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, 2023

☐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 or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

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

Registrant’s telephone number, including area code: (713) 626-8525

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

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 ☑

As of April 30, 2023 there were 146,460,902 shares outstanding of the registrant’s common stock, par value $0.00001, outstanding.

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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,
	2023		2022
Assets
Current assets:
Cash and cash equivalents	$	177,389	$	461,357
Restricted cash		4,417		4,417
Receivables:
Oil and natural gas sales		45,525		66,146
Joint interest, net		17,116		14,000
Total receivables		62,641		80,146
Prepaid expenses and other assets (Note 1)		22,483		24,343
Total current assets		266,930		570,263

Oil and natural gas properties and other, net (Note 1)		724,025		735,215

Restricted deposits for asset retirement obligations		21,565		21,483
Deferred income taxes		52,884		57,280
Other assets (Note 1)		44,897		47,549
Total assets	$	1,110,301	$	1,431,790
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	75,979	$	65,158
Undistributed oil and natural gas proceeds		31,678		41,934
Advances from joint interest partners		3,160		3,181
Asset retirement obligations		9,859		25,359
Accrued liabilities (Note 1)		26,215		74,041
Current portion of long-term debt, net		30,801		582,249
Income tax payable		4,655		412
Total current liabilities		182,347		792,334
Long-term debt (Note 2)
Principal		381,027		114,158
Unamortized debt issuance costs		(8,554)		(2,970)
Long-term debt, net (Note 2)		372,473		111,188

Asset retirement obligations, less current portion		459,347		441,071
Other liabilities (Note 1)		41,998		59,134
Deferred income taxes		72		72
Commitments and contingencies (Note 11)		19,226		20,357
Shareholders’ equity:
Preferred stock, $0.00001 par value; 20,000 shares authorized; none issued at March 31, 2023 and December 31, 2022		—		—
Common stock, $0.00001 par value; 200,000 shares authorized; 149,330 issued and 146,461 outstanding at March 31, 2023; 149,002 issued and 146,133 outstanding at December 31, 2022		1		1
Additional paid-in capital		577,787		576,588
Retained deficit		(518,783)		(544,788)
Treasury stock, at cost; 2,869 shares at March 31, 2023 and December 31, 2022		(24,167)		(24,167)
Total shareholders’ equity		34,838		7,634
Total liabilities and shareholders’ equity	$	1,110,301	$	1,431,790

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,
	2023		2022
Revenues:
Oil	$	97,000	$	122,702
NGLs		7,795		13,820
Natural gas		24,804		51,366
Other		2,126		3,116
Total revenues		131,725		191,004
Operating expenses:
Lease operating expenses		65,186		43,411
Gathering, transportation and production taxes		6,136		5,267
Depreciation, depletion, and amortization		22,624		24,675
Asset retirement obligations accretion		7,510		6,236
General and administrative expenses		19,919		13,776
Total operating expenses		121,375		93,365
Operating income		10,350		97,639

Interest expense, net		14,713		19,883
Derivative (gain) loss		(39,240)		79,997
Other expense, net		233		905
Income (loss) before income taxes		34,644		(3,146)
Income tax expense (benefit)		8,639		(689)
Net income (loss)	$	26,005	$	(2,457)

Net income (loss) per common share:
Basic	$	0.18	$	(0.02)
Diluted	$	0.17	$	(0.02)
Weighted average common shares outstanding:
Basic		146,418		142,942
Diluted		148,726		142,942

See Notes to Condensed Consolidated Financial Statements.

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W&T OFFSHORE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)

(In thousands)

(Unaudited)


	Common Stock			Additional							Total
	Outstanding			Paid-In		Retained		Treasury Stock			Shareholders’
	Shares	Value		Capital		Deficit		Shares	Value		Equity
Balances at December 31, 2022	146,133	$	1	$	576,588	$	(544,788)	2,869	$	(24,167)	$	7,634
Share-based compensation	—		—		1,922		—	—		—		1,922
Stock Issued	328		—		—		—	—		—		—
RSUs surrendered for payroll taxes	—		—		(723)		—	—		—		(723)
Net income	—		—		—		26,005	—		—		26,005
Balances at March 31, 2023	146,461	$	1	$	577,787	$	(518,783)	2,869	$	(24,167)	$	34,838


	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)

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,
	2023		2022
Operating activities:
Net income (loss)	$	26,005	$	(2,457)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion, amortization and accretion		30,134		30,911
Amortization and write off of debt issuance costs		3,249		2,594
Share-based compensation		1,922		520
Derivative (gain) loss		(39,240)		79,997
Derivative cash (payments) receipts, net		(5,328)		(30,515)
Deferred income taxes		4,396		(733)
Changes in operating assets and liabilities:
Oil and natural gas receivables		20,621		(37,774)
Joint interest receivables		(3,116)		(4,476)
Prepaid expenses and other assets		31,489		(12,183)
Income tax		4,243		44
Asset retirement obligation settlements		(8,642)		(5,492)
Cash advances from JV partners		(21)		(8,550)
Accounts payable, accrued liabilities and other		(42,277)		15,651
Net cash provided by operating activities		23,435		27,537
Investing activities:
Investment in oil and natural gas properties and equipment		(7,367)		(17,439)
Changes in operating assets and liabilities associated with investing activities		(5,791)		2,630
Acquisition of property interests		—		(30,153)
Purchases of furniture, fixtures and other		(156)		—
Net cash used in investing activities		(13,314)		(44,962)
Financing activities:
Issuance of 11.75% Senior Second Lien Notes		275,000		—
Repayments on 9.75% Second Senior Lien Notes		(552,460)		—
Repayments on Term Loan		(9,552)		(12,630)
Debt issuance costs		(6,354)		—
Other		(723)		(269)
Net cash used in financing activities		(294,089)		(12,899)
Decrease in cash and cash equivalents		(283,968)		(30,324)
Cash and cash equivalents and restricted cash, beginning of period		465,774		250,216
Cash and cash equivalents and restricted cash, end of period	$	181,806	$	219,892

See Notes to Condensed Consolidated Financial Statements.

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Summary of Significant Accounting Policies

Revenue and Accounts Receivable – The Company records revenues from the sale of oil, natural gas liquids (“NGLs”) and natural gas based on quantities of production sold to purchasers under short-term contracts (less than twelve months) at market prices when delivery to the customer has occurred, title has transferred, prices are fixed and determinable and collection is reasonably assured. Revenue from the sale of crude oil, 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 oil, NGLs and natural gas to the customer. Each unit of product represents a separate performance obligation, therefore, future volumes are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required.

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. The Company’s maximum exposure at any time would be the receivable balance. Joint interest receivables on the Condensed Consolidated Balance Sheets are presented net of allowance for credit losses of $11.9 million and $12.1 million as of March 31, 2023 and December 31, 2022, respectively.

Employee Retention Credit – Under the Consolidated Appropriations Act of 2021, the Company recognized a $2.2 million employee retention credit during the three months ended March 31, 2023, which is included as a credit to General and administrative expenses in the Condensed Consolidated Statement of Operations.

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, 2023		December 31, 2022
Derivatives⁽¹⁾(Note 4)	$	3,482	$	4,954
Unamortized insurance/bond premiums		7,168		6,046
Prepaid deposits related to royalties		7,622		9,139
Prepayments to vendors		1,837		1,767
Prepayments to joint interest partners		1,708		1,717
Debt issue costs		640		687
Other		26		33
Prepaid expenses and other assets	$	22,483	$	24,343

⁽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, 2023		December 31, 2022
Oil and natural gas properties and equipment	$	8,824,682	$	8,813,404
Furniture, fixtures and other		21,071		20,915
Total property and equipment		8,845,753		8,834,319
Less: Accumulated depreciation, depletion, amortization and impairment		(8,121,728)		(8,099,104)
Oil and natural gas properties and other, net	$	724,025	$	735,215

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


	March 31, 2023		December 31, 2022
Right-of-Use assets	$	10,279	$	10,364
Investment in White Cap, LLC		2,565		2,453
Proportional consolidation of Monza (Note 6)		11,233		9,321
Derivatives⁽¹⁾ (Note 4)		19,433		23,236
Other		1,387		2,175
Total other assets (long-term)	$	44,897	$	47,549

⁽¹⁾

^{Includes open contracts.}

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


	March 31, 2023		December 31, 2022
Accrued interest	$	5,750	$	8,967
Accrued salaries/payroll taxes/benefits		3,421		15,097
Litigation accruals		105		396
Lease liability		1,636		1,628
Derivatives⁽¹⁾(Note 4)		14,250		46,595
Other		1,053		1,358
Total accrued liabilities	$	26,215	$	74,041

⁽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, 2023		December 31, 2022
Dispute related to royalty deductions	$	5,250	$	4,937
Derivatives (Note 4)		25,563		43,061
Lease liability		10,553		10,527
Other		632		609
Total other liabilities (long-term)	$	41,998	$	59,134

At-the-Market Equity Offering – On March 18, 2022, the Company filed a prospectus supplement related to the issuance and sale of up to $100,000,000 of shares of common stock under the Company’s “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, 2023, the Company did not sell any shares in connection with the ATM Program. During the year ended December 31, 2022, the Company sold an aggregate of 2,971,413 shares for an average price of $5.72 per share in connection with the ATM Program and received proceeds, net of commissions and expenses, of $16.5 million.

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NOTE 2 — DEBT

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


	March 31, 2023		December 31, 2022
Term Loan:
Principal	$	138,348	$	147,899
Unamortized debt issuance costs		(4,145)		(4,592)
Total Term Loan		134,203		143,307

Credit Agreement borrowings:		—		—

11.75% Senior Second Lien Notes due 2026:
Principal		275,000		—
Unamortized debt issuance costs		(5,929)		—
Total 11.75% Senior Second Lien Notes due 2026		269,071		—

9.75% Senior Second Lien Notes due 2023:
Principal		—		552,460
Unamortized debt issuance costs		—		(2,330)
Total 9.75% Senior Second Lien Notes due 2023		—		550,130

Less current portion, net		(30,801)		(582,249)
Total long-term debt, net	$	372,473	$	111,188

Current Portion of Long-Term Debt, Net

As of March 31, 2023, the current portion of long-term debt of $30.8 million represented principal payments due within one year on the Term Loan (defined below), net of current unamortized debt issuance costs.

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 the Company, entered into a credit agreement (the “Subsidiary Credit Agreement”) providing for a term loan (the “Term Loan”) in an aggregate principal amount equal to $215.0 million. The Term Loan requires quarterly amortization payments which commenced on September 30, 2021. The Term Loan bears interest at a fixed rate of 7.0% per annum and will mature on May 19, 2028.

At that time, 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, 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, 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”).

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). See Note 5 – Subsidiary Borrowers for additional information.

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11.75% Senior Second Lien Notes due 2026

On January 27, 2023, the Company issued and sold $275 million in aggregate principal amount of its 11.75% Senior Second Lien Notes at par with an interest rate of 11.75% per annum that matures on February 1, 2026 (the “11.75% Senior Second Lien Notes”), which are governed under the terms of an indenture (the “Indenture”). Interest on the 11.75% Senior Second Lien Notes is payable in arrears on February 1 and August 1, commencing August 1, 2023. The 11.75% Senior Second Lien Notes will be recorded at their carrying value consisting of principal and unamortized debt issuance costs. The 11.75% Senior Second Lien Notes are secured by second-priority liens on the same collateral that is secured under the Credit Agreement, which does not include the Mobile Bay Properties and the related Midstream Assets. The estimated annual effective interest rate on the 11.75% Senior Second Lien Notes is 12.4%, which includes amortization of deferred interest costs.

Prior to August 1, 2024, the Company may redeem all or any portion of the 11.75% Senior Second Lien Notes at a redemption price equal to 100% of the principal amount of the outstanding plus accrued and unpaid interest, if any, to the redemption date, plus the “Applicable Premium” (as defined in the Indenture). In addition, prior to August 1, 2024, the Company may, at its option, on one or more occasions redeem up to 35% of the aggregate original principal amount of the 11.75% Senior Second Lien Notes in an amount not greater than the net cash proceeds from certain equity offerings at a redemption price of 111.750% of the principal amount of the outstanding plus accrued and unpaid interest, if any, to the redemption date.

On and after August 1, 2024, the Company may redeem the 11.75% Senior Second Lien Notes, in whole or in part, at redemption prices (expressed as percentages of the principal amount thereof) equal to 105.875% for the 12-month period beginning August 1, 2024, and 100.000% on August 1, 2025 and thereafter, plus accrued and unpaid interest, if any, to the redemption date. The 11.75% Senior Second Lien Notes are guaranteed by the Guarantors.

The 11.75% Senior Second Lien Notes contain covenants that limit or prohibit the Company’s ability and the ability of certain of its 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 important 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 11.75% Senior Second Lien Notes an investment grade rating and no default exists with respect to the 11.75% Senior Second Lien Notes.

Redemption of 9.75% Senior Second Lien Notes due 2023

On October 18, 2018, the Company issued $625.0 million of 9.75% Senior Second Lien Notes due 2023 (the “9.75% Senior Second Lien Notes”), which were issued at par with an interest rate of 9.75% per annum that matures on November 1, 2023.

On February 8, 2023, the Company redeemed all of the $552.5 million of aggregate principle outstanding of the 9.75% Senior Second Lien Notes at a redemption price of 100.0%, plus accrued and unpaid interest to the redemption date. The Company used the net proceeds of $270.8 million from the issuance of the 11.75% Senior Second Lien Notes and cash on hand of $296.1 million to fund the redemption.

Covenants

As of March 31, 2023 and for all prior measurement periods presented, the Company was in compliance with all applicable covenants of the Credit Agreement and the Indenture.

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NOTE 3 – FAIR VALUE MEASUREMENTS

Derivative Financial Instruments

Derivative financial instruments are reported in the Condensed Consolidated Balance Sheets using fair value. See Note 4 – Derivative Financial Instruments for additional information on derivative financial instruments. The Company measures the fair value of derivative financial instruments by applying the income approach, using models with inputs that are classified within Level 2 of the valuation hierarchy. The income approach converts expected future cash flows to a present value amount based on market expectations. The inputs used for the fair value measurement of 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.

The following table presents the fair value of the Company’s derivative financial instruments (in thousands):


	March 31, 2023		December 31, 2022
Assets:
Derivative instruments - current	$	3,482	$	4,954
Derivative instruments - long-term		19,433		23,236

Liabilities:
Derivative instruments - current		14,250		46,595
Derivative instruments - long-term		25,563		43,061

Debt Instruments

The following table presents the net value and fair value of the Company’s debt (in thousands):


	March 31, 2023				December 31, 2022
	Net Value		Fair Value		Net Value		Fair Value
Liabilities:
Term Loan	$	134,203	$	131,376	$	143,307	$	139,056
11.75% Senior Second Lien Notes due 2026		269,071		270,603		—		—
9.75% Senior Second Lien Notes due 2023		—		—		550,130		544,902
Total	$	403,274	$	401,979	$	693,437	$	683,958

The fair value of the Term Loan was measured using a discounted cash flows model and current market rates. The fair value of the 11.75% Senior Second Lien Notes and 9.75% Senior Second Lien Notes was measured using quoted prices, although the market is not a highly liquid market. The fair value of debt was classified as Level 2 within the valuation hierarchy.

NOTE 4 — 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.

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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 (gain) 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 natural gas contracts are based off the Henry Hub prices, which is 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, 2023:



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

Natural Gas - Henry Hub (NYMEX)		(MMbtu)⁽¹⁾	(MMbtu)⁽¹⁾		($/MMbtu)⁽¹⁾		($/MMbtu)⁽¹⁾		($/MMbtu)⁽¹⁾
Apr 2023 - Dec 2023	calls	52,740	19,250,000	$	—	$	—	$	7.50
Jan 2024 - Dec 2024	calls	65,000	23,790,000	$	—	$	—	$	6.13
Jan 2025 - Mar 2025	calls	62,000	5,580,000	$	—	$	—	$	5.50
Apr 2023 - Dec 2023⁽²⁾	swaps	54,247	19,800,000	$	2.38	$	—	$	—
Jan 2024 - Dec 2024⁽²⁾	swaps	65,574	24,000,000	$	2.46	$	—	$	—
Jan 2025 - Mar 2025⁽²⁾	swaps	63,333	5,700,000	$	2.72	$	—	$	—
Apr 2025 - Dec 2025⁽²⁾	puts	62,182	17,100,000	$	—	$	2.27	$	—
Jan 2026 - Dec 2026⁽²⁾	puts	55,890	20,400,000	$	—	$	2.35	$	—
Jan 2027 - Dec 2027⁽²⁾	puts	52,603	19,200,000	$	—	$	2.37	$	—
Jan 2028 - Apr 2028⁽²⁾	puts	49,587	6,000,000	$	—	$	2.50	$	—

⁽¹⁾	^{MMbtu – Million British Thermal Units}

⁽²⁾	^{These contracts were entered into by the Company’s wholly owned subsidiary, A-I LLC, in conjunction with the Term Loan (see}^{Note 5 – Subsidiary Borrowers).}

Financial Statement Presentation

The following fair value of derivative financial instruments amounts were recorded in the Condensed Consolidated Balance Sheets (in thousands):


	March 31, 2023		December 31, 2022
Prepaid expenses and other current assets	$	3,482	$	4,954
Other assets (long-term)		19,433		23,236
Accrued liabilities		14,250		46,595
Other liabilities (long-term)		25,563		43,061

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Although the Company has master netting arrangements with its counterparties, 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 (gain) loss. The impact of commodity derivative contracts on the Condensed Consolidated Statements of Operations were as follows (in thousands):


	Three Months Ended March 31,
	2023		2022
Realized loss	$	230	$	43,694
Unrealized (gain) loss		(39,470)		36,303
Derivative (gain) loss	$	(39,240)	$	79,997

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,
	2023		2022
Derivative (gain) loss	$	(39,240)	$	79,997
Derivative cash payments, net		(5,328)		(30,515)

NOTE 5 — SUBSIDIARY BORROWERS

On May 19, 2021, 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 4 – Derivative Financial Instruments, of this Quarterly Report on Form 10-Q.

The Subsidiary Borrowers are wholly-owned subsidiaries of the Company; however, the assets of the Subsidiary Borrowers are not available to satisfy the debt or contractual obligations of any other entities, including debt securities or other contractual obligations of the Company, and the Subsidiary Borrowers do not bear any liability for the indebtedness or other contractual obligations of any other entities, and vice versa.

During the year ended December 31, 2022, the Subsidiary Borrowers paid cash distributions to W&T of $30.2 million. During the three months ended March 31, 2023, no distributions were paid.

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Consolidation and Carrying Amounts

The following table presents the amounts recorded by W&T on the Condensed Consolidated Balance Sheets related to the consolidation of the Subsidiary Borrowers and the subsidiary that owns the equity of the Subsidiary Borrowers (in thousands):


	March 31, 2023		December 31, 2022
Assets:
Cash and cash equivalents	$	17,958	$	21,764
Receivables:
Oil and natural gas sales		8,753		37,344
Joint interest, net		(16,790)		(5,760)
Prepaid expenses and other assets		745		417
Oil and natural gas properties and other, net		289,139		280,649
Other assets		9,755		8,473
Liabilities:
Accounts payable		9,734		27,387
Undistributed oil and natural gas proceeds		2,714		7,930
Accrued liabilities		14,768		45,102
Current portion of long-term debt		30,800		32,119
Long-term debt, net		103,402		111,188
Asset retirement obligations		62,845		61,138
Other liabilities		30,031		47,398

The following table presents the amounts recorded by W&T 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 (in thousands):


	Three Months Ended March 31,
	2023		2022
Total revenues	$	21,123	$	47,515
Total operating expenses		20,047		14,800
Interest expense, net		2,812		4,778
Derivative (gain) loss		(46,377)		96,158

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 the Company 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 W&T initially receives an aggregate of 30.0% of the revenues less expenses, through the direct ownership from the retained working interest in the Monza projects and the Company’s indirect interest through its 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 of directors.

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The members of Monza are third-party investors, W&T and an entity owned and controlled by Tracy W. Krohn, the Company’s Chief Executive Officer and President. The entity affiliated with the Company’s CEO 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, and 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, 2023, 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, 2023.

Since inception through March 31, 2023, members of Monza made partner capital contributions, including W&T’s contributions of working interest in the drilling projects, to Monza totaling $302.4 million and received cash distributions totaling $185.7 million. Since inception through March 31, 2023, W&T made total capital contributions, including the contributions of working interest in the drilling projects, to Monza totaling $68.2 million and received cash distributions totaling $40.0 million.

Consolidation and Carrying Amounts

W&T’s interest in Monza is considered to be a variable interest that is proportionally consolidated. Through March 31, 2023, 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.

The following table presents the amounts recorded by W&T on the Condensed Consolidated Balance Sheets related to the consolidation of the proportional interest in Monza’s operations (in thousands):


	March 31, 2023		December 31, 2022
Working capital	$	818	$	2,515
Oil and natural gas properties and other, net		35,761		37,260
Asset retirement obligations		485		467
Other assets		11,233		11,571

As required, W&T may call 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, 2023 and December 31, 2022 were $2.9 million and $2.9 million, respectively, which are included in the Condensed Consolidated Balance Sheets in Advances from joint interest partners.

The following table presents the amounts recorded by W&T in the Condensed Consolidated Statement of Operations related to the consolidation of the proportional interest in Monza’s operations (in thousands):


	Three Months Ended March 31,
	2023		2022
Total revenues	$	3,155	$	6,542
Total operating expenses		2,484		3,254
Interest income		59		—

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NOTE 7 — ASSET RETIREMENT OBLIGATIONS

AROs represent the estimated present value of the amount incurred to plug, abandon and remediate the Company’s 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,
	2023
Asset retirement obligations, beginning of period	$	466,430
Liabilities settled		(8,642)
Accretion expense		7,510
Liabilities incurred		110
Revisions of estimated liabilities		3,798
Asset retirement obligations, end of period		469,206
Less: Current portion		(9,859)
Long-term	$	459,347

NOTE 8 — 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 and consultants.

Share-Based Awards to Employees

Restricted Stock Units (“RSUs”) –RSUs outstanding as of March 31, 2023 relate to the 2022 and 2021 grants.

A summary of activity related to RSUs during the three months ended March 31, 2023 is as follows:


		Weighted
		Average
	Restricted	Grant Date Fair
	Stock Units	Value Per Unit
Nonvested, beginning of period	1,221,461	$	5.76
Granted	66,290		6.06
Vested	(470,750)		5.07
Forfeited	(32,019)		5.95
Nonvested, end of period	784,982		6.19

Performance Share Units (“PSUs”) – PSUs are RSU awards subject to performance criteria. PSUs outstanding as of March 31, 2023 relate to the 2022 and 2021 grants. No PSUs were granted during the three months ended March 31, 2023.

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PART I – FINANCIAL INFORMATION		1

Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022	1
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2023 and 2022	2
	Condensed Consolidated Statements of Changes in Shareholders’ Deficit for the Three Months Ended March 31, 2023 and 2022	3
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	34

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

SIGNATURE		37