Submitted By Aaron NematNejad
This is a sister article to the analysis of ExpressJet. The purpose of this article is to compare oil company analyses to analyses of aviation companies. I will describe the financial statements of WTI and highlight key differences. The article will begin with a glossary of major terms used in analyzing oil companies, followed by financial statements and accounting diagrams relevant to oil companies. The final sections will contain quantitative and qualitative tests to arrive at a valuation for WTI. This is meant as a general guide to oil company analysis, and is not a buy or sell recommendation.
Company Description
W&T Offshore is an independent oil and natural gas company focused on the Gulf of Mexico area. They engage in oil and natural gas acquisitions, exploration, exploitation and production activities. They own interests in approximately 158 producing oil and natural gas fields in state and federal waters, and operate wells accounting for approximately 59% of their average daily production. WTI is the third largest shelf acreage holder in the Gulf of Mexico. They own interests in approximately 523 offshore structures, of which 322 are platforms in the fields that they operate.
WTI grows their reserves via acquisitions and drilling programs. On August 24, 2006, WTI closed the acquisition of a wholly owned subsidiary of Kerr-McGee Oil & Gas Corporation, a merger for approximately $1.1 Bn (subject to post-closing adjustments).
Glossary of Oil and Natural Gas Terms
Bbl. One stock tank barrel or 42 US gallons liquid Volume
Bcf. Billion cubic feet.
Bcfe. Billion cubic feet equivalent.
Conventional shelf well. A well drilled in water depth less than 500 feet.
Deep shelf well. A well drilled to depth greater than 15’000 feet.
Dry hole well. A well found incapable of producing hydrocarbons in a cost efficient manner.
MBbls. One thousand barrels of crude oil.
Mcf. A thousand cubic feet.
Mcfe. One thousand cubic feet equivalent.
MMBbls. One million barrels of crude oil.
PV-10 Value. The present value of the revenues generated from the production of proved reserves. The “10” refers to a discount rate of 10%.
(Please note that when an abbreviation has M as the first letter it refers to 1000 units of quantity. MM refers to a million. )
Financial Statements for W&T Offshore
|
Income Statement
|
|
In 000's
|
|
Revenues
|
|
|
|
|
Oil and natural gas
|
800,348
|
|
|
Other
|
118
|
|
|
Total revenue
|
800,466
|
|
|
|
|
|
Operating costs and expenses:
|
Lease operating
|
109652
|
|
|
Gathering, transportation and production taxes
|
17697
|
|
|
Depreciation, depletion and amortization
|
325131
|
|
|
Asset retirement obligation accretion
|
12496
|
|
|
General and administrative
|
42119
|
|
|
Commodity derivative gain
|
-24244
|
|
|
Total Operating costs and expenses
|
482851
|
|
|
|
|
|
Operating income
|
|
317,615
|
|
|
|
|
|
|
Interest expense, net of amount capitalized
|
17180
|
|
|
Other Income (primarily consists of interest income)
|
5919
|
|
|
|
|
|
Income before income Taxes
|
|
306,354
|
|
|
|
|
|
Income taxes (35%)
|
|
107250
|
|
|
|
|
|
Net Income
|
|
199,104
|
|
EPS
|
|
2.84
|
Oil and gas companies very often hedge their oil prices by undertaking derivatives contracts. Most oil and gas companies will split their oil and natural gas revenues and costs in a separate diagram as can be seen in the diagram below.
|
|
Quantity
|
Price
|
|
Revenue
|
|
Natural Gas (MMcf)
|
60,447.0
|
7.08
|
$/Mcf
|
427,964,760.0
|
|
Oil (MBbls)
|
6,456.0
|
57.7
|
$/Bbl
|
372,511,200.0
|
|
Total natural gas and oil (Bcfe)
|
99,183.0
|
|
|
800,475,960.0
|
Please note that 6 MMcf is equivalent to 1 MBbls. (The revenues represented above are actual dollar amounts).
|
Balance Sheet
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
Cash and cash equivalents
|
|
39,235
|
|
|
|
|
|
Receivables
|
|
|
|
|
Oil and gas sales
|
98,362
|
|
|
Joint interest and other
|
50,681
|
|
|
Insurance receivables
|
75,151
|
|
|
Income Taxes
|
15,705
|
|
Total receivables
|
|
239,899
|
|
|
|
|
|
Prepaid expenses and other assets
|
|
49,559
|
|
|
|
|
|
Total Current Assets
|
|
328,693.00
|
|
|
|
|
|
|
|
|
|
Long Term Assets
|
|
|
|
|
|
|
|
Property and equipment -at cost:
|
|
|
|
|
Oil and gas properties and equipment
|
3,297,153
|
|
|
Furniture, fixtures and other
|
10,948
|
|
Total Property and equipment
|
|
3,308,101
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
1,042,315
|
|
|
|
|
|
Net Property and equipment
|
|
2,265,786
|
|
|
|
|
|
Restricted deposits for asset retirement
|
|
10,680
|
|
|
|
|
|
Other assets
|
|
4,526
|
|
|
|
|
|
Total Assets
|
|
2,609,685
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
Current maturities of long term debt
|
|
271,380
|
|
Accounts Payable
|
|
247,324
|
|
Undistributed oil and gas proceeds
|
|
46,933
|
|
Asset retirement obligations
|
|
41,718
|
|
Accrued liabilities
|
|
28,825
|
|
Deferred income taxes-current portion
|
|
7,896
|
|
|
|
|
|
Total current Liabilities
|
|
644,076
|
|
|
|
|
|
Long term debt (net of discount)
|
|
413,617
|
|
Asset retirement obligations
|
|
272,350
|
|
Deferred Income taxes
|
|
232,835
|
|
Other liabilities
|
|
3,890
|
|
|
|
|
|
Total long term liabilities
|
|
922,692
|
|
Total Liabilities
|
|
1,566,768
|
|
|
|
|
|
Net Equity
|
|
1,042,917
|
|
|
|
|
|
Cash Flow
|
|
|
|
|
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
Net Income
|
199,104
|
|
Adjustments to reconcile net income to net cash
|
|
|
|
|
|
|
|
|
Depreciation, depletion, amortization and accretion
|
337,627
|
|
|
Amortization of debt issuance costs
|
1,417
|
|
|
accretion of discount on long term debt
|
6,765
|
|
|
share based compensation
|
2,544
|
|
|
unrealized commodity derivative gains
|
(13,476)
|
|
|
deferred income taxes
|
106,645
|
|
|
Other
|
511
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Oil and gas receivables
|
(54,470)
|
|
|
Joint interest in other receivables
|
(17,584)
|
|
|
Insurance receivables
|
(61,301)
|
|
|
Income Taxes
|
(47,313)
|
|
|
prepaid expenses and other assets
|
(27,168)
|
|
|
asset retirement obligations
|
(24,492)
|
|
|
accounts payable and accrued liabilities
|
162,274
|
|
|
other liabilities
|
506
|
|
|
|
|
|
Net cash provided by operating activities
|
|
571,589
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
Acquisition of Kerr McGee properties
|
(1,061,769)
|
|
|
Investments in oil and gas property and equipment
|
(588,978)
|
|
|
Other
|
(4,825)
|
|
|
|
(331)
|
|
|
Net cash used in investing activities
|
(1,655,903)
|
|
|
|
|
|
|
|
|
|
Financing activities
|
Borrowings of long term debt
|
1,123,732
|
|
|
Repayments of borrowings of long term debt
|
(485,500)
|
|
|
Proceeds from equity offering
|
306,979
|
|
|
Dividends to shareholders
|
(8,225)
|
|
|
Debt issuance costs
|
(1,135)
|
|
|
|
|
|
|
Net Cash provided in financing activities
|
935,851
|
|
|
|
|
|
Net Cash Flow
|
|
(148,463)
|
Quantitative Tests of W&T Offshore
Qualitative Checks for W&T Offshore
Competition and risk
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