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

Quarterly report pursuant to Section 13 or 15(d)

Supplemental Guarantor Information

Supplemental Guarantor Information

6 Months Ended

Jun. 30, 2014

W&T OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

13. Supplemental Guarantor Information

Our payment obligations under the 8.50% Senior Notes and the Credit Agreement (see Note 5) are fully and unconditionally guaranteed by certain of our wholly-owned subsidiaries, including W&T Energy VI, LLC and W&T Energy VII, LLC (together, the “Guarantor Subsidiaries”). W&T Energy VII, LLC does not currently have any active operations or contain any assets. Guarantees of the 8.50% Senior Notes will be released under certain circumstances, including:

(1) in connection with any sale or other disposition of all or substantially all of the assets of a Guarantor Subsidiary (including by way of merger or consolidation) to a person that is not (either before or after giving effect to such transaction) the Company or a Restricted Subsidiary (as such term is defined in the indenture governing the 8.50% Senior Notes) of the Company, if the sale or other disposition does not violate the “Asset Sales” provisions of the indenture;

(2) in connection with any sale or other disposition of the capital stock of such Guarantor Subsidiary to a person that is not (either before or after giving effect to such transaction) the Company or a Restricted Subsidiary of the Company, if the sale or other disposition does not violate the “Asset Sales” provisions of the indenture and the Guarantor Subsidiary ceases to be a subsidiary of the Company as a result of such sales or disposition;

(3) if such Guarantor Subsidiary is a Restricted Subsidiary and the Company designates such Guarantor Subsidiary as an Unrestricted Subsidiary in accordance with the applicable provisions of the indenture;

(4) upon Legal Defeasance or Covenant Defeasance (as such terms are defined in the indenture) or upon satisfaction and discharge of the indenture;

(5) upon the liquidation or dissolution of such Guarantor Subsidiary, provided no event of default has occurred and is continuing; or

(6) at such time as such Guarantor Subsidiary is no longer required to be a Guarantor Subsidiary of the 8.50% Senior Notes as described in the indenture, provided no event of default has occurred and is continuing.

The following condensed consolidating financial information presents the financial condition, results of operations and cash flows of the Parent Company and the Guarantor Subsidiaries, together with consolidating adjustments necessary to present the Company’s results on a consolidated basis. Transfers of property, including related ARO, were made from the Parent Company to the Guarantor Subsidiaries to assist the Parent Company to continue to qualify for a waiver of certain supplemental bonding requirements from the BOEM. See Note 11 for additional information. As these transfers were transactions between entities under common control, the prior period financial information has been retrospectively adjusted for comparability purposes, as prescribed under authoritative guidance. These adjustments had no impact on the consolidated results for the current or prior periods presented.

Condensed Consolidating Balance Sheet as of June 30, 2014

									Consolidated
	Parent			Guarantor					W&T
	Company			Subsidiaries		Eliminations			Offshore, Inc.
	(In thousands)
Assets
Current assets:
Cash and cash equivalents	$	23,847		$	—	$	—		$	23,847
Receivables:
Oil and natural gas sales		53,737			40,680		—			94,417
Joint interest and other		26,584			—		—			26,584
Income tax		144,976			—		(144,856	)		120
Total receivables		225,297			40,680		(144,856	)		121,121
Prepaid expenses and other assets		34,462			4,182		—			38,644
Total current assets		283,606			44,862		(144,856	)		183,612
Property and equipment – at cost:
Oil and natural gas properties and equipment		5,817,544			1,810,664		—			7,628,208
Furniture, fixtures and other		21,660			—		—			21,660
Total property and equipment		5,839,204			1,810,664		—			7,649,868
Less accumulated depreciation, depletion and amortization		4,295,168			1,030,906		—			5,326,074
Net property and equipment		1,544,036			779,758		—			2,323,794
Restricted deposits for asset retirement obligations		23,723			—		—			23,723
Other assets		1,160,693			566,950		(1,709,000	)		18,643
Total assets	$	3,012,058		$	1,391,570	$	(1,853,856	)	$	2,549,772
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	134,748		$	5,747	$	—		$	140,495
Undistributed oil and natural gas proceeds		38,591			611		—			39,202
Asset retirement obligations		61,509			8,414		—			69,923
Accrued liabilities		59,800			116,355		(144,856	)		31,299
Total current liabilities		294,648			131,127		(144,856	)		280,919
Long-term debt, less current maturities		1,224,262			—		—			1,224,262
Asset retirement obligations, less current portion		172,999			114,681		—			287,680
Deferred income taxes		106,175			83,727		—			189,902
Other liabilities		660,588			—		(646,966	)		13,622
Shareholders’ equity:
Common stock		1			—		—			1
Additional paid-in capital		410,641			842,802		(842,801	)		410,642
Retained earnings		166,911			219,233		(219,233	)		166,911
Treasury stock, at cost		(24,167	)		—		—			(24,167	)
Total shareholders’ equity		553,386			1,062,035		(1,062,034	)		553,387
Total liabilities and shareholders’ equity	$	3,012,058		$	1,391,570	$	(1,853,856	)	$	2,549,772

Condensed Consolidating Balance Sheet as of December 31, 2013

									Consolidated
	Parent			Guarantor					W&T
	Company			Subsidiaries		Eliminations			Offshore, Inc.
	(In thousands)
Assets
Current assets:
Cash and cash equivalents	$	15,800		$	—	$	—		$	15,800
Receivables:
Oil and natural gas sales		61,373			35,379		—			96,752
Joint interest and other		27,984			—		—			27,984
Income taxes		95,611			—		(92,491	)		3,120
Total receivables		184,968			35,379		(92,491	)		127,856
Prepaid expenses and other assets		23,674			6,272		—			29,946
Total current assets		224,442			41,651		(92,491	)		173,602
Property and equipment – at cost:
Oil and natural gas properties and equipment		5,667,389			1,671,708		—			7,339,097
Furniture, fixtures and other		21,431			—		—			21,431
Total property and equipment		5,688,820			1,671,708		—			7,360,528
Less accumulated depreciation, depletion and amortization		4,166,359			918,345		—			5,084,704
Net property and equipment		1,522,461			753,363		—			2,275,824
Restricted deposits for asset retirement obligations		37,421			—		—			37,421
Other assets		951,203			479,820		(1,410,568	)		20,455
Total assets	$	2,735,527		$	1,274,834	$	(1,503,059	)	$	2,507,302
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	144,492		$	720	$	—		$	145,212
Undistributed oil and natural gas proceeds		41,735			372		—			42,107
Asset retirement obligations		65,329			12,456		—			77,785
Accrued liabilities		28,000			92,491		(92,491	)		28,000
Total current liabilities		279,556			106,039		(92,491	)		293,104
Long-term debt, less current maturities		1,205,421			—		—			1,205,421
Asset retirement obligations, less current portion		189,507			87,130		—			276,637
Deferred income taxes		79,424			98,718		—			178,142
Other liabilities		441,009			—		(427,621	)		13,388
Shareholders’ equity:
Common stock		1			—		—			1
Additional paid-in capital		403,564			784,104		(784,104	)		403,564
Retained earnings		161,212			198,843		(198,843	)		161,212
Treasury stock, at cost		(24,167	)		—		—			(24,167	)
Total shareholders’ equity		540,610			982,947		(982,947	)		540,610
Total liabilities and shareholders’ equity	$	2,735,527		$	1,274,834	$	(1,503,059	)	$	2,507,302

Condensed Consolidating Statement of Income for the Three Months Ended June 30, 2014

										Consolidated
	Parent			Guarantor						W&T
	Company			Subsidiaries			Eliminations			Offshore, Inc.
	(In thousands)
Revenues	$	162,071		$	100,923		$	—		$	262,994
Operating costs and expenses:
Lease operating expenses		40,612			21,153			—			61,765
Production taxes		1,842			—			—			1,842
Gathering and transportation		2,218			1,767			—			3,985
Depreciation, depletion, amortization and accretion		71,327			56,909			—			128,236
General and administrative expenses		10,638			9,044			—			19,682
Derivative loss		13,079			—			—			13,079
Total costs and expenses		139,716			88,873			—			228,589
Operating income		22,355			12,050			—			34,405
Earnings of affiliates		7,939			—			(7,939	)		—
Interest expense:
Incurred		20,617			837			—			21,454
Capitalized		(1,322	)		(837	)		—			(2,159	)
Income before income tax expense		10,999			12,050			(7,939	)		15,110
Income tax expense (benefit)		1,162			4,111			—			5,273
Net income	$	9,837		$	7,939		$	(7,939	)	$	9,837

Condensed Consolidating Statement of Income for the Six Months Ended June 30, 2014

										Consolidated
	Parent			Guarantor						W&T
	Company			Subsidiaries			Eliminations			Offshore, Inc.
	(In thousands)
Revenues	$	306,057		$	211,453		$	—		$	517,510
Operating costs and expenses:
Lease operating expenses		79,724			37,660			—			117,384
Production taxes		3,834			—			—			3,834
Gathering and transportation		5,556			3,725			—			9,281
Depreciation, depletion, amortization and accretion		133,758			117,784			—			251,542
General and administrative expenses		22,083			21,187			—			43,270
Derivative loss		20,571			—			—			20,571
Total costs and expenses		265,526			180,356			—			445,882
Operating income		40,531			31,097			—			71,628
Earnings of affiliates		20,390			—			(20,390	)		—
Interest expense:
Incurred		41,294			1,618			—			42,912
Capitalized		(2,613	)		(1,618	)		—			(4,231	)
Income before income tax expense		22,240			31,097			(20,390	)		32,947
Income tax expense (benefit)		1,214			10,707			—			11,921
Net income	$	21,026		$	20,390		$	(20,390	)	$	21,026

Condensed Consolidating Statement of Income for the Three Months Ended June 30, 2013

										Consolidated
	Parent			Guarantor						W&T
	Company			Subsidiaries			Eliminations			Offshore, Inc.
	(In thousands)
Revenues	$	147,070		$	88,313		$	—		$	235,383
Operating costs and expenses:
Lease operating expenses		51,406			16,842			—			68,248
Production taxes		1,780			—			—			1,780
Gathering and transportation		2,833			1,775			—			4,608
Depreciation, depletion, amortization and accretion		55,706			44,190			—			99,896
General and administrative expenses		11,473			8,395			—			19,868
Derivative loss		(12,840	)		—			—			(12,840	)
Total costs and expenses		110,358			71,202			—			181,560
Operating income		36,712			17,111			—			53,823
Earnings of affiliates		11,143			—			(11,143	)		—
Interest expense:
Incurred		20,789			747			—			21,536
Capitalized		(1,785	)		(747	)		—			(2,532	)
Income before income tax expense		28,851			17,111			(11,143	)		34,819
Income tax expense		6,455			5,968			—			12,423
Net income	$	22,396		$	11,143		$	(11,143	)	$	22,396

Condensed Consolidating Statement of Income for the Six Months Ended June 30, 2013

										Consolidated
	Parent			Guarantor						W&T
	Company			Subsidiaries			Eliminations			Offshore, Inc.
	(In thousands)
Revenues	$	317,611		$	176,994		$	—		$	494,605
Operating costs and expenses:
Lease operating expenses		94,676			32,914			—			127,590
Production taxes		3,569			—			—			3,569
Gathering and transportation		5,112			3,940			—			9,052
Depreciation, depletion, amortization and accretion		118,908			89,859			—			208,767
General and administrative expenses		23,885			17,070			—			40,955
Derivative loss		(9,473	)		—			—			(9,473	)
Total costs and expenses		236,677			143,783			—			380,460
Operating income		80,934			33,211			—			114,145
Earnings of affiliates		21,641			—			(21,641	)		—
Interest expense:
Incurred		41,307			1,463			—			42,770
Capitalized		(3,501	)		(1,463	)		—			(4,964	)
Income before income tax expense		64,769			33,211			(21,641	)		76,339
Income tax expense		15,755			11,570			—			27,325
Net income	$	49,014		$	21,641		$	(21,641	)	$	49,014

Condensed Consolidating Statement of Cash Flows for the Six Months Ended June 30, 2014

										Consolidated
	Parent			Guarantor						W&T
	Company			Subsidiaries			Eliminations			Offshore, Inc.
	(In thousands)
Operating activities:
Net income	$	21,026		$	20,390		$	(20,390	)	$	21,026
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion, amortization and accretion		133,758			117,784			—			251,542
Amortization of debt issuance costs and premium		366			—			—			366
Share-based compensation		7,644			—			—			7,644
Derivative loss		20,571			—			—			20,571
Cash payments on derivative settlements (realized)		(14,310	)		—			—			(14,310	)
Deferred income taxes		25,078			(13,157	)		—			11,921
Earnings of affiliates		(20,390	)		—			20,390			—
Changes in operating assets and liabilities:
Oil and natural gas receivables		7,636			(5,301	)		—			2,335
Joint interest and other receivables		3,550			—			—			3,550
Income taxes		(20,947	)		23,865			—			2,918
Prepaid expenses and other assets		(127,910	)		(86,875	)		219,224			4,439
Asset retirement obligations settlements		(18,583	)		(11,755	)		—			(30,338	)
Accounts payable, accrued liabilities and other		203,344			5,266			(219,224	)		(10,614	)
Net cash provided by operating activities		220,833			50,217			—			271,050
Investing activities:
Acquisition of property interest in oil and natural gas properties		—			(53,363	)		—			(53,363	)
Investment in oil and natural gas properties and equipment		(157,128	)		(55,552	)		—			(212,680	)
Investment in subsidiary		(58,698	)		—			58,698			—
Purchases of furniture, fixtures and other		(1,715	)		—			—			(1,715	)
Net cash used in investing activities		(217,541	)		(108,915	)		58,698			(267,758	)
Financing activities:
Borrowings of long-term debt – revolving bank credit facility		220,000			—			—			220,000
Repayments of long-term debt – revolving bank credit facility		(200,000	)		—			—			(200,000	)
Dividends to shareholders		(15,129	)		—			—			(15,129	)
Other		(116	)		—			—			(116	)
Investment from parent		—			58,698			(58,698	)		—
Net cash provided (used) in financing activities		4,755			58,698			(58,698	)		4,755
Increase in cash and cash equivalents		8,047			—			—			8,047
Cash and cash equivalents, beginning of period		15,800			—			—			15,800
Cash and cash equivalents, end of period	$	23,847		$	—		$	—		$	23,847

Condensed Consolidating Statement of Cash Flows for the Six Months Ended June 30, 2013

										Consolidated
	Parent			Guarantor						W&T
	Company			Subsidiaries			Eliminations			Offshore, Inc.
	(In thousands)
Operating activities:
Net income	$	49,014		$	21,641		$	(21,641	)	$	49,014
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion, amortization and accretion		118,908			89,859			—			208,767
Amortization of debt issuance costs and premium		910			—			—			910
Share-based compensation		4,950			—			—			4,950
Derivative gain		(9,473	)		—			—			(9,473	)
Cash payments on derivative settlements		(2,310	)		—			—			(2,310	)
Deferred income taxes		11,357			12,369			—			23,726
Earnings of affiliates		(21,641	)		—			21,641			—
Changes in operating assets and liabilities:
Oil and natural gas receivables		15,673			1,390			—			17,063
Joint interest and other receivables		38,635			—			—			38,635
Income taxes		9,378			(799	)		—			8,579
Prepaid expenses and other assets		(26,487	)		(27,054	)		41,160			(12,381	)
Asset retirement obligations		(29,740	)		(3,146	)		—			(32,886	)
Accounts payable, accrued liabilities and other		44,054			(126	)		(41,160	)		2,768
Net cash provided by operating activities		203,228			94,134			—			297,362
Investing activities:
Investment in oil and natural gas properties and equipment		(205,079	)		(94,134	)		—			(299,213	)
Purchases of furniture, fixtures and other		(981	)		—			—			(981	)
Net cash used in investing activities		(206,060	)		(94,134	)		—			(300,194	)
Financing activities:
Borrowings of long-term debt – revolving bank credit facility		252,000			—			—			252,000
Repayments of long-term debt – revolving bank credit facility		(239,000	)		—			—			(239,000	)
Dividends to shareholders		(12,795	)		—			—			(12,795	)
Other		(342	)		—			—			(342	)
Net cash used in financing activities		(137	)		—			—			(137	)
Increase in cash and cash equivalents		(2,969	)		—			—			(2,969	)
Cash and cash equivalents, beginning of period		12,245			—			—			12,245
Cash and cash equivalents, end of period	$	9,276		$	—		$	—		$	9,276