Quarterly report pursuant to Section 13 or 15(d)

Note 1 - Basis of Presentation

v3.19.3
Note 1 - Basis of Presentation
9 Months Ended
Sep. 30, 2019
Notes to Financial Statements  
Business Description and Basis of Presentation [Text Block]
1.
Basis of Presentation
 
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 the Company and its
100%
-owned subsidiary, W & T Energy VI, LLC, and through our proportionately consolidated interest in Monza Energy LLC (“Monza”), as described in more detail in Note
4.
 
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, 2018.
 
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.
 
Leases. 
In
February 2016,
Accounting Standards Update
2016
-
02,
Leases (
Topic
842
) (“ASU
2016
-
02”
) was issued requiring an entity to recognize a right-of-use (“ROU”) asset and lease liability for all leases.  The classification of leases as either a finance or operating lease determines the recognition, measurement and presentation of expenses.  ASU
2016
-
02
also requires certain quantitative and qualitative disclosures about leasing arrangements.  Leases acquired to explore for or extract oil or natural gas resources, including the right to explore for those natural resources and rights to use the land in which those natural resources are contained, are
not
within the scope of this standard’s update.  ASU
2016
-
02
was effective for us in the
first
quarter of
2019
and we adopted the new standard using a modified retrospective approach, with the date of initial application on
January
1,2019.
  Consequently, upon transition, we recognized an ROU asset and a lease liability with
no
retained earnings impact.  See Note
8
for additional information.
 
Revenue Recognition
.  We recognize revenue from the sale of crude oil, natural gas liquids ("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.
 
Reclassifications.
  Certain reclassifications have been made to the prior period financial statements to conform to the current presentation as follows: In the Condensed Consolidated Statements of Operations, interest income was reclassified from
Other expense, net
to
Interest expense, net
, which did
not
change
Income (loss) before income tax (benefit) expense
.  In the Condensed Consolidated Statements of Cash Flows, adjustments were made to certain line items within the
Net cash provided by operating activities
and 
Net cash used in investing activities
 sections, of which did
not
change the total amounts previous reported.  The adjustments did
not
affect the Condensed Consolidated Balance Sheets.
 
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,
 
   
2019
   
2018
 
Derivative assets (1)
  $
23,150
    $
60,687
 
Unamortized bond/insurance premiums
   
5,497
     
5,197
 
Prepaid deposits related to royalties
   
8,794
     
8,872
 
Other
   
2,780
     
1,650
 
Prepaid expenses and other assets
  $
40,221
    $
76,406
 
 
 
 
(
1
)
Includes closed contracts which have
not
yet settled.
 
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,
 
   
2019
   
2018
 
Oil and natural gas properties and equipment
  $
8,471,973
    $
8,169,871
 
Furniture, fixtures and other
   
20,247
     
20,228
 
Total property and equipment
   
8,492,220
     
8,190,099
 
Less accumulated depreciation, depletion and amortization
   
7,771,269
     
7,674,678
 
Oil and natural gas properties and other, net
  $
720,951
    $
515,421
 
 
 
Other Assets (long-term).
The major categories are presented in the following table (in thousands):
 
   
September 30,
   
December 31,
 
   
2019
   
2018
 
Appeal bond deposits
  $
6,925
    $
6,925
 
Unamortized debt issuance costs
   
4,138
     
4,773
 
Investment in White Cap, LLC
   
2,885
     
2,586
 
Unamortized brokerage fee for Monza
   
4,131
     
2,277
 
Proportional consolidation of Monza's other assets (Note 4)
   
3,660
     
3,275
 
Right-of Use (Note 8)    
10,239
     
 
Escrow deposit - Apache lawsuit (Note 12)
   
     
49,500
 
Derivative assets
   
     
21,275
 
Other
   
886
     
936
 
Total other assets (long-term)
  $
32,864
    $
91,547
 
 
 
Accrued Liabilities.  
The major categories are presented in the following table (in thousands):
 
   
September 30,
   
December 31,
 
   
2019
   
2018
 
Accrued interest
  $
25,414
    $
12,385
 
Accrued salaries/payroll taxes/benefits
   
2,267
     
2,320
 
Incentive compensation plans
   
3,667
     
10,817
 
Litigation accruals
   
3,673
     
3,673
 
Lease liability (Note 8)    
1,877
     
 
Other
   
356
     
416
 
Total accrued liabilities
  $
37,254
    $
29,611
 
 
Other Liabilities (long-term).  
The major categories are presented in the following table (in thousands):
 
   
September 30,
   
December 31,
 
   
2019
   
2018
 
Dispute related to royalty deductions
  $
4,687
    $
4,687
 
Dispute related to royalty-in-kind
   
2,231
     
2,135
 
Apache lawsuit (Note 12)
   
     
49,500
 
Uncertain tax positions including interest/penalties
   
     
11,523
 
Lease liability (Note 8)    
7,883
     
 
Other
   
1,466
     
845
 
Total other liabilities (long-term)
  $
16,267
    $
68,690
 
 
 
Recent Accounting Developments.
 
In
June 2016,
the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
No.
2016
-
13,
Financial Instruments – Credit Losses
(
Topic
326
) (“ASU
2016
-
13”
) and subsequently issued additional guidance on this topic.  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. 
Our assessment is this amendment will
not
have a material impact 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”
) and subsequently issued additional guidance on this topic.  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.
 
In
August 2018,
the SEC issued Final Rule Release
No.
33
-
10532,
Disclosure Update and Simplification
, which revised Regulation S-
X,
Rule
3
-
04,
Changes in Stockholders’ Equity and Noncontrolling Interests
.  The new requirement for registrants is to include a reconciliation of changes in stockholders’ equity (deficit) in interim periods for each period that for which a statement of operations is required to be filed.  The new requirement became effective for us for the quarter ended
March 31, 2019.