Good day. And welcome to the W&T Offshore Fourth Quarter 2021 Earnings Conference Call. All participants will be in a listen only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note this event is being recorded. And I would now like to turn the conference over to Brent Collins, Director of Investor Relations. Please go ahead.

Thank you, Operator. On behalf of the management team, I like to welcome all of you to today’s conference call to review W&T Offshore’s fourth quarter and full year 2021 financial and operational results. Before we begin, I’d like to remind you that our comments may include forward-looking statements. It should be noted that a variety of factors could cause W&T’s actual results to differ materially from the anticipated results or expectations expressed in these forward-looking statements. Today’s call may also contain certain non-GAAP financial matters. Please refer to the earnings released that we issued yesterday for disclosures on forward-looking statements and reconciliations of non-GAAP measures. With that, I’d like to turn the call over to Tracy Krohn, our Chairman and CEO.

Thank you, Brent. Good day to everyone. And thanks for joining us for our fourth quarter 2021 conference call. So with me today are Janet Yang, our Executive Vice President and Chief Financial Officer; William Williford, our Executive Vice President and newly appointed Chief Operating Officer. Congratulations on that, William.

Thank you.

Steve Schroeder, our Senior Vice President and Chief Technical Officer; and Stuart Obkirchner, our Director of Geosciences. They’re all available to answer questions later on during the call. So these past two years have been truly extraordinary to say the least, with everything from global COVID-19 pandemic to several active tropical storms in the Gulf, the wild swings in oil and gas pricing. Through it all, we persevered by doing what has been successful for the past four decades, maximizing cash flow generation, operating efficiently and striving to constantly improve the profitability of our assets at any commodity price. Our operations and finance teams have done an excellent job adapting to the changing market conditions, while maintaining the highest levels of safety and operational excellence. W&T finished 2021 on a particularly strong note, as evidenced by the financial and operational results we posted for the fourth quarter. In every quarter of 2021, we produced positive free cash flow, including approximately $23 million in the fourth quarter and over $90 million for the full year. In the fourth quarter, we also experienced improved pricing for all three commodities on a sequential basis. We saw our average realized price per BOE before the impact of hedges increased by 16% to $47.70, up from $41.05 in the third quarter. We also did a good job managing our key costs during the quarter. We came in at the low end of our LOE guidance and G&A was right in the middle of the range we provided. Combination of strong production, favorable pricing and cost control resulted in $65.7 million in adjusted EBITDA in the fourth quarter of 2021, which was a 42% increase over the third quarter of 2021. For the full year 2021, adjusted EBITDA increased by 35% to $220 million. It wasn’t…

[Operator Instructions] The first question comes from John White with ROTH Capital. Please go ahead.

Good morning, everybody.

Good morning, John.

Congratulations on the quarter and congratulations to Mr. Williford also.

Great.

Thanks, John.

Thank you, John.

Reserve report looked good, nice to see those positive revisions in there. In your press release regarding the 2022 CapEx program, as you mentioned, one deepwater well and three shallow shelf wells. Could you -- would you be able to tell us what prospects those are on?

Yeah. We have a well-planned at Magnolia. That’s a development well there. And the other three wells are on the shelf.

Okay. Thanks very much. That’s all I have for now. I’ll pass it along.

Thanks, John.

The next question comes from William Howell with Stifel. Please go ahead.

Hey. Good morning, guys, and congrats on a strong year. My question is regarding the lease sales that could be invalidated, what are your options there and if you could talk a little bit about the current leasing environment, especially in light of the current macro conditions?

I’m sorry. You cut out on the first part of your question there. Would you repeat that, please?

Yeah. Regarding the lease sales that could be invalidated, what are your options there?

Well, this has happened before. So with regard to lease sale, we had two leases that we were successful bidders on. We paid the money. It was around $0.5 million total. In the past, there was a lease sale off the East Coast that was held and then deemed invalid and it took about 10 years to get the money back. So I’m not sure that it will take 10 years this time, because I expect there will be a different administration in power and not too coming -- not long -- not too distant future. But, yeah, they’re not in any real hurry to give the money back usually. So it’s not going to have a major effect on us. We do a lot with the existing properties that we have. We make acquisitions. That’s part of our core efficiency and I don’t see that necessarily as a negative for W&T and stopping the leases. I actually see it as more of a positive for us.

Okay. Got it. My other question is, what would you want to see on the balance sheet or do you have a leverage target you’d want to see when you start thinking about return of capital and what might that look like?

Yeah. We’ve thought about that a lot. We’re going to be working on our longer term debt here and we’ve already begun the fact, but generally, 1 time to 1.5 times.

Okay. Any thoughts yet on dividends versus buybacks or is that kind of something you’ll evaluate down the road?

Well, that’s always near and dear to my heart. I have a substantial amount of the stock. So that’s an important question. I don’t have a quick answer for you, but that’s where we want to head to.

Sounds good. Thanks for taking my question and congrats again on the quarter.

Thank you, sir.

The next question comes from Jeff Robertson with Water Tower Research. Please go ahead.

Thank you. Tracy, on the deepwater well at Magnolia and the couple of shelf wells, are those wells that could add production in 2022, if successful or is that 2023 and -- or maybe even 2024 depending on timing of Magnolia?

It’s a little bit of both. I mean a little bit of all three rather. Magnolia will be on -- the rig will be on location this year. Hopefully, we’ll see some production in the latter part of the year for Magnolia. But this is a high capacity well. So it will -- and we own 100% of Magnolia, so it will have a meaningful effect on our production in the latter part of the year. The other plays on the shelf 2023 and 2024, and we’ll be laying out a little bit more of that plan here in the not too distant future.

Thanks. Do you plan to maintain 100% working interest at Magnolia?

Yeah.

Okay. Can you talk about the acquisition and some of the LOE reduction initiatives? And how much of that might be included in your LOE expectations for 2022?

Sure. Actually, the properties that we purchased have a higher LOE per barrel at present. We would expect to be able to affect that because of the synergies that we have in the area. So I think that that’s important to note. This is one of the reasons that we were interested is, it doesn’t require a great deal of change in our logistical change -- our logistical changes rather. We think that we’ll be able to affect production and cost in all those fields.

So it sounds like you can serve it with your additional boats and other things that you use for offshore services?

Yes.

Okay. And then, lastly, back on the lease sale. I think the API had filed a notice of intent to appeal the decision of the court in January. Have you -- and I think your release mentioned you’re considering participating or can you say where that stands?

Yeah. Well, I sit on the Board of the API. So I’m certainly going to support it. It’s a no brainer. I mean, the -- unfortunately, the diet tribe that comes from the administration right now is that, gee, we’ve got all these permits out there that haven’t been executed and completely avoids the obvious, which is that, hey, yeah, you have all these leases, but putting a well online and drilling a well are different activities than just picking up a lease. You’ve got to get permits. You’ve got to get locations done. You’ve got to finish geology. There’s seismic involved usually. I mean there’s a lot of steps here that doesn’t make it so that you just immediately flip the switch and start drilling on 9,000 leases. It takes months and months to get a permit and it takes months and months to evaluate data. You want to make sure that you get extra data. Sometimes you’re working on just fairly simple leads. What I wouldn’t call it prospects, I’d just call them leads when you’re making bids for leases and they’re competitive bids. So you already know you’re the high bidder. It’s not a simple process.

And then last question, if I can. Can you talk about what you’re or shedding light on what you’re thinking about with respect to the notes that mature next year and how you’ll look at refinancing those?

Yeah. I will -- to an extent, I mean, I think, that the situation is better than it was a month ago and a hell of a lot better than it was a year ago. We have higher prices. We have more cash flow. The bonds are trading at par right now and that’s the first time in a long time that that’s occurred. So I’m very optimistic that we’ll come back with a better solution than we had before.

Okay. Thank you very much, Tracy.

Thank you, sir.

The next question comes from Jay Spencer with Stifel. Please go ahead.

Hi. Good morning. Congrats on the good year, good quarter. A lot of my questions have already been addressed, but I just had few others. In terms of production in the fourth quarter, was there an impact from storms, and if so, could you quantify that?

No. I can’t really quantify that. I don’t see a whole lot of impact from storms in our data. There’s usually a little bit, but it’s not necessarily meaningful. It’s hard to assume that there’s a great deal. At most, it’s short-term for that quarter. So, probably, not more than 1,000 barrels of oil equivalent per day to 2,000 barrels of oil equivalent per day for a short period of time.

Okay. Great. Thanks. And in terms of your hedging program, how are you guys thinking about your hedging program in light of higher commodity prices?

That’s a really good question. I wish I had a great answer. It seems to change by $6 a barrel per day to $7 a barrel per day here recently. Clearly, it’s on our minds here. We haven’t been required to do any hedging here lately. Under our previous agreements with our banks, it was a rolling 18 months. We are looking at what we would want to protect, and basically, it -- assuming that we did hedge, then we would want to protect our budget and CapEx spending. So that’s really kind of premier in our minds. We -- fortunately, we bought a bunch of calls on the gas, which ameliorated a lot of our unrecognized gains and losses with regard to gas going into the next several years. So we’re hedged on -- we bought calls up until 2025 so on the gas and that’s proven to be fairly prophetic. It was -- we spent, I don’t know, $20 million or so on that and it was a hard decision to make at the time, but it turned out to be a pretty good answer. We were hedged on the downside and it occurred to us, we might not be able to capitalize on the upside, if we don’t do something. And the gas calls appear to be cheap to us at the time. The oil calls weren’t so cheap at the time, believe it or not. But in hindsight, I wish we’d done that, too. But I’m sure everybody does that had to do swaps for oil right now. But, fortunately, our oil production is going to continue to increase right now. We’ve got a new well coming online and that’s uninhibited by hedges. So that’s a good bit of cash flow for the year on that, so.

Got you. Okay. Well, thank you. And I guess my last one would be on the M&A environment, just how would you characterize it in terms of the opportunity set, are there many more out there like the ANKOR acquisition in terms of size and quality?

I would characterize it as excellent. The answer to that is, yes. I’m very encouraged. Maybe I’ve said this more than once. But last year was a tough year for acquisitions, because there was so much flux in the markets with the pandemic and pricing and the economy and new administration and a lot of variables to deal with that people had to look at with regard to selling assets and I think now it feels a little better in this environment that those are going to free up. Nobody wants to sell assets in a low price environment. They prefer to see it in a higher price environment. We’ve done it in both of those environments over the past. I look forward to a robust year of acquisitions.

Great. Okay. Well, thank you. I appreciate that thinking.

Thank you. Sure.

The next question is a follow-up from John White with ROTH Capital. Please go ahead.

Yes. On -- in 2021 you performed a large amount of workovers at Mobile Bay. For 2022, are the workovers again going to be concentrated at Mobile Bay or will they be more spread out across your asset base?

Yeah. They’ll definitely be spread out more, John. We did some maintenance work. We had the freeze earlier in the year in 2021. Some of those wells have a little bit of water in them. They load up. We had to get lift boats out there and clean them up and get them back online. We’ve had some shutdowns in the field due to maintenance issues that we had to address and so that’s why you saw a lot of it in Mobile Bay. We’re on a workover right now that has good promise to it in the Main Pass area that we’re working on. So you’ll see it more in the rest of the Gulf.

Okay. Thank you very much. I will pass it on.

Thank you, sir.

We have no further questions. So this concludes our question-and-answer session. I’ll turn the conference back over to Mr. Tracy Krohn for any closing remarks.

Thank you, Operator. We appreciate your attendance everyone and look forward to talking to you again in the very near future. Thanks so much.

The conference is now concluded. Thank you for attending today’s presentation and you may now disconnect.