VANCOUVER, British Columbia, June 22, 2020 (GLOBE NEWSWIRE) — ParcelPal Technology Inc. (“ParcelPal” or the “Company”), (PKG:CSE) (FSE:PT0) (OTC:PTNYF) is pleased to announce its Q1 2020 financial results highlighted by significant revenue growth and a much lower net loss year over year.
Overview
In Q1 2020, the Company continued its operating growth, which was driven by revenue growth of nearly 43% to approximately $1.1 million (up from $770K in Q1 2019). Note: this was a record revenue high for Q1 since inception of the Company. Also, the Company’s net loss decreased 38% to $866,173 (compared to $1,404,056 in Q1 2019). Some additional highlights of the quarter included both a significant increase in business with Amazon, as well as continued diversification of our customer base and into other areas driven by home meal kit and large retail store chain deliveries.
Our revenue growth and net loss reductions are, in large measure, driven by our business expansion plan, in which we continue to invest in our product development, ramp up our staffing levels to meet the increase in business, and increased our focus on client diversification.
“The actions we have taken to increase our gross revenue and rebuild our product services have placed our Company in a better position to deliver value to our customers during the crisis caused by the COVID-19 pandemic,” said ParcelPal’s CEO Rich Wheeless. “This is just the beginning of our improved operating performance and I am very encouraged by the lower operating losses which I see continuing as the Company expands into new and profitable markets in the current and future quarters.”
“We have more work to do, and we will continue to take actions to strengthen our business,” said ParcelPal’s CEO Rich Wheeless. “With only four months into my tenure with the Company, management has made significant progress in reducing expenditures at the same time as aligning our strategy with execution and marketing plans. It is important to note that we went live in Toronto last week as planned so this should also be accretive in the next quarter and beyond.”
Q1 2020 Financial Highlights:
Revenue growth of nearly 43% to $1,100,327 (up from $771,435 in Q1 2019). Note: this was a record revenue high for Q1 since inception of the company.
Marketing and promotion decreased to $12,882 (Q1 2019 – $355,553) as the Company reduced marketing activity in an effort to conserve cash and focus on operational growth.
Management and director fees in Q1 decreased to $nil (Q1 2019 – $75,000) as the Company reduced fees to reduce overhead costs and conserve cash in the current period.
Share-based compensation in Q1 decreased to $42,687 (Q1 2019 – $405,752) due to fewer stock options being granted during the current period.
During the three months ended March 31, 2020, the Company had a net loss of $866,173 compared to $1,404,056 (a decrease of 38%) during the three months ended March 31, 2019.
Subsequent to the period ended March 31, 2020, a few notable events occurred:
On April 14, 2020, the Company completed a non-brokered private placement of US$367,500.
On May 6, 2020, the Company granted 2,875,000 stock options to directors, officers and consultants of the Company. The options have an exercise price of $0.09 per option and expire on May 6, 2025.
On June 18, 2020, the Company went live in Toronto and deliveries are now being made to consumers.
Outlook
The Company’s strategic priorities for the remainder of fiscal 2020 include:
Continued development of the ParcelPal product through a series of build-measure-learn iterations and moving beyond the restaurant vertical.
Building an exceptional and world-class brand with a focus on high quality content.
Increasing the number of merchants and users using the ParcelPal platform.
Using data, technology, and inbound selling to ramp up sales and revenue generation.
Continued expansion into large markets in Canada and also planning the Company’s entry into the United States market.
About ParcelPal Technology Inc.
ParcelPal is a leader in the growing technology and logistics industry. ParcelPal seamlessly connects consumers to businesses, where they have access to the goods they love, anytime, anywhere. Customers can shop at partner businesses and through the ParcelPal technology receive their purchased goods within an hour or the same day. The Company offers on-demand delivery of merchandise from leading retailers, restaurants, medical marijuana dispensaries and liquor stores in Vancouver, Calgary, Saskatoon, Toronto and soon in major cities Canada-wide.
The Canadian Securities Exchange (“CSE”) or any other securities regulatory authority has not reviewed and does not accept responsibility for the adequacy or accuracy of this news release that has been prepared by management.
Do you want to apply for STOCK LOAN: SECURITIES-BASED LENDING?Our Lending Size Range is: USD1MM to USD1B+; LTV range is 40% to 70%; Annual Interest Range is: 2.95% to 5%; Lending Term is: 2 to 5 Years. Other Collateral could be: Bonds, Notes, Warrants, Bitcoins, Mutual Fund, Real Estate, Aircraft, Jet, Plane, Yacht, etc.If you want to apply, please speak to Mr. Bill Wren through Cell/SMS/WhatsApp: +86 – 186 5206 1897 or WeChat: billwren or via email to: bill(dot)wren#wrencapital(dot)me ( **Notice: When Email, please change ” (dot) ” to ” . ” ; change ” # ” to ” @ ” )
HOUSTON, June 22, 2020 (GLOBE NEWSWIRE) — W&T Offshore, Inc. (NYSE: WTI) (“W&T” or the “Company”) today reported operational and financial results for the first quarter 2020.
Key highlights included:
Produced 53,553 barrels of oil equivalent per day (“Boe/d”), or 4.9 million Boe (48% liquids), in the first quarter of 2020, near the high end of W&T’s guidance range, reflecting a 61% increase from the first quarter of 2019 and slightly higher than the fourth quarter of 2019;
Reported net income of $66.0 million or $0.46 per share and Adjusted Net Income of $5.8 million or $0.04 per share in the first quarter of 2020;
Generated significant Adjusted EBITDA of $62.1 million for the first quarter of 2020, despite a lower pricing environment;
Recorded strong cash flow from operating activities of $84.3 million in the first quarter;
Closed the acquisition of an additional 25% working interest in the deepwater Magnolia Field;
Since December 31,2019, W&T has reduced its long-term debt associated with its Senior Second Lien Notes by $72.5 million as of the date of this press release resulting in annualized interest savings of $7.1 million;
Announced on March 23, 2020 that W&T was the apparent high bidder on two blocks in the Gulf of Mexico Lease Sale 254 held by the Bureau of Ocean Energy Management (“BOEM”) on March 18, 2020;
Responded to the current low oil price environment with definitive actions to maintain financial flexibility, protect cash flow and preserve future value: o Suspended all drilling activities and significantly reduced its estimate of 2020 capital expenditures to $15 million to $25 million; o Proactively curtailed production at selected oil-weighted fields operated by W&T; o Implementing 15% to 25% reductions in lease operating expenses (“LOE”) without compromising safety or operational capabilities; and
Completed the semi-annual redetermination of the borrowing base under the revolving credit facility which was reduced modestly from $250 million to $215 million.
Tracy W. Krohn, W&T’s Chairman and Chief Executive Officer, stated, “Since the formation of W&T in 1983, we have been able to persevere through multiple pricing downturns in the past because our focus and strategy is to maximize cash flow generation and continuously improve the profitability of our assets, at any commodity price. We are very pleased that, thus far, none of our onshore or offshore employees have tested positive for COVID-19. However, the global COVID-19 pandemic coupled with supply and demand imbalances have created an environment of uncertainty across the oil sector and temporarily reduced oil prices to unprecedented low levels. We acted quickly to address these issues. We continue working to minimize the operational and financial impacts for the remainder of 2020, while also looking to preserve liquidity and value. We have reduced our capital expenditure budget for the remainder of 2020, shut-in a limited number of oil-weighted operated properties and experienced production shut-ins from non-operated oil and gas properties. Additionally, we are reducing LOE without compromising safety or our operational capabilities. We also recently completed our semi-annual borrowing base redetermination, which resulted in a modest reduction to the revolving credit facility and the amended agreement provides more manageable covenants in light of changes in oil prices and flexibility in both the current environment and going forward.”
“I am proud of how we have operated over the past three months and pleased with our strong first quarter results. Production was near the high end of guidance, we generated $62.1 million in Adjusted EBITDA, despite lower commodity prices, and we completed the acquisition of an additional 25% working interest in the deepwater Magnolia Field. After successfully addressing the unprecedented decline in oil prices in March and April, we are encouraged by the recent improvement in crude oil prices and the outlook for natural gas price improvements this winter. In addition, the proactive actions that we have undertaken to reduce capex and LOE coupled with our strong hedge book offering downside protection on commodity prices should allow us to continue to generate strong cash flow. Our management team’s interests are highly aligned with those of our shareholders through management’s 34% stake in the Company’s equity, which ensures that we are doing what is best for the near-term and long-term profitability of W&T,” concluded Mr. Krohn.
For the first quarter of 2020, W&T reported net income of $66.0 million, or $0.46 per share. Primarily excluding a $52.5 million unrealized commodity derivative gain and an $18.5 million non-cash gain on debt transaction, the Company’s Adjusted Net Income was $5.8 million, or $0.04 per share. In the first quarter of 2019, W&T reported a net loss of $47.8 million, or $0.34 loss per share, which included a $50.5 million unrealized commodity derivative loss. Adjusted Net Income for the first quarter of 2019 was $6.7 million, or $0.05 per share. In the fourth quarter of 2019, net income was $9.6 million, or $0.07 per share, which included an $18.1 million unrealized commodity derivative loss. For that same period, Adjusted Net Income was $24.4 million or $0.17 per share.
Adjusted EBITDA for the first quarter of 2020 totaled $62.1 million, an increase of 9% compared to $56.9 million in the first quarter of 2019 primarily due to significantly higher production volumes that were partially offset by lower commodity prices. First quarter 2020 Adjusted EBITDA declined 21% from $79.0 million in the fourth quarter of 2019 primarily due to lower commodity prices.
Adjusted Net Income and Adjusted EBITDA are non-GAAP financial measures, which are described in more detail and reconciled to net income, their most comparable GAAP measure, in the attached tables below under “Non-GAAP Information.”
Production, Prices and Revenues: Production for the first quarter of 2020 was 53,553 Boe/d or 4.9 MMBoe, a slight increase compared to 52,773 Boe/d in the fourth quarter of 2019 and up 61% versus 33,349 Boe/d in the first quarter of 2019. Production for the first quarter of 2020 was near the high end of production guidance. First quarter 2020 production was comprised of 1.8 million barrels (“MMBbls”) of oil, 0.5 MMBbls of natural gas liquids (“NGLs”) and 15.3 billion cubic feet (“Bcf”) of natural gas. Liquids production comprised 48% of total production in the first quarter of 2020.
For the first quarter of 2020, W&T’s average realized crude oil sales price was $46.33 per barrel. The Company’s realized NGL sales price was $13.03 per barrel and its realized natural gas sales price was $1.91 per Mcf. The Company’s combined average realized sales price for the quarter was $24.71 per Boe, which represents a 36% decrease from $38.31 per Boe that was realized in the first quarter of 2019 and a decrease of 20% compared to $30.75 per Boe in the fourth quarter of 2019.
Revenues for the first quarter of 2020 increased 7% to $124.1 million compared to $116.1 million in the first quarter of 2019, and decreased 18% compared to $151.9 million in the fourth quarter of 2019. The year-over-year increase was driven by the increased production associated with the two acquisitions made in the second half of 2019 which was partially offset by the decrease in realized commodity prices. The decline from the fourth quarter of 2019 was due to lower commodity prices.
Acquisition of Magnolia Field: On December 12, 2019, W&T closed the acquisition of a 75% working interest in the Magnolia Field from ConocoPhillips which is located in approximately 4,700 feet of water in the Gulf of Mexico.
On March 31, 2020, W&T closed the acquisition of the remaining 25% working interest in the field on nearly identical terms as the recent transaction with ConocoPhillips, proportionally reduced to reflect the lower working interest.
Lease Operating Expenses: LOE, which includes base lease operating expenses, insurance premiums, workovers and facilities maintenance was $54.8 million in the first quarter of 2020 compared to $43.5 million in the first quarter of 2019 and $53.3 million in the fourth quarter of 2019. On a component basis for the first quarter of 2020, base lease operating expenses and insurance premiums were $50.2 million, workovers were $1.3 million and facilities maintenance expenses were $3.3 million. The year-over-year increase in LOE was primarily driven by additional costs associated with the Mobile Bay and Magnolia acquisitions. On a unit of production basis, LOE was $11.24 per Boe in the first quarter of 2020, down 22% from $14.48 per Boe in the first quarter of 2019, and up slightly from $10.98 per Boe in the fourth quarter of 2019. The large decline in year-over-year LOE per Boe was driven by the significant increase in production associated with the acquisitions.
Gathering, Transportation Costs and Production Taxes: Gathering, transportation costs and production taxes totaled $6.4 million, or $1.31 per Boe in the first quarter of 2020, compared to $6.8 million, or $2.28 per Boe in the first quarter of 2019, and $7.7 million, or $1.59 per Boe in the fourth quarter of 2019. Costs decreased from prior periods primarily due to lower transportation rates as well as lower volumes at certain fields.
Depreciation, Depletion, Amortization and Accretion (“DD&A”): DD&A, including accretion for asset retirement obligations, was $8.03 per Boe of production for the first quarter of 2020 compared to $11.25 per Boe for the first quarter of 2019 and $7.79 per Boe for the fourth quarter of 2019, driven by the large reserve additions relative to the purchase price associated with the 2019 acquisitions of Mobile Bay and Magnolia assets.
General and Administrative Expenses (“G&A”): G&A was $14.0 million for the first quarter of 2020, compared to $14.1 million in the first quarter of 2019 and $17.6 million for the fourth quarter of 2019. The fourth quarter of 2019 included accrual adjustments for incentive compensation and higher litigation costs. On a unit of production basis, G&A was $2.87 per Boe in the first quarter of 2020, $4.70 per Boe in the first quarter of 2019, and $3.62 per Boe in the fourth quarter of 2019. The large decline in year-over-year G&A cost per Boe was driven by the significant increase in production volumes that did not require additional overhead expense.
COVID-19 Response:
W&T is committed to the health and safety of all its employees and contractors and has taken steps to ensure their continued safety in its response to the COVID-19 pandemic. At W&T’s corporate offices, the Company mandated a work-from-home policy as of March 23, 2020 and assured that all employees had the ability to continue performing their work duties remotely. W&T recently reopened its corporate office and has implemented actions to protect its employees working in its offices including weekly temperature checks. The Company will continue to monitor the situation and will follow the advice of government and health leaders.
For its field operations, the Company instituted screening of all personnel prior to entry to heliports and shorebases as well as its two Alabama gas plants, which includes a questionnaire and temperature check. The Company conducts daily temperature screenings at all offshore facilities and implemented procedures for distancing and hygiene at its field locations.
Derivative (Gain) Loss: In the first quarter of 2020, W&T recorded a net gain of $61.9 million on its outstanding commodity derivative contracts, of which $52.5 million was an unrealized commodity derivative gain. This compared to a net loss of $48.9 million in the first quarter of 2019 of which $50.5 million was an unrealized commodity derivative loss and a net loss of $18.7 million in the fourth quarter of 2019 of which $18.1 million was an unrealized commodity derivative loss.
In the first quarter of 2020, W&T added natural gas Henry Hub costless collars on 40,000 Mcf per day of production for the period April 1, 2020 through December 31, 2022 with a floor of $1.83 per Mcf and a ceiling of $3.00 per Mcf.
Since the end of the first quarter of 2020, W&T added Henry Hub costless collars on 20,000 Mcf per day of production for the period January 1, 2021 through December 31, 2021 with a floor of $2.17 and a ceiling of $3.00, and on 10,000 Mcf per day of production for the same period with a floor of $2.20 and a ceiling of $3.00, as well as Henry Hub costless collars on 10,000 Mcf/d of production for the period May 1, 2020 through December 31, 2020 with a floor of $1.75 and a ceiling of $2.58. The Company also recently added crude oil swaps on 1,000 Bopd for January 2021 through December 2021 at a weighted average price of $41.00 per barrel.
A listing of the Company’s current outstanding derivative positions is included in the tables below as well as in the Investor Relations section of W&T’s web site under the “Financial Info” tab.
Interest Expense: Interest expense, net of interest income, as reported in the income statement, in the first quarter of 2020 was $17.1 million compared with $16.3 million in the same period in 2019 and $16.6 million in the fourth quarter of 2019. The increase was primarily driven by increased interest expense incurred following the draw-down of a portion of the credit facility to fund the Mobile Bay acquisition announced in 2019.
Income Tax: W&T recorded an income tax expense of $6.5 million in the first quarter of 2020 compared to an income tax expense of $0.2 million in the first quarter of 2019 and an income tax benefit of $8.2 million in the fourth quarter of 2019. For the three months ended March 31, 2020, W&T’s effective tax rate primarily differed from the statutory Federal tax rate for adjustments recorded that related to the enactment of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) on March 27, 2020. For example, the Cares Act modified the business interest expense limitation. For the three months ended March 31, 2019, immaterial deferred income tax expense was recorded due to dollar-for-dollar offsets by the Company’s valuation allowance. The effective tax rate on pre-tax income was 9.0% for the three months ended March 31, 2020 and was not meaningful for the three months ended March 31, 2019.
As of March 31, 2020 and December 31, 2019, W&T had current income taxes receivable of $1.9 million, which relates primarily to a net operating loss (“NOL”) carryback claim for 2017 that was carried back to prior years.
W&T is not currently forecasting any cash income tax expense for the near-term, and a portion of the Company’s deferred tax assets remain partially offset by a valuation allowance.
Balance Sheet, Cash Flow and Liquidity: Net cash provided by operating activities for the three months ended March 31, 2020 was $84.3 million. Total liquidity on March 31, 2020 was $211.8 million, consisting of cash and cash equivalents of $47.6 million and $164.2 million of availability under W&T’s revolving bank credit facility. In February 2020, W&T paid down its revolving credit facility by $25 million with a portion of its free cash flow. At March 31, 2019, the Company had $80.0 million in borrowings on its revolving credit facility and $5.8 million of letters of credit outstanding. Total long-term debt, including $80.0 million in revolving credit facility borrowings, was $668.1 million net of unamortized debt issuance costs. W&T was in compliance with all applicable covenants of the Credit Agreement and the Senior Second Lien Notes indenture as of March 31, 2020.
During the three months ended March 31, 2020, W&T repurchased $27.5 million in principal of its outstanding 9.75% Senior Second Lien Notes for $8.5 million and recorded a non-cash gain of $18.5 million related to the purchase. Since the end of the first quarter of 2020, W&T repurchased an additional $45.1 million in outstanding notes for $15.3 million. In total, W&T has reduced the amount of its long-term debt associated with its Senior Second Lien Notes by $72.5 million to $552.5 million since year-end 2019 for $23.9 million, resulting in annualized interest savings of $7.1 million.
W&T’s bank group recently completed its regularly scheduled spring borrowing base redetermination. The borrowing base was set by the bank group at $215 million, down modestly from $250 million. In connection with the borrowing base redetermination, the Credit Agreement was amended to provide a suspension of the total leverage covenant and the addition of a first lien leverage covenant of 2.00 to 1.00 through year-end 2021. The amendments also include some increased pricing and hedging requirements of 50% of oil and gas proved developed producing (“PDP”) production for 18 months. The next regularly scheduled redetermination is in the fall of 2020. As of June 17, 2020, following the borrowing base redetermination and the recent bond repurchases, total liquidity stood at $156 million, comprised of about $27 million in cash and $129 million in availability under W&T’s revolving credit facility.
Capital Expenditures: Due to the recent sharp decline in oil prices, W&T has suspended drilling and completion activities and significantly reduced its estimate of 2020 capital expenditures to $15 million to $25 million from its prior level of $50 million to $100 million. Capital expenditures for oil and gas properties in the first quarter of 2020 (excluding acquisitions) were $9.5 million related to its 2020 capital budget and $24.0 million related to the 2019 budget that were paid in early 2020, for a total of $33.5 million on a cash basis. During the first quarter of 2020, W&T also closed the acquisition of the remaining 25% working interest in the Magnolia Field for approximately $2.2 million, adjusted for customary closing costs.
OPERATIONS UPDATE
W&T successfully drilled one well in the first quarter of 2020 at East Cameron 338/349 but has since suspended all other drilling activity in the current uncertain pricing environment.
East Cameron 338/349 Cota (operated, shallow water, in JV Drilling Program): W&T successfully drilled its first well of 2020 in the East Cameron 338/349 Field. The well is in over 290 feet of water and was drilled to a total depth of over 6,000 feet and encountered approximately 100 feet of net oil pay. Initial production is planned for the first half of 2021, subject to the commodity price environment and the completion of certain infrastructure projects. The Company has a 20% interest in the EC 338/349 Cota well. W&T’s interest will increase to 38.4% once the well is brought online and performance thresholds are met.
Well Recompletions and Workovers: During the first quarter of 2020, the Company performed one recompletion and four workovers that in total added approximately 700 net Boe/d to production. W&T currently plans to continue to perform recompletions and workovers that meet economic thresholds.
Gulf of Mexico Lease Sale 254:
As previously announced, W&T was the apparent high bidder on two blocks in the Gulf of Mexico Lease Sale 254 held by the BOEM on March 18, 2020, which included one deepwater block, Garden Banks block 782, and one shallow water block, Eugene Island Area South Addition block 345.
These two blocks cover a total of approximately 10,760 acres and, if awarded, the Company will pay approximately $708,500 for a 100% working interest in the awarded leases combined. The shallow water block has a five-year lease term and 12.5% royalty, while the deepwater block has a seven-year lease term and an 18.75% royalty. W&T expects to receive the final award results in the next 60 days.
2020 Guidance
Due to the recent sharp decline in oil prices, W&T significantly reduced its 2020 capital spending expectations and has also reduced its planned asset retirement expenditures. As of April 20, 2020, W&T temporarily shut-in production of approximately 3,300 Boe/d in selected oil-weighted fields operated by the Company but its Mahogany field and its key natural gas fields including its Mobile Bay complex were not affected. The Company continues to monitor these fields to determine the appropriate timing of returning these fields to production. W&T’s production was also deferred at certain non-operated fields. Those third-party deferrals totaled approximately 3,400 Boe/d net to W&T. Recently, approximately 2,900 Boe/d of third party deferrals were returned to production. Lastly, W&T temporarily shut-in a portion of its production due to Tropical Storm Cristobal which resulted in a total of approximately 110,000 net Boe of deferred production. There was no material damage done by the storm to any of W&T’s infrastructure.
As a result of the combination of ongoing uncertainty in commodity markets, production curtailments, and proactive efforts to continually reduce costs in the lower price environment, the Company has withdrawn the annual guidance it provided earlier this year and will provide such guidance again in the future when there is increased forward visibility in oil and gas markets.
Conference Call Information: W&T will hold a conference call to discuss its financial and operational results on June 23, 2020, at 9:00 a.m. Central Time (10:00 a.m. Eastern Time). Interested parties may participate by dialing (877) 270-2148. International parties may dial (412) 902-6510. Participants should request to connect to the “W&T Offshore Call.” This call will also be webcast and available on W&T’s website at www.wtoffshore.com on the “Overview” page under the “Investor Relations” section. An audio replay will be available on the Company’s website following the call.
About W&T Offshore
W&T Offshore, Inc. is an independent oil and natural gas producer with operations offshore in the Gulf of Mexico and has grown through acquisitions, exploration and development. The Company currently has working interests in 51 producing fields in federal and state waters and has under lease approximately 815,000 gross acres, including approximately 595,000 gross acres on the Gulf of Mexico Shelf and approximately 220,000 gross acres in the Gulf of Mexico deepwater. A majority of the Company’s daily production is derived from wells it operates. For more information on W&T, please visit the Company’s website at www.wtoffshore.com.
Forward-Looking and Cautionary Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements reflect our current views with respect to future events, based on what we believe are reasonable assumptions. No assurance can be given, however, that these events will occur. These statements are subject to risks and uncertainties that could cause actual results to differ materially including, among other things, market conditions, oil and gas price volatility, uncertainties inherent in oil and gas production operations and estimating reserves, unexpected future capital expenditures, competition, the success of our risk management activities, governmental regulations, uncertainties and other factors discussed in W&T Offshore’s Annual Report on Form 10-K for the year ended December 31, 2019 and subsequent Form 10-Q reports found at www.sec.gov or at our website at www.wtoffshore.com under the Investor Relations section. Investors are urged to consider closely the disclosures and risk factors in these reports. We refer to feet of “pay” in our discussions concerning the evaluation of our recently drilled wells. This refers to geological indications, typically obtained from well logging, of the estimated thickness of sands which we believe are capable of producing hydrocarbons in commercial quantities. These indications of “pay” may not necessarily forecast the amount of future production or reserve quantities from the well, which can be dependent upon numerous other factors.
W&T OFFSHORE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
December 31,
March 31,
2020
2019
2019
Revenues:
Oil
$
84,650
$
101,106
$
86,703
NGLs
6,452
6,912
6,448
Natural gas
29,300
41,256
21,838
Other
3,726
2,620
1,091
Total revenues
124,128
151,894
116,080
Operating costs and expenses:
Lease operating expenses
54,775
53,299
43,456
Gathering, transportation costs and production taxes
6,365
7,707
6,839
Depreciation, depletion, amortization and accretion
39,126
37,818
33,766
General and administrative expenses
13,963
17,564
14,109
Derivative (gain) loss
(61,912
)
18,659
48,886
Total costs and expenses
52,317
135,047
147,056
Operating income (loss)
71,811
16,847
(30,976
)
Interest expense, net
17,110
16,635
16,282
Gain on purchase of debt
(18,501
)
–
–
Other (income) expense, net
723
(1,176
)
331
Income (loss) before income tax (benefit) expense
72,479
1,388
(47,589
)
Income tax expense (benefit)
6,499
(8,171
)
172
Net income (loss)
$
65,980
$
9,559
$
(47,761
)
Basic and diluted earnings (loss) per common share
$
0.46
$
0.07
$
(0.34
)
Weighted average common shares outstanding
141,546
140,769
140,462
W&T OFFSHORE, INC. AND SUBSIDIARIES
Condensed Operating Data
(Unaudited)
Three Months Ended
March 31,
December 31,
March 31,
2020
2019
2019
Net sales volumes:
Oil (MBbls)
1,827
1,778
1,478
NGL (MBbls)
495
415
309
Oil and NGLs (MBbls)
2,322
2,194
1,787
Natural gas (MMcf)
15,307
15,966
7,288
Total oil and natural gas (MBoe) (1)
4,873
4,855
3,001
Average daily equivalent sales (MBoe/d)
53.6
52.8
33.3
Average realized sales prices:
Oil ($/Bbl)
$
46.33
$
56.84
$
58.66
NGLs ($/Bbl)
13.03
16.64
20.88
Oil and NGLs ($/Bbl)
39.23
49.23
52.13
Natural gas ($/Mcf)
1.91
2.58
3.00
Barrel of oil equivalent ($/Boe)
24.71
30.75
38.31
Average costs and expenses per Boe ($/Boe):
Lease operating expenses
$
11.24
$
10.98
$
14.48
Gathering, transportation costs and production taxes
1.31
1.59
2.28
Depreciation, depletion, amortization and accretion
8.03
7.79
11.25
General and administrative expenses
2.87
3.62
4.70
(1) MBoe is determined using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or NGLs (totals may not compute due to rounding). The conversion ratio does not assume price equivalency and the price on an equivalent basis for oil, NGLs and natural gas may differ significantly.
W&T OFFSHORE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
March 31,
December 31,
2020
2019
(Unaudited)
Assets
Current assets:
Cash and cash equivalents
$
47,574
$
32,433
Receivables:
Oil and natural gas sales
35,413
57,367
Joint interest and other, net
12,277
19,400
Income taxes
1,861
1,861
Total receivables
49,551
78,628
Prepaid expenses and other assets
78,658
30,691
Total current assets
175,783
141,752
Oil and natural gas properties and other
8,567,164
8,552,513
Less accumulated depreciation, depletion and amortization
7,837,120
7,803,715
Oil and natural gas properties and other, net
730,044
748,798
Restricted deposits for asset retirement obligations
15,574
15,806
Deferred income taxes
57,418
63,916
Other assets
30,084
33,447
Total assets
$
1,008,903
$
1,003,719
Liabilities and Shareholders’ Deficit
Current liabilities:
Accounts payable
$
61,729
$
102,344
Undistributed oil and natural gas proceeds
28,176
29,450
Advances from joint interest partners
18,285
5,279
Asset retirement obligations
2,803
21,991
Accrued liabilities
34,428
30,896
Total current liabilities
145,421
189,960
Long-term debt
668,058
719,533
Asset retirement obligations
361,297
333,603
Other liabilities
16,464
9,988
Commitments and contingencies
–
–
Shareholders’ deficit:
Common stock, $0.00001 par value; 200,000 shares authorized; 144,538 issued and
141,669 outstanding for both dates presented
1
1
Additional paid-in capital
548,098
547,050
Retained deficit
(706,269
)
(772,249
)
Treasury stock, at cost; 2,869 shares for both dates presented
(24,167
)
(24,167
)
Total shareholders’ deficit
(182,337
)
(249,365
)
Total liabilities and shareholders’ deficit
$
1,008,903
$
1,003,719
W&T OFFSHORE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
March 31,
December 31,
March 31,
2020
2019
2019
Operating activities:
Net income (loss)
$
65,980
$
9,559
$
(47,761
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion, amortization and accretion
39,126
37,818
33,766
Amortization of debt items and other items
1,625
1,600
1,152
Share-based compensation
1,048
1,261
(78
)
Derivative (gain) loss
(61,912
)
18,659
48,886
Derivatives cash receipts (payments), net
4,404
(3,642
)
11,948
Gain on purchase of debt
(18,501
)
–
–
Deferred income taxes
6,499
(8,338
)
172
Changes in operating assets and liabilities:
–
Oil and natural gas receivables
21,954
(5,741
)
6,496
Joint interest receivables
7,123
11,084
(2,986
)
Prepaid expenses and other assets
11,011
4,865
(4,269
)
Income tax receivables
–
35,049
–
Asset retirement obligation settlements
(249
)
(3,703
)
(254
)
Cash advances from JV partners
13,006
(31,194
)
44,644
Accounts payable, accrued liabilities and other
(6,790
)
(21,646
)
(6,871
)
Net cash provided by operating activities
84,324
45,631
84,845
Investing activities:
Investment in oil and natural gas properties and equipment
(33,575
)
(32,224
)
(31,581
)
Acquisition of property interest
(2,002
)
(20,301
)
–
Purchases of furniture, fixtures and other
(70
)
(69
)
–
Net cash used in investing activities
(35,647
)
(52,594
)
(31,581
)
Financing activities:
Repayments on credit facility
(25,000
)
–
–
Purchase of Senior Second Lien Notes
(8,536
)
–
–
Debt transaction costs and other
–
(2,345
)
(441
)
Net cash used in financing activities
(33,536
)
(2,345
)
(441
)
Increase (decrease) in cash and cash equivalents
15,141
(9,308
)
52,823
Cash and cash equivalents, beginning of period
32,433
41,741
33,293
Cash and cash equivalents, end of period
$
47,574
$
32,433
$
86,116
W&T OFFSHORE, INC. AND SUBSIDIARIES
Financial Commodity Derivative Positions
As of June 22, 2020
Production Period
Instrument
Avg. Daily Volumes
Weighted Avg Swap Price
Weighted Avg Put Price
Weighted Avg Call Price
Crude Oil – WTI NYMEX:
(bbls)
(per Bbl)
(per Bbl)
(per Bbl)
Jun 2020 – Dec 2020
Costless Collars
1,000
$45.00
$63.60
Jun 2020 – Dec 2020
Costless Collars
9,000
$45.00
$63.50
Jun 2020 – Dec 2020
Calls (long)
10,000
$67.50
Jan 2021 – Dec 2021
Swaps
1,000
$41.00
Natural Gas – Henry Hub NYMEX:
(Mcf)
(per Mcf)
(per Mcf)
(per Mcf)
June 2020 – Dec 2022
Calls (long)
40,000
$3.00
June 2020 – Dec 2022
Costless Collars
40,000
$1.83
$3.00
June 2020 – Dec 2020
Costless Collars
10,000
$1.75
$2.58
Jan 2021 – Dec 2021
Costless Collars
20,000
$2.17
$3.00
Jan 2021 – Dec 2021
Costless Collars
10,000
$2.20
$3.00
W&T OFFSHORE, INC. AND SUBSIDIARIES Non-GAAP Information
Certain financial information included in W&T’s financial results are not measures of financial performance recognized by accounting principles generally accepted in the United States, or GAAP. These non-GAAP financial measures are “Adjusted Net Income” and “Adjusted EBITDA.” Management uses these non-GAAP financial measures in its analysis of performance. In addition, Adjusted EBITDA is a key metric used to determine the Company’s incentive compensation awards. These disclosures may not be viewed as a substitute for results determined in accordance with GAAP and are not necessarily comparable to non-GAAP performance measures which may be reported by other companies.
Reconciliation of Net Income to Adjusted Net Income
Adjusted Net Income does not include the unrealized commodity derivative loss (gain), amortization of derivative premium, bad debt reserve, deferred tax benefit, gain on debt transactions, write-off contingent liability, litigation and other. Adjusted Net Income is presented because the timing and amount of these items cannot be reasonably estimated and affect the comparability of operating results from period to period, and current periods to prior periods.
Three Months Ended
March 31,
December 31,
March 31,
2020
2019
2019
(In thousands, except per share amounts)
(Unaudited)
Net income (loss)
$
65,980
$
9,559
$
(47,761
)
Unrealized commodity derivative (gain) loss
(52,520
)
18,052
50,459
Amortization of derivative premium
4,349
4,248
3,845
Bad debt reserve
36
13
120
Income tax expense (benefit)
6,499
(8,338
)
–
Gain on debt transactions
(18,501
)
–
–
Litigation and other
–
816
–
Adjusted Net Income
$
5,843
$
24,350
$
6,663
Basic and diluted adjusted earnings per common share
$
0.04
$
0.17
$
0.05
W&T OFFSHORE, INC. AND SUBSIDIARIES Non-GAAP Information
Reconciliation of Net Income to Adjusted EBITDA
The Company defines Adjusted EBITDA as net income plus income tax (benefit) expense, net interest expense, and depreciation, depletion, amortization and accretion, excluding the unrealized commodity derivative gain or loss, amortization of derivative premium, bad debt reserve, gain on debt transactions, litigation and other. W&T believes the presentation of Adjusted EBITDA provides useful information regarding its ability to service debt and to fund capital expenditures. The Company believes this presentation is relevant and useful because it helps investors understand W&T’s operating performance and makes it easier to compare its results with those of other companies that have different financing, capital and tax structures. Adjusted EBITDA should not be considered in isolation from or as a substitute for net income, as an indication of operating performance or cash flows from operating activities or as a measure of liquidity. Adjusted EBITDA, as W&T calculates it, may not be comparable to Adjusted EBITDA measures reported by other companies. In addition, Adjusted EBITDA does not represent funds available for discretionary use.
The following table presents a reconciliation of W&T’s net income to Adjusted EBITDA.
Three Months Ended
March 31,
December 31,
March 31,
2020
2019
2019
(In thousands)
(Unaudited)
Net income (loss)
$
65,980
$
9,559
$
(47,761
)
Income tax expense (benefit)
6,499
(8,171
)
172
Interest expense, net
17,110
16,635
16,282
Depreciation, depletion, amortization and accretion
39,126
37,818
33,766
Unrealized commodity derivative (gain) loss
(52,520
)
18,052
50,459
Amortization of derivative premium
4,349
4,248
3,845
Bad debt reserve
36
13
120
Gain on debt transactions
(18,501
)
–
–
Litigation and other
–
816
–
Adjusted EBITDA
$
62,079
$
78,970
$
56,883
06/22/2020 | 09:46pm BST
HOUSTON, June 22, 2020 (GLOBE NEWSWIRE) — W&T Offshore, Inc. (NYSE: WTI) (“W&T” or the “Company”) today reported operational and financial results for the first quarter 2020.
Key highlights included:
Produced 53,553 barrels of oil equivalent per day (“Boe/d”), or 4.9 million Boe (48% liquids), in the first quarter of 2020, near the high end of W&T’s guidance range, reflecting a 61% increase from the first quarter of 2019 and slightly higher than the fourth quarter of 2019;
Reported net income of $66.0 million or $0.46 per share and Adjusted Net Income of $5.8 million or $0.04 per share in the first quarter of 2020;
Generated significant Adjusted EBITDA of $62.1 million for the first quarter of 2020, despite a lower pricing environment;
Recorded strong cash flow from operating activities of $84.3 million in the first quarter;
Closed the acquisition of an additional 25% working interest in the deepwater Magnolia Field;
Since December 31,2019, W&T has reduced its long-term debt associated with its Senior Second Lien Notes by $72.5 million as of the date of this press release resulting in annualized interest savings of $7.1 million;
Announced on March 23, 2020 that W&T was the apparent high bidder on two blocks in the Gulf of Mexico Lease Sale 254 held by the Bureau of Ocean Energy Management (“BOEM”) on March 18, 2020;
Responded to the current low oil price environment with definitive actions to maintain financial flexibility, protect cash flow and preserve future value: o Suspended all drilling activities and significantly reduced its estimate of 2020 capital expenditures to $15 million to $25 million; o Proactively curtailed production at selected oil-weighted fields operated by W&T; o Implementing 15% to 25% reductions in lease operating expenses (“LOE”) without compromising safety or operational capabilities; and
Completed the semi-annual redetermination of the borrowing base under the revolving credit facility which was reduced modestly from $250 million to $215 million.
Tracy W. Krohn, W&T’s Chairman and Chief Executive Officer, stated, “Since the formation of W&T in 1983, we have been able to persevere through multiple pricing downturns in the past because our focus and strategy is to maximize cash flow generation and continuously improve the profitability of our assets, at any commodity price. We are very pleased that, thus far, none of our onshore or offshore employees have tested positive for COVID-19. However, the global COVID-19 pandemic coupled with supply and demand imbalances have created an environment of uncertainty across the oil sector and temporarily reduced oil prices to unprecedented low levels. We acted quickly to address these issues. We continue working to minimize the operational and financial impacts for the remainder of 2020, while also looking to preserve liquidity and value. We have reduced our capital expenditure budget for the remainder of 2020, shut-in a limited number of oil-weighted operated properties and experienced production shut-ins from non-operated oil and gas properties. Additionally, we are reducing LOE without compromising safety or our operational capabilities. We also recently completed our semi-annual borrowing base redetermination, which resulted in a modest reduction to the revolving credit facility and the amended agreement provides more manageable covenants in light of changes in oil prices and flexibility in both the current environment and going forward.”
“I am proud of how we have operated over the past three months and pleased with our strong first quarter results. Production was near the high end of guidance, we generated $62.1 million in Adjusted EBITDA, despite lower commodity prices, and we completed the acquisition of an additional 25% working interest in the deepwater Magnolia Field. After successfully addressing the unprecedented decline in oil prices in March and April, we are encouraged by the recent improvement in crude oil prices and the outlook for natural gas price improvements this winter. In addition, the proactive actions that we have undertaken to reduce capex and LOE coupled with our strong hedge book offering downside protection on commodity prices should allow us to continue to generate strong cash flow. Our management team’s interests are highly aligned with those of our shareholders through management’s 34% stake in the Company’s equity, which ensures that we are doing what is best for the near-term and long-term profitability of W&T,” concluded Mr. Krohn.
For the first quarter of 2020, W&T reported net income of $66.0 million, or $0.46 per share. Primarily excluding a $52.5 million unrealized commodity derivative gain and an $18.5 million non-cash gain on debt transaction, the Company’s Adjusted Net Income was $5.8 million, or $0.04 per share. In the first quarter of 2019, W&T reported a net loss of $47.8 million, or $0.34 loss per share, which included a $50.5 million unrealized commodity derivative loss. Adjusted Net Income for the first quarter of 2019 was $6.7 million, or $0.05 per share. In the fourth quarter of 2019, net income was $9.6 million, or $0.07 per share, which included an $18.1 million unrealized commodity derivative loss. For that same period, Adjusted Net Income was $24.4 million or $0.17 per share.
Adjusted EBITDA for the first quarter of 2020 totaled $62.1 million, an increase of 9% compared to $56.9 million in the first quarter of 2019 primarily due to significantly higher production volumes that were partially offset by lower commodity prices. First quarter 2020 Adjusted EBITDA declined 21% from $79.0 million in the fourth quarter of 2019 primarily due to lower commodity prices.
Adjusted Net Income and Adjusted EBITDA are non-GAAP financial measures, which are described in more detail and reconciled to net income, their most comparable GAAP measure, in the attached tables below under “Non-GAAP Information.”
Production, Prices and Revenues: Production for the first quarter of 2020 was 53,553 Boe/d or 4.9 MMBoe, a slight increase compared to 52,773 Boe/d in the fourth quarter of 2019 and up 61% versus 33,349 Boe/d in the first quarter of 2019. Production for the first quarter of 2020 was near the high end of production guidance. First quarter 2020 production was comprised of 1.8 million barrels (“MMBbls”) of oil, 0.5 MMBbls of natural gas liquids (“NGLs”) and 15.3 billion cubic feet (“Bcf”) of natural gas. Liquids production comprised 48% of total production in the first quarter of 2020.
For the first quarter of 2020, W&T’s average realized crude oil sales price was $46.33 per barrel. The Company’s realized NGL sales price was $13.03 per barrel and its realized natural gas sales price was $1.91 per Mcf. The Company’s combined average realized sales price for the quarter was $24.71 per Boe, which represents a 36% decrease from $38.31 per Boe that was realized in the first quarter of 2019 and a decrease of 20% compared to $30.75 per Boe in the fourth quarter of 2019.
Revenues for the first quarter of 2020 increased 7% to $124.1 million compared to $116.1 million in the first quarter of 2019, and decreased 18% compared to $151.9 million in the fourth quarter of 2019. The year-over-year increase was driven by the increased production associated with the two acquisitions made in the second half of 2019 which was partially offset by the decrease in realized commodity prices. The decline from the fourth quarter of 2019 was due to lower commodity prices.
Acquisition of Magnolia Field: On December 12, 2019, W&T closed the acquisition of a 75% working interest in the Magnolia Field from ConocoPhillips which is located in approximately 4,700 feet of water in the Gulf of Mexico.
On March 31, 2020, W&T closed the acquisition of the remaining 25% working interest in the field on nearly identical terms as the recent transaction with ConocoPhillips, proportionally reduced to reflect the lower working interest.
Lease Operating Expenses: LOE, which includes base lease operating expenses, insurance premiums, workovers and facilities maintenance was $54.8 million in the first quarter of 2020 compared to $43.5 million in the first quarter of 2019 and $53.3 million in the fourth quarter of 2019. On a component basis for the first quarter of 2020, base lease operating expenses and insurance premiums were $50.2 million, workovers were $1.3 million and facilities maintenance expenses were $3.3 million. The year-over-year increase in LOE was primarily driven by additional costs associated with the Mobile Bay and Magnolia acquisitions. On a unit of production basis, LOE was $11.24 per Boe in the first quarter of 2020, down 22% from $14.48 per Boe in the first quarter of 2019, and up slightly from $10.98 per Boe in the fourth quarter of 2019. The large decline in year-over-year LOE per Boe was driven by the significant increase in production associated with the acquisitions.
Gathering, Transportation Costs and Production Taxes: Gathering, transportation costs and production taxes totaled $6.4 million, or $1.31 per Boe in the first quarter of 2020, compared to $6.8 million, or $2.28 per Boe in the first quarter of 2019, and $7.7 million, or $1.59 per Boe in the fourth quarter of 2019. Costs decreased from prior periods primarily due to lower transportation rates as well as lower volumes at certain fields.
Depreciation, Depletion, Amortization and Accretion (“DD&A”): DD&A, including accretion for asset retirement obligations, was $8.03 per Boe of production for the first quarter of 2020 compared to $11.25 per Boe for the first quarter of 2019 and $7.79 per Boe for the fourth quarter of 2019, driven by the large reserve additions relative to the purchase price associated with the 2019 acquisitions of Mobile Bay and Magnolia assets.
General and Administrative Expenses (“G&A”): G&A was $14.0 million for the first quarter of 2020, compared to $14.1 million in the first quarter of 2019 and $17.6 million for the fourth quarter of 2019. The fourth quarter of 2019 included accrual adjustments for incentive compensation and higher litigation costs. On a unit of production basis, G&A was $2.87 per Boe in the first quarter of 2020, $4.70 per Boe in the first quarter of 2019, and $3.62 per Boe in the fourth quarter of 2019. The large decline in year-over-year G&A cost per Boe was driven by the significant increase in production volumes that did not require additional overhead expense.
COVID-19 Response:
W&T is committed to the health and safety of all its employees and contractors and has taken steps to ensure their continued safety in its response to the COVID-19 pandemic. At W&T’s corporate offices, the Company mandated a work-from-home policy as of March 23, 2020 and assured that all employees had the ability to continue performing their work duties remotely. W&T recently reopened its corporate office and has implemented actions to protect its employees working in its offices including weekly temperature checks. The Company will continue to monitor the situation and will follow the advice of government and health leaders.
For its field operations, the Company instituted screening of all personnel prior to entry to heliports and shorebases as well as its two Alabama gas plants, which includes a questionnaire and temperature check. The Company conducts daily temperature screenings at all offshore facilities and implemented procedures for distancing and hygiene at its field locations.
Derivative (Gain) Loss: In the first quarter of 2020, W&T recorded a net gain of $61.9 million on its outstanding commodity derivative contracts, of which $52.5 million was an unrealized commodity derivative gain. This compared to a net loss of $48.9 million in the first quarter of 2019 of which $50.5 million was an unrealized commodity derivative loss and a net loss of $18.7 million in the fourth quarter of 2019 of which $18.1 million was an unrealized commodity derivative loss.
In the first quarter of 2020, W&T added natural gas Henry Hub costless collars on 40,000 Mcf per day of production for the period April 1, 2020 through December 31, 2022 with a floor of $1.83 per Mcf and a ceiling of $3.00 per Mcf.
Since the end of the first quarter of 2020, W&T added Henry Hub costless collars on 20,000 Mcf per day of production for the period January 1, 2021 through December 31, 2021 with a floor of $2.17 and a ceiling of $3.00, and on 10,000 Mcf per day of production for the same period with a floor of $2.20 and a ceiling of $3.00, as well as Henry Hub costless collars on 10,000 Mcf/d of production for the period May 1, 2020 through December 31, 2020 with a floor of $1.75 and a ceiling of $2.58. The Company also recently added crude oil swaps on 1,000 Bopd for January 2021 through December 2021 at a weighted average price of $41.00 per barrel.
A listing of the Company’s current outstanding derivative positions is included in the tables below as well as in the Investor Relations section of W&T’s web site under the “Financial Info” tab.
Interest Expense: Interest expense, net of interest income, as reported in the income statement, in the first quarter of 2020 was $17.1 million compared with $16.3 million in the same period in 2019 and $16.6 million in the fourth quarter of 2019. The increase was primarily driven by increased interest expense incurred following the draw-down of a portion of the credit facility to fund the Mobile Bay acquisition announced in 2019.
Income Tax: W&T recorded an income tax expense of $6.5 million in the first quarter of 2020 compared to an income tax expense of $0.2 million in the first quarter of 2019 and an income tax benefit of $8.2 million in the fourth quarter of 2019. For the three months ended March 31, 2020, W&T’s effective tax rate primarily differed from the statutory Federal tax rate for adjustments recorded that related to the enactment of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) on March 27, 2020. For example, the Cares Act modified the business interest expense limitation. For the three months ended March 31, 2019, immaterial deferred income tax expense was recorded due to dollar-for-dollar offsets by the Company’s valuation allowance. The effective tax rate on pre-tax income was 9.0% for the three months ended March 31, 2020 and was not meaningful for the three months ended March 31, 2019.
As of March 31, 2020 and December 31, 2019, W&T had current income taxes receivable of $1.9 million, which relates primarily to a net operating loss (“NOL”) carryback claim for 2017 that was carried back to prior years.
W&T is not currently forecasting any cash income tax expense for the near-term, and a portion of the Company’s deferred tax assets remain partially offset by a valuation allowance.
Balance Sheet, Cash Flow and Liquidity: Net cash provided by operating activities for the three months ended March 31, 2020 was $84.3 million. Total liquidity on March 31, 2020 was $211.8 million, consisting of cash and cash equivalents of $47.6 million and $164.2 million of availability under W&T’s revolving bank credit facility. In February 2020, W&T paid down its revolving credit facility by $25 million with a portion of its free cash flow. At March 31, 2019, the Company had $80.0 million in borrowings on its revolving credit facility and $5.8 million of letters of credit outstanding. Total long-term debt, including $80.0 million in revolving credit facility borrowings, was $668.1 million net of unamortized debt issuance costs. W&T was in compliance with all applicable covenants of the Credit Agreement and the Senior Second Lien Notes indenture as of March 31, 2020.
During the three months ended March 31, 2020, W&T repurchased $27.5 million in principal of its outstanding 9.75% Senior Second Lien Notes for $8.5 million and recorded a non-cash gain of $18.5 million related to the purchase. Since the end of the first quarter of 2020, W&T repurchased an additional $45.1 million in outstanding notes for $15.3 million. In total, W&T has reduced the amount of its long-term debt associated with its Senior Second Lien Notes by $72.5 million to $552.5 million since year-end 2019 for $23.9 million, resulting in annualized interest savings of $7.1 million.
W&T’s bank group recently completed its regularly scheduled spring borrowing base redetermination. The borrowing base was set by the bank group at $215 million, down modestly from $250 million. In connection with the borrowing base redetermination, the Credit Agreement was amended to provide a suspension of the total leverage covenant and the addition of a first lien leverage covenant of 2.00 to 1.00 through year-end 2021. The amendments also include some increased pricing and hedging requirements of 50% of oil and gas proved developed producing (“PDP”) production for 18 months. The next regularly scheduled redetermination is in the fall of 2020. As of June 17, 2020, following the borrowing base redetermination and the recent bond repurchases, total liquidity stood at $156 million, comprised of about $27 million in cash and $129 million in availability under W&T’s revolving credit facility.
Capital Expenditures: Due to the recent sharp decline in oil prices, W&T has suspended drilling and completion activities and significantly reduced its estimate of 2020 capital expenditures to $15 million to $25 million from its prior level of $50 million to $100 million. Capital expenditures for oil and gas properties in the first quarter of 2020 (excluding acquisitions) were $9.5 million related to its 2020 capital budget and $24.0 million related to the 2019 budget that were paid in early 2020, for a total of $33.5 million on a cash basis. During the first quarter of 2020, W&T also closed the acquisition of the remaining 25% working interest in the Magnolia Field for approximately $2.2 million, adjusted for customary closing costs.
OPERATIONS UPDATE
W&T successfully drilled one well in the first quarter of 2020 at East Cameron 338/349 but has since suspended all other drilling activity in the current uncertain pricing environment.
East Cameron 338/349 Cota (operated, shallow water, in JV Drilling Program): W&T successfully drilled its first well of 2020 in the East Cameron 338/349 Field. The well is in over 290 feet of water and was drilled to a total depth of over 6,000 feet and encountered approximately 100 feet of net oil pay. Initial production is planned for the first half of 2021, subject to the commodity price environment and the completion of certain infrastructure projects. The Company has a 20% interest in the EC 338/349 Cota well. W&T’s interest will increase to 38.4% once the well is brought online and performance thresholds are met.
Well Recompletions and Workovers: During the first quarter of 2020, the Company performed one recompletion and four workovers that in total added approximately 700 net Boe/d to production. W&T currently plans to continue to perform recompletions and workovers that meet economic thresholds.
Gulf of Mexico Lease Sale 254:
As previously announced, W&T was the apparent high bidder on two blocks in the Gulf of Mexico Lease Sale 254 held by the BOEM on March 18, 2020, which included one deepwater block, Garden Banks block 782, and one shallow water block, Eugene Island Area South Addition block 345.
These two blocks cover a total of approximately 10,760 acres and, if awarded, the Company will pay approximately $708,500 for a 100% working interest in the awarded leases combined. The shallow water block has a five-year lease term and 12.5% royalty, while the deepwater block has a seven-year lease term and an 18.75% royalty. W&T expects to receive the final award results in the next 60 days.
2020 Guidance
Due to the recent sharp decline in oil prices, W&T significantly reduced its 2020 capital spending expectations and has also reduced its planned asset retirement expenditures. As of April 20, 2020, W&T temporarily shut-in production of approximately 3,300 Boe/d in selected oil-weighted fields operated by the Company but its Mahogany field and its key natural gas fields including its Mobile Bay complex were not affected. The Company continues to monitor these fields to determine the appropriate timing of returning these fields to production. W&T’s production was also deferred at certain non-operated fields. Those third-party deferrals totaled approximately 3,400 Boe/d net to W&T. Recently, approximately 2,900 Boe/d of third party deferrals were returned to production. Lastly, W&T temporarily shut-in a portion of its production due to Tropical Storm Cristobal which resulted in a total of approximately 110,000 net Boe of deferred production. There was no material damage done by the storm to any of W&T’s infrastructure.
As a result of the combination of ongoing uncertainty in commodity markets, production curtailments, and proactive efforts to continually reduce costs in the lower price environment, the Company has withdrawn the annual guidance it provided earlier this year and will provide such guidance again in the future when there is increased forward visibility in oil and gas markets.
Conference Call Information: W&T will hold a conference call to discuss its financial and operational results on June 23, 2020, at 9:00 a.m. Central Time (10:00 a.m. Eastern Time). Interested parties may participate by dialing (877) 270-2148. International parties may dial (412) 902-6510. Participants should request to connect to the “W&T Offshore Call.” This call will also be webcast and available on W&T’s website at www.wtoffshore.com on the “Overview” page under the “Investor Relations” section. An audio replay will be available on the Company’s website following the call.
About W&T Offshore
W&T Offshore, Inc. is an independent oil and natural gas producer with operations offshore in the Gulf of Mexico and has grown through acquisitions, exploration and development. The Company currently has working interests in 51 producing fields in federal and state waters and has under lease approximately 815,000 gross acres, including approximately 595,000 gross acres on the Gulf of Mexico Shelf and approximately 220,000 gross acres in the Gulf of Mexico deepwater. A majority of the Company’s daily production is derived from wells it operates. For more information on W&T, please visit the Company’s website at www.wtoffshore.com.
Forward-Looking and Cautionary Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements reflect our current views with respect to future events, based on what we believe are reasonable assumptions. No assurance can be given, however, that these events will occur. These statements are subject to risks and uncertainties that could cause actual results to differ materially including, among other things, market conditions, oil and gas price volatility, uncertainties inherent in oil and gas production operations and estimating reserves, unexpected future capital expenditures, competition, the success of our risk management activities, governmental regulations, uncertainties and other factors discussed in W&T Offshore’s Annual Report on Form 10-K for the year ended December 31, 2019 and subsequent Form 10-Q reports found at www.sec.gov or at our website at www.wtoffshore.com under the Investor Relations section. Investors are urged to consider closely the disclosures and risk factors in these reports. We refer to feet of “pay” in our discussions concerning the evaluation of our recently drilled wells. This refers to geological indications, typically obtained from well logging, of the estimated thickness of sands which we believe are capable of producing hydrocarbons in commercial quantities. These indications of “pay” may not necessarily forecast the amount of future production or reserve quantities from the well, which can be dependent upon numerous other factors.
W&T OFFSHORE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
December 31,
March 31,
2020
2019
2019
Revenues:
Oil
$
84,650
$
101,106
$
86,703
NGLs
6,452
6,912
6,448
Natural gas
29,300
41,256
21,838
Other
3,726
2,620
1,091
Total revenues
124,128
151,894
116,080
Operating costs and expenses:
Lease operating expenses
54,775
53,299
43,456
Gathering, transportation costs and production taxes
6,365
7,707
6,839
Depreciation, depletion, amortization and accretion
39,126
37,818
33,766
General and administrative expenses
13,963
17,564
14,109
Derivative (gain) loss
(61,912
)
18,659
48,886
Total costs and expenses
52,317
135,047
147,056
Operating income (loss)
71,811
16,847
(30,976
)
Interest expense, net
17,110
16,635
16,282
Gain on purchase of debt
(18,501
)
–
–
Other (income) expense, net
723
(1,176
)
331
Income (loss) before income tax (benefit) expense
72,479
1,388
(47,589
)
Income tax expense (benefit)
6,499
(8,171
)
172
Net income (loss)
$
65,980
$
9,559
$
(47,761
)
Basic and diluted earnings (loss) per common share
$
0.46
$
0.07
$
(0.34
)
Weighted average common shares outstanding
141,546
140,769
140,462
W&T OFFSHORE, INC. AND SUBSIDIARIES
Condensed Operating Data
(Unaudited)
Three Months Ended
March 31,
December 31,
March 31,
2020
2019
2019
Net sales volumes:
Oil (MBbls)
1,827
1,778
1,478
NGL (MBbls)
495
415
309
Oil and NGLs (MBbls)
2,322
2,194
1,787
Natural gas (MMcf)
15,307
15,966
7,288
Total oil and natural gas (MBoe) (1)
4,873
4,855
3,001
Average daily equivalent sales (MBoe/d)
53.6
52.8
33.3
Average realized sales prices:
Oil ($/Bbl)
$
46.33
$
56.84
$
58.66
NGLs ($/Bbl)
13.03
16.64
20.88
Oil and NGLs ($/Bbl)
39.23
49.23
52.13
Natural gas ($/Mcf)
1.91
2.58
3.00
Barrel of oil equivalent ($/Boe)
24.71
30.75
38.31
Average costs and expenses per Boe ($/Boe):
Lease operating expenses
$
11.24
$
10.98
$
14.48
Gathering, transportation costs and production taxes
1.31
1.59
2.28
Depreciation, depletion, amortization and accretion
8.03
7.79
11.25
General and administrative expenses
2.87
3.62
4.70
(1) MBoe is determined using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or NGLs (totals may not compute due to rounding). The conversion ratio does not assume price equivalency and the price on an equivalent basis for oil, NGLs and natural gas may differ significantly.
W&T OFFSHORE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
March 31,
December 31,
2020
2019
(Unaudited)
Assets
Current assets:
Cash and cash equivalents
$
47,574
$
32,433
Receivables:
Oil and natural gas sales
35,413
57,367
Joint interest and other, net
12,277
19,400
Income taxes
1,861
1,861
Total receivables
49,551
78,628
Prepaid expenses and other assets
78,658
30,691
Total current assets
175,783
141,752
Oil and natural gas properties and other
8,567,164
8,552,513
Less accumulated depreciation, depletion and amortization
7,837,120
7,803,715
Oil and natural gas properties and other, net
730,044
748,798
Restricted deposits for asset retirement obligations
15,574
15,806
Deferred income taxes
57,418
63,916
Other assets
30,084
33,447
Total assets
$
1,008,903
$
1,003,719
Liabilities and Shareholders’ Deficit
Current liabilities:
Accounts payable
$
61,729
$
102,344
Undistributed oil and natural gas proceeds
28,176
29,450
Advances from joint interest partners
18,285
5,279
Asset retirement obligations
2,803
21,991
Accrued liabilities
34,428
30,896
Total current liabilities
145,421
189,960
Long-term debt
668,058
719,533
Asset retirement obligations
361,297
333,603
Other liabilities
16,464
9,988
Commitments and contingencies
–
–
Shareholders’ deficit:
Common stock, $0.00001 par value; 200,000 shares authorized; 144,538 issued and
141,669 outstanding for both dates presented
1
1
Additional paid-in capital
548,098
547,050
Retained deficit
(706,269
)
(772,249
)
Treasury stock, at cost; 2,869 shares for both dates presented
(24,167
)
(24,167
)
Total shareholders’ deficit
(182,337
)
(249,365
)
Total liabilities and shareholders’ deficit
$
1,008,903
$
1,003,719
W&T OFFSHORE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
March 31,
December 31,
March 31,
2020
2019
2019
Operating activities:
Net income (loss)
$
65,980
$
9,559
$
(47,761
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion, amortization and accretion
39,126
37,818
33,766
Amortization of debt items and other items
1,625
1,600
1,152
Share-based compensation
1,048
1,261
(78
)
Derivative (gain) loss
(61,912
)
18,659
48,886
Derivatives cash receipts (payments), net
4,404
(3,642
)
11,948
Gain on purchase of debt
(18,501
)
–
–
Deferred income taxes
6,499
(8,338
)
172
Changes in operating assets and liabilities:
–
Oil and natural gas receivables
21,954
(5,741
)
6,496
Joint interest receivables
7,123
11,084
(2,986
)
Prepaid expenses and other assets
11,011
4,865
(4,269
)
Income tax receivables
–
35,049
–
Asset retirement obligation settlements
(249
)
(3,703
)
(254
)
Cash advances from JV partners
13,006
(31,194
)
44,644
Accounts payable, accrued liabilities and other
(6,790
)
(21,646
)
(6,871
)
Net cash provided by operating activities
84,324
45,631
84,845
Investing activities:
Investment in oil and natural gas properties and equipment
(33,575
)
(32,224
)
(31,581
)
Acquisition of property interest
(2,002
)
(20,301
)
–
Purchases of furniture, fixtures and other
(70
)
(69
)
–
Net cash used in investing activities
(35,647
)
(52,594
)
(31,581
)
Financing activities:
Repayments on credit facility
(25,000
)
–
–
Purchase of Senior Second Lien Notes
(8,536
)
–
–
Debt transaction costs and other
–
(2,345
)
(441
)
Net cash used in financing activities
(33,536
)
(2,345
)
(441
)
Increase (decrease) in cash and cash equivalents
15,141
(9,308
)
52,823
Cash and cash equivalents, beginning of period
32,433
41,741
33,293
Cash and cash equivalents, end of period
$
47,574
$
32,433
$
86,116
W&T OFFSHORE, INC. AND SUBSIDIARIES
Financial Commodity Derivative Positions
As of June 22, 2020
Production Period
Instrument
Avg. Daily Volumes
Weighted Avg Swap Price
Weighted Avg Put Price
Weighted Avg Call Price
Crude Oil – WTI NYMEX:
(bbls)
(per Bbl)
(per Bbl)
(per Bbl)
Jun 2020 – Dec 2020
Costless Collars
1,000
$45.00
$63.60
Jun 2020 – Dec 2020
Costless Collars
9,000
$45.00
$63.50
Jun 2020 – Dec 2020
Calls (long)
10,000
$67.50
Jan 2021 – Dec 2021
Swaps
1,000
$41.00
Natural Gas – Henry Hub NYMEX:
(Mcf)
(per Mcf)
(per Mcf)
(per Mcf)
June 2020 – Dec 2022
Calls (long)
40,000
$3.00
June 2020 – Dec 2022
Costless Collars
40,000
$1.83
$3.00
June 2020 – Dec 2020
Costless Collars
10,000
$1.75
$2.58
Jan 2021 – Dec 2021
Costless Collars
20,000
$2.17
$3.00
Jan 2021 – Dec 2021
Costless Collars
10,000
$2.20
$3.00
W&T OFFSHORE, INC. AND SUBSIDIARIES Non-GAAP Information
Certain financial information included in W&T’s financial results are not measures of financial performance recognized by accounting principles generally accepted in the United States, or GAAP. These non-GAAP financial measures are “Adjusted Net Income” and “Adjusted EBITDA.” Management uses these non-GAAP financial measures in its analysis of performance. In addition, Adjusted EBITDA is a key metric used to determine the Company’s incentive compensation awards. These disclosures may not be viewed as a substitute for results determined in accordance with GAAP and are not necessarily comparable to non-GAAP performance measures which may be reported by other companies.
Reconciliation of Net Income to Adjusted Net Income
Adjusted Net Income does not include the unrealized commodity derivative loss (gain), amortization of derivative premium, bad debt reserve, deferred tax benefit, gain on debt transactions, write-off contingent liability, litigation and other. Adjusted Net Income is presented because the timing and amount of these items cannot be reasonably estimated and affect the comparability of operating results from period to period, and current periods to prior periods.
Three Months Ended
March 31,
December 31,
March 31,
2020
2019
2019
(In thousands, except per share amounts)
(Unaudited)
Net income (loss)
$
65,980
$
9,559
$
(47,761
)
Unrealized commodity derivative (gain) loss
(52,520
)
18,052
50,459
Amortization of derivative premium
4,349
4,248
3,845
Bad debt reserve
36
13
120
Income tax expense (benefit)
6,499
(8,338
)
–
Gain on debt transactions
(18,501
)
–
–
Litigation and other
–
816
–
Adjusted Net Income
$
5,843
$
24,350
$
6,663
Basic and diluted adjusted earnings per common share
$
0.04
$
0.17
$
0.05
W&T OFFSHORE, INC. AND SUBSIDIARIES Non-GAAP Information
Reconciliation of Net Income to Adjusted EBITDA
The Company defines Adjusted EBITDA as net income plus income tax (benefit) expense, net interest expense, and depreciation, depletion, amortization and accretion, excluding the unrealized commodity derivative gain or loss, amortization of derivative premium, bad debt reserve, gain on debt transactions, litigation and other. W&T believes the presentation of Adjusted EBITDA provides useful information regarding its ability to service debt and to fund capital expenditures. The Company believes this presentation is relevant and useful because it helps investors understand W&T’s operating performance and makes it easier to compare its results with those of other companies that have different financing, capital and tax structures. Adjusted EBITDA should not be considered in isolation from or as a substitute for net income, as an indication of operating performance or cash flows from operating activities or as a measure of liquidity. Adjusted EBITDA, as W&T calculates it, may not be comparable to Adjusted EBITDA measures reported by other companies. In addition, Adjusted EBITDA does not represent funds available for discretionary use.
The following table presents a reconciliation of W&T’s net income to Adjusted EBITDA.
Three Months Ended
March 31,
December 31,
March 31,
2020
2019
2019
(In thousands)
(Unaudited)
Net income (loss)
$
65,980
$
9,559
$
(47,761
)
Income tax expense (benefit)
6,499
(8,171
)
172
Interest expense, net
17,110
16,635
16,282
Depreciation, depletion, amortization and accretion
39,126
37,818
33,766
Unrealized commodity derivative (gain) loss
(52,520
)
18,052
50,459
Amortization of derivative premium
4,349
4,248
3,845
Bad debt reserve
36
13
120
Gain on debt transactions
(18,501
)
–
–
Litigation and other
–
816
–
Adjusted EBITDA
$
62,079
$
78,970
$
56,883
Do you want to apply for STOCK LOAN: SECURITIES-BASED LENDING?Our Lending Size Range is: USD1MM to USD1B+; LTV range is 40% to 70%; Annual Interest Range is: 2.95% to 5%; Lending Term is: 2 to 5 Years. Other Collateral could be: Bonds, Notes, Warrants, Bitcoins, Mutual Fund, Real Estate, Aircraft, Jet, Plane, Yacht, etc. If you want to apply, please speak to Mr. Bill Wren through Cell/SMS/WhatsApp: +86 – 186 5206 1897 or WeChat: billwren or via email to: bill(dot)wren#wrencapital(dot)me ( **Notice: When Email, please change ” (dot) ” to ” . ” ; change ” # ” to ” @ ” )
VANCOUVER, British Columbia, June 22, 2020 (GLOBE NEWSWIRE) — Metalla Royalty & Streaming Ltd. (TSXV: MTA) (NYSE American: MTA) (the “Company” or “Metalla”) and Coeur Mining, Inc. (NYSE: CDE) (“Coeur”) announce that they have entered into a bid letter with a syndicate of underwriters led by PI Financial Corp., Haywood Securities Inc. and Cantor Fitzgerald Canada Corporation (the “Co-Lead Underwriters” and together with the syndicate, the “Underwriters”), pursuant to which the Underwriters have agreed to buy on a “bought deal” basis 2,400,000 common shares of Metalla (the “Common Shares”) currently held by Coeur at a price of US$5.30 per Common Share for gross proceeds to Coeur of approximately US$12.72 million (the “Secondary Offering”). Metalla will not receive any proceeds from the Secondary Offering. In addition, Coeur has granted the Underwriters an over-allotment option (the “Over-Allotment Option”) to purchase up to an additional 15% of the number of shares of Metalla sold in the Secondary Offering for up to 30 days after the closing, on the same terms and conditions as the Secondary Offering. If the Over-Allotment Option is exercised in full, the total gross proceeds to Coeur will be US$14,628,000.
Coeur currently owns, as of the date hereof, 5,241,310 Common Shares, representing approximately 14.9% of the issued and outstanding Common Shares of Metalla (on a non-diluted basis). Upon closing of the Secondary Offering and prior to the exercise of the Over-Allotment Option, Coeur’s ownership of Metalla’s issued and outstanding Common Shares will be reduced from 14.9% to 6.7% (on a non-diluted basis) after giving effect to the Wharf royalty transaction announced on June 22, 2020 by Metalla.
Coeur has also agreed, subject to certain limited exceptions, not to sell any Common Shares or other securities of Metalla for a period of 120 days from the closing of the Secondary Offering.
The Company also announced the Wharf royalty transaction with Coeur on June 22, 2020. As part of the royalty transaction, Coeur has agreed to waive its pre-emptive right with respect to the Wharf royalty, concurrent with the completion of the Secondary Offering.
This press release does not constitute an offer to sell or a solicitation of an offer to buy the securities being offered, nor may there be any sale of the securities being offered in any state or other jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any state or other jurisdiction.
The Secondary Offering will be made in each of the provinces of Canada (excluding Quebec) and in the United States by way of (i) a prospectus supplement (the “U.S. Prospectus Supplement”) to the Company’s existing U.S. registration statement on Form F‑10 dated May 1, 2020 (the “Registration Statement”); and (ii) a prospectus supplement (the “Canadian Prospectus Supplement”) to the Company’s Canadian short form base shelf prospectus dated May 1, 2020 (the “Base Shelf Prospectus”). The Canadian Prospectus Supplement will be filed with the securities commissions in each of the provinces of Canada and the U.S. Prospectus Supplement will be filed with the United States Securities and Exchange Commission (the “SEC”).
Metalla has filed a Registration Statement (including a prospectus) with the SEC and a Base Shelf Prospectus (including a prospectus supplement) with the securities commissions in each of the provinces of Canada for the offering to which this communication relates. Before you invest, you should read the prospectus in that Registration Statement or the Base Shelf Prospectus (including the prospectus supplement) and other documents Metalla has filed with the SEC or the Canadian Securities Administrators for more complete information about Metalla and this offering.
ABOUT METALLA
Metalla was created for the purpose of providing shareholders with leveraged precious metal exposure by acquiring royalties and streams. Our goal is to increase share value by accumulating a diversified portfolio of royalties and streams with attractive returns. Our strong foundation of current and future cash-generating asset base, combined with an experienced team, gives Metalla a path to become one of the leading gold and silver companies for the next commodities cycle.
ABOUT COEUR
Coeur Mining, Inc. is a U.S.-based, well-diversified, growing precious metals producer with five wholly-owned operations: the Palmarejo gold-silver complex in Mexico, the Rochester silver-gold mine in Nevada, the Kensington gold mine in Alaska, the Wharf gold mine in South Dakota, and the Silvertip silver-zinc- lead mine in British Columbia. In addition, the Company has interests in several precious metals exploration projects throughout North America.
Do you want to apply for STOCK LOAN: SECURITIES-BASED LENDING?Our Lending Size Range is: USD1MM to USD1B+; LTV range is 40% to 70%; Annual Interest Range is: 2.95% to 5%; Lending Term is: 2 to 5 Years. Other Collateral could be: Bonds, Notes, Warrants, Bitcoins, Mutual Fund, Real Estate, Aircraft, Jet, Plane, Yacht, etc. If you want to apply, please speak to Mr. Bill Wren through Cell/SMS/WhatsApp: +86 – 186 5206 1897 or WeChat: billwren or via email to: bill(dot)wren#wrencapital(dot)me ( **Notice: When Email, please change ” (dot) ” to ” . ” ; change ” # ” to ” @ ” )
On May 6, 1964, Berkshire Hathaway, then run by a man named Seabury Stanton, sent a letter to its shareholders offering to buy 225,000 shares of its stock for $11.375 per share. I had expected the letter; I was surprised by the price.
Berkshire then had 1,583,680 shares outstanding. About 7% of these were owned by Buffett Partnership Ltd. (“BPL”), an investing entity that I managed and in which I had virtually all of my net worth. Shortly before the tender offer was mailed, Stanton had asked me at what price BPL would sell its holdings. I answered $ 11.50, and he said, “Fine, we have a deal.” Then came Berkshire’s letter, offering an eighth of a point less. I bristled at Stanton’s behavior and didn’t tender.
Berkshire was then a northern textile manufacturer mired in a terrible business. The industry in which it operated was heading south, both metaphorically and physically. And Berkshire, for a variety of reasons, was unable to change course.
That was true even though the industry’s problems had long been widely understood. Berkshire’s own Board minutes of July 29, 1954, laid out the grim facts: “The textile industry in New England started going out of business forty years ago. During the war years this trend was stopped. The trend must continue until supply and demand have been balanced.”
About a year after that board meeting, Berkshire Fine Spinning Associates and Hathaway Manufacturing –both with roots in the 19th Century– joined forces, taking the name we bear today. With its fourteen plants and 10,000 employees, the merged company became the giant of New England textiles. What the two managements viewed as a merger agreement, however, soon morphed into a suicide pact. During the seven years following the consolidation, Berkshire operated at an overall loss, and its net worth shrunk by 37%.
Meanwhile, the company closed nine plants, sometimes using the liquidation proceeds to repurchase shares. And that pattern caught my attention.
与此同时,公司关闭了九个工厂,有时候用清偿的收入去回购股票,这个模式,引起的我的关注。
I purchased BPL’s first shares of Berkshire in December 1962, anticipating more closings and more repurchases. The stock was then selling for $7.50,a wide discount from per-share working capital of $ 10.25 and book value of $20.20. Buying the stock at that price was like picking up a discarded cigar butt that had one puff remaining in it. Though the stub might be ugly and soggy, the puff would be free. Once that momentary pleasure was enjoyed, however, no more could be expected.
Berkshire thereafter stuck to the script: It soon closed another two plants, and in that May 1964 move, set out to repurchase shares with the shutdown proceeds. The price that Stanton offered was 50% above the cost of our original purchases. There it was – my free puff, just waiting for me, after which I could look elsewhere for other discarded butts.
Instead, irritated by Stanton’s chiseling, I ignored his offer and began to aggressively buy more Berkshire shares.
相反地,愤怒于Stanton的欺骗,我忽视了他的回购报价,并开始大量地买入更多的伯克希尔的股票。
By April 1965, BPL owned 392,633 shares (out of 1,017,547 then outstanding) and at an early-May board meeting we formally took control of the company. Through Seabury’s and my childish behavior – after all, what was an eighth of a point to either of us? – he lost his job, and I found myself with more than 25% of BPL’s capital invested in a terrible business about which I knew very little. I became the dog who caught the car.
Because of Berkshire’s operating losses and share repurchases, its net worth at the end of fiscal 1964 had fallen to $ 22 million from $55 million at the time of the 1955 merger. The full $ 22 million was required by the textile operation: The company had no excess cash and owed its bank $2.5 million. (Berkshire’s 1964 annual report is reproduced on pages 130-142.)
For a time I got lucky: Berkshire immediately enjoyed two years of good operating conditions. Better yet, its earnings in those years were free of income tax because it possessed a large loss carry-forward that had arisen from the disastrous results in earlier years.
Then the honeymoon ended. During the 18 years following 1966, we struggled unremittingly with the textile business, all to no avail. But stubbornness – stupidity? – has its limits. In 1985, I finally threw in the towel and closed the operation.
* * * * * * * * * * * *
Undeterred by my first mistake of committing much of BPL’s resources to a dying business, I quickly compounded the error. Indeed, my second blunder was far more serious than the first, eventually becoming the most costly in my career.
Early in 1967, I had Berkshire pay $ 8.6 million to buy National Indemnity Company (“NICO”), a small but promising Omaha-based insurer. (A tiny sister company was also included in the deal.) Insurance was in my sweet spot: I understood and liked the industry.
Jack Ringwalt, the owner of NICO, was a long-time friend who wanted to sell to me – me, personally. In no way was his offer intended for Berkshire. So why did I purchase NICO for Berkshire rather than for BPL? I’ve had 48 years to think about that question, and I’ve yet to come up with a good answer. I simply made a colossal mistake.
Jack Ringwalt,NICO的拥有者,是我的长期朋友,他想把公司卖给我——我个人。他的报价,决不是给伯克希尔这个公司的。所以,为什么我为伯克希尔购买NICO,而不是为巴菲特合伙人企业呢?我有48年时间去想这个问题,始终没想到好的答案。我只是犯了一个大错误。
If BPL had been the purchaser, my partners and I would have owned 100% of a fine business, destined to form the base for building the company Berkshire has become. Moreover, our growth would not have been impeded for nearly two decades by the unproductive funds imprisoned in the textile operation. Finally, our subsequent acquisitions would have been owned in their entirety by my partners and me rather than being 39%-owned by the legacy shareholders of Berkshire, to whom we had no obligation. Despite these facts staring me in the face, I opted to marry 100% of an excellent business (NICO) to a 61%-owned terrible business (Berkshire Hathaway), a decision that eventually diverted $100 billion or so from BPL partners to a collection of strangers.
* * * * * * * * * * * *
One more confession and then I’ll go on to more pleasant topics: Can you believe that in 1975 I bought Waumbec Mills, another New England textile company? Of course, the purchase price was a “bargain” based on the assets we received and the projected synergies with Berkshire’s existing textile business. Nevertheless –surprise, surprise – Waumbec was a disaster, with the mill having to be closed down not many years later.
And now some good news: The northern textile industry is finally extinct. You need no longer panic if you hear that I’ve been spotted wandering around New England.
My cigar-butt strategy worked very well while I was managing small sums. Indeed, the many dozens of free puffs I obtained in the 1950s made that decade by far the best of my life for both relative and absolute investment performance.
Even then, however, I made a few exceptions to cigar butts, the most important being GEICO. Thanks to a 1951 conversation I had with Lorimer Davidson, a wonderful man who later became CEO of the company, I learned that GEICO was a terrific business and promptly put 65% of my $ 9,800 net worth into its shares. Most of my gains in those early years, though, came from investments in mediocre companies that traded at bargain prices. Ben Graham had taught me that technique, and it worked.
But a major weakness in this approach gradually became apparent: Cigar-butt investing was scalable only to a point. With large sums, it would never work well.
(老鼠修订版备注:原文是But a major weakness in this approach gradually became apparent: Cigar-butt investing was scalable only to a point. With large sums, it would never work well.
In addition, though marginal businesses purchased at cheap prices may be attractive as short-term investments, they are the wrong foundation on which to build a large and enduring enterprise. Selecting a marriage partner clearly requires more demanding criteria than does dating. (Berkshire, it should be noted, would have been a highly satisfactory “date”: If we had taken Seabury Stanton’s $11.375 offer for our shares, BPL’s weighted annual return on its Berkshire investment would have been about 40%.)
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It took Charlie Munger to break my cigar-butt habits and set the course for building a business that could combine huge size with satisfactory profits. Charlie had grown up a few hundred feet from where I now live and as a youth had worked, as did I, in my grandfather’s grocery store. Nevertheless, it was 1959 before I met Charlie, long after he had left Omaha to make Los Angeles his home. I was then 28 and he was 35. The Omaha doctor who introduced us predicted that we would hit it off – and we did.
If you’ve attended our annual meetings, you know Charlie has a wide-ranging brilliance, a prodigious memory, and some firm opinions. I’m not exactly wishy-washy myself, and we sometimes don’t agree. In 56 years, however, we’ve never had an argument. When we differ, Charlie usually ends the conversation by saying: “Warren, think it over and you’ll agree with me because you’re smart and I’m right.”
What most of you do not know about Charlie is that architecture is among his passions. Though he began his career as a practicing lawyer (with his time billed at $ 15 per hour), Charlie made his first real money in his 30s by designing and building five apartment projects near Los Angeles. Concurrently, he designed the house that he lives in today – some 55 years later. (Like me, Charlie can’t be budged if he is happy in his surroundings.) In recent years, Charlie has designed large dorm complexes at Stanford and the University of Michigan and today, at age 91, is working on another major project.
From my perspective, though, Charlie’s most important architectural feat was the design of today’s Berkshire. The blueprint he gave me was simple: Forget what you know about buying fair businesses at wonderful prices; instead, buy wonderful businesses at fair prices.
(老鼠注:这是句名言,或者说原则,在此处的原文是 Forget what you know about buying fair businesses at wonderful prices; instead, buy wonderful businesses at fair prices. 在翻译的时候,fair翻译成普通的,合理的,wonderful翻译成极好的。以前也看过其他翻译版本对此名言的翻译,但是感觉就是可能不够忠实于原文,wonderful price如何理解呢,其实可能很难简单地等同于“便宜”二字。所以采用此翻译+备注原文在此。虽然此翻译中文看起来不那么炫,但是行文顺序等,比较贴近原文。)
Altering my behavior is not an easy task (ask my family). I had enjoyed reasonable success without Charlie’s input, so why should I listen to a lawyer who had never spent a day in business school (when – ahem - I had attended three). But Charlie never tired of repeating his maxims about business and investing to me, and his logic was irrefutable. Consequently, Berkshire has been built to Charlie’s blueprint. My role has been that of general contractor, with the CEOs of Berkshire’s subsidiaries doing the real work as sub-contractors.
The year 1972 was a turning point for Berkshire (though not without occasional backsliding on my part-remember my 1975 purchase of Waumbec). We had the opportunity then to buy See’s Candy for Blue Chip Stamps, a company in which Charlie, I and Berkshire had major stakes, and which was later merged into Berkshire.
See’s was a legendary West Coast manufacturer and retailer of boxed chocolates, then annually earning about $4 million pre-tax while utilizing only $ 8 million of net tangible assets. Moreover, the company had a huge asset that did not appear on its balance sheet: a broad and durable competitive advantage that gave it significant pricing power. That strength was virtually certain to give See’s major gains in earnings over time. Better yet, these would materialize with only minor amounts of incremental investment. In other words, See’s could be expected to gush cash for decades to come.
The family controlling See’s wanted $30 million for the business, and Charlie rightly said it was worth that much. But I didn’t want to pay more than $ 25 million and wasn’t all that enthusiastic even at that figure. (A price that was three times net tangible assets made me gulp.) My misguided caution could have scuttled a terrific purchase. But, luckily, the sellers decided to take our $25 million bid.
To date, See’s has earned $ 1.9 billion pre-tax, with its growth having required added investment of only $40 million. See’s has thus been able to distribute huge sums that have helped Berkshire buy other businesses that, in turn, have themselves produced large distributable profits. (Envision rabbits breeding.) Additionally, through watching See’s in action, I gained a business education about the value of powerful brands that opened my eyes to many other profitable investments.
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Even with Charlie’s blueprint, I have made plenty of mistakes since Waumbec. The most gruesome was Dexter Shoe. When we purchased the company in 1993, it had a terrific record and in no way looked to me like a cigar butt. Its competitive strengths, however, were soon to evaporate because of foreign competition. And I simply didn’t see that coming.
Consequently, Berkshire paid $ 433 million for Dexter and, rather promptly, its value went to zero. GAAP accounting, however, doesn’t come close to recording the magnitude of my error. The fact is that I gave Berkshire stock to the sellers of Dexter rather than cash, and the shares I used for the purchase are now worth about $5.7 billion. As a financial disaster, this one deserves a spot in the Guinness Book of World Records.
Several of my subsequent errors also involved the use of Berkshire shares to purchase businesses whose earnings were destined to simply limp along. Mistakes of that kind are deadly. Trading shares of a wonderful business – which Berkshire most certainly is – for ownership of a so-so business irreparably destroys value.
We’ve also suffered financially when this mistake has been committed by companies whose shares Berkshire has owned (with the errors sometimes occurring while I was serving as a director). Too often CEOs seem blind to an elementary reality: The intrinsic value of the shares you give in an acquisition must not be greater than the intrinsic value of the business you receive.
I’ve yet to see an investment banker quantify this all-important math when he is presenting a stock-for stock deal to the board of a potential acquirer. Instead, the banker’s focus will be on describing “customary” premiums-to-market-price that are currently being paid for acquisitions – an absolutely asinine way to evaluate the attractiveness of an acquisition – or whether the deal will increase the acquirer’s earnings-per-share (which in itself should be far from determinative). In striving to achieve the desired per-share number, a panting CEO and his “helpers” will often conjure up fanciful “synergies.” (As a director of 19 companies over the years, I’ve never heard “dis-synergies” mentioned, though I’ve witnessed plenty of these once deals have closed.) Post mortems of acquisitions, in which reality is honestly compared to the original projections, are rare in American boardrooms.
They should instead be standard practice. I can promise you that long after I’m gone, Berkshire’s CEO and Board will carefully make intrinsic value calculations before issuing shares in any acquisitions. You can’t get rich trading a hundred-dollar bill for eight tens (even if your advisor has handed you an expensive “fairness” opinion endorsing that swap).
而这一过程(兼并收购的事后评估)应当成为标准惯例。(老鼠备注:此短句难译。感谢雪友Coldrush在此处指出本句they…standard practice 的翻译,还有上面 once deals have closed 。他认为they是“比较两家公司内在价值”的意思。后来,另一个雪友墨阳兄指出括号内最好是“兼并收购的事后评估”,我想了想这样更加衔接上文,they的指代应该是这个)。我可以向你保证,在我走后多年之内,在为任何兼并发行股份以前,伯克希尔的CEO和董事会,将会仔细地做好内在价值的计算。你不可能通过支付100美元,去交易80美元的方式,变得富裕。(即使你的顾问曾经帮你出具昂贵的“公平交易”的意见,为这种交换背书)。
(老鼠修订备注: even if your advisor has handed you an expensive “fairness” opinion endorsing that swap。这句真难翻,一开始我翻译成 顾问曾经提供给你昂贵的“公平合理意见”。 其实不是——它意思应该是,顾问帮助CEO一起欺骗大众,顾问的角色,其实只是“帮助”的角色——主要是理解hand这个词。)
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Overall, Berkshire’s acquisitions have worked out well – and very well in the case of a few large ones. So,too, have our investments in marketable securities. The latter are always valued on our balance sheet at their marketprices so any gains – including those unrealized – are immediately reflected in our net worth. But the businesses we buy outright are never revalued upward on our balance sheet, even when we could sell them for many billions of dollars more than their carrying value. The unrecorded gains in the value of Berkshire’s subsidiaries have become huge, with these growing at a particularly fast pace in the last decade.
Berkshire is now a sprawling conglomerate, constantly trying to sprawl further.
伯克希尔现在是个庞杂的企业集团(conglomerate),并且持续不断地试图变得更为庞杂。
Conglomerates, it should be acknowledged, have a terrible reputation with investors. And they richly deserve it. Let me first explain why they are in the doghouse, and then I will go on to describe why the conglomerate form brings huge and enduring advantages to Berkshire.
Since I entered the business world, conglomerates have enjoyed several periods of extreme popularity, the silliest of which occurred in the late 1960s. The drill for conglomerate CEOs then was simple: By personality, promotion or dubious accounting – and often by all three – these managers drove a fledgling conglomerate’s stock to, say, 20 times earnings and then issued shares as fast as possible to acquire another business selling at ten-or-so times earnings. They immediately applied “pooling” accounting to the acquisition, which – with not a dime’s worth of change in the underlying businesses – automatically increased per-share earnings, and used the rise as proof of managerial genius. They next explained to investors that this sort of talent justified the maintenance, or even the enhancement, of the acquirer’s p/e multiple. And, finally, they promised to endlessly repeat this procedure and thereby create ever-increasing per-share earnings.
(老鼠备注:翻译的时候,原文中带引号的“pooling”引起的我的注意,查询了一下,还不是普通兼并的“购买法”。对会计有研究的童鞋应该能分析二者的区别。还有,查询到这个方法2001年在美国废除了:Pooling of interests is a merger-accounting method that was taken out of the market in the United States by the Financial Accounting Standards Board on June 30, 2001.
Wall Street’s love affair with this hocus-pocus intensified as the 1960s rolled by. The Street’s denizens are always ready to suspend disbelief when dubious maneuvers are used to manufacture rising per-share earnings, particularly if these acrobatics produce mergers that generate huge fees for investment bankers. Auditors willingly sprinkled their holy water on the conglomerates’ accounting and sometimes even made suggestions as to how to further juice the numbers. For many, gushers of easy money washed away ethical sensitivities.
Since the per-share earnings gains of an expanding conglomerate came from exploiting p/e differences, its CEO had to search for businesses selling at low multiples of earnings. These, of course, were characteristically mediocre businesses with poor long-term prospects. This incentive to bottom-fish usually led to a conglomerate’s collection of underlying businesses becoming more and more junky. That mattered little to investors: It was deal velocity and pooling accounting they looked to for increased earnings.
The resulting firestorm of merger activity was fanned by an adoring press. Companies such as ITT, Litton Industries, Gulf & Western, and LTV were lionized, and their CEOs became celebrities. (These once-famous conglomerates are now long gone. As Yogi Berra said, “Every Napoleon meets his Watergate.”)
Back then, accounting shenanigans of all sorts – many of them ridiculously transparent – were excused or overlooked. Indeed, having an accounting wizard at the helm of an expanding conglomerate was viewed as a huge plus: Shareholders in those instances could be sure that reported earnings would never disappoint, no matter how bad the operating realities of the business might become.
In the late 1960s, I attended a meeting at which an acquisitive CEO bragged of his “bold, imaginative accounting.” Most of the analysts listening responded with approving nods, seeing themselves as having found a manager whose forecasts were certain to be met, whatever the business results might be.
Eventually, however, the clock struck twelve, and everything turned to pumpkins and mice. Once again, it became evident that business models based on the serial issuances of overpriced shares – just like chain-letter models – most assuredly redistribute wealth, but in no way create it. Both phenomena, nevertheless, periodically blossom in our country – they are every promoter’s dream – though often they appear in a carefully-crafted disguise.
The ending is always the same: Money flows from the gullible to the fraudster. And with stocks, unlike chain letters, the sums hijacked can be staggering.
At both BPL and Berkshire, we have never invested in companies that are hell-bent on issuing shares. That behavior is one of the surest indicators of a promotion-minded management, weak accounting, a stock that is overpriced and – all too often – outright dishonesty.
So what do Charlie and I find so attractive about Berkshire’s conglomerate structure? To put the case simply: If the conglomerate form is used judiciously, it is an ideal structure for maximizing long-term capital growth.
One of the heralded virtues of capitalism is that it efficiently allocates funds. The argument is that markets will direct investment to promising businesses and deny it to those destined to wither. That is true: With all its excesses, market-driven allocation of capital is usually far superior to any alternative.
Nevertheless, there are often obstacles to the rational movement of capital. As those 1954 Berkshire minutes made clear, capital withdrawals within the textile industry that should have been obvious were delayed for decades because of the vain hopes and self-interest of managements. Indeed, I myself delayed abandoning our obsolete textile mills for far too long.
A CEO with capital employed in a declining operation seldom elects to massively redeploy that capital into unrelated activities. A move of that kind would usually require that long-time associates be fired and mistakes be admitted. Moreover, it’s unlikely that CEO would be the manager you would wish to handle the redeployment job even if he or she was inclined to undertake it.
At the shareholder level, taxes and frictional costs weigh heavily on individual investors when they attempt to reallocate capital among businesses and industries. Even tax-free institutional investors face major costs as they move capital because they usually need intermediaries to do this job. A lot of mouths with expensive tastes then clamor to be fed – among them investment bankers, accountants, consultants, lawyers and such capital-reallocators as leveraged buyout operators. Money-shufflers don’t come cheap.
In contrast, a conglomerate such as Berkshire is perfectly positioned to allocate capital rationally and at minimal cost. Of course, form itself is no guarantee of success: We have made plenty of mistakes, and we will make more. Our structural advantages, however, are formidable.
At Berkshire, we can – without incurring taxes or much in the way of other costs – move huge sums from businesses that have limited opportunities for incremental investment to other sectors with greater promise.
Moreover, we are free of historical biases created by lifelong association with a given industry and are not subject to pressures from colleagues having a vested interest in maintaining the status quo. That’s important: If horses had controlled investment decisions, there would have been no auto industry.
Another major advantage we possess is the ability to buy pieces of wonderful businesses – a.k.a. common stocks. That’s not a course of action open to most managements. Over our history, this strategic alternative has proved to be very helpful; a broad range of options always sharpens decision-making. The businesses we are offered by the stock market every day – in small pieces, to be sure – are often far more attractive than the businesses we are concurrently being offered in their entirety. Additionally, the gains we’ve realized from marketable securities have helped us make certain large acquisitions that would otherwise have been beyond our financial capabilities.
In effect, the world is Berkshire’s oyster – a world offering us a range of opportunities far beyond thos realistically open to most companies. We are limited, of course, to businesses whose economic prospects we can evaluate. And that’s a serious limitation: Charlie and I have no idea what a great many companies will look like ten years from now. But that limitation is much smaller than that borne by an executive whose experience has been confined to a single industry. On top of that, we can profitably scale to a far larger size than the many businesses that are constrained by the limited potential of the single industry in which they operate.
I mentioned earlier that See’s Candy had produced huge earnings compared to its modest capital requirements. We would have loved, of course, to intelligently use those funds to expand our candy operation. But our many attempts to do so were largely futile. So, without incurring tax inefficiencies or frictional costs, we have used the excess funds generated by See’s to help purchase other businesses. If See’s had remained a stand-alone company, its earnings would have had to be distributed to investors to redeploy, sometimes after being heavily depleted by large taxes and, almost always, by significant frictional and agency costs.
Berkshire has one further advantage that has become increasingly important over the years: We are now the home of choice for the owners and managers of many outstanding businesses.
Families that own successful businesses have multiple options when they contemplate sale. Frequently, the best decision is to do nothing. There are worse things in life than having a prosperous business that one understands well. But sitting tight is seldom recommended by Wall Street. (Don’t ask the barber whether you need a haircut.)
When one part of a family wishes to sell while others wish to continue, a public offering often makes sense. But, when owners wish to cash out entirely, they usually consider one of two paths.
The first is sale to a competitor who is salivating at the possibility of wringing “synergies” from the combining of the two companies. This buyer invariably contemplates getting rid of large numbers of the seller’s associates, the very people who have helped the owner build his business. A caring owner, however – and there are plenty of them – usually does not want to leave his long-time associates sadly singing the old country song: “She got the goldmine, I got the shaft.”
The second choice for sellers is the Wall Street buyer. For some years, these purchasers accurately called themselves “leveraged buyout firms.” When that term got a bad name in the early 1990s – remember RJR and Barbarians at the Gate? – these buyers hastily relabeled themselves “private-equity.”
The name may have changed but that was all: Equity is dramatically reduced and debt is piled on in virtually all private-equity purchases. Indeed, the amount that a private-equity purchaser offers to the seller is in part determined by the buyer assessing the maximum amount of debt that can be placed on the acquired company.
Later, if things go well and equity begins to build, leveraged buy-out shops will often seek to re-leverage with new borrowings. They then typically use part of the proceeds to pay a huge dividend that drives equity sharply downward, sometimes even to a negative figure.
In truth, “equity” is a dirty word for many private-equity buyers; what they love is debt. And, because debt is currently so inexpensive, these buyers can frequently pay top dollar. Later, the business will be resold, often to another leveraged buyer. In effect, the business becomes a piece of merchandise.
Berkshire offers a third choice to the business owner who wishes to sell: a permanent home, in which the company’s people and culture will be retained (though, occasionally, management changes will be needed). Beyond that, any business we acquire dramatically increases its financial strength and ability to grow. Its days of dealing with banks and Wall Street analysts are also forever ended.
Some sellers don’t care about these matters. But, when sellers do, Berkshire does not have a lot of competition.
一些出售者不考虑这些事情。但是,当出售者考虑的时候,伯克希尔就不会有很多竞争了。
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Sometimes pundits propose that Berkshire spin-off certain of its businesses. These suggestions make no sense. Our companies are worth more as part of Berkshire than as separate entities. One reason is our ability to move funds between businesses or into new ventures instantly and without tax. In addition, certain costs duplicate themselves, in full or part, if operations are separated. Here’s the most obvious example: Berkshire incurs nominal costs for its single board of directors; were our dozens of subsidiaries to be split off, the overall cost for directors would soar. So, too, would regulatory and administration expenditures.
Finally, there are sometimes important tax efficiencies for Subsidiary A because we own Subsidiary B. For example, certain tax credits that are available to our utilities are currently realizable only because we generate huge amounts of taxable income at other Berkshire operations. That gives Berkshire Hathaway Energy a major advantage over most public-utility companies in developing wind and solar projects.
Investment bankers, being paid as they are for action, constantly urge acquirers to pay 20% to 50% premiums over market price for publicly-held businesses. The bankers tell the buyer that the premium is justified for “control value” and for the wonderful things that are going to happen once the acquirer’s CEO takes charge. (What acquisition-hungry manager will challenge that assertion?)
A few years later, bankers – bearing straight faces – again appear and just as earnestly urge spinning off the earlier acquisition in order to “unlock shareholder value.” Spin-offs, of course, strip the owning company of its purported “control value” without any compensating payment. The bankers explain that the spun-off company will flourish because its management will be more entrepreneurial, having been freed from the smothering bureaucracy of the parent company. (So much for that talented CEO we met earlier.)
If the divesting company later wishes to reacquire the spun-off operation, it presumably would again be urged by its bankers to pay a hefty “control” premium for the privilege. (Mental “flexibility” of this sort by the banking fraternity has prompted the saying that fees too often lead to transactions rather than transactions leading to fees.)
It’s possible, of course, that someday a spin-off or sale at Berkshire would be required by regulators.
Berkshire carried out such a spin-off in 1979, when new regulations for bank holding companies forced us to divest a bank we owned in Rockford, Illinois.
Voluntary spin-offs, though, make no sense for us: We would lose control value, capital-allocation flexibility and, in some cases, important tax advantages. The CEOs who brilliantly run our subsidiaries now would have difficulty in being as effective if running a spun-off operation, given the operating and financial advantages derived from Berkshire’s ownership. Moreover, the parent and the spun-off operations, once separated, would likely incur moderately greater costs than existed when they were combined.
Before I depart the subject of spin-offs, let’s look at a lesson to be learned from a conglomerate mentioned earlier: LTV. I’ll summarize here, but those who enjoy a good financial story should read the piece about Jimmy Ling that ran in the October 1982 issue of D Magazine. Look it up on the Internet. Through a lot of corporate razzle-dazzle, Ling had taken LTV from sales of only $36 million in 1965 to number 14 on the Fortune 500 list just two years later. Ling, it should be noted, had never displayed any managerial skills. But Charlie told me long ago to never underestimate the man who overestimates himself. And Ling had no peer in that respect.
Ling’s strategy, which he labeled “project redeployment,” was to buy a large company and then partially spin off its various divisions. In LTV’s 1966 annual report, he explained the magic that would follow: “Most importantly, acquisitions must meet the test of the 2 plus 2 equals 5 (or 6) formula.” The press, the public and Wall Street loved this sort of talk.
In 1967 Ling bought, a huge meatpacker that also had interests in golf equipment and
pharmaceuticals. Soon after, he split the parent into three businesses, Wilson & Co. (meatpacking), Wilson Sporting Goods and Wilson Pharmaceuticals , each of which was to be partially spun off. These companies quickly became known on Wall Street as Meatball, Golf Ball and Goof Ball.
Soon thereafter, it became clear that, like Icarus, Ling had flown too close to the sun. By the early 1970s,Ling’s empire was melting, and he himself had been spun off from LTV . . . that is, fired. Periodically, financial markets will become divorced from reality – you can count on that. More Jimmy Lings will appear. They will look and sound authoritative. The press will hang on their every word. Bankers will fight for their business. What they are saying will recently have “worked.” Their early followers will be feeling very clever. Our suggestion: Whatever their line, never forget that 2+2 will always equal 4. And when someone tells you how old-fashioned that math is — zip up your wallet, take a vacation and come back in a few years to buy stocks at cheap prices.
Today Berkshire possesses (1) an unmatched collection of businesses, most of them now enjoying favorable economic prospects; (2) a cadre of outstanding managers who, with few exceptions, are unusually devoted to both the subsidiary they operate and to Berkshire; (3) an extraordinary diversity of earnings, premier financial strength and oceans of liquidity that we will maintain under all circumstances; (4) a first-choice ranking among many owners and managers who are contemplating sale of their businesses and (5) in a point related to the preceding item, a culture, distinctive in many ways from that of most large companies, that we have worked 50 years to develop and that is now rock-solid.
These strengths provide us a wonderful foundation on which to build.
Now let’s take a look at the road ahead. Bear in mind that if I had attempted 50 years ago to gauge what was coming, certain of my predictions would have been far off the mark. With that warning, I will tell you what I would say to my family today if they asked me about Berkshire’s future.
First and definitely foremost, I believe that the chance of permanent capital loss for patient Berkshire shareholders is as low as can be found among single-company investments. That’s because our per-share intrinsic business value is almost certain to advance over time.
This cheery prediction comes, however, with an important caution: If an investor’s entry point into Berkshire stock is unusually high – at a price, say, approaching double book value, which Berkshire shares have occasionally reached – it may well be many years before the investor can realize a profit. In other words, a sound investment can morph into a rash speculation if it is bought at an elevated price. Berkshire is not exempt from this truth.
Purchases of Berkshire that investors make at a price modestly above the level at which the company would repurchase its shares, however, should produce gains within a reasonable period of time. Berkshire’s directors will only authorize repurchases at a price they believe to be well below intrinsic value. (In our view, that is an essential criterion for repurchases that is often ignored by other managements.)
For those investors who plan to sell within a year or two after their purchase, I can offer no assurances,whatever the entry price. Movements of the general stock market during such abbreviated periods will likely be far more important in determining your results than the concomitant change in the intrinsic value of your Berkshire shares. As Ben Graham said many decades ago: “In the short-term the market is a voting machine; in the long-run it acts as a weighing machine.” Occasionally, the voting decisions of investors – amateurs and professionals alike – border on lunacy.
对于那些打算在买入后一两年内出售股票的投资者而言,我不能够提供任何保证,不论他们的买入价格是多少。 在如此短的时间内,总体股票市场的变动,对于你结果的影响,将可能远远重要于伯克希尔股份内在价值相伴发生的变化。就像本杰明 格雷厄姆几十年前说的:“在短期内,市场是台投票机;在长期内,市场表现得像台称重机。”(老鼠备注,此名句原文是As Ben Graham said many decades ago: “In the short-term the market is a voting machine; in the long-run it acts as a weighing machine.”)偶然地,投资者的投票决定——业余者和投资者都一样——近似于神经病(备注:border on 近似于)
Since I know of no way to reliably predict market movements, I recommend that you purchase Berkshire shares only if you expect to hold them for at least five years. Those who seek short-term profits should look elsewhere.
Another warning: Berkshire shares should not be purchased with borrowed money. There have been three times since 1965 when our stock has fallen about 50% from its high point. Someday, something close to this kind of drop will happen again, and no one knows when. Berkshire will almost certainly be a satisfactory holding for investors. But it could well be a disastrous choice for speculators employing leverage.
I believe the chance of any event causing Berkshire to experience financial problems is essentially zero.We will always be prepared for the thousand-year flood; in fact, if it occurs we will be selling life jackets to the unprepared. Berkshire played an important role as a “first responder” during the 2008-2009 meltdown, and we have since more than doubled the strength of our balance sheet and our earnings potential. Your company is the Gibraltar of American business and will remain so.
我相信,发生导致伯克希尔遭遇财务问题的事件机率大体为零。我们总是为千年的洪水做准备;事实上,如果它发生了,我们将把救生衣卖给那些没有准备的人。在2008-2009的崩溃中,伯克希尔作为一个“第一反应者”发挥着重要作用,并且我们此后多于一倍地(备注:more than double)增强了我们的资产负债表和盈利能力。你们的公司是美国商业的直布罗陀(备注:意思为重要的关口,直布罗陀连结大西洋和地中海)并且将会继续如此。
Financial staying power requires a company to maintain three strengths under all circumstances: (1) a large and reliable stream of earnings; (2) massive liquid assets and (3) no significant near-term cash requirements. Ignoring that last necessity is what usually leads companies to experience unexpected problems: Too often, CEOs of profitable companies feel they will always be able to refund maturing obligations, however large these are. In 2008-2009, many managements learned how perilous that mindset can be.
Here’s how we will always stand on the three essentials. First, our earnings stream is huge and comes from a vast array of businesses. Our shareholders now own many large companies that have durable competitive advantages, and we will acquire more of those in the future. Our diversification assures Berkshire’s continued profitability, even if a catastrophe causes insurance losses that far exceed any previously experienced.
Next up is cash. At a healthy business, cash is sometimes thought of as something to be minimized – as an unproductive asset that acts as a drag on such markers as return on equity. Cash, though, is to a business as oxygen is to an individual: never thought about when it is present, the only thing in mind when it is absent.
American business provided a case study of that in 2008. In September of that year, many long-prosperous companies suddenly wondered whether their checks would bounce in the days ahead. Overnight, their financial oxygen disappeared.
At Berkshire, our “breathing” went uninterrupted. Indeed, in a three-week period spanning late September and early October, we supplied $15.6 billion of fresh money to American businesses. We could do that because we always maintain at least $ 20 billion – and usually far more – in cash equivalents. And by that we mean U.S. Treasury bills, not other substitutes for cash that are claimed to deliver liquidity and actually do so, except when it is truly needed. When bills come due, only cash is legal tender. Don’t leave home without it.
Finally – getting to our third point – we will never engage in operating or investment practices that can result in sudden demands for large sums. That means we will not expose Berkshire to short-term debt maturities of size nor enter into derivative contracts or other business arrangements that could require large collateral calls.
Some years ago, we became a party to certain derivative contracts that we believed were significantly mispriced and that had only minor collateral requirements. These have proved to be quite profitable. Recently, however, newly-written derivative contracts have required full collateralization. And that ended our interest in derivatives, regardless of what profit potential they might offer. We have not, for some years, written these contracts, except for a few needed for operational purposes at our utility businesses.
Moreover, we will not write insurance contracts that give policyholders the right to cash out at their option. Many life insurance products contain redemption features that make them susceptible to a “run” in times of extreme panic. Contracts of that sort, however, do not exist in the property-casualty world that we inhabit. If our premium volume should shrink, our float would decline – but only at a very slow pace.
The reason for our conservatism, which may impress some people as extreme, is that it is entirely predictable that people will occasionally panic, but not at all predictable when this will happen. Though practically all days are relatively uneventful, tomorrow is always uncertain. (I felt no special apprehension on December 6, 1941 or September 10, 2001.) And if you can’t predict what tomorrow will bring, you must be prepared for whatever it does.
A CEO who is 64 and plans to retire at 65 may have his own special calculus in evaluating risks that have only a tiny chance of happening in a given year. He may, in fact, be “right” 99% of the time. Those odds,however, hold no appeal for us. We will never play financial Russian roulette with the funds you’ve entrusted to us, even if the metaphorical gun has 100 chambers and only one bullet. In our view, it is madness to risk losing what you need in pursuing what you simply desire.
Despite our conservatism, I think we will be able every year to build the underlying per-share earning power of Berkshire. That does not mean operating earnings will increase each year – far from it. The U.S.economy will ebb and flow – though mostly flow – and, when it weakens, so will our current earnings. But we will continue to achieve organic gains, make bolt-on acquisitions and enter new fields. I believe, therefore, that Berkshire will annually add to its underlying earning power.
In some years the gains will be substantial, and at other times they will be minor. Markets, competition, and chance will determine when opportunities come our way. Through it all, Berkshire will keep moving forward, powered by the array of solid businesses we now possess and the new companies we will purchase. In most years, moreover, our country’s economy will provide a strong tailwind for business. We are blessed to have the United States as our home field.
The bad news is that Berkshire’s long-term gains – measured by percentages, not by dollars – cannot be dramatic and will not come close to those achieved in the past 50 years. The numbers have become too big. I think Berkshire will outperform the average American company, but our advantage, if any, won’t be great.
Eventually – probably between ten and twenty years from now – Berkshire’s earnings and capital resources will reach a level that will not allow management to intelligently reinvest all of the company’s earnings. At that time our directors will need to determine whether the best method to distribute the excess earnings is through dividends, share repurchases or both. If Berkshire shares are selling below intrinsic business value, massive repurchases will almost certainly be the best choice. You can be comfortable that your directors will make the right decision.
No company will be more shareholder-minded than Berkshire. For more than 30 years, we have annually reaffirmed our Shareholder Principles (see page 117), always leading off with: “Although our form is corporate, our attitude is partnership.” This covenant with you is etched in stone.
We have an extraordinarily knowledgeable and business-oriented board of directors ready to carry out that promise of partnership. None took the job for the money: In an arrangement almost non-existent elsewhere, our directors are paid only token fees. They receive their rewards instead through ownership of Berkshire shares and the satisfaction that comes from being good stewards of an important enterprise.
The shares that they and their families own – which, in many cases, are worth very substantial sums – were purchased in the market (rather than their materializing through options or grants). In addition, unlike almost all other sizable public companies, we carry no directors and officers liability insurance. At Berkshire, directors walk in your shoes.
他们和他们的家庭所拥有的股份—— 在很多情况下,价值非常大的金额——是从市场中购买的(而不是通过他们的期权或者补助实现的)。另外,不像几乎所有其他大型上市公司,我们没有董事和职员的责任保险。在伯克希尔,董事们站在你的立场看问题(备注:directors walk in your shoes意为此)。
To further ensure continuation of our culture, I have suggested that my son, Howard, succeed me as a nonexecutive Chairman. My only reason for this wish is to make change easier if the wrong CEO should ever be employed and there occurs a need for the Chairman to move forcefully. I can assure you that this problem has a very low probability of arising at Berkshire – likely as low as at any public company. In my service on the boards of nineteen public companies, however, I’ve seen how hard it is to replace a mediocre CEO if that person is also Chairman. (The deed usually gets done, but almost always very late.)
If elected, Howard will receive no pay and will spend no time at the job other than that required of all directors. He will simply be a safety valve to whom any director can go if he or she has concerns about the CEO and wishes to learn if other directors are expressing doubts as well. Should multiple directors be apprehensive, Howard’s chairmanship will allow the matter to be promptly and properly addressed.
Choosing the right CEO is all-important and is a subject that commands much time at Berkshire board meetings. Managing Berkshire is primarily a job of capital allocation, coupled with the selection and retention of outstanding managers to captain our operating subsidiaries. Obviously, the job also requires the replacement of a subsidiary’s CEO when that is called for. These duties require Berkshire’s CEO to be a rational, calm and decisive individual who has a broad understanding of business and good insights into human behavior. It’s important as well that he knows his limits. (As Tom Watson, Sr. of IBM said, “I’m no genius, but I’m smart in spots and I stay around those spots.”)
Character is crucial: A Berkshire CEO must be “all in” for the company, not for himself. (I’m using male pronouns to avoid awkward wording, but gender should never decide who becomes CEO.) He can’t help but earn money far in excess of any possible need for it. But it’s important that neither ego nor avarice motivate him to reach for pay matching his most lavishly-compensated peers, even if his achievements far exceed theirs. A CEO’s behavior has a huge impact on managers down the line: If it’s clear to them that shareholders’ interests are paramount to him, they will, with few exceptions, also embrace that way of thinking.
My successor will need one other particular strength: the ability to fight off the ABCs of business decay, which are arrogance, bureaucracy and complacency. When these corporate cancers metastasize, even the strongest of companies can falter. The examples available to prove the point are legion, but to maintain friendships I will exhume only cases from the distant past.
In their glory days, General Motors, IBM, Sears Roebuck and U.S. Steel sat atop huge industries. Their strengths seemed unassailable. But the destructive behavior I deplored above eventually led each of them to fall to depths that their CEOs and directors had not long before thought impossible. Their one-time financial strength and their historical earning power proved no defense.
Only a vigilant and determined CEO can ward off such debilitating forces as Berkshire grows ever larger. He must never forget Charlie’s plea: “Tell me where I’m going to die, so I’ll never go there.” If our noneconomic values were to be lost, much of Berkshire’s economic value would collapse as well. “Tone at the top” will be key to maintaining Berkshire’s special culture.
Fortunately, the structure our future CEOs will need to be successful is firmly in place. The extraordinary delegation of authority now existing at Berkshire is the ideal antidote to bureaucracy. In an operating sense, Berkshire is not a giant company but rather a collection of large companies. At headquarters, we have never had a committee nor have we ever required our subsidiaries to submit budgets (though many use them as an important internal tool). We don’t have a legal office nor departments that other companies take for granted: human relations, public relations, investor relations, strategy, acquisitions, you name it.
We do, of course, have an active audit function; no sense being a dammed fool. To an unusual degree, however, we trust our managers to run their operations with a keen sense of stewardship. After all, they were doing exactly that before we acquired their businesses. With only occasional exceptions, furthermore, our trust produces better results than would be achieved by streams of directives, endless reviews and layers of bureaucracy. Charlie and I try to interact with our managers in a manner consistent with what we would wish for, if the positions were reversed.
Our directors believe that our future CEOs should come from internal candidates whom the Berkshire board has grown to know well. Our directors also believe that an incoming CEO should be relatively young, so that he or she can have a long run in the job. Berkshire will operate best if its CEOs average well over ten years at the helm. (It’s hard to teach a new dog old tricks.) And they are not likely to retire at 65 either (or have you noticed?) .
In both Berkshire’s business acquisitions and large, tailored investment moves, it is important that our counterparties be both familiar with and feel comfortable with Berkshire’s CEO. Developing confidence of that sort and cementing relationships takes time. The payoff, though, can be huge.
Both the board and I believe we now have the right person to succeed me as CEO – a successor ready to assume the job the day after I die or step down. In certain important respects, this person will do a better job than I am doing.
Investments will always be of great importance to Berkshire and will be handled by several specialists. They will report to the CEO because their investment decisions, in a broad way, will need to be coordinated with Berkshire’s operating and acquisition programs. Overall, though, our investment managers will enjoy great autonomy. In this area, too, we are in fine shape for decades to come. Todd Combs and Ted Weschler, each of whom has spent several years on Berkshire’s investment team, are firstrate in all respects and can be of particular help to the CEO in evaluating acquisitions.
All told, Berkshire is ideally positioned for life after Charlie and I leave the scene. We have the right people in place – the right directors, managers and prospective successors to those managers. Our culture, furthermore, is embedded throughout their ranks. Our system is also regenerative. To a large degree, both good and bad cultures self-select to perpetuate themselves. For very good reasons, business owners and operating managers with values similar to ours will continue to be attracted to Berkshire as a one-of-a-kind and permanent home.
I would be remiss if I didn’t salute another key constituency that makes Berkshire special: our shareholders. Berkshire truly has an owner base unlike that of any other giant corporation. That fact was demonstrated in spades at last year’s annual meeting, where the shareholders were offered a proxy resolution:
RESOLVED: Whereas the corporation has more money than it needs and since the owners unlike Warren are not multi billionaires, the board shall consider paying a meaningful annual dividend on the shares.
The sponsoring shareholder of that resolution never showed up at the meeting, so his motion was not officially proposed. Nevertheless, the proxy votes had been tallied, and they were enlightening. Not surprisingly, the A shares – owned by relatively few shareholders, each with a large economic interest – voted “no” on the dividend question by a margin of 89 to 1.
The remarkable vote was that of our B shareholders. They number in the hundreds of thousands – perhaps even totaling one million – and they voted 660,759,855 “no” and 13,927,026 “yes,” a ratio of about 47 to 1.
Our directors recommended a “no” vote but the company did not otherwise attempt to influence shareholders. Nevertheless, 98% of the shares voting said, in effect, “Don’t send us a dividend but instead reinvest all of the earnings.” To have our fellow owners – large and small – be so in sync with our managerial philosophy is both remarkable and rewarding.
Do you want to apply for STOCK LOAN: SECURITIES-BASED LENDING?Our Lending Size Range is: USD1MM to USD1B+; LTV range is 40% to 70%; Annual Interest Range is: 2.95% to 5%; Lending Term is: 2 to 5 Years. Other Collateral could be: Bonds, Notes, Warrants, Bitcoins, Mutual Fund, Real Estate, Aircraft, Jet, Plane, Yacht, etc.If you want to apply, please speak to Mr. Bill Wren through Cell/SMS/WhatsApp: +86 – 186 5206 1897 or WeChat: billwren or via email to: bill(dot)wren#wrencapital(dot)me ( **Notice: When Email, please change ” (dot) ” to ” . ” ; change ” # ” to ” @ ” )