W&T OFFSHORE INC

Previous wording

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 March 31, 2024, we hold working interests in 63 producing offshore fields in federal and state waters (which include 54 fields in federal waters and 9 in state waters). We currently have under lease approximately 693,900 gross acres (536,200 net acres) spanning across the outer continental shelf off the coasts of Louisiana, Texas, Mississippi and Alabama, with approximately 8,000 gross acres in Alabama state waters, 532,400 gross acres on the conventional shelf and approximately 153,500 gross acres in the deepwater. A majority of our daily production is derived from wells we operate.

Current wording

We are an independent oil and natural gas producer, active in the exploration, development and acquisition of oil and natural gas properties in the Gulf of Mexico. As of June 30, 2024, we hold working interests in 63 producing offshore fields in federal and state waters (which include 55 fields in federal waters and 8 in state waters). We currently have under lease approximately 678,100 gross acres (520,400 net acres) spanning across the outer continental shelf off the coasts of Louisiana, Texas, Mississippi and Alabama, with approximately 5,600 gross acres in Alabama state waters, 519,000 gross acres on the conventional shelf and approximately 153,500 gross acres in the deepwater. A majority of our daily production is derived from wells we operate.

Previous wording

In April 2024, the Bureau of Ocean Energy Management (“BOEM”) released a final rule that changes the way BOEM evaluates the financial health of companies and offshore assets in setting financial assurance requirements. Under the new rule, BOEM streamlined the criteria used to evaluate the financial health of an energy company down to two factors: (i) the company’s credit rating, and (ii) the ratio of the company’s proved reserves to decommissioning liability associated with the reserves. The new rule also codifies the usage of Bureau of Safety and Environmental Enforcement decommissioning estimates to evaluate financial assurance requirements and allows third party guarantors (upon agreement with BOEM) to provide limited guarantees to specific amounts or specific leases instead of the blanket guarantees that have been used in the past. Finally, the new rule also requires a base financial assurance requirement of $500,000 for federal rights-of-use and easements (“RUEs”) to match the requirement for state RUEs. To provide the industry with flexibility to meet the new financial assurance requirements, BOEM will allow current lessees and grant holders to request phased-in payments over a three-year period. BOEM estimates that the industry will be required to provide $6.9 billion in new financial assurances under the new rule, which will take effect on June 24, 2024.

Current wording

In April 2024, the Bureau of Ocean Energy Management (“BOEM”) released a final rule that changes the way BOEM evaluates the financial health of companies and offshore assets in setting financial assurance requirements. Under the new rule, BOEM streamlined the criteria used to evaluate the financial health of an energy company down to two factors: (i) the company’s credit rating, and (ii) the ratio of the value of the company’s proved reserves to decommissioning liability associated with those reserves. The new rule also codifies the usage of Bureau of Safety and Environmental Enforcement decommissioning estimates to evaluate supplemental financial assurance requirements and allows third party guarantors (upon agreement with BOEM) to provide limited guarantees to specific amounts or specific leases instead of the blanket guarantees that have been used in the past. Finally, the new rule also requires a base financial assurance requirement of $500,000 for federal rights-of-use and easements (“RUEs”) to match the requirement for state RUEs. To provide the industry with flexibility to meet the new financial assurance requirements, BOEM will allow current lessees and grant holders to request phased-in payments over a three-year period. BOEM estimates that the industry will be required to provide $6.9 billion in new financial assurances under the new rule, which took effect on June 29, 2024. Following the announcement of the new rule, a series of lawsuits from both states and industry groups have been filed against BOEM to block the implementation of the new rule. We are actively monitoring ongoing litigation with respect to the new rule.

Previous wording

On March 28, 2024, we amended the Credit Agreement to extend the maturity date to April 30, 2024.

Current wording

On June 28, 2024, we amended the Credit Agreement to (i) extend the maturity date to December 31, 2024, (ii) prohibit the use of loan proceeds to pay other Indebtedness (as defined in the Credit Agreement), and (iii) lower the excess cash balance sweep threshold.

Previous wording

On May 10, 2024, we declared a regular quarterly dividend of $0.01 per share for the second quarter of 2024. We expect to pay the dividend on May 31, 2024, to stockholders of record as of the close of business on May 24, 2024.

Current wording

On August 6, 2024, we declared a regular quarterly dividend of $0.01 per share for the third quarter of 2024. We expect to pay the dividend on August 27, 2024, to stockholders of record as of the close of business on August 20, 2024.

Previous wording

Spot prices for Henry Hub natural gas averaged $1.49 per MMBtu in March 2024. The U.S. winter natural gas withdrawal season ended with 39% more natural gas in storage compared with the five-year average. The EIA is forecasting that from April 2024 through October 2024, less natural gas will be injected into storage than is typical, largely because the EIA is expecting the U.S. to produce less natural gas on average in the second and third quarters of 2024 compared with the first quarter of 2024. Despite the lower production, the EIA still expects the U.S. will have the most natural gas in storage on record when the winter withdrawal season begins in November. As of result of high inventories, the EIA expects the Henry Hub spot price to average less than $2.00 per MMBtu in the second quarter of 2024 before increasing slightly to $2.15 per MMBtu in the third quarter of 2024. The EIA forecasts that the average spot price for Henry Hub in 2024 will be $2.16 per MMBtu.

Current wording

Spot prices for Henry Hub natural gas averaged $2.53 per MMBtu in June 2024. At the end of June 2024, there was 19% more natural gas in storage compared with the five-year average. The EIA is forecasting that less natural gas will be injected into storage than the five-year average this summer season because of relatively flat production in the second half of 2024 and a seasonal increase in demand from the electric power sector. Despite the relatively flat production, the EIA still expects the U.S. will end the injection season in October 2024 with 6% more natural gas in storage than the five-year average. The EIA is forecasting that Henry Hub spot prices are expected to average $2.86 per MMBtu in the second half of 2024 and $3.29 per MMBtu in 2025.

Previous wording

In addition to the impact of volatile commodity prices on our operations, continuing inflation could also impact our sales margins and profitability. The annual inflation rate for March 2024 was 3.5%, a slight increase from February 2024. In the last few years, these inflationary pressures have caused the Federal Reserve to tighten monetary policy by approving a series of increases to the Federal Funds Rate. As of March 31, 2024, the Federal Reserve benchmark rate ranged from 5.25% to 5.50%. Although the Federal Reserve has stated that they will begin reducing the benchmark rate in 2024, if inflation were to continue to rise, it is possible the Federal Reserve would continue to take action they deem necessary to bring inflation down and to ensure price stability, including further rate increases, which could have the effects of raising the cost of capital and depressing economic growth, either or both of which could negatively impact our business.

Current wording

In addition to the impact of volatile commodity prices on our operations, continuing inflation could also impact our sales margins and profitability. The annual inflation rate for June 2024 was 3.0%, a decrease from the 3.3% rate for May 2024. Although inflation seems to be easing, the Federal Reserve left the fed funds target range steady at 5.25% to 5.50% for a seventh consecutive meeting in June 2024. Policymakers do not expect it will be appropriate to reduce rates until they gain greater confidence that inflation is moving sustainably toward 2%. Policymakers see only one rate cut this year and four reductions in 2025. However, if inflation were to begin to rise again, it is possible the Federal Reserve would continue to take action they deem necessary to bring inflation down and to ensure price stability, including further rate increases, which could have the effects of raising the cost of capital and depressing economic growth, either or both of which could negatively impact our business.

Previous wording

Lease operating expenses* –*Lease operating expenses, which include base lease operating expenses, workovers, and facilities maintenance expense, increased $5.6 million to $70.8 million during the three months ended March 31, 2024 compared to the same period in 2023. On a component basis, base lease operating expenses increased $13.1 million, workover expenses decreased $2.0 million, and facilities maintenance expense decreased $5.5 million.

Current wording

Lease operating expenses* –*Lease operating expenses, which include base lease operating expenses, workovers, and facilities maintenance expense, increased $8.0 million to $74.0 million during the three months ended June 30, 2024 compared to the same period in 2023. On a component basis, base lease operating expenses increased $8.9 million, workover expenses decreased $6.7 million, and facilities maintenance expense increased $5.8 million.

Previous wording

Expenses for direct labor, materials, supplies, repair, third-party costs and insurance comprise the most significant portion of our base lease operating expense. Base lease operating expenses increased primarily due to three months of expenses at the fields acquired in January 2024 and September 2023, as well as higher repair, maintenance and labor costs at other fields.

Current wording

Expenses for direct labor, materials, supplies, repair, third-party costs and insurance comprise the most significant portion of our base lease operating expense. Base lease operating expenses increased primarily due to three months of expenses at the fields acquired in January 2024 and September 2023.

Previous wording

Workover and facilities maintenance expenses consist of costs associated with major remedial operations on completed wells to restore, maintain or improve the well’s production. Since these remedial operations are not regularly scheduled, workover and maintenance expense are not necessarily comparable from period to period. The decreases in workover expenses and facilities maintenance expenses were due to a decrease in projects undertaken.

Current wording

Workover and facilities maintenance expenses consist of costs associated with major remedial operations on completed wells to restore, maintain or improve the well’s production. Since these remedial operations are not regularly scheduled, workover and maintenance expense are not necessarily comparable from period to period. The decrease in workover expenses and the increase in facilities maintenance expenses were due to the timing and mix of projects undertaken.

Previous wording

Depreciation, depletion and amortization (“DD&A”) –*DD&Aincreased $11.3 million for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. The DD&A rate increased to $10.61 per Boe for the three months ended March 31, 2024 from $7.74 per Boe for the three months ended March 31, 2023. The DD&A rate per Boe increased primarily as a result of a higher depreciable base due to our January 2024 acquisition, increases in capital expenditures, future development costs and capitalized ARO and lower proved reserves.

Current wording

Depreciation, depletion and amortization (“DD&A”) –*DD&Aincreased $8.5 million for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023. The DD&A rate increased to $11.55 per Boe for the three months ended June 30, 2024 from $8.37 per Boe for the three months ended June 30, 2023. The DD&A rate per Boe increased primarily as a result of a higher depreciable base due to our January 2024 acquisition, increases in capital expenditures, future development costs and capitalized ARO and lower proved reserves.

Previous wording

Asset retirement obligations accretion expense *–*Accretion expense is the expensing of the changes in value of our ARO as a result of the passage of time over the estimated productive life of the related assets as the discounted liabilities are accreted to their expected settlement values. Accretion expense increased $0.5 million in the three months ended March 31, 2024 compared to the same period in 2023 primarily due to the increase in our ARO liability.

Current wording

Asset retirement obligations accretion expense *–*Accretion expense is the expensing of the changes in value of our ARO as a result of the passage of time over the estimated productive life of the related assets as the discounted liabilities are accreted to their expected settlement values. Accretion expense increased $0.7 million in the three months ended June 30, 2024 compared to the same period in 2023 primarily due to the increase in our ARO liability as a result of our January 2024 acquisition and revisions to the estimates used in calculating the liability.

Previous wording

General and administrative expenses (“G&A”)* –*G&A increased $0.6 million, to $20.5 million for the three months ended March 31, 2024 as compared to $19.9 million for the three months ended March 31, 2023. The increase is primarily due to higher medical claims offset by a decrease in legal expenses.

Current wording

General and administrative expenses (“G&A”)* –*G&A increased $4.0 million to $21.4 million for the three months ended June 30, 2024 as compared to $17.4 million for the three months ended June 30, 2023. The increase is primarily due to non-recurring professional and legal services.

Previous wording

Derivative gain, net* –*During the three months ended March 31, 2024, we recorded a $4.9 million derivative gain for our natural gas derivative contracts consisting of $1.1 million of unrealized gain from the increase in the fair value of our open natural gas contracts and $3.8 million of realized gains. During the three months ended March 31, 2023, we recorded a $39.2 million derivative gainfor our natural gas derivative contracts consisting of $0.2 million in realized losses and $39.4 million of unrealized gain from the increase in the fair value of our open natural gas contracts.

Current wording

Derivative loss (gain), net* –*During the three months ended June 30, 2024, we recorded a $2.4 million derivative loss for our natural gas derivative contracts consisting of $2.7 million of unrealized loss from the decrease in the fair value of our open natural gas contracts and $0.3 million of realized gains. During the three months ended June 30, 2023, we recorded a $0.8 million derivative gainfor our natural gas derivative contracts consisting of $0.3 million in realized losses and $1.1 million of unrealized gain from the increase in the fair value of our open natural gas contracts.

Previous wording

Other expense, net* –*Other expense, net increased $5.0 million for the three months ended March 31, 2024 compared to the same period in 2023 primarily related to the accrual of additional expenses for net abandonment obligations pertaining to a number of legacy Gulf of Mexico properties.

Current wording

Other expense (income), net* –*Other expense, net increased $1.6 million for the three months ended June 30, 2024 compared to the same period in 2023 primarily related to the accrual of additional expenses for net abandonment obligations pertaining to a number of legacy Gulf of Mexico properties.

Previous wording

Production volumes increased by 275 Mboe to 3,199 Mboe during the three months ended March 31, 2024 compared to the same period in 2023, primarily due to both the January 2024 and the September 2023 acquisitions, partially offset by normal production decline on existing wells.

Current wording

Production volumes increased by 84 Mboe to 6,376 Mboe during the six months ended June 30, 2024 compared to the same period in 2023, primarily due to both the January 2024 and the September 2023 acquisitions, partially offset by the change in the NGL and natural gas processing plant and normal production decline on existing wells.

Previous wording

Gathering, transportation and production taxes* –*Gathering, transportation and production taxes increased $1.4 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 primarilydue to higher natural gas production volumes partially offset by the decrease in realized prices for natural gas.

Current wording

Gathering, transportation and production taxes* –*Gathering, transportation and production taxes increased $3.2 million for the six months ended June 30, 2024 compared to the same period in 2023 primarilydue to the increase in production in the three months ended March 31, 2024 and higher processing fees for our Mobile Bay production that had to be re-routed to a different processing plant, partially offset by the decrease in realized prices for natural gas.

Previous wording

Interest expense, net* –*Interest expense, net, decreased $4.6 million for three months ended March 31, 2024 compared to the same period in 2023 due to the redemption of the 9.75% Notes in February 2023 and lower interest expense on the lower outstanding principal balance of the Term Loan, partially offset by interest expense incurred on the 11.75% Notes issued in late January 2023.

Current wording

Interest expense, net* –*Interest expense, net, decreased $4.8 million for the six months ended June 30, 2024 compared to the same period in 2023 due to the redemption of the 9.75% Notes in February 2023 and a decrease in interest expense on the lower outstanding principal balance of the Term Loan, partially offset by interest expense incurred on the 11.75% Notes issued in late January 2023 and a decrease in interest income.

Previous wording

Income tax expense* –*Our effective tax rates for the three months ended March 31, 2024 and 2023 were (10.0)% and 25.0%, respectively. The effective tax rates differed from the statutory federal tax rate primarily due to the impact of state income taxes, nondeductible compensation, and adjustments to the valuation allowance.

Current wording

Income tax (benefit) expense* –*Our effective tax rates for the six months ended June 30, 2024 and 2023 were 11.8% and 45.6%, respectively. The effective tax rates differed from the statutory federal tax rate primarily due to the impact of state income taxes, nondeductible compensation, and adjustments to the valuation allowance.

Previous wording

We expect to support our business requirements primarily with cash on hand and cash generated from operations. As of March 31, 2024, we had $94.8 million cash on hand and $50.0 million available under our Credit Agreement, based on a borrowing base of $50.0 million. We also have up to approximately $83.0 million of availability through our “at-the-market” equity offering program, pursuant to which we may offer and sell shares of our common stock from time to time. Based on our current financial condition and current expectations of future market conditions, we believe our cash on hand, cash flows from operating activities and access to the equity markets from our “at-the-market” equity offering program will provide us with additional liquidity to continue our growth and will allow us to meet our cash requirements for at least the next 12 months.

Current wording

We expect to support our business requirements primarily with cash on hand and cash generated from operations. As of June 30, 2024, we had $123.4 million cash on hand and $50.0 million available under our Credit Agreement, based on a borrowing base of $50.0 million. We also have up to approximately $83.0 million of availability through our “at-the-market” equity offering program, pursuant to which we may offer and sell shares of our common stock from time to time. Based on our current financial condition and current expectations of future market conditions, we believe our cash on hand, cash flows from operating activities and access to the equity markets from our “at-the-market” equity offering program will provide us with additional liquidity to continue our growth and will allow us to meet our cash requirements for at least the next 12 months.

Previous wording

Operating Activities* –*Net cash provided by operating activities decreased $11.8 million for the three months ended March 31, 2024 compared to the corresponding period in 2023. This was primarily due to a $12.1 million increase in net (loss) income adjusted for certain noncash items offset by a$23.9 million decrease in operating cash flows from changes in operating assets and liabilities. The increase in net (loss) income adjusted for certain noncash items primarily related to a $9.1 million increase in revenues anda $7.9 million increase in derivative cash settlements, partially offset by increases in cash operating expenses. The decrease in operating assets and liabilities primarily related to (i) higher accounts receivable balances due to increased revenues, (ii) lower accounts payable and accrued liabilities balances in the current period and (iii) a $4.8 million decrease in ARO settlements.

Current wording

Operating Activities* –*Net cash provided by operating activities decreased $0.5 million for the six months ended June 30, 2024 compared to the corresponding period in 2023. This was primarily due to a $10.4 million increase in net (loss) income adjusted for certain noncash items offset by a$10.9 million decrease in operating cash flows from changes in operating assets and liabilities. The increase in net (loss) income adjusted for certain noncash items was primarily related to a $25.6 million increase in revenues anda $9.4 million increase in derivative cash settlements, partially offset by increases in cash operating expenses. The decrease in operating assets and liabilities primarily related to higher accounts receivable balances due to increased revenues partially offset by higher accounts payable and accrued liabilities balances in the current period.

Previous wording

Investing Activities* –*Net cash used in investing activities increased $74.3 million for the three months ended March 31, 2024 compared to the corresponding period in 2023. This was primarily due to $80.5 million of acquisition of property interests costs, partially offset by a decrease of $6.1 million in investment in oil and natural gas properties and equipment.

Current wording

Investing Activities* –*Net cash used in investing activities increased $59.9 million for the six months ended June 30, 2024 compared to the corresponding period in 2023. This was primarily due to $80.6 million of acquisition of property interests costs, partially offset by a decrease of $11.7 million in investment in oil and natural gas properties and equipment.

Previous wording

*Financing Activities –*Net cash used in financing activities decreased by $291.6 million for the three months ended March 31, 2024 compared to the corresponding period in 2023. This was due to the redemption of the $552.5 million principal amount outstanding 9.75% Notes in February 2023 partially offset by the net cash proceeds of $275.0 million received from the issuance of the 11.75% Notes in January 2023.

Current wording

*Financing Activities –*Net cash used in financing activities decreased by $300.2 million for the six months ended June 30, 2024 compared to the corresponding period in 2023. This was primarily due to the redemption of the $552.5 million principal amount outstanding 9.75% Notes in February 2023 partially offset by the net cash proceeds of $275.0 million received from the issuance of the 11.75% Notes in January 2023.

Previous wording

As of March 31, 2024, we expect to incur an additional $40.0 million to $50.0 million of capital expenditures in the next 12 months, which excludes acquisitions. In our view of the outlook for the remainder of 2024, we believe this level of capital expenditure will leave us with sufficient liquidity to operate our business, while providing liquidity to make strategic acquisitions. At current pricing levels, we expect our cash flows to cover our liquidity requirements, and we expect additional financing sources to be available if needed. If our liquidity becomes stressed from significant or prolonged reductions in realized prices, we have flexibility in our capital expenditure budget to reduce investments. We strive to maintain flexibility in our capital expenditure projects and if commodity prices improve, we may increase our investments.

Current wording

As of June 30, 2024, we expect to incur an additional $30.0 million to $35.0 million of capital expenditures in the next six months, which excludes acquisitions. In our view of the outlook for the remainder of 2024, we believe this level of capital expenditure will leave us with sufficient liquidity to operate our business, while providing liquidity to make strategic acquisitions. At current pricing levels, we expect our cash flows to cover our liquidity requirements, and we expect additional financing sources to be available if needed. If our liquidity becomes stressed from significant or

Previous wording

We have grown by making strategic acquisitions of producing properties in the Gulf of Mexico. We seek opportunities where we can exploit additional drilling projects and reduce costs. In January 2024, we closed on the acquisition of rights, titles and interest in and to certain leases, wells and personal property in the central shelf region of the Gulf of Mexico, among other assets, for $77.2 million, subject to customary purchase price adjustments. The transaction was funded with cash on hand. We also received a final settlement statement for our September 2023 acquisition of certain oil and natural gas producing assets in the central and eastern shelf region of the Gulf of Mexico and recorded an additional $3.3 million of oil and natural gas properties.

Current wording

We have grown by making strategic acquisitions of producing properties in the Gulf of Mexico. We seek opportunities where we can exploit additional drilling projects and reduce costs. In January 2024, we closed on the acquisition of rights, titles and interest in and to certain leases, wells and personal property in the central shelf region of the Gulf of Mexico, among other assets, for $77.3 million, subject to customary purchase price adjustments. The transaction was funded with cash on hand. We also received a final settlement statement for our September 2023 acquisition of certain oil and natural gas producing assets in the central and eastern shelf region of the Gulf of Mexico and recorded an additional $3.3 million of oil and natural gas properties.

Previous wording

We have obligations to plug and abandon wells, remove platforms, pipelines, facilities and equipment and restore the land or seabed at the end of oil and natural gas production operations. Through the three months ended March 31, 2024, we have paid $3.8 million related to these obligations, and we expect to incur an additional $32.0 million to $40.0 million of payments during the next 12 months. Our ARO estimates as of March 31, 2024 and December 31, 2023 were $529.8 million and $498.8 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 Part I, Item 1A.Risk Factors, of our 2023 Annual Report for additional information.

Current wording

We have obligations to plug and abandon wells, remove platforms, pipelines, facilities and equipment and restore the land or seabed at the end of oil and natural gas production operations. Through the six months ended June 30, 2024, we have paid $12.0 million related to these obligations, and we expect to incur an additional $25.0 million to $30.0 million of payments during the next six months. Our ARO estimates as of June 30, 2024 and December 31, 2023 were $534.5 million and $498.8 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 Part I, Item 1A.Risk Factors, of our 2023 Annual Report for additional information.

Previous wording

As of March 31, 2024, we have $399.9 million in aggregate principal amount of long-term debt outstanding, with $8.5 million in aggregate principal coming due over the next twelve months.

Current wording

As of June 30, 2024, we have $399.6 million in aggregate principal amount of long-term debt outstanding, with $16.4 million in aggregate principal coming due over the next twelve months.

Previous wording

On March 5, 2024, our board of directors approved the implementation of a quarterly cash dividend payable to holders of common stock. The initial cash dividend of $0.01 per share of common stock, or $1.5 million, was paid on March 25, 2024, to shareholders of record at the close of business on March 18, 2024. The amount and frequency of future dividends is subject to the discretion of our board of directors and primarily depends on earnings, capital expenditures, debt covenants and various other factors.

Current wording

In November 2023, our board of directors approved the implementation of a quarterly cash dividend payable to holders of common stock. During the six months ended June 30, 2024, we have paid two cash dividends, totaling approximately $3.0 million, to holders of our common stock. The amount and frequency of future dividends is subject to the discretion of our board of directors and primarily depends on earnings, capital expenditures, debt covenants and various other factors.

Previous wording

Below is consolidating statement of operations information reflecting the elimination of the accounts of the Aquasition Entities from our Condensed Consolidated Statement of Operations for the three months ended March 31, 2024 (in thousands):

Current wording

Below is consolidating statement of operations information reflecting the elimination of the accounts of the Aquasition Entities from our Condensed Consolidated Statement of Operations for the six months ended June 30, 2024 (in thousands):