W&T Offshore, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the W&T Offshore second quarter 2026 conference call. During today's call, all parties will be in a listen-only mode. Following the company's prepared remarks, the call will be open for questions and answers. During the question and answer session, we ask that you limit your question to one and follow-up. You can always rejoin the queue. This conference is being recorded and a replay will be made available on the company's website following the call. I would now like to turn the conference over to Al Petrie, Investor Relations Coordinator. Please go ahead.

Thank you, Danielle. And on behalf of the management team, I would like to welcome all of you to today's conference call to review W&T Offshore's second quarter 2026 financial and operational results. Before we begin, I'd like to remind you that our comments may include hard-looking statements. This should be noted that a variety of factors could cause WNT'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 measures. Please refer to the earnings release that we issued yesterday for disclosures on forward-looking statements and reconciliations of non-GAAP measures. With that, I would like to turn the call over to Tracy Krohn, our Chairman and CEO.

Thanks, Al. Good morning, everyone, and welcome to our conference call. With me today are William Williford, our Executive VP and Chief Operating Officer, Sameer Parasnis, our Executive VP and Chief Financial Officer, and Trey Hartman, our Vice President and Chief Accounting Officer. We're all available to answer questions after our prepared remarks. So we've delivered consistently strong operational and financial results over the past 43 years. I'm very pleased to report that our Q2 results continue this positive trend and we are in a much stronger financial position heading into the second half of 2026. The second quarter delivered net income of $12.6 million, or eight cents per share, and over $54 million in adjusted EBITDA. That's in line with the first quarter and in the first half of 2026, we generated almost $110 million. In the second quarter, we also increased our free cash flow by 50% compared to Q1 2026 to 31 million. We've now amassed over $52 million in free cash flow in the first half of 2026. This has enabled us to increase our cash on hand to over $150 million, driving our net debt down to $200 million. So on a 12-month trading basis, our net debt to adjusted EBITDA is down to 1.2 times and assuming sustained margin levels into the second half of 2026, this should continue to go down and potentially be under one times a year in 2026. These strong financial results are driven by our operational focus with a particular emphasis on optimizing and maintaining solid production while continuing to manage costs prudently. So in quarter two, our production was 34,700 barrels of oil equivalent per day at the midpoint of guidance and up 3% from the same period in 2025. So despite no new drilling and no new acquisitions, the solidity quarter results start with our ability to maintain strong production, to strike value through well optimization projects, and they're enhanced by our low decline rate fields in the Gulf of America. We do a commendable job of consistently offsetting our production decline by spending only a fraction of the capital that other NP companies spend with no new drilling. This is a testament to our experienced technical staff, our vast resource base, and the strong geological properties of the Gulf. We choose to spend more dollars on low-risk, high-rated return workovers and facility work rather than drilling new wells. We believe that this is a more economic way to invest our operational cash flow Back into our business and it's a lower risk option. We can then build cash flow and make creative acquisitions of producing properties. So over the years, we've consistently created significant value by methodically integrating producing property acquisitions. We look for strong producing assets with meaningful reserves and an attractive price that we can integrate into our vast infrastructure. We spend primarily LOE dollars to maintain our vast infrastructure and maximize the extraction on our footprint. This is complemented by workovers, re-completes and upgrades that result in additional production uplift from our acquisitions above the rates they were producing when purchased. This strategy makes W&T unique, but it's our ability to execute over and over throughout the years that allows us to add value. So now turning to costs, our LOE for the second quarter was $72 million, and that's below the lower end of guidance. Productions in our LOE costs were mainly driven by timing of facility and work over expense projects, but we've also made strides to lower our base LOE spend through cost-saving initiatives in late 2025 that we've seen materialize in the first half of 2026. In the second quarter, we also saw gathering transportation and production taxes below the low end of our guidance range. Capital expenditure in the second quarter of 2026 was $10.4 million, and asset retirement settlement costs totaled $3.4 million. In the current strong pricing environment, we are accelerating certain projects, which is potentially driving our capital spending, toward the higher end of our full-year guidance. Our 2026 capital guidance is between $20 million and $25 million, which excludes potential acquisition opportunities and for ARO, it is between $34 million and $42 million. I'd like to point out again that this is a fraction of what others spend to maintain their production base, providing W&T with a competitive advantage. Our ability to execute our strategy has delivered very positive results to start off 2026, including a healthy balance sheet and enhanced liquidity. At the end of the second quarter of 2026, Our total debt and net debt were $351 million and $200 million, respectively, and our liquidity was $194 million. Our balance sheet and growing cash position allow us to evaluate and potentially quickly execute accretive acquisitions in line with our strategy. Very pleased with our debt to EBITDA ratio of 1.2 times, which we believe compares very well with our peer group. So as everyone knows, we're in a very volatile pricing environment due to multiple global factors. Thus far in 2026, we have seen rising prices, and our realized prices of $50.23 per barrel oil equivalent in the second quarter was an increase of 11% from the first quarter and up about 40% from year-end 2025. We have consistently replaced and expanded our reserve base through operational spend, uplift projects, and acquisitions. Pricing also benefits our reserves, especially our oil reserves, enhancing economic viability, increasing field lives, and driving higher PB10 valuation. I believe that with our growing cash position, strong PDP reserve valuation, and a rising price environment, that our stock price remains undervalued. Our enterprise value is below our PDP PB10, and we are consistently delivering a dividend to our shareholders. It's important to note that over the period of time, in the last 10 to 15 years, our produced reserves, according to SEC reserve reports, have actually been more than double what was predicted in our reserve reports for approved reserves.