W&T Offshore, Inc. 2026 Q3 Earnings Call

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. We've delivered consistently strong operational and financial results over the past several quarters that have met or exceeded our guidance across multiple metrics. Very 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 nine months of 2026. That's an increase of 50% compared to the In the third quarter, we also reported strong Free Cash Flow of $33 million. We have now amassed $89 million in Free Cash Flow in the first nine 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. On a trailing 12-month basis, our Net Debt to Adjusted EBITDA is down from 1.6 times a year ago to 0.9 times 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 seven workover projects and one 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 one-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 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. 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, and 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. 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. Turning to costs, 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 cost 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 has increased to $235 million. 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 or amendment fees. In short, we materially strengthened our balance sheet and added financial flexibility with the support of our bank group led by Texas Capital Bank. Our strong balance sheet and growing cash position allow 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 one times, which we believe compares very well with our peer group. 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 prices of $46.13 per BOE in the third quarter was a decrease of 8% from the second quarter, but up about 20% from third quarter 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 two 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 cost guidance for the third quarter and full year 2026. In the fourth quarter of 2026, we have a one-week shutdown planned at our Mobile Bay field to perform equipment repairs that will temporarily reduce our gas sales volumes. We experienced some downtime from Hurricane Isaias a few weeks ago. Taking into account these two 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 to between $8.4 million and $9.3 million.

Adjusted for surety litigation costs, fourth quarter cash G&A costs are expected to decline and to range from $16.9 million to $18.6 million. Before closing, I would 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 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 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. In closing, I would like to thank our team at W&T for all their efforts. We have demonstrated our success with 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.