Table of Contents



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


Form 10-Q


 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to ________________

Commission File Number 1-32414


W&T OFFSHORE, INC.

(Exact name of registrant as specified in its charter)


Texas

72-1121985

(State of incorporation)

(IRS Employer Identification Number)

   

Nine Greenway Plaza, Suite 300, Houston, Texas

77046-0908

(Address of principal executive offices)

(Zip Code)

(713) 626-8525

(Registrant’s telephone number, including area code)

 


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☑    No  ☐

 

Indicate by check mark whether the registrant has submitted electronically every interactive data file required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☑    No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐

 

Accelerated filer

Non-accelerated filer ☐

 

Smaller reporting company

   

Emerging growth company

 

Indicate by check mark whether the registrant is a shell company.    Yes  ☐    No  ☑

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Securities registered pursuant to section 12(b) of the Act:

         

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.00001

 

WTI

 

New York Stock Exchange

 

As of June 19, 2020, there were 141,778,318 shares outstanding of the registrant’s common stock, par value $0.00001.



 

Explanatory Note:

 

As previously disclosed in the Current Report on Form 8-K filed by W&T Offshore, Inc. (the “Company”) on May 5, 2020, the Company expected that the filing of this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (the “Quarterly Report”), originally due on May 11, 2020, would be delayed due to circumstances related to the outbreak of the coronavirus disease 2019 (“COVID-19”).

 

In particular, COVID-19 and related precautionary responses had caused the institution of work-from-home policies for our corporate offices which had limited our employees’ access to our facilities and disrupted our normal interactions and workflows among our accounting, financial and legal personnel and other staff and service providers involved in the completion of our quarterly review and preparation of the Quarterly Report. These restrictions had slowed the completion of our internal quarterly review, including evaluating the various impacts of COVID-19 on our financial statements, and our ability to prepare and complete the Quarterly Report in a timely manner.

 

The Company relied on Release No. 34-88465 issued by the Securities and Exchange Commission on March 25, 2020, pursuant to Section 36 of the Securities Exchange Act of 1934, as amended, to delay the filing of the Quarterly Report.

 

 

 

 

 

 

W&T OFFSHORE, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

 

   

Page

PART I –FINANCIAL INFORMATION

 
     

Item 1.

Financial Statements

1
 

Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019

1
 

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2020 and 2019

2
 

Condensed Consolidated Statements of Changes in Shareholders’ Deficit for the Three Months Ended March 31, 2020 and 2019 

3
 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019

4
 

Notes to Condensed Consolidated Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

Item 4.

Controls and Procedures

33
   

PART II – OTHER INFORMATION

 

Item 1.

Legal Proceedings

34

Item 1A.

Risk Factors

34
Item 5. Other Information 35

Item 6.

Exhibits

36
   

SIGNATURE

37

 

 

Table of Contents

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

W&T OFFSHORE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

   

March 31,

   

December 31,

 
   

2020

   

2019

 

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 (Note 1)

    78,658       30,691  

Total current assets

    175,783       141,752  
                 

Oil and natural gas properties and other, net - at cost (Note 1)

    730,044       748,798  
                 

Restricted deposits for asset retirement obligations

    15,574       15,806  

Deferred income taxes

    57,418       63,916  

Other assets (Note 1)

    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 (Note 1)

    34,428       30,896  

Total current liabilities

    145,421       189,960  
                 

Long-term debt: (Note 2)

               

Principal

    677,525       730,000  

Carrying value adjustments

    (9,467 )     (10,467 )

Long term debt - carrying value

    668,058       719,533  
                 

Asset retirement obligations, less current portion

    361,297       333,603  

Other liabilities (Note 1)

    16,464       9,988  

Commitments and contingencies

           

Shareholders’ deficit:

               

Preferred stock, $0.00001 par value; 20,000 shares authorized; 0 issued for both dates presented

           

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  

 

See Notes to Condensed Consolidated Financial Statements

 

 

1

 

 

W&T OFFSHORE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands except per share data)

(Unaudited)

 

 

   

Three Months Ended March 31,

 
   

2020

   

2019

 

Revenues:

               

Oil

  $ 84,650     $ 86,703  

NGLs

    6,452       6,448  

Natural gas

    29,300       21,838  

Other

    3,726       1,091  

Total revenues

    124,128       116,080  

Operating costs and expenses:

               

Lease operating expenses

    54,775       43,456  

Production taxes

    916       416  

Gathering and transportation

    5,449       6,423  

Depreciation, depletion, amortization and accretion

    39,126       33,766  

General and administrative expenses

    13,963       14,109  

Derivative (gain) loss

    (61,912 )     48,886  

Total costs and expenses

    52,317       147,056  

Operating income (loss)

    71,811       (30,976 )

Interest expense, net

    17,110       16,282  

Gain on purchase of debt

    (18,501 )      

Other expense, net

    723       331  

Income (loss) before income tax expense

    72,479       (47,589 )

Income tax expense

    6,499       172  

Net income (loss)

  $ 65,980     $ (47,761 )

Basic and diluted earnings (loss) per common share

  $ 0.46     $ (0.34 )

 

 

See Notes to Condensed Consolidated Financial Statements.

 

2

Table of Contents

 

 

W&T OFFSHORE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT

(In thousands)

(Unaudited)

 

 

   

Common Stock Outstanding

   

Additional Paid-In

   

Retained

   

Treasury Stock

   

Total Shareholders’

 
   

Shares

   

Value

   

Capital

   

Deficit

   

Shares

   

Value

   

Deficit

 

Balances, December 31, 2018

    140,644     $ 1     $ 545,705     $ (846,335 )     2,869     $ (24,167 )   $ (324,796 )

Share-based compensation

                (78 )                       (78 )

Net loss

                      (47,761 )                 (47,761 )

Balances, March 31, 2019

    140,644     $ 1     $ 545,627     $ (894,096 )     2,869     $ (24,167 )   $ (372,635 )

 

 

 

 

   

Common Stock Outstanding

   

Additional Paid-In

   

Retained

   

Treasury Stock

   

Total Shareholders’

 
   

Shares

   

Value

   

Capital

   

Deficit

   

Shares

   

Value

   

Deficit

 

Balances, December 31, 2019

    141,669     $ 1     $ 547,050     $ (772,249 )     2,869     $ (24,167 )   $ (249,365 )

Share-based compensation

                1,048                         1,048  

Net income

                      65,980                   65,980  

Balances, March 31, 2020

    141,669     $ 1     $ 548,098     $ (706,269 )     2,869     $ (24,167 )   $ (182,337 )

 

 

 

See Notes to Condensed Consolidated Financial Statements

 

3

Table of Contents

 

 

W&T OFFSHORE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

   

Three Months Ended March 31,

 
   

2020

   

2019

 

Operating activities:

               

Net income (loss)

  $ 65,980     $ (47,761 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

               

Depreciation, depletion, amortization and accretion

    39,126       33,766  

Amortization of debt items and other items

    1,625       1,152  

Share-based compensation

    1,048       (78 )

Derivative (gain) loss

    (61,912 )     48,886  

Cash receipts on derivative settlements, net

    4,404       11,948  
Gain on purchase of debt     (18,501 )      

Deferred Income taxes

    6,499       172  

Changes in operating assets and liabilities:

               

Oil and natural gas receivables

    21,954       6,496  

Joint interest receivables

    7,123       (2,986 )

Prepaid expenses and other assets

    11,011       (4,269 )

Asset retirement obligation settlements

    (249 )     (254 )

Cash advances from JV partners

    13,006       44,644  

Accounts payable, accrued liabilities and other

    (6,790 )     (6,871 )

Net cash provided by operating activities

    84,324       84,845  

Investing activities:

               

Investment in oil and natural gas properties and equipment

    (33,575 )     (31,581 )

Acquisition of property interest

    (2,002 )      

Purchases of furniture, fixtures and other

    (70 )      

Net cash used in investing activities

    (35,647 )     (31,581 )

Financing activities:

               

Repayments on credit facility

    (25,000 )      

Purchase of Senior Second Lien Notes

    (8,536 )      

Debt issuance costs and other

          (441 )

Net cash used in financing activities

    (33,536 )     (441 )

Increase in cash and cash equivalents

    15,141       52,823  

Cash and cash equivalents, beginning of period

    32,433       33,293  

Cash and cash equivalents, end of period

  $ 47,574     $ 86,116  

 

See Notes to Condensed Consolidated Financial Statements.

 

4

Table of Contents

 

W&T OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 

 

1.

Basis of Presentation

 

Operations.  W&T Offshore, Inc. (with subsidiaries referred to herein as “W&T,” “we,” “us,” “our,” or the “Company”) is an independent oil and natural gas producer with substantially all of its operations offshore in the Gulf of Mexico.  The Company is active in the exploration, development and acquisition of oil and natural gas properties. Our interests in fields, leases, structures and equipment are primarily owned by the Company and its 100%-owned subsidiary, W & T Energy VI, LLC, and through our proportionately consolidated interest in Monza Energy LLC (“Monza”), as described in more detail in Note 4.

 

Interim Financial Statements.  The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim periods and the appropriate rules and regulations of the Securities and Exchange Commission (“SEC”).  Accordingly, the condensed consolidated financial statements do not include all of the information and footnote disclosures required by GAAP for complete financial statements for annual periods.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

 

Operating results for interim periods are not necessarily indicative of the results that may be expected for the entire year.  These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

 

Use of Estimates.  The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

 

Recent Events.  The pandemic spread of the disease caused by a new strain of coronavirus (“COVID-19”) and other worldly events have significantly impacted the price of crude oil and the demand for crude oil beginning in March of 2020.  While crude oil prices have partially recovered in June 2020 from recent historical lows in April 2020, the perceived risks and volatility have increased in 2020 to date compared to recent years.  See Note 12, Subsequent Events, for additional information.  

 

Accounting Standard Updates effective January 1, 2020 

 

Credit Losses -  In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326) (“ASU 2016-13”) and subsequently issued additional guidance on this topic.  The new guidance eliminates the probable recognition threshold and broadens the information to consider past events, current conditions and forecasted information in estimating credit losses. The amendment did not have a material impact on our financial statements and did not affect the opening balance of Retained Deficit.

 

Derivatives and Hedging - In August 2017, the FASB issued Accounting Standards Update No. 2017-12, Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”) and subsequently issued additional guidance on this topic.  The amendments in ASU 2017-12 require an entity to present the earnings effect of the hedging instrument in the same income statement line in which the earnings effect of the hedged item is reported.  This presentation enables users of financial statements to better understand the results and costs of an entity’s hedging program.  Also, relative to current GAAP, this approach simplifies the financial statement reporting for qualifying hedging relationships.  As we do not designate our commodity derivative instruments as qualifying hedging instruments, this amendment did not impact the presentation of the changes in fair values of our commodity derivative instruments on our financial statements.

 

 

 

5

 

W&T OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 

 

Revenue Recognition.  We recognize revenue from the sale of crude oil, natural gas liquids (“NGLs”), and natural gas when our performance obligations are satisfied.  Our contracts with customers are primarily short-term (less than 12 months).  Our responsibilities to deliver a unit of crude oil, NGL, and natural gas under these contracts represent separate, distinct performance obligations.  These performance obligations are satisfied at the point in time control of each unit is transferred to the customer.  Pricing is primarily determined utilizing a particular pricing or market index, plus or minus adjustments reflecting quality or location differentials.

 

Credit Risk and Allowance for Credit Losses.   Our revenue has been concentrated in certain major oil and gas companies.  For the year ended December 31, 2019 and for the three months ended March 31, 2020, approximately 63% and 57%, respectively, of our revenue was from three major oil and gas companies and a substantial majority of our receivables were from sales with major oil and gas companies.  We also have receivables related to joint interest arrangements primarily with mid-size oil and gas companies with a substantial majority of the net receivable balance concentrated in less than ten companies.  A loss methodology is used to develop the allowance for credit losses on material receivables to estimate the net amount to be collected.  The loss methodology uses historical data, current market conditions and forecasts of future economic conditions.  Our maximum exposure at any time would be the receivable balance.  The receivables, Joint interest and other, net, reported on the Condensed Consolidated Balance Sheets are reduced for the allowance for credit losses.  The roll forward of the allowance for credit losses is as follows: 

 

 

Allowance for credit losses, December 31, 2019

  $ 9,898  

Additional provisions

    36  

Uncollectible accounts written off

     

Allowance for credit losses, March 31, 2020

  $ 9,934  

 

Prepaid Expenses and Other Assets.  The amounts recorded are expected to be realized within one year and the major categories are presented in the following table (in thousands):

 

 

   

March 31, 2020

   

December 31, 2019

 

Derivatives - current (1)

  $ 64,039     $ 7,266  

Unamortized bond/insurance premiums

    4,478       4,357  

Prepaid deposits related to royalties

    7,555       7,980  

Prepayment to vendors

    1,825       10,202  

Other

    761       886  

Prepaid expenses and other assets

  $ 78,658     $ 30,691  

 

 

(1)

Includes closed contracts which have not yet settled.

 

Oil and Natural Gas Properties and Other, Net – At Cost.  Oil and natural gas properties and equipment are recorded at cost using the full cost method.  There were no amounts excluded from amortization as of the dates presented in the following table (in thousands):

 

 

   

March 31, 2020

   

December 31, 2019

 

Oil and natural gas properties and equipment, at cost

  $ 8,546,778     $ 8,532,196  

Furniture, fixtures and other

    20,387       20,317  

Total property and equipment

    8,567,165       8,552,513  

Less: Accumulated depreciation, depletion and amortization

    7,837,121       7,803,715  

Oil and natural gas properties and other, net

  $ 730,044     $ 748,798  

 

6

 

W&T OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 

Other Assets (long-term). The major categories are presented in the following table (in thousands):

 

 

   

March 31, 2020

   

December 31, 2019

 

Right-of-Use assets (Note 7)

  $ 12,745     $ 7,936  

Unamortized debt issuance costs

    3,458       3,798  

Investment in White Cap, LLC

    2,917       2,590  

Unamortized brokerage fee for Monza

    2,881       3,423  

Proportional consolidation of Monza's other assets (Note 4)

    4,222       5,308  

Derivative assets

    2,847       2,653  

Appeal bond deposits

          6,925  

Other

    1,014       814  

Total other assets (long-term)

  $ 30,084     $ 33,447  

 

Accrued Liabilities.  The major categories are presented in the following table (in thousands):

 

 

   

March 31, 2020

   

December 31, 2019

 

Accrued interest

  $ 24,497     $ 10,180  

Accrued salaries/payroll taxes/benefits

    2,715       2,377  

Incentive compensation plans

    1,069       9,794  

Litigation accruals

    3,673       3,673  

Lease liability (Note 7)

    2,472       2,716  

Derivatives - current

          1,785  

Other

    2       371  

Total accrued liabilities

  $ 34,428     $ 30,896  

 

Other Liabilities (long-term).  The major categories are presented in the following table (in thousands):

 

 

   

March 31, 2020

   

December 31, 2019

 

Dispute related to royalty deductions

  $ 4,687     $ 4,687  

Dispute related to royalty-in-kind

    250       250  
Derivatives     1,245        

Lease liability (Note 7)

    9,581       4,419  

Other

    701       632  

Total other liabilities (long-term)

  $ 16,464     $ 9,988  

 

 

 

7

 

W&T OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 

 

2.

Long-Term Debt

 

The components of our long-term debt are presented in the following table (in thousands):

 

 

   

March 31, 2020

   

December 31, 2019

 

Credit Agreement borrowings

  $ 80,000     $ 105,000  
                 

Senior Second Lien Notes:

               

Principal

    597,525       625,000  

Unamortized debt issuance costs

    (9,467 )     (10,467 )

Total Senior Second Lien Notes

    588,058       614,533  
                 

Total long-term debt

  $ 668,058     $ 719,533  

 

Credit Agreement

 

On October 18, 2018, we entered into the Sixth Amended and Restated Credit Agreement (as amended, the “Credit Agreement”), which matures on October 18, 2022.  The primary terms and covenants associated with the Credit Agreement are as follows, with capitalized terms defined under the Credit Agreement:

 

 

As of March 31, 2020, the borrowing base was $250.0 million.

 

 

Letters of credit may be issued in amounts up to $30.0 million, provided sufficient availability under the Credit Agreement exists.  As of March 31, 2020 and December 31, 2019, we had $5.8 million of letters of credit issued and outstanding under the Credit Agreement.

 

 

For the period ended March 31, 2020, the Leverage Ratio must not exceed 3.00 to 1.00.  

 

 

For the period ended March 31, 2020, the Current Ratio must be maintained at greater than 1.00 to 1.00.

 

Availability under the Credit Agreement is subject to semi-annual redeterminations of our borrowing base in or around May and November of each calendar year, and additional redeterminations may be requested at the discretion of either the lenders or the Company.  The borrowing base is calculated by our lenders based on their evaluation of our proved reserves and their own internal criteria.  Any redetermination by our lenders to change our borrowing base will result in a similar change in the availability under the Credit Agreement.  See Note 12, Subsequent Events, for revisions to certain terms of the Credit Agreement, including the borrowing base, Leverage Ratio and collateral, resulting from the Spring 2020 semi-annual redetermination.

 

The Credit Agreement is collateralized by a first priority lien on properties constituting at least 85% of the total proved reserves of the Company as set forth on reserve reports required to be delivered under the Credit Agreement and certain personal property.  The annualized interest rate on borrowings outstanding for the three months ended March 31, 2020 was 4.5%, which excludes debt issuance costs, commitment fees and other fees.

 

 

8

 

W&T OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 

 

9.75% Senior Second Lien Notes Due 2023

 

On October 18, 2018, we issued $625.0 million of 9.75% Senior Second Lien Notes due 2023 (the “Senior Second Lien Notes”), which were issued at par with an interest rate of 9.75% per annum and mature on November 1, 2023, and are governed under the terms of the Indenture of the Senior Second Lien Notes (the “Indenture”).  The estimated annual effective interest rate on the Senior Second Lien Notes is 10.4%, which includes amortization of debt issuance costs.  Interest on the Senior Second Lien Notes is payable in arrears on May 1 and November 1 of each year.

 

During the three months ended March 31, 2020, we acquired $27.5 million in principal of our outstanding Senior Second Lien Notes for $8.5 million and recorded a non-cash gain on purchase of debt of $18.5 million, which included a reduction of $0.4 million related to the write-off of unamortized debt issuance costs. The Company purchased additional Senior Second Lien Notes subsequent to March 31, 2020 (refer to Note 12, Subsequent Events).

 

The Senior Second Lien Notes are secured by a second-priority lien on all of our assets that are secured under the Credit Agreement.  The Senior Second Lien Notes contain covenants that limit or prohibit our ability and the ability of certain of our subsidiaries to: (i) make investments; (ii) incur additional indebtedness or issue certain types of preferred stock; (iii) create certain liens; (iv) sell assets; (v) enter into agreements that restrict dividends or other payments from the Company’s subsidiaries to the Company; (vi) consolidate, merge or transfer all or substantially all of the assets of the Company; (vii) engage in transactions with affiliates; (viii) pay dividends or make other distributions on capital stock or subordinated indebtedness; and (ix) create subsidiaries that would not be restricted by the covenants of the Indenture.  These covenants are subject to exceptions and qualifications set forth in the Indenture.  In addition, most of the above described covenants will terminate if both S&P Global Ratings, a division of S&P Global Inc., and Moody’s Investors Service, Inc. assign the Senior Second Lien Notes an investment grade rating and no default exists with respect to the Senior Second Lien Notes.

 

Covenants 

 

As of March 31, 2020 and for all prior measurement periods, we were in compliance with all applicable covenants of the Credit Agreement and the Indenture.

 

Fair Value Measurements 

 

For information about fair value measurements of our long-term debt, refer to Note 3.

 

9

 

W&T OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 

 

3.

Fair Value Measurements

 

Derivative Financial Instruments

 

We measure the fair value of our open derivative financial instruments by applying the income approach, using models with inputs that are classified within Level 2 of the valuation hierarchy.  The inputs used for the fair value measurement of our open derivative financial instruments are the exercise price, the expiration date, the settlement date, notional quantities, the implied volatility, the discount curve with spreads and published commodity future prices.  Our open derivative financial instruments are reported in the Condensed Consolidated Balance Sheets using fair value.  See Note 6, Derivative Financial Instruments, for additional information on our derivative financial instruments.

 

The following table presents the fair value of our open derivative financial instruments (in thousands):

 

   

March 31, 2020

   

December 31, 2019

 

Assets:

               

Derivatives instruments - open contracts, current

  $ 54,358     $ 6,921  

Derivatives instruments - open contracts, long-term

    2,847       2,653  
                 

Liabilities:

               

Derivatives instruments - open contracts, current

          1,785  
Derivatives instruments - open contracts, long-term     1,245        

 

Long-Term Debt

 

We believe the carrying value of our debt under the Credit Agreement approximates fair value because the interest rates are variable and reflective of current market rates. The fair value of our Senior Second Lien Notes was measured using quoted prices, although the market is not a very active market. The fair value of our long-term debt was classified as Level 2 within the valuation hierarchy.  See Note 2, Long-Term Debt for additional information on our long-term debt.

 

The following table presents the carrying value and fair value of our long-term debt (in thousands):

 

   

March 31, 2020

   

December 31, 2019

 
   

Carrying Value

   

Fair Value

   

Carrying Value

   

Fair Value

 

Liabilities:

                               

Credit Agreement

  $ 80,000     $ 80,000     $ 105,000     $ 105,000  

Senior Second Lien Notes

    588,058       136,421       614,533       597,188  

 

10

 

W&T OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 

 

4.

Joint Venture Drilling Program

 

In March 2018, W&T and two other initial members formed and initially funded Monza, which jointly participates with us in the exploration, drilling and development of certain drilling projects (the “Joint Venture Drilling Program”) in the Gulf of Mexico.  Subsequent to the initial closing, additional investors joined as members of Monza during 2018 and total commitments by all members, including W&T's commitment to fund its retained interest in Monza projects held outside of Monza, are $361.4 million.  Through March 31, 2020, nine wells have been completed.  As of March 31, 2020, one additional well was drilled to target depth, but not completed as of this date.  W&T contributed 88.94% of its working interest in certain identified undeveloped drilling projects to Monza and retained 11.06% of its working interest.  The Joint Venture Drilling Program is structured so that we initially receive an aggregate of 30.0% of the revenues less expenses, through both our direct ownership of our retained working interest in the Monza projects and our indirect interest through our interest in Monza, for contributing 20.0% of the estimated total well costs plus associated leases and providing access to available infrastructure at agreed-upon rates.  Any exceptions to this structure are approved by the Monza board.  W&T is the operator for seven of the nine wells completed through March 31, 2020.  

 

The members of Monza are made up of third-party investors, W&T and an entity owned and controlled by Mr. Tracy W. Krohn, our Chairman and Chief Executive Officer.  The Krohn entity invested as a minority investor on the same terms and conditions as the third-party investors, and its investment is limited to 4.5% of total invested capital within Monza.  The entity affiliated with Mr. Krohn has made a capital commitment to Monza of $14.5 million.

 

Monza is an entity separate from any other entity with its own separate creditors who will be entitled, upon its liquidation, to be satisfied out of Monza’s assets prior to any value in Monza becoming available to holders of its equity.  The assets of Monza are not available to pay creditors of the Company and its affiliates.

 

Through March 31, 2020, members of Monza made partner capital contributions, including our contributions of working interest in the drilling projects, to Monza totaling $289.3 million and received cash distributions totaling $45.9 million.  Our net contribution to Monza, reduced by distributions received, as of March 31, 2020 was $57.1 million.  W&T is obligated to fund certain cost overruns to the extent they occur, subject to certain exceptions, for the Joint Venture Drilling Program wells above budgeted and contingency amounts, of which the total exposure cannot be estimated at this time.

 

Consolidation and Carrying Amounts

 

Our interest in Monza is considered to be a variable interest that we account for using proportional consolidation.  Through March 31, 2020, there have been no events or changes that would cause a redetermination of the variable interest status.  We do not fully consolidate Monza because we are not considered the primary beneficiary of Monza.  As of March 31, 2020, in the Consolidated Balance Sheet, we recorded $15.1 million, net, in Oil and natural gas properties and other, net, $4.2 million in Other assets, $0.1 million in ARO and $2.4 million, net, increase in working capital in connection with our proportional interest in Monza’s assets and liabilities.  As of December 31, 2019, in the Consolidated Balance Sheet, we recorded $16.1 million, net, in Oil and natural gas properties and other, net, $5.3 million in Other assets, $0.1 million in ARO and $2.7 million, net, increase in working capital in connection with our proportional interest in Monza’s assets and liabilities.  Additionally, during the three months ended March 31, 2020 and during the year ended December 31, 2019, we called on Monza to provide cash to fund its portion of certain Joint Venture Drilling Program projects in advance of capital expenditure spending, and the unused balances as of March 31, 2020 and December 31, 2019 were $18.3 million and $5.3 million, respectively, which are included in the Consolidated Balance Sheet in Advances from joint interest partners.  For the three months ended March 31, 2020, in the Consolidated Statement of Operations, we recorded $3.3 million in Total revenues and $3.1 million in Operating costs and expenses in connection with our proportional interest in Monza’s operations.  For the three months ended March 31, 2019, in the Consolidated Statement of Operations, we recorded $1.6 million in Total revenues and, $0.9 million in Operating costs and expenses in connection with our proportional interest in Monza’s operations.

 

 

 

11

 

W&T OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 

 

5.

Asset Retirement Obligations

 

Our asset retirement obligations (“ARO”) represent the estimated present value of the amount incurred to plug, abandon and remediate our properties at the end of their productive lives.

 

A summary of the changes to our ARO is as follows (in thousands):

 

Balances, December 31, 2019

  $ 355,594  

Liabilities settled

    (249 )

Accretion of discount

    5,716  

Liabilities incurred, including acquisitions

    2,704  

Revisions of estimated liabilities

    335  

Balances, March 31, 2020

    364,100  

Less current portion

    2,803  

Long-term

  $ 361,297  

 

 

6.

Derivative Financial Instruments

 

Our market risk exposure relates primarily to commodity prices and, from time to time, we use various derivative instruments to manage our exposure to this commodity price risk from sales of our crude oil and natural gas.  All of the present derivative counterparties are also lenders or affiliates of lenders participating in our Credit Agreement.  We are exposed to credit loss in the event of nonperformance by the derivative counterparties; however, we currently anticipate that each of our derivative counterparties will be able to fulfill their contractual obligations.  We are not required to provide additional collateral to the derivative counterparties and we do not require collateral from our derivative counterparties.

 

We have elected not to designate our commodity derivative contracts as hedging instruments; therefore, all changes in the fair value of derivative contracts were recognized currently in earnings during the periods presented.  The cash flows of all of our commodity derivative contracts are included in Net cash provided by operating activities on the Condensed Consolidated Statements of Cash Flows.

 

We entered into commodity contracts for crude oil and natural gas which related to a portion of our expected future production.  The crude oil contracts are based on West Texas Intermediate (“WTI”) crude oil prices and the natural gas contracts are based off the Henry Hub prices, both of which are quoted off the New York Mercantile Exchange (“NYMEX”).  The open contracts as of March 31, 2020 are presented in the following tables:

 

 

Crude Oil:  Open Swap Contracts, Priced off WTI (NYMEX)

 Period

 

 Notional Quantity (Bbls/day) (1)

 

 Notional Quantity
(Bbls) (1)

 

 Weighted Average Strike Price

Apr 2020 - May 2020

 

10,000

 

610,000

 

$ 60.92

 

 

Crude Oil:  Open Call Contracts - Bought, Priced off WTI (NYMEX)

Period

 

 Notional Quantity (Bbls/day) (1)

 

 Notional Quantity
(Bbls) (1)

 

 Strike Price

Apr 2020 - May 2020

 

10,000

 

610,000

 

$ 61.00

             

June 2020 - Dec. 2020

 

10,000

 

2,140,000

 

$ 67.50

 

 

(1)

Bbls = Barrels

 

 

12

 

W&T OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 

 

 

Crude Oil:  Open Collar Contracts - Priced off WTI (NYMEX)

Period

 

 Notional Quantity (Bbls/day) (1)

 

 Notional Quantity
(Bbls) (1)

 

Put Option
Weighted Strike Price
(Bought)

 

Call Option
Weighted Strike Price
(Sold)

June 2020 - Dec. 2020

 

10,000

 

2,140,000

 

$ 45.00

 

$ 63.51

 

 

Natural Gas: Open Collar Contracts, Priced off Henry Hub (NYMEX)

Period

 

Notional Quantity (MMBtu/day) (2)

 

Notional Quantity (MMBtu) (2)

 

Put Option Strike Price (Bought)

 

Call Option Strike Price (Sold)

May 2020 - Dec. 2022

 

40,000

 

39,000,000

 

$ 1.83

 

$ 3.00

 

 

Natural Gas: Open Call Contracts, Bought, Priced off Henry Hub (NYMEX)

Period

 

Notional Quantity (MMBtu/day) (2)

 

Notional Quantity (MMBtu) (2)

 

Strike Price

May 2020 - Dec. 2022

 

40,000

 

39,000,000

 

$ 3.00

 

 

(2)

MMBtu = Million British Thermal Units

 

The following amounts were recorded in the Condensed Consolidated Balance Sheets in the categories presented and include the fair value of open contracts, and closed contracts which had not yet settled (in thousands):

 

 

 

March 31,

 

December 31,

 

2020

 

2019

Prepaid expenses and other assets

$ 64,039

 

$ 7,266

Other assets (long-term)

2,847

 

2,653

Accrued liabilities   1,785
Other liabilities (long-term) 1,245  

 

 

The amounts recorded on the Condensed Consolidated Balance Sheets are on a gross basis.  If these were recorded on a net settlement basis, it would not have resulted in any material differences in reported amounts.

 

Changes in the fair value and settlements of our commodity derivative contracts were as follows (in thousands):

 

 

Three Months Ended March 31,

 

2020

 

2019

Derivative (gain) loss

$ (61,912)

 

$ 48,886

 

 

13

 

W&T OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 

 

Cash receipts on commodity derivative contract settlements, net, are included within Net cash provided by operating activities on the Condensed Consolidated Statements of Cash Flows and were as follows (in thousands):

 

   

Three Months Ended March 31,

 
   

2020

   

2019

 

Cash receipts on derivative settlements, net

  $ 4,404     $ 11,948  

 

 

7.

Leases

 

Our contract arrangements accounted for under the applicable GAAP for lease contracts consist of office leases, a land lease and various pipeline right-of-way contracts.  For these contracts, a right-of-use ("ROU") asset and lease liability was established based on our assumptions of the term, inflation rates and incremental borrowing rates. 

 

During the three months ended March 31, 2020, we terminated the existing office lease and executed a new lease on separate office space.  The remaining term of the current office lease extends to December 2020.  The term of the new office lease extends to February 2032.  When calculating the ROU asset and lease liability at the commencement of the new office lease, we have reduced future cash outflows by the lease incentive to be received.

 

The term of each pipeline right-of-way contract is 10 years with various effective dates, and each has an option to renew for up to another ten years.  It is expected renewals beyond 10 years can be obtained as renewals were granted to the previous lessees.  The land lease has an option to renew every five years extending to 2085.  The expected term of the rights-of way and land leases was estimated to approximate the life of the related reserves.   

 

We recorded ROU assets and lease liabilities using a discount rate of 9.75% for the office leases and 10.75% for the other leases due to their longer expected term. 

 

Amounts related to leases recorded within our Condensed Consolidated Balance Sheet are as follows (in thousands):

 

 

   

March 31, 2020

   

December 31, 2019

 

ROU assets

  $ 12,745     $ 7,936  
                 

Lease liability:

               

Accrued liabilities

  $ 2,472     $ 2,716  

Other liabilities

    9,581       4,419  

Total lease liability

  $ 12,053     $ 7,135  

 

 

 

14

 

W&T OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 

 

8.

Share-Based Compensation and Cash-Based Incentive Compensation

 

Awards to Employees. In 2010, the W&T Offshore, Inc. Amended and Restated Incentive Compensation Plan (as amended from time to time, the “Plan”) was approved by our shareholders.  During 2019, 2018 and 2017, the Company granted restricted stock units (“RSUs”) under the Plan to certain of its employees.  RSUs are a long-term compensation component, and are subject to satisfaction of certain predetermined performance criteria and adjustments at the end of the applicable performance period based on the results achieved.  In addition to share-based awards, the Company may grant to its employees cash-based incentive awards under the Plan, which may be used as short-term and long-term compensation components of the awards, and are subject to satisfaction of certain predetermined performance criteria.

 

As of March 31, 2020, there were 10,874,043 shares of common stock available for issuance in satisfaction of awards under the Plan.  The shares available for issuance are reduced on a one-for-one basis when RSUs are settled in shares of common stock, which shares of common stock are issued net of withholding tax through the withholding of shares.  The Company has the option following vesting to settle RSUs in stock or cash, or a combination of stock and cash. The Company expects to settle RSUs that vest in the future using shares of common stock.

 

RSUs currently outstanding relate to the 2019 and 2018 grants.  The 2019 and 2018 grants were subject to predetermined performance criteria applied against the applicable performance period.  All the RSUs currently outstanding are subject to employment-based criteria and vesting generally occurs in December of the second year after the grant.  See the table below for anticipated vesting by year.

 

We recognize compensation cost for share-based payments to employees over the period during which the recipient is required to provide service in exchange for the award.  Compensation cost is based on the fair value of the equity instrument on the date of grant.  The fair values for the RSUs granted during 2019, 2018 and 2017 were determined using the Company’s closing price on the grant date.  We also estimate forfeitures, resulting in the recognition of compensation cost only for those awards that are expected to actually vest.

 

All RSUs awarded are subject to forfeiture until vested and cannot be sold, transferred or otherwise disposed of during the restricted period.

 

A summary of activity related to RSUs during the three months ended March 31, 2020 is as follows:

 

   

Restricted Stock Units

 
           

Weighted Average

 
           

Grant Date Fair

 
   

Units

   

Value Per Unit

 

Nonvested, December 31, 2019

    1,614,722       $5.73  

Forfeited

    (22,645 )     6.37  

Nonvested, March 31, 2020

    1,592,077       5.72  

 

 

For the outstanding RSUs issued to the eligible employees as of March 31, 2020, vesting is expected to occur as follows (subject to forfeitures): 

 

   

Restricted Stock Units

 

2020

    803,995  

2021

    788,082  

Total

    1,592,077  

 

 

 

15

 

W&T OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 

Awards to Non-Employee Directors.  Under the W&T Offshore, Inc. 2004 Directors Compensation Plan (as amended from time to time, the “Director Compensation Plan”), shares of restricted stock (“Restricted Shares”) have been granted to the Company’s non-employee directors.  Grants to non-employee directors were made during 2019, 2018 and 2017.  As of March 31, 2020, there were 82,620 shares of common stock available for issuance in satisfaction of awards under the Director Compensation Plan.  During the second quarter of 2020, our shareholders approved increasing the shares available by 500,000 shares.  During the second quarter of 2020, 109,376 Restricted Shares were granted to non-employee directors.  The shares available are reduced on a one-to-one basis when Restricted Shares are granted.

 

We recognize compensation cost for share-based payments to non-employee directors over the period during which the recipient is required to provide service in exchange for the award.  Compensation cost is based on the fair value of the equity instrument on the date of grant.  The fair values for the Restricted Shares granted were determined using the Company’s closing price on the grant date.  No forfeitures were estimated for the non-employee directors’ awards.

 

The Restricted Shares are subject to service conditions and vesting occurs at the end of specified service periods unless otherwise approved by the Board of Directors.  Restricted Shares cannot be sold, transferred or disposed of during the restricted period.  The holders of Restricted Shares generally have the same rights as a shareholder of the Company with respect to such Restricted Shares, including the right to vote and receive dividends or other distributions paid with respect to the Restricted Shares.

 

There was no activity related to Restricted Shares during the three months ended March 31, 2020.

 

For the outstanding Restricted Shares issued to the non-employee directors as of March 31, 2020, vesting is expected to occur as follows (subject to any forfeitures):

 

 

   

Restricted Shares

 

2020

    78,424  

2021

    29,300  

2022

    15,456  

Total

    123,180  

 

 

 

Share-Based Compensation.  Share-based compensation expense is recorded in the line General and administrative expenses in the Condensed Consolidated Statements of Operations.  The tax benefit related to compensation expense recognized under share-based payment arrangements was not meaningful and was minimal due to our income tax situation.  A summary of incentive compensation expense under share-based payment arrangements is as follows (in thousands):

 

 

   

Three Months Ended March 31,

 
   

2020

   

2019

 

Share-based compensation expense from:

               

Restricted stock units (1)

  $ 978     $ (148 )

Restricted Shares

    70       70  

Total

  $ 1,048     $ (78 )

 

 

 

(1)

For the three months ended March 31, 2019, share-based compensation expense includes adjustments for a former executive's' forfeitures.

 

Unrecognized Share-Based Compensation.  As of March 31, 2020, unrecognized share-based compensation expense related to our awards of RSUs and Restricted Shares was $4.0 million and $0.4 million, respectively.  Unrecognized share-based compensation expense will be recognized through November 2021 for RSUs and April 2022 for Restricted Shares.

 

16

 

W&T OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 

Cash-Based Incentive Compensation.  In addition to share-based compensation, short-term, cash-based awards were granted under the Plan to substantially all eligible employees in 2019 and 2018.  The short-term, cash-based awards, which are generally a short-term component of the Plan, are performance-based awards consisting of one or more business criteria or individual performance criteria and a targeted level or levels of performance with respect to each of such criteria.  In addition, these cash-based awards included an additional financial condition requiring Adjusted EBITDA less reported Interest Expense Incurred (terms as defined in the awards) for any fiscal quarter plus the three preceding quarters to exceed defined levels measured over defined time periods for each cash-based award.  During 2018, long-term, cash awards were granted to certain employees subject to pre-defined performance criteria.  Expense is recognized over the service period once the business criteria, individual performance criteria and financial condition are met. 

 

 

 

For the 2019 cash-based awards, a portion of the business criteria and individual performance criteria were achieved.  The financial condition requirement of Adjusted EBITDA less reported Interest Expense Incurred exceeding $200 million over four consecutive quarters was achieved; therefore, incentive compensation expense was recognized over the January 2019 to February 2020 period (the service period of the award).  Payments were made in March 2020 and are subject to all the terms of the 2019 Annual Incentive Award Agreement.

 

 

In 2018, the Company, as part of its long-term incentive program, granted cash awards to certain employees that will vest over a three-year service period.  

 

 

For the 2018 long-term, cash-based awards, incentive compensation expense was determined based on the Company achieving certain performance metrics for 2018 and is being recognized over the September 2018 to November 2020 period (the service period of the award).  The 2018 long-term, cash-based awards will be eligible for payment on December 14, 2020 subject to participants meeting certain employment-based criteria.

 

 

For the 2018 short-term, cash-based awards, incentive compensation expense was determined based on the Company achieving certain performance metrics for 2018 combined with individual performance criteria for 2018 and was recognized over the January 2018 to February 2019 period.  The 2018 short-term, cash-based awards were paid during March 2019.

 

 

A summary of compensation expense related to share-based awards and cash-based awards is as follows (in thousands):

 

   

Three Months Ended March 31,

 
   

2020

   

2019

 

Share-based compensation included in:

               

General and administrative expenses

  $ 1,048     $ (78 )

Cash-based incentive compensation included in:

               

Lease operating expense (1)

    849       (123 )

General and administrative expenses (1)

    3,631       2,095  

Total charged to operating income

  $ 5,528     $ 1,894  

 

 

 

(1)

Includes adjustments of accruals to actual payments.

 

 

17

 

W&T OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 

 

9.

Income Taxes 

 

Tax Expense and Tax Rate.  Income tax expense for the three months ended March 31, 2020 and 2019 was $6.5 million and $0.2 million, respectively.  For the three months ended March 31, 2020, our effective tax rate primarily differed from the statutory Federal tax rate for adjustments recorded related to the enactment of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) on March 27, 2020.  The CARES Act modified certain income tax statutes, including changes related to the business interest expense limitation under Code Section 163(j).  For the three months ended March 31, 2019, immaterial deferred income tax expense was recorded due to dollar-for-dollar offsets by our valuation allowance.  Our effective tax rate was 9.0% for the three months ended March 31, 2020 and was not meaningful for the three months ended March 31, 2019.  

 

Valuation Allowance.  Deferred tax assets are recorded related to net operating losses and temporary differences between the book and tax basis of assets and liabilities expected to produce tax deductions in future periods.  The realization of these assets depends on recognition of sufficient future taxable income in specific tax jurisdictions in which those temporary differences or net operating losses are deductible.   In assessing the need for a valuation allowance on our deferred tax assets, we consider whether it is more likely than not that some portion or all of them will not be realized.     

 

As of March 31, 2020 and December 31, 2019, our valuation allowance was $47.8 million and $54.4 million, respectively, and relates primarily to state net operating losses and the disallowed interest limitation carryover. 

 

Income Taxes Receivable.  As of March 31, 2020 and December 31, 2019, we 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. 

 

During the three months ended March 31, 2020 and 2019, we did not receive any income tax claims or make any income tax payments of significance.

 

The tax years 2016 through 2019 remain open to examination by the tax jurisdictions to which we are subject.

 

 

 

10.

Earnings Per Share

 

The following table presents the calculation of basic and diluted earnings (loss)  per common share (in thousands, except per share amounts):

 

   

Three Months Ended March 31,

 
   

2020

   

2019

 

Net income (loss)

  $ 65,980     $ (47,761 )

Less portion allocated to nonvested shares

    791        

Net income (loss) allocated to common shares

  $ 65,189     $ (47,761 )

Weighted average common shares outstanding

    141,546       140,462  
                 

Basic and diluted earnings (loss) per common share

  $ 0.46     $ (0.34 )
                 

Shares excluded due to being anti-dilutive (weighted-average)

          3,342  

 

18

 

W&T OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 

 

11.

Contingencies

 

Appeal with the Office of Natural Resources Revenue (“ONRR”).  In 2009, we recognized allowable reductions of cash payments for royalties owed to the ONRR for transportation of their deepwater production through our subsea pipeline systems.  In 2010, the ONRR audited our calculations and support related to this usage fee, and in 2010, we were notified that the ONRR had disallowed approximately $4.7 million of the reductions taken.  We recorded a reduction to other revenue in 2010 to reflect this disallowance with the offset to a liability reserve; however, we disagree with the position taken by the ONRR.  We filed an appeal with the ONRR, which was denied in May 2014.  On June 17, 2014, we filed an appeal with the IBLA under the Department of the Interior.  On January 27, 2017, the IBLA affirmed the decision of the ONRR requiring W&T to pay approximately $4.7 million in additional royalties. We filed a motion for reconsideration of the IBLA decision on March 27, 2017.  Based on a statutory deadline, we filed an appeal of the IBLA decision on July 25, 2017 in the U.S. District Court for the Eastern District of Louisiana.  We were required to post a bond in the amount of $7.2 million and cash collateral of $6.9 million with the surety in order to appeal the IBLA decision, of which the cash collateral held by the surety was subsequently returned during the first quarter of 2020.  On December 4, 2018, the IBLA denied our motion for reconsideration.  On February 4, 2019, we filed our first amended complaint, and the government has filed its Answer in the Administrative Record.  On July 9, 2019, we filed an Objection to the Administrative Record and Motion to Supplement the Administrative Record, asking the court to order the government to file a complete privilege log with the record.  Following a hearing on July 31, 2019, the Court ordered the government to file a complete privilege log.  In an Order dated December 18, 2019, the court ordered the government to produce certain contracts subject to a protective order and to produce the remaining documents in dispute to the court for in camera review.  Following in camera review, the Court upheld the government’s assertion of privilege, and the parties are proceeding with drafting Cross-Motions for Summary Judgment, which will be the basis for the court’s ruling.  We anticipate that briefing will be complete in the Fall of 2020.

 

 

Royalties – “Unbundling” Initiative.   The ONRR has publicly announced an “unbundling” initiative to revise the methodology employed by producers in determining the appropriate allowances for transportation and processing costs that are permitted to be deducted in determining royalties under Federal oil and gas leases.  The ONRR’s initiative requires re-computing allowable transportation and processing costs using revised guidance from the ONRR going back 84 months for every gas processing plant that processed our gas. In the second quarter of 2015, pursuant to the initiative, we received requests from the ONRR for additional data regarding our transportation and processing allowances on natural gas production related to a specific processing plant. We also received a preliminary determination notice from the ONRR asserting that our allocation of certain processing costs and plant fuel use at another processing plant was not allowed as deductions in the determination of royalties owed under Federal oil and gas leases. We have submitted revised calculations covering certain plants and time periods to the ONRR. As of the filing date of this Form 10-Q, we have not received a response from the ONRR related to our submissions.  These open ONRR unbundling reviews, and any further similar reviews, could ultimately result in an order for payment of additional royalties under our Federal oil and gas leases for current and prior periods.  While the amounts paid for the three months ended March 31, 2020 and 2019 were immaterial, we are not able to determine the range of any additional royalties or, if and when assessed, whether such amounts would be material.

 

Notices of Proposed Civil Penalty Assessment.  During the three months ended March 31, 2020 and 2019, we did not pay any civil penalties to the Bureau of Safety and Environmental Enforcement ("BSEE") related to Incidents of Noncompliance (“INCs”) at various offshore locations.  We currently have nine open civil penalties issued by the BSEE from INCs, which have not been settled as of the filing date of this Form 10-Q.  The INCs underlying these open civil penalties cite alleged non-compliance with various safety-related requirements and procedures occurring at separate offshore locations on various dates ranging from July 2012 to January 2018.  The proposed civil penalties for these INCs total $7.7 million.  As of March 31, 2020 and December 31, 2019, we have accrued approximately $3.5 million, which is our best estimate of the final settlements once all appeals have been exhausted.  Our position is that the proposed civil penalties are excessive given the specific facts and circumstances related to these INCs.  We are exploring the possibility of settling these civil penalties with the BSEE.

 

Other Claims.  We are a party to various pending or threatened claims and complaints seeking damages or other remedies concerning our commercial operations and other matters in the ordinary course of our business.  In addition, claims or contingencies may arise related to matters occurring prior to our acquisition of properties or related to matters occurring subsequent to our sale of properties.  In certain cases, we have indemnified the sellers of properties we have acquired, and in other cases, we have indemnified the buyers of properties we have sold.  We are also subject to federal and state administrative proceedings conducted in the ordinary course of business including matters related to alleged royalty underpayments on certain federal-owned properties.  Although we can give no assurance about the outcome of pending legal and federal or state administrative proceedings and the effect such an outcome may have on us, we believe that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by insurance, will not have a material adverse effect on our consolidated financial position, results of operations or liquidity.

 

19

 

W&T OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 

 

12.

Subsequent Events

 

COVID-19 Impacts on Economic Environment.  On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of COVID-19 and the risks to the international community as the virus spread globally beyond its point of origin.  In March 2020, the WHO classified the COVID-19 as a pandemic based on the rapid increase in exposure globally.

 

The COVID-19 pandemic has significantly impacted the global crude oil supply-demand balance causing a substantial decrease in crude oil prices and increasing the volatility of the market.  Domestic natural gas prices have remained relatively stable and have experienced less volatility.  This economic environment has caused oil and gas operators to reduce their capital expenditure budgets, reduce activity and shut-in significant production.  The full impact of the COVID-19 pandemic and the volatility in crude oil prices continue to evolve as of the date of this Quarterly Report.  However, the scope and length of this economic downturn and the ultimate effect on the prices of crude oil and natural gas cannot be determined and we could be adversely affected in future periods.

 

We are actively monitoring the impact on our results of operations, financial position, and liquidity for the remainder of 2020.  In response to the market changes, we have reduced our capital expenditure budget for the remainder of 2020, experienced production shut-ins from non-operated oil and gas properties and shut-in a limited number of our operated oil and gas properties

 

Purchase of Senior Second Lien Notes.  During the second quarter of 2020, approximately $45.1 million of  Senior Second Lien Notes were purchased in the open market for approximately $15.4 million.

 

Paycheck Protection Program (PPP) On April 15, 2020, the Company received $8.4 million under the U.S. Small Business Administration (“SBA”) PPP.  The Company expects that it will not be required to repay any of the funds received; however, we can give no assurances on the outcome of the SBA’s decision on the matter.  Should the Company be required to repay all or a portion of the funds received under the PPP (the PPP “Loan”), the Loan would mature on April 10, 2025 and accrue interest at 1%.

 

Spring 2020 Borrowing Base Redetermination.  On June 17, 2020, the lenders under the Credit Agreement completed their semi-annual borrowing base redetermination and entered into the Third Amendment and Waiver (the “Third Amendment”) to the Credit Agreement. Although the Company had not violated any covenants, the Third Amendment provides less stringent covenant requirements given the recent changes in the oil and gas markets.  The Third Amendment includes the following changes, among other things, to the Credit Agreement:

 

 

The borrowing base under the Credit Agreement was reduced from $250.0 million to $215.0 million.

 

 

Increase the interest rate margin by 25 basis points.

 

 

Amend the financial covenants as follows:  

 

 

 

From the period ended June 30, 2020 through the period ended December 31, 2021 (the "Waiver Period"), the Company will not be required to comply with the Leverage Ratio covenant.

 

 

 

During the Waiver Period, the Company will be required to maintain a 2.00 to 1.00 ratio limit of first lien debt outstanding under the Credit Agreement on the last day of the most recent quarter to EBITDAX for the trailing four quarters.

 

 

 

Increase the requirement to provide first priority liens on properties constituting at least 85% of total proved reserves of the Company as set forth on reserve reports required to be delivered under the Credit Agreement to 90%.

 

 

20

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Statements

 

The following discussion and analysis should be read in conjunction with our accompanying unaudited condensed consolidated financial statements and the notes to those financial statements included in Item 1 of this Quarterly Report on Form 10-Q.  The following discussion contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”).  These forward-looking statements involve risks, uncertainties and assumptions. If the risks or uncertainties materialize or the assumptions prove incorrect, our results may differ materially from those expressed or implied by such forward-looking statements and assumptions.  All statements other than statements of historical fact are statements that could be deemed forward-looking statements, such as those statements that address activities, events or developments that we expect, believe or anticipate will or may occur in the future.  These statements are based on certain assumptions and analyses made by us in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate in the circumstances.  Known material risks that may affect our financial condition and results of operations are discussed in Item 1A, Risk Factors, and market risks are discussed in Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of our Annual Report on Form 10-K for the year ended December 31, 2019 and this Quarterly Report on Form 10-Q, Part II, Item 1A, Risk Factors, and may be discussed or updated from time to time in subsequent reports filed with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof.  We assume no obligation, nor do we intend to update these forward-looking statements.  Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “W&T,” “we,” “us,” “our” and the “Company” refer to W&T Offshore, Inc. and its consolidated subsidiaries.

 

Overview 

 

We are an independent oil and natural gas producer, active in the exploration, development and acquisition of oil and natural gas properties in the Gulf of Mexico.  We currently have under lease approximately 815,000 gross acres (550,000 net acres) spanning across the OCS off the coasts of Louisiana, Texas, Mississippi and Alabama, with approximately 595,000 gross acres on the conventional shelf and approximately 220,000 gross acres in the deepwater.  A majority of our daily production is derived from wells we operate.  Our interest in fields, leases, structures and equipment are primarily owned by W&T Offshore, Inc. and our wholly-owned subsidiary, W & T Energy VI, LLC, a Delaware limited liability company and through our proportionately consolidated interest in Monza, as described in more detail in Financial Statements and Supplementary Data – Note 4 – Joint Venture Drilling Program under Part I, Item 1 in this Form 10-Q.

 

Recent Events

 

Due to circumstances related to the outbreak of COVID-19, various measures have been taken by federal, state and local governments to reduce the rate of spread of COVID-19.  These measures and other factors have resulted in a decrease of general economic activity and a corresponding decrease in global and domestic energy demand impacting commodity pricing.  In addition, actions by the Organization of Petroleum Exporting Countries and other high oil exporting countries like Russia (“OPEC+”) have negatively impacted crude oil prices.  These rapid and unprecedented events have pushed crude oil storage near capacity and driven prices down significantly.  These events have been the primary cause of the significant supply-and-demand imbalance for oil, significantly lowering oil pricing.  These conditions may continue to exist in future periods, constraining our ability to store and move production to downstream markets, or affecting future decisions to delay or curtail development activity or temporarily shut-in production which could further reduce cash flow.

 

 

21

 

 

The Company has responded to COVID-19 events and current economic conditions as follows:

 

 

Our capital expenditure forecast for 2020 has been reduced significantly from our initial budget in response to the unprecedented decrease in crude oil prices experienced in the first quarter of 2020.  Excluding acquisitions and plugging and abandonment expenditures, we are currently estimating capital expenditures to range from $15 million to $25 million for 2020 and ARO spending to be in the range of $2 million to $4 million. We continue to closely monitor current and forecasted commodity prices to assess what changes, if any, should be made to our 2020 plans and are unable to predict the duration or impact of COVID-19 and OPEC+ actions have on our business.  Additionally, primarily as a result of substantially lower oil prices, the borrowing base under the Credit Agreement was reduced from $250.0 million to $215.0 million.

 

 

We have shut-in production in selected oil-weighted properties operated by the Company and have received notice of production shut-ins at certain non-operated properties.  Production at our Ship Shoal 349 field (Mahogany) and our key natural gas fields including Mobile Bay were not affected.

 

 

We have taken proactive steps in our field operations and corporate offices to protect the health and safety of our employees and contractors.  At W&T’s corporate offices, the Company mandated a work-from-home policy on 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.  In our field operations, the Company instituted screening of all personnel prior to entry to heliports, shore-based facilities and Alabama gas treatment 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. 

 

 

See the Liquidity and Capital Resources section in this Part II for a discussion of our liquidity and other aspects as a result of the decrease in commodity prices.   See Item 1A, Risk Factors, under Item II of this Form 10-Q. 

 

 

Oil and Natural Gas Production and Commodity Pricing

 

Our financial condition, cash flow and results of operations are significantly affected by the volume of our crude oil, NGLs and natural gas production and the prices that we receive for such production.  Our production volumes for the three months ended March 31, 2020 were comprised of 37.5% crude oil and condensate, 10.2% NGLs and 52.3% natural gas, determined on a barrel of oil equivalent (“Boe”) using the energy equivalency ratio of six thousand cubic feet (“Mcf”) of natural gas to one barrel of crude oil, condensate or NGLs.  The conversion ratio does not assume price equivalency, and the price per one Boe for crude oil, NGLs and natural gas has differed significantly in the past.  For the three months ended March 31, 2020, revenues from the sale of crude oil and NGLs made up 73.4% of our total revenues compared to 80.2% for the three months ended March 31, 2019.  For the three months ended March 31, 2020, our combined total production expressed in equivalent volumes was 62.4% higher than for the three months ended March 31, 2019, primarily due to the acquisition of the Mobile Bay properties described below.  For the three months ended March 31, 2020, our total revenues were 6.9% higher than the three months ended March 31, 2019 due to the higher volumes and partially offset by lower realized prices for crude oil, NGLs and natural gas.  See Results of Operations – Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019 in this Item 2 for additional information. 

 

In August 2019, we completed the purchase of Exxon Mobil Corporation's (“Exxon”) interests in and operatorship of oil and gas producing properties in the eastern region of the Gulf of Mexico offshore Alabama and related onshore and offshore facilities and pipelines (the “Mobile Bay Properties”).  After taking into account customary closing adjustments and an effective date of January 1, 2019, cash consideration was $169.8 million, of which substantially all was paid by us at closing.  We also assumed the related asset retirement obligations (“ARO”) and certain other obligations associated with these assets.  The acquisition was funded from cash on hand and borrowings of $150.0 million under the Credit Agreement (defined below), which were previously undrawn.  As of December 31, 2019, the Mobile Bay Properties had approximately 76.6 MMBoe of net proved reserves, of which 99% were proved developed producing reserves consisting primarily of natural gas and NGLs with 20% of the proved net reserves from liquids on an MMBoe basis, based on SEC pricing methodology.  For the three months ended March 31, 2020, the average production of the Mobile Bay Properties was approximately 18,500 net Boe per day.  The properties include working interests in nine Gulf of Mexico offshore producing fields and an onshore treatment facility that are adjacent to existing properties owned and operated by us.  With this purchase, we became the largest operator in the area. 

 

 

 

22

 

 

Our operating results are strongly influenced by the price of the commodities that we produce and sell.  The price of those commodities is affected by both domestic and international factors, including domestic production.  During the three months ended March 31, 2020, our average realized crude oil price was $46.33 per barrel.  This is a decrease from our average realized crude oil price of $58.66 per barrel, or 21.0%, for the three months ended March 31, 2019.  Crude oil prices using West Texas Intermediate ("WTI") pricing decreased significantly in April with spot prices being negative at some times and averaging $16.55 per barrel for April 2020.  Crude oil prices have partially recovered and averaged $28.56 per barrel for May 2020 and ending the month at levels above $35.00 per barrel. 
 
Our average realized prices of NGLs and natural gas for the three months ended March 31, 2020 were lower than the average realized prices for the three months ended March 31, 2019 by 37.6% and 36.3%, respectively. Our average realized crude oil sales price of $46.33 per barrel differs from the WTI benchmark average crude price of $45.34 per barrel primarily due to premiums or discounts, crude oil quality adjustments, volume weighting (collectively referred to as differentials) and other factors.  Crude oil quality adjustments can vary significantly by field.  All of our crude oil is produced offshore in the Gulf of Mexico and is characterized as Poseidon, Light Louisiana Sweet (“LLS”), Heavy Louisiana Sweet (“HLS”) and others.  WTI is frequently used to value domestically produced crude oil, and the majority of our crude oil production is priced using the spot price for WTI as a base price, then adjusted for the type and quality of crude oil and other factors.  Similar to crude oil prices, the differentials for our offshore crude oil have also experienced volatility in the past.  The monthly average differentials of WTI versus Poseidon, LLS and HLS for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 decreased approximately $3.00 to $4.00 per barrel and averaged $0.07, $3.73, and $3.30 per barrel, respectively, for these three types of crude oil for the three months ended March 31, 2020.
 

Two major components of our NGLs, ethane and propane, typically make up over 70% of an average NGL barrel.  For the three months ended March 31, 2020 compared to the three months ended March 31, 2019, average prices for domestic ethane decreased by 55% and average domestic propane prices decreased by 44% as measured using a price index for Mount Belvieu.  The average prices for other domestic NGLs components decreased 19% to 29% for the three months ended March 31, 2020 compared to the same period in 2019.  We believe the change in prices for NGLs is mostly a function of the change in crude oil prices combined with changes in propane supply and demand. 

 

According to Baker Hughes, the number of working rigs drilling for oil and natural gas on land in the U.S. as reported in their May 29, 2020 report was significantly lower than a year ago, decreasing to 301 rigs compared to 984 rigs a year ago.  The oil rig count decreased to 222 rigs compared to 800 rigs a year ago and the gas and miscellaneous rigs decreased to 79 rigs from 184 a year ago.  In the Gulf of Mexico, the number of working rigs was 12 rigs (all oil) compared to 23 (20 oil and three natural gas) a year ago.   

 

 

23

 

Results of Operations

 

 

The following tables set forth selected financial and operating data for the periods indicated (all values are net to our interest unless indicated otherwise):

 

 

   

Three Months Ended March 31,

 
   

2020

   

2019

   

Change

      %
   

(In thousands, except percentages and per share data)

 

Financial:

                               

Revenues:

                               

Oil

  $ 84,650     $ 86,703     $ (2,053 )     (2.4 )%

NGLs

    6,452       6,448       4       0.1 %

Natural gas

    29,300       21,838       7,462       34.2 %

Other

    3,726       1,091       2,635       241.5 %

Total revenues

    124,128       116,080       8,048       6.9 %

Operating costs and expenses:

                               

Lease operating expenses

    54,775       43,456       11,319       26.0 %

Production taxes

    916       416       500       120.2 %

Gathering and transportation

    5,449       6,423       (974 )     (15.2 )%

Depreciation, depletion, amortization and accretion

    39,126       33,766       5,360       15.9 %

General and administrative expenses

    13,963       14,109       (146 )     (1.0 )%

Derivative (gain) loss

    (61,912 )     48,886       (110,798 )     NM  

Total costs and expenses

    52,317       147,056       (94,739 )     (64.4 )%
Operating income (loss)     71,811       (30,976 )     102,787       NM  

Interest expense, net

    17,110       16,282       828       5.1 %
Gain on purchase of debt     (18,501 )           (18,501 )     NM  

Other expense, net

    723       331       392       118.4 %

Income (loss) before income tax expense

    72,479       (47,589 )     120,068       NM  

Income tax expense

    6,499       172       6,327       NM  
Net income (loss)   $ 65,980     $ (47,761 )   $ 113,741       NM  
Basic and diluted earnings (loss) per common share   $ 0.46     $ (0.34 )   $ 0.80       NM  

 

 

NM – not meaningful

 

 

24

 

 

 

   

Three Months Ended March 31,

 
   

2020

   

2019

   

Change

      %

Operating: (1)

                               

Net sales:

                               

Oil (MBbls)

    1,827       1,478       349       23.6 %

NGLs (MBbls)

    495       309       186       60.2 %

Natural gas (MMcf)

    15,307       7,288       8,019       110.0 %

Total oil equivalent (MBoe)

    4,873       3,001       1,872       62.4 %
                                 

Average daily equivalent sales (Boe/day)

    53,553       33,349       20,204       60.6 %

Average realized sales prices:

                               

Oil ($/Bbl)

  $ 46.33     $ 58.66     $ (12.33 )     (21.0 )%

NGLs ($/Bbl)

    13.03       20.88       (7.85 )     (37.6 )%

Natural gas ($/Mcf)

    1.91       3.00       (1.09 )     (36.3 )%

Oil equivalent ($/Boe)

    24.71       38.31       (13.60 )     (35.5 )%
                                 

Average per Boe ($/Boe):

                               
Lease operating expenses   $ 11.24     $ 14.48     $ (3.24 )     (22.4 )%
Gathering and transportation     1.12       2.14       (1.02 )     (47.7 )%
Production costs     12.36       16.62       (4.26 )     (25.6 )%
Production taxes     0.19       0.14       0.05       35.7 %
DD&A     8.03       11.25       (3.22 )     (28.6 )%
G&A expenses     2.87       4.70       (1.83 )     (38.9 )%
    $ 23.45     $ 32.71     $ (9.26 )     (28.3 )%

 

 

(1)

The conversion to barrels of oil equivalent and cubic feet equivalent were determined using the energy equivalency 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.

 

 

Volume measurements not previously defined:

   

MBbls — thousand barrels for crude oil, condensate or NGLs

 

Mcf — thousand cubic feet

MBoe — thousand barrels of oil equivalent

 

MMcf — million cubic feet

 

 

 

25

 

 

Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019

 

Due to the decrease and volatility in crude oil prices and to a lesser extent, decreases and volatility in natural gas and prices for NGLs, the results of the three months ended March 31, 2020 may not be indicative of future periods.  See “Liquidity and Capital Resources – Liquidity Overview” below for additional information.

 

Revenues.  Total revenues increased $8.0 million, or 6.9%, to $124.1 million for the three months ended March 31, 2020 as compared to the three months ended March 31, 2019.  Oil revenues decreased $2.1 million, or 2.4%, NGLs revenues were basically flat, natural gas revenues increased $7.5 million, or 34.2%, and other revenues increased $2.6 million due to prior period royalty adjustments received during the three months ended March 31, 2020.  The decrease in oil revenues was attributable to a 21.0% decrease in the average realized sales price to $46.33 per barrel for the three months ended March 31, 2019 from $58.66 per barrel for the three months ended March 31, 2019, partially offset by an increase in sales volumes of 23.6%.  NGLs sales volumes increased by 60.2% and were offset by a 37.6% decrease in the average realized sales price to $13.03 per barrel for the three months ended March 31, 2020 from $20.88 per barrel for the three months ended March 31, 2019.  The increase in natural gas revenues was attributable to sales volumes that more than doubled, increasing 110.0%, and partially offset by a 36.3% decrease in the average realized price to $1.91 per Mcf for the three months ended March 31, 2020 from $3.00 per Mcf for the three months ended March 31, 2019.  Overall, production volumes increased 60.6% on a Boe/day basis.  The largest production increases for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 was related to our acquisition of the interests in the Mobile Bay Properties in August 2019, which produced an average of 18,500 Boe per day during the three months ended March 31, 2020, increases in production at our Mahogany field and the acquisition of Garden Banks 783 field (Magnolia) assets in December 2019.  These increases were partially offset by production decreases primarily from natural production declines.  Our estimate of deferred production for the three months ended March 31, 2020 was approximately 3,600 Boe per day as compared to 7,200 Boe per day for the three months ended March 31, 2019.    

 

Revenues from oil and NGLs as a percent of our total revenues were 73.4% for the three months ended March 31, 2020 compared to 80.2% for the three months ended March 31, 2019.  Our average realized NGLs sales price as a percent of our average realized crude oil sales price decreased to 28.1% for the three months ended March 31, 2020 compared to 35.6% for the three months ended March 31, 2019.   

 

Lease operating expenses.  Lease operating expenses, which include base lease operating expenses, workovers, and facilities maintenance, increased $11.3 million, or 26.0%, to $54.8 million in the three months ended March 31, 2020 compared to the three months ended March 31, 2019.  On a component basis, base lease operating expenses increased $15.9 million, workover expenses decreased $3.4 million, and facilities maintenance expense decreased $1.2 million.  Base lease operating expenses increased primarily due to the acquisition of the Mobile Bay Properties in August 2019, which had base lease operating expenses of $11.3 million for the three months ended March 31, 2020.  In addition, the acquisition of the Magnolia field in December 2019 increased base lease operating expenses by $3.2 million.  The decreases in workover expense and facility maintenance were due to fewer projects undertaken, with the primary decrease due to a workover at the Mississippi Canyon 800 field occurring during the three months ended March 31, 2019. 

 

Production taxes.  Production taxes increased $0.5 million to $0.9 million in the three months ended March 31, 2020 compared to the three months ended March 31, 2019 due to the acquisition of the Mobile Bay Properties, which has operations in state waters. 

 

Gathering and transportation.  Gathering and transportation expenses decreased $1.0 million to $5.4 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to lower transportation rates at certain fields and lower volumes at the Green Canyon 859 (Heidelberg) field. 

 

Depreciation, depletion, amortization and accretion (“DD&A”).  DD&A, which includes accretion for ARO, decreased to $8.03 per Boe for the three months ended March 31, 2020 from $11.25 per Boe for the three months ended March 31, 2019.  On a nominal basis, DD&A increased to $39.1 million (or 15.9%) for the three months ended March 31, 2020 from $33.8 million for the three months ended March 31, 2019.  DD&A on a nominal basis increased largely due to higher production, partially offset by the lower rate per Boe.  The rate per BOE decreased mostly as a result of increases in proved reserves from the acquisition of the Mobile Bay Properties.  Other factors affecting the DD&A rate are capital expenditures and revisions to proved reserve volumes.   

 

 

26

 

General and administrative expenses (“G&A”).  G&A was $14.0 million for the three months ended March 31, 2020, decreasing 1.0 % from $14.1 million for the three months ended March 31, 2019.  The decrease was primarily due to increased fees for overhead charged to partners (credits to expense), lower medical claims and lower legal expenses, partially offset by increased incentive compensation expenses.  G&A on a per Boe basis was $2.87 per Boe for the three months ended March 31, 2020 compared to $4.70 per Boe for the three months ended March 31, 2019.

 

Derivative (gain) loss.  The three months ended March 31, 2020 reflects a $61.9 million derivative gain primarily due to decreased crude oil prices during March 2020 as compared to oil prices during December 2019, which increased the estimated fair value of closed and open crude oil contracts between the two measurement dates.  The three months ended March 31, 2019 reflects a $48.9 million derivative loss primarily due to increased crude oil prices during March 2019 as compared to oil prices during December 2018, which decreased the estimated fair value of open crude oil contracts between the two measurement dates.

 

Interest expense, net.  Interest expense, net, was $17.1 million and $16.3 million for the three months ended March 31, 2020 and 2019, respectively.  The increase is due to higher borrowings under the Credit Agreement related to the acquisition of the Mobile Bay Properties. 

 

Gain on purchase of debt: A gain of $18.5 million was recorded related to the purchase of $27.5 million of principal of our outstanding Senior Second Lien Notes during the three months ended March 31, 2020.

 

Income tax expense.  Our income tax expense for the three months ended March 31, 2020 and 2019 was $6.5 million and $0.2 million, respectively.  For the three months ended March 31, 2020, our effective tax rate primarily differed from the statutory Federal tax rate for adjustments recorded related to the enactment of   the CARES Act on March 27, 2020.  The CARES Act modified certain income tax statutes including changes related to the business interest expense limitation under Internal Revenue Code Section 163(j).  For the three months ended March 31, 2019, immaterial deferred income tax expense was recorded due to dollar-for-dollar offsets by our valuation allowance.  Our effective tax rate 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, our valuation allowance was $47.8 million.  We continually evaluate the need to maintain a valuation allowance on our deferred tax assets.  Any future reduction of a portion or all of the valuation allowance would result in a non-cash income tax benefit in the period the decision occurs.  See Financial Statements – Note 9 –Income Taxes under Part I, Item 1 of this Form 10-Q for additional information.

 

 

 

27

Table of Contents

 

 

Liquidity and Capital Resources

 

Liquidity Overview

 

 

Our primary liquidity needs are to fund capital and operating expenditures and strategic acquisitions to allow us to replace our oil and natural gas reserves, repay and service outstanding borrowings, operate our properties and satisfy our AROs.  We have funded such activities in the past with cash on hand, net cash provided by operating activities, sales of property, securities offerings and bank borrowings and expect to continue to do so in the future.
 

As COVID-19 and other worldly events impact crude oil prices, and to a lesser degree, natural gas prices, we are actively monitoring the impacts on our results of operations, financial position, and liquidity.  As of March 31, 2020, we had $47.6 million cash on hand, availability of $170 million under the Credit Agreement (and subsequently reduced by $35 million to $135 million due to redetermination of the borrowing base as discussed in the Credit Agreement section below) and no maturities of long-term debt until 2022.  Despite this appearance of liquidity, the impact of unprecedented decline in oil prices during March and April of 2020 were severe and so dramatic as to threaten the entire oil and gas industry including the Company.  Oil prices began recovering some in May 2020 and through mid-June 2020.  In reaction to these events, we moved quickly to preserve resources and protect the health of our employees.  Furthermore, we have taken certain actions to address the current economic environment as follows:

 

 

We have reduced our capital expenditure budget for the remainder of 2020.  Excluding acquisitions and plugging and abandonment expenditures, we are estimating capital expenditures to be approximately $15 million to $25 million for 2020.   ARO (plugging and abandonment) spending is estimated to be between of $2 million to $4 million..

 

 

Since December 31, 2019, we have reduced the amount outstanding of our Senior Second Lien Notes by $72.5 million to $552.5 million as of June 22, 2020 through purchases in the open market for $23.9 million, resulting in annualized interest savings of $7.1 million.

 

 

On June 17, 2020, we entered into the Third Amendment and Waiver to the Credit Agreement, which, among other things, waived the Leverage Ratio (as defined in the Credit Agreement) and replaced it with a first lien leverage covenant of 2.00 to 1.00 through year-end 2021.

 

While we currently expect our cash on hand, net cash provided by operating activities and our available sources of liquidity are sufficient to meet our cash requirements, the Company will continue to monitor the evolving situation. In the event of long-term market deterioration, the Company may need additional liquidity, which would require us to evaluate alternatives and take appropriate actions.

 

 

28

 

Sources and Uses of Cash

 

Cash Flow and Working Capital.  Net cash provided by operating activities for the three months ended March 31, 2020 and 2019 was $84.3 million and $84.8 million, respectively.  Production volumes increased by 60.6% measured on a Boe per day basis, which caused revenues to increase by $48.4 million.  Our combined average realized sales price per Boe decreased by 35.5% for the three months ended March 31, 2020 compared to the three months ended March 31, 2019, which caused total revenues to decrease $43.0 million.  

 

Other items affecting operating cash flows were lower receivable balances, which increased operating cash flows by $29.1 million for the three months ended March 31, 2020 compared to an increase of $3.5 million for the three months ended March 31, 2019;  lower cash advance balances from joint venture partners, which decreased $31.6 million between the two periods; lower cash derivative receipts, net, which decreased $7.5 million between the two periods; and a return of collateral related to a bond of $6.9 million which occurred during the three months ended March 31, 2020.  Other working capital items accounted for the changes in net cash provided by operating activities

 

Net cash used in investing activities primarily represents our acquisition of and investments in oil and gas properties and equipment partially offset by sales of such assets.  Net cash used in investing activities for the three months ended March 31, 2020 and 2019 was $35.6 million and $31.6 million, respectively.  Our capital expenditures on an occurrence basis for the three months ended March 31, 2020 were split approximately 25% for investments in the deep waters of the Gulf of Mexico and approximately 75% for investments on the conventional shelf of the Gulf of Mexico.  During the three months ended March 31, 2020, the purchase of the remaining 25% interest in the Magnolia field was consummated for approximately $2.0 million.

 

Net cash used by financing activities for the three months ended March 31, 2020 and 2019 was $33.5 million and $0.4 million, respectively.  The net cash used for the three months ended March 31, 2020 included repayment borrowings of $25.0 million under the Credit Agreement and $8.5 million to purchase $27.5 million principal of Senior Second Lien Notes on the open market.  Net cash used by financing activities for the three months ended March 31, 2019 was $0.4 million related to debt issuance costs.

 

Derivative Financial Instruments.  From time to time, we use various derivative instruments to manage a portion of our exposure to commodity price risk from sales of oil and natural gas.  During the three months ended March 31, 2020, we entered into derivative contracts for natural gas for a portion of our future production.  During the second quarter of 2020, we added the following derivative contracts: (i) Henry Hub cashless collars on 10,000 Mcf per day of production for the period of May 2020 through December 2020 with a floor of $1.75 per Mcf and a ceiling of $2.58 per Mcf; (ii)  Henry Hub cashless collars on 20,000 Mcf per day of production for the period of January 2021 through December 2021 with an average floor of $2.17 per Mcf and an average ceiling of $3.00 per Mcf; and (iii) NYMEX crude oil swaps of 1,000 barrels per day for January 2021 through December 2021 at a weighted average price of $41.00 per barrel.  See Financial Statements – Note 6 – Derivative Financial Instruments under Part I, Item 1 of this Form 10-Q for additional information.  

 

Asset Retirement Obligations.  Each quarter, we review and revise our ARO estimates.  Our ARO as of March 31, 2020 and December 31, 2019 were $364.1 million and $355.6 million, respectively.   As our ARO estimates are for work to be performed in the future, and in the case of our non-current ARO, extend from one to many years in the future, actual expenditures could be substantially different than our estimates.  See Risk Factors, under Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019 for additional information.

 

Income Taxes.  We do not expect to make any significant income tax payments during 2020 and we expect to collect the income tax receivable of $1.9 million during 2020.  See Financial Statements – Note 9 –Income Taxes under Part I, Item 1 of this Form 10-Q for additional information.

 

 

 

 

29

 

 

Capital Expenditures

 

The level of our investment in oil and natural gas properties changes from time to time depending on numerous factors, including the prices of crude oil, NGLs and natural gas, acquisition opportunities, available liquidity and the results of our exploration and development activities.  During the first quarter 2020, we significantly reduced our 2020 capital expenditure budget in response to the unprecedented decline in oil prices.  The following table presents our capital expenditures for exploration, development and other leasehold costs (in thousands):

 

 

   

Three Months Ended March 31,

 
   

2020

   

2019

 

Exploration (1)

  $ 1,206     $ 4,251  

Development (1)

    7,180       17,269  

Magnolia acquisition

    2,002        

Seismic and other

    1,156       9,113  

Investments in oil and gas property/equipment

  $ 11,544     $ 30,633  

 

 

 

(1)

Reported geographically in the subsequent table.

 

The following table presents our exploration and development capital expenditures geographically in the Gulf of Mexico (in thousands):

 

 

   

Three Months Ended March 31,

 
   

2020

   

2019

 

Conventional shelf

  $ 6,322     $ 6,079  

Deepwater

    2,064       15,441  

Exploration and development capital expenditures

  $ 8,386     $ 21,520  

 

 

The capital expenditures reported in the above two tables are included within Oil and natural gas properties and other, net on the Consolidated Balance Sheets.  The capital expenditures reported within the Investing section of the Consolidated Statements of Cash Flows include adjustments to report payments related to capital expenditures.

 

Our capital expenditures for the three months ended March 31, 2020 were financed by cash flow from operations and cash on hand.

 

 Drilling Activity

 

During the three months ended March 31, 2020, we drilled the East Cameron 349 B-1 well (Cota) to target depth.  We expect initial production to be in the first half of 2021, subject to completion of certain infrastructure and the level of commodity prices.  The Cota well is in the Joint Venture Drilling Program.  We did not drill any dry holes during the three months ended March 31, 2020. 

 

 Offshore Lease Awards 

 

During the three months ended March 31, 2020, we were the apparent high bidder on two blocks in the Gulf of Mexico Lease Sale 254 held by the BOEM on March 18, 2020.  We are the apparent high bidder on one deepwater block, Garden Bank 782, and one shallow water block, Eugene Island Area South block 345.  The two blocks cover a total of approximately 10,760 acres and we will pay $0.7 million combined for a 100% working interest if awarded.

 

30

 

Debt

 

Credit Agreement.  As of March 31, 2020, borrowings outstanding under the Credit Agreement were $80.0 million and letters of credit issued under the Credit Agreement were $5.8 million.  During the three months ended March 31, 2020, a repayment of $25.0 million was made.  Availability under our Credit Agreement as of March 31, 2020 was $164.2 million.  As of June 17, 2020, following the borrowing base retermination and the recent Senior Second Lien Note purchases, availability under the Credit Agreement was $128.9 million and we had $80.0 million of borrowings outstanding under the Credit Agreement.  The Credit Agreement matures on October 18, 2022.

 

Availability under our Credit Agreement is subject to a semi-annual redetermination of our borrowing base, which was initially set at $250.0 million and was reduced to $215.0 million in June 2020.  The next redetermination will occur in the fall of 2020.  Generally, we must be in compliance with the covenants in our Credit Agreement in order to access borrowings under the Credit Agreement.

 

We currently have six lenders under our Credit Agreement.  While we do not anticipate any difficulties in obtaining funding from any of these lenders as of the date of the filing of this Quarterly Report, any difficulties in obtaining funding from any of these lenders at this time, any lack of or delay in funding by members of our banking group could negatively impact our liquidity position.  See Financial Statements – Note 2 –Long-Term Debt and –Note 12– Subsequent Events under Part I, Item 1 of this Form 10-Q for additional information.

 

Senior Second Lien Notes.  As of March 31, 2020, we had outstanding $597.5 million principal of Senior Second Lien Notes with an interest rate of 9.75% per annum that matures on November 1, 2023.  During the three months ended March 31, 2020, we purchased $27.5 million in principal of our outstanding Senior Second Lien Notes in the open market for $8.5 million.  Subsequent to March 31, 2020, we purchased an additional $45.1 million in outstanding notes on the open market for $15.3 million. See Financial Statements – Note 2 – Long-Term Debt and  –Note 12– Subsequent Events under Part I, Item 1 of this Form 10-Q for additional information.

 

Debt Covenants.  The Credit Agreement and Senior Second Lien Notes contain financial covenants calculated as of the last day of each fiscal quarter, which include thresholds on financial ratios, as defined in the respective Credit Agreement and the indenture related to the Senior Second Lien Notes.  We were in compliance with all applicable covenants of the Credit Agreement and the Senior Second Lien Notes indenture as of March 31, 2020.  See Financial Statements – Note 2 – Long-Term Debt and  –Note 12– Subsequent Events under Part I, Item 1 of this Form 10-Q for additional information.

 

Uncertainties

 

Bureau of Ocean Energy Management (“BOEM”) Matters.  As of the filing date of this Form 10-Q, we are in compliance with our financial assurance obligations to the BOEM and have no outstanding BOEM orders related to financial assurance obligations.  We and other offshore Gulf of Mexico producers may, in the ordinary course of business, receive requests or demands in the future for financial assurances from the BOEM.

 

Surety Bond Collateral.  Some of the sureties that provide us surety bonds used for supplemental financial assurance purposes have requested and received collateral from us, and may request additional collateral from us in the future, which could be significant and materially impact our liquidity.  In addition, pursuant to the terms of our agreements with various sureties under our existing bonds or under any additional bonds we may obtain, we are required to post collateral at any time, on demand, at the surety’s discretion.  No additional demands were made to us by sureties during 2020 as of the filing date of this Form 10-Q and we currently do not have surety bond collateral outstanding.

 

The issuance of any additional surety bonds or other security to satisfy future BOEM orders, collateral requests from surety bond providers, and collateral requests from other third parties may require the posting of cash collateral, which may be significant, and may require the creation of escrow accounts.

 

31

 

Insurance Coverage

 

Insurance Coverage.  We currently carry multiple layers of insurance coverage in our Energy Package (defined as certain insurance policies relating to our oil and gas properties which include named windstorm coverage) covering our operating activities, with higher limits of coverage for higher valued properties and wells.  The current policy limits for well control range from $30.0 million to $500.0 million depending on the risk profile and contractual requirements.  With respect to coverage for named windstorms, we have a $162.5 million aggregate limit covering all of our higher valued properties, and $150 million for all other properties subject to a retention of $30.0 million. Included within the $162.5 million aggregate limit is total loss only (“TLO”) coverage on our Mahogany platform, which has no retention.  The operational and named windstorm coverages are effective for one year beginning June 1, 2020.  Coverage for pollution causing a negative environmental impact is provided under the well control and other sections within the policy.

 

Our general and excess liability policies are effective for one year beginning May 1, 2020 and provide for $300.0 million of coverage for bodily injury and property damage liability, including coverage for liability claims resulting from seepage, pollution or contamination.  With respect to the Oil Spill Financial Responsibility requirement under the Oil Pollution Act of 1990, we are required to evidence $150.0 million of financial responsibility to the BSEE and we have insurance coverage of such amount.

 

Although we were able to renew our general and excess liability policies effective on May 1, 2020, and our Energy Package effective on June 1, 2020, our insurers may not continue to offer this type and level of coverage to us in the future, or our costs may increase substantially as a result of increased premiums and there could be an increased risk of uninsured losses that may have been previously insured, all of which could have a material adverse effect on our financial condition and results of operations.  We are also exposed to the possibility that in the future we will be unable to buy insurance at any price or that if we do have claims, the insurers will not pay our claims.  We do not carry business interruption insurance.

 

Contractual Obligations

 

Updated information on certain contractual obligations is provided in Financial Statements – Note 2 – Long-Term Debt, Note 5 – Asset Retirement Obligations and Note 12, Subsequent Events under Part I, Item 1 of this Form 10-Q.  As of March 31, 2020, there were no drilling rig commitments.  Except for scheduled utilization, other contractual obligations as of March 31, 2020 did not change materially from the disclosures in Management’s Discussion and Analysis of Financial Condition and Results of Operations, under Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2019.

 

Critical Accounting Policies

 

Our significant accounting policies are summarized in Financial Statements and Supplementary Data under Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2019. See Financial Statements – Note 1 – Basis of Presentation under Part 1, Item 1 of this Form 10-Q for additional information.

 

Recent Accounting Pronouncements

 

See Financial Statements – Note 1 – Basis of Presentation under Part 1, Item 1, of this Form 10-Q.

 

32

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Information about the types of market risks for the three months ended March 31, 2020 did not change materially from the disclosures in Quantitative and Qualitative Disclosures About Market Risk under Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2019.  However, the declines in crude oil and natural gas prices have caused, and could continue to cause significant financial impacts to us.  See the Liquidity section in Item II above for a discussion on the possible effects.  In addition, the information contained herein should be read in conjunction with the related disclosures in our Annual Report on Form 10-K for the year ended December 31, 2019.

 

Commodity Price Risk.  Our revenues, profitability and future rate of growth substantially depend upon market prices of crude oil, NGLs and natural gas, which fluctuate widely.  Crude oil, NGLs and natural gas price declines have adversely affected our revenues, net cash provided by operating activities and profitability in the past and sustain current prices would have significant impacts on our business in the future.  During 2020, we entered into derivative natural gas contracts related to a portion of our estimated future production.  We historically have not designated our commodity derivatives as hedging instruments and any future derivative commodity contracts are not expected to be designated as hedging instruments.  Use of these contracts may reduce the effects of volatile crude oil and natural gas prices, but they also may limit future income from favorable price movements. See Financial Statements – Note 6 – Derivative Financial Instruments under Part I, Item 1 of this Form 10-Q for additional information.

 

Interest Rate Risk.  As of March 31, 2020, we had $80.0 million borrowings outstanding under our Credit Agreement and were subject to the variable London Interbank Offered Rate and the Applicable Margin.  We did not have any derivative instruments related to interest rates.

 

 

Item 4. Controls and Procedures

 

We have established disclosure controls and procedures designed to ensure that material information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC and that any material information relating to us is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate to allow timely decisions regarding required disclosures.  In designing and evaluating our disclosure controls and procedures, our management recognizes that controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving desired control objectives.  In reaching a reasonable level of assurance, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

As required by Exchange Act Rule 13a-15(b), we performed an evaluation, under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report.  Based on that evaluation, our CEO and CFO have each concluded that as of March 31, 2020, our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that our controls and procedures are designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

 

During the quarter ended March 31, 2020, there was no change in our internal control over financial reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

33

Table of Contents

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

See Financial Statements – Note 11 – Contingencies under Part I Item 1 of this Form 10-Q for information on various legal proceedings to which we are a party or our properties are subject.

 

Item 1A. Risk Factors

 

The COVID-19 pandemic has affected, and may continue to materially adversely affect, our industry, business, financial condition or results of operations.

 

The COVID-19 pandemic and related economic repercussions have created significant volatility, uncertainty, and turmoil in the oil and gas industry. The COVID-19 outbreak and the responsive actions to limit the spread of the virus have significantly reduced global economic activity, resulting in a decline in the demand for oil, natural gas, and other commodities. These economic consequences have been a primary cause of the significant supply-and-demand imbalance for oil. The current supply-and-demand imbalance and significantly lower oil pricing may continue to affect us, constraining our ability to store and move production to downstream markets, or affecting future decisions to delay or curtail development activity or temporarily shut-in production which could further reduce cash flow.

 

The extent of the impact of the COVID-19 pandemic and any other future pandemic on our business will depend on the nature, spread and duration of the disease, the responsive actions to contain its spread or address its effects, its effect on the demand for oil and natural gas, the timing and severity of the related consequences on commodity prices and the economy more generally, including any recession resulting from the pandemic, among other things.  Any extended period of depressed commodity prices or general economic disruption as a result of the pandemic would adversely affect our business, financial conditions and results of operations.  In addition, the COVID-19 pandemic has heightened the other risks and uncertainties set forth in the “Risk Factors” section of our Annual Report on Form 10-K for the year 2019.

 

We will likely incur greater costs to bring production associated with our shut-in wells back online, and are unable to predict the production levels of such wells once brought back online.

 

The significant supply/demand balance for oil materially decreased global crude oil prices in the first quarter of 2020 and generated a surplus of oil.  This significant surplus created a saturation of storage and crude storage constraints, which led us to shut-in production in some of our oil-weighted properties due to the lack of availability and capacity of processing, gathering, storing and transportation systems.  We will likely incur greater costs to bring the associated production back online.  Cost increases necessary to bring the associated wells back online may be significant enough that such wells would become uneconomic at low commodity price levels, which may lead to decreases in our proved reserve estimates and potential impairments and associated charges to our earnings.  If we are able to bring wells back online, there is no assurance that such wells will be as productive following recommencement as they were prior to being shut in.  Such factors could adversely affect our financial condition and results of operations.

 

Investors should carefully consider these risk factors together with all of the other information included in this document, in our Annual Report on Form 10-K for the year 2019, and in our other public filings, press releases and discussions with our management.

 

 

34

 

 

Item 5. Other Information

 

On June 17, 2020, the lenders under the Credit Agreement completed their semi-annual borrowing base redetermination and entered into the Third Amendment and Waiver to the Credit Agreement. Although the Company had not violated any covenants, the Third Amendment provides less stringent covenant requirements given the recent changes in the oil and gas markets.  The Third Amendment includes the following changes, among other things, to the Credit Agreement:

 

 

The borrowing base under the Credit Agreement was reduced from $250.0 million to $215.0 million.

 

 

Increase the interest rate margin by 25 basis points.

 

 

Amend the financial covenants as follows:  

 

 

 

From the period ended June 30, 2020 through the period ended December 31, 2021, the Company will not be required to comply with the Leverage Ratio covenant.

 

 

 

During the Waiver Period, the Company will be required to maintain a 2.00 to 1.00 ratio limit of first lien debt outstanding under the Credit Agreement on the last day of the most recent quarter to EBITDAX for the trailing four quarters.

 

 

 

Increase the requirement to provide first priority liens on properties constituting at least 85% of total proved reserves of the Company as set forth on reserve reports required to be delivered under the Credit Agreement to 90%.

 

 

 

35

 

 

Item 6. Exhibits

 

Exhibit
Number

 

Description

     

3.1

 

Amended and Restated Articles of Incorporation of W&T Offshore, Inc. (Incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K, filed February 24, 2006 (File No. 001-32414))

     

3.2

 

Second Amended and Restated Bylaws of W&T Offshore, Inc. (Incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K, filed March 22, 2019 (File No. 001-32414))

     

3.3

 

Certificate of Amendment to the Amended and Restated Articles of Incorporation of W&T Offshore, Inc. (Incorporated by reference to Exhibit 3.3 of the Company’s Quarterly Report on Form 10-Q, filed July 31, 2012 (File No. 001-32414))

     

3.4

 

Certificate of Amendment to the Amended and Restated Articles of Incorporation of W&T Offshore, Inc., dated as of September 6, 2016. (Incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K, filed September 6, 2016 (File No. 001-32414))

     
10.1*   Third Amendment and Waiver to Sixth Amended and Restated Credit Agreement, dated June 17, 2020, by and among W&T Offshore, Inc., Toronto Dominion (Texas) LLC, as agent and the various agents and lenders party thereto.
     

31.1*

 

Section 302 Certification of Chief Executive Officer.

     

31.2*

 

Section 302 Certification of Chief Financial Officer.

     

32.1*

 

Section 906 Certification of Chief Executive Officer and Chief Financial Officer.

     

101.INS*

 

XBRL Instance Document.

     

101.SCH*

 

XBRL Schema Document.

     

101.CAL*

 

XBRL Calculation Linkbase Document.

     

101.DEF*

 

XBRL Definition Linkbase Document.

     

101.LAB*

 

XBRL Label Linkbase Document.

     

101.PRE*

 

XBRL Presentation Linkbase Document.

 

 

*

Filed or furnished herewith.

 

 


 

36

Table of Contents

 

SIGNATURE

 

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on June 23, 2020.

 

W&T OFFSHORE, INC.

 

By:

/s/  Janet Yang

  Janet Yang
 

Executive Vice President and Chief Financial Officer

(Principal Financial Officer), duly authorized to sign on behalf of the registrant

 

 

 

37

ex_190870.htm

Exhibit 10.1

 

THIRD AMENDMENT AND WAIVER TO SIXTH AMENDED
AND RESTATED CREDIT AGREEMENT

 

THIS THIRD AMENDMENT AND WAIVER TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT (herein called this “Third Amendment”), dated as of June 17, 2020 (the “Effective Date”), is entered into by and among W&T OFFSHORE, INC., a Texas corporation, as the borrower (the “Borrower”), the Guarantor Subsidiaries party hereto, the various financial institutions parties hereto, as Lenders, TORONTO DOMINION (TEXAS) LLC, individually and as agent (in such capacity together with any successors thereto, the “Administrative Agent”) for the Lenders, and the issuers of letters of credit parties hereto, as issuers (collectively, the “Issuers”).

 

WITNESSETH

 

WHEREAS, the Borrower, the lenders party thereto (collectively, the “Lenders”), the Administrative Agent, the Issuers and the other parties thereto have heretofore executed that certain Sixth Amended and Restated Credit Agreement, dated as of October 18, 2018 (as amended, supplemented, amended and restated or otherwise modified from time to time, the “Credit Agreement”); and

 

WHEREAS, the parties hereto hereby further intend to amend certain provisions of the Credit Agreement, in each case on the terms and conditions set forth herein.

 

NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the undersigned hereby agree as follows:

 

1.     Definitions. Capitalized terms used herein (including in the Recitals hereto) but not defined herein, shall have the meanings as given them in the Credit Agreement, unless the context otherwise requires.

 

2.     Amendments to Credit Agreement. Effective as of the Third Amendment Effective Date (as defined below), the Credit Agreement is hereby amended as set forth on Exhibit A attached hereto such that all of the newly inserted and underscored provisions and any formatting changes reflected therein shall be deemed inserted or made, as applicable, and all of the stricken provisions shall be deemed to be deleted therefrom. Schedules and Exhibits to the Credit Agreement shall remain as in effect under the Credit Agreement prior to the Third Amendment Effective Date.

 

3.     Representations and Warranties. The Borrower hereby represents and warrants that after giving effect hereto:

 

(a)     the representations and warranties of the Borrower and its Restricted Subsidiaries contained in the Loan Documents (as amended or waived hereby) are true and correct in all material respects (unless such representation or warranty is qualified by materiality, in which event such representation or warranty shall be true and correct in all respects) on and as of the Third Amendment Effective Date, other than those representations and warranties that expressly relate solely to a specific earlier date, which shall remain correct in all material respects as of such earlier date (unless such representation or warranty is qualified by materiality, in which event such representation or warranty is true and correct in all respects as of such earlier date);

 

(b)     the execution, delivery and performance by the Borrower and its Restricted Subsidiaries of this Third Amendment are within their corporate or limited liability company powers, have been duly authorized by all necessary action, require, in respect of any of them, no action by or in respect of, or filing with, any governmental authority which has not been performed or obtained and do not contravene, or constitute a default under, any provision of Law or regulation or the articles of incorporation or the bylaws of any of them or any agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or its Restricted Subsidiaries or result in the creation or imposition of any Lien on any asset of any of them except as contemplated by the Loan Documents other than, in each case, as would not reasonably be expected to cause or result in a Material Adverse Change;

 

(c)     the execution, delivery and performance by the Borrower and its Restricted Subsidiaries of this Third Amendment constitutes the legal, valid and binding obligation of each of them enforceable against them in accordance with its terms except as such enforcement may be limited by bankruptcy, insolvency or similar Laws of general application relating to enforcement of creditors’ rights;

 

(d)     no Default or Event of Default has occurred and is continuing; and

 

(e)     as of the date hereof, the Consolidated Cash Balance (as defined in Exhibit A hereof) does not exceed $25,000,000.

 

4.     Subsidiaries. Schedule 1 attached hereto sets forth, as of the date hereof, each Subsidiary of Borrower and identifies whether or not such Subsidiary is an Excluded Subsidiary (including pursuant to a specific clause of the definition of Excluded Subsidiary) and identifies the Investment Percentage owned in such Person.

 

5.     Redetermination of Borrowing Base. The Borrower and the Lenders hereby agree that effective as of the date hereof, the Borrowing Base shall be equal to $215,000,000 until such time as the Borrowing Base is redetermined or otherwise adjusted pursuant to the terms of the Credit Agreement. This is the Borrowing Base for the April 15, 2020 Evaluation Date.

 

6.     Conditions to Effectiveness of Amendments. The amendments in Section 2 of this Third Amendment shall each be effective on the date on which all of the following conditions in this Section 6 of this Third Amendment are satisfied (such date, the “Third Amendment Effective Date”).

 

(a)     The Administrative Agent shall have received counterparts of this Third Amendment duly executed by the Borrower, the Guarantor Subsidiaries, the Administrative Agent and the Required Lenders.

 

(b)     The Administrative Agent shall have received all fees and expenses to the extent invoiced at least one (1) Business Day prior to the Third Amendment Effective Date.

 

(c)     After giving effect to any transactions on the Third Amendment Effective Date, the Borrower will not have a Consolidated Cash Balance in excess of $25,000,000; provided that to the extent that satisfaction of the requirement of this condition (c) requires the Borrower to make a payment on outstanding Loans on a date that is not the last day of an Interest Period, the Borrower shall not be obligated to pay any amounts in respect thereof under Section 3.5 of the Credit Agreement and shall not be obligated to provide three (3) Business Days’ notice of such prepayment as provided in Section 2.6 of the Credit Agreement.

 

7.     Ratification: Loan Document. This Third Amendment shall be deemed to be an amendment to the Credit Agreement effective as of the dates set forth herein, and the Credit Agreement, as hereby amended, is hereby ratified, approved and confirmed in each and every respect. The Borrower and each Guarantor Subsidiary hereby ratifies, approves and confirms in every respect all the terms, provisions, conditions and obligations of the Loan Documents (including, without limitation, all Security Documents) to which it is a party. All references to the Credit Agreement in any Loan Document or in any other document, instrument, agreement or writing shall hereafter be deemed to refer to the Credit Agreement as hereby amended. This Third Amendment is a Loan Document.

 

8.     Costs And Expenses. As provided in Section 10.4 of the Credit Agreement, the Borrower agrees to reimburse the Administrative Agent for all reasonable costs and expenses incurred by or on behalf of the Administrative Agent (including attorneys’ fees, consultants’ fees and engineering fees, travel costs and miscellaneous expenses) in connection with this Third Amendment and any other agreements, documents, instruments, releases, terminations or other collateral instruments delivered by the Administrative Agent in connection with this Third Amendment.

 

9.     GOVERNING LAW. THIS THIRD AMENDMENT SHALL BE DEEMED A CONTRACT AND INSTRUMENT MADE UNDER THE LAWS OF THE STATE OF NEW YORK AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK AND THE LAWS OF THE UNITED STATES OF AMERICA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.

 

10.     Severability. If any term or provision of this Third Amendment shall be determined to be illegal or unenforceable all other terms and provisions of this Third Amendment shall nevertheless remain effective and shall be enforced to the fullest extent permitted by applicable Law.

 

11.     Counterparts. This Third Amendment may be separately executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to constitute one and the same agreement. Any signature hereto delivered by a party by facsimile or electronic transmission shall be deemed to be an original signature hereto.

 

12.     Successors and Assigns. This Third Amendment shall be binding upon the Borrower and its successors and permitted assigns and shall inure, together with all rights and remedies of each Lender Party hereunder, to the benefit of each Lender Party and its successors, transferees and assigns.

 

13.     No Waiver. The execution, delivery and effectiveness of this Third Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Administrative Agent under any of the Loan Documents, nor constitute a waiver by the Administrative Agent or the Lenders of any Defaults or Events of Default which may exist, which may have occurred prior to the date of the effectiveness of this Third Amendment or which may occur in the future under the Credit Agreement and/or the other Loan Documents.

 

(The remainder of this page is intentionally left blank.)

 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to be executed by their respective officers thereunto duly authorized as of the day and year first above written.

 

BORROWER:

 

W&T OFFSHORE, INC.

 

By: /s/ Janet Yang      

Name:     Janet Yang

Title: Executive Vice President and Chief Financial Officer

 

 

 

TORONTO DOMINION (TEXAS) LLC,
as Administrative Agent

 

By: /s/ Hughroy Enniss

Name:     Hughroy Enniss

Title: Authorized Signatory

 

 

 

THE TORONTO-DOMINION BANK, NEW YORK BRANCH, as Lender

 

By: /s/ Hughroy Enniss

Name:     Hughroy Enniss

Title: Authorized Signatory

 

 

 

THE TORONTO-DOMINION BANK, NEW YORK BRANCH, as Issuer

 

By: /s/ Hughroy Enniss

Name:     Hughroy Enniss

Title: Authorized Signatory

 

 

 

MORGAN STANLEY BANK, N.A., as Lender

 

By: /s/ Kevin Newman

Name:     Kevin Newman

Title: Authorized Signatory

 

 

 

NATIXIS, NEW YORK BRANCH, as Lender

 

By:

Name:

Title:

 

By:

Name:

Title:

 

 

 

NATIXIS, NEW YORK BRANCH, as Issuer

 

By:

Name:

Title:

 

By:

Name:

Title:

 

 

 

SOCIÉTÉ GENERALE,
as Lender

 

By: /s/ Max Sonnonstine

Name:     Max Sonnonstine

Title: Director

 

 

 

SOCIÉTÉ GENERALE,
as Issuer

 

By: /s/ Max Sonnonstine

Name:     Max Sonnonstine

Title: Director

 

 

 

 

AMEGY BANK NATIONAL ASSOCIATION,
as Lender

 

By:

Name:

Title:

 

 

 

ZIONS BANCORPORATION, N.A. DBA

ABN AMRO CAPITAL USA LLC,
as Lender

 

By: /s/ Patty Smolik

Name:     Patty Smolik

Title: Vice President

 

 

 

 

ACKNOWLEDGED AND ACCEPTED BY:

W & T ENERGY VI, LLC

 

By: /s/ Janet Yang      

Name:     Janet Yang

Title: Executive Vice President and Chief Financial Officer

 

 

W & T ENERGY VII, LLC

 

By: /s/ Janet Yang      

Name:     Janet Yang

Title: Executive Vice President and Chief Financial Officer

 

Schedule 1

 

Subsidiaries/Operating Joint Ventures

 

Subsidiary/Operating Joint Venture

Percentage of Ownership

Excluded Subsidiary

W & T Energy VI, LLC

100%

No

W & T Energy VII, LLC

100%

No

White Shoal Pipeline Corporation

73.38%

Yes (Immaterial Subsidiary)

Monza Energy LLC

10.5% of the Class A units and 100% of the Class B units

N/A (Operating Joint Venture)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
ex_190639.htm

Exhibit 31.1

 

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Tracy W. Krohn, certify that:

 

1.

I have reviewed this Quarterly Report on Form 10-Q of W&T Offshore, Inc. (the “registrant”);

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date:  June 23, 2020

/s/  Tracy W. Krohn

 

Tracy W. Krohn

 

Chairman, Chief Executive Officer, President and Director

 

(Principal Executive Officer)

 

 
ex_190640.htm

Exhibit 31.2

 

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Janet Yang, certify that:

 

1.

I have reviewed this Quarterly Report on Form 10-Q of W&T Offshore, Inc. (the “registrant”);

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: June 23, 2020

/s/  Janet Yang

 

Janet Yang

 

Executive Vice President and Chief Financial Officer

 

(Principal Financial and Accounting Officer)

 

 
ex_190641.htm

Exhibit 32.1

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

 

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of W&T Offshore, Inc. (the “Company”), hereby certifies, to the best of his or her knowledge, that the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2020 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that information contained in such Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: June 23, 2020

/s/  Tracy W. Krohn

 

Tracy W. Krohn

 

Chairman, Chief Executive Officer, President and Director

 

(Principal Executive Officer)

 

Date: June 23, 2020

/s/  Janet Yang

 

Janet Yang

 

Executive Vice President and Chief Financial Officer

 

(Principal Financial and Accounting Officer)

 

 
v3.20.1
Note 11 - Contingencies (Details Textual) - USD ($)
$ in Thousands
3 Months Ended 12 Months Ended
Mar. 31, 2020
Dec. 31, 2019
Jul. 25, 2017
Jan. 27, 2017
Dec. 31, 2010
Additional Royalty Due to Disallowed Deductions       $ 4,700 $ 4,700
Bonds Posted to Appeal IBLA Decision     $ 7,200    
Collateral for Bonds Posted Related to Appeal with IBLA     $ 6,900    
BSEE [Member]          
Payment for Civil Penalty $ 0 $ 0      
Proposed Civil Penalties 7,700        
Loss Contingency Accrual, Ending Balance $ 3,500 $ 3,500      
v3.20.1
Note 8 - Share-based Compensation and Cash-based Incentive Compensation - Summary of Incentive Compensation Expense Under Share-based Payment Arrangements (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Share-based compensation expense $ 1,048 $ (78)
Restricted Stock Units (RSUs) [Member]    
Share-based compensation expense [1] 978 (148)
Restricted Stock [Member]    
Share-based compensation expense $ 70 $ 70
[1] For the three months ended March 31, 2019, share-based compensation expense includes adjustments for a former executive's' forfeitures.
v3.20.1
Note 1 - Basis of Presentation - Schedule of Oil and Natural Gas Properties and Other, Net at Cost (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Oil and natural gas properties and equipment, at cost $ 8,546,778 $ 8,532,196
Furniture, fixtures and other 20,387 20,317
Total property and equipment 8,567,165 8,552,513
Less: Accumulated depreciation, depletion and amortization 7,837,121 7,803,715
Oil and natural gas properties and other, net $ 730,044 $ 748,798
v3.20.1
Note 2 - Long-term Debt (Details Textual)
$ in Thousands
3 Months Ended
Oct. 18, 2018
USD ($)
Mar. 31, 2020
USD ($)
Mar. 31, 2019
USD ($)
Dec. 31, 2019
USD ($)
Gain (Loss) on Extinguishment of Debt, Total   $ 18,501  
Credit Agreement [Member]        
Line of Credit Facility, Maximum Borrowing Capacity $ 250,000      
Letters of Credit Outstanding, Amount   $ 5,800   $ 5,800
Credit Agreement, Maximum Leverage Ratio 3      
Credit Agreement, Minimum Current Ratio 1      
Credit Agreement, Minimum Percentage of Total Proved Reserves 85.00%      
Debt Instrument, Interest Rate During Period   4.50%    
Credit Agreement [Member] | Letter of Credit [Member]        
Line of Credit Facility, Maximum Borrowing Capacity $ 30,000      
Senior Second Lien Notes Due November 2023 [Member]        
Debt Instrument, Face Amount $ 625,000 $ 597,525   $ 625,000
Debt Instrument, Interest Rate, Stated Percentage 9.75%      
Debt Instrument, Interest Rate, Effective Percentage 10.40%      
Extinguishment of Debt, Amount   27,500    
Repayments of Long-term Debt, Total   8,500    
Gain (Loss) on Extinguishment of Debt, Total   18,500    
Write off of Deferred Debt Issuance Cost   $ 400    
v3.20.1
Note 4 - Joint Venture Drilling Program (Details Textual) - USD ($)
$ in Thousands
3 Months Ended 12 Months Ended
Mar. 12, 2018
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2019
Property, Plant and Equipment, Net, Ending Balance   $ 730,044   $ 748,798
Other Assets, Noncurrent, Total   30,084   33,447
Asset Retirement Obligation, Ending Balance   364,100   355,594
Revenue from Contract with Customer, Excluding Assessed Tax, Total   124,128 $ 116,080  
JV Drilling Program [Member] | Mr. Tracy W. Krohn [Member]        
Minority Interest Ownership Percentage By Joint Venture 4.50%      
Monza Energy, LLC [Member]        
Property, Plant and Equipment, Net, Ending Balance   15,100   16,100
Other Assets, Noncurrent, Total   4,200   5,300
Asset Retirement Obligation, Ending Balance   100   100
Increase (Decrease) in Working Capital   2,400   2,700
Cash Call Balance   18,300   $ 5,300
Revenue from Contract with Customer, Excluding Assessed Tax, Total   3,300 1,600  
Operating Costs and Expenses, Total   3,100 $ 900  
Monza Energy, LLC [Member] | JV Drilling Program [Member]        
Amount Committed by Investors $ 361,400      
Joint Venture Working Interest Percentage Contributed to Related Party 88.94%      
Joint Venture Working Interest Percent 11.06%      
Oil and Gas Revenue, Percent 30.00%      
Well Cost, Percent 20.00%      
Capital Contribution Payments from Related Party   289,300    
Capital Contributions from Related Party During Period   45,900    
Capital Contribution Payments to Related Party, Net   $ 57,100    
Monza Energy, LLC [Member] | JV Drilling Program [Member] | Mr. Tracy W. Krohn [Member]        
Capital Commitment to Joint Venture $ 14,500      
v3.20.1
Note 10 - Earnings Per Share
3 Months Ended
Mar. 31, 2020
Notes to Financial Statements  
Earnings Per Share [Text Block]
10.
Earnings Per Share
 
The following table presents the calculation of basic and diluted earnings (loss)  per common share (in thousands, except per share amounts):
 
   
Three Months Ended March 31,
 
   
2020
   
2019
 
Net income (loss)
  $
65,980
    $
(47,761
)
Less portion allocated to nonvested shares
   
791
     
 
Net income (loss) allocated to common shares
  $
65,189
    $
(47,761
)
Weighted average common shares outstanding
   
141,546
     
140,462
 
                 
Basic and diluted earnings (loss) per common share
  $
0.46
    $
(0.34
)
                 
Shares excluded due to being anti-dilutive (weighted-average)
   
     
3,342
 
 
v3.20.1
Note 6 - Derivative Financial Instruments
3 Months Ended
Mar. 31, 2020
Notes to Financial Statements  
Derivative Instruments and Hedging Activities Disclosure [Text Block]
6.
Derivative Financial Instruments
 
Our market risk exposure relates primarily to commodity prices and, from time to time, we use various derivative instruments to manage our exposure to this commodity price risk from sales of our crude oil and natural gas.  All of the present derivative counterparties are also lenders or affiliates of lenders participating in our Credit Agreement.  We are exposed to credit loss in the event of nonperformance by the derivative counterparties; however, we currently anticipate that each of our derivative counterparties will be able to fulfill their contractual obligations.  We are
not
required to provide additional collateral to the derivative counterparties and we do
not
require collateral from our derivative counterparties.
 
We have elected
not
to designate our commodity derivative contracts as hedging instruments; therefore, all changes in the fair value of derivative contracts were recognized currently in earnings during the periods presented.  The cash flows of all of our commodity derivative contracts are included in
Net cash provided by operating activities
on the Condensed Consolidated Statements of Cash Flows.
 
We entered into commodity contracts for crude oil and natural gas which related to a portion of our expected future production.  The crude oil contracts are based on West Texas Intermediate (“WTI”) crude oil prices and the natural gas contracts are based off the Henry Hub prices, both of which are quoted off the New York Mercantile Exchange (“NYMEX”).  The open contracts as of
March 
31,
2020
 are presented in the following tables:
 
 
Crude Oil:
  
Open Swap Contracts, Priced off WTI (NYMEX)
 Period
 
 Notional Quantity (Bbls/day) (1)
 
 Notional Quantity
(Bbls) (1)
 
 Weighted Average Strike Price
Apr 2020 - May 2020
 
10,000
 
610,000
 
$ 60.92
 
 
Crude Oil:
  
Open Call Contracts - Bought, Priced off WTI (NYMEX)
Period
 
 Notional Quantity (Bbls/day) (1)
 
 Notional Quantity
(Bbls) (1)
 
 Strike Price
Apr 2020 - May 2020
 
10,000
 
610,000
 
$ 61.00
             
June 2020 - Dec. 2020
 
10,000
 
2,140,000
 
$ 67.50
 
 
(
1
)
Bbls = Barrels
 
 
 
 
 
Crude Oil:
  
Open Collar Contracts - Priced off WTI (NYMEX)
Period
 
 Notional Quantity (Bbls/day) (1)
 
 Notional Quantity
(Bbls) (1)
 
Put Option
Weighted Strike Price
(Bought)
 
Call Option
Weighted Strike Price
(Sold)
June 2020 - Dec. 2020
 
10,000
 
2,140,000
 
$ 45.00
 
$ 63.51
 
 
Natural Gas: Open Collar Contracts, Priced off Henry Hub (NYMEX)
Period
 
Notional Quantity (MMBtu/day) (2)
 
Notional Quantity (MMBtu) (2)
 
Put Option Strike Price (Bought)
 
Call Option Strike Price (Sold)
May 2020 - Dec. 2022
 
40,000
 
39,000,000
 
$ 1.83
 
$ 3.00
 
 
Natural Gas: Open Call Contracts, Bought, Priced off Henry Hub (NYMEX)
Period
 
Notional Quantity (MMBtu/day) (2)
 
Notional Quantity (MMBtu) (2)
 
Strike Price
May 2020 - Dec. 2022
 
40,000
 
39,000,000
 
$ 3.00
 
 
(
2
)
MMBtu = Million British Thermal Units
 
The following amounts were recorded in the Condensed Consolidated Balance Sheets in the categories presented and include the fair value of open contracts, and closed contracts which had
not
yet settled (in thousands):
 
 
 
March 31,
 
December 31,
 
2020
 
2019
Prepaid expenses and other assets
$ 64,039
 
$ 7,266
Other assets (long-term)
2,847
 
2,653
Accrued liabilities
 
1,785
Other liabilities (long-term)
1,245
 
 
 
The amounts recorded on the Condensed Consolidated Balance Sheets are on a gross basis.  If these were recorded on a net settlement basis, it would
not
have resulted in any material differences in reported amounts.
 
Changes in the fair value and settlements of our commodity derivative contracts were as follows (in thousands):
 
 
Three Months Ended March 31,
 
2020
 
2019
Derivative (gain) loss
$ (61,912)
 
$ 48,886
 
 
Cash receipts on commodity derivative contract settlements, net, are included within
Net cash provided by operating activities
on the Condensed Consolidated Statements of Cash Flows and were as follows (in thousands):
 
   
Three Months Ended March 31,
 
   
2020
   
2019
 
Cash receipts on derivative settlements, net
  $
4,404
    $
11,948
 
v3.20.1
Note 1 - Basis of Presentation (Details Textual) - Revenue Benchmark [Member] - Customer Concentration Risk [Member] - Three Major Oil and Gas Companies [Member]
3 Months Ended 12 Months Ended
Mar. 31, 2020
Dec. 31, 2019
Concentration Risk, Percentage 57.00% 63.00%
Number of Major Customers   3
v3.20.1
Note 6 - Derivative Financial Instruments (Tables)
3 Months Ended
Mar. 31, 2020
Notes Tables  
Schedule of Notional Amounts of Outstanding Derivative Positions [Table Text Block]
Crude Oil:
  
Open Swap Contracts, Priced off WTI (NYMEX)
 Period
 
 Notional Quantity (Bbls/day) (1)
 
 Notional Quantity
(Bbls) (1)
 
 Weighted Average Strike Price
Apr 2020 - May 2020
 
10,000
 
610,000
 
$ 60.92
Crude Oil:
  
Open Call Contracts - Bought, Priced off WTI (NYMEX)
Period
 
 Notional Quantity (Bbls/day) (1)
 
 Notional Quantity
(Bbls) (1)
 
 Strike Price
Apr 2020 - May 2020
 
10,000
 
610,000
 
$ 61.00
             
June 2020 - Dec. 2020
 
10,000
 
2,140,000
 
$ 67.50
Crude Oil:
  
Open Collar Contracts - Priced off WTI (NYMEX)
Period
 
 Notional Quantity (Bbls/day) (1)
 
 Notional Quantity
(Bbls) (1)
 
Put Option
Weighted Strike Price
(Bought)
 
Call Option
Weighted Strike Price
(Sold)
June 2020 - Dec. 2020
 
10,000
 
2,140,000
 
$ 45.00
 
$ 63.51
Natural Gas: Open Collar Contracts, Priced off Henry Hub (NYMEX)
Period
 
Notional Quantity (MMBtu/day) (2)
 
Notional Quantity (MMBtu) (2)
 
Put Option Strike Price (Bought)
 
Call Option Strike Price (Sold)
May 2020 - Dec. 2022
 
40,000
 
39,000,000
 
$ 1.83
 
$ 3.00
Natural Gas: Open Call Contracts, Bought, Priced off Henry Hub (NYMEX)
Period
 
Notional Quantity (MMBtu/day) (2)
 
Notional Quantity (MMBtu) (2)
 
Strike Price
May 2020 - Dec. 2022
 
40,000
 
39,000,000
 
$ 3.00
Schedule of Derivatives Instruments Statements of Financial Performance and Financial Position, Location [Table Text Block]
 
March 31,
 
December 31,
 
2020
 
2019
Prepaid expenses and other assets
$ 64,039
 
$ 7,266
Other assets (long-term)
2,847
 
2,653
Accrued liabilities
 
1,785
Other liabilities (long-term)
1,245
 
 
Three Months Ended March 31,
 
2020
 
2019
Derivative (gain) loss
$ (61,912)
 
$ 48,886
Schedule of Cash Receipts and Payments on Commodity Derivative Contract Settlements [Table Text Block]
   
Three Months Ended March 31,
 
   
2020
   
2019
 
Cash receipts on derivative settlements, net
  $
4,404
    $
11,948
 
v3.20.1
Note 1 - Basis of Presentation (Tables)
3 Months Ended
Mar. 31, 2020
Notes Tables  
Accounts Receivable, Allowance for Credit Loss [Table Text Block]
Allowance for credit losses, December 31, 2019
  $
9,898
 
Additional provisions
   
36
 
Uncollectible accounts written off
   
 
Allowance for credit losses, March 31, 2020
  $
9,934
 
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Table Text Block]
   
March 31, 2020
   
December 31, 2019
 
Derivatives - current (1)
  $
64,039
    $
7,266
 
Unamortized bond/insurance premiums
   
4,478
     
4,357
 
Prepaid deposits related to royalties
   
7,555
     
7,980
 
Prepayment to vendors
   
1,825
     
10,202
 
Other
   
761
     
886
 
Prepaid expenses and other assets
  $
78,658
    $
30,691
 
Property, Plant and Equipment [Table Text Block]
   
March 31, 2020
   
December 31, 2019
 
Oil and natural gas properties and equipment, at cost
  $
8,546,778
    $
8,532,196
 
Furniture, fixtures and other
   
20,387
     
20,317
 
Total property and equipment
   
8,567,165
     
8,552,513
 
Less: Accumulated depreciation, depletion and amortization
   
7,837,121
     
7,803,715
 
Oil and natural gas properties and other, net
  $
730,044
    $
748,798
 
Schedule of Other Assets, Noncurrent [Table Text Block]
   
March 31, 2020
   
December 31, 2019
 
Right-of-Use assets (Note 7)
  $
12,745
    $
7,936
 
Unamortized debt issuance costs
   
3,458
     
3,798
 
Investment in White Cap, LLC
   
2,917
     
2,590
 
Unamortized brokerage fee for Monza
   
2,881
     
3,423
 
Proportional consolidation of Monza's other assets (Note 4)
   
4,222
     
5,308
 
Derivative assets
   
2,847
     
2,653
 
Appeal bond deposits
   
     
6,925
 
Other
   
1,014
     
814
 
Total other assets (long-term)
  $
30,084
    $
33,447
 
Schedule of Accrued Liabilities [Table Text Block]
   
March 31, 2020
   
December 31, 2019
 
Accrued interest
  $
24,497
    $
10,180
 
Accrued salaries/payroll taxes/benefits
   
2,715
     
2,377
 
Incentive compensation plans
   
1,069
     
9,794
 
Litigation accruals
   
3,673
     
3,673
 
Lease liability (Note 7)
   
2,472
     
2,716
 
Derivatives - current
   
     
1,785
 
Other
   
2
     
371
 
Total accrued liabilities
  $
34,428
    $
30,896
 
Other Noncurrent Liabilities [Table Text Block]
   
March 31, 2020
   
December 31, 2019
 
Dispute related to royalty deductions
  $
4,687
    $
4,687
 
Dispute related to royalty-in-kind
   
250
     
250
 
Derivatives    
1,245
     
 
Lease liability (Note 7)
   
9,581
     
4,419
 
Other
   
701
     
632
 
Total other liabilities (long-term)
  $
16,464
    $
9,988
 
v3.20.1
Note 1 - Basis of Presentation
3 Months Ended
Mar. 31, 2020
Notes to Financial Statements  
Business Description and Basis of Presentation [Text Block]
1.
Basis of Presentation
 
Operations.
  W&T Offshore, Inc. (with subsidiaries referred to herein as “W&T,” “we,” “us,” “our,” or the “Company”) is an independent oil and natural gas producer with substantially all of its operations offshore in the Gulf of Mexico.  The Company is active in the exploration, development and acquisition of oil and natural gas properties. Our interests in fields, leases, structures and equipment are primarily owned by the Company and its
100%
-owned subsidiary, W & T Energy VI, LLC, and through our proportionately consolidated interest in Monza Energy LLC (“Monza”), as described in more detail in Note
4.
 
Interim Financial Statements.
  The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim periods and the appropriate rules and regulations of the Securities and Exchange Commission (“SEC”).  Accordingly, the condensed consolidated financial statements do
not
include all of the information and footnote disclosures required by GAAP for complete financial statements for annual periods.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.
 
Operating results for interim periods are
not
necessarily indicative of the results that
may
be expected for the entire year.  These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form
10
-K for the year ended
December 31, 2019.
 
Use of Estimates.
  The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
 
Recent Events. 
The pandemic spread of the disease caused by a new strain of coronavirus (“COVID-
19”
) and other worldly events have significantly impacted the price of crude oil and the demand for crude oil beginning in
March
of
2020.
  While crude oil prices have partially recovered in
June 2020
from recent historical lows in
April 2020,
the perceived risks and volatility have increased in
2020
to date compared to recent years.  See Note
12,
Subsequent Events
, for additional information.  
 
Accounting Standard Updates effective
January 1, 2020 
 
Credit Losses - 
 In
June 2016,
the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No.
2016
-
13,
Financial Instruments – Credit Losses
(
Topic
326
) (“ASU
2016
-
13”
) and subsequently issued additional guidance on this topic.  The new guidance eliminates the probable recognition threshold and broadens the information to consider past events, current conditions and forecasted information in estimating credit losses. The amendment did 
not
have a material impact on our financial statements and did
not
affect the opening balance of Retained Deficit.
 
Derivatives and Hedging - 
In
August 2017,
the FASB issued Accounting Standards Update
No.
2017
-
12,
Derivatives and Hedging (Topic
815
) – Targeted Improvements to Accounting for Hedging Activities
(“ASU
2017
-
12”
) and subsequently issued additional guidance on this topic.  The amendments in ASU
2017
-
12
require an entity to present the earnings effect of the hedging instrument in the same income statement line in which the earnings effect of the hedged item is reported.  This presentation enables users of financial statements to better understand the results and costs of an entity’s hedging program.  Also, relative to current GAAP, this approach simplifies the financial statement reporting for qualifying hedging relationships.  As we do
not
designate our commodity derivative instruments as qualifying hedging instruments, this amendment did 
not
impact the presentation of the changes in fair values of our commodity derivative instruments on our financial statements.
 
Revenue Recognition
.
  We recognize revenue from the sale of crude oil, natural gas liquids (“NGLs”), and natural gas when our performance obligations are satisfied.  Our contracts with customers are primarily short-term (less than
12
months).  Our responsibilities to deliver a unit of crude oil, NGL, and natural gas under these contracts represent separate, distinct performance obligations.  These performance obligations are satisfied at the point in time control of each unit is transferred to the customer.  Pricing is primarily determined utilizing a particular pricing or market index, plus or minus adjustments reflecting quality or location differentials.
 
Credit Risk and Allowance for Credit Losses. 
 
 Our revenue has been concentrated in certain major oil and gas companies.  For the year ended
December 31, 2019
and for the
three
months ended
March 31, 2020,
approximately
63%
and
57%,
respectively, of our revenue was from
three
major oil and gas companies and a substantial majority of our receivables were from sales with major oil and gas companies.  We also have receivables related to joint interest arrangements primarily with mid-size oil and gas companies with a substantial majority of the net receivable balance concentrated in less than
ten
companies.  A loss methodology is used to develop the allowance for credit losses on material receivables to estimate the net amount to be collected.  The loss methodology uses historical data, current market conditions and forecasts of future economic conditions.  Our maximum exposure at any time would be the receivable balance.  The receivables,
Joint interest and other, net
, reported on the Condensed Consolidated Balance Sheets are reduced for the allowance for credit losses.  The roll forward of the allowance for credit losses is as follows: 
 
 
Allowance for credit losses, December 31, 2019
  $
9,898
 
Additional provisions
   
36
 
Uncollectible accounts written off
   
 
Allowance for credit losses, March 31, 2020
  $
9,934
 
 
Prepaid Expenses and Other Assets.  
The amounts recorded are expected to be realized within
one
year and the major categories are presented in the following table (in thousands):
 
 
   
March 31, 2020
   
December 31, 2019
 
Derivatives - current (1)
  $
64,039
    $
7,266
 
Unamortized bond/insurance premiums
   
4,478
     
4,357
 
Prepaid deposits related to royalties
   
7,555
     
7,980
 
Prepayment to vendors
   
1,825
     
10,202
 
Other
   
761
     
886
 
Prepaid expenses and other assets
  $
78,658
    $
30,691
 
 
 
(
1
)
Includes closed contracts which have
not
yet settled.
 
Oil and Natural Gas Properties and Other, Net
– At Cost.  
Oil and natural gas properties and equipment are recorded at cost using the full cost method.  There were
no
amounts excluded from amortization as of the dates presented in the following table (in thousands):
 
 
   
March 31, 2020
   
December 31, 2019
 
Oil and natural gas properties and equipment, at cost
  $
8,546,778
    $
8,532,196
 
Furniture, fixtures and other
   
20,387
     
20,317
 
Total property and equipment
   
8,567,165
     
8,552,513
 
Less: Accumulated depreciation, depletion and amortization
   
7,837,121
     
7,803,715
 
Oil and natural gas properties and other, net
  $
730,044
    $
748,798
 
 
Other Assets (long-term).
The major categories are presented in the following table (in thousands):
 
 
   
March 31, 2020
   
December 31, 2019
 
Right-of-Use assets (Note 7)
  $
12,745
    $
7,936
 
Unamortized debt issuance costs
   
3,458
     
3,798
 
Investment in White Cap, LLC
   
2,917
     
2,590
 
Unamortized brokerage fee for Monza
   
2,881
     
3,423
 
Proportional consolidation of Monza's other assets (Note 4)
   
4,222
     
5,308
 
Derivative assets
   
2,847
     
2,653
 
Appeal bond deposits
   
     
6,925
 
Other
   
1,014
     
814
 
Total other assets (long-term)
  $
30,084
    $
33,447
 
 
Accrued Liabilities.  
The major categories are presented in the following table (in thousands):
 
 
   
March 31, 2020
   
December 31, 2019
 
Accrued interest
  $
24,497
    $
10,180
 
Accrued salaries/payroll taxes/benefits
   
2,715
     
2,377
 
Incentive compensation plans
   
1,069
     
9,794
 
Litigation accruals
   
3,673
     
3,673
 
Lease liability (Note 7)
   
2,472
     
2,716
 
Derivatives - current
   
     
1,785
 
Other
   
2
     
371
 
Total accrued liabilities
  $
34,428
    $
30,896
 
 
Other Liabilities (long-term).  
The major categories are presented in the following table (in thousands):
 
 
   
March 31, 2020
   
December 31, 2019
 
Dispute related to royalty deductions
  $
4,687
    $
4,687
 
Dispute related to royalty-in-kind
   
250
     
250
 
Derivatives    
1,245
     
 
Lease liability (Note 7)
   
9,581
     
4,419
 
Other
   
701
     
632
 
Total other liabilities (long-term)
  $
16,464
    $
9,988
 
 
v3.20.1
Condensed Consolidated Balance Sheets (Unaudited) (Parentheticals) - $ / shares
shares in Thousands
Mar. 31, 2020
Dec. 31, 2019
Preferred stock, par value (in dollars per share) $ 0.00001 $ 0.00001
Preferred stock, shares authorized (in shares) 20,000 20,000
Preferred stock, shares issued (in shares) 0 0
Common stock, par value (in dollars per share) $ 0.00001 $ 0.00001
Common stock, shares authorized (in shares) 200,000 200,000
Common stock, shares issued (in shares) 144,538 141,669
Common stock, shares outstanding (in shares) 144,538 141,669
Treasury stock, shares (in shares) 2,869 2,869
v3.20.1
Note 6 - Derivative Financial Instruments - Summary of Open Commodity Derivative Contracts (Details)
3 Months Ended
Mar. 31, 2020
$ / shares
bbl
Period May 2020 - Dec. 2022
Notional Quantity (Barrel of Oil) | bbl 40,000 [1]
Notional Quantity 39,000,000 [1]
Weighted Average Strike Price (in dollars per share) $ 3
Period May 2020 - Dec. 2022
Notional Quantity (Barrel of Oil) | bbl 40,000 [1]
Notional Quantity 39,000,000 [1]
Strike Price (in dollars per share) $ 3
NYMEX Crude Oil Swap [Member] | Open Crude Oil Derivative Contracts 1 [Member]  
Period Apr 2020 - May 2020
Notional Quantity (Barrel of Oil) | bbl 10,000 [2]
Notional Quantity 610,000 [2]
Weighted Average Strike Price (in dollars per share) $ 60.92
Period Apr 2020 - May 2020
Notional Quantity (Barrel of Oil) | bbl 10,000 [2]
Notional Quantity 610,000 [2]
Strike Price (in dollars per share) $ 60.92
NYMEX Crude Oil Calls [Member] | Open Crude Oil Derivative Contracts 1 [Member]  
Period Apr 2020 - May 2020
Notional Quantity (Barrel of Oil) | bbl 10,000 [2]
Notional Quantity 610,000 [2]
Weighted Average Strike Price (in dollars per share) $ 61
Period Apr 2020 - May 2020
Notional Quantity (Barrel of Oil) | bbl 10,000 [2]
Notional Quantity 610,000 [2]
Strike Price (in dollars per share) $ 61
NYMEX Crude Oil Calls [Member] | Open Crude Oil Derivative Contracts 2 [Member]  
Period June 2020 - Dec. 2020
Notional Quantity (Barrel of Oil) | bbl 10,000 [2]
Notional Quantity 2,140,000 [2]
Weighted Average Strike Price (in dollars per share) $ 67.50
Period June 2020 - Dec. 2020
Notional Quantity (Barrel of Oil) | bbl 10,000 [2]
Notional Quantity 2,140,000 [2]
Strike Price (in dollars per share) $ 67.50
NYMEX Crude Oil Collar [Member] | Crude Oil, Open Collar Contracts [Member]  
Period June 2020 - Dec. 2020
Notional Quantity (Barrel of Oil) | bbl 10,000 [2]
Notional Quantity 2,140,000 [2]
Period June 2020 - Dec. 2020
Notional Quantity (Barrel of Oil) | bbl 10,000 [2]
Notional Quantity 2,140,000 [2]
NYMEX Crude Oil Collar [Member] | Crude Oil, Open Collar Contracts [Member] | Put Option [Member]  
Weighted Average Strike Price (in dollars per share) $ 45
Strike Price (in dollars per share) 45
NYMEX Crude Oil Collar [Member] | Crude Oil, Open Collar Contracts [Member] | Call Option [Member]  
Weighted Average Strike Price (in dollars per share) 63.51
Strike Price (in dollars per share) $ 63.51
NYMEX Natural Gas Two Way Collars [Member] | Natural Gas, Open Collar Contracts, One [Member]  
Period May 2020 - Dec. 2022
Notional Quantity (Barrel of Oil) | bbl 40,000 [1]
Notional Quantity 39,000,000 [1]
Period May 2020 - Dec. 2022
Notional Quantity (Barrel of Oil) | bbl 40,000 [1]
Notional Quantity 39,000,000 [1]
NYMEX Natural Gas Two Way Collars [Member] | Natural Gas, Open Collar Contracts, One [Member] | Put Option [Member]  
Weighted Average Strike Price (in dollars per share) $ 1.83
Strike Price (in dollars per share) 1.83
NYMEX Natural Gas Two Way Collars [Member] | Natural Gas, Open Collar Contracts, One [Member] | Call Option [Member]  
Weighted Average Strike Price (in dollars per share) 3
Strike Price (in dollars per share) $ 3
[1] MMBtu = Million British Thermal Units
[2] Bbls = Barrels
v3.20.1
Note 7 - Leases - Lessee Assets and Liabilities (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
ROU assets $ 12,745 $ 7,936
Total lease liability 12,053 7,135
Other Noncurrent Assets [Member]    
ROU assets 12,745 7,936
Accrued Liabilities [Member]    
Accrued liabilities 2,472 2,716
Other Noncurrent Liabilities [Member]    
Other liabilities $ 9,581 $ 4,419
v3.20.1
Note 8 - Share-based Compensation and Cash-based Incentive Compensation - Schedule of Outstanding Restricted Shares Issued to Non-employee Directors (Details) - Restricted Stock [Member]
Mar. 31, 2020
shares
Awards expected to vest by period (in shares) 123,180
Vesting in 2020 [Member]  
Awards expected to vest by period (in shares) 78,424
Vesting in 2021 [Member]  
Awards expected to vest by period (in shares) 29,300
Vesting in 2022 [Member]  
Awards expected to vest by period (in shares) 15,456
v3.20.1
Note 7 - Leases (Tables)
3 Months Ended
Mar. 31, 2020
Notes Tables  
Operating Lease, Lessee, Assets and Liabilities [Table Text Block]
   
March 31, 2020
   
December 31, 2019
 
ROU assets
  $
12,745
    $
7,936
 
                 
Lease liability:
               
Accrued liabilities
  $
2,472
    $
2,716
 
Other liabilities
   
9,581
     
4,419
 
Total lease liability
  $
12,053
    $
7,135
 
v3.20.1
Note 2 - Long-term Debt (Tables)
3 Months Ended
Mar. 31, 2020
Notes Tables  
Schedule of Long-term Debt Instruments [Table Text Block]
   
March 31, 2020
   
December 31, 2019
 
Credit Agreement borrowings
  $
80,000
    $
105,000
 
                 
Senior Second Lien Notes:
               
Principal
   
597,525
     
625,000
 
Unamortized debt issuance costs
   
(9,467
)    
(10,467
)
Total Senior Second Lien Notes
   
588,058
     
614,533
 
                 
Total long-term debt
  $
668,058
    $
719,533
 
v3.20.1
Note 1 - Basis of Presentation - Credit Risk and Allowance for Doubtful Accounts (Details)
$ in Thousands
3 Months Ended
Mar. 31, 2020
USD ($)
Allowance for credit losses, December 31, 2019 $ 9,898
Additional provisions 36
Uncollectible accounts written off
Allowance for credit losses, March 31, 2020 $ 9,934
v3.20.1
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Operating activities:    
Net income (loss) $ 65,980 $ (47,761)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:    
Depreciation, depletion, amortization and accretion 39,126 33,766
Amortization of debt items and other items 1,625 1,152
Share-based compensation 1,048 (78)
Derivative (gain) loss (61,912) 48,886
Cash receipts on derivative settlements, net 4,404 11,948
Gain on purchase of debt (18,501)
Deferred Income taxes 6,499 172
Changes in operating assets and liabilities:    
Oil and natural gas receivables 21,954 6,496
Joint interest receivables 7,123 (2,986)
Prepaid expenses and other assets 11,011 (4,269)
Asset retirement obligation settlements (249) (254)
Cash advances from JV partners 13,006 44,644
Accounts payable, accrued liabilities and other (6,790) (6,871)
Net cash provided by operating activities 84,324 84,845
Investing activities:    
Investment in oil and natural gas properties and equipment (33,575) (31,581)
Acquisition of property interest (2,002)
Purchases of furniture, fixtures and other (70)
Net cash used in investing activities (35,647) (31,581)
Financing activities:    
Repayments on credit facility (25,000)
Purchase of Senior Second Lien Notes (8,536)
Debt issuance costs and other (441)
Net cash used in financing activities (33,536) (441)
Increase in cash and cash equivalents 15,141 52,823
Cash and cash equivalents, beginning of period 32,433 33,293
Cash and cash equivalents, end of period $ 47,574 $ 86,116
v3.20.1
Condensed Consolidated Balance Sheets (Unaudited) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
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 (Note 1) 78,658 30,691
Total current assets 175,783 141,752
Oil and natural gas properties and other, net - at cost (Note 1) 730,044 748,798
Restricted deposits for asset retirement obligations 15,574 15,806
Deferred income taxes 57,418 63,916
Other assets (Note 1) 30,084 33,447
Total assets 1,008,903 1,003,719
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 (Note 1) 34,428 30,896
Total current liabilities 145,421 189,960
Long-term debt: (Note 2)    
Principal 677,525 730,000
Carrying value adjustments (9,467) (10,467)
Long term debt - carrying value 668,058 719,533
Asset retirement obligations, less current portion 361,297 333,603
Other liabilities (Note 1) 16,464 9,988
Commitments and contingencies
Shareholders’ deficit:    
Preferred stock, $0.00001 par value; 20,000 shares authorized; 0 issued for both dates presented
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
v3.20.1
Note 8 - Share-based Compensation and Cash-based Incentive Compensation - Schedule of Outstanding Restricted Stock Units Issued to Eligible Employees (Details) - Restricted Stock Units (RSUs) [Member] - shares
Mar. 31, 2020
Dec. 31, 2019
Awards expected to vest (in shares) 1,592,077 1,614,722
Vesting in 2020 [Member]    
Awards expected to vest (in shares) 803,995  
Vesting in 2021 [Member]    
Awards expected to vest (in shares) 788,082  
v3.20.1
Note 5 - Asset Retirement Obligations - Changes to Asset Retirement Obligation (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Dec. 31, 2019
Balances, December 31, 2019 $ 355,594  
Liabilities settled (249)  
Accretion of discount 5,716  
Liabilities incurred, including acquisitions 2,704  
Revisions of estimated liabilities 335  
Balances, March 31, 2020 364,100  
Less current portion 2,803 $ 21,991
Long-term $ 361,297 $ 333,603
v3.20.1
Note 7 - Leases (Details Textual)
Mar. 31, 2020
Pipeline Right-of-way Contracts [Member]  
Lessee, Operating Lease, Term of Contract (Year) 10 years
Lessee, Operating Lease, Renewal Term (Year) 10 years
Land Acquired in Mobile Bay Properties Acquisition [Member]  
Lessee, Operating Lease, Renewal Term (Year) 5 years
Office Lease [Member]  
Lessee, Operating Lease, Discount Rate 9.75%
Other Leases [Member]  
Lessee, Operating Lease, Discount Rate 10.75%
v3.20.1
Note 12 - Subsequent Events (Details Textual) - USD ($)
$ in Millions
3 Months Ended
Jun. 17, 2020
Apr. 15, 2020
Oct. 18, 2018
Jun. 30, 2020
Mar. 31, 2020
Subsequent Event [Member]          
Proceeds from Paycheck Protection Program Under CARES Act   $ 8.4      
Senior Second Lien Notes Due November 2023 [Member]          
Extinguishment of Debt, Amount         $ 27.5
Repayments of Long-term Debt, Total         $ 8.5
Senior Second Lien Notes Due November 2023 [Member] | Forecast [Member]          
Extinguishment of Debt, Amount       $ 45.1  
Repayments of Long-term Debt, Total       $ 15.4  
Credit Agreement [Member]          
Line of Credit Facility, Maximum Borrowing Capacity     $ 250.0    
Credit Agreement, Minimum Percentage of Total Proved Reserves     85.00%    
Credit Agreement [Member] | Subsequent Event [Member]          
Line of Credit Facility, Maximum Borrowing Capacity $ 215.0        
Debt Instrument, Interest Rate, Increase (Decrease) 0.25%        
Credit Agreement, Leverage Ratio 2        
Credit Agreement, Minimum Percentage of Total Proved Reserves 90.00%        
v3.20.1
Note 8 - Share-based Compensation and Cash-based Incentive Compensation - Summary of Compensation Expense Related to Share-Based Awards and Cash-Based Awards (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Share-based compensation expense $ 1,048 $ (78)
Total charged to operating income 5,528 1,894
General and Administrative Expense [Member]    
Share-based compensation expense 1,048 (78)
Cash-based incentive compensation [1] 3,631 2,095
Lease Operating Expense [Member]    
Cash-based incentive compensation [1] $ 849 $ (123)
[1] Includes adjustments of accruals to actual payments.
v3.20.1
Note 3 - Fair Value Measurements - Carrying Value and Fair Value of Long-term Debt (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Long-term debt, carrying value $ 668,058 $ 719,533
Credit Agreement [Member]    
Long-term debt, carrying value 80,000 105,000
Long-term debt, fair value 80,000 105,000
Senior Second Lien Notes Due November 2023 [Member]    
Long-term debt, carrying value 588,058 614,533
Long-term debt, fair value $ 136,421 $ 597,188
v3.20.1
Note 1 - Basis of Presentation - Schedule of Amounts Recorded in Prepaid Expenses and Other Assets (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Derivatives - current [1] $ 64,039 $ 7,266
Unamortized bond/insurance premiums 4,478 4,357
Prepaid deposits related to royalties 7,555 7,980
Prepayment to vendors 1,825 10,202
Other 761 886
Prepaid expenses and other assets $ 78,658 $ 30,691
[1] Includes closed contracts which have not yet settled.
v3.20.1
Note 1 - Basis of Presentation - Schedule of Other Liabilities (Long-term) (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Total other liabilities (long-term) $ 16,464 $ 9,988
Other Noncurrent Liabilities [Member]    
Dispute related to royalty deductions 4,687 4,687
Dispute related to royalty-in-kind 250 250
Derivatives 1,245
Lease liability (Note 7) 9,581 4,419
Other liabilities, long-term $ 701 $ 632
v3.20.1
Note 11 - Contingencies
3 Months Ended
Mar. 31, 2020
Notes to Financial Statements  
Commitments and Contingencies Disclosure [Text Block]
11.
Contingencies
 
Appeal with the Office of Natural Resources Revenue (“ONRR”).  
In
2009,
we recognized allowable reductions of cash payments for royalties owed to the ONRR for transportation of their deepwater production through our subsea pipeline systems.  In 
2010,
 the ONRR audited our calculations and support related to this usage fee, and in
2010,
we were notified that the ONRR had disallowed approximately
$4.7
million of the reductions taken.  We recorded a reduction to other revenue in
2010
 to reflect this disallowance with the offset to a liability reserve; however, we disagree with the position taken by the ONRR.  We filed an appeal with the ONRR, which was denied in
May 2014. 
On
June 17, 2014,
we filed an appeal with the IBLA under the Department of the Interior.  On
January 27, 2017,
the IBLA affirmed the decision of the ONRR requiring W&T to pay approximately
$4.7
million in additional royalties. We filed a motion for reconsideration of the IBLA decision on
March 27, 2017. 
Based on a statutory deadline, we filed an appeal of the IBLA decision on
July 25, 2017
in the U.S. District Court for the Eastern District of Louisiana.  We were required to post a bond in the amount of
$7.2
million and cash collateral of
$6.9
million with the surety in order to appeal the IBLA decision, of which the cash collateral held by the surety was subsequently returned during the
first
quarter of
2020.
  On
December 4, 2018,
the IBLA denied our motion for reconsideration.  On
February 4, 2019,
we filed our
first
amended complaint, and the government has filed its Answer in the Administrative Record.  On
July 9, 2019,
we filed an Objection to the Administrative Record and Motion to Supplement the Administrative Record, asking the court to order the government to file a complete privilege log with the record.  Following a hearing on
July 31, 2019,
the Court ordered the government to file a complete privilege log.  In an Order dated
December 18, 2019,
the court ordered the government to produce certain contracts subject to a protective order and to produce the remaining documents in dispute to the court for
in camera
review.  Following
in camera
review, the Court upheld the government’s assertion of privilege, and the parties are proceeding with drafting Cross-Motions for Summary Judgment, which will be the basis for the court’s ruling.  We anticipate that briefing will be complete in the Fall of
2020.
 
 
Royalties – “Unbundling” Initiative.   
The ONRR has publicly announced an “unbundling” initiative to revise the methodology employed by producers in determining the appropriate allowances for transportation and processing costs that are permitted to be deducted in determining royalties under Federal oil and gas leases.  The ONRR’s initiative requires re-computing allowable transportation and processing costs using revised guidance from the ONRR going back
84
months for every gas processing plant that processed our gas. In the
second
quarter of
2015,
pursuant to the initiative, we received requests from the ONRR for additional data regarding our transportation and processing allowances on natural gas production related to a specific processing plant. We also received a preliminary determination notice from the ONRR asserting that our allocation of certain processing costs and plant fuel use at another processing plant was
not
allowed as deductions in the determination of royalties owed under Federal oil and gas leases. We have submitted revised calculations covering certain plants and time periods to the ONRR. As of the filing date of this Form
10
-Q, we have
not
received a response from the ONRR related to our submissions.  These open ONRR unbundling reviews, and any further similar reviews, could ultimately result in an order for payment of additional royalties under our Federal oil and gas leases for current and prior periods.  While the amounts paid for the
three
 months ended
March 
31,
2020
 and
2019
were immaterial, we are
not
able to determine the range of any additional royalties or, if and when assessed, whether such amounts would be material.
 
Notices of Proposed Civil Penalty Assessment.
  During the
three
months ended
March 31, 2020
and
2019,
we did
not
pay any civil penalties to the Bureau of Safety and Environmental Enforcement ("BSEE") related to Incidents of Noncompliance (“INCs”) at various offshore locations.  We currently have
nine
open civil penalties issued by the BSEE from INCs, which have
not
been settled as of the filing date of this Form
10
-Q.  The INCs underlying these open civil penalties cite alleged non-compliance with various safety-related requirements and procedures occurring at separate offshore locations on various dates ranging from
July 2012
to
January 2018. 
The proposed civil penalties for these INCs total
$7.7
million.  As of
March 31, 2020
and
December 
31,
2019,
we have accrued approximately
$3.5
 million, which is our best estimate of the final settlements once all appeals have been exhausted.  Our position is that the proposed civil penalties are excessive given the specific facts and circumstances related to these INCs.  We are exploring the possibility of settling these civil penalties with the BSEE.
 
Other Claims.  
We are a party to various pending or threatened claims and complaints seeking damages or other remedies concerning our commercial operations and other matters in the ordinary course of our business.  In addition, claims or contingencies
may
arise related to matters occurring prior to our acquisition of properties or related to matters occurring subsequent to our sale of properties.  In certain cases, we have indemnified the sellers of properties we have acquired, and in other cases, we have indemnified the buyers of properties we have sold.  We are also subject to federal and state administrative proceedings conducted in the ordinary course of business including matters related to alleged royalty underpayments on certain federal-owned properties.  Although we can give
no
assurance about the outcome of pending legal and federal or state administrative proceedings and the effect such an outcome
may
have on us, we believe that any ultimate liability resulting from the outcome of such proceedings, to the extent
not
otherwise provided for or covered by insurance, will
not
have a material adverse effect on our consolidated financial position, results of operations or liquidity.
v3.20.1
Note 7 - Leases
3 Months Ended
Mar. 31, 2020
Notes to Financial Statements  
Lessee, Operating Leases [Text Block]
7.
Leases
 
Our contract arrangements accounted for under the applicable GAAP for lease contracts consist of office leases, a land lease and various pipeline right-of-way contracts.  For these contracts, a right-of-use ("ROU") asset and lease liability was established based on our assumptions of the term, inflation rates and incremental borrowing rates. 
 
During the
three
months ended
March 31, 2020,
we terminated the existing office lease and executed a new lease on separate office space.  The remaining term of the current office lease extends to
December 2020. 
The term of the new office lease extends to
February 2032. 
When calculating the ROU asset and lease liability at the commencement of the new office lease, we have reduced future cash outflows by the lease incentive to be received.
 
The term of each pipeline right-of-way contract is
10
years with various effective dates, and each has an option to renew for up to another
ten
 years.  It is expected renewals beyond
10
years can be obtained as renewals were granted to the previous lessees.  The land lease has an option to renew every
five
 years extending to
2085.
  The expected term of the rights-of way and land leases was estimated to approximate the life of the related reserves.   
 
We recorded ROU assets and lease liabilities using a discount rate of
9.75%
for the office leases and
10.75%
for the other leases due to their longer expected term. 
 
Amounts related to leases recorded within our Condensed Consolidated Balance Sheet are as follows (in thousands):
 
 
   
March 31, 2020
   
December 31, 2019
 
ROU assets
  $
12,745
    $
7,936
 
                 
Lease liability:
               
Accrued liabilities
  $
2,472
    $
2,716
 
Other liabilities
   
9,581
     
4,419
 
Total lease liability
  $
12,053
    $
7,135
 
 
v3.20.1
Note 2 - Long-term Debt
3 Months Ended
Mar. 31, 2020
Notes to Financial Statements  
Long-term Debt [Text Block]
2.
Long-Term Debt
 
The components of our long-term debt are presented in the following table (in thousands):
 
 
   
March 31, 2020
   
December 31, 2019
 
Credit Agreement borrowings
  $
80,000
    $
105,000
 
                 
Senior Second Lien Notes:
               
Principal
   
597,525
     
625,000
 
Unamortized debt issuance costs
   
(9,467
)    
(10,467
)
Total Senior Second Lien Notes
   
588,058
     
614,533
 
                 
Total long-term debt
  $
668,058
    $
719,533
 
 
Credit Agreement
 
On
October 18, 2018,
we entered into the Sixth Amended and Restated Credit Agreement (as amended, the “Credit Agreement”), which matures on
October 18, 2022. 
The primary terms and covenants associated with the Credit Agreement are as follows, with capitalized terms defined under the Credit Agreement:
 
 
As of
March 31, 2020,
the borrowing base was
$250.0
million.
 
 
Letters of credit
may
be issued in amounts up to
$30.0
million, provided sufficient availability under the Credit Agreement exists.  As of
March 31, 2020 
and
December 31, 2019,
we had
$5.8
 million of letters of credit issued and outstanding under the Credit Agreement.
 
 
For the period ended
March 31, 2020,
the Leverage Ratio must
not
exceed 
3.00
to
1.00.
  
 
 
For the period ended
March 31, 2020,
the Current Ratio must be maintained at greater than
1.00
to
1.00.
 
Availability under the Credit Agreement is subject to semi-annual redeterminations of our borrowing base in or around
May
and
November
of each calendar year, and additional redeterminations 
may
be requested at the discretion of either the lenders or the Company.  The borrowing base is calculated by our lenders based on their evaluation of our proved reserves and their own internal criteria.  Any redetermination by our lenders to change our borrowing base will result in a similar change in the availability under the Credit Agreement.  See Note
12,
Subsequent Events
, for revisions to certain terms of the Credit Agreement, including the borrowing base, Leverage Ratio and collateral, resulting from the Spring 
2020
semi-annual redetermination.
 
The Credit Agreement is collateralized by a
first
priority lien on properties constituting at least
85%
of the total proved reserves of the Company as set forth on reserve reports required to be delivered under the Credit Agreement and certain personal property.  The annualized interest rate on borrowings outstanding for the
three
 months ended
March 
31,
2020
 was
4.5%,
whic
h excludes debt issuance costs, commitment fees and other fees.
 
 
9.75%
Senior Second Lien Notes Due
2023
 
On
October 18, 2018,
we issued
$625.0
million of
9.75%
Senior Second Lien Notes due
2023
(the “Senior Second Lien Notes”), which were issued at par with an interest rate of
9.75%
per annum and mature on
November 1, 2023,
and are governed under the terms of the Indenture of the Senior Second Lien Notes (the “Indenture”).  The estimated annual effective interest rate on the Senior Second Lien Notes is 
10.4%
, w
h
ich includes amortization of debt issuance costs.  Interest on the Senior Second Lien Notes is payable in arrears on
May 1
and
November 1
of each year.
 
During the
three
months ended
March 31, 2020,
we acquired
$27.5
million in principal of our outstanding Senior Second Lien Notes for
$8.5
million and recorded a non-cash gain on purchase of debt of
$18.5
million, which included a reduction of
$0.4
million related to the write-off of unamortized debt issuance costs. The Company purchased additional Senior Second Lien Notes subsequent to
March 31, 2020 (
refer to Note
12,
Subsequent Events).
 
The Senior Second Lien Notes are secured by a
second
-priority lien on all of our assets that are secured under the Credit Agreement.  The Senior Second Lien Notes contain covenants that limit or prohibit our ability and the ability of certain of our subsidiaries to: (i) make investments; (ii) incur additional indebtedness or issue certain types of preferred stock; (iii) create certain liens; (iv) sell assets; (v) enter into agreements that restrict dividends or other payments from the Company’s subsidiaries to the Company; (vi) consolidate, merge or transfer all or substantially all of the assets of the Company; (vii) engage in transactions with affiliates; (viii) pay dividends or make other distributions on capital stock or subordinated indebtedness; and (ix) create subsidiaries that would
not
be restricted by the covenants of the Indenture.  These covenants are subject to exceptions and qualifications set forth in the Indenture.  In addition, most of the above described covenants will terminate if both S&P Global Ratings, a division of S&P Global Inc., and Moody’s Investors Service, Inc. assign the Senior Second Lien Notes an investment grade rating and
no
default exists with respect to the Senior Second Lien Notes.
 
Covenants
 
 
As of
March 
31,
2020
and for all prior measurement periods, we were in compliance with all applicable covenants of the Credit Agreement and the Indenture.
 
Fair Value Measurements
 
 
For information about fair value measurements of our long-term debt, refer to Note
3.
v3.20.1
Condensed Consolidated Statements of Operations (Unaudited) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Revenues:    
Total revenues $ 124,128 $ 116,080
Operating costs and expenses:    
Lease operating expenses 54,775 43,456
Production taxes 916 416
Gathering and transportation 5,449 6,423
Depreciation, depletion, amortization and accretion 39,126 33,766
General and administrative expenses 13,963 14,109
Derivative (gain) loss (61,912) 48,886
Total costs and expenses 52,317 147,056
Operating income (loss) 71,811 (30,976)
Interest expense, net 17,110 16,282
Gain on purchase of debt (18,501)
Other expense, net 723 331
Income (loss) before income tax expense 72,479 (47,589)
Income tax expense 6,499 172
Net income (loss) $ 65,980 $ (47,761)
Basic and diluted earnings (loss) per common share (in dollars per share) $ 0.46 $ (0.34)
Oil and Condensate [Member]    
Revenues:    
Total revenues $ 84,650 $ 86,703
Natural Gas Liquids [Member]    
Revenues:    
Total revenues 6,452 6,448
Natural Gas, Production [Member]    
Revenues:    
Total revenues 29,300 21,838
Product and Service, Other [Member]    
Revenues:    
Total revenues $ 3,726 $ 1,091
v3.20.1
Note 10 - Earnings Per Share (Tables)
3 Months Ended
Mar. 31, 2020
Notes Tables  
Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]
   
Three Months Ended March 31,
 
   
2020
   
2019
 
Net income (loss)
  $
65,980
    $
(47,761
)
Less portion allocated to nonvested shares
   
791
     
 
Net income (loss) allocated to common shares
  $
65,189
    $
(47,761
)
Weighted average common shares outstanding
   
141,546
     
140,462
 
                 
Basic and diluted earnings (loss) per common share
  $
0.46
    $
(0.34
)
                 
Shares excluded due to being anti-dilutive (weighted-average)
   
     
3,342
 
v3.20.1
Note 5 - Asset Retirement Obligations (Tables)
3 Months Ended
Mar. 31, 2020
Notes Tables  
Schedule of Change in Asset Retirement Obligation [Table Text Block]
Balances, December 31, 2019
  $
355,594
 
Liabilities settled
   
(249
)
Accretion of discount
   
5,716
 
Liabilities incurred, including acquisitions
   
2,704
 
Revisions of estimated liabilities
   
335
 
Balances, March 31, 2020
   
364,100
 
Less current portion
   
2,803
 
Long-term
  $
361,297
 
v3.20.1
Note 6 - Derivative Financial Instruments - Fair Value of Open and Closed Contracts Which Had Not Yet Settled (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2019
Prepaid expenses and other assets [1] $ 64,039   $ 7,266
Other assets (long-term) 2,847   2,653
Derivatives - current   1,785
Derivative (gain) loss (61,912) $ 48,886  
Other Noncurrent Liabilities [Member]      
Other liabilities (long-term) 1,245  
Open Contracts and Closed Contracts Which Had Not Yet Been Settled [Member] | Prepaid Expenses and Other Current Assets [Member]      
Prepaid expenses and other assets 64,039   7,266
Open Contracts and Closed Contracts Which Had Not Yet Been Settled [Member] | Other Noncurrent Assets [Member]      
Other assets (long-term) 2,847   2,653
Open Contracts and Closed Contracts Which Had Not Yet Been Settled [Member] | Accrued Liabilities [Member]      
Derivatives - current   1,785
Open Contracts and Closed Contracts Which Had Not Yet Been Settled [Member] | Other Noncurrent Liabilities [Member]      
Other liabilities (long-term) $ 1,245  
[1] Includes closed contracts which have not yet settled.
v3.20.1
Note 8 - Share-based Compensation and Cash-based Incentive Compensation (Details Textual) - USD ($)
$ in Millions
3 Months Ended 12 Months Ended
Jun. 23, 2020
Mar. 31, 2020
Dec. 31, 2019
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant (in shares)   10,874,043  
Restricted Stock [Member]      
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total   $ 4.0 $ 0.4
Cash-based Awards [Member]      
Share-based Compensation Arrangement by Share-based Payment Award, Adjusted EBITDA Less Interest, Minimum     $ 200.0
Directors Compensation Plan [Member]      
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant (in shares)   82,620  
Directors Compensation Plan [Member] | Restricted Stock [Member] | Share-based Payment Arrangement, Tranche One [Member]      
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage   33.00%  
Directors Compensation Plan [Member] | Subsequent Event [Member]      
Share-based Compensation Arrangement by Share-based Payment Award, Number of Additional Shares Authorized (in shares) 500,000    
Directors Compensation Plan [Member] | Subsequent Event [Member] | Restricted Stock [Member] | Non-employee Directors [Member]      
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period (in shares) 109,376    
v3.20.1
Note 10 - Earnings Per Share - Schedule of Basic and Diluted (Loss) Earnings Per Common Share (Details) - USD ($)
$ / shares in Units, shares in Thousands, $ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Net income (loss) $ 65,980 $ (47,761)
Less portion allocated to nonvested shares 791
Net income (loss) allocated to common shares $ 65,189 $ (47,761)
Weighted average common shares outstanding (in shares) 141,546 140,462
Basic and diluted earnings (loss) per common share (in dollars per share) $ 0.46 $ (0.34)
Shares excluded due to being anti-dilutive (weighted-average) (in shares) 3,342
v3.20.1
Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2020
Accounting Policies [Abstract]  
Basis of Accounting, Policy [Policy Text Block]
Interim Financial Statements.
  The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim periods and the appropriate rules and regulations of the Securities and Exchange Commission (“SEC”).  Accordingly, the condensed consolidated financial statements do
not
include all of the information and footnote disclosures required by GAAP for complete financial statements for annual periods.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.
 
Operating results for interim periods are
not
necessarily indicative of the results that
may
be expected for the entire year.  These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form
10
-K for the year ended
December 31, 2019.
Use of Estimates, Policy [Policy Text Block]
Use of Estimates.
  The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Subsequent Events, Policy [Policy Text Block]
Recent Events. 
The pandemic spread of the disease caused by a new strain of coronavirus (“COVID-
19”
) and other worldly events have significantly impacted the price of crude oil and the demand for crude oil beginning in
March
of
2020.
  While crude oil prices have partially recovered in
June 2020
from recent historical lows in
April 2020,
the perceived risks and volatility have increased in
2020
to date compared to recent years.  See Note
12,
Subsequent Events
, for additional information.  
New Accounting Pronouncements, Adopted [Policy Text Block]
Accounting Standard Updates effective
January 1, 2020 
 
Credit Losses - 
 In
June 2016,
the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No.
2016
-
13,
Financial Instruments – Credit Losses
(
Topic
326
) (“ASU
2016
-
13”
) and subsequently issued additional guidance on this topic.  The new guidance eliminates the probable recognition threshold and broadens the information to consider past events, current conditions and forecasted information in estimating credit losses. The amendment did 
not
have a material impact on our financial statements and did
not
affect the opening balance of Retained Deficit.
 
Derivatives and Hedging - 
In
August 2017,
the FASB issued Accounting Standards Update
No.
2017
-
12,
Derivatives and Hedging (Topic
815
) – Targeted Improvements to Accounting for Hedging Activities
(“ASU
2017
-
12”
) and subsequently issued additional guidance on this topic.  The amendments in ASU
2017
-
12
require an entity to present the earnings effect of the hedging instrument in the same income statement line in which the earnings effect of the hedged item is reported.  This presentation enables users of financial statements to better understand the results and costs of an entity’s hedging program.  Also, relative to current GAAP, this approach simplifies the financial statement reporting for qualifying hedging relationships.  As we do
not
designate our commodity derivative instruments as qualifying hedging instruments, this amendment did 
not
impact the presentation of the changes in fair values of our commodity derivative instruments on our financial statements.
Revenue from Contract with Customer [Policy Text Block]
Revenue Recognition
.
  We recognize revenue from the sale of crude oil, natural gas liquids (“NGLs”), and natural gas when our performance obligations are satisfied.  Our contracts with customers are primarily short-term (less than
12
months).  Our responsibilities to deliver a unit of crude oil, NGL, and natural gas under these contracts represent separate, distinct performance obligations.  These performance obligations are satisfied at the point in time control of each unit is transferred to the customer.  Pricing is primarily determined utilizing a particular pricing or market index, plus or minus adjustments reflecting quality or location differentials.
Financing Receivable, Allowance for Credit Losses, Policy for Uncollectible Amounts [Policy Text Block]
Credit Risk and Allowance for Credit Losses. 
 
 Our revenue has been concentrated in certain major oil and gas companies.  For the year ended
December 31, 2019
and for the
three
months ended
March 31, 2020,
approximately
63%
and
57%,
respectively, of our revenue was from
three
major oil and gas companies and a substantial majority of our receivables were from sales with major oil and gas companies.  We also have receivables related to joint interest arrangements primarily with mid-size oil and gas companies with a substantial majority of the net receivable balance concentrated in less than
ten
companies.  A loss methodology is used to develop the allowance for credit losses on material receivables to estimate the net amount to be collected.  The loss methodology uses historical data, current market conditions and forecasts of future economic conditions.  Our maximum exposure at any time would be the receivable balance.  The receivables,
Joint interest and other, net
, reported on the Condensed Consolidated Balance Sheets are reduced for the allowance for credit losses.  The roll forward of the allowance for credit losses is as follows: 
 
 
Allowance for credit losses, December 31, 2019
  $
9,898
 
Additional provisions
   
36
 
Uncollectible accounts written off
   
 
Allowance for credit losses, March 31, 2020
  $
9,934
 
Prepaid Expenses and Other Assets [Policy Text Block]
Prepaid Expenses and Other Assets.  
The amounts recorded are expected to be realized within
one
year and the major categories are presented in the following table (in thousands):
 
 
   
March 31, 2020
   
December 31, 2019
 
Derivatives - current (1)
  $
64,039
    $
7,266
 
Unamortized bond/insurance premiums
   
4,478
     
4,357
 
Prepaid deposits related to royalties
   
7,555
     
7,980
 
Prepayment to vendors
   
1,825
     
10,202
 
Other
   
761
     
886
 
Prepaid expenses and other assets
  $
78,658
    $
30,691
 
 
 
(
1
)
Includes closed contracts which have
not
yet settled.
Property, Plant and Equipment, Policy [Policy Text Block]
Oil and Natural Gas Properties and Other, Net
– At Cost.  
Oil and natural gas properties and equipment are recorded at cost using the full cost method.  There were
no
amounts excluded from amortization as of the dates presented in the following table (in thousands):
 
 
   
March 31, 2020
   
December 31, 2019
 
Oil and natural gas properties and equipment, at cost
  $
8,546,778
    $
8,532,196
 
Furniture, fixtures and other
   
20,387
     
20,317
 
Total property and equipment
   
8,567,165
     
8,552,513
 
Less: Accumulated depreciation, depletion and amortization
   
7,837,121
     
7,803,715
 
Oil and natural gas properties and other, net
  $
730,044
    $
748,798
 
Other Noncurrent Assets [Policy Text Block]
Other Assets (long-term).
The major categories are presented in the following table (in thousands):
 
 
   
March 31, 2020
   
December 31, 2019
 
Right-of-Use assets (Note 7)
  $
12,745
    $
7,936
 
Unamortized debt issuance costs
   
3,458
     
3,798
 
Investment in White Cap, LLC
   
2,917
     
2,590
 
Unamortized brokerage fee for Monza
   
2,881
     
3,423
 
Proportional consolidation of Monza's other assets (Note 4)
   
4,222
     
5,308
 
Derivative assets
   
2,847
     
2,653
 
Appeal bond deposits
   
     
6,925
 
Other
   
1,014
     
814
 
Total other assets (long-term)
  $
30,084
    $
33,447
 
Accrued Liabilities Policy [Policy Text Block]
Accrued Liabilities.  
The major categories are presented in the following table (in thousands):
 
 
   
March 31, 2020
   
December 31, 2019
 
Accrued interest
  $
24,497
    $
10,180
 
Accrued salaries/payroll taxes/benefits
   
2,715
     
2,377
 
Incentive compensation plans
   
1,069
     
9,794
 
Litigation accruals
   
3,673
     
3,673
 
Lease liability (Note 7)
   
2,472
     
2,716
 
Derivatives - current
   
     
1,785
 
Other
   
2
     
371
 
Total accrued liabilities
  $
34,428
    $
30,896
 
Other Noncurrent Liabilities [Policy Text Block]
Other Liabilities (long-term).  
The major categories are presented in the following table (in thousands):
 
 
   
March 31, 2020
   
December 31, 2019
 
Dispute related to royalty deductions
  $
4,687
    $
4,687
 
Dispute related to royalty-in-kind
   
250
     
250
 
Derivatives    
1,245
     
 
Lease liability (Note 7)
   
9,581
     
4,419
 
Other
   
701
     
632
 
Total other liabilities (long-term)
  $
16,464
    $
9,988
 
v3.20.1
Note 9 - Income Taxes
3 Months Ended
Mar. 31, 2020
Notes to Financial Statements  
Income Tax Disclosure [Text Block]
9.
Income Taxes 
 
Tax Expense and Tax Rate.
 Income tax expense for the
three
months ended
March 31, 2020 
and
2019
 was
$6.5
 million and
$0.2
 million, respectively.  For the
three
months ended
March 31, 2020,
our effective tax rate primarily differed from the statutory Federal tax rate for adjustments recorded related to the enactment of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) on
March 27, 2020. 
The CARES Act modified certain income tax statutes, including changes related to the business interest expense limitation under Code Section
163
(j).  For the
three
months ended
March 31, 2019, 
immaterial deferred income tax expense was recorded due to dollar-for-dollar offsets by our valuation allowance.  Our effective tax rate was
9.0%
for the
three
months ended
March 31, 2020
and was
not
meaningful for the
three
months ended
March 31, 2019.  
 
Valuation Allowance. 
Deferred tax assets are recorded related to net operating losses and temporary differences between the book and tax basis of assets and liabilities expected to produce tax deductions in future periods.  The realization of these assets depends on recognition of sufficient future taxable income in specific tax jurisdictions in which those temporary differences or net operating losses are deductible.   In assessing the need for a valuation allowance on our deferred tax assets, we consider whether it is more likely than
not
that some portion or all of them will
not
be realized.     
 
As of
March 31, 2020
and
December 31, 2019,
our valuation allowance was
$47.8
 million and
$54.4
 million, respectively, and relates primarily to state net operating losses and the disallowed interest limitation carryover. 
 
Income Taxes Receivable. 
As of
March 31, 2020
and
December 31, 2019,
we 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. 
 
During the
three
months ended
March 31, 2020
and
2019,
we did
not
receive any income tax claims or make any income tax payments of significance.
 
The tax years
2016
 through
2019
 remain open to examination by the tax jurisdictions to which we are subject.
v3.20.1
Note 5 - Asset Retirement Obligations
3 Months Ended
Mar. 31, 2020
Notes to Financial Statements  
Asset Retirement Obligation Disclosure [Text Block]
5.
Asset Retirement Obligations
 
Our asset retirement obligations (“ARO”) represent the estimated present value of the amount incurred to plug, abandon and remediate our properties at the end of their productive lives.
 
A summary of the changes to our ARO is as follows (in thousands):
 
Balances, December 31, 2019
  $
355,594
 
Liabilities settled
   
(249
)
Accretion of discount
   
5,716
 
Liabilities incurred, including acquisitions
   
2,704
 
Revisions of estimated liabilities
   
335
 
Balances, March 31, 2020
   
364,100
 
Less current portion
   
2,803
 
Long-term
  $
361,297
 
v3.20.1
Note 1 - Basis of Presentation - Schedule of Other Assets (Long-term) (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Right-of-Use assets (Note 7) $ 12,745 $ 7,936
Unamortized debt issuance costs 3,458 3,798
Investment in White Cap, LLC 2,917 2,590
Unamortized brokerage fee for Monza 2,881 3,423
Proportional consolidation of Monza's other assets (Note 4) 4,222 5,308
Derivative assets 2,847 2,653
Appeal bond deposits 6,925
Other assets, long-term 1,014 814
Total other assets (long-term) $ 30,084 $ 33,447
v3.20.1
Note 2 - Long-term Debt - Components of Long-term Debt (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Oct. 18, 2018
Debt instrument $ 677,525 $ 730,000  
Total long-term debt 668,058 719,533  
Credit Agreement [Member]      
Debt instrument [1] 80,000 105,000  
Total long-term debt 80,000 105,000  
Senior Second Lien Notes Due November 2023 [Member]      
Debt instrument [1] 588,058 614,533  
Principal 597,525 625,000 $ 625,000
Unamortized debt issuance costs (9,467) (10,467)  
Total long-term debt $ 588,058 $ 614,533  
[1] Defined below
v3.20.1
Note 9 - Income Taxes (Details Textual) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2019
Income Taxes Paid $ 6,500 $ 200  
Effective Income Tax Rate Reconciliation, Percent, Total 9.00%    
Deferred Tax Assets, Valuation Allowance, Total $ 47,800   $ 54,400
Income Taxes Receivable, Current $ 1,861   $ 1,861
Open Tax Year 2016 2017 2018 2019    
v3.20.1
Note 8 - Share-based Compensation and Cash-based Incentive Compensation
3 Months Ended
Mar. 31, 2020
Notes to Financial Statements  
Share-based Payment Arrangement [Text Block]
8.
Share-Based Compensation and Cash-Based Incentive Compensation
 
Awards to Employees.
In
2010,
the W&T Offshore, Inc. Amended and Restated Incentive Compensation Plan (as amended from time to time, the “Plan”) was approved by our shareholders.  During
2019,
2018
and
2017,
the Company granted restricted stock units (“RSUs”) under the Plan to certain of its employees.  RSUs are a long-term compensation component, and are subject to satisfaction of certain predetermined performance criteria and adjustments at the end of the applicable performance period based on the results achieved.  In addition to share-based awards, the Company
may
grant to its employees cash-based incentive awards under the Plan, which
may
be used as short-term and long-term compensation components of the awards, and are subject to satisfaction of certain predetermined performance criteria.
 
As of
March 
31,
2020,
there were
10,874,043
 shares of common stock available for issuance in satisfaction of awards under the Plan.  The shares available for issuance are reduced on a
one
-for-
one
basis when RSUs are settled in shares of common stock, which shares of common stock are issued net of withholding tax through the withholding of shares.  The Company has the option following vesting to settle RSUs in stock or cash, or a combination of stock and cash. The Company expects to settle RSUs that vest in the future using shares of common stock.
 
RSUs currently outstanding relate to the
2019
and 
2018
 grants.  The
2019
 and
2018
 grants were subject to predetermined performance criteria applied against the applicable performance period.  All the RSUs currently outstanding are subject to employment-based criteria and vesting generally occurs in
December
of the
second
year after the grant.  See the table below for anticipated vesting by year.
 
We recognize compensation cost for share-based payments to employees over the period during which the recipient is required to provide service in exchange for the award.  Compensation cost is based on the fair value of the equity instrument on the date of grant.  The fair values for the RSUs granted during
2019,
2018
and
2017
were determined using the Company’s closing price on the grant date.  We also estimate forfeitures, resulting in the recognition of compensation cost only for those awards that are expected to actually vest.
 
All RSUs awarded are subject to forfeiture until vested and cannot be sold, transferred or otherwise disposed of during the restricted period.
 
A summary of activity related to RSUs during the
three
 months ended
March 
31,
2020
 is as follows:
 
 
Restricted Stock Units
     
Weighted Average
     
Grant Date Fair
 
Units
 
Value Per Unit
Nonvested, December 31, 2019
1,614,722
 
$ 5.73
Forfeited
(22,645)
 
6.37
Nonvested, March 31, 2020
1,592,077
 
5.72
 
For the outstanding RSUs issued to the eligible employees as of
March 
31,
2020,
vesting is expected to occur as follows (subject to forfeitures): 
 
 
Restricted Stock Units
2020
803,995
2021
788,082
Total
1,592,077
 
 
Awards to Non-Employee Directors
.
  Under the W&T Offshore, Inc.
2004
Directors Compensation Plan (as amended from time to time, the “Director Compensation Plan”), shares of restricted stock (“Restricted Shares”) have been granted to the Company’s non-employee directors.  Grants to non-employee directors were made during
2019,
2018
and 
2017.
  As of
March 
31,
2020,
there were
82,620
 shares of common stock available for issuance in satisfaction of awards under the Director Compensation Plan.  During the
second
quarter of
2020,
our shareholders approved increasing the shares available by
500,000
 shares.  During the
second
quarter of
2020,
109,376
Restricted Shares were granted to non-employee directors.  The shares available are reduced on a
one
-to-
one
basis when Restricted Shares are granted.
 
We recognize compensation cost for share-based payments to non-employee directors over the period during which the recipient is required to provide service in exchange for the award.  Compensation cost is based on the fair value of the equity instrument on the date of grant.  The fair values for the Restricted Shares granted were determined using the Company’s closing price on the grant date. 
No
forfeitures were estimated for the non-employee directors’ awards.
 
The Restricted Shares are subject to service conditions and vesting occurs at the end of specified service periods unless otherwise approved by the Board of Directors.  Restricted Shares cannot be sold, transferred or disposed of during the restricted period.  The holders of Restricted Shares generally have the same rights as a shareholder of the Company with respect to such Restricted Shares, including the right to vote and receive dividends or other distributions paid with respect to the Restricted Shares.
 
There was
no
 activity related to Restricted Shares during the
three
 months ended
March 
31,
2020.
 
For the outstanding Restricted Shares issued to the non-employee directors as of
March 
31,
2020,
vesting is expected to occur as follows (subject to any forfeitures):
 
 
 
Restricted Shares
2020
78,424
2021
29,300
2022
15,456
Total
123,180
 
 
Share-Based Compensation.  
Share-based compensation expense is recorded in the line
General and administrative expense
s in the Condensed Consolidated Statements of Operations.  The tax benefit related to compensation expense recognized under share-based payment arrangements was
not
meaningful and was minimal due to our income tax situation.  A summary of incentive compensation expense under share-based payment arrangements is as follows (in thousands):
 
 
   
Three Months Ended March 31,
 
   
2020
   
2019
 
Share-based compensation expense from:
               
Restricted stock units (1)
  $
978
    $
(148
)
Restricted Shares
   
70
     
70
 
Total
  $
1,048
    $
(78
)
 
 
 
(
1
)
For the
three
 months ended
March 
31,
2019,
share-based compensation expense includes adjustments for a former executive's' forfeitures.
 
Unrecognized Share-Based Compensation.
  
As of
March 31, 2020,
unrecognized share-based compensation expense related to our awards of RSUs and Restricted Shares was
$4.0
 million and
$0.4
 million, respectively.  Unrecognized share-based compensation expense will be recognized through
November 2021 
for RSUs and
April 2022 
for Restricted Shares.
 
Cash-Based Incentive Compensation.  
In addition to share-based compensation, short-term, cash-based awards were granted under the Plan to substantially all eligible employees in
2019
and
2018.
  The short-term, cash-based awards, which are generally a short-term component of the Plan, are performance-based awards consisting of
one
or more business criteria or individual performance criteria and a targeted level or levels of performance with respect to each of such criteria.  In addition, these cash-based awards included an additional financial condition requiring Adjusted EBITDA less reported Interest Expense Incurred (terms as defined in the awards) for any fiscal quarter plus the
three
preceding quarters to exceed defined levels measured over defined time periods for each cash-based award.  During
2018,
long-term, cash awards were granted to certain employees subject to pre-defined performance criteria.  Expense is recognized over the service period once the business criteria, individual performance criteria and financial condition are met.
 
 
 
 
For the
2019
 cash-based awards, a portion of the business criteria and individual performance criteria were achieved.  The financial condition requirement of Adjusted EBITDA less reported Interest Expense Incurred exceeding
$200
million over
four
consecutive quarters was achieved; therefore, incentive compensation expense was recognized over the 
January 2019
to
February 2020
period (the service period of the award).  Payments were made in
March 2020 
and are subject to all the terms of the
2019
 Annual Incentive Award Agreement.
 
 
In
2018,
the Company, as part of its long-term incentive program, granted cash awards to certain employees that will vest over a
three
-year service period.  
 
 
For the
2018
long-term, cash-based awards, incentive compensation expense was determined based on the Company achieving certain performance metrics for
2018
and is being recognized over the
September 2018
to
November 2020
period (the service period of the award).  The
2018
long-term, cash-based awards will be eligible for payment on
December 14, 2020
subject to participants meeting certain employment-based criteria.
 
 
For the
2018
short-term, cash-based awards, incentive compensation expense was determined based on the Company achieving certain performance metrics for
2018
combined with individual performance criteria for
2018
and was recognized over the
January 2018
to
February 2019
period.  The
2018
short-term, cash-based awards were paid during
March 2019.
 
 
A summary of compensation expense related to share-based awards and cash-based awards is as follows (in thousands):
 
   
Three Months Ended March 31,
 
   
2020
   
2019
 
Share-based compensation included in:
               
General and administrative expenses
  $
1,048
    $
(78
)
Cash-based incentive compensation included in:
               
Lease operating expense (1)
   
849
     
(123
)
General and administrative expenses (1)
   
3,631
     
2,095
 
Total charged to operating income
  $
5,528
    $
1,894
 
 
 
 
(
1
)
Includes adjustments of accruals to actual payments.
v3.20.1
Note 4 - Joint Venture Drilling Program
3 Months Ended
Mar. 31, 2020
Notes to Financial Statements  
Joint Venture Drilling Program [Text Block]
4.
Joint Venture Drilling Program
 
In
March 
2018,
W&T and
two
other initial members formed and initially funded Monza, which jointly participates with us in the exploration, drilling and development of certain drilling projects (the “Joint Venture Drilling Program”) in the Gulf of Mexico.  Subsequent to the initial closing, additional investors joined as members of Monza during
2018
and total commitments by all members, including W&T's commitment to fund its retained interest in Monza projects held outside of Monza, are
$361.4
million.  Through
March 
31,
2020,
nine
wells have been completed.  As of
March 31, 2020,
one
additional well was drilled to target depth, but
not
completed as of this date.  W&T contributed
88.94%
of its working interest in certain identified undeveloped drilling projects to Monza and retained
11.06%
of its working interest.  The Joint Venture Drilling Program is structured so that we initially receive an aggregate of
30.0%
of the revenues less expenses, through both our direct ownership of our retained working interest in the Monza projects and our indirect interest through our interest in Monza, for contributing
20.0%
of the estimated total well costs plus associated leases and providing access to available infrastructure at agreed-upon rates.  Any exceptions to this structure are approved by the Monza board.  W&T is the operator for
seven
of the
nine
wells completed through
March 
31,
2020.
  
 
The members of Monza are made up of
third
-party investors, W&T and an entity owned and controlled by Mr. Tracy W. Krohn, our Chairman and Chief Executive Officer.  The Krohn entity invested as a minority investor on the same terms and conditions as the
third
-party investors, and its investment is limited to
4.5%
of total invested capital within Monza.  The entity affiliated with Mr. Krohn has made a capital commitment to Monza of
$14.5
million.
 
Monza is an entity separate from any other entity with its own separate creditors who will be entitled, upon its liquidation, to be satisfied out of Monza’s assets prior to any value in Monza becoming available to holders of its equity.  The assets of Monza are
not
available to pay creditors of the Company and its affiliates.
 
Through
March 
31,
2020,
members of Monza made partner capital contributions, including our contributions of working interest in the drilling projects, to Monza totaling
$289.3
 million and received cash distributions totaling
$45.9
 million.  Our net contribution to Monza, reduced by distributions received, as of
March 
31,
2020
 was
$57.1
 million.  W&T is obligated to fund certain cost overruns to the extent they occur, subject to certain exceptions, for the Joint Venture Drilling Program wells above budgeted and contingency amounts, of which the total exposure cannot be estimated at this time.
 
Consolidation and Carrying Amounts
 
Our interest in Monza is considered to be a variable interest that we account for using proportional consolidation.  Through
March 
31,
2020,
there have been
no
 events or changes that would cause a redetermination of the variable interest status.  We do
not
fully consolidate Monza because we are
not
considered the primary beneficiary of Monza.  As of
March 
31,
2020,
in the Consolidated Balance Sheet, we recorded
$15.1
 million, net, in Oil and natural gas properties and other, net,
$4.2
 million in Other assets, 
$0.1
million in ARO and
$2.4
 million, net, increase in working capital in connection with our proportional interest in Monza’s assets and liabilities.  As of
December 31, 2019,
in the Consolidated Balance Sheet, we recorded
$16.1
 million, net, in Oil and natural gas properties and other, net,
$5.3
 million in Other assets,
$0.1
million in ARO and
$2.7
 million, net, increase in working capital in connection with our proportional interest in Monza’s assets and liabilities.  Additionally, during the
three
months ended
March 31, 2020 
and during the year ended
December 31, 2019,
we called on Monza to provide cash to fund its portion of certain Joint Venture Drilling Program projects in advance of capital expenditure spending, and the unused balances as of
March 31, 2020
and
December 31, 2019 
were
$18.3
 million and
$5.3
 million, respectively, which are included in the Consolidated Balance Sheet in Advances from joint interest partners.  For the
three
months ended
March 31, 2020,
in the Consolidated Statement of Operations, we recorded
$3.3
million in Total revenues and
$3.1
 million in Operating costs and expenses in connection with our proportional interest in Monza’s operations.  For the
three
months ended
March 31, 2019,
in the Consolidated Statement of Operations, we recorded
$1.6
 million in Total revenues and, 
$0.9
 million in Operating costs and expenses in connection with our proportional interest in Monza’s operations.
v3.20.1
Note 12 - Subsequent Events
3 Months Ended
Mar. 31, 2020
Notes to Financial Statements  
Subsequent Events [Text Block]
12.
Subsequent Events
 
COVID-
19
Impacts on Economic Environment.
 
On 
January 30, 2020,
the World Health Organization (“WHO”) announced a global health emergency because of COVID-
19
 and the risks to the international community as the virus spread globally beyond its point of origin.  In
March 2020,
the WHO classified the COVID-
19
as a pandemic based on the rapid increase in exposure globally.
 
The COVID-
19
pandemic has significantly impacted the global crude oil supply-demand balance causing a substantial decrease in crude oil prices and increasing the volatility of the market.  Domestic natural gas prices have remained relatively stable and have experienced less volatility.  This economic environment has caused oil and gas operators to reduce their capital expenditure budgets, reduce activity and shut-in significant production.  The full impact of the COVID-
19
pandemic and the volatility in crude oil prices continue to evolve as of the date of this Quarterly Report.  However, the scope and length of this economic downturn and the ultimate effect on the prices of crude oil and natural gas cannot be determined and we could be adversely affected in future periods.
 
We are actively monitoring the impact on our results of operations, financial position, and liquidity for the remainder of
2020.
  In response to the market changes, we have reduced our capital expenditure budget for the remainder of
2020,
experienced production shut-ins from non-operated oil and gas properties and shut-in a limited number of our operated oil and gas properties
 
Purchase of Senior Second Lien Notes. 
During the
second
quarter of
2020,
approximately
$45.1
 million of  Senior Second Lien Notes were purchased in the open market for approximately
$15.4
 million.
 
Paycheck Protection Program (
PPP
)
 On
April 15, 2020,
the Company received
$8.4
million under the U.S. Small Business Administration (“SBA”) PPP.  The Company expects that it will
not
be required to repay any of the funds received; however, we can give
no
assurances on the outcome of the SBA’s decision on the matter.  Should the Company be required to repay all or a portion of the funds received under the PPP (the PPP “Loan”), the Loan would mature on
April 10, 2025
and accrue interest at
1%.
 
Spring
2020
Borrowing Base Redetermination.  
On
June 17, 2020,
the lenders under the Credit Agreement completed their semi-annual borrowing base redetermination and entered into the Third Amendment and Waiver (the “Third Amendment”) to the Credit Agreement. Although the Company had
not
violated any covenants, the Third Amendment provides less stringent covenant requirements given the recent changes in the oil and gas markets.  The Third Amendment includes the following changes, among other things, to the Credit Agreement:
 
 
The borrowing base under the Credit Agreement was reduced from
$250.0
million to
$215.0
million.
 
 
Increase the interest rate margin by
25
basis points.
 
 
Amend the financial covenants as follows:  
 
 
 
From the period ended
June 30, 2020
through the period ended
December 31, 2021 (
the "Waiver Period"), the Company will
not
be required to comply with the Leverage Ratio covenant.
 
 
 
During the Waiver Period, the Company will be required to maintain a
2.00
to
1.00
ratio limit of
first
lien debt outstanding under the Credit Agreement on the last day of the most recent quarter to EBITDAX for the trailing
four
quarters.
 
 
 
Increase the requirement to provide
first
priority liens on properties constituting at least
85%
of total proved reserves of the Company as set forth on reserve reports required to be delivered under the Credit Agreement to
90%.
 
v3.20.1
Note 1 - Basis of Presentation - Schedule of Accrued Liabilities (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Derivatives - current $ 1,785
Total accrued liabilities 34,428 30,896
Accrued Liabilities [Member]    
Accrued interest 24,497 10,180
Accrued salaries/payroll taxes/benefits 2,715 2,377
Incentive compensation plans 1,069 9,794
Litigation accruals 3,673 3,673
Lease liability (Note 7) 2,472 2,716
Other $ 2 $ 371
v3.20.1
Note 3 - Fair Value Measurements - Fair Value of Open Derivative Financial Instruments (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Derivatives - current [1] $ 64,039 $ 7,266
Derivative assets 2,847 2,653
Derivatives instruments - open contracts, current 1,785
Open Contracts [Member]    
Derivatives - current 54,358 6,921
Derivative assets 2,847 2,653
Derivatives instruments - open contracts, current 1,785
Derivatives $ 1,245
[1] Includes closed contracts which have not yet settled.
v3.20.1
Condensed Consolidated Statements of Changes in Shareholders' Deficit (Unaudited) - USD ($)
shares in Thousands, $ in Thousands
Common Stock Outstanding [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Treasury Stock [Member]
Total
Balances (in shares) at Dec. 31, 2018 140,644     2,869  
Balances at Dec. 31, 2018 $ 1 $ 545,705 $ (846,335) $ (24,167) $ (324,796)
Share-based compensation (78) (78)
Net loss (47,761) (47,761)
Balances (in shares) at Mar. 31, 2019 140,644     2,869  
Balances at Mar. 31, 2019 $ 1 545,627 (894,096) $ (24,167) (372,635)
Balances (in shares) at Dec. 31, 2019 141,669     2,869  
Balances at Dec. 31, 2019 $ 1 547,050 (772,249) $ (24,167) (249,365)
Net loss 65,980 65,980
Share-based compensation 1,048 1,048
Balances (in shares) at Mar. 31, 2020 141,669     2,869  
Balances at Mar. 31, 2020 $ 1 $ 548,098 $ (706,269) $ (24,167) $ (182,337)
v3.20.1
Document And Entity Information - shares
3 Months Ended
Mar. 31, 2020
Jun. 19, 2020
Document Information [Line Items]    
Entity Registrant Name W&T OFFSHORE INC  
Entity Central Index Key 0001288403  
Trading Symbol wti  
Current Fiscal Year End Date --12-31  
Entity Filer Category Accelerated Filer  
Entity Current Reporting Status Yes  
Entity Emerging Growth Company false  
Entity Small Business false  
Entity Interactive Data Current Yes  
Entity Common Stock, Shares Outstanding (in shares)   141,778,318
Entity Shell Company false  
Document Type 10-Q  
Document Period End Date Mar. 31, 2020  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q1  
Amendment Flag false  
Title of 12(b) Security Common Stock, par value $0.00001  
v3.20.1
Note 3 - Fair Value Measurements
3 Months Ended
Mar. 31, 2020
Notes to Financial Statements  
Fair Value Disclosures [Text Block]
3.
Fair Value Measurements
 
Derivative Financial Instruments
 
We measure the fair value of our open derivative financial instruments by applying the income approach, using models with inputs that are classified within Level
2
of the valuation hierarchy.  The inputs used for the fair value measurement of our open derivative financial instruments are the exercise price, the expiration date, the settlement date, notional quantities, the implied volatility, the discount curve with spreads and published commodity future prices.  Our open derivative financial instruments are reported in the Condensed Consolidated Balance Sheets using fair value.  See Note
6,
Derivative Financial Instruments
, for additional information on our derivative financial instruments.
 
The following table presents the fair value of our open derivative financial instruments (in thousands):
 
   
March 31, 2020
   
December 31, 2019
 
Assets:
     
 
     
 
Derivatives instruments - open contracts, current
  $
54,358
    $
6,921
 
Derivatives instruments - open contracts, long-term
   
2,847
     
2,653
 
                 
Liabilities:
     
 
     
 
Derivatives instruments - open contracts, current
   
     
1,785
 
Derivatives instruments - open contracts, long-term    
1,245
     
 
 
Long-Term Debt
 
We believe the carrying value of our debt under the Credit Agreement approximates fair value because the interest rates are variable and reflective of current market rates. The fair value of our Senior Second Lien Notes was measured using quoted prices, although the market is
not
a very active market. The fair value of our long-term debt was classified as Level
2
within the valuation hierarchy.  See Note
2,
Long-Term Debt
for additional information on our long-term debt.
 
The following table presents the carrying value and fair value of our long-term debt (in thousands):
 
   
March 31, 2020
   
December 31, 2019
 
   
Carrying Value
   
Fair Value
   
Carrying Value
   
Fair Value
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit Agreement
  $
80,000
    $
80,000
    $
105,000
    $
105,000
 
Senior Second Lien Notes
   
588,058
     
136,421
     
614,533
     
597,188
 
v3.20.1
Note 8 - Share-based Compensation and Cash-based Incentive Compensation (Tables)
3 Months Ended
Mar. 31, 2020
Notes Tables  
Schedule of Unvested Restricted Stock Units Roll Forward [Table Text Block]
 
Restricted Stock Units
     
Weighted Average
     
Grant Date Fair
 
Units
 
Value Per Unit
Nonvested, December 31, 2019
1,614,722
 
$ 5.73
Forfeited
(22,645)
 
6.37
Nonvested, March 31, 2020
1,592,077
 
5.72
Schedule of Nonvested Restricted Stock Units, Vesting Schedule [Table Text Block]
 
Restricted Stock Units
2020
803,995
2021
788,082
Total
1,592,077
Schedule of Nonvested Restricted Stock, Vesting Schedule [Table Text Block]
 
Restricted Shares
2020
78,424
2021
29,300
2022
15,456
Total
123,180
Share-based Payment Arrangement, Cost by Plan [Table Text Block]
   
Three Months Ended March 31,
 
   
2020
   
2019
 
Share-based compensation expense from:
               
Restricted stock units (1)
  $
978
    $
(148
)
Restricted Shares
   
70
     
70
 
Total
  $
1,048
    $
(78
)
Schedule of Incentive Compensation Expense [Table Text Block]
   
Three Months Ended March 31,
 
   
2020
   
2019
 
Share-based compensation included in:
               
General and administrative expenses
  $
1,048
    $
(78
)
Cash-based incentive compensation included in:
               
Lease operating expense (1)
   
849
     
(123
)
General and administrative expenses (1)
   
3,631
     
2,095
 
Total charged to operating income
  $
5,528
    $
1,894
 
v3.20.1
Note 3 - Fair Value Measurements (Tables)
3 Months Ended
Mar. 31, 2020
Notes Tables  
Schedule of Derivative Assets at Fair Value [Table Text Block]
   
March 31, 2020
   
December 31, 2019
 
Assets:
     
 
     
 
Derivatives instruments - open contracts, current
  $
54,358
    $
6,921
 
Derivatives instruments - open contracts, long-term
   
2,847
     
2,653
 
                 
Liabilities:
     
 
     
 
Derivatives instruments - open contracts, current
   
     
1,785
 
Derivatives instruments - open contracts, long-term    
1,245
     
 
Schedule of Carrying Values and Estimated Fair Values of Debt Instruments [Table Text Block]
   
March 31, 2020
   
December 31, 2019
 
   
Carrying Value
   
Fair Value
   
Carrying Value
   
Fair Value
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit Agreement
  $
80,000
    $
80,000
    $
105,000
    $
105,000
 
Senior Second Lien Notes
   
588,058
     
136,421
     
614,533
     
597,188
 
v3.20.1
Note 6 - Derivative Financial Instruments - Cash Receipts on Commodity Derivative Contract Settlements (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Cash receipts on derivative settlements, net $ 4,404 $ 11,948
v3.20.1
Note 8 - Share-based Compensation and Cash-based Incentive Compensation - Summary of Share Activity Related to Restricted Stock Units (Details) - Restricted Stock Units (RSUs) [Member]
3 Months Ended
Mar. 31, 2020
$ / shares
shares
Nonvested, units (in shares) | shares 1,614,722
Nonvested, weighted average grant date fair value per unit (in dollars per share) | $ / shares $ 5.73
Forfeited, units (in shares) | shares (22,645)
Forfeited, weighted average grant date fair value per unit (in dollars per share) | $ / shares $ 6.37
Nonvested, units (in shares) | shares 1,592,077
Nonvested, weighted average grant date fair value per unit (in dollars per share) | $ / shares $ 5.72