LETTER TO OUR SHAREHOLDERS

The ability to be proactive and have a flexible capital plan is important under these conditions. We are the operator of most of our production and the majority of our lease acreage is held by production.

Several years ago, we made a strategic decision to increase our focus on exploration projects that could have a positive, long-term impact on the Company; and to enhance our portfolio with projects extending outside of the Gulf of Mexico (GOM) shelf. Since then, we have built a substantial portfolio of Deepwater, Shelf and Permian Basin projects that have provided near-term and long-term growth for W&T Offshore. In 2014, we again demonstrated our ability to achieve our key strategic goals to:

 

  • Identify and develop high-impact deepwater projects, through exploration drilling and acquisitions, to support our long-term growth
  • Create and realize additional value, high returns and immediate cash flow from our existing properties
  • Optimize our horizontal drilling program in the Permian Basin and continue to test the potential of a few, of the many, stacked pay zones for long-term development.

 

As a result of this balanced approach, we generated reserve growth and solid production results in 2014 as well as laid substantial ground work for future reserves and production additions, primarily from our highimpact deepwater projects expected to commence production in 2015.

 

At year-end 2014, our proved reserves were 120 million barrels of oil equivalent (MMBoe), and we replaced 113% of 2014 production. Our proved reserve extensions and discoveries in 2014 were mainly from our drilling activity at our Permian Basin Yellow Rose field and our Dantzler deepwater field in the Gulf of Mexico, with some additions from our deepwater Medusa and Neptune fields and our Mahogany and East Cameron 321 fields on the GOM shelf. In 2014, we drilled a total of 39 wells with a 100% success rate.

 

 

 

At our Dantzler field, we booked only a small portion of the total proved reserves that we would expect this field to yield in the future. Like our discovery at Big Bend in 2012, we expect to begin converting probable and possible reserves into proved reserves once the wells are brought on production, which is expected to be in late 2015 for Big Bend and in early 2016 for Dantzler.

 

 

 

We balanced this deepwater exploration program with more immediate cash flow additions from other deepwater projects, as we acquired interests in the Medusa field in late 2013, the Neptune field in 2014, and an additional interest in the Ewing Bank 910 field in 2014. While these acquisitions provided an increase in production and proved reserves, we were attracted by the upside drilling opportunities that were identified using existing infrastructure that could provide additional production quickly after the drilling and completion of new wells. For instance, subsequent to the acquisition, the SB03 well in the Neptune field located in deepwater, specifically Atwater Valley, was successfully drilled and found in excess of 300 feet of net pay. The well was brought on-line in late 2014 at a gross rate of 1,200 Boe per day. We expect to have production contributions for the full year from our new well at Neptune and Big Bend is expected to commence production in late 2015.

 

The steep decline in commodity prices that began in mid-2014 has dramatically changed the operating environment in 2015. Having been through several of these cycles, we know the importance of making quick and decisive adjustments to our strategic plans, and we are taking a conservative approach to our use of capital until economic conditions improve.

 

When commodity prices decline, the cost of goods and services typically decline as well, but more slowly. The ability to be proactive and have a flexible capital plan is important under these conditions. We are the operator of most of our production and the majority of our lease acreage is held by production. We have the ability to minimize our drilling budget, work with our service providers to reduce costs and wait for commodity prices and/or margins to improve. When conditions are right, we have the flexibility to reinitiate a more robust drilling program. For now, we are focused on our highest impact projects and on wells in which much of the investment has already been made.

 

Taking into consideration current commodity prices, we have set our 2015 capital budget at approximately $200 million. Approximately $169 million is allocated to complete our high impact exploration projects located in the deepwater Gulf of Mexico (Big Bend, Dantzler, Medusa and Ewing Bank 910) which were already in progress with firm commitments. Development operations are on schedule to bring our deepwater discoveries at Big Bend and Dantzler to commence first production as planned, along with other deepwater projects (Medusa and Ewing Bank 910), most of which will occur during 2015.

 

Our production remains strong. Despite a 68% cut in our year-over-year capital budget, we expect our 2015 production to be in line with or even exceed 2014 production levels. We believe that we can accomplish this with production from new wells and the full year effect of fields and wells added in 2014.

 

In the first half of 2015, we are participating in multiple exploratory wells. There are two at our deepwater Medusa field targeting multiple stacked oil sands, with the first well and second well encountering over 180 feet and 100 feet of net pay, respectively. Following the completion operations, both wells should be on-line by the middle of 2015.

 

At Ewing Bank 910, we are drilling the first well of a two well exploration drilling program that could result in the first well coming on production in the second quarter of 2015 and the second well could be on production by the third quarter of 2015. Using advanced seismic data and analysis, we have identified several additional wells beyond the first few wells and believe that there is significant resource potential in both Ewing Bank 910 and Medusa fields.

 

All of these high-potential deepwater projects are an integral part of our strategy to create a more balanced portfolio of assets and give us the ability to respond to changing economic conditions.

 

On the GOM shelf at our Mahogany field, our successful drilling program has increased production to an average of approximately 7,400 Boe per day in 2014. In 2015, we are deferring plans for further development until margins improve. We have had amazing results at our Mahogany field over the last few years, including the discovery of the “T” sand at a deeper horizon in July 2013. We will continue to analyze production and newly acquired seismic data to identify additional opportunities in this field to continue our successes in the future.

 

We also had numerous accomplishments at our Yellow Rose field, located in the Permian Basin, in 2014. While conserving capital and operating at a disciplined pace, we benefitted from the successes of our drilling program as well as from the learning curve generated by a high level of successful industry activity near our acreage. With a conservative drilling program in 2014, we were able to significantly improve our horizontal drilling results and de-risk the Wolfcamp B formation and Lower Spraberry Shale on our acreage.

 

Reserve changes from the Yellow Rose field were in part due to the success we had drilling high rate Wolfcamp B and Lower Spraberry Shale wells using optimized completion techniques. As of late February 2015, we had nine wells awaiting completion with many of those focused on the Wolfcamp B and Lower Spraberry Shale. Rather than complete those wells now, we will pause to track our results as well as the results of other operators. We can be patient and defer our drilling activity until oil prices improve or services costs decline, or a combination of both. Our Yellow Rose field acreage is primarily held by production.

 

Certainly, unstable commodity prices create hardship for our industry, and like most oil and gas producers, we will have our challenges this year. We have successfully dealt with these challenges in the past, and we are working diligently to minimize the negative impacts and seek opportunities to enhance our quality asset base. Due to the investments we made over the last few years to prepare for the longterm, we will see major projects coming online and adding substantial value to the company.

 

Thank you for your interest in our Company.

TRACY W. KROHN,

Chief Executive Officer

Our production remains strong. Despite a 68% cut in

our year-over-year capital budget, we expect our 2015

production to be in line with or even exceed 2014 production levels. We believe that we can accomplish this with production from new wells and the full year effect of fields and wells added in 2014.

SUMMARY OF SELECTED FINANCIAL DATA

Year Ending December 31,

 

Income Statement

Total Revenues

Operating Income

Net Income (Loss)

 

Cash-Flow Statement

Operating Activities

Capex (oil and natural gas properties)

 

Balance Sheet

Total Assets

Long-Term Debt

Shareholders’ Equity

 

Operating Data

Net Sales:

Oil (MMBbls)

NGLs (MMBbls)

Natural Gas (Bcf)

Total Oil Equivalent (MMboe)

Total Natural Gas Equivalent (Bcfe)

Average Daily Oil Sales (Mboe/d)

Average Daily Gas Sales (MMcfe/d)

Average Realized Sales Price:

Oil ($/Bbl)

NGLs ($/Bbl)

Natural Gas ($/Mcf)

Oil Equivalent ($/Boe)

Natural Gas Equivalent ($/Mcfe)

 

Estimated Net Proved Reserves

Oil (MMBbls)

NGLs (MMBbls)

Natural Gas (Bcf)

Total Oil Equivalent (MMBoe)

Total Natural Gas Equivalent (Bcfe)

Total Proved Developed (MMBoe)

Total Proved Developed (Bcfe)

Proved Undeveloped (MMBoe)

Proved Undeveloped (Bcfe)

Proved Developed Reserves as

a % of Proved Reserves

 

 

 

$

$

$

 

 

$

$

 

 

$

$

$

 

 

 

 

 

 

 

 

 

 

 

$

$

$

$

$

2014

 

 

948,708

62,068

(11,661)

 

 

511,423

626,612

 

 

2,709,107

1,360,057

509,308

 

 

 

7.2

2.1

50.1

17.6

105.8

48.3

289.9

 

90.96

34.49

4.35

53.49

8.92

 

 

61.7

15.8

254.9

120.0

720.0

83.3

499.7

36.7

220.3

 

69.4%

 

 

 

$

$

$

 

 

$

$

 

 

$

$

$

 

 

 

 

 

 

 

 

 

 

 

$

$

$

$

$

2013

 

 

984,088

146,731

51,322

 

 

561,358

634,378

 

 

2,507,302

1,205,421

540,610

 

 

 

7.0

2.1

53.3

18.0

107.9

49.3

295.7

 

102.44

35.07

3.55

54.38

9.10

 

 

58.5

15.9

259.9

117.7

705.9

86.1

516.1

31.6

189.8

 

73.2%

 

 

 

$

$

$

 

 

$

$

 

 

$

$

$

 

 

 

 

 

 

 

 

 

 

 

$

$

$

$

$

2012

 

 

874,491

169,310

71,984

 

 

385,137

684,863

 

 

2,348,987

1,087,611

541,187

 

 

 

6.0

2.1

53.8

17.1

102.8

46.8

280.9

 

104.35

39.75

2.94

50.93

8.49

 

 

54.8

15.2

285.1

117.5

705.1

86.9

521.2

30.6

183.9

 

74.0%

 

 

 

$

$

$

 

 

$

$

 

 

$

$

$

 

 

 

 

 

 

 

 

 

 

 

$

$

$

$

$

2011

 

 

971,047

329,460

172,817

 

 

521,478

719,026

 

 

1,868,925

717,000

544,574

 

 

 

6.1

1.9

53.7

16.9

101.5

46.4

278.2

 

105.92

55.81

4.12

57.32

9.55

 

 

51.4

17.1

289.7

116.9

701.1

76.4

458.2

40.5

242.9

 

65.4%

 

 

 

$

$

$

 

 

$

$

 

 

$

$

$

 

 

 

 

 

 

 

 

 

 

 

$

$

$

$

$

2010

 

 

705,783

166,789

117,892

 

 

464,772

415,653

 

 

1,424,094

450,000

421,743

 

 

 

5.9

1.2

44.7

14.5

87.0

39.7

238.4

 

77.33

43.65

4.55

48.87

8.15

 

 

34.0

4.2

256.3

80.9

485.4

65.2

391.3

15.7

94.1

 

80.6%

Forward-Looking Statements This Annual Report (including the letter from Tracy W. Krohn, our Chief Executive Officer) contains forward-looking statements within the meaning of the Private Litigation Securities Reform Act of 1995 that involve risks, uncertainties and assumptions. If the risks or uncertainties materialize or the assumptions prove incorrect, our results may differ materially from those expressed or implied by such forward-looking statements and assumptions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, such as those that address activities, events or developments that we expect, believe or anticipate will or may occur in the future. These statements are based on certain assumptions and analyses made by us in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate in the circumstances. Certain factors that may affect our financial condition and results of operations are discussed in “Risk Factors” in Item 1A and “Quantitative and Qualitative Disclosures About Market Risk” in Item 7A of the Form 10-K included as part of and attached to this Annual report and may be discussed from time to time in our reports filed with the Securities and Exchange Commission subsequent to this report. We assume no obligation, nor do we intend to update these forward-looking statements.

OPERATIONS

Throughout 2014 we built on our track record of participating in quality projects in the deepwater that can have a meaningful impact on our production volumes and proved reserves base.

Deepwater Gulf of Mexico

Throughout 2014, we built on our track record of participating in quality projects in the deepwater that can have a meaningful impact on our production volumes and reserves base. Over the last few years, our deepwater portfolio has grown dramatically and now consists of fields that contributed production of over 18,000 Boe per day on average in 2014. We estimate that by mid-2016, our deepwater production could grow further as we bring several new high volume wells on production. While we are deferring our capital outlays for some of our deepwater drilling projects in 2015 until commodity prices improve and service costs decline, we are moving forward as planned on others that we estimate will continue to provide a high rate of return. We believe that our strategy to assemble a portfolio of projects that add value in the near-term and farther into the future will help us thrive in upcycles and endure the down cycles.

 

Our 2015 plan includes exploration projects at Medusa and Ewing Bank 910 that should contribute production as early as mid-year in addition to the significant development projects at Big Bend and Dantzler that will be brought on production late in the year and in early 2016.

 

A substantial portion of our 2015 capital is allocated to bringing on production from our Mississippi Canyon 698 “Big Bend” field late in the fourth quarter and the nearby Mississippi Canyon 782 “Dantzler” field shortly thereafter. Big Bend and Dantzler will together be referred to as the Rio Grande Loop, which in aggregate is expected to contribute 8,000 to 9,000 Boe per day of production net to our 20% working interest.

 

We are making good progress installing the subsea infrastructure at Big Bend, which will be connected to the nearby Thunderhawk production platform. At our Dantzler field, the 2013 discovery well and the 2014 appraisal well have been completed, and the deepwater infrastructure will soon be installed. Due to the field’s close proximity to the Big Bend field, oil production from the Dantzler wells will be tied in with Big Bend production and connected to the Thunderhawk platform. By combining the development efforts on these two projects, we enhance the total project economics.

Deepwater map: Our substantial inventory of high quality projects on our 539,000 gross (289,000 net) acres in the deepwater has W&T Offshore well positioned for growth

On the Gulf of Mexico shelf, during 2014 we continued to

demonstrate that we can add substantial value to our existing

portfolio of shelf properties.

Gulf of Mexico Shelf

On the Gulf of Mexico shelf during 2014, we continued to demonstrate that we can add substantial value to our existing portfolio of shelf properties. We believe the GOM shelf still has a lot to offer and advanced seismic may be one of the keys to our ongoing success in the basin.

 

Our Mahogany field is an excellent example of the benefit of enhanced seismic data combined with log and production data. Our success in this field over the last few years has been driven by our application of advanced high-tech geophysical techniques and the use of reprocessed proprietary data, which was used to identify a deeper pay zone in a field that has already been highly prolific. We believe this new deeper “T” sand could be even more productive than the “P” sand that has cumulatively produced approximately 30 million barrels of oil equivalent from multiple wells in the Mahogany field since 1997. Although we have suspended our drilling activity at Mahogany until such time as commodity prices improve or service costs decline or both, we will continue to evaluate our production, well and seismic data in anticipation of defining additional opportunities to further enhance the upside of this prolific oil field.

 

The GOM shelf contributes a little over half of our daily production. With 81% of our net shelf acreage held by production, we have the ability to be patient and wait for better market conditions before we commit capital for drilling. In the meantime, we will focus on highgrading our inventory of drilling prospects and enjoy the benefits of more advanced data and analysis to add to our existing portfolio of drilling opportunities.

In the Permian Basin we have made solid progress identifying the productivity of the Wolfcamp A , Wolfcamp B and Lower Spraberry Shale formations at our Yellow Rose field.

Permian Basin

In the Permian Basin, we have made solid progress identifying the productivity of the Wolfcamp A, Wolfcamp B and Lower Spraberry Shale formations at our Yellow Rose field. While we maintained a steady but conservative approach to our exploration and development drilling program in 2014, many operators near our acreage spent substantial amounts of capital which effectively tested and de-risked our acreage. Throughout the year, we benefitted from our drilling as well as from the drilling data coming from the industry regarding optimum drilling and completion techniques and the productivity of various formations.

 

During 2014, we completed 32 wells, 28 of which were vertical and four were horizontal, and as of late February 2015, we had nine wells awaiting completion; five of which were horizontal wells. Our vertical program supported our strategy to hold a vast majority of our Yellow Rose acreage by production, which at the end of 2014 was over 90% held by production or HBP. Our horizontal program in 2014 helped us de-risk the Wolfcamp B formation and the Lower Spraberry Shale, as well as allowed us to test new drilling and completion techniques being developed. Our most recent well delivered excellent results and tested the Lower Spraberry shale in Andrews County achieving a peak rate of 1,709 Boe per day (91% oil), or 224 Boe per day per 1,000 feet of lateral. This is our highest oil rate well to date and currently appears to rank within the top 10% of all horizontal wells drilled in the Midland Basin, and may rank even higher once we achieve a stable 3 0-day peak rate.

 

While we have a high degree of confidence in the quality of our acreage, we plan to conserve our capital and continue to closely watch industry activity and wait for profit margins to improve (through higher pricing or lower costs or a combination of both) before reinitiating our program.

Our objective is to be well positioned to evaluate the multiple stacked horizontal targets on our acreage when the time is right. We believe that our position in the Midland Basin allows for higher thermal maturity and higher pressures to increase potential for oil recovery in our Yellow Rose Field. Should the stacked formations prove productive, we would effectively multiply our drilling inventory considerably and be positioned to realize substantial value for our shareholders.

Stacked Pay Potential: Our 28,000 gross acre leasehold position in the Yellow Rose field are located in a prime location in the Northern Midland Basin with a hydrocarbon column of over 3,500’.

COMPANY INFORMATION

COMPANY PROFILE

W&T Offshore, Inc. is an independent oil and natural gas producer with operations offshore in the Gulf of Mexico and onshore in the Permian Basin of West Texas. We have grown through acquisitions, exploration and development and currently hold working interests in approximately 63 offshore fields in federal and state waters (61 producing and two fields capable of producing). W&T currently has under lease approximately 1.2 million gross acres, including approximately 0.6 million gross acres on the Gulf of Mexico Shelf, approximately 0.5 million gross acres in the deepwater and approximately 50,000 gross acres onshore, primarily in Texas. A substantial majority of our daily production is derived from wells we operate offshore.

CORPORATE OFFICE

W&T Offshore, Inc.

Nine Greenway Plaza, Suite 300

Houston, TX 77046

Tel 713.626.8525

Web wtoffshore.com

 

REGISTRAR & TRANSFER AGENT

Communication concerning the transfer of shares, lost

certificates, duplicate mailings or change of address notifications

should be directed to the transfer agent.

Computershare Investor Services, L.L.C.

2 North La Salle Street

Chicago, IL 60602

Tel 312.588.4990

Web us.computershare.com

COMMON STOCK INFORMATION

The common stock of W&T Offshore, Inc. is traded on the

New York Stock Exchange under the symbol WTI. As of

March 3, 2015, there were 199 registered holders of our

common stock.

 

INDEPENDENT AUDITORS

Ernst & Young LLP, Houston, TX

INDEPENDENT PETROLEUM CONSULTANTS

Netherland, Sewell & Associates, Inc.

1601 Elm Street, Suite 4500

Dallas, TX 75201-4754

 

ANNUAL MEETING

The Company's 2015 Annual Meeting of Shareholders

will be held at 8 a.m. Central Time on May 6, 2015, at

the Corporate Office, Nine Greenway Plaza, Suite 300,

Houston, Texas 77046.

FORM 10-K & QUARTERLY REPORTS/INVESTOR CONTACT

A copy of the W&T Offshore, Inc. Form 10-K for fiscal 2014, filed with the Securities and Exchange Commission, is available from the Company. Requests for investor-related information should be directed to Investor Relations at the company’s corporate office or on the Internet at www.wtoffshore.com. E-mail: investorrelations@wtoffshore.com. The W&T Offshore, Inc. Form 10-K is also available on our Web site at www.wtoffshore.com. The most recent certifications by our Chief Executive Officer and Chief Financial Officer pursuant to Section 301 of the Sarbanes-Oxley Act of 2002 are filed as exhibits to the Form 10-K. Tracy W. Krohn, our Chief Executive Officer, has also filed with the New York Stock Exchange the most recent Annual CEO Certification as required by Section 303A.12(a) of the New York Stock Exchange Listed Company Manual.