UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
For the transition period from _______________ to ________________
Commission File Number
(Exact name of registrant as specified in its charter)
| ||
(State of incorporation) | (IRS Employer Identification Number) | |
|
| |
(Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
|
|
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.
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).
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 ☐ |
| ☑ | |
Non-accelerated filer ☐ |
| Smaller reporting company | |
|
| Emerging growth company |
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. ☐
Indicate by check mark whether the registrant is a shell company. Yes
As of October 31, 2022 there were
W&T OFFSHORE, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
W&T OFFSHORE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
September 30, | December 31, | |||||
| 2022 |
| 2021 | |||
Assets |
|
|
|
| ||
Current assets: |
|
|
|
| ||
Cash and cash equivalents | $ | | $ | | ||
Restricted cash | | | ||||
Receivables: |
|
| ||||
Oil and natural gas sales |
| |
| | ||
Joint interest, net |
| |
| | ||
Total receivables |
| |
| | ||
Prepaid expenses and other assets (Note 1) |
| |
| | ||
Total current assets |
| |
| | ||
Oil and natural gas properties and other, net (Note 1) |
| |
| | ||
Restricted deposits for asset retirement obligations |
| |
| | ||
Deferred income taxes |
| |
| | ||
Other assets (Note 1) |
| |
| | ||
Total assets | $ | | $ | | ||
Liabilities and Shareholders’ Deficit |
|
|
|
| ||
Current liabilities: |
|
|
|
| ||
Accounts payable | $ | | $ | | ||
Undistributed oil and natural gas proceeds |
| |
| | ||
Advances from joint interest partners |
| |
| | ||
Asset retirement obligations |
| |
| | ||
Accrued liabilities (Note 1) |
| |
| | ||
Current portion of long-term debt | | | ||||
Income tax payable |
| |
| | ||
Total current liabilities |
| |
| | ||
Long-term debt, net (Note 2) |
| |
| | ||
Asset retirement obligations, less current portion |
| |
| | ||
Other liabilities (Note 1) |
| |
| | ||
Deferred income taxes |
| |
| | ||
Commitments and contingencies (Note 12) |
| |
| | ||
Shareholders’ deficit: |
|
|
|
| ||
Preferred stock, $ |
|
| ||||
Common stock, $ |
| |
| | ||
Additional paid-in capital |
| |
| | ||
Retained deficit |
| ( |
| ( | ||
Treasury stock, at cost; |
| ( |
| ( | ||
Total shareholders’ deficit |
| ( |
| ( | ||
Total liabilities and shareholders’ deficit | $ | | $ | |
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 September 30, | Nine Months Ended September 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Revenues: |
|
|
|
|
|
|
|
| ||||
Oil | $ | | $ | | $ | | $ | | ||||
NGLs |
| |
| |
| |
| | ||||
Natural gas |
| |
| |
| |
| | ||||
Other |
| |
| |
| |
| | ||||
Total revenues |
| |
| |
| |
| | ||||
Operating expenses: |
|
|
|
|
|
|
|
| ||||
Lease operating expenses |
| |
| |
| |
| | ||||
Gathering, transportation and production taxes | | | | | ||||||||
Depreciation, depletion, and amortization |
| |
| |
| |
| | ||||
Asset retirement obligations accretion | | | | | ||||||||
General and administrative expenses |
| |
| |
| |
| | ||||
Total operating expenses |
| |
| |
| |
| | ||||
Operating income |
| |
| |
| |
| | ||||
Interest expense, net |
| |
| |
| |
| | ||||
Derivative loss |
| |
| |
| |
| | ||||
Other (income) expense, net |
| ( |
| — |
| ( |
| | ||||
Income (loss) before income taxes |
| |
| ( |
| |
| ( | ||||
Income tax expense (benefit) |
| |
| ( |
| |
| ( | ||||
Net income (loss) | $ | | $ | ( | $ | | $ | ( | ||||
Net income (loss) per common share: | ||||||||||||
Basic | $ | | $ | ( | $ | | $ | ( | ||||
Diluted | $ | | $ | ( | $ | | $ | ( | ||||
Weighted average common shares outstanding | ||||||||||||
Basic | | | | | ||||||||
Diluted | | | | |
See Notes to Condensed Consolidated Financial Statements.
2
W&T OFFSHORE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT
(In thousands)
(Unaudited)
| Common Stock |
| Additional |
|
|
|
|
| Total | ||||||||||
Outstanding | Paid-In | Retained | Treasury Stock | Shareholders’ | |||||||||||||||
| Shares |
| Value |
| Capital |
| Deficit |
| Shares |
| Value |
| Deficit | ||||||
Balances at June 30, 2022 |
| |
| $ | |
| $ | |
| $ | ( |
| |
| $ | ( |
| $ | ( |
Share-based compensation |
| |
|
| |
|
| |
|
| |
| |
|
| |
|
| |
Stock Issued |
| |
|
| |
|
| |
|
| |
| |
|
| |
|
| |
RSUs surrendered for payroll taxes |
| — |
|
| — |
|
| ( |
|
| — |
| — |
|
| — |
|
| ( |
Net income |
| — |
|
| — |
|
| — |
|
| |
| — |
|
| — |
|
| |
Balances at September 30, 2022 |
| |
| $ | |
| $ | |
| $ | ( |
| |
| $ | ( |
| $ | ( |
| Common Stock |
| Additional |
|
|
|
|
| Total | ||||||||||
Outstanding | Paid-In | Retained | Treasury Stock | Shareholders’ | |||||||||||||||
| Shares |
| Value |
| Capital |
| Deficit |
| Shares |
| Value |
| Deficit | ||||||
Balances at June 30, 2021 |
| |
| $ | |
| $ | |
| $ | ( |
| |
| $ | ( |
| $ | ( |
Share-based compensation |
| |
|
| |
|
| |
|
| |
| |
|
| |
|
| |
Stock Issued |
| — |
|
| — |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
Net loss |
| |
|
| |
|
| |
|
| ( |
| |
|
| |
|
| ( |
Balances at September 30, 2021 |
| |
| $ | |
| $ | |
| $ | ( |
| |
| $ | ( |
| $ | ( |
| Common Stock |
| Additional |
|
|
|
|
| Total | ||||||||||
Outstanding | Paid-In | Retained | Treasury Stock | Shareholders’ | |||||||||||||||
| Shares |
| Value |
| Capital |
| Deficit |
| Shares |
| Value |
| Deficit | ||||||
Balances at December 31, 2021 |
| | $ | | $ | | $ | ( |
| | $ | ( | $ | ( | |||||
Share-based compensation |
| — |
| — |
| |
| — |
| — |
| — |
| | |||||
Stock Issued | | — | — | — | — | — | — | ||||||||||||
RSUs surrendered for payroll taxes |
| — |
|
| — |
|
| ( |
|
| — |
| — |
|
| — |
|
| ( |
Net income |
| — |
| — |
| — |
| |
| — |
| — |
| | |||||
Balances at September 30, 2022 |
| | $ | | $ | | $ | ( |
| | $ | ( | $ | ( |
| Common Stock |
| Additional |
|
|
|
|
| Total | ||||||||||
Outstanding | Paid-In | Retained | Treasury Stock | Shareholders’ | |||||||||||||||
| Shares |
| Value |
| Capital |
| Deficit |
| Shares |
| Value |
| Deficit | ||||||
Balances at December 31, 2020 |
| | $ | | $ | | $ | ( |
| | $ | ( | $ | ( | |||||
Share-based compensation |
| — |
| — |
| |
| — |
| — |
| — |
| | |||||
Stock Issued | | — | — | — | — | — | — | ||||||||||||
Net loss |
| — |
| — |
| — |
| ( |
| — |
| — |
| ( | |||||
Balances at September 30, 2021 |
| | $ | | $ | | $ | ( |
| | $ | ( | $ | ( |
See Notes to Condensed Consolidated Financial Statements.
3
W&T OFFSHORE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended September 30, | ||||||
| 2022 |
| 2021 | |||
Operating activities: |
|
|
|
| ||
Net income (loss) | $ | | $ | ( | ||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
| ||
Depreciation, depletion, amortization and accretion |
| |
| | ||
Amortization of debt items and other items |
| |
| | ||
Share-based compensation |
| |
| | ||
Derivative loss |
| |
| | ||
Derivative cash (payments) receipts, net |
| ( |
| ( | ||
Derivative cash premium payments | ( | ( | ||||
Deferred income taxes |
| |
| ( | ||
Changes in operating assets and liabilities: |
|
|
|
| ||
Oil and natural gas receivables |
| ( |
| | ||
Joint interest receivables |
| ( |
| ( | ||
Prepaid expenses and other assets |
| ( |
| ( | ||
Income tax |
| |
| ( | ||
Asset retirement obligation settlements |
| ( |
| ( | ||
Cash advances from JV partners |
| ( |
| | ||
Accounts payable, accrued liabilities and other |
| |
| | ||
Net cash provided by operating activities |
| |
| | ||
Investing activities: |
|
|
|
| ||
Investment in oil and natural gas properties and equipment |
| ( |
| ( | ||
Changes in operating assets and liabilities associated with investing activities |
| ( |
| | ||
Acquisition of property interests |
| ( |
| | ||
Net cash used in investing activities |
| ( |
| ( | ||
Financing activities: |
|
|
|
| ||
Repayments on credit facility |
| — |
| ( | ||
Proceeds from Term Loan |
| — |
| | ||
Repayments on Term Loan |
| ( |
| ( | ||
Debt issuance costs |
| ( |
| ( | ||
Other | ( | — | ||||
Net cash (used in) provided by financing activities |
| ( |
| | ||
Increase in cash and cash equivalents |
| |
| | ||
Cash and cash equivalents and restricted cash, beginning of period |
| |
| | ||
Cash and cash equivalents and restricted cash, end of period | $ | | $ | |
See Notes to Condensed Consolidated Financial Statements.
4
NOTE 1 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
W&T Offshore, Inc. (with subsidiaries referred to herein as “W&T” 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. Interests in fields, leases, structures and equipment are primarily owned by the Company and its
Basis of Presentation
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 2021 Annual Report on Form 10-K (the “2021 Annual Report”).
Reclassification – For presentation purposes, as of September 30, 2021, Derivative (gain) loss has been reclassified from “Operating income” on the Condensed Consolidated Statement of Operations in order to conform to the current period presentation. Such reclassification had no effect on the Company’s results of operations, financial position or cash flows.
For presentation purposes, as of September 30, 2021, Gathering and transportation and Production taxes have been combined into one line item within “Operating income” on the Condensed Consolidated Statement of Operations in order to conform to the current period presentation. Such reclassification had no effect on the Company’s results of operations, financial position or cash flows.
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, the reported amounts of revenues and expenses during the reporting periods and the reported amounts of proved oil and natural gas reserves. Actual results could differ from those estimates.
5
Summary of Significant Accounting Policies
Revenue and Accounts Receivable – Revenue from the sale of crude oil, natural gas liquids (“NGLs”) and natural gas is recognized when performance obligations under the terms of the respective contracts are satisfied; this generally occurs with the delivery of crude oil, NGLs and natural gas to the customer. Revenue is concentrated with certain major oil and gas companies. There have been no significant changes to the Company’s contracts with customers during the nine months ended September 30, 2022.
The Company also has 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. The Company’s maximum exposure at any time would be the receivable balance. Joint interest receivables on the Condensed Consolidated Balance Sheets are presented net of allowance for credit losses of $
Employee Retention Credit – Under the Consolidated Appropriations Act of 2021, the Company recognized a $
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):
September 30, 2022 |
| December 31, 2021 | ||||
Derivatives(1) (Note 8) | $ | | $ | | ||
Unamortized insurance/bond premiums |
| |
| | ||
Prepaid deposits related to royalties |
| |
| | ||
Prepayment to vendors |
| |
| | ||
Prepayments to joint interest partners | | | ||||
Debt issue costs | | | ||||
Other |
| |
| | ||
Prepaid expenses and other assets | $ | | $ | |
(1) |
Oil and Natural Gas Properties and Other, Net – Oil and natural gas properties and equipment are recorded at cost using the full cost method.
September 30, 2022 |
| December 31, 2021 | ||||
Oil and natural gas properties and equipment | $ | | $ | | ||
Furniture, fixtures and other |
| |
| | ||
Total property and equipment |
| |
| | ||
Less: Accumulated depreciation, depletion, amortization and impairment |
| ( |
| ( | ||
Oil and natural gas properties and other, net | $ | | $ | |
6
Other Assets (long-term) – The major categories are presented in the following table (in thousands):
September 30, 2022 |
| December 31, 2021 | ||||
$ | | $ | | |||
Investment in White Cap, LLC |
| |
| | ||
Proportional consolidation of Monza (Note 6) |
| |
| | ||
Derivatives(1) (Note 8) |
| |
| | ||
Other |
| |
| | ||
Total other assets (long-term) | $ | | $ | |
(1) |
Accrued Liabilities –
September 30, 2022 |
| December 31, 2021 | ||||
Accrued interest | $ | | $ | | ||
Accrued salaries/payroll taxes/benefits |
| |
| | ||
Litigation accruals |
| |
| | ||
| |
| | |||
Derivatives(1) (Note 8) |
| |
| | ||
Other |
| |
| | ||
Total accrued liabilities | $ | | $ | |
(1) | Includes closed contracts which have not yet settled. |
Other Liabilities (long-term) –
September 30, 2022 |
| December 31, 2021 | ||||
Dispute related to royalty deductions | $ | | $ | | ||
Derivatives (Note 8) |
| |
| | ||
| |
| | |||
Other |
| |
| | ||
Total other liabilities (long-term) | $ | | $ | |
7
NOTE 2 — DEBT
The components comprising the Company’s debt are presented in the following table (in thousands):
September 30, 2022 | December 31, 2021 | |||||
Term Loan: | ||||||
Principal | $ | | $ | | ||
Unamortized debt issuance costs | ( | ( | ||||
Total Term Loan |
| |
| | ||
Credit Agreement borrowings: | — | — | ||||
Senior Second Lien Notes: |
| — |
|
| ||
Principal |
| |
| | ||
Unamortized debt issuance costs |
| ( |
| ( | ||
Total Senior Second Lien Notes |
| |
| | ||
Less current portion | ( | ( | ||||
Total long-term debt, net | $ | | $ | |
Current Portion of Long-Term Debt
As of September 30, 2022, the current portion of long-term debt of $
As of September 30, 2022, the Company had outstanding $
The Company believes that cash on hand and cash flows from operations will enable the Company to satisfy its debt obligations as well as meet its other funding requirements for at least one year from the date this Form 10-Q is issued. The Company’s view regarding sufficiency of cash and liquidity is primarily based on the financial forecast, which is impacted by various assumptions including projections for pricing, production volumes and operating costs. Given the assumptions involved, the forecast is subject to uncertainty, therefore cash flows from operations may be lower than projected.
If necessary, there are further actions the Company could undertake to increase cash flows which include limiting capital expenditures and reducing operating expenditures. Additionally, the Company may seek to raise cash through the sale of up to $
8
Term Loan (Subsidiary Credit Agreement)
On May 19, 2021, A-I LLC and A-II LLC (collectively, the “Subsidiary Borrowers”), both Delaware limited liability companies and indirect, wholly-owned subsidiaries of the Company, entered into a credit agreement (the “Subsidiary Credit Agreement”) providing for a term loan in an aggregate principal amount equal to $
In exchange for the net cash proceeds received by the Subsidiary Borrowers from the Term Loan, the Company assigned to (a) A-I LLC all of its interests in certain oil and gas leasehold interests and associated wells and units located in State of Alabama waters and U.S. federal waters in the offshore Gulf of Mexico, in the Mobile Bay region (such assets, the “Mobile Bay Properties”) and (b) A-II LLC its interest in certain gathering and processing assets located (i) in State of Alabama waters and U.S. federal waters in the offshore Gulf of Mexico, in the Mobile Bay region and (ii) onshore near Mobile, Alabama, including offshore gathering pipelines, an onshore crude oil treating and sweetening facility, an onshore gathering pipeline, and associated assets (such assets, the “Midstream Assets”). A portion of the proceeds to the Company was used to repay the $
As of September 30, 2022 and December 31, 2021, the Company had $
Credit Agreement
On November 2, 2021, the Company entered into the Ninth Amendment to the Sixth Amended and Restated Credit Agreement (the “Ninth Amendment”), which establishes a short-term $
On March 8, 2022, the Company entered into the Tenth Amendment to Credit Agreement (the “Tenth Amendment”), which extended the maturity date and Calculus’ commitment to January 3, 2023. The terms of this extension with Calculus were reviewed and approved by the Audit Committee of the Company. In connection with the Tenth Amendment, Calculus was paid arrangement and upfront fees of approximately $
On November 7, 2022, the Company entered into the Eleventh Amendment to the Credit Agreement (the “Eleventh Amendment”), which extended the maturity date and Calculus’ commitment to January 3, 2024, or in certain circumstances as described in more detail below, to August 1, 2023, and shifted the rate at which outstanding borrowings will accrue interest to a SOFR-based rate. The terms of this extension with Calculus were reviewed and approved by the Audit Committee of the Company.
9
Pursuant to the Eleventh Amendment, the commitment will expire and final maturity of any and all outstanding loans is January 3, 2024, or in the event the Senior Second Lien Notes are not refinanced or replaced in full, on or prior to August 1, 2023, with other indebtedness that matures on or after April 3, 2024 or are not otherwise discharged, defeased or repaid in full, August 1, 2023. Outstanding borrowings will accrue interest at SOFR plus
As a result of the Ninth Amendment, Tenth Amendment and Eleventh Amendment and related assignments and agreements, the primary terms and covenants associated with the Credit Agreement as of September 30, 2022, are as follows:
· | The revised borrowing base is $ |
· | The commitment will expire and final maturity of any and all outstanding loans is January 3, 2024, or in the event that the Second Lien Notes are not refinanced or replaced in full, on or prior to August 1, 2023, with other indebtedness that matures on or after April 3, 2024 or are not otherwise discharged, defeased or repaid in full, August 1, 2023. |
·The Company’s ratio of First Lien Debt (as such term is defined in the Credit Agreement) outstanding under the Credit Agreement on the last day of the most recent quarter to EBITDAX (as such term is defined in the Credit Agreement) for the trailing
·The Company’s ratio of Total Proved PV-10 (as such term is defined in the Credit Agreement) to First Lien Debt as of the last day of any fiscal quarter commencing with the fiscal quarter ending March 31, 2022 must be equal to or greater than
·The ratio of the Company and its restricted subsidiaries’ consolidated current assets to Company and its restricted subsidiaries’ consolidated current liabilities (subject in each case to certain exceptions and adjustments as set forth in the Credit Agreement) at the last day of any fiscal quarter must be greater than or equal to
● | As of the last day of any fiscal quarter commencing with the fiscal quarter ending March 31, 2022, the Company and its restricted subsidiaries on a consolidated basis must pass a “Stress Test” consisting of an analysis conducted by the lender in good faith and in consultation with the Company based upon the latest engineering report furnished to lender, which analysis is designed to determine whether the future net revenues expected to accrue to the Company’s and its guarantor subsidiaries’ interest (and the interest of certain joint ventures) in the oil and gas properties included in the properties used to determine the latest borrowing base during half of the remaining expected economic lives of such properties are sufficient to satisfy the aggregate first lien indebtedness of the Company and its restricted subsidiaries in accordance with the terms of such indebtedness assuming the revolving credit facility is |
In addition, Calculus earned commitment fees of $
10
Availability under the Credit Agreement is subject to redetermination of the borrowing base that may be requested at the discretion of either the lender or the Company in accordance with the Credit Agreement. The borrowing base is calculated by the lender based on their evaluation of proved reserves and their own internal criteria. Any redetermination by the lender to change the borrowing base will result in a similar change in the availability under the Credit Agreement. The Credit Agreement is secured by a first priority lien on substantially all of the Company’s and its guarantor subsidiaries’ assets, excluding those assets of the Subsidiary Borrowers, which liens were released in the Mobile Bay Transaction (as described in Note 5 – Subsidiary Borrowers).
As of September 30, 2022, there were
On October 18, 2018, W&T issued $
The Senior Second Lien Notes are secured by a second-priority lien on all of the Company’s assets that are secured under the Credit Agreement, which does not include the Mobile Bay Properties and the related Midstream Assets. The Senior Second Lien Notes contain covenants that limit or prohibit the Company’s ability and the ability of certain 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 September 30, 2022 and for all prior measurement periods presented, the Company was in compliance with all applicable covenants of the Credit Agreement and the Indenture.
NOTE 3 – FAIR VALUE MEASUREMENTS
Derivative Financial Instruments
The Company measures the fair value of 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 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. Derivative financial instruments are reported in the Condensed Consolidated Balance Sheets using fair value. See Note 8 – Derivative Financial Instruments, for additional information on derivative financial instruments.
11
The following table presents the fair value of the Company’s derivative financial instruments (in thousands):
September 30, 2022 |
| December 31, 2021 | ||||
Assets: |
|
|
|
| ||
Derivative instruments - current | $ | | $ | | ||
Derivative instruments - long-term |
| |
| | ||
Liabilities: |
|
|
|
| ||
Derivative instruments - current |
| |
| | ||
Derivative instruments - long-term |
| |
| |
Debt Instruments
The following table presents the net value and fair value of the Company’s debt (in thousands):
| September 30, 2022 |
| December 31, 2021 | |||||||||
Net Value |
| Fair Value |
| Net Value |
| Fair Value | ||||||
Liabilities: |
|
|
|
|
|
|
|
| ||||
Term Loan | $ | | $ | | $ | | $ | | ||||
Senior Second Lien Notes |
| |
| |
| |
| | ||||
Total | $ | | $ | | $ | | $ | |
The fair value of the Term Loan was measured using a discounted cash flows model and current market rates. The fair value of the Senior Second Lien Notes was measured using quoted prices, although the market is not a highly liquid market. The fair value of debt was classified as Level 2 within the valuation hierarchy.
NOTE 4 — ACQUISITIONS
On January 5, 2022, the Company entered into a purchase and sale agreement with ANKOR E&P Holdings Corporation and KOA Energy LP (“ANKOR”) to acquire their interests in and operatorship of certain oil and natural gas producing properties in federal shallow waters in the Gulf of Mexico at Ship Shoal 230, South Marsh Island 27/Vermilion 191, and South Marsh Island 73 fields for $
Additionally, on April 1, 2022, the Company entered into a purchase and sale agreement with a private seller to acquire the remaining working interests in certain oil and natural gas producing properties in federal shallow waters of the Gulf of Mexico at the Ship Shoal 230, South Marsh Island 27/Vermilion 191, and South Marsh Island 73 fields purchased from ANKOR. The transaction had an effective date and closing date of April 1, 2022. After normal and customary post-effective date adjustments, cash consideration of $
12
The Company determined that the assets acquired did not meet the definition of a business; therefore, the transactions were accounted for as asset acquisitions in accordance with ASC 805. An acquisition qualifying as an asset acquisition requires, among other items, that the cost of the assets acquired and liabilities assumed to be recognized on the Condensed Consolidated Balance Sheet by allocating the asset cost on a relative fair value basis. The fair value measurements of the oil and natural gas properties acquired and asset retirement obligations assumed were derived utilizing an income approach and based, in part, on significant inputs not observable in the market. These inputs represent Level 3 measurements in the fair value hierarchy and include, but are not limited to, estimates of reserves, future operating and development costs, future commodity prices, estimated future cash flows and appropriate discount rates. These inputs required significant judgments and estimates by the Company’s management at the time of the valuation. Transaction costs incurred on an asset acquisition are capitalized as a component of the assets acquired. The amounts recorded on the Condensed Consolidated Balance Sheet for the purchase price allocation and liabilities assumed related to the acquisitions described above on February 1, 2022, and April 1, 2022, are presented in the following tables, respectively (in thousands):
| February 1, | ||
Oil and natural gas properties and other, net | $ | | |
Restricted deposits for asset retirement obligations |
| | |
Asset retirement obligations |
| ( | |
Allocated purchase price | $ | |
April 1, | |||
| 2022 | ||
Oil and natural gas properties and other, net | $ | | |
Restricted deposits for asset retirement obligations |
| | |
Asset retirement obligations |
| ( | |
Allocated purchase price | $ | |
NOTE 5 — SUBSIDIARY BORROWERS
On May 19, 2021, the Company’s wholly-owned special purpose vehicles (the “SPVs”), the Subsidiary Borrowers, entered into the Subsidiary Credit Agreement providing for the Term Loan in an aggregate principal amount equal to $
As part of the Mobile Bay Transaction, the SPVs entered into a management services agreement (the “Services Agreement”) with the Company, pursuant to which the Company will provide (a) certain operational and management services for (i) the Mobile Bay Properties and (ii) the Midstream Assets and (b) certain corporate, general and administrative services for A-I LLC and A-II LLC (collectively in this capacity, the “Services Recipient”). Under the Services Agreement, the Company will indemnify the Services Recipient with respect to claims, losses or liabilities incurred by the Services Agreement parties that relate to personal injury or death or property damage of the Company, in each case, arising out of performance of the Services Agreement, except to the extent of the gross negligence or willful misconduct of the Services Recipient. The Services Recipient will indemnify the Company with respect to claims, losses or liabilities incurred by the Company that relate to personal injury or death of the Services Recipient or property damage of the Services Recipient, in each case, arising out of performance of the Services Agreement, except to the extent of the gross negligence or willful misconduct of the Company. The Services Agreement will terminate upon the earlier of (a) termination of the Subsidiary Credit Agreement and payment and satisfaction of all obligations thereunder or (b) the exercise of certain remedies by the secured parties under the Subsidiary Credit Agreement and the realization by such secured parties upon any of the collateral under the Subsidiary Credit Agreement.
13
The SPVs are wholly-owned subsidiaries of the Company; however, the assets of the SPVs will not be available to satisfy the debt or contractual obligations of any non-SPV entities, including debt securities or other contractual obligations of the Company, and the SPVs do not bear any liability for the indebtedness or other contractual obligations of any non-SPVs, and vice versa.
Consolidation and Carrying Amounts
The following table presents the amounts recorded by W&T on the Condensed Consolidated Balance Sheets related to the consolidation of the Subsidiary Borrowers and the subsidiary that owns the equity of the Subsidiary Borrowers (in thousands):
September 30, 2022 | December 31, 2021 | |||||
Assets: |
|
|
|
| ||
Cash and cash equivalents | $ | | $ | | ||
Receivables: |
|
|
|
| ||
Oil and natural gas sales |
| |
| | ||
Joint interest, net |
| ( |
| ( | ||
Prepaid expenses and other assets |
| |
| | ||
Oil and natural gas properties and other, net |
| |
| | ||
Other assets |
| ( |
| ( | ||
Liabilities: |
|
|
|
| ||
Accounts payable | | | ||||
Undistributed oil and natural gas proceeds |
| |
| | ||
Accrued liabilities |
| |
| | ||
Current portion of long-term debt | | | ||||
Long-term debt, net |
| |
| | ||
Asset retirement obligations |
| |
| | ||
Other liabilities |
| |
| |
The following table presents the amounts recorded by W&T in the Condensed Consolidated Statement of Operations related to the consolidation of the operations of the Subsidiary Borrowers and the subsidiary that owns the equity of the Subsidiary Borrowers (in thousands):
The period from | ||||||
Nine Months Ended | May 19, 2021 to | |||||
September 30, 2022 | September 30, 2021 | |||||
Total revenues | $ | | $ | | ||
Total operating expenses |
| |
| | ||
Interest expense, net |
| |
| | ||
Derivative loss |
| |
| | ||
Other income | | — |
14
NOTE 6 — JOINT VENTURE DRILLING PROGRAM
In March 2018, W&T and
The members of Monza are 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
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 September 30, 2022,
Through September 30, 2022, members of Monza made partner capital contributions, including W&T’s contributions of working interest in the drilling projects, to Monza totaling $
Consolidation and Carrying Amounts
W&T’s interest in Monza is considered to be a variable interest that is proportionally consolidated. Through September 30, 2022, there have been no events or changes that would cause a redetermination of the variable interest status. W&T does not fully consolidate Monza because the Company is not considered the primary beneficiary of Monza.
The following table presents the amounts recorded by W&T on the Condensed Consolidated Balance Sheets related to the consolidation of the proportional interest in Monza’s operations (in thousands):
September 30, 2022 | December 31, 2021 | |||||
Working capital | $ | | $ | | ||
Oil and natural gas properties and other, net |
| |
| | ||
Asset retirement obligations | | | ||||
Other assets |
| |
| | ||
Other liabilities | | — |
Additionally, during the year ended December 31, 2021, W&T 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 September 30, 2022 and December 31, 2021 were $
15
The following table presents the amounts recorded by W&T in the Condensed Consolidated Statement of Operations related to the consolidation of the proportional interest in Monza’s operations (in thousands):
Nine Months Ended September 30, | ||||||
2022 | 2021 | |||||
Total revenues | $ | | $ | | ||
Total operating expenses |
| |
| | ||
Derivative loss |
| — |
| |
NOTE 7 — ASSET RETIREMENT OBLIGATIONS
AROs 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 ARO is as follows (in thousands):
Nine Months Ended September 30, | |||
| 2022 | ||
Asset retirement obligations, beginning of period | $ | | |
Liabilities settled |
| ( | |
Accretion expense |
| | |
Liabilities acquired |
| | |
Liabilities incurred | | ||
Revisions of estimated liabilities |
| | |
Asset retirement obligations, end of period | | ||
Less: Current portion |
| ( | |
Long-term | $ | |
NOTE 8 — DERIVATIVE FINANCIAL INSTRUMENTS
W&T’s market risk exposure relates primarily to commodity prices. The Company attempts to mitigate a portion of its commodity price risk and stabilize cash flows associated with sales of oil and natural gas production through the use of oil and natural gas swaps, costless collars, sold calls and purchased puts. The Company is exposed to credit loss in the event of nonperformance by the derivative counterparties; however, the Company currently anticipates that the derivative counterparties will be able to fulfill their contractual obligations. The Company is not required to provide additional collateral to the derivative counterparties and does not require collateral from the derivative counterparties.
W&T has elected not to designate commodity derivative contracts for hedge accounting. Accordingly, commodity derivatives are recorded on the Condensed Consolidated Balance Sheets at fair value with settlements of such contracts, and changes in the unrealized fair value, recorded as Derivative (gain) loss on the Condensed Consolidated Statements of Operations in each period presented. The cash flows of all commodity derivative contracts are included in Net cash provided by operating activities on the Condensed Consolidated Statements of Cash Flows.
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”).
16
The following table reflects the contracted volumes and weighted average prices under the terms of the Company’s open derivative contracts as of September 30, 2022:
Average | |||||||||||||||
Instrument | Daily | Total | Weighted | Weighted | Weighted | ||||||||||
Period |
| Type |
| Volumes |
| Volumes |
| Strike Price |
| Put Price |
| Call Price | |||
Crude Oil - WTI (NYMEX) | (Bbls)(1) | (Bbls)(1) | ($/Bbls)(1) | ($/Bbls)(1) | ($/Bbls)(1) | ||||||||||
Jul 2022 - Nov 2022 | swaps | | | $ | | $ | — | $ | — | ||||||
Jul 2022 - Nov 2022 |
| collars |
| |
| |
| $ | — |
| $ | |
| $ | |
Natural Gas - Henry Hub (NYMEX) | (MMbtu)(2) | (MMbtu)(2) | ($/MMbtu)(2) | ($/MMbtu)(2) | ($/MMbtu)(2) | ||||||||||
Jul 2022 - Dec 2022 | calls | | | $ | — | $ | — | $ | | ||||||
Jan 2023 - Dec 2023 | calls | | | $ | — | $ | — | $ | | ||||||
Jan 2024 - Dec 2024 | calls | | | $ | — | $ | — | $ | | ||||||
Jan 2025 - Mar 2025 | calls | | | $ | — | $ | — | $ | | ||||||
Jul 2022 - Dec 2022 | collars | | | $ | — | $ | | $ | | ||||||
Jul 2022 - Nov 2022 | swaps | | | $ | | $ | — | $ | — | ||||||
Jul 2022 - Dec 2022(3) | swaps | | | $ | | $ | — | $ | — | ||||||
Jan 2023 - Dec 2023(3) | swaps | | | $ | | $ | — | $ | — | ||||||
Jan 2024 - Dec 2024(3) | swaps | | | $ | | $ | — | $ | — | ||||||
Jan 2025 - Mar 2025(3) | swaps | | | $ | | $ | — | $ | — | ||||||
Apr 2025 - Dec 2025(3) | puts | | | $ | — | $ | | $ | — | ||||||
Jan 2026 - Dec 2026(3) | puts | | | $ | — | $ | | $ | — | ||||||
Jan 2027 - Dec 2027(3) | puts | | | $ | — | $ | | $ | — | ||||||
Jan 2028 - Apr 2028(3) | puts | | | $ | — | $ | | $ | — |
(1) | Bbls – Barrels |
(2) | MMbtu – Million British Thermal Units |
(3) | These contracts were entered into by the Company’s wholly owned subsidiary, A-I LLC, in conjunction with the Term Loan (see Note 5 – Subsidiary Borrowers). |
Financial Statement Presentation
The following fair value of derivative financial instruments amounts were recorded in the Condensed Consolidated Balance Sheets (in thousands):
| September 30, 2022 |
| December 31, 2021 | |||
$ | | $ | | |||
| |
| | |||
| |
| | |||
| |
17
Although the Company has master netting arrangements with its counterparties, the amounts recorded on the Condensed Consolidated Balance Sheets are on a gross basis.
Changes in the fair value and settlements of contracts are recorded on the Condensed Consolidated Statements of Operations as Derivative (gain) loss. The impact of commodity derivative contracts on the Condensed Consolidated Statements of Operations were as follows (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Realized loss(1) | $ | | $ | | $ | | $ | | ||||
Unrealized (gain) loss | ( | | | | ||||||||
Derivative loss | $ | | $ | | $ | | $ | |
(1) | The nine months ended September 30, 2022 includes the effect of the $ |
Cash payments 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):
Nine Months Ended September 30, | ||||||
| 2022 |
| 2021 | |||
Derivative loss | $ | | $ | | ||
Derivative cash (payments) receipts, net(1) | ( | ( | ||||
Derivative cash premium payments | ( | ( |
(1) | The nine months ended September 30, 2022 includes $ |
NOTE 9 — SHARE-BASED AWARDS AND CASH BASED AWARDS
The W&T Offshore, Inc. Amended and Restated Incentive Compensation Plan (as amended from time to time, the “Plan”) was approved by the Company’s shareholders in 2010. Under the Plan, the Company may issue, subject to the approval of the Board of Directors, stock options, stock appreciation rights, restricted stock, restricted stock units, stock awards, dividend equivalents, other stock-based awards, performance units or shares, cash awards, substitute awards or any combination of the foregoing to employees, directors and consultants.
Share-Based Awards to Employees
Restricted Stock Units (“RSUs”) – During the nine months ended September 30, 2022, the Company granted RSUs under the Plan to certain employees. RSUs outstanding as of September 30, 2022 relate to the 2022 and 2021 grants. The 2022 RSUs granted are a long-term compensation component, subject to service conditions, with of the award vesting each year on January 1, 2023, 2024, and 2025, respectively.
18
A summary of activity related to RSUs during the nine months ended September 30, 2022 is as follows:
Weighted | |||||
|
| Average | |||
Restricted | Grant Date Fair | ||||
Stock Units | Value Per Unit | ||||
Nonvested, beginning of period | | $ | | ||
Granted |
| |
| | |
Vested(1) |
| ( |
| | |
Forfeited |
| ( |
| | |
Nonvested, end of period |
| | |
(1) | During May and June 2022, approximately |
Performance Share Units (“PSUs”) – During the nine months ended September 30, 2022, the Company granted PSUs under the Plan that are eligible to vest based on continued employment and the Company’s total shareholder return (“TSR”) ranking against peer companies’ TSR over a
The 2021 grants were subject to performance criteria against the applicable performance period, which ended on December 31, 2021. The PSUs granted during 2021 are eligible to vest based on continued employment through October 1, 2023.
A summary of activity related to PSUs during the nine months ended September 30, 2022 is as follows:
Weighted | |||||
|
| Average | |||
Performance | Grant Date Fair | ||||
Share Units | Value Per Unit | ||||
Nonvested, beginning of period | | $ | | ||
Granted |
| |
| | |
Vested (1) |
| ( |
| | |
Forfeited |
| ( |
| | |
Nonvested, end of period |
| | |
(1) | During May and June 2022, approximately |
The following table summarizes the assumptions used in the Monte Carlo simulations to calculate the fair value of the absolute TSR PSUs granted at the date indicated:
May 26, 2022 | ||||
Expected term for performance period (in years) | ||||
Expected volatility | | % | ||
Risk-free interest rate | | % | ||
Fair value (in thousands) | $ | |
Share-Based Awards to Non-Employee Directors
During the nine months ended September 30, 2022, the Company granted Restricted Shares under the W&T Offshore, Inc. 2004 Directors Compensation Plan to non-employee directors. 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.
19
A summary of activity related to Restricted Shares during the nine months ended September 30, 2022 is as follows:
Weighted | |||||
Average | |||||
Grant Date | |||||
| Restricted |
| Fair Value | ||
Shares | Per Share | ||||
Nonvested, beginning of period | | $ | | ||
Granted |
| |
| | |
Vested |
| ( |
| | |
Nonvested, end of period |
| | $ | |
Share-Based Compensation Expense
Compensation costs for share-based payments is recognized over the requisite service period. A summary of compensation expense under share-based payment arrangements is as follows (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Restricted stock units | $ | | $ | | $ | | $ | | ||||
Performance share units | | | | | ||||||||
Restricted Shares |
| |
| |
| |
| | ||||
Total | $ | | $ | | $ | | $ | |
Cash-Based Incentive Compensation
In addition to share-based compensation, short-term cash-based incentive awards were granted under the Plan to all eligible employees during the second quarter of 2022 subject to Company performance criteria, individual performance criteria, and continued employment through the payment date. The short-term cash-based incentive awards granted in 2021 were paid in March 2022.
Share-Based Awards and Cash-Based Awards Compensation Expense
A summary of compensation expense related to share-based awards and cash-based awards is as follows (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Share-based compensation included in: |
|
|
|
| ||||||||
General and administrative expenses | $ | | $ | | $ | | $ | | ||||
Cash-based incentive compensation included in: |
|
|
|
|
|
|
|
| ||||
Lease operating expense(1) |
| |
| |
| |
| | ||||
General and administrative expenses(1) |
| |
| |
| |
| | ||||
Total charged to operating income (loss) | $ | | $ | | $ | | $ | |
(1) | Includes adjustments of accruals to actual payments. |
20
NOTE 10 — INCOME TAXES
Tax Benefit and Tax Rate
For the three months ended September 30, 2022, the Company recognized income tax expense of $
For the nine months ended September 30, 2022, the Company recognized income tax expense of $
For the three and nine months ended September 30, 2022 and 2021, the Company’s effective tax rate differed from the statutory Federal tax rate primarily by the impact of state income taxes and adjustments to the valuation allowance.
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 deferred tax assets, the Company considers whether it is more likely than not that some portion or all of them will not be realized.
As of September 30, 2022, and December 31, 2021, the valuation allowance was $
Income Taxes Receivable, Refunds and Payments
As of September 30, 2022 and December 31, 2021, the Company did not have any outstanding current income taxes receivable. During the nine months ended September 30, 2022 the Company did not receive any income tax refunds and made federal income tax payments of $
The tax years 2019 through 2021 remain open to examination by the tax jurisdictions to which the Company is subject.
21
NOTE 11 — EARNINGS PER SHARE
The following table presents the calculation of basic and diluted (loss) earnings per common share (in thousands, except per share amounts):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Net income (loss) | $ | | $ | ( | $ | | $ | ( | ||||
Less portion allocated to nonvested shares |
| |
| — |
| |
| — | ||||
Net income (loss) allocated to common shares | $ | | $ | ( | $ | | $ | ( | ||||
Weighted average common shares outstanding - basic |
| |
| |
| |
| | ||||
Dilutive effect of securities | | — | | — | ||||||||
Weighted average common shares outstanding - diluted | | | | | ||||||||
Earnings per common share: | ||||||||||||
Basic | $ | | $ | ( | $ | | $ | ( | ||||
Diluted | | ( | | ( | ||||||||
Shares excluded due to being anti-dilutive (weighted average) | | | | |
NOTE 12 — CONTINGENCIES
Appeal with the Office of Natural Resources Revenue (“ONRR”) – In 2009, W&T recognized allowable reductions of cash payments for royalties owed to the ONRR for transportation of their deepwater production through subsea pipeline systems owned by the Company. In 2010, the ONRR audited calculations and support related to this usage fee, and in 2010, ONRR notified the Company that they had disallowed approximately $
Civil Penalties – In January 2021, W&T executed a Settlement Agreement with the Bureau of Safety and Environmental Enforcement (“BSEE”) which resolved
22
Retained Liabilities Related to Divested Property Interests – The Company may be subject to retained liabilities with respect to certain divested property interests by operation of law. For example, recent historical declines in commodity prices created an environment where there is an increased risk that owners and/or operators of interests purchased from the Company may no longer be able to satisfy plugging or abandonment obligations that attach to those interests. In that event, due to operation of law, W&T may be required to assume plugging or abandonment obligations for those interests. During 2021, as a result of the declaration of bankruptcy by a third party that is the indirect successor in title to certain offshore interests that were previously divested by the Company, W&T recorded a loss contingency accrual related to the anticipated cost to decommission certain wells, pipelines, and production facilities for which the Company may receive decommissioning orders from BSEE. W&T no longer owns these assets nor are they related to current operations. W&T intends to seek contribution from other parties that owned an interest in the facilities. As of September 30, 2022, W&T estimates that the Company’s potential liability to fund decommissioning of previously divested property interests is $
AAIT Litigation – In August 2022, the Company’s primary information technology service provider, All About IT, Inc. (“AAIT”), notified the Company of its intention to cease providing services to the Company by September 2, 2022. The Company has begun the process of moving certain of these services within the Company and transitioning the remaining services to new service providers (the “transition process”). On August 19, 2022, the Company filed in the District Court of Harris County, Texas a petition for a temporary restraining order, temporary injunction, and permanent injunction seeking, among other things, to restrain AAIT from ceasing to provide services to the Company until the transition process is complete. On September 14, 2022, AAIT removed the matter to the United States District Court for the Southern District of Texas. On September 16, 2022, the Company and AAIT mutually agreed to the terms of an agreed order of the court providing for a temporary injunction for a period of a minimum of 60 days from the date of the order and up to a maximum of 120 days at the Company’s option, during which AAIT would continue to provide information technology services to the Company and assist with the transition process. By agreement of the parties, the agreed order also provided for the appointment of Hon. Gregg J. Costa (Ret.) as an independent adjudicator to assist in adjudicating ongoing disputes between the parties.
Other Claims – W&T is a party to various pending or threatened claims and complaints seeking damages or other remedies concerning commercial operations and other matters in the ordinary course of its business. In addition, claims or contingencies may arise related to matters occurring prior to the Company’s acquisition of properties or related to matters occurring subsequent to the Company’s sale of properties. In certain cases, W&T has indemnified the sellers of properties acquired, and in other cases, W&T has indemnified the buyers of properties sold. The Company is 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 W&T can give no assurance about the outcome of pending legal and federal or state administrative proceedings and the effect such an outcome may have, the Company believes 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 the consolidated financial position, results of operations or liquidity of the Company.
23
NOTE 13 — SUBSEQUENT EVENTS
On November 1, 2022, the $
On November 7, 2022, the Company entered into the Eleventh Amendment to Sixth Amended and Restated Credit Agreement and Extension Agreement, which extended the maturity date and Lender commitment to January 3, 2024, or in the event the Senior Second Lien Notes are not refinanced or replaced in full, on or prior to August 1, 2023, with other indebtedness that matures on or after April 3, 2024 or are not otherwise discharged, defeased or repaid in full, August 1, 2023. Outstanding borrowings will accrue interest at SOFR plus
24
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our unaudited Condensed Consolidated Financial Statements and the notes to those financial statements included in Part I, Item 1 of this Quarterly Report, as well as our audited Consolidated Financial Statements and the notes thereto in our 2021 Annual Report and the related Management’s Discussion and Analysis of Financial Condition and the Results of Operations included in Part II, Item 7 of our 2021 Annual Report. Unless otherwise indicated or the context otherwise requires, references in this Quarterly Report to “us,” “we,” “our,” “W&T” or the “Company” are to W&T Offshore Inc. and its wholly owned subsidiaries.
Cautionary Note Regarding Forward-Looking Statements
The information in this Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical fact included in this Quarterly Report, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this Quarterly Report, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” “forecast,” “may,” “objective,” “plan,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events.
These forward-looking statements are subject to risks, uncertainties and assumptions, most of which are difficult to predict and many of which are beyond our control. 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. These statements are based on certain assumptions and analyses made by us in light of our experience and perception of historical trends, current conditions, estimates, 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 Part I, Item 1A, Risk Factors, and market risks are discussed in Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of our 2021 Annual Report, and may be discussed or updated from time to time in subsequent reports filed with the SEC.
Reserve engineering is a process of estimating underground accumulations of crude oil, NGLs and natural gas that cannot be measured in an exact manner. The accuracy of any reserve estimate depends on the quality of available data, the interpretation of such data, and the price and cost assumptions made by reservoir engineers. In addition, the results of drilling, testing, and production activities, or changes in commodity prices, may justify revisions of estimates that were made previously. If significant, such revisions would change the schedule of any further production and development drilling. Accordingly, reserve estimates may differ significantly from the quantities of crude oil, NGLs and natural gas that are ultimately recovered.
Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. Should one or more of the risks or uncertainties described herein occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. All forward-looking statements, expressed or implied, included in this Quarterly Report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Quarterly Report.
25
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. As of September 30, 2022, we hold working interests in 47 offshore fields in federal and state waters (45 fields producing and 2 fields capable of producing, which include 39 fields in federal waters and 8 in state waters). We currently have under lease approximately 622,000 gross acres (449,500 net acres) spanning across the outer continental shelf (“OCS”) off the coasts of Louisiana, Texas, Mississippi and Alabama, with approximately 8,000 gross acres in Alabama state waters, 449,000 gross acres on the conventional shelf and approximately 165,000 gross acres in the deepwater. A majority of our daily production is derived from wells we operate. Our interests in fields, leases, structures and equipment are primarily owned by W&T Offshore, Inc. and our wholly-owned subsidiaries, Aquasition LLC, Aquasition II LLC and, W & T Energy VI, LLC, each of which are Delaware limited liability companies, and through our proportionately consolidated interest in Monza, as described in more detail in Financial Statements – Note 6 – Joint Venture Drilling Program under Part I, Item 1 in this Quarterly Report.
Known Trends and Uncertainties
Volatility in Oil, NGL and Natural Gas Prices – 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 realized sales prices received for our crude oil, NGLs and natural gas production are affected by many factors outside of our control, including changes in market supply and demand, which are impacted by weather conditions, pipeline capacity constraints, inventory storage levels, domestic production activities and political issues, and international geopolitical and economic events.
In addition to such industry-specific risks, the global public health crisis associated with COVID-19 has created uncertainty for global economic activity since March 2020. Since 2021, increased mobility, deployment of vaccines and other factors have resulted in increased oil demand and commodity prices. However, new variants of the virus continue to emerge and it is difficult to assess if such variants will cause meaningful disruptions in economic activity across the world and if there will be any significant impacts in demand for energy because of the ongoing pandemic.
However, a high level of uncertainty remains regarding the volatility of energy supply and demand as a result of Russia’s full-scale invasion of Ukraine in February 2022. As a result of the war, several countries imposed sanctions on imports of crude oil and petroleum products from Russia. In addition, many international oil companies and other firms ended operations in Russia and limited or stopped trading Russia’s crude oil and petroleum products. These actions have reduced Russia’s oil production and caused crude oil prices to rise. Most recently, Russia has increased strikes on Ukraine which may result in further sanctions against Russia. Additionally in early October 2022 the Organization of the Petroleum Exporting Countries (“OPEC”) and Russia (together with OPEC, collectively “OPEC+”) announced a production cut of approximately two million barrels per day which has put additional upward pressure on oil prices. As a result, governmental authorities have implemented, and are expected to continue to implement, measures to address rising crude oil prices, including releasing emergency oil reserves.
The U.S. Energy Information Administration (“EIA”) published its latest Short-Term Energy Outlook on October 12, 2022. WTI crude oil prices and NYMEX Henry Hub natural gas prices have decreased following the surge in prices during the first half of 2022, closing the third quarter at approximately $80.00 per barrel and $6.50 per Mcf, respectively. Prior to the OPEC+ announcement, crude oil prices were generally decreasing in response to the overall indications of slowing global economic growth. While oil spot prices increased in the immediate aftermath of OPEC+’s announcement, the EIA expects the WTI spot price average to decrease to $85.98 per barrel during the fourth quarter of 2022 as compared to the third quarter 2022 average of $93.07 per barrel. The EIA also expects the Henry Hub spot price to average $7.70 per Mcf during the fourth quarter of 2022 as compared to $8.30 during the third quarter of 2022.
26
As compared to the prior year, spot prices remain high, likely as a result of low inventories and continued uncertainty surrounding the Russia-Ukraine conflict and the related potential effects on future oil and gas supply. Per the EIA, average crude oil prices using the WTI daily spot price increased to $98.96 per barrel during the nine months ended September 30, 2022 compared to $65.05 per barrel during the nine months ended September 30, 2021 (52.1% increase). The NYMEX Henry Hub average daily natural gas spot price increased to $6.74 per Mcf for the nine months ended September 30, 2022 compared to $3.61 per Mcf during the nine months ended September 30, 2021 (87.0% increase).
Rising Interest Rates and Inflation of Cost of Goods, Services and Personnel – Due to the cyclical nature of the oil and gas industry, fluctuating demand for oilfield goods and services can put pressure on the pricing structure within our industry. As commodity prices rise, the cost of oilfield goods and services generally also increase, while during periods of commodity price declines, oilfield costs typically lag and do not adjust downward as fast as oil prices do. Continued inflationary pressures and increased commodity may also result in increases to the costs of our oilfield goods, services and personnel, which would in turn cause our capital expenditures and operating costs to rise.
The annual rate of inflation in the United States was measured at 8.2% in September 2022 by the Consumer Price Index, the highest in more than four decades. In addition, the Federal Reserve has tightened monetary policy by approving a series of increases to the Federal Funds Rate and signaled that the Federal Reserve would continue to take necessary action to bring inflation down and to ensure price stability, including further rate increases, which could have the effects of raising the cost of capital and depressing economic growth, either or both of which could hurt our business.
As a result of these factors, we cannot accurately predict future commodity prices and, therefore, we cannot determine with any degree of certainty what effect increases or decreases in these prices will have on our drilling program, production volumes or revenues.
Inflation Reduction Act of 2022 (the “IRA”) – On August 16, 2022, President Biden signed the IRA into law. Several provisions in the IRA are expected to apply to our business. For instance, the IRA specifically directs the Department of the Interior (”DOI”) to accept the highest bids received for Lease Sale 257, which was vacated by US District Court for the District of Columbia in January 2022 and move forward with Lease Sales 259 and 261 in the Gulf of Mexico by March 31, 2023 and September 30, 2023, respectively, notwithstanding the June 30, 2022 expiration of the 2017-2022 Outer Continental Shelf Oil and Gas Leasing Program.
The IRA ties the issuance of offshore leases for wind development by the federal government to requirements to offer for sale federal oil and gas leases for a 10-year period of time. The IRA requires the federal government to offer for sale a minimum of 60 million acres for offshore oil and gas leases during the one-year period immediately preceding granting an offshore wind lease on the U.S. Outer Continental Shelf.
The IRA also increases the minimum oil and gas royalty rate for new offshore leases from the current 12.50% to 16.67% and caps the royalty rate at 18.75% for 10 years. The 18.75% cap is commensurate with existing offshore royalty rate for leases in water depth exceeding 200 meters. This provision does not affect existing offshore leases.
Furthermore, the IRA imposes a methane emissions charge. The IRA amends the federal Clean Air Act to impose a fee on emissions of methane from sources required to report their greenhouse gas emissions to the U.S. Environmental Protection Agency (“EPA”), including sources in the offshore and onshore oil and gas production, and onshore processing, transmission and compression, gathering, and boosting station source categories. For such qualifying facilities, the charge starts at $900 per metric ton of methane reported for calendar year 2024. In 2025, the charge increases to $1,200 per metric ton of methane. For calendar year 2026 and thereafter, the fee will be $1,500 per metric ton of methane. Calculation of the charge is based on certain thresholds established in the IRA. The charge will be based on the prior year’s emissions, and the first fee payment will be in 2025 based on 2024 data. The methane emissions charge may increase our operating costs and adversely affect our business.
27
Bureau of Ocean Energy Management (“BOEM”) Matters – In order to cover the various decommissioning obligations of lessees on the OCS, the BOEM generally requires that lessees post some form of acceptable financial assurance that such obligations will be met, such as surety bonds. The cost of such bonds or other financial assurance can be substantial, and we can provide no assurance that we can continue to obtain bonds or other surety in all cases. As many BOEM regulations are being reviewed by the Department of the Interior, we may be subject to additional financial assurance requirements in the future. As of the filing date of this Quarterly Report, we are in compliance with our financial assurance obligations to the BOEM and have no outstanding BOEM orders related to supplemental 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 or bonds associated with our appeals of Department of the Interior’s orders or demands have on occasion 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 2022 as of the filing date of this Quarterly Report 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.
Results of Operations
Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021
Revenues
Our revenues are derived from the sale of our oil and natural gas production, as well as the sale of NGLs. Our oil, natural gas and NGL revenues do not include the effects of derivatives, which are reported in Derivative loss in our Condensed Consolidated Statements of Operations. The following table presents our sources of revenue as a percentage of total revenue:
Three Months Ended September 30, | |||||
2022 |
| 2021 | |||
Oil | 49.0 | % | 55.4 | % | |
NGLs | 6.3 | % | 9.1 | % | |
Natural gas | 42.7 | % | 33.7 | % | |
Other | 2.0 | % | 1.8 | % |
28
The information below provides a discussion of, and an analysis of significant variance in, our oil, natural gas and NGL revenues, production volumes and realized sales prices (which exclude the effect of hedging unless otherwise stated) for the three months ended September 30, 2022 and 2021:
Three Months Ended September 30, | |||||||||
| 2022 |
| 2021 |
| Change | ||||
| (In thousands, except realized sales price data) | ||||||||
Revenues: | |||||||||
Oil | $ | 130,560 | $ | 74,265 | $ | 56,295 | |||
NGLs |
| 16,875 |
| 12,205 |
| 4,670 | |||
Natural gas |
| 113,673 |
| 45,137 |
| 68,536 | |||
Other |
| 5,377 |
| 2,339 |
| 3,038 | |||
Total revenues |
| 266,485 |
| 133,946 |
| 132,539 | |||
Production Volumes: |
|
|
|
|
|
| |||
Oil (MBbls) |
| 1,447 |
| 1,083 |
| 364 | |||
NGLs (MBbls) |
| 454 |
| 376 |
| 78 | |||
Natural gas (MMcf) |
| 11,499 |
| 10,481 |
| 1,018 | |||
Total oil equivalent (MBoe) |
| 3,818 |
| 3,206 |
| 612 | |||
Average daily equivalent sales (Boe/day) | 41,500 | 34,848 | 6,652 | ||||||
Average realized sales prices: |
|
|
| ||||||
Oil ($/Bbl) | $ | 90.23 | $ | 68.57 |
| 21.66 | |||
NGLs ($/Bbl) |
| 37.17 |
| 32.46 |
| 4.71 | |||
Natural gas ($/Mcf) |
| 9.89 |
| 4.31 |
| 5.58 | |||
Oil equivalent ($/Boe) | 68.39 | 41.05 | 27.34 | ||||||
Oil equivalent ($/Boe), including realized commodity derivatives(1) |
| 50.86 |
| 31.95 |
| 18.91 |
(1) | Excludes the effects of premium amortization and write-offs. |
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 |
Changes in average sales prices (which does not give effect to hedging) and sales volumes caused the following changes to our oil, NGL and natural gas revenues between the three months ended September 30, 2022 and 2021 (in thousands):
Price |
| Volume | Total | |||||
Oil | $ | 31,321 | $ | 24,975 | $ | 56,296 | ||
NGLs |
| 2,124 |
| 2,546 |
| 4,670 | ||
Natural gas |
| 64,150 | 4,385 |
| 68,535 | |||
$ | 97,595 | $ | 31,906 | $ | 129,501 |
29
Realized Prices on the Sale of Oil, NGLs and Natural Gas – Our average realized crude oil sales price differs from the WTI benchmark average crude price due primarily to premiums or discounts, crude oil quality adjustments, and volume weighting (collectively referred to as differentials). Crude oil quality adjustments can vary significantly by field as a result of quality and location. All of our crude oil is produced offshore in the Gulf of Mexico and is primarily characterized as Poseidon, Light Louisiana Sweet (“LLS”), and Heavy Louisiana Sweet (“HLS”). Similar to crude oil prices, the differentials for our offshore crude oil have also been volatile in the past. The monthly average differentials of WTI versus HLS and LLS for the three months ended September 30, 2022 increased on average by approximately $0.27 and $1.00 per barrel, respectively. The monthly average differential for WTI versus Poseidon declined on average by approximately $2.74 per barrel compared to the same period in 2021.
Two major components of our NGLs, ethane and propane, typically make up over 70% of an average NGL barrel. For the three months ended September 30, 2022 compared to the three months ended September 30, 2021, average prices for domestic ethane increased by 58.0% and average domestic propane prices increased by 61.8% as measured using a price index for Mount Belvieu. The average prices for normal butane increased by 7.8% while other domestic NGL components decreased between 7.2% and 11.5% for the three months ended September 30, 2022 compared to the same period in 2021. 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.
The actual prices we realize from the sale of natural gas differ from the quoted NYMEX Henry Hub price as a result of quality and location differentials. The sales points of our gas production are generally within close proximity to the Henry Hub which creates a minimal differential in the prices we receive for our production versus average Henry Hub prices.
Oil, NGLs, and Natural Gas Volumes – Production volumes increased by 612 MBoe to 3,818 MBoe in the three months ended September 30, 2022 compared to the same period in 2021, primarily due to the acquisition of the Ship Shoal 230, South Marsh Island 27/Vermilion 191, and South Marsh Island 73 fields during the first and second quarters of 2022. See Financial Statements – Note 4 – Acquisitions under Part I, Item 1 of this Quarterly Report for additional information. These increases were partially offset by shut-ins related to field and well maintenance primarily at Mobile Bay and Shelf fields.
Operating Expenses
The following table presents information regarding costs and expenses and selected average costs and expenses per Boe sold for the periods presented and corresponding changes:
Three Months Ended September 30, | |||||||||
| 2022 |
| 2021 |
| Change | ||||
Operating expenses: | |||||||||
Lease operating expenses | $ | 59,010 | $ | 39,490 | $ | 19,520 | |||
Gathering, transportation and production taxes | 12,199 | 6,593 | 5,606 | ||||||
Depreciation, depletion, amortization and accretion |
| 34,113 | 26,291 |
| 7,822 | ||||
General and administrative expenses | 23,047 | 13,391 | 9,656 | ||||||
Total operating expenses | $ | 128,369 | $ | 85,765 | $ | 42,604 | |||
Average per Boe ($/Boe): |
|
|
|
|
|
| |||
Lease operating expenses | $ | 15.46 | $ | 12.32 | $ | 3.14 | |||
Gathering, transportation and production taxes |
| 3.20 | 2.06 |
| 1.14 | ||||
DD&A |
| 8.93 | 8.20 |
| 0.73 | ||||
G&A expenses |
| 6.04 | 4.18 |
| 1.86 | ||||
Operating expenses | $ | 33.63 | $ | 26.76 | $ | 6.87 |
30
Lease operating expenses – Lease operating expenses, which include base lease operating expenses, workovers, and facilities maintenance expense, increased $19.5 million to $59.0 million for the three months ended September 30, 2022 compared to $39.5 million for the three months ended September 30, 2021. On a component basis, base lease operating expenses increased $15.0 million, workover expenses increased $1.0 million, facilities maintenance expense increased $4.3 million, and hurricane repairs decreased $0.8 million.
Base lease operating expenses increased primarily due to increased expenses related to the fields acquired during the first two quarters of 2022, increased contract labor, equipment rental, and transportation costs at various fields, and increased insurance expense. The increases in workover expenses and facilities maintenance expense were due to an increase in projects undertaken. Workovers and facilities maintenance expenses consist of costs associated with major remedial operations on completed wells to restore, maintain or improve production. Since these remedial operations are not regularly scheduled, workover and maintenance expense are not necessarily comparable from period to period. Lastly, during the three months ended September 30, 2021 we incurred $0.8 million in expenses related to repairs associated with hurricanes that we did not incur during the three months ended September 30, 2022.
Gathering, transportation and production taxes – Gathering, transportation and production taxes increased $5.6 million in the three months ended September 30, 2022 compared to the three months ended September 30, 2021 primarily due to a new transportation contract related to the properties acquired in the first half of 2022. Additionally, the increase in realized natural gas and NGL prices along with an increase in oil, NGL and natural gas production during the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 caused gathering, transportation and production taxes to increase.
Depreciation, depletion, amortization and accretion (“DD&A”) – DD&A, which includes accretion for ARO, increased to $8.93 per Boe for the three months ended September 30, 2022 from $8.20 per Boe for the three months ended September 30, 2021. On a nominal basis, DD&A increased $7.8 million for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 due to an increased DD&A per Boe rate and, to a lesser extent, the increase in production volumes. The DD&A rate per Boe increased mostly as a result of increases in capital expenditures and future development costs included in the depreciable base associated with an increase in economic proved undeveloped wells due to higher oil and gas prices compared to the smaller increase in proved reserves over the comparable prior year period.
General and administrative expenses (“G&A”) – G&A increased $9.7 million, to $23.0 million for the three months ended September 30, 2022 as compared to $13.4 million for the three months ended September 30, 2021. The increase is primarily due to non-recurring professional services incurred during the third quarter of 2022 after a review of processes and controls within our information technology department, including additional non-recurring expenses associated with the process of transitioning substantially all of our information technology infrastructure and related services internally or to other providers. Further, we have incurred additional legal expenses in conjunction therewith. Additionally, we incurred increased incentive compensation costs related to the higher grant date fair value of RSU and PSU awards granted during 2022 as compared to the value of awards granted in 2021.
Other Income and Expense
The following table presents the components of other income and expense for the periods presented and corresponding changes:
Three Months Ended September 30, | |||||||||
| 2022 |
| 2021 |
| Change | ||||
Other income and expenses: | |||||||||
Derivative loss | $ | 38,749 | $ | 73,137 | $ | (34,388) | |||
Interest expense, net |
| 16,849 | 18,910 |
| (2,061) | ||||
Other (income) expense, net |
| (600) | — |
| (600) | ||||
Income tax expense (benefit) |
| 16,397 | (5,902) |
| 22,299 |
31
Derivative loss – During the three months ended September 30, 2022, the $38.7 million derivative loss recorded for crude oil and natural gas derivative contracts consists of $132.3 million of realized losses on settled contracts and premium amortization and $93.5 million of unrealized gain, net from the increase in the fair value of open contracts. During the three months ended September 30, 2021, the $73.1 million derivative loss recorded for crude oil and natural gas derivative contracts consisted of $30.0 million in realized losses and $43.1 million of unrealized losses from the decrease in the fair value of open oil and natural gas contracts.
Unrealized gains or losses on open derivative contracts relate to production for future periods; however, changes in the fair value of all of our open derivative contracts are recorded as a gain or loss on our Condensed Consolidated Statements of Operations at the end of each month. As a result of the derivative contracts we have on our anticipated production volumes through April 2028, we expect these activities to continue to impact net income (loss) based on fluctuations in market prices for oil and natural gas. See Financial Statements – Note 8 –Derivative Financial Instruments under Part I, Item 1 of this Quarterly Report for additional information.
Interest expense, net – Interest expense, net, was $16.8 million and $18.9 million for the three months ended September 30, 2022 and 2021, respectively. The decrease of $2.1 million in 2022 is primarily due to lower interest expense on the lower outstanding principal balance of the Term Loan and increased interest income.
Income tax expense (benefit) – Income tax expense for the three months ended September 30, 2022 was $16.4 million compared to an income tax benefit of $5.9 million during the three months ended September 30, 2021. For the three months ended September 30, 2022 and 2021, our income tax benefit differed from the statutory Federal tax rate primarily by the impact of state income taxes and adjustments to our valuation allowance. Our effective tax rate was 19.7% and 13.5% for the three months ended September 30, 2022 and 2021, respectively.
As of September 30, 2022, the valuation allowance on our deferred tax assets was $15.2 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 10 –Income Taxes under Part I, Item 1 of this Quarterly Report for additional information.
Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021
Revenues
Our revenues are derived from the sale of our oil and natural gas production, as well as the sale of NGLs. Our oil, natural gas and NGL revenues do not include the effects of derivatives, which are reported in Derivative loss in our Condensed Consolidated Statements of Operations. The following table presents our sources of revenue as a percentage of total revenue:
Nine Months Ended September 30, | |||||
2022 |
| 2021 | |||
Oil | 56.4 | % | 61.3 | % | |
NGLs | 6.5 | % | 7.7 | % | |
Natural gas | 35.2 | % | 29.0 | % | |
Other | 1.9 | % | 2.0 | % |
32
The information below provides a discussion of, and an analysis of significant variance in, our oil, natural gas and NGL revenues, production volumes and realized sales prices (which exclude the effect of hedging unless otherwise stated) for the nine months ended September 30, 2022 and 2021:
Nine Months Ended September 30, | |||||||||
2022 |
| 2021 |
| Change | |||||
Revenues: | |||||||||
Oil | $ | 412,526 | $ | 240,418 | $ | 172,108 | |||
NGLs |
| 47,430 |
| 30,397 |
| 17,033 | |||
Natural gas |
| 257,452 |
| 113,816 |
| 143,636 | |||
Other |
| 13,889 |
| 7,790 |
| 6,099 | |||
Total revenues | $ | 731,297 | $ | 392,421 | $ | 338,876 | |||
Production Volumes: |
|
|
|
|
|
| |||
Oil (MBbls) |
| 4,227 |
| 3,812 |
| 415 | |||
NGLs (MBbls) |
| 1,187 |
| 1,105 |
| 82 | |||
Natural gas (MMcf) |
| 33,965 |
| 33,469 |
| 496 | |||
Total oil equivalent (MBoe) |
| 11,075 | 10,495 | 580 | |||||
Average daily equivalent sales (Boe/day) | 40,568 | 38,444 | 2,124 | ||||||
Average realized sales prices: |
| ||||||||
Oil ($/Bbl) | $ | 97.59 | $ | 63.07 | $ | 34.52 | |||
NGLs ($/Bbl) |
| 39.96 |
| 27.51 |
| 12.45 | |||
Natural gas ($/Mcf) |
| 7.58 |
| 3.40 |
| 4.18 | |||
Oil equivalent ($/Boe) | 64.78 | 36.65 | 28.13 | ||||||
Oil equivalent ($/Boe), including realized commodity derivatives(1) |
| 63.76 |
| 31.71 |
| 32.05 |
(1) | Excludes the effects of premium amortization and write-offs. |
Changes in average sales prices (which does not give effect to hedging) and sales volumes caused the following changes to our oil, NGL and natural gas revenues between the nine months ended September 30, 2022 and 2021 (in thousands):
Price |
| Volume | Total | |||||
Oil | $ | 145,927 | $ | 26,181 | $ | 172,108 | ||
NGLs |
| 14,897 |
| 2,136 |
| 17,033 | ||
Natural gas |
| 141,950 | 1,686 |
| 143,636 | |||
$ | 302,774 | $ | 30,003 | $ | 332,777 |
Realized Prices on the Sale of Oil, NGLs and Natural Gas – Our average realized crude oil sales price differs from the WTI benchmark average crude price due primarily to premiums or discounts, crude oil quality adjustments, and volume weighting (collectively referred to as differentials). Crude oil quality adjustments can vary significantly by field as a result of quality and location. All of our crude oil is produced offshore in the Gulf of Mexico and is primarily characterized as Poseidon, LLS, and HLS. 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 and HLS for the nine months ended September 30, 2022 declined on average by approximately $2.30 and $0.26 per barrel, respectively. The monthly average differential for WTI versus LLS increased on average by approximately $0.32 per barrel compared to 2021.
33
Two major components of our NGLs, ethane and propane, typically make up over 70% of an average NGL barrel. For the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, average prices for domestic ethane increased by 65.5% and average domestic propane prices increased by 15.5% as measured using a price index for Mount Belvieu. The average prices for other domestic NGLs components increased between 21.1% and 34.0% for the nine months ended September 30, 2022 compared to the same period in 2021. 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.
The actual prices we realize from the sale of natural gas differ from the quoted NYMEX Henry Hub price as a result of quality and location differentials. The sales points of our gas production are generally within close proximity to the Henry Hub which creates a minimal differential in the prices we receive for our production versus average Henry Hub prices.
Oil, NGLs, and Natural Gas Volumes – Production volumes increased by 580 MBoe to 11,075 MBoe during the nine months ended September 30, 2022 as compared to production volumes during the nine months ended September 30, 2021. primarily due to the acquisition of the Ship Shoal 230, South Marsh Island 27/Vermilion 191, and South Marsh Island 73 fields during the first and second quarters of 2022. See Financial Statements – Note 4 – Acquisitions under Part I, Item 1 of this Quarterly Report for additional information. These increases were partially offset by shut-ins related to field and well maintenance primarily at Mobile Bay and Shelf fields.
Operating Expenses
The following table presents information regarding costs and expenses and selected average costs and expenses per Boe sold for the periods presented and corresponding changes:
Nine Months Ended September 30, | |||||||||
2022 |
| 2021 |
| Change | |||||
(In thousands, except per Boe data) | |||||||||
Operating expenses: | |||||||||
Lease operating expenses | $ | 155,397 | $ | 129,399 | $ | 25,998 | |||
Gathering, transportation and production taxes | 26,647 | 19,687 | 6,960 | ||||||
Depreciation, depletion, amortization and accretion | 99,384 | 83,879 |
| 15,505 | |||||
General and administrative expenses | 51,790 | 38,090 | 13,700 | ||||||
Total operating expenses | $ | 333,218 | $ | 271,055 | $ | 62,163 | |||
Average per Boe ($/Boe): |
|
|
|
|
|
| |||
Lease operating expenses | $ | 14.03 | $ | 12.33 | $ | 1.70 | |||
Gathering, transportation and production taxes |
| 2.41 |
| 1.88 |
| 0.53 | |||
DD&A |
| 8.97 |
| 7.99 |
| 0.98 | |||
G&A expenses |
| 4.68 |
| 3.63 |
| 1.05 | |||
Operating expenses | $ | 30.09 | $ | 25.83 | $ | 4.26 |
Lease operating expenses – Lease operating expenses, which include base lease operating expenses, workovers, and facilities maintenance expense, increased $26.0 million to $155.4 million for the nine months ended September 30, 2022 compared to $129.4 million for the nine months ended September 30, 2021. On a component basis, base lease operating expenses increased $16.8 million, workover expenses increased $4.3 million, facilities maintenance expense increased $9.1 million, and hurricane repairs decreased $4.2 million.
34
Base lease operating expenses increased primarily due to increased expenses related to the Ship Shoal 230, South Marsh Island 27/Vermilion 191, and South Marsh Island 73 fields acquired during the first half of 2022, and increased insurance expense. The increases in workover expenses and facilities maintenance expense were due to an increase in projects undertaken. Workovers and facilities maintenance expenses consist of costs associated with major remedial operations on completed wells to restore, maintain or improve production. Since these remedial operations are not regularly scheduled, workover and maintenance expense are not necessarily comparable from period to period. Lastly, during the nine months ended September 30, 2021 we incurred $4.2 million in expenses related to repairs associated with hurricanes that we did not incur during the nine months ended September 30, 2022.
Gathering, transportation and production taxes – Gathering, transportation and production taxes increased $7.0 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily due to a new transportation contract related to the properties acquired in the first half of 2022. Additionally, the increase in realized natural gas and NGL prices along with an increase in oil, NGL and natural gas production during the nine months ended September 30, 2022 as compared to the comparable prior year period caused gathering, transportation and production taxes to increase.
Depreciation, depletion, amortization and accretion – DD&A, which includes accretion for AROs, increased to $8.97 per Boe for the nine months ended September 30, 2022 from $7.99 per Boe for the nine months ended September 30, 2021. On a nominal basis, DD&A increased $15.5 million for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 due to a higher DD&A per Boe rate. The DD&A rate per Boe increased mostly as a result of increases in the capital expenditures and future development costs included in the depreciable base associated with an increase in economic proved undeveloped wells due to higher oil and gas prices compared to the smaller increase in proved reserves over the comparable prior year period.
General and administrative expenses – G&A increased $13.7 million to $51.8 million for the nine months ended September 30, 2022 as compared to $38.1 million for the nine months ended September 30, 2021. The increase is primarily due to non-recurring professional services costs incurred during the third quarter of 2022 after a review of processes and controls within our information technology department, including additional non-recurring expenses associated with the process of transitioning substantially all of our information technology infrastructure and related services internally or to other providers. Further, we have incurred additional legal expenses in conjunction therewith. Additionally, we incurred increased incentive compensation costs related to the higher grant date fair value of RSU and PSU awards granted during 2022 as compared to the value of awards granted in 2021.
Other Income and Expense
The following table presents the components of other income and expense for the periods presented and corresponding changes:
Nine Months Ended September 30, | |||||||||
2022 |
| 2021 |
| Change | |||||
Other income and expenses: | |||||||||
Derivative loss | $ | 109,892 | $ | 179,156 | $ | (69,264) | |||
Interest expense, net | 54,915 | 50,474 |
| 4,441 | |||||
Other (income) expense, net | (1,229) | 964 |
| (2,193) | |||||
Income tax expense (benefit) | 46,801 | (18,846) |
| 65,647 |
Derivative loss – During the nine months ended September 30, 2022, the $109.9 million derivative loss recorded for crude oil and natural gas derivative contracts consists of $96.3 million of realized losses on settled contracts and premium amortization and $13.6 million of unrealized losses, net from the decrease in the fair value of open contracts. During the nine months ended September 30, 2021, the $179.2 million derivative loss recorded for crude oil and natural gas derivative contracts consists of $53.6 million in realized losses on settled contracts and $125.5 million of unrealized losses from the decrease in the fair value of open oil and natural gas contracts.
35
In the second quarter of 2022, the Company monetized a portion of existing hedge positions through restructuring of strike prices on certain outstanding purchased calls covering the second half of 2022 through the first quarter of 2025. This transaction resulted in net cash proceeds of $105.3 million, through restriking exercise prices of outstanding purchased call options. As part of this monetization, the Company restructured its purchased call options on natural gas to increase the weighted-average strike price to $7.48 per Mmbtu from $3.78 per Mmbtu for the remainder of 2022, $7.50 per Mmbtu from $3.50 per Mmbtu for 2023, $6.13 per Mmbtu from $3.50 per Mmbtu for 2024, and $5.50 per Mmbtu from $3.50 per Mmbtu for the first quarter of 2025.
Unrealized gains or losses on open derivative contracts relate to production for future periods; however, changes in the fair value of all of our open derivative contracts are recorded as a gain or loss on our Condensed Consolidated Statements of Operations at the end of each month. As a result of the derivative contracts we have on our anticipated production volumes through April 2028, we expect these activities to continue to impact net income (loss) based on fluctuations in market prices for oil and natural gas. See Financial Statements – Note 8 –Derivative Financial Instruments under Part I, Item 1 of this Quarterly Report for additional information.
Interest expense, net – Interest expense, net, was $54.9 million and $50.5 million for the nine months ended September 30, 2022 and 2021, respectively. The increase of $4.4 million in 2022 is primarily due to lower interest expense on the lower outstanding principal balance of the Term Loan and increased interest income.
Other (income) expense, net – During the nine months ended September 30, 2022, other income net, consists of non-recurring adjustments partially offset by expenses for additional contingent abandonment obligations pertaining to certain of legacy Gulf of Mexico properties. See Financial Statements– Note 12 – Contingencies under Part I, Item 1 of this Quarterly Report for additional information. During the nine months ended September 30, 2022, the amount primarily consisted of expenses related to the amortization of the brokerage fee paid in connection with the Joint Venture Drilling Program.
Income tax expense (benefit) – Income tax expense for the nine months ended September 30, 2022 was $46.8 million compared to an income tax benefit of $18.8 million during the nine months ended September 30, 2021. For the nine months ended September 30, 2022 and 2021, income tax benefit differed from the statutory Federal tax rate primarily by the impact of state income taxes and adjustments to our valuation allowance. Our effective tax rate was 20.0% and 17.3% for the nine months ended September 30, 2022 and 2021, respectively.
As of September 30, 2022, the valuation allowance on our deferred tax assets was $15.2 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 10 –Income Taxes under Part I, Item 1 of this Quarterly Report for additional information.
36
Liquidity and Capital Resources
Liquidity Overview
Our primary liquidity needs are to refinance existing debt, 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 ARO obligations. 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 and other borrowings, and expect to continue to do so in the future.
The primary sources of our liquidity are cash from operating activities and borrowings under our Credit Agreement. As of September 30, 2022, we had $447.1 million cash on hand and $50.0 million available under our Credit Agreement, based on a borrowing base of $50.0 million. Additionally, we believe our access to the equity markets from our “at-the-market” equity offering program, our reserve based lending currently available under our Credit Agreement, along with our cash position, will provide us with additional liquidity to continue our growth to take advantage of the current commodity environment.
As of September 30, 2022, we had outstanding $552.5 million principal of Senior Second Lien Notes with an interest rate of 9.75% per annum that mature on November 1, 2023. We have commenced discussions with potential lenders and institutional investors regarding a potential refinancing of all or a portion of the Senior Second Lien Notes prior to maturity, although there is no assurance as to the terms of any such refinancing or whether or when such refinancing will occur. We also may seek financings with longer tenors and market-based covenants to continue to provide working and potential acquisition capital as well as provide funding for refinancing of all or a portion of our Senior Second Lien Notes. The terms of such financings, which may replace or augment our Credit Agreement and refinance all or a portion of our Senior Second Lien Notes, may vary significantly from those under the Credit Agreement and our Senior Second Lien Notes. We may also consider using a portion of our cash balances to reduce the amount required to be refinanced. While the nearing maturity of the Senior Second Lien Notes creates risk with respect to our future liquidity, management believes that the actions being taken to fully repay the Senior Second Lien Notes, including from cash on hand of approximately $447 million, cash to be generated through operations, a refinancing transaction and from the proceeds of a potential equity sale of up to $100 million available under the ATM program, would allow us to repay the Senior Second Lien Notes prior to their maturity. However, there is no guarantee the Company will be successful in achieving these objectives.
Sources and Uses of Cash
Nine Months Ended September 30, | |||||||||
| 2022 | 2021 |
| Change | |||||
(In thousands) | |||||||||
Operating activities |
| $ | 326,851 | $ | 111,291 | $ | 215,560 | ||
Investing activities |
| (89,677) |
| (12,406) |
| (77,271) | |||
Financing activities |
| (35,843) |
| 114,973 |
| (150,816) |
Operating activities – Net cash provided by operating activities increased $215.6 million for the nine months ended September 30, 2022 compared to the corresponding period in 2021. This was primarily due to (i) the $332.8 million increase in oil, NGL, and natural gas revenues during the nine months ended September 30, 2022 as compared to the prior year period, and (ii) $105.3 million of net cash proceeds received related to the monetization of certain natural gas call contracts through restructuring of strike prices which occurred during the second quarter of 2022. The increase in revenue was primarily due to the increase in realized prices for oil, NGLs, and natural gas, and to a lesser extent, the increase in production volumes. Our combined average realized sales price per Boe increased by 76.8% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, which caused total revenues to increase $302.8 million.
37
These increases in operating cash flow were partially offset by (i) an increase in settlements of AROs which decreased operating cash flows $61.3 million as compared to $19.7 million for the nine months ended September 30, 2022 and 2021, respectively, and (ii) changes in operating assets and liabilities (excluding ARO settlements) which decreased operating cash flows by $13.2 million as compared to $43.3 million for the nine months ended September 30, 2022 and 2021, respectively, primarily related to higher oil and natural gas receivables balances due to higher realized prices combined with higher payables and accrued liabilities balances.
Investing activities – Net cash used in investing activities increased $77.3 million for the nine months ended September 30, 2022 compared to the corresponding period in 2021. The increase was primarily due to the acquisition of properties for $51.5 million along with other increases in capital spending during the nine months ended September 30, 2022 compared to the same period in 2021.
Financing activities – During the nine months ended September 30, 2022, cash used in financing activities was $35.8 million, primarily due to principal payments on the Term Loan. Net cash provided by financing activities was $115.0 million for the nine months ended September 30, 2021 which included the proceeds from the Term Loan of $206.8 million, offset by $11.8 million of principal payments on the Term Loan and repayment of $80.0 million of borrowings under the Credit Agreement.
Derivative Financial Instruments – From time to time, we use various derivative instruments to manage a portion of our exposure to commodity price risk from sales of oil and natural gas. See Financial Statements – Note 8 – Derivative Financial Instruments under Part I, Item 1 of this Quarterly Report for additional information about our derivative activities. The following table summarizes the historical results of our hedging activities:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
Crude Oil ($/Bbl): |
|
|
|
|
|
|
| |||||
Average realized sales price, before the effects of derivative settlements | $ | 90.23 | $ | 68.57 | $ | 97.59 | $ | 63.07 | ||||
Effects of realized commodity derivatives |
| (9.97) |
| (12.55) |
| (14.90) |
| (8.72) | ||||
Average realized sales price, including realized commodity derivatives | $ | 80.26 | $ | 56.02 | $ | 82.69 | $ | 54.35 | ||||
Natural Gas ($/Mcf) |
|
|
|
|
|
|
|
| ||||
Average realized sales price, before the effects of derivative settlements | $ | 9.89 | $ | 4.31 | $ | 7.58 | $ | 3.40 | ||||
Effects of realized commodity derivatives(1)(2) |
| (4.56) |
| (1.49) |
| 1.52 |
| (0.55) | ||||
Average realized sales price, including realized commodity derivatives | $ | 5.33 | $ | 2.82 | $ | 9.10 | $ | 2.85 |
(1) | The nine months ended September 30, 2022 includes the effect of the $138.0 million realized gain related to the monetization of certain natural gas call contracts through restructuring of strike prices. |
(2) | Excludes the effects of premium amortization and write-offs. |
Income Taxes – For 2022, we expect 10% to 15% of our income tax expense to be cash taxes. We do not have any outstanding current income taxes receivable and made $5.2 million in income tax payments during the nine months ended September 30, 2022. See Financial Statements – Note 10 –Income Taxes under Part I, Item 1 of this Quarterly Report for additional information.
38
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. The following table presents our capital expenditures for exploration, development and other leasehold costs:
Nine Months Ended September 30, | ||||||
| 2022 |
| 2021 | |||
| (In thousands) | |||||
Exploration(1) | $ | 10,065 | $ | 5,850 | ||
Development(1) |
| 12,743 |
| 5,660 | ||
Acquisitions of interests |
| 51,474 |
| 754 | ||
Seismic and other |
| 7,158 |
| 3,761 | ||
Investments in oil and gas property/equipment – accrual basis | $ | 81,440 | $ | 16,025 |
(1) | Reported geographically in the subsequent table. |
The following table presents our exploration and development capital expenditures geographically in the Gulf of Mexico:
Nine Months Ended September 30, | ||||||
| 2022 |
| 2021 | |||
| (In thousands) | |||||
Conventional shelf (1) | $ | 10,473 | $ | 4,469 | ||
Deepwater |
| 12,335 |
| 7,041 | ||
Exploration and development capital expenditures – accrual basis | $ | 22,808 | $ | 11,510 |
(1) | Includes exploration and development capital expenditures in Alabama state waters. |
The capital expenditures are included within Oil and natural gas properties and other, net on the Condensed Consolidated Balance Sheets and recorded on an accrual basis. The capital expenditures reported within the Investing activities section of the Condensed Consolidated Statements of Cash Flows include adjustments to report cash payments related to capital expenditures. Our capital expenditures for the nine months ended September 30, 2022 were financed by cash flow from operations and cash on hand.
Acquisitions – As described in Financial Statements – Note 4 – Acquisitions under Part I, Item 1 of this Quarterly Report, the Company acquired the working interest and operatorship of certain oil and natural gas producing properties in federal shallow waters in the Gulf of Mexico at Ship Shoal 230, South Marsh Island 27/Vermilion 191, and South Marsh Island 73 fields on February 1, 2022 and April 1, 2022. After normal and customary post-effective date adjustments (including net operating cash flow attributable to the properties from the effective date to the respective close date), cash consideration of approximately $34.0 million and $17.5 million was paid to the sellers. The transaction was funded using cash on hand.
Asset Retirement Obligations – Each quarter, we review and revise our ARO estimates. Our ARO estimates as of September 30, 2022 and December 31, 2021 were $453.6 million and $424.5 million, respectively. The increase is primarily due to the acquisition of assets as described above. These increases were partially offset by $61.3 million related to liabilities settled. 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 2021 Annual Report for additional information.
39
Drilling Activity
We did not drill any wells in the nine months ended September 30, 2022. During the nine months ended September 30, 2022, we completed the East Cameron 349 B-1 well (Cota). The Cota well is in the Monza Joint Venture Drilling Program. See Financial Statements – Note 6 –Joint Venture Drilling Program under Part I, Item 1 of this Quarterly Report for additional information.
Debt
Term Loan – As of September 30, 2022, we had $157.0 million of Term Loan principal outstanding. The Term Loan requires quarterly amortization payments which began September 30, 2021, bears interest at a fixed rate of 7% per annum and will mature on May 19, 2028. The Term Loan is non-recourse to the Company and its subsidiaries other than Subsidiary Borrowers and the subsidiary that owns the equity of the Subsidiary Borrowers, and is not secured by any assets other than first lien security interests in the equity in the Subsidiary Borrowers and a first lien mortgage security interest and mortgages on certain assets of Subsidiary Borrowers (the Mobile Bay Properties). See Financial Statements – Note 2 –Debt under Part I, Item 1 of this Quarterly Report for additional information.
Credit Agreement – During the nine months ended September 30, 2022, we had no borrowings incurred or outstanding under the Credit Agreement. On November 7, 2022, the Company entered into the Eleventh Amendment to Sixth Amended and Restated Credit Agreement and Extension Agreement, , which extended the maturity date and Lender commitment to January 3, 2024, or in the event the Senior Second Lien Notes are not refinanced or replaced in full, on or prior to August 1, 2023, with other indebtedness that matures on or after April 3, 2024 or are not otherwise discharged, defeased or repaid in full, August 1, 2023
Senior Second Lien Notes – As of September 30, 2022, we had outstanding $552.5 million principal of Senior Second Lien Notes with an interest rate of 9.75% per annum that mature on November 1, 2023. The Senior Second Lien Notes are secured by a second-priority lien on all of our assets that are secured under the Credit Agreement. See Financial Statements – Note 2 – Debt under Part I, Item 1 of this Quarterly Report for additional information.
Debt Covenants – The Term Loan, 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 Subsidiary Credit Agreement, Credit Agreement and the Indenture. We were in compliance with all applicable covenants of the Term Loan, Credit Agreement and the Indenture as of and for the period ended September 30, 2022. See Financial Statements – Note 2 – Debt under Part I, Item 1 of this Quarterly Report for additional information.
40
The Subsidiary Borrowers
On May 19, 2021, we formed A-I LLC and A-II LLC, both indirect, wholly-owned subsidiaries of W&T Offshore, Inc., through their parent, Aquasition Energy LLC (collectively, the “Aquasition Entities”). Concurrently, A-I LLC and A-II II LLC, entered into a credit agreement providing for the Term Loan in an initial aggregate principal amount equal to $215.0 million. Proceeds of the Term Loan were used by A-I LLC and A-II LLC to fund the acquisition of the Mobile Bay Properties and the Midstream Assets, respectively, from the Company. The Term Loan is non-recourse to the Company and any subsidiaries other than the Aquasition Entities and is secured by the first lien security interests in the equity of the Aquasition Entities and a first lien mortgage security interest in the Mobile Bay Properties. See Financial Statements – Note 5 – Subsidiary Borrowers under Part II, Item 1 in this Quarterly Report for additional information.
At that time, we designated the Aquasition Entities as unrestricted subsidiaries under the Indenture governing our Senior Second Lien Notes (the “Unrestricted Subsidiaries”). Having been so designated, the Unrestricted Subsidiaries do not guarantee the Senior Second Lien Notes and the liens on the assets sold to the Unrestricted Subsidiaries have been released under the Credit Agreement. The Unrestricted Subsidiaries are not bound by the covenants contained in the Credit Agreement or the Indenture. Under the Subsidiary Credit Agreement and related instruments, assets of the Aquasition Entities may not be available to mortgage or pledge as security to secure new indebtedness of the Company and its other subsidiaries. See Financial Statements – Note 2 – Debt under Part I, Item 1 in this Quarterly Report for additional information.
41
Below is consolidating balance sheet information reflecting the elimination of the accounts of our Unrestricted Subsidiaries from our Condensed Consolidated Balance Sheet as of September 30, 2022 (in thousands):
Consolidated | Eliminations of Unrestricted Subsidiaries | Consolidated Balance Sheet of restricted subsidiaries | |||||||
Assets |
|
|
|
|
|
| |||
Current assets: |
|
|
|
|
|
| |||
Cash and cash equivalents | $ | 447,130 | $ | (54,219) | $ | 392,911 | |||
Restricted cash | 4,417 | — | 4,417 | ||||||
Receivables: |
|
|
|
|
|
| |||
Oil and natural gas sales |
| 89,195 |
| (80,431) |
| 8,764 | |||
Joint interest, net |
| 16,815 |
| 5,749 |
| 22,564 | |||
Total receivables |
| 106,010 |
| (74,682) |
| 31,328 | |||
Prepaid expenses and other assets |
| 53,014 |
| (614) |
| 52,400 | |||
Total current assets |
| 610,571 |
| (129,515) |
| 481,056 | |||
Oil and natural gas properties and other, net |
| 729,958 |
| (280,444) |
| 449,514 | |||
Restricted deposits for asset retirement obligations |
| 21,760 |
| — |
| 21,760 | |||
Deferred income taxes |
| 62,334 |
| — |
| 62,334 | |||
Other assets |
| 65,681 |
| 19,438 |
| 85,119 | |||
Total assets | $ | 1,490,304 | $ | (390,521) | $ | 1,099,783 | |||
Liabilities and Shareholders’ Equity (Deficit) |
|
|
|
|
|
| |||
Current liabilities: |
|
|
|
|
|
| |||
Accounts payable | $ | 75,068 | $ | (49,859) | $ | 25,209 | |||
Undistributed oil and natural gas proceeds |
| 59,518 |
| (22,077) |
| 37,441 | |||
Asset retirement obligations |
| 54,886 |
| — |
| 54,886 | |||
Accrued liabilities |
| 154,236 |
| (89,431) |
| 64,805 | |||
Current portion of long-term debt | 35,450 | (35,450) | — | ||||||
Income tax payable |
| 1,613 |
| — |
| 1,613 | |||
Total current liabilities |
| 380,771 |
| (196,817) |
| 183,954 | |||
Long-term debt |
|
|
|
|
|
| |||
Principal |
| 674,031 |
| (121,571) |
| 552,460 | |||
Unamortized debt issuance costs |
| (8,058) |
| 5,067 |
| (2,991) | |||
Long-term debt, net |
| 665,973 |
| (116,504) |
| 549,469 | |||
Asset retirement obligations, less current portion |
| 398,724 |
| (59,107) |
| 339,617 | |||
Other liabilities |
| 99,740 |
| (79,602) |
| 20,138 | |||
Deferred income taxes |
| 113 |
| — |
| 113 | |||
Common stock |
| 1 |
| — |
| 1 | |||
Additional paid-in capital |
| 557,386 |
| — |
| 557,386 | |||
Retained deficit |
| (588,237) |
| 61,509 |
| (526,728) | |||
Treasury stock, at cost |
| (24,167) |
| — |
| (24,167) | |||
Total shareholders’ equity (deficit) |
| (55,017) |
| 61,509 |
| 6,492 | |||
Total liabilities and shareholders’ equity (deficit) | $ | 1,490,304 | $ | (390,521) | $ | 1,099,783 |
42
Below is Consolidating Statement of Operations information reflecting the elimination of the accounts of our Unrestricted Subsidiaries from our Condensed Consolidated Statement of Operations for the nine months ended September 30, 2022 (in thousands):
Consolidated | Eliminations of Unrestricted Subsidiaries | Consolidated restricted subsidiaries | |||||||
Revenues: | |||||||||
Oil | $ | 412,526 | $ | (710) | $ | 411,816 | |||
NGLs |
| 47,430 |
| (28,541) |
| 18,889 | |||
Natural gas |
| 257,452 |
| (180,109) |
| 77,343 | |||
Other |
| 13,889 |
| (9,265) |
| 4,624 | |||
Total revenues |
| 731,297 |
| (218,625) |
| 512,672 | |||
Operating expenses: |
|
|
|
|
|
| |||
Lease operating expenses |
| 155,397 |
| (37,350) |
| 118,047 | |||
Gathering, transportation and production taxes | 26,647 | (13,910) | 12,737 | ||||||
Depreciation, depletion, amortization and accretion |
| 99,384 |
| (619) |
| 98,765 | |||
General and administrative expenses |
| 51,790 |
| (1,082) |
| 50,708 | |||
Total operating expenses |
| 333,218 |
| (52,961) |
| 280,257 | |||
Operating income |
| 398,079 |
| (165,664) |
| 232,415 | |||
Interest expense, net |
| 54,915 |
| (11,841) |
| 43,074 | |||
Derivative loss (gain) |
| 109,892 |
| (187,896) |
| (78,004) | |||
Other income, net |
| (1,229) |
| (64) |
| (1,293) | |||
Income before income taxes |
| 234,501 |
| 34,009 |
| 268,638 | |||
Income tax benefit |
| 46,801 |
| — |
| 46,801 | |||
Net income | $ | 187,700 | $ | 34,009 | $ | 221,837 |
The following table presents our produced oil, NGLs and natural gas volumes (net to our interests) from the Subsidiary Borrowers for the nine months ended September 30, 2022:
Nine Months Ended September 30, | ||
Production Volumes: | 2022 | |
Oil (MBbls) |
| 13 |
NGLs (MBbls) |
| 729 |
Natural gas (MMcf) |
| 22,919 |
Total oil equivalent (MBoe) |
| 4,562 |
43
Contractual Obligations
As of September 30, 2022, there were no long-term drilling rig commitments. Except as disclosed herein, contractual obligations as of September 30, 2022 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 2021 Annual Report.
Critical Accounting Policies and Estimates
We consider accounting policies related to oil and natural gas properties, proved reserve estimates, fair value measure of financial instruments, asset retirement obligations, revenue recognition and income taxes as critical accounting policies. These policies include significant estimates made by management using information available at the time the estimates are made. However, these estimates could change materially if different information or assumptions were used.
There have been no changes to our critical accounting policies which are summarized in Management’s Discussion and Analysis of Financial Condition and Results of Operations under Part II, Item 7 of our 2021 Annual Report.
Recent Accounting Pronouncements
There was no recently issued accounting standards material to us.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information about the types of market risks for the September 30, 2022 did not change materially from the disclosures in Quantitative and Qualitative Disclosures About Market Risk under Part II, Item 7A of our 2021 Annual Report. In addition, the information contained herein should be read in conjunction with the related disclosures in our 2021 Annual Report.
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 CEO and 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), our CEO and CFO performed an evaluation 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 Quarterly Report. Based on that evaluation, our CEO and CFO have each concluded that as of September 30, 2022, 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 September 30, 2022, 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.
44
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
See Financial Statements – Note 12 – Contingencies under Part I Item 1 of this Quarterly Report for information on various legal proceedings to which we are a party or our properties are subject.
Item 1A. Risk Factors
As of the date of this Quarterly Report, except as described below, there have been no material changes to our risk factors as previously disclosed in Part I, Item 1A, Risk Factors, in our 2021 Annual Report and in Part II, Item 1A, Risk Factors, in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2022 and June 30, 2022. The information presented below updates, and should be read in conjunction with, the risk factors referenced above.
We outsource substantially all of our information technology infrastructure and the management and servicing of such infrastructure, which makes us more dependent upon third parties and exposed to related risks. We are in the process of transitioning substantially all of such infrastructure, which subjects us to increased costs and risks.
We have historically outsourced substantially all of our information technology infrastructure and the management and servicing of such infrastructure to a limited number of third-party service providers. As a result, we rely on third parties that we do not control to ensure that our technology needs are sufficiently met, and cyber risks are effectively managed. This reliance has subjected us to certain cybersecurity risks arising from the loss of control over certain processes, including the potential misappropriation, destruction, corruption or unavailability of certain data and systems, such as confidential or proprietary information. As such, a failure of any of our information technology service providers to perform its management and operational duties securely and effectively may have a material adverse effect on our financial condition, liquidity or results of operations or the integrity of the systems, processes and data needed to run our business. We also have not had written agreements with our primary service provider, which exposed us to additional risks with respect to the systems and data outsourced to such provider.
In August 2022, our primary information technology service provider, AAIT, notified us of its intention to cease providing services to us by September 2, 2022. In response, we began the transition of these services and infrastructure to inside the Company or to other providers. In addition, we filed an action in state district court against AAIT and an affiliated service provider for a temporary restraining order, temporary injunction, and permanent injunction seeking, among other things, to restrain AAIT from ceasing to provide services to us until the transition process is complete. On September 14, 2022, a notice was filed to remove that state court action in District Court of Harris County, Texas to United States District Court for the Southern District of Texas. In connection with the foregoing, on September 16, 2022, we and AAIT mutually agreed to the terms of an agreed order issued by the court providing for a temporary injunction for a period of a minimum of 60 days from the date of the order and up to a maximum of 120 days at our option, during which AAIT would continue to provide information technology services to us and assist with the transition process. The agreed order also provided for the appointment by mutual agreement of the parties of Hon. Gregg J. Costa (Ret.) as an independent adjudicator to assist in adjudicating ongoing disputes between the parties. This transition process has, and may continue to, disrupt certain of our business operations. Any difficulties in completing such transition could impair our ability to monitor our production and accurately prepare our results of operations in a timely fashion. Although we have moved and are continuing to move certain services within the Company and are transitioning to new service providers and implementing agreements with such providers, such transition exposes us to additional risks, including increased costs, focus of management’s attention, disruptions to certain of our business operations and loss, damage to or unavailability of data or systems, which could have an adverse effect on our business and results of operations.
45
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
46
Item 6. Exhibits
Exhibit |
| Description |
|
|
|
3.1 |
| |
|
|
|
3.2 |
| |
|
|
|
3.3 |
| |
|
|
|
3.4 | ||
10.1*† | ||
31.1* |
| |
|
|
|
31.2* |
| |
|
|
|
32.1** |
| Section 906 Certification of Chief Executive Officer and Chief Financial Officer |
|
|
|
101.INS* |
| Inline XBRL Instance Document |
|
|
|
101.SCH* |
| Inline XBRL Schema Document |
|
|
|
101.CAL* |
| Inline XBRL Calculation Linkbase Document |
|
|
|
101.DEF* |
| Inline XBRL Definition Linkbase Document |
|
|
|
101.LAB* |
| Inline XBRL Label Linkbase Document |
|
|
|
101.PRE* |
| Inline XBRL Presentation Linkbase Document |
|
|
|
104* |
| Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* | Filed herewith. |
** | Furnished herewith. |
† | Certain schedules and similar attachments to this agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company hereby undertakes to furnish a supplemental copy of each such omitted schedule or similar attachment to the SEC upon request. |
47
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 November 9, 2022.
W&T OFFSHORE, INC. | ||
| ||
By: | /s/ Janet Yang | |
| Janet Yang | |
| Executive Vice President and Chief Financial Officer |
48
Exhibit 10.1
ELEVENTH AMENDMENT TO SIXTH
AMENDED AND RESTATED CREDIT AGREEMENT
THIS ELEVENTH AMENDMENT TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT AND EXTENSION AGREEMENT (this “Eleventh Amendment”), dated as of November 7, 2022, is entered into by and among W&T OFFSHORE, INC., a Texas corporation, as the borrower (the “Borrower”), the Guarantor Subsidiaries party hereto, CALCULUS LENDING, LLC (the “Lender”), as Lender and ALTER DOMUS (US) LLC, as agent (in such capacity together with any successors thereto, the “Administrative Agent”) for the Lender.
WITNESSETH
WHEREAS, the Borrower, the Lender and the Administrative Agent are parties to the Sixth Amended and Restated Credit Agreement, dated as of October 18, 2018 (as amended and modified from time to time prior to the Eleventh Amendment Effective Date, the “Existing Credit Agreement”, and the Existing Credit Agreement, as amended by the amendments set forth in Section 2 of this Eleventh Amendment, the “Credit Agreement”), pursuant to which the Lender agreed to make loans to the Borrower;
WHEREAS, subject to the terms and conditions set forth herein, the Borrower, the Administrative Agent and the Lender (constituting the sole Lender) have agreed to amend the Existing Credit Agreement in accordance with Section 2.
NOW, THEREFORE, in consideration of the premises set forth above, the terms and conditions contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1
2
3
4
[Signature Pages Follow]
5
IN WITNESS WHEREOF, the parties hereto have caused this Eleventh 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 |
[Signature Page to Eleventh Amendment to Sixth A&R Credit Agreement]
ALTER DOMUS (US) LLC,
as Administrative Agent
By:/s/ Matthew Trybula
Name: Matthew Trybula
Title:Associate Counsel
[Signature Page to Eleventh Amendment to Sixth A&R Credit Agreement]
Calculus Lending, LLC,
as Lender
By:/s/ W. Reid Lea
Name: w. Reid Lea
Title: Authorized Agent
[Signature Page to Eleventh Amendment to Sixth A&R Credit Agreement]
ACKNOWLEDGED AND ACCEPTED BY:
W & T ENERGY VI, LLC
By:/s/ Jonathan Curth
Name: Jonathan Curth
Title: | Executive Vice President, General Counsel and Corporate Secretary |
W & T ENERGY VII, LLC
By:/s/ Jonathan Curth
Name: Jonathan Curth
Title: | Executive Vice President, General Counsel and Corporate Secretary |
[Signature Page to Eleventh Amendment to Sixth A&R Credit Agreement]
ANNEX A
FORM OF AMENDED CREDIT AGREEMENT
[See attached.]
i
SIXTH AMENDED AND RESTATED CREDIT AGREEMENT
W&T OFFSHORE, INC.,
as Borrower
VARIOUS FINANCIAL INSTITUTIONS AND OTHER PERSONS FROM TIME TO TIME PARTIES HERETO,
as Lenders
and
ALTER DOMUS (US) LLC,
as Administrative Agent
and
VARIOUS FINANCIAL INSTITUTIONS AND OTHER PERSONS FROM TIME TO TIME PARTIES HERETO,
as Issuers
and
Calculus Lending, LLC,
as Sole Lead Arranger and Bookrunner
October 18, 2018
As amended by:
the First Amendment to Sixth Amended and Restated Credit Agreement dated as of November 27, 2019,
the Second Amendment and Consent to Sixth Amended and Restated Credit Agreement dated as of February 24, 2020,
the Third Amendment and Waiver to Sixth Amended and Restated Credit Agreement dated as of June 17, 2020,
the Fourth Amendment to Sixth Amended and Restated Credit Agreement dated as of July 24, 2020,
the Fifth Amendment to Sixth Amended and Restated Credit Agreement dated as of January 6, 2021,
the Sixth Amendment to Sixth Amended and Restated Credit Agreement dated as of May 14, 2021,
the Waiver and Seventh Amendment to Sixth Amended and Restated Credit Agreement dated June 30, 2021,
the Eighth Amendment to the Sixth Amended and Restated Credit Agreement, dated as of November 2, 2021,
the Ninth Amendment to the Sixth Amended and Restated Credit Agreement, dated as of November 2, 2021,
the Tenth Amendment to the Sixth Amended and Restated Credit Agreement, dated as of March 8, 2022, and
i
the Eleventh Amendment to the Sixth Amended and Restated Credit Agreement, dated as of November 7, 2022
ii
TABLE OF CONTENTS
Page
Article I.
Definitions and References 1
Section 1.1 Defined Terms 1
Section 1.2 Schedules; Exhibits; Additional Definitions 42
Section 1.3 Amendment of Defined Instruments 42
Section 1.4 References and Titles 43
Section 1.5 Calculations and Determinations 43
Section 1.6 Accounting Terms 43
Section 1.7 Interest Rate Disclosure 43
Article II.
The Loans 44
Section 2.1 The Loans 44
Section 2.2 Requests for New Loans 44
Section 2.3 Use of Proceeds 45
Section 2.4 Fees 45
Section 2.5 Optional Prepayments 45
Section 2.6 Mandatory Prepayments 46
Section 2.7 Determinations of Borrowing Base 47
Section 2.8 Maturity Date 49
Section 2.9 Letters of Credit 49
Section 2.10 Interest 54
Section 2.11 Register; Notes 54
Section 2.12 Defaulting Lenders 55
Section 2.13 Reduction of Aggregate Commitments 58
Article III. Payments to Lenders 58
Section 3.1 General Procedures 58
Section 3.2 Capital Reimbursement 60
Section 3.3 Inability to Determine Rates; Benchmark Replacement Setting 60
Section 3.4 [Reserved] 62
Section 3.5 [Reserved] 62
Section 3.6 Taxes 62
Section 3.7 Change of Lending Office 65
Section 3.8 Replacement of Lenders 65
Section 3.9 Participants 65
Article IV. Conditions Precedent to Effectiveness and to Lending 65
Section 4.1 Effective Date 66
i
Section 4.2 Additional Conditions Precedent to All Loans and Letters of Credit 66
Article V. Representations and Warranties 66
Section 5.1 No Default 66
Section 5.2 Organization and Good Standing 66
Section 5.3 Authorization 67
Section 5.4 No Conflicts or Consents 67
Section 5.5 Enforceable Obligations 67
Section 5.6 Initial Financial Statements 67
Section 5.7 Other Obligations and Restrictions 67
Section 5.8 Full Disclosure 68
Section 5.9 Litigation 68
Section 5.10 Labor Disputes and Acts of God 68
Section 5.11 ERISA Plans and Liabilities 68
Section 5.12 Environmental Matters 68
Section 5.13 Names and Places of Business and State of Incorporation or Formation 69
Section 5.14 Borrower’s Subsidiaries 69
Section 5.15 Title to Properties; Licenses 69
Section 5.16 Government Regulation 70
Section 5.17 Insider 70
Section 5.18 Insurance 70
Section 5.19 Solvency 70
Section 5.20 Taxes 70
Section 5.21 Gas Imbalances, Prepayments 70
Section 5.22 Marketing of Production 71
Section 5.23 Hedging Transactions 71
Section 5.24 Restriction on Liens 71
Section 5.25 Maintenance of Properties 71
Section 5.26 Compliance with Laws and Agreements 71
Section 5.27 Anti-Corruption Laws and Sanctions 72
Article VI. Affirmative Covenants of Borrower 72
Section 6.1 Payment and Performance 72
Section 6.2 Books’ Financial Statements and Reports 72
Section 6.3 Other Information and Inspections 76
Section 6.4 Notice of Material Events and Change of Address 76
Section 6.5 Maintenance of Properties 77
Section 6.6 Maintenance of Existence and Qualifications 77
Section 6.7 Payment of Trade Liabilities, Taxes, etc 77
Section 6.8 Insurance 77
Section 6.9 Performance on Borrower’s Behalf 78
Section 6.10 Change in Nature of Business 78
Section 6.11 Compliance with Agreements and Law 78
Section 6.12 Environmental Matters; Environmental Reviews 78
ii
Section 6.13 Evidence of Compliance 79
Section 6.14 Post-Closing Deliveries 80
Section 6.15 Maintenance of Liens on Properties 80
Section 6.16 Perfection and Protection of Security Interests and Liens 80
Section 6.17 Bank Accounts; Offset 80
Section 6.18 Production Proceeds 81
Section 6.19 Guaranties of Borrower’s Subsidiaries; Joinder 81
Section 6.20 Casualty and Condemnation 81
Section 6.21 ERISA Information 81
Section 6.22 Keepwell 82
Section 6.23 Depository Banks 82
Article VII. Negative Covenants of Borrower 82
Section 7.1 Indebtedness 83
Section 7.2 Limitation on Liens 84
Section 7.3 Hedging Contracts 85
Section 7.4 Limitation on Mergers, Issuances of Securities 85
Section 7.5 Limitation on Sales of Property 86
Section 7.6 Limitation on Distributions; Redemptions and Prepayments of Indebtedness 87
Section 7.7 Limitation on Investments 88
Section 7.8 Limitation on Credit Extensions 89
Section 7.9 Transactions with Affiliates; Creation and Dissolution of Subsidiaries 89
Section 7.10 Certain Contracts; Amendments; Multiemployer ERISA Plans 90
Section 7.11 Current Ratio 91
Section 7.12 First Lien Leverage Ratio 91
Section 7.13 Fiscal Year 91
Section 7.14 Anti-Corruption Laws; Sanctions 91
Section 7.15 Division of Limited Liability Companies 91
Section 7.16 Asset Coverage Ratio 91
Section 7.17 Stress Test 91
Article VIII. Events of Default and Remedies 91
Section 8.1 Events of Default 92
Section 8.2 Remedies 93
Article IX. Administrative Agent 94
Section 9.1 Appointment and Authority of Administrative Agent 94
Section 9.2 Exculpation, Administrative Agent’s Reliance, Etc 95
Section 9.3 Credit Decisions 96
Section 9.4 Indemnification 96
Section 9.5 Rights as Lender 97
Section 9.6 Sharing of Set-Offs and Other Payments 97
iii
Section 9.7 Investments 98
Section 9.8 Benefit of Article IX 98
Section 9.9 Resignation 98
Section 9.10 Delegation of Duties 99
Section 9.11 Administrative Agent May File Proofs of Claim 99
Section 9.12 Intercreditor Agreement; Hedge Intercreditor Agreement 100
Section 9.13 Erroneous Payments. 100
Article X. Miscellaneous 103
Section 10.1 Waivers and Amendments; Acknowledgments. 103
Section 10.2 Survival of Agreements; Cumulative Nature 106
Section 10.3 Notices 106
Section 10.4 Payment of Expenses; Indemnity 107
Section 10.5 Joint and Several Liability; Parties in Interest 108
Section 10.6 Assignments 108
Section 10.7 Confidentiality 111
Section 10.8 Governing Law; Submission to Process 112
Section 10.9 Limitation on Interest 112
Section 10.10 Termination; Limited Survival 113
Section 10.11 Severability 113
Section 10.12 Counterparts; Electronic Execution of Assignments 113
Section 10.13 Waiver of Jury Trial, Punitive Damages, etc 113
Section 10.14 Release of Collateral; Collateral Matters; Hedging 114
Section 10.15 [Reserved] 116
Section 10.16 Arranger 116
Section 10.17 [Reserved] 116
Section 10.18 USA Patriot Act Notice 116
Section 10.19 Posting of Approved Electronic Communications 116
Section 10.20 No Affiliate Activities 117
Section 10.21 Hedging Arrangements 118
Section 10.22 Acknowledgement and Consent to Bail-In of Affected Financial Institutions 118
Section 10.23 Acknowledgement Regarding Any Supported QFCs 118
iv
SCHEDULES
Schedule 1 | Disclosure Schedule (Omitted) |
Schedule 2 | Revolving Loan Commitments (Omitted) |
Schedule 3 | Security Schedule (Omitted) |
Schedule 4 | Administrative Agent’s Office (Omitted) |
Schedule 5 | Post-Closing Deliveries (Omitted) |
EXHIBITS
Exhibit A | Form of Revolving Loan Note (Omitted) |
Exhibit B | Borrowing Notice (Omitted) |
Exhibit C | Form of Prepayment Notice (Omitted) |
Exhibit D | Certificate Accompanying Financial Statements (Omitted) |
Exhibit E | Assignment and Acceptance (Omitted) |
Exhibit F | Reserved (Omitted) |
Exhibit G | Form of Issuance Request (Omitted) |
Exhibit H-1 | Form of U.S. Tax Compliance Certificate (Foreign Lenders That Are Not Partnerships for U.S. Federal Income Tax Purposes) (Omitted) |
Exhibit H-2 | Form of U.S. Tax Compliance Certificate (For Foreign Participants That Are Not Partnerships for U.S. Federal Income Tax Purposes) (Omitted) |
Exhibit H-3 | Form of U.S. Tax Compliance Certificate (For Foreign Participants That Are Partnerships for U.S. Federal Income Tax Purposes) (Omitted) |
Exhibit H-4 | Form of U.S. Tax Compliance Certificate (For Foreign Lenders That Are Partnerships for U.S. Federal Income Tax Purposes) (Omitted) |
v
THIS SIXTH AMENDED AND RESTATED CREDIT AGREEMENT (as amended, restated, supplemented or otherwise modified from time to time, this “Agreement”), dated as of October 18, 2018, by and among W&T Offshore, Inc., a Texas corporation (together with its permitted assigns and successors, the “Borrower”), the various financial institutions and other Persons from time to time parties hereto as lenders (collectively, the “Lenders”), each Issuer referred to below, as issuers of Letters of Credit and Alter Domus (US) LLC (“Alter Domus”), as administrative agent (in such capacity together with any successors thereto, the “Administrative Agent”).
W I T N E S S E T H:
WHEREAS, the Borrower, the lenders (or their predecessors-in-interest) party thereto, the Administrative Agent and the other parties party thereto from time to time have heretofore entered into the Sixth Amended and Restated Credit Agreement, dated as of October 18, 2018 (as amended and modified from time to time prior to the Eleventh Amendment Effective Date, the “Existing Credit Agreement”), pursuant to which the lenders thereunder agreed to make loans to the Borrower;
WHEREAS, the Borrower has requested that the Lenders provide Revolving Loan Commitments pursuant to which Revolving Loans will be made from time to time prior to the Commitment Termination Date; and
WHEREAS, the Borrower, the Administrative Agent and the Lenders have agreed to amend the Existing Credit Agreement in the form hereof in order to provide Revolving Loan Commitments and to make Revolving Loans to the Borrower and to effect certain other changes as set forth herein, in each case, subject to the terms and conditions set forth herein. The amendment of the Existing Credit Agreement evidenced by this Agreement shall become effective as provided in the Eleventh Amendment.
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein the parties hereto covenant and agree as follows:
1
2
3
If the Borrower changes its method of accounting from the full cost method to the successful efforts method or a similar method of accounting, “Adjusted Consolidated Net Tangible Assets” will continue to be calculated as if the Borrower were still using the full cost method of accounting.
4
5
6
(a) Adjusted Daily SOFR; or
(b) | the sum of: (i) the alternate benchmark rate that has been selected by the Required Lenders (in consultation with the Borrower), giving due consideration to (A) any selection or recommendation of a replacement benchmark rate, or the mechanism for determining such a replacement rate, by the Relevant Governmental Body, and (B) any evolving, or then-prevailing, market convention for determining a benchmark rate as a replacement to the then-current Benchmark for dollar-denominated bilateral or syndicated credit facilities at such time in the United States; and (ii) the related Benchmark Replacement Adjustment; |
provided that, notwithstanding anything to the contrary in the foregoing or elsewhere in this Agreement or any other Loan Document, if, at any time, the Benchmark Replacement (as determined pursuant to the foregoing clause (a) or (b), as applicable) would be less than the Floor, then the Benchmark Replacement shall be deemed to equal the Floor for all purposes of this Agreement and the other Loan Documents.
(a) | in the case of the occurrence of any event(s) described in clause (a) or (b) of the definition of “Benchmark Transition Event” below, the later to occur of: (i) the date of the public statement or publication of information, as applicable, referred to in such clause (a) or (b), as applicable; and (ii) the date on which the administrator of such Benchmark (or the published component used in the calculation thereof) permanently or indefinitely ceases to provide such Benchmark (or such component thereof); or |
7
(b) | in the case of the occurrence of any event(s) described in clause (c) of the definition of “Benchmark Transition Event” below, the first date on which such Benchmark (or the published component used in the calculation thereof) has been determined and announced by the regulatory supervisor for the administrator of such Benchmark (or such component thereof) to be non-representative; provided that, such non-representativeness shall be determined by reference to the most recent statement or publication referred to in such clause (c), notwithstanding that such Benchmark (or such component thereof) may continue to be provided as of such date. |
For the avoidance of doubt, in any such case of occurrence of the foregoing clause (a) or (b) of this definition of “Benchmark Replacement Date” with respect to any Benchmark, the Benchmark Replacement Date will be deemed to have occurred upon the occurrence of the applicable event(s) set forth therein with respect to such Benchmark (or the published component used in the calculation thereof).
(a) | a public statement or publication of information by, or on behalf of, the administrator of such Benchmark (or the published component used in the calculation thereof), in either case, announcing that such administrator has ceased, or will in the future cease, to provide such Benchmark (or such component thereof), permanently or indefinitely; provided that, at the time of such statement or publication, no successor administrator has been identified that will continue to provide such Benchmark (or such component thereof); |
(b) | a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof), the Board of Governors, the NYFRB, an insolvency official with jurisdiction over the administrator for such Benchmark (or such component thereof), a resolution authority with jurisdiction over the administrator for such Benchmark (or such component thereof), or a court or other Person with similar insolvency or resolution authority over the administrator for such Benchmark (or such component thereof), in any such case, which states that the administrator of such Benchmark (or such component thereof) has ceased, or will in the future cease, to provide such Benchmark (or such component thereof), permanently or indefinitely; provided that, at the time of such statement or publication, no successor administrator has been identified that will continue to provide such Benchmark (or such component thereof); or |
(c) | a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that such Benchmark (or such component thereof) is not, or, as of a specified future date, will not be, representative. |
8
For the avoidance of doubt, a “Benchmark Transition Event” shall be deemed to have occurred, with respect to any Benchmark, if a public statement or publication of information as described above has occurred with respect to such Benchmark (or the published component used in the calculation thereof).
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
Each Borrowing Notice shall be irrevocable and binding on the Borrower. If all conditions precedent to such new Loans have been met, each Lender will on the date requested promptly remit to the Administrative Agent at the Administrative Agent’s Office, the amount of such Lender’s new Loan in immediately available funds, and upon receipt of all such requested funds, the Administrative Agent shall promptly make such Loans available to the Borrower by wire transfer. The failure of any Lender to make any new Loan to be made by it hereunder shall not relieve any other Lender of its obligation hereunder, if any, to make its new Loan, but no Lender shall be responsible for the failure of any other Lender to make any new Loan to be made by such other Lender.
45
46
provided, however, that if a Borrowing Base Deficiency is existing as a result of any Subject Sale or other sale or existing as a result of the incurrence of Indebtedness as provided in Section 7.1(h), and the corresponding reduction of the Borrowing Base (including the Initial Availability Amount), pursuant to Section 7.1(h) or 7.5, as applicable, the Borrower shall instead immediately prepay the Loans (and/or provide cash collateral for Letters of Credit) in accordance with Section 7.1(h) or 7.5, as applicable, from the proceeds of such Subject Sale or sale, or incurrence of Indebtedness, as appropriate, to the extent of the Borrowing Base Deficiency that resulted from such reduction or such sale and reduction.
47
48
(d)The Required Lenders agree to inform the Administrative Agent of the amount of the Borrowing Base as in effect from time to time upon the Administrative Agent’s written request therefor.
No Issuer is under any obligation to issue any Letter of Credit if: (i) any order, judgment or decree of any government agency or arbitrator shall by its terms purport to enjoin or restrain
49
such Issuer from issuing such Letter of Credit, or any requirement of applicable Law or any request or directive (whether or not having the force of law) from any government agency with jurisdiction over such Issuer shall prohibit, or request that the Issuer refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon such Issuer with respect to such Letter of Credit any restriction, reserve or capital requirement (for which such Issuer is not otherwise compensated hereunder) not in effect on the date hereof, or shall impose upon such Issuer any unreimbursed loss, cost or expense which was not applicable on the date hereof and which such Issuer in good faith deems material to it; (ii) one or more of the applicable conditions contained in Article IV is not then satisfied; (iii) the expiry date of any requested Letter of Credit is prior to the maturity date of any financial obligation to be supported by the requested Letter of Credit; (iv) any requested Letter of Credit does not provide for drafts, or is not otherwise in form and substance acceptable to such Issuer, or the issuance of a Letter of Credit shall violate any applicable policies of such Issuer; (v) any standby Letter of Credit is for the purpose of supporting the issuance of any letter of credit by any other Person; (vi) such Letter of Credit is in a face amount denominated in a currency other than Dollars; or (vii) as a result of such issuance, such Issuer together with the other Issuers shall have outstanding Letters of Credit having an aggregate Stated Amount of more than the Letter of Credit Commitment Amount. The Uniform Customs and Practice for Documentary Credits most recently published by the International Chamber of Commerce at the time of issuance of any Letter of Credit shall (unless otherwise expressly provided in the Letter of Credit) apply to all Letters of Credit.
50
51
52
In addition to amounts payable as elsewhere provided in this Section 2.11, the Borrower hereby indemnifies, exonerates and holds each Issuer, the Administrative Agent and each other Lender Party harmless from and against any and all actions, causes of action, suits, losses, costs, liabilities and damages, and expenses incurred in connection therewith (irrespective of whether such Issuer, the Administrative Agent or such Lender Party is a party to the action for which indemnification is sought), including reasonable attorneys’ fees and disbursements, which such
53
Issuer, the Administrative Agent or such Lender Party may incur or be subject to as a consequence, direct or indirect, of the issuance of the Letters of Credit, other than, as to each such indemnified party, as a result of the gross negligence or willful misconduct of such indemnified party, as the case may be, as determined by a court of competent jurisdiction, or the failure of such Issuer to honor a drawing under any Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or governmental authority.
54
55
56
In the event that the Administrative Agent, the Borrower and the Issuers each agrees that a Defaulting Lender has adequately remedied all matters that caused such Lender to be a Defaulting Lender, then the LC Exposure of the Lenders shall be readjusted to reflect the inclusion of such Lender’s Commitment and on such date, such Lender shall purchase at par such of the Loans of the other Lenders as the Administrative Agent shall determine may be necessary in order for such Lender to hold such Loans in accordance with its Revolving Loan Percentage Share; provided that no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of the Borrower while that Lender was a Defaulting Lender; and provided, further, that except to the extent otherwise expressly agreed by the affected parties, no change hereunder
57
from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender’s having been a Defaulting Lender.
58
All payments applied to principal or interest on any Loan shall be applied first to any interest then due and payable, then to principal then due and payable, and last to any prepayment of principal and interest in compliance with Sections 2.6 and 2.7. All distributions of amounts described in any of subsections (b), (c) or (d) above shall be made by Administrative Agent pro rata to each Lender Party then owed Obligations described in such subsection (or subclause thereof) in proportion to all amounts owed to all Lender Parties which are described in such subsection (or subclause thereof).
Notwithstanding the foregoing, amounts received from the Borrower or any Restricted Subsidiary that is not an Eligible Contract Participant shall not be applied to any Excluded Obligations in respect of a Hedging Contract owing to any Approved Counterparty in respect of any Secured Hedging Contract (it being understood, that in the event that any amount is applied to Obligations other than Excluded Obligations in respect of a Hedging Contract as a result of this clause, the Administrative Agent shall make such adjustments as it determines are appropriate to distributions pursuant to clause fourth above from amounts received from Eligible Contract Participants to ensure, as nearly as possible, that the proportional aggregate recoveries with
59
respect to Obligations described above by any Approved Counterparty that is the holder of any Excluded Obligations in respect of a Hedging Contract are the same as the proportional aggregate recoveries with respect to other Obligations pursuant to clause (b) above).
60
61
Without limiting the generality of the foregoing, (i) a Foreign Lender, that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the
62
Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement or any other Loan Document shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law or reasonably requested by the Borrower as will permit such payments to be made without withholding or at a reduced rate. Without limiting the generality of the foregoing:
63
64
65
To confirm each Lender Party’s understanding concerning the Borrower and its Restricted Subsidiaries and the Borrower’s and its Restricted Subsidiaries’ businesses, properties and obligations and to induce each Lender Party to enter into this Agreement and to extend credit hereunder, Borrower represents and warrants to each Lender Party that:
66
67
68
69
70
71
To conform with the terms and conditions under which each Lender Party is willing to have credit outstanding to the Borrower, and to induce each Lender Party to enter into this Agreement and extend credit hereunder, the Borrower warrants, covenants and agrees to the following (and the Borrower agrees to cause all of its Restricted Subsidiaries to comply with the following) until Security Termination, unless the Required Lenders have previously agreed otherwise:
72
73
74
75
76
(i)any demand for the provision of any Junior Obligations.
Upon the occurrence of any of the foregoing the Borrower and Restricted Subsidiaries will take all necessary or appropriate steps to remedy promptly any such Material Adverse Change, Default, acceleration, default or Termination Event, to protect against any such adverse claim, to defend any such suit or proceeding, and to resolve all controversies on account of any of the foregoing (or, in the case of any notice pursuant to Section 6.4(i), such notice will provide reasonable details on any prospective plans to address such demand in accordance with this Agreement and in a manner reasonably acceptable to the Administrative Agent). Borrower will also notify Administrative Agent and Administrative Agent’s counsel in writing at least twenty Business Days prior to the date that the Borrower or any Restricted Subsidiary changes its name or the location of its chief executive office or principal place of business or the place where it keeps its books and records concerning the Collateral, furnishing with such notice any necessary financing statement amendments or requesting Administrative Agent and its counsel to prepare the same.
77
78
79
80
81
82
To conform with the terms and conditions under which each Lender Party is willing to have credit outstanding to the Borrower, and to induce each Lender Party to enter into this Agreement and extend credit hereunder, the Borrower warrants, covenants and agrees to the following (and the Borrower agrees to cause all of its Restricted Subsidiaries to comply with the following) until Security Termination, unless the Required Lenders have previously agreed otherwise:
83
Notwithstanding anything in this Agreement or any of the other Loan Documents, in no event shall there be any direct or indirect recourse to the Borrower or any of its Restricted Subsidiaries or any of the Borrower’s or any Restricted Subsidiaries’ properties or assets for any Indebtedness of Aquasition Parent or any of its Subsidiaries.
84
85
86
Neither Borrower nor any of Borrower’s Restricted Subsidiaries will make any Sale of Capital Stock of any of Borrower’s Restricted Subsidiaries except that subject to Section 7.4 any Restricted Subsidiary of Borrower may sell or issue its own Capital Stock to the extent not otherwise prohibited hereunder. Notwithstanding the foregoing sentence, the Borrower or any Restricted Subsidiary may sell the Capital Stock or all or substantially all of the assets of any Subsidiary if as to each and all such Sales, each of the following conditions is satisfied as determined by Administrative Agent: (i) the consideration received in connection with any such Sale shall be at least equal to the fair market value of such Capital Stock or assets (as the case may be), (ii) such Sale shall be on commercially reasonable prices and terms in a bona fide arm’s length transaction, (iii) subject to clause (iv) below, not less than seventy-five (75%) percent of the consideration received by the Borrower or the relevant Restricted Subsidiary for such Sale shall be in cash or Cash Equivalents, (iv) in the event of the Sale of the Capital Stock of any Subsidiary of Borrower which is a Restricted Subsidiary or an Included Joint Venture, or in the event of the Sale by any Restricted Subsidiary or an Included Joint Venture of its assets as provided above, if the Total Proved PV-10 of any applicable property being sold and/or transferred in connection with such transaction has been included in the Borrowing Base, the Borrowing Base shall automatically be reduced by the Total Proved PV-10 of such property or assets so sold or transferred attributed to them in the then current Borrowing Base (as determined by the Required Lenders), and the Borrower shall forthwith repay or prepay the Loans and/or cash collateralize all Letters of Credit to the extent of any Borrowing Base Deficiency caused thereby from the proceeds of such Sale, (v) Administrative Agent shall have received not less than ten (10) Business Days prior written notice of any such Sale of assets or Capital Stock, which notice shall set forth in reasonable detail satisfactory to Administrative Agent, the parties to such Sale, the consideration to be paid for the Sale of such assets or Capital Stock, the terms and manner of the payment of such consideration, the assets or Capital Stock to be sold the liabilities being assumed by the purchaser pursuant to such Sale, and such other information with respect thereto as Administrative Agent may request, and (vi) as of the date of such Sale and after giving effect thereto, no Default or Event of Default shall have occurred and remain continuing.; provided that the above limitations of clauses (i) through (vi) shall not apply to Sales of Capital Stock in an Unrestricted Subsidiary (or in a Restricted Subsidiary which owns an Unrestricted Subsidiary (so long as such Restricted Subsidiary owns no assets other than the Capital Stock of such Unrestricted Subsidiary) for fair market value.
Neither the Borrower nor any Restricted Subsidiary will discount, sell, pledge or assign any notes payable to it, accounts receivable or future income except to the extent expressly permitted under the Loan Documents.
87
88
provided that in respect of any Investment pursuant to clauses (b)(ii) or (b)(iii) above is in the form of a sale, transfer or exchange of Oil and Gas Properties, such Investment will be subject to Section 7.5(d) (other than (x) in the case of an Investment in a Subsidiary, clause (ii) of such Section 7.5(d) and (y) in all cases, clause (iii) of such Section 7.5(d)), and including, without limitation, if constituting a Subject Sale, the second proviso set forth in such Section 7.5(d)); provided further that this Section 7.7 shall not apply to the Borrower’s or any Restricted Subsidiary’s entry into operating agreements, working interests, royalty interests, mineral leases, processing agreements, farm-out agreements, contracts for the sale, transportation or exchange of oil and natural gas, unitization agreements, pooling arrangements, area of mutual interest agreements, production sharing agreements or other similar or customary agreements, transactions, properties, interests or arrangements, and Investments and expenditures in connection therewith or pursuant thereto, in each case made or entered into in the ordinary course of the oil and gas business on customary industry terms, excluding, however, Investments in other Persons.
89
90
91
92
Upon the occurrence of an Event of Default described in subsection (j)(i), (j)(ii) or (j)(iii) of this section with respect to Borrower, all of the Obligations shall thereupon be immediately due and payable, without demand, presentment, notice of demand or of dishonor and nonpayment, protest, notice of protest, notice of intention to accelerate, declaration or notice of acceleration, or any other notice or declaration of any kind, all of which are hereby expressly waived by Borrower and each Restricted Subsidiary who at any time ratifies or approves this Agreement. Upon any such acceleration, any obligation of any Lender to make any further Loans hereunder and any obligation of any Issuer to issue Letters of Credit hereunder shall be permanently terminated. During the continuance of any other Event of Default, the Administrative Agent at any time and from time to time may (and upon written instructions from the Required Lenders, the Administrative Agent shall), without notice to Borrower or any other Restricted Person Subsidiary, do either or both of the following: (1) terminate any obligation of Lender to make Loans hereunder and any obligation of any Issuer to issue Letters of Credit hereunder, and (2) declare any or all of the Obligations immediately due and payable, and all such Obligations shall thereupon be immediately due and payable, without demand, presentment, notice of demand or of dishonor and nonpayment, protest, notice of protest, notice of intention to accelerate, declaration or notice of acceleration, or any other notice or declaration of any kind, all of which are hereby expressly waived by the Borrower and each other Restricted Person who at any time ratifies or approves this Agreement.
93
94
upon notice from any other Lender Party to the Administrative Agent of any Default or Event of Default, Administrative Agent shall promptly notify each other Lender Party thereof.
95
96
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY, OR ARE CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY ADMINISTRATIVE AGENT OR ISSUER,
provided only that no Lender shall be obligated under this section to indemnify any Administrative Agent Indemnitee and any Issuer for that portion, if any, of any liabilities and costs which is proximately caused by any Administrative Agent Indemnitee’s or such Issuer’s own individual gross negligence or willful misconduct, respectively, as determined in a final judgment. Cumulative of the foregoing, each Lender agrees to reimburse such Administrative Agent Indemnitee and such Issuer promptly upon demand for such Lender’s Aggregate Percentage Share of any costs and expenses to be paid to such Administrative Agent Indemnitee or such Issuer by Borrower under Section 10.4(a) to the extent that such Administrative Agent Indemnitee or such Issuer is not timely reimbursed for such expenses by the Borrower as provided in such section. As used in this section the term “Issuer” shall refer not only to each Issuer designated as such in Section 1.1 but also to each director, officer, agent, attorney, employee, representative and Affiliate of such Issuer.
97
98
99
100
For the avoidance of doubt, the failure to deliver a notice to the Administrative Agent pursuant to this Section 9.13(b) shall not have any effect on a Payment Recipient’s obligations pursuant to Section 9.13(a) or on whether or not an Erroneous Payment has been made.
101
(ii)Subject to Section 10.6 (but excluding, in all events, any assignment consent or approval requirements (whether from the Borrower or otherwise)), the Administrative Agent may, in its discretion, sell any Loans acquired pursuant to an Erroneous Payment Deficiency Assignment and upon receipt of the proceeds of such sale, the Erroneous Payment Return Deficiency owing by the applicable Lender shall be reduced by the net proceeds of the sale of such Loan (or portion thereof), and the Administrative Agent shall retain all other rights, remedies and claims against such Lender (and/or against any recipient that receives funds on its respective behalf). In addition, an Erroneous Payment Return Deficiency owing by the applicable Lender (x) shall be reduced by the proceeds of prepayments or repayments of principal and interest, or other distribution in respect of principal and interest, received by the Administrative Agent on or with respect to any such Loans acquired from such Lender pursuant to an Erroneous Payment Deficiency Assignment (to the extent that any such Loans are then owned by the Administrative Agent) and (y) may, in the sole discretion of the Administrative Agent, be reduced by any amount specified by the Administrative Agent in writing to the applicable Lender from time to time.
102
103
104
105
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
106
107
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY, OR ARE CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY ADMINISTRATIVE AGENT INDEMNITEE OR LENDER PARTY,
provided only that no Administrative Agent Indemnitee or Lender Party shall be entitled under this section to receive indemnification for that portion, if any, of any liabilities and costs which is proximately caused by its own individual gross negligence or willful misconduct, as determined in a final judgment. If any Person (including Borrower or any of its Affiliates) ever alleges such gross negligence or willful misconduct by any Administrative Agent Indemnitee or Lender Party, the indemnification provided for in this section shall nonetheless be paid upon demand, subject to later adjustment or reimbursement, until such time as a court of competent jurisdiction enters a final judgment as to the extent and effect of the alleged gross negligence or willful misconduct. As used in this section the term “Lender Parties” shall refer not only to the Persons designated as such in Section 1.1 but also to each director, officer, agent, attorney, employee, representative and Affiliate of such Persons.
108
109
110
111
112
113
114
115
116
117
118
[Remainder of this page has been intentionally left blank.]
119
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a – 14(a) AND 15d – 14(a)
OF §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: November 9, 2022 |
| /s/ Tracy W. Krohn |
| | Tracy W. Krohn |
| | Chairman, Chief Executive Officer, President and Director |
| | (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a – 14(a) AND 15d – 14(a)
OF §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: November 9, 2022 | /s/ Janet Yang |
| Janet Yang |
| Executive Vice President and Chief Financial Officer |
| (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. § 1350, AS ADOPTED
PURSUANT TO §906 OF THE SARBANES-OXLEY ACT OF 2002
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 September 30, 2022 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: November 9, 2022 |
| /s/ Tracy Krohn |
| | Tracy W. Krohn |
| | Chairman, Chief Executive Officer, President and Director |
| | (Principal Executive Officer) |
Date: November 9, 2022 |
| /s/ Janet Yang |
| | Janet Yang |
| | Executive Vice President and Chief Financial Officer |
| | (Principal Financial Officer) |
CONDENSED CONSOLIDATED BALANCE SHEETS (Parentheticals) - $ / shares shares in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
---|---|---|
Statement of Financial Position [Abstract] | ||
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) | 146,031 | 145,732 |
Common stock, shares outstanding (in shares) | 143,162 | 142,863 |
Treasury stock, shares (in shares) | 2,869 | 2,869 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
Revenues: | ||||
Total revenues | $ 266,485 | $ 133,946 | $ 731,297 | $ 392,421 |
Operating expenses: | ||||
Lease operating expenses | 59,010 | 39,490 | 155,397 | 129,399 |
Gathering, transportation and production taxes | 12,199 | 6,593 | 26,647 | 19,687 |
Depreciation, depletion, and amortization | 27,493 | 20,818 | 79,848 | 66,511 |
Asset retirement obligations accretion | 6,620 | 5,473 | 19,536 | 17,368 |
General and administrative expenses | 23,047 | 13,391 | 51,790 | 38,090 |
Total operating expenses | 128,369 | 85,765 | 333,218 | 271,055 |
Operating income | 138,116 | 48,181 | 398,079 | 121,366 |
Interest expense, net | 16,849 | 18,910 | 54,915 | 50,474 |
Derivative loss | 38,749 | 73,137 | 109,892 | 179,156 |
Other (income) expense, net | (600) | (1,229) | 964 | |
Income (loss) before income taxes | 83,118 | (43,866) | 234,501 | (109,228) |
Income tax expense (benefit) | 16,397 | (5,902) | 46,801 | (18,846) |
Net income (loss) | $ 66,721 | $ (37,964) | $ 187,700 | $ (90,382) |
Net income (loss) per common share: | ||||
Basic | $ 0.46 | $ (0.27) | $ 1.30 | $ (0.64) |
Diluted | $ 0.46 | $ (0.27) | $ 1.30 | $ (0.64) |
Weighted average common shares outstanding | ||||
Basic | 143,116 | 142,297 | 143,026 | 142,231 |
Diluted | 145,882 | 142,297 | 144,696 | 142,231 |
Oil and Condensate [Member] | ||||
Revenues: | ||||
Total revenues | $ 130,560 | $ 74,265 | $ 412,526 | $ 240,418 |
Natural Gas Liquids [Member] | ||||
Revenues: | ||||
Total revenues | 16,875 | 12,205 | 47,430 | 30,397 |
Natural Gas, Production [Member] | ||||
Revenues: | ||||
Total revenues | 113,673 | 45,137 | 257,452 | 113,816 |
Product and Service, Other [Member] | ||||
Revenues: | ||||
Total revenues | $ 5,377 | $ 2,339 | $ 13,889 | $ 7,790 |
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Description and Basis of Presentation [Text Block] | NOTE 1 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES Nature of Operations W&T Offshore, Inc. (with subsidiaries referred to herein as “W&T” 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. Interests in fields, leases, structures and equipment are primarily owned by the Company and its 100% owned subsidiaries, W & T Energy VI, LLC, Aquasition LLC (“A-I, LLC”), and Aquasition II, LLC (“A-II LLC”), and through a proportionately consolidated interest in Monza Energy LLC (“Monza”), as described in more detail in Note 6 – Joint Venture Drilling Program. Basis of Presentation 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 2021 Annual Report on Form 10-K (the “2021 Annual Report”). Reclassification – For presentation purposes, as of September 30, 2021, Derivative (gain) loss has been reclassified from “Operating income” on the Condensed Consolidated Statement of Operations in order to conform to the current period presentation. Such reclassification had no effect on the Company’s results of operations, financial position or cash flows. For presentation purposes, as of September 30, 2021, Gathering and transportation and Production taxes have been combined into one line item within “Operating income” on the Condensed Consolidated Statement of Operations in order to conform to the current period presentation. Such reclassification had no effect on the Company’s results of operations, financial position or cash flows. 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, the reported amounts of revenues and expenses during the reporting periods and the reported amounts of proved oil and natural gas reserves. Actual results could differ from those estimates. Summary of Significant Accounting Policies Revenue and Accounts Receivable – Revenue from the sale of crude oil, natural gas liquids (“NGLs”) and natural gas is recognized when performance obligations under the terms of the respective contracts are satisfied; this generally occurs with the delivery of crude oil, NGLs and natural gas to the customer. Revenue is concentrated with certain major oil and gas companies. There have been no significant changes to the Company’s contracts with customers during the nine months ended September 30, 2022. The Company also has 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. The Company’s maximum exposure at any time would be the receivable balance. Joint interest receivables on the Condensed Consolidated Balance Sheets are presented net of allowance for credit losses of $11.6 million and $10.0 million as of September 30, 2022 and December 31, 2021, respectively. Employee Retention Credit – Under the Consolidated Appropriations Act of 2021, the Company recognized a $2.1 million employee retention credit during the nine months ended September 30, 2021 which is included as a credit to General and administrative expenses in the Condensed Consolidated Statement of Operations. No such credit has been recognized during the nine months ended September 30, 2022. 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):
Oil and Natural Gas Properties and Other, Net – 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):
Other Assets (long-term) – The major categories are presented in the following table (in thousands):
Accrued Liabilities – The major categories are presented in the following table (in thousands):
Other Liabilities (long-term) – The major categories are presented in the following table (in thousands):
At-the-Market Equity Offering – On March 18, 2022, the Company filed a prospectus supplement related to the issuance and sale of up to $100,000,000 of shares of common stock under the Company’s "at-the-market" equity offering program (the “ATM Program”). The designated sales agents will be entitled to a placement fee of up to 3.0% of the gross sales price per share sold. During the nine months ended September 30, 2022, the Company did not sell any shares in connection with the ATM Program. |
DEBT |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes to Financial Statements | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt [Text Block] | NOTE 2 — DEBT The components comprising the Company’s debt are presented in the following table (in thousands):
Current Portion of Long-Term Debt As of September 30, 2022, the current portion of long-term debt of $35.5 million represented principal payments due within one year on the Term Loan (defined below). As of September 30, 2022, the Company had outstanding $552.5 million principal of Senior Second Lien Notes with an interest rate of 9.75% per annum that mature on November 1, 2023. The Company has commenced discussions with potential lenders and institutional investors regarding a potential refinancing of all or a portion of the Senior Second Lien Notes prior to maturity, although there is no assurance as to the terms of any such refinancing or whether or when such refinancing will occur. The Company believes that cash on hand and cash flows from operations will enable the Company to satisfy its debt obligations as well as meet its other funding requirements for at least one year from the date this Form 10-Q is issued. The Company’s view regarding sufficiency of cash and liquidity is primarily based on the financial forecast, which is impacted by various assumptions including projections for pricing, production volumes and operating costs. Given the assumptions involved, the forecast is subject to uncertainty, therefore cash flows from operations may be lower than projected. If necessary, there are further actions the Company could undertake to increase cash flows which include limiting capital expenditures and reducing operating expenditures. Additionally, the Company may seek to raise cash through the sale of up to $100 million of equity available under the ATM program. Term Loan (Subsidiary Credit Agreement) On May 19, 2021, A-I LLC and A-II LLC (collectively, the “Subsidiary Borrowers”), both Delaware limited liability companies and indirect, wholly-owned subsidiaries of the Company, entered into a credit agreement (the “Subsidiary Credit Agreement”) providing for a term loan in an aggregate principal amount equal to $215.0 million (the “Term Loan”). The Term Loan requires quarterly amortization payments, which commenced on September 30, 2021. The Term Loan bears interest at a fixed rate of 7% per annum and will mature on May 19, 2028. The Term Loan is non-recourse to the Company and any subsidiaries other than the Subsidiary Borrowers and the subsidiary that owns the equity in the Subsidiary Borrowers, and is secured by the first lien security interests in the equity of the Subsidiary Borrowers and a first lien mortgage security interest and mortgages on certain assets of the Subsidiary Borrowers (the Mobile Bay Properties, defined below). In exchange for the net cash proceeds received by the Subsidiary Borrowers from the Term Loan, the Company assigned to (a) A-I LLC all of its interests in certain oil and gas leasehold interests and associated wells and units located in State of Alabama waters and U.S. federal waters in the offshore Gulf of Mexico, in the Mobile Bay region (such assets, the “Mobile Bay Properties”) and (b) A-II LLC its interest in certain gathering and processing assets located (i) in State of Alabama waters and U.S. federal waters in the offshore Gulf of Mexico, in the Mobile Bay region and (ii) onshore near Mobile, Alabama, including offshore gathering pipelines, an onshore crude oil treating and sweetening facility, an onshore gathering pipeline, and associated assets (such assets, the “Midstream Assets”). A portion of the proceeds to the Company was used to repay the $48.0 million outstanding balance on its reserve-based lending facility under the Credit Agreement (defined below), with the majority of the proceeds to W&T expected to be used for general corporate purposes, including oil and gas acquisitions, development activities, and other opportunities to grow the Company’s broader asset base. The transactions contemplated by the Subsidiary Credit Agreement, including the assignment of the Mobile Bay Properties to A-I LLC and the assignment of the Midstream Assets to A-II LLC are referred to herein as the “Mobile Bay Transaction”. For information about the Mobile Bay Transaction refer to Note 5 – Subsidiary Borrowers. As of September 30, 2022 and December 31, 2021, the Company had $157.0 million and $190.9 million in principal amount of Term Loan outstanding, respectively. Credit Agreement On November 2, 2021, the Company entered into the Ninth Amendment to the Sixth Amended and Restated Credit Agreement (the “Ninth Amendment”), which establishes a short-term $100.0 million first priority lien secured revolving credit facility with borrowings limited to a borrowing base of $50.0 million (the “Credit Agreement”) provided by Calculus Lending, LLC (“Calculus”), a company affiliated with, and controlled by W&T’s Chairman and Chief Executive Officer, Tracy W. Krohn, as sole lender under the Credit Agreement. A committee of the independent members of the Board of Directors reviewed and approved the amendments given the Chief Executive Officer’s affiliation with Calculus. As of November 2, 2021, the Company cash collateralized each of the outstanding letters of credit in the aggregate amount of approximately $4.4 million. Alter Domus (US) LLC was appointed to replace Toronto Dominion (Texas) LLC as administrative agent under the Credit Agreement. On March 8, 2022, the Company entered into the Tenth Amendment to Credit Agreement (the “Tenth Amendment”), which extended the maturity date and Calculus’ commitment to January 3, 2023. The terms of this extension with Calculus were reviewed and approved by the Audit Committee of the Company. In connection with the Tenth Amendment, Calculus was paid arrangement and upfront fees of approximately $1.0 million in the aggregate during the nine months ended September 30, 2022. On November 7, 2022, the Company entered into the Eleventh Amendment to the Credit Agreement (the “Eleventh Amendment”), which extended the maturity date and Calculus’ commitment to January 3, 2024, or in certain circumstances as described in more detail below, to August 1, 2023, and shifted the rate at which outstanding borrowings will accrue interest to a SOFR-based rate. The terms of this extension with Calculus were reviewed and approved by the Audit Committee of the Company. Pursuant to the Eleventh Amendment, the commitment will expire and final maturity of any and all outstanding loans is January 3, 2024, or in the event the Senior Second Lien Notes are not refinanced or replaced in full, on or prior to August 1, 2023, with other indebtedness that matures on or after April 3, 2024 or are not otherwise discharged, defeased or repaid in full, August 1, 2023. Outstanding borrowings will accrue interest at SOFR plus 6.0% per annum. The commitment fee for the unused portion of available borrowing amounts will be 3.0% per annum. In connection with the Eleventh Amendment, the Company paid to Calculus an extension fee of $100,000. As a result of the Ninth Amendment, Tenth Amendment and Eleventh Amendment and related assignments and agreements, the primary terms and covenants associated with the Credit Agreement as of September 30, 2022, are as follows:
·The Company’s ratio of First Lien Debt (as such term is defined in the Credit Agreement) outstanding under the Credit Agreement on the last day of the most recent quarter to EBITDAX (as such term is defined in the Credit Agreement) for the trailing four quarters must not be greater than 2.50 to 1.00 on the last day of the fiscal quarter ending March 31, 2022 and on the last day of each fiscal quarter thereafter; ·The Company’s ratio of Total Proved PV-10 (as such term is defined in the Credit Agreement) to First Lien Debt as of the last day of any fiscal quarter commencing with the fiscal quarter ending March 31, 2022 must be equal to or greater than 2.00 to 1.00; ·The ratio of the Company and its restricted subsidiaries’ consolidated current assets to Company and its restricted subsidiaries’ consolidated current liabilities (subject in each case to certain exceptions and adjustments as set forth in the Credit Agreement) at the last day of any fiscal quarter must be greater than or equal to 1.00 to 1.00;
●Certain related party transactions are required to meet certain arm’s length criteria; except in each case as specifically permitted or excluded from the covenant under the Credit Agreement. In addition, Calculus earned commitment fees of $1,137,500, equal to 3.0% of unborrowed portion of the borrowing base lending commitment, during the nine months ended September 30, 2022. Availability under the Credit Agreement is subject to redetermination of the borrowing base that may be requested at the discretion of either the lender or the Company in accordance with the Credit Agreement. The borrowing base is calculated by the lender based on their evaluation of proved reserves and their own internal criteria. Any redetermination by the lender to change the borrowing base will result in a similar change in the availability under the Credit Agreement. The Credit Agreement is secured by a first priority lien on substantially all of the Company’s and its guarantor subsidiaries’ assets, excluding those assets of the Subsidiary Borrowers, which liens were released in the Mobile Bay Transaction (as described in Note 5 – Subsidiary Borrowers). As of September 30, 2022, there were no borrowings outstanding under the Credit Agreement and no borrowings had been incurred under the Credit Agreement during the nine months ended September 30, 2022. Separately, as of September 30, 2022 and December 31, 2021, the Company had $4.4 million outstanding in letters of credit which have been cash collateralized. 9.75% Senior Second Lien Notes Due 2023 On October 18, 2018, W&T 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 10.3%, 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. As of September 30, 2022 and December 31, 2021, $552.5 million in principal amount of Senior Second Lien Notes remained issued and outstanding. The Senior Second Lien Notes are secured by a second-priority lien on all of the Company’s assets that are secured under the Credit Agreement, which does not include the Mobile Bay Properties and the related Midstream Assets. The Senior Second Lien Notes contain covenants that limit or prohibit the Company’s ability and the ability of certain 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 September 30, 2022 and for all prior measurement periods presented, the Company was in compliance with all applicable covenants of the Credit Agreement and the Indenture. |
FAIR VALUE MEASUREMENTS |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Text Block] | NOTE 3 – FAIR VALUE MEASUREMENTS Derivative Financial Instruments The Company measures the fair value of 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 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. Derivative financial instruments are reported in the Condensed Consolidated Balance Sheets using fair value. See Note 8 – Derivative Financial Instruments, for additional information on derivative financial instruments. The following table presents the fair value of the Company’s derivative financial instruments (in thousands):
Debt Instruments The following table presents the net value and fair value of the Company’s debt (in thousands):
The fair value of the Term Loan was measured using a discounted cash flows model and current market rates. The fair value of the Senior Second Lien Notes was measured using quoted prices, although the market is not a highly liquid market. The fair value of debt was classified as Level 2 within the valuation hierarchy. |
ACQUISITIONS |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Asset Acquisition [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||
ACQUISITIONS | NOTE 4 — ACQUISITIONS On January 5, 2022, the Company entered into a purchase and sale agreement with ANKOR E&P Holdings Corporation and KOA Energy LP (“ANKOR”) to acquire their interests in and operatorship of certain oil and natural gas producing properties in federal shallow waters in the Gulf of Mexico at Ship Shoal 230, South Marsh Island 27/Vermilion 191, and South Marsh Island 73 fields for $47.0 million. The transaction closed on February 1, 2022, and after normal and customary post-effective date adjustments (including net operating cash flow attributable to the properties from the effective date of July 1, 2021 to the close date), cash consideration of $34.0 million was paid to the sellers. The transaction was funded using cash on hand. The Company also assumed the related asset retirement obligations (“ARO”) associated with these assets. Additionally, on April 1, 2022, the Company entered into a purchase and sale agreement with a private seller to acquire the remaining working interests in certain oil and natural gas producing properties in federal shallow waters of the Gulf of Mexico at the Ship Shoal 230, South Marsh Island 27/Vermilion 191, and South Marsh Island 73 fields purchased from ANKOR. The transaction had an effective date and closing date of April 1, 2022. After normal and customary post-effective date adjustments, cash consideration of $17.5 million was paid to the seller. The Company determined that the assets acquired did not meet the definition of a business; therefore, the transactions were accounted for as asset acquisitions in accordance with ASC 805. An acquisition qualifying as an asset acquisition requires, among other items, that the cost of the assets acquired and liabilities assumed to be recognized on the Condensed Consolidated Balance Sheet by allocating the asset cost on a relative fair value basis. The fair value measurements of the oil and natural gas properties acquired and asset retirement obligations assumed were derived utilizing an income approach and based, in part, on significant inputs not observable in the market. These inputs represent Level 3 measurements in the fair value hierarchy and include, but are not limited to, estimates of reserves, future operating and development costs, future commodity prices, estimated future cash flows and appropriate discount rates. These inputs required significant judgments and estimates by the Company’s management at the time of the valuation. Transaction costs incurred on an asset acquisition are capitalized as a component of the assets acquired. The amounts recorded on the Condensed Consolidated Balance Sheet for the purchase price allocation and liabilities assumed related to the acquisitions described above on February 1, 2022, and April 1, 2022, are presented in the following tables, respectively (in thousands):
|
SUBSIDIARY BORROWERS |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SUBSIDIARY BORROWERS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SUBSIDIARY BORROWERS | NOTE 5 — SUBSIDIARY BORROWERS On May 19, 2021, the Company’s wholly-owned special purpose vehicles (the “SPVs”), the Subsidiary Borrowers, entered into the Subsidiary Credit Agreement providing for the Term Loan in an aggregate principal amount equal to $215.0 million. Proceeds of the Term Loan were used by the Subsidiary Borrowers to (i) fund the acquisition of the Mobile Bay Properties and the Midstream Assets from the Company and (ii) pay fees, commissions and expenses in connection with the transactions contemplated by the Subsidiary Credit Agreement and the other related loan documents, including to enter into certain swap and put derivative contracts described in more detail under Note 8 – Derivative Financial Instruments, of this Quarterly Report on Form 10-Q (this “Quarterly Report”). As part of the Mobile Bay Transaction, the SPVs entered into a management services agreement (the “Services Agreement”) with the Company, pursuant to which the Company will provide (a) certain operational and management services for (i) the Mobile Bay Properties and (ii) the Midstream Assets and (b) certain corporate, general and administrative services for A-I LLC and A-II LLC (collectively in this capacity, the “Services Recipient”). Under the Services Agreement, the Company will indemnify the Services Recipient with respect to claims, losses or liabilities incurred by the Services Agreement parties that relate to personal injury or death or property damage of the Company, in each case, arising out of performance of the Services Agreement, except to the extent of the gross negligence or willful misconduct of the Services Recipient. The Services Recipient will indemnify the Company with respect to claims, losses or liabilities incurred by the Company that relate to personal injury or death of the Services Recipient or property damage of the Services Recipient, in each case, arising out of performance of the Services Agreement, except to the extent of the gross negligence or willful misconduct of the Company. The Services Agreement will terminate upon the earlier of (a) termination of the Subsidiary Credit Agreement and payment and satisfaction of all obligations thereunder or (b) the exercise of certain remedies by the secured parties under the Subsidiary Credit Agreement and the realization by such secured parties upon any of the collateral under the Subsidiary Credit Agreement. The SPVs are wholly-owned subsidiaries of the Company; however, the assets of the SPVs will not be available to satisfy the debt or contractual obligations of any non-SPV entities, including debt securities or other contractual obligations of the Company, and the SPVs do not bear any liability for the indebtedness or other contractual obligations of any non-SPVs, and vice versa. Consolidation and Carrying Amounts The following table presents the amounts recorded by W&T on the Condensed Consolidated Balance Sheets related to the consolidation of the Subsidiary Borrowers and the subsidiary that owns the equity of the Subsidiary Borrowers (in thousands):
The following table presents the amounts recorded by W&T in the Condensed Consolidated Statement of Operations related to the consolidation of the operations of the Subsidiary Borrowers and the subsidiary that owns the equity of the Subsidiary Borrowers (in thousands):
|
JOINT VENTURE DRILLING PROGRAM |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes to Financial Statements | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Joint Venture Drilling Program [Text Block] | NOTE 6 — JOINT VENTURE DRILLING PROGRAM In March 2018, W&T and two other initial members formed and initially funded Monza, which jointly participates 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, was $361.4 million. 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 W&T initially receives an aggregate of 30.0% of the revenues less expenses, through the direct ownership from the retained working interest in the Monza projects and the indirect interest through the 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 of directors. The members of Monza are 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 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 September 30, 2022, ten wells have been completed since the inception of the Joint Venture Drilling Program. W&T is the operator for eight of the ten wells completed through September 30, 2022. Through September 30, 2022, members of Monza made partner capital contributions, including W&T’s contributions of working interest in the drilling projects, to Monza totaling $302.4 million and received cash distributions totaling $138.4 million. Through September 30, 2022, W&T made total capital contributions, including the contributions of working interest in the drilling projects, to Monza totaling $68.2 million and received cash distributions totaling $31.8 million. Consolidation and Carrying Amounts W&T’s interest in Monza is considered to be a variable interest that is proportionally consolidated. Through September 30, 2022, there have been no events or changes that would cause a redetermination of the variable interest status. W&T does not fully consolidate Monza because the Company is not considered the primary beneficiary of Monza. The following table presents the amounts recorded by W&T on the Condensed Consolidated Balance Sheets related to the consolidation of the proportional interest in Monza’s operations (in thousands):
Additionally, during the year ended December 31, 2021, W&T 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 September 30, 2022 and December 31, 2021 were $2.9 million and $14.8 million, respectively, which are included in the Condensed Consolidated Balance Sheets in Advances from joint interest partners. The following table presents the amounts recorded by W&T in the Condensed Consolidated Statement of Operations related to the consolidation of the proportional interest in Monza’s operations (in thousands):
|
ASSET RETIREMENT OBLIGATIONS |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||
Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||
Asset Retirement Obligation Disclosure [Text Block] | NOTE 7 — ASSET RETIREMENT OBLIGATIONS AROs 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 ARO is as follows (in thousands):
|
DERIVATIVE FINANCIAL INSTRUMENTS |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Instruments and Hedging Activities Disclosure [Text Block] | NOTE 8 — DERIVATIVE FINANCIAL INSTRUMENTS W&T’s market risk exposure relates primarily to commodity prices. The Company attempts to mitigate a portion of its commodity price risk and stabilize cash flows associated with sales of oil and natural gas production through the use of oil and natural gas swaps, costless collars, sold calls and purchased puts. The Company is exposed to credit loss in the event of nonperformance by the derivative counterparties; however, the Company currently anticipates that the derivative counterparties will be able to fulfill their contractual obligations. The Company is not required to provide additional collateral to the derivative counterparties and does not require collateral from the derivative counterparties. W&T has elected not to designate commodity derivative contracts for hedge accounting. Accordingly, commodity derivatives are recorded on the Condensed Consolidated Balance Sheets at fair value with settlements of such contracts, and changes in the unrealized fair value, recorded as Derivative (gain) loss on the Condensed Consolidated Statements of Operations in each period presented. The cash flows of all commodity derivative contracts are included in Net cash provided by operating activities on the Condensed Consolidated Statements of Cash Flows. 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 following table reflects the contracted volumes and weighted average prices under the terms of the Company’s open derivative contracts as of September 30, 2022:
Financial Statement Presentation The following fair value of derivative financial instruments amounts were recorded in the Condensed Consolidated Balance Sheets (in thousands):
Although the Company has master netting arrangements with its counterparties, the amounts recorded on the Condensed Consolidated Balance Sheets are on a gross basis. Changes in the fair value and settlements of contracts are recorded on the Condensed Consolidated Statements of Operations as Derivative (gain) loss. The impact of commodity derivative contracts on the Condensed Consolidated Statements of Operations were as follows (in thousands):
Cash payments 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):
|
SHARE-BASED AWARDS AND CASH BASED AWARDS |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes to Financial Statements | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based Payment Arrangement [Text Block] | NOTE 9 — SHARE-BASED AWARDS AND CASH BASED AWARDS The W&T Offshore, Inc. Amended and Restated Incentive Compensation Plan (as amended from time to time, the “Plan”) was approved by the Company’s shareholders in 2010. Under the Plan, the Company may issue, subject to the approval of the Board of Directors, stock options, stock appreciation rights, restricted stock, restricted stock units, stock awards, dividend equivalents, other stock-based awards, performance units or shares, cash awards, substitute awards or any combination of the foregoing to employees, directors and consultants. Share-Based Awards to Employees Restricted Stock Units (“RSUs”) – During the nine months ended September 30, 2022, the Company granted RSUs under the Plan to certain employees. RSUs outstanding as of September 30, 2022 relate to the 2022 and 2021 grants. The 2022 RSUs granted are a long-term compensation component, subject to service conditions, with of the award vesting each year on January 1, 2023, 2024, and 2025, respectively. A summary of activity related to RSUs during the nine months ended September 30, 2022 is as follows:
Performance Share Units (“PSUs”) – During the nine months ended September 30, 2022, the Company granted PSUs under the Plan that are eligible to vest based on continued employment and the Company’s total shareholder return (“TSR”) ranking against peer companies’ TSR over a three-year performance period, which ends on December 31, 2024. The 2021 grants were subject to performance criteria against the applicable performance period, which ended on December 31, 2021. The PSUs granted during 2021 are eligible to vest based on continued employment through October 1, 2023. A summary of activity related to PSUs during the nine months ended September 30, 2022 is as follows:
The following table summarizes the assumptions used in the Monte Carlo simulations to calculate the fair value of the absolute TSR PSUs granted at the date indicated:
Share-Based Awards to Non-Employee Directors During the nine months ended September 30, 2022, the Company granted Restricted Shares under the W&T Offshore, Inc. 2004 Directors Compensation Plan to non-employee directors. 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. A summary of activity related to Restricted Shares during the nine months ended September 30, 2022 is as follows:
Share-Based Compensation Expense Compensation costs for share-based payments is recognized over the requisite service period. A summary of compensation expense under share-based payment arrangements is as follows (in thousands):
Cash-Based Incentive Compensation In addition to share-based compensation, short-term cash-based incentive awards were granted under the Plan to all eligible employees during the second quarter of 2022 subject to Company performance criteria, individual performance criteria, and continued employment through the payment date. The short-term cash-based incentive awards granted in 2021 were paid in March 2022. Share-Based Awards and Cash-Based Awards Compensation Expense A summary of compensation expense related to share-based awards and cash-based awards is as follows (in thousands):
|
INCOME TAXES |
9 Months Ended |
---|---|
Sep. 30, 2022 | |
Notes to Financial Statements | |
Income Tax Disclosure [Text Block] | NOTE 10 — INCOME TAXES Tax Benefit and Tax Rate For the three months ended September 30, 2022, the Company recognized income tax expense of $16.4 million for an effective tax rate of 19.7%. For the three months ended September 30, 2021 the Company recognized income tax benefit of $5.9 million for an effective tax rate of 13.5%. For the nine months ended September 30, 2022, the Company recognized income tax expense of $46.8 million for an effective tax rate of 20.0%. For the nine months ended September 30, 2021, the Company recognized income tax benefit of $18.8 million for an effective tax rate of 17.3%. For the three and nine months ended September 30, 2022 and 2021, the Company’s effective tax rate differed from the statutory Federal tax rate primarily by the impact of state income taxes and adjustments to the valuation allowance. 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 deferred tax assets, the Company considers whether it is more likely than not that some portion or all of them will not be realized. As of September 30, 2022, and December 31, 2021, the valuation allowance was $15.2 million and $24.4 million, respectively, and relates primarily to state net operating losses and the disallowed interest expense limitation carryover. Income Taxes Receivable, Refunds and Payments As of September 30, 2022 and December 31, 2021, the Company did not have any outstanding current income taxes receivable. During the nine months ended September 30, 2022 the Company did not receive any income tax refunds and made federal income tax payments of $5.2 million. During the nine months ended September 30, 2021, the Company did not receive any income tax refunds or make any income tax payments of significance. The tax years 2019 through 2021 remain open to examination by the tax jurisdictions to which the Company is subject. |
EARNINGS PER SHARE |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes to Financial Statements | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EARNINGS PER SHARE | NOTE 11 — EARNINGS PER SHARE The following table presents the calculation of basic and diluted (loss) earnings per common share (in thousands, except per share amounts):
|
CONTINGENCIES |
9 Months Ended |
---|---|
Sep. 30, 2022 | |
Notes to Financial Statements | |
CONTINGENCIES | NOTE 12 — CONTINGENCIES Appeal with the Office of Natural Resources Revenue (“ONRR”) – In 2009, W&T recognized allowable reductions of cash payments for royalties owed to the ONRR for transportation of their deepwater production through subsea pipeline systems owned by the Company. In 2010, the ONRR audited calculations and support related to this usage fee, and in 2010, ONRR notified the Company that they had disallowed approximately $4.7 million of the reductions taken. The Company recorded a reduction to other revenue in 2010 to reflect this disallowance with the offset to a liability reserve; however, the Company disagrees with the position taken by the ONRR. W&T filed an appeal with the ONRR, which ultimately led to the Company posting a bond in the amount of $7.2 million and cash collateral of $6.9 million with the surety in order to appeal the Interior Board of Land Appeals decision. The cash collateral held by the surety was subsequently returned to the Company during the first quarter of 2020. The Company has continued to pursue its legal rights and, at present, the case is in front of the U.S. District Court for the Eastern District of Louisiana where both parties have filed cross-motions for summary judgment and opposition briefs. W&T has filed a Reply in support of its Motion for Summary Judgment and the government has in turn filed its Reply brief. With briefing now completed, the Company is waiting for the district court’s ruling on the merits. In compliance with the ONRR’s request for W&T to periodically increase the surety posted in the appeal to cover pre- and post-judgement interest, the sum of the bond posted is $8.2 million as of September 30, 2022. Civil Penalties – In January 2021, W&T executed a Settlement Agreement with the Bureau of Safety and Environmental Enforcement (“BSEE”) which resolved nine pending civil penalties issued by BSEE. The civil penalties pertained to Incidents of Non-Compliance (“INC”) issued by BSEE alleging regulatory non-compliance at separate offshore locations on various dates between July 2012 and January 2018, with the proposed civil penalty amounts totaling $7.7 million. Under the Settlement Agreement, W&T will pay a total of $720,000 in three annual installments. The first and second installments were paid in March 2021 and March 2022, respectively. In addition, W&T committed to implement a Safety Improvement Plan with various deliverables due over a period ending in 2022, which is on schedule to be completed before the deadline. Additionally in October 2022, BSEE issued a civil penalty assessment for approximately $24,000 for an INC that occurred at one of the Company’s properties in 2021. Retained Liabilities Related to Divested Property Interests – The Company may be subject to retained liabilities with respect to certain divested property interests by operation of law. For example, recent historical declines in commodity prices created an environment where there is an increased risk that owners and/or operators of interests purchased from the Company may no longer be able to satisfy plugging or abandonment obligations that attach to those interests. In that event, due to operation of law, W&T may be required to assume plugging or abandonment obligations for those interests. During 2021, as a result of the declaration of bankruptcy by a third party that is the indirect successor in title to certain offshore interests that were previously divested by the Company, W&T recorded a loss contingency accrual related to the anticipated cost to decommission certain wells, pipelines, and production facilities for which the Company may receive decommissioning orders from BSEE. W&T no longer owns these assets nor are they related to current operations. W&T intends to seek contribution from other parties that owned an interest in the facilities. As of September 30, 2022, W&T estimates that the Company’s potential liability to fund decommissioning of previously divested property interests is $4.9 million, which has been accrued as a loss contingency. AAIT Litigation – In August 2022, the Company’s primary information technology service provider, All About IT, Inc. (“AAIT”), notified the Company of its intention to cease providing services to the Company by September 2, 2022. The Company has begun the process of moving certain of these services within the Company and transitioning the remaining services to new service providers (the “transition process”). On August 19, 2022, the Company filed in the District Court of Harris County, Texas a petition for a temporary restraining order, temporary injunction, and permanent injunction seeking, among other things, to restrain AAIT from ceasing to provide services to the Company until the transition process is complete. On September 14, 2022, AAIT removed the matter to the United States District Court for the Southern District of Texas. On September 16, 2022, the Company and AAIT mutually agreed to the terms of an agreed order of the court providing for a temporary injunction for a period of a minimum of 60 days from the date of the order and up to a maximum of 120 days at the Company’s option, during which AAIT would continue to provide information technology services to the Company and assist with the transition process. By agreement of the parties, the agreed order also provided for the appointment of Hon. Gregg J. Costa (Ret.) as an independent adjudicator to assist in adjudicating ongoing disputes between the parties. Other Claims – W&T is a party to various pending or threatened claims and complaints seeking damages or other remedies concerning commercial operations and other matters in the ordinary course of its business. In addition, claims or contingencies may arise related to matters occurring prior to the Company’s acquisition of properties or related to matters occurring subsequent to the Company’s sale of properties. In certain cases, W&T has indemnified the sellers of properties acquired, and in other cases, W&T has indemnified the buyers of properties sold. The Company is 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 W&T can give no assurance about the outcome of pending legal and federal or state administrative proceedings and the effect such an outcome may have, the Company believes 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 the consolidated financial position, results of operations or liquidity of the Company. |
SUBSEQUENT EVENTS |
9 Months Ended |
---|---|
Sep. 30, 2022 | |
Subsequent Events | |
Subsequent Events | NOTE 13 — SUBSEQUENT EVENTS On November 1, 2022, the $552.5 million principal of the Senior Second Lien Notes were reclassified from long-term debt to current debt as a result of their November 1, 2023 maturity date. See Note 2 – Debt for additional information. On November 7, 2022, the Company entered into the Eleventh Amendment to Sixth Amended and Restated Credit Agreement and Extension Agreement, which extended the maturity date and Lender commitment to January 3, 2024, or in the event the Senior Second Lien Notes are not refinanced or replaced in full, on or prior to August 1, 2023, with other indebtedness that matures on or after April 3, 2024 or are not otherwise discharged, defeased or repaid in full, August 1, 2023. Outstanding borrowings will accrue interest at SOFR plus 6.0% per annum. The commitment fee for the unused portion of available borrowing amounts will be 3.0% per annum. In connection with the Eleventh Amendment, the Company paid to Calculus an extension fee of $100,000. The terms of the Eleventh Amendment were approved by the Audit Committee of the Board of Directors of the Company.
|
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Policies) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Accounting, Policy [Policy Text Block] | Basis of Presentation 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 2021 Annual Report on Form 10-K (the “2021 Annual Report”). |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reclassification, Comparability Adjustment [Policy Text Block] | Reclassification – For presentation purposes, as of September 30, 2021, Derivative (gain) loss has been reclassified from “Operating income” on the Condensed Consolidated Statement of Operations in order to conform to the current period presentation. Such reclassification had no effect on the Company’s results of operations, financial position or cash flows. For presentation purposes, as of September 30, 2021, Gathering and transportation and Production taxes have been combined into one line item within “Operating income” on the Condensed Consolidated Statement of Operations in order to conform to the current period presentation. Such reclassification had no effect on the Company’s results of operations, financial position or cash flows. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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, the reported amounts of revenues and expenses during the reporting periods and the reported amounts of proved oil and natural gas reserves. Actual results could differ from those estimates. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue from Contract with Customer and Accounts Receivable [Policy Text Block] | Revenue and Accounts Receivable – Revenue from the sale of crude oil, natural gas liquids (“NGLs”) and natural gas is recognized when performance obligations under the terms of the respective contracts are satisfied; this generally occurs with the delivery of crude oil, NGLs and natural gas to the customer. Revenue is concentrated with certain major oil and gas companies. There have been no significant changes to the Company’s contracts with customers during the nine months ended September 30, 2022. The Company also has 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. The Company’s maximum exposure at any time would be the receivable balance. Joint interest receivables on the Condensed Consolidated Balance Sheets are presented net of allowance for credit losses of $11.6 million and $10.0 million as of September 30, 2022 and December 31, 2021, respectively. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Employee Retention Credit [Policy Text Block] | Employee Retention Credit – Under the Consolidated Appropriations Act of 2021, the Company recognized a $2.1 million employee retention credit during the nine months ended September 30, 2021 which is included as a credit to General and administrative expenses in the Condensed Consolidated Statement of Operations. No such credit has been recognized during the nine months ended September 30, 2022. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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):
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment, Policy [Policy Text Block] | Oil and Natural Gas Properties and Other, Net – 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):
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Noncurrent Assets [Policy Text Block] | Other Assets (long-term) – The major categories are presented in the following table (in thousands):
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accrued Liabilities Policy [Policy Text Block] | Accrued Liabilities – The major categories are presented in the following table (in thousands):
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Noncurrent Liabilities [Policy Text Block] | Other Liabilities (long-term) – The major categories are presented in the following table (in thousands):
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
At The Market Equity Offering Policy, [Policy Text Block] | At-the-Market Equity Offering – On March 18, 2022, the Company filed a prospectus supplement related to the issuance and sale of up to $100,000,000 of shares of common stock under the Company’s "at-the-market" equity offering program (the “ATM Program”). The designated sales agents will be entitled to a placement fee of up to 3.0% of the gross sales price per share sold. During the nine months ended September 30, 2022, the Company did not sell any shares in connection with the ATM Program. |
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Table Text Block] |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Table Text Block] | There were no amounts excluded from amortization as of the dates presented in the following table (in thousands):
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Other Assets, Noncurrent [Table Text Block] |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Accrued Liabilities [Table Text Block] | The major categories are presented in the following table (in thousands):
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Noncurrent Liabilities [Table Text Block] | The major categories are presented in the following table (in thousands):
|
DEBT (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Debt Instruments [Table Text Block] |
|
FAIR VALUE MEASUREMENTS (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Derivative Assets at Fair Value [Table Text Block] |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Carrying Values and Estimated Fair Values of Debt Instruments [Table Text Block] |
|
ACQUISITIONS (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Asset Acquisition [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of purchase price allocation and liabilities assumed |
|
SUBSIDIARY BORROWERS (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SUBSIDIARY BORROWERS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Consolidation of Subsidiary Borrowers [Table Text Block] | The following table presents the amounts recorded by W&T on the Condensed Consolidated Balance Sheets related to the consolidation of the Subsidiary Borrowers and the subsidiary that owns the equity of the Subsidiary Borrowers (in thousands):
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Subsidiary Borrowers and the subsidiary that owns the equity [Table Text Block] |
|
JOINT VENTURE DRILLING PROGRAM (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Note 7 - Joint Venture Drilling Program | ||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Condensed Consolidated Balance Sheet related to the consolidation of the proportional interest in Monza's operations | The following table presents the amounts recorded by W&T on the Condensed Consolidated Balance Sheets related to the consolidation of the proportional interest in Monza’s operations (in thousands):
|
|||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Condensed Consolidated Statement of Operations related to the consolidation of the proportional interest in Monza's operations | The following table presents the amounts recorded by W&T in the Condensed Consolidated Statement of Operations related to the consolidation of the proportional interest in Monza’s operations (in thousands):
|
ASSET RETIREMENT OBLIGATIONS (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||
Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Change in Asset Retirement Obligation [Table Text Block] |
|
DERIVATIVE FINANCIAL INSTRUMENTS (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Notional Amounts of Outstanding Derivative Positions [Table Text Block] | The following table reflects the contracted volumes and weighted average prices under the terms of the Company’s open derivative contracts as of September 30, 2022:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Derivatives Instruments Statements of Financial Performance and Financial Position, Location [Table Text Block] |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Cash Receipts and Payments on Commodity Derivative Contract Settlements [Table Text Block] |
|
SHARE-BASED AWARDS AND CASH BASED AWARDS (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Unvested Restricted Stock Units Roll Forward [Table Text Block] | A summary of activity related to RSUs during the nine months ended September 30, 2022 is as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Nonvested Performance-based Units Activity [Table Text Block] | A summary of activity related to PSUs during the nine months ended September 30, 2022 is as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based Payment Arrangement, Nonemployee Director Award Plan, Activity [Table Text Block] |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based Payment Arrangement, Cost by Plan [Table Text Block] |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Incentive Compensation Expense [Table Text Block] |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Performance Share Units [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Share-based Payment Award, Equity Instrument Other Than Options, Valuation Assumptions [Table Text Block] |
|
EARNINGS PER SHARE (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Earnings Per Share, Basic and Diluted [Table Text Block] |
|
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Details Textual) - USD ($) |
9 Months Ended | |||
---|---|---|---|---|
Mar. 18, 2022 |
Sep. 30, 2022 |
Sep. 30, 2021 |
Dec. 31, 2021 |
|
Oil and Gas Joint Interest Billing Receivables, Allowance for Credit Loss, Current | $ 11,600,000 | $ 10,000,000.0 | ||
At The Market Equity Offering [Member] | ||||
Sale of Stock, Maximum Percentage of Placement Fee | 3.00% | |||
Issuance and sale of common stock | $ 100,000,000 | |||
General and Administrative Expense [Member] | ||||
Employee Retention Credit | $ 0 | $ 2,100,000 | ||
W&T Energy VI, LLC, Aquasition LLC, and Aquasition II, LLC [Member] | ||||
Owned Subsidiaries | 100.00% |
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES - Schedule of Amounts Recorded in Prepaid Expenses and Other Assets (Details) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
||
---|---|---|---|---|
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES - Schedule of Amounts Recorded in Prepaid Expenses and Other Assets (Details) | ||||
Derivatives (Note 8) | [1] | $ 28,747 | $ 21,086 | |
Unamortized insurance/bond premiums | 7,475 | 5,400 | ||
Prepaid deposits related to royalties | 12,978 | 8,441 | ||
Prepayment to vendors | 1,213 | 4,522 | ||
Prepayments to joint interest partners | 1,953 | 2,808 | ||
Debt issue costs | 604 | 1,065 | ||
Other | 44 | 57 | ||
Prepaid expenses and other assets | $ 53,014 | $ 43,379 | ||
|
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES - Schedule of Oil and Natural Gas Properties and Other, Net at Cost (Details) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
---|---|---|
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES - Schedule of Oil and Natural Gas Properties and Other, Net at Cost (Details) | ||
Oil and natural gas properties and equipment, at cost | $ 8,780,961 | $ 8,636,408 |
Furniture, fixtures and other | 20,827 | 20,844 |
Total property and equipment | 8,801,788 | 8,657,252 |
Less: Accumulated depreciation, depletion, amortization and impairment | (8,071,830) | (7,992,000) |
Oil and natural gas properties and other, net | $ 729,958 | $ 665,252 |
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES - Schedule of Other Assets (Long-term) (Details) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
||
---|---|---|---|---|
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES - Schedule of Other Assets (Long-term) (Details) | ||||
Right-of-Use assets | $ 10,443 | $ 10,602 | ||
Operating Lease, Right-of-Use Asset, Statement of Financial Position [Extensible Enumeration] | Total other assets (long-term) | Total other assets (long-term) | ||
Investment in White Cap, LLC | $ 3,193 | $ 2,533 | ||
Proportional consolidation of Monza (Note 6) | 15,409 | 2,511 | ||
Derivatives (Note 8) | [1] | 35,656 | 34,435 | |
Other | 980 | 1,091 | ||
Total other assets (long-term) | $ 65,681 | $ 51,172 | ||
|
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES - Schedule of Accrued Liabilities (Details) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
||
---|---|---|---|---|
Note 1 - Significant Accounting Policies - Schedule of Accrued Liabilities (Details) | ||||
Accrued interest | $ 25,423 | $ 10,154 | ||
Accrued salaries/payroll taxes/benefits | 9,711 | 9,617 | ||
Litigation accruals | 524 | 646 | ||
Lease liability | $ 1,620 | $ 1,115 | ||
Operating Lease, Liability, Current, Statement of Financial Position [Extensible Enumeration] | Total accrued liabilities | Total accrued liabilities | ||
Derivatives (Note 8) | [1] | $ 116,008 | $ 81,456 | |
Other | 950 | 3,152 | ||
Total accrued liabilities | $ 154,236 | $ 106,140 | ||
|
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES - Schedule of Other Liabilities (Long-term) (Details) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
---|---|---|
Note 1 - Significant Accounting Policies - Schedule of Other Liabilities (Long-term) (Details) | ||
Dispute related to royalty deductions | $ 7,564 | $ 5,177 |
Derivatives (Note 8) | 75,079 | 37,989 |
Lease liability | $ 10,812 | $ 11,227 |
Operating Lease, Liability, Noncurrent, Statement of Financial Position [Extensible Enumeration] | Total other liabilities (long-term) | Total other liabilities (long-term) |
Other | $ 1,386 | $ 996 |
Total other liabilities (long-term) | $ 94,841 | $ 55,389 |
DEBT - Components of Long-term Debt (Details) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
---|---|---|
Total | $ 701,423 | $ 730,898 |
Less current portion | (35,450) | (42,960) |
Long-term debt, net | 665,973 | 687,938 |
Term Loan [Member] | ||
Principal | 157,021 | 190,859 |
Unamortized debt issuance costs | (5,067) | (7,545) |
Total | 151,954 | 183,314 |
Senior Second Lien Notes Due November 2023 [Member] | ||
Principal | 552,460 | 552,460 |
Unamortized debt issuance costs | (2,991) | (4,876) |
Total | $ 549,469 | $ 547,584 |
FAIR VALUE MEASUREMENTS - Fair Value of Open Derivative Financial Instruments (Details) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
||||
---|---|---|---|---|---|---|
Derivative instruments - current | [1] | $ 28,747 | $ 21,086 | |||
Derivative instruments - long-term | [2] | 35,656 | 34,435 | |||
Derivative instruments - current | [1] | 116,008 | 81,456 | |||
Derivative instruments - long-term | 75,079 | 37,989 | ||||
Open Contracts [Member] | ||||||
Derivative instruments - current | 28,747 | 21,086 | ||||
Derivative instruments - long-term | 35,656 | 34,435 | ||||
Derivative instruments - current | 116,008 | 81,456 | ||||
Derivative instruments - long-term | $ 75,079 | $ 37,989 | ||||
|
FAIR VALUE MEASUREMENTS - Net value and Fair Value of Long-term Debt (Details) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
---|---|---|
Long-term debt, net value | $ 701,423 | $ 730,898 |
Long-term debt, fair value | 690,343 | 718,294 |
Term Loan [Member] | ||
Long-term debt, net value | 151,954 | 183,314 |
Long-term debt, fair value | 147,137 | 190,579 |
Senior Second Lien Notes Due November 2023 [Member] | ||
Long-term debt, net value | 549,469 | 547,584 |
Long-term debt, fair value | $ 543,206 | $ 527,715 |
ACQUISITIONS (Details) - USD ($) $ in Thousands |
Apr. 01, 2022 |
Feb. 01, 2022 |
Jan. 05, 2022 |
Sep. 30, 2022 |
Dec. 31, 2021 |
---|---|---|---|---|---|
Asset Acquisition [Line Items] | |||||
Oil and natural gas properties and other, net | $ 729,958 | $ 665,252 | |||
Restricted deposits for asset retirement obligations | 21,760 | 16,019 | |||
Current liabilities | 380,771 | 324,376 | |||
Asset retirement obligations | $ (54,886) | $ (56,419) | |||
Interests in and Operatorship of Certain Oil and Natural Gas Producing Properties [Member] | |||||
Asset Acquisition [Line Items] | |||||
Total consideration | $ 47,000 | ||||
Cash consideration | $ 17,500 | $ 34,000 | |||
Oil and natural gas properties and other, net | 22,632 | 54,299 | |||
Restricted deposits for asset retirement obligations | 1,549 | 6,196 | |||
Asset retirement obligations | (6,709) | (26,493) | |||
Allocated purchase price | $ 17,472 | $ 34,002 |
SUBSIDIARY BORROWERS (Details) $ in Millions |
May 19, 2021
USD ($)
|
---|---|
Special Purpose Vehicles, A-I LLC And A-II LLC [Member] | Term Loan [Member] | |
Subsidiary or Equity Method Investee [Line Items] | |
Principal | $ 215.0 |
SUBSIDIARY BORROWERS - Subsidiary Borrowers and Subsidiary Owns Equity (Details) - USD ($) $ in Thousands |
3 Months Ended | 4 Months Ended | 9 Months Ended | ||
---|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
Subsidiary or Equity Method Investee [Line Items] | |||||
Total revenues | $ 266,485 | $ 133,946 | $ 731,297 | $ 392,421 | |
Total operating expenses | 128,369 | 85,765 | 333,218 | 271,055 | |
Interest expense, net | 16,849 | 18,910 | 54,915 | 50,474 | |
Derivative loss | 38,749 | $ 73,137 | 109,892 | 179,156 | |
Other income | $ 600 | 1,229 | $ (964) | ||
Special Purpose Vehicles, A-I LLC And A-II LLC [Member] | |||||
Subsidiary or Equity Method Investee [Line Items] | |||||
Total revenues | $ 63,053 | 218,625 | |||
Total operating expenses | 26,644 | 52,961 | |||
Interest expense, net | 5,930 | 11,841 | |||
Derivative loss | $ 124,364 | 187,896 | |||
Other income | $ 64 |
JOINT VENTURE DRILLING PROGRAM - Condensed Consolidated Balance Sheet (Details) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
---|---|---|
Oil and natural gas properties and other, net | $ 729,958 | $ 665,252 |
Asset Retirement Obligations | 54,886 | 56,419 |
Other assets | 65,681 | 51,172 |
Other liabilities | 94,841 | 55,389 |
Monza Energy, LLC [Member] | ||
Working capital | 3,583 | 4,648 |
Oil and natural gas properties and other, net | 39,131 | 45,510 |
Asset Retirement Obligations | 432 | 375 |
Other assets | 15,409 | $ 2,511 |
Other liabilities | $ 2,627 |
JOINT VENTURE DRILLING PROGRAM - Condensed Consolidated Statement of Operations (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
Total revenues | $ 266,485 | $ 133,946 | $ 731,297 | $ 392,421 |
Derivative loss | $ (38,749) | $ (73,137) | (109,892) | (179,156) |
Monza Energy, LLC [Member] | ||||
Total revenues | 23,681 | 8,730 | ||
Total operating expenses | $ 10,805 | 7,564 | ||
Derivative loss | $ 1,966 |
ASSET RETIREMENT OBLIGATIONS - Changes to Asset Retirement Obligation (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
Dec. 31, 2021 |
|
Asset Retirement Obligations - Changes to Asset Retirement Obligation (Details) | |||||
Asset retirement obligations, beginning of period | $ 424,495 | ||||
Liabilities settled | (61,285) | ||||
Accretion expense | $ 6,620 | $ 5,473 | 19,536 | $ 17,368 | |
Liabilities acquired | 33,202 | ||||
Liabilities incurred | 138 | ||||
Revisions of estimated liabilities | 37,524 | ||||
Asset retirement obligations, end of period | 453,610 | 453,610 | |||
Less current portion | (54,886) | (54,886) | $ (56,419) | ||
Long-term | $ 398,724 | $ 398,724 | $ 368,076 |
DERIVATIVE FINANCIAL INSTRUMENTS - Change in fair value and settlement contract (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
Derivative Financial Instruments | ||||
Realized loss | $ 132,289 | $ 30,026 | $ 96,315 | $ 53,627 |
Unrealized (gain) loss | (93,540) | 43,111 | 13,577 | 125,529 |
Derivative loss | 38,749 | $ 73,137 | 109,892 | $ 179,156 |
Realized gain through restructuring of strike prices | $ 138,000 | $ 138,000 |
DERIVATIVE FINANCIAL INSTRUMENTS - Cash Receipts on Commodity Derivative Contract Settlements (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
Derivative Financial Instruments | ||||
Derivative loss | $ 38,749 | $ 73,137 | $ 109,892 | $ 179,156 |
Derivative cash (payments) receipts, net | (1,022) | (39,554) | ||
Derivative cash premium payments | (46,111) | $ (32,368) | ||
Cash receipts related to natural gas call contracts through restructuring of strike prices | $ 105,300 |
SHARE-BASED AWARDS AND CASH BASED AWARDS (Details Textual) |
2 Months Ended | 9 Months Ended |
---|---|---|
Jun. 30, 2022
employee
shares
|
Sep. 30, 2022
shares
|
|
Vesting percentage each year on January 1, 2023, 2024, and 2025 | 33.33% | |
Restricted Stock Units [Member] | ||
Granted, units (in shares) | shares | 22,000 | 977,681 |
Number of employees retired | employee | 2 | |
Performance Share Units [Member] | ||
Granted, units (in shares) | shares | 10,000 | 1,377,501 |
Number of employees retired | employee | 2 | |
Performance period | 3 years |
SHARE-BASED AWARDS AND CASH BASED AWARDS - Summary of Share Activity Related to Restricted Stock Units (Details) - Restricted Stock Units [Member] - $ / shares |
2 Months Ended | 9 Months Ended |
---|---|---|
Jun. 30, 2022 |
Sep. 30, 2022 |
|
Nonvested, beginning of period (in shares) | 698,465 | |
Nonvested, beginning of period, weighted average grant date fair value per unit (in dollars per share) | $ 4.71 | |
Granted, units (in shares) | 22,000 | 977,681 |
Granted, weighted average grant date fair value per unit (in dollars per share) | $ 6.24 | |
Vested, units (in shares) | (387,285) | |
Vested, weighted average grant date fair value per unit (in dollars per share) | $ 5.20 | |
Forfeited, units (in shares) | (66,984) | |
Forfeited, weighted average grant date fair value per unit (in dollars per share) | $ 5.16 | |
Nonvested, end of period (in shares) | 1,221,877 | |
Nonvested, end of period, weighted average grant date fair value per unit (in dollars per share) | $ 5.75 |
SHARE-BASED AWARDS AND CASH BASED AWARDS - Summary of Share Activity Related to Performance Share Units (Details) - Performance Share Units [Member] - $ / shares |
2 Months Ended | 9 Months Ended |
---|---|---|
Jun. 30, 2022 |
Sep. 30, 2022 |
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Nonvested, beginning of period (in shares) | 196,918 | |
Nonvested, beginning of period, weighted average grant date fair value per unit (in dollars per share) | $ 5.55 | |
Granted, units (in shares) | 10,000 | 1,377,501 |
Granted, weighted average grant date fair value per unit (in dollars per share) | $ 10.28 | |
Vested, units (in shares) | (15,264) | |
Vested, weighted average grant date fair value per unit (in dollars per share) | $ 5.57 | |
Forfeited, units (in shares) | (57,065) | |
Forfeited, weighted average grant date fair value per unit (in dollars per share) | $ 8.72 | |
Nonvested, end of period (in shares) | 1,502,090 | |
Nonvested, end of period, weighted average grant date fair value per unit (in dollars per share) | $ 9.77 |
SHARE-BASED AWARDS AND CASH BASED AWARDS - Summary of Assumptions Used to Calculate Fair Value of PSUs granted (Details) - Performance Share Units [Member] $ in Thousands |
May 26, 2022
USD ($)
|
---|---|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Expected term for performance period (in years) | 2 years 7 months 6 days |
Expected volatility | 84.40% |
Risk-free interest rate | 2.50% |
Fair value | $ 14,163 |
SHARE-BASED AWARDS AND CASH BASED AWARDS - Summary of Restricted Stock Activity (Details) - Restricted Stock [Member] |
9 Months Ended |
---|---|
Sep. 30, 2022
$ / shares
shares
| |
Nonvested, beginning of period (in shares) | shares | 70,226 |
Nonvested, beginning of period, weighted average grant date fair value per unit (in dollars per share) | $ / shares | $ 3.65 |
Granted, units (in shares) | shares | 42,426 |
Granted, weighted average grant date fair value per unit (in dollars per share) | $ / shares | $ 4.95 |
Vested, units (in shares) | shares | (70,226) |
Vested, weighted average grant date fair value per unit (in dollars per share) | $ / shares | $ 3.65 |
Nonvested, end of period (in shares) | shares | 42,426 |
Nonvested, end of period, weighted average grant date fair value per unit (in dollars per share) | $ / shares | $ 4.95 |
SHARE-BASED AWARDS AND CASH BASED AWARDS - Summary of Incentive Compensation Expense Under Share-based Payment Arrangements (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
Share-based compensation expense | $ 2,645 | $ 858 | $ 5,179 | $ 1,779 |
Restricted Stock Units [Member] | ||||
Share-based compensation expense | 1,240 | 587 | 2,852 | 1,263 |
Performance Share Units [Member] | ||||
Share-based compensation expense | 1,352 | 207 | 2,154 | 207 |
Restricted Stock [Member] | ||||
Share-based compensation expense | $ 53 | $ 64 | $ 173 | $ 309 |
SHARE-BASED AWARDS AND CASH BASED AWARDS - Summary of Compensation Expense Related to Share-based Awards and Cash-Based Awards (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
Share-based compensation expense | $ 2,645 | $ 858 | $ 5,179 | $ 1,779 |
Total charged to operating income (loss) | 7,736 | 4,786 | 13,337 | 12,720 |
General and Administrative Expense [Member] | ||||
Share-based compensation expense | 2,645 | 858 | 5,179 | 1,779 |
Cash-based incentive compensation | 3,559 | 2,809 | 6,164 | 8,167 |
Lease Operating Expense [Member] | ||||
Cash-based incentive compensation | $ 1,532 | $ 1,119 | $ 1,994 | $ 2,774 |
INCOME TAXES (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
Dec. 31, 2021 |
|
Note To Financial Statement Details Textual | |||||
Income tax expense (benefit) | $ 16,397 | $ (5,902) | $ 46,801 | $ (18,846) | |
Effective Income Tax Rate Reconciliation, Percent, Total | 19.70% | 13.50% | 20.00% | 17.30% | |
Deferred Tax Assets, Valuation Allowance, Total | $ 15,200 | $ 15,200 | $ 24,400 | ||
Federal tax paid | $ 5,200 |
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 | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
EARNINGS PER SHARE - Schedule of Basic and Diluted (Loss) Earnings Per Common Share (Details) | ||||
Net income (loss) | $ 66,721 | $ (37,964) | $ 187,700 | $ (90,382) |
Less portion allocated to nonvested shares | 1,265 | 2,166 | ||
Net income (loss) allocated to common shares | $ 65,456 | $ (37,964) | $ 185,534 | $ (90,382) |
Weighted average common shares outstanding - basic (in shares) | 143,116 | 142,297 | 143,026 | 142,231 |
Dilutive effect of securities (in shares) | 2,766 | 1,670 | ||
Weighted average common shares outstanding - diluted (in shares) | 145,882 | 142,297 | 144,696 | 142,231 |
Earnings per common share - Basic (in dollars per share) | $ 0.46 | $ (0.27) | $ 1.30 | $ (0.64) |
Earnings per common share - Diluted (in dollars per share) | $ 0.46 | $ (0.27) | $ 1.30 | $ (0.64) |
Shares excluded due to being anti-dilutive (weighted-average) (in shares) | 0 | 1,973 | 0 | 1,266 |
CONTINGENCIES (Details Textual) |
1 Months Ended | ||||
---|---|---|---|---|---|
Oct. 31, 2022
USD ($)
|
Jan. 31, 2021
USD ($)
|
Sep. 30, 2022
USD ($)
|
Jul. 25, 2017
USD ($)
|
Dec. 31, 2010
USD ($)
|
|
Loss contingency | $ 4,900,000 | ||||
Additional Royalty Due To Disallowed Deductions | $ 4,700,000 | ||||
Bonds Posted To Appeal IBLA Decision | $ 7,200,000 | ||||
Collateral For Bonds Posted Related To Appeal With IBLA | $ 8,200,000 | $ 6,900,000 | |||
BSEE [Member] | |||||
Loss Contingency Number Of Claims Filed | 9 | ||||
Proposed Civil Penalties | $ 24,000 | $ 7,700,000 | |||
Settlement Agreement Annual Instalments Value | $ 720,000 |
SUBSEQUENT EVENTS (Details) - USD ($) |
9 Months Ended | ||||
---|---|---|---|---|---|
Nov. 07, 2022 |
Sep. 30, 2022 |
Nov. 01, 2022 |
Dec. 31, 2021 |
Oct. 18, 2018 |
|
Senior Second Lien Notes Due November 2023 [Member] | |||||
Subsequent Events | |||||
Debt Instrument, Face Amount | $ 552,500,000 | $ 552,500,000 | $ 625,000,000.0 | ||
Calculus Lending Facility [Member] | |||||
Subsequent Events | |||||
Commitment fee percentage for unused Portion | 3.00% | ||||
Subsequent Event | Senior Second Lien Notes Due November 2023 [Member] | |||||
Subsequent Events | |||||
Debt Instrument, Face Amount | $ 552,500,000 | ||||
Subsequent Event | Calculus Lending Facility [Member] | |||||
Subsequent Events | |||||
Commitment fee percentage for unused Portion | 3.00% | ||||
Extension fee paid | $ 100,000 | ||||
Subsequent Event | Calculus Lending Facility [Member] | Secured Overnight Financing Rate (SOFR) [Member] | |||||
Subsequent Events | |||||
Debt Instrument, Basis Spread on Variable Rate | 6.00% |
/3EW34?''&G!>L%G!6V6*K;(DMMF$4^@*.FE^;O"$O^)J&]VB@OB$ 4(32
M2$T*.DJN]5!]0P3 @D![-3X]NDZZ8=53 *\>I?.S:%)&SQ$\)0L( !D<[%,AUZ\6>[S#G'L1E06_S!Z*,\N0:&RI+SO\S-E]7U*#"(:$%S95P0_>= Y[0HC">-
MX^^CTU'[33/P]/K9^^>:O":S))+.>?$G6ZGM]2@=@15=DWVAOO/'7^F14&3\
MY;R0]?_@\6@;C$"^EXJ7Q\$:02JB8Q%(PL63&
X%%O
M3DRN!8_MHC0Y"7U_?))RF?7.WMBQ6WWV1I5%(C-QJYDITY3KW;E(U/W;7M"K
M!S[)S;:@@9.S-SG?B*4H/N>W&D\GC918IB(S4F5,B_7;WCQX?3ZD^7;"+U+<
MF\YO1I:LE/IOX;<\GA40BHH(D^M
M[;!EQ8VX4,D7&1?;M[UIC\5BS L&7!"P$,%N:0O4[<\+ X2J?7)N>1>-M#OABAOXO>V4\_!&/_] 5EAXVR
MPY>DGYV7!B/&L'?"1%KF#N-9S,ZYD8:I-;NE33,80&_^?B<>"G:>J.C;/PZ9
M\N)FATVYOKF[9 '[Z8=I&(2G[)H7I1:T\4TNM-W5L"\_\30_O6,WZ[79*BT\
MMLBB/CNZE\461+ R,I9<2[@=R2BT%C'Y?RNTD+#&6.&A?UJ)L4_!*5.:%5M1
MO[Q0:%1RIEIPUBV L(U96_[%<)Q[U_S?DH+