UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to ________________

Commission File Number 1-32414

W&T OFFSHORE, INC.

(Exact name of registrant as specified in its charter)


Texas		72-1121985
(State of incorporation)		(IRS Employer Identification Number)

5718 Westheimer Road, Suite 700, Houston, Texas		77057-5745
(Address of principal executive offices)		(Zip Code)

(713) 626-8525

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every interactive data file required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☐	Accelerated filer	☑
Non-accelerated filer ☐	Smaller reporting company	☐
	Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company. Yes ☐ No ☑

Securities registered pursuant to section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.00001	WTI	New York Stock Exchange

As of April 30, 2022 there were 143,012,124 shares outstanding of the registrant’s common stock, par value $0.00001.

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

W&T OFFSHORE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)


	March 31,		December 31,
	2022		2021
Assets
Current assets:
Cash and cash equivalents	$	215,475	$	245,799
Restricted cash		4,417		4,417
Receivables:
Oil and natural gas sales		92,693		54,919
Joint interest, net		14,221		9,745
Total receivables		106,914		64,664
Prepaid expenses and other assets (Note 1)		103,061		43,379
Total current assets		429,867		358,259

Oil and natural gas properties and other, net (Note 1)		731,692		665,252

Restricted deposits for asset retirement obligations		21,958		16,019
Deferred income taxes		103,238		102,505
Other assets (Note 1)		63,392		51,172
Total assets	$	1,350,147	$	1,193,207
Liabilities and Shareholders’ Deficit
Current liabilities:
Accounts payable	$	69,195	$	67,409
Undistributed oil and natural gas proceeds		33,575		36,243
Advances from joint interest partners		6,521		15,072
Asset retirement obligations		67,274		56,419
Accrued liabilities (Note 1)		209,845		106,140
Current portion of long-term debt		39,881		42,960
Income tax payable		177		133
Total current liabilities		426,468		324,376

Long-term debt, net (Note 2)		680,436		687,938
Asset retirement obligations, less current portion		407,682		368,076
Other liabilities (Note 1)		80,338		55,389
Deferred income taxes		113		113
Commitments and contingencies (Note 12)		4,495		4,495
Shareholders’ deficit:
Preferred stock, $0.00001 par value; 20,000 shares authorized; none issued at March 31, 2022 and December 31, 2021		—		—
Common stock, $0.00001 par value; 200,000 shares authorized; 145,881 issued and 143,012 outstanding at March 31, 2022; 145,732 issued and 142,863 outstanding at December 31, 2021		1		1
Additional paid-in capital		553,175		552,923
Retained deficit		(778,394)		(775,937)
Treasury stock, at cost; 2,869 shares at March 31, 2022 and December 31, 2021		(24,167)		(24,167)
Total shareholders’ deficit		(249,385)		(247,180)
Total liabilities and shareholders’ deficit	$	1,350,147	$	1,193,207

See Notes to Condensed Consolidated Financial Statements.

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W&T OFFSHORE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)


	Three Months Ended March 31,
	2022		2021
Revenues:
Oil	$	122,702	$	78,140
NGLs		13,820		9,359
Natural gas		51,366		36,209
Other		3,116		1,939
Total revenues		191,004		125,647
Operating expenses:
Lease operating expenses		43,411		42,357
Gathering, transportation and production taxes		5,267		6,315
Depreciation, depletion, and amortization		24,675		20,769
Asset retirement obligations accretion		6,236		5,868
General and administrative expenses		13,776		10,712
Total operating expenses		93,365		86,021
Operating income		97,639		39,626

Interest expense, net		19,883		15,034
Derivative loss		79,997		24,578
Other expense, net		905		963
Loss before income taxes		(3,146)		(949)
Income tax benefit		(689)		(203)
Net loss	$	(2,457)	$	(746)

Net loss per common share:
Basic	$	(0.02)	$	(0.01)
Diluted		(0.02)		(0.01)

Weighted average common shares outstanding
Basic		142,942		142,151
Diluted		142,942		142,151

See Notes to Condensed Consolidated Financial Statements.

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W&T OFFSHORE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT

(In thousands)

(Unaudited)


	Common Stock			Additional							Total
	Outstanding			Paid-In		Retained		Treasury Stock			Shareholders’
	Shares	Value		Capital		Deficit		Shares	Value		Deficit
Balances at December 31, 2021	142,863	$	1	$	552,923	$	(775,937)	2,869	$	(24,167)	$	(247,180)
Share-based compensation	—		—		520		—	—		—		520
Stock Issued	149		—		—		—	—		—		—
RSUs surrendered for payroll taxes	—		—		(268)		—	—		—		(268)
Net loss	—		—		—		(2,457)	—		—		(2,457)
Balances at March 31, 2022	143,012	$	1	$	553,175	$	(778,394)	2,869	$	(24,167)	$	(249,385)


	Common Stock			Additional							Total
	Outstanding			Paid-In		Retained		Treasury Stock			Shareholders’
	Shares	Value		Capital		Deficit		Shares	Value		Deficit
Balances at December 31, 2020	142,305	$	1	$	550,339	$	(734,459)	2,869	$	(24,167)	$	(208,286)
Share-based compensation	—				454		—	—		—		454
Net loss	—		—		—		(746)	—		—		(746)
Balances at March 31, 2021	142,305	$	1	$	550,793	$	(735,205)	2,869	$	(24,167)	$	(208,578)

See Notes to Condensed Consolidated Financial Statements.

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W&T OFFSHORE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2022		2021
Operating activities:
Net loss	$	(2,457)	$	(746)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, depletion, amortization and accretion		30,911		26,637
Amortization of debt items and other items		2,594		2,019
Share-based compensation		520		454
Derivative loss		79,997		24,578
Derivative cash payments, net		(30,515)		(4,604)
Deferred income taxes		(733)		(203)
Changes in operating assets and liabilities:
Oil and natural gas receivables		(37,774)		(11,101)
Joint interest receivables		(4,476)		(4,394)
Prepaid expenses and other assets		(12,183)		(7,575)
Income tax		44		—
Asset retirement obligation settlements		(5,492)		(962)
Cash advances from JV partners		(8,550)		(1,023)
Accounts payable, accrued liabilities and other		15,651		21,884
Net cash provided by operating activities		27,537		44,964
Investing activities:
Investment in oil and natural gas properties and equipment		(17,439)		(1,575)
Changes in operating assets and liabilities associated with investing activities		2,630		(1,758)
Acquisition of property interests		(30,153)		—
Purchases of furniture, fixtures and other		—		2
Net cash used in investing activities		(44,962)		(3,331)
Financing activities:
Repayments on credit facility		—		(32,000)
Repayments on Term Loan		(12,630)		—
Debt issuance costs		(269)		—
Net cash used in financing activities		(12,899)		(32,000)
(Decrease) increase in cash and cash equivalents		(30,324)		9,633
Cash and cash equivalents and restricted cash, beginning of period		250,216		43,726
Cash and cash equivalents and restricted cash, end of period	$	219,892	$	53,359

See Notes to Condensed Consolidated Financial Statements.

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Summary of Significant Accounting Policies

Revenue and Accounts Receivable – Revenue from the sale of crude oil, natural gas liquids (“NGLs”) and natural gas is recognized when performance obligations under the terms of the respective contracts are satisfied; this generally occurs with the delivery of crude oil, NGLs and natural gas to the customer. Revenue is concentrated with certain major oil and gas companies. There have been no significant changes to the Company’s contracts with customers during the three months ended March 31, 2022.

The Company also has 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. Joint interest receivables on the Condensed Consolidated Balance Sheet are presented net of allowance for credit losses of $10.9 million and $10.0 million as of March 31, 2022 and December 31, 2021, respectively.

Employee Retention Credit – Under the Consolidated Appropriations Act of 2021 passed by the United States Congress and signed by the President on December 27, 2020, 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. No such credit has been recognized during the three months ended March 31, 2022.

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, 2022		December 31, 2021
Derivatives⁽¹⁾(Note 8)	$	77,658	$	21,086
Unamortized insurance/bond premiums		7,291		5,400
Prepaid deposits related to royalties		9,189		8,441
Prepayment to vendors		4,461		4,522
Prepayments to joint interest partners		2,653		2,808
Debt issue costs		1,763		1,065
Other		46		57
Prepaid expenses and other assets	$	103,061	$	43,379

⁽¹⁾	^{Includes closed contracts which have not yet settled.}

Oil and Natural Gas Properties and Other, Net – 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, 2022		December 31, 2021
Oil and natural gas properties and equipment	$	8,727,521	$	8,636,408
Furniture, fixtures and other		20,845		20,844
Total property and equipment		8,748,366		8,657,252
Less: Accumulated depreciation, depletion, amortization and impairment		8,016,674		7,992,000
Oil and natural gas properties and other, net	$	731,692	$	665,252

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


	March 31, 2022		December 31, 2021
Right-of-Use assets	$	10,604	$	10,602
Investment in White Cap, LLC		2,740		2,533
Proportional consolidation of Monza (Note 6)		(531)		2,511
Derivatives ⁽¹⁾ (Note 8)		49,550		34,435
Other		1,029		1,091
Total other assets (long-term)	$	63,392	$	51,172

⁽¹⁾	^{Includes open contracts and prepaid premiums paid for purchased put and call options.}

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


	March 31, 2022		December 31, 2021
Accrued interest	$	25,405	$	10,154
Accrued salaries/payroll taxes/benefits		3,997		9,617
Litigation accruals		500		646
Lease liability		1,409		1,115
Derivatives ⁽¹⁾(Note 8)		177,298		81,456
Other		1,236		3,152
Total accrued liabilities	$	209,845	$	106,140

⁽¹⁾	^{Includes closed contracts which have not yet settled.}

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


	March 31, 2022		December 31, 2021
Dispute related to royalty deductions	$	4,937	$	5,177
Derivatives (Note 8)		63,318		37,989
Lease liability		10,936		11,227
Other		1,147		996
Total other liabilities (long-term)	$	80,338	$	55,389

At-the-Market Equity Offering – On March 17, 2022, the Company filed a prospectus supplement related to the issuance and sale of up to $100,000,000 of shares of our common stock under our "at-the-market" equity offering program (the "ATM Program"). The designated sales agents will be entitled to a placement fee of up to 3.0% of the gross sales price per share sold. During the three months ended March 31, 2022, we did not sell any shares in connection with the ATM Program.

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NOTE 2 — DEBT

The components comprising the Company’s debt are presented in the following table (in thousands):


	March 31,		December 31,
	2022		2021
Term Loan:
Principal	$	178,229	$	190,859
Unamortized debt issuance costs		(6,108)		(7,545)
Total Term Loan		172,121		183,314

Credit Agreement borrowings:		—		—

Senior Second Lien Notes:
Principal		552,460		552,460
Unamortized debt issuance costs		(4,264)		(4,876)
Total Senior Second Lien Notes		548,196		547,584

Less current portion		(39,881)		(42,960)
Total long-term debt, net	$	680,436	$	687,938

Current Portion of Long-Term Debt

As of March 31, 2022, the current portion of long-term debt of $39.9 million represented principal payments due within one year on the Term Loan (defined below).

Term Loan (Subsidiary Credit Agreement)

On May 19, 2021, A-I LLC and A-II LLC (collectively, the “Subsidiary Borrowers”), both Delaware limited liability companies and indirect, wholly-owned subsidiaries of W&T Offshore, Inc., entered into a credit agreement (the “Subsidiary Credit Agreement”) providing for a term loan in an aggregate principal amount equal to $215.0 million (the “Term Loan”). The Term Loan requires quarterly amortization payments commencing September 30, 2021. The Term Loan bears interest at a fixed rate of 7% per annum and will mature on May 19, 2028. The Term Loan is non-recourse to the Company and any subsidiaries other than the Subsidiary Borrowers and the subsidiary that owns the equity in the Subsidiary Borrowers, and is secured by the first lien security interests in the equity of the Subsidiary Borrowers and a first lien mortgage security interest and mortgages on certain assets of the Subsidiary Borrowers (the Mobile Bay Properties, defined below).

In exchange for the net cash proceeds received by the Subsidiary Borrowers from the Term Loan, the Company assigned to (a) A-I LLC all of its interests in certain oil and gas leasehold interests and associated wells and units located in State of Alabama waters and U.S. federal waters in the offshore Gulf of Mexico, in the Mobile Bay region (such assets, the “Mobile Bay Properties”) and (b) A-II LLC its interest in certain gathering and processing assets located (i) in State of Alabama waters and U.S. federal waters in the offshore Gulf of Mexico, in the Mobile Bay region and (ii) onshore near Mobile, Alabama, including offshore gathering pipelines, an onshore crude oil treating and sweetening facility, an onshore gathering pipeline, and associated assets (such assets, the “Midstream Assets”). A portion of the proceeds to the Company was used to repay the $48.0 million outstanding balance on its reserve-based lending facility under the Credit Agreement (defined below), with the majority of the proceeds to W&T expected to be used for general corporate purposes, including oil and gas acquisitions, development activities, and other opportunities to grow the Company’s broader asset base. The transactions contemplated by the Subsidiary Credit Agreement, including the assignment of the Mobile Bay Properties to A-I LLC and the assignment of the Midstream Assets to A-II LLC are referred to herein as the “Mobile Bay Transaction”. For information about the Mobile Bay Transaction refer to Note 5 – Mobile Bay Transaction.

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Credit Agreement

On November 2, 2021, the Company entered into the Ninth Amendment to the Sixth Amended and Restated Credit Agreement (the “Ninth Amendment”), which establishes a short-term $100.0 million first priority lien secured revolving facility with borrowings limited to a borrowing base of $50.0 million (the “Credit Agreement”) provided by Calculus Lending, LLC (“Calculus”), a company affiliated with, and controlled by W&T’s Chairman and Chief Executive Officer, Tracy W. Krohn, as sole lender under the Credit Agreement. A committee of the independent members of the Board of Directors reviewed and approved the amendments given the Chief Executive Officer’s affiliation with Calculus. As of November 2, 2021, the Company cash collateralized each of the outstanding letters of credit in the aggregate amount of approximately $4.4 million. Alter Domus (US) LLC was appointed to replace Toronto Dominion (Texas) LLC as administrative agent under the Credit Agreement.

On March 8, 2022, the Company entered into the Tenth Amendment to Credit Agreement (the “Tenth Amendment”), which extended the maturity date and Calculus’ commitment to January 3, 2023. The terms of this extension with Calculus were reviewed and approved by the Audit Committee of the Company.

As a result of the Ninth Amendment and Tenth Amendment and related assignments and agreements, the primary terms and covenants associated with the Credit Agreement as of March 31, 2022, are as follows:

The revised borrowing base is $50.0 million.

The commitment will expire and final maturity of any and all outstanding loans is January 3, 2023. Outstanding borrowings will accrue interest at LIBOR plus 6.0% per annum. The commitment fee for the unused portion of available borrowing amounts will be 3.0% per annum.

·The Company’s ratio of First Lien Debt (as such term is defined in the Credit Agreement) outstanding under the Credit Agreement on the last day of the most recent quarter to EBITDAX (as such term is defined in the Credit Agreement) for the trailing four quarters must not be greater than 2.50 to 1.00 on the last day of the fiscal quarter ending March 31, 2022 and on the last day of each fiscal quarter thereafter.

·The Company’s ratio of Total Proved PV-10 (as such term is defined in the Credit Agreement) to First Lien Debt as of the last day of any fiscal quarter commencing with the fiscal quarter ending March 31, 2022 must be equal to or greater than 2.00 to 1.00.

·The ratio of the Company and its restricted subsidiaries’ consolidated current assets to Company and its restricted subsidiaries’ consolidated current liabilities (subject in each case to certain exceptions and adjustments as set forth in the Credit Agreement) at the last day of any fiscal quarter must be greater than or equal to 1.00 to 1.00.

●

As of the last day of any fiscal quarter commencing with the fiscal quarter ending March 31, 2022, the Company and its restricted subsidiaries on a consolidated basis must pass a “Stress Test” consisting of an analysis conducted by the lender in good faith and in consultation with the Company based upon the latest engineering report furnished to lender, which analysis is designed to determine whether the future net revenues expected to accrue to the Company’s and its guarantor subsidiaries’ interest (and the interest of certain joint ventures) in the oil and gas properties included in the properties used to determine the latest borrowing base during half of the remaining expected economic lives of such properties are sufficient to satisfy the aggregate first lien indebtedness of the Company and its restricted subsidiaries in accordance with the terms of such indebtedness assuming the revolving credit facility is 100% funded or fully utilized.

●Certain related party transactions are required to meet certain arm’s length criteria; except in each case as specifically permitted or excluded from the covenant under the Credit Agreement.

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In connection with the Tenth Amendment, Calculus was paid arrangement and upfront fees of approximately $1.0 million in the aggregate during the three months ended March 31, 2022.

Availability under the Credit Agreement is subject to redetermination of our borrowing base that may be requested at the discretion of either the lender or the Company in accordance with the Credit Agreement. The borrowing base is calculated by the lender based on their evaluation of proved reserves and their own internal criteria. Any redetermination by the lender to change the borrowing base will result in a similar change in the availability under the Credit Agreement. The Credit Agreement is secured by a first priority lien on substantially all of the Company’s and its guarantor subsidiaries’ assets, excluding those assets of the Subsidiary Borrowers, which liens were released in the Mobile Bay Transaction (as described in Note 5 – Mobile Bay Transaction).

As of March 31, 2022, we had no borrowings outstanding under the Credit Agreement. Separately, as of March 31, 2022 and December 31, 2021, the Company had $4.4 million, outstanding in letters of credit which have been cash collateralized.

9.75% Senior Second Lien Notes Due 2023

On October 18, 2018, W&T issued $625.0 million of 9.75% Senior Second Lien Notes due 2023 (the “Senior Second Lien Notes”), which were issued at par with an interest rate of 9.75% per annum and mature on November 1, 2023, and are governed under the terms of the Indenture of the Senior Second Lien Notes (the “Indenture”). The estimated annual effective interest rate on the Senior Second Lien Notes is 10.3%, which includes amortization of debt issuance costs. Interest on the Senior Second Lien Notes is payable in arrears on May 1 and November 1 of each year.

During the year ended December 31, 2020, we acquired $72.5 million in principal of our outstanding Senior Second Lien Notes for $23.9 million and recorded a non-cash gain on purchase of debt of $47.5 million, which included a reduction of $1.1 million related to the write-off of unamortized debt issuance costs. No such transactions were completed during the three months ended March 31, 2022. As a result of these purchases, $552.5 million in principal amount of Senior Second Lien Notes remains issued and outstanding as of March 31, 2022 and December 31, 2021.

The Senior Second Lien Notes are secured by a second-priority lien on all of our assets that are secured under the Credit Agreement, which does not include the Mobile Bay Properties and the related Midstream Assets. The Senior Second Lien Notes contain covenants that limit or prohibit our ability and the ability of certain of our subsidiaries to: (i) make investments; (ii) incur additional indebtedness or issue certain types of preferred stock; (iii) create certain liens; (iv) sell assets; (v) enter into agreements that restrict dividends or other payments from the Company’s subsidiaries to the Company; (vi) consolidate, merge or transfer all or substantially all of the assets of the Company; (vii) engage in transactions with affiliates; (viii) pay dividends or make other distributions on capital stock or subordinated indebtedness; and (ix) create subsidiaries that would not be restricted by the covenants of the Indenture. These covenants are subject to exceptions and qualifications set forth in the Indenture. In addition, most of the above described covenants will terminate if both S&P Global Ratings, a division of S&P Global Inc., and Moody’s Investors Service, Inc. assign the Senior Second Lien Notes an investment grade rating and no default exists with respect to the Senior Second Lien Notes.

Covenants

As of March 31, 2022 and for all prior measurement periods presented, the Company was in compliance with all applicable covenants of the Credit Agreement and the Indenture.

Fair Value Measurements

For information about fair value measurements of long-term debt, refer to Note 3 – Fair Value Measurements.

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NOTE 3 — FAIR VALUE MEASUREMENTS

Derivative Financial Instruments

The Company measures the fair value of our open derivative financial instruments by applying the income approach, using models with inputs that are classified within Level 2 of the valuation hierarchy. The inputs used for the fair value measurement of open derivative financial instruments are the exercise price, the expiration date, the settlement date, notional quantities, the implied volatility, the discount curve with spreads and published commodity future prices. Open derivative financial instruments are reported in the Condensed Consolidated Balance Sheets using fair value. See Note 8 – Derivative Financial Instruments, for additional information on derivative financial instruments.

The following table presents the fair value of our open derivative financial instruments (in thousands):


	March 31, 2022		December 31, 2021
Assets:
Derivative instruments - open contracts, current	$	73,090	$	19,215
Derivative instruments - open contracts, long-term		49,550		34,435

Liabilities:
Derivative instruments - open contracts, current		157,348		73,190
Derivative instruments - open contracts, long-term		63,318		37,989

Debt

The fair value of the Term Loan was measured using a discounted cash flows model and current market rates. The fair value of our Senior Second Lien Notes was measured using quoted prices, although the market is not a highly liquid market. The fair value of our debt was classified as Level 2 within the valuation hierarchy. See Note 2 – Debt for additional information on our debt.

The following table presents the net value and fair value of our long-term debt (in thousands):


	March 31, 2022				December 31, 2021
	Net Value		Fair Value		Net Value		Fair Value
Liabilities:
Term Loan	$	172,121	$	173,210	$	183,314	$	190,579
Senior Second Lien Notes		548,196		551,162		547,584		527,715
Total		720,317		724,372		730,898		718,294

NOTE 4 — ACQUISITIONS

On January 5, 2022, the Company entered into a purchase and sale agreement with ANKOR E&P Holdings Corporation and KOA Energy LP (“ANKOR”) to acquire their interests in and operatorship of certain oil and natural gas producing properties in federal shallow waters in the Gulf of Mexico at Ship Shoal 230, South Marsh Island 27/Vermilion 191, and South Marsh Island 73 fields for $47.0 million. The transaction closed on February 1, 2022, and after normal and customary post-effective date adjustments (including net operating cash flow attributable to the properties from the effective date of July 1, 2021 to the close date), cash consideration of approximately $30.2 million was paid to the sellers. The transaction was funded using cash on hand. The Company also assumed the related asset retirement obligations (“ARO”) associated with these assets.

The Company determined that the assets acquired did not meet the definition of a business; therefore, the transaction was accounted for as an asset acquisition. Acquisitions qualifying as an asset acquisition requires, among other items, that the cost of the assets acquired and liabilities assumed to be recognized on the Condensed Consolidated Balance Sheets by allocating the asset cost on a relative fair value basis. The fair value measurements of the oil and natural gas

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properties acquired and asset retirement obligations assumed were derived utilizing an income approach and based, in part, on significant inputs not observable in the market. These inputs represent Level 3 measurements in the fair value hierarchy and include, but are not limited to, estimates of reserves, future operating and development costs, future commodity prices, estimated future cash flows and appropriate discount rates. These inputs required significant judgments and estimates by the Company’s management at the time of the valuation. Transaction costs incurred on an asset acquisition are capitalized as a component of the assets acquired. The amounts recorded on the Condensed Consolidated Balance Sheet for the purchase price allocation and liabilities assumed are presented in the following table (in thousands):


	February 1, 2022
Oil and natural gas properties and other, net	$	50,450
Restricted deposits for asset retirement obligations		6,196
Asset retirement obligations		(26,493)
Allocated purchase price	$	30,153

NOTE 5 — MOBILE BAY TRANSACTION

On May 19, 2021, the Company’s wholly-owned special purpose vehicles (the “SPVs”), A-I LLC and A-II LLC or the Subsidiary Borrowers, entered into the Subsidiary Credit Agreement providing for the Term Loan in an aggregate principal amount equal to $215.0 million. Proceeds of the Term Loan were used by the Subsidiary Borrowers to (i) fund the acquisition of the Mobile Bay Properties and the Midstream Assets from the Company and (ii) pay fees, commissions and expenses in connection with the transactions contemplated by the Subsidiary Credit Agreement and the other related loan documents, including to enter into certain swap and put derivative contracts described in more detail under Note 8 – Derivative Financial Instruments, of this Quarterly Report on Form 10-Q (this “Quarterly Report”).

As part of the Mobile Bay Transaction, the SPVs entered into a management services agreement (the “Services Agreement”) with the Company, pursuant to which the Company will provide (a) certain operational and management services for i) the Mobile Bay Properties and ii) the Midstream Assets and (b) certain corporate, general and administrative services for A-I LLC and A-II LLC (collectively in this capacity, the “Services Recipient”). Under the Services Agreement, the Company will indemnify the Services Recipient with respect to claims, losses or liabilities incurred by the Services Agreement Parties that relate to personal injury or death or property damage of the Company, in each case, arising out of performance of the Services Agreement, except to the extent of the gross negligence or willful misconduct of the Services Recipient. The Services Recipient will indemnify the Company with respect to claims, losses or liabilities incurred by the Company that relate to personal injury or death of the Services Recipient or property damage of the Services Recipient, in each case, arising out of performance of the Services Agreement, except to the extent of the gross negligence or willful misconduct of the Company. The Services Agreement will terminate upon the earlier of (a) termination of the Subsidiary Credit Agreement and payment and satisfaction of all obligations thereunder or (b) the exercise of certain remedies by the secured parties under the Subsidiary Credit Agreement and the realization by such secured parties upon any of the collateral under the Subsidiary Credit Agreement.

The SPVs are wholly-owned subsidiaries of the Company; however, the assets of the SPVs will not be available to satisfy the debt or contractual obligations of any non-SPV entities, including debt securities or other contractual obligations of W&T Offshore, Inc., and the SPVs do not bear any liability for the indebtedness or other contractual obligations of any non-SPVs, and vice versa.

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Consolidation and Carrying Amounts

As of March 31, 2022, W&T recorded $33.4 million in Cash and cash equivalents, $275.5 million, in Oil and natural gas properties and other, net, $39.9 million in Current portion of long-term debt, $56.0 million in Asset retirement obligations, and $132.2 million in Long-term debt, net in the Condensed Consolidated Balance Sheet related to the consolidation of the Subsidiary Borrowers and the subsidiary that owns the equity of the Subsidiary Borrowers. As of December 31, 2021, W&T recorded $38.9 million in Cash and cash equivalents, $272.7 million, in Oil and natural gas properties and other, net, $43.0 million in Current portion of long-term debt, $54.5 million in Asset retirement obligations, and $140.4 million in Long-term debt, net in the Condensed Consolidated Balance Sheet related to the consolidation of the Subsidiary Borrowers and the subsidiary that owns the equity of the Subsidiary Borrowers.

During the three months ended March 31, 2022, W&T recognized $47.5 million in Total revenues, $19.6 million in Operating costs and expenses, $96.2 million in Derivative loss, and $4.8 million in Interest expense, net in the Condensed Consolidated Statement of Operations related to the consolidation of the operations of the Subsidiary Borrowers and the subsidiary that owns the equity of the Subsidiary Borrowers. No revenues or expenses were recorded in the three months ended March 31, 2021 related to the consolidation of the Subsidiary Borrowers and the subsidiary that owns the equity of the Subsidiary Borrowers as the transaction was effective subsequent to March 31, 2021.

NOTE 6 — JOINT VENTURE DRILLING PROGRAM

In March 2018, W&T and two other initial members formed and initially funded Monza, which jointly participates with us in the exploration, drilling and development of certain drilling projects (the “Joint Venture Drilling Program”) in the Gulf of Mexico. Subsequent to the initial closing, additional investors joined as members of Monza during 2018 and total commitments by all members, including W&T’s commitment to fund its retained interest in Monza projects held outside of Monza, was $361.4 million. W&T contributed 88.94% of its working interest in certain identified undeveloped drilling projects to Monza and retained 11.06% of its working interest. The Joint Venture Drilling Program is structured so that we initially receive an aggregate of 30.0% of the revenues less expenses, through both our direct ownership of our retained working interest in the Monza projects and our indirect interest through our interest in Monza, for contributing 20.0% of the estimated total well costs plus associated leases and providing access to available infrastructure at agreed-upon rates. Any exceptions to this structure are approved by the Monza board.

The members of Monza are third-party investors, W&T and an entity owned and controlled by Mr. Tracy W. Krohn, our Chairman and Chief Executive Officer. The Krohn entity invested as a minority investor on the same terms and conditions as the third-party investors, and its investment is limited to 4.5% of total invested capital within Monza. The entity affiliated with Mr. Krohn made a capital commitment to Monza of $14.5 million.

Monza is an entity separate from any other entity with its own separate creditors who will be entitled, upon its liquidation, to be satisfied out of Monza’s assets prior to any value in Monza becoming available to holders of its equity. The assets of Monza are not available to pay creditors of the Company and its affiliates.

Through March 31, 2022, ten wells have been completed since the inception of the Joint Venture Drilling Program. W&T is the operator for eight of the ten wells completed through March 31, 2022.

Through March 31, 2022, members of Monza made partner capital contributions, including our contributions of working interest in the drilling projects, to Monza totaling $302.4 million and received cash distributions totaling $95.8 million. W&T’s net contribution to Monza, reduced by distributions received, as of March 31, 2022 was $47.8 million.

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Consolidation and Carrying Amounts

W&T’s interest in Monza is considered to be a variable interest that we account for using proportional consolidation. Through March 31, 2022, there have been no events or changes that would cause a redetermination of the variable interest status. W&T does not fully consolidate Monza because the Company is not considered the primary beneficiary of Monza.

As of March 31, 2022, W&T recorded $2.1 million, net, in Oil and natural gas properties and other, net, $(0.5) million in Other assets, $0.3 million in Asset retirement obligations and $11.0 million, net, increase in working capital in the Condensed Consolidated Balance Sheet in connection with the proportional interest in Monza’s assets and liabilities. As of December 31, 2021, W&T recorded $3.5 million in Oil and natural gas properties and other, net, $2.5 million in Other assets, $0.3 million in ARO and $4.6 million, net, increase in working capital in the Condensed Consolidated Balance Sheet in connection with the proportional interest in Monza’s assets and liabilities. Additionally, during the year ended December 31, 2021, W&T called on Monza to provide cash to fund its portion of certain Joint Venture Drilling Program projects in advance of capital expenditure spending, and the unused balances as of March 31, 2022 and December 31, 2021 were $6.5 million and $14.8 million, respectively, which are included in the Condensed Consolidated Balance Sheet in Advances from joint interest partners.

For the three months ended March 31, 2022, W&T recorded $6.5 million in Total revenues and $3.3 million in Operating costs and expenses in the Condensed Consolidated Statement of Operations in connection with the proportional interest in Monza’s operations. For three months ended March 31, 2021, W&T recorded $2.5 million in Total revenues and, $3.4 million in Operating costs and expenses in the Condensed Consolidated Statement of Operations in connection with the proportional interest in Monza’s operations.

NOTE 7 — ASSET RETIREMENT OBLIGATIONS

AROs represent the estimated present value of the amount incurred to plug, abandon and remediate our properties at the end of their productive lives.

A summary of the changes to ARO is as follows (in thousands):


	Three Months Ended March 31,
	2022
Asset retirement obligations, beginning of period	$	424,495
Liabilities settled		(5,492)
Accretion of discount		6,236
Liabilities incurred and assumed through acquisition		26,493
Revisions of estimated liabilities ⁽¹⁾		23,224
Asset retirement obligations, end of period		474,956
Less current portion		(67,274)
Long-term	$	407,682

(1)

^{Revisions in 2022 were primarily due to moving additional projects to current term and increases in current pricing.}

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NOTE 8 — DERIVATIVE FINANCIAL INSTRUMENTS

W&T’s market risk exposure relates primarily to commodity prices. The Company attempts to mitigate a portion of its commodity price risk and stabilize cash flows associated with sales of oil and natural gas production through the use of oil and natural gas swaps, costless collars, sold calls and purchased puts. The Company is exposed to credit loss in the event of nonperformance by the derivative counterparties; however, the Company currently anticipates that the derivative counterparties will be able to fulfill their contractual obligations. The Company is not required to provide additional collateral to the derivative counterparties and does not require collateral from the derivative counterparties.

W&T has elected not to designate commodity derivative contracts for hedge accounting. Accordingly, commodity derivatives are recorded on the Condensed Consolidated Balance Sheets at fair value with settlements of such contracts, and changes in the unrealized fair value, recorded as Derivative loss on the Condensed Consolidated Statements of Operations in each period presented. The cash flows of all commodity derivative contracts are included in Net cash provided by operating activities on the Condensed Consolidated Statements of Cash Flows.

The crude oil contracts are based on West Texas Intermediate (“WTI”) crude oil prices and the natural gas contracts are based off the Henry Hub prices, both of which are quoted off the New York Mercantile Exchange (“NYMEX”).

The following table reflects the contracted volumes and weighted average prices under the terms of the Company’s open derivative contracts as of March 31, 2022:



		Average
	Instrument	Daily	Total	Weighted		Weighted		Weighted
Period	Type	Volumes	Volumes	Strike Price		Put Price		Call Price

Crude Oil - WTI (NYMEX)		(Bbls)⁽¹⁾	(Bbls)⁽¹⁾		($/Bbls)⁽¹⁾		($/Bbls)⁽¹⁾		($/Bbls)⁽¹⁾
Apr 2022 - Nov 2022	swaps	2,410	588,027	$	52.83	$	—	$	—
Apr 2022 - Nov 2022	collars	2,403	586,377	$	—	$	43.15	$	60.47

Natural Gas - Henry Hub (NYMEX)		(MMbtu)⁽²⁾	(MMbtu)⁽²⁾		($/MMbtu)⁽²⁾		($/MMbtu)⁽²⁾		($/MMbtu)⁽²⁾
Apr 2022 - Dec 2022	calls	111,519	30,667,734	$	—	$	—	$	3.78
Jan 2023 - Dec 2023	calls	70,000	25,550,000	$	—	$	—	$	3.50
Jan 2024 - Dec 2024	calls	65,000	23,790,000	$	—	$	—	$	3.50
Jan 2025 - Mar 2025	calls	62,000	5,580,000	$	—	$	—	$	3.50
Apr 2022 - Dec 2022	collars	42,218	11,610,000	$	—	$	1.85	$	3.02
Apr 2022 - Nov 2022	swaps	16,224	3,958,540	$	2.52	$	—	$	—
Apr 2022 - Dec 2022 ⁽³⁾	swaps	78,545	21,600,000	$	2.55	$	—	$	—
Jan 2023 - Dec 2023 ⁽³⁾	swaps	72,329	26,400,000	$	2.48	$	—	$	—
Jan 2024 - Dec 2024 ⁽³⁾	swaps	65,574	24,000,000	$	2.46	$	—	$	—
Jan 2025 - Mar 2025 ⁽³⁾	swaps	63,333	5,700,000	$	2.72	$	—	$	—
Apr 2025 - Dec 2025⁽³⁾	puts	62,182	17,100,000	$	—	$	2.27	$	—
Jan 2026 - Dec 2026 ⁽³⁾	puts	55,890	20,400,000	$	—	$	2.35	$	—
Jan 2027 - Dec 2027 ⁽³⁾	puts	52,603	19,200,000	$	—	$	2.37	$	—
Jan 2028 - Apr 2028 ⁽³⁾	puts	49,587	6,000,000	$	—	$	2.50	$	—

⁽¹⁾	^{Bbls – Barrels}

⁽²⁾	^{MMbtu – Million British Thermal Units}

⁽³⁾	^{These contracts were entered into by the Company’s wholly owned subsidiary, A-I LLC, in conjunction with the Mobile Bay Transaction (see}^{Note 5 – Mobile Bay Transaction).}

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The following amounts were recorded in the Condensed Consolidated Balance Sheets in the categories presented and include the fair value of open contracts, unamortized premiums, and closed contracts which had not yet settled (in thousands):


	March 31, 2022		December 31, 2021
Prepaid expenses and other current assets	$	77,658	$	21,086
Other assets (long-term)		49,550		34,435
Accrued liabilities		177,298		81,456
Other liabilities (long-term)		63,318		37,989

The amounts recorded on the Condensed Consolidated Balance Sheets are on a gross basis.

Changes in the fair value and settlements of contracts are recorded on the Condensed Consolidated Statements of Operations as Derivative loss. The impact of commodity derivative contracts on the Condensed Consolidated Statements of Operations were as follows (in thousands):


	Three Months Ended March 31,
	2022		2021
Realized loss	$	43,694	$	8,244
Unrealized loss		36,303		16,334
Derivative loss	$	79,997	$	24,578

Cash payments on commodity derivative contract settlements, net, are included within Net cash provided by operating activities on the Condensed Consolidated Statements of Cash Flows and were as follows (in thousands):


	Three Months Ended March 31,
	2022		2021
Derivative loss	$	79,997	$	24,578
Derivative cash payments, net		(30,515)		(4,604)

NOTE 9 — SHARE-BASED AWARDS AND CASH BASED AWARDS

The W&T Offshore, Inc. Amended and Restated Incentive Compensation Plan (as amended from time to time, the “Plan”) was approved by the Company’s shareholders in 2010. Under the Plan, the Company may issue, subject to the approval of the Board of Directors, stock options, stock appreciation rights, restricted stock, restricted stock units, stock awards, dividend equivalents, other stock-based awards, performance units or shares, cash awards, substitute awards or any combination of the foregoing to employees, directors and consultants.

Share-Based Awards to Employees

Restricted Stock Units (“RSUs”) – RSUs currently outstanding relate to the 2021 grants. No RSUs were granted during the three months ended March 31, 2022.

Performance Share Units (“PSUs”) – The PSUs are RSU awards granted subject to performance criteria. PSUs currently outstanding relate to 2021 grants. No PSUs were granted during the three months ended March 31, 2022. The 2021 grants were subject to performance criteria against the applicable performance period, which ended on December 31, 2021. The PSUs granted during 2021 continue to be subject to service-based criteria with vesting occurring on October 1, 2023.

Share-Based Awards to Non-Employee Directors

There was no activity related to Restricted Shares during the three months ended March 31, 2022. Restricted Shares currently outstanding relate to the 2021 grants.

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Share-Based Compensation Expense

Share-based compensation expense is recorded in the line General and administrative expenses in the Condensed Consolidated Statements of Operations. The tax benefit related to compensation expense recognized under share-based payment arrangements was not meaningful and was minimal due to the Company’s income tax position.

The Company did not grant any share-based awards during the three months ended March 31, 2022. As such, all share-bases incentive compensation expense recognized during the three months ended March 31, 2022 relates to awards granted in prior periods. A summary of incentive compensation expense under share-based payment arrangements is as follows (in thousands):


	Three Months Ended March 31,
	2022		2021
Restricted stock units	$	251	$	338
Performance share units		205		—
Restricted Shares		64		116
Total	$	520	$	454

Cash-Based Incentive Compensation

In addition to share-based compensation, both short-term and long-term cash-based incentive awards were granted under the Plan to all eligible employees in 2021. The short-term cash-based incentive awards granted in 2021 were paid in March 2022. No cash-based incentive awards were granted during the three months ended March 31, 2022.

Share-Based Awards and Cash-Based Awards Compensation Expense

The Company did not grant any share-based awards or cash-based awards during the three months ended March 31, 2022. As such, all incentive compensation expense recognized during the three months ended March 31, 2022 relates to awards granted in prior periods. A summary of compensation expense related to share-based awards and cash-based awards is as follows (in thousands):


	Three Months Ended March 31,
	2022		2021
Share-based compensation included in:
General and administrative expenses	$	520	$	454
Cash-based incentive compensation included in:
Lease operating expense ⁽¹⁾		255		839
General and administrative expenses ⁽¹⁾		1,957		2,682
Total charged to operating (loss) income	$	2,732	$	3,975

(1)

Includes adjustments of accruals to actual payments.

NOTE 10 — INCOME TAXES

Tax Benefit and Tax Rate – Income tax benefit for the three months ended March 31, 2022 and 2021 was $0.7 and $0.2 million, respectively. For the three months ended March 31, 2022 and 2021, our effective tax rate differed from the statutory Federal tax rate primarily by the impact of state income taxes. Our effective tax rate was 21.9% and 21.4% for the three months ended March 31, 2022 and three months ended March 31, 2021, respectively.

Valuation Allowance – Deferred tax assets are recorded related to net operating losses and temporary differences between the book and tax basis of assets and liabilities expected to produce tax deductions in future periods. The realization of these assets depends on recognition of sufficient future taxable income in specific tax jurisdictions in which those temporary differences or net operating losses are deductible. In assessing the need for a valuation allowance

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on our deferred tax assets, we consider whether it is more likely than not that some portion or all of them will not be realized.

As of March 31, 2022 and December 31, 2021, our valuation allowance was $25.8 million and $24.4 million, respectively, and relates primarily to state net operating losses and the disallowed interest expense limitation carryover.

Income Taxes Receivable, Refunds and Payments – As of March 31, 2022 and December 31, 2021, we did not have any outstanding current income taxes receivable. During the three months ended March 31, 2022 and March 31, 2021, we did not receive any income tax refunds or make any income tax payments of significance.

The tax years 2018 through 2021 remain open to examination by the tax jurisdictions to which we are subject.

NOTE 11 — EARNINGS PER SHARE

The following table presents the calculation of basic and diluted (loss) earnings per common share (in thousands, except per share amounts):


	Three Months Ended March 31,
	2022		2021
Net loss	$	(2,457)	$	(746)
Less portion allocated to nonvested shares		—		—
Net loss allocated to common shares	$	(2,457)	$	(746)

Weighted average common shares outstanding - basic		142,942		142,151
Dilutive effect of securities		—		—
Weighted average common shares outstanding - diluted		142,942		142,151
Earnings per common share:
Basic	$	(0.02)	$	(0.01)
Diluted		(0.02)		(0.01)

Shares excluded due to being anti-dilutive (weighted-average)

		Page
PART I – FINANCIAL INFORMATION		1

Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021	1
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021	2
	Condensed Consolidated Statements of Changes in Shareholders’ Deficit for the Three Months Ended March 31, 2022 and 2021	3
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33

PART II – OTHER INFORMATION		34
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	34
Item 4.	Mine Safety Disclosures	34
Item 5.	Other Information	35
Item 6.	Exhibits	35

SIGNATURE		36