W&T Offshore, Inc. 2026 Q2 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. We're all available to answer questions after our prepared remarks. We've delivered consistently strong operational and financial results over the past 43 years. I'm very pleased to report that our Q2 results continue this positive trend, and we are in a much stronger financial position heading into the second half of 2026. The second quarter delivered net income of $12.6 million or $0.08 per share, and over $54 million in adjusted EBITDA. That's in line with the first quarter. In the first half of 2026, we generated almost $110 million.

In the second quarter, we also increased our free cash flow by 50% compared to Q1 2026, to $31 million. We've now amassed over $52 million in free cash flow in the first half of 2026. This has enabled us to increase our cash on hand to over $150 million, driving our net debt down to $200 million. On a 12-month trading basis, our net debt to adjusted EBITDA is down to 1.2 times. Assuming sustained margin levels into the second half of 2026, this should continue to go down and potentially be under one times at year-end 2026. 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.

In quarter two, our production was 34,700 barrels oil equivalent per day at the midpoint of guidance and up 3% from the same period in 2025. Despite no new drilling and no new acquisitions, the solid quarter results start with our ability to maintain strong production, extract value through well optimization projects, and they are enhanced by our low decline rate fields in the Gulf of America. We do a commendable job of consistently offsetting our production decline by spending only a fraction of the capital that other E&P companies spend with no new 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 that this is a more economic way to invest our operational cash flow back into our business, and it's a lower risk option. We can then build cash flow and make accretive acquisitions of producing properties. Over the years, we've consistently created significant value by methodically integrating producing property acquisitions. We look for strong producing assets with meaningful reserves and an attractive price that we can integrate into our vast infrastructure. We spend primarily LOE dollars to maintain our vast infrastructure and maximize the extraction on our footprint. This is complemented by workovers, recompletes, 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 over and over throughout the years that allows us to add value. Now turning to costs. Our LOE for the second quarter was $72 million, and that's below the lower end of guidance.

Reductions in our LOE costs were mainly driven by timing of facility and workover expense projects, but we've also made strides to lower our base LOE spend through cost-saving initiatives in late 2025 that we have seen materialize in the first half of 2026. In the second quarter, we also saw gathering, transportation, and production taxes below the low end of our guidance range. Capital expenditure in the second quarter of 2026 was $10.4 million, and asset retirement settlement costs totaled $3.4 million. In the current strong pricing environment, we are accelerating certain projects, which is potentially driving our capital spending toward the higher end of our full year guidance.

Our 2026 capital guidance is between $20 million and $25 million, which excludes potential acquisition opportunities, and for ARO, it is 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 a competitive advantage. Our ability to execute our strategy has delivered very positive results to start off 2026, including a healthy balance sheet and enhanced liquidity. At the end of the second quarter of 2026, our total debt and net debt were $351 million and $200 million respectively, and our liquidity was $194 million. Our balance sheet and growing cash position allow us to evaluate and potentially quickly execute accretive acquisitions in line with our strategy. Very pleased with our debt-to-EBITDA ratio of 1.2 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 $50.23 per barrel oil equivalent in the second quarter was an increase of 11% from the first quarter and up about 40% from year-end 2025. 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 that with our growing cash position, strong PDP reserve valuation, and a rising price environment, that our stock price remains undervalued. Our enterprise value is below our PDP PV-10, and we are consistently delivering a dividend to our shareholders.

It's important to note that over the period of time, in the last 10 to 15 years, our produced reserves, according to SEC reserve reports, have actually been more than double what was predicted in our reserve reports for proved reserves. That's 1P reserves. Yesterday, we provided our detailed guidance for third quarter 2026 and reiterated our unchanged full-year production and cost guidance. We are forecasting the midpoint of Q3 2026 production to be in excess of 35,000 barrels of oil equivalent per day, which is an increase from second quarter. Third quarter LOEs are expected to be $73 million to $81 million, up from the second quarter amount of $72 million, due to the higher planned workover and facility maintenance work that was deferred from the second quarter, and that's expected to benefit production in the second half of 2026.

Third quarter transportation and production taxes are expected to be between $8.8 million and $9.7 million. Third quarter cash G&A costs are expected to be between $17.2 million to $19 million. That's modestly above the second quarter. Before closing, I'd like to address surety and regulatory updates. In June 2025, we were pleased with a settlement agreement that we reached with two of our largest surety providers, which called for the dismissal of a previously filed lawsuit. This outcome is very positive for W&T overall, as we will not acquiesce to unjustified collateral demands made by the applicable sureties, and we have locked in our historical premium rates through the end of 2026. We believe that entry into this settlement agreement vindicates our resolve to stand up to surety providers' unjustified demands on independent oil and gas operators such as W&T.

As the surety lawsuits continue to progress, we're working with damages experts to quantify W&T's claims. While the results of the surety lawsuits remain uncertain and there can be no assurance of the end result, management believes, based in part on the preliminary report of the damages expert, that W&T, assuming we prevail on the litigation, would possibly have claims against the sureties that could reach hundreds of millions of dollars. Additionally, assuming W&T wins on its antitrust claims, those damages would be statutorily trebled. These estimates reflect management's current assessment and may change as the damages analysis and litigation proceed. In closing, I'd like to thank our team at W&T for all their efforts. We have delivered positive results in the first half of the year, and we are ready and able to add significant value in the second half of 2026.

W&T has been an active, responsible, and profitable operator in the Gulf of Mexico since 1983. We have a long track record of successfully integrating assets into our portfolio, and we continue to believe that the Gulf of America is a world-class basin that supports value creation. We have a solid cash position and strong liquidity that enables us to continue to evaluate growth opportunities while continuing to generate strong free cash flow and adjusted EBITDA. With consistent production, increased realized pricing, and continued cost control, we believe that we are well-positioned operationally and financially to deliver robust results in 2026 and beyond. We will maintain our focus on operational excellence and maximizing the cash flow potential of our asset base to continue to add and return value to our shareholders. With that, operator, we can now open the lines for questions.