W&T Offshore, Inc. 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."
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.