W&T Offshore Releases Q2 Financial and Operational Results

W&T Offshore, Inc. on Wednesday announced the company's financial and operational results for the second quarter 2006.

--Earnings were $0.58 per diluted share, or $0.71 without the effect of the derivative loss, in the second quarter 2006 vs. $0.69 in second quarter 2005.
--W&T was 100% successful in drilling three of three development wells on the conventional shelf.
--W&T was also successful in six of nine exploration wells, including four on the conventional shelf and two in the deep shelf.

Net Income

Net income for the three months ended June 30, 2006 was $38.5 million, or $0.58 per diluted share, on revenue of $165.8 million. Net income reflects the impact of $12.8 million of unrealized loss ($8.4 million after- tax), or $0.13 per diluted share, associated with the change in fair market value of W&T's open derivative contracts. Without the effect of the unrealized derivative loss, net income for the quarter would have been $46.8 million or $0.71 per diluted share. See "Additional Non-GAAP Information" later in this release. This compares to net income of $45.8 million, or $0.69 per diluted share, on revenues of $149.8 million for the second quarter of 2005. Net income for the six months ended June 30, 2006 was $94.3 million, or $1.43 per diluted share (or $1.50 per diluted share without the effect of the unrealized derivative loss), on revenues of $322.7 million, compared to net income of $85.1 million or $1.29 per diluted share, on revenues of $278.9 million for 2005.

Cash Flow from Operations and EBITDA

EBITDA and Adjusted EBITDA are non- GAAP measures and are defined in "Additional Non-GAAP Information" later in this press release. Net cash provided by operating activities decreased 9% to $114.8 million during the second quarter 2006 from $126.1 million during the prior year's second quarter. The decrease in cash provided by operating activities was primarily attributable to negative working capital changes. Second quarter 2006 Adjusted EBITDA was $137.4 million, compared to $123.0 million during the prior year's second quarter. Net cash provided by operating activities for the six months ended June 30, 2006 increased 15% to $228.1 million from $198.6 million in the first half of 2005. Adjusted EBITDA was $265.6 million for the six months ended June 30, 2006, compared to $224.5 million for the prior year period.

Production and Prices

Total production in the second quarter of 2006 was 11.2 billion cubic feet ("Bcf") of natural gas at an average price of $6.98 per thousand cubic feet ("Mcf") and 1.4 million barrels ("MMBbls") of oil at an average price of $61.13 per Bbl, or 19.8 billion cubic feet of natural gas equivalent ("Bcfe") at an average price of $8.37 per Mcfe. This compares to production of 13.3 Bcf of natural gas at an average price of $7.08 per Mcf and 1.2 MMBbls of oil at an average price of $45.22 per Bbl, or 20.7 Bcfe at an average price of $7.24 per Mcfe in the second quarter of 2005. The natural gas volume decrease is primarily attributable to the deferral of production caused by hurricanes Katrina and Rita and natural reservoir declines. The oil volume increase is primarily the result of successful drilling efforts. At the end of the second quarter we were producing at 90% of pre-Katrina levels.

For the six months ended June 30, 2006, total production was 22.1 Bcf of natural gas at an average price of $7.88 per Mcf and 2.5 MMBbls of oil at an average price of $59.32 per Bbl, or 37.1 Bcfe at an average price of $8.69 per Mcfe. This compares to 25.6 Bcf of natural gas at an average price of $6.72 per Mcf and 2.4 MMBbls of oil at an average price of $44.47 per Bbl, or 40.0 Bcfe at an average price of $6.97 per Mcfe for the same period in 2005.

Average prices exclude the settlement of derivative contracts that do not qualify for hedge accounting. Had the settlement of these derivatives been included, average sales price for natural gas would have been $7.22 per Mcf for the second quarter of 2006 and $8.01 per Mcf for the six months ended June 30, 2006. Average sales price for oil would have been $60.78 per barrel for the second quarter of 2006 and $59.13 per barrel for the six months ended June 30, 2006. On a natural gas equivalent basis, average sales price would have been $8.48 per Mcfe for the second quarter of 2006 and $8.75 per Mcfe for the six months ended June 30, 2006. The Company did not have any derivative contracts in place during the periods ended in 2005.

Lease Operating Expenses (LOE)

LOE for the second quarter of 2006 decreased to $16.3 million, or $0.82 per Mcfe, from $17.9 million, or $0.86 per Mcfe, in the second quarter of 2005. The decline in LOE was due to fewer workovers and lower maintenance expenses, which were partially offset by an increase in operating costs. LOE for the six months ended June 30, 2006 was $32.1 million or $0.86 per Mcfe, compared to $34.0 million or $0.85 per Mcfe in 2005. LOE for the periods ended in 2006 excludes hurricane remediation costs reclassified to accounts receivable that we believe are reimbursable under our insurance policies.

Depreciation, depletion, amortization, and accretion (DD&A)

DD&A increased to $67.3 million, or $3.40 per Mcfe, in the second quarter of 2006 from $51.9 million, or $2.51 per Mcfe, in the same period of 2005. DD&A for the six months ended 2006 was $116.4 million or $3.14 per Mcfe, compared to DD&A of $93.2 million, or $2.33 per Mcfe, for the same period in 2005 as a result of an increase in our total depletable costs from a larger capital spending program.

Capital Expenditures and Operations Update

During the second quarter of 2006, we participated in the drilling of nine exploration wells (gross) in the Gulf of Mexico of which six were successful. We also successfully drilled three development wells during the period. During the second quarter of 2006, we spent $65.1 million for development, $80.4 million for exploration and $6.0 million for other capital items, including acquisitions. For the six months ended June 30, 2006, $127.7 million was spent on development, $132.3 million for exploration and $14.4 million on other capital items, including leasehold acquisitions.

As a result of exploration success the company has experienced over the last twelve months, capital spending on completion projects has exceeded earlier expectations. Additionally, the full extent of the company's exploration program at Green Canyon 82 "Healey" was not included in the original budget. The company expects the stand-alone budget to be increased by approximately $150 million above the original budget of $400 million.

Drilling Highlights

In the second quarter of 2006, the company participated in the drilling of twelve wells, nine exploration, and three development. Of the wells drilled in the second quarter of 2006, one was in deepwater, two were on the deep shelf, and nine were on the conventional shelf. Two shelf wells and one deepwater well were considered non-commercial. After the close of the second quarter, three additional exploration discoveries were made, along with one development well, which are indicated by an asterisk (*).

    Successful Wells:

    Field Name/Well                  Category            Working Interest %

    Eugene Island 205 C-2ST      Exploration / Shelf           100%
    West Delta 30 D-3ST          Exploration / Shelf           100%
    Mobile Bay 823 BB-2          Exploration / Shelf           100%
    South Timbalier 206 A-10ST*  Exploration / Shelf            25%
    West Delta 30 D-6ST          Exploration / Shelf           100%
    Eugene Island 205 C-4ST      Exploration / Deep Shelf      100%
    Eugene Island 205 C-1ST      Exploration / Deep Shelf      100%
    Eugene Island 205 C-3ST*     Exploration / Deep Shelf      100%
    Green Canyon 82 #3*          Exploration / Deepwater       100%
    East Cameron 321 A-22ST      Development / Shelf           100%
    East Cameron 321 A-12ST      Development / Shelf           100%
    East Cameron 321 A-25ST*     Development / Shelf           100%
    West Delta 30 D-2ST          Development / Shelf           100%

    Non-commercial Wells:

    Field Name/Well                 Category            Working Interest %

    Eugene Island 205 D-4ST      Exploration / Shelf           100%
    Venice BLD #1                Exploration / Shelf           100%
    Garden Banks 240 #1          Exploration / Deepwater        33%

In the remainder of the year, the company anticipates drilling three exploration wells on the conventional shelf, one in the deep shelf and up to two in the deepwater. Additionally, we have two development wells scheduled for the second half of 2006.

Dividends

On June 28, 2006, the board of directors declared a cash dividend of $0.03 per common share, which was paid on August 1, 2006 to shareholders of record on July 14, 2006. On May 1, 2006, the company paid a cash dividend of $0.03 per common share to shareholders of record on April 14, 2006.

Insurance Update

Our estimate of repair costs associated with hurricanes Katrina and Rita has increased to between $90 and $100 million. As of June 30, 2006, the company has incurred $7.8 million of development costs and $41.1 million of production costs, net to its interest, to remediate damage caused by Hurricanes Katrina and Rita and the company believes these costs are reimbursable under its insurance policies. W&T reclassified these costs to accounts receivable and continues to file claims with its underwriters for reimbursement. Included in joint interest and other receivables at June 30, 2006 is $43.4 million, which represents the estimated reimbursable hurricane remediation costs incurred in excess of the deductibles. In July 2006, the company received an initial payment for our first claim related to Hurricane Rita in the amount of $4.9 million. This payment was for reimbursable costs of $10.1 million, less the cumulative annual deductible for 2005 of $5.0 million and a per occurrence deductible of $250,000.

Kerr-McGee Transaction Update

The daily production from Kerr-McGee properties is 186 Mmcfe as of July 16, 2006. The Kerr-McGee Transaction is on track to be completed and closed during the third quarter of 2006.

Outlook

Certain factors affecting these forward-looking statements are listed in this news release. Guidance on performance for the third quarter, full year of 2006 is shown in the table below. The guidance is for W&T stand- alone only and does not include the impact of the pending Kerr-McGee Transaction.



    Estimated Production         Third Quarter 2006       Full-Year 2006
    Crude oil (MMBbls)                1.5 - 1.6              5.8 - 6.1
    Natural gas (Bcf)                11.9 - 12.2            48.2 - 51.1
    Total (Bcfe)                     21.1 - 21.6            83.0 - 87.7

    Operating Expenses ($ in     Third Quarter 2006       Full- Year 2006
    millions, except as noted)
    Lease operating expenses       $22.5 - $24.0          $75.3 - $82.3
    Gathering, transportation
     & production taxes              $3.7 - $4.4          $15.1 - $16.5
    General and administrative      $8.6 - $10.6          $38.0 - $43.0
    Income tax rate, % deferred       35.0%, 80%          35.0%, 80%

Founded in 1983, W&T Offshore is an independent oil and natural gas company focused primarily in the Gulf of Mexico, including exploration in the deepwater, where it has developed significant technical expertise. W&T has grown through acquisition, exploitation and exploration and now holds working interests in over 100 fields in federal and state waters and a majority of its daily production is derived from wells it operates.

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