Quarterly report pursuant to Section 13 or 15(d)

Basis of Presentation

v3.19.1
Basis of Presentation
3 Months Ended
Mar. 31, 2019
Accounting Policies [Abstract]  
Basis of Presentation

1.  Basis of Presentation

Operations.  W&T Offshore, Inc. (with subsidiaries referred to herein as “W&T,” “we,” “us,” “our,” 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.  Our interests in fields, leases, structures and equipment are primarily owned by W&T Offshore, Inc. and its 100%-owned subsidiary, W & T Energy VI, LLC, and through our proportionately consolidated interest in Monza Energy LLC (“Monza”), as described in more detail in Note 4.  

Interim Financial Statements.  The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim periods and the appropriate rules and regulations of the Securities and Exchange Commission (“SEC”).  Accordingly, the condensed consolidated financial statements do not include all of the information and footnote disclosures required by GAAP for complete financial statements for annual periods.  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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

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.

Leases.  In February 2016, Accounting Standards Update 2016-02, Leases (Topic 842) (“ASU 2016-02”) was issued requiring an entity to recognize a right-of-use (“ROU”) asset and lease liability for all leases.  The classification of leases as either a finance or operating lease determines the recognition, measurement and presentation of expenses.  ASU 2016-02 also requires certain quantitative and qualitative disclosures about leasing arrangements.  Leases acquired to explore for or extract oil or natural gas resources, including the right to explore for those natural resources and rights to use the land in which those natural resources are contained, are not within the scope of this standard’s update.

ASU 2016-02 was effective for us in the first quarter of 2019 and we adopted the new standard using a modified retrospective approach, with the date of initial application on January 1, 2019.  Consequently, upon transition, we recognized an ROU asset and a lease liability with no retained earnings impact.

 

 

As provided for in subsequent accounting standards updates related to ASU 2016-02, we are applying the following practical expedients which provide elections to:

not apply the recognition requirements to short-term leases (a lease that at commencement date has a lease term of 12 months or less and does not contain a purchase option);

not reassess whether a contract contains a lease, lease classifications between operating and financing and accounting for initial direct costs related to leases;

not reassess certain land easements in existence prior to January 1, 2019;

use hindsight in determining the lease term and assessing impairment; and

not separate nonlease and lease components.

Based on the results of our implementation process, we identified one operating lease in existence at January 1, 2019 subject to ASU 2016-02, which is our real estate lease for office space in Houston, Texas that terminates in December 2022.  We identified no finance leases.  

Houston Office Lease. Minimum future lease payments due under the lease as of March 31, 2019 are as follows: 2019 - $1.1 million; 2020 - $1.6 million; 2021 - $1.6 million and 2022 - $1.6 million.  Expense related to the Houston office lease for the three months ended March 31, 2019 and 2018 was $0.7 million each period.  

As of March 31, 2019, we recorded an ROU asset and a lease liability of $5.0 million using a discount rate of 9.75%.  The discount rate (or incremental borrowing rate) was determined using the interest rate of recently issued debt instruments that were issued at par and for a similar term as the term of our lease for the office space in Houston.    

After the adoption of the new standard update, the amounts recorded within our Condensed Consolidated Balance Sheet are as follows (in thousands):

 

 

March 31, 2019

 

ROU:

 

 

 

 

Prepaid expenses and other current assets:

 

$

1,095

 

Other assets

 

 

3,856

 

Total ROU

 

$

4,951

 

 

 

 

 

 

Lease liability:

 

 

 

 

Accrued liabilities

 

$

1,095

 

Other liabilities

 

 

3,856

 

Total lease liability

 

$

4,951

 

 

 

 

 

 

Lease incentives:

 

 

 

 

Prepaid expenses and other current assets (contra-asset)

 

$

(213

)

Other assets (contra-asset)

 

 

(795

)

Total lease incentives

 

$

(1,008

)

The adoption of the new standard did not impact our Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Cash Flows or Condensed Consolidated Statements of Changes in Shareholders’ Deficit.

Revenue Recognition.  We recognize revenue from the sale of crude oil, NGLs, and natural gas when our performance obligations are satisfied.  Our contracts with customers are primarily short-term (less than 12 months).  Our responsibilities to deliver a unit of crude oil, NGL, and natural gas under these contracts represent separate, distinct performance obligations.  These performance obligations are satisfied at the point in time control of each unit is transferred to the customer.  Pricing is primarily determined utilizing a particular pricing or market index, plus or minus adjustments reflecting quality or location differentials.  

Reclassifications.  Certain reclassifications have been made to the prior period financial statements to conform to the current presentation as follows:  In the Condensed Consolidated Statements of Operations, interest income was reclassified from Other expense, net to Interest expense, net, which did not change Net (loss) income before income tax expense.  In the Condensed Consolidated Statements of Cash Flows, adjustments were made to certain line items within the Net Cash Used in Investing Activities of which did not change the total amount previous reported.  The adjustments did not affect the Condensed Consolidated Balance Sheets.

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,

 

 

December 31,

 

 

2019

 

 

2018

 

Derivative assets (1)

$

16,959

 

 

$

60,687

 

Unamortized bond/insurance premiums

 

4,944

 

 

 

5,197

 

Prepaid deposits related to royalties

 

8,871

 

 

 

8,872

 

Other

 

3,353

 

 

 

1,650

 

Prepaid expenses and other assets

$

34,127

 

 

$

76,406

 

 

 

(1)

Includes closed contracts which have not yet settled.

Oil and Natural Gas Properties and Other, Net – at cost.  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,

 

 

December 31,

 

 

2019

 

 

2018

 

Oil and natural gas properties and equipment

$

8,198,394

 

 

$

8,169,871

 

Furniture, fixtures and other

 

20,228

 

 

 

20,228

 

Total property and equipment

 

8,218,622

 

 

 

8,190,099

 

Less accumulated depreciation, depletion and amortization

 

7,703,857

 

 

 

7,674,678

 

Oil and natural gas properties and other, net

$

514,765

 

 

$

515,421

 

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

 

 

March 31,

 

 

December 31,

 

 

2019

 

 

2018

 

Escrow deposit - Apache lawsuit

$

49,500

 

 

$

49,500

 

Derivative assets

 

4,169

 

 

 

21,275

 

Appeal bond deposits

 

6,925

 

 

 

6,925

 

Unamortized debt issuance costs

 

4,511

 

 

 

4,773

 

Investment in White Cap, LLC

 

2,546

 

 

 

2,586

 

Unamortized brokerage fee for Monza

 

3,746

 

 

 

2,277

 

Proportional consolidation of Monza's other assets  (Note 4)

 

3,299

 

 

 

3,275

 

Other

 

4,309

 

 

 

936

 

Total other assets (long-term)

$

79,005

 

 

$

91,547

 

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

 

 

March 31,

 

 

December 31,

 

 

2019

 

 

2018

 

Accrued interest

$

27,624

 

 

$

12,385

 

Accrued salaries/payroll taxes/benefits

 

2,425

 

 

 

2,320

 

Incentive compensation plans

 

 

 

 

10,817

 

Litigation accruals

 

3,673

 

 

 

3,673

 

Other

 

1,475

 

 

 

416

 

Total accrued liabilities

$

35,197

 

 

$

29,611

 

 

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

 

 

March 31,

 

 

December 31,

 

 

2019

 

 

2018

 

Apache lawsuit

$

49,500

 

 

$

49,500

 

Uncertain tax positions including interest/penalties

 

11,694

 

 

 

11,523

 

Dispute related to royalty deductions

 

4,687

 

 

 

4,687

 

Dispute related to royalty-in-kind

 

2,164

 

 

 

2,135

 

Other

 

5,097

 

 

 

845

 

Total other liabilities (long-term)

$

73,142

 

 

$

68,690

 

 

Recent Accounting Developments.  

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326) (“ASU 2016-13”).  The new guidance eliminates the probable recognition threshold and broadens the information to consider past events, current conditions and forecasted information in estimating credit losses.  ASU 2016-13 is effective for fiscal years beginning after December 15, 2019 and early adoption is permitted for fiscal years beginning after December 15, 2018.  We have not yet fully determined or quantified the effect ASU 2016-13 will have on our financial statements.

In August 2017, the FASB issued Accounting Standards Update No. 2017-12, Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”).  The amendments in ASU 2017-12 require an entity to present the earnings effect of the hedging instrument in the same income statement line in which the earning effect of the hedged item is reported.  This presentation enables users of financial statements to better understand the results and costs of an entity’s hedging program.  Also, relative to current GAAP, this approach simplifies the financial statement reporting for qualifying hedging relationships.  ASU 2017-12 is effective for fiscal years beginning after December 15, 2019 and interim periods within fiscal years beginning after December 15, 2020.  Early adoption is permitted, including adoption in an interim period.  As we do not designate our commodity derivative instruments as qualifying hedging instruments, our assessment is this amendment will not impact the presentation of the changes in fair values of our commodity derivative instruments on our financial statements.

The SEC issued Final Rule Release No. 33-10532, Disclosure Update and Simplification, which revised Regulation S-X, Rule 3-04, Changes in Stockholders’ Equity and Noncontrolling Interests.  The new requirement for registrants is to include a reconciliation of changes in stockholders’ equity (deficit) in interim periods for each period that for which a statement of operations is required to be filed.  The new requirement became effective for us for the quarter ended March 31, 2019.