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 September 30, 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 October 31, 2023, there were 146,574,193 shares outstanding of the registrant’s common stock, par value $0.00001.

Table of Contents

W&T OFFSHORE, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

		Page
PART I – FINANCIAL INFORMATION		1

Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022	1
	Condensed Consolidated Statements of Operations for the Nine Months Ended September 30, 2023 and 2022	2
	Condensed Consolidated Statements of Changes in Shareholders’ Equity (Deficit) for the Nine Months Ended September 30, 2023 and 2022	3
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 4.	Controls and Procedures	41

PART II – OTHER INFORMATION		42

Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities, Use of Proceed and Issuer Purchases of Equity Securities	42
Item 3.	Defaults Upon Senior Securities	42
Item 4.	Mine Safety Disclosures	42
Item 5.	Other Information	42
Item 6.	Exhibits	42

SIGNATURE		44

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

W&T OFFSHORE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)


	September 30,		December 31,
	2023		2022
Assets
Current assets:
Cash and cash equivalents	$	148,993	$	461,357
Restricted cash		4,417		4,417
Accounts receivable:
Oil and natural gas sales		48,522		66,146
Joint interest, net		16,049		14,000
Income taxes		275		—
Total receivables		64,846		80,146
Prepaid expenses and other current assets (Note 1)		30,476		24,343
Total current assets		248,732		570,263

Oil and natural gas properties and other, net (Note 1)		771,454		735,215
Restricted deposits for asset retirement obligations		22,168		21,483
Deferred income taxes		42,633		57,280
Other assets (Note 1)		40,386		47,549
Total assets	$	1,125,373	$	1,431,790
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	80,412	$	65,158
Undistributed oil and natural gas proceeds		34,649		41,934
Advances from joint interest partners		3,106		3,181
Current portion of asset retirement obligation (Note 8)		33,169		25,359
Accrued liabilities (Note 1)		34,264		74,041
Current portion of long-term debt, net (Note 2)		30,015		582,249
Income taxes		53		412
Total current liabilities		215,668		792,334

Long-term debt, net (Note 2)		367,144		111,188
Asset retirement obligations (Note 8)		465,245		441,071
Other liabilities (Note 1)		29,448		59,134
Deferred income taxes		72		72
Commitments and contingencies (Note 12)		17,809		20,357

Shareholders’ equity:
Preferred stock, $0.00001 par value; 20,000 shares authorized; none issued at September 30, 2023 and December 31, 2022		—		—
Common stock, $0.00001 par value; 200,000 shares authorized; 149,443 issued and 146,574 outstanding at September 30, 2023; 149,002 issued and 146,133 outstanding at December 31, 2022		1		1
Additional paid-in capital		582,900		576,588
Retained deficit		(528,747)		(544,788)
Treasury stock, at cost; 2,869 shares at September 30, 2023 and December 31, 2022		(24,167)		(24,167)
Total shareholders’ equity		29,987		7,634
Total liabilities and shareholders’ equity	$	1,125,373	$	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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenues:
Oil	$	100,331	$	130,560	$	287,313	$	412,526
NGLs		7,415		16,875		25,595		47,430
Natural gas		32,515		113,673		80,757		257,452
Other		2,150		5,377		6,651		13,889
Total revenues		142,411		266,485		400,316		731,297

Operating expenses:
Lease operating expenses		61,826		59,010		193,033		155,397
Gathering, transportation and production taxes		6,692		12,199		19,630		26,647
Depreciation, depletion, and amortization		30,218		27,493		81,019		79,848
Asset retirement obligations accretion		6,414		6,620		21,641		19,536
General and administrative expenses		19,978		23,047		57,290		51,790
Total operating expenses		125,128		128,369		372,613		333,218
Operating income		17,283		138,116		27,703		398,079

Interest expense, net		9,925		16,849		34,960		54,915
Derivative (gain) loss, net		(1,491)		38,749		(41,560)		109,892
Other expense (income), net		1,927		(600)		1,849		(1,229)
Income before income taxes		6,922		83,118		32,454		234,501
Income tax expense		4,777		16,397		16,413		46,801
Net income	$	2,145	$	66,721	$	16,041	$	187,700

Net income per common share:
Basic	$	0.01	$	0.46	$	0.11	$	1.30
Diluted	$	0.01	$	0.46	$	0.11	$	1.30
Weighted average common shares outstanding:
Basic		146,483		143,116		146,451		143,026
Diluted		151,459		145,882		149,856		144,696

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 June 30, 2023	146,481	$	1	$	579,849	$	(530,892)	2,869	$	(24,167)	$	24,791
Share-based compensation	—		—		3,250		—	—		—		3,250
Stock issued	94		—		—		—	—		—		—
Shares withheld related to net settlement of equity awards	—		—		(199)		—	—		—		(199)
Net income	—		—		—		2,145	—		—		2,145
Balances at September 30, 2023	146,575	$	1	$	582,900	$	(528,747)	2,869	$	(24,167)	$	29,987


	Common Stock			Additional							Total
	Outstanding			Paid-In		Retained		Treasury Stock			Shareholders’
	Shares	Value		Capital		Deficit		Shares	Value		Deficit
Balances at June 30, 2022	143,155	$	1	$	554,755	$	(654,958)	2,869	$	(24,167)	$	(124,369)
Share-based compensation	—		—		2,645		—	—		—		2,645
Stock issued	7		—		—		—	—		—		—
Shares withheld related to net settlement of equity awards	—		—		(14)		—	—		—		(14)
Net income	—		—		—		66,721	—		—		66,721
Balances at September 30, 2022	143,162	$	1	$	557,386	$	(588,237)	2,869	$	(24,167)	$	(55,017)

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W&T OFFSHORE, INC. AND SUBSIDIARIES

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

(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	—		—		7,259		—	—		—		7,259
Stock issued	442		—		—		—	—		—		—
Shares withheld related to net settlement of equity awards	—		—		(947)		—	—		—		(947)
Net income	—		—		—		16,041	—		—		16,041
Balances at September 30, 2023	146,575	$	1	$	582,900	$	(528,747)	2,869	$	(24,167)	$	29,987


	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	—		—		5,179		—	—		—		5,179
Stock issued	299		—		—		—	—		—		—
Shares withheld related to net settlement of equity awards	—		—		(716)		—	—		—		(716)
Net income	—		—		—		187,700	—		—		187,700
Balances at September 30, 2022	143,162	$	1	$	557,386	$	(588,237)	2,869	$	(24,167)	$	(55,017)

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)


	Nine Months Ended September 30,
	2023		2022
Operating activities:
Net income	$	16,041	$	187,700
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion, amortization and accretion		102,660		99,384
Share-based compensation		7,259		5,179
Amortization and write off of debt issuance costs		5,714		6,114
Derivative (gain) loss		(41,560)		109,892
Derivative cash payments, net		(6,123)		(1,022)
Derivative cash premium payments		—		(46,111)
Deferred income taxes		14,647		40,171
Changes in operating assets and liabilities:
Oil and natural gas receivables		17,624		(34,276)
Joint interest receivables		(2,049)		(7,070)
Prepaid expenses and other current assets		25,550		(26,816)
Accounts payable, accrued liabilities and other		(34,475)		65,566
Asset retirement obligation settlements		(24,918)		(61,285)
Cash advances from JV partners		(74)		(12,055)
Income taxes payable		(634)		1,480
Net cash provided by operating activities		79,662		326,851

Investing activities:
Investment in oil and natural gas properties and equipment		(30,959)		(29,966)
Changes in operating assets and liabilities associated with investing activities		1,285		(8,237)
Acquisition of property interests		(28,863)		(51,474)
Deposit related to acqusition of property interests		(8,850)		—
Purchase of corporate aircraft (Note 13)		(8,983)		—
Purchases of furniture, fixtures and other		(3,081)		—
Net cash used in investing activities		(79,451)		(89,677)

Financing activities:
Repayment of 9.75% Senior Second Lien Notes due 2023		(552,460)		—
Repayment of Term Loan		(26,329)		(33,837)
Repayment of TVPX Loan		(458)		—
Proceeds from issuance of 11.75% Senior Second Lien Notes due 2026		275,000		—
Debt issuance costs		(7,380)		(1,290)
Other		(948)		(716)
Net cash used in financing activities		(312,575)		(35,843)

Change in cash, cash equivalents and restricted cash		(312,364)		201,331
Cash and cash equivalents and restricted cash, beginning of period		465,774		250,216
Cash and cash equivalents and restricted cash, end of period	$	153,410	$	451,547

See Notes to Condensed Consolidated Financial Statements.

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W&T OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

W&T Offshore, Inc. (with subsidiaries referred to herein as “W&T” or the “Company”) is an independent oil and natural gas producer with substantially all of its operations offshore in the Gulf of Mexico. The Company is active in the exploration, development and acquisition of oil and natural gas properties. The Company operates in one reportable segment.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and an interest in Monza Energy LLC (“Monza”), which is accounted for under the proportional consolidation method. All intercompany accounts and transactions have been eliminated in consolidation. These condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

Operating results for interim periods are not necessarily indicative of the results that may be expected for the entire year. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in Item 8 “Financial Statements and Supplementary Data” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Annual Report”).

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, the reported amounts of revenues and expenses during the reporting periods and the reported amounts of proved oil and natural gas reserves. Actual results could differ from those estimates.

Allowance for Credit Losses

The Company has receivables related to joint interest arrangements primarily with mid-size oil and natural 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 $11.2 million and $12.1 million as of September 30, 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 nine months ended September 30, 2023, which is included as a credit to General and administrative expenses in the Condensed Consolidated Statement of Operations.

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W&T OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following (in thousands):


	September 30,		December 31,
	2023		2022
Derivatives ⁽¹⁾	$	1,294	$	4,954
Insurance/bond premiums		8,955		6,046
Deposit related to acquisition (Note 14)		8,850		—
Prepaid deposits related to royalties		7,322		9,139
Prepayments to vendors		1,520		1,767
Prepayments to joint interest partners		2,242		1,717
Current portion of debt issuance costs		213		687
Other		80		33
Prepaid expenses and other current assets	$	30,476	$	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 other, net consist of the following (in thousands):


	September 30,		December 31,
	2023		2022
Oil and natural gas properties and equipment	$	8,908,490	$	8,813,404
Furniture, fixtures and other		43,087		20,915
Total property and equipment		8,951,577		8,834,319
Less: Accumulated depreciation, depletion, amortization and impairment		(8,180,123)		(8,099,104)
Oil and natural gas properties and other, net	$	771,454	$	735,215

Other Assets

Other assets consist of the following (in thousands):


	September 30,		December 31,
	2023		2022
Operating lease right-of-use assets	$	10,623	$	10,364
Investment in White Cap, LLC		2,924		2,453
Proportional consolidation of Monza		10,805		9,321
Derivatives ⁽¹⁾		14,372		23,236
Other		1,662		2,175
Total other assets	$	40,386	$	47,549

⁽¹⁾	Includes open contracts.

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W&T OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Accrued Liabilities

Accrued liabilities consist of the following (in thousands):


	September 30,		December 31,
	2023		2022
Accrued interest	$	5,430	$	8,967
Accrued salaries/payroll taxes/benefits		9,065		15,097
Litigation accruals		56		396
Operating lease liabilities		871		1,628
Derivatives ⁽¹⁾		17,659		46,595
Other		1,183		1,358
Total accrued liabilities	$	34,264	$	74,041

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

Other Liabilities

Other liabilities consist of the following (in thousands):


	September 30,		December 31,
	2023		2022
Dispute related to royalty deductions	$	5,250	$	4,937
Derivatives		11,790		43,061
Operating lease liabilities		11,700		10,527
Other		708		609
Total other liabilities	$	29,448	$	59,134

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W&T OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 — DEBT

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


	September 30,		December 31,
	2023		2022
TVPX Loan:
Principal	$	11,300	$	—
Unamortized discount		(1,434)		—
Unamortized debt issuance costs		(246)		—
Total		9,620		—

Term Loan:
Principal		121,571		147,899
Unamortized debt issuance costs		(3,337)		(4,592)
Total		118,234		143,307

Credit Agreement		—		—

11.75% Senior Second Lien Notes due 2026:
Principal		275,000		—
Unamortized debt issuance costs		(5,695)		—
Total		269,305		—

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

Total debt, net		397,159		693,437
Less current portion, net		(30,015)		(582,249)
Long-term debt, net	$	367,144	$	111,188

Current Portion of Long-Term Debt, Net

As of September 30, 2023, the current portion of long-term debt of $30.0 million represented principal payments due within one year on the TVPX Loan and Term Loan (defined below), net of current unamortized debt issuance costs.

TVPX Loan

On May 15, 2023, the Company acquired a corporate aircraft from a company affiliated with and controlled by W&T’s Chairman, Chief Executive Officer (“CEO”) and President, Tracy W. Krohn. The terms of the transactions were reviewed and approved by the Audit Committee of the Company’s Board of Directors. See Note 13 – Related Party Transactions.

The purchase price of the aircraft was $19.1 million, which was paid using $9.0 million of the Company’s cash on hand and through the assumption of an approximately $11.8 million amortizing loan by TVPX Aircraft Solutions Inc. (the “TVPX Loan”), not in its individual capacity but as owner trustee of the trust which holds title to the aircraft, a wholly owned indirect subsidiary of the Company, as the borrower.

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W&T OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The TVPX Loan bears a fixed interest rate of 2.49% per annum for a term of 41 months and requires monthly amortization payments of $91.7 thousand plus accrued interest, and a balloon payment of $8.0 million at the end of the loan term. The TVPX Loan is guaranteed by the Company on an unsecured basis. At the date of assumption, the Company determined that the fair market value of the TVPX Loan was $10.1 million using current market rates.

The aircraft was purchased as part of a series of transactions pursuant to which the Company restructured the compensation for its Named Executive Officers. Prior to the Company’s purchase of the aircraft, the Company used the aircraft for business purposes, and the CEO also used the aircraft for personal purposes. Both the Company’s use for business purposes and the CEO’s unlimited use for personal purposes were paid for by the Company pursuant to the CEO’s prior employment agreement. In connection with the Company’s efforts to significantly reduce overall executive compensation, including perquisite compensation Mr. Krohn was receiving for personal use of the aircraft, on April 20, 2023, the Company entered into an amendment to the employment agreement with the CEO which requires that the Company be reimbursed for personal use of the aircraft in accordance with the Company’s aircraft use policy.

Term Loan

On May 19, 2021, Aquasition LLC and Aquasition-II LLC (collectively, the “Subsidiary Borrowers”), both indirect wholly owned subsidiaries of the Company, entered into a credit agreement (the “Subsidiary Credit Agreement”) providing for a $215.0 million term loan (the “Term Loan”). The Term Loan matures on May 19, 2028.

The Term Loan requires quarterly amortization payments and bears interest at a fixed rate of 7.0% per annum. The Subsidiary Credit Agreement required the Company to enter into certain natural gas swaps and put derivative contracts (see Note 4 – Derivative Financial Instruments).

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 (the “Subsidiary Parent”) 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 (see Note 6 – Subsidiary Borrowers for additional information).

Credit Agreement

The Company entered into a Credit Agreement with Calculus Lending, LLC (“Calculus”), a company affiliated with and controlled by the Company’s CEO, as sole lender under the Credit Agreement (as amended from time to time, the “Credit Agreement”). The Credit Agreement currently has a maturity date of January 3, 2024. As of September 30, 2023, the primary terms and covenants associated with the Credit Agreement are as follows:

●

$100 million first priority lien secured revolving credit facility, with borrowings limited to a borrowing base of $50.0 million;

●

Outstanding borrowings accrue interest at SOFR plus 6.0% 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;

●

The Company’s ratio of Total Proved PV-10 to First Lien Debt (as such terms are defined in the Credit Agreement) as of the last day of any fiscal quarter 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 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;

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W&T OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

●

As of the last day of any fiscal quarter, the Company and its restricted subsidiaries on a consolidated basis must pass a “Stress Test” to determine whether certain future net revenues from the Company’s and its restricted subsidiaries’ and certain joint ventures’ oil and gas properties included in the collateral are sufficient to satisfy the aggregate first lien indebtedness under the Credit Agreement assuming the Borrowing Base is 100% funded or fully utilized; and

●

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.

Availability under the Credit Agreement is subject to redetermination of the borrowing base that may be requested at the discretion of either the lender or the Company in accordance with the Credit Agreement. Any redetermination by the lender to change the borrowing base will result in a similar change in the availability under the Credit Agreement. The borrowing base was reconfirmed at $50.0 million on October 2023. 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 (as described in Note 6 – Subsidiary Borrowers).

As of September 30, 2023, there were no borrowings outstanding under the Credit Agreement and no borrowings had been incurred under the Credit Agreement during the nine months ended September 30, 2023. As of September 30, 2023 and December 31, 2022, the Company had $4.4 million outstanding in letters of credit which have been cash collateralized.

11.75% Senior Second Lien Notes due 2026

On January 27, 2023, the Company issued at par $275 million in aggregate principal amount of its 11.75% Senior Second Lien Notes (the “11.75% Notes”) under an indenture dated January 27, 2023 (the “Indenture”). The 11.75% Notes mature on February 1, 2026, and interest is payable in arrears on February 1 and August 1.

The 11.75% Notes are secured by second-priority liens on the same collateral that is secured under the Credit Agreement, which does not include the assets of the Subsidiary Borrowers (as described in Note 6 – Subsidiary Borrowers). The estimated annual effective interest rate on the 11.75% Notes is 12.7%, which includes amortization of deferred interest costs.

Prior to August 1, 2024, the Company may redeem all or any portion of the 11.75% Notes at a redemption price equal to 100% of the principal amount of the notes 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% 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% 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% Notes are guaranteed by the Guarantors.

Table of Contents

W&T OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The 11.75% 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% Notes an investment grade rating and no default exists with respect to the 11.75% Notes.

Redemption of 9.75% Senior Second Lien Notes due 2023

On February 8, 2023, the Company redeemed all of the $552.5 million of aggregate principal outstanding of its 9.75% Senior Second Lien Notes (the 9.75% 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% Notes and cash on hand of $296.1 million to fund the redemption.

Covenants

As of September 30, 2023 and for all prior measurement periods presented, the Company was in compliance with all applicable covenants of the Credit Agreement and the Indenture.

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


	September 30,		December 31,
	2023		2022
Assets:
Derivative instruments - current	$	1,294	$	4,954
Derivative instruments - long-term		14,372		23,236

Liabilities:
Derivative instruments - current		17,659		46,595
Derivative instruments - long-term		11,790		43,061

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.

Table of Contents

W&T OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Debt Instruments

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


	September 30, 2023				December 31, 2022
	Net Value		Fair Value		Net Value		Fair Value
TVPX Loan	$	9,620	$	9,783	$	—	$	—
Term Loan		118,234		113,478		143,307		139,056
11.75% Notes		269,305		283,580		—		—
9.75% Notes		—		—		550,130		544,902
Total	$	397,159	$	406,841	$	693,437	$	683,958

The fair value of the TVPX Loan and the Term Loan were measured using a discounted cash flows model and current market rates. The fair value of the 11.75% Notes and 9.75% Notes were 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.

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, net on the Condensed Consolidated Statements of Operations in each period presented.

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 September 30, 2023:

Average

Instrument

Daily

Total

Weighted

Period

Type

Volumes

Strike Price

Put Price

Call Price

Natural Gas - Henry Hub (NYMEX)

(MMbtu)⁽¹⁾

($/MMbtu)⁽¹⁾

Oct 2023 - Dec 2023

calls

70,000

6,440,000