WTI - W&T Offshore: The Sharp Decline In Natural Gas Prices Will Likely Hurt Revenues Next Quarter
2023-03-12 09:32:35 ET
Summary
- W&T Offshore's revenues increased to $189.70 million in the fourth quarter from $165.59 million a year ago.
- Oil-equivalent production in 4Q22 was solid at 38.6K Boep/d (49.1% liquids) or 3.6 million barrels of oil equivalent ("MMBoe").
- I recommend buying WTI between $5.15 and $5.25 with possible lower support at $4.90.
Introduction
Houston-based W&T Offshore, Inc. ( WTI ) released its fourth quarter and full-year 2022 earnings report on March 7, 2023. The company also increased its proven reserves year-over-year to 165.3 MMBoe, up 5% from 157.6 MMBoe at year-end 2021.
The company benefited from positive well performance and technical revisions of 7.3 MMBoe, 6.0 MMBoe of acquisitions, and 9.0 MMBoe of positive price revisions, partially offset by 14.6 MMBoe of production, resulting in the replacement of 153% of 2022 production with new reserves.
Note: I have been covering W&T Offshore regularly quarterly since May 2016. This article is an update of my preceding article , published on December 1, 2022.
The company specializes in oil & gas production in the Gulf of Mexico, with production in the Gulf of Mexico Shelf (381K acres net) and the Gulf of Mexico Deepwater (72K acres net).
Note: During the year 2022, W&T Offshore announced,
- A Memorandum of Understanding ("MOU") with Korea National Oil Corp. to jointly consider and pursue various opportunities in upstream oil and gas in North America.
- And closed two strategic bolt-on acquisitions of complementary oil & gas producing properties in Federal shallow waters in the central region of the Gulf of Mexico, with a total 100% working interest, for approximately $51.5 million (after normal post-effective date adjustments) in early 2022, which were both funded using cash on hand.
1 - Fourth quarter and Full-year 2022 result snapshot
The Company came out with earnings of $43.45 million or $0.30 per diluted share, beating analysts' expectations. It compares with an income of $48.90 million or $0.34 per share a year ago. The adjusted earnings were $0.10 per share or $15.2 million, unchanged from 4Q21.
Total revenues were $189.70 million from $165.59 million earned a year ago.
Tracy W. Krohn, Chairman and Chief Executive Officer said in the conference call :
Our ability to integrate producing property acquisitions while maintaining strong operational excellence were significant drivers in our outstanding financial results in 2022. Here are the key things we've accomplished. We reported full year 2022 net income of $231.2 million or $1.59 per share and generated record adjusted EBITDA of $563.7 million and a year-over-year increase of 156%.
Oil equivalent production was 38.6K Boep/d in 4Q22 with 49.1% liquids. The average price per $/boe was $52.82 per Boe, well above the $47.70 made last year.
WTI Quarterly production per segment 4Q21 versus 4Q22 (Fun Trading)
W&T Offshore is a small domestic E&P company that presents a high degree of volatility and is not fit for long-term investment due to constant fluctuation, which limits the upside significantly.
Looking at the stock performance over the past five years, you can see wide fluctuations that favor trading compared to pure investing.
This fundamental investing/trading thesis will not change and is an intrinsic component of the company stock. Furthermore, the company is not paying a dividend which is a deterrent.
Another crucial issue is that the price of natural gas has declined significantly during this quarter, which will hurt revenue and free cash flow. NG price is down nearly 50% since the start of 2023, whereas prices have dropped slightly. W&T Offshore production is comprised of 51% natural gas.
WTI Brent and NG Price 1-Year chart (Fun Trading StockCharts)
Thus, the best trading/investing strategy is to trade short-term LIFO the volatility and keep a medium core long-term position for an eventual higher payday. This simple dual strategy is the most rewarding, in my opinion, and is what I suggest in my marketplace, "The Gold And Oil Corner."
2 - Stock performance
WTI has outperformed Chevron Corporation ( CVX ) but not Exxon Mobil ( XOM ) and is now up 6% on a one-year basis.
W&T Offshore, Inc. - Historical Financial and Production ending 4Q22 - The Raw Numbers
| W&T Offshore, Inc. |
| 4Q21 |
| 1Q22 |
| 2Q22 |
| 3Q22 |
| 4Q22 |
| Total Revenues in $ Million |
| 165.59 |
| 191.00 |
| 273.81 |
| 266.49 |
| 189.70 |
| Net Income in $ Million |
| 48.90 |
| -2.46 |
| 123.44 |
| 66.72 |
| 43.45 |
| EBITDA $ Million |
| 108.84 |
| 47.65 |
| 207.07 |
| 134.08 |
| 99.08 |
| EPS diluted in $/share |
| 0.34 |
| -0.02 |
| 0.85 |
| 0.46 |
| 0.30 |
| Cash from operations in $ Million |
| 22.38 |
| 27.54 |
| 210.22 |
| 89.09 |
| 12.68 |
| Capital Expenditure in $ Million |
| 16.70 |
| 47.59 |
| 25.52 |
| 8.33 |
| 11.75 |
| Free Cash Flow in $ Million |
| 5.68 |
| -20.06 |
| 184.70 |
| 80.77 |
| 0.93 |
| Total Cash in $ Million |
| 245.80 |
| 215.48 |
| 377.72 |
| 447.13 |
| 461.36 |
| Total LT Debt in $ Million |
| 730.90 |
| 720.32 |
| 709.17 |
| 701.42 |
| 693.44 |
| Shares outstanding (diluted) in Million |
| 142.39 |
| 142.94 |
| 144.53 |
| 145.88 |
| 146.27 |
| Oil Production |
| 4Q21 |
| 1Q22 |
| 2Q22 |
| 3Q22 |
| 4Q22 |
| Oil Equivalent Production in K Boepd |
| 37.2 |
| 37.8 |
| 42.4 |
| 41.5 |
| 38.6 |
| Realized price ($/Boe) |
| 47.70 |
| 55.29 |
| 69.55 |
| 68.39 |
| 52.82 |
Source: Company news
Analysis: Revenues, Earnings Details, Net Debt, Free Cash Flow, And Oil-Equivalent Production
1 - Total Revenues of $189.70 million in 4Q22
WTI Quarterly revenues history (Fun Trading)
The adjusted EBITDA was $66.1 million, down from $113.9 million in 3Q22. The adjusted Net Income totaled $15.2 million, or $0.10 per diluted share, in the fourth quarter of 2022.
Oil production decreased by 7% compared to the third quarter of 2022, primarily due to weather delays that were wind and low-temperature-related and temporary pipeline downtime at Mobile Bay.
2 - The free cash flow was $0.93 million in 4Q22
WTI Quarterly Free cash flow history (Fun Trading)
W&T Offshore's trailing 12-month free cash flow was $246.36 million, with $0.93 million for 4Q22.
However, the gas prices dropped significantly in 1Q23, and free cash flow will struggle to stay above zero.
3 - Oil equivalent production and other considerations
WTI Quarterly production per boe history (Fun Trading)
Fourth quarter 2022 production was comprised of 14.9K Boep/d of oil (39%), 4.0K boep/d of natural gas liquids (10%) ("NGLs"), and 117.9 million cubic feet per day ("MMcf/d") of natural gas (51%).
3.1 - Oil equivalent production
Production for the fourth quarter of 2022 was low at 38.6k Boep/d. It represented a decrease of 10.4% compared to 3Q22 and was up 3.8% from 37.2K Boep/d for the corresponding period in 2021.
3.2 - Details revenues QoQ:
WTI Quarterly production 4Q21 versus 4Q22 in Boe (Fun Trading)
W&T's average realized price per barrel of oil equivalent ("Boe") before realized derivative settlements was a record of $52.82 per Boe in the fourth quarter of 2022, a decrease of 1.7% from $68.39 per Boe in the third quarter of 2022 and up significantly from $47.70 per Boe in the fourth quarter of 2021.
Before realized derivative settlements, crude oil, NGL, and natural gas prices for the third quarter of 2022 were $81.27 per Oil barrel, $25.70 per NGL barrel, and $6.12 per Mcf.
Liquids (oil and NGL) represented 49.1% of the total production in the quarter.
WTI Quarterly Production per Boe and prices realized history (Fun Trading)
4 - Net debt dropped this quarter and is $232.08 million in 4Q22
WTI Quarterly cash versus debt history (Fun Trading)
W&T had available liquidity of $511.4 million, comprised of $461.36 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"). In the press release :
Additionally, in the fourth quarter of 2022, the Company entered into an amendment to its Credit Facility, which, among other things, extended the maturity date and Calculus' commitment by up to one year to January 3, 2024.
However, one concern here is the use of ATMs to raise cash. WTI sold 2.97 million shares of common stock through its at-the-market program at an average price of $5.72 per share, resulting in approximately $17.0 million in gross proceeds.
After the quarter ended, on January 27, 2023, the company closed an offering of $275 million in aggregate principal amount of 2026 Senior Second Lien Notes at par in a private offering exempt from registration under the Securities Act of 1933, as amended.
5 - 2023 Guidance
Production for the first quarter of 2023 is expected between 32.4K Boep/d and 35.2K Boep/d with a range of 37.0K Boep/d and 41.0K Boep/d for the full year 2023. Production for 1Q23 is expected to be down 12.4% compared with 4Q22.
WTI 2023 Guidance (WTI press release)
Technical Analysis And Commentary
WTI TA Chart short-term (Fun Trading Stockcharts)
WTI forms an ascending triangle pattern with resistance at $6.3 and support at $5.25.
Ascending triangles are bullish formation that anticipates an upside breakout. However, it may turn bearish in this case due to the expectation of a weak first quarter of 2023.
The short-term trading strategy is to trade LIFO about 55%-65% of your position and keep your core long-term amount for a potentially higher payday.
I suggest selling gradually between $6.3 and $6.5 with possible higher resistance at $7 and waiting for a retracement between $5.15 and $5.25 with possible lower support at $4.90.
As I have said earlier, natural gas prices are down significantly and will significantly affect revenue and cash flow this coming quarter.
Watch oil prices like a hawk.
Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.
For further details see:
W&T Offshore: The Sharp Decline In Natural Gas Prices Will Likely Hurt Revenues Next Quarter