Table of Contents



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


Form 10-Q


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

For the quarterly period ended June 30, 20202021

or

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

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

For the transition period from _______________ to ________________

Commission File Number 1-32414


W&T OFFSHORE, INC.INC.

(Exact name of registrant as specified in its charter)


Texas

72-1121985

(State of incorporation)

(IRS Employer Identification Number)

Nine Greenway Plaza, Suite 300, Houston, Texas

77046-0908

5718 Westheimer Road, Suite 700, Houston, Texas

77057-5745

(Address of principal executive offices)

(Zip Code)

(713) 626-8525

(713) 626-8525

(Registrant’s telephone number, including area code)


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

Indicate by check mark whether the registrant has submitted electronically every interactive data file required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes      No  

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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.

Securities registered pursuant to section 12(b) of the Act:

Securities registered pursuant to section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.00001

WTI

New York Stock Exchange

New York Stock Exchange

As of August 4, 2020, July 31, 2021 there were 141,668,942142,367,242 shares outstanding of the registrant’s common stock, par value $0.00001.




Table of Contents

W&T OFFSHORE, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

 

Page

PART I –FINANCIAL INFORMATION

1

Item 1.

Financial Statements

1

Condensed Consolidated Balance Sheets as of June 30, 20202021 and December 31, 20192020

1

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 20202021 and 20192020

2

Condensed Consolidated Statements of Changes in Shareholders’ Deficit for the Three and Six Months Ended June 30, 20202021 and 20192020

3

Condensed Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30, 20202021 and 20192020

4

Notes to Condensed Consolidated Financial Statements

5

Item 2.

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

22

23

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

37

Item 4.

Controls and Procedures

37

PART II – OTHER INFORMATION

38

Item 1.

Legal Proceedings

38

Item 1A.

Risk Factors

38

Item 6.

Exhibits

39

SIGNATURE

40

41

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, 

    

2021

    

2020

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

209,148

$

43,726

Receivables:

 

  

 

  

Oil and natural gas sales

 

50,220

 

38,830

Joint interest, net

 

11,750

 

10,840

Total receivables

 

61,970

 

49,670

Prepaid expenses and other assets (Note 1)

 

30,705

 

13,832

Total current assets

 

301,823

 

107,228

Oil and natural gas properties and other, net (Note 1)

 

657,657

 

686,878

Restricted deposits for asset retirement obligations

 

29,820

 

29,675

Deferred income taxes

 

107,337

 

94,331

Other assets (Note 1)

 

42,395

 

22,470

Total assets

$

1,139,032

$

940,582

Liabilities and Shareholders’ Deficit

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

54,624

$

48,612

Undistributed oil and natural gas proceeds

 

28,688

 

19,167

Asset retirement obligations

 

23,888

 

17,188

Accrued liabilities (Note 1)

 

100,363

 

29,880

Current portion of long-term debt

36,771

Income tax payable

 

63

 

153

Total current liabilities

 

244,397

 

115,000

Long-term debt (Note 2)

 

  

 

  

Principal

 

730,689

 

632,460

Unamortized debt issuance costs

 

(12,773)

 

(7,174)

Long-term debt, net

 

717,916

 

625,286

Asset retirement obligations, less current portion

 

380,115

 

375,516

Other liabilities (Note 1)

 

56,259

 

32,938

Deferred income taxes

 

128

 

128

Commitments and contingencies (Note 11)

 

 

Shareholders’ deficit:

 

  

 

  

Preferred stock, $0.00001 par value; 20,000 shares authorized; 0 issued at June 30, 2021 and December 31, 2020

 

 

Common stock, $0.00001 par value; 200,000 shares authorized; 145,236 issued and 142,367 outstanding at June 30, 2021; 145,174 issued and 142,305 outstanding at December 31, 2020

 

1

 

1

Additional paid-in capital

 

551,260

 

550,339

Retained deficit

 

(786,877)

 

(734,459)

Treasury stock, at cost; 2,869 shares at June 30, 2021 and December 31, 2020

 

(24,167)

 

(24,167)

Total shareholders’ deficit

 

(259,783)

 

(208,286)

Total liabilities and shareholders’ deficit

$

1,139,032

$

940,582

  

June 30,

  

December 31,

 
  

2020

  

2019

 

Assets

        

Current assets:

        

Cash and cash equivalents

 $36,506  $32,433 

Receivables:

        

Oil and natural gas sales

  22,383   57,367 

Joint interest and other, net

  14,657   19,400 

Income taxes

     1,861 

Total receivables

  37,040   78,628 

Prepaid expenses and other assets (Note 1)

  32,566   30,691 

Total current assets

  106,112   141,752 
         

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

  713,063   748,798 
         

Restricted deposits for asset retirement obligations

  29,912   15,806 

Deferred income taxes

  66,124   63,916 

Other assets (Note 1)

  27,535   33,447 

Total assets

 $942,746  $1,003,719 

Liabilities and Shareholders’ Deficit

        

Current liabilities:

        

Accounts payable

 $52,368  $102,344 

Undistributed oil and natural gas proceeds

  15,776   29,450 

Advance from joint interest partner

  11,129   5,279 

Asset retirement obligations

  12,506   21,991 

Accrued liabilities (Note 1)

  22,668   30,896 

Total current liabilities

  114,447   189,960 
         

Long-term debt: (Note 2)

        

Principal

  632,460   730,000 

Carrying value adjustments

  (8,238)  (10,467)

Long term debt - carrying value

  624,222   719,533 
         

Asset retirement obligations, less current portion

  362,301   333,603 

Other liabilities (Note 1)

  28,998   9,988 

Commitments and contingencies

      

Shareholders’ deficit:

        

Preferred stock, $0.00001 par value; 20,000 shares authorized; 0 issued for both periods

      

Common stock, $0.00001 par value; 200,000 shares authorized, 144,538 issued and 141,669 outstanding at both periods

  1   1 

Additional paid-in capital

  549,117   547,050 

Retained deficit

  (712,173)  (772,249)

Treasury stock, at cost; 2,869 shares for both dates presented

  (24,167)  (24,167)

Total shareholders’ deficit

  (187,222)  (249,365)

Total liabilities and shareholders’ deficit

 $942,746  $1,003,719 

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, 

    

2021

    

2020

    

2021

    

2020

Revenues:

 

  

 

  

 

  

 

  

Oil

$

88,013

$

30,645

$

166,153

$

115,295

NGLs

 

8,833

 

1,917

 

18,193

 

8,369

Natural gas

 

32,470

 

21,364

 

68,679

 

50,664

Other

 

3,512

 

1,315

 

5,451

 

5,041

Total revenues

 

132,828

 

55,241

 

258,476

 

179,369

Operating costs and expenses:

 

  

 

  

 

  

 

  

Lease operating expenses

 

47,552

 

28,313

 

89,909

 

83,088

Production taxes

 

1,956

 

1,143

 

3,952

 

2,059

Gathering and transportation

 

4,824

 

3,301

 

9,143

 

8,750

Depreciation, depletion, amortization and accretion

 

30,952

 

29,483

 

57,589

 

68,609

General and administrative expenses

 

13,986

 

5,628

 

24,698

 

19,591

Derivative loss (gain)

 

81,440

 

15,414

 

106,020

 

(46,498)

Total costs and expenses

 

180,710

 

83,282

 

291,311

 

135,599

Operating (loss) income

 

(47,882)

 

(28,041)

 

(32,835)

 

43,770

Interest expense, net

 

16,530

 

14,816

 

31,564

 

31,926

Gain on debt transactions

 

0

 

(28,968)

 

0

 

(47,469)

Other expense, net

 

 

751

 

963

 

1,474

(Loss) income before income taxes

 

(64,412)

 

(14,640)

 

(65,362)

 

57,839

Income tax benefit

 

(12,740)

 

(8,736)

 

(12,944)

 

(2,237)

Net (loss) income

$

(51,672)

$

(5,904)

$

(52,418)

$

60,076

Basic and diluted (loss) earnings per common share

$

(0.36)

$

(0.04)

$

(0.37)

$

0.42

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2020

  

2019

  

2020

  

2019

 

Revenues:

                

Oil

 $30,645  $109,195  $115,295  $195,898 

NGLs

  1,917   4,640   8,369   11,088 

Natural gas

  21,364   19,567   50,664   41,405 

Other

  1,315   1,299   5,041   2,390 

Total revenues

  55,241   134,701   179,369   250,781 

Operating costs and expenses:

                

Lease operating expenses

  28,313   40,341   83,088   83,797 

Production taxes

  1,143   317   2,059   733 

Gathering and transportation

  3,301   7,068   8,750   13,491 

Depreciation, depletion, amortization and accretion

  29,483   38,073   68,609   71,839 

General and administrative expenses

  5,628   13,328   19,591   27,437 

Derivative loss (gain)

  15,414   (1,805)  (46,498)  47,081 

Total costs and expenses

  83,282   97,322   135,599   244,378 

Operating (loss) income

  (28,041)  37,379   43,770   6,403 

Interest expense, net

  14,816   12,207   31,926   28,489 

Gain on purchase of debt

  (28,968)     (47,469)   

Other expense, net

  751   478   1,474   809 

(Loss) income before income tax benefit

  (14,640)  24,694   57,839   (22,895)

Income tax benefit

  (8,736)  (11,695)  (2,237)  (11,523)

Net (loss) income

 $(5,904) $36,389  $60,076  $(11,372)

Basic and diluted (loss) earnings per common share

 $(0.04) $0.25  $0.42  $(0.08)

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

    

    

    

    

    

Total

Outstanding

Paid-In

Retained

Treasury Stock

Shareholders’

    

Shares

    

Value

    

Capital

    

Deficit

    

Shares

    

Value

    

Deficit

Balances at March 31, 2020

 

141,669

$

1

$

548,098

$

(706,269)

 

2,869

$

(24,167)

$

(182,337)

Share-based compensation

 

0

 

0

 

1,019

 

0

 

0

 

0

 

1,019

Stock Issued

 

0

 

0

 

0

 

0

 

0

 

0

 

0

Net loss

(5,904)

(5,904)

Balances at June 30, 2020

 

141,669

$

1

$

549,117

$

(712,173)

 

2,869

$

(24,167)

$

(187,222)

  

Common Stock Outstanding

  

Additional Paid-In

  

Retained

  

Treasury Stock

  

Total Shareholders’

 
  

Shares

  

Value

  

Capital

  

Deficit

  

Shares

  

Value

  

Deficit

 

Balances, March 31, 2020

  141,669  $1  $548,098  $(706,269)  2,869  $(24,167) $(182,337)

Share-based compensation

        1,019            1,019 
Stock Issued                     

Net loss

           (5,904)        (5,904)

Balances, June 30, 2020

  141,669  $1  $549,117  $(712,173)  2,869  $(24,167) $(187,222)

    

Common Stock

    

Additional

    

    

    

    

    

Total

Outstanding

Paid-In

Retained

Treasury Stock

Shareholders’

    

Shares

    

Value

    

Capital

    

Deficit

    

Shares

    

Value

    

Deficit

Balances at March 31, 2021

 

142,305

$

1

$

550,793

$

(735,205)

 

2,869

$

(24,167)

$

(208,578)

Share-based compensation

 

0

 

 

467

 

0

 

0

 

0

 

467

Stock Issued

 

62

 

0

 

0

 

0

 

0

 

0

 

0

Net loss

 

0

 

0

 

0

 

(51,672)

 

0

 

0

 

(51,672)

Balances at June 30, 2021

 

142,367

$

1

$

551,260

$

(786,877)

 

2,869

$

(24,167)

$

(259,783)

    

Common Stock

    

Additional

    

    

    

    

    

Total

Outstanding

Paid-In

Retained

Treasury Stock

Shareholders’

    

Shares

    

Value

    

Capital

    

Deficit

    

Shares

    

Value

    

Deficit

Balances at December 31, 2019

 

141,669

$

1

$

547,050

$

(772,249)

 

2,869

$

(24,167)

$

(249,365)

Share-based compensation

 

 

 

2,067

 

 

 

 

2,067

Stock Issued

Net income

 

 

 

 

60,076

 

 

 

60,076

Balances at June 30, 2020

 

141,669

$

1

$

549,117

$

(712,173)

 

2,869

$

(24,167)

$

(187,222)

  

Common Stock Outstanding

  

Additional Paid-In

  

Retained

  

Treasury Stock

  

Total Shareholders’

 
  

Shares

  

Value

  

Capital

  

Deficit

  

Shares

  

Value

  

Deficit

 

Balances, March 31, 2019

  140,644  $1  $545,627  $(894,096)  2,869  $(24,167) $(372,635)

Share-based compensation

        1,259            1,259 
Stock Issued  46                   

Net income

           36,389         36,389 

Balances, June 30, 2019

  140,690  $1  $546,886  $(857,707)  2,869  $(24,167) $(334,987)

    

Common Stock

    

Additional

    

    

    

    

    

Total

Outstanding

Paid-In

Retained

Treasury Stock

Shareholders’

    

Shares

    

Value

    

Capital

    

Deficit

    

Shares

    

Value

    

Deficit

Balances at December 31, 2020

 

142,305

$

1

$

550,339

$

(734,459)

 

2,869

$

(24,167)

$

(208,286)

Share-based compensation

 

 

 

921

 

 

 

 

921

Stock Issued

62

Net loss

 

 

 

 

(52,418)

 

 

 

(52,418)

Balances at June 30, 2021

 

142,367

$

1

$

551,260

$

(786,877)

 

2,869

$

(24,167)

$

(259,783)

  

Common Stock Outstanding

  

Additional Paid-In

  

Retained

  

Treasury Stock

  

Total Shareholders’

 
  

Shares

  

Value

  

Capital

  

Deficit

  

Shares

  

Value

  

Deficit

 

Balances, December 31, 2019

  141,669  $1  $547,050  $(772,249)  2,869  $(24,167) $(249,365)

Share-based compensation

        2,067            2,067 

Stock Issued

                     

Net income

           60,076         60,076 

Balances, June 30, 2020

  141,669  $1  $549,117  $(712,173)  2,869  $(24,167) $(187,222)

  

Common Stock Outstanding

  

Additional Paid-In

  

Retained

  

Treasury Stock

  

Total Shareholders’

 
  

Shares

  

Value

  

Capital

  

Deficit

  

Shares

  

Value

  

Deficit

 

Balances, December 31, 2018

  140,644  $1  $545,705  $(846,335)  2,869  $(24,167) $(324,796)

Share-based compensation

        1,181            1,181 

Stock Issued

  46                   

Net loss

           (11,372)        (11,372)

Balances, June 30, 2019

  140,690  $1  $546,886  $(857,707)  2,869  $(24,167) $(334,987)


 

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, 

    

2021

    

2020

Operating activities:

 

  

 

  

Net (loss) income

$

(52,418)

$

60,076

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

 

  

 

  

Depreciation, depletion, amortization and accretion

 

57,589

 

68,609

Amortization of debt items and other items

 

2,967

 

3,682

Share-based compensation

 

921

 

2,067

Derivative loss (gain)

 

106,020

 

(46,498)

Derivative cash (payments) receipts, net

 

(41,130)

 

37,566

Gain on debt transactions

 

0

 

(47,469)

Deferred income taxes

 

(13,006)

 

(2,207)

Changes in operating assets and liabilities:

 

  

 

  

Oil and natural gas receivables

 

(11,390)

 

34,984

Joint interest receivables

 

(910)

 

4,743

Prepaid expenses and other assets

 

(17,605)

 

3,505

Income tax

 

(92)

 

2,008

Asset retirement obligation settlements

 

(11,213)

 

(2,164)

Cash advances from JV partners

 

(3,925)

 

5,850

Accounts payable, accrued liabilities and other

 

30,386

 

(31,274)

Net cash provided by operating activities

 

46,194

 

93,478

Investing activities:

 

  

 

  

Investment in oil and natural gas properties and equipment

 

(5,856)

 

(14,138)

Changes in operating assets and liabilities associated with investing activities

 

(3,078)

 

(25,811)

Acquisition of property interests

 

0

 

(456)

Purchases of furniture, fixtures and other

 

2

 

(70)

Net cash used in investing activities

 

(8,932)

 

(40,475)

Financing activities:

 

  

 

  

Borrowings on credit facility

 

 

25,000

Repayments on credit facility

 

(80,000)

 

(50,000)

Purchase of Senior Second Lien Notes

 

0

 

(23,930)

Proceeds from Term Loan

 

215,000

 

Debt issuance costs and other

 

(6,840)

 

Net cash provided by (used in) financing activities

 

128,160

 

(48,930)

Increase in cash and cash equivalents

 

165,422

 

4,073

Cash and cash equivalents, beginning of period

 

43,726

 

32,433

Cash and cash equivalents, end of period

$

209,148

$

36,506

  

Six Months Ended June 30,

 
  

2020

  

2019

 

Operating activities:

        

Net income (loss)

 $60,076  $(11,372)

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

        

Depreciation, depletion, amortization and accretion

  68,609   71,839 

Amortization of debt items and other items

  3,682   2,485 

Share-based compensation

  2,067   1,181 

Derivative (gain) loss

  (46,498)  47,081 

Cash receipts on derivative settlements, net

  37,566   12,792 
Gain on purchase of debt  (47,469)   

Deferred Income taxes

  (2,207)  (11,523)

Changes in operating assets and liabilities:

        

Oil and natural gas receivables

  34,984   5,992 

Joint interest receivables

  4,743   (24,162)

Prepaid expenses and other assets

  3,505   (8,134)
Income tax  2,008    

Asset retirement obligation settlements

  (2,164)  (2,641)

Cash advance from JV partner

  5,850   18,527 

Accounts payable, accrued liabilities and other

  (31,274)  4,251 

Net cash provided by operating activities

  93,478   106,316 

Investing activities:

        

Investment in oil and natural gas properties and equipment

  (39,949)  (63,149)
Acquisition of property interest in oil and natural gas properties  (456)  (10,000)

Purchases of furniture, fixtures and other

  (70)   

Net cash used in investing activities

  (40,475)  (73,149)
Financing activities:        

Borrowings on credit facility

  25,000    

Repayments on credit facility

  (50,000)   
Purchase of Senior Second Lien Notes  (23,930)   

Debt issuance costs and other

     (751)

Net cash used in financing activities

  (48,930)  (751)

Increase in cash and cash equivalents

  4,073   32,416 

Cash and cash equivalents, beginning of period

  32,433   33,293 

Cash and cash equivalents, end of period

 $36,506  $65,709 

See Notes to Condensed Consolidated Financial Statements.

4

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

1.

Basis of Presentation

Operations.W&T Offshore, Inc. (with subsidiaries referred to herein as “W&T,” “we,” “us,” “our,” or the “Company”) is an independent oil and natural gas producer with substantially all of its operations offshore in the Gulf of Mexico. The Company is active in the exploration, development and acquisition of oil and natural gas properties. Our interests in fields, leases, structures and equipment are primarily owned by the Company and its 100%-owned subsidiary, owned subsidiaries, W & T Energy VI, LLC, Aquasition LLC, and Aquasition II, LLC, and through our proportionately consolidated interest in Monza Energy LLC (“Monza”), as described in more detail in Note 4.5.

Interim Financial Statements.The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim periods and the appropriate rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, the condensed consolidated financial statements do not include all of the information and footnote disclosures required by GAAP for complete financial statements for annual periods. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

Operating results for interim periods are not necessarily indicative of the results that may be expected for the entire year. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K10-K for the year ended December 31, 2019.2020.

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

Recent Events.  The pandemic spread of the disease caused by a new strain of coronavirus (“COVID-19”) and other world events have significantly impacted the price of crude oil and the demand for crude oil beginning in March of 2020.  Additionally, prices for natural gas liquids (“NGLs”) and natural gas decreased in the three months ended June 30, 2020 compared to the prior quarter and prior year levels, all of which have impacted revenues for the three and six months ended June 30, 2020.  While crude oil prices have partially recovered in June 2020 from recent historical lows in April 2020, the perceived risks and volatility have increased in 2020 to date compared to recent years.  Natural gas prices have remained at 2nd quarter levels through July 2020. The Company has taken measures to reduce operating costs and capital expenditures in response.  Management's assessment is the Company has adequate liquidity to meet the criteria of a going concern as defined under GAAP.  See Note 2,Long-Term Debt and Note 12,Subsequent Events, for additional information.  

Accounting StandardStandards Updates effective January 1, 2020 

2021

Credit Losses -Simplifying the Accounting for Income Taxes. In June 2016, December 2019, the Financial Accounting Standards Board (“FASB”("FASB") issued Accounting Standards Update (“ASU”("ASU"No.2016-13, 2019-12, Financial Instruments – Credit LossesIncome Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"). ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 326) (“740 and by clarifying and amending existing guidance. ASU 2016-13”)2019-12 is effective for annual and subsequently issued additional guidance on this topic.  The new guidance eliminatesinterim financial statement periods beginning after December 15, 2020. Adoption of the probable recognition threshold and broadens the information to consider past events, current conditions and forecasted information in estimating credit losses. The amendment did not have a material impact on our financial statements and did not affect the opening balance of Retained Deficit.or disclosures.

Derivatives and Hedging - In August 2017, the FASB issued Accounting Standards Update No.2017-12,Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”) and subsequently issued additional guidance on this topic.  The amendments in ASU 2017-12 require an entity to present the earnings effect of the hedging instrument in the same income statement line in which the earnings effect of the hedged item is reported.  This presentation enables users of financial statements to better understand the results and costs of an entity’s hedging program.  Also, relative to current GAAP, this approach simplifies the financial statement reporting for qualifying hedging relationships.  As we do not designate our commodity derivative instruments as qualifying hedging instruments, this amendment did not impact the presentation of the changes in fair values of our commodity derivative instruments on our financial statements.

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

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

Paycheck Protection Program (“PPP”).  On April 15,Employee Retention Credit. Under the Consolidated Appropriations Act, 2021 passed by the United States Congress and signed by the President on December 27, 2020,the Company received $8.4 million under the U.S. Small Business Administration (“SBA”) PPP.  We have elected an accounting policy to analogize International Accounting Standards 20, Accounting for Government Grants and Disclosure of Government Assistance (“IAS 20”), to account for the PPP. 

Under IAS 20, a government grant is recognized when there is reasonable assurance that the Company has complied with the provisions of the grant.  Management believesCoronavirus Aid, Relief and Economic Security Act (“CARES Act”) were extended and modified making the Company has met alleligible for a refundable employee retention credit subject to meeting certain criteria. The Company recognized a $2.1 million employee retention credit during the requirements under the PPP and, after submitting an application to the SBA on the utilization of the funds, will not be required to repay any portion of the grant.  We have elected to follow the income approach under IAS 20 and recognize earnings as funds are applied to covered expenses and classify the application of fundssix months ended June 30, 2021 which is included as a reduction of the related expensecredit to General and administrative expenses in the Condensed Consolidated Statement of Operations.

5

Credit Risk and Allowance for Credit Losses.Our revenue has been concentrated in certain major oil and gas companies. For the six months ended June 30, 2021, and the year ended December 31, 2019 2020, approximately 64% and for the six months ended June 30, 2020, approximately 63% and 54%62%, respectively, of our revenue was from three3 major oil and gas companies and a substantial majority of our receivables were from sales with major oil and gas companies. We also have 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 ten10 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. Our maximum exposure at any time would be the receivable balance. The receivables Jointrelated to joint interest and other, net,billings are reported on the Condensed Consolidated Balance Sheets are reduced fornet of the allowance for credit losses. The roll forward of the allowance for credit losses iswas $9.1 million as follows: of June 30, 2021 and December 31, 2020.

Allowance for credit losses, December 31, 2019

 $9,898 

Additional provisions

  598 

Uncollectible accounts written off

   

Allowance for credit losses, June 30, 2020

 $10,496 

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, 2020

  

December 31, 2019

 

Derivatives - current (1)

 $17,770  $7,266 

Unamortized insurance/bond premiums

  6,269   4,357 

Prepaid deposits related to royalties

  6,813   7,980 

Prepayment to vendors

  1,638   10,202 

Other

  76   886 

Prepaid expenses and other assets

 $32,566  $30,691 

June 30, 2021

December 31, 2020

Derivatives – current (1)

$

14,021

$

2,752

Unamortized insurance/bond premiums

 

6,195

 

4,717

Prepaid deposits related to royalties

 

4,544

 

4,473

Prepayment to vendors

 

4,775

 

1,429

Other

 

1,170

 

461

Prepaid expenses and other assets

$

30,705

$

13,832

(1)(1)

Includes closed contracts which have not yet settled.

Oil and Natural Gas Properties and Other, Net – At Cost.  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, 2021

December 31, 2020

Oil and natural gas properties and equipment, at cost

$

8,583,983

$

8,567,509

Furniture, fixtures and other

 

20,845

 

20,847

Total property and equipment

 

8,604,828

 

8,588,356

Less: Accumulated depreciation, depletion, amortization and impairment

 

7,947,171

 

7,901,478

Oil and natural gas properties and other, net

$

657,657

$

686,878

  

June 30, 2020

  

December 31, 2019

 

Oil and natural gas properties and equipment, at cost

 $8,553,306  $8,532,196 

Furniture, fixtures and other

  20,387   20,317 

Total property and equipment

  8,573,693   8,552,513 

Less: Accumulated depreciation, depletion and amortization

  7,860,630   7,803,715 

Oil and natural gas properties and other, net

 $713,063  $748,798 

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

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

June 30, 2021

December 31, 2020

Right-of-Use assets

$

10,783

$

11,509

Unamortized debt issuance costs

 

1,333

 

2,094

Investment in White Cap, LLC

 

2,995

 

2,699

Unamortized brokerage fee for Monza

 

0

 

626

Proportional consolidation of Monza's other assets (Note 5)

 

4,209

 

1,782

Derivatives

 

21,005

 

2,762

Other

 

2,070

 

998

Total other assets (long-term)

$

42,395

$

22,470

  

June 30, 2020

  

December 31, 2019

 

Right-of-Use assets (Note 7)

 $12,546  $7,936 

Unamortized debt issuance costs

  2,678   3,798 

Investment in White Cap, LLC

  3,118   2,590 

Unamortized brokerage fee for Monza

  2,130   3,423 

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

  2,553   5,308 

Derivative assets

  3,486   2,653 

Appeal bond deposits

     6,925 

Other

  1,024   814 

Total other assets (long-term)

 $27,535  $33,447 

6

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

June 30, 2021

December 31, 2020

Accrued interest

$

10,185

$

10,389

Accrued salaries/payroll taxes/benefits

 

4,218

 

4,009

Litigation accruals

 

570

 

436

Lease liability

 

673

 

394

Derivatives

 

82,832

 

13,620

Other

 

1,885

 

1,032

Total accrued liabilities

$

100,363

$

29,880

  

June 30, 2020

  

December 31, 2019

 

Accrued interest

 $10,357  $10,180 

Accrued salaries/payroll taxes/benefits

  3,112   2,377 

Incentive compensation plans

  1,174   9,794 

Litigation accruals

  3,673   3,673 

Lease liability (Note 7)

  2,130   2,716 

Derivatives - current

  1,779   1,785 

Other

  443   371 

Total accrued liabilities

 $22,668  $30,896 

Paycheck Protection Program ("PPP"). On April 15, 2020the Company received $8.4 million under the PPP offered by the U.S. Small Business Administration ("SBA"). We applied the guidance under IAS 20 and accounted for the PPP as a government grant. The Company submitted an application to the SBA on August 20, 2020,requesting that the PPP funds received be applied to specific covered and non-covered payroll costs. On June 11, 2021, we received notification that the SBA accepted our application and approved forgiveness of our PPP; therefore, we will not be required to repay the grant.

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

June 30, 2021

December 31, 2020

Dispute related to royalty deductions

$

5,247

$

5,467

Derivatives

 

28,122

 

4,384

Lease liability

 

11,062

 

11,360

Black Elk escrow

 

11,102

 

11,103

Other

 

726

 

624

Total other liabilities (long-term)

$

56,259

$

32,938

  

June 30, 2020

  

December 31, 2019

 

Dispute related to royalty deductions

 $4,687  $4,687 

Dispute related to royalty-in-kind

  250   250 
Derivatives  2,137    

Lease liability (Note 7)

  9,834   4,419 

Black Elk escrow and other

  12,090   632 

Total other liabilities (long-term)

 $28,998  $9,988 

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

2.

Long-Term Debt

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

June 30, 2021

December 31, 2020

Term Loan:

Principal

$

215,000

$

Unamortized debt issuance costs

(6,718)

Total Term Loan

 

208,282

 

Company Credit Agreement borrowings:

80,000

Senior Second Lien Notes:

 

  

 

  

Principal

 

552,460

 

552,460

Unamortized debt issuance costs

 

(6,055)

 

(7,174)

Total Senior Second Lien Notes

 

546,405

 

545,286

Less current portion

(36,771)

Total long-term debt, net

$

717,916

$

625,286

7

Current Portion of Long-Term Debt

  

June 30, 2020

  

December 31, 2019

 

Credit Agreement borrowings

 $80,000  $105,000 
         

Senior Second Lien Notes:

        

Principal

  552,460   625,000 

Unamortized debt issuance costs

  (8,238)  (10,467)

Total Senior Second Lien Notes

  544,222   614,533 
         

Total long-term debt

 $624,222  $719,533 

As of June 30, 2021, the current portion of long-term debt of $36.8 million represented principle payments due within one year on the Term Loan (defined below).

Term Loan (Subsidiary Credit Agreement

Agreement)

On May 19, 2021, Aquasition LLC (“A-I LLC”) and Aquasition II LLC (“A-II LLC”) (collectively, the “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 $215.0 million (the “Term Loan”). The Term Loan requires quarterly amortization payments commencing September 30, 2021. The Term Loan 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 any subsidiaries other than the Borrowers and the subsidiary that owns the equity in the Borrowers, and is secured by the first lien security interests in the equity of the Borrowers and a first lien mortgage security interest and mortgages on certain assets of the Borrowers (the Mobile Bay Properties, defined below).

In exchange for the net cash proceeds received by the 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, 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, 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 $48.0 million outstanding balance on its reserve-based lending facility under the Company Credit Agreement (defined below), with the majority of the proceeds to W&T expected to be used for general corporate purposes, including oil and gas acquisitions, development activities, and other opportunities to grow the Company’s broader asset base. We refer to the transactions contemplated by the Subsidiary Credit Agreement, including the assignment of the Mobile Bay Properties to A-I LLC and the assignment of the Midstream Assets to A-II LLC as the “Mobile Bay Transaction”.

For information about Mobile Bay Transaction refer to Note 4, Mobile Bay Transaction.

Company Credit Agreement

On October 18, 2018, we entered into the Sixth Amended and Restated Credit Agreement (as amended, the “Credit“Company Credit Agreement”), which matures on October 18, 2022.

On June 17, 2020,the lenders under theMay 19, 2021, we entered into a Waiver, Consent to Second Amendment to Intercreditor Agreement and Sixth Amendment to Sixth Amended and Restated Credit Agreement completed their semi-annual borrowing base redetermination and entered into(the “Sixth Amendment”) which amended the Third Amendment and Waiver (the “Third Amendment”) to theCompany Credit Agreement. Although the Company had not violated any covenants, the ThirdThe Sixth Amendment, provides less stringent covenant requirements given the recent changes in the oil and gas markets.  The Third Amendment includes the following changes, among other things, to(i) amended the Company Credit Agreement (terms used below are definedto effectuate the Mobile Bay Transaction (as discussed under Term Loan above and Note 4, Mobile Bay Transaction below) by specifically permitting the Mobile Bay Transaction and related transactions under certain covenants and (ii) consented to and waived certain technical defaults arising from the formation of certain company subsidiaries that were formed in advance of, and in order to effectuate, the consummation of the Mobile Bay Transaction and related transactions. On July 15, 2021, the Company entered into a Waiver and Seventh Amendment to Sixth Amended and Restated Credit Agreement (the “Seventh Amendment”): dated effective June 30, 2021, which further amended the Company Credit Agreement.

8

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

The primary terms and covenants associated with the Company Credit Agreement as of June 30, 2021, as amended by the Sixth and Seventh Amendments, are as follows, with capitalized terms defined under the Company Credit Agreement:

·

The borrowing base was $190.0 million, subject to the next redetermination on or about October 1, 2021.

·

Letters of credit may be issued in amounts up to $30.0 million, provided availability under the Company Credit Agreement was reduced from $250.0 million to $215.0 million.exists.

Increased the interest rate margin by 25 basis points.

Amended the financial covenants as follows:  

·

From the period ended June 30, 2020 through the period ended December 31, 2021 (the "Waiver Period"), the Company will is not be required to comply with the Leverage Ratio covenant. The Leverage Ratio, as defined in the Company Credit Agreement, is limited to 3.00 to 1.00 for quarters ending March 31, 2022 and thereafter.

·

During the Waiver Period, the Company will be required to maintain a 2.00 to 1.00 ratio limit of first lien debt outstanding under the Company Credit Agreement on the last day of the most recent quarter to EBITDAX for the trailing four quarters.

Increase the requirement to provide first priority liens on properties constituting at least 85% to 90% of total proved reserves of the Company as set forth on reserve reports required to be delivered under the Credit Agreement.

·The Current Ratio, as defined in the Company Credit Agreement, must be maintained at greater than 1.00 to 1.00.

Availability under the Company Credit Agreement is subject to semi-annual redeterminations of our borrowing base and, the next scheduled redetermination is into occur on or about October 1, 2021. Subsequent to the fall of 2020.  AdditionalOctober 2021 redetermination, additional redeterminations may be requested at the discretion of either the lenders or the Company. The borrowing base is calculated by our lenders based on their evaluation of our proved reserves and their own internal criteria. Any redetermination by our lenders to change our borrowing base will result in a similar change in the availability under the Company Credit Agreement. The Company currently has 0 borrowings outstanding under the Company Credit Agreement and has agreed to not to make borrowings under the Company Credit Agreement unless and until the next semi-annual redetermination of our borrowing base occurs and the Company complies with certain revised hedging requirements.

The Company used a portion of the proceeds from Mobile Bay Transaction to repay the $48.0 million outstanding balance on its reserve-based lending facility under the Company Credit Agreement. All liens on the Mobile Bay Properties granted to secure obligations under the Company Credit Agreement were released in connection with the transfer of such assets to Borrowers. The Company Credit Agreement is collateralized by a first priority lien on properties constituting at least 90% of the total proved reserves of the Company as set forth on reserve reports required to be delivered under the Company Credit Agreement and certain personal property.property, excluding those liens released in the Mobile Bay Transaction as described above.

As of June 30, 2021 and December 31, 2020, we had $4.4 million of letters of credit issued and outstanding under the Company Credit Agreement. NaN borrowings under the Company Credit Agreement were outstanding as of June 30, 2021 and $80.0 million in borrowings were outstanding under the Company Credit Agreement as of December 31, 2020. The annualized interest rate on borrowings outstanding for the six months ended June 30,2020 2021 was 3.9%3.2%, whichwhich excludes debt issuance costs, commitment fees and other fees.

9

Letters of credit may be issued in amounts up to $30.0 million, provided sufficient availability under the Credit Agreement exists.  As of June 30,2020 and December 31, 2019, we had $6.1 million and $5.8 million, respectively, of letters of credit issued and outstanding under the Credit Agreement.

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

9.75% Senior Second Lien Notes Due 2023

On October 18, 2018, we issued $625.0 million of 9.75% Senior Second Lien Notes due 2023 (the “Senior Second Lien Notes”), which were issued at par with an interest rate of 9.75% per annum and mature on November 1, 2023, and are governed under the terms of the Indenture of the Senior Second Lien Notes (the “Indenture”). The estimated annual effective interest rate on the Senior Second Lien Notes is 10.4% 10.3%, whichwhich includes amortization of debt issuance costs. Interest on the Senior Second Lien Notes is payable in arrears on May 1 and November 1 of each year.

During the six monthsyear ended June 30,December 31, 2020, we acquired $72.5 million in principal of our outstanding Senior Second Lien Notes for $23.9 million and recorded a non-cash gain on purchase of debt of $47.5 million, which included a reduction of $1.1 million related to the write-off of unamortized debt issuance costs.

No such transactions were completed during the three and six months ended June 30, 2021. As a result of these purchases, $552.5 million in principal amount of Senior Second Lien Notes remains issued and outstanding as of June 30, 2021 and December 31, 2020.

The Senior Second Lien Notes are secured by a second-prioritysecond-priority lien on all of our assets that are secured under the Company Credit Agreement.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 our ability and the ability of certain of our 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

Covenants

As of June 30,2020 2021 and for all prior measurement periods, we were in compliance with all applicable covenants of the Company Credit Agreement and the Indenture. The Seventh Amendment revised certain covenants under the Company Credit Agreement related to hedging our future production and waived compliance with such requirements, including the requirement that certain existing hedge transactions be unwound or terminated, until our next semi-annual borrowing base redetermination occurs.

Fair Value Measurements

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

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

3.

Fair Value Measurements

Derivative Financial Instruments

We measure the fair value of our open derivative financial instruments by applying the income approach, using models with inputs that are classified within Level 2 of the valuation hierarchy. The inputs used for the fair value measurement of our open 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. Our open derivative financial instruments are reported in the Condensed Consolidated Balance Sheets using fair value. See Note 6,7 Derivative Financial Instruments, for additional information on our derivative financial instruments.

10

The following table presents the fair value of our open derivative financial instruments (in thousands):

 

June 30, 2020

  

December 31, 2019

 

June 30, 2021

December 31, 2020

Assets:

    

 

  

 

  

Derivatives instruments - open contracts, current

 $15,266  $6,921 

$

13,111

$

2,705

Derivatives instruments - open contracts, long-term

 3,486  2,653 

 

21,005

���

 

2,762

 

Liabilities:

    

 

  

 

  

Derivatives instruments - open contracts, current

 1,779  1,785 

 

74,632

 

13,291

Derivatives instruments - open contracts, long-term 2,137  

 

28,122

 

4,384

Long-Term Debt

We believeThe fair value of the carryingTerm Loan was measured using a discounted cash flows model and current market rates. The net value of our debt under the Company Credit Agreement approximates fair value because the interest rates are variable and reflective of current market rates. The fair value of our Senior Second Lien Notes was measured using quoted prices, although the market is not a very active market. The fair value of our long-term debt was classified as Level 2 within the valuation hierarchy. See Note 2 Long-Term Debt for additional information on our long-term debt.

The following table presents the carryingnet value and fair value of our long-term debt (in thousands):

 

June 30, 2020

  

December 31, 2019

 
 

Carrying Value

  

Fair Value

  

Carrying Value

  

Fair Value

 

    

June 30, 2021

    

December 31, 2020

Net Value

    

Fair Value

    

Net Value

    

Fair Value

Liabilities:

            

 

  

 

  

 

  

 

  

Credit Agreement

 $80,000  $80,000  $105,000  $105,000 

Term Loan

$

208,282

$

214,607

$

$

Company Credit Agreement

80,000

80,000

Senior Second Lien Notes

 544,222  346,862  614,533  597,188 

 

546,405

 

536,660

 

545,286

 

393,352

Total

754,687

751,267

625,286

473,352

4.        Mobile Bay Transaction

On May 19, 2021, the Company’s wholly-owned special purpose vehicles (the “SPVs”), A-I LLC and A-II LLC or the Borrowers, entered into the Subsidiary Credit Agreement providing for the Term Loan in an aggregate principal amount equal to $215.0 million. Proceeds of the Term Loan were used by the Borrowers to (i) fund the acquisition of the Mobile Bay Properties and the Midstream Assets from the Company and (ii) pay fees, commissions and expenses in connection with the transactions contemplated by the Subsidiary Credit Agreement and the other related loan documents, including to enter into certain swap and put derivative contracts described in more detail under Note 7 – Derivative Financial Instruments, of this Quarterly Report.

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.

11

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. As of June 30, 2021, the book value of the assets of the SPVs were $292.4 million.

W&T OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5.        Joint Venture Drilling Program

4.

Joint Venture Drilling Program

In March 2018, W&T and two2 other initial members formed and initially funded Monza, which jointly participates with us in the exploration, drilling and development of certain drilling projects (the “Joint Venture Drilling Program”) in the Gulf of Mexico. Subsequent to the initial closing, additional investors joined as members of Monza during 2018 and total commitments by all members, including W&T's&T’s commitment to fund its retained interest in Monza projects held outside of Monza, are $361.4 million.  Through June 30, 2020, nine wells have been completed.  As of June 30, 2020, one additional well was drilled to target depth, but not completed as of this date. W&T contributed 88.94% of its working interest in certain identified undeveloped drilling projects to Monza and retained 11.06% of its working interest. The Joint Venture Drilling Program is structured so that we initially receive an aggregate of 30.0% of the revenues less expenses, through both our direct ownership of our retained working interest in the Monza projects and our indirect interest through our interest in Monza, for contributing 20.0% of the estimated total well costs plus associated leases and providing access to available infrastructure at agreed-upon rates. Any exceptions to this structure are approved by the Monza board.  W&T is the operator for seven of the nine wells completed through June 30,2020.

The members of Monza are made up of third-partythird-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-partythird-party investors, and its investment is limited to 4.5% of total invested capital within Monza. The entity affiliated with Mr. Krohn has made a capital commitment to Monza of $14.5 million.

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, 2021, 9 wells have been completed. In 2020, 1 well was drilled to target depth, which we expect to be completed in the fourth quarter of 2021. W&T is the operator for 7 of the 9 wells completed through June 30, 2021.

Through June 30,2020, 2021, members of Monza made partner capital contributions,contributions, including our contributions of working interest in the drilling projects, to Monza totaling $289.3$302.4 million and received cash distributions totaling $60.4$77.9 million. Our net contribution to Monza, reduced by distributions received, as of June 30,2020 2021 was $54.0$51.6 million. W&T is obligated to fund certain cost overruns to the extent they occur, subject to certain exceptions, for the Joint Venture Drilling Program wells above budgeted and contingency amounts, of which the total exposure cannot be estimated at this time.

12

Consolidation and Carrying Amounts

Our interest in Monza is considered to be a variable interest that we account for using proportional consolidation. Through June 30,2020, 2021, there have been no events or changes that would cause a redetermination of the variable interest status. We do not fully consolidate Monza because we are not considered the primary beneficiarybeneficiary of Monza. As of June 30,2020, 2021, in the Condensed Consolidated Balance Sheet, we recorded $13.1$6.6 million, net, in Oil and natural gas properties and other, net $2.6, $4.2 million in Other assets $0.2, $0.3 million in AROAsset Retirement Obligations ("ARO") and $1.4$1.7 million, net, increase in working capital in connection with our proportional interest in Monza’s assets and liabilities. As of December 31, 2019, 2020, in the Condensed Consolidated Balance Sheet, we recorded $16.1$9.9 million, net, in Oil and natural gas properties and other, net $5.3, $1.8 million in Other assets $0.1, $0.2 million in ARO and $2.7$1.3 million, net, increase in working capital in connection with our proportional interest in Monza’s assets and liabilities. Additionally, during the six months ended June 30, 2020 2021 and during the year ended December 31, 2019, 2020, we 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 30,2020 2021 and December 31, 2019 2020 were $11.1$3.4 million and $5.3$7.3 million, respectively, which are included in the Condensed Consolidated Balance Sheet in Advances from joint interest partners.partners. For the six months ended June 30,2020, 2021, in the Condensed Consolidated Statement of Operations, we recorded $4.8$5.5 million in Total revenues and $6.3$6.7 million in Operating costs and expenses in connection with our proportional interest in Monza’s operations. For the six monthsyear ended June 30,2019,December 31, 2020, in the Condensed Consolidated Statement of Operations, we recorded $4.0$8.4 million in Total revenues and, $2.5$12.1 million in Operating costs and expenses in connection with our proportional interest in Monza’s operations.

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

5.

Asset Retirement Obligations

Our asset retirement obligations (“ARO”)ARO 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 our ARO is as follows (in thousands):

Balances, December 31, 2019

 $355,594 

Liabilities settled

  (2,164)

Accretion of discount

  11,684 

Liabilities incurred, including acquisitions

  2,814 

Revisions of estimated liabilities

  6,879 

Balances, June 30, 2020

  374,807 

Less current portion

  12,506 

Long-term

 $362,301 

Balances, December 31, 2020

$

392,704

Liabilities settled

 

(11,213)

Accretion of discount

 

11,895

Liabilities incurred and assumed through acquisition

 

417

Revisions of estimated liabilities

 

10,200

Balances, June 30, 2021

 

404,003

Less current portion

 

(23,888)

Long-term

$

380,115

6.

7.        Derivative Financial Instruments

Derivative Financial Instruments

Our market risk exposure relates primarily to commodity prices and, from time to time, we use various derivative instruments to manage our exposure to this commodity price risk from sales of our crude oil and natural gas. All of the present derivative counterparties are also lenders or affiliates of lenders participating in our Company Credit Agreement.Agreement or Term Loan. We are exposed to credit loss in the event of nonperformance by the derivative counterparties; however, we currently anticipate that each of our derivative counterparties will be able to fulfill their contractual obligations. We are not required to provide additional collateral to the derivative counterparties and we do not require collateral from our derivative counterparties.

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

13

We entered into commodity contracts for crude oil and natural gas which related to a portion of our expected future production. 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”).

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, 2020 are presented in the following tables:2021:

Crude Oil: Open Swap Contracts, Priced off WTI (NYMEX)

 

Period

 

Notional Quantity (Bbls/day) (1)

  

Notional Quantity (Bbls) (1)

  

Strike Price

 

Jan 2021 - Dec 2021

  1,000   365,000  $41.00 

Crude Oil: Open Call Contracts - Bought, Priced off WTI (NYMEX)

 

Period

 

Notional Quantity (Bbls/day) (1)

  

Notional Quantity (Bbls) (1)

  

Strike Price

 

July 2020 - Dec. 2020

  10,000   1,840,000  $67.50 

Crude Oil: Open Collar Contracts - Priced off WTI (NYMEX)

 

Period

 

Notional Quantity (Bbls/day) (1)

  

Notional Quantity (Bbls) (1)

  

Put Option Weighted Strike Price (Bought)

  

Call Option Weighted Strike Price (Sold)

 

July 2020 - Dec. 2020

  10,000   1,840,000  $45.00  $63.51 

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)

($/Bbl)(1)

($/Bbl)(1)

($/Bbl)(1)

Jul 2021 - Dec 2021

swap

4,000

736,000

$

42.06

$

$

Jul 2021 - Dec 2021

collar

200

36,800

$

$

40.00

$

54.90

Jul 2021 - Feb 2022

collar

2,024

491,733

$

$

38.81

$

57.24

Jan 2022 - Feb 2022

 

swap

 

3,000

 

177,000

 

$

42.98

 

$

 

$

Mar 2022 - May 2022

 

swap

 

2,044

 

188,006

 

$

42.33

 

$

 

$

Mar 2022 - May 2022

collar

2,000

184,000

$

$

35.00

$

48.50

Mar 2022 - Sept 2022

swap

1,615

345,638

$

54.53

$

$

Mar 2022 - Sept 2022

collar

1,615

345,638

$

$

45.00

$

62.50

Oct 2022

swap

2,172

67,332

$

58.50

$

Oct 2022

collar

2,172

67,332

$

$

46.00

66.50

Nov 2022

swap

2,176

65,280

$

58.25

$

Nov 2022

collar

2,176

65,280

$

$

46.00

66.30

Natural Gas - Henry Hub (NYMEX)

(MMbtu)(2)

(MMbtu)(2)

($/MMbtu)(2)

($/MMbtu)(2)

($/MMbtu)(2)

Jul 2021 - Dec 2021

collar

30,000

5,520,000

$

$

2.18

$

3.00

Jul 2021 - Dec 2021

swap

10,000

1,840,000

$

2.62

$

$

Jul 2021 - Dec 2021

call

40,000

7,360,000

$

$

$

3.50

Jul 2021 - Dec 2022

collar

40,000

21,960,000

$

$

1.83

$

3.00

Jul 2021 - Dec 2022

call

40,000

21,960,000

$

$

$

3.00

Jan 2022 - Feb 2022

collar

30,000

1,830,000

$

$

2.20

$

4.50

Jan 2022 - Dec 2022

call

37,000

13,505,000

$

$

$

3.50

Jan 2022

swap

20,000

620,000

$

2.79

$

$

Feb 2022

swap

30,000

840,000

$

2.79

$

$

Mar 2022 - May 2022

collar

10,000

920,000

$

$

2.25

$

3.40

Mar 2022 - May 2022

swap

10,544

970,075

$

2.69

$

$

Apr 2022 - Sept 2022

swap

12,428

2,274,311

$

2.44

$

$

Oct 2022

 

swap

 

16,129

 

499,999

 

$

2.56

 

$

 

$

Nov 2022

swap

17,570

527,100

$

2.63

$

$

Jan 2023 - Dec 2023

call

70,000

25,550,000

$

$

$

3.50

Jul 2021 - Mar 2025 (3)

swap

72,920

99,900,000

$

2.63

$

$

Apr 2025 - Apr 2028 (3)

put

55,684

62,700,000

$

$

2.35

$

(1)(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 Mobile Bay Transaction (see Note 4 Mobile Bay Transaction).

14

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


 

Natural Gas: Open Swap Contracts, Bought, Priced off Henry Hub (NYMEX)

 

Period

 

Notional Quantity (MMBtu/day) (2)

  

Notional Quantity (MMBtu) (2)

  

Strike Price

 

Sept 2020 - Dec 2020

  10,000   1,220,000  $2.03 

Natural Gas: Open Call Contracts, Bought, Priced off Henry Hub (NYMEX)

 

Period

 

Notional Quantity (MMBtu/day) (2)

  

Notional Quantity (MMBtu) (2)

  

Strike Price

 

August 2020 - Dec. 2022

  40,000   35,320,000  $3.00 

Natural Gas: Open Collar Contracts, Priced off Henry Hub (NYMEX)

 

Period

 

Notional Quantity (MMBtu/day) (2)

  

Notional Quantity (MMBtu) (2)

  

Put Option Weighted Strike Price (Bought)

  

Call Option Weighted Strike Price (Sold)

 

August 2020 - Dec. 2022

  40,000   35,320,000  $1.83  $3.00 
August 2020 - Dec. 2020  10,000   1,530,000  $1.75  $2.58 
Jan 2021 - Dec 2021  30,000   10,950,000  $2.18  $3.00 
Jan 2022 - Feb 2022  30,000   1,770,000  $2.20  $4.50 

(2)

MMBtu = Million British Thermal Units

The following amounts were recorded in the Condensed Consolidated Balance Sheets in the categories presented and include the fair value of open contracts, and closed contracts which had not yet settled (in thousands):

 

June 30,

 

December 31,

 
 

2020

  

2019

 

Prepaid expenses and other assets

 $17,770  $7,266 

June 30, 

December 31, 

    

2021

    

2020

Prepaid expenses and other current assets

$

14,021

$

2,752

Other assets (long-term)

 3,486  2,653 

 

21,005

 

2,762

Accrued liabilities 1,779  1,785 

 

82,832

 

13,620

Other liabilities (long-term) 2,137   

28,122

4,384

The amounts recorded on the Condensed Consolidated Balance Sheets are on a gross basis.  If these were recorded on a net settlement basis, it would not have resulted in any material differences in reported amounts.

Changes in the fair value and settlements of contracts are recorded on the Condensed Consolidated Statements of Operations as Derivative loss (gain). The impact of our commodity derivative contracts has on the condensed consolidated Statements of Operations were as follows (in thousands):

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2020

  

2019

  

2020

  

2019

 

Derivative loss (gain)

 $15,414  $(1,805) $(46,498) $47,081 

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2021

    

2020

    

2021

    

2020

Realized loss (gain)

$

15,357

$

(22,578)

$

23,602

$

(31,970)

Unrealized loss (gain)

66,083

37,992

82,418

(14,528)

Derivative loss (gain)

$

81,440

$

15,414

$

106,020

$

(46,498)

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

Cash receipts 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,

 
  

2020

  

2019

 

Cash receipts on derivative settlements, net

 $37,566  $12,792 

Six Months Ended June 30, 

    

2021

    

2020

Derivative loss (gain)

$

106,020

$

(46,498)

Derivative cash (payments) receipts, net

(41,130)

37,566

7.

Leases

Our contract arrangements accounted for under the applicable GAAP for lease contracts consist of office leases, a land lease and various pipeline right-of-way contracts.  For these contracts, a right-of-use ("ROU") asset and lease liability was established based on our assumptions of the term, inflation rates and incremental borrowing rates. 

During the six months ended June 30, 2020, we terminated the existing office lease and executed a new lease on separate office space.  The remaining term of the current office lease extends to December 2020.  The term of the new office lease extends to February 2032.  When calculating the ROU asset and lease liability at the commencement of the new office lease, we have reduced future cash outflows by the lease incentive to be received.

The term of each pipeline right-of-way contract is 10 years with various effective dates, and each has an option to renew for up to another ten years.  It is expected renewals beyond 10 years can be obtained as renewals were granted to the previous lessees.  The land lease has an option to renew every five years extending to 2085.  The expected term of the rights-of way and land leases was estimated to approximate the life of the related reserves.   

We recorded ROU assets and lease liabilities using a discount rate of 9.75% for the office leases and 10.75% for the other leases due to their longer expected term. 

Amounts related to leases recorded within our Condensed Consolidated Balance Sheet are as follows (in thousands):

  

June 30, 2020

  

December 31, 2019

 

ROU assets

 $12,546  $7,936 
         

Lease liability:

        

Accrued liabilities

 $2,130  $2,716 

Other liabilities

  9,834   4,419 

Total lease liability

 $11,964  $7,135 

W&T OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8.        Share-Based Awards and Cash-Based Awards

8.

Share-Based Compensation and Cash-Based Incentive Compensation

Awards to Employees. In 2010, theEmployees

The W&T Offshore, Inc. Amended and Restated Incentive Compensation Plan (as amended from time to time, the “Plan”) was approved by our shareholders.  During 2019,2018 and 2017,shareholders in 2010. Under the Plan, the Company grantedmay issue, subject to the approval of the Board of Directors, stock options, stock appreciation rights, restricted stock, restricted stock units, (“RSUs”) under the Plan to certain of its employees.  RSUs are a long-term compensation component, and are subject to satisfaction of certain predeterminedstock awards, dividend equivalents, other stock-based awards, performance criteria and adjustments at the endunits or shares, cash awards, substitute awards or any combination of the applicable performance period based on the results achieved.  In additionforegoing to share-based awards, the Company may grant to its employees, cash-based incentive awards under the Plan, which may be used as short-termdirectors and long-term compensation components of the awards, and are subject to satisfaction of certain predetermined performance criteria.

consultants.

As of June 30,2020, 2021, there were 10,874,04310,347,591 shares of common stock available for issuance in satisfaction of awards under the Plan. The shares available for issuance are reduced on a one-for-one1-for-one basis when RSUsawards are settled in shares of common stock, which shares of common stock are issued net of withholding tax through the withholding of shares. The Company has the option following vesting to settle RSUsawards in stock or cash, or a combination of stock and cash. The Company expects to settle RSUsoutstanding awards, discussed below, that vest in the future using shares of common stock.

15

Restricted Stock Units (“RSUs”).RSUs currently outstanding relate to the 20192021 and 20182019 grants. During the six months ended June 30, 2021, the Company granted RSUs under the plan to certain employees. NaN RSUs were granted in 2020. The 20192021 RSUs granted are a long-term compensation component, subject to service conditions, with one-third of the award vesting each year on January 1, 2022, 2023, and 20182024, respectively.

The 2019 grants were subject to predetermined performance criteria applied against the applicable performance period. All of the 2019 RSUs currently outstanding are also subject to employment-based criteria and, vesting generally occurs in December subject to the satisfaction of the second year afterservice conditions, vesting of the grant.  Seeoutstanding 2019 RSUs will occur in December 2021.

A summary of activity related to RSUs during the table below for anticipatedthree months ended June 30, 2021 is as follows:

Restricted Stock Units

Weighted

    

    

Average

Grant Date Fair

Units

Value Per Unit

Nonvested, December 31, 2020

763,688

$

4.51

Granted

 

698,301

 

4.72

Vested

 

 

Forfeited

 

(19,880)

 

4.51

Nonvested, June 30, 2021

 

1,442,109

4.61

For the outstanding RSUs issued to the eligible employees as of June 30, 2021, vesting by year.is expected to occur as follows (subject to forfeitures): 

    

Restricted

Shares

2021

 

743,808

2022

 

232,767

2023

232,767

2024

232,767

Total

 

1,442,109

We recognize compensation cost for share-based payments to employees over the period during which the recipient is required to provide service in exchange for the award. Compensation cost is based on the fair value of the equity instrument on the date of grant. The fair values for the RSUs granted during 2019,2018 and 2017were determined using the Company’s closing price on the grant date. We also estimate forfeitures, resulting in the recognition of compensation cost only for those awards that are expected to actually vest.

All RSUs awarded are subject to forfeiture until vested and cannot be sold, transferred or otherwise disposed of during the restricted period.

Performance Share Units (“PSUs”). During the six months ended June 30, 2021, the Company granted PSUs under the plan to certain employees. The PSUs are RSU awards granted subject to performance criteria. The performance criteria relates to the evaluation of the Company’s total shareholder return (“TSR”) ranking against peer companies’ TSR for the applicable performance period (2021) and service-based criteria. TSR is determined based on the change in the entity’s stock price plus dividends for the applicable performance period. Subsequent to the performance period, the PSUs will continue to be subject to service-based criteria with vesting occurring on October 1, 2023.

16

A summary of activity related to RSUsPSUs during the sixthree months ended June 30,2020 2021 is as follows:

  

Restricted Stock Units

 
      

Weighted Average

 
      

Grant Date Fair

 
  

Units

  

Value Per Unit

 

Nonvested, December 31, 2019

  1,614,722  $5.73 

Forfeited

  (37,753)  6.21 

Nonvested, June 30, 2020

  1,576,969   5.71 

Performance Share Units

Weighted

    

    

Average

Grant Date Fair

Units

Value Per Unit

Nonvested, December 31, 2020

$

Granted

 

388,908

 

5.57

Vested

 

 

Forfeited

 

 

Nonvested, June 30, 2021

 

388,908

5.57

We recognize compensation cost for share-based payments to employees over the period during which the recipient is required to provide service in exchange for the award. Compensation cost is based on the fair value of the equity instrument on the date of grant. All PSUs awarded are subject to forfeiture until vested and cannot be sold, transferred or otherwise disposed of during the restricted period. The grant date fair value of the PSUs was determined through the use of the Monte Carlo simulation method. This method requires the use of highly subjective assumptions. Our key assumptions in the method include the price and the expected volatility of our stock and our self-determined Peer Group companies’ stock, risk free rate of return and cross-correlations between the Company and our Peer Group companies. The valuation model assumes dividends, if any, are immediately reinvested. The grant date fair value of the PSUs granted during the six months ended June 30 2021, is $2.2 million. The following table summarizes the assumptions used to calculate the grant date fair value of the PSUs granted:

For the outstanding RSUs issued to the eligible employees as of June 30,2020, vesting is expected to occur as follows (subject to forfeitures): 

2021 Grant Date

June 28

Expected term for performance period (in years)

0.5

Expected volatility

67.9

%

Risk-free interest rate

0.1

%

  

Restricted Stock Units

 

2020

  794,814 

2021

  782,155 

Total

  1,576,969 

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

Share-Based Awards to Non-Employee Directors.

Under the W&T Offshore, Inc. 2004 Directors Compensation Plan (as amended from time to time, the “Director Compensation Plan”), shares of restricted stock (“Restricted Shares”) have been granted to the Company’s non-employee directors. Grants to non-employee directors were made during 2019,2018the six months ended June 30, 2021, and 2017.during the year ended December 31, 2020. During the second quarter of 2020, our shareholders approvedapproved increasing the shares available under the Director Compensation Plan by 500,000 shares. As of June 30, 2020, 2021, there were 582,620 410,742 shares of common stockstock available for issuance in satisfaction of awards under the Director Compensation Plan. The shares available are reduced on a one-to-one1-to-one basis when Restricted Shares are granted.

We recognize compensation cost for share-based payments to non-employee directors over the period during which the recipient is required to provide service in exchange for the award. Compensation cost is based on the fair value of the equity instrument on the date of grant. The fair values for the Restricted Shares granted were determined using the Company’s closing price on the grant date. NoNaN forfeitures were estimated for the non-employee directors’ awards.

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. Restricted Shares cannot be sold, transferred or disposed of during the restricted period. The holders of Restricted Shares generally have the same rights as a shareholder of the Company with respect to such Restricted Shares, including the right to vote and receive dividends or other distributions paid with respect to the Restricted Shares.

17

A summary of activity related to Restricted Shares during the sixmonths ended June 30,20202021 is as follows:

 

Restricted Shares

    

Weighted Average

    

Grant Date Fair

 

Shares

  

Value Per Share

Nonvested, December 31, 2019

123,180

  

$ 4.55

Vested

(78,428)

  

3.57

Nonvested, June 30, 2020

44,752

  

6.27

Restricted Shares

Weighted

    

    

Average

Grant Date Fair

Units

Value Per Unit

Nonvested, December 31, 2020

154,128

$

3.64

Granted

 

62,502

 

3.36

Vested

 

(146,404)

 

3.51

Nonvested, June 30, 2021

 

70,226

3.67

ForSubject to the satisfaction of the service conditions, the outstanding Restricted Shares issued to the non-employee directors as of June 30,2020, vesting is expected 2021 are eligible to occur as follows (subject to any forfeitures):vest in 2022.

  

Restricted Shares

 

2021

  29,300 

2022

  15,452 

Total

  44,752 

Share-Based Compensation.  Compensation Expense

Share-based compensation expense is recorded in the line General and administrative expenses in the Condensed Consolidated Statements of Operations. NaN share-based awards have been granted to date in 2020 under the Plan, and therefore, 0 share-based compensation expense for 2020 has been recorded.  The Compensation Committee has deferred its decision regarding the potential awarding of incentive compensation, including by the exercise of discretion.  The tax benefit related to compensation expense recognized under share-based payment arrangements was not meaningful and was minimal due to our income tax situation. A summary of incentive compensation expense under share-based payment arrangements is as follows (in thousands):

 

Three Months Ended June 30,

  

Six Months Ended June 30,

 
 

2020

  

2019

  

2020

  

2019

 

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2021

    

2020

    

2021

    

2020

Share-based compensation expense from:

         

  

  

  

  

Restricted stock units (1)

 $949  $1,189  $1,927  $1,041 

Restricted stock units

$

339

$

949

$

676

$

1,927

Restricted Shares

  70   70   140   140 

 

128

 

70

 

245

 

140

Total

 $1,019  $1,259  $2,067  $1,181 

$

467

$

1,019

$

921

$

2,067

(1)

For the six months ended June 30, 2019, share-based compensation expense includes adjustments for a former executive's forfeitures.

Unrecognized Share-Based Compensation.Compensation Expense

As of June 30,2020, 2021, unrecognized share-based compensation expense related to our awards of RSUs, PSUs, and Restricted Shares was $3.0was $3.9 million, $2.2 million, and $0.2 million, respectively. Unrecognized share-based compensation expense will be recognized through November 2021 December 2023 for RSUs, September 2023 for PSUs, and April 2022 for Restricted Shares.

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

Cash-Based Incentive Compensation.  Compensation

In addition to share-based compensation, both short-term and long-term cash-based incentive awards were granted under the Plan to substantially all eligible employees in 2019 and 2018.  The2021. 

18

Short-term Cash-Based Incentive Compensation.There are two components of the short-term cash-based awards, which are generally a short-term component ofincentive award granted during the Plan, are performance-based awards consisting of one or more business criteria or individual performance criteria and a targeted level or levels of performance with respect to each of such criteria.  In addition, these cash-based awards included an additional financial condition requiring Adjusted EBITDA less reported Interest Expense Incurred (terms as defined in the awards) for any fiscal quarter plus the three preceding quarters to exceed defined levels measured over defined time periods for each cash-based award.  six months ended June 30, 2021.

The first short-term, cash-based award granted in February 2021 was discretionary and subject only to continued employment on the payment dates. The 2021 discretionary bonus award was paid in equal installments on March 15, 2021 and April 15, 2021, to substantially all employees subject to employment on those dates. Incentive compensation expense of $3.8 million and $7.6 million was recognized during the three and six months ended June 30, 2021, respectively, related to these awards.
The second short-term, cash-based award granted in June 2021 is subject to Company performance-based criteria and individual performance criteria. Incentive compensation expense is based on estimates of Company metrics for full-year 2021 and is being recognized during the 2021 service period. Incentive compensation expense for this award was not material during the six months ended June 30, 2021.

NaN cash-based incentive awards have beenwere granted to date in 2020, under the Plan, and therefore, 0 cash-based incentive compensation expense for 2020 has been was recorded.

Long-term Cash-Based Incentive Compensation.

The Compensation Committee has deferred its decision regarding the potential awarding of incentive compensation, including by the exercise of discretion.  During 2018,2021 long-term, cashcash-based awards (“Cash Awards”) were granted to certain employeesin June 2021 and are subject to pre-definedthe same performance-based criteria as the PSU’s noted above. The Company’s TSR ranking against peer companies will be evaluated for the performance criteria.  Expense is recognizedperiod of 2021. Subsequent to the performance period, the Cash Awards will continue to be subject to service-based criteria with vesting occurring on October 1, 2023.

These Cash Awards are accounted for as liability awards and are measured at fair value each reporting date. We recognize compensation cost for share-based payments to employees over the service period oncefrom June 28, 2021 through October 1, 2023. The reporting date fair value of the business criteria, individual performance criteriaawards was determined through the use of the Monte Carlo simulation method. This method requires the use of highly subjective assumptions. Our key assumptions in the method include the price and financial conditionthe expected volatility of our stock and our self-determined peer group companies’ stock, risk-free rate of return, cross-correlations between the Company and our peer group companies, and an appropriate discount rate. The valuation model assumes dividends are met.immediately reinvested. The fair value of the awards as of June 30, 2021, is $2.2 million. As of June 30, 2021, unrecognized compensation expense related to these awards was $2.2 million. The following table summarizes the assumptions used to calculate the fair value of the outstanding long-term Cash Awards as of June 30, 2021:

For the 2019 cash-based awards, a portion of the business criteria and individual2021 Grant Date

June 28

Expected term for performance criteria were achieved.  The financial condition requirement of Adjusted EBITDA less reported Interest Expense Incurred exceeding $200 million over four consecutive quarters was achieved; therefore, incentive compensation expense was recognized over the January 2019 to February 2020 period (the service period of the award).  Payments were made in March 2020 and are subject to all the terms of the 2019 Annual Incentive Award Agreement.(in years)

0.5

Expected volatility

In 2018, the Company, as part of its long-term incentive program, granted67.9

%

Risk-free interest rate

0.1

%

Expected term for cash awardspayment (in years)

2.3

Discount rate used to certain employees that will vest over a three-year service period.  

discount expected cash payment

For the 2018 long-term, cash-based awards, incentive compensation expense was determined based on the Company achieving certain performance metrics for 2018 and is being recognized over the September 2018 to November 2020 period (the service period of the award).  The 2018 long-term, cash-based awards will be eligible for payment on December 14, 2020 subject to participants meeting certain employment-based criteria.

12.1

For the 2018 short-term, cash-based awards, incentive compensation expense was determined based on the Company achieving certain performance metrics for 2018 combined with individual performance criteria for 2018 and was recognized over the January 2018 to February 2019 period.  The 2018 short-term, cash-based awards were paid during March 2019.%

19

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,

 
  

2020

  

2019

  

2020

  

2019

 

Share-based compensation included in:

                

General and administrative expenses

 $1,019  $1,259  $2,067  $1,181 

Cash-based incentive compensation included in:

                

Lease operating expense (1)

     402   849   279 

General and administrative expenses (1)

  159   1,243   3,790   3,338 

Total charged to operating income

 $1,178  $2,904  $6,706  $4,798 

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2021

    

2020

    

2021

    

2020

Share-based compensation included in:

  

  

  

  

General and administrative expenses

$

467

$

1,019

$

921

$

2,067

Cash-based incentive compensation included in:

 

  

 

  

 

  

 

  

Lease operating expense (1)

 

816

 

 

1,655

 

849

General and administrative expenses (1)

 

2,676

 

159

 

5,359

 

3,790

Total charged to operating (loss) income

$

3,959

$

1,178

$

7,935

$

6,706

(1)

(1)

Includes adjustments of accruals to actual payments.

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

9.

Income Taxes 

Tax Benefit and Tax Rate. Income tax benefit for the three months and six months ended June 30, 2021 and 2020 was $12.7 and $8.7million, respectively. For the six months ended June 30, 2021 and 2020, income tax benefit was $12.9 million and $2.2 million, respectively. Income tax benefit forFor the three and six months ended June 30,2019, was $11.7 million and $11.5 million, respectively. 2021, our effective tax rate differed from the statutory Federal tax rate primarily by the impact of state income taxes. For the three and six months ended June 30,2020, our effective tax rate primarily differed from the statutory Federal tax rate for adjustments recorded relatedas a result of to the enactment of the Coronavirus Aid, Relief and Economic SecurityCARES Act (“CARES Act”) on March 27, 2020. The CARES Act modified certain income tax statutes, including changes related to the business interest expense limitation under Internal Revenue Service ("IRS") Code Section 163(j)163(j). During the three months ended June 30, 2019, we reversed a liability related to an uncertain tax position that was effectively settled with the IRS, which resulted in a net tax benefit for the three and six months ended June 30, 2019.  Our effective tax rate was not meaningful19.8% for anyboth the three and six months ended June 30, 2021 and 59.7% and (3.9%) for the three and six months ended June 30, 2020, respectively.

Calculation of Interim Provision for Income Tax. Historically, we have calculated the provision for income taxes during interim reporting periods by applying an estimate of the periods presented.  annual effective tax rate for the full year to income (loss) for the interim period.  In the second quarter of 2021, we concluded that we could not calculate a reliable estimate of our annual effective tax rate. Accordingly, we computed the effective tax rate for the six-month period ending June 30, 2021 using actual results.

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 our deferred tax assets, we consider whether it is more likely than not that some portion or all of them will not be realized.

As of June 30,2020 2021 and December 31, 2019, 2020, our valuation allowance was $45.9$22.8 million and $54.4$22.4 million, respectively, and relates primarily to state net operating losses and the disallowed interest expense limitation carryover.

20

Income Taxes Receivable.  Receivable, Refunds and Payments. As of June 30, 2021 and December 31, 2019, 2020, we haddid 0t have any outstanding current income taxes receivable. During the three and six months ended June 30, 2021, we did 0t receive any income tax refunds or make any income tax payments of significance. During the three and six months ended June 30, 2020 we received an income tax refund of $1.9 million, which was received during the six months ended June 30, 2020.  million. The refund related primarily to a net operating loss (“NOL”) carryback claim for 2017 that was carried back to prior years.

During the six months ended June 30, 2020, we did not make any income tax payments of significance.  During the six months ended June 30, 2019, we did not receive any income tax claims or make any income tax payments of significance.

The tax years 20162017 through 20192020 remain open to examination by the tax jurisdictions to which we are subject.

10.10.        Earnings Per Share

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,

 
  

2020

  

2019

  

2020

  

2019

 

Net (loss) income

 $(5,904) $36,389  $60,076  $(11,372)

Less portion allocated to nonvested shares

     666   707    

Net (loss) income allocated to common shares

 $(5,904) $35,723  $59,369  $(11,372)

Weighted average common shares outstanding

  141,597   140,567   141,571   140,507 
                 

Basic and diluted (loss) earnings per common share

 $(0.04) $0.25  $0.42  $(0.08)
                 

Shares excluded due to being anti-dilutive (weighted-average)

  1,665         2,978 

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2021

    

2020

    

2021

    

2020

Net (loss) income

$

(51,672)

$

(5,904)

$

(52,418)

$

60,076

Less portion allocated to nonvested shares

 

 

 

0

 

707

Net (loss) income allocated to common shares

$

(51,672)

$

(5,904)

$

(52,418)

$

59,369

Weighted average common shares outstanding

 

142,244

 

141,597

 

142,197

 

141,571

Basic and diluted (loss) earnings per common share

$

(0.36)

$

(0.04)

$

(0.37)

$

0.42

Shares excluded due to being anti-dilutive (weighted-average)

880

1,665

899

0

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

11.

Contingencies

Appeal with the Office of Natural Resources Revenue (“ONRR”). In 2009, we recognized allowable reductions of cash payments for royalties owed to the ONRR for transportation of their deepwater production through our subsea pipeline systems. In 2010, the ONRR audited our calculations and support related to this usage fee, and in 2010, we were notified that the ONRR had disallowed approximately $4.7 million of the reductions taken. We recorded a reduction to other revenue in 2010 to reflect this disallowance with the offset to a liability reserve; however, we disagree with the position taken by the ONRR. We filed an appeal with the ONRR, which was denied in May 2014.  On June 17, 2014, we filed an appeal with the IBLA under the Department of the Interior.  On January 27, 2017, the IBLA affirmed the decision of the ONRR requiring W&Tultimately led to pay approximately $4.7 million in additional royalties. We filed a motion for reconsideration of the IBLA decision on March 27, 2017.  Based on a statutory deadline, we filed an appeal of the IBLA decision on July 25, 2017 in the U.S. District Court for the Eastern District of Louisiana.  We were required to postour posting a bond in the amount of $7.2 million and cash collateral of $6.9 million with the surety in order to appeal the IBLA decision, of which the cash collateral held by the surety was subsequently returned during the first quarter of 2020.  On December 4, 2018, 2020. We have continued to pursue our legal rights and, at present, the IBLA denied our motioncase is in front of the U.S. District Court for reconsideration.  On February 4, 2019, wethe Eastern District of Louisiana where both parties have filed our first amended complaint,cross-motions for summary judgment and the governmentopposition briefs. W&T has filed its Answera Reply in the Administrative Record.  On July 9, 2019, we filed an Objection to the Administrative Record and Motion to Supplement the Administrative Record, asking the court to order the government to file a complete privilege log with the record.  Following a hearing on July 31, 2019, the Court ordered the government to file a complete privilege log.  In an Order dated December 18, 2019, the court ordered the government to produce certain contracts subject to a protective order and to produce the remaining documents in dispute to the court for in camera review.  Following in camera review, the Court upheld the government’s assertionsupport of privilege, and the parties are proceeding with drafting Cross-Motions for Summary Judgment, which will be the basis for the court’s ruling.  We filed our Motion for Summary Judgment on June 22, 2020, and we expect the government’s Crossits Motion for Summary Judgment and Oppositionthe government has in turn filed its Reply brief. With briefing now completed, we are waiting for the district court’s ruling on the merits. In compliance with the ONRR’s request for W&T to W&T’s Motion for Summary Judgmentperiodically increase the surety posted in the appeal to be filed by August 26, 2020.cover pre-and post judgement interest, the penal sum of the bond posted is currently $8.2 million.

21

Royalties – “Unbundling” Initiative. TheIn 2016, the ONRR has publicly announced an “unbundling” initiative to revise the methodology employed by producers in determining the appropriate allowances for transportation and processing costs that are permitted to be deducted in determining royalties under Federal oil and gas leases. The ONRR’s initiative requires re-computing allowable transportation and processing costs using revised guidance from the ONRR going back 84 months for every gas processing plant that processed our gas. In the second quarter of 2015, pursuant to the initiative, we received requests from the ONRR for additional data regarding our transportation and processing allowances on natural gas production related to a specific processing plant. We also received a preliminary determination notice from the ONRR asserting that our allocation of certain processing costs and plant fuel use at another processing plant was not allowed as deductions in the determination of royalties owed under Federal oil and gas leases. We have submitted revised calculations covering certain plants and time periods to the ONRR. As of the filing date of this Form 10-Q,10-Q, we have not received a response from the ONRR related to our submissions. These open ONRR unbundling reviews, and any further similar reviews, could ultimately result in an order for payment of additional royalties under our Federal oil and gas leases for current and prior periods. While the amounts paid for the three and six months ended June 30, 2020 2021 and 20192020 were immaterial, we are not able to determine the range of any additional royalties or, if and when assessed, whether such amounts would be material.

Notices of Proposed Civil Penalty Assessment.  During the six months ended June 30, 2020 and 2019,In January 2021, we did not pay any civil penalties toexecuted a Settlement Agreement with the Bureau of Safety and Environmental Enforcement ("BSEE"(“BSEE”) relatedwhich resolved 9 pending civil penalties issued by BSEE. The civil penalties pertained to  Incidents of Noncompliance (“INCs”) at various offshore locations.  We currently have nine open civil penalties issued by the BSEE from INCs, which have not been settled as of the filing date of this Form 10-Q.  The INCs underlying these open civil penalties cite allegedalleging regulatory non-compliance with various safety-related requirements and procedures occurring at separate offshore locations on various dates ranging from between July 2012 to and January 2018.  The proposed civil penalties for these INCs total $7.7 million.  As of June 30, 2020 and December 31,2019, we have accrued approximately $3.5 million, which is our best estimate of the final settlements once all appeals have been exhausted.  Our position is that2018, with the proposed civil penalty amounts totaling $7.7 million. Under the Settlement Agreement, W&T will pay a total of $720,000 in three annual installments. The first installment was paid in March 2021. In addition, W&T committed to implement a Safety Improvement Plan with various deliverables due over a period ending in 2022. During the three months ended June 30, 2021, we did 0t pay any civil penalties are excessive given the specific facts and circumstancesto BSEE related to thesenewly issued INCs.  We are exploring the possibility of settling these civil penalties with the BSEE.

Other Claims. We are a party to various pending or threatened claims and complaints seeking damages or other remedies concerning our 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 our acquisition of properties or related to matters occurring subsequent to our sale of properties. In certain cases, we have indemnified the sellers of properties we have acquired, and in other cases, we have indemnified the buyers of properties we have sold. We are 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 we can give no assurance about the outcome of pending legal and federal or state administrative proceedings and the effect such an outcome may have on us, we believe 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 our consolidated financial position, results of operations or liquidity.

12. Subsequent Events

As described in more detail in Note 2 – Debt, on July 15, 2021, the Company entered into a Waiver and Seventh Amendment to Sixth Amended and Restated Credit Agreement dated effective June 30, 2021, which further amended the Company Credit Agreement and waived certain hedging transaction requirements.

22

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

12.

Subsequent Events

COVID-19 Impacts on Economic Environment.  On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of COVID-19 and the risks to the international community as the virus spread globally beyond its point of origin.  In March 2020, the WHO classified the COVID-19 as a pandemic based on the rapid increase in exposure globally.  During the second quarter of 2020 and thus far during the third quarter of 2020, there have been continued and, in some cases, increasing outbreaks of COVID-19 in the United States, particularly in Houston, Texas, where our corporate office is located, Louisiana and Alabama, where we conduct substantially all of our operations. 

The COVID-19 pandemic and resulting government restrictions, along with decisions by the Russian and Saudi governments to increase supply in March 2020, created a significant decrease in global crude oil demand causing a substantial decrease in crude oil prices and increasing the volatility of the market.  Additionally, prices for NGLs and natural gas decreased in the three months ended June 30, 2020 compared to the prior quarter and prior year levels, all of which have impacted revenues for the three and six months ended June 30, 2020.  This economic environment has caused oil and gas operators to reduce their capital expenditure budgets, reduce activity and shut-in significant production.  The full impact of the COVID-19 pandemic and the volatility in crude oil prices continue to evolve as of the date of this Quarterly Report.  However, the scope and length of this economic downturn and the ultimate effect on the prices of crude oil and natural gas cannot be determined and we could be adversely affected in future periods.

We are actively monitoring the impact on our results of operations, financial position, and liquidity for the remainder of 2020.  In response to the market changes, we have reduced our capital expenditure budget for the remainder of 2020, experienced production shut-ins from non-operated oil and gas properties and shut-in a limited number of our operated oil and gas properties.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

The following discussion and analysis should be read in conjunction with our accompanying unaudited condensed consolidated financial statementsCondensed Consolidated Financial Statements and the notes to those financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.  10-Q (this “Quarterly Report”), as well as our audited Consolidated Financial Statements and the notes thereto in our 2020 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 2020 Annual Report on Form 10-K (the “2020 Annual Report”).

Forward-Looking Statements

The following discussion contains forward-looking statementsinformation in this report includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, 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 involveare 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 risks, uncertainties and assumptions.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. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, such as those statements that address activities, events or developments that we expect, believe or anticipate will or may occur in the future.  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 Item 1A, Risk Factors, and market risks are discussed in Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of our 2020 Annual Report, on Form 10-K for the year ended December 31, 2019 and this Quarterly Report on Form 10-Q, Part II, Item 1A, Risk Factors, and may be discussed or updated from time to time in subsequent reports filed with the Securities and Exchange Commission.

Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We assume no obligation, nor doShould 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 intendor persons acting on our behalf may issue. Except as otherwise required by applicable law, we disclaim any duty to update theseany forward-looking statements.  Unlessstatements, all of which are expressly qualified by the context requires otherwise, referencesstatements in this section, to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q to “W&T,” “we,” “us,” “our” and the “Company” refer to W&T Offshore, Inc. and its consolidated subsidiaries.

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 2020,2021, we hold working interests in 4841 offshore fields in federal and state waters (39(40 fields producing and nine fields1 field capable of producing)producing, with 33 fields in federal waters and 8 in state waters). We currently have under lease approximately 772,000621,700 gross acres (523,000(424,400 net acres) spanning across the OCSouter continental shelf (“OCS”) off the coasts of Louisiana, Texas, Mississippi and Alabama, with approximately 557,0008,000 gross acres in Alabama State waters, 426,800 gross acres on the conventional shelf and approximately 215,000186,900 gross acres in the deepwater. A majority of our daily production is derived from wells we operate. Our interestinterests in fields, leases, structures and equipment are primarily owned by W&T Offshore, Inc. and our wholly-owned subsidiary,subsidiaries, Aquasition LLC, Aquasition II LLC, W & T Energy VI, LLC, a Delaware limited liability companycompanies, and through our proportionately consolidated interest in Monza, as described in more detail in Financial Statements and Supplementary Data – Note 4 –5 Joint Venture Drilling Program under Part I, Item 1 in this Form 10-Q.Quarterly Report.

23

Recent Events

Due to circumstances related to the outbreak ofAs COVID-19 various measuresvaccines have been taken by federal, state and local governments to reduce the rate of spread of COVID-19.  These measures and other factors have resulted in a decrease of generalmore widely distributed, global economic activity is improving and a corresponding decreasecommodity prices are currently at pre-pandemic levels. However, the energy markets remain subject to heightened levels of uncertainty as responses to COVID-19 and COVID-19 variants continue to evolve. We will continue to monitor the effects of the pandemic on the energy markets in global and domestic energy demand impacting commodity pricing.  In addition, actionsthe future.

Under the Consolidated Appropriations Act, 2021 passed by the Organization of Petroleum Exporting CountriesUnited States Congress and other high oil exporting countries like Russia (“OPEC+”) have negatively impacted crude oil prices.  These rapid and unprecedented events have pushed crude oil storage near capacity and driven prices down significantly.  These events have beensigned by the primary causePresident on December 27, 2020, provisions of the significant supply-and-demand imbalanceCARES Act were extended and modified making the Company eligible for oil, significantly lowering oil pricing.  Further, duringa refundable employee retention credit subject to meeting certain criteria. See Financial Statements – Note 1  Basis of Presentation under Part 1, Item 1, and Liquidity and Capital Resources in this Item 2 of this Quarterly Report for additional information.

During the second quarter of 20202021, the Company’s wholly-owned special purpose vehicles, A-I LLC and thus far duringA-II LLC or the third quarter of 2020, there have been continued and, in some cases, increasing outbreaks of COVID-19 inBorrowers, entered into the United States, particularly in Houston, Texas, where our corporate offices are located, and Louisiana and Alabama, where we conduct substantially all of our operations.  These conditions may continue to exist in future periods, constraining our ability to store and move production to downstream markets, or affecting future decisions to delay or curtail development activity or temporarily shut-in production which could further reduce cash flow.

The Company has responded to COVID-19 events and current economic conditions as follows:

Our capital expenditure forecast for 2020 has been reduced significantly from our initial budget in response to the unprecedented decrease in crude oil prices experienced in the first quarter of 2020.  Excluding acquisitions and plugging and abandonment expenditures, we are currently estimating capital expenditures to range from $15 million to $25 million for 2020 and ARO spending to be in the range of $2 million to $4 million.  We continue to closely monitor current and forecasted commodity prices to assess what changes, if any, should be made to our 2020 plans and are unable to predict the duration or impact of COVID-19 and OPEC+ actions have on our business.  Additionally, primarily as a result of substantially lower oil prices, the borrowing base under the Credit Agreement was reduced from $250.0 million to $215.0 million during the second quarter of 2020.

During the second quarter, we shut-in production in selected oil-weighted properties operated by the Company and experienced production shut-ins at certain non-operated properties due to the decline in oil prices.  The Company has restored the majority of such non-operated production that was previously shut-in.  Additionally, the Company was also able to restore some of its operated production that was shut-in due to low oil prices, but continues to monitor commodity prices to determine the appropriate time to return the remaining fields online.

We have taken proactive steps in our field operations and corporate offices to protect the health and safety of our employees and contractors.  At W&T’s corporate offices, the Company mandated a work-from-home policy on March 23, 2020 and ensured that all employees had the ability to continue performing their work duties remotely.  W&T reopened its corporate office and has implemented actions to protect its employees working in its offices.  In our field operations, the Company instituted screening of all personnel prior to entry to heliports, shore-based facilities and Alabama gas treatment plants, which includes a questionnaire and temperature check.  The Company conducts daily temperature screenings at all onshore offices and offshore facilities and implemented procedures for distancing and hygiene at its onshore offices and field locations.  We continue to monitor national, state and local government directives to continually assess our health and safety protocol.

See the Liquidity and Capital Resources section in this Part IISubsidiary Credit Agreement providing for a discussion of our liquidity and other aspects as a resultsecured term loan (“Term Loan”) in an aggregate principal amount equal to $215.0 million. Proceeds of the decreaseTerm Loan were used by the Borrowers to (i) fund the acquisition of the Mobile Bay Properties and the Midstream Assets from the Company and (ii) pay fees, commissions and expenses in commodity prices.   See Item 1A,connection with the transactions contemplated by the Subsidiary Credit Agreement and the other related loan documents, including to enter into certain swap and put derivative contracts.

This transaction is described in more detail underFinancial Statements Risk FactorsNote 4 – Mobile Bay Transaction, under Part 1, Item II1, of this Form 10-Q. Quarterly Report.

Oil and Natural Gas Production and Commodity Pricing

OurOur financial condition, cashcash 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 production volumes for the six months ended June 30, 20202021 were comprised of 37.3%37.4% crude oil and condensate, 10.4%10.0% NGLs and 52.3%52.6% natural gas, determined on a barrel of oil equivalent (“Boe”) using the energy equivalency ratio of six thousand cubic feet (“Mcf”) of natural gas to one barrel of crude oil, condensate or NGLs. The conversion ratio does not assume price equivalency, and the price per one Boe for crude oil, NGLs and natural gas has differed significantly in the past. For the six months ended June 30, 2020, revenues from the sale of crude oil and NGLs made up 68.9% of2021, our total revenues compared to 82.5% for the six months ended June 30, 2019.  Forwere 44.1% higher than the six months ended June 30, 2020 our combined total production expressed in equivalent volumes on a daily basis was 39.7% higher than for the six months ended June 30, 2019, primarily due to the acquisition of the Mobile Bay properties described below.  For the six months ended June 30, 2020, our total revenues were 28.5% lower than the six months ended June 30, 2019 due to lowerhigher realized prices for crude oil, NGLs and natural gas, andwhich were partially offset the higherby lower volumes. See Results of Operations – Six Months Ended June 30, 20202021, Compared to the Six Months Ended June 30, 20192020 in this Item 2 for additional information.

In August 2019, we completed the purchase of Exxon Mobil Corporation's (“Exxon”) interests in and operatorship of oil and gas producing properties in the eastern region of the Gulf of Mexico offshore Alabama and related onshore and offshore facilities and pipelines (the “Mobile Bay Properties”).  For the six months ended June 30, 2020, the average net production of the Mobile Bay Properties was approximately 17,100 net Boe per day.  

Our operating results are strongly influenced by the price of the commodities that we produce and sell. The price of those commodities is affected by both domestic and international factors, including domestic production. During the six months ended June 30, 2020,2021, our average realized crude oil price was $35.57$60.88 per barrel. This is a decreasean increase of 71.2% from our average realized crude oil price of $61.96$35.57 per barrel or 42.6%, forduring the six months ended June 30, 2019.2020. Per the Energy Information Administration ("EIA"), crude oil prices using average West Texas Intermediate ("WTI"(“WTI”) daily spot pricing decreasedincreased to $62.21 per barrel during the six months ended June 30, 2021 compared to $36.58 per barrel during the six months ended June 30, 2020 compared to $57.39 during the six months ended June 30, 2019 representing a decreasean increase of 36.3% for the six months ended June 30, 2020.70.1%. Crude oil prices have partially recovered to pre-pandemic levels from their April 2020 lows with an average WTI spot price of $38.31 per barrel forcaused by the month of June 2020,ongoing COVID-19 pandemic as the vaccines have been more widely distributed and $40.34 per barrel for the first two weeks of July 2020, but still remain depressed compared to the same periods in 2019.

economic activity has increased.

24

Our average realized crude oil sales price differs from the WTI benchmark average crude price primarily due to premiums or discounts, crude oil quality adjustments, volume weighting (collectively referred to as differentials) and other factors. Crude oil quality adjustments can vary significantly by field. All of our crude oil is produced offshore in the Gulf of Mexico and is characterized as Poseidon, Light Louisiana Sweet (“LLS”), Heavy Louisiana Sweet (“HLS”) and others. WTI is frequently used to value domestically produced crude oil, and the majority of our crude oil production is priced using the spot price for WTI as a base price, then adjusted for the type and quality of crude oil and other factors. Similar to crude oil prices, the differentials for our offshore crude oil have also experienced volatility in the past. The monthly average differentials of WTI versus Poseidon, LLS and HLS to WTI for the six months ended June 30, 20202021 averaged ($0.23), $2.06, and $1.60 per barrel, respectively, and each average differential has changed ($0.13), $0.75, and $0.58 per barrel, respectively compared to the six months ended June 30, 2019 decreased approximately $4.00 to $5.002020.

Our average realized price of natural gas of $2.99 per barrel and averaged ($0.36), $2.80, and $2.17 per barrel, respectively, for these three types of crude oilMcf for the six months ended June 30, 2020.

Our2021 was 61.5% higher than the average realized price of natural gas of $1.85 per Mcf for the six months ended June 30, 2020 was lower than the2020. The average realizedHenry Hub ("HH") daily natural gas spot price of $2.81$3.27 per Mcf for the six months ended June 30, 2019 by 34.2%.  The2021 was 74.7% higher than the average Henry Hub ("HH")HH natural gas price of $1.87 per Mcf for the six months ended June 30, 20202020. Per the EIA, this increase was lower thancaused by increased demand related to the increase in economic activity and is somewhat elevated by the much higher average HH natural gasprice in February 2021 caused by much colder-than-normal temperatures across the country.

Our average realized price of $2.84NGLs of $24.94 per Mcfbarrel for the six months ended June 30, 2019 by 34.2%. Per the EIA, this decrease2021 was due to lower demand.  Working inventories of natural gas as of June 30, 2020 were 37%169.6% higher than the comparable year ago period.

Our average realized price of NGLs$9.25 per barrel for the six months ended June 30, 2020 was 52.2% lower than the average realized price for the six months ended June 30, 2019.2020. Two major components of our NGLs, ethane and propane, typically make up over 70% of an average NGL barrel. For the six months ended June 30, 20202021 compared to the six months ended June 30, 2019,2020, average prices for domestic ethane decreasedincreased by 32%81.4% and average domestic propane prices decreasedincreased by 35%189.0% as measured using a price index for Mount Belvieu. The average prices for other domestic NGLs components decreased 28%increased from 87.5% to 43%107.3% for the six months ended June 30, 20202021 compared to the same period in 2019.  Due to the acquisition of the Mobile Bay Properties, our volumes of NGLs have increased, but at lower realized prices than experienced for the Company's overall realized prices.2020. 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.

According to Baker Hughes, the number of working rigs drilling for oil and natural gas on land in the U.S. as reported in their July 17, 202023, 2021 report was significantly lowerhigher than a year ago, decreasingincreasing to 253491 rigs compared to 954253 rigs a year ago. The oil rig count decreasedincreased to 180387 rigs compared to 779180 rigs a year ago and the gas and miscellaneous rigs decreasedincreased to 73104 rigs from 17573 a year ago. In the Gulf of Mexico, the number of working rigs was 1217 rigs (all oil) compared to 25 (23 oil and two natural gas)12 a year ago.

25

Results of Operations

The following tables set forth selected financial and operating data for the periods indicated (all values are net to our interest unless indicated otherwise):

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2021

    

2020

    

Change

2021

    

2020

    

Change

 

 (In thousands, except percentages and per share data)

Financial:

Revenues:

Oil

$

88,013

$

30,645

$

57,368

$

166,153

$

115,295

$

50,858

NGLs

 

8,833

 

1,917

 

6,916

 

18,193

 

8,369

 

9,824

Natural gas

 

32,470

 

21,364

 

11,106

 

68,679

 

50,664

 

18,015

Other

 

3,512

 

1,315

 

2,197

 

5,451

 

5,041

 

410

Total revenues

 

132,828

 

55,241

 

77,587

 

258,476

 

179,369

 

79,107

Operating costs and expenses:

 

  

 

  

 

  

 

  

 

  

 

  

Lease operating expenses

 

47,552

 

28,313

 

19,239

 

89,909

 

83,088

 

6,821

Production taxes

 

1,956

 

1,143

 

813

 

3,952

 

2,059

 

1,893

Gathering and transportation

 

4,824

 

3,301

 

1,523

 

9,143

 

8,750

 

393

Depreciation, depletion, amortization and accretion

 

30,952

 

29,483

 

1,469

 

57,589

 

68,609

 

(11,020)

General and administrative expenses

 

13,986

 

5,628

 

8,358

 

24,698

 

19,591

 

5,107

Derivative loss (gain)

 

81,440

 

15,414

 

66,026

 

106,020

 

(46,498)

 

152,518

Total costs and expenses

 

180,710

 

83,282

 

97,428

 

291,311

 

135,599

 

155,712

Operating (loss) income

 

(47,882)

 

(28,041)

 

(19,841)

 

(32,835)

 

43,770

 

(76,605)

Interest expense, net

 

16,530

 

14,816

 

1,714

 

31,564

 

31,926

 

(362)

Gain on debt transactions

 

 

(28,968)

 

28,968

 

 

(47,469)

 

47,469

Other expense, net

 

 

751

 

(751)

 

963

 

1,474

 

(511)

(Loss) income before income tax (benefit) expense

 

(64,412)

 

(14,640)

 

(49,772)

 

(65,362)

 

57,839

 

(123,201)

Income tax (benefit) expense

 

(12,740)

 

(8,736)

 

(4,004)

 

(12,944)

 

(2,237)

 

(10,707)

Net (loss) income

$

(51,672)

$

(5,904)

$

(45,768)

$

(52,418)

$

60,076

$

(112,494)

Basic and diluted (loss) earnings per common share

$

(0.36)

$

(0.04)

$

(0.32)

$

(0.37)

$

0.42

$

(0.79)

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2020

  

2019

  

Change

  

%

  

2020

  

2019

  

Change

  

%

 
  

(In thousands, except percentages and per share data)

 

Financial:

                                

Revenues:

                                

Oil

 $30,645  $109,195  $(78,550)  (71.9)% $115,295  $195,898  $(80,603)  (41.1)%

NGLs

  1,917   4,640   (2,723)  (58.7)%  8,369   11,088   (2,719)  (24.5)%

Natural gas

  21,364   19,567   1,797   9.2%  50,664   41,405   9,259   22.4%

Other

  1,315   1,299   16   1.2%  5,041   2,390   2,651   110.9%

Total revenues

  55,241   134,701   (79,460)  (59.0)%  179,369   250,781   (71,412)  (28.5)%

Operating costs and expenses:

                                

Lease operating expenses

  28,313   40,341   (12,028)  (29.8)%  83,088   83,797   (709)  (0.8)%

Production taxes

  1,143   317   826   260.6%  2,059   733   1,326   180.9%

Gathering and transportation

  3,301   7,068   (3,767)  (53.3)%  8,750   13,491   (4,741)  (35.1)%

Depreciation, depletion, amortization and accretion

  29,483   38,073   (8,590)  (22.6)%  68,609   71,839   (3,230)  (4.5)%

General and administrative expenses

  5,628   13,328   (7,700)  (57.8)%  19,591   27,437   (7,846)  (28.6)%

Derivative loss (gain)

  15,414   (1,805)  17,219   NM   (46,498)  47,081   (93,579)  NM 

Total costs and expenses

  83,282   97,322   (14,040)  (14.4)%  135,599   244,378   (108,779)  (44.5)%

Operating (loss) income

  (28,041)  37,379   (65,420)  NM   43,770   6,403   37,367   583.6%

Interest expense, net

  14,816   12,207   2,609   21.4%  31,926   28,489   3,437   12.1%

Gain on purchase of debt

  (28,968)     (28,968)  NM   (47,469)     (47,469)  NM 
Other expense, net  751   478   273   57.1%  1,474   809   665   82.2%

(Loss) income before income tax benefit

  (14,640)  24,694   (39,334)  NM   57,839   (22,895)  80,734   NM 

Income tax benefit

  (8,736)  (11,695)  2,959   NM   (2,237)  (11,523)  9,286   NM 
Net (loss) income $(5,904) $36,389  $(42,293)  NM  $60,076  $(11,372) $71,448   NM 
Basic and diluted (loss) earnings per common share $(0.04) $0.25  $(0.29)  NM  $0.42  $(0.08) $0.50   NM 

26

NM – not meaningful

25

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2021

    

2020

    

Change

2021

    

2020

    

Change

Operating: (1) (2)

Net sales:

Oil (MBbls)

 

1,352

 

1,414

 

(62)

2,729

 

3,241

 

(512)

NGLs (MBbls)

 

337

 

410

 

(73)

729

 

905

 

(176)

Natural gas (MMcf)

 

12,189

 

12,006

 

183

22,988

 

27,313

 

(4,325)

Total oil equivalent (MBoe)

 

3,721

 

3,826

 

(106)

7,290

 

8,699

 

(1,409)

Average daily equivalent sales (Boe/day)

 

40,888

 

42,047

 

(1,159)

40,278

 

47,795

 

(7,517)

Average realized sales prices:

 

  

 

  

 

  

  

 

  

 

  

Oil ($/Bbl)

$

65.11

$

21.67

$

43.44

$

60.88

$

35.57

$

25.31

NGLs ($/Bbl)

 

26.18

 

4.67

 

21.51

 

24.94

 

9.25

 

15.69

Natural gas ($/Mcf)

 

2.66

 

1.78

 

0.88

 

2.99

 

1.85

 

1.14

Oil equivalent ($/Boe)

 

34.75

 

14.09

 

20.66

 

34.71

 

20.04

 

14.67

Oil equivalent ($/Boe), including realized commodity derivatives)

38.89

8.19

30.69

37.94

16.36

21.58

Average per Boe ($/Boe):

 

  

 

  

 

  

 

  

 

  

 

  

Lease operating expenses

$

12.78

$

7.40

$

5.38

$

12.33

$

9.55

$

2.78

Gathering and transportation

 

1.30

 

0.86

 

0.44

 

1.25

 

1.01

 

0.24

Production costs

 

14.08

 

8.26

 

5.82

 

13.58

 

10.56

 

3.02

Production taxes

 

0.52

 

0.30

 

0.22

 

0.54

 

0.24

 

0.30

DD&A

 

8.32

 

7.71

 

0.61

 

7.90

 

7.89

 

0.01

G&A expenses

 

3.76

 

1.47

 

2.29

 

3.39

 

2.25

 

1.14

Operating costs

$

26.68

$

17.74

$

8.94

$

25.41

$

20.94

$

4.47

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2020

  

2019

  

Change

  

%

  

2020

  

2019

  

Change

  

%

 

Operating: (1)

                                

Net sales:

                                

Oil (MBbls)

  1,414   1,683   (269)  (16.0)%  3,241   3,161   80   2.5%

NGLs (MBbls)

  410   264   146   55.3%  905   573   332   57.9%

Natural gas (MMcf)

  12,006   7,450   4,556   61.2%  27,313   14,738   12,575   85.3%

Total oil equivalent (MBoe)

  3,826   3,189   637   20.0%  8,699   6,190   2,509   40.5%
                                 

Average daily equivalent sales (Boe/day)

  42,037   35,045   6,992   20.0%  47,795   34,201   13,594   39.7%

Average realized sales prices:

                                

Oil ($/Bbl)

 $21.67  $64.86  $(43.19)  (66.6)% $35.57  $61.96  $(26.39)  (42.6)%

NGLs ($/Bbl)

  4.67   17.59   (12.92)  (73.5)%  9.25   19.36   (10.11)  (52.2)%

Natural gas ($/Mcf)

  1.78   2.63   (0.85)  (32.3)%  1.85   2.81   (0.96)  (34.2)%

Oil equivalent ($/Boe)

  14.10   41.83   (27.73)  (66.3)%  20.04   40.13   (20.09)  (50.1)%
                                 

Average per Boe ($/Boe):

                                

Lease operating expenses

 $7.40  $12.65  $(5.25)  (41.5)% $9.55  $13.54  $(3.99)  (29.5)%

Gathering and transportation

  0.86   2.22   (1.36)  (61.3)%  1.01   2.18   (1.17)  (53.7)%

Production costs

  8.26   14.87   (6.61)  (44.5)%  10.56   15.72   (5.16)  (32.8)%

Production taxes

  0.30   0.10   0.20   200.0%  0.24   0.12   0.12    

DD&A

  7.71   11.94   (4.23)  (35.4)%  7.89   11.61   (3.72)  (32.0)%

G&A expenses

  1.47   4.18   (2.71)  (64.8)%  2.25   4.43   (2.18)  (49.2)%
  $17.74  $31.09  $(13.35)  (42.9)% $20.94  $31.88  $(10.94)  (34.3)%

(1)

The conversion to barrels of oil equivalent and cubic feet equivalent were determined using the energy equivalency ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or NGLs (totals may not compute due to rounding). The conversion ratio does not assume price equivalency, and the price on an equivalent basis for oil, NGLs and natural gas may differ significantly.

(2)

Some average figures and variance percentages in this table may not compute due to rounding.

Volume measurements not previously defined:

MBbls — thousand barrels for crude oil, condensate or NGLs

Mcf — thousand cubic feet

MBoe — thousand barrels of oil equivalent

 

McfMMcf — thousandmillion cubic feet

MBoe — thousand barrels of oil equivalent

MMcf — million cubic feet

27

Three Months Ended June 30, 20202021 Compared to the Three Months Ended June 30, 20192020

DueRevenues. The increase in oil revenues was attributable to the decrease and volatilityan increase in crude oil prices andaverage realized sales price per Bbl to a lesser extent, decreases and volatility in natural gas and prices$65.11 from $21.67 for NGLs, the results of the three months ended June 30, 2021 and 2020, may not be indicativerespectively. This was partially offset by a decrease in oil sales volumes of future periods.  See “Liquidity and Capital Resources – Liquidity Overview” below for additional information.

Revenues.  Total revenues decreased $79.5 million, or 59.0%, to $55.2 million4.4% for the three months ended June 30, 20202021 as compared to the three months ended June 30, 2019.  Oil revenues decreased $78.6 million, or 71.9%,same period in the prior year. The increase in NGLs revenues decreased $2.7 million, or 58.7%, natural gas revenues increased $1.8 million, or 9.2%, and other revenues were basically flat.  The decrease in oil revenues was attributable to a 66.6% decreasean increase in the average realized sales price per Bbl to $21.67 per barrel$26.18 from $4.67 for the three months ended June 30, 2021 and 2020, from $64.86 per barrel forrespectively. This was partially offset by a 17.8% decrease in NGL sales volumes during the three months ended June 30, 2019 and a decrease in sales volumes of 16.0%.  The decrease in NGLs revenues was attributable2021 as compared to a 73.5% decreasethe same period in the average realized sales price to $4.67 per barrel for the three months ended June 30, 2020 from $17.59 per barrel for the three months ended June 30, 2019 and was partially offset by an increase in sales volumes of 55.3%.prior year. The increase in natural gas revenues was attributable to an increase in sales volumes of 61.2%, and partially offset by a 32.3% decrease in the average realized price to $2.66 per Mcf from $1.78 per Mcf for the three months ended June 30, 2021 and 2020, from $2.63respectively, and a 1.5% increase in volumes.

Overall, sales volumes decreased 2.7% on a Boe per Mcfday basis primarily due to shut-ins related to well maintenance at the Mahogany field and (to a lesser extent) the Mobile Bay area. We estimate that these shut-ins reduced the produced volumes for the three months ended June 30, 2019.  Overall, production volumes increased 20.0% on a Boe/day basis.  The largest production increases for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 was related to our acquisition of the interests in the Mobile Bay Properties in August 2019, which produced a net average of 15,700 Boe per day during the three months ended June 30, 2020 (impacting NGLs and natural gas volumes), and the acquisition of Garden Banks 783 field (Magnolia) assets in December 2019.  These increases were partially offset2021 by production decreases primarily from natural production declines and shutting in certain operated and non-operated fields.  Our estimate of deferred production for the three months ended June 30, 2020 was approximately 4,1003,198 Boe per day as compared to 4,9004,100 Boe per day for the three months ended June 30, 2019.    

2020.

Revenues from oil and NGLs as a percent of our total revenues were 72.9% for the three months ended June 30, 2021 compared to 58.9% for the three months ended June 30, 2020 compared to 84.5% for the three months ended June 30, 2019.2020. Our average realized NGLs sales price as a percent of our average realized crude oil sales price decreasedincreased to 40.2% for the three months ended June 30, 2021 compared to 21.6% for the three months ended June 30, 2020 compared to 27.1% for the three months ended June 30, 2019.   

2020.

Lease operating expenses.Lease operating expenses, which include base lease operating expenses, workovers, and facilities maintenance decreased $12.0expense, increased $19.2 million, or 29.8%68.0%, for the three months ended June 30, 2021 compared to $28.3the three months ended June 30, 2020. On a component basis, base lease operating expenses increased $14.6 million, workover expenses increased $2.0 million, facilities maintenance expense increased $1.4 million, and hurricane repairs increased $1.2 million.

Base lease operating expenses increased primarily due to (i) higher contract labor, equipment rental, and transportation costs of $3.1 million at various fields; (ii) increased incentive compensation costs related to field employees of $2.2 million; (iii) a reduction in credits to expense from prior period royalty adjustments of $2.4 million as compared to the prior period; (iv) a reduction in credits to expense of $2.3 million received in prior period from the PPP funds; and (v) a reduction in credits to expense in the prior year associated with the finalization of the Mobile Bay acquisition. The increases in workover expenses and facilities maintenance expense were due to an increase in projects undertaken. Lastly, we incurred $1.2 million in expenses related to hurricane repairs at various fields during the three months ended June 30, 2021 that we did not incur during the comparable prior year period.

Production taxes. Production taxes increased $0.8 million in the three months ended June 30, 20202021 compared to the three months ended June 30, 2019.  On a component basis, base lease operating expenses decreased $7.9 million, workover expenses decreased $1.0 million, and facilities maintenance expense decreased $3.1 million.  Base lease operating expenses decreased primarily2020 due to shuttingthe increase in certain fields, other cost reductions measures, creditsrealized natural gas prices, increased NGL prices, and to expense due to prior period royalty adjustments of $3.2 million,a lesser extent increased natural gas production volumes.

Gathering and credits to expense related to the PPP of $2.3 milliontransportation. Gathering and were partially offset by the acquisition of the Mobile Bay Properties in August 2019, which had base lease operatingtransportation expenses of $5.1increased $1.5 million for the three months ended June 30, 2020.  In addition, the acquisition of the Magnolia field in December 2019 increased base lease operating expenses by $2.1 million.  The decreases in workover expense and facility maintenance were due to fewer projects undertaken. 

Production taxes.  Production taxes increased $0.8 million to $1.1 million in the three months ended June 30, 20202021 compared to the three months ended June 30, 20192020 primarily due to lower costs in the acquisitioncomparable prior year period that were impacted by credits to expense associated with the finalization of the Mobile Bay Properties, which has operations in state waters. 

Gathering and transportation.  Gathering and transportation expenses decreased $3.8 million to $3.3 million for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 primarily due to lower transportation rates at certain fields and due to shutting in certain fields. 

acquisition.

Depreciation, depletion, amortization and accretion (“DD&A”).  DD&A, which includes accretion for ARO, decreasedincreased to $8.32 per Boe for the three months ended June 30, 2021 from $7.71 per Boe for the three months ended June 30, 2020 from $11.94 per Boe for the three months ended June 30, 2019.2020.  On a nominal basis, DD&A decreased to $29.5 million ,or 22.6%increased 5.0%, for the three months ended June 30, 2020 from $38.1or $1.5 million for the three months ended June 30, 2019.  DD&A on a nominal basis decreased largely due2021 as compared to lower DD&A rate per Boe.  the three months ended June 30, 2020. The rate per BOE decreasedBoe increased year-over-year mostly as a result of increases in the future development costs included in the depreciable base compared to the relatively smaller increase in proved reserves fromover the acquisition of the Mobile Bay Properties.  Partially offsetting was higher costs from increased production.  Other factors affecting the DD&A rate are capital expenditures and revisions to proved reserves volumes.comparable prior year period. 

28

General and administrative expenses (“G&A”). G&A was $5.6increased $8.4 million, or 148.5%, for the three months ended June 30, 2020, decreasing 57.8% from $13.3 million for2021 as compared to the three months ended June 30, 2019.2020. The decreaseincrease was primarily due to (i) increased incentive compensation expenses and payroll expenses of $1.8 million; (ii) a decrease of $5.0 million in G&A credits to expense related to the PPP funds received in the prior period; (iii) an increase in legal costs of $5.0$0.4 million; (iv) a reduction in overhead allocations to partners (credits to expense) of $0.6 million, and lower incentive compensation expenses.  2020 incentive compensation awards have not been granted to date,(v) increases of $0.6 million in other miscellaneous G&A expense items such as software licensing and therefore, no incentive compensation expense for 2020 has been recorded.  surety bond costs.

Derivative loss (gain). The Compensation Committee has deferred its decision regarding the potential awarding of incentive compensation, including by the exercise of discretion.  G&A on a per Boe basis was $1.47 per Boe for the three months ended June 30, 20202021 includes an $81.4 million derivative loss primarily due to increased crude oil and natural gas prices during June 2021 compared to $4.18 per Boe forprices during March 2021, which decreased the three months ended June 30, 2019.

Derivative loss (gain). estimated fair value of open contracts between the two measurement dates. The three months ended June 30, 2020 reflects a $15.4 million derivative loss primarily due to increased crude oil prices during June 2020 compared to oil prices during March 2020, which decreased the estimated fair value of open crude oil contracts between the two measurement dates. Partially offsetting were realized gains from oil swap contracts where the price was below the contract strike price. The three months ended June 30, 2019 reflects a $1.8 million derivative gain primarily due to decreased crude oil prices during June 2019 as compared to oil prices during March 2019, which increased the estimated fair value of open crude oil contracts between the two measurement dates, partially offset by losses from oil swap contracts.

Interest expense, net. Interest expense, net, was $14.8$16.5 million and $12.2$14.8 million for the three months ended June 30, 20202021 and 2019,2020, respectively. The increase of $1.7 million in 2021 is primarily due to lower interest income betweenexpense on the two periods.  Duringprincipal balance of the three months ended June 30, 2019, we accruedTerm Loan, and a reduction in credits to interest income of $4.0 million related to income tax refunds as we received confirmation from the IRS that our refund filings have been approved for payment and was subsequently received during the third quarter of 2019.  In addition  borrowings increased under the Credit Agreementexpense related to the acquisition ofPPP funds received in the Mobile Bay Properties between the two periods and wereprior period; partially offset by reductions to outstanding borrowings (lower interest expense fromexpense) under the PPP of $1.1 million recordedCompany Credit Agreement during the three months ended June 30, 2020.

2021.

Gain on purchase of debt. A gain of $29.0 million was recorded related to the purchase of $45.1 million of principal of our outstanding Senior Second Lien Notes during the three months ended June 30, 2020.

No such transactions occurred during the three months ended June 30, 2021.

Income tax benefit. Our income tax benefit was $8.7$12.7 million and $11.7$8.7 million for the three months ended June 30, 2021 and 2020, and 2019, respectively. For the three months ended June 30, 2021, our income tax benefit differed from the statutory Federal tax rate primarily by the impact of state income taxes. For the three months ended June 30, 2020, our incomeeffective tax benefit was impacted byrate primarily differed from the statutory Federal tax rate for adjustments recorded related to the enactment of the CARES Act on March 27, 2020. The CARES Act modified certain income tax statutes, including changes related to the business interest expense limitation under IRS Code Section 163(j). During the three months ended June 30, 2019, we reversed a liability related to an uncertainOur effective tax position thatrate was resolved resulted in a net tax benefit19.8% for the three months ended June 30, 2019.  Our effective tax rate was not meaningful2021 and 59.7% for the three months ended June 30, 2020 or 2019. 

2020.

As of June 30, 2020, our2021, the valuation allowance was $45.9on our deferred tax assets was $22.8 million. WeWe 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 9 –Income Taxes under Part I, Item 1 of this Form 10-QQuarterly Report for additional information.

Six Months Ended June 30, 20202021 Compared to the Six Months Ended June 30, 2019

Due to the decrease and volatility in crude oil prices and to a lesser extent, decreases and volatility in natural gas and prices for NGLs, the results of the six months ended June 30, 2020 may not be indicative of future periods.  See “Liquidity and Capital Resources – Liquidity Overview” below for additional information.

 

RevenuesTotalThe increase in oil revenues decreased $71.4 million, or 28.5%,was attributable to $179.4 millionan increase in the average realized sales price per Bbl to $60.88 from $35.57 for the six months ended June 30, 2021 and 2020, respectively. This was partially offset by a decrease in oil sales volumes of 15.8%.  The increase in NGLs revenues was attributable to a 169.6% increase in the average realized sales price for the six months ended June 30, 2020 as2021 compared to the six months ended June 30, 2019.  Oil revenues decreased $80.6 million, or 41.1%, NGLs revenues decreased $2.7 million, or 24.5%, natural gas revenues increased $9.3 million, or 22.4%, and other revenues increased $2.7 million due to prior period royalty adjustments recorded during the six months ended June 30, 2020. The decrease in oil revenuesThis was attributable to a 42.6% decrease in the average realized sales price to $35.57 per barrel for the six months ended June 30, 2020 from $61.96 per barrel for the six months ended June 30, 2019, partially offset by an increasea decrease in NGL sales volumes of 2.5%.  The decrease in NGLs revenues was attributable to a 52.2% decrease in the average realized sales price to $9.25 per barrel19.4% for the six months ended June 30, 2020 from $19.36 per barrel for the six months ended June 30, 2019, partially offset by an increase in sales volumes of 57.9%.same period. The increase in natural gas revenues was attributable to ana 61.5% increase in sales volumes of 85.3%, and partially offset by a 34.2% decrease in the average realized sales price to $1.85 per Mcf for the six months ended June 30, 2020 from $2.812021 compared to 2020. This was partially offset by a 15.8% decrease in natural gas sales volumes for the same period. 

Overall, sales volumes decreased 15.7% on a Boe per Mcfday basis primarily due to shut-ins related to adverse weather events and well maintenance at various fields during the six months ended June 30, 2021. We estimate that these shut-ins reduced the produced volumes for the six months ended June 30, 2019.  Overall, production volumes increased 39.7% on a Boe/day basis.  The largest production increases for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 was related to our acquisition of the interests in the Mobile Bay Properties in August 2019, which produced a net average of 17,100 Boe per day during the six months ended June 30 , 2020 (impacting NGLs and natural gas volumes), increases in production at our Ship Shoal 349 (Mahogany) field and the acquisition of the Magnolia field assets in December 2019.  These increases were partially offset2021 by production decreases primarily from natural production declines and shutting in certain operated and non-operated fields.  Our estimate of deferred production for the six months ended June 30, 2020 was approximately 3,8004,200 Boe per day as compared to 6,0003,800 Boe per day for the six months ended June 30, 2019.2020. 

29

Revenues from oil and NGLs as a percent of our total revenues were 71.3% for the six months ended June 30, 2021 compared to 68.9% for the six months ended June 30, 2020 compared to 82.5% for the six months ended June 30, 2019.2020.  Our average realized NGLs sales price as a percent of our average realized crude oil sales price decreasedincreased to 41.0% for the six months ended June 30, 2021 compared to 26.0% for the six months ended June 30, 2020 compared to 31.2% for the six months ended June 30, 2019.2020.   

Lease operating expenses.  Lease operating expenses, which include base lease operating expenses, workovers, and facilities maintenance, decreased $0.7increased $6.8 million, or 0.8%8.2%, to $83.1 million in the six months ended June 30, 20202021 compared to the six months ended June 30, 2019.2020.  On a component basis, base lease operating expenses increased $8.0$1.5 million, workover expenses decreased $4.5increased $1.0 million, and facilities maintenance expense decreased $4.2increased $0.5 million, and hurricane repairs increased $3.8 million. 

Base lease operating expenses decreasedincreased during the six months ended June 30, 2021 primarily from shuttingdue to (i) higher contract labor, equipment rental, and transportation costs of $1.3 million at various fields; (ii) increased incentive compensation costs related to field employees of $2.2 million; (iii) a reduction in certain fields, cost reduction measures, credits to expense due tofrom prior period royalty adjustments of $6.7$1.1 million andas compared to the prior period; (iv) a reduction in credits to expense related to the PPP of $2.3 million received in prior period from the PPP funds; and were partially offset by increases due(v) a reduction in credits to expense in the acquisitionprior year associated with the finalization of the Mobile Bay Propertiesacquisition; partially offset by (vi) $5.7 million of reduced expenses during the first quarter of 2021 related to successful cost reduction efforts at various fields and other reduced expenses; and (vii) $4.3 million of reduced expenses related to fields that were no longer producing during the six months ended June 30, 2021. The increases in August 2019, which had base lease operatingworkover expenses of $16.5and facilities maintenance expense were due to an increase in projects undertaken. Lastly, we incurred $3.8 million in expenses related to hurricane repairs at various fields during the six months ended June 30, 2021 that we did not incur during the prior year period.

Production taxes. Production taxes increased $1.9 million during the six months ended June 30, 2021 compared to the three months ended June 30, 2020 due to the increase in realized natural gas prices, partially offset by decreased natural gas production volumes.

Gathering and transportation. Gathering and transportation expenses increased $0.4 million for the six months ended June 30, 2020.  In addition, the acquisition of the Magnolia field in December 2019 increased base lease operating expenses by $5.3 million.  The decreases in workover expense and facility maintenance were due to fewer projects undertaken.

Production taxes.  Production taxes increased $1.3 million to $2.1 million in the six months ended June 30, 20202021 compared to the six months ended June 30, 20192020 primarily due to lower costs in the acquisitioncomparable prior year period that were impacted by credits to expense associated with the finalization of the Mobile Bay Properties, which has operations in state waters. 

Gathering and transportation.  Gathering and transportation expenses decreased $4.7 million to $8.8 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to lower transportation rates at certain fields and due to shutting in certain fields. 

acquisition.

Depreciation, depletion, amortization and accretion.  DD&A, which includes accretion for ARO, decreasedincreased to $7.90 per Boe for the six months ended June 30, 2021 from $7.89 per Boe for the six months ended June 30, 2020 from $11.61 per Boe2020.  On a nominal basis, DD&A decreased 16.1%, or $11.0 million for the six months ended June 30, 2019.  On2021 as compared to the six months ended June 30, 2020. The rate per BOE increased year-over-year mostly as a nominal basis, DDresult of increases in future development costs included in the depreciable base compared to the relatively smaller increase in proved reserves and the decrease in production volumes over the same period.  

General and administrative expenses. G&A decreased to $68.6increased $5.1 million, or 4.5%26.1%, for the six months ended June 30, 2020 from $71.8 million for2021 as compared to the six months ended June 30, 2019.  DD&A on a nominal basis decreased largely2020. The increase was primarily due to (i) a decrease of $5.0 million in G&A credits related to the lower rate per Boe.  The rate per BOE decreased mostly asPPP funds received in the prior period; (ii) a resultreduction in overhead allocations to partners (credits to expense) of increases$1.6 million; and (iii) an increase in proved reserves fromlegal costs of $1.2 million; partially offset by (i) the acquisition$2.1 million employee retention credit recognized during the three months ended March 31, 2021, and (ii) a net decrease of $0.6 million in payroll and incentive compensation expenses. See Financial Statements – Note 1  Basis of Presentation under Part 1, Item 1, and Liquidity and Capital Resources in this Item 2 of this Form 10-Q for additional information on the Mobile Bay Properties. Partially offsetting was higher costs from increased production.  Other factors affecting the DD&A rate are capital expenditures and revisions to proved reserves volumes.   employee retention credit.

General and administrative expensesDerivative loss (gain)G&A was $19.6 million for the The six months ended June 30, 2020, decreasing 28.6% from $27.42021 reflects a $106.0 million for the six months ended June 30, 2019.  The decrease wasderivative loss primarily due to credits to expense related to the PPP of $5.0 millionincreased crude oil prices and increased fees for overhead charged to partners (credits to expense).  2020 incentive compensation awards have not been granted to date, and therefore, no incentive compensation expense for 2020 has been recorded.  The Compensation Committee has deferred its decision regarding the potential awarding of incentive compensation, including by the exercise of discretion.  G&A on a per Boe basis was $2.25 per Boe for the six months endednatural gas prices during June 30, 20202021 compared to $4.43 per Boe forprices during December 2020, which decreased the six months ended June 30, 2019.

Derivative (gain) loss. estimated fair value of open contracts between the two measurement dates. The six months ended June 30, 2020 reflects a $46.5 million derivative gain primarily due to realized gains on oil swap contracts where the price was below the strike price and due to decreased crude oil prices during June 2020 as compared to oil prices during December 2019, which increased the estimated fair value of open crude oil contracts between the two measurement dates. The six months ended June

30 2019 reflects a $47.1 million derivative loss primarily due to increased crude oil prices during June 2019 as compared to oil prices during December 2018, which decreased the estimated fair value

Interest expense, net.  Interest expense, net, was $31.9$31.6 million and $28.5$31.9 million for the six months ended June 30, 20202021 and 2019,2020, respectively.  The increasedecrease is primarily due to lowerreductions to outstanding borrowings (lower interest income between the two periods.  During the six months ended June 30, 2019, we accrued interest income of $4.0 million related to income tax refunds as we received confirmation from the IRS that our refund filings had been approved for payment and was subsequently received during the third quarter of 2019.  In addition, borrowings increasedexpense) under the Company Credit Agreement during 2021; partially offset by interest expense on the principal balance of the Term Loan, and a reduction in credits to interest expense related to the acquisition ofPPP funds received in the Mobile Bay Properties between the two periods, which were partially offset by reductions to interest expense from the PPP of $1.1 million recorded during the six months ended June 30, 2020.  prior period.

 

Gain on purchase of debt. A gain of $47.5 million was recorded related to the purchase of $72.5 million of principal of our outstanding Senior Second Lien Notes during the six months ended June 30, 2020. No such transactions occurred during the six months ended June 30, 2021.

 

Income tax expense.benefit. Our income tax benefit was $2.2$12.9 million and $11.5$2.2 million for the six months ended June 30, 2021 and 2020, and 2019, respectively. For the six months ended June 30, 2021, our income tax benefit differed from the statutory Federal tax rate primarily by the impact of state income taxes. For the six months ended June 30, 2020, our incomeeffective tax benefit was impacted byrate primarily differed from the statutory Federal tax rate for adjustments recorded relatedas a result to the enactment of the CARES Act on March 27, 2020. The CARES Act modified certain income tax statutes, including changes related to the business interest expense limitation under IRS Code Section 163(j). During the six months ended June 30, 2019, we reversed a liability related to an uncertainOur effective tax position thatrate was resolved and resulted in a net tax benefit19.8% for the six months ended June 30, 2019.  Our effective tax rate was not meaningful2021 and (3.9)% for the six months ended June 30, 2020 or 2019.  See Financial Statements – Note 9 –Income Taxes under Part I, Item 1 of this Form 10-Q for additional information.2020.

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 AROs.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.

As COVID-19 and other world events impact crude oil prices, and to a lesser degree, natural gas prices, we are actively monitoring the impact on our results of operations, financial position, and liquidity. 

As of June 30, 2020,2021, we had $36.5$209.1 million cash on hand, availability of $128.9 millionno borrowings under theour Company Credit Agreement and no maturities of long-term debt until 2022.  Nonetheless,October 2023, other than scheduled quarterly amortization payments under the impactTerm Loan (see Financial Statements – Note 2 – Debt, under Part I, Item 1 of unprecedented decline in oil prices during March and April of 2020 were severe and so dramatic as to threaten the entire oil and gas industry, including the Company, should the decline persisted. Oil prices began recovering in May 2020 and continued to improve through mid-July 2020, but not to the levels experienced in 2019.  Natural gas prices have remained at 2nd quarter levels through July 2020.  In reaction to these events, we moved quickly to preserve resources and protect the health of our employees and contractors.  Furthermore, we have taken certain actions to address the current economic environment as follows:

this Quarterly Report for additional information). We have reduced our capital expenditure budget for the remainder of 2020.  Excluding acquisitions and plugging and abandonment expenditures, we are estimating capital expenditures to be approximately $15 million to $25 million for 2020.  ARO (plugging and abandonment) spending is estimated to be between of $2 million to $4 million.

Since December 31, 2019, we have reduced the amount outstanding of our Senior Second Lien Notes by $72.5 million to $552.5 million as of June 30, 2020 through purchases in the open market for $23.9 million, resulting in annualized interest savings of $7.1 million.

On June 17, 2020, we entered into the Third Amendment and Waiver to the Credit Agreement, which, among other things, waived the requirement to comply with the Leverage Ratio (as defined in the Credit Agreement) covenant and replaced it with a first lien leverage covenant of 2.00 to 1.00 through year-end 2021.  We expected these revised requirements will allow us to utilize the full availability under the Credit Agreement, if needed, during the Waiver Period.

While we currently expect our cash on hand, net cash provided by operating activities and ourother available sources of liquidity areto be sufficient to meet our cash requirements over the next 12 months. We have recently agreed by amendment to our Company Credit Agreement to refrain from borrowing under our bank credit facility unless and until the next redetermination of our borrowing base, which is scheduled to occur on or about October 1, 2021, and the Company complies with certain revised hedging requirements. We expect that our borrowing base under our Company Credit Agreement will be adjusted in the next scheduled redetermination, including adjustments as a result of the elimination of the Mobile Bay assets as collateral under the Company Credit Agreement.

We are actively monitoring the debt capital markets, and we intend to seek financing with longer tenors and market based covenants to continue to monitor the evolving situation. In the eventprovide working and potential acquisition capital. The terms of long-term market deterioration, thesuch financing, which may replace or augment our current Company Credit Agreement, may need additional liquidity, which would require us to evaluate alternatives and take appropriate actions.vary significantly from those under our current Company Credit Agreement.

31

Sources and Uses of Cash

Cash Flow Overview

Sources (Uses) of Cash
(in thousands)

Six Months Ended June 30, 

    

2021

2020

    

Change

Operating activities

 

$

46,194

$

93,478

$

(47,284)

Investing activities

 

(8,932)

 

(40,475)

 

31,543

Financing activities

 

128,160

 

(48,930)

 

177,090

Cash Flow and Working Capital.Operating activities. Net cash provided by operating activities decreased $47.3 million for the six months ended June 30, 2020 and 20192021 compared to the corresponding period in 2020. This was $93.5primarily due to (i) cash derivative payments, the net of which decreased operating cash flows $41.1 million and $106.3 million, respectively.  Production volumes increased by 39.7% measured on a Boe per day basis, which caused revenues to increase by $46.7 million.  Our combined average realized sales price per Boe decreased by 50.1% for the six months ended June 30, 20202021 compared to cash derivative receipts, net, which increased operating cash flows $37.6 million for the six months ended June 30, 2019,2020; and (ii) asset retirement obligation settlements which caused total revenues to decrease $120.8 million.  

Other items affecting operating cash flows were lower receivable balances, which increaseddecreased operating cash flows by $39.7$11.2 million for the six months ended June 30, 2020 compared to a decrease of $18.2$2.2 million for the six months ended June 30, 2019;2020.

Our combined average realized sales price per Boe increased by 73.2% for the six months ended June 30, 2021 compared to the six months ended June 30, 2020, which caused total revenues to increase $106.6 million. The increase to revenues was offset by a 16.2% decrease in total sales volumes during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, which cause revenues to decrease $27.9 million. Other items affecting operating cash flows were (i) higher receivable balances due to increases in realized prices, which decreased operating cash flows by $12.3 million for the six months ended June 30, 2021 compared to an increase of $39.7 million for the six months ended June 30, 2020; and (ii) decreased cash advance balances from joint venture partners, which increaseddecreased operating cash flows by $5.9$3.9 million for the six months ended June 30, 20202021 compared to an increase of $18.5$5.9 million for the six months ended June 30, 2019; higher cash derivative receipts, net, which increased operating cash flows by $37.6 million for the six months ended June 30, 2020 compared to an increase of $12.8 million for the six months ended June 30, 2019; and a return of collateral related to a bond of $6.9 million which occurred during the six months ended June 30, 2020. Other working capital items and share based compensation expense accounted for the remaining changes in net cash provided by operating activitiesactivities.

Investing activities. Net cash used in investing activities primarily represents our acquisitiondecreased $31.5 million for the six months ended June 30, 2021 compared to the corresponding period in 2020. Our current year capital budget is weighted toward the second half of and investments2021, therefore, investing activities have been lower in oil and gas properties and equipment partially offset by sales of such assets.the six months ended June 30, 2021 compared to the same period in 2020. Net cash used in investing activities for the six months ended June 30, 2020 and 2019 was $40.52021 included $3.1 million and $73.1 million, respectively.  Ourin working capital changes associated with capital expenditures on an occurrence basisincurred in 2020 but paid during the six months ended June 30, 2021.

Financing activities. Net cash provided by financing activities increased $177.1 million for the six months ended June 30, 2020 were split approximately 25% for investments in the deep waters of the Gulf of Mexico and approximately 75% for investments on the conventional shelf of the Gulf of Mexico.  During the six months ended June 30, 2019, a deposit was made related2021 compared to the acquisition of the Mobile Bay Properties.

corresponding period in 2020. Net cash usedprovided by financing activities for the six months ended June 30, 2020 and 20192021 was $128.2 million compared to net cash used in financing activities of $48.9 million and $0.8for the six months ended June 30, 2020. The net cash provided for the six months ended June 30, 2021 included the proceeds from the term loan of $208.2 million, respectively.  Duringoffset by repayment of $80.0 million of borrowings under the Company Credit Agreement. The net cash used for the six months ended June 30, 2020 theincluded repayment of $25.0 million of borrowings under the Credit Agreement were paid down by $25.0 million, net, and $23.9 million was used to purchase $72.5 million principal of Senior Second Lien Notes on the open market.  Net cash used by financing activities for the six months ended June 30, 2019 was related to debt issuance costs.

32

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. During the six months ended June 30, 2020,2021 we entered into derivative contracts for crude oil and natural gas for a portion of our future production. See Financial Statements – Note 67 – Derivative Financial Instruments under Part I, Item 1 of this Form 10-QQuarterly Report for additional information. The following table summarizes the historical results of our hedging activities:

    

Three Months Ended

    

Six Months Ended

June 30, 

June 30, 

June 30, 

June 30, 

2021

2020

2021

2020

Crude Oil ($/Bbl):

 

  

 

  

 

  

 

  

Average realized sales price, before the effects of derivative settlements

$

65.11

$

21.67

$

60.88

$

35.57

Effects of realized commodity derivatives

 

(8.86)

 

15.82

 

(7.20)

 

9.87

Average realized sales price, including realized commodity derivative

$

56.25

$

37.49

$

53.68

$

45.44

Natural Gas ($/Mcf)

 

  

 

  

 

  

 

  

Average realized sales price, before the effects of derivative settlements

$

2.66

$

1.78

$

2.99

$

1.85

Effects of realized commodity derivatives

 

(0.28)

 

0.02

 

(0.17)

 

Average realized sales price, including realized commodity derivative

$

2.38

$

1.80

$

2.82

$

1.85

Asset Retirement Obligations. Each quarter, we review and revise our ARO estimates. Our ARO estimates as of June 30, 20202021 and December 31, 20192020 were $374.8$404.0 million and $355.6$392.7 million, respectively. 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 Annual Report on Form 10-K for the year ended December 31, 20192020 for additional information.

Income Taxes. We do not expect to make any significant income tax payments during 20202021, and we collected thedid not have any outstanding current income taxtaxes receivable as of $1.9 million during the six months ended June 30, 2020.2021. See Financial Statements – Note 9 –Income Taxes under Part I, Item 1 of this Form 10-QQuarterly Report for additional information.

Employee Retention Credit. Under the Consolidated Appropriations Act, 2021 passed by the United States Congress and signed by the President on December 27, 2020, provisions of the CARES Act were extended and modified making the Company eligible for a refundable employee retention credit subject to meeting certain criteria. The Company recognized a $2.1 million employee retention credit during the six months ended June 30, 2021 which is included as a credit to General and administrative expenses in the Condensed Consolidated Statement of Operations.

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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.  During the first half of 2020, we significantly reduced our 2020 capital expenditure budget in response to the uncertain commodity price outlook in light of the COVID-19 pandemic. The following table presents our capital expenditures for exploration, development and other leasehold costs (in thousands):

Six Months Ended June 30, 

    

2021

    

2020

 

(In thousands)

Exploration (1)

$

1,309

$

1,686

Development (1)

 

902

 

10,274

Magnolia and Mobile Bay acquisitions

 

471

 

456

Seismic and other

 

3,174

 

2,177

Investments in oil and gas property/equipment – accrual basis

$

5,856

$

14,593

  

Six Months Ended June 30,

 
  

2020

  

2019

 

Exploration (1)

 $1,686  $10,018 

Development (1)

  10,274   43,996 

Magnolia/Mobile Bay acquisition

  456   10,000 

Seismic and other

  2,177   12,884 

Investments in oil and gas property/equipment

 $14,593  $76,898 

(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, 

    

2021

    

2020

 

(In thousands)

Conventional shelf

$

101

$

9,391

Deepwater

 

2,110

 

2,569

Exploration and development capital expenditures – accrual basis

$

2,211

$

11,960

  

Six Months Ended June 30,

 
  

2020

  

2019

 

Conventional shelf

 $9,391  $25,204 

Deepwater

  2,569   28,810 

Exploration and development capital expenditures

 $11,960  $54,014 

Our exploration and development spending decreased $9.7 million compared to prior year, primarily in the conventional shelf area, which includes Alabama state waters, due to the fact that our current year capital budget is weighted toward the second half of 2021. Excluding acquisitions and plugging and abandonment expenditures, we are currently estimating capital expenditures to range from $30.0 million to $60.0 million for 2021 and ARO spending to range from $25.0 million to $35.0 million.

The capital expenditures reported in the above two tables are included within Oil and natural gas properties and other, net on the Condensed Consolidated Balance Sheets.Sheets and recorded on an incurred 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, 2021 included $3.1 million in working capital changes associated with capital expenditures incurred in 2020 but paid during the six months ended June 30, 2021. Our capital expenditures for the six months ended June 30, 20202021 were financed by cash flow from operations and cash on hand.

Drilling Activity

We did not drill any wells in the six months ended June 30, 2021. During the six months ended June 30, 2020, we drilled the East Cameron 349 B-1 well (Cota) to target depth. We expect initial production to commence in the first halffourth quarter of 2021, subject to completion of certain infrastructure and the level of commodity prices. The Cota well is in the Monza Joint Venture Drilling Program. We did not drill any dry holes during the six months ended June 30, 2020. 

 Offshore Lease Awards 

During the six months ended June 30, 2020, we were the apparent high bidder on two blocks in the GulfSee Financial Statements – Note 5 –Joint Venture Drilling Program under Part I, Item 1 of Mexico Lease Sale 254 held by the BOEM on March 18, 2020.  We are the apparent high bidder on one deepwater block, Garden Bank 782, and one shallow water block, Eugene Island Area South block 345.  The two blocks cover a total of approximately 10,760 acres (gross) and we will pay $0.7 million combinedthis Form 10-Q for a 100% working interest once documentation is completed.additional information.

34

Debt

Credit AgreementTerm Loan. As of June 30, 2020, borrowings outstanding under the Credit Agreement were $80.02021, we had $215.0 million of Term Loan principal outstanding. The Term Loan requires quarterly amortization payments commencing September 30, 2021, bears interest at a fixed rate of 7% per annum and letters of credit issued under the Credit Agreement were $6.1 million.  Availability under our Credit Agreement as of June 30, 2020 was $128.9 million.will mature on May 19, 2028. The Credit Agreement matures on October 18, 2022.

On June 17, 2020,the lenders under the Credit Agreement completed their semi-annual borrowing base redetermination and entered into the Third Amendment and Waiver (the “Third Amendment”)Term Loan is non-recourse to the Credit Agreement. AlthoughCompany and its subsidiaries other than Borrowers and the Company hadsubsidiary that owns the equity of Borrowers, and is not violatedsecured by any covenants, the Third Amendment provides less stringent covenant requirements given the recent changesassets other than first lien security interests in the oil and gas markets.  The Third Amendment includes the following changes, among other things, to the Credit Agreement:

The borrowing base under the Credit Agreement was reduced from $250.0 million to $215.0 million.

Increased the interest rate margin by 25 basis points.

Amended the financial covenants as follows:  

During the Waiver Period, the Company will not be required to comply with the Leverage Ratio covenant.

During the Waiver Period, the Company will be required to maintain a 2.00 to 1.00 ratio limit of first lien debt outstanding under the Credit Agreement on the last day of the most recent quarter to EBITDAX for the trailing four quarters.

Increase the requirement to provide first priority liens on properties constituting at least 85% to 90% of total proved reserves of the Company as set forth on reserve reports required to be delivered under the Credit Agreement.

The next redetermination will occurequity in the fallBorrowers and a first lien mortgage security interest and mortgages on certain assets of 2020.  Generally, we must be in compliance with the covenants in our Credit Agreement in order to access borrowings under the Credit Agreement.

We currently have six lenders under our Credit Agreement.  While we do not anticipate any difficulties in obtaining funding from any of these lenders as of the date of the filing of this Quarterly Report, any difficulties in obtaining funding from any of these lenders at this time, any lack of or delay in funding by members of our banking group could negatively impact our liquidity position.  Borrowers (the Mobile Bay Properties). See Financial Statements – Note 2 –Long-Term Debt–Debt under Part I, Item 1 of this Form 10-Q for additional information.

Company Credit Agreement. As of June 30, 2021, we had no borrowings outstanding under the Company Credit Agreement and letters of credit issued under the Company Credit Agreement were $4.4 million. During the six months ended June 30, 2021, we repaid $80.0 million of borrowings. The Company Credit Agreement matures on October 18, 2022.

Availability under our Company Credit Agreement is subject to semi-annual redeterminations of our borrowing base, which was lowered from $215.0 million to $190.0 million following redetermination on January 6, 2021. As of June 30, 2021, we had no borrowings under our Company Credit Agreement and, in light of our expected near term capital needs and our current cash position, we have agreed not to make borrowings under the Company Credit Agreement unless and until the next scheduled redetermination of our borrowing base on or about October 1, 2021 and the Company complies with certain revised hedging requirements (pursuant to the Seventh Amendment executed on July 15, 2021). Generally, we must be in compliance with the covenants in our Company Credit Agreement in order to access borrowings under the Company Credit Agreement.

We anticipate an adjustment to our borrowing base under the Company Credit Agreement in the next scheduled redetermination primarily as a result of the elimination of the Mobile Bay assets as collateral under the Company Credit Agreement and pledge of such assets under the Subsidiary Credit Agreement.

Senior Second Lien Notes.As of June 30, 2020,2021, we had outstanding $552.5 million principal of Senior Second Lien Notes with an interest rate of 9.75% per annum that maturesmature on November 1, 2023. During the six months ended June 30, 2020, we purchased $72.5 million in principal of our outstandingThe Senior Second Lien Notes inare secured by a second-priority lien on all of our assets that are secured under the open market for $23.9 million.Company Credit Agreement. See Financial Statements – Note 2 – Long-Term Debt under Part I, Item 1 of this Form 10-QQuarterly Report for additional information.

Debt Covenants.The Term Loan, Company 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, Company Credit Agreement and the indenture related to the Senior Second Lien Notes. We were in compliance with all applicable covenants of the Term Loan, Company Credit Agreement and the Senior Second Lien Notes indenture as of and for the period ended June 30, 2020.2021. See Financial Statements – Note 2 – Long-Term Debt under Part I, Item 1 of this Form 10-QQuarterly Report for additional information.

PPP.Paycheck Protection Program. On April 15, 2020, the Company received $8.4 million under the PPP. During the eligible period, the Company incurred eligible expenses in excess of the amount received. The PPP funds are structured as a loan, but management of the funds can be forgiven by the SBA. The Company believessubmitted an application for forgiveness to the Company has met all the requirements underSBA on August 20, 2020, requesting that the PPP funds received be applied to apply forspecific covered and non-covered payroll costs. On June 11, 2021, we received notification that the SBA accepted our application and approved forgiveness of such loan, and management's assessment is it is probable the Companyour PPP funds; therefore, we will not be required to repay any of the funds received.  Accordingly, no debt was recorded on the Condensed Consolidated Balance Sheet as of June 30, 2020.  Should the SBA reject the Company's application on the utilization of the funds, the Company may be required to repay all or a portion of the funds received under the PPP under an amortization schedule through April 2025 with an annual interest rate of 1%.grant.

35

Uncertainties

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 agency, 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 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.

Surety Bond Collateral.Some of the sureties that provide us surety bonds used for supplemental financial assurance purposes have historically 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 20202021 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.

Insurance Coverage

Insurance Coverage.We currently carry multiple layers of insurance coverage in our Energy Package (defined as certain insurance policies relating to our oil and gas properties which include named windstorm coverage) covering our operating activities, with higher limits of coverage for higher valued properties and wells. The current policy limits for well control range from $30.0 million to $500.0 million depending on the risk profile and contractual requirements. With respect to coverage for named windstorms, we have a $162.5 million aggregate limit covering all of our higher valued properties, and $150 million for all other properties subject to a retention of $30.0 million.$17.5 million on the conventional shelf properties and $12.5 million on the deepwater properties. Included within the $162.5 million aggregate limit is total loss only (“TLO”) coverage on our Mahogany platform, which has no retention. The operational and named windstorm coverages are effective for one year beginning June 1, 2020.2021. Coverage for pollution causing a negative environmental impact is provided under the well control and other sections within the policy.

Our general and excess liability policies are effective for one year beginning May 1, 20202021 and provide for $300.0 million of coverage for bodily injury and property damage liability, including coverage for liability claims resulting from seepage, pollution or contamination. With respect to the Oil Spill Financial Responsibility requirement under the Oil Pollution Act of 1990, we are required to evidence $150.0$35.0 million of financial responsibility to the BSEE and we have insurance coverage of such amount.

Although we were able to renew our general and excess liability policies effective on May 1, 2020,2021, and our Energy Package effective on June 1, 2020,2021, our insurers may not continue to offer this type and level of coverage to us in the future, or our costs may increase substantially as a result of increased premiums and there could be an increased risk of uninsured losses that may have been previously insured, all of which could have a material adverse effect on our financial condition and results of operations. We are also exposed to the possibility that in the future we will be unable to buy insurance at any price or that if we do have claims, the insurers will not pay our claims. We do not carry business interruption insurance.

Contractual Obligations

Updated information on certain contractual obligations is provided inAs of June 30, 2021, there were no long-term drilling rig commitments. Except for scheduled utilization and our quarterly amortization payments under the Term Loan (see Financial Statements – Note 2 – Long-Term Debt Note 5 – Asset Retirement Obligations and Note 12, Subsequent Events underPart I, Item 1 of this Form 10-Q.  As

36

Quarterly Report), other contractual obligations as of June 30, 20202021 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 Annual Report on Form 10-K for the year ended December 31, 2019.

2020.

Critical Accounting Policies and Estimates

Our significantWe 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 Financial Statements and Supplementary Data under Part II, Item 8 of our 2020 Annual Report on Form 10-K for the year ended December 31, 2019.Report. See Financial Statements – Note 1 – Basis of Presentation under Part 1, Item 1of this Form 10-QQuarterly Report for additional information.

Recent Accounting Pronouncements

See Financial Statements – Note 1 – Basis of PresentationunderPart 1, Item 1,of this Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Information about the types of market risks for the six months ended June 30, 20202021 did not change materially from the disclosures in Quantitative and Qualitative Disclosures About Market Risk under Part II, Item 7A of our 2020 Annual Report on Form 10-K for the year ended December 31, 2019.  However, the declines in crude oil and natural gas prices have caused, and could continue to cause significant financial impacts to us.  See the Liquidity section in Item II above for a discussion on the possible effects.Report. In addition, the information contained herein should be read in conjunction with the related disclosures in our 2020 Annual Report on Form 10-K for the year ended December 31, 2019.Report.

Commodity Price Risk.  Our revenues, profitability and future rate of growth substantially depend upon market prices of crude oil, NGLs and natural gas, which fluctuate widely.  Crude oil, NGLs and natural gas price declines have adversely affected our revenues, net cash provided by operating activities and profitability in the past and sustained current prices would have significant impacts on our business in the future.  During the first half of 2020, we entered into derivative crude oil and natural gas contracts related to a portion of our estimated future production.  We historically have not designated our commodity derivatives as hedging instruments and any future derivative commodity contracts are not expected to be designated as hedging instruments.  Use of these contracts may reduce the effects of volatile crude oil and natural gas prices, but they also may limit future income from favorable price movements. See Financial Statements – Note 6 – Derivative Financial Instruments under Part I, Item 1 of this Form 10-Q for additional information.

Interest Rate Risk.  As of June 30, 2020, we had $80.0 million borrowings outstanding under our Credit Agreement and were subject to the variable London Interbank Offered Rate and the Applicable Margin.  We did not have any derivative instruments related to interest rates.

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, 2020,2021, 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, 2020,2021, 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.

37

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

See Financial Statements – Note 11 –Contingencies under Part I Item 1 of this Form 10-Q for information on various legal proceedings to which we are a party or our properties are subject.

Item 1A. Risk Factors

The COVID-19 pandemic has affected, and may continue to materially adversely affect, our industry, business, financial condition or results of operations.

The COVID-19 pandemic and related economic repercussions have created significant volatility, uncertainty, and turmoil in the oil and gas industry. The COVID-19 outbreak and the responsive actions to limit the spread of the virus have significantly reduced global economic activity, resulting in a decline in the demand for oil, natural gas, and other commodities. These economic consequences have been a primary cause of the significant supply-and-demand imbalance for oil. The current supply-and-demand imbalance and significantly lower oil pricing may continue to affect us, constraining our ability to store and move production to downstream markets, or affecting future decisions to delay or curtail development activity or temporarily shut-in production which could further reduce cash flow.

The extent of the impact of the COVID-19 pandemic and any other future pandemic on our business will depend on the nature, spread and duration of the disease, the responsive actions to contain its spread or address its effects, its effect on the demand for oil and natural gas, the timing and severity of the related consequences on commodity prices and the economy more generally, including any recession resulting from the pandemic, among other things.  Any extended period of depressed commodity prices or general economic disruption as a result of the pandemic would adversely affect our business, financial conditions and results of operations.  In addition to the COVID-19 pandemic has heightened the other risks and uncertaintiesinformation set forth in the “Risk Factors” section of our Annualthis Quarterly Report, on Form 10-K for the year 2019.

We will likely incur greater costs to bring production associated with our shut-in wells back online, and are unable to predict the production levels of such wells once brought back online.

The significant supply/demand balance for oil materially decreased global crude oil prices in the first half of 2020 and generated a surplus of oil.  This significant surplus created a saturation of storage and crude storage constraints, which led us to shut-in production in some of our oil-weighted properties due to the lack of availability and capacity of processing, gathering, storing and transportation systems.  We will likely incur greater costs to bring the associated production back online.  Cost increases necessary to bring the associated wells back online may be significant enough that such wells would become uneconomic at low commodity price levels, which may lead to decreases in our proved reserve estimates and potential impairments and associated charges to our earnings.  If we are able to bring wells back online, there is no assurance that such wells will be as productive following recommencement as they were prior to being shut in.  Such factors could adversely affect our financial condition and results of operations.

Investorsinvestors should carefully consider thesethe risk factors and other cautionary statements included under Part I, Item 1A, Risk Factors, in our 2020 Annual Report, together with all of the other information included in this document, in our AnnualQuarterly Report, on Form 10-K for the year 2019, and in our other public filings, press releaseswhich could materially affect our business, financial condition or future results. Additional risks and discussions withuncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our management.business, financial condition or future results.

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 2020 Annual Report.

38

Item 6. Exhibits

Exhibit
Number

Description

3.1

Amended and Restated Articles of Incorporation of W&T Offshore, Inc. (Incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K, filed February 24, 2006 (File No. 001-32414).)

3.2

Second Amended and Restated Bylaws of W&T Offshore, Inc. (Incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K, filed March 22, 2019 (File No. 001-32414))

3.3

Certificate of Amendment to the Amended and Restated Articles of Incorporation of W&T Offshore, Inc. (Incorporated by reference to Exhibit 3.3 of the Company’s Quarterly Report on Form 10-Q, filed July 31, 2012 (File No. 001-32414))

3.4

Certificate of Amendment to the Amended and Restated Articles of Incorporation of W&T Offshore, Inc., dated as of September 6, 2016. (Incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K, filed September 6, 2016 (File No. 001-32414))

10.1

ThirdWaiver, Consent and Sixth Amendment to Sixth Amended and Restated Credit Agreement, dated May 19, 2021, by and among W&T Offshore, Inc., the guarantor subsidiaries party thereto, the lenders party thereto, the issuers of letters of credit party thereto and Toronto Dominion (Texas) LLC, individually and as agent. (Incorporated by reference to exhibit 10.1 of the Company’s Current Report on Form 8-K, filed on May 25, 2021 (File No. 001-32414).)

10.2*

Waiver and Seventh Amendment to Sixth Amended and Restated Credit Agreement, dated June 17, 2020, by30, 2021by and among W&T Offshore, Inc., the guarantor subsidiaries party thereto, the lenders party thereto, the issuers of letters of credit party thereto and Toronto Dominion (Texas) LLC, individually and as agentagent.

10.3*

Credit Agreement, dated May 19, 2021, by and among Aquasition LLC, as Borrower, Aquasition II LLC, as Co-Borrower, and Munich Re Reserve Risk Financing, as the various agents and lenders party thereto. (Incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q, filed on June 23, 2020 (File No. 001-32414))

10.4*

Management Services Agreement, dated May 19, 2021, by and among A-I, LLC, A-II LLC, and W&T Offshore, Inc.

10.5*

Restricted Stock Unit Agreement (Service-based Vesting), pursuant to the W&T Offshore, Inc. Amended and Restated Incentive Compensation Plan.

10.6*

Restricted Stock Unit Agreement (Performance Vesting), pursuant to the W&T Offshore, Inc. Amended and Restated Incentive Compensation Plan.

31.1*

Section 302 Certification of Chief Executive Officer.Officer

31.2*

Section 302 Certification of Chief Financial Officer.Officer

32.1*

Section 906 Certification of Chief Executive Officer and Chief Financial Officer.Officer

101.INS*

Inline XBRL Instance Document.Document

101.SCH*

Inline XBRL Schema Document.Document

101.CAL*

Inline XBRL Calculation Linkbase Document.Document

39

101.DEF*

Inline XBRL Definition Linkbase Document.Document

101.LAB*

Inline XBRL Label Linkbase Document.Document

101.PRE*

Inline XBRL Presentation Linkbase Document.Document

104*

104*

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*

*Filed or furnished herewith.

Filed or furnished herewith.


39

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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 6, 2020.

4, 2021.

W&T OFFSHORE, INC.

By:

/s/  Janet Yang

Janet Yang

Executive Vice President and Chief Financial Officer


(Principal Financial Officer), duly authorized to sign on behalf of the registrant

40

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