W&T Offshore, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Note 7 - Leases

Note 7 - Leases

12 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Lessee, Operating Leases [Text Block]

Leases

ASU

2016

was effective for us on

January 1, 2019

and we adopted the new standard using a modified retrospective approach. Consequently, upon transition, we recognized a ROU asset and a lease liability. The adoption of the new standard did

not

impact our Consolidated Statements of Operations, Consolidated Statements of Cash Flows or Consolidated Statements of Changes in Shareholders’ Deficit

As provided for in subsequent accounting standards updates related to ASU

2016

02,

we are applying the following practical expedients which provide elections to:

●

not

apply the recognition requirements to short-term leases (a lease that at commencement date has an expected term of

months or less and does

not

contain a purchase option);

●

not

reassess whether a contract contains a lease, lease classifications between operating and financing and accounting for initial direct costs related to leases;

●

not

reassess certain land easements in existence prior to

January 1, 2019;

●

use hindsight in determining the lease term and assessing impairment; and

●

not

separate non-lease and lease components.

During

2019,

various pipeline rights-of-way contracts and a land lease were acquired, assumed, renewed or otherwise entered into, primarily in conjunction with acquiring the Mobile Bay Properties. For these contracts and the existing office lease with future payments, a ROU asset and a corresponding lease liability was calculated based on our assumptions of the term, inflation rates and incremental borrowing rates. The term of each pipeline right-of-way contract is

years with various effective dates, and each has an option to renew for up to another

ten

years. It is expected renewals beyond

years can be obtained as renewals were granted to the previous lessees. The land lease has an option to renew every

five

years extending to

2085.

The expected term of the rights-of way and land leases was estimated to approximate the life of the related reserves. The expected term for the office lease was based on management's plans. We recorded ROU assets and lease liabilities using a discount rate of

9.75%

for the office lease and

10.75%

for the other leases due to their longer expected term.

Minimum future lease payments were estimated assuming expected terms of the leases and estimated inflation escalations of payments for certain leases. Undiscounted future minimum payments as of

December 31, 2019

are as follows:

2020

$2.9

million;

2021

$0.3

million;

2022

$0.3

million;

2023

$0.5

million; and

2024

and beyond -

$11.0

million. During

2019,

2018

and

2017,

expense recognized related to these right-of-way and office space leases was

$2.9

million,

$3.4

million and

$3.0

million, respectively. The following table provides the amounts included in our Consolidated Balance Sheet related to these leases (in thousands):

	December 31, 2019
ROU assets	$	7,936

Lease liability:
Accrued liabilities	$	2,716
Other liabilities		4,419
Total lease liability	$	7,135

During

2019,

we incurred short-term lease costs related to drilling rigs of

$22.2

million, net to our interest, of which the majority of such costs were recorded within

Oil and natural gas properties, net

, on the Consolidated Balance Sheet.