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EX-32.1 - EX-32.1 - W&T OFFSHORE INCwti-ex321_7.htm
EX-31.2 - EX-31.2 - W&T OFFSHORE INCwti-ex312_10.htm
EX-31.1 - EX-31.1 - W&T OFFSHORE INCwti-ex311_8.htm
EX-10.2 - EX-10.2 - W&T OFFSHORE INCwti-ex102_97.htm
EX-10.1 - EX-10.1 - W&T OFFSHORE INCwti-ex101_96.htm

 

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, 2017

or

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

For the transition period from _______________ to ________________

Commission File Number 1-32414

 

W&T OFFSHORE, INC.

(Exact name of registrant as specified in its charter)

 

Texas

72-1121985

(State of incorporation)

(IRS Employer

Identification Number)

 

 

Nine Greenway Plaza, Suite 300

Houston, Texas

77046-0908

(Address of principal executive offices)

(Zip Code)

(713) 626-8525

(Registrant’s telephone number, including area code)

 

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes      No  

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

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

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934.   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.  

As of May 1, 2017, there were 137,674,372 shares outstanding of the registrant’s common stock, par value $0.00001.

 

 

 


W&T OFFSHORE, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

 

 

 

Page

PART I –FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

Condensed Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016

1

 

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2017 and 2016

2

 

Condensed Consolidated Statement of Changes in Shareholders’ Deficit for the Three Months Ended March 31, 2017

3

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016

4

 

Notes to Condensed Consolidated Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

30

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

43

Item 4.

Controls and Procedures

43

 

 

PART II – OTHER INFORMATION

 

Item 1.

Legal Proceedings

44

Item 1A.

Risk Factors

44

Item 6.

Exhibits

44

 

 

SIGNATURE

45

EXHIBIT INDEX

46

 

 

 

 


 

PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements

W&T OFFSHORE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

 

March 31,

 

 

December 31,

 

 

2017

 

 

2016

 

 

(Unaudited)

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

126,095

 

 

$

70,236

 

Receivables:

 

 

 

 

 

 

 

Oil and natural gas sales

 

44,954

 

 

 

43,073

 

Joint interest

 

16,843

 

 

 

21,885

 

Insurance reimbursement

 

 

 

 

30,100

 

Income taxes

 

11,943

 

 

 

11,943

 

Total receivables

 

73,740

 

 

 

107,001

 

Prepaid expenses and other assets (Note 1)

 

17,135

 

 

 

14,504

 

Total current assets

 

216,970

 

 

 

191,741

 

 

 

 

 

 

 

 

 

Oil and natural gas properties and other, net - at cost: (Note 1)

 

538,114

 

 

 

547,053

 

 

 

 

 

 

 

 

 

Restricted deposits for asset retirement obligations

 

28,224

 

 

 

27,371

 

Income tax receivables

 

59,789

 

 

 

52,097

 

Other assets

 

11,403

 

 

 

11,464

 

Total assets

$

854,500

 

 

$

829,726

 

Liabilities and Shareholders’ Deficit

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

81,398

 

 

$

81,039

 

Undistributed oil and natural gas proceeds

 

22,366

 

 

 

26,254

 

Asset retirement obligations

 

66,150

 

 

 

78,264

 

Long-term debt

 

8,250

 

 

 

8,272

 

Accrued liabilities (Note 1)

 

20,536

 

 

 

9,200

 

Total current liabilities

 

198,700

 

 

 

203,029

 

Long-term debt: (Note 2)

 

 

 

 

 

 

 

Principal

 

873,733

 

 

 

873,733

 

Carrying value adjustments

 

137,001

 

 

 

138,722

 

Long term debt, less current portion - carrying value

 

1,010,734

 

 

 

1,012,455

 

 

 

 

 

 

 

 

 

Asset retirement obligations, less current portion

 

260,650

 

 

 

256,174

 

Other liabilities

 

17,226

 

 

 

17,105

 

Commitments and contingencies (Note 9)

 

 

 

 

 

Shareholders’ deficit:

 

 

 

 

 

 

 

Preferred stock, $0.00001 par value; 20,000,000 shares authorized; 0 issued at

   March 31, 2017 and December 31, 2016

 

 

 

 

 

Common stock, $0.00001 par value; 200,000,000 shares authorized;

   140,543,545 issued and 137,674,372 outstanding at March 31, 2017

   and December 31, 2016

 

1

 

 

 

1

 

Additional paid-in capital

 

541,901

 

 

 

539,973

 

Retained earnings (deficit)

 

(1,150,545

)

 

 

(1,174,844

)

Treasury stock, at cost; 2,869,173 shares at March 31, 2017 and December 31, 2016

 

(24,167

)

 

 

(24,167

)

Total shareholders’ deficit

 

(632,810

)

 

 

(659,037

)

Total liabilities and shareholders’ deficit

$

854,500

 

 

$

829,726

 

 

See Notes to Condensed Consolidated Financial Statements

1


 

W&T OFFSHORE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

Three Months Ended

 

 

March 31,

 

 

2017

 

 

2016

 

 

(In thousands except per share data)

 

 

(Unaudited)

 

Revenues

$

124,393

 

 

$

77,715

 

Operating costs and expenses:

 

 

 

 

 

 

 

Lease operating expenses

 

40,164

 

 

 

44,469

 

Production taxes

 

515

 

 

 

526

 

Gathering and transportation

 

6,209

 

 

 

5,092

 

Depreciation, depletion, amortization and accretion

 

39,990

 

 

 

63,733

 

Ceiling test write-down of oil and natural gas properties

 

 

 

 

116,559

 

General and administrative expenses

 

13,274

 

 

 

16,443

 

Derivative gain

 

(3,955

)

 

 

(2,493

)

Total costs and expenses

 

96,197

 

 

 

244,329

 

Operating income (loss)

 

28,196

 

 

 

(166,614

)

Interest expense:

 

 

 

 

 

 

 

Incurred

 

11,294

 

 

 

27,814

 

Capitalized

 

 

 

 

(343

)

Other expense, net

 

191

 

 

 

1,306

 

Income (loss) before income tax benefit

 

16,711

 

 

 

(195,391

)

Income tax benefit

 

(7,588

)

 

 

(4,882

)

Net income (loss)

$

24,299

 

 

$

(190,509

)

 

Basic and diluted earnings (loss) per common share

$

0.17

 

 

$

(2.49

)

 

See Notes to Condensed Consolidated Financial Statements.

 

 

2


 

W&T OFFSHORE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

Outstanding

 

 

Additional

Paid-In

 

 

Retained

Earnings

 

 

Treasury Stock

 

 

Total

Shareholders’

 

 

Shares

 

 

Value

 

 

Capital

 

 

(Deficit)

 

 

Shares

 

 

Value

 

 

Deficit

 

 

(In thousands)

 

 

(Unaudited)

 

Balances at December 31, 2016

 

137,674

 

 

$

1

 

 

$

539,973

 

 

$

(1,174,844

)

 

 

2,869

 

 

$

(24,167

)

 

$

(659,037

)

Share-based compensation

 

 

 

 

 

 

 

1,928

 

 

 

 

 

 

 

 

 

 

 

 

1,928

 

Net income

 

 

 

 

 

 

 

 

 

 

24,299

 

 

 

 

 

 

 

 

 

24,299

 

Balances at March 31, 2017

 

137,674

 

 

$

1

 

 

$

541,901

 

 

$

(1,150,545

)

 

 

2,869

 

 

$

(24,167

)

 

$

(632,810

)

 

See Notes to Condensed Consolidated Financial Statements.

 

 

3


 

W&T OFFSHORE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

Three Months Ended

 

 

March 31,

 

 

2017

 

 

2016

 

 

(In thousands)

 

 

(Unaudited)

 

Operating activities:

 

 

 

 

 

 

 

Net income (loss)

$

24,299

 

 

$

(190,509

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation, depletion, amortization and accretion

 

39,990

 

 

 

63,733

 

Ceiling test write-down of oil and natural gas properties

 

 

 

 

116,559

 

Debt issuance costs write-down/amortization of debt items

 

412

 

 

 

1,684

 

Share-based compensation

 

1,928

 

 

 

2,536

 

Derivative gain

 

(3,955

)

 

 

(2,493

)

Cash receipts on derivative settlements

 

713

 

 

 

4,105

 

Deferred income taxes

 

105

 

 

 

(4,882

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Oil and natural gas receivables

 

(1,882

)

 

 

8,165

 

Joint interest receivables

 

5,042

 

 

 

4,979

 

Insurance reimbursements

 

30,100

 

 

 

12

 

Income taxes

 

 

 

 

(310

)

Prepaid expenses and other assets

 

(7,972

)

 

 

1,317

 

Asset retirement obligation settlements

 

(14,499

)

 

 

(3,180

)

Accounts payable, accrued liabilities and other

 

6,902

 

 

 

27,993

 

Net cash provided by operating activities

 

81,183

 

 

 

29,709

 

Investing activities:

 

 

 

 

 

 

 

Investment in oil and natural gas properties and equipment

 

(23,338

)

 

 

(12,903

)

Changes in operating assets and liabilities associated with investing activities

 

1,168

 

 

 

(20,680

)

Proceeds from sales of assets

 

 

 

 

1,000

 

Purchases of furniture, fixtures and other

 

(853

)

 

 

 

Net cash used in investing activities

 

(23,023

)

 

 

(32,583

)

Financing activities:

 

 

 

 

 

 

 

Borrowings of long-term debt - revolving bank credit facility

 

 

 

 

340,000

 

Repayments of long-term debt - revolving bank credit facility

 

 

 

 

(52,000

)

Payment of interest on 1.5 Lien Term Loan

 

(2,056

)

 

 

 

Other

 

(245

)

 

 

83

 

Net cash provided by (used in) financing activities

 

(2,301

)

 

 

288,083

 

Increase in cash and cash equivalents

 

55,859

 

 

 

285,209

 

Cash and cash equivalents, beginning of period

 

70,236

 

 

 

85,414

 

Cash and cash equivalents, end of period

$

126,095

 

 

$

370,623

 

 

See Notes to Condensed Consolidated Financial Statements.

 

 

 

4


 

W&T OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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 operations primarily offshore in the Gulf of Mexico.  The Company is active in the exploration, development and acquisition of oil and natural gas properties.  Our interest in fields, leases, structures and equipment are primarily owned by W&T Offshore, Inc. (on a stand-alone basis, the “Parent Company”) and its 100%-owned subsidiary, W & T Energy VI, LLC (“Energy VI”).  

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, 2016.

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.

Recent Events.  The price we receive for our crude oil, natural gas liquids (“NGLs”) and natural gas production directly affects our revenues, profitability, cash flows, liquidity, access to capital, proved reserves and future rate of growth.  The average prices of these commodities improved during the first quarter of 2017 compared to the average prices in the first quarter and year 2016.  Operating costs were lower than the first quarter of 2017 on a barrel equivalent (“Boe”) basis compared to the first quarter of 2016.  In September 2016, we consummated the Exchange Transaction, as defined and described below in Note 2, which reduced our interest payments in the first quarter of 2017 compared to the first quarter of 2016.  In addition, the Exchange Transaction extended the maturities on a portion of our debt, although for a portion of the New Debt, as defined and described below, the maturities may accelerate if certain events do not transpire.

We continued working to further reduce our operating costs, capital expenditures and costs related to asset retirement obligations (“ARO”).  Our 2017 capital budget is conservative and flexible.  The 2017 capital budget is higher than the capital expenditures incurred during 2016, but it is significantly lower than spending levels incurred during 2015 and 2014.  

 

 

    

 

5


W&T OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

 

During the first quarter of 2017, the Bureau of Ocean Energy Management (“BOEM”) extended the implementation timeline by an additional six months for Notice to Lessees #2016-N01 (“NTL #2016-N01”) as to Outer Continental Shelf (“OCS”) leases, rights-of-way (“ROWs”) or rights of use and easement (“RUEs”) for which there are co-lessees and/or predecessors in interest (non-sole liability properties), with certain exceptions.  Also, in the first quarter of 2017, the BOEM withdrew the orders related to its so called “sole liability” properties it had issued in December 2016 to allow time for the new President’s administration to review the complex financial assurance program.  We continue to have discussions with the BOEM regarding these matters.  See Note 9 for additional information.    

We have assessed our financial condition, the current capital markets and options given different scenarios of commodity prices.  We believe we will have adequate liquidity to fund our operations beyond May 2018, the period of assessment to qualify as a going concern.  However, we cannot predict the potential changes in commodity prices or the future bonding requirements, either of which could affect our operations, liquidity levels and compliance with debt covenants.

See our Annual Report on Form 10-K for the year ended December 31, 2016 concerning risks related to our business and events occurring during 2016 and other information and the Notes herein for additional information.  

Prepaid Expenses and Other.  The amounts recorded in Prepaid expenses and other are expected to be realized within one year.  The major categories are presented in the following table (in thousands):

 

 

March 31,

 

 

December 31,

 

 

2017

 

 

2016

 

Derivative assets (1)

$

3,486

 

 

$

 

Prepaid/accrued insurance and surety bonds

 

4,751

 

 

 

5,386

 

Prepaid deposits related to royalties

 

6,036

 

 

 

6,237

 

Other

 

2,862

 

 

 

2,881

 

Prepaid expenses and other

$

17,135

 

 

$

14,504

 

 

(1)

Includes open and closed (and not settled) derivative commodity contracts recorded at fair value.

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:

 

 

March 31,

 

 

December 31,

 

 

2017

 

 

2016

 

Oil and natural gas properties and equipment

$

7,958,501

 

 

$

7,932,504

 

Furniture, fixtures and other

 

21,751

 

 

 

20,898

 

Total property and equipment

 

7,980,252

 

 

 

7,953,402

 

Less accumulated depreciation, depletion and amortization

 

7,442,138

 

 

 

7,406,349

 

Oil and natural gas properties and other, net

$

538,114

 

 

$

547,053

 

6


W&T OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

 

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

 

 

March 31,

 

 

December 31,

 

 

2017

 

 

2016

 

Accrued interest

$

14,878

 

 

$

4,189

 

Accrued salaries/payroll taxes/benefits

 

2,749

 

 

 

2,777

 

Other

 

2,909

 

 

 

2,234

 

Total accrued liabilities

$

20,536

 

 

$

9,200

 

Recent Accounting Developments.  In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09 (“ASU 2014-09”), Summary and Amendments That Create Revenue from Contracts and Customers (Subtopic 606).  ASU 2014-09 amends and replaces current revenue recognition requirements, including most industry-specific guidance.  The revised guidance establishes a five step approach to be utilized in determining when, and if, revenue should be recognized.  ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2017.  Upon application, an entity may elect one of two methods, either restatement of prior periods presented or recording a cumulative adjustment in the initial period of application.  Our current intention is to adopt the standard utilizing the modified retrospective approach.  Our evaluation to date is the adoption of ASU 2014-09 is not expected to have a material impact on our consolidated financial statements.  We have not fully completed our analysis and subsequent guidance may change this assessment.  Our disclosures related to revenue will be modified when the new guidance is effective.  ASU 2014-09 will be effective for us in the first quarter of 2018.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (“ASU 2016-02”), Leases (Subtopic 842).  Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease.  However, unlike current GAAP, which requires only capital leases to be recognized on the balance sheet, ASU 2016-02 will require both types of leases to be recognized on the balance sheet.  ASU 2016-02 also will require disclosures to help investors and other financial statement users to better understand the amount, timing and uncertainty of cash flows arising from leases.  These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements.  ASU 2016-02 does not apply for leases for oil and gas properties, but does apply to equipment used to explore and develop oil and gas resources.  Our current operating leases that will be impacted by ASU 2016-02 are leases for office space in Houston, Texas and New Orleans, Louisiana, although ASU 2016-02 may impact the accounting for leases related to equipment depending on the term of the lease.  We currently do not have any leases classified as financing leases.  ASU 2016-02 is effective for annual and interim periods beginning after December 15, 2018 and is to be applied using the modified retrospective approach.  We have not yet fully determined or quantified the effect ASU 2016-02 will have on our financial statements.

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, (“ASU 2016-13”), Financial Instruments – Credit Losses (Subtopic 326).  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.

7


W&T OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

In August 2016, the FASB issued Accounting Standards Update No. 2016-15, (“ASU 2016-15”), Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments.  ASU 2016-15 addresses the classification of several items that previously had diversity in practice.  Items identified in the new standard which were incurred by us in the past are: (a) debt prepayment or extinguishment costs; (b) contingent consideration made after a business acquisition; and (c) proceeds from settlement of insurance claims.  The item described in clause (b) would be the only such item changed under our historical classification in the statement of cash flows (financing vs. investing) and the amount of such change would not have been material; therefore, we do not anticipate the new standard will have a material effect on our reports.  ASU 2016-15 is effective for fiscal years beginning after December 15, 2017 and early adoption is permitted.

In November 2016, the FASB issued Accounting Standards Update No. 2016-18, (“ASU 2016-18”), Statement of Cash Flows (Topic 230) – Restricted Cash.  ASU 2016-18 addresses diversity in practice and requires that a statement of cash flows explain the change during the period in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.  ASU 2016-18 is expected to change some of the presentation in our statement of cash flows, but not materially impact total cash flows from operating, investing or financing activities.  ASU 2016-18 is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years.  Early adoption is permitted, including adoption in an interim period.

 

8


W&T OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

2.  Long-Term Debt

The components of our long-term debt are presented in the following table (in thousands):

 

March 31, 2017

 

 

December 31, 2016

 

 

 

 

 

 

Adjustments to

 

 

 

 

 

 

 

 

 

 

Adjustments to

 

 

 

 

 

 

 

 

 

 

Carrying

 

 

Carrying

 

 

 

 

 

 

Carrying

 

 

Carrying

 

 

Principal

 

 

Value (1)

 

 

Value

 

 

Principal

 

 

Value (1)

 

 

Value

 

11.00% 1.5 Lien Term Loan,

     due November 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Principal

$

75,000

 

 

$

 

 

$

75,000

 

 

$

75,000

 

 

$

 

 

$

75,000

 

Future interest payments

 

 

 

 

21,766

 

 

 

21,766

 

 

 

 

 

 

23,823

 

 

 

23,823

 

Subtotal

 

75,000

 

 

 

21,766

 

 

 

96,766

 

 

 

75,000

 

 

 

23,823

 

 

 

98,823

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9.00 % Second Lien Term Loan,

    due May 2020:

 

300,000

 

 

 

 

 

 

300,000

 

 

 

300,000

 

 

 

 

 

 

300,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9.00%/10.75% Second Lien

    PIK Toggle Notes, due May 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Principal

 

163,007

 

 

 

 

 

 

163,007

 

 

 

163,007

 

 

 

 

 

 

163,007

 

Future payments-in-kind

 

 

 

 

24,048

 

 

 

24,048

 

 

 

 

 

 

24,048

 

 

 

24,048

 

Future interest payments

 

 

 

 

36,850

 

 

 

36,850

 

 

 

 

 

 

36,850

 

 

 

36,850

 

Subtotal

 

163,007

 

 

 

60,898

 

 

 

223,905

 

 

 

163,007

 

 

 

60,898

 

 

 

223,905

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8.50%/10.00% Third Lien

  PIK Toggle Notes, due June 2021:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Principal

 

145,897

 

 

 

 

 

 

145,897

 

 

 

145,897

 

 

 

 

 

 

145,897

 

Future payments-in-kind

 

 

 

 

26,844

 

 

 

26,844

 

 

 

 

 

 

26,844

 

 

 

26,844

 

Future interest payments

 

 

 

 

40,705

 

 

 

40,705

 

 

 

 

 

 

40,705

 

 

 

40,705

 

Subtotal

 

145,897

 

 

 

67,549

 

 

 

213,446

 

 

 

145,897

 

 

 

67,549

 

 

 

213,446

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8.50% Unsecured Senior Notes,

    due June 2019

 

189,829

 

 

 

 

 

 

189,829

 

 

 

189,829

 

 

 

 

 

 

189,829

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt premium, discount,

     issuance costs, net of amortization

 

 

 

 

(4,962

)

 

 

(4,962

)

 

 

 

 

 

(5,276

)

 

 

(5,276

)

Total long-term debt

 

873,733

 

 

 

145,251

 

 

 

1,018,984

 

 

 

873,733

 

 

 

146,994

 

 

 

1,020,727

 

Current maturities of long-term debt (2)

 

 

 

 

8,250

 

 

 

8,250

 

 

 

 

 

 

8,272

 

 

 

8,272

 

Long term debt, less current

   maturities

$

873,733

 

 

$

137,001

 

 

$

1,010,734

 

 

$

873,733

 

 

$

138,722

 

 

$

1,012,455

 

 

 

(1)

Future interest payments and future payments-in-kind (“PIK”) are recorded on an undiscounted basis.

 

(2)

Future interest payments for the next twelve months on the 1.5 Lien Term Loan.

 

 

9


W&T OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Exchange Transaction

On September 7, 2016, we consummated a transaction whereby we exchanged approximately $710.2 million in aggregate principal amount, or 79%, of our 8.500% Senior Notes, due June 15, 2019 (the “Unsecured Senior Notes”)for: (i) $159.8 million in aggregate principal amount of 9.00%/10.75% Senior Second Lien PIK Toggle Notes, due May 15, 2020, (the “Second Lien PIK Toggle Notes”); (ii) $142.0 million in aggregate principal amount of 8.50%/10.00% Senior Third Lien PIK Toggle Notes, due June 15, 2021, (the “Third Lien PIK Toggle Notes”); and (iii) 60.4 million shares of our common stock (collectively, the “Debt Exchange”).  At the same time on closing on the Debt Exchange, we closed on a $75.0 million, 11.00% 1.5 Lien Term Loan, due November 15, 2019, (the “1.5 Lien Term Loan”) with the largest holder of our Unsecured Senior Notes (collectively with the Debt Exchange, the “Exchange Transaction”).  We accounted for the Exchange Transaction as a Troubled Debt Restructuring pursuant to the guidance under Accounting Standard Codification 470-60, Troubled Debt Restructuring (“ASC 470-60”).  Under ASC 470-60, the carrying value of the newly issued Second Lien PIK Toggle Notes, Third Lien PIK Toggle Notes and 1.5 Lien Term Loan (the “New Debt”) is measured using all future undiscounted payments (principal and interest); therefore, no interest expense was recorded for the New Debt in the Condensed Consolidated Statements of Operations during the three months ended March 31, 2017.  Additionally, no interest expense related to the New Debt will be recorded in future periods as payments of interest on the New Debt will be recorded as a reduction in the carrying amount; thus, our reported interest expense will be significantly less than the contractual interest payments through the terms of the New Debt.    

The funds received from the 1.5 Lien Term Loan were used to pay transaction costs related to the Exchange Transaction and to pay down borrowings on the revolving bank credit facility.  The balance of the borrowings on the revolving bank credit facility was paid down from available cash.

The primary terms of our long-term debt following the Exchange Transaction are described below.    

Credit Agreement

The Fifth Amended and Restated Credit Agreement (as amended, the “Credit Agreement”), provides a revolving bank credit facility.  The primary items of the Credit Agreement are as follows, with certain terms defined under the Credit Agreement:

 

The borrowing base is $150.0 million.

 

Letters of credit may be issued in amounts up to $150.0 million, provided availability under the revolving bank credit facility exists.      

 

The First Lien Leverage Ratio limits are 2.50 to 1.00 through June 30, 2017, and 2.00 to 1.00 thereafter.

 

The Current Ratio must be greater than 1.00 to 1.00.

 

We are required to have deposit accounts only with banks under the Credit Agreement with certain exceptions.

 

We may not have unrestricted cash balances above $35 million if outstanding balances on the revolving bank credit agreement (including letters of credit) are greater than $5 million.

 

Borrowings primarily are executed as Eurodollar Loans, and the applicable margins range from 3.00% to 4.00%.

 

The commitment fee is 50 basis points for all levels of utilization.

 

The Credit Agreement terminates on November 8, 2018.

Availability under our revolving bank credit facility is subject to a semi-annual redetermination of our borrowing base that occurs in the spring and fall of each year and is calculated by our lenders based on their evaluation of our proved reserves and their own internal criteria.  The 2017 spring redetermination reaffirmed the borrowing base amount.  Any redetermination by our lenders to change our borrowing base will result in a similar change in the availability under our revolving bank credit facility.  The revolving bank credit facility is secured and is collateralized by a first priority lien on substantially all of our oil and natural gas properties.  

10


W&T OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

The Credit Agreement contains various customary covenants for certain financial tests, as defined in the Credit Agreement and measured as of the end of each quarter, and for customary events of default.  As of March 31, 2017, we were in compliance with all applicable ratios.  The customary events of default include: (i) nonpayment of principal when due or nonpayment of interest or other amounts within three business days of when due; (ii) bankruptcy or insolvency with respect to the Company or any of its subsidiaries guaranteeing borrowings under the revolving bank credit facility; or (iii) a change of control.  The Credit Agreement contains cross-default clauses with the other long-term debt agreements, and such agreements contain similar cross-default clauses with the Credit Agreement.  We were in compliance with all applicable covenants of the Credit Agreement as of March 31, 2017.

  As of March 31, 2017 and December 31, 2016, we did not have any borrowings outstanding.  As of both March 31, 2017 and December 31, 2016, we had $0.5 million of letters of credit outstanding under the revolving bank credit facility at both dates.  Availability as of March 31, 2017 was $149.5 million.

1.5 Lien Term Loan

As part of the Exchange Transaction, we entered into the 1.5 Lien Term Loan on September 7, 2016 with a maturity date of November 15, 2019.  The maturity date will accelerate to February 28, 2019 if the remaining Unsecured Senior Notes have not been extended, renewed, refunded, defeased, discharged, replaced or refinanced by February 28, 2019. Interest accrues at 11.00% per annum and is payable quarterly in cash.  The holder of the 1.5 Lien Term Loan was the largest holder of our Unsecured Senior Notes prior to the Exchange Transaction.  The 1.5 Lien Term Loan is secured by a 1.5 priority lien on all of our assets pledged under the Credit Agreement.  The lien securing the 1.5 Lien Term Loan is subordinate to the liens securing the Credit Agreement and has priority above the liens securing the Second Lien Term Loan (defined below), the Second Lien PIK Toggle Notes and the Third Lien PIK Toggle Notes.  All future undiscounted cash flows have been included in the carrying value under ASC 470-60.  Current maturities of long-term debt represent the cash interest payable for the 1.5 Lien Term Loan payable in the next 12 months.  The 1.5 Lien Term Loan contains various covenants that limit, among other things, our ability to: (i) pay cash dividends; (ii) repurchase our common stock; (iii) sell our assets; (iv) make certain loans or investments; (v) merge or consolidate; (vi) enter into certain liens; and (vii) enter into transactions with affiliates.  We were in compliance with those covenants as of March 31, 2017.

Second Lien Term Loan

In May 2015, we entered into the 9.00% Term Loan (the “Second Lien Term Loan”), which bears an annual interest rate of 9.00%, was issued at a 1.0% discount to par and matures on May 15, 2020 and is recorded at its carrying value consisting of principal, unamortized discount and unamortized debt issuance costs.  Interest on the Second Lien Term Loan is payable in arrears semi-annually on May 15 and November 15.  The estimated annual effective interest rate on the Second Lien Term Loan is 9.6%, which includes amortization of debt issuance costs and discounts.  The Second Lien Term Loan is secured by a second-priority lien on all of our assets that are secured under the Credit Agreement.  The Second Lien Term Loan is effectively subordinate to the Credit Agreement and the 1.5 Lien Term Loan (discussed above) and is effectively pari passu with the Second Lien PIK Toggle Notes (discussed below).  The Second Lien Term Loan contains covenants that restrict our ability and the ability of certain of our subsidiaries to: (i) incur additional debt; (ii) make payments or distributions on account of our or our restricted subsidiaries’ capital stock; (iii) sell assets; (iv) restrict dividends or other payments of our restricted subsidiaries; (v) create liens that secure debt; (vi) enter into transactions with affiliates and (vii) merge or consolidate with another company.  We were in compliance with those covenants as of March 31, 2017.

11


W&T OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Second Lien PIK Toggle Notes

As part of the Exchange Transaction, we issued Second Lien PIK Toggle Notes on September 7, 2016, with a maturity date of May 15, 2020.  Cash interest accrues at 9.00% per annum and is payable on May 15 and November 15 of each year.  The Second Lien PIK Toggle Notes contain PIK interest provisions, where certain semi-annual interest is added to the principal amount instead of being paid in cash in the then current semi-annual period.  We have the option for the first 18 months to pay all or a portion of interest in kind at a rate of 10.75% per annum.  The Second Lien PIK Toggle Notes are secured by a second-priority lien on all of our assets that are pledged under the Credit Agreement.  The Second Lien PIK Toggle Notes are effectively subordinate to the Credit Agreement and the 1.5 Lien Term Loan (discussed above) and is effectively pari passu with the Second Lien Term Loan (discussed above).  For purposes of determining the carrying amount under ASC 470-60, we assumed we will elect full use of the PIK option and these amounts will increase the principal amount.  The Second Lien PIK Toggle Notes contain covenants that restrict our ability and the ability of certain of our subsidiaries to: (i) incur additional debt; (ii) make payments or distributions on account of our or our restricted subsidiaries’ capital stock; (iii) sell assets; (iv) restrict dividends or other payments of our restricted subsidiaries; (v) create liens that secure debt; (vi) enter into transactions with affiliates and (vii) merge or consolidate with another company.  We were in compliance with those covenants as of March 31, 2017.    

Third Lien PIK Toggle Notes

As part of the Exchange Transaction, we issued Third Lien PIK Toggle Notes on September 7, 2016, with a maturity date of June 15, 2021.  The maturity date will accelerate to February 28, 2019 if the remaining Unsecured Senior Notes have not been extended, renewed, refunded, defeased, discharged, replaced or refinanced by February 28, 2019.  Cash interest accrues at 8.50% per annum and is payable on June 15 and December 15 of each year.  The Third Lien PIK Toggle Notes contain PIK interest provisions, where certain semi-annual interest is added to the principal amount instead of being paid in cash in the then current semi-annual period.  We have the option for the first 24 months to pay all or a portion of interest in kind at a rate of 10.00% per annum.  The Third Lien PIK Toggle Notes are secured by a third-priority lien on all of our assets that are secured under the Credit Agreement.  The Third Lien PIK Toggle Notes are effectively subordinate to the Second Lien Term Loan and the Second Lien PIK Toggle Notes.  For purposes of determining the carrying value under ASC 470-60, we assumed we will elect full use of the PIK option and these amounts will increase the principal amount.  The Third Lien PIK Toggle Notes contain covenants that restrict our ability and the ability of certain of our subsidiaries to: (i) incur additional debt; (ii) make payments or distributions on account of our or our restricted subsidiaries’ capital stock; (iii) sell assets; (iv) restrict dividends or other payments of our restricted subsidiaries; (v) create liens that secure debt; (vi) enter into transactions with affiliates and (vii) merge or consolidate with another company.  We were in compliance with those covenants as of March 31, 2017.

Unsecured Senior Notes

Our outstanding Unsecured Senior Notes, which bear an annual interest rate of 8.50% and mature on June 15, 2019, were recorded at their carrying value, which includes unamortized debt premium and unamortized debt issuance costs.  Interest on the Unsecured Senior Notes is payable semi-annually in arrears on June 15 and December 15.  The estimated annual effective interest rate on the Unsecured Senior Notes is 8.3%, which includes amortization of premiums and debt issuance costs.  The Unsecured Senior Notes contain covenants that restrict our ability and the ability of certain of our subsidiaries to: (i) incur additional debt; (ii) make payments or distributions on account of our or our restricted subsidiaries’ capital stock; (iii) sell assets; (iv) restrict dividends or other payments of our restricted subsidiaries; (v) create liens that secure debt; (vi) enter into transactions with affiliates and (vii) merge or consolidate with another company.  We were in compliance with those covenants as of March 31, 2017.  

For information about fair value measurements for our long-term debt, refer to Note 3.

 

 

 

12


W&T OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

3.  Fair Value Measurements  

We measure the fair value of our open derivative financial instruments by applying the income approach, using models with inputs that are classified within Level 2 of the valuation hierarchy.  The inputs used for the fair value measurement of our derivative financial instruments are the exercise price, the expiration date, the settlement date, notional quantities, the implied volatility, the discount curve with spreads, credit risk and published commodity futures prices.  The fair value of the 1.5 Lien Term Loan was estimated using the carrying value of the principal as no market has developed and the holder of the 1.5 Lien Term Loan was the largest holder of our Unsecured Senior Notes prior to the Exchange Transaction.  The fair values of our Second Lien Term Loan, Second Lien PIK Toggle Notes, Third Lien PIK Toggle Notes and Unsecured Senior Notes were based on quoted prices, although the market is not an active market; therefore, the fair value is classified within Level 2.  

The following table presents the fair value of our open derivatives and long-term debt, all of which are classified as Level 2 within the valuation hierarchy (in thousands):

 

 

March 31, 2017

 

 

December 31, 2016

 

 

 

Assets

 

 

Liabilities

 

 

Assets

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives - open contracts

 

$

3,242

 

 

$

 

 

$

 

 

$

 

11.00% 1.5 Term Loan, due November 2019 (1)

 

 

 

 

 

75,000

 

 

 

 

 

 

75,000

 

9.00% Second Lien Term Loan, due May 2020 (1)

 

 

 

 

 

273,000

 

 

 

 

 

 

255,000

 

9.00%/10.75% Second Lien PIK Toggle Notes, due May 2020 (1)

 

 

 

 

 

142,631

 

 

 

 

 

 

122,255

 

8.50%/10.00% Third Lien PIK Toggle Notes, due June 2021 (1)

 

 

 

 

 

106,505

 

 

 

 

 

 

80,243

 

8.50% Unsecured Senior Notes, due June 2019  (1)

 

 

 

 

 

152,812

 

 

 

 

 

 

123,389

 

 

(1)

The long-term debt items are reported on the Condensed Consolidated Balance Sheets at their carrying value as described in Note 2.  

 

4.  Asset Retirement Obligations

Our ARO primarily represents the estimated present value of the amount we will incur to plug, abandon and remediate our producing properties at the end of their productive lives.  

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

 

Balance, December 31, 2016

$

334,438

 

Liabilities settled

 

(14,499

)

Accretion of discount

 

4,201

 

Revisions of estimated liabilities (1)

 

2,660

 

Balance, March 31, 2017

 

326,800

 

Less current portion

 

66,150

 

Long-term

$

260,650

 

 

 

(1)

Revisions were primarily related to changes in scope of work at both our West Cameron fields and Eugene Island fields.  

 

13


W&T OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

5.  Derivative Financial Instruments

Our market risk exposure relates primarily to commodity prices and, from time to time, we use various derivative instruments to manage our exposure to this commodity price risk from sales of our oil and natural gas.  All of the derivative counterparties are also lenders or affiliates of lenders participating in our revolving bank credit facility.  We are exposed to credit loss in the event of nonperformance by the derivative counterparties; however, we currently anticipate that each of our derivative counterparties will be able to fulfill their contractual obligations.  Additional collateral is not required by us due to the derivative counterparties’ collateral rights as lenders, and we do not require collateral from our derivative counterparties.

We have elected not to designate our commodity derivative contracts as hedging instruments; therefore, all changes in the fair value of derivative contracts were recognized currently in earnings during the periods presented.  The cash flows of all of our commodity derivative contracts are included in Net cash provided by operating activities on the Condensed Consolidated Statements of Cash Flows.

For information about fair value measurements, refer to Note 3.

Commodity Derivatives

As of March 31, 2017, we had open crude oil and natural gas derivative contracts for a portion of our anticipated future production for the remainder of 2017.  These contracts were entered into during the first quarter of 2017.  For crude oil, we entered into two types of contracts.  The first type is a swap contract, where we either receive or pay depending on whether the crude oil price is below or above the contract price.   The second type is known as “two-way collar” consisting of a purchased put option and a sold call option.  These two-way collars provide price risk protection if commodity prices fall below certain levels, but may limit incremental income from favorable price movements above certain limits.  The crude oil contracts are based on West Texas Intermediate (“WTI”) crude oil prices as quoted off the New York Mercantile Exchange (“NYMEX”).  For natural gas, we entered into “two-way collar” contracts.  The natural gas contracts are based on Henry Hub natural gas prices as quoted off the NYMEX.  The strike prices of both the oil and natural gas two-way collar contracts were set so that the contracts were premium neutral (“costless”), which means no net premium was paid to or received from a counterparty.  Settlement occurs monthly using the per day notional quantity.  As of December 31, 2016, we did not have any open derivative contracts.    

14


W&T OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

As of March 31, 2017, our open commodity derivative contracts were as follows:

 

Crude Oil:  Swap, Priced off WTI (NYMEX)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

       Notional (1)

 

 

       Notional (1)

 

 

 

 

 

 

 

 

 

 

 

 

Quantity

 

 

Quantity

 

 

Strike

 

 

 

 

 

Termination Period

 

(Bbls/day)

 

 

(Bbls)

 

 

Price

 

 

 

 

 

2017

4th Quarter

 

 

1,000

 

 

 

275,000

 

 

$

55.25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crude Oil:  Two-way collars, Priced off WTI (NYMEX)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

       Notional (1)

 

 

      Notional (1)

 

 

Weighted Average Contract Price

 

 

 

 

Quantity

 

 

Quantity

 

 

Put Option

 

 

Call Option

 

Termination Period

 

(Bbls/day)

 

 

(Bbls)

 

 

(Bought)

 

 

(Sold)

 

2017

4th Quarter

 

 

4,000

 

 

 

1,100,000

 

 

$

50.00

 

 

$

60.15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural Gas:  Two-way collars, Priced off Henry Hub (NYMEX)