W&T Offshore Reports 3Q06 Results

W&T Offshore, Inc. (NYSE: WTI) announced financial and operational results for the third quarter 2006.

-- Third quarter 2006 production is 50% higher than third quarter 2005 and increased 32% sequentially from the second quarter 2006

-- Year-to-date production was at an all-time high and is projected to increase over 50% for 2007

-- W&T was also successful in seven of seven exploration wells, including two on the conventional shelf, four in the deep shelf and one in the deepwater during the third quarter of 2006

Net Income: Net income for the three months ended September 30, 2006 was $66.7 million, or $0.91 per diluted share, on revenue of $213.4 million. Net income for the third quarter of 2006 includes an unrealized gain of $14.8 million (after taxes) related to W&T's open commodity derivative contracts. Without the effect of the unrealized commodity derivative gain, net income for the third quarter of 2006 would have been $51.9 million or $0.71 per diluted share. This compares to net income of $53.1 million, or $0.80 per diluted share, on revenues of $153.4 million for the third quarter of 2005. Net income for the nine months ended September 30, 2006 was $161.0 million, or $2.35 per diluted share, or $2.21 per diluted share without the effect of the unrealized commodity derivative gain, on revenues of $536.1 million, compared to net income of $138.2 million or $2.09 per diluted share, on revenues of $432.3 million for 2005. Weighted average shares of common stock outstanding on a diluted basis increased 11% to 73.0 million shares for the third quarter of 2006, compared to third quarter of 2005. See "Additional Non-GAAP Information" later in this release. Cash Flow from Operations and EBITDA: EBITDA and Adjusted EBITDA are non- GAAP financial measures and are defined in "Additional Non-GAAP Information" later in this press release. Third quarter 2006 Adjusted EBITDA was $168.5 million, compared to $126.1 million during the prior year's third quarter. Net cash provided by operating activities for the nine months ended September 30, 2006 increased to $351.5 million from $343.9 million in 2005. Adjusted EBITDA was $434.1 million for the nine months ended September 30, 2006, compared to $350.7 million for the prior year period. For more complete information regarding EBITDA and Adjusted EBITDA

Production and Prices: Total production in the third quarter of 2006 was 15.4 billion cubic feet ("Bcf") of natural gas at an average price of $6.58 per thousand cubic feet ("Mcf") and 1.8 million barrels ("MMBbls") of oil at an average price of $62.08 per Bbl, or 26.2 billion cubic feet of natural gas equivalent ("Bcfe") at an average price of $8.14 per Mcfe. This compares to production of 11.5 Bcf of natural gas at an average price of $8.64 per Mcf and 1.0 MMBbls of oil at an average price of $54.39 per Bbl, or 17.5 Bcfe at an average price of $8.79 per Mcfe in the third quarter of 2005. The increase in volumes is primarily attributable to the additional production associated with the Kerr-McGee transaction closing within the quarter and new production from successful exploration drilling.

For the nine months ended September 30, 2006 total production was 37.5 Bcf of natural gas at an average price of $7.35 per Mcf and 4.3 MMBbls of oil at an average price of $60.48 per Bbl, or 63.3 Bcfe at an average price of $8.46 per Mcfe. This compares to 37.1 Bcf of natural gas at an average price of $7.31 per Mcf and 3.4 MMBbls of oil at an average price of $47.38 per Bbl, or 57.4 Bcfe at an average price of $7.52 per Mcfe for the same period in 2005.

Average realized prices exclude the settlement of commodity derivative contracts that do not qualify for hedge accounting. Had the Company included the effect of the realized cash portion of commodity derivative contracts during the relative periods, the average realized sales price for natural gas would have been $6.87 per Mcf for the third quarter of 2006 and $7.54 per Mcf for the nine months ended September 30, 2006. The average realized sales price for oil would have been $62.00 per barrel for the third quarter of 2006 and $60.33 per barrel for the nine months ended September 30, 2006. On a natural gas equivalent basis, the average realized sales price would have been $8.30 per Mcfe for the third quarter of 2006 and $8.57 per Mcfe for the nine months ended September 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 third quarter increased from $18.2 million, or $1.04 per Mcfe, to $34.4 million, or $1.31 per Mcfe in the third quarter of 2006. LOE for the nine months ended September 30, 2006 was $66.5 million, or $1.05 per Mcfe, compared to $52.3 million, or $0.91 per Mcfe, in 2005. The increases in quarterly and year-to-date LOE are primarily attributable to higher costs associated with the Kerr-McGee transaction in August 2006 and increases in insurance premiums as a result of last year's hurricanes, hurricane repair costs, overall service costs, and supply costs at existing properties.

Depreciation, depletion, amortization and accretion ("DD&A"): DD&A increased to $85.5 million, or $3.26 per Mcfe, in the third quarter of 2006 from $45.6 million, or $2.61 per Mcfe, in the same period of 2005. DD&A for the nine months ended 2006 was $201.9 million or $3.19 per Mcfe, compared to DD&A of $138.8 million, or $2.42 per Mcfe, for the same period in 2005 as a result of an increase in total depletable costs due to the Kerr-McGee transaction and the Company's higher drilling activities.

Kerr-McGee purchase price allocation: The Kerr-McGee properties were accounted for as a purchase, and accordingly, the results of operations are included in our consolidated statements of operations from the closing date of August 24, 2006. The purchase price was allocated to the acquired assets and assumed liabilities based on their estimated fair value at the time of acquisition. As a result of our allocation, $814 million was allocated to proved oil and gas properties and $392 million was allocated to unproved oil and gas properties.

Capital Expenditures and Operations Update: During the third quarter of 2006, the Company participated in the drilling of seven exploration wells (gross) in the Gulf of Mexico, all of which were successful. W&T also successfully drilled one development well during the period. During the third quarter of 2006, the Company spent $70.3 million for development, $35.4 million for exploration, $1.1 billion for acquisition and other leasehold activity and $3.6 million for other capital items. For the nine months ended September 30, 2006, $198.0 million was spent on development, $167.7 million for exploration, and $1.1 billion for acquisition and other leasehold activity.

As a result of the Company's success, the Company's 2006 capital budget was increased to $550 million from $400 million by the Board of Directors during the third quarter.

Drilling Highlights: In the third quarter of 2006, the Company participated in the drilling of eight wells, seven exploration and one development. Of the wells drilled in the third quarter of 2006, one was in deepwater, four were on the deep shelf, and three were on the conventional shelf. One second-quarter exploration deep shelf well has been re-categorized as non-commercial. Two of the exploration wells, indicated below by an asterisk, were drilled before W&T closed the Kerr-McGee transaction.


    Successful Wells:

    Field Name/Well                    Category           Working Interest %
    High Island 24L #1            Exploration / Shelf             25%
    South Timbalier 206 A-10ST    Exploration / Shelf             25%
    Bay Junop S/L 17993-#1        Exploration / Deep Shelf       100%
    Eugene Island 205 C-3ST       Exploration / Deep Shelf       100%
    South Timbalier 41 #5 (F-1)*  Exploration / Deep Shelf        40%
    West Cameron 295 #4ST*        Exploration / Deep Shelf        20%
    Green Canyon 82 #3            Exploration / Deepwater        100%
    East Cameron 321 A-25ST       Development / Shelf            100%

    * Indicates wells drilled before W&T closed the Kerr-McGee transaction

    Non-commercial Well (re-classified from the second quarter):

    Field Name/Well                    Category           Working Interest %
    Eugene Island 205 C-1ST       Exploration / Deep Shelf       100%

In the remainder of the year, the Company anticipates drilling two exploration wells on the conventional shelf, and two exploration wells in the deepwater.

Dividends: On October 11, 2006, the board of directors declared a cash dividend of $0.03 per common share, which was paid on November 1, 2006 to shareholders of record on October 22, 2006. On August 1, 2006, the Company paid a cash dividend of $0.03 per common share to shareholders of record on July 14, 2006.

Insurance Update: As of September 30, 2006, the Company has incurred $76.8 million of costs, net to its interest, to remediate damage caused by Hurricanes Katrina and Rita that have been reclassified to insurance receivables and other assets. Included in insurance receivables and other assets is $45.7 million and $6.1 million, respectively, which represents the estimated reimbursable hurricane remediation costs incurred in excess of the deductibles that the Company believes are reimbursable under its insurance policies. To date, the Company has received payment for its claims related to Hurricane Rita in the amount of $17.2 million, net of deductibles. The Company estimates the total remediation costs associated with the hurricanes to be between $90 million and $100 million.

Kerr-McGee Transaction Closing: W&T Offshore completed the merger transaction with a Kerr-McGee subsidiary owning the Gulf of Mexico conventional shelf properties of Kerr-McGee. The effective date of the transaction is October 1, 2005. The merger transaction closed on August 24, 2006 for $1.03 billion.

Equity Offering: W&T Offshore completed an equity offering on July 20, 2006, selling a total of 8.5 million shares at $32.50 per share, before underwriting discount. The Company granted the underwriters a 30-day option to purchase up to an additional 1.275 million shares of common stock, which was exercised on August 9, 2006. Total proceeds to the Company, net of underwriting discount, was $308.2 million, which was used as a portion of the cash consideration in the Kerr-McGee merger transaction.

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Brent Crude Oil : $53.96/BBL 0.35%
Light Crude Oil : $51.36/BBL 0.21%
Natural Gas : $3.209/MMBtu 0.34%
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