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W&T Offshore Reports First Quarter 2011 Financial Results and Year-to-Date Operational Results

HOUSTON, April 26, 2011 /PRNewswire via COMTEX/ --

W&T Offshore, Inc. (NYSE: WTI) today provides financial results for the first quarter 2011 and year-to-date operational results. Some of the highlights include:

  • Today we announced that we entered into a purchase and sale agreement with private sellers to acquire production and acreage in the West Texas Permian Basin.
  • 100% success in the drilling program to date in 2011, which includes three exploration wells, one on the conventional shelf and two onshore in Texas.
  • At the end of the quarter, our Main Pass 108 field, which is one of our more significant fields, came back on line, after having been off-line since June 2010. This high-yield condensate field is currently producing a net 46 MMcfe per day, made up of 38 MMcf and 1,400 barrels per day. We expect the rate to increase another eight to 10 MMcfe per day when the Main Pass 108 E-3 well comes on line.
  • Total sales volume increased 14% to 22.7 Bcfe from 20.0 Bcfe during the first quarter of 2010.
  • Adjusted EBITDA increased 11% or $13.5 million to $133.3 million from $119.8 million for the first quarter of 2010. Sequentially, adjusted EBITDA increased $11.6 million or 10%.
  • Revenues increased 24% or $41.3 million to $210.9 million from $169.6 million for the first quarter of 2010. Sequentially, revenues increased $23.9 million or 13%.
  • Net income for the first quarter of 2011, excluding special items, was $32.7 million, or $0.43 per common share, up from $0.40 per common share, excluding special items, in the fourth quarter of 2010.

As previously announced today, after the close of the quarter, we entered into a purchase and sale agreement with private sellers to acquire approximately 21,900 gross leasehold acres (21,500 net acres) in the West Texas Permian Basin for a purchase price of $366 million, subject to adjustments andan effective date of January 1, 2011. The reserves are over 91% oil and natural gas liquids. At January 1, 2011, estimates of proved reserves to be acquired are approximately 27 million barrel equivalents (164 Bcfe); and, estimates of proved and probable reserves to be acquired are approximately 53 million barrel equivalents (318 Bcfe) (both using a 6 to 1 Mcf to barrel equivalency). The current wells produce around 2,800 barrel equivalents per day, net. Since the effective date of the proposed acquisition, production has increased from about 1,900 barrel equivalents. The sellers have three active rigs drilling in the field and ongoing completions are being made on the new wells. We expect to keep at least three rigs working in the field throughout the remainder of 2011. Accordingly, we would expect production to increase.

There is significant upside potential in the acquisition with hundreds of proved undeveloped and probable well locations. Capital expenditures associated with planned development activities for these properties for the rest of 2011 are currently estimated at $35 to $40 million. The closing, which is subject to customary closing conditions and normal closing price adjustments, is anticipated in the second quarter and will be funded from cash on hand and borrowings under our revolving bank credit facility.

Tracy W. Krohn, Chairman and Chief Executive Officer, commented, "We are very pleased with the results of the first quarter and the pending acquisition in the Permian Basin. The first quarter benefitted from higher production volumes primarily because of the acquisition of the deepwater properties from Total E&P USA ("Total") and Shell Offshore Inc. ("Shell") during 2010 and significantly higher oil prices. Our oil and natural gas liquids production, which represented 48% of our total production on a Mcfe basis in the quarter, continues to contribute substantially to our revenues in this higher price environment. Thus far in 2011 we have successfully drilled three exploration wells, one well on the conventional shelf and the other two wells are onshore."

Mr. Krohn continued, "The acquisition of the Permian Basin oil properties will allow us to continue with our goals of a steadier growth pattern coupled with good cash flow and positive full cycle economics. We believe that there are many more attractive acquisition opportunities for us both offshore and with conventional onshore properties as so many of our competitors continue to pursue the various shale resource basins."

Revenues, Net Income and EPS: Net income for the first quarter of 2011 was $18.6 million, or $0.25 per common share, on revenues of $210.9 million, compared to net income for the first quarter of 2010 of $42.3 million, or $0.57 per common share, on revenues of $169.6 million. Net income decreased in the first quarter of 2011 largely due to a derivative loss of $23.8 million for the first quarter of 2011, of which $21.6 million was unrealized, compared to a derivative gain of $5.9 million during the same period last year. Additionally, the effective tax rate for the three-month period ending March 31, 2011 was 35.3%, compared to 8.7% during the year ago period. The 2010 first quarter rate differs from the statutory rate of 35% primarily because of the reversal of a portion of a previously established valuation allowance during that quarter. The decreases in net income from derivatives and an increased effective tax rate were partially offset by higher production volumes and much higher averaged realized oil prices during the first quarter of 2011 versus the comparable period in 2010.

Net income for the first quarter of 2011 excluding special items was approximately $32.7 million, or $0.43 per common share. Net income excluding special items for the corresponding quarter of 2010 was approximately $39.0 million, or $0.52 per common share. See the "Non-GAAP Financial Measures - Reconciliation of Net Income to Net Income Excluding Special Items" table at the back of this press release for a description of the special items.

Cash Flow from Operating Activities and Adjusted EBITDA: EBITDA and Adjusted EBITDA are non-GAAP measures and are defined in the "Non-GAAP Financial Measures" section later in this press release.Adjusted EBITDA for the first quarter of 2011 was $133.3 million compared to $119.8 million during the first quarter 2010, or an 11% increase.Net cash provided by operating activities for the three months ended March 31, 2011 decreased 16% to $72.7 million from $87.0 million for the three months ended March 31, 2010, mainly as a result of an increase in tax payments and asset retirement obligation expenditures during the quarter.

Production and Prices: On a natural gas equivalent ("Bcfe") basis, we sold 22.7 Bcfe at an average price of $9.27 per Mcfe in the first quarter of 2011, of which 48% was oil and natural gas liquids ("NGL"), compared to 20.0 Bcfe sold at an average price of $8.50 per Mcfe in the first quarter of 2010, of which 50% was oil and NGLs. Average oil and NGL prices increased $18.48 per barrel to $88.43 per barrel. Oil and NGL sales volumes increased 153.0 MBbls, while oil and NGL revenue increased by $44.0 million. The sales volume increase for oil is primarily attributable to the acquisition of the Total properties during the second quarter of 2010 and our successful exploration and development efforts. Natural gas revenue decreased $3.2 million on a 1.8 Bcf increase in sales volumes, as natural gas prices decreased $1.09 per Mcf to $4.29 per Mcf. The sales volume increase for natural gas is primarily attributable to the acquisition of the Shell properties during the fourth quarter of 2010, partially offset by natural reservoir declines and the continuing shut-in of our Main Pass 108 field production throughout the first quarter of 2011 due to a third-party pipeline outage. Initial field production at Main Pass 108 resumed on March 31, 2011, gradually increasing to over 46 MMcfe per day net, made up of 38 MMcf and 1,400 barrels per day. We expect the rate to increase another eight to 10 MMcfe per day net when the Main Pass 108 E-3 well comes on line.

Lease Operating Expenses: In thefirst quarter of 2011, LOE increased to $52.4 million, or $2.31 per Mcfe, from $35.4 million, or $1.77 per Mcfe, in the first quarter of 2010. On a component basis, base LOEdecreased to $1.71 per Mcfe from $1.72 per Mcfe in the first quarter of 2010 and workover expenses decreased to $0.29 per Mcfe from $0.35 per Mcfe in the first quarter of 2010. As an offset, facilitiescost per Mcfe increased to $.26 per Mcfe compared to only $0.01 per Mcfe in the first quarter of 2010 and hurricaneremediation net of insurance was $0.05 per Mcfe compared to a reductionin the first quarterof ($0.32) per Mcfe in the first quarter of 2010.Facilities expenses were updue to pipeline repairs at our Ship Shoal 300 field to remove paraffin and work on the newly acquired deepwater properties. Finally,we incurredhurricane remediation costsin thefirst quarter of 2011 while the first quarter of 2010 was a net reduction forinsurance reimbursements and the reversal of previously recorded hurricane remediation accruals. Based on our production and LOEguidance for the year, our LOE per Mcfe is expected to decrease from that reported in the first quarter of 2011.

Depreciation, depletion, amortization and accretion: DD&A decreased to $3.26 per Mcfe for the first quarter of 2011 from $3.47 per Mcfe in the first quarter of 2010 due to an increase in proved reserves.

General and Administrative Expenses: General and administrative expenses ("G&A") increased to $18.1 million for the first quarter of 2011 from $10.4 million for the same period in 2010, primarily due to higher incentive compensation, surety premiums, fees paid to Shell for administrative services attributable to the properties purchased from Shell, service fee income received in 2010 attributable to a property divestiture and increased employee headcount. On a per Mcfe basis, G&A was $0.80 per Mcfe for the first quarter of 2011, compared to $0.52 per Mcfe for the same period in 2010. No amounts for incentive compensation were paid in the first quarter of 2010. During 2010, we implemented a new incentive compensation plan. Part of the incentive compensation amount in 2011 is related to grants made in 2010 that are amortized to compensation expense over the service period while the other part is due to anticipated achievement of company performance relative to targets. Our guidance for G&A expenses for the second quarter of 2011 is between $20 million and $22 million and for the year between $69 million and $80 million and reflects the expected acquisition of the Permian Basin properties discussed earlier in this press release.

Liquidity: Our cash balance at March 31, 2011 was $58.4 million. Although our current credit facility agreement does not expire until July 2012, we are in the process of completing a new four-year revolving credit facility and the borrowing base and revolver commitment will increase to $525.0 million from its current level of $405.5 million. The revolver and borrowing base will automatically increase to $575.0 million if we close on the shelf property expected to be acquired from Shell during the second quarter of 2011. Additionally, we would expect our borrowing base to increase after the Permian Basin acquisition as well. We expect the new agreement will be executed in the second quarter of 2011 and will have substantially the same terms as the previous agreement. As negotiations are ongoing and no definitive agreement has been reached, our current assessment of the terms and borrowing base of the new agreement may change. The revolving credit facility was undrawn at March 31, 2011.

Capital Expenditures and Operations Update: For the three months ended March 31, 2011, capital expenditures for oil and natural gas properties of $39.9 million included $14.6 million for exploration activities, $21.0 million for development activities and $4.3 million for seismic, capitalized interest and other leasehold costs. Our development and exploration capital expenditures of $35.6 million, consisted of $30.7 million on the conventional shelf and other projects, $1.8 million in the deepwater and $3.1 million onshore. Capital expenditures were financed by cash flow from operating activities and cash on hand.

Drilling Highlights: In the first quarter of 2011, the Company drilled the Main Pass 180 A-2 well. This well reached a total measured depth of 13,950 feet and found 91 feet of high quality gas sands in three separate zones. The well is now online and is currently producing 11 MMcfe per day net. We own a 100% working interest in this conventional shelf exploration well.

We also drilled an exploratory onshore well in South Texas. This is a 50% owned non-operated well that found 22 feet of gas condensate. This producing well is currently awaiting an additional frac treatment to stimulate production. After the end of the quarter we drilled an exploration well in East Texas in which we have a 25% working interest which recently reached total depth. The East Texas well appears to be a significant discovery with both conventional and unconventional reservoirs. We are currently running pipe to complete the well and expect to have it on production in the third or early fourth quarter. We have drilled the Main Pass 108 D-3ST development well and will be logging the pay zones shortly.

Outlook: The guidance for second quarter and full year 2011 represents the Company's best estimate of likely future results, and is affected by the factors described below in "Forward-Looking Statements."

Guidance for the second quarter and full year 2011 are shown in the table below. Our guidance also reflects the anticipated acquisition of the Permian Basin properties during the second quarter of 2011. Production guidance includes the planned build up from our capital budget and the pending Permian Basin acquisition, but does not include any production associated the shelf property to be acquired from Shell.

Second Quarter and Revised Full-Year 2011 Production and Cost Guidance:


Estimated Production

Second Quarter

2011

Full-Year

2011

Oil and NGLs (MMBbls)

1.6 - 1.8

6.4 - 7.4

Natural gas (Bcf)

13.6 - 15.0

48.8 - 56.8

Total (Bcfe)

23.2 - 25.6

87.0 - 101.1

Total (MMBoe)

3.9 - 4.3

14.5 - 16.8


Operating Expenses ($ in millions, except as noted)

Second Quarter

2011

Full-Year

2011

Lease operating expenses

$54- $59

$190 - $220

Gathering, transportation & production taxes

$6 - $9

$25- $28

General and administrative

$20 - $22

$69 - $80

Income tax rate

35%

36%

Conference Call Information: W&T will hold a conference call to discuss financial and operational results on Tuesday, April 26, 2011 at 11:00 a.m. Eastern Time / 10:00 a.m. Central Time. To participate, dial (480) 629-9722 ten minutes before the call begins. The call will also be broadcast live over the Internet from the Company's website at www.wtoffshore.com. A replay of the conference call will be available approximately two hours after the end of the call until May 3, 2011, and may be accessed by calling (303) 590-3030 and using the pass code 4434719#.

About W&T Offshore

W&T Offshore is an independent oil and natural gas company focused primarily in the Gulf of Mexico, including exploration in the deepwater and deep shelf regions, where it has developed significant technical expertise. W&T has grown through acquisitions, exploitation and exploration and holds working interests in approximately 68 fields in federal waters, state waters and onshore. A majority of its daily production is derived from wells it operates. For more information on W&T Offshore, please visit its Web site at www.wtoffshore.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements reflect our current views with respect to future events, based on what we believe are reasonable assumptions. No assurance can be given, however, that these events will occur. These statements are subject to risks and uncertainties that could cause actual results to differ materially including, among other things, market conditions, oil and gas price volatility, uncertainties inherent in oil and gas production operations and estimating reserves, unexpected future capital expenditures, competition, the success of our risk management activities, governmental regulations, uncertainties and other factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2010 and other public filings (www.sec.gov).

Contacts: Janet Yang, Finance Manager investorrelations@wtoffshore.com 713-297-8024

Danny Gibbons, SVP & CFO investorrelations@wtoffshore.com 713-624-7326

W&T OFFSHORE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income (Loss)

(Unaudited)











Three Months Ended



March 31,



2011



2010



(In thousands, except per share data)




Revenues


$

210,855



$

169,585









Operating costs and expenses:








Lease operating expenses



52,405




35,366

Gathering, transportation costs and production taxes



4,841




4,816

Depreciation, depletion and amortization



65,738




62,924

Asset retirement obligation accretion



8,354




6,285

General and administrative expenses



18,129




10,379

Derivative loss (gain)



23,840




(5,896)

Total costs and expenses



173,307




113,874

Operating income



37,548




55,711

Interest expense:








Incurred



10,136




10,920

Capitalized



(1,412)




(1,416)

Interest income



7




128

Income before income tax expense



28,831




46,335

Income tax expense



10,182




4,020

Net income


$

18,649



$

42,315

















Basic and diluted earnings per common share


$

0.25



$

0.57









Weighted average common shares outstanding



74,004




73,660

W&T OFFSHORE, INC. AND SUBSIDIARIES

Condensed Operating Data

(Unaudited)











Three Months Ended



March 31,



2011



2010

Net sales:








Natural gas (MMcf)



11,878




10,047

Oil and NGLs (MBbls)



1,804




1,651

Total natural gas and oil (MBoe) (1)



3,783




3,325

Total natural gas and oil (MMcfe) (2)



22,699




19,953









Average daily equivalent sales (MBoe/d)



42.0




36.9

Average daily equivalent sales (MMcfe/d)



252.2




221.7









Average realized sales prices (Unhedged):








Natural gas ($/Mcf)


$

4.29



$

5.38

Oil and NGLs ($/Bbl)



88.43




69.95

Barrel of oil equivalent ($/Boe)



55.62




50.99

Natural gas equivalent ($/Mcfe)



9.27




8.50









Average realized sales prices (Hedged): (3)








Natural gas ($/Mcf)


$

4.29



$

5.57

Oil and NGLs ($/Bbl)



87.20




69.46

Barrel of oil equivalent ($/Boe)



55.03




51.31

Natural gas equivalent ($/Mcfe)



9.17




8.55









Average per Boe ($/Boe):








Lease operating expenses


$

13.85



$

10.64

Gathering and transportation costs and production taxes



1.28




1.45

Depreciation, depletion, amortization and accretion



19.58




20.81

General and administrative expenses



4.79




3.12

Net cash provided by operating activities



19.22




26.15

Adjusted EBITDA



35.22




36.03









Average per Mcfe ($/Mcfe):








Lease operating expenses


$

2.31



$

1.77

Gathering and transportation costs and production taxes



0.21




0.24

Depreciation, depletion, amortization and accretion



3.26




3.47

General and administrative expenses



0.80




0.52

Net cash provided by operating activities



3.20




4.36

Adjusted EBITDA



5.87




6.00

(1) One million barrels of oil equivalent (MMBoe), one thousand barrels of oil equivalent (Mboe) and one barrel of oil equivalent (Boe) are determined using the ratio of one Bbl of crude oil, condensate or natural gas liquids to six Mcf of natural gas (totals may not add due to rounding).

(2) One billion cubic feet equivalent (Bcfe), one million cubic feet equivalent (MMcfe) and one thousand cubic feet equivalent (Mcfe) are determined using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids (totals may not add due to rounding). The conversion ratios do not assume price equivalency, and the price per Mcfe for oil and natural gas liquids may differ significantly from the price per Mcf for natural gas.

(3) Data for 2011 and 2010 includes the effects of our commodity derivative contracts that did not qualify for hedge accounting.

W&T OFFSHORE, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)










March 31,


December 31,



2011


2010



(In thousands, except



share data)

Assets







Current assets:







Cash and cash equivalents


$

58,393


$

28,655

Receivables:







Oil and natural gas sales



82,346



79,911

Joint interest and other



22,180



25,415

Insurance



3,875



1,014

Income taxes



723



-

Total receivables



109,124



106,340

Deferred income taxes



12,442



5,784

Prepaid expenses and other assets



16,371



23,426

Total current assets



196,330



164,205

Property and equipment - at cost:







Oil and natural gas properties and equipment (full cost method, of which $66,596 at







March 31, 2011 and $65,419 at December 31, 2010 were excluded from







amortization)



5,263,334



5,225,582

Furniture, fixtures and other



15,921



15,841

Total property and equipment



5,279,255



5,241,423

Less accumulated depreciation, depletion and amortization



4,087,133



4,021,395

Net property and equipment



1,192,122



1,220,028

Restricted deposits for asset retirement obligations



32,206



30,636

Deferred income taxes



-



2,819

Other assets



6,495



6,406

Total assets


$

1,427,153


$

1,424,094








Liabilities and Shareholders' Equity







Current liabilities:







Accounts payable


$

44,037


$

80,442

Undistributed oil and natural gas proceeds



27,152



25,240

Asset retirement obligations



110,252



92,575

Accrued liabilities



44,119



25,827

Income taxes



-



17,552

Total current liabilities



225,560



241,636

Long-term debt



450,000



450,000

Asset retirement obligations, less current portion



281,927



298,741

Deferred income taxes



13,157



-

Other liabilities



17,269



11,974

Commitments and contingencies







Shareholders' equity:







Common stock, $0.00001 par value; 118,330,000 shares authorized; 77,326,274







issued and 74,457,101 outstanding at March 31, 2011; 77,343,520 issued and







74,474,347 outstanding at December 31, 2010



1



1

Additional paid-in capital



379,355



377,529

Retained earnings



84,051



68,380

Treasury stock, at cost



(24,167)



(24,167)

Total shareholders' equity



439,240



421,743

Total liabilities and shareholders' equity


$

1,427,153


$

1,424,094

W&T OFFSHORE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)










Three Months Ended



March 31,



2011


2010



(In thousands)




Operating activities:







Net income


$

18,649


$

42,315

Adjustments to reconcile net income to net cash provided by operating activities:







Depreciation, depletion, amortization and accretion



74,092



69,209

Amortization of debt issuance costs and discount on indebtedness



335



334

Share-based compensation



1,826



965

Derivative loss (gain)



23,840



(5,896)

Cash payments on derivative settlements



(2,223)



(748)

Deferred income taxes



9,347



3,150

Changes in operating assets and liabilities



(53,141)



(22,369)

Net cash provided by operating activities



72,725



86,960








Investing activities:







Investment in oil and natural gas properties and equipment



(39,928)



(39,903)

Proceeds from sales of oil and natural gas properties and equipment



-



1,335

Purchases of furniture, fixtures and other



(80)



(108)

Net cash used in investing activities



(40,008)



(38,676)








Financing activities:







Borrowings of long-term debt



10,000



142,500

Repayments of long-term debt



(10,000)



(142,500)

Dividends to shareholders



(2,979)



(2,240)

Net cash used in financing activities



(2,979)



(2,240)

Increase in cash and cash equivalents



29,738



46,044

Cash and cash equivalents, beginning of period



28,655



38,187

Cash and cash equivalents, end of period


$

58,393


$

84,231

W&T OFFSHORE, INC. AND SUBSIDIARIES

Non-GAAP Information


Certain financial information included in our financial results are not measures of financial performance recognized by accounting principles generally accepted in the United States, or GAAP. These non-GAAP financial measures are "Adjusted Net Income," "EBITDA" and "Adjusted EBITDA." Our management uses these non-GAAP financial measures in its analysis of our performance. These disclosures may not be viewed as a substitute for results determined in accordance with GAAP and are not necessarily comparable to non-GAAP performance measures, which may be reported by other companies.


Reconciliation of Net Income to Net Income Excluding Special Items


"Net Income Excluding Special Items" does not include the unrealized derivative (gain) loss, the loss on extinguishment of debt, the impairment of oil and gas properties and associated tax effects and tax impact of the new tax legislation. Net Income excluding special items is presented because the timing and amount of these items cannot be reasonably estimated and affect the comparability of operating results from period to period, and current periods to prior periods.





























Three Months Ended




Three Months Ended



March 31,




December 31,



2011



2010




2010



(In thousands, except per share amounts)



(Unaudited)













Net income


$

18,649



$

42,315



$

20,519

Unrealized commodity derivative loss (gain)



21,617




(5,109)




14,040

Income tax adjustment for above items at statutory rate



(7,566)




1,788




(4,914)

Net income excluding special items


$

32,700



$

38,994



$

29,645













Basic and diluted earnings per common share, excluding special items


$

0.43



$

0.52



$

0.40













Reconciliation of Net Income to Adjusted EBITDA


We define EBITDA as net income plus income tax expense, net interest expense, depreciation, depletion, amortization, accretion and impairment of oil and gas properties. We believe the presentation of EBITDA and Adjusted EBITDA provide useful information regarding our ability to service debt and to fund capital expenditures and help our investors understand our operating performance and make it easier to compare our results with those of other companies that have different financing, capital and tax structures. Adjusted EBITDA excludes the unrealized gain or loss related to our commodity derivative contracts, loss on extinguishment of debt, royalty relief recoupment and adjustments related to a transportation allowance for deepwater production. Although not prescribed under generally accepted accounting principles, we believe the presentation of EBITDA and Adjusted EBITDA are relevant and useful because they help our investors understand our operating performance and make it easier to compare our results with those of other companies that have different financing, capital and tax structures. EBITDA and 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. EBITDA and Adjusted EBITDA, as we calculate them, may not be comparable to EBITDA and Adjusted EBITDA measures reported by other companies. In addition, EBITDA and Adjusted EBITDA do not represent funds available for discretionary use.


The following table presents a reconciliation of our consolidated net income to consolidated EBITDA and Adjusted EBITDA.















Three Months Ended




Three Months Ended



March 31,




December 31,



2011



2010




2010



(In thousands)



(Unaudited)













Net income


$

18,649



$

42,315



$

20,519

Income tax expense



10,182




4,020




4,135

Net interest expense



8,717




9,376




9,399

Depreciation, depletion, amortization and accretion



74,092




69,209




73,554

EBITDA



111,640




124,920




107,607













Adjustments:












Unrealized commodity derivative loss (gain)



21,617




(5,109)




14,040

Adjusted EBITDA


$

133,257



$

119,811



$

121,647

SOURCE W&T Offshore, Inc.