Good morning, and welcome to the W&T Offshore Second Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I’d now like to turn the conference over to Brent Collins, Director of Investor Relations. Please go ahead.

Thank you, operator. And on behalf of the management team, I'd like to welcome all of you to today's conference call to review W&T second quarter 2022 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 those forward-looking statements. Today's call may also contain certain non-GAAP financial measures. Please refer to the earnings release that we issued this morning, 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.

Thanks, Brent. Good day to everyone and thanks for joining us for our second quarter 2022 conference call. So with me today are Janet Yang, our Executive Vice President and Chief Financial Officer; and William Williford, our Executive Vice President and Chief Operating Officer. They'll be available to help answer questions later during the call. Our financial results in the second quarter were among the best quarterly results in our history. Our strategy has always been simple, generate free cash flow, maintain high quality conventional production, and opportunistically capitalize on accretive opportunities to build shareholder value. Our ability to execute and maintain strong operational excellence was a significant driver in our outstanding financial results in the second quarter. So here's the key things we delivered in the quarter. Average daily production increased 12% quarter-over-quarter and that was above the high end of guidance. LOE costs were below the low-end of guidance. We took advantage of the sharp increase in natural gas forward prices and monetize value from a portion of our natural gas hedge position, while still maintaining our ability to participate in higher natural gas prices by entering into new gas coal contracts with higher strike prices. This resulted in a net gain on the transaction of $138 million and net cash proceeds of $105.3 million and was clearly a big contributor to our financial results in the quarter. We generated net income of $23.4 million or $0.85 per diluted share. Adjusted EBITDA came in at $294 million, which was over 3 times what we reported in the first quarter and free cash flow was $234 million, which was almost 5 times our free cash flow last quarter. Cash and cash equivalents increased to $377.7 million, up over 80% from a year ago. Our net debt to trailing 12…

Pardon me, this is the conference operator. We seem to be having some difficulty with the connection with the main speaker location. We'll rejoin the call in just a moment. Thank you. Pardon me, this is the conference operator. We've rejoined the speaker location. Sir, please go ahead.

Thank you. Unfortunately, I understand we've had some communications disruptions. We're doing this call from the EnerCom Conference in Denver, Colorado. So there are thunderstorms in the area. I apologize for the inconvenience. I was just wrapping up telling you that we're evaluating assets in the Gulf of Mexico as usual. We expect that over time, we'll get our fair share of those anyway. Our management team's interest are very aligned with those of our shareholders, given our 34% stake in W&T's equity, which is one of the highest of any publicly and big company. As a significant shareholder, I see a very bright future for W&T and look forward to continued success in 2022 and beyond. And operator, we can now open the lines for questions.

We'll now begin the question-and-answer session. [Operator Instructions] Our first question is from Mike Scialla with Stifel. Please go ahead.

Good morning, Tracy.

Good morning, Mike.

First question, I guess, is for you or Janet. I just wanted to ask on the second lien notes. You mentioned how you may address those. They are trading at a bit of a discount right now. I guess thoughts on buying back more of those notes in the open market or do you prefer to build cash and keep your options open?

Well, I'm not out buying notes right now. We will have that option at November 1. We'll buy them at par. So that's a more likely time that we would go out and perhaps purchase those notes. We are in the midst of talking to folks about refinancing all those notes. The good news is that we know we can get refinancing. The question is at what terms. Markets have been a little bit unstable with interest rates going up and some of the policies the administration has brought forth with regard to the economy. So we're not the only ones struggling with that, but the good news is that we really have a lot of cash built up. We see a real clear path, I think, to just paying the notes off if that's what we have to do. So even if they go current, I'm not terribly concerned about it. I'd prefer to get them refinanced and give us a little dry powder to do acquisitions.

I guess, if they do go current, there's nothing that doesn't trigger anything with any of your other -- I mean, with the term loan, there's no issue with that?

Not with the term loan.

Okay. Good.

No. Separate and non-recon. So we're okay there.

Good, okay. And I just wanted to -- you may have disclosed this, I might have missed it. But with the acquisition, the 20% that you closed in April, did you say what that contributed to the quarter? And I was just curious if you could maybe talk about how much the recompletions and the workover and the Cota well contributed to the second quarter? Surprised a bit on the production for the quarter. So just trying to figure out where the -- where that surprise came from?

Yes. We didn't disclose that as a separate item. Overall, we had some downtime with -- associated with our mobile base stuff, that was ongoing at the end of the last fall, and we've got a full production [Technical Difficulty].

Okay. That was a little choppy, but I think I've got the gist of it. Appreciate it. Thank you guys.

Yeah. They're having a bunch of thunderstorms in the area. I think that's what's disrupting the radio signal.

Thank you, Mike.

Thanks Mike.

[Operator Instructions] The next question is from Jeff Robertson with Water Tower Research. Please go ahead.

Thank you, Tracy. A question on Holy Grail. The long lead time items that you are ordering, I assume that will shorten the cycle time to bring it on production. Is that correct?

No. Actually, it's to provide the ability to get on the well itself. We had to do some modification on the substructure. This is actually a platform rig that we're putting on this floating vessel. These are dry trees and not subsea trees. So it has to do with the marine riser to adapt to the dry tree. You got to understand that as we're drilling, the vessel is moving up and down. So we've got to make sure we compensate for that motion and that we have confirmed the integrity of the riser. So a lot of that has had to do with the parts and equipment we need to do just to get rigged up on this dry tree that's moving up and down as we're drilling.

Okay. Have you all settled on what your working interest in that well will be or are you looking for partners or...

Right now we have 100%. So no, I'm not particularly looking for partners for this well.

Okay. And then lastly on that, will it set up additional prospects at Magnolia?

We don't know yet. I'll be able to answer that question after we drill the well.

Okay. All right. And then lastly, on the notes, just following up on Mike's question. Given that you all look like you could probably pay them off with cash, does that give you leverage in how you -- and what your refinancing options are?

You bet your [indiscernible] it does.

Okay. That's what I figured.

Yeah, you're right. I can't get this thing refinanced, Jeff. It's not bravado that we're speaking to here. We can refinance it. Cash flow is strong. If markets suddenly collapsed, then it could be a little bit more problematic. But don't forget, we have the ATM out there as well as additional insurance. It's unexercised. We did that to give us a little bit of another option really.

Okay. Thanks. I appreciate the color.

Yes, sir.

Your next question is a follow-up from Mike Scialla with Stifel. Please go ahead.

Yeah. Hi again. Just wanted to ask on Holy Grail. I think you initially were talking about splitting that well in the fourth quarter. It looks like it might have slipped a little bit. Was there any capital associated with the timing of that, that might have slipped into '23. And if so, is the difference there may be attributable to inflation or is that not the correct way to look at that?

No, it's really not inflation, Mike. It has slipped. It's just getting the parts and the regulatory side of it lined up. We'll spend -- we'll start spending money in the fourth quarter, and we'll start drilling the well in the first quarter of next year.

Okay. So what you were planning to spend fourth quarter really hasn't changed any?

Yeah. It really hasn't changed much. The timing has changed a little bit, but we didn't expect that we would be having a great deal of CapEx in the fourth quarter as a function of drilling the well. Mob and demob costs -- mob costs will be -- you'll probably see that in the fourth quarter or most of it in the fourth quarter. And hopefully, we'll be on location drilling in the first quarter.

Okay. And then I just wanted to ask on policy. It looks like the Inflation Reduction Act is going to go through. Did you have any leases in that lease sale in 257 and just any general thoughts on that act being approved?

Yes. Really, I'm not quite sure that I'm familiar with it enough to say, yeah, I know what it is. But yes, we did have two leases in that last lease sale. So that's -- hopefully, we'll get those back and be able to continue. We were high bidder on two leases. So dollars spent for the leases wasn't that great, but it'd be nice to have those as inventory.

Okay. And then just last one for me. You mentioned, Tracy, in your prepared remarks and we've talked about it every quarter, but just want to get your latest thoughts on the M&A market. Sounds like things are really moving forward pretty quickly.

Yeah, they’re are. We've seen some things about different properties that are being up for sale. Of course, this is atypical of Gulf of Mexico. There's always another deal in the Gulf of Mexico, one of the reasons why we like it so much. But yeah, some of the larger properties are starting to shake loose, and we're looking at a bunch of different properties as usual. But the volume does seem to be picking up a bit.

Sounds good. Thank you.

Thank you.

[Operator Instructions] Showing no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Tracy Krohn for any closing remarks.

Thank you, everybody, for joining us. Apologize for the slight interruption in communications while we battle through some thunderstorms in the Denver area. The good news is, it looks like fair weather for W&T going forward. We look forward to hearing from you or talking to you again soon. Thanks so much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.