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 June 30, 2023

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

For the transition period from _______________ to ________________

Commission File Number 1-32414

W&T OFFSHORE, INC.

(Exact name of registrant as specified in its charter)


Texas		72-1121985
(State 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 July 31, 2023 there were 146,480,637 shares outstanding of the registrant’s common stock, par value $0.00001.

Table of Contents

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 June 30, 2023 and December 31, 2022	1
	Condensed Consolidated Statements of Operations for the Six Months Ended June 30, 2023 and 2022	2
	Condensed Consolidated Statements of Changes in Shareholders’ Equity (Deficit) for the Six Months Ended June 30, 2023 and 2022	3
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls and Procedures	40

PART II – OTHER INFORMATION		41
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	41
Item 4.	Mine Safety Disclosures	41
Item 5.	Other Information	41
Item 6.	Exhibits	41

SIGNATURE		43

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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	$	171,627	$	461,357
Restricted cash		4,417		4,417
Receivables:
Oil and natural gas sales		41,342		66,146
Joint interest, net		13,875		14,000
Income taxes		1,941		—
Total receivables		57,158		80,146
Prepaid expenses and other assets (Note 1)		21,365		24,343
Total current assets		254,567		570,263

Oil and natural gas properties and other, net (Note 1)		737,740		735,215

Restricted deposits for asset retirement obligations		22,092		21,483
Deferred income taxes		45,700		57,280
Other assets (Note 1)		42,118		47,549
Total assets	$	1,102,217	$	1,431,790
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	67,293	$	65,158
Undistributed oil and natural gas proceeds		31,178		41,934
Advances from joint interest partners		3,110		3,181
Asset retirement obligations (Note 7)		37,763		25,359
Accrued liabilities (Note 1)		39,323		74,041
Current portion of long-term debt, net		30,550		582,249
Income tax payable		10		412
Total current liabilities		209,227		792,334
Long-term debt (Note 2)
Principal		382,697		114,158
Unamortized debt issuance costs		(9,676)		(2,970)
Long-term debt, net (Note 2)		373,021		111,188

Asset retirement obligations, less current portion (Note 7)		443,069		441,071
Other liabilities (Note 1)		35,041		59,134
Deferred income taxes		72		72
Commitments and contingencies (Note 11)		16,996		20,357
Shareholders’ equity:
Preferred stock, $0.00001 par value; 20,000 shares authorized; none issued at June 30, 2023 and December 31, 2022		—		—
Common stock, $0.00001 par value; 200,000 shares authorized; 149,350 issued and 146,481 outstanding at June 30, 2023; 149,002 issued and 146,133 outstanding at December 31, 2022		1		1
Additional paid-in capital		579,849		576,588
Retained deficit		(530,892)		(544,788)
Treasury stock, at cost; 2,869 shares at June 30, 2023 and December 31, 2022		(24,167)		(24,167)
Total shareholders’ equity		24,791		7,634
Total liabilities and shareholders’ equity	$	1,102,217	$	1,431,790

See Notes to Condensed Consolidated Financial Statements.

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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	$	89,982	$	159,264	$	186,982	$	281,966
NGLs		10,385		16,735		18,180		30,555
Natural gas		23,438		92,413		48,242		143,779
Other		2,376		5,396		4,502		8,512
Total revenues		126,181		273,808		257,906		464,812
Operating expenses:
Lease operating expenses		66,021		52,976		131,207		96,387
Gathering, transportation and production taxes		6,802		9,181		12,938		14,448
Depreciation, depletion, and amortization		28,177		27,679		50,801		52,354
Asset retirement obligations accretion		7,717		6,681		15,227		12,917
General and administrative expenses		17,393		14,967		37,312		28,743
Total operating expenses		126,110		111,484		247,485		204,849
Operating income		71		162,324		10,421		259,963

Interest expense, net		10,323		18,183		25,036		38,066
Derivative (gain) loss, net		(829)		(8,854)		(40,069)		71,143
Other (income) expense, net		(311)		(1,534)		(78)		(629)
Income (loss) before income taxes		(9,112)		154,529		25,532		151,383
Income tax expense		2,997		31,093		11,636		30,404
Net (loss) income	$	(12,109)	$	123,436	$	13,896	$	120,979

Net income per common share:
Basic	$	(0.08)	$	0.86	$	0.09	$	0.85
Diluted	$	(0.08)	$	0.85	$	0.09	$	0.84
Weighted average common shares outstanding:
Basic		146,452		143,020		146,435		142,981
Diluted		146,452		144,525		149,045		144,094

See Notes to Condensed Consolidated Financial Statements.

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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	146,461	$	1	$	577,787	$	(518,783)	2,869	$	(24,167)	$	34,838
Share-based compensation	—		—		2,087		—	—		—		2,087
Stock issued	20		—		—		—	—		—		—
RSUs surrendered for payroll taxes	—		—		(25)		—	—		—		(25)
Net loss	—		—		—		(12,109)	—		—		(12,109)
Balances at June 30, 2023	146,481	$	1	$	579,849	$	(530,892)	2,869	$	(24,167)	$	24,791


	Common Stock			Additional							Total
	Outstanding			Paid-In		Retained		Treasury Stock			Shareholders’
	Shares	Value		Capital		Deficit		Shares	Value		Deficit
Balances at March 31, 2022	143,012	$	1	$	553,175	$	(778,394)	2,869	$	(24,167)	$	(249,385)
Share-based compensation	—		—		2,014		—	—		—		2,014
Stock issued	143		—		—		—	—		—		—
RSUs surrendered for payroll taxes	—		—		(434)		—	—		—		(434)
Net income	—		—		—		123,436	—		—		123,436
Balances at June 30, 2022	143,155	$	1	$	554,755	$	(654,958)	2,869	$	(24,167)	$	(124,369)


	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	—		—		4,009		—	—		—		4,009
Stock issued	348		—		—		—	—		—		—
RSUs surrendered for payroll taxes	—		—		(748)		—	—		—		(748)
Net income	—		—		—		13,896	—		—		13,896
Balances at June 30, 2023	146,481	$	1	$	579,849	$	(530,892)	2,869	$	(24,167)	$	24,791


	Common Stock			Additional							Total
	Outstanding			Paid-In		Retained		Treasury Stock			Shareholders’
	Shares	Value		Capital		Deficit		Shares	Value		Deficit
Balances at December 31, 2021	142,863	$	1	$	552,923	$	(775,937)	2,869	$	(24,167)	$	(247,180)
Share-based compensation	—		—		2,534		—	—		—		2,534
Stock issued	292		—		—		—	—		—		—
RSUs surrendered for payroll taxes	—		—		(702)		—	—		—		(702)
Net income	—		—		—		120,979	—		—		120,979
Balances at June 30, 2022	143,155	$	1	$	554,755	$	(654,958)	2,869	$	(24,167)	$	(124,369)

See Notes to Condensed Consolidated Financial Statements.

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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	$	13,896	$	120,979
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion, amortization and accretion		66,028		65,271
Amortization and write off of debt issuance costs		4,363		4,365
Share-based compensation		4,009		2,534
Derivative (gain) loss		(40,069)		71,143
Derivative cash (payments) receipts, net		(4,427)		70,227
Derivative cash premium payments		—		(46,111)
Deferred income taxes		11,580		27,031
Changes in operating assets and liabilities:
Oil and natural gas receivables		24,804		(44,236)
Joint interest receivables		125		(3,625)
Prepaid expenses and other assets		26,992		(30,092)
Income tax		(2,345)		3,223
Asset retirement obligation settlements		(11,841)		(39,775)
Cash advances from JV partners		(71)		(9,813)
Accounts payable, accrued liabilities and other		(43,412)		46,638
Net cash provided by operating activities		49,632		237,759
Investing activities:
Investment in oil and natural gas properties and equipment		(22,999)		(25,489)
Changes in operating assets and liabilities associated with investing activities		(2,338)		(5,786)
Acquisition of property interests		—		(47,625)
Purchase of corporate aircraft (Note 12)		(8,983)		—
Purchases of furniture, fixtures and other		(218)		—
Net cash used in investing activities		(34,538)		(78,900)
Financing activities:
Repayment of Note Payable		(183)		—
Issuance of 11.75% Senior Second Lien Notes		275,000		—
Repayments on 9.75% Second Senior Lien Notes		(552,460)		—
Repayments on Term Loan		(19,181)		(24,941)
Debt issuance costs		(7,252)		(1,290)
Other		(748)		(703)
Net cash used in financing activities		(304,824)		(26,934)
(Decrease) increase in cash and cash equivalents		(289,730)		131,925
Cash and cash equivalents and restricted cash, beginning of period		465,774		250,216
Cash and cash equivalents and restricted cash, end of period	$	176,044	$	382,141

See Notes to Condensed Consolidated Financial Statements.

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NOTE 1 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

W&T Offshore, Inc. (with subsidiaries referred to herein as “W&T” or the “Company”) is an independent oil and natural gas producer with substantially all of its operations offshore in the Gulf of Mexico. The Company is active in the exploration, development and acquisition of oil and natural gas properties. Interests in fields, leases, structures and equipment are primarily owned by the Company and its 100% owned subsidiaries, W & T Energy VI, LLC, Aquasition LLC (“A-I, LLC”), and Aquasition II, LLC (“A-II LLC”), and through a proportionately consolidated interest in Monza Energy LLC (“Monza”).

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 $11.3 million and $12.1 million as of June 30, 2023 and December 31, 2022, respectively.

Employee Retention Credit – Under the Consolidated Appropriations Act of 2021, the Company recognized a $2.2 million employee retention credit during the six months ended June 30, 2023, which is included as a credit to General and administrative expenses in the Condensed Consolidated Statement of Operations.

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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)	$	1,778	$	4,954
Unamortized insurance/bond premiums		8,303		6,046
Prepaid deposits related to royalties		6,822		9,139
Prepayments to vendors		1,628		1,767
Prepayments to joint interest partners		2,319		1,717
Debt issue costs		427		687
Other		88		33
Prepaid expenses and other assets	$	21,365	$	24,343

⁽¹⁾

^{Includes closed contracts which have not yet settled.}

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


	June 30, 2023		December 31, 2022
Oil and natural gas properties and equipment	$	8,847,421	$	8,813,404
Furniture, fixtures and other		40,224		20,915
Total property and equipment		8,887,645		8,834,319
Less: Accumulated depreciation, depletion, amortization and impairment		(8,149,905)		(8,099,104)
Oil and natural gas properties and other, net	$	737,740	$	735,215

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


	June 30, 2023		December 31, 2022
Right-of-Use assets	$	10,728	$	10,364
Investment in White Cap, LLC		2,721		2,453
Proportional consolidation of Monza (Note 6)		9,909		9,321
Derivatives⁽¹⁾ (Note 4)		17,184		23,236
Other		1,576		2,175
Total other assets (long-term)	$	42,118	$	47,549

⁽¹⁾

^{Includes open contracts.}

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


	June 30, 2023		December 31, 2022
Accrued interest	$	13,848	$	8,967
Accrued salaries/payroll taxes/benefits		4,808		15,097
Litigation accruals		56		396
Lease liability		1,045		1,628
Derivatives⁽¹⁾(Note 4)		18,518		46,595
Other		1,048		1,358
Total accrued liabilities	$	39,323	$	74,041

⁽¹⁾

^{Includes closed contracts which have not yet settled.}

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


	June 30, 2023		December 31, 2022
Dispute related to royalty deductions	$	5,250	$	4,937
Derivatives (Note 4)		17,417		43,061
Lease liability		11,709		10,527
Other		665		609
Total other liabilities (long-term)	$	35,041	$	59,134

At-the-Market Equity Offering – On March 18, 2022, the Company filed a prospectus supplement related to the issuance and sale of up to $100,000,000 of shares of common stock under the Company’s “at-the-market” equity offering program (the “ATM Program”). The designated sales agents will be entitled to a placement fee of up to 3.0% of the gross sales price per share sold. During the six months ended June 30, 2023, the Company did not sell any shares in connection with the ATM Program. During the year ended December 31, 2022, the Company sold an aggregate of 2,971,413 shares for an average price of $5.72 per share in connection with the ATM Program and received proceeds, net of commissions and expenses, of $16.5 million.

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	$	11,575	$	—
Discount		(1,651)
Unamortized debt issuance costs		(267)		—
Total TVPX Loan		9,657		—

Term Loan:
Principal		128,719		147,899
Unamortized debt issuance costs		(3,727)		(4,592)
Total Term Loan		124,992		143,307

Credit Agreement borrowings:		—		—

11.75% Senior Second Lien Notes due 2026:
Principal		275,000		—
Unamortized debt issuance costs		(6,078)		—
Total 11.75% Senior Second Lien Notes due 2026		268,922		—

9.75% Senior Second Lien Notes due 2023:
Principal		—		552,460
Unamortized debt issuance costs		—		(2,330)
Total 9.75% Senior Second Lien Notes due 2023		—		550,130

Less current portion, net		(30,550)		(582,249)
Total long-term debt, net	$	373,021	$	111,188

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Current Portion of Long-Term Debt, Net

As of June 30, 2023, the current portion of long-term debt of $30.6 million represented principal payments due within one year on the TVPX Loan and Term Loan (defined below), net of current unamortized debt issuance costs.

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 $19.1 million, which was paid using $9.0 million of the Company’s cash on hand and through the assumption of an amortizing loan by TVPX Aircraft Solutions Inc. (the “TVPX Loan”), not in its individual capacity but as owner trustee of the trust which holds title to the aircraft, a wholly owned indirect subsidiary of the Company, as the borrower. At the time of the assumption, the TVPX Loan had an aggregate principal amount of approximately $11.8 million outstanding. The TVPX Loan bears a fixed interest rate of 2.49% per annum for a term of 41 months and requires monthly amortization payments of $91.7 thousand plus accrued interest, which began on May 17, 2023, and a balloon payment of $8.0 million at the end of the loan term. The TVPX Loan is guaranteed by the Company on an unsecured basis. Using current market rates, we determined that the fair market value of the TVPX Loan was $10.1 million at the date of assumption.

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 $183.3 thousand of principal outstanding. As of June 30, 2023, the Company had $11.6 million of principal amount outstanding related to the TVPX Loan.

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 $215.0 million. The Term Loan requires quarterly amortization payments which commenced on September 30, 2021. The Term Loan bears interest at a fixed rate of 7.0% per annum and will mature on May 19, 2028. The Subsidiary Credit Agreement required the Company to enter into certain natural gas swap and put derivative contracts. See Note 4 – Derivative Financial Instruments.

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”).

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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 $19.2 million of principal outstanding. As of June 30, 2023, the Company had $128.7 million in principal amount of the Term Loan outstanding.

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:

●

$100 million first priority lien secured revolving credit facility, with borrowings limited to a borrowing base of $50.0 million;

●

Outstanding borrowings accrue interest at SOFR plus 6.0% per annum;

●

The Company’s ratio of First Lien Debt (as such term is defined in the Credit Agreement) outstanding under the Credit Agreement on the last day of the most recent quarter to EBITDAX (as such term is defined in the Credit Agreement) for the trailing four quarters must not be greater than 2.50 to 1.00 on the last day of any fiscal quarter commencing with the fiscal quarter ended March 31, 2022;

●

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 2.00 to 1.00;

●

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 1.00 to 1.00;

●

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 100% funded or fully utilized; and

●

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 no borrowings outstanding under the Credit Agreement and no borrowings had been incurred under the Credit Agreement during the six months ended June 30, 2023. As of June 30, 2023 and December 31, 2022, the Company had $4.4 million outstanding in letters of credit which have been cash collateralized.

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11.75% Senior Second Lien Notes due 2026

On January 27, 2023, the Company issued and sold $275 million in aggregate principal amount of its 11.75% Senior Second Lien Notes at par with an interest rate of 11.75% per annum that matures on February 1, 2026 (the “11.75% Senior Second Lien Notes”), which are governed under the terms of an indenture (the “Indenture”). Interest on the 11.75% Senior Second Lien Notes is payable in arrears on February 1 and August 1, commencing August 1, 2023. The 11.75% Senior Second Lien Notes will be recorded at their carrying value consisting of principal and unamortized debt issuance costs. The 11.75% Senior Second Lien Notes are secured by second-priority liens on the same collateral that is secured under the Credit Agreement, which does not include the Mobile Bay Properties and the related Midstream Assets. The estimated annual effective interest rate on the 11.75% Senior Second Lien Notes is 12.6%, which includes amortization of deferred interest costs.

Prior to August 1, 2024, the Company may redeem all or any portion of the 11.75% Senior Second Lien Notes at a redemption price equal to 100% of the principal amount of the notes outstanding plus accrued and unpaid interest, if any, to the redemption date, plus the “Applicable Premium” (as defined in the Indenture). In addition, prior to August 1, 2024, the Company may, at its option, on one or more occasions redeem up to 35% of the aggregate original principal amount of the 11.75% Senior Second Lien Notes in an amount not greater than the net cash proceeds from certain equity offerings at a redemption price of 111.750% of the principal amount of the outstanding plus accrued and unpaid interest, if any, to the redemption date.

On and after August 1, 2024, the Company may redeem the 11.75% Senior Second Lien Notes, in whole or in part, at redemption prices (expressed as percentages of the principal amount thereof) equal to 105.875% for the 12-month period beginning August 1, 2024, and 100.000% on August 1, 2025 and thereafter, plus accrued and unpaid interest, if any, to the redemption date. The 11.75% Senior Second Lien Notes are guaranteed by the Guarantors.

The 11.75% Senior Second Lien Notes contain covenants that limit or prohibit the Company’s ability and the ability of certain of its subsidiaries to: (i) make investments; (ii) incur additional indebtedness or issue certain types of preferred stock; (iii) create certain liens; (iv) sell assets; (v) enter into agreements that restrict dividends or other payments from the Company’s subsidiaries to the Company; (vi) consolidate, merge or transfer all or substantially all of the assets of the Company; (vii) engage in transactions with affiliates; (viii) pay dividends or make other distributions on capital stock or subordinated indebtedness; and (ix) create subsidiaries that would not be restricted by the covenants of the Indenture. These covenants are subject to important exceptions and qualifications set forth in the Indenture. In addition, most of the above-described covenants will terminate if both S&P Global Ratings, a division of S&P Global Inc., and Moody’s Investors Service, Inc. assign the 11.75% Senior Second Lien Notes an investment grade rating and no default exists with respect to the 11.75% Senior Second Lien Notes.

Redemption of 9.75% Senior Second Lien Notes due 2023

On October 18, 2018, the Company issued $625.0 million of 9.75% Senior Second Lien Notes due 2023 (the “9.75% Senior Second Lien Notes”), which were issued at par with an interest rate of 9.75% per annum and would have matured on November 1, 2023.

On February 8, 2023, the Company redeemed all of the $552.5 million of aggregate principle outstanding of the 9.75% Senior Second Lien Notes at a redemption price of 100.0%, plus accrued and unpaid interest to the redemption date. The Company used the net proceeds of $270.8 million from the issuance of the 11.75% Senior Second Lien Notes and cash on hand of $296.1 million to fund the redemption.

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.

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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	$	1,778	$	4,954
Derivative instruments - long-term		17,184		23,236

Liabilities:
Derivative instruments - current		18,518		46,595
Derivative instruments - long-term		17,417		43,061

Debt Instruments

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


	June 30, 2023				December 31, 2022
	Net Value		Fair Value		Net Value		Fair Value
Liabilities:
TVPX Loan	$	9,657	$	9,977	$	—	$	—
Term Loan		124,992		120,965		143,307		139,056
11.75% Senior Second Lien Notes due 2026		268,922		275,303		—		—
9.75% Senior Second Lien Notes due 2023		—		—		550,130		544,902
Total	$	403,571	$	406,245	$	693,437	$	683,958

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% Senior Second Lien Notes and 9.75% Senior Second Lien Notes were measured using quoted prices, although the market is not a highly liquid market. The fair value of debt was classified as Level 2 within the valuation hierarchy.

NOTE 4 — 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.

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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	35,288	12,880,000	$	—	$	—	$	7.50
Jan 2024 - Dec 2024	calls	65,000	23,790,000	$	—	$	—	$	6.13
Jan 2025 - Mar 2025	calls	62,000	5,580,000	$	—	$	—	$	5.50
July 2023 - Dec 2023⁽²⁾	swaps	36,164	13,200,000	$	2.43	$