On Apache filed a lawsuit against the Company, ., alleging that W&T breached the joint operating agreement related to, among other things, the abandonment of deepwater wells in the Mississippi Canyon area of the Gulf of Mexico.  A trial court judgment was rendered from the U.S. District Court for the Southern District of Texas on directing the Company to pay Apache million including prejudgment interest, attorney's fees and costs.  We unsuccessfully appealed that judgment through a process ending with the denial of a writ of certiorari to the United States Supreme Court.  A deposit of million we made in of with the registry of the court was distributed during  pursuant to an agreement with Apache. 

 

Due to funds being distributed during amounts previously recorded of million in long-term) and million recorded in (long-term) on the Consolidated Balance Sheet as of were reversed during and interest income of million was recorded in on the Consolidated Statements of Operations in  

 

 

 In we recognized allowable reductions of cash payments for royalties owed to the ONRR for transportation of their deepwater production through our subsea pipeline systems.  In  the ONRR audited our calculations and support related to this usage fee, and in we were notified that the ONRR had disallowed approximately million of the reductions taken.  We recorded a reduction to other revenue in  to reflect this disallowance with the offset to a liability reserve; however, we disagree with the position taken by the ONRR.  We filed an appeal with the ONRR, which was denied in On we filed an appeal with the IBLA under the Department of the Interior.  On the IBLA affirmed the decision of the ONRR requiring W&T to pay approximately million in additional royalties. We filed a motion for reconsideration of the IBLA decision on Based on a statutory deadline, we filed an appeal of the IBLA decision on in the U.S. District Court for the Eastern District of Louisiana.  We were required to post a bond in the amount of million and cash collateral of million in order to appeal the IBLA decision.  On the IBLA denied our motion for reconsideration.  On we filed our amended complaint, and the government has filed its Answer in the Administrative Record.  On we filed an Objection to the Administrative Record and Motion to Supplement the Administrative Record, asking the court to order the government to file a complete privilege log with the record.  Following a hearing on the Court ordered the government to file a complete privilege log.  In an Order dated the court ordered the government to produce certain contracts subject to a protective order and to produce the remaining documents in dispute to the court for review.  We are waiting for the results of that review.  Once the issues concerning the administrative record are resolved, the parties will file cross-motions for summary judgment.  

 

 

 Under a program of the Minerals Management Service (“MMS”) (a Department of Interior ("DOI") agency and predecessor to the ONRR), royalties must be paid “in-kind” rather than in value from federal leases in the program.  The MMS added to the RIK program our lease at the East Cameron field beginning in where in some months we over delivered volumes of natural gas and under delivered volumes of natural gas in other months for royalties owed.  The MMS elected to terminate receiving royalties in-kind in causing the imbalance to become fixed for accounting purposes.  The MMS ordered us to pay an amount based on its interpretation of the program and its calculations of amounts owed.  We disagreed with MMS’s interpretations and calculations and filed an appeal with the IBLA, of which the IBLA ruled in MMS’ favor.  We filed an appeal with the District Court of the Western District of Louisiana, who assigned the case to a magistrate to review and issue a ruling, and the District Court upheld the magistrate’s ruling on We filed an appeal on Part of the ruling was in favor of our position and part was in favor of MMS’ position.  We appealed the ruling to the U.S. Fifth Circuit Court of Appeals and the government filed a cross-appeal.  The Fifth Circuit issued its ruling on holding that, while the DOI has statutory authority to switch the method of royalty payment from volumes ("in-kind") to cash ("in value"), the "cashout" methodology that the DOI ordered W&T to implement was unenforceable because that methodology was a "substantive rule" that the DOI adopted in violation of the Administrative Procedure Act.  In addition, the Fifth Circuit held that the DOI's claim was unlawfully inflated because DOI improperly failed to give W&T credit for all royalty volumes delivered. The Fifth Circuit remanded the case to the district court to implement the court's decision on appeal.  Based on the combination of (i) the DOI's concessions concerning the scope of W&T's liability (e.g., that W&T is only liable for its working interest share of the royalty volumes at issue), and (ii) the Fifth Circuit's ruling, we estimate that the value of the DOI's claim against W&T is greater than million and have adjusted the liability reserve for this matter as of to such amount.  

 

 

During and we did pay any civil penalties to the BSEE related to Incidents of Noncompliance (“INCs”) at various offshore locations.  We currently have open civil penalties issued by the BSEE from INCs, which have been settled as of the filing date of this Form -K.  The INCs underlying these open civil penalties cite alleged non-compliance with various safety-related requirements and procedures occurring at separate offshore locations on various dates ranging from to The proposed civil penalties for these INCs total million.  As of and we have accrued approximately  million, which is our best estimate of the final settlements once all appeals have been exhausted.  Our position is that the proposed civil penalties are excessive given the specific facts and circumstances related to these INCs.  We are exploring the possibility of settling these civil penalties with the BSEE.

 

 

The ONRR has publicly announced an “unbundling” initiative to revise the methodology employed by producers in determining the appropriate allowances for transportation and processing costs that are permitted to be deducted in determining royalties under Federal oil and gas leases.  The ONRR’s initiative requires re-computing allowable transportation and processing costs using revised guidance from the ONRR going back months for every gas processing plant that processed our gas. In the quarter of pursuant to the initiative, we received requests from the ONRR for additional data regarding our transportation and processing allowances on natural gas production related to a specific processing plant. We also received a preliminary determination notice from the ONRR asserting that our allocation of certain processing costs and plant fuel use at another processing plant was allowed as deductions in the determination of royalties owed under Federal oil and gas leases. We have submitted revised calculations covering certain plants and time periods to the ONRR. As of the filing date of this Form -K, we have received a response from the ONRR related to our submissions.  These open ONRR unbundling reviews, and any further similar reviews, could ultimately result in an order for payment of additional royalties under our Federal oil and gas leases for current and prior periods.  During  and we paid million, million and million, respectively, of additional royalties and expect to pay more in the future. We are able to determine the range of any additional royalties or if such amounts would be material.

 

 

The BOEM requires that lessees demonstrate financial strength and reliability according to its regulations or provide acceptable financial assurances to satisfy lease obligations, including decommissioning activities on the OCS.  As of the filing date of this Form -K, the Company is in compliance with its financial assurance obligations to the BOEM and has outstanding BOEM orders related to assurance obligations.  W&T and other offshore Gulf of Mexico producers in the ordinary course receive future demands for financial assurances from the BOEM as the BOEM continues to reevaluate its requirements for financial assurances.

 

 

The issuers of surety bonds in some cases have requested and received additional collateral related to surety bonds for plugging and abandonment activities. We be required to post collateral at any time pursuant to the terms of our agreement with various sureties under our existing bonds, if they so demand at their discretion. We did receive any such collateral demands from surety bond providers during or

 

 

We are a party to various pending or threatened claims and complaints seeking damages or other remedies concerning our commercial operations and other matters in the ordinary course of our business.  In addition, claims or contingencies arise related to matters occurring prior to our acquisition of properties or related to matters occurring subsequent to our sale of properties.  In certain cases, we have indemnified the sellers of properties we have acquired, and in other cases, we have indemnified the buyers of properties we have sold.  We are also subject to federal and state administrative proceedings conducted in the ordinary course of business including matters related to alleged royalty underpayments on certain federal-owned properties.  Although we can give assurance about the outcome of pending legal and federal or state administrative proceedings and the effect such an outcome have on us, we believe that any ultimate liability resulting from the outcome of such proceedings, to the extent otherwise provided for or covered by insurance, will have a material adverse effect on our consolidated financial position, results of operations or liquidity.