Quarterly / Earnings Reports | Second Quarter (2Q) Update | Capital Markets | Capital Expenditure | Drilling Program

W&T Offshore Ceases New Production at Yellow Rose

Share Print Bookmark    |    Tuesday,August 11,2015

W&T Offshore, Inc. has reported its second quarter 2015 operations and financial results, as well as its 2015 third quarter and full year production and expense guidance.

Highlights:

• Successfully completed and brought on production two deepwater wells at Mississippi Canyon 538 "Medusa" field during the second quarter. The two wells, the SS #6 and SS #7, came on line with a combined initial rate exceeding 17,300 barrels of oil equivalent (Boe) per day gross, increasing the total field output to over 20,800 Boe per day gross or greater than 3,000 Boe per day net to our interest.
• Production for the second quarter of 2015 averaged approximately 46,500 Boe per day (4.23 million Boe in total for the quarter), 55% of which was oil and liquids. Oil production increased 2.9% for the second quarter of 2015 compared to the second quarter of 2014 while natural gas production decreased 5.5% and natural gas liquids (NGLs) production decreased 20.6% as we continue our focus on oil related projects.
• Revenues for the second quarter of 2015 were $149.1 million, 77.8% of which was from oil and NGLs.
• Lease operating expenses (LOE) declined 27% for the second quarter of 2015 to $45.1 million compared to $61.8 million in the second quarter of 2014. In response to our cost control measures, base LOE declined $11.2 million, or 24.5%, quarter over quarter.
• Deepwater development at our "Big Bend" and "Dantzler" fields located in Mississippi Canyon is proceeding on schedule. We believe that first production from Big Bend will occur in the fourth quarter of 2015 and production from Dantzler will be by the end of 2015.

Production, Revenues and Price: For the second quarter of 2015, our oil production was 1.9 million barrels, up 2.9% over the second quarter of 2014. NGL production was 408,000 barrels, down 20.6% from the second quarter of 2014. Natural gas production was 11.5 billion cubic feet (Bcf) for the second quarter of 2015, down 5.5% or 12.2 Bcf from the second quarter of 2014. Our combined total production was 4.23 million Boe in the second quarter of 2015, down 3.7% from the second quarter of 2014.

Capital expenditures for oil and gas properties in the second quarter of 2015 were $68.2 million and $151.0 million for the first six months of 2015.

At June 30, 2015, we had a cash balance of $5.7 million and $239.4 million of undrawn capacity available under our revolving bank credit facility, which had a borrowing base of $500.0 million.

Lease Operating Expenses: LOE, which includes base lease operating expenses, insurance premiums, workover and maintenance expenses on our facilities, as well as hurricane related expenses and insurance reimbursements, decreased $16.6 million, or 27%, to $45.1 million in the second quarter of 2015 compared to the second quarter of 2014. On a per Boe basis, lease operating expenses decreased to $10.67 per Boe in the second quarter of 2015, a 24% reduction compared to $14.05 per Boe in the second quarter of 2014. On a component basis, Base LOE decreased $11.2 million primarily due to lower costs from service providers, lease terminations and fewer downhole onshore well work activities, partially offset by lower production handling fees we charge to third parties. Facilities maintenance expenses decreased $4.9 million due to timing of activities offshore and general cost reductions similar to those discussed above for Base LOE.

Ceiling test write-down of oil and natural gas properties: For the second quarter of 2015, we recorded a non-cash ceiling test write-down of $252.8 million (pre-tax) as the book value of our oil and natural gas properties exceeded the ceiling test limit. The write-down resulted from a significant reduction in the market value of all three commodities we sell, which are crude oil, NGLs and natural gas. No ceiling test write-down was incurred during 2014.

2015 Capital Expenditures Update: Our capital expenditures for oil and gas properties for the first half of 2015 were $151.0 million compared to $266.0 million in the first half of 2014. For the first six months of 2015, capital expenditures for oil and gas properties consisted of $40.2 million for exploration activities, $99.1 million for development activities and $11.6 million for seismic, capitalized interest, and other. The majority of the capital has been dedicated to offshore, primarily the deepwater, with only $12.3 million dedicated to onshore. The Company's capital expenditure budget for 2015 is currently set at $200 million and, as shown above, 75% of this year's capital budget has already been expended. During the first half of 2015, we completed four deepwater wells with two wells at Dantzler and two wells at Medusa. Also during the first half of 2015 we completed five wells onshore, three of which were horizontal. Capital expenditures for the third quarter and the remainder of 2015 are dedicated predominately to the deepwater.

Operations Update

Offshore Gulf of Mexico: The Company currently has one rig running offshore in the deepwater at our Ewing Bank 910 field. Additional details about our offshore operations are as follows:

Ewing Bank 910 (50% WI, operated) (Deepwater)

A platform rig is currently on location drilling the EW 954 A-8 well at our EW 910 field, which is the second well in a two-well exploration drilling program. If successful, the A-8 well is expected to be on production by year-end 2015. The first well in the program was the ST 320 A-5 ST well, an exploration well that logged approximately 160 feet of net pay in two zones in the GA-15 target sand, was completed in June 2015. The A-5 well reached an early IP rate of approximately 2,700 Boe per day gross or 1,350 Boe per day net to our working interest. The currently drilling A-8 well is targeting a deeper exploratory sand and, based on seismic data, has the potential for a larger impact on reserves than the A-5ST.

Mississippi Canyon 538 "Medusa" Field (15% WI, non-operated) (Deepwater)

The Mississippi Canyon 538 SS # 7 well, which encountered over 140 feet of net pay, was completed and put on production in June 2015. Along with the recently completed SS # 6 well, the two wells are making a significant contribution to the Medusa field which was recently producing in excess of 20,800 Boe per day gross or greater than 3,000 Boe per day net to our interest. We continue to evaluate further drilling opportunities within the field.

Mississippi Canyon 782 "Dantzler" Field & Mississippi Canyon 698 "Big Bend" Field (20% WI, non-operated) (Deepwater)

The subsea development work to connect the 2012 discovery at Big Bend and the 2013/2014 Dantzler discoveries to the nearby Thunder Hawk platform is ongoing and progressing well. First production is expected in the middle of the fourth quarter of 2015 and ramping up towards peak rates when Dantzler comes on line by the end of 2015. The anticipated combined rate from both Dantzler and Big Bend is expected to reach in excess of 8,000 barrels per day, net to our interest (81% oil).

Mississippi Canyon 243 "Matterhorn" Field (100% WI, operated) (Deepwater)

A water flood and field pressure maintenance program that commenced in September 2014 at our Matterhorn Field continues to perform well and has helped to increase total production from the field to over 3,800 Boe per day in June 2015.

Tracy W. Krohn, W&T Offshore's Chairman and Chief Executive Officer, stated: "In 2015, we have successfully executed on our plan to focus our capital budget on high value projects that will contribute significantly to both future production and proved reserves. Projects completed so far this year have performed better than expected, including excellent results from two recent wells at our Medusa field. At our Ewing Banks 910 field, we are currently drilling our EW 954 A-8 well, which follows the recently completed and successful ST320 A-5 ST well that is also part of the EW910 field. We expect to have the A-8 well on production by year-end, and seismic data indicates that the well could add substantial reserves. In addition, the water-flood project initiated at Matterhorn last year has continued to exceed our internal estimates. That project success has helped us to validate our expectations for field wide expansion which we hope will allow us to duplicate that success on the western side of the field.

Development of our Big Bend and Dantzler discoveries is progressing on schedule. We expect that in addition to bringing Big Bend on production in the fourth quarter, we will also bring the two Dantzler wells on production by year-end. We continue to expect the combined production from Big Bend and Dantzler to reach in excess of 8,000 Boe per day (~81% oil) net to our interest. Importantly, by getting these substantial projects on-line by year end, we will maximize our opportunity to realize additional reserve contributions and production from them in 2016.

We have also been successfully working with our service providers to reduce the cost of goods and services and have significantly reduced our lease operating expenses. LOE was down 27% in the second quarter compared to the second quarter of last year."