Quarterly report pursuant to Section 13 or 15(d)

Note 1 - Basis of Presentation

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Note 1 - Basis of Presentation
3 Months Ended
Mar. 31, 2021
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, 2020.

 

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.

 

Accounting Standards Updates effective January 1, 2021

 

Simplifying the Accounting for Income Taxes. In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"). ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and by clarifying and amending existing guidance.  ASU 2019-12 is effective for annual and interim financial statement periods beginning after December 15, 2020.  Adoption of the amendment did not have a material impact on our financial statements or disclosures.

 

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.

 

Employee Retention Credit.  Under the Consolidated Appropriations Act, 2021 passed by the United States Congress and signed by the President on December 27, 2020, provisions of the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") were extended and modified making the Company eligible for a refundable employee retention credit subject to meeting certain criteria. The Company recognized a $2.1 million employee retention credit during the three months ended March 31, 2021 which is included as a credit to General and administrative expenses in the Condensed Consolidated Statement of Operations. 

 

Credit Risk and Allowance for Credit Losses.  Our revenue has been concentrated in certain major oil and gas companies.  For the three months ended March 31, 2021, and the year ended December 31, 2020, approximately 67% and 62%, respectively, of our revenue was from three major oil and gas companies and a substantial majority of our receivables were from sales with major oil and gas companies.  We also have 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.  Our maximum exposure at any time would be the receivable balance.  The receivables, Joint interest and other, net, reported on the Condensed Consolidated Balance Sheets are reduced for the allowance for credit losses.  The allowance for credit losses was $9.1 million as of March 31, 2021 and December 31, 2020. 

 

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):

 

 

   

March 31, 2021

   

December 31, 2020

 

Derivatives - current (1)

  $ 2,701     $ 2,752  

Unamortized insurance/bond premiums

    5,163       4,717  

Prepaid deposits related to royalties

    4,536       4,473  

Prepayment to vendors

    1,966       1,429  

Other

    984       461  

Prepaid expenses and other assets

  $ 15,350     $ 13,832  

 

(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):

 

 

   

March 31, 2021

   

December 31, 2020

 

Oil and natural gas properties and equipment, at cost

  $ 8,570,371     $ 8,567,509  

Furniture, fixtures and other

    20,845       20,847  

Total property and equipment

    8,591,216       8,588,356  

Less: Accumulated depreciation, depletion, amortization and impairment

    7,922,247       7,901,478  

Oil and natural gas properties and other, net

  $ 668,969     $ 686,878  

 

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

 

 

   

March 31, 2021

   

December 31, 2020

 

Right-of-Use assets

  $ 11,218     $ 11,509  

Unamortized debt issuance costs

    1,591       2,094  

Investment in White Cap, LLC

    2,872       2,699  

Unamortized brokerage fee for Monza

          626  

Proportional consolidation of Monza's other assets (Note 4)

    4,073       1,782  

Derivatives

    1,731       2,762  

Other

    1,128       998  

Total other assets (long-term)

  $ 22,613     $ 22,470  

 

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

 

   

March 31, 2021

   

December 31, 2020

 

Accrued interest

  $ 25,420     $ 10,389  

Accrued salaries/payroll taxes/benefits

    3,902       4,009  

Litigation accruals

    530       436  

Lease liability

    484       394  

Derivatives

    32,703       13,620  

Other

    1,381       1,032  

Total accrued liabilities

  $ 64,420     $ 29,880  

 

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

 

 

   

March 31, 2021

   

December 31, 2020

 

Dispute related to royalty deductions

  $ 5,247     $ 5,467  

Derivatives

    3,514       4,384  

Lease liability

    11,257       11,360  

Black Elk escrow

    11,103       11,103  

Other

    659       624  

Total other liabilities (long-term)

  $ 31,780     $ 32,938