The rout in oil prices has claimed several victims. Through mid-December there were 41 oil & gas bankruptcies. In some instances the death knell for drillers is not complete until bankers pull the plug. That process might have started after bankers cut W&T Offshore’s (WTI) revolver from $350 million to $150 million:
W&T Offshore, Inc. announced today that its borrowing base under its revolving bank credit facility has been reduced to $150 million from $350 million, effective March 23, 2016. In February 2016, the Company drew $340 million on its revolving bank credit facility and now has borrowings of $191 million in excess of the redetermined borrowing base. Excess borrowings are required to be repaid in three equal monthly installments. W&T currently has a cash balance of $431 million.
W&T closed down less than one percent to $2.41 on Thursday. However, the revolver cut was announced after hours. I expect the stock to crater on Monday.
The Situation
W&T is an independent oil and natural gas producer in the Gulf of Mexico. Seventy percent of the company’s 2015 revenue of $507 million was derived from oil, and another 24% from natural gas. In 2015 its average realized crude oil sales price was $45, down 51% from the $91 achieved a year earlier; its realized natural gas price was off 39%.
The decline in prices has exacerbated the company’s earnings and cash flow. In 2015 revenue was off 46% and EBITDA fell 58%. Over the past three years the company generated cumulative cash flow from operations of $1.2 billion. W&T repaid $1.4 in debt over that time frame, but borrowed an additional $1.6 billion to help fund itself. In effect, the company continued to use other people’s money to fund itself, never squirreling away cash or paring down debt.
W&T’s Paltry Liquidity Has Caught Up With It
For the past two years the company’s liquidity has been paltry. Its cash increased from $24 million in 2014 to $85 million in 2015 — paltry for a company of its size. Net working capital was -$114 million in 2014 and improved to -$58 million in 2015.
