W&T Offshore, Inc. (WTI) Q3 2026 Earnings Call Transcript

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the W&T Offshore Third Quarter 2026 Conference Call. [Operator Instructions] This conference is being recorded, and a replay will be made available on the company's website following the call. I would now like to turn the conference over to Al Petrie, Investor Relations Coordinator.

Al Petrie: Thank you, Betsy. And on behalf of the management team, I'd like to welcome all of you to today's conference call to review W&T Offshore's third quarter 2026 financial and operational results. Before we begin, I'd like to remind you that our comments may include forward-looking statements. It should be noted that a variety of factors could cause W&T's actual results to differ materially from the anticipated results or expectations expressed in these forward-looking statements. Today's call may also contain certain non-GAAP financial measures. Please refer to the earnings release that we issued yesterday for disclosures on forward-looking statements and reconciliation of non-GAAP measures. With that, I'd like to turn the call over to Tracy Krohn, our Chairman and CEO.

Tracy Krohn: Thanks, Al. Good morning, everyone, and welcome to our conference call. With me today are William Williford, our Executive VP and Chief Operating Officer; Sameer Parasnis, our Executive VP and Chief Financial Officer; and Trey Hartman, our Vice President and Chief Accounting Officer. They'll all be available to answer questions after our prepared remarks. So we've delivered consistently strong operational and financial results over the past several quarters that have met or exceeded our guidance across multiple metrics. We're happy to report that our Q3 results continued this positive trend, and we are in a much stronger financial position heading into 2027. In Q3, our production was 38,200 barrels of oil equivalent per day, which was 4% above the high end of our guidance despite no new drilling and no new acquisitions. While we reported a third quarter GAAP net loss of $13.6 million, or $0.09 per share, this included almost $16 million in hedging losses. More importantly, we generated over $51 million in Adjusted EBITDA, and we have now generated $164 million of Adjusted EBITDA in the first 9 months of 2026. That's an increase of 50% compared to the first 9 months of 2025. In the third quarter, we also reported strong free cash flow at $33 million. We have now amassed $89 million in free cash flow in the first 9 months of 2026. This has contributed to increasing our cash on hand to over $190 million and driving our net debt down 20% since last quarter to $160 million. So on a trailing 12-month basis, our net debt to Adjusted EBITDA is down from 1.6x a year ago to 0.9x currently. These strong financial results are driven by our operational focus with a particular emphasis on optimizing and maintaining solid production while continuing to manage costs prudently. The solid quarterly results start with our ability to maintain strong production, extract value through well optimization projects, and are enhanced by our low-decline-rate fields in the Gulf of America. As an example, in the third quarter, we spent a little over $3 million on 7 workover projects and 1 recompletion that resulted in an uplift of over 2,000 barrels of oil equivalent per day. Our production in the third quarter benefited from the production uplift from these wells, lower overall downtime, and the delayed planned 1-week turnaround at Mobile Bay that is now scheduled for this quarter. We do a commendable job consistently offsetting our production decline by spending only a fraction of the capital that other E&P companies spend on [sans] drilling. This is a testament to our experienced technical staff, our vast resource base, and the strong geological properties of the Gulf. We choose to spend more dollars on low-risk, high-rate-of-return workovers and facility work rather than drilling new wells. We believe this is a more economic way to invest our operational cash flow back into our business, and it's a low-risk option. We can then build more cash and make accretive acquisitions of producing properties. So capital expenditures in the third quarter of 2026 were $3 million, and asset retirement settlement costs totaled $6 million. In the current strong pricing environment, we are accelerating some projects and have decided to increase our full-year capital spend in 2026 to between $35 million and $38 million. We believe this will have a positive impact on our production in the first half of 2027. We've not changed our full-year ARO guidance; it remains between $34 million and $42 million. I'd like to point out again that this is a fraction of what others spend to maintain their production base, providing W&T with this competitive advantage. So over the years, we have consistently created value by methodically integrating producing property acquisitions. We look for strong producing assets with meaningful reserves at an attractive price that we can integrate into our vast infrastructure. We spend primarily LOE dollars to maintain our infrastructure and maximize the extraction on our footprint. This is complemented by workovers, recompletions, and upgrades that result in additional production uplift from our acquisitions above the rates they were producing when purchased. This strategy makes W&T unique, but it's our ability to execute repeatedly throughout the years that allows us to add value. Now turning to cost. Our LOE for the third quarter was $77 million, slightly below the midpoint of guidance, despite higher oil prices and production being above guidance. We made strides to lower our base LOE spend through cost-saving initiatives in late 2025 that we have seen materialize in 2026. In the third quarter, we saw gathering, transportation and production taxes increase compared to the second quarter. The Williams Mobile Bay gas processing facility was offline in April for planned maintenance. This drove lower overall costs in the second quarter as we bypassed the processing facility, but with the facility running for the entire third quarter, we did have increased costs but also increased NGLs. Our ability to execute our strategy has delivered very positive results in 2026, including a healthy balance sheet and enhanced liquidity. At the end of the third quarter of 2026, our total debt and net debt were $352 million and $160 million, respectively, and our liquidity had increased to $235 million. So during Q3 2026, we utilized our at-the-market agreement to issue 3.6 million common shares with net proceeds of $15 million to further enhance liquidity and support near-term strategic growth objectives. In addition, on October 1, 2026, we converted our credit facility to a reserve-based lending structure that provides greater financial flexibility and the potential to expand commitments from $50 million to $100 million. The agreement eliminates restrictive cash flow and repayment requirements while increasing annual shareholder distribution capacity. Also, there were no changes to pricing or financial covenants and no amendment fees. In short, we've materially strengthened our balance sheet and added financial flexibility with the support of our bank group led by Texas Capital Bank. A strong balance sheet and growing cash position us to evaluate and potentially execute accretive acquisitions in line with our strategy. We're very pleased with our debt-to-EBITDA ratio of under 1x, which we believe compares very well with our peer group. So as everyone knows, we're in a very volatile pricing environment due to multiple global factors. Thus far in 2026, we have seen rising prices, and our realized price of $46.13 per BOE in the third quarter was a decrease of 8% from the second quarter, but up about 20% from the third quarter of 2025. While third quarter pricing was slightly lower quarter over quarter, we have seen very strong pricing throughout 2026. In the fourth quarter, we've also seen improved pricing in October that may carry into the final 2 months of the year. We have consistently replaced and expanded our reserve base through operational spend, uplift projects and acquisitions. Pricing also benefits our reserves, especially our oil reserves, enhancing economic viability, increasing field lives and driving higher PV-10 valuation. I believe our growing cash position, strong PDP reserve valuation and a rising price environment position us well to continue creating long-term value for our shareholders, including through our consistent dividend. Yesterday, we provided detailed production and cost guidance for the third quarter and full year of 2026. In the fourth quarter of 2026, we have a 1-week shutdown planned at our Mobile Bay Field to perform equipment repairs that will temporarily reduce our gas sales volumes. We also experienced some downtime from Hurricane Isaias a few weeks ago. Taking into account these 2 short-term reductions in production that total about 2,600 BOE per day, we're forecasting the midpoint of Q4 2026 production to be around 33,700 barrels of oil equivalent per day. Aligning with our production guidance, our fourth quarter LOE is expected to be lower than Q3, with a range of $65 million to $72 million. Additionally, fourth quarter transportation and production taxes are also expected to be lower, between $8.4 million and $9.3 million. So adjusted for surety litigation costs, fourth quarter cash G&A costs are expected to decline and range from $16.9 million to $18.6 million. So before closing, I'd like to address surety and regulatory updates. W&T has continued to pursue discovery materials in the surety lawsuits, and we have made significant progress in obtaining agreements from opposing counsel and a court order requiring defendants to review and produce communications relevant to our claims. W&T is also continuing to seek additional material from third parties. Depositions of the surety and broker defendants are expected to take place over the coming months. We expect that the documents and deposition testimony obtained in discovery will help our retained experts quantify our damages. While the outcome of the litigation remains uncertain and there can be no assurance of a successful result, we continue to believe that, assuming W&T prevails in the litigation, our damages claims could be substantial. Further, any damages awarded on the antitrust claims would be subject to automatic trebling, as well as recovery of reasonable attorney's fees under applicable statutes. Of course, this view reflects our current assessment, and it may change as the litigation proceeds. But in closing, I'd like to thank our team at W&T for all their efforts. We've demonstrated our success through the meaningfully improved results we have delivered in 2026. W&T has been an active, responsible and profitable operator in the Gulf of America since 1983. We have a long track record of successfully integrating assets into our portfolio and remain staunch proponents of the Gulf of America. We have a solid cash position and strong liquidity that enables us to maintain our focus on evaluating accretive opportunities while continuing to generate strong free cash flow and EBITDA. With consistent production, increased realized pricing and ongoing cost control, we believe we are well positioned operationally and financially to deliver robust results in 2027 and beyond. We are focused on operational excellence and maximizing the cash flow potential of our asset base. This will allow us to add and return value to our shareholders as we have done for over 40 years. Operator, we can now open the lines for questions, please.

Operator: [Operator Instructions] The first question today comes from Neal Dingmann with William Blair. Please go ahead.

Neal Dingmann: My first question on capital allocation for you or Sameer, specifically, now the balance sheet is so pristine, has that changed the way you all are thinking about capital allocation here into '27? Maybe just give us your thoughts.

Tracy Krohn: Sure. Thanks, Neal. Yes, we've acquired a good bit more cash. And I look at that as more something that we would utilize toward acquisitions first and then other activities after that. So yes, that's a big jump in cash, and it looks like it's going to continue for a while. So yes, we're excited about that, too.

Neal Dingmann: Got it. And then last, if I could come almost in that same vein, you continue to have very active recompletion activity, and I think the uplift on that sort of speaks for itself. Could you talk about kind of what inventory, I mean, how many more of those opportunities do you have? And would you slow down those recompletions if you saw some really attractive M&A in the near term?

Tracy Krohn: I just happen to have our Chief Operating Officer, William, with us this morning, and he'll answer that question for you.

William Williford: The answer to the question is yes, but I want to make a clarification. The majority of the uplift projects that we mentioned were part of our workover portfolio, not necessarily on the capital side. So we have plenty of opportunities to do additional optimization, as Tracy has mentioned on the call, to be able to uplift or help maintain our overall production through 2027. We are focused on additional projects as far as recompletions from a capital standpoint in 2027 as well, and we have a nice little inventory there as well.

Operator: The next question comes from Derrick Whitfield with Texas Capital. Please go ahead.

Derrick Whitfield: I'd like to circle back on 2027. While I realize you aren't providing guidance at this point, you have accelerated some of your 2027 activity into 2026. That said, just how are you broadly thinking about the macro environment for 2027? Are you biased to pursue more of a maintenance program through workovers or kind of modest growth through new development?

Tracy Krohn: Yes, that's a really good question, Derrick. I mean, we have a pretty good inventory of things to do. We have a very good inventory of things to drill as well. We're looking more toward acquisitions going forward. We're constantly in data rooms, and so that's encouraging to us as well. Drilling is something we can certainly do. I would prefer to chase acquisitions at this point in time. That's kind of the way that the company has evolved over the years. And it feels pretty good. There are lots of properties out there that are for sale and that will be for sale in '27 as well. So that's kind of how we see it.

Derrick Whitfield: And Tracy, maybe just following up on your comments. As I understand, there are new assets that are being brought to market right now. I think Chevron was in the press earlier this week. When you look at the assets that are being brought to market today, are there some that are really synergistic and true opportunities for you guys? I know you guys buy at a discount to PDP, but are there some assets out there that can really move the needle for you?

Tracy Krohn: Yes. I mean, that's always the case. Fortunately, we're well suited and are operating in shallow water and deepwater. And so the larger opportunities are attractive to us. Some of the other smaller opportunities are attractive to us. And one of the reasons is we are very operationally adept. So some of the things that may have a little bit more, let's call it, momentum toward managing older properties, we excel at, and we always have. And so, you know, with 40-something years of operating experience in the Gulf, that is something that always keeps our attention. So yes, we're feeling good about everything that we're seeing, really.

Operator: The next question comes from Jeffrey Robertson with Water Tower Research. Please go ahead.

Jeffrey Robertson: Tracy, you talked about third quarter production being well above the high end of guidance. I'm just curious, is some part of that outperformance related just to the natural production profile of your assets and how they perform versus estimates that you might have used as you construct your guidance?

Tracy Krohn: Well, yes, to a certain extent, Jeff. I mean, we've got really good production over on the Mobile Bay gas field, so that always helps. But besides that, most of what we look at, we always talk in our presentations about proved reserves and 2P. And we get a lot of help in our reserve predictions going forward from the way that the Gulf produces, particularly with some of the higher-volume water-support reservoirs that we have. So we pick up the probable producing reserves that aren't usually included in the way we do business in the U.S. with only 1P reserves in our report. So we do pick up 2P reserves over time that come to us in the form of cash and additional reserves over time. So we traditionally outperform our estimated reserves on 1P very consistently over the last 40 years.

Jeffrey Robertson: And the recompletion activity that you have planned in the fourth quarter, if it continues into 2027, would that be expected to have any real impact on the company's overall production mix?

Tracy Krohn: I will turn that over to our Chief Operating Officer.

William Williford: Yes, from a mix standpoint, the majority of the projects we have for recompletion seem to be on the oily side, so that would help increase our oil percentage as we move forward.

Jeffrey Robertson: Thank you. If I could ask one more just on the surety. Tracy, can you talk at all about the timeline of the discovery process, and is the G&A number that you referenced in the press release of roughly $3 million, is that a good quarterly number for 2027, or do you see the G&A costs increasing from where you are in the fourth quarter of '26?

Tracy Krohn: Yes, well, I just happen to have our GC in the room here right now. Maybe I'll let him answer that.

Sameer Parasnis: Sure. We certainly expect that the cost of the surety litigation will increase in 2027. But for the remainder of 2026, we're getting through just the discovery that we recently received and preparing for depositions. So I don't expect a huge spike between now and the end of the year, but we are anticipating increased costs in that litigation in 2027.

Operator: [Operator Instructions] Your next question comes from Nicholas Pope with Roth Capital. Please go ahead.

Nicholas Pope: A couple quick questions. I just wanted to clarify the additional spending that you're bringing forward into 2027. Is that related to the recompletions, or is there some additional drilling activity that's a part of that additional CapEx that y'all are talking about for 2026 in the fourth quarter?

Tracy Krohn: Well, let me make this real simple. We don't have any drilling planned for 2027 at this point. I'd rather save our dollars for potential acquisitions. I feel like that's what to think about spending at this time.

Nicholas Pope: Got it. So the bulk of that additional spend for 2026 is related to the recompletions.

Tracy Krohn: Yes, recompletions, workovers, that sort of thing. Easier, less expensive things to do that we can use to increase production.

Nicholas Pope: Got it. And you mentioned, you know, the work that y'all did to kind of bring LOE costs down, and the success y'all had, you know, from the work that was done in 2025. You've seen kind of a lot of positive movement there, I think year over year, in base LOE coming down. I'm curious, like if there's a broader opportunity set on kind of what y'all have done on bringing some of those costs down for base LOE, or if that's an ongoing thing. It seems like you've seen a nice kind of improvement year over year on a unit basis and on an absolute basis.

Tracy Krohn: Yes. Yes, with prices where they are, naturally you expect costs will go up some. But for us, it's always been about maintaining the margins. So that's really what we work on, is maintaining those margins in such a way that we make more money from the price going up, but we expect to spend a little bit more money when we have better prices. And trying to keep those margins is very important for us. And that's always been the way we've been able to run our business.

Nicholas Pope: That's great. And just real quick, with the hurricanes that came through during the quarter, was there any significant equipment damage, or is it really just shut-in production that was impacted with those storms?

Tracy Krohn: Well, no, it's more just shut-in production. I mean, the storm came right over us. So there wasn't any doubt about what happened, but there was no significant damage at all. This particular area around Mobile Bay was not the first rodeo for us with regard to storms. So very, very modest aggravations, some stairwells and that sort of thing. But other than that, no real downtime. It just takes a while to get everything back online because the wells shut in, the pipelines shut in. And so we have to wait for everybody else to get lined up before we can get lined up, too.

Nicholas Pope: I have spent a hurricane storm at that Mobile plant before, so I understand how close it is to the water.

Tracy Krohn: Well, good for you. You know how it works then. Well, you know, that field is actually equipped to do a lot of things.

Nicholas Pope: All right. Absolutely. All right. I'll let you go to other questions. Thank you.

Tracy Krohn: Thank you, sir.

Operator: The next question comes from Jeffrey Robertson with Water Tower Research. Please go ahead.

Jeffrey Robertson: I'm just curious, can you talk at all about the time to mobilize if you decide to execute a workover or execute a recompletion, and is there any competition for the services that you might need?

Tracy Krohn: I'm going to turn that over to William Williford. He'll have better answers for you, but yes. Yes.

William Williford: The quick answer is yes, there is. We have to plan accordingly with what we have available, especially in the liftboat market, to be able to plan our work accordingly. So that does go into our plan. And we just can't say we want to go tomorrow and get out there. Everything has to be planned accordingly as well with the assets we need to do the work.

Jeffrey Robertson: Okay. So, William, are you laying out what you would expect to do in the first half of 2027 then now so you can work with the providers to...

William Williford: Yes, we are, and we're right in the heart of our 2027 budget, which we haven't gotten approved yet. But, yes, we're planning all that action right now, which we have to, but we have to get everything through our budgeting process as well.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Tracy Krohn for any closing remarks.

Tracy Krohn: Thank you, Operator. Well, look, thanks, everybody, for listening. We've got a lot of work going on that will be coming up in 2027. We've had a pretty good year. Prices have been good, and we've managed to keep our costs down accordingly. But we'll see what happens in the next few months. And I expect that we'll make all the adjustments we need to make, like we always have. So thank you for listening to this, and we look forward to talking to you again soon.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.