A turn toward oil and natural gas liquids (NGL) last year did a good turn for earnings at Houston-based W&T Offshore Inc. “Solid” oil and liquids production in a bull market for same lifted the company’s operating income to the highest level in its history, CEO Tracy W. Krohn told financial analysts Friday.
“At year-end 2011 we are an oilier company, with oil and NGLs representing 59% of our proved reserves,” he said.
“Over 84% of our oil production is on the Gulf Coast, which realized a significant premium over Nymex-priced crudes in 2011. We were able to grow our proved reserves with a reserve replacement ratio of 312%…”
Net income for the fourth quarter was $46.1 million (61 cents/share) on revenues of $261.9 million, compared with net income of $20.5 million (27 cents) on revenues of $187 million for the same period in 2010. Revenues were higher in the latest fourth quarter due to higher realized oil and NGL prices and increased production. Excluding special items, fourth quarter income was $51.5 million (69 cents/share), compared with $29.6 million (40 cents) in the year-ago quarter.
W&T shares zoomed higher Friday, closing the day up more than 8% at $26.83 in heavy trading. The stock posted an intraday high of $27.40, nearing its 52-week peak of $29.27 and well above the 52-week low of $11.87.
The company’s recently increased 2012 capital budget is $425 million excluding acquisitions. It includes $379 million to drill, evaluate and complete 75 wells, including 25 exploration and 50 development wells. The 25 exploration wells are five on the conventional shelf, one in the deepwater and 19 onshore. The 50 development wells are three on the conventional shelf, one in the deepwater and 46 onshore. The remainder of the budget is allocated to facilities capital, recompletions, seismic and leasehold items.
“Our exploration activities make up 39% of our capital budget and development activities make up the remainder, which will help sustain production and cash flow,” Krohn said. “As we have indicated, the mix of our exploration activities provides the company more exposure to larger reserves and extended development opportunities.
“Although our budget excludes acquisitions, we believe they are highly probable and will allow us to continue to again grow reserves and production in a meaningful way, which will drive total shareholder returns in 2012.”
Last year proved reserves increased by 44% to 116.9 MMBoe, or 701.1 Bcfe, from 80.9 MMBoe, or 485.4 Bcfe, at the end of 2010. The company’s reserve replacement rate in 2011 was 312%. Oil and NGLs contributed 59% to proved reserves at year-end 2011, compared to 47% at December 31, 2010. Proved developed reserves comprised 65% of total proved reserves at December 31, 2011.
During the fourth quarter W&T sold 1.6 million bbl of oil, 600,000 bbl of NGLs and 14.4 Bcf of natural gas at an average realized prices of $112.01/bbl, $56.55/bbl and $3.51/Mcf, respectively. Combined W&T sold 4.6 MMBoe at an average realized price of $57.12/boe, compared to 3.8 MMBoe sold at $49.39/boe in the fourth quarter of 2012.
For the year W&T sold 6.1 million bbl of oil, 1.9 million bbl of NGLs and 53.7 Bcf of natural gas at average realized sales prices of $105.92/bbl, $55.81/bbl and $4.12/Mcf, respectively. Combined the company sold 16.9 MMBoe at $57.32/boe, compared with 14.5 MMBoe at $48.87/boe for 2010.
The sales volume increase for oil and NGLs is primarily attributable to increases associated with properties acquired in 2011 and 2010. The sales volume increase for natural gas is primarily attributable to increases associated with acquisition activities, the Main Pass 108 fields in the Gulf of Mexico resuming production and successful exploration efforts. More than 80% of W&T production came from wells the company operates.
Net income for 2011 was $172.8 million ($2.29/share) on revenues of $971 million, compared with net income in 2010 of $117.9 million ($1.58/share) on revenues of $705.8 million. Income for 2011 excluding special items was $179.9 million ($2.38/share), compared with $116.7 million ($1.57/share) in 2010. The increase in earnings between periods was primarily due to increases in oil and NGL prices and higher production volumes, partially offset by higher operating costs and lower natural gas prices.
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