Form 10-Q W&T OFFSHORE INC For: Jun 30
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
For the transition period from _______________ to ________________
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(Exact name of registrant as specified in its charter)
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(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.
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).
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 ☐ |
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Non-accelerated filer ☐ |
| Smaller reporting company | |
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| 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
Securities registered pursuant to section 12(b) of the Act:
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As of July 31, 2022 there were
W&T OFFSHORE, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
W&T OFFSHORE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
June 30, | December 31, | |||||
| 2022 |
| 2021 | |||
Assets |
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Current assets: |
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Cash and cash equivalents | $ | | $ | | ||
Restricted cash | | | ||||
Receivables: |
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Oil and natural gas sales |
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Joint interest, net |
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Total receivables |
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Prepaid expenses and other assets (Note 1) |
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Total current assets |
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Oil and natural gas properties and other, net (Note 1) |
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Restricted deposits for asset retirement obligations |
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Deferred income taxes |
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Other assets (Note 1) |
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Total assets | $ | | $ | | ||
Liabilities and Shareholders’ Deficit |
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Current liabilities: |
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Accounts payable | $ | | $ | | ||
Undistributed oil and natural gas proceeds |
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Advances from joint interest partners |
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Asset retirement obligations |
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Accrued liabilities (Note 1) |
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Current portion of long-term debt | | | ||||
Income tax payable |
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Total current liabilities |
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Long-term debt, net (Note 2) |
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Asset retirement obligations, less current portion |
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Other liabilities (Note 1) |
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Deferred income taxes |
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Commitments and contingencies (Note 12) |
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Shareholders’ deficit: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Retained deficit |
| ( |
| ( | ||
Treasury stock, at cost; |
| ( |
| ( | ||
Total shareholders’ deficit |
| ( |
| ( | ||
Total liabilities and shareholders’ deficit | $ | | $ | |
See Notes to Condensed Consolidated Financial Statements.
1
W&T OFFSHORE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Revenues: |
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Oil | $ | | $ | | $ | | $ | | ||||
NGLs |
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Natural gas |
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Other |
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Total revenues |
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Operating expenses: |
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Lease operating expenses |
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Gathering, transportation and production taxes | | | | | ||||||||
Depreciation, depletion, and amortization |
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Asset retirement obligations accretion | | | | | ||||||||
General and administrative expenses |
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Total operating expenses |
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Operating income |
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Interest expense, net |
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Derivative (gain) loss |
| ( |
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Other (income) expense, net |
| ( |
| — |
| ( |
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Income (loss) before income taxes |
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| ( |
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| ( | ||||
Income tax expense (benefit) |
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| ( |
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| ( | ||||
Net income (loss) | $ | | $ | ( | $ | | $ | ( | ||||
Net income (loss) per common share: | ||||||||||||
Basic | $ | | $ | ( | $ | | $ | ( | ||||
Diluted | $ | | $ | ( | $ | | $ | ( | ||||
Weighted average common shares outstanding | ||||||||||||
Basic | | | | | ||||||||
Diluted | | | | |
See Notes to Condensed Consolidated Financial Statements.
2
W&T OFFSHORE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT
(In thousands)
(Unaudited)
| Common Stock |
| Additional |
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| Total | ||||||||||
Outstanding | Paid-In | Retained | Treasury Stock | Shareholders’ | |||||||||||||||
| Shares |
| Value |
| Capital |
| Deficit |
| Shares |
| Value |
| Deficit | ||||||
Balances at March 31, 2022 |
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| $ | |
| $ | |
| $ | ( |
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| $ | ( |
| $ | ( |
Share-based compensation |
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Stock Issued |
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RSUs surrendered for payroll taxes |
| — |
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| — |
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| ( |
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| — |
| — |
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| — |
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| ( |
Net income |
| — |
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| — |
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| — |
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| — |
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| — |
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Balances at June 30, 2022 |
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| $ | |
| $ | |
| $ | ( |
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| $ | ( |
| $ | ( |
| Common Stock |
| Additional |
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| Total | ||||||||||
Outstanding | Paid-In | Retained | Treasury Stock | Shareholders’ | |||||||||||||||
| Shares |
| Value |
| Capital |
| Deficit |
| Shares |
| Value |
| Deficit | ||||||
Balances at March 31, 2021 |
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| $ | |
| $ | |
| $ | ( |
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| $ | ( |
| $ | ( |
Share-based compensation |
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Stock Issued |
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| — |
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| — |
| — |
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| — |
Net loss |
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| ( |
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Balances at June 30, 2021 |
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| $ | |
| $ | |
| $ | ( |
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| $ | ( |
| $ | ( |
| Common Stock |
| Additional |
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| Total | ||||||||||
Outstanding | Paid-In | Retained | Treasury Stock | Shareholders’ | |||||||||||||||
| Shares |
| Value |
| Capital |
| Deficit |
| Shares |
| Value |
| Deficit | ||||||
Balances at December 31, 2021 |
| | $ | | $ | | $ | ( |
| | $ | ( | $ | ( | |||||
Share-based compensation |
| — |
| — |
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| — |
| — |
| — |
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Stock Issued | | — | — | — | — | — | — | ||||||||||||
RSUs surrendered for payroll taxes |
| — |
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| — |
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| ( |
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| — |
| — |
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| ( |
Net income |
| — |
| — |
| — |
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| — |
| — |
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Balances at June 30, 2022 |
| | $ | | $ | | $ | ( |
| | $ | ( | $ | ( |
| Common Stock |
| Additional |
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| Total | ||||||||||
Outstanding | Paid-In | Retained | Treasury Stock | Shareholders’ | |||||||||||||||
| Shares |
| Value |
| Capital |
| Deficit |
| Shares |
| Value |
| Deficit | ||||||
Balances at December 31, 2020 |
| | $ | | $ | | $ | ( |
| | $ | ( | $ | ( | |||||
Share-based compensation |
| — |
| — |
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| — |
| — |
| — |
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Stock Issued | | — | — | — | — | — | — | ||||||||||||
Net loss |
| — |
| — |
| — |
| ( |
| — |
| — |
| ( | |||||
Balances at June 30, 2021 |
| | $ | | $ | | $ | ( |
| | $ | ( | $ | ( |
See Notes to Condensed Consolidated Financial Statements.
3
W&T OFFSHORE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended June 30, | ||||||
| 2022 |
| 2021 | |||
Operating activities: |
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Net income (loss) | $ | | $ | ( | ||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
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Depreciation, depletion, amortization and accretion |
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Amortization of debt items and other items |
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Share-based compensation |
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Derivative loss |
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Derivative cash receipts (payments), net |
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| ( | ||
Derivative cash premium payments | ( | — | ||||
Deferred income taxes |
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| ( | ||
Changes in operating assets and liabilities: |
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Oil and natural gas receivables |
| ( |
| ( | ||
Joint interest receivables |
| ( |
| ( | ||
Prepaid expenses and other assets |
| ( |
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Income tax |
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Asset retirement obligation settlements |
| ( |
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Cash advances from JV partners |
| ( |
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Accounts payable, accrued liabilities and other |
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Net cash provided by operating activities |
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Investing activities: |
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Investment in oil and natural gas properties and equipment |
| ( |
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Changes in operating assets and liabilities associated with investing activities |
| ( |
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Acquisition of property interests |
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Net cash used in investing activities |
| ( |
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Financing activities: |
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Repayments on credit facility |
| — |
| ( | ||
Proceeds from Term Loan |
| — |
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Repayments on Term Loan |
| ( |
| — | ||
Debt issuance costs |
| ( |
| ( | ||
Other | ( | — | ||||
Net cash (used in) provided by financing activities |
| ( |
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Increase in cash and cash equivalents |
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Cash and cash equivalents and restricted cash, beginning of period |
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Cash and cash equivalents and restricted cash, end of period | $ | | $ | |
See Notes to Condensed Consolidated Financial Statements.
4
NOTE 1 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
W&T Offshore, Inc. (with subsidiaries referred to herein as “W&T” or the “Company”) is an independent oil and natural gas producer with substantially all of its operations offshore in the Gulf of Mexico. The Company is active in the exploration, development and acquisition of oil and natural gas properties. Interests in fields, leases, structures and equipment are primarily owned by the Company and its
Basis of Presentation
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 2021 Annual Report on Form 10-K (the “2021 Annual Report”).
Reclassification – For presentation purposes, as of June 30, 2021, Derivative (gain) loss has been reclassified from “Operating income” on the Condensed Consolidated Statement of Operations in order to conform to the current period presentation. Such reclassification had no effect on the Company’s results of operations, financial position or cash flows.
For presentation purposes, as of June 30, 2021, Gathering and transportation and Production taxes have been combined into one line item within “Operating income” on the Condensed Consolidated Statement of Operations in order to conform to the current period presentation. Such reclassification 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, the reported amounts of revenues and expenses during the reporting periods and the reported amounts of proved oil and natural gas reserves. Actual results could differ from those estimates.
Summary of Significant Accounting Policies
Revenue and Accounts Receivable – Revenue from the sale of crude oil, natural gas liquids (“NGLs”) and natural gas is recognized when performance obligations under the terms of the respective contracts are satisfied; this generally occurs with the delivery of crude oil, NGLs and natural gas to the customer. Revenue is concentrated with certain major oil and gas companies. There have been no significant changes to the Company’s contracts with customers during the six months ended June 30, 2022.
5
The Company also has receivables related to joint interest arrangements primarily with mid-size oil and gas companies with a substantial majority of the net receivable balance concentrated in less than ten companies. A loss methodology is used to develop the allowance for credit losses on material receivables to estimate the net amount to be collected. The loss methodology uses historical data, current market conditions and forecasts of future economic conditions. The Company’s maximum exposure at any time would be the receivable balance. Joint interest receivables on the Condensed Consolidated Balance Sheet are presented net of allowance for credit losses of $
Employee Retention Credit – Under the Consolidated Appropriations Act of 2021 passed by the United States Congress and signed by the President on December 27, 2020, the Company recognized a $
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):
June 30, 2022 |
| December 31, 2021 | ||||
Derivatives(1) (Note 8) | $ | | $ | | ||
Unamortized insurance/bond premiums |
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Prepaid deposits related to royalties |
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Prepayment to vendors |
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Prepayments to joint interest partners | | | ||||
Debt issue costs | | | ||||
Other |
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Prepaid expenses and other assets | $ | | $ | |
(1) |
Oil and Natural Gas Properties and Other, Net – Oil and natural gas properties and equipment are recorded at cost using the full cost method. There were no amounts excluded from amortization as of the dates presented in the following table (in thousands):
June 30, 2022 |
| December 31, 2021 | ||||
Oil and natural gas properties and equipment | $ | | $ | | ||
Furniture, fixtures and other |
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Total property and equipment |
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Less: Accumulated depreciation, depletion, amortization and impairment |
| ( |
| ( | ||
Oil and natural gas properties and other, net | $ | | $ | |
Other Assets (long-term) – The major categories are presented in the following table (in thousands):
June 30, 2022 |
| December 31, 2021 | ||||
Right-of-Use assets | $ | | $ | | ||
Investment in White Cap, LLC |
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Proportional consolidation of Monza (Note 6) |
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Derivatives (1) (Note 8) |
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Other |
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Total other assets (long-term) | $ | | $ | |
(1) |
6
Accrued Liabilities – The major categories are presented in the following table (in thousands):
June 30, 2022 |
| December 31, 2021 | ||||
Accrued interest | $ | | $ | | ||
Accrued salaries/payroll taxes/benefits |
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Litigation accruals |
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Lease liability |
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Derivatives (1) (Note 8) |
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Other |
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Total accrued liabilities | $ | | $ | |
(1) | Includes closed contracts which have not yet settled. |
Other Liabilities (long-term) – The major categories are presented in the following table (in thousands):
June 30, 2022 |
| December 31, 2021 | ||||
Dispute related to royalty deductions | $ | | $ | | ||
Derivatives (Note 8) |
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Lease liability |
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Other |
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Total other liabilities (long-term) | $ | | $ | |
NOTE 2 — DEBT
The components comprising the Company’s debt are presented in the following table (in thousands):
June 30, 2022 | December 31, 2021 | |||||
Term Loan: | ||||||
Principal | $ | | $ | | ||
Unamortized debt issuance costs | ( | ( | ||||
Total Term Loan |
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Credit Agreement borrowings: | — | — | ||||
Senior Second Lien Notes: |
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Principal |
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Unamortized debt issuance costs |
| ( |
| ( | ||
Total Senior Second Lien Notes |
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Less current portion | ( | ( | ||||
Total long-term debt, net | $ | | $ | |
Current Portion of Long-Term Debt
As of June 30, 2022, the current portion of long-term debt of $
7
Term Loan (Subsidiary Credit Agreement)
On May 19, 2021, A-I LLC and A-II LLC (collectively, the “Subsidiary Borrowers”), both Delaware limited liability companies and indirect, wholly-owned subsidiaries of W&T Offshore, Inc., entered into a credit agreement (the “Subsidiary Credit Agreement”) providing for a term loan in an aggregate principal amount equal to $
In exchange for the net cash proceeds received by the Subsidiary Borrowers from the Term Loan, the Company assigned to (a) A-I LLC all of its interests in certain oil and gas leasehold interests and associated wells and units located in State of Alabama waters and U.S. federal waters in the offshore Gulf of Mexico, in the Mobile Bay region (such assets, the “Mobile Bay Properties”) and (b) A-II LLC its interest in certain gathering and processing assets located (i) in State of Alabama waters and U.S. federal waters in the offshore Gulf of Mexico, in the Mobile Bay region and (ii) onshore near Mobile, Alabama, including offshore gathering pipelines, an onshore crude oil treating and sweetening facility, an onshore gathering pipeline, and associated assets (such assets, the “Midstream Assets”). A portion of the proceeds to the Company was used to repay the $
Credit Agreement
On November 2, 2021, the Company entered into the Ninth Amendment to the Sixth Amended and Restated Credit Agreement (the “Ninth Amendment”), which establishes a short-term $
On March 8, 2022, the Company entered into the Tenth Amendment to Credit Agreement (the “Tenth Amendment”), which extended the maturity date and Calculus’ commitment to January 3, 2023. The terms of this extension with Calculus were reviewed and approved by the Audit Committee of the Company.
As a result of the Ninth Amendment and Tenth Amendment and related assignments and agreements, the primary terms and covenants associated with the Credit Agreement as of June 30, 2022, are as follows:
· | The revised borrowing base is $ |
· | The commitment will expire and final maturity of any and all outstanding loans is January 3, 2023. Outstanding borrowings will accrue interest at LIBOR plus |
·The Company’s ratio of First Lien Debt (as such term is defined in the Credit Agreement) outstanding under the Credit Agreement on the last day of the most recent quarter to EBITDAX (as such term is defined in the Credit
8
Agreement) for the trailing
·The Company’s ratio of Total Proved PV-10 (as such term is defined in the Credit Agreement) to First Lien Debt as of the last day of any fiscal quarter commencing with the fiscal quarter ending March 31, 2022 must be equal to or greater than
·The ratio of the Company and its restricted subsidiaries’ consolidated current assets to Company and its restricted subsidiaries’ consolidated current liabilities (subject in each case to certain exceptions and adjustments as set forth in the Credit Agreement) at the last day of any fiscal quarter must be greater than or equal to
● | As of the last day of any fiscal quarter commencing with the fiscal quarter ending March 31, 2022, the Company and its restricted subsidiaries on a consolidated basis must pass a “Stress Test” consisting of an analysis conducted by the lender in good faith and in consultation with the Company based upon the latest engineering report furnished to lender, which analysis is designed to determine whether the future net revenues expected to accrue to the Company’s and its guarantor subsidiaries’ interest (and the interest of certain joint ventures) in the oil and gas properties included in the properties used to determine the latest borrowing base during half of the remaining expected economic lives of such properties are sufficient to satisfy the aggregate first lien indebtedness of the Company and its restricted subsidiaries in accordance with the terms of such indebtedness assuming the revolving credit facility is |
In connection with the Tenth Amendment, Calculus was paid arrangement and upfront fees of approximately $
Availability under the Credit Agreement is subject to redetermination of the borrowing base that may be requested at the discretion of either the lender or the Company in accordance with the Credit Agreement. The borrowing base is calculated by the lender based on their evaluation of proved reserves and their own internal criteria. Any redetermination by the lender to change the borrowing base will result in a similar change in the availability under the Credit Agreement. The Credit Agreement is secured by a first priority lien on substantially all of the Company’s and its guarantor subsidiaries’ assets, excluding those assets of the Subsidiary Borrowers, which liens were released in the Mobile Bay Transaction (as described in Note 5 – Subsidiary Borrowers).
As of June 30, 2022, there were
On October 18, 2018, W&T issued $
9
The Senior Second Lien Notes are secured by a second-priority lien on all of the Company’s assets that are secured under the Credit Agreement, which does not include the Mobile Bay Properties and the related Midstream Assets. The Senior Second Lien Notes contain covenants that limit or prohibit the Company’s ability and the ability of certain subsidiaries to: (i) make investments; (ii) incur additional indebtedness or issue certain types of preferred stock; (iii) create certain liens; (iv) sell assets; (v) enter into agreements that restrict dividends or other payments from the Company’s subsidiaries to the Company; (vi) consolidate, merge or transfer all or substantially all of the assets of the Company; (vii) engage in transactions with affiliates; (viii) pay dividends or make other distributions on capital stock or subordinated indebtedness; and (ix) create subsidiaries that would not be restricted by the covenants of the Indenture. These covenants are subject to exceptions and qualifications set forth in the Indenture. In addition, most of the above described covenants will terminate if both S&P Global Ratings, a division of S&P Global Inc., and Moody’s Investors Service, Inc. assign the Senior Second Lien Notes an investment grade rating and no default exists with respect to the Senior Second Lien Notes.
Covenants
As of June 30, 2022 and for all prior measurement periods presented, the Company was in compliance with all applicable covenants of the Credit Agreement and the Indenture.
NOTE 3 – FAIR VALUE MEASUREMENTS
Derivative Financial Instruments
The Company measures the fair value of derivative financial instruments by applying the income approach, using models with inputs that are classified within Level 2 of the valuation hierarchy. The 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. Derivative financial instruments are reported in the Condensed Consolidated Balance Sheets using fair value. See Note 8 – Derivative Financial Instruments, for additional information on derivative financial instruments.
The following table presents the fair value of the Company’s derivative financial instruments (in thousands):
June 30, 2022 |
| December 31, 2021 | ||||
Assets: |
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Derivative instruments - current | $ | | $ | | ||
Derivative instruments - long-term |
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Liabilities: |
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Derivative instruments - current |
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Derivative instruments - long-term |
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10
Debt Instruments
The following table presents the net value and fair value of the Company’s debt (in thousands):
| June 30, 2022 |
| December 31, 2021 | |||||||||
Net Value |
| Fair Value |
| Net Value |
| Fair Value | ||||||
Liabilities: |
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Term Loan | $ | | $ | | $ | | $ | | ||||
Senior Second Lien Notes |
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Total | $ | | $ | | $ | | $ | |
The fair value of the Term Loan was measured using a discounted cash flows model and current market rates. The fair value of the Senior Second Lien Notes was measured using quoted prices, although the market is not a highly liquid market. The fair value of debt was classified as Level 2 within the valuation hierarchy.
NOTE 4 — ACQUISITIONS
On January 5, 2022, the Company entered into a purchase and sale agreement with ANKOR E&P Holdings Corporation and KOA Energy LP (“ANKOR”) to acquire their interests in and operatorship of certain oil and natural gas producing properties in federal shallow waters in the Gulf of Mexico at Ship Shoal 230, South Marsh Island 27/Vermilion 191, and South Marsh Island 73 fields for $
Additionally, on April 1, 2022, the Company entered into a purchase and sale agreement with a private seller to acquire the remaining working interests in certain oil and natural gas producing properties in federal shallow waters of the Gulf of Mexico at the Ship Shoal 230, South Marsh Island 27/Vermilion 191, and South Marsh Island 73 fields purchased from ANKOR. The transaction had an effective date and closing date of April 1, 2022. After normal and customary post-effective date adjustments, cash consideration of approximately $
The Company determined that the assets acquired did not meet the definition of a business; therefore, the transactions were accounted for as asset acquisitions in accordance with ASC 805. An acquisition qualifying as an asset acquisition requires, among other items, that the cost of the assets acquired and liabilities assumed to be recognized on the Condensed Consolidated Balance Sheets by allocating the asset cost on a relative fair value basis. The fair value measurements of the oil and natural gas properties acquired and asset retirement obligations 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. Transaction costs incurred on an asset acquisition are capitalized as a component of the assets acquired. The amounts recorded on the Condensed Consolidated Balance Sheet for the purchase price allocation and liabilities assumed related to the acquisitions described above on February 1, 2022, and April 1, 2022, are presented in the following tables, respectively (in thousands):
| February 1, | ||
Oil and natural gas properties and other, net | $ | | |
Restricted deposits for asset retirement obligations |
| | |
Asset retirement obligations |
| ( | |
Allocated purchase price | $ | |
11
April 1, | |||
| 2022 | ||
Oil and natural gas properties and other, net | $ | | |
Restricted deposits for asset retirement obligations |
| | |
Asset retirement obligations |
| ( | |
Allocated purchase price | $ | |
NOTE 5 — SUBSIDIARY BORROWERS
On May 19, 2021, the Company’s wholly-owned special purpose vehicles (the “SPVs”), A-I LLC and A-II LLC or the Subsidiary Borrowers, entered into the Subsidiary Credit Agreement providing for the Term Loan in an aggregate principal amount equal to $
As part of the Mobile Bay Transaction, the SPVs entered into a management services agreement (the “Services Agreement”) with the Company, pursuant to which the Company will provide (a) certain operational and management services for i) the Mobile Bay Properties and ii) the Midstream Assets and (b) certain corporate, general and administrative services for A-I LLC and A-II LLC (collectively in this capacity, the “Services Recipient”). Under the Services Agreement, the Company will indemnify the Services Recipient with respect to claims, losses or liabilities incurred by the Services Agreement parties that relate to personal injury or death or property damage of the Company, in each case, arising out of performance of the Services Agreement, except to the extent of the gross negligence or willful misconduct of the Services Recipient. The Services Recipient will indemnify the Company with respect to claims, losses or liabilities incurred by the Company that relate to personal injury or death of the Services Recipient or property damage of the Services Recipient, in each case, arising out of performance of the Services Agreement, except to the extent of the gross negligence or willful misconduct of the Company. The Services Agreement will terminate upon the earlier of (a) termination of the Subsidiary Credit Agreement and payment and satisfaction of all obligations thereunder or (b) the exercise of certain remedies by the secured parties under the Subsidiary Credit Agreement and the realization by such secured parties upon any of the collateral under the Subsidiary Credit Agreement.
The SPVs are wholly-owned subsidiaries of the Company; however, the assets of the SPVs will not be available to satisfy the debt or contractual obligations of any non-SPV entities, including debt securities or other contractual obligations of W&T Offshore, Inc., and the SPVs do not bear any liability for the indebtedness or other contractual obligations of any non-SPVs, and vice versa.
12
Consolidation and Carrying Amounts
The following table presents the amounts recorded by W&T on the Condensed Consolidated Balance Sheet related to the consolidation of the Subsidiary Borrowers and the subsidiary that owns the equity of the Subsidiary Borrowers (in thousands):
June 30, 2022 | December 31, 2021 | |||||
Assets: |
|
|
|
| ||
Cash and cash equivalents | $ | | $ | | ||
Receivables: |
|
|
|
| ||
Oil and natural gas sales |
| |
| | ||
Joint interest, net |
| ( |
| ( | ||
Prepaid expenses and other assets |
| |
| | ||
Oil and natural gas properties and other, net |
| |
| | ||
Other assets |
| ( |
| ( | ||
Liabilities: |
|
|
|
| ||
Accounts payable | | | ||||
Undistributed oil and natural gas proceeds |
| |
| | ||
Accrued liabilities |
| |
| | ||
Current portion of long-term debt | | | ||||
Long-term debt, net |
| |
| | ||
Asset retirement obligations |
| |
| | ||
Other liabilities |
| |
| |
The following table presents the amounts recorded by W&T in the Condensed Consolidated Statement of Operations related to the consolidation of the operations of the Subsidiary Borrowers and the subsidiary that owns the equity of the Subsidiary Borrowers (in thousands):
The period from | ||||||
Six Months Ended | May 19, 2021 to | |||||
June 30, 2022 | June 30, 2021 | |||||
Total revenues | $ | | $ | | ||
Total operating expenses |
| |
| | ||
Interest expense, net |
| |
| | ||
Derivative loss |
| |
| |
NOTE 6 — JOINT VENTURE DRILLING PROGRAM
In March 2018, W&T and
13
The members of Monza are third-party investors, W&T and an entity owned and controlled by Mr. Tracy W. Krohn, our Chairman and Chief Executive Officer. The Krohn entity invested as a minority investor on the same terms and conditions as the third-party investors, and its investment is limited to
Monza is an entity separate from any other entity with its own separate creditors who will be entitled, upon its liquidation, to be satisfied out of Monza’s assets prior to any value in Monza becoming available to holders of its equity. The assets of Monza are not available to pay creditors of the Company and its affiliates.
Through June 30, 2022,
Through June 30, 2022, members of Monza made partner capital contributions, including W&T’s contributions of working interest in the drilling projects, to Monza totaling $
Consolidation and Carrying Amounts
W&T’s interest in Monza is considered to be a variable interest that is proportionally consolidated. Through June 30, 2022, there have been no events or changes that would cause a redetermination of the variable interest status. W&T does not fully consolidate Monza because the Company is not considered the primary beneficiary of Monza.
The following table presents the amounts recorded by W&T on the Condensed Consolidated Balance Sheet related to the consolidation of the proportional interest in Monza’s operations (in thousands):
June 30, 2022 | December 31, 2021 | |||||
Working capital | $ | | $ | | ||
Asset retirement obligations | | | ||||
Other assets |
| |
| |
Additionally, during the year ended December 31, 2021, W&T called on Monza to provide cash to fund its portion of certain Joint Venture Drilling Program projects in advance of capital expenditure spending, and the unused balances as of June 30, 2022 and December 31, 2021 were $
The following table presents the amounts recorded by W&T in the Condensed Consolidated Statement of Operations related to the consolidation of the proportional interest in Monza’s operations (in thousands):
Six Months Ended June 30, | ||||||
2022 | 2021 | |||||
Total revenues | $ | | $ | | ||
Total operating expenses |
| |
| | ||
Derivative loss |
| — |
| |
14
NOTE 7 — ASSET RETIREMENT OBLIGATIONS
AROs represent the estimated present value of the amount incurred to plug, abandon and remediate our 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, | |||
| 2022 | ||
Asset retirement obligations, beginning of period | $ | | |
Liabilities settled |
| ( | |
Accretion expense |
| | |
Liabilities acquired |
| | |
Liabilities incurred | | ||
Revisions of estimated liabilities |
| | |
Asset retirement obligations, end of period | | ||
Less: Current portion |
| ( | |
Long-term | $ | |
NOTE 8 — DERIVATIVE FINANCIAL INSTRUMENTS
W&T’s market risk exposure relates primarily to commodity prices. The Company attempts to mitigate a portion of its commodity price risk and stabilize cash flows associated with sales of oil and natural gas production through the use of oil and natural gas swaps, costless collars, sold calls and purchased puts. The Company is exposed to credit loss in the event of nonperformance by the derivative counterparties; however, the Company currently anticipates that the derivative counterparties will be able to fulfill their contractual obligations. The Company is not required to provide additional collateral to the derivative counterparties and does not require collateral from the derivative counterparties.
W&T has elected not to designate commodity derivative contracts for hedge accounting. Accordingly, commodity derivatives are recorded on the Condensed Consolidated Balance Sheets at fair value with settlements of such contracts, and changes in the unrealized fair value, recorded as Derivative (gain) loss on the Condensed Consolidated Statements of Operations in each period presented. The cash flows of all commodity derivative contracts are included in Net cash provided by operating activities on the Condensed Consolidated Statements of Cash Flows.
The crude oil contracts are based on West Texas Intermediate (“WTI”) crude oil prices and the natural gas contracts are based off the Henry Hub prices, both of which are quoted off the New York Mercantile Exchange (“NYMEX”).
15
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, 2022:
Average | |||||||||||||||
Instrument | Daily | Total | Weighted | Weighted | Weighted | ||||||||||
Period |
| Type |
| Volumes |
| Volumes |
| Strike Price |
| Put Price |
| Call Price | |||
Crude Oil - WTI (NYMEX) | (Bbls)(1) | (Bbls)(1) | ($/Bbls)(1) | ($/Bbls)(1) | ($/Bbls)(1) | ||||||||||
Jul 2022 - Nov 2022 | swaps | | | $ | | $ | — | $ | — | ||||||
Jul 2022 - Nov 2022 |
| collars |
| |
| |
| $ | — |
| $ | |
| $ | |
Natural Gas - Henry Hub (NYMEX) | (MMbtu)(2) | (MMbtu)(2) | ($/MMbtu)(2) | ($/MMbtu)(2) | ($/MMbtu)(2) | ||||||||||
Jul 2022 - Dec 2022 | calls | | | $ | — | $ | — | $ | | ||||||
Jan 2023 - Dec 2023 | calls | | | $ | — | $ | — | $ | | ||||||
Jan 2024 - Dec 2024 | calls | | | $ | — | $ | — | $ | | ||||||
Jan 2025 - Mar 2025 | calls | | | $ | — | $ | — | $ | | ||||||
Jul 2022 - Dec 2022 | collars | | | $ | — | $ | | $ | | ||||||
Jul 2022 - Nov 2022 | swaps | | | $ | | $ | — | $ | — | ||||||
Jul 2022 - Dec 2022 (3) | swaps | | | $ | | $ | — | $ | — | ||||||
Jan 2023 - Dec 2023 (3) | swaps | | | $ | | $ | — | $ | — | ||||||
Jan 2024 - Dec 2024 (3) | swaps | | | $ | | $ | — | $ | — | ||||||
Jan 2025 - Mar 2025 (3) | swaps | | | $ | | $ | — | $ | — | ||||||
Apr 2025 - Dec 2025 (3) | puts | | | $ | — | $ | | $ | — | ||||||
Jan 2026 - Dec 2026 (3) | puts | | | $ | — | $ | | $ | — | ||||||
Jan 2027 - Dec 2027 (3) | puts | | | $ | — | $ | | $ | — | ||||||
Jan 2028 - Apr 2028 (3) | puts | | | $ | — | $ | | $ | — |
(1) | Bbls – Barrels |
(2) | MMbtu – Million British Thermal Units |
(3) | These contracts were entered into by the Company’s wholly owned subsidiary, A-I LLC, in conjunction with the Term Loan (see Note 5 – Subsidiary Borrowers). |
Financial Statement Presentation
The following fair value of derivative financial instruments amounts were recorded in the Condensed Consolidated Balance Sheets (in thousands):
| June 30, 2022 |
| December 31, 2021 | |||
Prepaid expenses and other current assets | $ | | $ | | ||
Other assets (long-term) |
| |
| | ||
Accrued liabilities |
| |
| | ||
Other liabilities (long-term) | | |
16
Although the Company has master netting arrangements with its counterparties, the amounts recorded on the Condensed Consolidated Balance Sheets are on a gross basis.
Changes in the fair value and settlements of contracts are recorded on the Condensed Consolidated Statements of Operations as Derivative (gain) loss. The impact of commodity derivative contracts on the Condensed Consolidated Statements of Operations were as follows (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Realized (gain) loss (1) | $ | ( | $ | | $ | ( | $ | | ||||
Unrealized loss | | | | | ||||||||
Derivative (gain) loss | $ | ( | $ | | $ | | $ | |
(1) | The three and six months ended June 30, 2022 includes the effect of the $ |
Cash payments on commodity derivative contract settlements, net, are included within Net cash provided by operating activities on the Condensed Consolidated Statements of Cash Flows and were as follows (in thousands):
Six Months Ended June 30, | ||||||
| 2022 |
| 2021 | |||
Derivative loss | $ | | $ | | ||
Derivative cash receipts (payments), net (1) | | ( | ||||
Derivative cash premium payments | ( | — |
(1) | The six months ended June 30, 2022 includes $ |
17
NOTE 9 — SHARE-BASED AWARDS AND CASH BASED AWARDS
The W&T Offshore, Inc. Amended and Restated Incentive Compensation Plan (as amended from time to time, the “Plan”) was approved by the Company’s shareholders in 2010. Under the Plan, the Company may issue, subject to the approval of the Board of Directors, stock options, stock appreciation rights, restricted stock, restricted stock units, stock awards, dividend equivalents, other stock-based awards, performance units or shares, cash awards, substitute awards or any combination of the foregoing to employees, directors and consultants.
Share-Based Awards to Employees
Restricted Stock Units (“RSUs”) – During the six months ended June 30, 2022, the Company granted RSUs under the Plan to certain employees. RSUs currently outstanding relate to the 2022 and 2021 grants. The 2022 RSUs granted are a long-term compensation component, subject to service conditions, with of the award vesting each year on January 1, 2023, 2024, and 2025, respectively.
A summary of activity related to RSUs during the six months ended June 30, 2022 is as follows:
Weighted | |||||
|
| Average | |||
Restricted | Grant Date Fair | ||||
Stock Units | Value Per Unit | ||||
Nonvested, beginning of period | | $ | | ||
Granted(1) |
| |
| | |
Vested |
| ( |
| | |
Forfeited |
| ( |
| | |
Nonvested, end of period |
| | |
(1) | During May and June 2022, approximately |
Performance Share Units (“PSUs”) – During the six months ended June 30, 2022, the Company granted PSUs under the Plan that are eligible to vest based on continued employment and the Company’s total shareholder return (“TSR”) ranking against peer companies’ TSR over a
The 2021 grants were subject to performance criteria against the applicable performance period, which ended on December 31, 2021. The PSUs granted during 2021 are eligible to vest based on continued employment through October 1, 2023.
18
A summary of activity related to PSUs during the six months ended June 30, 2022 is as follows:
Weighted | |||||
|
| Average | |||
Performance | Grant Date Fair | ||||
Share Units | Value Per Unit | ||||
Nonvested, beginning of period | | $ | | ||
Granted (1) |
| |
| | |
Vested |
| ( |
| | |
Forfeited |
| ( |
| | |
Nonvested, end of period |
| | |
(1) | During May and June 2022, approximately |
The following table summarizes the assumptions used in the Monte Carlo simulations to calculate the fair value of the absolute TSR PSUs granted at the date indicated:
May 26, 2022 | ||||
Expected term for performance period (in years) | ||||
Expected volatility | | % | ||
Risk-free interest rate | | % | ||
Fair value (in thousands) | $ | |
Share-Based Awards to Non-Employee Directors
During the six months ended June 30, 2022, the Company granted Restricted Shares under the W&T Offshore, Inc. 2004 Directors Compensation Plan to non-employee directors. The Restricted Shares are subject to service conditions and vesting occurs at the end of specified service periods unless otherwise approved by the Board of Directors.
A summary of activity related to Restricted Shares during the six months ended June 30, 2022 is as follows:
Weighted | |||||
Average | |||||
Grant Date | |||||
| Restricted |
| Fair Value | ||
Shares | Per Share | ||||
Nonvested, beginning of period | | $ | | ||
Granted |
| |
| | |
Vested |
| ( |
| | |
Nonvested, end of period |
| | $ | |
Share-Based Compensation Expense
Compensation costs for share-based payments is recognized over the requisite service period. Share-based compensation expense is recorded in the line General and administrative expenses in the Condensed Consolidated Statements of Operations.
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Restricted stock units | $ | | $ | | $ | | $ | | ||||
Performance share units | | — | | — | ||||||||
Restricted Shares |
| |
| |
| |
| | ||||
Total | $ | | $ | | $ | | $ | |
19
Cash-Based Incentive Compensation
In addition to share-based compensation, short-term cash-based incentive awards were granted under the Plan to all eligible employees during the second quarter of 2022 subject to Company performance criteria, individual performance criteria, and continued employment through the payment date. The short-term cash-based incentive awards granted in 2021 were paid in March 2022.
Share-Based Awards and Cash-Based Awards Compensation Expense
A summary of compensation expense related to share-based awards and cash-based awards is as follows (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Share-based compensation included in: |
|
|
|
| ||||||||
General and administrative expenses | $ | | $ | | $ | | $ | | ||||
Cash-based incentive compensation included in: |
|
|
|
|
|
|
|
| ||||
Lease operating expense (1) |
| |
| |
| |
| | ||||
General and administrative expenses (1) |
| |
| |
| |
| | ||||
Total charged to operating (loss) income | $ | | $ | | $ | | $ | |
(1) | Includes adjustments of accruals to actual payments. |
NOTE 10 — INCOME TAXES
Tax Benefit and Tax Rate
For the three months ended June 30, 2022, the Company recognized income tax expense of $
For the six months ended June 30, 2022, the Company recognized income tax expense of $
For the three and six months ended June 30, 2022 and 2021, the Company’s effective tax rate differed from the statutory Federal tax rate primarily by the impact of state income taxes and adjustments to our valuation allowance.
Valuation Allowance
Deferred tax assets are recorded related to net operating losses and temporary differences between the book and tax basis of assets and liabilities expected to produce tax deductions in future periods. The realization of these assets depends on recognition of sufficient future taxable income in specific tax jurisdictions in which those temporary differences or net operating losses are deductible. In assessing the need for a valuation allowance on deferred tax assets, the Company considers whether it is more likely than not that some portion or all of them will not be realized.
As of June 30, 2022 and December 31, 2021, the valuation allowance was $
20
Income Taxes Receivable, Refunds and Payments
As of June 30, 2022 and December 31, 2021, the Company did not have any outstanding current income taxes receivable. During the six months ended June 30, 2022 and June 30, 2021, the Company did not receive any income tax refunds or make any income tax payments of significance.
The tax years 2018 through 2021 remain open to examination by the tax jurisdictions to which the Company is subject.
NOTE 11 — EARNINGS PER SHARE
The following table presents the calculation of basic and diluted (loss) earnings per common share (in thousands, except per share amounts):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Net income (loss) | $ | | $ | ( | $ | | $ | ( | ||||
Less portion allocated to nonvested shares |
| — |
| — |
| |
| — | ||||
Net loss allocated to common shares | $ | | $ | ( | $ | | $ | ( | ||||
Weighted average common shares outstanding - basic |
| |
| |
| |
| | ||||
Dilutive effect of securities | | — | | — | ||||||||
Weighted average common shares outstanding - diluted | | | | | ||||||||
Earnings per common share: | ||||||||||||
Basic | $ | | $ | ( | $ | | $ | ( | ||||
Diluted | | ( | | ( | ||||||||
Shares excluded due to being anti-dilutive (weighted-average) | | | | |
NOTE 12 — CONTINGENCIES
Appeal with the Office of Natural Resources Revenue (“ONRR”) – In 2009, W&T recognized allowable reductions of cash payments for royalties owed to the ONRR for transportation of their deepwater production through subsea pipeline systems owned by the Company. In 2010, the ONRR audited calculations and support related to this usage fee, and in 2010, ONRR notified the Company that they had disallowed approximately $
21
Notices of Proposed Civil Penalty Assessments – In January 2021, W&T executed a Settlement Agreement with the Bureau of Safety and Environmental Enforcement (“BSEE”) which resolved
Retained Liabilities Related to Divested Property Interests – The Company may be subject to retained liabilities with respect to certain divested property interests by operation of law. For example, recent historical declines in commodity prices created an environment where there is an increased risk that owners and/or operators of interests purchased from the Company may no longer be able to satisfy plugging or abandonment obligations that attach to those interests. In that event, due to operation of law, W&T may be required to assume plugging or abandonment obligations for those interests. During 2021, as a result of the declaration of bankruptcy by a third party that is the indirect successor in title to certain offshore interests that were previously divested by the Company, W&T recorded a loss contingency accrual of $
Other Claims – W&T is a party to various pending or threatened claims and complaints seeking damages or other remedies concerning commercial operations and other matters in the ordinary course of our business. 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 our sale of properties. In certain cases, W&T has indemnified the sellers of properties acquired, and in other cases, W&T has indemnified the buyers of properties sold. The Company is also 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 W&T 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.
22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our unaudited Condensed Consolidated Financial Statements and the notes to those financial statements included in Part I, Item 1 of this Quarterly Report, as well as our audited Consolidated Financial Statements and the notes thereto in our 2021 Annual Report and the Related Management’s Discussion and Analysis of Financial Condition and the Results of Operations included in Part II, Item 7 of our 2021 Annual Report.
Forward-Looking Statements
The information in this report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical fact included in this report, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this report, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” “forecast,” “may,” “objective,” “plan,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events.
These forward-looking statements are subject to risks, uncertainties and assumptions, most of which are difficult to predict and many of which are beyond our control. If the risks or uncertainties materialize or the assumptions prove incorrect, our results may differ materially from those expressed or implied by such forward-looking statements and assumptions. These statements are based on certain assumptions and analyses made by us in light of our experience and perception of historical trends, current conditions, estimates, expected future developments and other factors we believe are appropriate in the circumstances. Known material risks that may affect our financial condition and results of operations are discussed in Part I, Item 1A, Risk Factors, and market risks are discussed in Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of our 2021 Annual Report, and may be discussed or updated from time to time in subsequent reports filed with the SEC.
Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. Should one or more of the risks or uncertainties described herein occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. All forward-looking statements, expressed or implied, included in this report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Quarterly Report.
Overview
We are an independent oil and natural gas producer, active in the exploration, development and acquisition of oil and natural gas properties in the Gulf of Mexico. As of June 30, 2022, we hold working interests in 47 offshore fields in federal and state waters (44 fields producing and 3 fields capable of producing, which include 39 fields in federal waters and 8 in state waters). We currently have under lease approximately 637,000 gross acres (453,200 net acres) spanning across the outer continental shelf (“OCS”) off the coasts of Louisiana, Texas, Mississippi and Alabama, with approximately 8,000 gross acres in Alabama State waters, 454,000 gross acres on the conventional shelf and approximately 175,000 gross acres in the deepwater. A majority of our daily production is derived from wells we operate. Our interests in fields, leases, structures and equipment are primarily owned by W&T Offshore, Inc. and our wholly-owned subsidiaries, Aquasition LLC, Aquasition II LLC, W & T Energy VI, LLC, Delaware limited liability companies, and through our proportionately consolidated interest in Monza, as described in more detail in Financial Statements – Note 6 – Joint Venture Drilling Program under Part I, Item 1 in this Quarterly Report.
23
Known Trends and Uncertainties
Volatility in Oil, NGL and Natural Gas Prices – Our financial condition, cash flow and results of operations are significantly affected by the volume of our crude oil, NGLs and natural gas production and the prices that we receive for such production. Our realized sales prices received for our crude oil, NGLs and natural gas production are affected by many factors outside of our control, including changes in market supply and demand, which are impacted by weather conditions, pipeline capacity constraints, inventory storage levels, domestic production activities and political issues, and international geopolitical and economic events.
In addition to such industry-specific risks, the global public health crisis associated with COVID-19 has created uncertainty for global economic activity since March 2020. Since 2021, increased mobility, deployment of vaccines and other factors have resulted in increased oil demand and commodity prices. However, new variants of the virus continue to emerge and it is difficult to assess if such variants will cause meaningful disruptions in economic activity across the world and if there will be any significant impacts in demand for energy because of the ongoing pandemic.
Most recently, WTI crude oil prices and NYMEX Henry Hub natural gas prices have surged, closing the second quarter at over $100 per barrel and $6.50 per Mcf, respectively, as a result of the ongoing Russia-Ukraine conflict and related sanctions and concerns that it might result in significant oil and gas supply shortages. In response, governmental authorities have implemented, and are expected to continue to implement, measures to address rising crude oil prices, including releasing emergency oil reserves. Additionally, while Organization of Petroleum Exporting Countries (“OPEC”) and Russia (together with OPEC, collectively “OPEC+”) remained committed to steady and predictable production increases throughout 2022, it is difficult to determine whether it will change its production output policy or whether its members will remain committed to the production quotas set by the organization as a result of these events.
Higher energy prices, along with the global supply chain issues and other factors, have increased inflationary pressures, which has led or may lead to increased costs of services and certain materials necessary for our operations. As a result of these factors, we cannot accurately predict future commodity prices and, therefore, we cannot determine with any degree of certainty what effect increases or decreases in these prices will have on our drilling program, production volumes or revenues.
Per the Energy Information Administration, average crude oil prices using the WTI daily spot price increased to $102.01 per barrel during the six months ended June 30, 2022 compared to $62.21 per barrel during the six months ended June 30, 2021 (64.0% increase). The NYMEX Henry Hub average daily natural gas spot price increased to $6.08 per Mcf for the six months ended June 30, 2022 compared to $3.22 per Mcf during the six months ended June 30, 2021 (88.8% increase). These increases were primarily caused by increased demand related to supply uncertainties due to Russia’s invasion of Ukraine and general expanding economic activity.
Bureau of Ocean Energy Management (“BOEM”) Matters – In order to cover the various decommissioning obligations of lessees on the OCS, the BOEM generally requires that lessees post some form of acceptable financial assurance that such obligations will be met, such as surety bonds. The cost of such bonds or other financial assurance can be substantial, and we can provide no assurance that we can continue to obtain bonds or other surety in all cases. As many BOEM regulations are being reviewed by the Department of the Interior, we may be subject to additional financial assurance requirements in the future. As of the filing date of this Form 10-Q, we are in compliance with our financial assurance obligations to the BOEM and have no outstanding BOEM orders related to supplemental financial assurance obligations. We and other offshore Gulf of Mexico producers may, in the ordinary course of business, receive requests or demands in the future for financial assurances from the BOEM.
24
Surety Bond Collateral – Some of the sureties that provide us surety bonds used for supplemental financial assurance purposes or bonds associated with our appeals of Department of the Interior’s orders or demands have on occasion requested and received collateral from us, and may request additional collateral from us in the future, which could be significant and materially impact our liquidity. In addition, pursuant to the terms of our agreements with various sureties under our existing bonds or under any additional bonds we may obtain, we are required to post collateral at any time, on demand, at the surety’s discretion. No additional demands were made to us by sureties during 2022 as of the filing date of this Form 10-Q and we currently do not have surety bond collateral outstanding. The issuance of any additional surety bonds or other security to satisfy future BOEM orders, collateral requests from surety bond providers, and collateral requests from other third parties may require the posting of cash collateral, which may be significant, and may require the creation of escrow accounts.
Results of Operations
Three Months Ended June 30, 2022 Compared to the Three Months Ended June 30, 2021
Revenues
Our revenues are derived from the sale of our oil and natural gas production, as well as the sale of NGLs. Our oil, natural gas and NGL revenues do not include the effects of derivatives, which are reported in Derivative (gain) loss in our Condensed Consolidated Statements of Operations. The following table presents our sources of revenue as a percentage of total revenue:
Three Months Ended June 30, | |||||
2022 |
| 2021 | |||
Oil | 58.1 | % | 66.3 | % | |
NGLs | 6.1 | % | 6.6 | % | |
Natural gas | 33.8 | % | 24.5 | % | |
Other | 2.0 | % | 2.6 | % |
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The information below provides a discussion of, and an analysis of significant variance in, our oil, natural gas and NGL revenues, production volumes and realized sales prices (which exclude the effect of hedging unless otherwise stated) for the three months ended June 30, 2022 and 2021:
Three Months Ended June 30, | |||||||||
| 2022 |
| 2021 |
| Change | ||||
| (In thousands, except realized sales price data) | ||||||||
Revenues: | |||||||||
Oil | $ | 159,264 | $ | 88,013 | $ | 71,251 | |||
NGLs |
| 16,735 |
| 8,833 |
| 7,902 | |||
Natural gas |
| 92,413 |
| 32,470 |
| 59,943 | |||
Other |
| 5,396 |
| 3,512 |
| 1,884 | |||
Total revenues |
| 273,808 |
| 132,828 |
| 140,980 | |||
Production Volumes: |
|
|
|
|
|
| |||
Oil (MBbls) |
| 1,476 |
| 1,352 |
| 124 | |||
NGLs (MBbls) |
| 384 |
| 337 |
| 47 | |||
Natural gas (MMcf) |
| 11,995 |
| 12,189 |
| (194) | |||
Total oil equivalent (MBoe) |
| 3,859 |
| 3,721 |
| 138 | |||
Average daily equivalent sales (Boe/day) | 42,407 | 40,888 | 1,518 | ||||||
Average realized sales prices: |
|
|
| ||||||
Oil ($/Bbl) | $ | 107.90 | $ | 65.11 |
| 42.79 | |||
NGLs ($/Bbl) |
| 43.58 |
| 26.18 |
| 17.40 | |||
Natural gas ($/Mcf) |
| 7.70 |
| 2.66 |
| 5.04 | |||
Oil equivalent ($/Boe) | 69.55 | 34.75 | 34.80 | ||||||
Oil equivalent ($/Boe), including realized commodity derivatives |
| 90.20 |
| 30.63 |
| 59.57 |
Volume measurements not previously defined: |
|
|
MBbls — thousand barrels for crude oil, condensate or NGLs |
| Mcf — thousand cubic feet |
MBoe — thousand barrels of oil equivalent | MMcf – million cubic feet |
Changes in average sales prices (which does not give effect to hedging) and sales volumes caused the following changes to our oil, NGL and natural gas revenues between the three months ended June 30, 2022 and 2021 (in thousands):
Price |
| Volume | Total | |||||
Oil | $ | 63,171 | $ | 8,080 | $ | 71,251 | ||
NGLs |
| 60,462 |
| (519) |
| 59,943 | ||
Natural gas |
| 6,794 | 1,108 |
| 7,902 | |||
$ | 130,427 | $ | 8,669 | $ | 139,096 |
Realized Prices on the Sale of Oil, NGLs and Natural Gas – Our average realized crude oil sales price differs from the WTI benchmark average crude price due primarily to premiums or discounts, crude oil quality adjustments, and volume weighting (collectively referred to as differentials). Crude oil quality adjustments can vary significantly by field as a result of quality and location. All of our crude oil is produced offshore in the Gulf of Mexico and is primarily characterized as Poseidon, Light Louisiana Sweet (“LLS”), and Heavy Louisiana Sweet (“HLS”). Similar to crude oil prices, the differentials for our offshore crude oil have also been volatile in the past. The monthly average differentials of WTI versus Poseidon, HLS and LLS for the three months ended June 30, 2022 declined on average by approximately $2.20, $0.79, and $0.19 per barrel, respectively, compared to 2021 for these types of crude oil, with the Poseidon having negative differentials as measured on an index basis and HLS and LLS having positive differentials.
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Two major components of our NGLs, ethane and propane, typically make up over 70% of an average NGL barrel. For the three months ended June 30, 2022 compared to the three months ended June 30, 2021, average prices for domestic ethane increased by 126.6% and average domestic propane prices increased by 128.0% as measured using a price index for Mount Belvieu. The average prices for other domestic NGLs components increased between 42.3% and 71.7% for the three months ended June 30, 2022 compared to the same period in 2021. We believe the change in prices for NGLs is mostly a function of the change in crude oil prices combined with changes in propane supply and demand.
The actual prices we realize from the sale of natural gas differ from the quoted NYMEX Henry Hub price as a result of quality and location differentials. The sales points of our gas production are generally within close proximity to the Henry Hub which creates a minimal differential in the prices we receive for our production versus average Henry Hub prices.
Oil, NGLs, and Natural Gas Volumes – Production volumes increased by 138 MBoe to 3,859 MBoe in the three months ended June 30, 2022 compared to the same period in 2021, primarily due the acquisition of the Ship Shoal 230, South Marsh Island 27/Vermilion 191, and South Marsh Island 73 fields. See Financial Statements – Note 4 – Acquisitions under Part I, Item 1 of this Quarterly Report for additional information. These increases were partially offset by natural declines of producing wells and shut-ins related to scheduled well maintenance.
Operating Expenses
The following table presents information regarding costs and expenses and selected average costs and expenses per Boe sold for the periods presented and corresponding changes:
Three Months Ended June 30, | |||||||||
| 2022 |
| 2021 |
| Change | ||||
Operating expenses: | |||||||||
Lease operating expenses | $ | 52,976 | $ | 47,552 | $ | 5,424 | |||
Gathering, transportation and production taxes | 9,181 | 6,780 | 2,401 | ||||||
Depreciation, depletion, amortization and accretion |
| 34,360 | 30,952 |
| 3,408 | ||||
General and administrative expenses | 14,967 | 13,986 | 981 | ||||||
Total operating expenses | $ | 111,484 | $ | 99,270 | $ | 12,214 | |||
Average per Boe ($/Boe): |
|
|
|
|
|
| |||
Lease operating expenses | $ | 13.73 | $ | 12.78 | $ | 0.95 | |||
Gathering, transportation and production taxes |
| 2.38 | 1.82 |
| 0.56 | ||||
DD&A |
| 8.90 | 8.32 |
| 0.58 | ||||
G&A expenses |
| 3.88 | 3.76 |
| 0.12 | ||||
Operating expenses | $ | 28.89 | $ | 26.68 | $ | 2.21 |
Lease operating expenses – Lease operating expenses, which include base lease operating expenses, workovers, and facilities maintenance expense, increased $5.4 million to $53.0 million for the three months ended June 30, 2022 compared to $47.6 million for the three months ended June 30, 2021. On a component basis, base lease operating expenses increased $2.2 million, workover expenses increased $0.7 million, facilities maintenance expense increased $3.6 million, and hurricane repairs decreased $1.1 million.
Base lease operating expenses increased primarily due to increased expenses related to the Ship Shoal 230, South Marsh Island 27/Vermilion 191, and South Marsh Island 73 fields acquired, partially offset by decreased contract labor and supplies at various fields. The increases in workover expenses and facilities maintenance expense were due to an increase in projects undertaken. Workovers and facilities maintenance expenses consist of costs associated with major remedial operations on completed wells to restore, maintain or improve production. Since these remedial operations are not regularly scheduled, workover and maintenance expense are not necessarily comparable from period to period. Lastly, during the three months ended June 30, 2021 we incurred $1.1 million in expenses related to repairs associated with hurricanes that we did not incur during the three months ended June 30, 2022.
27
Gathering, transportation and production taxes – Gathering, transportation and production taxes increased $2.4 million in the three months ended June 30, 2022 compared to the three months ended June 30, 2021 primarily due to the increase in realized natural gas prices and increased NGL prices in the three months ended June 30, 2022 as compared to the comparable prior year period.
Depreciation, depletion, amortization and accretion (“DD&A”) – DD&A, which includes accretion for ARO, increased to $8.90 per Boe for the three months ended June 30, 2022 from $8.32 per Boe for the three months ended June 30, 2021. On a nominal basis, DD&A increased 11.0%, or $3.4 million for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021 due to an increased DD&A per Boe rate and, to a lesser extent, the increase in production volumes. The DD&A rate per Boe increased mostly as a result of increases in the capital expenditures and future development costs included in the depreciable base associated with an increase in economic proved undeveloped wells due to higher oil and gas prices compared to the smaller increase in proved reserves over the comparable prior year period.
General and administrative expenses (“G&A”) – G&A increased $1.0 million, to $15.0 million for the three months ended June 30, 2022 as compared to $14.0 million for the three months ended June 30, 2021. The increase was primarily due to the increase in allowance for credit losses recorded during the three months ended June 30, 2022 and the increase in share based compensation expense as compared to the prior year quarter.
Other Income and Expense
The following table presents the components of other income and expense for the periods presented and corresponding changes:
Three Months Ended June 30, | |||||||||
| 2022 |
| 2021 |
| Change | ||||
Other income and expenses: | |||||||||
Derivative (gain) loss | $ | (8,854) | $ | 81,440 | $ | (90,294) | |||
Interest expense, net |
| 18,183 | 16,530 |
| 1,653 | ||||
Other income, net |
| (1,534) | — |
| (1,534) | ||||
Income tax expense (benefit) |
| 31,093 | (12,740) |
| 43,833 |
Derivative (gain) loss – During the three months ended June 30, 2022, the $8.9 million derivative gain recorded for crude oil and natural gas derivative contracts consists of $79.7 million of realized gains and $70.8 million of unrealized losses, net from the decrease in the fair value of open contracts. During the three months ended June 30, 2021, the $81.4 million derivative loss recorded for crude oil and natural gas derivative contracts consisted of $15.3 million in realized losses and $66.1 million of unrealized losses from the decrease in the fair value of open oil and natural gas contracts.
In the second quarter of 2022, the Company monetized a portion of existing hedge positions through restructuring of strike prices on certain outstanding purchased calls covering the second half of 2022 through the first quarter of 2025. This transaction resulted in net cash proceeds of $105.3 million. As part of this monetization, the Company restructured its purchased call options on natural gas to increase the weighted-average strike price to $7.48 per Mmbtu from $3.78 per Mmbtu for the remainder of 2022, $7.50 per Mmbtu from $3.50 per Mmbtu for 2023, $6.13 per Mmbtu from $3.50 per Mmbtu for 2024, and $5.50 per Mmbtu from $3.50 per Mmbtu for the first quarter of 2025. These calls cover approximately 85% of its anticipated natural gas production for the balance of 2022.
Unrealized gains or losses on open derivative contracts relate to production for future periods; however, changes in the fair value of all of our open derivative contracts are recorded as a gain or loss on our Condensed Consolidated Statements of Operations at the end of each month. As a result of the derivative contracts we have on our anticipated production volumes through April 2028, we expect these activities to continue to impact net income (loss) based on fluctuations in market prices for oil and natural gas. See Financial Statements – Note 8 –Derivative Financial Instruments under Part I, Item 1 of this Quarterly Report for additional information.
28
Interest expense, net – Interest expense, net, was $18.2 million and $16.5 million for the three months ended June 30, 2022 and 2021, respectively. The increase of $1.7 million in 2022 is primarily due to a full three months of interest expense on the principal balance of the Term Loan entered into in May 2021.
Other income, net – During the three months ended June 30, 2022, other income, net, consists of non-recurring adjustments partially offset by expenses for additional contingent abandonment obligations pertaining to certain of legacy Gulf of Mexico properties. See Financial Statements– Note 12 – Contingencies under Part I, Item 1 of this Quarterly Report for additional information.
Income tax expense (benefit) – Our income tax expense for the three months ended June 30, 2022 was $31.1 million compared to income tax benefit of $12.7 million during the three months ended June 30, 2021. For the three months ended June 30, 2022 and 2021, our income tax benefit differed from the statutory Federal tax rate primarily by the impact of state income taxes and adjustments to our valuation allowance. Our effective tax rate was 20.1% and 19.8% for the three months ended June 30, 2022 and 2021, respectively.
As of June 30, 2022, the valuation allowance on our deferred tax assets was $15.7 million. We continually evaluate the need to maintain a valuation allowance on our deferred tax assets. Any future reduction of a portion or all of the valuation allowance would result in a non-cash income tax benefit in the period the decision occurs. See Financial Statements – Note 10 –Income Taxes under Part I, Item 1 of this Quarterly Report for additional information.
Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021
Revenues
Our revenues are derived from the sale of our oil and natural gas production, as well as the sale of NGLs. Our oil, natural gas and NGL revenues do not include the effects of derivatives, which are reported in “Derivative (gain) loss” in our Condensed Consolidated Statements of Operations. The following table presents our sources of revenue as a percentage of total revenue:
Six Months Ended June 30, | |||||
2022 |
| 2021 | |||
Oil | 60.7 | % | 64.3 | % | |
NGLs | 6.6 | % | 7.0 | % | |
Natural gas | 30.9 | % | 26.6 | % | |
Other | 1.8 | % | 2.1 | % |
29
The information below provides a discussion of, and an analysis of significant variance in, our oil, natural gas and NGL revenues, production volumes and realized sales prices (which exclude the effect of hedging unless otherwise stated) for the six months ended June 30, 2022 and 2021:
Six Months Ended June 30, | |||||||||
2022 |
| 2021 |
| Change | |||||
Revenues: | |||||||||
Oil | $ | 281,966 | $ | 166,153 | $ | 115,813 | |||
NGLs |
| 30,555 |
| 18,193 |
| 12,362 | |||
Natural gas |
| 143,779 |
| 68,679 |
| 75,100 | |||
Other |
| 8,512 |
| 5,451 |
| 3,061 | |||
Total revenues | $ | 464,812 | $ | 258,476 | $ | 206,336 | |||
Production Volumes: |
|
|
|
|
|
| |||
Oil (MBbls) |
| 2,780 |
| 2,729 |
| 51 | |||
NGLs (MBbls) |
| 733 |
| 729 |
| 4 | |||
Natural gas (MMcf) |
| 22,466 |
| 22,988 |
| (522) | |||
Total oil equivalent (MBoe) |
| 7,257 | 7,290 | (33) | |||||
Average daily equivalent sales (Boe/day) | 40,094 | 40,278 | (184) | ||||||
Average realized sales prices: |
| ||||||||
Oil ($/Bbl) | $ | 101.43 | $ | 60.88 | $ | 40.54 | |||
NGLs ($/Bbl) |
| 41.68 |
| 24.94 |
| 16.75 | |||
Natural gas ($/Mcf) |
| 6.40 |
| 2.99 |
| 3.41 | |||
Oil equivalent ($/Boe) | 62.88 | 34.71 | 28.17 | ||||||
Oil equivalent ($/Boe), including realized commodity derivatives |
| 67.83 |
| 31.47 |
| 36.36 |
Changes in average sales prices (which does not give effect to hedging) and sales volumes caused the following changes to our oil, NGL and natural gas revenues between the six months ended June 30, 2022 and 2021 (in thousands):
Price |
| Volume | Total | |||||
Oil | $ | 112,706 | $ | 3,107 | $ | 115,813 | ||
NGLs |
| 12,380 |
| (18) |
| 12,362 | ||
Natural gas |
| 76,660 | (1,560) |
| 75,100 | |||
$ | 201,746 | $ | 1,529 | $ | 203,275 |
Realized Prices on the Sale of Oil, NGLs and Natural Gas – The monthly average differentials of WTI versus Poseidon, HLS and LLS for the six months ended June 30, 2022 declined on average by approximately $2.08, $0.53, and $0.02 per barrel, respectively, compared to 2021 for these types of crude oil, with the Poseidon having negative differentials as measured on an index basis and HLS and LLS having positive differentials. Similar to crude oil prices, the differentials for our offshore crude oil have also experienced volatility in the past.
For the six months ended June 30, 2022 compared to the six months ended June 30, 2021, average prices for domestic ethane increased by 98.2% and average domestic propane prices increased by 43.6% as measured using a price index for Mount Belvieu. The average prices for other domestic NGLs components increased between 56.7% and 72.1% for the six months ended June 30, 2022 compared to the same period in 2021. We believe the change in prices for NGLs is mostly a function of the change in crude oil prices combined with changes in propane supply and demand.
30
The actual prices we realize from the sale of natural gas differ from the quoted NYMEX Henry Hub price as a result of quality and location differentials. The sales points of our gas production are generally within close proximity to the Henry Hub which creates a minimal differential in the prices we receive for our production versus average Henry Hub prices.
Oil, NGLs, and Natural Gas Volumes – Production volumes in the six months ended June 30, 2022 were relatively flat compared to production volumes for the six months ended June 30, 2021. The increase in production volumes due to the acquisition of the Ship Shoal 230, South Marsh Island 27/Vermilion 191, and South Marsh Island 73 fields was offset by natural declines of producing wells and shut-ins related to scheduled well maintenance.
Operating Expenses
The following table presents information regarding costs and expenses and selected average costs and expenses per Boe sold for the periods presented and corresponding changes:
Six Months Ended June 30, | |||||||||
2022 |
| 2021 |
| Change | |||||
(In thousands, except per Boe data) | |||||||||
Operating expenses: | |||||||||
Lease operating expenses | $ | 96,387 | $ | 89,909 | $ | 6,478 | |||
Gathering, transportation and production taxes | 14,448 | 13,095 | 1,353 | ||||||
Depreciation, depletion, amortization and accretion | 65,271 | 57,589 |
| 7,682 | |||||
General and administrative expenses | 28,743 | 24,698 | 4,045 | ||||||
Total operating expenses | $ | 204,849 | $ | 185,291 | $ | 19,558 | |||
Average per Boe ($/Boe): |
|
|
|
|
|
| |||
Lease operating expenses | $ | 13.28 | $ | 12.33 | $ | 0.95 | |||
Gathering, transportation and production taxes |
| 1.99 |
| 1.79 |
| 0.20 | |||
DD&A |
| 8.99 |
| 7.90 |
| 1.09 | |||
G&A expenses |
| 3.96 |
| 3.39 |
| 0.57 | |||
Operating expenses | $ | 28.22 | $ | 25.41 | $ | 2.81 |
Lease operating expenses – Lease operating expenses, which include base lease operating expenses, workovers, and facilities maintenance expense, increased $6.5 million to $96.4 million for the six months ended June 30, 2022 compared to $89.9 million for the six months ended June 30, 2021. On a component basis, base lease operating expenses increased $1.8 million, workover expenses increased $3.3 million, facilities maintenance expense increased $4.8 million, and hurricane repairs decreased $3.4 million.
Base lease operating expenses increased primarily due to increased expenses related to the Ship Shoal 230, South Marsh Island 27/Vermilion 191, and South Marsh Island 73 fields acquired, partially offset by decreased contract labor and supplies at various fields. The increases in workover expenses and facilities maintenance expense were due to an increase in projects undertaken. Workovers and facilities maintenance expenses consist of costs associated with major remedial operations on completed wells to restore, maintain or improve production. Since these remedial operations are not regularly scheduled, workover and maintenance expense are not necessarily comparable from period to period. Lastly, during the six months ended June 30, 2021 we incurred $3.4 million in expenses related to repairs associated with hurricanes that we did not incur during the six months ended June 30, 2022.
Gathering, transportation and production taxes – Gathering, transportation and production taxes increased $1.4 million in the six months ended June 30, 2022 compared to the six months ended June 30, 2021 primarily due to the increase in realized natural gas prices and increased NGL prices in the six months ended June 30, 2022 as compared to the comparable prior year period, partially offset by a one-time adjustment of $2.7 million in the first quarter of 2022 related to the calculation of production taxes payable.
31
Depreciation, depletion, amortization and accretion – DD&A, increased to $8.99 per Boe for the six months ended June 30, 2022 from $7.90 per Boe for the six months ended June 30, 2021. On a nominal basis, DD&A increased 13.3%, or $7.7 million for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021 due to a higher DD&A per Boe rate. The DD&A rate per Boe increased mostly as a result of increases in the capital expenditures and future development costs included in the depreciable base associated with an increase in economic proved undeveloped wells due to higher oil and gas prices compared to the smaller increase in proved reserves over the comparable prior year period.
General and administrative expenses – G&A increased $4.0 million to $28.7 million for the six months ended June 30, 2022 as compared to $24.7 million for the six months ended June 30, 2021. The increase was primarily due a $2.1 million employee retention credit recorded during the six months ended June 30, 2021 that did not recur during the six months ended June 30, 2022 as well as an increase in employee salaries, share-based compensation expense and allowances for credit losses.
Other Income and Expense
The following table presents the components of other income and expense for the periods presented and corresponding changes:
Six Months Ended June 30, | |||||||||
2022 |
| 2021 |
| Change | |||||
Other income and expenses: | |||||||||
Derivative loss | $ | 71,143 | $ | 106,020 | $ | (34,877) | |||
Interest expense, net | 38,066 | 31,564 |
| 6,502 | |||||
Other (income) expense, net | (629) | 963 |
| (1,592) | |||||
Income tax expense (benefit) | 30,404 | (12,944) |
| 43,348 |
Derivative loss – During the six months ended June 30, 2022, the $71.1 million derivative loss recorded for crude oil and natural gas derivative contracts consists of $35.9 million of realized gains on settled contracts and $107.1 million of unrealized losses, net from the decrease in the fair value of open contracts. During the six months ended June 30, 2021, the $106.0 million derivative loss recorded for crude oil and natural gas derivative contracts consists of $23.6 million in realized losses on settled contracts and $82.4 million of unrealized losses from the decrease in the fair value of open oil and natural gas contracts.
In the second quarter of 2022, the Company monetized a portion of existing hedge positions through restructuring of strike prices on certain outstanding purchased calls covering the second half of 2022 through the first quarter of 2025. This transaction resulted in net cash proceeds of $105.3 million, through restriking exercise prices of outstanding purchased call options. As part of this monetization, the Company restructured its purchased call options on natural gas to increase the weighted-average strike price to $7.48 per Mmbtu from $3.78 per Mmbtu for the remainder of 2022, $7.50 per Mmbtu from $3.50 per Mmbtu for 2023, $6.13 per Mmbtu from $3.50 per Mmbtu for 2024, and $5.50 per Mmbtu from $3.50 per Mmbtu for the first quarter of 2025. These calls cover approximately 85% of its anticipated natural gas production for the balance of 2022.
Unrealized gains or losses on open derivative contracts relate to production for future periods; however, changes in the fair value of all of our open derivative contracts are recorded as a gain or loss on our Condensed Consolidated Statements of Operations at the end of each month. As a result of the derivative contracts we have on our anticipated production volumes through April 2028, we expect these activities to continue to impact net income (loss) based on fluctuations in market prices for oil and natural gas. See Financial Statements – Note 8 –Derivative Financial Instruments under Part I, Item 1 of this Quarterly Report for additional information.
32
Interest expense, net – Interest expense, net, was $38.1 million and $31.6 million for the six months ended June 30, 2022 and 2021, respectively. The increase of $6.5 million in 2022 is primarily due to a full six-months of interest expense on the principal balance of the Term Loan that was entered into in May 2021.
Other (income) expense, net – During the six months ended June 30, 2022, other income net, consists of non-recurring adjustments partially offset by expenses for additional contingent abandonment obligations pertaining to certain of legacy Gulf of Mexico properties. See Financial Statements– Note 12 – Contingencies under Part I, Item 1 of this Quarterly Report for additional information. During the six months ended June 30, 2021, the amount primarily consisted of expenses related to the amortization of the brokerage fee paid in connection with the Joint Venture Drilling Program.
Income tax expense (benefit) – Our income tax expense for the six months ended June 30, 2022 was $30.4 million compared to income tax benefit of $12.9 million during the six months ended June 30, 2021. For the six months ended June 30, 2022 and 2021, our income tax benefit differed from the statutory Federal tax rate primarily by the impact of state income taxes and adjustments to our valuation allowance. Our effective tax rate was 20.1% and 19.8% for the six months ended June 30, 2022 and 2021, respectively.
As of June 30, 2022, the valuation allowance on our deferred tax assets was $15.7 million. We continually evaluate the need to maintain a valuation allowance on our deferred tax assets. Any future reduction of a portion or all of the valuation allowance would result in a non-cash income tax benefit in the period the decision occurs. See Financial Statements – Note 10 –Income Taxes under Part I, Item 1 of this Quarterly Report for additional information.
Liquidity and Capital Resources
Liquidity Overview
Our primary liquidity needs are to fund capital and operating expenditures and strategic acquisitions to allow us to replace our oil and natural gas reserves, repay and service outstanding borrowings, operate our properties and satisfy our ARO obligations. We have funded such activities in the past with cash on hand, net cash provided by operating activities, sales of property, securities offerings and bank and other borrowings, and expect to continue to do so in the future.
The primary sources of our liquidity are cash from operating activities and borrowings under our Credit Agreement. As of June 30, 2022, we had $377.7 million cash on hand and $50.0 million available under our Credit Agreement, based on a borrowing base of $50.0 million. At current pricing levels, we expect our cash flows to cover our liquidity requirements for the foreseeable future and we expect additional financing sources to be available if needed. Additionally, we believe our access to the equity markets from our ATM Program, our reserve based lending currently available under our Credit Agreement, along with our cash position, will provide us with sufficient liquidity to continue our growth to take advantage of the current commodity environment.
As of June 30, 2022, we had outstanding $552.5 million principal of Senior Second Lien Notes with an interest rate of 9.75% per annum that mature on November 1, 2023. We have commenced discussions with potential lenders and institutional investors regarding potential refinancing of all or a portion of the Senior Second Lien Notes prior to maturity, although there is no assurance as to the terms of any such refinancing or whether or when such refinancing will occur. We also may seek financings with longer tenors and market based covenants to continue to provide working and potential acquisition capital as well as provide funding for refinancing of all or a portion of our Senior Second Lien Notes. The terms of such financings, which may replace or augment our Credit Agreement and refinance all or a portion of our Senior Second Lien Notes, may vary significantly from those under the Credit Agreement and our Senior Second Lien Notes. We may also consider using a portion of our cash balances to reduce the amount required to be refinanced.
33
Sources and Uses of Cash
Six Months Ended June 30, | |||||||||
| 2022 | 2021 |
| Change | |||||
(In thousands) | |||||||||
Operating activities |
| $ | 237,759 | $ | 46,194 | $ | 191,565 | ||
Investing activities |
| (78,900) |
| (8,932) |
| (69,968) | |||
Financing activities |
| (26,934) |
| 128,160 |
| (155,094) |
Operating activities – Net cash provided by operating activities increased $191.6 million for the six months ended June 30, 2022 compared to the corresponding period in 2021. This was primarily due to (i) the $202.6 million increase in oil, NGL, and natural gas revenues during the six months ended June 30, 2022 as compared to the prior year period, and (ii) $105.3 million of net cash proceeds received related to the monetization of certain natural gas call contracts through restructuring of strike prices. The increase in revenue was primarily due to the increase in realized prices for oil, NGLs, and natural gas. Our combined average realized sales price per Boe increased by 80.9% for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, which caused total revenues to increase $201.1 million.
These increases in operating cash flow were partially offset by (i) an increase in settlements of AROs which decreased operating cash flows $39.8 million as compared to $11.2 million for the six months ended June 30, 2022 and 2021, respectively, and (ii) changes in operating assets and liabilities (excluding ARO settlements) which decreased operating cash flows by $39.2 million as compared to $3.5 million for the six months ended June 30, 2022 and 2021, respectively, primarily related to higher oil and natural gas receivables balances due to higher realized prices.
Investing activities – Net cash used in investing activities increased $70.0 million for the six months ended June 30, 2022 compared to the corresponding period in 2021. The increase was primarily due to the acquisition of properties for $47.6 million along with other increases in capital spending during the six months ended June 30, 2022 compared to the same period in 2021.
Financing activities – During the six months ended June 30, 2022, cash used in financing activities was $26.9 million, primarily due to principal payments on the Term Loan. Net cash provided by financing activities was $128.2 million for the six months ended June 30, 2021 which included the proceeds from the Term Loan of $208.2 million, offset by repayment of $80.0 million of borrowings under the Credit Agreement.
Derivative Financial Instruments – From time to time, we use various derivative instruments to manage a portion of our exposure to commodity price risk from sales of oil and natural gas. See Financial Statements – Note 8 – Derivative Financial Instruments under Part I, Item 1 of this Quarterly Report for additional information about our derivative activities. The following table summarizes the historical results of our hedging activities:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
Crude Oil ($/Bbl): |
|
|
|
|
|
|
| |||||
Average realized sales price, before the effects of derivative settlements | $ | 107.90 | $ | 65.11 | $ | 101.43 | $ | 60.88 | ||||
Effects of realized commodity derivatives |
| (18.22) |
| (8.86) |
| (17.47) |
| (7.20) | ||||
Average realized sales price, including realized commodity derivatives | $ | 89.68 | $ | 56.25 | $ | 83.96 | $ | 53.68 | ||||
Natural Gas ($/Mcf) |
|
|
|
|
|
|
|
| ||||
Average realized sales price, before the effects of derivative settlements | $ | 7.70 | $ | 2.66 | $ | 6.40 | $ | 2.99 | ||||
Effects of realized commodity derivatives (1) |
| 8.88 |
| (0.28) |
| 3.76 |
| (0.17) | ||||
Average realized sales price, including realized commodity derivatives | $ | 16.58 | $ | 2.38 | $ | 10.16 | $ | 2.82 |
34
(1) | The three and six months ended June 30, 2022 includes the effect of the $138.0 million realized gain related to the monetization of certain natural gas call contracts through restructuring of strike prices. |
Income Taxes – For 2022, we expect 10-12% of our income tax expense to be cash taxes. We do not have any outstanding current income taxes receivable and made a de minimis income tax payment during the six months ended June 30, 2022. See Financial Statements – Note 10 –Income Taxes under Part I, Item 1 of this Quarterly Report for additional information.
Capital Expenditures
The level of our investment in oil and natural gas properties changes from time to time depending on numerous factors, including the prices of crude oil, NGLs and natural gas, acquisition opportunities, available liquidity and the results of our exploration and development activities.
Six Months Ended June 30, | ||||||
| 2022 |
| 2021 | |||
| (In thousands) | |||||
Exploration (1) | $ | 9,854 | $ | 1,309 | ||
Development (1) |
| 9,186 |
| 902 | ||
Acquisitions of interests |
| 47,625 |
| 471 | ||
Seismic and other |
| 6,449 |
| 3,172 | ||
Investments in oil and gas property/equipment – accrual basis | $ | 73,114 | $ | 5,854 |
(1) | Reported geographically in the subsequent table. |
The following table presents our exploration and development capital expenditures geographically in the Gulf of Mexico (in thousands):
Six Months Ended June 30, | ||||||
| 2022 |
| 2021 | |||
| (In thousands) | |||||
Conventional shelf (1) | $ | 7,849 | $ | 101 | ||
Deepwater |
| 11,191 |
| 2,110 | ||
Exploration and development capital expenditures – accrual basis | $ | 19,040 | $ | 2,211 |
(1) | Includes exploration and development capital expenditures in Alabama state waters. |
The capital expenditures are included within Oil and natural gas properties and other, net on the Condensed Consolidated Balance Sheets and recorded on an accrual basis. The capital expenditures reported within the Investing section of the Condensed Consolidated Statements of Cash Flows include adjustments to report cash payments related to capital expenditures. Net cash used in investing activities for the six months ended June 30, 2022 included $5.8 million in working capital changes associated with capital expenditures incurred during the six months ended June 30, 2022, but not yet paid. Our capital expenditures for the six months ended June 30, 2022 were financed by cash flow from operations and cash on hand.
Acquisitions – As described in Financial Statements – Note 4 – Acquisitions under Part I, Item 1 of this Quarterly Report, the Company acquired working interest and operatorship of certain oil and natural gas producing properties in federal shallow waters in the Gulf of Mexico at Ship Shoal 230, South Marsh Island 27/Vermilion 191, and South Marsh Island 73 fields on February 1, 2022 and April 1, 2022. After normal and customary post-effective date adjustments (including net operating cash flow attributable to the properties from the effective date to the respective close date), cash consideration of approximately $30.2 million and $17.5 million was paid to the sellers. The transaction was funded using cash on hand.
35
Asset Retirement Obligations – Each quarter, we review and revise our ARO estimates. Our ARO estimates as of June 30, 2022 and December 31, 2021 were $460.8 million and $424.5 million, respectively. The increase is primarily due to the acquisition of assets as described above. These increases were partially offset by $39.8 million related to liabilities settled. As our ARO estimates are for work to be performed in the future, and in the case of our non-current ARO, extend from one to many years in the future, actual expenditures could be substantially different than our estimates. See Risk Factors, under Part I, Item 1A of our 2021 Annual Report for additional information.
Drilling Activity
We did not drill any wells in the six months ended June 30, 2022. During the six months ended June 30, 2022, we completed the East Cameron 349 B-1 well (Cota). The Cota well is in the Monza Joint Venture Drilling Program. See Financial Statements – Note 6 –Joint Venture Drilling Program under Part I, Item 1 of this Quarterly Report for additional information.
Debt
Term Loan – As of June 30, 2022, we had $165.9 million of Term Loan principal outstanding. The Term Loan requires quarterly amortization payments which began September 30, 2021, bears interest at a fixed rate of 7% per annum and will mature on May 19, 2028. The Term Loan is non-recourse to the Company and its subsidiaries other than Subsidiary Borrowers and the subsidiary that owns the equity of the Subsidiary Borrowers, and is not secured by any assets other than first lien security interests in the equity in the Subsidiary Borrowers and a first lien mortgage security interest and mortgages on certain assets of Subsidiary Borrowers (the Mobile Bay Properties). See Financial Statements – Note 2 –Debt under Part I, Item 1 of this Quarterly Report for additional information.
Credit Agreement. During the six months ended June 30, 2022, we had no borrowings incurred or outstanding under the Credit Agreement.
Senior Second Lien Notes – As of June 30, 2022, we had outstanding $552.5 million principal of Senior Second Lien Notes with an interest rate of 9.75% per annum that mature on November 1, 2023. The Senior Second Lien Notes are secured by a second-priority lien on all of our assets that are secured under the Credit Agreement. See Financial Statements – Note 2 – Debt under Part I, Item 1 of this Quarterly Report for additional information.
Debt Covenants – The Term Loan, Credit Agreement, and Senior Second Lien Notes contain financial covenants calculated as of the last day of each fiscal quarter, which include thresholds on financial ratios, as defined in the respective Subsidiary Credit Agreement, Credit Agreement and the indenture related to the Senior Second Lien Notes. We were in compliance with all applicable covenants of the Term Loan, Credit Agreement and the Senior Second Lien Notes indenture as of and for the period ended June 30, 2022. See Financial Statements – Note 2 – Debt under Part I, Item 1 of this Quarterly Report for additional information.
36
The Subsidiary Borrowers
On May 19, 2021, we formed A-I LLC and A-II LLC, both indirect, wholly-owned subsidiaries of W&T Offshore, Inc., through their parent, Aquasition Energy LLC (collectively, the “Aquasition Entities”). Concurrently, A-I LLC and A-II II LLC, entered into a credit agreement providing for the Term Loan in an initial aggregate principal amount equal to $215.0 million. Proceeds of the Term Loan were used by A-I LLC and A-II LLC to fund the acquisition of the Mobile Bay Properties and the Midstream Assets, respectively, from the Company. The Term Loan is non-recourse to the Company and any subsidiaries other than the Aquasition Entities, and is secured by the first lien security interests in the equity of the Aquasition Entities and a first lien mortgage security interest in the Mobile Bay Properties. The See Financial Statements – Note 5 – Subsidiary Borrowers under Part II, Item 1 in this Quarterly Report for additional information.
At that time, we designated the Aquasition Entities as unrestricted subsidiaries under the Indenture governing our Senior Second Lien Notes (the “Unrestricted Subsidiaries”). Having been so designated, the Unrestricted Subsidiaries do not guarantee the Senior Second Lien Notes and the liens on the assets sold to the Unrestricted Subsidiaries have been released under the Credit Agreement. The Unrestricted Subsidiaries are not bound by the covenants contained in the Credit Agreement or the Senior Second Lien Notes. Under the Subsidiary Credit Agreement and related instruments, assets of the Aquasition Entities may not be available to mortgage or pledge as security to secure new indebtedness of the Company and its other subsidiaries. See Financial Statements – Note 2 – Debt under Part I, Item 1 in this Quarterly Report for additional information.
37
Below is consolidating balance sheet information reflecting the elimination of the accounts of our Unrestricted Subsidiaries from our Condensed Consolidated Balance Sheet as of June 30, 2022 (in thousands):
Consolidated | Eliminations of Unrestricted Subsidiaries | Consolidated Balance Sheet of restricted subsidiaries | |||||||
Assets |
|
|
|
|
|
| |||
Current assets: |
|
|
|
|
|
| |||
Cash and cash equivalents | $ | 377,724 | $ | (34,117) | $ | 343,607 | |||
Restricted cash | 4,417 | — | 4,417 | ||||||
Receivables: |
|
|
|
|
|
| |||
Oil and natural gas sales |
| 99,155 |
| (59,706) |
| 39,449 | |||
Joint interest, net |
| 13,370 |
| 6,413 |
| 19,783 | |||
Total receivables |
| 112,525 |
| (53,293) |
| 59,232 | |||
Prepaid expenses and other assets |
| 53,073 |
| (102) |
| 52,971 | |||
Total current assets |
| 547,739 |
| (87,512) |
| 460,227 | |||
Oil and natural gas properties and other, net |
| 741,390 |
| (277,418) |
| 463,972 | |||
Restricted deposits for asset retirement obligations |
| 21,667 |
| — |
| 21,667 | |||
Deferred income taxes |
| 75,474 |
| — |
| 75,474 | |||
Other assets |
| 53,538 |
| 20,962 |
| 74,500 | |||
Total assets | $ | 1,439,808 | $ | (343,968) | $ | 1,095,840 | |||
Liabilities and Shareholders’ Deficit |
|
|
|
|
|
| |||
Current liabilities: |
|
|
|
|
|
| |||
Accounts payable | $ | 86,290 | $ | (38,535) | $ | 47,755 | |||
Undistributed oil and natural gas proceeds |
| 51,215 |
| (10,591) |
| 40,624 | |||
Asset retirement obligations |
| 51,504 |
| — |
| 51,504 | |||
Accrued liabilities |
| 153,967 |
| (73,633) |
| 80,334 | |||
Current portion of long-term debt | 37,199 | (37,199) | — | ||||||
Income tax payable |
| 3,356 |
| — |
| 3,356 | |||
Total current liabilities |
| 383,531 |
| (159,958) |
| 223,573 | |||
Long-term debt |
|
|
|
|
|
| |||
Principal |
| 681,179 |
| (128,719) |
| 552,460 | |||
Unamortized debt issuance costs |
| (9,205) |
| 5,569 |
| (3,636) | |||
Long-term debt, net |
| 671,974 |
| (123,150) |
| 548,824 | |||
Asset retirement obligations, less current portion |
| 409,265 |
| (57,532) |
| 351,733 | |||
Other liabilities |
| 99,294 |
| (80,135) |
| 19,159 | |||
Deferred income taxes |
| 113 |
| — |
| 113 | |||
Common stock |
| 1 |
| — |
| 1 | |||
Additional paid-in capital |
| 554,755 |
| — |
| 554,755 | |||
Retained deficit |
| (654,958) |
| 76,807 |
| (578,151) | |||
Treasury stock, at cost |
| (24,167) |
| — |
| (24,167) | |||
Total shareholders’ deficit |
| (124,369) |
| 76,807 |
| (47,562) | |||
Total liabilities and shareholders’ deficit | $ | 1,439,808 | $ | (343,968) | $ | 1,095,840 |
38
Below is Consolidating Statement of Operations information reflecting the elimination of the accounts of our Unrestricted Subsidiaries from our Condensed Consolidated Statement of Operations for the six months ended June 30, 2022 (in thousands):
Consolidated | Eliminations of Unrestricted Subsidiaries | Consolidated restricted subsidiaries | |||||||
Revenues: | |||||||||
Oil | $ | 281,966 | $ | (414) | $ | 281,552 | |||
NGLs |
| 30,555 |
| (19,028) |
| 11,527 | |||
Natural gas |
| 143,779 |
| (98,623) |
| 45,156 | |||
Other |
| 8,512 |
| (6,296) |
| 2,216 | |||
Total revenues |
| 464,812 |
| (124,361) |
| 340,451 | |||
Operating expenses: |
|
|
|
|
|
| |||
Lease operating expenses |
| 96,387 |
| (23,740) |
| 72,647 | |||
Gathering, transportation and production taxes | 14,448 | (7,551) | 6,897 | ||||||
Depreciation, depletion, amortization and accretion |
| 65,271 |
| (1,285) |
| 63,986 | |||
General and administrative expenses |
| 28,743 |
| (609) |
| 28,134 | |||
Total operating expenses |
| 204,849 |
| (33,185) |
| 171,664 | |||
Operating income (loss) |
| 259,963 |
| (91,176) |
| 168,787 | |||
Interest expense (income), net |
| 38,066 |
| (8,436) |
| 29,630 | |||
Derivative loss (gain) |
| 71,143 |
| (132,046) |
| (60,903) | |||
Other expense, net |
| (629) |
| — |
| (629) | |||
Income before income taxes |
| 151,383 |
| 49,306 |
| 200,689 | |||
Income tax benefit |
| 30,404 |
| — |
| 30,404 | |||
Net income | $ | 120,979 | $ | 49,306 | $ | 170,285 |
The following table presents our produced oil, NGLs and natural gas volumes (net to our interests) from the Subsidiary Borrowers for the six months ended June 30, 2022:
Six Months Ended June 30, | ||
Production Volumes: | 2022 | |
Oil (MBbls) |
| 7 |
NGLs (MBbls) |
| 468 |
Natural gas (MMcf) |
| 15,166 |
Total oil equivalent (MBoe) |
| 3,003 |
39
Contractual Obligations
As of June 30, 2022, there were no long-term drilling rig commitments. Contractual obligations as of June 30, 2022 did not change materially from the disclosures in Management’s Discussion and Analysis of Financial Condition and Results of Operations, under Part II, Item 7 of our 2021 Annual Report.
Critical Accounting Policies and Estimates
We consider accounting policies related to oil and natural gas properties, proved reserve estimates, fair value measure of financial instruments, asset retirement obligations, revenue recognition and income taxes as critical accounting policies. These policies include significant estimates made by management using information available at the time the estimates are made. However, these estimates could change materially if different information or assumptions were used.
There have been no changes to our critical accounting policies which are summarized in Management’s Discussion and Analysis of Financial Condition and Results of Operations under Part II, Item 7 of our 2021 Annual Report.
Recent Accounting Pronouncements
There was no recently issued accounting standards material to us.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information about the types of market risks for the June 30, 2022 did not change materially from the disclosures in Quantitative and Qualitative Disclosures About Market Risk under Part II, Item 7A of our 2021 Annual Report. In addition, the information contained herein should be read in conjunction with the related disclosures in our 2021 Annual Report.
Item 4. Controls and Procedures
We have established disclosure controls and procedures designed to ensure that material information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC and that any material information relating to us is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate to allow timely decisions regarding required disclosures. In designing and evaluating our disclosure controls and procedures, our management recognizes that controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving desired control objectives. In reaching a reasonable level of assurance, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by Exchange Act Rule 13a-15(b), we performed an evaluation, under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based on that evaluation, our CEO and CFO have each concluded that as of June 30, 2022, our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that our controls and procedures are designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
During the quarter ended June 30, 2022, there was no change in our internal control over financial reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
40
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
See Financial Statements – Note 12 – Contingencies under Part I Item 1 of this Quarterly Report for information on various legal proceedings to which we are a party or our properties are subject.
Item 1A. Risk Factors
New climate disclosure rules proposed by the SEC may increase our costs of compliance and adversely impact our business.
On March 21, 2022, the U.S. Securities and Exchange Commission proposed new rules relating to the disclosure of a range of climate-related risks. We are currently assessing the proposed rule, but at this time we cannot predict the costs of implementation or any potential adverse impacts resulting from the rule. To the extent this rule is finalized as proposed, we could incur increased costs relating to the assessment and disclosure of climate-related risks. We may also face increased litigation risks related to disclosures made pursuant to the rule if finalized as proposed. In addition, enhanced climate disclosure requirements could accelerate the trend of certain stakeholders and lenders restricting or seeking more stringent conditions with respect to their investments in certain carbon-intensive sectors. The SEC proposes certain phase-in compliance dates under the proposed rule for disclosure of Scope 1, 2, and 3 greenhouse gas (“GHG”) emissions. As initially proposed, accelerated filers such as us would be obligated to disclose Scope 1 and 2 GHG emissions for fiscal year 2024 in the 2025 filing year and disclose Scope 3 GHG emissions for fiscal year 2025 in the 2026 filing year. For more information on our risks related to Environmental, Social and Governance matters and attention to climate change, see Risk Factors “Increasing attention to Environmental, Social and Governance (“ESG”) matters may impact our business” and “The threat of climate change could result in increased costs and reduced demand for the oil and natural gas we produce, which could have a material adverse effect on our business, results of operations, financial condition and cash flows” included in Part I, Item 1A of our 2021 Annual Report.
In addition to the information set forth in this Quarterly Report, investors should carefully consider the risk factors and other cautionary statements included under Part I, Item 1A, Risk Factors, in our 2021 Annual Report, together with all of the other information included in this Quarterly Report, and in our other public filings, which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.
Our operations could be adversely impacted by cybersecurity incidents, which could affect the systems, processes and data needed to run our business and report our results.
We rely on our information technology infrastructure and management information systems to operate and record aspects of our business. Although we take measures to protect against cybersecurity risks, including unauthorized access to our confidential and proprietary information, our cybersecurity measures may not be able to detect or prevent every attempted cybersecurity incident. For instance, we may not be able to anticipate, detect or prevent cybersecurity attacks or security breaches, particularly because the methodologies used by attackers change frequently or may not be recognized until such attack is launched, and because attackers are increasingly using technologies specifically designed to circumvent cybersecurity measures and avoid detection. Cybersecurity incidents include, among other things, unauthorized access to or misuse of our information technology systems, hacking, phishing, computer viruses, interference with treasury function, theft or acts of vandalism or terrorism. In addition, a cybersecurity attack or security breach could ultimately result in liability under data privacy laws, regulatory penalties, damage to our reputation, or additional costs for remediation and modification or enhancement of our information systems to prevent future occurrences.
41
While we have experienced cybersecurity incidents to our systems, we have not suffered any material impact to our business and operations related to such incidents. A cybersecurity incident or other security breach could result in an interruption in our operations, malfunction of our platform control devices, disabling of our communication links, the misappropriation, destruction, corruption or unavailability of critical data and confidential or proprietary information, unauthorized publication of our confidential business or proprietary information, unauthorized release of landowner or employee data, violation of privacy or other laws and exposure to litigation or government enforcement actions. Additionally, if an increased number of our employees and service providers are working from home and connecting to our networks remotely, this may further increase the risk of, and our vulnerability to, a cybersecurity attack or security breach to our network. The recent invasion of parts of Ukraine by Russia, and the impact of world sanctions against Russia and the potential for retaliatory acts from Russia, could also result in increased cybersecurity attacks against U.S. companies. Ultimately, cybersecurity incidents and security breaches could have a material adverse effect on our consolidated financial position, results of operations and cash flows.
In conducting a recent review of the Company’s cybersecurity and information technology infrastructure, measures and controls, we became aware that the cybersecurity measures and controls of the Company and its primary third-party information technology service provider responsible for the management, operation and servicing of such infrastructure did not align with customary industry practices. The Company is currently in the process of remediating the identified issues, including implementing new or updated cybersecurity policies and procedures, engaging new personnel, including a newly hired chief information officer responsible for our information technology and cybersecurity measures, and transitioning away from certain legacy systems and service providers. Although our cybersecurity review has not to date identified any material adverse impact on our business, financial condition or results of operations or the accuracy of our financial statements, our improvements to our cybersecurity and information technology infrastructure, measures and controls may not prove to be effective in deterring cybersecurity incidents or other security breaches in the future.
Moreover, as cyber incidents become more sophisticated, we may need to develop, modify, upgrade or enhance our information technology infrastructure and cybersecurity measures to secure our business. This can lead to increased cybersecurity protection costs, including making organizational changes, deploying additional personnel and protection technologies, training employees, and engaging third party experts and consultants. These events could have a material adverse effect on our financial condition, liquidity or results of operations or the integrity of the systems, processes and data needed to run our business.
We outsource substantially all of our information technology infrastructure and the management and servicing of such infrastructure, which makes us more dependent upon third parties and exposed to related risks. We are in the process of transitioning substantially all of such infrastructure, which subjects us to increased costs and risks.
We have historically outsourced substantially all of our information technology infrastructure and the management and servicing of such infrastructure to a limited number of third-party service providers. As a result, we rely on third parties that we do not control to ensure that our technology needs are sufficiently met, and cyber risks are effectively managed. This reliance has subjected us to certain cybersecurity risks arising from the loss of control over certain processes, including the potential misappropriation, destruction, corruption or unavailability of certain data and systems, such as confidential or proprietary information. As such, a failure of any of our information technology service providers to perform its management and operational duties securely and effectively may have a material adverse effect on our financial condition, liquidity or results of operations or the integrity of the systems, processes and data needed to run our business. We also have not had written agreements with our primary service provider, which exposed us to additional risks with respect to the systems and data outsourced to such provider. In addition, our primary information technology service provider recently notified us of its intention to cease providing services to us by September 2, 2022, which will require rapid transition of these services and infrastructure inside the Company or to other providers. We may not be able to fully complete a transition before such termination, which could impair our ability to monitor our production and accurately prepare our results of operations in a timely fashion. Although we are moving certain services within the Company and transitioning to new service providers and implementing agreements with our providers, such transition exposes us to additional risks, including increased costs, focus of management’s attention, and loss, damage to or unavailability of data or systems, which could have an adverse effect on our business and results of operations.
42
We are subject to laws, rules, regulations and policies regarding data privacy and security. Many of these laws and regulations are subject to change and reinterpretation, and could result in claims, changes to our business practices, monetary penalties, increased cost of operations or other harm to our business.
We are subject to a variety of federal, state and local laws, directives, rules and policies relating to data privacy and cybersecurity. The regulatory framework for data privacy and cybersecurity worldwide is continuously evolving and developing and, as a result, interpretation and implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future. It is also possible inquiries from governmental authorities regarding cybersecurity breaches increase in frequency and scope. These data privacy and cybersecurity laws also are not uniform, which may complicate and increase our costs for compliance. Any failure or perceived failure by us or our third-party service providers to comply with any applicable laws relating to data privacy and cybersecurity, or any compromise of security that results in the unauthorized access, improper disclosure, or misappropriation of data, could result in significant liabilities and negative publicity and reputational harm, one or all of which could have an adverse effect on our reputation, business, financial condition and operations.
Notwithstanding the matters discussed herein, there have been no material changes in our risk factors as previously disclosed in Part I, Item 1A, Risk Factors, in our 2021 Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
Third Amended and Restated Bylaws
On August 7, 2022, the Board of Directors of W&T Offshore, Inc. approved certain amendments (the “Amendments”) to the Company’s Second Amended and Restated Bylaws. The Amendments revise the indemnification provisions and added new forum selection provisions. The Amendments also include certain other ministerial clarifications and updates.
The Third Amended and Restated Bylaws of the Company, reflecting the Amendments, were effective on August 7, 2022. The foregoing description does not purport to be complete and is qualified in its entirety by the text of the Third Amended and Restated Bylaws of the Company, a copy of which is filed herewith as Exhibit 3.4 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.
Indemnification Agreements
On August 8, 2022, the Company entered into Indemnification Agreements (the “Indemnification Agreements”) with each of the Company’s directors and officers (as defined under Rule 16a-1(f)). The Indemnification Agreements require the Company to indemnify these individuals to the fullest extent permitted by applicable law against liability that may arise by reason of their service to the Company, and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified.
The foregoing description does not purport to be complete and is qualified in its entirety by the text of the Indemnification Agreements, a form of which is filed herewith as Exhibit 10.3 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.
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Item 6. Exhibits
Exhibit |
| Description |
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3.1 |
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3.2 |
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3.3 |
| |
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3.4* | ||
10.1* |
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10.2* | ||
10.3* | ||
31.1* |
| |
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31.2* |
| |
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32.1* |
| Section 906 Certification of Chief Executive Officer and Chief Financial Officer |
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101.INS* |
| Inline XBRL Instance Document |
|
|
|
101.SCH* |
| Inline XBRL Schema Document |
|
|
|
101.CAL* |
| Inline XBRL Calculation Linkbase Document |
|
|
|
101.DEF* |
| Inline XBRL Definition Linkbase Document |
|
|
|
101.LAB* |
| Inline XBRL Label Linkbase Document |
|
|
|
101.PRE* |
| Inline XBRL Presentation Linkbase Document |
|
|
|
104* |
| Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* | Filed or furnished herewith. |
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SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on August 8, 2022.
W&T OFFSHORE, INC. | ||
| ||
By: | /s/ Janet Yang | |
| Janet Yang | |
| Executive Vice President and Chief Financial Officer |
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Exhibit 3.4
THIRD AMENDED AND RESTATED
BYLAWS
OF
W&T OFFSHORE, INC.
A TEXAS CORPORATION
(Adopted and Amended by Resolution of the Board of Directors on August 7, 2022)
ARTICLE I
REGISTERED OFFICE
The registered office of the Corporation required by the Texas Business Organizations Code to be maintained in the State of Texas shall be the registered office named in the original Articles of Incorporation of the Corporation or such other office (which need not be a place of business of the Corporation) as may be designated from time to time by the Board of Directors in the manner provided by law.
ARTICLE II
SHAREHOLDERS
Section 1. Place of Meetings. All meetings of the shareholders shall be held at the principal place of business of the Corporation or at such other place within or without the State of Texas as shall be specified or fixed in the notices or waivers of notice thereof.
Section 2. Quorum; Required Vote for Shareholder Action; Adjournment of Meetings. Unless otherwise required by law or provided in the Articles of Incorporation or these Bylaws, the holders of issued and outstanding shares representing a majority of the votes entitled to be cast thereat, present in person or represented by proxy, shall constitute a quorum at any meeting of shareholders for the transaction of business, and the act of a majority of the voting power of such stock so represented at any meeting of shareholders at which a quorum is present shall constitute the act of the meeting of shareholders.
Notwithstanding the other provisions of the Articles of Incorporation or these Bylaws, the chairman of the meeting or the holders of a majority of the voting power of the issued and outstanding stock present in person or represented by proxy at any meeting of shareholders, whether or not a quorum is present, shall have the power to adjourn such meeting from time to time, without any notice other than announcement at the meeting of the time and place of the holding of the adjourned meeting. At such adjourned meeting any business may be transacted that might have been transacted at the meeting as originally called.
Section 3. Annual Meetings. An annual meeting of the shareholders, for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly
come before the meeting, shall be held at such place, within or without the State of Texas, on such date and at such time as the Board of Directors shall fix and set forth in the notice of the meeting, which date shall be within 13 months subsequent to the last annual meeting of shareholders.
Section 4. Special Meetings. Unless otherwise provided in the Articles of Incorporation, special meetings of the shareholders for any proper purpose or purposes may be called at any time by (a) the Chairman of the Board (if any), the President, the Board of Directors, or such other person or persons as may be authorized in the Articles of Incorporation or these Bylaws or (b) unless the Articles of Incorporation provide otherwise, the holders of issued and outstanding shares representing at least thirty percent of all the votes entitled to be cast at the proposed special meeting.
If not otherwise stated in or fixed in accordance with the remaining provisions hereof, the record date for determining shareholders entitled to call a special meeting is the date any shareholder first signs the notice of that meeting.
Only business within the purpose or purposes described in the notice (or waiver thereof) required by these Bylaws may be conducted at a special meeting of the shareholders.
Section 5. Closing Transfer Books; Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or entitled to receive a distribution by the Corporation (other than a distribution involving a purchase or redemption by the Corporation of any of its own shares) or share dividend, or in order to make a determination of shareholders for any other purpose, the Board of Directors of the Corporation may provide that the stock transfer books shall be closed for a stated period but not to exceed, in any case, 60 days nor be less than 10 days. If the stock transfer books shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least ten days immediately preceding such meeting.
In lieu of closing the stock transfer books, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than 60 days and, in the case of a meeting of shareholders, not less than ten days, prior to the date on which the particular action requiring such determination of shareholders is to be taken.
If the stock transfer books are not closed and no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive a distribution (other than a distribution involving a purchase or redemption by the Corporation of any of its own shares) or a share dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such distribution or share dividend is adopted, as the case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided herein, such determination shall also apply to any adjournment thereof except where the determination has been made through the closing of stock transfer books and the stated period of closing has expired.
Section 6. Notice of Meetings. Written or printed notice stating the place, day and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten nor more than 60 days before the date of the meeting, either personally or by mail, by or at the direction of the President, the Secretary or the officer or person
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calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, any such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the shareholder at his address as it appears on the stock transfer books of the Corporation, with postage thereon prepaid.
Any notice required to be given to any shareholder, under any provision of the Texas Business Organizations Code or the Articles of Incorporation or these Bylaws need not be given to the shareholder if (a) notice of two consecutive annual meetings and all notices of meetings held during the period between those annual meetings, if any, or (b) all (but in no event less than two) payments of distributions or interest on securities during a 12-month period have been mailed to that person by first-class mail, addressed to him at his address as shown on the records of the Corporation, and have been returned undeliverable. Any action or meeting taken or held without notice to such person shall have the same force and effect as if the notice had been duly given and, if the action taken by the Corporation is reflected in any articles or document filed with the Secretary of State, those articles or that document may state that notice was duly given to all persons to whom notice was required to be given. If such a person delivers to the Corporation written notice setting forth his then current address, the requirement that notice be given to that person shall be reinstated.
Section 7. Voting List. The officer or agent having charge of the stock transfer books for shares of the Corporation shall make, at least ten days before each meeting of shareholders, a complete list of the shareholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each, which list, for a period of ten days prior to such meeting, shall be kept on file at the registered office of the Corporation and shall be subject to inspection by any shareholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting. The original stock transfer books shall be prima-facie evidence as to who are the shareholders entitled to examine such list or transfer books or to vote at any meeting of shareholders. Failure to comply with the requirements of this Section shall not affect the validity of any action taken at such meeting.
Section 8. Proxies. A shareholder may vote either in person or by proxy executed in writing by the shareholder or by his duly authorized attorney-in-fact. Proxies for use at any meeting of shareholders shall be filed with the Secretary, or such other officer as the Board of Directors may from time to time determine by resolution, before or at the time of the meeting or execution of the written consent, as the case may be. All proxies shall be received and taken charge of and all ballots shall be received and canvassed by the secretary of the meeting who shall decide all questions touching upon the qualification of voters, the validity of the proxies, and the acceptance or rejection of votes, unless an inspector or inspectors shall have been appointed by the chairman of the meeting, in which event such inspector or inspectors shall decide all such questions.
No proxy shall be valid after 11 months from the date of its execution unless otherwise provided in the proxy. A proxy shall be revocable unless the proxy form conspicuously states that the proxy is irrevocable and the proxy is coupled with an interest. Proxies coupled with an interest shall include the appointment as proxy of any of the persons set forth in the Texas Business Organizations Code, including without limitation:
| (a) | a pledgee; |
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| (b) | a person who purchased or agreed to purchase, or owns or holds an option to purchase, the shares; |
| (c) | a creditor of the Corporation who extended it credit under terms requiring the appointment; |
| (d) | an employee of the Corporation whose employment contract requires the appointment; or |
| (e) | a party to a voting agreement executed in accordance with the Texas Business Organizations Code. |
Should a proxy designate two or more persons to act as proxies, unless such instrument shall provide to the contrary, a majority of such persons present at any meeting at which their powers thereunder are to be exercised shall have and may exercise all the powers of voting or giving consents thereby conferred, or if only one be present, then such powers may be exercised by that one; or, if an even number attend and a majority do not agree on any particular issue, the Corporation shall not be required to recognize such proxy with respect to such issue if such proxy does not specify how the shares that are the subject of such proxy are to be voted with respect to such issue.
Section 9. Voting; Elections; Inspectors. Unless otherwise required by law or provided in the Articles of Incorporation, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders.
All voting, except as required by the Articles of Incorporation or where otherwise required by law, may be by a voice vote; provided, however, that a vote by ballot shall be taken upon demand therefor by shareholders holding issued and outstanding shares representing a majority of the voting power present in person or by proxy at any meeting. Every vote by ballot shall be taken by written ballots, each of which shall state the name of the shareholder or proxy voting and such other information as may be required under the procedure established for the meeting.
At any meeting at which a vote is taken by ballots, the chairman of the meeting may appoint one or more inspectors, each of whom shall subscribe an oath or affirmation to execute faithfully the duties of inspector at such meeting with strict impartiality and according to the best of his ability. Such inspector shall receive the ballots, count the votes and make and sign a certificate of the result thereof. The chairman of the meeting may appoint any person to serve as inspector, except no candidate for the office of director shall be appointed as an inspector.
At each election of directors, each shareholder entitled to vote thereat shall, unless otherwise provided by law or by the Articles of Incorporation, have the right to vote the number of shares owned by him for as many persons as there are to be elected and for whose election he has a right to vote. Unless expressly prohibited by the Articles of Incorporation, a shareholder shall have the right to cumulate his votes by giving one candidate as many votes as the number of such directors multiplied by his shares shall equal, or by distributing such votes on the same principle among any number of such candidates. Any shareholder who intends to cumulate his votes shall give written notice of such intention to the Secretary of the Corporation on or before the day preceding the election at which such shareholder intends to cumulate his votes. Any shareholder may cumulate his votes if such shareholder or any other shareholder gives the written notice provided for herein.
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Section 10. Conduct of Meetings. All meetings of the shareholders shall be presided over by the chairman of the meeting, who shall be the Chairman of the Board (if any), or if he is not present, the President, or if neither the Chairman of the Board (if any) nor President is present, a chairman elected at the meeting. The Secretary of the Corporation, if present, shall act as secretary of such meetings, or if he is not present, an Assistant Secretary (if any) shall so act; if neither the Secretary nor an Assistant Secretary (if any) is present, then a secretary shall be appointed by the chairman of the meeting. The chairman of any meeting of shareholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to him in order.
Section 11. Treasury Shares. Neither the Corporation nor any other person shall vote, directly or indirectly, at any meeting, shares of the Corporation’s own stock owned by the Corporation, shares of the Corporation’s own stock owned by another corporation the majority of the voting stock of which is owned or controlled by the Corporation, and shares of the Corporation’s own stock held by the Corporation in a fiduciary capacity; and such shares shall not be counted in determining the total number of outstanding shares at any given time.
Section 12. Notice of Shareholder Business and Nominations.
(a) Annual Meetings of Shareholders.
(1) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the shareholders may be made at an annual meeting of shareholders (a) pursuant to the Corporation’s notice of meeting, (b) by or at the direction of the Board of Directors or (c) by any shareholder of the Corporation who was a shareholder of record at the time of giving of notice provided for in this Bylaw, who is entitled to vote at such meeting and who complies with the notice procedures set forth in this Bylaw.
(2) For nominations or other business to be properly brought before an annual meeting by a shareholder pursuant to clause (c) of paragraph (a)(1) of Section 12 of this Bylaw, the shareholder must have given timely notice thereof in writing to the Secretary of the Corporation and such other business must otherwise be a proper matter for shareholder action. To be timely, a shareholder’s notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 90th day, nor earlier than the close of business on the 120th day, prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the shareholder to be timely must be so delivered not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a shareholder’s notice as described above. Such shareholder’s notice shall set forth (a) as to each person whom the shareholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 14a-11 thereunder (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (b) as to any other business that the shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before
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the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such shareholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such shareholder, as they appear on the Corporation’s books, and of such beneficial owner and (ii) the class or series and number of shares of the Corporation which are owned beneficially and of record by such shareholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (a)(2) of Section 12 of this Bylaw to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement by the Corporation naming all of the nominees for director or specifying the size of the increased Board of Directors at least 100 days prior to the first anniversary of the preceding year’s annual meeting, a shareholder’s notice required by this Bylaw shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement of the increased Board is first made by the Corporation.
(b) Special Meetings of Shareholders. Only such business shall be conducted at a special meeting of shareholders as shall have been brought before the meeting pursuant to the Corporation’s notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of shareholders at which directors are to be elected pursuant to the Corporation’s notice of meeting (1) by or at the direction of the Board of Directors or (2) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any shareholder of the Corporation who is a shareholder of record at the time of giving of notice provided for in this Bylaw, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Bylaw. In the event the Corporation calls a special meeting of shareholders for the purpose of electing one or more directors to the Board of Directors, any such shareholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the Corporation’s notice of meeting, if the shareholder’s notice required by paragraph (a)(2) of this Bylaw shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the 120th day prior to such special meeting and not later than the close of business on the later of the 90th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment of a special meeting commence a new time period for the giving of a shareholder’s notice as described above.
(c) General.
(1) Only such persons who are nominated in accordance with the procedures set forth in this Bylaw shall be eligible to serve as directors, and only such business shall be conducted at a meeting of shareholders as shall have been brought before the meeting in accordance with the procedures set forth in this Bylaw. Except as otherwise provided by law, the Articles of Incorporation or these Bylaws, the chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Bylaw and, if any proposed nomination
6
or business is not in compliance with this Bylaw, to declare that such defective proposal or nomination shall be disregarded.
(2) For purposes of this Bylaw, “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Bylaw, a shareholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Bylaw. Nothing in this Bylaw shall be deemed to affect any rights (a) of shareholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act or (b) of the holders of any series of preferred stock of the Corporation to elect directors under specified circumstances.
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ARTICLE III
BOARD OF DIRECTORS
Section 1. Power; Number; Term of Office; Election Procedures. The following provisions are inserted for the management of the business and for the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and shareholders: The number and terms of the members of board of directors of the Corporation and the procedures to elect directors, to remove directors, and to fill vacancies in the board of directors shall be as follows:
(a) Unless otherwise provided in the Articles of Incorporation, the number of directors that shall constitute the whole board of directors shall from time to time be fixed exclusively by the board of directors by a resolution adopted by a majority of the whole board of directors serving at the time of that vote. Except in the event of a vacancy contemplated by Section 1(c) of this Article III, in no event shall the number of directors that constitute the whole board of directors be fewer than three. No decrease in the number of directors shall have the effect of shortening the term of any incumbent director. Directors of the Corporation need not be elected by written ballot unless the bylaws of the Corporation otherwise provide. Unless otherwise provided in the Articles of Incorporation, directors need not be shareholders of the Corporation or residents of the State of Texas.
(b) Except as otherwise required by law, the Articles of Incorporation of the Corporation, or these Bylaws, the directors shall be elected at an annual meeting of shareholders at which a quorum is present. Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy and entitled to vote on the election of directors. Each director so chosen shall hold office until the first annual meeting of shareholders held after his election and until his successor is elected and qualified or, if earlier, until his death, resignation, or removal from office.
(c) Vacancies in the board of directors resulting from death, resignation, retirement, disqualification, removal from office, or other cause and newly-created directorships resulting from any increase in the authorized number of directors may be filled by no less than a majority vote of the remaining directors then in office, though less than a quorum, and shall hold office until the first meeting of shareholders held after his election for the purpose of electing directors and until his successor is elected and qualified or until his earlier death, resignation, or removal from office. Any such vacancies which result in the number of directors being less than three shall be promptly filled according to the procedures set forth in this paragraph.
(d) A director of the Corporation may be removed before the expiration date of that director’s term of office only for cause, by an affirmative vote of the holders of more than 60% of the outstanding shares of stock then entitled to be voted at an election of directors, cast at the annual meeting of shareholders or at any special meeting of shareholders called by a majority of the whole board of directors for this purpose.
Section 2. Quorum; Required Vote for Director Action. Unless otherwise required by law or provided in the Articles of Incorporation or these Bylaws, a majority of the total number of directors shall constitute a quorum for the transaction of business of the Board of Directors, and the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors.
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Section 3. Meetings; Order of Business. Meetings of the Board of Directors may be held at such place or places as shall be determined from time to time by resolution of the Board of Directors. At all meetings of the Board of Directors business shall be transacted in such order as shall from time to time be determined by the Chairman of the Board (if any), or in his absence by the President (if the President is director), or by resolution of the Board of Directors. Attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business and the ground that the meeting is not lawfully called or convened.
Section 4. First Meeting. In connection with any annual meeting of shareholders at which directors were elected, the Board of Directors may, if a quorum is present, hold its first meeting for the transaction of business immediately after and at the same place as such annual meeting of the shareholders. Notice of such meeting at such time and place shall not be required.
Section 5. Regular Meetings. Regular meetings of the Board of Directors shall be held at such times and places as shall be designated from time to time by resolution of the Board of Directors. Notice of such regular meetings shall not be required.
Section 6. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board (if any), the President or, on the written request of any one director, by the Secretary, in each case on at least 24 hours personal, written, telegraphic, cable, wireless or electronic notice to each director. Such notice, or any waiver thereof pursuant to Article IX, Section 3 hereof, need not state the purpose or purposes of such meeting, except as may otherwise be required by law or provided for by the Articles of Incorporation or these Bylaws.
Section 7. Compensation. Unless restricted by the Articles of Incorporation, the Board of Directors shall have the authority to fix the compensation, if any, of directors.
Section 8. Presumption of Assent. A director who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action.
Section 9. Approval or Ratification of Acts or Contracts by Shareholders. The Board of Directors in its discretion may submit any act or contract for approval or ratification at any annual meeting of the shareholders, or at any special meeting of the shareholders called for the purpose of considering any such act or contract, and any act or contract that shall be approved or be ratified by the vote of the shareholders holding a majority of the issued and outstanding shares of stock of the Corporation entitled to vote and present in person or by proxy at such meeting (provided that a quorum is present), shall be as valid and as binding upon the Corporation and upon all the shareholders as if it shall have been approved or ratified by every shareholder of the Corporation.
ARTICLE IV
COMMITTEES
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Section 1. Designation; Powers. The Board of Directors, by resolution adopted by a majority of the full Board of Directors, may designate from among its members one or more committees, each of which, to the extent provided in such resolution, shall have and may exercise all of the authority of the Board of Directors, except that no such committee shall have the authority of the Board of Directors in reference to amending the Articles of Incorporation, approving a plan of merger or consolidation, recommending to the shareholders the sale, lease, or exchange of all or substantially all of the property and assets of the Corporation otherwise than in the usual and regular course of its business, recommending to the shareholders a voluntary dissolution of the Corporation or a revocation thereof, amending, altering, or repealing these Bylaws or adopting new bylaws for the Corporation, filling vacancies in the Board of Directors or any such committee, filling any directorship to be filled by reason of an increase in the number of directors, electing or removing officers of the Corporation or members of any such committee, fixing the compensation of any member of such committee, or altering or repealing any resolution of the Board of Directors that by its terms provides that it shall not be so amendable or repealable in such manner; and, unless such resolution or the Articles of Incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of shares of the Corporation.
Section 2. Procedure; Meetings; Quorum. Any committee designated pursuant to Section 1 of this Article shall choose its own chairman and secretary, shall keep regular minutes of its proceedings and report the same to the Board of Directors when requested, shall fix its own rules or procedures, and shall meet at such times and at such place or places as may be provided by such rules, or by resolution of such committee or of the Board of Directors. At every meeting of any such committee, the presence of a majority of all the members thereof shall constitute a quorum, and the affirmative vote of a majority of the members present shall be necessary for the adoption by it of any resolution.
Section 3. Substitution of Members. The Board of Directors, by resolution adopted by a majority of the full Board of Directors, may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of such committee.
Section 4. Dissolution. The Board of Directors may dissolve any committee at any time, unless otherwise provided in the Articles of Incorporation or these Bylaws.
ARTICLE V
OFFICERS
Section 1. Number, Titles and Term of Office. The officers of the Corporation shall be a President and a Secretary and such other officers as the Board of Directors may from time to elect or appoint, including, without limitation, a Chairman of the Board, one or more Vice Presidents (any one or more of whom may be designated Executive Vice President or Senior Vice President), a Treasurer, one or more Assistant Treasurers and one or more Assistant Secretaries. Each officer shall hold office until his successor shall be duly elected and shall qualify or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. Any number of offices may be held by the same person. Except for the Chairman of the Board, if any, no officer need be a director.
Section 2. Salaries. The salaries or other compensation, if any, of the officers and agents of the Corporation shall be fixed from time to time by the Board of Directors.
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Section 3. Removal. Any officer or agent or member of a committee elected or appointed by the Board of Directors may be removed, either with or without cause, by the Board of Directors whenever in its judgment the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent or member of a committee shall not of itself create contract rights.
Section 4. Vacancies. Any vacancy occurring in any office of the Corporation may be filled by the Board of Directors.
Section 5. Powers and Duties of the Chief Executive Officer. The President shall be the chief executive officer of the Corporation unless the Board of Directors designates the Chairman of the Board (if any) or other officer as chief executive officer. Subject to the control of the Board of Directors, the chief executive officer shall have general executive charge, management and control of the properties, business and operations of the Corporation with all such powers as may be reasonably incident to such responsibilities; he may agree upon and execute all leases, contracts, evidences of indebtedness and other obligations in the name of the Corporation and may sign all certificates for shares of capital stock of the Corporation; and he shall have such other powers and duties as designated in accordance with these Bylaws and as from time to time may be assigned to him by the Board of Directors.
Section 6. Powers and Duties of the Chairman of the Board. The Chairman of the Board (if any) shall preside at all meetings of the shareholders and of the Board of Directors; and the Chairman shall have such other powers and duties as designated in these Bylaws and as from time to time may be assigned to him by the Board of Directors.
Section 7. Powers and Duties of the President. Unless the Board of Directors otherwise determines, the President shall have the authority to agree upon and execute all leases, contracts, evidences of indebtedness and other obligations in the name of the Corporation; and, unless the Board of Directors otherwise determines, he shall, in the absence of the Chairman of the Board or if there be no Chairman of the Board, preside at all meetings of the shareholders and (should he be a director) of the Board of Directors; and the President shall have such other powers and duties as designated in accordance with these Bylaws and as from time to time may be assigned to him by the Board of Directors.
Section 8. Vice Presidents. The Vice President(s), if any, shall perform such duties and have such powers as the Board of Directors may from time to time prescribe. In addition, in the absence of the Chairman of the Board (if any) or President, or in the event of their inability or refusal to act, (i) a Vice President designated by the Board of Directors or (ii) in the absence of such designation, the Vice President who is present and who is senior in terms of time as a Vice President of the Corporation, shall perform the duties of the Chairman of the Board (if any), or the President, as the case may be, and when so acting shall have all the powers of and be subject to all the restrictions upon the Chairman of the Board (if any), or the President; provided that he shall not preside at meetings of the Board of Directors unless he is a director.
Section 9. Treasurer. The Treasurer, if any, shall have responsibility for the custody and control of all the funds and securities of the Corporation, and he shall have such other powers and duties as designated in these Bylaws and as from time to time may be assigned to him by the Board of Directors. He shall perform all acts incident to the position of Treasurer subject to the control of the chief executive officer and the Board of Directors; and the Treasurer shall, if required by the Board of
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Directors, give such bond for the faithful discharge of his duties in such form as the Board of Directors may require.
Section 10. Assistant Treasurers. Each Assistant Treasurer, if any, shall have the usual powers and duties pertaining to his office, together with such other powers and duties as designated in these Bylaws and as from time to time may be assigned to him by the chief executive officer or the Board of Directors or the Treasurer. The Assistant Treasurers shall exercise the powers of the Treasurer during that officer’s absence or inability or refusal to act.
Section 11. Secretary. The Secretary shall keep the minutes of all meetings of the Board of Directors, and the minutes of all meetings of the shareholders, in books provide d for that purpose; he shall attend to the giving and serving of all notices; he may in the name of the Corporation affix the seal (if any) of the Corporation to all contracts of the Corporation and attest thereto; he may sign with the other appointed officers all certificates for shares of capital stock of the Corporation; he shall have charge of the certificate books, transfer books and stock ledgers, and such other books and papers as the Board of Directors may direct, all of which shall at all reasonable times be open to inspection of any director upon application at the office of the Corporation during business hours; he shall have such other powers and duties as designated in these Bylaws and as from time to time may be assigned to him by the chief executive officer or the Board of Directors; and he shall in general perform all duties incident to the office of Secretary, subject to the control of the chief executive officer and the Board of Directors.
Section 12. Assistant Secretaries. Each Assistant Secretary, if any, shall have the usual powers and duties pertaining to his office, together with such other powers and duties as designated in these Bylaws and as from time to time may be assigned to him by the chief executive officer or the Board of Directors or the Secretary. The Assistant Secretaries shall exercise the powers of the Secretary during that officer’s absence or inability or refusal to act.
Section 13. Action With Respect to Securities of Other Corporations. Unless otherwise directed by the Board of Directors, each of the chief executive officer and the Treasurer (if any), or either of them, shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of shareholders of or with respect to any action of shareholders of any other corporation in which this Corporation may hold securities and otherwise to exercise any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other corporation.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. Right to Indemnification. Subject to the limitations and conditions as provided in this Article VI, the Corporation shall indemnify and hold harmless the directors and officers of the Corporation (each, an “Indemnified Person”) to the fullest extent permitted by law from and against any and all losses, claims, demands, costs, damages, liabilities, joint or several, expenses of any nature (including reasonable attorneys’ fees and disbursements), judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, whether civil, criminal, administrative or investigative, in which the Indemnified Person may be involved or threatened to be involved, as a party or otherwise, arising out of or incidental to the business or activities of or relating to the Corporation regardless of whether the Indemnified Person continues to be a director or officer at
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the time any such liability or expense is paid or incurred. The indemnification provided in this Article VI may not be made to or on behalf of any director or officer if a final adjudication establishes that the Indemnified Person’s acts or omissions involved intentional misconduct, fraud or a knowing violation of the law and indemnification under this Article VI shall continue as to a person who has ceased to serve in the capacity which initially entitled such person to indemnity hereunder. The rights granted pursuant to this Article VI shall be deemed contract rights, and no amendment, modification or repeal of this Article VI shall have the effect of limiting or denying any such rights with respect to actions taken or proceedings arising prior to any such amendment, modification or repeal. It is expressly acknowledged that the indemnification provided in this Article VI could involve indemnification for negligence or under theories of strict liability.
Section 2. Advance Payment. The right to indemnification conferred in this Article VI shall include the right to be paid or reimbursed by the Corporation the reasonable expenses incurred by a person of the type entitled to be indemnified under Section 1 who was, is or is threatened to be made a named defendant or respondent in a proceeding in advance of the final disposition of the proceeding and without any determination as to the person’s ultimate entitlement to indemnification; provided, however, that the payment of such expenses incurred by any such person in advance of the final disposition of a proceeding, shall be made only upon delivery to the Corporation of a written affirmation by such director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification under this Article VI and a written undertaking, by or on behalf of such person, to repay all amounts so advanced if it shall ultimately be determined that such Indemnified Person is not entitled to be indemnified under this Article VI or otherwise.
Section 3. Appearance as a Witness. Notwithstanding any other provision of this Article VI, the Corporation may pay or reimburse expenses incurred by a director or officer in connection with his or her appearance as a witness or other participation in a proceeding at a time when he or she is not a named defendant or respondent in the proceeding.
Section 4. Nonexclusivity of Rights. The right to indemnification and the advancement and payment of expenses conferred in this Article VI shall not be exclusive of any other right which a director or officer may have or hereafter acquire under any law (common or statutory), provision of the Articles of Incorporation of the Corporation or these Bylaws, agreement, vote of shareholders or disinterested directors or otherwise.
Section 5. Insurance. The Corporation may purchase and maintain insurance, at its expense, to protect itself and any person who is or was serving as a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another foreign or domestic corporation, partnership, joint venture, proprietorship, employee benefit plan, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under this Article VI.
Section 6. Shareholder Notification. To the extent required by law, any indemnification of or advance of expenses to a director or officer in accordance with this Article VI shall be reported in writing to the shareholders with or before the notice or waiver of notice of the next shareholders’ meeting or with or before the next submission to shareholders of a consent to action without a meeting and, in any case, within the 12-month period immediately following the date of the indemnification or advance.
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Section 7. Savings Clause. If this Article VI or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify and hold harmless each director, officer or any other person indemnified pursuant to this Article VI as to costs, charges and expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative to the fullest extent permitted by any applicable portion of this Article VI that shall not have been invalidated and to the fullest extent permitted by applicable law.
ARTICLE VII
CAPITAL STOCK
Section 1. Certificates of Stock; Uncertificated Stock. The shares of the Corporation’s capital stock may be certificated or uncertificated, as provided under the Texas Business Organizations Code, and shall be entered in the books of the Corporation and registered as they are issued. The Corporation shall be entitled to treat the holder of record of any shares of the Corporation as the owner thereof for all purposes, and shall not be bound to recognize any equitable or other claim to, or interest in, such shares or any rights deriving from such shares, on the part of any other person, unless and until such other person becomes the holder of record of such shares, whether or not the Corporation shall have either actual or constructive notice of the interest of such other person. The stock record books and the blank stock certificate books shall be kept by the Secretary, or at the office of such transfer agent or transfer agents as the Board of Directors may from time to time by resolution determine.
Any certificates representing shares of capital stock of the Corporation shall be in such form as the Board of Directors shall prescribe, certifying the number and class of shares of the stock of the Corporation owned by the shareholder. Any such certificates shall be signed by the Chairman of the Board (if any), President or a Vice President (if any) and the Secretary or an Assistant Secretary (if any) or the Treasurer or an Assistant Treasurer (if any) certifying the number of shares (and, if the stock of the Corporation shall be divided into classes or series, the class and series of such shares) owned by such shareholder in the Corporation; provided, however, that any of or all the signatures on the certificate may be facsimile. If the Board of Directors shall have provided for a seal, such certificates shall bear such seal or a facsimile thereof. In case any officer, transfer agent or registrar who shall have signed or whose facsimile signature or signatures shall have been placed upon any such certificate or certificates shall have ceased to be such officer, transfer agent or registrar before such certificate is issued by the Corporation, such certificate may nevertheless be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. The stock certificates shall be consecutively numbered and shall be entered in the books of the Corporation as they are issued and shall exhibit the holder’s name and number of shares. Each certificate shall conspicuously bear any legend required pursuant to the Texas Business Organizations Code, as well as any other legend required by law.
Within a reasonable time after the issuance or transfer of uncertificated stock, the Corporation shall send, or cause the transfer agent of the Corporation to send, to the registered owner thereof a written notice that shall set forth any information required by Section 3.205 of the Texas Business Organizations Code.
Section 2. Transfer of Shares. The shares of stock of the Corporation, shall be transferable only on the books of the Corporation by the registered holders of certificated or uncertificated shares thereof
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in person or by their duly authorized attorneys or legal representatives, and in the case of certificated shares upon surrender and cancellation of certificates, for a like number of shares (or upon compliance with the provisions of Section 5 of this Article VII, if applicable). Upon such surrender to the Corporation or a transfer agent of the Corporation of a certificate for shares duly endorsed, or in respect of uncertificated shares, upon the written instruction originated by the appropriate person to transfer the shares, in each case, accompanied by proper evidence of succession, assignment or authority to transfer (or upon compliance with the provisions of Section 5 of this Article VII, if applicable) and of compliance with any transfer restrictions applicable thereto contained in an agreement to which the Corporation is a party or of which the Corporation has knowledge by reason of legend with respect thereto placed an any such surrendered stock certificate or by such other notice given in compliance with the Texas Business Organizations Code, it shall be the duty of the corporation to issue a new certificate or evidence of the issuance of uncertificated shares to the person entitled thereto, cancel the old certificate (with respect to certificated shares) and record the transaction upon its books.
Section 3. Ownership of Shares. The Corporation shall be entitled to treat the holder of record of any share or shares of capital stock of the Corporation as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law.
Section 4. Regulations Regarding Certificates. The Board of Directors shall have the power and authority to make all such rules and regulations as they may deem expedient concerning the issue, transfer and registration of certificated or uncertificated shares of capital stock of the Corporation, including the replacement of certificates evidencing such capital stock.
Section 5. Lost, Stolen, Destroyed or Mutilated Certificates. The Board of Directors may determine the conditions upon which a new certificate of stock may be issued in place of a certificate that is alleged to have been lost, stolen, destroyed or mutilated; and may, in its discretion, require the owner of such certificate or his legal representative to give bond, with sufficient surety, to indemnify the Corporation and each transfer agent and registrar against any and all losses or claims which may arise by reason of the issuance of a new certificate in the place of the one so lost, stolen, destroyed or mutilated.
ARTICLE VIII
FORUM FOR ADJUDICATION OF DISPUTES
Section 1. Forum for Adjudication of Disputes. To the fullest extent permitted by law and subject to applicable jurisdictional requirements, and unless the Corporation consents in writing to the selection of an alternative forum, the United States District Court for the Southern District of Texas or, if such court lacks jurisdiction, the state district court of Harris County, Texas, shall be the sole and exclusive forum for (i) any derivative action or proceeding brought in the name or right of the Corporation or on its behalf; (ii) any action asserting a claim for breach of a fiduciary duty owed by any director, officer, employee or other agent of the Corporation to the Corporation or the Corporation’s shareholders; (iii) any action arising or asserting a claim arising pursuant to any provision of the Articles of Incorporation or these Bylaws (as either may be amended from time to time) or the Texas Business Organizations Code; or (iv) any action asserting a claim governed by the internal affairs doctrine, including, without limitation, any action to interpret, apply, enforce or determine the validity of the Articles of Incorporation or these Bylaws.
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Section 2. Consent to Jurisdiction. If any action the subject matter of which is within the scope of this Article VIII is filed in a court other than United States District Court for the Southern District of Texas (or if such court lacks jurisdiction, the state district court of Harris County, Texas) (a “foreign action”) by any current or former shareholder (including any current or former beneficial owner), such shareholder shall be deemed to have consented to: (a) the personal jurisdiction of the United States District Court for the Southern District of Texas (or if such court lacks jurisdiction, the state district court of Harris County, Texas) in connection with any action brought in any such court to enforce this Article VIII; and (b) having service of process made upon such shareholder in any such action by service upon such shareholder’s counsel in the foreign action as agent for such shareholder. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Article VIII.
Section 3. Enforceability. If any provision of this Article VIII shall be held to be invalid, illegal, or unenforceable as applied to any person or entity or circumstance for any reason whatsoever, then, to the fullest extent permitted by law, the validity, legality, and enforceability of such provision in any other circumstance and of the remaining provisions of this Article VIII (including, without limitation, each portion of any sentence of this Article VIII containing any such provision held to be invalid, illegal, or unenforceable that is not itself held to be invalid, illegal, or unenforceable) and the application of such provision to other persons or entities or circumstances shall not in any way be affected or impaired thereby.
ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 1. Fiscal Year. The fiscal year of the Corporation shall be such as established from time to time by the Board of Directors.
Section 2. Corporate Seal. The Board of Directors may provide a suitable seal, containing the name of the Corporation. The Secretary shall have charge of the seal (if any). If and when so directed by the Board of Directors, duplicates of the seal may be kept and used by the Treasurer, if any, or by any Assistant Secretary or Assistant Treasurer.
Section 3. Notice and Waiver of Notice. Whenever any notice is required to be given by law, the Articles of Incorporation or these Bylaws, except with respect to notices of meetings of shareholders (with respect to which the provisions of Article II, Section 6 apply) and except with respect to notices of special meetings of directors (with respect to which the provisions of Article III, Section 6 apply), said notice shall be deemed to be sufficient if given (a) by telegraphic, cable, wireless or electronic transmission or (b) by deposit of same in a post office box in a sealed prepaid wrapper addressed to the person entitled thereto at his address as it appears on the records of the Corporation, and such notice shall be deemed to have been given on the day of such transmission or mailing, as the case may be.
Whenever notice is required to be given by law, the Articles of Incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice.
Section 4. Resignations. Any director, member of a committee or officer may resign at any time. Such resignation shall be made in writing and shall take effect at the time specified therein, or if no time
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be specified, at the time of its receipt by the chief executive officer or secretary. The acceptance of a resignation shall not be necessary to make it effective, unless expressly so provided in the resignation.
Section 5. Facsimile Signatures. In addition to the provisions for the use of facsimile signatures elsewhere specifically authorized in these Bylaws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors.
Section 6. Books and Records. The Corporation shall keep correct and complete books and records of account and shall keep minutes of the proceedings of its shareholders and Board of Directors and shall keep at its registered office or principal place of business, or at the office of its transfer agent or registrar, a record of its shareholders, giving the names and addresses of all shareholders and the number and class of the shares held by each. Any books, records and minutes may be in written form or in any other form capable of being converted into written form within a reasonable time.
Section 7. Reliance Upon Books, Reports and Records. Neither a director nor a member of any committee of directors shall be liable if, in the exercise of ordinary care, he relied and acted in good faith (a) upon financial statements or other information of the Corporation represented to him to be correct in all material respects by the President or by the officer of the Corporation having charge of its books of account, or reported by an independent public or certified public accountant or firm of such accountants to present fairly the financial position of the Corporation, or (b) upon the written opinion of an attorney for the Corporation; nor shall he be so liable if, in the exercise of ordinary care and in good faith, in voting for or assenting to a distribution by the Corporation, he considered the assets of the Corporation to be of their book value.
Section 8. Action Without a Meeting or by Telephone Conference Meeting. Any action permitted or required by law, the Articles of Incorporation or these Bylaws, to be taken at a meeting of the shareholders, the Board of Directors or any committee designated by the Board of Directors may be taken without a meeting if a consent in writing, setting forth the action to be taken is signed by all the shareholders or members of the Board of Directors or committee, as the case may be. Such consent shall have the same force and effect as a unanimous vote at a meeting and may be stated as such in any document or instrument filed with the Secretary of State, and the execution of such consent shall constitute attendance or presence in person at a meeting of shareholders, the Board of Directors or any such committee, as the case may be. Subject to the requirements by law, the Articles of Incorporation or these Bylaws for notice of meetings, unless otherwise restricted by the Articles of Incorporation, members of the Board of Directors, or members of any committee designated by the Board of Directors, may participate in and hold a meeting of such Board of Directors or any committee of directors, as the case may be, by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in such meeting shall constitute attendance and presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.
ARTICLE X
AMENDMENTS
The Board of Directors may amend or repeal the Corporation’s bylaws, or adopt new bylaws, unless: (a) the Articles of Incorporation or the Texas Business Organizations Code reserves the power
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exclusively to the shareholders in whole or part; or (b) the shareholders, in amending, repealing or adopting a particular bylaw, expressly provide that the Board of Directors may not amend or repeal that bylaw.
Unless the Articles of Incorporation or a bylaw adopted by the shareholders provides otherwise as to all or some portion of the Corporation’s bylaws, the Corporation’s shareholders may amend, repeal or adopt the Corporation’s bylaws even though the bylaws may also be amended, repealed or adopted by the Board of Directors.
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Exhibit 10.1
W&T OFFSHORE, INC.
AMENDED AND RESTATED INCENTIVE COMPENSATION PLAN
RESTRICTED STOCK UNIT GRANT NOTICE
(Service-based Vesting)
Pursuant to the terms and conditions of the W&T Offshore, Inc. Amended and Restated Incentive Compensation Plan, as amended from time to time (the “Plan”), W&T Offshore, Inc. (the “Company”) hereby grants to the individual listed below (“you” or the “Participant”) the number of Restricted Stock Units (the “RSUs”) and a Cash Award (the “Cash Award”) set forth below. This award of RSUs and the Cash Award (this “Award”) is subject to the terms and conditions set forth herein and in the Restricted Stock Unit Agreement attached hereto as Exhibit A (the “Agreement”) and the Plan, each of which is incorporated herein by reference. Capitalized terms used but not defined herein shall have the meanings set forth in the Plan.
Participant: | |
Date of Grant: | |
Total Number of Restricted Stock Units: | |
Total Amount of Cash Award: | |
Vesting Commencement Date: | |
Vesting Schedule: | Subject to Section 3(b) and Section 3(c) of the Agreement, the Plan and the other terms and conditions set forth herein, the Award shall vest and become exercisable according to the following schedule: [insert vesting schedule]. For the avoidance of doubt, the Cash Award will be paid if, as and when the RSUs vest under this Agreement and the Plan. |
The Award described above is equal to ____% of your Base Salary (defined within the Agreement). The RSUs included in the Award are based on the strike price set by the Company for [insert award year]. To the extent you commenced employment after the beginning of the initial performance period, the Award has been adjusted to reflect that fact.
By your signature below, you agree to be bound by the terms and conditions of the Plan, the Agreement and this Restricted Stock Unit Grant Notice (this “Grant Notice”).You acknowledge that you have reviewed the Agreement, the Plan and this Grant Notice in their entirety and fully understand all provisions of the Agreement, the Plan and this Grant Notice. You hereby agree to accept as binding, conclusive and final all decisions or interpretations of the Committee regarding any questions or determinations that arise under the Agreement, the Plan or this Grant Notice. This Grant Notice may be executed in one or more counterparts (including
portable document format (.pdf) and facsimile counterparts), each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement.
[Signature Page Follows]
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IN WITNESS WHEREOF, the Company has caused this Grant Notice to be executed by an officer thereunto duly authorized, and the Participant has executed this Grant Notice, effective for all purposes as provided above.
W&T OFFSHORE, INC.
By:
Name:
Title:
PARTICIPANT
Name:
SIGNATURE PAGE TO
RESTRICTED STOCK UNIT GRANT NOTICE
EXHIBIT A
RESTRICTED STOCK UNIT AGREEMENT
This Restricted Stock Unit Agreement (together with the Grant Notice to which this Agreement is attached, this “Agreement”) is made as of the Date of Grant set forth in the Grant Notice to which this Agreement is attached by and between W&T Offshore, Inc., a Texas corporation (the “Company”), and ____________________ (“you” or the “Participant”). Capitalized terms used but not specifically defined herein shall have the meanings specified in the Plan or the Grant Notice.
Exhibit A-1
A-2
A-3
pursuant to this Award), other property, or any other legal consideration the Committee deems appropriate. If such tax obligations are satisfied through net settlement or the surrender of previously owned Stock, the maximum number of shares of Stock that may be so withheld (or surrendered) shall be the number of shares of Stock that have an aggregate Fair Market Value on the date of withholding or surrender equal to the aggregate amount of such tax liabilities determined based on the greatest withholding rates for federal, state, local and/or foreign tax purposes, including payroll taxes, that may be utilized without creating adverse accounting treatment for the Company with respect to this Award, as determined by the Committee. The Participant acknowledges that there may be adverse tax consequences upon the receipt, vesting or settlement of this Award or disposition of the underlying shares and that the Participant has been advised, and hereby is advised, to consult a tax advisor. The Participant represents that the Participant is in no manner relying on the Board, the Committee, the Company or an Affiliate or any of their respective managers, directors, officers, employees or authorized representatives (including, without limitation, attorneys, accountants, consultants, bankers, lenders, prospective lenders and financial representatives) for tax advice or an assessment of such tax consequences.
A-4
A-5
If to the Company, unless otherwise designated by the Company in a written notice to the Participant (or other holder):
Attn: Vice President and General Counsel
5718 Westheimer Rd., Suite 700
Houston, Texas 77057
If to the Participant, at the Participant’s last known address on filed with the Company.
Any notice that is delivered personally or by overnight courier or telecopier in the manner provided herein shall be deemed to have been duly given to the Participant when it is mailed by the Company or, if such notice is not mailed to the Participant, upon receipt by the Participant. Any notice that is addressed and mailed in the manner herein provided shall be conclusively presumed to have been given to the party to whom it is addressed at the close of business, local time of the recipient, on the fourth day after the day it is so placed in the mail.
A-6
A-7
and interpreted in accordance with such intent. Nevertheless, to the extent that the Committee determines that the Award may not be exempt from the Nonqualified Deferred Compensation Rules, then, if the Participant is deemed to be a “specified employee” within the meaning of the Nonqualified Deferred Compensation Rules, as determined by the Committee, at a time when the Participant becomes eligible for settlement of the Award upon his “separation from service” within the meaning of the Nonqualified Deferred Compensation Rules, then to the extent necessary to prevent any accelerated or additional tax under the Nonqualified Deferred Compensation Rules, such settlement will be delayed until the earlier of: (a) the date that is six months following the Participant’s separation from service and (b) the Participant’s death. Notwithstanding the foregoing, the Company and its Affiliates make no representations that the Award provided under this Agreement is exempt from or compliant with the Nonqualified Deferred Compensation Rules and in no event shall the Company or any Affiliate be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by the Participant on account of non-compliance with the Nonqualified Deferred Compensation Rules.
A-8
Exhibit 10.2
W&T OFFSHORE, INC.
AMENDED AND RESTATED INCENTIVE COMPENSATION PLAN
RESTRICTED STOCK UNIT GRANT NOTICE
(Performance Vesting)
Pursuant to the terms and conditions of the W&T Offshore, Inc. Amended and Restated Incentive Compensation Plan, as amended from time to time (the “Plan”), W&T Offshore, Inc. (the “Company”) hereby grants to the individual listed below (“you” or the “Participant”) the number of performance-based restricted stock units (the “PSUs”) and a Cash Award (the “Cash Award”) set forth below. This award of PSUs and the Cash Award (this “Award”) is subject to the terms and conditions set forth herein and in the Restricted Stock Unit Agreement attached hereto as Exhibit A (the “Agreement”) and the Plan, each of which is incorporated herein by reference. Capitalized terms used but not defined herein shall have the meanings set forth in the Plan.
Participant: | _____________________ |
Date of Grant: | _____________________ |
Award Type and Description: | The PSU is a Restricted Stock Unit Award granted as a Performance Award pursuant to Sections 6 and 8 of the Plan. This Award represents the right to receive shares of Stock in an amount up to 200% of the Target PSUs (defined below), subject to the terms and conditions set forth herein and in the Agreement. The Cash Award is a target cash value granted to you, which may be settled in an amount up to 200% of the Target Cash Award (defined below), subject to the terms and conditions set forth herein and in the Agreement. The number of Target PSUs and the Target Cash Award amount shall be referred to in the aggregate as the “Target Award.” Your right to receive settlement of this Award in an amount ranging from 0% to 200% of the Target Award shall vest and become earned and nonforfeitable upon (i) your satisfaction of the continued employment or service requirements described below under “Service Requirement” and (ii) the Committee’s certification of the level of achievement of the Performance Goal (defined below) (“Earned PSUs” or “Earned Cash Awards,” as applicable, or in the aggregate the “Earned Award”). The portion of the Target PSUs actually earned upon satisfaction of both of the foregoing requirements is referred to herein as the “Vested PSUs.” The portion of the Target Cash Award actually earned upon satisfaction of both of the foregoing requirements is referred to herein as the “Vested Cash Award.” The Vested PSUs and the Vested Cash Award shall be referred to in the aggregate as the “Vested Award.” |
Target Number of PSUs: | _____________________ (the “Target PSUs”). |
Target Value of Cash Award: | _____________________ (the “Target Cash Award”). |
Performance Period: | [Insert period beginning on the Performance Period Commencement Date and ending on the Performance Period End Date] |
Service Requirement: | Except as expressly provided in Sections 4 and 5 of the Agreement, you must remain continuously employed by, or continuously provide services to, the Company or an Affiliate, as applicable, from the Date of Grant through [insert Service Vesting Date] (the “Service Vesting Date”) to be eligible to receive payment of this Award, which is also based on the level of achievement with respect to the Performance Goal (as defined below). |
Performance Goal: | Subject to the terms and conditions set forth in the Plan, the Agreement and herein, the number of Target PSUs, if any, that become Earned PSUs during the Performance Period will be determined in accordance with the following table: Level of Achievement Percentage of Target PSUs Earned* < Threshold 0% Threshold [insert %] Target [insert %] Maximum [insert %] *The percentage of Target PSUs that become Earned PSUs for performance between the threshold, target and maximum achievement levels shall be calculated using linear interpolation. The Target Cash Award shall be subject to the same table set forth above for the Target PSUs, and will vest, if at all, at the same percentage as applicable to any Earned PSUs. The “Performance Goal” for the Performance Period is based on the [insert performance goal description] as described in Exhibit B attached hereto. |
Settlement: | Settlement of the Vested PSUs and the Vested Cash Award shall be made in shares of Stock, cash, or a combination of Stock and cash, in accordance with Section 6 of the Agreement. |
The Target Award described above is equal to ____% of your Base Salary (defined within the Agreement). The Target PSUs included in the Award are based on the strike price set by the
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Company for [insert grant year]. To the extent you commenced employment after the beginning of the initial performance period, the Award has been adjusted to reflect that fact.
By your signature below, you agree to be bound by the terms and conditions of the Plan, the Agreement and this Restricted Stock Unit Grant Notice (this “Grant Notice”). You acknowledge that you have reviewed the Agreement, the Plan and this Grant Notice in their entirety and fully understand all provisions of the Agreement, the Plan and this Grant Notice. You hereby agree to accept as binding, conclusive and final all decisions or interpretations of the Committee regarding any questions or determinations that arise under the Agreement, the Plan or this Grant Notice. This Grant Notice may be executed in one or more counterparts (including portable document format (.pdf) and facsimile counterparts), each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement.
[Signature Page Follows]
3
IN WITNESS WHEREOF, the Company has caused this Grant Notice to be executed by an officer thereunto duly authorized, and the Participant has executed this Grant Notice, effective for all purposes as provided above.
W&T OFFSHORE, INC.
By:
Name:
Title:
PARTICIPANT
Name:
SIGNATURE PAGE TO
RESTRICTED STOCK UNIT GRANT NOTICE
EXHIBIT A
RESTRICTED STOCK UNIT AGREEMENT
This Restricted Stock Unit Agreement (together with the Grant Notice to which this Agreement is attached, this “Agreement”) is made as of the Date of Grant set forth in the Grant Notice to which this Agreement is attached by and between W&T Offshore, Inc., a Texas corporation (the “Company”), and _________ (the “Participant”). Capitalized terms used but not specifically defined herein shall have the meanings specified in the Plan or the Grant Notice.
Exhibit A-1
incorporated herein by reference as a part of this Agreement. In the event of any inconsistency between the Plan and this Agreement (including, for the avoidance of doubt, with respect of the subject matter covered in Section 5), the terms of the Plan shall control. To the extent vested, each PSU represents the right to receive one share of Stock, or the cash equivalent thereof, subject to the terms and conditions set forth in the Grant Notice, this Agreement and the Plan; provided, however, that, depending on the level of performance determined to be attained with respect to the Performance Goal, the number of shares of Stock that may be earned hereunder in respect of the PSUs may range from 0% to [insert maximum goal %] of the Target PSUs. The Cash Award may also range from 0% to [insert maximum goal %] of the Target Cash Award, and the Company shall settle the Cash Award in the form of cash or Stock. Unless and until the Award has become vested in the manner set forth in the Grant Notice, the Participant will have no right to receive any Stock or other payments in respect of the Award. Prior to settlement of this Award, this Award represents an unsecured obligation of the Company, payable only from the general assets of the Company.
A-2
Affiliate for any reason, any unearned Award (and all rights arising from such Award and from being a holder thereof) will terminate automatically without any further action by the Company and will be forfeited without further notice and at no cost to the Company.
A-3
the event that any fractional PSU becomes earned hereunder, that PSU shall be rounded down at the time of settlement of such PSU. No fractional shares of Stock, nor the cash value of any fractional shares of Stock, shall be issuable or payable to the Participant pursuant to this Agreement. All shares of Stock, if any, issued hereunder shall be delivered either by delivering one or more certificates for such shares to the Participant or by entering such shares in book-entry form, as determined by the Committee in its sole discretion. The value of shares of Stock shall not bear any interest owing to the passage of time. Neither this Section 6 nor any action taken pursuant to or in accordance with this Agreement shall be construed to create a trust or a funded or secured obligation of any kind.
A-4
involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence.
A-5
form as it shall determine appropriate; provided, however, that any review period under such release will not modify the date of settlement with respect to Vested Award.
If to the Company, unless otherwise designated by the Company in a written notice to the Participant (or other holder):
W&T Offshore, Inc.
Attn: Vice President and General Counsel
5718 Westheimer, Suite 700
Houston, Texas 77057
If to the Participant, at the Participant’s last known address on filed with the Company.
Any notice that is delivered personally or by overnight courier or telecopier in the manner provided herein shall be deemed to have been duly given to the Participant when it is mailed by the Company or, if such notice is not mailed to the Participant, upon receipt by the Participant. Any notice that is addressed and mailed in the manner herein provided shall be conclusively presumed to have been given to the party to whom it is addressed at the close of business, local time of the recipient, on the fourth day after the day it is so placed in the mail.
A-6
A-7
A-8
EXHIBIT B
PERFORMANCE GOAL FOR AWARD
[Insert description or formula for performance goal applicable to Award]
B-3
Exhibit 10.3
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this “Agreement”) is entered into as of (the “Effective Date”) by and between W&T Offshore, Inc., a Texas corporation (the “Company”), and (the “Indemnitee”).
RECITALS
WHEREAS, the Board of Directors of the Company (the “Board”) has determined that the inability to attract and retain qualified persons as directors and officers of the Company is detrimental to the best interests of the Company’s shareholders and that the Company should act to assure such persons that there shall be adequate certainty of protection through insurance and indemnification against risks of claims and actions against them arising out of their service to and activities on behalf of the Company;
WHEREAS, the Company has adopted provisions in its Amended and Restated Articles of Incorporation (as amended and/or restated from time to time, the “Articles of Incorporation”) and Third Amended and Restated Bylaws (as amended and/or restated from time to time, the “Bylaws”) providing for indemnification and advancement of expenses of its directors (and in the case of the Bylaws, its directors and officers) to the fullest extent permitted by law, and the Company wishes to clarify and enhance the rights and obligations of the Company and the Indemnitee with respect to indemnification and advancement of expenses;
WHEREAS, in order to induce and encourage highly experienced and capable persons such as the Indemnitee to serve and continue to serve as directors and officers of the Company and in any other capacity with respect to the Company as the Company may request, and to otherwise promote the desirable end that such persons shall resist what they consider unjustified lawsuits and claims made against them in connection with the good faith performance of their duties to the Company, with the knowledge that certain costs, judgments, penalties, fines, liabilities, and expenses incurred by them in their defense of such litigation are to be borne by the Company and they shall receive appropriate protection against such risks and liabilities, the Board has determined that the following Agreement is reasonable and prudent to promote and ensure the best interests of the Company and its shareholders; and
WHEREAS, the Company desires to have the Indemnitee serve or continue to serve as a director or officer of the Company and in any other capacity with respect to the Company as the Company may request, as the case may be, free from undue concern for unpredictable, inappropriate, or unreasonable legal risks and personal liabilities by reason of the Indemnitee acting in good faith in the performance of the Indemnitee’s duty to the Company; and the Indemnitee desires to continue so to serve the Company, provided, and on the express condition, that he or she is furnished with the protections set forth hereinafter.
AGREEMENT
NOW, THEREFORE, in consideration of the Indemnitee’s continued service as a director or officer of the Company, the parties hereto agree as follows, effective as of the original
date on which Indemnitee begins or began his or her service as a director or officer of the Company:
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3
4
5
6
7
8
9
10
[The remainder of this page is intentionally left blank.]
11
IN WITNESS WHEREOF, the Company and the Indemnitee have caused this Agreement to be executed as of the date first written above.
Indemnitee
Signature
Name:
Signature Page to Indemnification Agreement
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Tracy W. Krohn, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of W&T Offshore, Inc. (the “registrant”); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 8, 2022 |
| /s/ Tracy W. Krohn |
| | Tracy W. Krohn |
| | Chairman, Chief Executive Officer, President and Director |
| | (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Janet Yang, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of W&T Offshore, Inc. (the “registrant”); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 8, 2022 | /s/ Janet Yang |
| Janet Yang |
| Executive Vice President and Chief Financial Officer |
| (Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of W&T Offshore, Inc. (the “Company”), hereby certifies, to the best of his or her knowledge, that the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2022 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that information contained in such Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 8, 2022 |
| /s/ Tracy Krohn |
| | Tracy W. Krohn |
| | Chairman, Chief Executive Officer, President and Director |
| | (Principal Executive Officer) |
Date: August 8, 2022 |
| /s/ Janet Yang |
| | Janet Yang |
| | Executive Vice President and Chief Financial Officer |
| | (Principal Financial and Accounting Officer) |
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