Quarterly report pursuant to Section 13 or 15(d)

Basis of Presentation (Policies)

v3.10.0.1
Basis of Presentation (Policies)
9 Months Ended
Sep. 30, 2018
Accounting Policies [Abstract]  
Operations

Operations.  W&T Offshore, Inc. (with subsidiaries referred to herein as “W&T,” “we,” “us,” “our,” 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.  Our interests in fields, leases, structures and equipment are primarily owned by W&T Offshore, Inc. (on a stand-alone basis, the “Parent Company”) and its 100%-owned subsidiary, W & T Energy VI, LLC (“Energy VI”) and through our proportionately consolidated interest in Monza Energy LLC (“Monza”), as described in more detail in Note 4.

Interim Financial Statements

Interim Financial Statements.  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 Annual Report on Form 10-K for the year ended December 31, 2017.

Use of Estimates

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.

Recent Events

Recent Events.  The price we receive for our crude oil, natural gas liquids (“NGLs”) and natural gas production directly affects our revenues, profitability, cash flows, liquidity, access to capital, proved reserves and future rate of growth.  The average realized prices of crude oil and NGLs improved during the nine months ended September 30, 2018 compared to the average realized prices in the nine months ended September 30, 2017.  

On October 18, 2018, we issued $625.0 million of 9.75% Senior Second Lien Notes due 2023 (the “Senior Second Lien Notes”) which substantially changed our capital structure.  The Senior Second Lien Notes were issued at par and have a maturity date of November 1, 2023.  Concurrently with the issuance of the Senior Second Lien Notes, we entered into the Sixth Amended and Restated Credit Agreement (as amended, the “New Revolving Credit Agreement”) which provides us with a revolving bank credit facility with an initial borrowing base of $250.0 million (increasing from $150.0 million under our prior facility).  Letters of credit may be issued in amounts up to $30.0 million provided availability exists.  The New Revolving Credit Agreement matures on October 18, 2022.  The proceeds from the issuance of the Senior Second Lien Notes, cash on hand and borrowings under the New Revolving Credit Agreement were used to repurchase and retire, repay or irrevocably redeem all of our existing notes and term loans outstanding and fund debt issuance costs.  We refer to these transactions and the related repurchases and retirements, repayments and redemptions of all of our outstanding notes and term loans collectively as the “2018 Refinancing Transaction.”  See Note 12, Subsequent Events, for additional information.  

We believe we will have adequate available liquidity to fund our operations through November 2019, the period of assessment to qualify as a going concern.  However, we cannot predict the potential changes in commodity prices or future Bureau of Ocean Energy Management (“BOEM”) bonding requirements, either of which could affect our operations, liquidity levels and compliance with debt covenants.


 

See our Annual Report on Form 10-K for the year ended December 31, 2017 concerning risks related to our business and events occurring during 2017 and other information and the Notes herein for additional information.  

Accounting Standard Updates Effective January 1, 2018

Accounting Standard Updates Effective January 1, 2018:  

   Accounting Standards Update No. 2017-01, Business Combinations (Topic 805) – Clarifying the Definition of a Business (“ASU 2017-01”), became effective for us as of January 1, 2018.  The new guidance is intended to assist with the evaluation of whether a set of transferred assets and activities is a business.  In application of the revised guidance under ASU 2017-01 for our acquisition of a non-operated interest in the Heidelberg field described in Note 5, we determined the transaction should be treated as an asset purchase rather than the purchase of a business.          

Accounting Standard Update No. 2014-09, Revenue from Customers (Topic 606) (“ASU 2014-09”), became effective for us in the period ending March 31, 2018.  We reviewed our contracts using the five-step revenue recognition model, which did not identify any changes required as to the amount or timing of revenue recognition.  We adopted the new standard using the modified retrospective approach which did not result in any cumulative-effect adjustment on the date of adoption.  The implementation of ASU 2014-09 resulted in a change in our reporting in the Condensed Consolidated Statement of Operations so that we now report revenue streams separately for crude oil, NGLs, natural gas and other revenues in compliance with the new standard.    

Revenue Recognition

Revenue Recognition.  We recognize revenue from the sale of crude oil, NGLs, and natural gas when our performance obligations are satisfied.  Our contracts with customers are primarily short-term (less than 12 months).  Our responsibilities to deliver a unit of crude oil, NGL, and natural gas under these contracts represent separate, distinct performance obligations.  These performance obligations are satisfied at the point in time control of each unit is transferred to the customer.  Pricing is primarily determined utilizing a particular pricing or market index, plus or minus adjustments reflecting quality or location differentials.

Reclassification

Reclassification.  Certain reclassifications have been made to prior periods’ financial statements to conform to the current presentation as follows:  Within the Net Cash Provided by Operating Activities of the Condensed Consolidated Statements of Cash Flows, adjustments were made to certain line items, of which did not change the total amount previous reported.  The adjustments did not affect the Condensed Consolidated Balance Sheets or the Condensed Consolidated Statements of Operations

Prepaid Expenses And Other Assets

Prepaid Expenses and Other Assets.  The amounts recorded are expected to be realized within one year and the major categories are presented in the following table (in thousands):

 

 

September 30,

 

 

December 31,

 

 

2018

 

 

2017

 

Prepaid/accrued insurance

$

4,214

 

 

$

2,401

 

Surety bond unamortized premiums

 

2,847

 

 

 

2,676

 

Prepaid deposits related to royalties

 

9,698

 

 

 

6,456

 

Advances for capital expenditures

 

860

 

 

 

 

Derivative contract premiums

 

791

 

 

 

 

Other

 

1,289

 

 

 

1,886

 

Prepaid expenses and other assets

$

19,699

 

 

$

13,419

 

 

Oil and Natural Gas Properties and Other, Net - at Cost

Oil and Natural Gas Properties and Other, Net – at cost.  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):

 

 

September 30,

 

 

December 31,

 

 

2018

 

 

2017

 

Oil and natural gas properties and equipment

$

8,146,742

 

 

$

8,102,044

 

Furniture, fixtures and other

 

20,227

 

 

 

21,831

 

Total property and equipment

 

8,166,969

 

 

 

8,123,875

 

Less accumulated depreciation, depletion

   and amortization

 

7,644,188

 

 

 

7,544,859

 

Oil and natural gas properties and other, net

$

522,781

 

 

$

579,016

 

 

Other Assets (Long-term)

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

 

 

September 30,

 

 

December 31,

 

 

2018

 

 

2017

 

Escrow deposit - Apache lawsuit

$

49,500

 

 

$

49,500

 

Appeal bond deposits

 

6,925

 

 

 

6,925

 

Investment in White Cap, LLC

 

2,648

 

 

 

2,511

 

Deposit related to letters of credit

 

4,702

 

 

 

 

Unamortized brokerage fee for Monza

 

1,981

 

 

 

 

Proportional consolidation of Monza's

   other assets  (Note 4)

 

2,212

 

 

 

 

Other

 

1,046

 

 

 

1,457

 

Total other assets

$

69,014

 

 

$

60,393

 

 

Accrued Liabilities

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

 

 

September 30,

 

 

December 31,

 

 

2018

 

 

2017

 

Accrued interest

$

15,041

 

 

$

4,200

 

Accrued salaries/payroll taxes/benefits

 

2,291

 

 

 

2,454

 

Incentive compensation plans

 

6,452

 

 

 

7,366

 

Litigation accruals

 

3,604

 

 

 

3,480

 

Derivative contracts

 

3,252

 

 

 

84

 

Other

 

418

 

 

 

346

 

Total accrued liabilities

$

31,058

 

 

$

17,930

 

 

Other Liabilities (Long-term)

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

 

 

September 30,

 

 

December 31,

 

 

2018

 

 

2017

 

Apache lawsuit

$

49,500

 

 

$

49,500

 

Uncertain tax positions including interest/penalties

 

11,379

 

 

 

11,015

 

Dispute related to royalty deductions

 

4,687

 

 

 

 

Dispute related to royalty-in-kind

 

2,100

 

 

 

914

 

Other

 

5,509

 

 

 

5,437

 

Total other liabilities (long-term)

$

73,175

 

 

$

66,866

 

 

Recent Accounting Developments

Recent Accounting Developments.  In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (“ASU 2016-02”).  Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months.  Consistent with current GAAP, the recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a financing or operating lease.  However, unlike current GAAP, which requires only capital or financing leases to be recognized on the balance sheet, ASU 2016-02 will require both types of leases to be recognized on the balance sheet.  ASU 2016-02 also will require disclosures to help investors and other financial statement users to better understand the amount, timing and uncertainty of cash flows arising from leases.  These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements.  ASU 2016-02 does not apply for leases for oil and gas properties, but does apply to equipment used to explore and develop oil and gas resources.  ASU 2016-02 is effective for annual and interim periods beginning after December 15, 2018 and is to be applied using the modified retrospective approach.  Our current operating leases that will be impacted by ASU 2016-02 are leases for office space, which is primarily in Houston, Texas, although ASU 2016-02 may impact the accounting for leases related to equipment depending on the term of the lease.  We currently do not have any leases classified as financing leases nor do we have any leases recorded on the Condensed Consolidated Balance Sheets.  We have not yet fully determined or quantified the effect ASU 2016-02 will have on our financial statements.

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326) (“ASU 2016-13”).  The new guidance eliminates the probable recognition threshold and broadens the information to consider past events, current conditions and forecasted information in estimating credit losses.  ASU 2016-13 is effective for fiscal years beginning after December 15, 2019 and early adoption is permitted for fiscal years beginning after December 15, 2018.  We have not yet fully determined or quantified the effect ASU 2016-13 will have on our financial statements.

In August 2017, the FASB issued Accounting Standards Update No. 2017-12, Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”).  The amendments in ASU 2017-12 require an entity to present the earnings effect of the hedging instrument in the same income statement line in which the earning effect of the hedged item is reported.  This presentation enables users of financial statements to better understand the results and costs of an entity’s hedging program.  Also, relative to current GAAP, this approach simplifies the financial statement reporting for qualifying hedging relationships.  ASU 2017-12 is effective for fiscal years beginning after December 15, 2019 and interim periods within fiscal years beginning after December 15, 2020.  Early adoption is permitted, including adoption in an interim period.  As we do not designate our commodity derivative instruments as qualifying hedging instruments, our assessment is this amendment will not impact the presentation of the changes in fair values of our commodity derivative instruments on our financial statements.