W&T Offshore, Inc. Stock

Ladies and gentlemen, thank you for standing by. Welcome to the W&T Offshore Second Quarter 2026 Conference Call. [Operator Instructions] 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 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 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 Wilford, 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 continued 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 $0.08 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 trailing basis, our net debt to adjusted EBITDA is down to 1.2x, and assuming sustained margin levels into the second half of 2026, this should continue to go down and potentially be under 1x at year-end 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 2, 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. This solid quarter results start with our ability to maintain strong production, extract value through well optimization projects, and they are 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 E&P 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 rate of 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 accretive 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 at 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, recompletes 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. Reductions in our LOE costs were mainly driven by timing of facility and workover expense projects, but we've also made strides to lower our base LOE spend through cost-saving initiatives in late 2025 that we have 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 1.2x, 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 PV-10 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, PV-10, 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 proved reserves, that's 1P reserves. So yesterday, we provided our detailed guidance for third quarter 2026 and reiterated our unchanged full year production and cost guidance. We are forecasting the midpoint of Q3 2026 production to be in excess of 35,000 barrels of oil equivalent per day, which is an increase from second quarter.

Third quarter LOE is expected to be $73 million to $81 million, up from the second quarter amount of $72 million due to the higher planned workover and facility maintenance work that was deferred from the second quarter, and that's expected to benefit production in the second half of 2026. Third quarter transportation and production taxes are expected to be between $8.8 million and $9.7 million. Third quarter cash G&A costs are expected to be between $17.2 million to $19 million, that's modestly above the second quarter.

So before closing, I'd like to address surety and regulatory updates. In June 2025, we were pleased with the settlement agreement that we reached with two of our largest surety providers, which called for the dismissal of a previously filed lawsuit. This outcome is very positive for W&T overall as we will not [indiscernible] to unjustified collateral demands made by the applicable sureties, and we have locked in our historical premium rates through the end of 2026.

We believe the entry into this settlement agreement vindicates our resolve to stand up to surety providers unjustified demands on independent oil and gas operators such as W&T. But as the surety lawsuits continue to progress, we're working with damages experts to quantify W&T's claims. While the results of the surety lawsuits remain uncertain and there can be no assurance of the end result, management believes, based in part on the preliminary report of the damages expert that W&T, assuming we prevail on the litigation, would possibly have claims against the sureties that could reach hundreds of millions of dollars. Additionally, assuming W&T wins on its antitrust claims, those damages would be statutorily trebled. These estimates reflect management's current assessment and may change as the damages analysis and litigation proceed.

So in closing, I'd like to thank our team at W&T for all their efforts. We have delivered positive results in the first half of the year, and we are ready and able to add significant value in the second half of 2026. W&T has been an active, responsible and profitable operator in the Gulf of Mexico since 1983. We have a long track record of successfully integrating assets into our portfolio, and we continue to believe the Gulf of America is a world-class basin that supports value creation. We have a solid cash position and strong liquidity that enables us to continue to evaluate growth opportunities while continuing to generate strong free cash flow and adjusted EBITDA.

So with consistent production, increased realized pricing and continued cost control, we believe that we are well positioned operationally and financially to deliver robust results in 2026 and beyond. We will maintain our focus on operational excellence and maximizing the cash flow potential of our asset base to continue to add and return value to our shareholders.

And with that, operator, we can now open the lines for questions.

[Operator Instructions] The first question comes from Nate Pendleton from -- from Nate Pendleton who is a private investor.

Nate Pendleton, Texas Capital. I wanted to start on the surety lawsuits. Now that you've quantified the potential damages in the hundreds of millions, what is the potential time line and path forward from here? And perhaps how do you think about capital allocation from a potential recovery of this magnitude for W&T?

Well, we've estimated that it's a number that's going to be sizable according to our damage experts. And when we talk about that, we're talking about hundreds of millions of dollars. And assuming we're successful, that judgment is automatically traveled in a case like this, which is focusing on the collusion of surety providers. So I see it as very positive. I think that the evidence that we've seen so far has been very comforting in seeing some of the things that we've seen. And we continue to march forward with getting additional data from these companies, which has been difficult, but we're getting there.

Understood. Just a quick clarification. Is there any time line that you expect as far as how this plays out?

Yes, I expect within the next 2 years.

Got it. I appreciate that. And then shifting gears a bit. With the strong cash flow and your view on the valuation that you laid out in your prepared remarks, could there be a situation where you look at starting a buyback to take advantage of some of that disconnect while you guys await the right deal?

Yes. We've done that before. We've also endeavored to pay out dividends. I think that in current situation, we're more likely to pay out dividends. But again, this is subject to some of the things that we do along with acquisitions and drilling.

The next question comes from Neal Dingmann from William Blair.

This is Bert filling in. First question is around M&A. Specifically, are you going to continue to look at offshore packages? Or do you prefer shallow water or any other areas? And then how is the recent oil price volatility impacted the bid-ask spread in those areas?

Bert, the first thing that we focus on is whether it's going to make money. I don't care whether it's in shallow water or deepwater. It makes no difference. We're in operations in all of those categories.

As far as path forward, I mean, we look at the reserves, we look at the cash flow. We look at what the P&A obligations are, and then we make our determinations of what those values are.

Got it. And did the bid-ask spread has it widened or moved recently?

Yes. It really hasn't moved very much. I think we have a pretty good idea of what it is. We're looking at a lot of things on our plate right now. So nothing has really changed with regard to company procedure on making acquisitions. We have a number of wells that we want to drill as well. But right now, I think we prefer to focus more on acquisitions.

Perfect. And then the second question on the surety lawsuit. That's a great disclosure this morning. I know you can't comment on specifics, but I just want to make sure I understood the framing of the lawsuit outcomes. Is the discussion mainly on the dollar amount that would potentially come back to W&T? Or is there an equally prominent discussion, maybe appeals or whether or not it would -- a binary would have happened or wouldn't happen? I just want to make sure if both were on the table.

I think it's more important for us to get data. We've been working very hard to get data from the sureties, and they've been working very hard to not provide it.

The next question comes from Nicholas Pope from ROTH Capital.

Curious to talk a little more on the fun stuff, the production side. Kind of, you highlighted a slight uptick in workovers, recompletions in the second half of the year. I was just curious, kind of, the inventory that you all have in hand and how, I guess, that's replenished over time? Just curious what the -- you look at the current rate of activity, and it's been a focus of, kind of, production optimization. Just curious what that inventory looks like and how it might progress over the near term?

Sure. Let me make that perfectly clear for you with regard to our inventory. What we have had estimated as 1P reserves over the last 10 to 15 years has approximated half of what we've actually produced. So what I'm telling you is we're vastly undervalued. Our actual reserves are far greater than what are being estimated. And I've been telling people this for 40 years.

So it's not new, but the results we've been keeping have been pretty accurate in adding up what was actually predicted as 1P reserves and what we actually produce from that 1P reserve schedule. So it's about -- in fact, it's less than 50% of what we've actually produced.

And if you -- I mean, I guess, year-to-date, 1Q, 2Q, you've seen 4 -- you highlighted 4 workovers. What does that look like in the second half of the year?

Well, we -- what I told you is we would be in excess of 35,000 barrels of oil equivalent per day.

Okay, great. Looking at the retirement obligations, I know you included a slide in the past about, kind of, the book value of the ARO. It looks like it creeped up a little bit. I'm curious if there's any progress on maybe how you're booking your retirement obligations and what that might look like over the next year? Because I think it was $548 million this quarter. Just curious if you don't expect things to go up down? Or if there's any changes to kind of how that's regulated and accounted for going forward?

Yes. We indicate to folks that we're normally between about $35 million and $45 million a year on decommissioning. We look at that as a function of our total decommissioning, what we think those costs are. We manage through that judiciously by arranging supply routes, personnel, equipment, all at the same time. We've looked at this also in terms of when we do the work. We always prefer to do as much work as we can at one point in time as opposed to breaking up into what BSEE and BOEM, now MMA referred to as decommissioning costs. And gee, what are you going to do to accelerate that via their so-called Idle Iron program. We vividly object to this term Idle Iron. There's no Idle Iron. We have leases with more than one platform on it. But what we found out through the years is that as we go through time with better data and more understanding of the area, we generally find more reserves. And that plays into our catalog of the longevity of the company as we've proceeded through the decades.

Got it. Specifically, looking at some of these deepwater facilities, maybe like Matterhorn, I think, is kind of -- seems to be reaching a point where maybe it could be decommissioned at some point, just looking at where production is or maybe I'm incorrect in that. But curious, as you kind of look at that, maybe the more expensive facilities in the deepwater, if that's something that could be reaching, kind of, the end of its life and when that kind of spend might show up?

Well, first of all, you're incorrect about your term of its end of life. We have more work to do at Matterhorn. We have more things to do in that area. This is not unusual for us. Again, that's a floating facility. But yes, we have more work to do there. And our methodology for disposing of these things in the future may be a little bit different than other people's methodology. We've also done more abandonment work as a company than anybody in the Gulf. And that's well in excess of $1 billion.

[Operator Instructions] The next question comes from Richard Tullis from Water Tower Research.

I'm sitting in for Jeff Robertson. Tracy [indiscernible] Tracy, continuing the acquisition theme there, and I know that's been a longtime focus in the company. Tracy, how do you look at funding future acquisitions kind of where we sit now with the cash on hand that you built up versus debt versus equity that you feel is undervalued?

Yes. That's a great question, Richard. What we think about first is what is the value of the properties that we're going to acquire and how we're going to segregate that within the company. And we've done this in the past. We've formed companies that apply to specific assets where we're drilling wells and that sort of thing. So that's one of the things that we think about.

The -- and then, of course, we -- we segregate that also by the value of the property that we're trying to purchase. What we are seeing is more money coming into this basin from different providers. There were a lot of people 10 years ago that wouldn't dare get into this basin. But over time, they start to realize, there is good cash flow out there. It does pay out, and maybe we want to do business with people that have been there for a while. So we're enjoying some of that opportunity mainly because we have been there for a while.

And we've been there through various different things, various administrations who either like this or hate this. And we've succeeded in all cases. So I don't see that changing. And I certainly see -- continue to see bigger opportunity in this basin. This is the largest basin in the U.S. It is the second largest producing basin. And obviously, a higher degree of operating costs and things that you have to do in this basin that you wouldn't have to do anywhere else.

And just last for me. Looking at hedges, I know everyone has seen the volatility in the oil prices. Are you inclined to layer in any more hedges into 2027 and maybe beyond, say, the first quarter of 2027?

I don't really have any designs to do that at the moment. We'll see what pricing does and what we need to do and what we need to finance, and we'll make short order concerns on that. Fortunately, we do have the ability to go ahead and do that with our production base. As I told everyone before, I mean, we produced about -- well, actually less than half of -- excuse me, we produced almost double what we were predicted to have in 1P reserves, a little bit more than that. So that's very encouraging to us. And it's what I've been telling people for decades, this basin is very rock property positive, meaning that we have great permeability. We have great porosity. We have great advantage of mother nature helping us move that oil to the wellbore.

This concludes our question-and-answer session. I would like to turn the conference back over to Tracy Krohn for closing remarks.

Well, thanks, everybody. Good quarter for us. So we're looking forward to a better year going from this point through '26 and forward after that. So thanks for listening. We'll be back with you again soon.

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

Ladies and gentlemen, thank you for standing by. Welcome to the W&T Offshore First Quarter 2026 Conference Call. [Operator Instructions] 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.

Thank you, Michael. 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 first quarter 2026 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 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'd like to turn the call over to Tracy Krohn, our Chairman and CEO.

Thank you, Al. Good morning, everyone, and welcome to our first quarter conference call for 2026. With me today are William Williford, our Executive Vice President and Chief Operating Officer; Sameer Parasnis, our Executive Vice President and Chief Financial Officer; and Trey Hartman, our Vice President and Chief Accounting Officer, who are all available to answer questions later during the call.

So good news in that we started 2026 on a positive note with strong operational and financial results that either met or exceeded our guidance across multiple metrics. Our production was 36,200 barrels of oil equivalent per day. That's toward the higher end of guidance and flat with the fourth quarter of 2025 despite some adverse weather impacts in early 2026.

The solid quarterly results start with our ability to maintain strong production and were aided by our realized prices of $45.08 per barrel oil equivalent, an increase of 26% from the fourth quarter. And in March, our realized oil price was $88.61 per barrel. Additionally, our lease operating expense, LOE, was down 11% to $66 million below the midpoint of guidance.

Reductions in our LOE costs were mainly driven by lower base LOE spend that's reflecting fourth quarter 2025 cost-saving initiatives that began to materialize in the first quarter of 2026. All these positives helped us generate $55 million in adjusted EBITDA, our highest quarterly number since the third quarter of 2023.

We're also very pleased to have generated $21 million in free cash flow. That's a significant improvement from the fourth quarter of last year. So 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 first quarter of 2026, our total debt and net debt were $351 million and $221 million -- excuse me, $220 million, respectively, and our liquidity was $175 million. So we built W&T using a proven and successful strategy that is committed to profitability, operational execution, returning value to our stakeholders and ensuring the safety of our employees and contractors.

We've consistently delivered operationally and financially with low decline production, meaningful EBITDA and seamlessly integrating accretive producing property acquisitions during our nearly 45-year history. So capital expenditures in the first quarter of 2026 were $7 million, and asset retirement settlement costs totaled $17 million.

We continue to expect our full year capital expenditures to be between $20 million and $25 million, which excludes potential acquisition opportunities. Our budget for ARO remains the same at $34 million to $42 million.

Yesterday, we provided our detailed guidance for second quarter 2026 and reiterated our unchanged full year production and cost guidance. In the second quarter of 2026, we have a planned third-party Mobile Bay natural gas processing facility turnaround. That will impact our NGL volumes and temporarily increase our LOE.

However, our full year LOE guidance has not changed. We are forecasting the midpoint of Q2 2026 production to be around 34,300 barrels of oil equivalent per day. This is a decrease of 5% compared to the first quarter of 2026, driven primarily by the turnaround, but the key is that we haven't changed full year guidance.

Second quarter LOE is expected to be $71 million to $79 million, up from first quarter actual of $66 million, and this is due to the planned Mobile Bay turnaround as well as higher planned workover and facility maintenance work that is expected to benefit production in the second half of 2026.

It's important to note that the LOE expenses tend to increase and decrease seasonally with much of the work being accomplished during warmer weather months that also produce less wind. Second quarter transportation and production taxes are expected to be between $7 million and $8 million compared with $9 million in the first quarter, which reflects some of the benefit of the new pipeline we installed for the West Delta 73 field.

Second quarter cash G&A, those costs are expected to remain comparable to our Q1 results. I want to point out that we tend to spend significantly less than our peers in capital expenditures and choose to instead spend more dollars on low-risk, high rate of return workovers and facility optimization.

We believe 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 to help us make accretive acquisitions of producing properties. So over the years, we have consistently created significant value by methodically integrating producing property acquisitions.

We look for strong producing assets with meaningful reserves and an affordable price that we can integrate into our vast infrastructure. We primarily spend LOE dollars to work over, recomplete and upgrade these assets. And as a result, we often see additional production uplift from these 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 with our low decline production, increasing realized pricing and continued cost control, we believe that we are well positioned operationally and financially to deliver robust results in 2026 while we examine accretive acquisition opportunities.

So before closing, I would like to discuss some regulatory updates in more detail. As we mentioned in yesterday's earnings release, the Department of Interior has proposed some positive regulatory changes that would roll back obligations from a 2024 rule that would require companies to set aside about $6.9 billion in supplemental financial assurance. This all occurred in the prior administration.

About $6 billion would have applied to small businesses that make up most of the operators in the Gulf. The proposed changes will better align financial assurance requirements with actual decommissioning risk and reduce industry-wide bonding costs by at least $0.5 billion annually.

These proposed revisions have been published in the Federal Register with a 60-day public comment period, which is expected to end May 15. We welcome these changes proposed by the Trump administration that can further encourage U.S. offshore production growth and increase America's energy independence.

So regarding the surety litigation, I'm able to report that the District Court has rejected the surety's attempt to require W&T to immediately pay their demands, I would call them ridiculous demands for collateral. The sureties are appealing that ruling and W&T will continue to vigorously defend our position that the surety's demands for collateral were neither appropriate nor lawful.

Moreover, W&T prevailed in virtually every respect as it relates to the surety's attempt to dismiss the claims W&T has asserted in lawsuit. And yesterday, the court granted W&T's request to file an amended lawsuit, which sets forth broad antitrust and other claims against the sureties. This case will go on.

As can be reviewed in our court filings, the surety conduct caused W&T to incur substantial damages, and we intend to seek to remedy the conduct and obtain damages to the fullest extent of the law. So in closing, I'd like to thank our team at W&T for all their efforts. We are ready and able to add significant value in 2026.

W&T has been an active, responsible and profitable operator in the Gulf of America for over 40 years. We have a long track record of successfully integrating assets into our portfolio, and we know that the Gulf of America is a world-class basin being the second largest basin by production and the largest basin in the USA. by area.

We have a solid cash position and strong liquidity that enables us to continue to evaluate growth opportunities while continuing to generate strong operational cash flow and adjusted EBITDA. We will maintain our focus on operational excellence and maximizing the cash flow potential of our asset base in '26 and beyond. Operator, we can now open the lines for questions.

[Operator Instructions] And your first question today comes from Derrick Whitfield with Texas Capital.

Starting with your guidance, while I understand you are reiterating production guidance for the full year, how would you characterize your desire to further lean into workovers in this favorable environment?

Yes. Well, that's always a key factor for us. We've always got a good inventory of things to do. And as we've acquired assets over the years, we take the time to study them and restudy them. And that allows us to continue doing these workovers. So I do expect to see some more of that. We'll ramp up a little bit during the summer because the weather is better and late spring, summer, which is about now.

In fact, we're moving some things around in the Gulf now to begin that process. But yes, I mean, this has always been a key strong point for us along with not only workovers, but recompletions.

Great, Tracy. And then maybe just shifting over to the M&A environment. I wanted to get your thoughts on the competitive landscape at present. Is it safe to assume we're in a pencils down environment for larger packages? Or are you seeing reasonable action in the market at present?

The company has got a very strong liquidity position right now. There's been a dearth of significant transactions for the last several years in the Gulf. We feel pretty good about where we are. We're in different data rooms almost continuously over the years.

So I think that there's real good possibility that things are going to start moving around. We certainly have aspirations in that direction and intend to continue to pursue things that will fit our normal financial criteria. That criteria usually starts with cash flow. And then also what is the reserve base? And what are the things that we can do to increase cash flow near term such as workovers and recompletions and facilities upgrades that will generate those numbers near term.

And your next question comes from Bert Dan with William Blair.

Tracy, this is actually Neal. Just have 2 quick ones for you and nice to be back on the call. My first question, Tracy, just I know part of the upside for you all is converting a lot of the 2P to primary reserves. And again, I'm just wondering, again, it seems like with the plan you've laid out, I still feel like there's a lot of that going on. Could you just tell us what do you think the timing of that would be?

Yes. Well, the really cool part about our 2P reserves is that a lot of that -- a lot of those reserves come to us in the form of cash and then later on booked reserves. So as time moves forward, we see that first as cash flow. So that's cash flow and reserves that we don't have to spend any CapEx on.

And that's been a real focal point of the company over many years. It's why we have traditionally very low decline rates, and that shows itself up as massive amounts of cash and reserves over time. And it's always -- seems to have always been that way for the company since we started, and I try to reiterate that to investors in just about every presentation that we do. There are additional reserves that are probables that we do have to spend some CapEx on it. On so we look forward to doing that in the near future. We haven't been doing a lot of drilling lately because we haven't needed to.

One of the hallmarks of the company is making sure that we try to continue the cash flow stream. So if any time that I can acquire reserves as opposed to going and drilling for them at approximately the same price, then that's what we're going to do. We're going to take the risk out and do that. And that's one of the reasons why we're still here after 40-something years. So that's a great question, Neal. I appreciate it.

No, I'd love that upside. And then secondly, as you said, not that you're going to have to go drill much, but kind of you have a very low CapEx guide. And I'm just wondering, does that factor in around the workovers that Derrick talked about? Just service costs and all. Tracy, are they holding in right now? Or what are you seeing for service cost?

Well, part of that is exactly what you suggested, holding on and making judicious decisions about workovers and recompletions. Part of it is to make sure that we maintain really good liquidity. I think there will be opportunities going forward in the market for us to make additional acquisitions.

And again, it's not that we don't have wells to drill. We do. We have a pretty good inventory of exploration opportunities and in fact, even proven reserve opportunities that are substantial. So it's not because we don't have inventory, it's because management, including myself, believes that opportunities to do additional acquisitions are good. And we like the way that we're positioned in this market, and we have good liquidity.

[Operator Instructions] Your next question comes from Jeff Robertson with Water Tower Research.

Tracy, just to follow-up on your previous comments. W&T has a pretty low reinvestment rate when you think about cash flow from operations in 2026 and yet production is expected to stay relatively flat for the year from where you were in the first quarter based on your midpoint guidance.

To your point about capital-light business model, is a lot of that production performance just related to, as Neal talked about, moving 2P reserves into PDP.

Yes. The short answer to that is yes. We -- again, with probable reserves because of the quirks around the booking of those via the SEC, we have to wait a while before we can put them back in as proved reserves. And often, those are just additions to proved producing. So we get a dual effect there of not only do we increase the reserves, but we increase our borrowing capacity as well.

So that's a double plus for us. And this is normal. This is the actions of the corporation. I've done this illustration in just about every investor meeting we've ever had. I have an illustration in the deck that shows you the effects of the probable reserves and how they get to be proved producing reserves over time. But we generally book them again as cash flow and reserves over time.

And then again, it's not that we don't have inventory to drill with, we do. But it's nice to have that additional bit of reserves. In Europe, they look at this as the companies are valued more on the 2P basis than they are just 1P. And our regulators have been a little bit slow to do that. That's always been a complaint. I don't understand the rationale behind it.

It seems ridiculous to me because we've proven it over and over and over again that we definitely increase the reserves and the cash flow over time without additional CapEx.

When you think about acquisitions, 2-part question. One is, are you able to buy on a 1P basis? And then secondly, you spoke about the regulatory environment and some of the things that are coming down the road. Will that have an impact on M&A activity in the Gulf of Mexico, do you think?

Yes. That's a pretty good 2-part question, Jeff. To answer your question on 1P, it really -- it's a bunch of different factors. It's not just necessarily 1P. We do look at the entire reserve stack. And again, we like to see acquisitions that have cash flow and a reserve base that we can forecast.

But also -- we like to see some upside, too, where we can do some work or drill some wells, that sort of thing. And so they're all a little bit different. And then, of course, in the Gulf, you have to take into consideration what are the asset retirement obligations. That's a very important part of what we do. We manage that very well.

The company has done more plug and abandonment decommissioning on those AROs than anyone. We've spent over $1 billion during that decommissioning work over the years, and we think that we are the expert in that market. We understand it very, very well. And so that's one of the things that we always look at closely in determining value.

And as far as the other things that we're looking for, yes, I mean, we're in a mode where we're looking around for things that are going to fit our financial criteria, and we have been in data rooms for quite a while.

Seeing no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Tracy Krohn, Chairman and CEO, for any closing remarks.

Thank you, operator. We appreciate everybody listening. And I look forward to every day. I never know what's going to happen with regard to the markets. And it seems that with the war in Iran, it's been a little bit more difficult to think about it in terms of going forward. On the other hand, we're very pleased that the company is doing well and positioned to do even better. So thank you for listening, and we look forward to talking to you again soon.

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

Ladies and gentlemen, thank you for standing by. Welcome to the W&T Offshore's Fourth Quarter and Full Year 2025 Conference Call. [Operator Instructions]. 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, Dave. And on behalf of the management team, I'd like to welcome all of you to today's conference call to review W&T Offshore's fourth quarter and full year 2025 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 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'd like to turn the call over to Tracy Krohn, our Chairman and CEO.

Thanks, Al. Good morning, everyone, and welcome to our year-end 2025 conference call. With me today are William Williford, our Executive Vice President and Chief Operating Officer; Sameer Parasnis, our Executive Vice President and Chief Financial Officer; and Trey Hartman, our Vice President and Chief Accounting Officer. We're all available to answer questions later during the call.

So we delivered solid operational and financial results in 2025 by remaining focused on our strategic vision. Our proven strategy is simple and effective. We focus on cash flow generation, maintaining and optimizing our high-quality conventional assets and opportunistically capitalizing on accretive opportunities to build shareholder value.

We're successfully executing our strategy and remain committed to that operational performance, returning value to our stakeholders and ensuring the safety of our employees and contractors. Our ability to deliver consistent production and EBITDA results while integrating producing property acquisitions has helped W&T grow during our 40-plus year history.

In 2025, we accomplished many things. So here's the bullet points. One, we increased production every quarter in 2025 from 30,500 barrels of oil equivalent per day in the first quarter to 36,200 barrels of oil equivalent per day in the fourth quarter by focusing on production enhancement projects. Two, while we did not drill any new wells, we did invest $5 million in 2025 CapEx and performed 34 workovers and 4 recompletions. Three, we also generated adjusted EBITDA of $130 million from full year 2025.

And four, we continue to focus on enhancing our liquidity and reducing debt. And at year-end '25, we grew cash by $31 million year-over-year to almost $141 million and reduced our net debt by $74 million to $210 million, further strengthening that balance sheet. And five, we reported year-end 2025 proved reserves of 121 million barrels of oil equivalent with a PV-10 of $1.1 billion. So obviously, those numbers have gotten better since the beginning of March due to geopolitics. Six, we accomplished all of this while also returning value to our shareholders through our quarterly dividend. We've paid 9 consecutive quarterly cash dividend since initiating the dividend policy in late 2023 and announced the first quarter 2026 payment that will occur later this month.

So going into a little more detail about the positive production numbers where we're able to deliver in 2025. Normally in the first quarter of every year, we have some temporary downtime associated with the impact from cold weather increases. We experienced some in 2025 and again, in 2026 as well. But through our focus production uplift projects and continued focus on ramping up recently acquired fields, we were able to achieve quarter-over-quarter growth and year-over-year growth.

In the fourth quarter, production was up 2% over Q3 2025 and up 13% over the same quarter in 2024. So over the years, we've consistently created value or very methodically integrating producing property acquisitions, enhancing their capabilities and thus extracting greater value. After we close an acquisition, we take time to assess and more fully evaluate the newly acquired assets. We have a large footprint across the Gulf of America, so we look for ways to operate -- operations -- to optimize operations, increase production and utilize that large footprint where we can.

That reduces cost and maximizes value. We work really hard on logistics. The assets we acquired in 2024 added meaningful reserves at an attractive price, and that requires some additional capital and expense spending to maximize that production capability in all those fields. By the fourth quarter of 2025, we'd also completed all the major projects on the acquired assets and the production and cash flow benefits from the diligent work of this team to get all those properties online and up to our operating standards is reflected in our results.

Moving into 2026, we remain focused on enhancing production and minimizing the climb across our asset base through low-cost, low-risk workovers or recompletions. We remain focused on cost control and capturing synergies associated with those asset acquisitions. We reduced our fourth quarter LOE to $22.40 per barrel oil equivalent, which was 4% lower compared with the third quarter of 2025. And our absolute costs were below the midpoint of our guidance.

Looking ahead, we're expecting our 2026 cost to be lower compared to 2025, which I will discuss later in the call. So for the full year 2025, our capital expenditures of $55 million coming in below the low end of our capital guidance. In the fourth quarter, we finished a $20 million pipeline facility project at West Delta 73 that will help support production growth, improve operational performance and increase our net realized pricing. We expect to see the benefit of that project in the first quarter of 2026.

Overall, our capital expense will be back half loaded in 2025 driven by recompletion and facility capital work to bring online and increased production multiple fields relating to the 2024 acquisition. In addition, our asset retirement settlement costs totaled $37 million for 2025 as we continue to responsibly decommission assets.

So as you can see, our operational performance in 2025 allowed us to focus on improving our balance sheet. At the beginning of 2025, we had several transactions that strengthened and simplified our balance sheet, adding material cash to the bottom line and improving our credit ratings from S&P and Moody's.

For January, we successfully closed a $350 million offering of new second lien notes that decreased our interest rates by 100 basis points and together with other transactions reduced our total debt by $39 million. We also entered into a new credit agreement for a $50 million revolving credit facility, which matures in July 2028, that replaced the previous $50 million credit facility provided by calculus lending.

We also sold a noncore interest of Garden Banks, which included about 200 barrels of oil equivalent per day for $12 million, and we received $58 million in cash for an insurance settlement related to the mobile-based [ 78-1well]. All of these actions have allowed us to enhance liquidity and improve our financial flexibility. These financial actions, coupled with strong operational performance allowed us to increase cash by $31 million and reduced our net debt by $74 million at year-end 2025. All of this was obviously what I consider to have been a much lower price environment for oil and gas.

For our ability to execute our strategy delivered positive results in 2025, including an improved balance sheet, enhanced liquidity, growing production and adjusted EBITDA, all of which has positioned us for success as we move into 2026. We are well positioned to take advantage of growth opportunities like we've done in the past, focusing on accretive low-risk acquisitions of producing properties rather than high risk drilling a certain -- in the uncertain commodity price environment.

These acquisitions must meet our stringent criteria of: one, generating free cash flow; two, providing a solid base of proved reserves with upside potential; and three, provided for the ability of our operations team to reduce costs. With our experience, a strong balance sheet over the year -- over our 4-year track history. We've successfully integrated acquisitions. We believe we are well positioned to add to those impressive portfolios of assets.

So turning to our year-end reserve results. We have a portfolio of conventional Gulf America assets that have established a record value over time. Over the past 2 years, our overall year-end reserves have remained virtually flat, including the volume in the PV-10. We produced 24.6 million barrels of oil equivalent of production, but we've also made an accretive acquisition of several fields that's helped to offset this production.

Since closing the latest acquisition in January 2024, we've generated almost $285 million in adjusted EBITDA, while only spending about $167 million in capital expenditures, including acquisitions, we believe that our strategy of acquiring and enhancing producing properties continues to add value to our shareholders as reflected in our reserve amounts and value.

So for year-end, 2025, our SEC proved reserves for 121 million barrels of oil equivalent with a PV-10 of $1.12 billion in a reduced price environment. Notably, we recorded an increase to PDP PV-10 of $279 million. That's proved developed producing reserve compared to year-end 2024 as we had reserves reclassified to proved developed producing. The reserves were classified as 71% proved developed producing, 24% proved developed nonproducing and only 5% proved undeveloped.

At year-end 2024, only 52% were proved developed producing and 17% were proved undeveloped. W&T's reserve box ratio at year-end 2025 and based on year-end 2025 proved reserves in 2025 production was 9.8 years, about 10 years. Approximately 42% of year-end 2025 SEC proved reserves were liquids, with 32% crude oil and 10% NGLs, and we had 58% natural gas.

So yesterday, we provided a detailed guidance for first quarter in full year 2026 in our earnings release. In the first quarter of 2026, as I previously mentioned, we incurred unplanned downtime at several fields due to winter freezes that temporarily reduced our production volumes. We're predicting the midpoint of Q1 2026 production to be around 35,000 barrels of oil equivalent per day. We are continuing to focus on production enhancement projects throughout 2026, and we expect the full 2026 production midpoint to also be around 35,000 barrels of oil equivalent per day.

This is assuming no additional acquisitions or drilling. Our ability to maintain low decline production is a testament to our quality and our culture of operational excellence and the strength of our reserves. With several capital projects completed in 2025, we're finding much lower capital expenditures for 2026 due to a substantial reduction in capital projects associated with pipelines and about $22 million at the midpoint or less than half the amount invested in 2025. This does not include acquisitions. We are also forecasting about $38 million in plugging and abandonment expenses for 2026, that's in line with the $37 million we spent in 2025. We have a reliable asset base of low decline wells, and we focused more on acquisitions over the past several years rather than on drilling many new wells, which has kept our capital spending much lower.

So turning to costs, our guidance for 2026 LOE is projected to be lower than 2025 despite higher production in 2026. So similar to the capital projects, we spent operating expenses on recently acquired fields to bring them in line with our operational standards. Additionally, some of the capital projects that we undertook in 2025 and should lead to lower expenses and higher price realizations.

With that said, I believe that there are more opportunities to reduce our operating costs and find synergies to drive costs lower in the long term. Safety is paramount and we are always working hard to reduce costs without impacting safety or deferring asset integrity work.

So our first quarter 2026 LOE is expected to be between $63 million and $76 million in full year 2026 LOE of $265 million to $295 million, which reflects the savings I mentioned earlier. Our first quarter gathering, transportation and production taxes are expected to range between $8 million and $9 million. First quarter cash G&A costs are expected to be between $15 million and $17 million.

So as mentioned in yesterday's earnings release, the DOI Department of [indiscernible] has proposed some positive regulatory changes that would roll back obligations from the 2024 rule that would have required companies to set aside about $6.9 billion in supplemental financial insurance. About $6 billion would be applied to small businesses that make up most of the operators in the Gulf. The proposed changes will better align financial assurance requirements with actual decommissioning risk and reduced industry-wide binding by approximately $484 million annually. These proposed revisions have been published in the federal register with a 60-day public comment period. That's expected to end on May 8, 2026. We welcome these changes proposed by the Trump administration that can further encourage U.S. offshore production growth and further increase America's energy independence.

So before we wrap up the call, I'd like to say how proud I am of all the people who've helped make W&T success since we founded the company in 1983. Throughout that time, we've been an active responsible and profitable operator in the Gulf of America. We're [ staunch ] advocates for the offshore industry, and we believe that our outstanding long-life assets will continue to provide value for our shareholders in our country for many more years. As the largest shareholder, I believe we are well positioned to continue to grow and add value as we move into 2026.

Our guidance forecast that we can modestly grow production and reduce costs which should lead to a continued buildup of our cash position. This allows us to remain active in evaluating growth opportunities, both organically and inorganically. We have a long track record of successfully integrating those assets into our portfolio, and we continue to believe the Gulf of America is a world-class basin that supports value creation. We remain focused on operational excellence, and maximizing the cash flow potential of our asset base. With that, operator, we can now open the lines for questions.

[Operator Instructions] Our first question comes from [ Derrick Whitfield ] with [ Texas Capital].

Starting with your guide, it's clear that you are prioritizing capital discipline and preservation in the current macro environment, not overly focusing on the part of the curve. With that said, could you speak to where you see the greatest opportunity in the market for cash-on-cash returns? And if there is a sustained price scenario where you'd be more inclined to mainly engage the drill bit?

Sure. Well, we still think that there will be acquisitions available, and we're confident that we'll have our fair share over the next 1 to 2 years. We've maintained a record over 40 years of being able to replace and replenish those reserves. So short term and long term, we still we still see those as possibilities for growth in organic organically, we do have prospect inventory, but we feel that our efforts are better placed in making acquisitions as opposed to trying to drill right now. All those prospects with the exception of a couple of them are actually held by production.

Great. And for my follow-up, Tracy, I wanted to focus on the regulatory policy updates you referenced in your prepared remarks. As you guys see it today, could you speak to what it means for W&T from an insurance cost perspective? And if there could also be potential impacts to your cost of capital as you start to reduce the financial burdens.

Sure. Well, to us, that means that the insurance premium costs will be going down in the future. We've made a lot of those payments already this year. So what that means is that because of the change in the regulations with regard to financial assurance, which was a term that was our supplemental financial assurance rather is a term that was coined in the Obama administration and further exasperated in the big administration that provided so-called financial assurance for decommissioning costs.

Most of these leases have in the chain of title and that's referenced in the actual lease that operators sign as lessees. You're required as a lessee on any lease to be jointly and severally liable for all the decommission or liabilities on road. So if [indiscernible] property or sell or Chevron or anybody owns a property 2 years ago and had a lease interest sold it lapsed whatever. And the lease comes up, having remaining decommissioning liabilities those responsible in that queue are liable jointly and severally for all of those assets being removed from the ocean floor and decommission and decommissioning of all the wells.

So the government never really needed these financial assurances. This was something that was done by this administration to be punitive. And unfortunately, it stuck a few companies out of the Gulf. A few of our competitors are going, that weren't there anymore. A few producers that are contributing to the overall energy output in the United States are no longer there. Clearly, those premiums could have been used better as actual capital to get rid of some of those decommissioning issues that companies had. So we feel like this is a proper and fitting action with the corrugated carry has taken, we have hauled in brightly.

[Operator Instructions] Our next question comes from Jeff Robertson with Water Tower Research.

Tracy, can you talk about the depth of inventory that W&T has for recompletions and workovers that help you maintain or offset natural declines?

Yes. I'll do better than that. I'll defer that question to William Williford, who's our Chief Operating Officer.

Jeff, thanks for the question. Yes, we have -- we've been spending a lot of time at our Mobile Bay asset. That's a gas asset. We've been doing a lot of [indiscernible] simulations, and we have ongoing as stimulation setup and approved to do in 2026. That's going to help maintain our production decline in the Mobile Bay. And also, we got recomplete associated with some of our deepwater fields that were already set up and already on our reserve books, and we're just executing them based on where the production is in the current well.

So with that, we have several other opportunities, both on workovers and recomplete similar to that, that allows us to not only maintain the current production decline, flatten it out, but also increased it. That's why you see an increase year-over-year of our production based in 2026 guidance versus what you see in 2025.

And with respect to the regulatory environment that Derek asked about, Tracy do any of the proposed changes or do the proposed changes have an effect on what is attractive to W&T in the acquisition market and the valuations of assets?

I'm sorry. I didn't hear all of that question. Would you repeat it again, please?

Sure. With respect to the regulatory changes that you see on the horizon, how does that affect, if any, the type of acquisitions that make sense for W&T to look at and potentially the valuations of properties in the Gulf?

Yes, sure. Well, one of the things that I think that you'll see is as a result in the change of regulatory requirements is fields will be allowed to produce longer because you won't have to have these massive cash outlays or insurance outlays from a market that has shrunk a great deal.

You won't have these massive cash and collateral requirements required by these companies to attempt to extort money from companies for their own purposes. We're involved in a lawsuit right now with some of the surety providers on an antitrust basis. So that's one of the things that we've had to deal with as an industry. That takes away from the capital that's available to do actual work and drill wells and making [indiscernible] to leases.

And if I could ask just one more. Tracy, when you think about the types of acquisitions that you want to look at, if you focus primarily on exploitation and development, are you able to find properties where that you can acquire without paying for what the seller might think is drilling upside?

Drilling upside is nebulous. Of course, that's always the highest risk asset class or potential asset class. You never really know what you're going to find until you put a hole in the ground to investigate it. So no, I don't think that changes the outlook. Most people don't think about additional drilling assets as primary in the consideration unless you've already made a discovery and you're drilling on the fringes of that discovery. So I think that this -- well, I know this is the largest basin by area in the U.S., and it's the second largest by producing assets. We've been able to make a pretty good living over the last 40 years and increased values for shareholders and all of our contractors and everybody else is -- it's a lovely little food chain that exists in the Gulf of Mexico, and this will help continue that trend that the Obama and Biden administrations helped or try to get rid of.

And the next comes from [ Derek Field ] with [ Texas Capital].

Thanks for allowing me to ask additional question for follow-up. Wanted to ask about the facility and production enhancements you pursued with [ Cox ] and the new marketing agreement for Mobile Bay. And more specifically, could you help quantify or provide color on the uplift you expect in realizations in volumes by product?

Pretty comprehensive question, Derek. I'm not sure I have all the answers for your questions there right now as a sum total. What we don't do in the U.S. is we don't provide for a methodology of giving value to 2P reserves. So we have to go to great length to explain that. In Europe, you are allowed to include 2 fees in 2P reserves in your reserve base in the United States via the SEC, we're not allowed to do that.

So that's the bigger difference that's hard to quantify. We do see that as value. And we've seen that year-over-year-over-year as an increase to our reserves by virtue of the type of reservoirs that we have, mainly water drive reservoirs that will actually provide a pressure mechanism by which mother nature actually helps us to drive that oil to the producing perforations. So we're fortunate in this basin to have Mother Nature giving us a helping hand, so to speak.

And Tracy, maybe on that point, if I'm looking at Slide 16 of your new presentation, the way that I'm reading that is that in your 2P bookings, you effectively don't need to drill any new wells and you have the probable outcome of receiving additional recovery thereby increased longevity of the asset based without new development capital being spent. Is that a fair restriction?

That's very fair. Derek, I get a little bit nervous about quantifying some of these results because we've had in the past, administrations that that's been found on as an expression of 2P. But clearly, we book more cash and reserves over time as we realize that 2P part of our production stream. So traditionally, we think about 1P reserves proved producing and [indiscernible] undeveloped to improve [ buying ] it.

And then 2P as probable producing and probable behind problem undeveloped. But we get a large question, in fact, in our -- in that presentation that you referenced, it's about $750 million of additional cash flow without any CapEx, hence, no drilling that there comes to wellbore in the form of cash and additional reserve bookings over time. So a very effective tool that we find in the Gulf of Mexico to add value without having to make capital expenditures.

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, operator. I'm really unbelievable times right now. We're in a -- well, we're involved in the war in the Middle East that clearly demonstrates the points of things that affect us that we can't control are always geopolitical. So other than that, we have pretty good control over our destiny. Even with existing or former administrations, the oil and gas business is not going to go away.

Fortunately in thinking about political challenges, our business has always been challenging as a regulatory function and I don't try to belie that truth in anything other than the regulatory bodies, generally, the people that work at these agencies have good intentions. Some of their political masters do not, and we recognize that.

But I feel like with the current administration, some of those barriers are coming down and that -- and rightfully so, we've been persecuted as an industry and even as individuals by certain administrations. So I'll leave it with that and tell you that I think we'll have better news next quarter as well. So thank you very much, and we'll talk to you again soon.

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

Ladies and gentlemen, thank you for standing by, and welcome to W&T Offshore's Third Quarter 2025 Conference Call. [Operator Instructions] This conference is being recorded, and a replay will be 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, Alan. 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 Third Quarter 2025 financial and operational results. Before we begin, I would 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 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'd like to turn the call over to Tracy Krohn, our Chairman and CEO.

Thanks, Al. Good morning, everyone, and welcome to our third quarter conference call. With me today are William Williford, our Executive Vice President and Chief Operating Officer; Sameer Parasnis, our Executive Vice President and Chief Financial Officer; and Trey Hartman, our Vice President and Chief Accounting Officer. They're all available to answer questions later during the call.

So throughout the first 9 months of 2025, we've delivered strong operational and financial results. As you'll hear throughout the call today, we are continuing to enhance shareholder value through operational excellence and maximizing production across our portfolio of assets. We've been able to increase production in every quarter in 2025, all while only spending about $42 million in capital and maintaining our LOE costs within guidance.

Additionally, we paid a consistent quarterly dividend for the past 2 years. So quite simply, we're executing on our proven and successful strategy that is committed to profitability, operational execution, returning value to our stakeholders and ensuring the safety of our employees and contractors. Our ability to deliver production and EBITDA growth while seamlessly integrating accretive producing property acquisitions has helped W&T grow during our 40-year history.

Some of our third quarter highlights include the following: we increased production by 6% quarter-over-quarter to 35,600 barrels of oil equivalent per day, near the high end of our guidance range, driven by the successful integration of former Cox assets and high-return workovers and recompletions. Compared to quarter 2 2025, LOE was reduced by 8% to around $23 per barrel oil equivalent with an absolute cost of $76.2 million, which was near the midpoint of guidance and reflects disciplined cost management and operational efficiencies.

We grew adjusted EBITDA by 11% quarter-over-quarter to $39 million, despite commodity prices being lower over the same period. We also generated $26.5 million of cash from operating activities and grew our unrestricted cash to approximately $125 million while lowering our net debt to under $226 million. Thus far, in 2025, we've lowered our net debt by about $60 million, further strengthening our balance sheet.

Our GAAP reported net loss this quarter primarily reflects a noncash increase to our valuation allowance on deferred tax assets. This is not a deterioration in our underlying business performance. The valuation allowance can be reversed in the future, which will allow W&T to regain the potential tax benefits of the deferred tax assets. We expect substantially all income taxes in 2025 to be deferred.

We ended the quarter with around $125 million in unrestricted cash, an undrawn $50 million revolver and $83 million available on our ATM program, positioning us for future growth. So about $0.25 billion in liquidity. We accomplished all of this while returning value to our shareholders through our quarterly dividend. We paid 8 quarterly cash dividends since initiating the dividend policy in late 2023 and announced the fourth quarter 2025 payment that will occur later this month.

So I'd like to go into a little more detail about the production results we've been able to deliver in 2025. Third quarter production is up 6% over quarter 2 in 2025 and up 15% over the same quarter in 2024. We've worked hard to increase the production associated with the former Cox assets we acquired in early 2024.

By spending on high-return workovers and recompletes, we are efficiently increasing production of these assets as well as at Mobile Bay. In quarter 3, 2025, we performed 3 recompletions on former Cox assets that contributed to higher production during the quarter. Over the life of the company, we've consistently created significant value by methodically integrating producing property acquisitions, enhancing their capabilities and extracting additional value. The assets we acquired last year added meaningful reserves at a very attractive price. We are now seeing the production and cash flow benefits from the work executed by our team to get all those properties online and up to our operating standards and also identify additional production opportunities from these fields.

We remain focused on enhancing and offsetting decline at our other properties. And in Q3 2025, we performed 3 workovers in Mobile Bay. This brings the total number of workovers performed in 2025 in Mobile Bay to 8, which has helped to increase production at this low decline, long-life asset, which is also our largest natural gas field. Overall, our production has continued this positive trajectory and averaged above 36,000 barrels oil equivalent per day in October.

In the third quarter of 2025, our capital expenditures were $22.5 million, which was an increase over the first 2 quarters of 2025. This increase was driven by a recompletion and facility CapEx work to bring online and increased production of multiple fields related to the 2024 Cox acquisition. In addition, our asset retirement settlement costs totaled approximately $9 million for the quarter.

For the full year 2025, we now expect our CapEx to be around $60 million, not including acquisitions. The forecasted increase in full year capital expenditures reflects our strategic investments in owned midstream infrastructure to lower third-party transportation costs and enhanced production and value for 3 fields from the Cox acquisition. This is accretive and will be accretive to cash flow, earnings and reserves. As you can see, operationally, we are performing well, which has allowed us to also focus on improving our balance sheet.

Earlier this year, we had several transactions that strengthened and simplified our balance sheet adding material cash to the bottom line and improving our credit ratings from S&P Moody's. In January, we successfully closed a $350 million offering of new second lien notes that decreased our interest rate by 100 basis points and together with other transactions reduced our total debt by $39 million. We also entered into a new credit agreement for a $50 million revolving credit facility, which matures in July 2028 that is undrawn and replaces the previous $50 million credit facility provided by calculus lending.

We also sold a noncore interest at Garden Banks, which included about 200 barrels of oil equivalent per day for $12 million, and we received $58 million in cash for an insurance settlement related to the Mobile Bay 78-1 well. All of these actions have allowed us to enhance liquidity and improve our financial flexibility. So thus far in 2025, we've increased cash by $15 million and reduced our net debt by $60 million. So our ability to execute our strategy has delivered favorable results thus far in 2025, including an improved balance sheet, enhanced liquidity, growing production and EBITDA, all of which has positioned us for success as we move into 2026.

We believe we're well positioned to take advantage of opportunities like we have done in the past focusing on accretive low-risk acquisitions of producing properties rather than higher risk drilling in the certain -- in the current uncertain commodity price environment. These acquisitions must meet our stringent criteria of generating free cash flow, providing a solid base of proved reserves with upside potential and offer the ability for our experienced team to reduce costs.

With our experience, strong balance sheet and track record of successfully maximizing acquisitions we're ready to add to our portfolio of assets. So yesterday, we provided our detailed guidance for the fourth quarter 2025 and for the full year. In the fourth quarter of 2025, we're expecting the midpoint of production to be around 36,000 barrels of oil equivalent per day. This is another increase in quarterly production, which is especially noteworthy considering that currently, we don't have any drilling operations. The fourth quarter guidance for our cash operating costs, which includes LOE, gathering, transportation and production taxes, and cash G&A costs is in line with the third quarter of 2025.

With absolute costs remaining flat and production expected to increase, we believe that on a per BOE basis, we will see additional decreases. We also believe that there are more opportunities to reduce our operating costs and find synergies to drive costs lower in the long term.

We're always working hard to reduce costs without impacting safety or deferring asset integrity work. So in conjunction with the pipeline related increase in 2025 capital expenditures, we lowered our gathering, transportation and production taxes guidance for full year 2025 to $24 million to $26 million, primarily due to less reliance on third-party midstream infrastructure. Also, we reduced full year DD&A guidance to $11.50 to $12.50 per barrel of oil equivalent and that represents a 15% decrease from prior guidance.

So before we wrap up the call, I'd like to say how proud I am of all the people who helped make W&T a success since we founded the company in 1983. We've been an active operator in the Gulf of America and a staunch advocate for the offshore industry for over 40 years. Through drilling completions and acquisitions, we built a strong company with outstanding long-life assets. As the largest shareholder, I believe we're well positioned to continue to grow and add value in the remainder of 2025. We continue to grow production, EBITDA generation and increase our cash position. This allows us to continue to evaluate growth opportunities, both organically and inorganically.

We have a long track record of successfully integrating assets into our portfolio, and we continue to believe that the Gulf of America is a world-class basin that supports value creation. We will maintain our focus on operational excellence and maximizing the cash flow potential of our asset base.

So with that, operator, we can now open the lines for questions.

[Operator Instructions] Our first question today comes from John Annis of Texas Capital.

For my first one, you're making a lot of infrastructure investments in the second half of this year to enhance production and lower costs. Once the new pipelines are fully online, could you help us frame how to think about operating costs and maintenance capital in the years ahead as you realize the benefits of these investments?

Sure. We'll first realize those investments in pipeline infrastructure also are accretive to earnings and cash flow and reserves going forward in existing reserves and reserves going forward. So that's the general plan of the company from day 1 is to make investments in reserve acquisitions, drilling and facility upgrades and workovers and recompletions that all enhance the short-term and long-term value of the corporation.

So a very simple philosophy there, John. We work hard to make good acquisitions. We do look at what we can do to enhance the value with drill bit. We do a lot of workovers and recompletions and facility upgrades to enhance the production and reduce cost. So it's a lot of blocking and tackling as well that helps us continue to grow the company. That's why we've been here for over 40 years through all kinds of calamity and production upsets, price changes, wars, hurricanes everything you can think of and different administrations. So the formula works pretty good. It works better in sometimes than others, and that's usually a function of pricing. Prices are down right now, and the company is doing just fine. And I expect that we'll grow the company going forward.

Terrific. I appreciate the color. For my follow-up, with nearly $125 million in cash, could you help characterize the current M&A environment in the Gulf of America and how you are weighing potential deals against organic projects?

Well, I love it. The Gulf of America is open for business again. And we're happy to see it. It's always good to have liquidity and don't forget that not only do we have cash, we have a little bit of credit from you guys, too, I think Texas Capital, and we got that $83 million ATM available to us as well. So over $0.25 billion in liquidity, if something comes up that makes sense to us.

[Operator Instructions] Our next question comes from Chris Degner of Water Tower Research.

Congrats on an excellent quarter. I just wanted to chat a little bit about if you can give us any incremental color on the depth of recompletion and workover projects rolling into 2026 and how you think that could support the production base?

Well, you're fortunate. I also have our Chief Operating Officer, I think I'll turn it over to him and let him give you a little color.

Yes. So thank you for the question. Great question. If you look at what we've been able to do in 2025, a lot of the increase quarter-over-quarter, like Tracy mentioned before, we're able to increase our production without really adding any drilling wells during 2025. We have the same thought process going into 2026. Right now, we're working on our budget process right now. And we're feeling very, very good about the opportunities we have moving into 2026 and 2027.

Yes. In addition to that, I'm sure we'll have more to do at Mobile Bay and some of these former Cox properties as a function of budget process. It's a great question. We're just about a few weeks short of having all that sorted out with regard to our internal investigations about our budget.

Your internal -- the natural budget cycle. Yes.

You bet.

And then you mentioned you've been through hurricanes and all sorts of different calamities. Given the recent government shutdowns, has that had any -- have you guys seen any impact on permitting or any regulatory constraints that we should be aware of? Or does it look like kind of a...

There has been 0 impact. I think both have done a good job of maintaining the regulatory status and everybody seems to be at work.

That's what it seems like.

Great. Thanks.

Since there are no further questions, we will conclude the question-and-answer session at this time. I would like to turn the conference back over to Mr. Tracy Krohn, Chairman and CEO.

Well, that last question with regard to government shutdown was insightful. It really is nice to see that none of it has affected our operations. And to my knowledge, nobody else, the regulators really have done an excellent job of maintaining status quo throughout all this, and I think that's a tribute to them. And I look forward to working with them in the future as new opportunities arise from W&T and others in the Gulf of America so that we can continue to -- we can already continue to prosper and grow. So sometimes I get a little dismayed at pricing and everything, but that's just a natural part of it.

We always managed to adjust during the pandemic, we were producing profitably at $30 a barrel and less. So we know we can adjust. And I always think, gee, what could be worse and there's always something that seems to be worse on the future, but we always manage to adjust, and that's what good companies do. They adjust. So thank you for your attention. We look forward to talking to you in the not-too-distant future.

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