Houston-based W&T Offshore Inc. grew third-quarter production by 50% over the year-ago period and 32% sequentially from the second quarter. Year-to-date production is at an all-time high and projected to increase more than 50% next year. And seven of seven Gulf of Mexico (GOM) exploration wells were declared successes in the third quarter.
Net income for the third quarter was $66.7 million (91 cents/diluted share) on revenue of $213.4 million. This compares to net income of $53.1 million (80 cents) on revenues of $153.4 million for the third quarter of 2005. Third-quarter 2006 results include an after-tax unrealized gain of $14.8 million related to open commodity derivative contracts. Excluding this, 3Q net income would have been $51.9 million or (71 cents).
Production in the third quarter was 15.4 Bcf of gas at an average price of $6.58/Mcf and 1.8 MMBbl of oil at an average price of $62.08/b. This compares to production of 11.5 Bcf of gas at an average price of $8.64/Mcf and 1 MMBbl of oil at an average price of $54.39/b in third-quarter 2005. The increase in volumes is primarily attributable to the additional production associated with the Kerr-McGee transaction (see NGI, Jan. 30) closing within the quarter and new production from successful exploration drilling.
Had the company included the effect of the realized cash portion of commodity derivative contracts, the average realized sales price for gas would have been $6.87/Mcf for the third quarter of 2006. The average realized sales price for oil would have been $62/b for the third quarter of 2006. W&T did not have any derivative contracts in place during 3Q 2005.
Lease operating expense for the third quarter increased sharply from $18.2 million, or $1.04/Mcfe, to $34.4 million, or $1.31/Mcfe in the third quarter of 2006, primarily due to higher costs associated with the Kerr-McGee transaction and increases in insurance premiums as a result of last year’s hurricanes, hurricane repair costs, overall service costs, and supply costs at existing properties.
During the third quarter W&T participated in the drilling of seven exploration wells (gross) in the Gulf of Mexico, all of which were successful. W&T also successfully drilled one development well during the period. During the third quarter, the company spent $70.3 million for development, $35.4 million for exploration, $1.1 billion for acquisition and other leasehold activity and $3.6 million for other capital items. The 2006 capital budget was increased to $550 million from $400 million during the third quarter.
W&T said it anticipates drilling two exploration wells on the conventional shelf, and two exploration wells in the deepwater during the remainder of 2006.
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