W&T Offshore Increases Revenues in 1Q10
W&T Offshore provided financial and operational results for the first quarter 2010. Some of the highlights for the first quarter of 2010 include:
- EPS increased to $0.57 from a loss per share of $3.22 during the first quarter of 2009.
- Adjusted EBITDA increased 127% or $66.6 million to $119.0 million from $52.5 million during the first quarter of 2009.
- Revenues increased 44% or $52.2 million to $169.6 million from $117.4 million during first quarter of 2009.
- 50% of total sales volumes during the first quarter of 2010 were oil and natural gas liquids, up from 41% in the comparable period in 2009.
- Lease operating expenses decreased 30% or $14.9 million to $35.4 million compared to first quarter of 2009.
- Depreciation, depletion and amortization, including accretion of asset retirement obligations, decreased $22.3 million, or 24%, to $69.2 million compared to first quarter of 2009.
- 67% success in the drilling program, successfully drilling one of two exploration wells and one development well, all of which were on the conventional shelf.
On April 30, 2010, we completed the acquisition of all of the interests of Total E&P USA, Inc. in three federal offshore lease blocks located in the Gulf of Mexico with an effective date of January 1, 2010. The properties acquired are producing interests with future development potential, and include a 100% working interest in Mississippi Canyon block 243 ("Matterhorn") and a 64% working interest in Viosca Knoll blocks 822 and 823 ("Virgo"). The estimated proved oil and natural gas reserves on the effective date were 11.6 million barrels of oil equivalent ("Boe"). These estimated proved reserves were determined using the unweighted average of first-day-of-the-month commodity prices over the 12-month period ending December 31, 2009 of $3.87 per Mcf for natural gas and $57.65 per Bbl for oil and natural gas liquids, adjusted by lease for quality, transportation fees and regional price differentials. After adjusting the purchase price for, among other things, net revenue and operating expenses from the effective date to March 31, 2010 and a down payment of $7.5 million, cash paid at closing was $117.5 million. Further adjustments will be made to account for operations related to these assets for the period from the effective date to the closing date. The impact on our operations from the acquisition of these assets will be included in our financial statements beginning May 1, 2010. This acquisition was funded from cash on hand.
Tracy W. Krohn, Chairman and Chief Executive Officer, commented, "The Total assets meet all of our acquisition criteria, which include producing properties and upside, and provide us with strategic ownership of deepwater structures within close proximity of our existing assets. In addition, the Total assets were 64% oil and natural gas liquids in terms of proved reserves at year-end 2009 and producing 67% oil and natural gas liquids during March 2010. The purchase of these assets from Total marks what we hope to be the beginning of many other opportunities we can capitalize on to grow reserves and production without compromising our historical focus on opportunities that provide high rates of return. With a multitude of high quality drilling opportunities available to us both internally and externally, increased activity in the M&A market, higher average realized oil prices and a moderation of costs of goods and services, we are very optimistic about the future growth potential of the Company."
Revenues, Net Income/Loss and EPS: Net income for the first quarter of 2010 was $42.3 million, or $0.57 per common share, on revenues of $169.6 million, compared to a net loss for the same quarter of 2009 of $244.6 million, or $3.22 per common share, on revenues of $117.4 million. Net income increased in the first quarter of 2010, largely due to the $218.9 million ceiling test impairment in the first quarter of 2009 and an increase in our average realized unhedged price to $8.50 per thousand cubic feet equivalent ("Mcfe") during the first quarter of 2010 from $5.48 per Mcfe during the same period in 2009. These increases were partially offset by lower production volumes during the first quarter of 2010 versus the comparable period in 2009.
Net income for the first quarter of 2010 excluding special items was approximately $36.9 million, or $0.49 per common share. The net loss excluding special items for the corresponding quarter of 2009 was approximately $102.0 million, or $1.34 per common share. See the "Reconciliation of Net Income (Loss) to Net Income (Loss) Excluding Special Items" table at the back of this press release for a description of the special items.
Our effective tax rate for the quarter ended March 31, 2010 was approximately 8.7% and differs from the statutory rate of 35% primarily related to the incremental current period effect of a reduction in the valuation allowance for our deferred tax assets.
Cash Flow from Operating Activities and Adjusted EBITDA: EBITDA and Adjusted EBITDA are non-GAAP measures and are hereinafter defined in "Non-GAAP Information" later in this press release. Net cash provided by operating activities for the three months ended March 31, 2010 increased 198% to $87.0 million from $29.2 million for the three months ended March 31, 2009. The increase was mainly a result of higher realized prices and lower operating costs, partially offset by lower production volumes. Adjusted EBITDA for the first quarter of 2010 was $119.0 million compared to $52.5 million during first quarter 2009, or a 127% increase. Adjusted EBITDA margin in the first quarter of 2010 increased to 70% from 45% in the first quarter of 2009.
Production and Prices: On a natural gas equivalent ("Bcfe") basis, we sold 20.0 Bcfe at an average price of $8.50 per Mcfe in the first quarter of 2010, of which 50% was from oil and natural gas liquids, compared to 21.4 Bcfe sold at an average price of $5.48 per Mcfe in the first quarter of 2009, of which 41% was from oil and natural gas liquids. The sales volume decrease for natural gas is primarily attributable to natural reservoir declines and the sale of one of our fields in Louisiana state waters in the second quarter of 2009 and the sale of other non-core assets in the fourth quarter of 2009. The sales volume increase for oil is primarily attributable to our successful exploration and development efforts, partially offset by decreases resulting from the sale of non-core assets in 2009 as discussed above.
Lease Operating Expenses: In the first quarter of 2010, LOE decreased to $35.4 million, or $1.77 per Mcfe, from $50.2 million, or $2.35 per Mcfe, in the first quarter of 2009. Included in lease operating expenses for the three months ended March 31, 2010 is a reduction of $6.3 million related to amounts approved for payment under our insurance policies and revisions to previous estimates of hurricane remediation costs incurred in connection with Hurricanes Ike and Gustav. Included in lease operating expenses for the three months ended March 31, 2009 are hurricane remediation costs of $10.2 million related to Hurricanes Ike and Gustav that were either not yet approved for payment or were not covered by insurance. Lease operating expenses will be offset in future periods to the extent that additional costs are incurred and approved for payment under our insurance policies. Decreases in base lease operating expenses and facilities expense of $6.6 million and $2.9 million, respectively, were more than offset by increases in insurance and workover costs of $3.2 million and $7.9 million, respectively. The decrease in base lease operating expenses primarily reflects the sale of non-core assets in 2009. The increase in workover costs is related to numerous projects undertaken in the first quarter of 2010 to stimulate and restore production at various wells.
Depreciation, depletion, amortization and accretion: DD&A, including accretion of asset retirement obligations, decreased to $69.2 million, or $3.47 per Mcfe, in the first quarter of 2010 from $91.5 million, or $4.27 per Mcfe, in the first quarter of 2009. DD&A decreased due to a lower depreciable base (including our estimate of the cost of asset retirement obligations) and lower production of oil and natural gas, partially offset by lower oil and natural gas reserves, compared to 2009. The decrease in our depreciable base reflects the sale of non-core assets in 2009. The decrease in our depreciable base also reflects lower future development costs due to the write-off of certain proved undeveloped reserves at the end of 2009 in connection with new reserve reporting requirements for oil and natural gas companies enacted by the SEC and the FASB.
Liquidity: Our cash balance at March 31, 2010 was $84.2 million. We recently completed the semi-annual redetermination of our borrowing base, which has been reaffirmed by our lenders at $405.5 million. Also during April, we redrew the $142.5 million of the revolving portion of our Credit Agreement to partially offset the effects of our interest rate swap, which results in a remaining revolver availability of $262 million.
Capital Expenditures and Operations Update: 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 and natural gas, acquisition opportunities and the results of our exploration and development activities. For the three months ended March 31, 2010, capital expenditures for oil and natural gas properties of $39.9 million included $19.4 million for exploration activities, $17.3 million for development activities and $3.2 million for seismic, capitalized interest and other leasehold costs. Our development and exploration capital expenditures consisted of $30.7 million on the conventional shelf and other projects, $1.7 million in the deepwater and $4.3 million on the deep shelf. Cash from operating activities was more than sufficient to fund our capital expenditures for the three months ended March 31, 2010.
Drilling Highlights: In the first quarter of 2010, the Company drilled or participated in the drilling of three conventional shelf wells, two of which were commercially successful.
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