10-Q 1 wti-20240331x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

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

For the quarterly period ended March 31, 2024

or

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

For the transition period from _______________ to ________________

Commission File Number 1-32414

Graphic

W&T OFFSHORE, INC.

(Exact name of registrant as specified in its charter)

Texas

    

72-1121985

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification Number)

 

 

5718 Westheimer Road, Suite 700, Houston, Texas

77057-5745

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (713) 626-8525

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

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

Common Stock, par value $0.00001

 

WTI

 

New York Stock Exchange

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

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

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

Large accelerated filer

    

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

Emerging growth company

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      No  

As of April 30, 2024, there were 146,857,277 shares outstanding of the registrant’s common stock, par value $0.00001.

W&T OFFSHORE, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

 

 

Page

PART I – FINANCIAL INFORMATION

1

 

 

 

Item 1.

Financial Statements

1

 

Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023

1

 

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2024 and 2023

2

 

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2024 and 2023

3

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023

4

 

Notes to Condensed Consolidated Financial Statements

5

Item 2.

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

14

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

24

Item 4.

Controls and Procedures

25

 

 

PART II – OTHER INFORMATION

26

Item 1.

Legal Proceedings

26

Item 1A.

Risk Factors

26

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

26

Item 3.

Defaults Upon Senior Securities

26

Item 4.

Mine Safety Disclosures

26

Item 5.

Other Information

26

Item 6.

Exhibits

26

 

 

SIGNATURE

28

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

W&T OFFSHORE, INC.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

March 31, 

December 31, 

    

2024

    

2023

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

94,822

$

173,338

Restricted cash

4,417

4,417

Accounts receivable:

 

 

Oil, NGL and natural gas sales

 

66,959

 

52,080

Joint interest, net of allowance for credit losses of $11,119 and $11,130 as of March 31, 2024 and December 31, 2023, respectively

 

18,280

 

15,480

Other

 

1,901

 

2,218

Prepaid expenses and other current assets (Note 11)

 

21,342

 

17,447

Total current assets

 

207,721

 

264,980

Oil and natural gas properties and other, net of accumulated depreciation, depletion and amortization of $8,247,718 and $8,213,781 as of March 31, 2024 and December 31, 2023, respectively

 

825,628

 

749,056

Restricted deposits for asset retirement obligations

 

22,346

 

22,272

Deferred income taxes

 

38,040

 

38,774

Other assets

 

32,740

 

38,923

Total assets

$

1,126,475

$

1,114,005

Liabilities and Shareholders’ Equity

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

75,966

$

78,857

Accrued liabilities (Note 11)

 

15,559

 

31,978

Undistributed oil and natural gas proceeds

 

52,835

 

42,134

Advances from joint interest partners

 

2,864

 

2,962

Current portion of asset retirement obligations (Note 5)

 

37,745

 

31,553

Current portion of long-term debt, net (Note 3)

6,987

29,368

Total current liabilities

 

191,956

 

216,852

Asset retirement obligations (Note 5)

 

492,066

 

467,262

Long-term debt, net (Note 3)

 

384,241

 

361,236

Other liabilities

16,672

19,420

Commitments and contingencies (Note 6)

 

20,780

 

18,043

Shareholders’ equity:

 

  

 

  

Preferred stock, $0.00001 par value; 20,000 shares authorized; none issued at March 31, 2024 and December 31, 2023

 

 

Common stock, $0.00001 par value; 400,000 shares authorized; 149,726 issued and 146,857 outstanding at March 31, 2024; 149,450 issued and 146,581 outstanding at December 31, 2023

 

1

 

1

Additional paid-in capital

 

588,563

 

586,014

Retained deficit

 

(543,637)

 

(530,656)

Treasury stock, at cost; 2,869 shares

 

(24,167)

 

(24,167)

Total shareholders’ equity

 

20,760

 

31,192

Total liabilities and shareholders’ equity

$

1,126,475

$

1,114,005

See Notes to Condensed Consolidated Financial Statements.

1

W&T OFFSHORE, INC.

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

Three Months Ended March 31, 

    

2024

    

2023

    

Revenues:

 

  

 

  

 

Oil

$

107,015

$

97,000

NGLs

 

7,469

 

7,795

Natural gas

 

21,616

 

24,804

Other

 

4,687

 

2,126

Total revenues

 

140,787

 

131,725

Operating expenses:

 

  

 

  

Lease operating expenses

 

70,830

 

65,186

Gathering, transportation and production taxes

7,540

6,136

Depreciation, depletion, and amortization

 

33,937

 

22,624

Asset retirement obligations accretion

7,969

7,510

General and administrative expenses

 

20,515

 

19,919

Total operating expenses

 

140,791

 

121,375

Operating (loss) income

 

(4)

 

10,350

Interest expense, net

 

10,072

 

14,713

Derivative gain, net

 

(4,877)

 

(39,240)

Other expense, net

 

5,230

 

233

(Loss) income before income taxes

 

(10,429)

 

34,644

Income tax expense

 

1,045

 

8,639

Net (loss) income

$

(11,474)

$

26,005

Net (loss) income per common share:

Basic

$

(0.08)

$

0.18

Diluted

$

(0.08)

$

0.17

Weighted average common shares outstanding:

Basic

146,857

146,418

Diluted

146,857

148,726

See Notes to Condensed Consolidated Financial Statements.

2

W&T OFFSHORE, INC.

Condensed Consolidated Statements of Changes in Shareholders’ Equity

(In thousands)

(Unaudited)

    

Common Stock

    

Additional

    

    

    

    

    

Total

Outstanding

Paid-In

Retained

Treasury Stock

Shareholders’

    

Shares

    

Value

    

Capital

    

Deficit

    

Shares

    

Value

    

Equity

Balances at December 31, 2023

 

146,581

 

$

1

 

$

586,014

 

$

(530,656)

 

2,869

 

$

(24,167)

 

$

31,192

Cash dividends

(1,507)

(1,507)

Share-based compensation

 

 

 

 

 

3,032

 

 

 

 

 

 

 

3,032

Stock issued

 

276

 

 

 

 

 

 

 

 

 

 

 

Shares withheld related to net settlement of equity awards

 

 

 

 

 

(483)

 

 

 

 

 

 

 

(483)

Net loss

 

 

 

 

 

 

 

(11,474)

 

 

 

 

 

(11,474)

Balances at March 31, 2024

 

146,857

 

$

1

 

$

588,563

 

$

(543,637)

 

2,869

 

$

(24,167)

 

$

20,760

    

Common Stock

    

Additional

    

    

    

    

    

Total

Outstanding

Paid-In

Retained

Treasury Stock

Shareholders’

    

Shares

    

Value

    

Capital

    

Deficit

    

Shares

    

Value

    

Equity

Balances at December 31, 2022

 

146,133

 

$

1

 

$

576,588

 

$

(544,788)

 

2,869

 

$

(24,167)

 

$

7,634

Share-based compensation

 

 

 

 

 

1,922

 

 

 

 

 

 

 

1,922

Stock issued

 

328

 

 

 

 

 

 

 

 

 

 

 

Shares withheld related to net settlement of equity awards

 

 

 

 

 

(723)

 

 

 

 

 

 

 

(723)

Net income

 

 

 

 

 

 

 

26,005

 

 

 

 

 

26,005

Balances at March 31, 2023

 

146,461

 

$

1

 

$

577,787

 

$

(518,783)

 

2,869

 

$

(24,167)

 

$

34,838

See Notes to Condensed Consolidated Financial Statements.

3

W&T OFFSHORE, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Three Months Ended March 31, 

    

2024

    

2023

    

Operating activities:

 

  

 

  

 

Net income

$

(11,474)

$

26,005

Adjustments to reconcile net income to net cash provided by operating activities:

 

  

 

  

Depreciation, depletion, amortization and accretion

 

41,906

 

30,134

Share-based compensation

 

3,032

 

1,922

Amortization and write off of debt issuance costs

 

1,292

 

3,249

Derivative gain, net

 

(4,877)

 

(39,240)

Derivative cash settlements, net

 

2,599

 

(5,328)

Deferred income taxes

 

733

 

4,396

Changes in operating assets and liabilities:

 

  

 

  

Accounts receivable

 

(17,362)

 

17,505

Prepaid expenses and other current assets

 

433

 

31,489

Accounts payable, accrued liabilities and other

(852)

(38,055)

Asset retirement obligation settlements

 

(3,788)

 

(8,642)

Net cash provided by operating activities

 

11,642

 

23,435

Investing activities:

 

  

 

  

Investment in oil and natural gas properties and equipment

 

(7,080)

 

(13,158)

Acquisition of property interests

 

(80,515)

 

Purchases of furniture, fixtures and other

(24)

(156)

Net cash used in investing activities

 

(87,619)

 

(13,314)

Financing activities:

 

  

 

  

Proceeds from issuance of 11.75% Notes Senior Second Lien Notes

275,000

Repayment of 9.75% Second Senior Lien Notes

(552,460)

Repayments of Term Loan

(9,552)

Repayments of TVPX Loan

(275)

Debt issuance costs

 

(312)

 

(6,354)

Payment of dividends

(1,469)

Other

 

(483)

 

(723)

Net cash used in financing activities

 

(2,539)

 

(294,089)

Change in cash, cash equivalents and restricted cash

 

(78,516)

 

(283,968)

Cash, cash equivalents and restricted cash, beginning of year

 

177,755

 

465,774

Cash, cash equivalents and restricted cash, end of period

$

99,239

$

181,806

See Notes to Condensed Consolidated Financial Statements.

4

Table of Contents

W&T OFFSHORE, INC.

Notes to Condensed Consolidated Financial Statements

NOTE 1 — NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Nature of Operations

W&T Offshore, Inc. (with subsidiaries referred to herein as 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. The Company operates in one reportable segment.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and an interest in Monza Energy LLC (“Monza”), which is accounted for under the proportional consolidation method. All intercompany accounts and transactions have been eliminated in consolidation. These condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. 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 Part II, Item 8. Financial Statements and Supplementary Data of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report”).

Certain reclassifications have been made to the prior year’s condensed consolidated financial statements to conform to the current year’s presentation. On the Condensed Consolidated Balance Sheets, the Company has combined Income tax payable with Accrued liabilities and Deferred income taxes with Other liabilities. On the Condensed Consolidated Statements of Cash Flows, the Company has combined lines within each category of cash flows. These reclassifications 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 and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

NOTE 2 ACQUISITION

On December 13, 2023, the Company entered into a purchase and sale agreement to acquire rights, titles and interest in and to certain leases, wells and personal property in the central shelf region of the Gulf of Mexico, among other assets, for $72.0 million. The transaction closed on January 16, 2024 for $77.2 million (including closing fees and other transaction costs) and was funded using cash on hand. The Company also assumed the related asset retirement obligations (“AROs”) associated with these assets.

The acquisition was accounted for as an asset acquisition, which requires that the total purchase price, including transaction costs, be allocated to the assets acquired and the liabilities assumed based on their relative fair values. The fair value measurements of the oil and natural gas properties acquired and ARO 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.

5

Table of Contents

W&T OFFSHORE, INC.

Notes to Condensed Consolidated Financial Statements (continued)

The following table presents the Company’s allocation of total purchase consideration to the identifiable assets acquired and liabilities assumed based on the fair values on the date of acquisition (in thousands):

    

    

January
2024

Oil and natural gas properties and other, net

$

95,364

Asset retirement obligations

 

(18,161)

Allocated purchase price

$

77,203

In February 2024, the Company received a final settlement statement for its September 2023 acquisition of working interest in certain oil and natural gas producing properties in the central and eastern shelf region of the Gulf of Mexico and recorded an additional $3.3 million of oil and natural gas properties.

NOTE 3 DEBT

The components comprising the Company’s debt are presented in the following table (in thousands):

March 31, 

    

December 31, 

2024

2023

Term Loan:

Principal

$

114,159

$

114,159

Unamortized debt issuance costs

(2,734)

(3,052)

Total

 

111,425

 

111,107

11.75% Senior Second Lien Notes due 2026:

 

 

  

Principal

 

275,000

 

275,000

Unamortized debt issuance costs

 

(4,583)

 

(5,090)

Total

 

270,417

 

269,910

TVPX Loan:

Principal

10,750

11,025

Unamortized discount

(1,159)

(1,294)

Unamortized debt issuance costs

 

(205)

(144)

Total

 

9,386

9,587

Total debt, net

391,228

390,604

Less current portion, net

(6,987)

(29,368)

Long-term debt, net

$

384,241

$

361,236

On March 17, 2024, the term loan provided for by the credit agreement entered into by Aquasition LLC and Aquasition II LLC (the “Term Loan”) was amended to provide for (i) the deferral of $30.1 million of principal repayments during 2024; (ii) the resumption of principal repayments in the first quarter of 2025 with the option, but not obligation, to catch up on deferred amortization through excess cash flow sweep; (iii) the payment of cash interest each quarter on the remaining principal balance; (iv) the payment of an amendment fee of $0.2 million to be paid in four quarterly installments of $50,000 each, starting in the first quarter of 2024; and (v) the modification of the optional prepayment schedule as follows: redemption at 103% of par from May 2024 to May 2026, redemption at 102% of par from May 2026 up to May 2027, and 101% of par from May 2027 up to maturity in May 2028. The premium will be applicable to the aggregate principal amount outstanding at the time of any optional redemption.

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W&T OFFSHORE, INC.

Notes to Condensed Consolidated Financial Statements (continued)

During the three months ended March 31, 2024, the Company entered into a series of amendments to extend the maturity date of the Sixth Amended and Restated Credit Agreement (the “Credit Agreement”) with the most recent being the Sixteenth Amendment, to extend the maturity date to April 30, 2024. As of March 31, 2024, there were no borrowings outstanding under the Credit Agreement, and no borrowings had been incurred under the Credit Agreement during the three months ended March 31, 2024. As of March 31, 2024 and December 31, 2023, the Company had $4.4 million outstanding in letters of credit which have been cash collateralized.

As of March 31, 2024 and for all prior measurement periods presented, the Company was in compliance with all applicable covenants.

NOTE 4 FINANCIAL INSTRUMENTS

The Company’s financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities, derivative instruments and debt.

Derivative Instruments

The following table reflects the contracted volumes and weighted average prices under the terms of the Company’s open derivative contracts as of March 31, 2024:

Average

Instrument

Daily

Total

Weighted

Weighted

Weighted

Period

    

Type

    

Volumes (1)

    

Volumes (1)

    

Strike Price

    

Put Price

    

Call Price

Natural Gas - Henry Hub (NYMEX)

(Mmbtu)

(Mmbtu)

($/Mmbtu)

($/Mmbtu)

($/Mmbtu)

Apr 2024 - Dec 2024

calls

65,000

17,875,000

$

$

$

6.13

Jan 2025 - Mar 2025

calls

62,000

5,580,000

$

$

$

5.50

Apr 2024 - Dec 2024 (1)

swaps

65,455

18,000,000

$

2.39

$

$

Jan 2025 - Mar 2025 (1)

swaps

63,333

5,700,000

$

2.72

$

$

Apr 2025 - Dec 2025 (1)

puts

62,182

17,100,000

$

$

2.27

$

Jan 2026 - Dec 2026 (1)

puts

55,890

20,400,000

$

$

2.35

$

Jan 2027 - Dec 2027 (1)

puts

52,306

19,200,000

$

$

2.37

$

Jan 2028 - Apr 2028 (1)

puts

49,587

6,000,000

$

$

2.50

$

(1)

MMbtu – Million British Thermal Units

The Company has elected not to designate its derivative instruments 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, net on the Condensed Consolidated Statements of Operations in each period presented.

The fair value of the Company’s derivative financial instruments was recorded in the Condensed Consolidated Balance Sheets as follows (in thousands):

    

March 31, 

    

December 31, 

2024

2023

Prepaid expenses and other current assets

$

2,801

$

1,180

Other assets

 

6,747

 

10,068

Accrued liabilities

 

5,046

 

6,267

Other liabilities

2,756

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W&T OFFSHORE, INC.

Notes to Condensed Consolidated Financial Statements (continued)

The Company measures the fair value of its derivative instruments by applying the income approach, using models with inputs that are classified within Level 2 of the valuation hierarchy. The income approach converts expected future cash flows to a present value amount based on market expectations. 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.

Although the Company has master netting arrangements with its counterparties, the amounts recorded on the Condensed Consolidated Balance Sheets are on a gross basis.

The impact of commodity derivative contracts on the Condensed Consolidated Statements of Operations were as follows (in thousands):

Three Months Ended March 31, 

    

2024

    

2023

    

Realized (gain) loss

$

(3,755)

$

230

Unrealized gain

(1,122)

(39,470)

Derivative gain, net

$

(4,877)

$

(39,240)

Debt

The following table presents the net values and estimated fair values of the Company’s debt (in thousands):

    

March 31, 2024

    

December 31, 2023

Net Value

    

Fair Value

    

Net Value

    

Fair Value

Term Loan

$

111,425

$

108,294

$

111,107

$

108,467

11.75% Notes

270,417

 

284,818

 

269,910

 

283,443

TVPX Loan

9,386

9,967

9,587

10,156

Total

$

391,228

$

403,079

$

390,604

$

402,066

The fair value of the TVPX Loan and the Term Loan were measured using a discounted cash flows model and current market rates. The fair value of the 11.75% 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 5 ASSET RETIREMENT OBLIGATIONS

AROs represent the estimated present value of the amount incurred to plug, abandon and remediate the Company’s properties at the end of their productive lives. A summary of the changes to ARO is as follows (in thousands):

Three Months Ended March 31, 

    

2024

    

2023

Asset retirement obligations, beginning of period

$

498,815

$

466,430

Liabilities settled

 

(3,788)

 

(8,642)

Accretion expense

 

7,969

 

7,510

Liabilities acquired

 

18,161

 

Liabilities incurred

110

Revisions of estimated liabilities

 

8,654

 

3,798

Asset retirement obligations, end of period

529,811

469,206

Less: Current portion

 

(37,745)

 

(9,859)

Long-term

$

492,066

$

459,347

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W&T OFFSHORE, INC.

Notes to Condensed Consolidated Financial Statements (continued)

NOTE 6 CONTINGENCIES

Appeal with the Office of Natural Resources Revenue

In 2009, the Company recognized allowable reductions of cash payments for royalties owed to the Office of Natural Resources Revenue (the “ONRR”) for transportation of its deepwater production through subsea pipeline systems owned by the Company. In 2010, the ONRR audited calculations and support related to this usage fee, and ONRR notified the Company that they had disallowed approximately $4.7 million of the reductions taken. The Company disagrees with the position taken by the ONRR and filed an appeal with the ONRR. The Company was required to post a surety bond in order to appeal the Interior Board of Land Appeals decision. As of March 31, 2024, the value of the surety bond posted is $9.9 million.

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. The Company 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.

ONRR Audit of Historical Refund Claims

In 2023, the Company received notification from the ONRR regarding results of an audit performed on the Company’s historical refund claims taken on various properties for alleged royalties owed to the ONRR. The review process is ongoing, and the Company does not believe any accrual is necessary at this time.

Contingent Decommissioning Obligations

The Company may be subject to retained liabilities with respect to certain divested property interests by operation of law. Certain counterparties in past divestiture transactions or third parties in existing leases that have filed for bankruptcy protection or undergone associated reorganizations may not be able to perform required abandonment obligations. Due to operation of law, the Company may be required to assume decommissioning obligations for those interests. The Company may be held jointly and severally liable for the decommissioning of various facilities and related wells. The Company no longer owns these assets, nor are they related to current operations.

During the three months ended March 31, 2024, the Company incurred $2.6 million in costs related to these decommissioning obligations and reassessed the existing decommissioning obligations, recording an additional $5.3 million. As of March 31, 2024, the remaining loss contingency recorded related to the anticipated decommissioning obligations was $20.8 million.

Although it is reasonably possible that the Company could receive state or federal decommissioning orders in the future or be notified of defaulting third parties in existing leases, the Company cannot predict with certainty, if, how or when such orders or notices will be resolved or estimate a possible loss or range of loss that may result from such orders. However, the Company could incur judgments, enter into settlements or revise the Company’s opinion regarding the outcome of certain notices or matters, and such developments could have a material adverse effect on the Company’s results of operations in the period in which the amounts are accrued and the Company’s cash flows in the period in which the amounts are paid. To the extent that the Company does incur costs associated with these properties in future periods, the Company intends to seek contribution from other parties that owned an interest in the facilities.

Other Claims

In the ordinary course of business, the Company is a party to various pending or threatened claims and complaints seeking damages or other remedies concerning commercial operations and other matters. 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, the Company has indemnified the sellers of properties acquired, and in other cases, 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

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W&T OFFSHORE, INC.

Notes to Condensed Consolidated Financial Statements (continued)

related to alleged royalty underpayments on certain federal-owned properties. Although the Company 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.

NOTE 7 — INVESTMENT IN MONZA

In March 2018, the Company and other members formed and funded Monza, which jointly participates with the Company in the exploration, drilling and development of certain drilling projects (“Joint Venture Drilling Program”) in the Gulf of Mexico. The total commitments by all members, including the Company’s commitment to fund its retained interest in Monza projects held outside of Monza, was $361.4 million. The Company contributed 88.94% of its working interest in certain undeveloped drilling projects to Monza and retained 11.06% of its working interest. The Joint Venture Drilling Program is structured so that the Company initially received 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 Company’s indirect interest through its 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.

The members of Monza are third-party investors, the Company and an entity owned and controlled by the Company’s Chief Executive Officer (“CEO”). The entity affiliated with the Company’s CEO invested as a minority investor on the same terms and conditions as the third-party investors.

The Company’s interest in Monza is considered to be a variable interest that is proportionally consolidated. The Company does not fully consolidate Monza because the Company is not considered the primary beneficiary of Monza.

The following table presents the amounts recorded by the Company on the Condensed Consolidated Balance Sheets related to the consolidation of the proportional interest in Monza’s operations (in thousands):

March 31, 

December 31, 

2024

2023

Working capital

$

749

$

1,159

Oil and natural gas properties and other, net

 

30,929

 

31,805

Other assets

11,616

11,694

Asset retirement obligations

616

593

The following table presents the amounts recorded by the Company in the Condensed Consolidated Statements of Operations related to the consolidation of the proportional interest in Monza’s operations (in thousands):

Three Months Ended March 31, 

2024

2023

Total revenues

$

2,446

$

3,155

Total operating expenses

 

1,795

 

2,484

Interest income

 

60

 

59

As required, the Company may call on Monza to provide cash to fund its portion of certain  projects in advance of capital expenditure spending. As of March 31, 2024 and December 31, 2023, the unused advances were $2.6 million and $2.7 million, respectively, which are included in Advances from joint interest partners in the Condensed Consolidated Balance Sheets.

During the three months ended March 31, 2024, Monza paid a cash distribution of $10.0 million, of which $2.1 million was paid to the Company.

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W&T OFFSHORE, INC.

Notes to Condensed Consolidated Financial Statements (continued)

NOTE 8 STOCKHOLDERS’ EQUITY

On March 5, 2024, the Company’s board of directors declared a regular quarterly dividend of $0.01 per share of common stock for the first quarter of 2024. The dividend of $1.5 million was paid on March 25, 2024 to stockholders of record at the close of business on March 18, 2024.

On May 10, 2024, the Company’s board of directors declared a regular quarterly dividend of $0.01 per share of common stock for the second quarter of 2024. The dividend is to be paid on May 31, 2024 to stockholders of record at the close of business on May 24, 2024.

NOTE 9 INCOME TAXES

The Company records income taxes for interim periods based on an estimated annual effective tax rate. The estimated annual effective rate is recomputed on a quarterly basis and may fluctuate due to changes in forecasted annual operating income, positive or negative changes to the valuation allowance for net deferred tax assets and changes to actual or forecasted permanent book to tax differences.

The Company’s effective tax rate for the three months ended March 31, 2024 was (10.0)%. The difference between the effective tax rate and the federal statutory rate was primarily due to the impact of nondeductible compensation, and adjustments to the valuation allowance. The Company’s effective tax rate for the three months ended March 31, 2023 was 25.0%. The difference between the effective tax rate and the federal statutory rate was primarily due to the impact of state income taxes, nondeductible compensation, and adjustments to the valuation allowance.

As of March 31, 2024 and December 31, 2023, the Company had a valuation allowance of $24.8 million and $23.2 million, respectively, primarily related to state net operating losses and the disallowed interest expense limitation carryover. At each reporting date, the Company considers all available positive and negative evidence to evaluate whether its deferred tax assets are more likely than not to be realized.

NOTE 10 — NET (LOSS) INCOME PER SHARE

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

Three Months Ended March 31, 

    

2024

    

2023

Net (loss) income

$

(11,474)

$

26,005

Weighted average common shares outstanding - basic

 

146,857

 

146,418

Dilutive effect of securities

2,308

Weighted average common shares outstanding - diluted

146,857

148,726

Net (loss) income per common share:

Basic

$

(0.08)

$

0.18

Diluted

(0.08)

0.17

Shares excluded due to being anti-dilutive

1,982

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W&T OFFSHORE, INC.

Notes to Condensed Consolidated Financial Statements (continued)

NOTE 11 — OTHER SUPPLEMENTAL INFORMATION

Condensed Consolidated Balance Sheet Details

Prepaid expenses and other current assets consisted of the following (in thousands):

March 31, 

December 31, 

2024

2023

Derivatives

$

2,801

$

1,180

Insurance/bond premiums

 

7,474

 

6,631

Prepaid deposits related to royalties

 

8,562

 

7,872

Prepayments to vendors

 

1,404

 

1,492

Other

 

1,101

 

272

Prepaid expenses and other current assets

$

21,342

$

17,447

Accrued liabilities consisted of the following (in thousands):

March 31, 

    

December 31, 

2024

2023

Accrued interest

$

5,405

$

13,479

Accrued salaries/payroll taxes/benefits

 

2,384

 

9,473

Operating lease liabilities

 

1,473

 

1,455

Derivatives

 

5,046

 

6,267

Other

 

1,251

 

1,304

Total accrued liabilities

$

15,559

$

31,978

Condensed Consolidated Statements of Cash Flows Information

Supplemental statements of cash flows information consisted of the following (in thousands):

March 31, 

December 31, 

    

2024

    

2023

Cash and cash equivalents

$

94,822

$

173,338

Restricted cash

4,417

4,417

Cash, cash equivalents and restricted cash

99,239

177,755

Three Months Ended March 31, 

    

2024

    

2023

Non-cash investing activities:

 

 

  

Accruals of property and equipment

 

3,236

 

845

Dividends declared but not paid on unvested share-based awards

38

ARO - acquisitions, additions and revisions, net

 

26,815

 

3,908

NOTE 12 — SUBSIDIARY BORROWERS

Aquasition LLC and Aquasition II, LLC (collectively, the “Subsidiary Borrowers”) are indirect, wholly-owned subsidiaries of the Company. The Subsidiary Borrowers used the net proceeds from the Term Loan (see Note 3 – Debt) to acquire all of the Company’s 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, Mobile Bay region and the Company’s interest in certain gathering and processing assets located offshore Gulf of Mexico, Mobile Bay region and onshore near Mobile, Alabama, including offshore gathering pipelines, an onshore crude oil treating and sweetening facility, an onshore gathering pipeline, and associated assets.

12

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W&T OFFSHORE, INC.

Notes to Condensed Consolidated Financial Statements (continued)

The assets of the Subsidiary Borrowers are not available to satisfy the debt or contractual obligations of any other entities, including debt securities or other contractual obligations of the Company, and the Subsidiary Borrowers do not bear any liability for the indebtedness or other contractual obligations of any other entities, and vice versa.

The following table presents the amounts recorded by the Company on the Condensed Consolidated Balance Sheets related to the consolidation of Aquasition Energy LLC, the parent of the Subsidiary Borrowers (the “Subsidiary Parent”), and the Subsidiary Borrowers (in thousands):

March 31, 

December 31, 

2024

2023

Assets:

 

  

 

  

Cash and cash equivalents

$

4,693

$

600

Receivables:

 

  

 

  

Oil and natural gas sales

 

16,747

 

19,171

Joint interest, net

 

(22,026)

 

(33,151)

Prepaid expenses and other current assets

 

1,808

 

612

Oil and natural gas properties and other, net

 

286,149

 

287,313

Other assets

 

5,706

 

8,097

Liabilities:

 

  

 

  

Accounts payable

9,252

4,473

Accrued liabilities

 

5,931

 

7,152

Undistributed oil and natural gas proceeds

 

7,171

 

4,359

Current portion of asset retirement obligations

5

Current portion of long-term debt, net

6,476

28,872

Asset retirement obligations

 

69,538

 

67,771

Long-term debt, net

 

104,949

 

82,317

Other liabilities

 

4,125

 

6,749

The following table presents the amounts recorded by the Company in the Condensed Consolidated Statements of Operations related to the consolidation of the operations of the Subsidiary Borrowers and the Subsidiary Parent (in thousands):

Three Months Ended March 31, 

2024

2023

Total revenues

$

20,268

$

21,123

Total operating expenses

 

18,874

 

20,047

Interest expense, net

 

2,242

 

2,812

Derivative gain, net

 

(5,575)

 

(46,377)

NOTE 13 — SUBSEQUENT EVENT

On April 29, 2024, the Company entered into a Seventeenth Amendment to the Credit Agreement to extend the maturity date of the Credit Agreement to May 31, 2024. The Company is currently in discussions regarding a potential longer-term extension of the Credit Agreement. The terms of such extension could vary significantly from those under the Credit Agreement.

13

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes included in Part I, Item 1. Financial Statements, of this Quarterly Report, as well as our audited consolidated financial statements and the notes thereto in the 2023 Annual Report and the related MD&A included in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our 2023 Annual Report. Unless otherwise indicated or the context otherwise requires, references in this Quarterly Report to “us,” “we” and “our” 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. These forward-looking statements are based on certain assumptions and analyses made by us in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. Although we believe that these forward-looking statements are based upon reasonable assumptions, they are subject to several risks and uncertainties and are made in light of information currently available to us. 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. 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. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We assume no obligation, nor do we intend, to update these forward-looking statements, unless required by law.

The information included in this Quarterly Report includes forward-looking statements that involve risks and uncertainties that could materially affect our expected results of operations, liquidity, cash flows and business prospects. Such statements specifically include our expectations as to our future financial position, liquidity, cash flows, results of operations and business strategy, potential acquisition opportunities, other plans and objectives for operations, capital for sustained production levels, expected production and operating costs, reserves, hedging activities, capital expenditures, return of capital, improvement of recovery factors and other guidance. Actual results may differ from anticipated results, sometimes materially, and reported results should not be considered an indication of future performance. For any such forward-looking statement that includes a statement of the assumptions or bases underlying such forward-looking statement, we caution that, while we believe such assumptions or bases to be reasonable and make them in good faith, assumed facts or bases almost always vary from actual results, sometimes materially. 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 2023 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.

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.

14

BUSINESS 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 March 31, 2024, we hold working interests in 63 producing offshore fields in federal and state waters (which include 54 fields in federal waters and 9 in state waters). We currently have under lease approximately 693,900 gross acres (536,200 net acres) spanning across the outer continental shelf off the coasts of Louisiana, Texas, Mississippi and Alabama, with approximately 8,000 gross acres in Alabama state waters, 532,400 gross acres on the conventional shelf and approximately 153,500 gross acres in the deepwater. A majority of our daily production is derived from wells we operate.

Recent Developments

On January 16, 2024, we closed on our acquisition of rights, titles and interest in and to certain leases, wells and personal property in the central shelf region of the Gulf of Mexico, among other assets, for $77.2 million (including closing fees and other transaction costs). The acquisition was funded using cash on hand. We also assumed the related AROs associated with these assets.

On March 17, 2024, we amended the Term Loan to provide for (i) the deferral of $30.1 million of principal repayments during 2024; (ii) the resumption of principal repayments in the first quarter of 2025 with the option, but not obligation, to catch up on deferred amortization through excess cash flow sweep; (iii) the payment of cash interest each quarter on the remaining principal balance; (iv) the payment of an amendment fee of $200,000 to be paid in four quarterly installments of $50,000 each, starting in first quarter of 2024; and (v) the modification of the optional prepayment schedule as follows: redemption at 103% of par from May 2024 to May 2026, redemption at 102% of par from May 2026 up to May 2027, and 101% of par from May 2027 up to maturity in May 2028. The premium will be applicable to the aggregate principal amount outstanding at the time of any optional redemption.

On March 28, 2024, we amended the Credit Agreement to extend the maturity date to April 30, 2024.

In April 2024, the Bureau of Ocean Energy Management (“BOEM”) released a final rule that changes the way BOEM evaluates the financial health of companies and offshore assets in setting financial assurance requirements. Under the new rule, BOEM streamlined the criteria used to evaluate the financial health of an energy company down to two factors: (i) the company’s credit rating, and (ii) the ratio of the company’s proved reserves to decommissioning liability associated with the reserves. The new rule also codifies the usage of Bureau of Safety and Environmental Enforcement decommissioning estimates to evaluate financial assurance requirements and allows third party guarantors (upon agreement with BOEM) to provide limited guarantees to specific amounts or specific leases instead of the blanket guarantees that have been used in the past. Finally, the new rule also requires a base financial assurance requirement of $500,000 for federal rights-of-use and easements (“RUEs”) to match the requirement for state RUEs. To provide the industry with flexibility to meet the new financial assurance requirements, BOEM will allow current lessees and grant holders to request phased-in payments over a three-year period. BOEM estimates that the industry will be required to provide $6.9 billion in new financial assurances under the new rule, which will take effect on June 24, 2024.

On May 10, 2024, we declared a regular quarterly dividend of $0.01 per share for the second quarter of 2024. We expect to pay the dividend on May 31, 2024, to stockholders of record as of the close of business on May 24, 2024.

Business Outlook

Our financial condition, cash flow and results of operations are significantly affected by the volume of our oil, NGLs and natural gas production and the prices that we receive for such production. Changes in the prices that we receive for our production impact all aspects of our business; most notably our cash flows from operations, revenues, capital allocation and budgeting decisions and our reserves volumes. Prices of oil, NGLs and natural gas have historically been volatile and can fluctuate significantly over short periods of time for 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. 

15

The U.S. Energy Information Administration (“EIA”) published its latest Short-Term Energy Outlook in April 2024. Spot prices for West Texas Intermediate (“WTI”) oil averaged $81.28 per barrel in March 2024, an increase of $4.03 per barrel compared with February 2024 and the third consecutive month when the WTI price increased. The EIA is forecasting WTI spot prices will rise in the coming months as a result of heightened geopolitical risk related to attacks targeting commercial ships transiting through the Red Sea shipping channel and general elevated tensions around the region. In addition, the recent extension of the Organization of the Petroleum Exporting Countries and Russia voluntary production cuts add to upward price pressure at the time of the year when oil demand typically increases because of the spring and summer driving seasons in the Northern Hemisphere. As a result of the combination of flat production and rising consumption, the EIA is forecasting that WTI spot prices are expected to average $85.78 per barrel for the remainder of 2024.

Spot prices for Henry Hub natural gas averaged $1.49 per MMBtu in March 2024. The U.S. winter natural gas withdrawal season ended with 39% more natural gas in storage compared with the five-year average. The EIA is forecasting that from April 2024 through October 2024, less natural gas will be injected into storage than is typical, largely because the EIA is expecting the U.S. to produce less natural gas on average in the second and third quarters of 2024 compared with the first quarter of 2024. Despite the lower production, the EIA still expects the U.S. will have the most natural gas in storage on record when the winter withdrawal season begins in November. As of result of high inventories, the EIA expects the Henry Hub spot price to average less than $2.00 per MMBtu in the second quarter of 2024 before increasing slightly to $2.15 per MMBtu in the third quarter of 2024. The EIA forecasts that the average spot price for Henry Hub in 2024 will be $2.16 per MMBtu.

In addition to the impact of volatile commodity prices on our operations, continuing inflation could also impact our sales margins and profitability. The annual inflation rate for March 2024 was 3.5%, a slight increase from February 2024. In the last few years, these inflationary pressures have caused the Federal Reserve to tighten monetary policy by approving a series of increases to the Federal Funds Rate. As of March 31, 2024, the Federal Reserve benchmark rate ranged from 5.25% to 5.50%. Although the Federal Reserve has stated that they will begin reducing the benchmark rate in 2024, if inflation were to continue to rise, it is possible the Federal Reserve would continue to take action they deem necessary 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 negatively impact our business.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023

Revenues

The following table presents information regarding our revenues, production volumes and average realized sales prices (which exclude the effect of hedging unless otherwise stated) for the three months ended March 31, 2024 and 2023 (in thousands, except average realized sales prices data):

16

Three Months Ended March 31, 

    

2024

    

2023

    

Change

Revenues:

Oil

$

107,015

$

97,000

$

10,015

NGLs

 

7,469

 

7,795

 

(326)

Natural gas

 

21,616

 

24,804

 

(3,188)

Other

 

4,687

 

2,126

 

2,561

Total revenues

 

140,787

 

131,725

 

9,062

Production Volumes:

 

  

 

  

 

  

Oil (MBbls) (1)

 

1,400

 

1,350

 

50

NGLs (MBbls)

 

343

 

294

 

49

Natural gas (MMcf) (2)

 

8,733

 

7,677

 

1,056

Total oil equivalent (MBoe) (3)

 

3,199

 

2,924

 

275

Average daily equivalent sales (Boe/day)

35,148

32,489

2,659

Average realized sales prices:

 

  

 

  

 

Oil ($/Bbl)

$

76.44

$

71.85

$

4.59

NGLs ($/Bbl)

 

21.78

 

26.51

 

(4.73)

Natural gas ($/Mcf)

 

2.48

 

3.23

 

(0.75)

Oil equivalent ($/Boe)

42.55

44.32

(1.77)

Oil equivalent ($/Boe), including realized commodity derivatives

 

42.97

 

44.24

 

(1.27)

(1)MBbls thousands of barrels of oil, condensate or NGLs
(2)MMcf — million cubic feet
(3)MBoe — thousand barrels of oil equivalent

Changes in average sales prices and production volumes caused the following changes to our oil, NGL and natural gas revenues between the three months ended March 31, 2024 and 2023 (in thousands):