valuation allowance.
Liquidity and Capital Resources
Liquidity Overview
Our primary liquidity needs are to fund capital and operating expenditures and strategic acquisitions to allow us to replace our oil and natural gas reserves, repay and service outstanding borrowings, operate our properties and satisfy our ARO. We have funded such activities in the past with cash on hand, net cash provided by operating activities, sales of property, securities offerings and bank and other borrowings, and expect to continue to do so in the future.
19
We expect to support our business requirements primarily with cash on hand and cash generated from operations. As of March 31, 2024, we had $94.8 million cash on hand and $50.0 million available under our Credit Agreement, based on a borrowing base of $50.0 million. We also have up to approximately $83.0 million of availability through our “at-the-market” equity offering program, pursuant to which we may offer and sell shares of our common stock from time to time. Based on our current financial condition and current expectations of future market conditions, we believe our cash on hand, cash flows from operating activities and access to the equity markets from our “at-the-market” equity offering program will provide us with additional liquidity to continue our growth and will allow us to meet our cash requirements for at least the next 12 months.
We continuously review our liquidity and capital resources. If market conditions were to change, for instance due to uncertainty created by geopolitical events, a pandemic or a significant decline in oil and natural gas prices, and our revenue was reduced significantly or operating costs were to increase significantly, our cash flows and liquidity could be negatively impacted.
Cash Flow Information
The following table summarizes cash flows provided by (used in) by type of activity for the following periods (in thousands):
Three Months Ended March 31, | |||||||||
2024 | 2023 | Change | |||||||
Operating activities | $ | 11,642 | $ | 23,435 | $ | (11,793) | |||
Investing activities |
| (87,619) |
| (13,314) |
| (74,305) | |||
Financing activities |
| (2,539) |
| (294,089) |
| 291,550 | |||
Operating Activities – Net cash provided by operating activities decreased $11.8 million for the three months ended March 31, 2024 compared to the corresponding period in 2023. This was primarily due to a $12.1 million increase in net (loss) income adjusted for certain noncash items offset by a $23.9 million decrease in operating cash flows from changes in operating assets and liabilities. The increase in net (loss) income adjusted for certain noncash items primarily related to a $9.1 million increase in revenues and a $7.9 million increase in derivative cash settlements, partially offset by increases in cash operating expenses. The decrease in operating assets and liabilities primarily related to (i) higher accounts receivable balances due to increased revenues, (ii) lower accounts payable and accrued liabilities balances in the current period and (iii) a $4.8 million decrease in ARO settlements.
Investing Activities – Net cash used in investing activities increased $74.3 million for the three months ended March 31, 2024 compared to the corresponding period in 2023. This was primarily due to $80.5 million of acquisition of property interests costs, partially offset by a decrease of $6.1 million in investment in oil and natural gas properties and equipment.
Financing Activities –Net cash used in financing activities decreased by $291.6 million for the three months ended March 31, 2024 compared to the corresponding period in 2023. This was due to the redemption of the $552.5 million principal amount outstanding 9.75% Notes in February 2023 partially offset by the net cash proceeds of $275.0 million received from the issuance of the 11.75% Notes in January 2023.
Capital Expenditures
The level of our investment in oil and natural gas properties changes from time to time depending on numerous factors, including the prices of oil, NGLs and natural gas, acquisition opportunities, liquidity and financing options and the results of our exploration and development activities.
20
The following table presents our capital expenditures for exploration, development, acquisitions and other leasehold costs (in thousands):
Three Months Ended March 31, | ||||||
| 2024 |
| 2023 | |||
Exploration and development (1) | $ | 3,022 | $ | 7,429 | ||
Acquisitions of interests |
| 80,515 |
| — | ||
Seismic and other |
| 134 |
| (62) | ||
Investments in oil and gas property/equipment – accrual basis | $ | 83,671 | $ | 7,367 | ||
| (1) | Reported geographically in the subsequent table. |
The following table presents our exploration and development capital expenditures geographically in the Gulf of Mexico (in thousands):
Three Months Ended March 31, | ||||||
| 2024 |
| 2023 | |||
Conventional shelf (1) | $ | 2,122 | $ | 4,868 | ||
Deepwater |
| 900 |
| 2,561 | ||
Exploration and development capital expenditures – accrual basis | $ | 3,022 | $ | 7,429 | ||
| (1) | Includes exploration and development capital expenditures in Alabama state waters. |
As of March 31, 2024, we expect to incur an additional $40.0 million to $50.0 million of capital expenditures in the next 12 months, which excludes acquisitions. In our view of the outlook for the remainder of 2024, we believe this level of capital expenditure will leave us with sufficient liquidity to operate our business, while providing liquidity to make strategic acquisitions. At current pricing levels, we expect our cash flows to cover our liquidity requirements, and we expect additional financing sources to be available if needed. If our liquidity becomes stressed from significant or prolonged reductions in realized prices, we have flexibility in our capital expenditure budget to reduce investments. We strive to maintain flexibility in our capital expenditure projects and if commodity prices improve, we may increase our investments.
Acquisitions
We have grown by making strategic acquisitions of producing properties in the Gulf of Mexico. We seek opportunities where we can exploit additional drilling projects and reduce costs. In January 2024, we closed on the acquisition of rights, titles and interest in and to certain leases, wells and personal property in the central shelf region of the Gulf of Mexico, among other assets, for $77.2 million, subject to customary purchase price adjustments. The transaction was funded with cash on hand. We also received a final settlement statement for our September 2023 acquisition of certain oil and natural gas producing assets in the central and eastern shelf region of the Gulf of Mexico and recorded an additional $3.3 million of oil and natural gas properties.
Any future acquisitions are subject to the completion of satisfactory due diligence, the negotiation and resolution of significant legal issues, the negotiation, documentation and completion of mutually satisfactory definitive agreements among the parties, the consent of our lenders, our ability to finance the acquisition and approval of our board of directors. We cannot guarantee that any such potential transaction would be completed on acceptable terms, if at all.
21
Asset Retirement Obligations
We have obligations to plug and abandon wells, remove platforms, pipelines, facilities and equipment and restore the land or seabed at the end of oil and natural gas production operations. Through the three months ended March 31, 2024, we have paid $3.8 million related to these obligations, and we expect to incur an additional $32.0 million to $40.0 million of payments during the next 12 months. Our ARO estimates as of March 31, 2024 and December 31, 2023 were $529.8 million and $498.8 million, respectively. As our ARO estimates are for work to be performed in the future, and in the case of our non-current ARO, extend from one to many years in the future, actual expenditures could be substantially different than our estimates. See Part I, Item 1A. Risk Factors, of our 2023 Annual Report for additional information.
Debt
As of March 31, 2024, we have $399.9 million in aggregate principal amount of long-term debt outstanding, with $8.5 million in aggregate principal coming due over the next twelve months.
On April 29, 2024, we entered into a Seventeenth Amendment to the Credit Agreement to extend the maturity date of the Credit Agreement to May 31, 2024. We are currently in discussions regarding a potential longer-term extension of the Credit Agreement. The terms of such replacement could vary significantly from those under the Credit Agreement.
For additional information about our long-term debt, see Part I, Item 1. Financial Statements – Note 3 – Debt of this Quarterly Report and Part II, Item 8. Financial Statements and Supplementary Data, in our 2023 Annual Report.
Dividends
On March 5, 2024, our board of directors approved the implementation of a quarterly cash dividend payable to holders of common stock. The initial cash dividend of $0.01 per share of common stock, or $1.5 million, was paid on March 25, 2024, to shareholders of record at the close of business on March 18, 2024. The amount and frequency of future dividends is subject to the discretion of our board of directors and primarily depends on earnings, capital expenditures, debt covenants and various other factors.
Contractual Obligations and Commitments
Our material cash commitments from known contractual and other obligations consist primarily of obligations for long-term debt and related interest, operating leases, ARO and other obligations as part of normal operations. Except as disclosed herein, contractual obligations as of March 31, 2024 did not change materially from the disclosures in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our 2023 Annual Report.
THE SUBSIDIARY BORROWERS
Aquasition LLC and Aquasition II LLC are both indirect wholly-owned subsidiaries of us through their parent, Aquasition Energy LLC (collectively, the “Aquasition Entities”). We designated the Aquasition Entities as unrestricted subsidiaries under the indenture governing the 11.75% Notes. Having been so designated, the Aquasition Entities do not guarantee the 11.75% Notes, and the liens on the assets sold to the Aquasition entities have been released under the Credit Agreement. The Aquasition Entities are not bound by the covenants contained in the Credit Agreement or the indenture governing the 11.75% Notes. Under the Term Loan and related instruments, assets of the Aquasition Entities may not be available to mortgage or pledge as security to secure new indebtedness of us and our other subsidiaries.
22
Below is consolidating balance sheet information reflecting the elimination of the accounts of the Aquasition Entities from our Condensed Consolidated Balance Sheet as of March 31, 2024 (in thousands):
Consolidated | Elimination of Aquasition Entities | Restricted Subsidiaries | |||||||
Assets |
|
|
|
|
|
| |||
Current assets: |
|
|
|
|
| ||||
Cash and cash equivalents | $ | 94,822 | $ | (4,693) | $ | 90,129 | |||
Restricted cash | 4,417 | — | 4,417 | ||||||
Receivables: |
|
|
|
|
| ||||
Oil and natural gas sales |
| 66,959 |
| (16,747) |
| 50,212 | |||
Joint interest, net |
| 18,280 |
| 22,026 |
| 40,306 | |||
Other | 1,901 | — | 1,901 | ||||||
Prepaid expenses and other current assets |
| 21,342 |
| (1,808) |
| 19,534 | |||
Total current assets |
| 207,721 |
| (1,222) |
| 206,499 | |||
Oil and natural gas properties and other, net |
| 825,628 |
| (286,149) |
| 539,479 | |||
Restricted deposits for asset retirement obligations |
| 22,346 |
| — |
| 22,346 | |||
Deferred income taxes |
| 38,040 |
| — |
| 38,040 | |||
Other assets |
| 32,740 |
| (5,706) |
| 27,034 | |||
Total assets | $ | 1,126,475 | $ | (293,077) | $ | 833,398 | |||
Liabilities and Shareholders’ Equity (Deficit) |
|
|
|
|
|
| |||
Current liabilities: |
|
|
|
|
|
| |||
Accounts payable | $ | 75,966 | $ | (9,252) | $ | 66,714 | |||
Accrued liabilities |
| 15,559 |
| (5,931) |
| 9,628 | |||
Undistributed oil and natural gas proceeds |
| 52,835 |
| (7,171) |
| 45,664 | |||
Advances from joint interest partners |
| 2,864 |
| — |
| 2,864 | |||
Current portion of asset retirement obligation | 37,745 | (5) | 37,740 | ||||||
Current portion of long-term debt, net |
| 6,987 |
| (6,476) |
| 511 | |||
Total current liabilities |
| 191,956 |
| (28,835) |
| 163,121 | |||
Asset retirement obligations, less current portion |
| 492,066 |
| (69,538) |
| 422,528 | |||
Long-term debt, net |
| 384,241 |
| (104,949) |
| 279,292 | |||
Other liabilities |
| 37,452 |
| (4,125) |
| 33,327 | |||
Shareholders' equity (deficit): | |||||||||
Common stock |
| 1 |
| — |
| 1 | |||
Additional paid-in capital |
| 588,563 |
| — |
| 588,563 | |||
Retained deficit |
| (543,637) |
| (85,630) |
| (629,267) | |||
Treasury stock, at cost |
| (24,167) |
| — |
| (24,167) | |||
Total shareholders’ equity (deficit) |
| 20,760 |
| (85,630) |
| (64,870) | |||
Total liabilities and shareholders’ equity (deficit) | $ | 1,126,475 | $ | (293,077) | $ | 833,398 | |||
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Below is consolidating statement of operations information reflecting the elimination of the accounts of the Aquasition Entities from our Condensed Consolidated Statement of Operations for the three months ended March 31, 2024 (in thousands):
Consolidated | Elimination of Aquasition Entities | Restricted Subsidiaries | |||||||
Revenues: | |||||||||
Oil | $ | 107,015 | $ | (185) | $ | 106,830 | |||
NGLs |
| 7,469 |
| (4,996) |
| 2,473 | |||
Natural gas |
| 21,616 |
| (13,957) |
| 7,659 | |||
Other |
| 4,687 |
| (1,130) |
| 3,557 | |||
Total revenues |
| 140,787 |
| (20,268) |
| 120,519 | |||
Operating expenses: |
|
|
|
|
|
| |||
Lease operating expenses |
| 70,830 |
| (13,198) |
| 57,632 | |||
Gathering, transportation and production taxes | 7,540 | (1,807) | 5,733 | ||||||
Depreciation, depletion, and amortization |
| 33,937 |
| (2,136) |
| 31,801 | |||
Asset retirement obligations accretion | 7,969 | (1,328) | 6,641 | ||||||
General and administrative expenses |
| 20,515 |
| (405) |
| 20,110 | |||
Total operating expenses |
| 140,791 |
| (18,874) |
| 121,917 | |||
Operating loss |
| (4) |
| (1,394) |
| (1,398) | |||
Interest expense, net |
| 10,072 |
| (2,242) |
| 7,830 | |||
Derivative (gain) loss, net |
| (4,877) |
| 5,575 |
| 698 | |||
Other expense, net |
| 5,230 |
|
| 5,230 | ||||
Loss before income taxes |
| (10,429) |
| (4,727) |
| (15,156) | |||
Income tax expense |
| 1,045 |
| — |
| 1,045 | |||
Net loss | $ | (11,474) | $ | (4,727) | $ | (16,201) | |||
Our produced oil, NGLs and natural gas volumes (net to our interests) from the Aquasition Entities are as follows:
Three Months Ended March 31, | ||||
Production Volumes: | 2024 | 2023 | ||
Oil (MBbls) |
| 5 |
| 3 |
NGLs (MBbls) |
| 238 |
| 150 |
Natural gas (MMcf) |
| 5,311 |
| 4,655 |
Total oil equivalent (MBoe) |
| 1,128 |
| 929 |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our major market risk exposure is the fluctuation of prices for oil, NGL and natural gas. These fluctuations have a direct impact on our revenues, earnings and cash flow. For example, assuming a 10% decline in our average realized oil, NGL and natural gas sales prices in the three months ended March 31, 2024 and assuming no other items had changed, our revenue would have decreased by approximately $13.6 million in the three months ended March 31, 2024.
We attempt to mitigate commodity price risk and stabilize cash flows associated with our forecasted sales of natural gas production through the use of swaps, purchased calls and purchased puts. Our derivatives will not mitigate all the commodity price risks of our forecasted sales of natural gas production and, as a result, we will be subject to commodity price risks on our remaining forecasted production.
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The following table summarizes the historical results of our natural gas derivatives:
| Three Months Ended March 31, | |||||
2024 | 2023 | |||||
Natural Gas ($/Mcf) |
|
|
|
| ||
Average realized sales price, before the effects of derivative settlements | $ | 2.48 | $ | 3.23 | ||
Effects of realized commodity derivatives |
| 0.43 |
| (0.03) | ||
Average realized sales price, including realized commodity derivatives | $ | 2.91 | $ | 3.20 | ||
Our exposure to interest rate risk has not changed materially from the disclosures in Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk, of our 2023 Annual Report.
ITEM 4. CONTROLS AND PROCEDURES
We have established disclosure controls and procedures designed to ensure that material information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC and that any material information relating to us is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate to allow timely decisions regarding required disclosures. In designing and evaluating our disclosure controls and procedures, our management recognizes that controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving desired control objectives. In reaching a reasonable level of assurance, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by Exchange Act Rule 13a-15(b), our CEO and CFO performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report. Based on that evaluation, our CEO and CFO have each concluded that as of March 31, 2024, our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that our controls and procedures are designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
During the quarter ended March 31, 2024, there was no change in our internal control over financial reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
25
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Part I, Item 1. Financial Statements – Note 6 – Contingencies of this Quarterly Report for information on various legal proceedings to which we are a party or our properties are subject.
ITEM 1A. RISK FACTORS
In addition to the information set forth in this Quarterly Report, investors should carefully consider the risk factors and other cautionary statements included under Part I, Item 1A. Risk Factors, in our 2023 Annual Report, together with all of the other information included in this Quarterly Report, and in our other public filings, which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.
Notwithstanding the matters discussed herein, there have been no material changes in our risk factors as previously disclosed in Part I, Item 1A. Risk Factors, in our 2023 Annual Report.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
During the three months ended March 31, 2024,
ITEM 6. EXHIBITS
Exhibit |
| Description |
|
|
|
3.1 |
| |
|
|
|
3.2 | ||
10.1 | ||
10.2 | ||
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10.3 | ||
10.4 | ||
10.5 | ||
10.6 | ||
10.7* | Third Waiver to Sixth Amended and Restated Credit Agreement, dated as of January 17, 2024 | |
10.8*† | ||
31.1* |
| |
|
|
|
31.2* |
| |
|
|
|
32.1** |
| Section 906 Certification of Chief Executive Officer and Chief Financial Officer |
|
|
|
101.INS* |
| Inline XBRL Instance Document |
|
|
|
101.SCH* |
| Inline XBRL Schema Document |
|
|
|
101.CAL* |
| Inline XBRL Calculation Linkbase Document |
|
|
|
101.DEF* |
| Inline XBRL Definition Linkbase Document |
|
|
|
101.LAB* |
| Inline XBRL Label Linkbase Document |
|
|
|
101.PRE* |
| Inline XBRL Presentation Linkbase Document |
|
|
|
104* |
| Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* | Filed herewith. |
** | Furnished herewith. |
† | Certain schedules and similar attachments to this agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company hereby undertakes to furnish a supplemental copy to each some omitted schedule or similar attachment to the SEC upon request. |
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SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on May 10, 2024.
W&T OFFSHORE, INC. | ||
| ||
By: | /s/ Sameer Parasnis | |
| Sameer Parasnis | |
| Executive Vice President and Chief Financial Officer (Principal Financial Officer), duly authorized to sign on behalf of the registrant | |
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