W&T Offshore Q2 Net Income $12.6M, Free Cash Flow Jumps 50%

W&T Offshore reported second-quarter net income of $12.6 million, or $0.08 a share, with adjusted EBITDA above $54 million, Chairman and CEO Tracy Krohn said on the company's earnings call. Free cash flow reached $31 million, up 50% from the first quarter, and more than $52 million for the first half of 2026.

The cash generation lifted W&T's balance to more than $150 million and cut net debt to $200 million, Krohn said. Total debt stood at $351 million, liquidity at $194 million, and net debt-to-adjusted EBITDA at 1.2 times on a trailing 12-month basis. If margins hold through the second half, Krohn said the leverage ratio could fall below 1.0 times by year-end.

Production averaged 34,700 barrels of oil equivalent per day in the quarter, at the midpoint of the company's guidance range and up 3% from the same period in 2025. Krohn attributed the gain to well optimization work, low-decline Gulf of America fields, and existing infrastructure, not new drilling or acquisitions. Realized prices reached $50.23 per barrel of oil equivalent, up 11% from the first quarter and roughly 40% from year-end 2025.

For the third quarter, W&T forecast production above 35,000 barrels of oil equivalent per day at the midpoint of its guidance. The company reiterated its full-year production and cost outlook.

Lease operating expense totaled $72 million in the second quarter, below the low end of guidance. Krohn said the lower expense partly reflected the timing of facility and workover projects, as well as cost-saving initiatives implemented in late 2025 that began to show results in the first half of 2026. Gathering, transportation, and production taxes also came in below the low end of the guidance range.

Second-quarter capital expenditures were $10.4 million, while asset retirement obligation settlement costs totaled $3.4 million. W&T maintained full-year 2026 capital guidance of $20 million to $25 million, excluding possible acquisitions, and projected annual asset retirement spending of $34 million to $42 million. Krohn said stronger pricing has prompted the company to accelerate certain projects, which could push capital spending toward the high end of its annual range.

Third-quarter LOE is expected to range from $73 million to $81 million as W&T performs workover and facility maintenance projects deferred from the second quarter. The company expects those projects to support production in the second half. It forecast third-quarter transportation and production taxes of $8.8 million to $9.7 million and cash general and administrative expense of $17.2 million to $19 million.

Krohn said W&T continues to prioritize acquisitions, although it also has wells it could drill. When asked about potential targets, he said the company evaluates properties based on whether they can generate profits, rather than whether assets are in shallow or deep water. W&T considers reserve volumes, cash flow, and plugging and abandonment obligations when valuing acquisition opportunities. Krohn added that the company is reviewing multiple potential opportunities and that the bid-ask spread for offshore assets has not changed significantly.

Regarding funding, Krohn said W&T first evaluates the value of an asset and how it could be structured within the company. He said more capital providers have become interested in the Gulf basin as they recognize its cash-flow potential.

When asked whether W&T could repurchase shares given its cash flow and Krohn's view that the stock is undervalued, Krohn said the company has conducted buybacks in the past. However, dividends currently appear more likely, subject to acquisitions, drilling activity, and other considerations.

Krohn also discussed ongoing litigation involving surety providers. He noted that W&T reached a settlement agreement in June 2025 with two of its largest surety providers, resulting in the dismissal of a previously filed lawsuit and locking in historical premium rates through the end of 2026. For the remaining litigation, Krohn said W&T is working with damages experts and pursuing additional information from sureties. Management believes that if W&T prevails, claims against the sureties could potentially reach hundreds of millions of dollars, based partly on a preliminary damages-expert report. Krohn said that any damages from successful antitrust claims would be statutorily trebled. He cautioned that litigation outcomes remain uncertain and estimates may change as the analysis and cases proceed. In response to an analyst question, Krohn said he expects the process could play out within the next two years.

W&T also addressed asset retirement obligations and decommissioning. Krohn said the company generally expects annual decommissioning spending of roughly $35 million to $45 million and seeks to manage those costs by coordinating personnel, equipment, and supply routes. He said the company has performed more than $1 billion of abandonment work in the Gulf and still has additional work planned at its Matterhorn facility.

W&T Offshore is an independent oil and gas exploration and production company focused on offshore operations in the Gulf of Mexico. Founded in 1983 and headquartered in Covington, Louisiana, the company acquires, develops, and produces crude oil and natural gas reserves, operating a portfolio of producing properties that includes both shallow-water and deepwater assets.