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 or other jurisdiction of incorporation or organization) | (I.R.S. 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 July 31, 2023 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)
June 30, | December 31, | |||||
| 2023 |
| 2022 | |||
Assets |
|
|
|
| ||
Current assets: |
|
|
|
| ||
Cash and cash equivalents | $ | | $ | | ||
Restricted cash | | | ||||
Receivables: |
|
| ||||
Oil and natural gas sales |
| |
| | ||
Joint interest, net |
| |
| | ||
Income taxes |
| |
| — | ||
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’ Equity |
|
|
|
| ||
Current liabilities: |
|
|
|
| ||
Accounts payable | $ | | $ | | ||
Undistributed oil and natural gas proceeds |
| |
| | ||
Advances from joint interest partners |
| |
| | ||
Asset retirement obligations (Note 7) |
| |
| | ||
Accrued liabilities (Note 1) |
| |
| | ||
Current portion of long-term debt, net | | | ||||
Income tax payable |
| |
| | ||
Total current liabilities |
| |
| | ||
Long-term debt (Note 2) |
|
|
|
| ||
Principal |
| |
| | ||
Unamortized debt issuance costs |
| ( |
| ( | ||
Long-term debt, net (Note 2) |
| |
| | ||
Asset retirement obligations, less current portion (Note 7) |
| |
| | ||
Other liabilities (Note 1) |
| |
| | ||
Deferred income taxes |
| |
| | ||
Commitments and contingencies (Note 11) |
| |
| | ||
Shareholders’ equity: |
|
|
|
| ||
Preferred stock, $ |
|
| ||||
Common stock, $ |
| |
| | ||
Additional paid-in capital |
| |
| | ||
Retained deficit |
| ( |
| ( | ||
Treasury stock, at cost; |
| ( |
| ( | ||
Total shareholders’ equity |
| |
| | ||
Total liabilities and shareholders’ equity | $ | | $ | |
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 June 30, | Six Months Ended June 30, | |||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
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 (gain) loss, net |
| ( |
| ( |
| ( |
| | ||||
Other (income) expense, net |
| ( |
| ( |
| ( |
| ( | ||||
Income (loss) before income taxes |
| ( |
| |
| |
| | ||||
Income tax expense |
| |
| |
| |
| | ||||
Net (loss) income | $ | ( | $ | | $ | | $ | | ||||
Net income 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’ EQUITY (DEFICIT)
(In thousands)
(Unaudited)
| Common Stock |
| Additional |
|
|
|
|
| Total | ||||||||||
Outstanding | Paid-In | Retained | Treasury Stock | Shareholders’ | |||||||||||||||
| Shares |
| Value |
| Capital |
| Deficit |
| Shares |
| Value |
| Equity | ||||||
Balances at March 31, 2023 |
| |
| $ | |
| $ | |
| $ | ( |
| |
| $ | ( |
| $ | |
Share-based compensation |
| — |
|
| — |
|
| |
|
| — |
| — |
|
| — |
|
| |
Stock issued |
| |
|
| — |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
RSUs surrendered for payroll taxes |
| — |
|
| — |
|
| ( |
|
| — |
| — |
|
| — |
|
| ( |
Net loss |
| — |
|
| — |
|
| — |
|
| ( |
| — |
|
| — |
|
| ( |
Balances at June 30, 2023 |
| |
| $ | |
| $ | |
| $ | ( |
| |
| $ | ( |
| $ | |
| Common Stock |
| Additional |
|
|
|
|
| Total | ||||||||||
Outstanding | Paid-In | Retained | Treasury Stock | Shareholders’ | |||||||||||||||
| Shares |
| Value |
| Capital |
| Deficit |
| Shares |
| Value |
| Deficit | ||||||
Balances at March 31, 2022 |
| |
| $ | |
| $ | |
| $ | ( |
| |
| $ | ( |
| $ | ( |
Share-based compensation |
| — |
|
| — |
|
| |
|
| — |
| — |
|
| — |
|
| |
Stock issued |
| |
|
| — |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
RSUs surrendered for payroll taxes |
| — |
|
| — |
|
| ( |
|
| — |
| — |
|
| — |
|
| ( |
Net income |
| — |
|
| — |
|
| — |
|
| |
| — |
|
| — |
|
| |
Balances at June 30, 2022 |
| |
| $ | |
| $ | |
| $ | ( |
| |
| $ | ( |
| $ | ( |
| Common Stock |
| Additional |
|
|
|
|
| Total | ||||||||||
Outstanding | Paid-In | Retained | Treasury Stock | Shareholders’ | |||||||||||||||
| Shares |
| Value |
| Capital |
| Deficit |
| Shares |
| Value |
| Equity | ||||||
Balances at December 31, 2022 |
| | $ | | $ | | $ | ( |
| | $ | ( | $ | | |||||
Share-based compensation |
| — |
| — |
| |
| — |
| — |
| — |
| | |||||
Stock issued | | — | — | — | — | — | — | ||||||||||||
RSUs surrendered for payroll taxes |
| — |
|
| — |
|
| ( |
|
| — |
| — |
|
| — |
|
| ( |
Net income |
| — |
| — |
| — |
| |
| — |
| — |
| | |||||
Balances at June 30, 2023 |
| | $ | | $ | | $ | ( |
| | $ | ( | $ | |
| 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 June 30, 2022 |
| | $ | | $ | | $ | ( |
| | $ | ( | $ | ( |
See Notes to Condensed Consolidated Financial Statements.
3
W&T OFFSHORE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended June 30, | ||||||
| 2023 |
| 2022 | |||
Operating activities: |
|
|
|
| ||
Net income | $ | | $ | | ||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
| ||
Depreciation, depletion, amortization and accretion |
| |
| | ||
Amortization and write off of debt issuance costs |
| |
| | ||
Share-based compensation |
| |
| | ||
Derivative (gain) 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 |
| — |
| ( | ||
Purchase of corporate aircraft (Note 12) | ( | — | ||||
Purchases of furniture, fixtures and other |
| ( |
| — | ||
Net cash used in investing activities |
| ( |
| ( | ||
Financing activities: |
|
|
|
| ||
Repayment of Note Payable | ( | — | ||||
Issuance of | | — | ||||
Repayments on | ( | — | ||||
Repayments on Term Loan |
| ( |
| ( | ||
Debt issuance costs |
| ( |
| ( | ||
Other |
| ( |
| ( | ||
Net cash used in financing activities |
| ( |
| ( | ||
(Decrease) 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 2022 Annual Report on Form 10-K (the “2022 Annual Report”).
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 – The Company records revenues from the sale of oil, natural gas liquids (“NGLs”) and natural gas based on quantities of production sold to purchasers under short-term contracts (less than twelve months) at market prices when delivery to the customer has occurred, title has transferred, prices are fixed and determinable and collection is reasonably assured. Revenue from the sale of crude oil, 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 oil, NGLs and natural gas to the customer. Each unit of product represents a separate performance obligation, therefore, future volumes are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required.
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 $
5
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):
June 30, 2023 |
| December 31, 2022 | ||||
Derivatives(1) (Note 4) | $ | | $ | | ||
Unamortized insurance/bond premiums |
| |
| | ||
Prepaid deposits related to royalties |
| |
| | ||
Prepayments 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.
June 30, 2023 |
| December 31, 2022 | ||||
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 | $ | | $ | |
Other Assets (long-term) –
June 30, 2023 |
| December 31, 2022 | ||||
$ | | $ | | |||
Investment in White Cap, LLC |
| |
| | ||
Proportional consolidation of Monza (Note 6) |
| |
| | ||
Derivatives(1) (Note 4) |
| |
| | ||
Other |
| |
| | ||
Total other assets (long-term) | $ | | $ | |
(1) |
Accrued Liabilities –
June 30, 2023 |
| December 31, 2022 | ||||
Accrued interest | $ | | $ | | ||
Accrued salaries/payroll taxes/benefits |
| |
| | ||
Litigation accruals |
| |
| | ||
| |
| | |||
Derivatives(1) (Note 4) |
| |
| | ||
Other |
| |
| | ||
Total accrued liabilities | $ | | $ | |
(1) | Includes closed contracts which have not yet settled. |
6
Other Liabilities (long-term) –
June 30, 2023 |
| December 31, 2022 | ||||
Dispute related to royalty deductions | $ | | $ | | ||
Derivatives (Note 4) |
| |
| | ||
| |
| | |||
Other |
| |
| | ||
Total other liabilities (long-term) | $ | | $ | |
NOTE 2 — DEBT
The components comprising the Company’s debt are presented in the following table (in thousands):
June 30, 2023 | December 31, 2022 | |||||
TVPX Loan: | ||||||
Principal | $ | | $ | — | ||
Discount | ( | |||||
Unamortized debt issuance costs |
| ( | — | |||
Total TVPX Loan |
| | — | |||
Term Loan: | ||||||
Principal | | | ||||
Unamortized debt issuance costs | ( | ( | ||||
Total Term Loan |
| |
| | ||
Credit Agreement borrowings: | — | — | ||||
|
|
| ||||
Principal |
| |
| — | ||
Unamortized debt issuance costs |
| ( |
| — | ||
Total |
| |
| — | ||
|
|
| ||||
Principal |
| — |
| | ||
Unamortized debt issuance costs |
| — |
| ( | ||
Total |
| — |
| | ||
Less current portion, net | ( | ( | ||||
Total long-term debt, net | $ | | $ | |
7
Current Portion of Long-Term Debt, Net
As of June 30, 2023, the current portion of long-term debt of $
TVPX Loan
On May 15, 2023, the Company acquired a corporate aircraft from a company affiliated with and controlled by W&T’s Chairman, Chief Executive Officer (“CEO”) and President, Tracy W. Krohn. The terms of the transactions were reviewed and approved by the Audit Committee of the Company’s Board of Directors. See Note 12 – Related Party Transactions.
The purchase price of the aircraft was $
The aircraft was purchased as part of a series of transactions pursuant to which the Company restructured the compensation for its Named Executive Officers. Prior to the Company’s purchase of the aircraft, the Company used the aircraft for business purposes, and the CEO also used the aircraft for personal purposes. Both the Company’s use for business purposes and the CEO’s unlimited use for personal purposes were paid for by the Company pursuant to the CEO’s prior employment agreement. In connection with the Company’s efforts to significantly reduce overall executive compensation, including perquisite compensation Mr. Krohn was receiving for personal use of the aircraft, on April 20, 2023, the Company entered into an amendment to the employment agreement with the CEO which requires that the Company be reimbursed for personal use of the aircraft in accordance with the Company’s aircraft use policy.
During the six months ended June 30, 2023, the Company repaid $
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 (the “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, 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, 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”).
8
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). See Note 5 – Subsidiary Borrowers for additional information.
During the six months ended June 30, 2023, the Company repaid $
Credit Agreement
The Company has entered into a Credit Agreement with Calculus Lending, LLC (“Calculus”), a company affiliated with and controlled by W&T’s Chairman, Chief Executive Officer and President, Tracy W. Krohn, as sole lender under the Credit Agreement (as amended from time to time, the “Credit Agreement”). The Credit Agreement currently has a maturity date of January 3, 2024. Alter Domus (US) LLC serves as the administrative agent under the Credit Agreement. The primary terms and covenants associated with the Credit Agreement as of June 30, 2023, are as follows:
● | $ |
● | Outstanding borrowings accrue interest at SOFR plus |
● | 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 to First Lien Debt (as such terms are defined in the Credit Agreement) as of the last day of any fiscal quarter commencing with the fiscal quarter ended March 31, 2022, must be equal to or greater than |
● | The ratio of the Company and its restricted subsidiaries’ consolidated current assets to 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 ended March 31, 2022, the Company and its restricted subsidiaries on a consolidated basis must pass a “Stress Test” to determine whether certain future net revenues from the Company’s and its restricted subsidiaries’ and certain joint ventures’ oil and gas properties included in the collateral are sufficient to satisfy the aggregate first lien indebtedness under the Credit Agreement assuming the Borrowing Base is |
● | 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. |
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. 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 June 30, 2023, there were
9
On January 27, 2023, the Company issued and sold $
Prior to August 1, 2024, the Company may redeem all or any portion of the
On and after August 1, 2024, the Company may redeem the
The
Redemption of
On October 18, 2018, the Company issued $
On February 8, 2023, the Company redeemed all of the $
Covenants
As of June 30, 2023 and for all prior measurement periods presented, the Company was in compliance with all applicable covenants of the Credit Agreement and the Indenture.
10
NOTE 3 – FAIR VALUE MEASUREMENTS
Derivative Financial Instruments
Derivative financial instruments are reported in the Condensed Consolidated Balance Sheets using fair value. See Note 4 – Derivative Financial Instruments for additional information on 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 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.
The following table presents the fair value of the Company’s derivative financial instruments (in thousands):
June 30, 2023 |
| December 31, 2022 | ||||
Assets: |
|
|
|
| ||
Derivative instruments - current | $ | | $ | | ||
Derivative instruments - long-term |
| |
| | ||
Liabilities: |
|
|
|
| ||
Derivative instruments - current |
| |
| | ||
Derivative instruments - long-term |
| |
| |
Debt Instruments
| June 30, 2023 |
| December 31, 2022 | |||||||||
Net Value |
| Fair Value |
| Net Value |
| Fair Value | ||||||
Liabilities: |
|
|
|
|
|
|
|
| ||||
TVPX Loan | $ | | $ | | $ | — | $ | — | ||||
Term Loan | | | | | ||||||||
|
| |
| — |
| — | ||||||
| — |
| — |
| |
| | |||||
Total | $ | | $ | | $ | | $ | |
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
NOTE 4 — 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.
11
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 natural gas contracts are based off the Henry Hub prices, which is 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 June 30, 2023:
Average | |||||||||||||||
Instrument | Daily | Total | Weighted | Weighted | Weighted | ||||||||||
Period |
| Type |
| Volumes |
| Volumes |
| Strike Price |
| Put Price |
| Call Price | |||
Natural Gas - Henry Hub (NYMEX) | (MMbtu)(1) | (MMbtu)(1) | ($/MMbtu)(1) | ($/MMbtu)(1) | ($/MMbtu)(1) | ||||||||||
July 2023 - Dec 2023 | calls | | | $ | — | $ | — | $ | | ||||||
Jan 2024 - Dec 2024 | calls | | | $ | — | $ | — | $ | | ||||||
Jan 2025 - Mar 2025 | calls | | | $ | — | $ | — | $ | | ||||||
July 2023 - Dec 2023(2) | swaps | | | $ | | $ |