• W&T Offshore Announces First Quarter 2023 Results

    Source: Nasdaq GlobeNewswire / 09 May 2023 15:45:34   America/Chicago

    HOUSTON, May 09, 2023 (GLOBE NEWSWIRE) -- W&T Offshore, Inc. (NYSE: WTI) (“W&T” or the “Company”) today reported operational and financial results for the first quarter of 2023. This press release includes non-GAAP financial measures, including Adjusted Net Income, Adjusted EBITDA, Free Cash Flow, and Net Debt, which are described and reconciled to the most comparable GAAP measures below in the accompanying tables under “Non-GAAP Information.”

    Key highlights for the first quarter of 2023 and through the date of this press release include:

    • Reported first quarter 2023 production of 32.5 thousand barrels of oil equivalent per day (“MBoe/d”) (56% liquids), or 2.9 million barrels of oil equivalent (“MMBoe”);
      • Production during the quarter was impacted by several planned periodic facility and pipeline maintenance projects at the Mobile Bay field as well as unplanned downtime at several non-operated fields that temporarily reduced production volumes;
      • Shut-in production has mostly been restored and total Company production is currently averaging approximately 38.1 Mboe/d;
    • Generated net income of $26.0 million or $0.17 per diluted share in the first quarter of 2023, which includes $39.2 million in net unrealized gain on outstanding derivative contracts;
      • Adjusted Net Loss totaled $2.4 million, or $0.02 per share in the first quarter of 2023, which excludes the net unrealized gain on outstanding derivative contracts;
    • Reported Adjusted EBITDA of $43.1 million for the first quarter of 2023;
    • Produced Free Cash Flow of $12.4 million for the first quarter of 2023, the 21st consecutive quarter of positive Free Cash Flow;
    • Closed the previously-announced offering of $275 million in aggregate principal amount of 11.75% Senior Second Lien Notes due 2026 (the “2026 Senior Second Lien Notes”) on January 27, 2023;
      • The Company used the net proceeds of the offering, along with cash on hand, to fund the redemption of all of the Company’s outstanding 9.75% Senior Second Lien Notes due 2023 (the “2023 Senior Second Lien Notes”);
    • Maintained strong cash and cash equivalents of $177.4 million at March 31, 2023;
    • Decreased Net Debt to $225.9 million as of March 31, 2023, which is down substantially from Net Debt of $504.8 million a year ago;
    • Continued to maintain a low leverage profile with Net Debt to trailing twelve months (“TTM”) Adjusted EBITDA of 0.4 times compared to over 2.0 times one year ago;
    • Appointed a new independent director to the Board, Dr. Nancy Chang, who will serve as chair of the Environmental, Safety and Governance Committee and as a member of the Audit Committee and the Nominating and Corporate Governance Committee; and
    • Named apparent high bidder in the most recent Gulf of Mexico (“GOM”) lease sale on two shallow water blocks, Eugene Island South Addition block 371 and Eugene Island South Addition block 387. These two blocks cover a total of approximately 10,000 gross acres.

    Tracy W. Krohn, W&T’s Board Chair and Chief Executive Officer, stated, “We had another good quarter of positive operational and financial results. While production volumes were temporarily reduced to conduct a planned maintenance turnaround at our onshore facility in the Mobile Bay field, pipeline maintenance projects and other temporary unplanned downtime at non-operated fields, we continued to generate meaningful Adjusted EBITDA and Free Cash Flow. We delivered Adjusted EBITDA of $43.1 million in the first quarter and generated positive Free Cash Flow for the 21st consecutive quarter, totaling $12.4 million. We strengthened our balance sheet by issuing $275 million in new 2026 Senior Second Lien Notes and used the proceeds along with our considerable cash position to repurchase all $552.5 million principal amount of the outstanding 2023 Senior Second Lien Notes. This significantly reduces our interest payments by approximately $22 million per year, preserves our financial flexibility and improves our balance sheet moving forward. We have significant cash and cash equivalents of $177.4 million and our Net Debt to Adjusted EBITDA ratio is down to 0.4 times. We are increasingly better positioned to take advantage of potential acquisitions regardless of what the economic situation may be this year and poised to continue delivering on our strategic vision. Our commitment to enhancing shareholder value through a proven strategy focused on free cash flow generation and operational excellence has positioned us well for the future.”

    Production, Prices, and Revenue: Production for the first quarter of 2023 was 32.5 MBoe/d, which was within the Company’s guidance range provided for the quarter. This represented a decrease of 16% from 38.6 Mboe/d for the fourth quarter of 2022 and a decrease of 14% from 37.8 MBoe/d for the corresponding period in 2022. The decrease in production was primarily driven by temporary unplanned downtime at non-operated fields and extended planned downtime associated with a maintenance project at the Company’s Mobile Bay onshore treatment facility to properly maintain, inspect, and clean out process vessels in the plant as well as pipeline maintenance, which shut in production at the Mobile Bay field for 35 days compared to 25 estimated in the guidance range provided for the first quarter of 2023. Shut-in production has mostly been fully restored and total Company production is currently averaging approximately 38.1 Mboe/d. First quarter 2023 production was comprised of 15.0 MBbl/d of oil (46%), 3.3 MBbl/d of natural gas liquids (“NGLs”) (10%), and 85.3 million cubic feet per day (“MMcf/d”) of natural gas (44%).

    W&T’s average realized price per barrel of oil equivalent (“Boe”) before realized derivative settlements was $44.32 per Boe in the first quarter of 2023, a decrease of 16% from $52.82 per Boe in the fourth quarter of 2022 and a decrease of 20% from $55.29 per Boe in the first quarter of 2022. Crude oil, NGL, and natural gas prices, before realized derivative settlements for the first quarter of 2023, were $71.85 per barrel, $26.51 per barrel, and $3.23 per Mcf, respectively.

    Revenues for the first quarter of 2023 were $131.7 million, which was lower than fourth quarter 2022 revenue of $189.7 million and lower than $191.0 million in the first quarter of 2022, due to a combination of lower realized prices and lower production volumes.

    Lease Operating Expense: Lease operating expense (“LOE”), which includes base lease operating expenses, insurance premiums, workovers, facilities maintenance, and hurricane repairs, was $65.2 million in the first quarter of 2023, which was below the midpoint of the previously provided guidance range. This compared to $69.0 million in the fourth quarter of 2022 and $43.4 million for the corresponding period in 2022. On a component basis for the first quarter of 2023, base LOE and insurance premiums were $47.8 million, workovers were $5.0 million, and facilities maintenance and other expenses were $12.4 million. On a unit of production basis, LOE was $22.29 per Boe in the first quarter of 2023. This compares to $19.42 per Boe for the fourth quarter of 2022 and $12.78 per Boe for the first quarter of 2022.

    Gathering, Transportation Costs, and Production Taxes: Gathering, transportation costs, and production taxes totaled $6.1 million ($2.10 per Boe) in the first quarter of 2023, compared to $8.5 million ($2.39 per Boe) in the fourth quarter of 2022 and $5.3 million ($1.55 per Boe) in the first quarter of 2022. Production taxes decreased due to lower realized natural gas prices during the first quarter of 2023.

    Depreciation, Depletion, Amortization, and Accretion (“DD&A”): DD&A, including accretion expense related to asset retirement obligations (“ARO”), was $10.31 per Boe in the first quarter of 2023. This compares to $9.64 per Boe and $9.10 per Boe for the fourth quarter of 2022 and the first quarter of 2022, respectively.

    General & Administrative Expenses (“G&A”): G&A was $19.9 million for the first quarter of 2023, which decreased compared to the fourth quarter of 2022 due to the $2.2 million employee retention credit received by the Company. This compares to $22.0 million in the fourth quarter of 2022 and $13.8 million in the first quarter of 2022. On a unit of production basis, G&A was $6.81 per Boe in the first quarter of 2023 compared to $6.18 per Boe in the fourth quarter of 2022 and $4.05 per Boe in the corresponding period of 2022.

    Derivative (Gain) Loss: In the first quarter of 2023, W&T recorded a net gain of $39.2 million related to commodity derivative contracts comprised of a $39.5 million unrealized gain related primarily to the increase in fair value of open contracts, partially offset by $0.2 million of realized losses. The Company recognized a net gain of $24.4 million in the fourth quarter of 2022 and a net loss of $80 million in the first quarter of 2022 related to commodity derivative activities.

    For the remainder of 2023, W&T is approximately 57% hedged for natural gas and currently has no hedges for oil. A significant portion of the W&T’s natural gas hedges, in the form of sold swaps and purchased calls and puts, were entered into in conjunction with the non-recourse Mobile Bay term loan entered into by borrowers owned by the Company’s wholly-owned subsidiary Aquasition Energy LLC and will continue through the life of that loan.

    A summary of the Company’s outstanding derivative positions is provided on W&T’s website in the “Investors” section under the “Financial Information” tab.

    Interest Expense: Net interest expense in the first quarter of 2023 was $14.7 million compared to $14.5 million in the fourth quarter of 2022 and $19.9 million in the first quarter of 2022.

    Income Tax: W&T recognized income tax expense of $8.6 million in the first quarter of 2023. This compares to the recognition of income tax expense of $6.9 million and an income tax benefit of $0.7 million for the quarters ended December 31, 2022 and March 31, 2022, respectively.

    Balance Sheet and Liquidity: As of March 31, 2023, W&T had available liquidity of $227.4 million comprised of $177.4 million in cash and cash equivalents and $50.0 million of borrowing availability under W&T’s first priority secured revolving facility provided by Calculus Lending LLC (“Calculus”). At quarter-end, the Company had total debt of $403.3 million (or Net Debt of $225.9 million, net of cash and cash equivalents), consisting of the balance of the non-recourse Mobile Bay term loan of $138.3 million and $275 million of 11.25% Senior Second Lien Notes, net of unamortized debt issuance costs for both instruments. Total debt decreased by $290.2 million during the first quarter of 2023. Net Debt decreased by $6.2 million in the first quarter of 2023. As of March 31, 2023, Net Debt to TTM Adjusted EBITDA was 0.4 times.

    On January 27, 2023, W&T closed an offering of $275 million in aggregate principal amount of 2026 Senior Second Lien Notes at par in a private offering that was exempt from registration under the Securities Act of 1933, as amended. The Company used the net proceeds of the offering, along with cash on hand, to fund the redemption of all of the Company’s outstanding 2023 Senior Second Lien Notes. On the closing date of the offering of the 2026 Senior Second Lien Notes, the Company satisfied and discharged the indenture governing the existing 2023 Senior Second Lien Notes.

    Capital Expenditures and Acquisitions: Capital expenditures (excluding changes in working capital associated with investing activities) in the first quarter of 2023 were $7.4 million, and asset retirement costs totaled $8.6 million.

    OPERATIONS UPDATE

    Front-end Engineering and Design and permitting processes are underway on the Holy Grail well at Garden Banks 783 in the Magnolia Field.  

    Well Recompletions and Workovers

    During the first quarter of 2023, the Company performed one recompletion and four workovers that positively impacted production for the quarter. W&T plans to continue performing these low cost, short payout operations that impact both production and revenue.

    Addition to W&T’s Board of Directors
    W&T appointed Dr. Nancy Chang as a new independent director to the Company’s Board of Directors. Dr. Chang will serve as a member of the Audit Committee and the Nominating and Corporate Governance Committee and as the chair of the Environmental, Safety and Governance Committee. Dr. Chang is a widely respected and internationally recognized scientist as well as a highly successful senior executive in both the private and public sectors. Dr. Chang’s impressive prior experience as a member of a number of boards of directors and having served on the Board of the Federal Reserve Bank in Houston will make her a valuable member of W&T’s Board. In particular, her experiences as founder and chief executive officer of a successful, publicly-traded company and one of the largest healthcare-focused investment management firms in the world will bring unique perspectives, talents and insights to the Board. She will stand for election at the Company’s upcoming annual meeting of shareholders.

    Lease Sale 259
    W&T was the apparent high bidder in the most recent GOM lease sale on two shallow water blocks, Eugene Island South Addition block 371 and Eugene Island South Addition block 387. These two blocks cover a total of approximately 10,000 gross acres. If awarded, the Company will pay approximately $340,000 in total for the awarded leases combined, which reflects a 100% working interest in the acreage. The blocks have a lease term of five years and an 18.75% royalty. Despite submitting the apparent high bid on these leases, the Bureau of Ocean Energy Management reserves the right not to award the blocks based on their minimum bidding criteria. W&T expects to receive the final award results over the next 90 days.

    Second Quarter and Full Year 2023 Production and Expense Guidance

    The guidance for the second quarter and full year 2023 in the table below represents the Company’s current expectations. Please refer to the section entitled “Forward-Looking and Cautionary Statements” below for risk factors that could impact guidance.

    ProductionSecond Quarter 2023Full Year 2023
    Oil (MBbl)1,180 – 1,3205,220 – 5,820
    NGLs (MBbl)330 – 3701,370 – 1,550
    Natural gas (MMcf)10,000 – 11,20041,500 – 45,500
    Total equivalents (MBoe)3,177 – 3,55713,510 – 14,955
    Average daily equivalents (MBoe/d)34.9 – 39.137.0 – 41.0
       
    ExpensesSecond Quarter 2023Full Year 2023
    Lease operating expense ($MM)$63.0 – $72.0$235.0 – $265.0
    Gathering, transportation & production taxes ($MM)$8.0 – $9.0$33.0 – $36.0
       
    General & administrative - cash ($MM)$12.8 – $14.8$55.0 – $62.0
    General & administrative – non-cash ($MM)$1.5 – $1.9$10.5 – $12.0
       
    DD&A ($ per Boe) $9.00 – $10.00
    Interest expense, net ($MM)$10.0 – $12.0$42.0 – $46.0


    The effective income tax rate for the full year 2023 is expected to be approximately 25%, of which approximately half is expected to be deferred, non-cash tax expense.

    Conference Call Information: W&T will hold a conference call to discuss its financial and operational results on Wednesday, May 10, 2023 at 9:00 a.m. Central Time (10:00 Eastern Time). Interested parties may dial 1-844-739-3797. International parties may dial 1-412-317-5713. Participants should request to connect to the “W&T Offshore Conference Call”. This call will also be webcast and available on W&T’s website at www.wtoffshore.com under “Investors”. An audio replay will be available on the Company’s website following the call.

    About W&T Offshore

    W&T Offshore, Inc. is an independent oil and natural gas producer with operations offshore in the Gulf of Mexico and has grown through acquisitions, exploration, and development. As of March 31, 2023, the Company had working interests in 47 fields in federal and state waters (46 fields producing and one field capable of producing, which include 39 fields in federal waters and eight in state waters). The Company has under lease approximately 625,000 gross acres (457,000 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, 457,500 gross acres on the conventional shelf and approximately 159,000 gross acres in the deepwater. A majority of the Company’s daily production is derived from wells it operates. For more information on W&T, please visit the Company’s website at www.wtoffshore.com.

    Forward-Looking and Cautionary Statements

    This press release contains 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. These forward-looking statements, including but not limited to, any forward-looking guidance provided herein, reflect our current views with respect to future events, based on what we believe are reasonable estimates and assumptions. No assurance can be given, however, that these events will occur or that our estimates will be correct. These statements are subject to risks and uncertainties that could cause actual results to differ materially including, among other things, market conditions, commodity price volatility, uncertainties inherent in oil and gas production operations and estimating reserves, uncertainties of the timing and impact of bringing new wells online and repairing and restoring infrastructure due to hurricane damage, the ability to achieve leverage targets, unexpected future capital expenditures, competition, the success of our risk management activities, governmental regulations, uncertainties and other factors described or referenced in W&T’s Annual Report on Form 10-K for the year ended December 31, 2022 and subsequent Quarterly Reports on Form 10-Q reports found at www.sec.gov or on our website at www.wtoffshore.com under the Investor Relations section. Our forward-looking statements in this press release are based upon assumptions made, and information known, by the Company as of the date of this release; it should not be assumed that the Company will undertake to revise or update any such forward-looking statements as such assumptions and information changes, except as required under applicable law. Investors are urged to consider closely the disclosures and risk factors in these reports.  


              
    W&T OFFSHORE, INC. AND SUBSIDIARIES
    Condensed Consolidated Statements of Operations
    (In thousands, except per share data)
    (Unaudited)
              
         Three Months Ended
      March 31,  December 31,  March 31, 
         2023     2022  2022 
              
    Revenues:         
    Oil $97,000  $111,748  $122,702 
    NGLs  7,795   9,534   13,820 
    Natural gas  24,804   66,379   51,366 
    Other  2,126   2,039   3,116 
    Total revenues  131,725   189,700   191,004 
              
    Operating expenses:         
    Lease operating expenses  65,186   69,017   43,411 
    Gathering, transportation and production taxes  6,136   8,481   5,267 
    Depreciation, depletion, amortization and accretion  30,134   34,246   30,911 
    General and administrative expenses  19,919   21,957   13,776 
    Total operating expenses  121,375   133,701   93,365 
    Operating income  10,350   55,999   97,639 
              
    Interest expense, net  14,713   14,526   19,883 
    Derivative (gain) loss  (39,240)  (24,359)  79,997 
    Other expense, net  233   15,524   905 
    Income (loss) before income taxes  34,644   50,308   (3,146)
    Income tax expense (benefit)  8,639   6,859   (689)
    Net income (loss) $26,005  $43,449  $(2,457)
              
    Basic $0.18  $0.30  $(0.02)
    Diluted  0.17   0.30   (0.02)
              
    Weighted average common shares outstanding         
    Basic  146,418   143,490   142,942 
    Diluted  148,726   146,260   142,942 
              

     

    W&T OFFSHORE, INC. AND SUBSIDIARIES
    Condensed Operating Data
    (Unaudited)
              
      Three Months Ended 
      March 31,  December 31,  March 31, 
      2023 2022 2022
    Net sales volumes:         
    Oil (MBbls)  1,350  1,375  1,304
    NGLs (MBbls)  294  371  349
    Natural gas (MMcf)  7,677  10,843  10,471
    Total oil and natural gas (MBoe) (1)  2,924  3,553  3,398
              
    Average daily equivalent sales (MBoe/d)  32.5  38.6  37.8
              
    Average realized sales prices (before the impact of derivative settlements):         
    Oil ($/Bbl) $71.85 $81.27 $94.10
    NGLs ($/Bbl)  26.51  25.70  39.60
    Natural gas ($/Mcf)  3.23  6.12  4.91
    Barrel of oil equivalent ($/Boe)  44.32  52.82  55.29
              
    Average operating expenses per Boe ($/Boe):         
    Lease operating expenses $22.29 $19.42 $12.78
    Gathering, transportation and production taxes  2.10  2.39  1.55
    Depreciation, depletion, amortization and accretion  10.31  9.64  9.10
    General and administrative expenses  6.81  6.18  4.05

    (1) MBoe is determined using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or NGLs (totals may not compute due to rounding). The conversion ratio does not assume price equivalency and the price on an equivalent basis for oil, NGLs and natural gas may differ significantly. The realized prices presented above are volume-weighted for production in the respective period.

     
    W&T OFFSHORE, INC. AND SUBSIDIARIES
    Condensed Consolidated Balance Sheets
    (In thousands) 
    (Unaudited) 
            
         March 31,     December 31,  
      2023  2022  
            
    Assets       
    Current assets:       
    Cash and cash equivalents $177,389  $461,357  
    Restricted cash  4,417   4,417  
    Receivables:       
    Oil and natural gas sales  45,525   66,146  
    Joint interest, net  17,116   14,000  
    Total receivables  62,641   80,146  
    Prepaid expenses and other assets  22,483   24,343  
    Total current assets  266,930   570,263  
            
    Oil and natural gas properties and other  8,845,753   8,834,319  
    Less accumulated depreciation, depletion, amortization and impairment  8,121,728   8,099,104  
    Oil and natural gas properties and other, net  724,025   735,215  
    Restricted deposits for asset retirement obligations  21,565   21,483  
    Deferred income taxes  52,884   57,280  
    Other assets  44,897   47,549  
    Total assets $1,110,301  $1,431,790  
            
    Liabilities and Shareholders’ Equity        
    Current liabilities:       
    Accounts payable $80,634  $65,570  
    Undistributed oil and natural gas proceeds  31,678   41,934  
    Advances from joint interest partners  3,160   3,181  
    Asset retirement obligations  9,859   25,359  
    Accrued liabilities  26,215   74,041  
    Current portion of long-term debt, net  30,801   582,249  
    Total current liabilities  182,347   792,334  
            
    Long-term debt, net  372,473   111,188  
    Asset retirement obligations, less current portion  459,347   441,071  
    Other liabilities  61,296   79,563  
    Shareholders’ equity:       
    Common stock, $0.00001 par value; 200,000 shares authorized; 149,330 issued and 146,461 outstanding at March 31, 2023; 149,002 issued and 146,133 outstanding at December 31, 2022  1   1  
    Additional paid-in capital  577,787   576,588  
    Retained deficit  (518,783)  (544,788) 
    Treasury stock, at cost; 2,869 shares for both dates presented  (24,167)  (24,167) 
    Total shareholders’ equity  34,838   7,634  
    Total liabilities and shareholders’ equity $1,110,301  $1,431,790  
            


    W&T OFFSHORE, INC. AND SUBSIDIARIES
    Condensed Consolidated Statements of Cash Flows
    (In thousands)
     (Unaudited)
              
      Three Months Ended 
      March 31,  December 31,  March 31, 
      2023     2022     2022 
    Operating activities:         
    Net income (loss) $26,005  $43,449  $(2,457)
    Adjustments to reconcile net income (loss) to net cash provided by operating activities:         
    Depreciation, depletion, amortization and accretion  30,134   34,246   30,911 
    Amortization and write off of debt issuance costs  3,249   1,437   2,594 
    Share-based compensation  1,922   2,743   520 
    Derivative (gain) loss  (39,240)  (24,359)  79,997 
    Derivative cash payments, net  (5,328)  (40,858)  (30,515)
    Deferred income taxes  4,396   5,013   (733)
    Changes in operating assets and liabilities:         
    Oil and natural gas receivables  20,621   23,049   (37,774)
    Joint interest receivables  (3,116)  2,815   (4,476)
    Prepaid expenses and other assets  31,489   58,722   (12,183)
    Income tax  4,243   (1,201)  44 
    Asset retirement obligation settlements  (8,642)  (14,940)  (5,492)
    Cash advances from joint interest partners  (21)  163   (8,550)
    Accounts payable, accrued liabilities and other  (42,277)  (77,600)  15,651 
    Net cash provided by operating activities  23,435   12,679   27,537 
              
    Investing activities:         
    Investment in oil and natural gas properties and equipment  (7,367)  (11,666)  (17,439)
    Changes in operating assets and liabilities associated with investing activities  (5,791)  6,343   2,630 
    Acquisition of property interests  —   —   (30,153)
    Purchases of furniture, fixtures and other  (156)  (80)  — 
    Net cash used in investing activities  (13,314)  (5,403)  (44,962)
              
    Financing activities:         
    Issuance of 11.75% Senior Second Lien Notes  275,000   —   — 
    Repayments on 9.75% Second Senior Lien Notes  (552,460)  —   — 
    Repayments on Term Loan  (9,552)  (9,122)  (12,630)
    Debt issuance costs  (6,354)  331   (269)
    Proceeds from at-the-market equity offering  —   16,998   — 
    Commission & fees related to at-the-market sales  —   (540)  — 
    Other  (723)  (716)  — 
    Net cash (used in) provided by financing activities  (294,089)  6,951   (12,899)
    (Decrease) increase in cash and cash equivalents  (283,968)  14,227   (30,324)
    Cash and cash equivalents and restricted cash, beginning of period  465,774   451,547   250,216 
    Cash and cash equivalents and restricted cash, end of period $181,806  $465,774  $219,892 
              

    W&T OFFSHORE, INC. AND SUBSIDIARIES
    Non-GAAP Information

    Certain financial information included in W&T’s 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 “Net Debt”, “Adjusted Net (Loss) Income”, “Adjusted EBITDA” and “Free Cash Flow”, or are derivable from a combination of these measures. Management uses these non-GAAP financial measures in its analysis of 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. Prior period amounts have been conformed to the methodology and presentation of the current period.

    We calculate Net Debt as total debt (current and long-term portions), less cash and cash equivalents. Management uses Net Debt to evaluate the Company’s financial position, including its ability to service its debt obligations.

    Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss)

    Adjusted Net (Loss) Income adjusts for certain items that the Company believes affect comparability of operating results, including items that are generally non-recurring in nature or whose timing and/or amount cannot be reasonably estimated.   These items include unrealized commodity derivative (gain) loss net of derivative premiums, allowance for credit losses, write-off of debt issuance costs, non-recurring IT-transition costs, non-ARO plugging and abandonment costs, and other which are then tax effected using the Federal Statutory Rate.

      Three Months Ended 
      March 31,  December 31,  March 31, 
      2023  2022  2022 
      (In thousands, except per share amounts)
      (Unaudited)
              
    Net income (loss) $         26,005   $         43,449   $          (2,457)
    Selected items         
    Unrealized commodity derivative (gain) loss and effect of derivative premiums, net  (39,470)  (53,132)  40,496 
    Allowance for credit losses  —   43   118 
    Write-off debt issuance costs  2,330   —   — 
    Non-recurring costs related to IT services transition  785   1,844   — 
    Non-ARO P&A costs  6   15,899   — 
    Other  378   (372)  905 
    Tax effect of selected items (1)  7,554   7,501   (8,719)
    Adjusted Net (loss) income $          (2,412) $         15,232   $         30,343  
              
    Adjusted net income per common share         
    Basic $(0.02) $0.11  $0.21 
    Diluted $(0.02) $0.10  $0.21 
              
    Weighted Average Shares Outstanding         
    Basic  146,418   143,490   142,942 
    Diluted  146,418   146,260   143,658 
              
    (1) Selected items were tax effected with the Federal Statutory Rate of 21% for each respective period.  
              

    W&T OFFSHORE, INC. AND SUBSIDIARIES
    Non-GAAP Information

    Adjusted EBITDA/ Free Cash Flow Reconciliations

    The Company also presents the non-GAAP financial measures Adjusted EBITDA and Free Cash Flow. The Company defines Adjusted EBITDA as net income (loss) plus net interest expense, income tax expense (benefit), depreciation, depletion, amortization and accretion, excluding the unrealized commodity derivative gain (loss) net of derivative premiums, allowance for credit losses, share-based compensation, non-recurring IT-transition costs, non-ARO plugging and abandonment costs, and other. Company management believes this presentation is relevant and useful because it helps investors understand W&T’s operating performance and makes it easier to compare its results with those of other companies that have different financing, capital and tax structures. 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. Adjusted EBITDA, as W&T calculates it, may not be comparable to Adjusted EBITDA measures reported by other companies. In addition, Adjusted EBITDA does not represent funds available for discretionary use.

    The Company defines Free Cash Flow as Adjusted EBITDA (defined above), less capital expenditures, plugging and abandonment costs and interest expense (all on an accrual basis). For this purpose, the Company’s definition of capital expenditures includes costs incurred related to oil and natural gas properties (such as drilling and infrastructure costs and the lease maintenance costs) and equipment, furniture and fixtures, but excludes acquisition costs of oil and gas properties from third parties that are not included in the Company’s capital expenditures guidance provided to investors. Company management believes that Free Cash Flow is an important financial performance measure for use in evaluating the performance and efficiency of its current operating activities after the impact of accrued capital expenditures, plugging and abandonment costs and interest expense and without being impacted by items such as changes associated with working capital, which can vary substantially from one period to another. There is no commonly accepted definition of Free Cash Flow within the industry. Accordingly, Free Cash Flow, as defined and calculated by the Company, may not be comparable to Free Cash Flow or other similarly named non-GAAP measures reported by other companies. While the Company includes interest expense in the calculation of Free Cash Flow, other mandatory debt service requirements of future payments of principal at maturity (if such debt is not refinanced) are excluded from the calculation of Free Cash Flow. These and other non-discretionary expenditures that are not deducted from Free Cash Flow would reduce cash available for other uses.

    The following tables present (i) a reconciliation of cash flow from operating activities, a GAAP measure, to Free Cash Flow, as defined by the Company and (ii) a reconciliation of the Company’s net (loss) income, a GAAP measure, to Adjusted EBITDA and Free Cash Flow, as such terms are defined by the Company.

      Three Months Ended 
      March 31,  December 31,  March 31, 
      2023  2022  2022 
      (In thousands)
      (Unaudited)
              
    Net income (loss) $         26,005   $         43,449   $          (2,457)
    Interest expense, net  14,713   14,526   19,883 
    Income tax expense (benefit)  8,639   6,859   (689)
    Depreciation, depletion, amortization and accretion  30,134   34,246   30,911 
    Unrealized commodity derivative (gain) loss and effect of derivative premiums, net  (39,470)  (53,132)  40,496 
    Allowance for credit losses  —   43   118 
    Non-cash incentive compensation  1,922   2,743   520 
    Non-recurring costs related to IT services transition  785   1,844   — 
    Non-ARO P&A costs  6   15,899   — 
    Other  378   (372)  905 
    Adjusted EBITDA $         43,112   $         66,105   $         89,687  
              
    Investment in oil and natural gas properties and equipment  (7,367)  (11,666)  (17,439)
    Asset retirement obligation settlements  (8,642)  (14,940)  (5,492)
    Interest expense, net  (14,713)  (14,526)  (19,883)
    Free Cash Flow $         12,390   $         24,973   $         46,873  
              


      Three Months Ended
      March 31,  December 31,  March 31, 
      2023  2022  2022 
      (In thousands)
      (Unaudited)
              
    Net cash provided by operating activities $23,435  $12,679  $27,537 
    Allowance for credit losses  —   43   118 
    Amortization of debt items and other items  (3,249)  (1,437)  (2,594)
    Non-recurring costs related to IT services transition  785   1,844   — 
    Current tax benefit (1)  4,243   1,846   44 
    Changes in derivatives receivable (payable) (1)  5,098   12,085   (8,986)
    Non-ARO P&A costs  6   15,899   — 
    Changes in operating assets and liabilities, excluding asset retirement obligation settlements  (10,939)  (5,948)  47,288 
    Investment in oil and natural gas properties, equipment and other  (7,367)  (11,666)  (17,439)
    Other  378   (372)  905 
    Free Cash Flow $12,390  $24,973  $46,873 
              
              
    (1) A reconciliation of the adjustment used to calculate Free Cash Flow to the Condensed Consolidated Financial Statements is included below:
                 
              
    Current tax benefit:         
    Income tax expense (benefit) $8,639  $6,859  $(689)
    Less: Deferred income taxes  4,396   5,013   (733)
    Current tax benefit $4,243  $1,846  $44 
              
    Changes in derivatives receivable:         
    Derivatives payable, end of period $524  $(4,574) $(15,382)
    Derivatives payable, beginning of period  4,574   16,659   6,396 
    Change in derivatives receivable (payable) $5,098  $12,085  $(8,986)

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