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 June 30, 2024

☐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 July 31, 2024, there were 147,182,248 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 June 30, 2024 and December 31, 2023	1
	Condensed Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2024 and 2023	2
	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three Months and Six Months Ended June 30, 2024 and 2023	3
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	27

PART II – OTHER INFORMATION		28

Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Mine Safety Disclosures	28
Item 5.	Other Information	28
Item 6.	Exhibits	28

SIGNATURE		30

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

W&T OFFSHORE, INC.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)


	June 30,		December 31,
	2024		2023
Assets
Current assets:
Cash and cash equivalents	$	123,375	$	173,338
Restricted cash		4,417		4,417
Accounts receivable:
Oil, NGL and natural gas sales		71,547		52,080
Joint interest, net of allowance for credit losses of $11,358 and $11,130 as of June 30, 2024 and December 31, 2023, respectively		20,478		15,480
Other		2,223		2,218
Prepaid expenses and other current assets (Note 11)		25,890		17,447
Total current assets		247,930		264,980

Oil and natural gas properties and other, net of accumulated depreciation, depletion and amortization of $8,284,392 and $8,213,781 as of June 30, 2024 and December 31, 2023, respectively		802,401		749,056
Restricted deposits for asset retirement obligations		22,479		22,272
Deferred income taxes		42,365		38,774
Other assets		33,396		38,923
Total assets	$	1,148,571	$	1,114,005
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	89,129	$	78,857
Accrued liabilities (Note 11)		29,004		31,978
Undistributed oil and natural gas proceeds		63,150		42,134
Advances from joint interest partners		2,565		2,962
Current portion of asset retirement obligations (Note 5)		35,627		31,553
Current portion of long-term debt, net (Note 3)		14,925		29,368
Total current liabilities		234,400		216,852

Asset retirement obligations (Note 5)		498,848		467,262
Long-term debt, net (Note 3)		376,979		361,236
Other liabilities		16,668		19,420
Commitments and contingencies (Note 6)		16,671		18,043

Shareholders’ equity:
Preferred stock, $0.00001 par value; 20,000 shares authorized; none issued at June 30, 2024 and December 31, 2023		—		—
Common stock, $0.00001 par value; 400,000 shares authorized; 150,032 issued and 147,163 outstanding at June 30, 2024; 149,450 issued and 146,581 outstanding at December 31, 2023		2		1
Additional paid-in capital		589,678		586,014
Retained deficit		(560,508)		(530,656)
Treasury stock, at cost; 2,869 shares		(24,167)		(24,167)
Total shareholders’ equity		5,005		31,192
Total liabilities and shareholders’ equity	$	1,148,571	$	1,114,005

See Notes to Condensed Consolidated Financial Statements.

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W&T OFFSHORE, INC.

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Revenues:
Oil	$	110,965	$	89,982	$	217,980	$	186,982
NGLs		8,160		10,385		15,629		18,180
Natural gas		21,910		23,438		43,526		48,242
Other		1,722		2,376		6,409		4,502
Total revenues		142,757		126,181		283,544		257,906

Operating expenses:
Lease operating expenses		73,987		66,021		144,817		131,207
Gathering, transportation and production taxes		8,578		6,802		16,118		12,938
Depreciation, depletion, and amortization		36,674		28,177		70,611		50,801
Asset retirement obligations accretion		8,400		7,717		16,369		15,227
General and administrative expenses		21,354		17,393		41,869		37,312
Total operating expenses		148,993		126,110		289,784		247,485

Operating (loss) income		(6,236)		71		(6,240)		10,421

Interest expense, net		10,164		10,323		20,236		25,036
Derivative loss (gain), net		2,374		(829)		(2,503)		(40,069)
Other expense (income), net		1,250		(311)		6,480		(78)
(Loss) income before income taxes		(20,024)		(9,112)		(30,453)		25,532
Income tax (benefit) expense		(4,636)		2,997		(3,591)		11,636
Net (loss) income	$	(15,388)	$	(12,109)	$	(26,862)	$	13,896

Net (loss) income per common share:
Basic	$	(0.10)	$	(0.08)	$	(0.18)	$	0.09
Diluted	$	(0.10)	$	(0.08)	$	(0.18)	$	0.09
Weighted average common shares outstanding:
Basic		146,943		146,452		146,900		146,435
Diluted		146,943		146,452		146,900		149,045

See Notes to Condensed Consolidated Financial Statements.

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W&T OFFSHORE, INC.

Condensed Consolidated Statements of Changes in Shareholders’ Equity

(In thousands)

(Unaudited)


	Common Stock			Additional							Total
	Outstanding			Paid-In		Retained		Treasury Stock			Shareholders’
	Shares	Value		Capital		Deficit		Shares	Value		Equity
Balances at March 31, 2024	146,857	$	1	$	588,563	$	(543,637)	2,869	$	(24,167)	$	20,760
Cash dividends	—		—		—		(1,483)	—		—		(1,483)
Share-based compensation	—		—		1,386		—	—		—		1,386
Stock issued	305		1		—		—	—		—		1
Shares withheld related to net settlement of equity awards	—		—		(271)		—	—		—		(271)
Net loss	—		—		—		(15,388)	—		—		(15,388)
Balances at June 30, 2024	147,162	$	2	$	589,678	$	(560,508)	2,869	$	(24,167)	$	5,005


	Common Stock			Additional							Total
	Outstanding			Paid-In		Retained		Treasury Stock			Shareholders’
	Shares	Value		Capital		Deficit		Shares	Value		Equity
Balances at March 31, 2023	146,461	$	1	$	577,787	$	(518,783)	2,869	$	(24,167)	$	34,838
Share-based compensation	—		—		2,087		—	—		—		2,087
Stock issued	20		—		—		—	—		—		—
Shares withheld related to net settlement of equity awards	—		—		(25)		—	—		—		(25)
Net loss	—		—		—		(12,109)	—		—		(12,109)
Balances at June 30, 2023	146,481	$	1	$	579,849	$	(530,892)	2,869	$	(24,167)	$	24,791


	Common Stock			Additional							Total
	Outstanding			Paid-In		Retained		Treasury Stock			Shareholders’
	Shares	Value		Capital		Deficit		Shares	Value		Equity
Balances at December 31, 2023	146,581	$	1	$	586,014	$	(530,656)	2,869	$	(24,167)	$	31,192
Cash dividends	—		—		—		(2,990)	—		—		(2,990)
Share-based compensation	—		—		4,418		—	—		—		4,418
Stock issued	581		1		—		—	—		—		1
Shares withheld related to net settlement of equity awards	—		—		(754)		—	—		—		(754)
Net loss	—		—		—		(26,862)	—		—		(26,862)
Balances at June 30, 2024	147,162	$	2	$	589,678	$	(560,508)	2,869	$	(24,167)	$	5,005


	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	—		—		4,009		—	—		—		4,009
Stock issued	348		—		—		—	—		—		—
Shares withheld related to net settlement of equity awards	—		—		(748)		—	—		—		(748)
Net income	—		—		—		13,896	—		—		13,896
Balances at June 30, 2023	146,481	$	1	$	579,849	$	(530,892)	2,869	$	(24,167)	$	24,791

See Notes to Condensed Consolidated Financial Statements.

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W&T OFFSHORE, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Six Months Ended June 30,
	2024		2023
Operating activities:
Net (loss) income	$	(26,862)	$	13,896
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation, depletion, amortization and accretion		86,980		66,028
Share-based compensation		4,418		4,009
Amortization and write-off of debt issuance costs		2,336		4,363
Derivative gain, net		(2,503)		(40,069)
Derivative cash settlements, net		4,957		(4,427)
Deferred income (benefit) taxes		(3,591)		11,580
Changes in operating assets and liabilities:
Accounts receivable		(24,470)		24,929
Prepaid expenses and other current assets		(5,744)		26,992
Accounts payable, accrued liabilities and other		25,564		(45,828)
Asset retirement obligation settlements		(11,997)		(11,841)
Net cash provided by operating activities		49,088		49,632

Investing activities:
Investment in oil and natural gas properties and equipment		(13,656)		(25,337)
Acquisition of property interests		(80,635)		—
Purchase of corporate aircraft		—		(8,983)
Purchases of furniture, fixtures and other		(97)		(218)
Net cash used in investing activities		(94,388)		(34,538)

Financing activities:
Proceeds from issuance of 11.75% Notes Senior Second Lien Notes		—		275,000
Repayment of 9.75% Second Senior Lien Notes		—		(552,460)
Repayments of Term Loan		—		(19,181)
Repayments of TVPX Loan		(550)		(183)
Debt issuance costs		(405)		(7,252)
Payment of dividends		(2,954)		—
Other		(754)		(748)
Net cash used in financing activities		(4,663)		(304,824)

Change in cash, cash equivalents and restricted cash		(49,963)		(289,730)
Cash, cash equivalents and restricted cash, beginning of year		177,755		465,774
Cash, cash equivalents and restricted cash, end of period	$	127,792	$	176,044

See Notes to Condensed Consolidated Financial Statements.

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W&T OFFSHORE, INC.

Notes to Condensed Consolidated Financial Statements

NOTE 1 — NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Nature of Operations

W&T Offshore, Inc. (with subsidiaries referred to herein as 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 Part II, Item 8. Financial Statements and Supplementary Data of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report”).

Certain reclassifications have been made to the prior year’s condensed consolidated financial statements to conform to the current year’s presentation. On the Condensed Consolidated Balance Sheets, the Company has combined Income tax payable with Accrued liabilities and Deferred income taxes with Other liabilities. On the Condensed Consolidated Statements of Cash Flows, the Company has combined lines within operating cash flows and investing cash flows. These reclassifications had no effect on the Company’s results of operations, financial position or cash flows.

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 and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

NOTE 2 — ACQUISITION

On December 13, 2023, the Company entered into a purchase and sale agreement to acquire rights, titles and interest in and to certain leases, wells and personal property in the central shelf region of the Gulf of Mexico, among other assets, for $72.0 million. The transaction closed on January 16, 2024 for $77.3 million (including closing fees and other transaction costs) and was funded using cash on hand. The Company also assumed the related asset retirement obligations (“AROs”) associated with these assets.

The acquisition was accounted for as an asset acquisition, which requires that the total purchase price, including transaction costs, be allocated to the assets acquired and the liabilities assumed based on their relative fair values. The fair value measurements of the oil and natural gas properties acquired and ARO 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.

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W&T OFFSHORE, INC.

Notes to Condensed Consolidated Financial Statements (continued)

The following table presents the Company’s allocation of total purchase consideration to the identifiable assets acquired and liabilities assumed based on the fair values on the date of acquisition (in thousands):


	January 2024
Oil and natural gas properties and other, net	$	94,970
Asset retirement obligations		(17,647)
Allocated purchase price	$	77,323

In February 2024, the Company received a final settlement statement for its September 2023 acquisition of working interest in certain oil and natural gas producing properties in the central and eastern shelf region of the Gulf of Mexico and recorded an additional $3.3 million of oil and natural gas properties.

NOTE 3 — DEBT

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


	June 30,		December 31,
	2024		2023
Term Loan:
Principal	$	114,159	$	114,159
Unamortized debt issuance costs		(2,499)		(3,052)
Total		111,660		111,107

11.75% Senior Second Lien Notes due 2026:
Principal		275,000		275,000
Unamortized debt issuance costs		(4,019)		(5,090)
Total		270,981		269,910

TVPX Loan:
Principal		10,475		11,025
Unamortized discount		(1,027)		(1,294)
Unamortized debt issuance costs		(185)		(144)
Total		9,263		9,587

Total debt, net		391,904		390,604
Less current portion, net		(14,925)		(29,368)
Long-term debt, net	$	376,979	$	361,236

On March 17, 2024, the term loan provided for by the credit agreement entered into by Aquasition LLC and Aquasition II LLC (the “Term Loan”) was amended to provide for (i) the deferral of $30.1 million of principal repayments during 2024; (ii) the resumption of principal repayments in the first quarter of 2025 with the option, but not obligation, to catch up on deferred amortization through excess cash flow sweep; (iii) the payment of cash interest each quarter on the remaining principal balance; (iv) the payment of an amendment fee of $0.2 million to be paid in four quarterly installments of $50,000 each, starting in the first quarter of 2024; and (v) the modification of the optional prepayment schedule as follows: redemption at 103% of par from May 2024 to May 2026, redemption at 102% of par from May 2026 up to May 2027, and 101% of par from May 2027 up to maturity in May 2028. The premium will be applicable to the aggregate principal amount outstanding at the time of any optional redemption.

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W&T OFFSHORE, INC.

Notes to Condensed Consolidated Financial Statements (continued)

During the six months ended June 30, 2024, the Company entered into a series of amendments to extend the maturity date of the Sixth Amended and Restated Credit Agreement (the “Credit Agreement”). Most recently, the Company entered into the Nineteenth Amendment on June 28, 2024 to (i) extend the maturity date to December 31, 2024, (ii) prohibit the use of loan proceeds to pay other Indebtedness (as defined in the Credit Agreement) and (iii) lower the excess cash balance sweep threshold. As of June 30, 2024, the borrowing base under the Credit Agreement was $50.0 million and there were no borrowings outstanding. In addition, no borrowings had been incurred under the Credit Agreement during the six months ended June 30, 2024. As of both June 30, 2024 and December 31, 2023, the Company had $4.4 million outstanding in letters of credit which have been cash collateralized.

As of June 30, 2024, the Company was in compliance with all applicable covenants.

NOTE 4 — FINANCIAL INSTRUMENTS

The Company’s financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities, derivative instruments and debt. Except for derivative instruments and debt, the carrying amount of the Company’s financial instruments approximates fair value due to the short-term, highly liquid nature of these instruments.

Derivative Instruments

The following table reflects the contracted volumes and weighted average prices under the terms of the Company’s open derivative contracts as of June 30, 2024:


		Average
	Instrument	Daily	Total	Weighted		Weighted		Weighted
Production Period	Type	Volumes	Volumes	Strike Price		Put Price		Call Price
Natural Gas - Henry Hub (NYMEX)		(Mmbtu) ⁽¹⁾	(Mmbtu) ⁽¹⁾		($/Mmbtu)		($/Mmbtu)		($/Mmbtu)
August 2024 - Dec 2024	calls	65,000	9,945,000	$	—	$	—	$	6.13
Jan 2025 - Mar 2025	calls	62,000	5,580,000	$	—	$	—	$	5.50
August 2024 - Dec 2024	swaps	65,359	10,000,000	$	2.45	$	—	$	—
Jan 2025 - Mar 2025	swaps	63,333	5,700,000	$	2.72	$	—	$	—
Apr 2025 - Dec 2025	puts	62,182	17,100,000	$	—	$	2.27	$	—
Jan 2026 - Dec 2026	puts	55,890	20,400,000	$	—	$	2.35	$	—
Jan 2027 - Dec 2027	puts	52,603	19,200,000	$	—	$	2.37	$	—
Jan 2028 - Apr 2028	puts	49,587	6,000,000	$	—	$	2.50	$	—

⁽¹⁾	MMbtu – Million British Thermal Units

The Company has elected not to designate its derivative instruments 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 (gain), net on the Condensed Consolidated Statements of Operations in each period presented.

The fair value of the Company’s derivative financial instruments was recorded in the Condensed Consolidated Balance Sheets as follows (in thousands):


	June 30,		December 31,
	2024		2023
Prepaid expenses and other current assets	$	1,961	$	1,180
Other assets		6,755		10,068
Accrued liabilities		8,945		6,267
Other liabilities		—		2,756

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W&T OFFSHORE, INC.

Notes to Condensed Consolidated Financial Statements (continued)

The Company measures the fair value of its derivative 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.

Although the Company has master netting arrangements with its counterparties, the amounts recorded on the Condensed Consolidated Balance Sheets are on a gross basis.

The impact of commodity derivative contracts on the Condensed Consolidated Statements of Operations were as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Realized (gain) loss	$	(364)	$	300	$	(4,119)	$	530
Unrealized loss (gain)		2,738		(1,129)		1,616		(40,599)
Derivative loss (gain), net	$	2,374	$	(829)	$	(2,503)	$	(40,069)

Debt

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


	June 30, 2024				December 31, 2023
	Net Value		Fair Value		Net Value		Fair Value
Term Loan	$	111,660	$	108,371	$	111,107	$	108,467
11.75% Notes		270,981		282,923		269,910		283,443
TVPX Loan		9,263		9,776		9,587		10,156
Total	$	391,904	$	401,070	$	390,604	$	402,066

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 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 5 — 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):


	Six Months Ended June 30,
	2024		2023
Asset retirement obligations, beginning of period	$	498,815	$	466,430
Liabilities settled		(11,997)		(11,841)
Accretion expense		16,369		15,227
Liabilities acquired		17,647		—
Liabilities incurred		—		113
Revisions of estimated liabilities		13,641		10,903
Asset retirement obligations, end of period		534,475		480,832
Less: Current portion		(35,627)		(37,763)
Long-term	$	498,848	$	443,069

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W&T OFFSHORE, INC.

Notes to Condensed Consolidated Financial Statements (continued)

NOTE 6 — CONTINGENCIES

Appeal with the Office of Natural Resources Revenue

In 2009, the Company recognized allowable reductions of cash payments for royalties owed to the Office of Natural Resources Revenue (the “ONRR”) for transportation of its deepwater production through subsea pipeline systems owned by the Company. In 2010, the ONRR audited calculations and support related to this usage fee, and ONRR notified the Company that they had disallowed approximately $4.7 million of the reductions taken. As of June 30, 2024, the Company has accrued $5.0 million related to this matter, consisting of $4.7 million for the disallowed reductions and $0.3 million for estimated penalties. The Company disagrees with the position taken by the ONRR and filed an appeal with the ONRR. The Company was required to post a surety bond in order to appeal the Interior Board of Land Appeals decision. As of June 30, 2024, the value of the surety bond posted is $9.9 million.

The Company has continued to pursue its legal rights and, at present, the case is in front of the U.S. District Court for the Eastern District of Louisiana where both parties have filed cross-motions for summary judgment and opposition briefs. The Company has filed a Reply in support of its Motion for Summary Judgment, and the government has in turn filed its Reply brief. With briefing now completed, the Company is waiting for the district court’s ruling on the merits.

ONRR Audit of Historical Refund Claims

In 2023, the Company received notification from the ONRR regarding results of an audit performed on the Company’s historical refund claims taken on various properties for alleged royalties owed to the ONRR. The review process is ongoing, and the Company does not believe any accrual is necessary at this time.

Contingent Decommissioning Obligations

The Company may be subject to retained liabilities with respect to certain divested property interests by operation of law. Certain counterparties in past divestiture transactions or third parties in existing leases that have filed for bankruptcy protection or undergone associated reorganizations may not be able to perform required abandonment obligations. Due to operation of law, the Company may be required to assume decommissioning obligations for those interests. The Company may be held jointly and severally liable for the decommissioning of various facilities and related wells. The Company no longer owns these assets, nor are they related to current operations.

During the six months ended June 30, 2024, the Company incurred $8.4 million in costs related to these decommissioning obligations and reassessed the existing decommissioning obligations, recording an additional $7.0 million. As of June 30, 2024, the remaining loss contingency recorded related to the anticipated decommissioning obligations was $16.7 million.

Although it is reasonably possible that the Company could receive state or federal decommissioning orders in the future or be notified of defaulting third parties in existing leases, the Company cannot predict with certainty, if, how or when such orders or notices will be resolved or estimate a possible loss or range of loss that may result from such orders. However, the Company could incur judgments, enter into settlements or revise the Company’s opinion regarding the outcome of certain notices or matters, and such developments could have a material adverse effect on the Company’s results of operations in the period in which the amounts are accrued and the Company’s cash flows in the period in which the amounts are paid. To the extent the Company does incur costs associated with these properties in future periods, the Company intends to seek contribution from other parties that owned an interest in the facilities.

Other Claims

In the ordinary course of business, the Company is a party to various pending or threatened claims and complaints seeking damages or other remedies concerning commercial operations and other matters. In addition, claims or contingencies may arise related to matters occurring prior to the Company’s acquisition of properties or related to matters occurring subsequent to the Company’s sale of properties. In certain cases, the Company has indemnified the sellers of properties acquired, and in other cases, has indemnified the buyers of properties sold. The Company is also

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Notes to Condensed Consolidated Financial Statements (continued)

subject to federal and state administrative proceedings conducted in the ordinary course of business including matters related to alleged royalty underpayments on certain federal-owned properties. Although the Company can give no assurance about the outcome of pending legal and federal or state administrative proceedings and the effect such an outcome may have, the Company believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by insurance, will not have a material adverse effect on the consolidated financial position, results of operations or liquidity of the Company.

NOTE 7 — INVESTMENT IN MONZA

In March 2018, the Company and other members formed and funded Monza, which jointly participates with the Company in the exploration, drilling and development of certain drilling projects (“Joint Venture Drilling Program”) in the Gulf of Mexico. The total commitments by all members, including the Company’s commitment to fund its retained interest in Monza projects held outside of Monza, was $361.4 million. The Company contributed 88.94% of its working interest in certain undeveloped drilling projects to Monza and retained 11.06% of its working interest. The Joint Venture Drilling Program is structured so that the Company initially received 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.

The members of Monza are third-party investors, the Company and an entity owned and controlled by the Company’s Chief Executive Officer (“CEO”). The entity affiliated with the Company’s CEO invested as a minority investor on the same terms and conditions as the third-party investors.

The Company’s interest in Monza is considered to be a variable interest that is proportionally consolidated. The Company does not fully consolidate Monza because the Company is not considered the primary beneficiary of Monza.

The following table presents the amounts recorded by the Company on the Condensed Consolidated Balance Sheets related to the consolidation of the proportional interest in Monza’s operations (in thousands):


	June 30,		December 31,
	2024		2023
Working capital	$	913	$	1,159
Oil and natural gas properties and other, net		29,911		31,805
Other assets		12,284		11,694
Asset retirement obligations		642		593

The following table presents the amounts recorded by the Company in the Condensed Consolidated Statements of Operations related to the consolidation of the proportional interest in Monza’s operations (in thousands):


	Six Months Ended June 30,
	2024		2023
Total revenues	$	5,700	$	6,018
Total operating expenses		3,636		4,623
Interest income		111		104

As required, the Company may call on Monza to provide cash to fund its portion of certain projects in advance of capital expenditure spending. As of June 30, 2024 and December 31, 2023, the unused advances were $2.6 million and $2.7 million, respectively, which are included in Advances from joint interest partners in the Condensed Consolidated Balance Sheets.

During the six months ended June 30, 2024, Monza paid cash distributions of $18.0 million, of which $3.8 million was paid to the Company.

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Notes to Condensed Consolidated Financial Statements (continued)

NOTE 8 — STOCKHOLDERS’ EQUITY

On March 5, 2024, the Company’s board of directors declared a regular quarterly dividend of $0.01 per share of common stock for the first quarter of 2024. The dividend of $1.5 million was paid on March 25, 2024 to stockholders of record at the close of business on March 18, 2024.

On May 10, 2024, the Company’s board of directors declared a regular quarterly dividend of $0.01 per share of common stock for the second quarter of 2024. The dividend of $1.5 million was paid on May 31, 2024 to stockholders of record at the close of business on May 24, 2024.

On August 6, 2024, the Company’s board of directors declared a regular quarterly dividend of $0.01 per share of common stock for the third quarter of 2024. The dividend is to be paid on August 27, 2024 to stockholders of record at the close of business on August 20, 2024.

NOTE 9 — INCOME TAXES

The Company records income taxes for interim periods based on an estimated annual effective tax rate. The estimated annual effective rate is recomputed on a quarterly basis and may fluctuate due to changes in forecasted annual operating income, positive or negative changes to the valuation allowance for net deferred tax assets and changes to actual or forecasted permanent book to tax differences.

The Company’s effective tax rate for the three and six months ended June 30, 2024 was 23.1% and 11.8%, respectively. The difference between the effective tax rate and the federal statutory rate was primarily due to the impact of nondeductible compensation and adjustments to the valuation allowance. The Company’s effective tax rate for the three months ended June 30, 2023 is not meaningful primarily as a result of changes in the valuation allowance on the Company’s deferred tax assets. The Company’s effective tax rate for the six months ended June 30, 2023 was 45.6%. The difference between the effective tax rate and the federal statutory rate was primarily due to the impact of state income taxes, nondeductible compensation, and adjustments to the valuation allowance.

As of June 30, 2024 and December 31, 2023, the Company had a valuation allowance of $27.1 million and $23.2 million, respectively, primarily related to state net operating losses and the disallowed interest expense limitation carryover. At each reporting date, the Company considers all available positive and negative evidence to evaluate whether its deferred tax assets are more likely than not to be realized.

NOTE 10 — NET (LOSS) INCOME PER SHARE

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Net (loss) income	$	(15,388)	$	(12,109)	$	(26,862)	$	13,896

Weighted average common shares outstanding - basic		146,943		146,452		146,900		146,435
Dilutive effect of securities		—		—		—		2,610
Weighted average common shares outstanding - diluted		146,943		146,452		146,900		149,045

Net (loss) income per common share:
Basic	$	(0.10)	$	(0.08)	$	(0.18)	$	0.09
Diluted		(0.10)		(0.08)		(0.18)		0.09

Shares excluded due to being anti-dilutive		1,724		2,909		1,724		—

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Notes to Condensed Consolidated Financial Statements (continued)

NOTE 11 — OTHER SUPPLEMENTAL INFORMATION

Condensed Consolidated Balance Sheet Details

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