2. Acquisitions and Divestitures

2014 Acquisitions

Fairway

On September 15, 2014, the Parent Company entered into an asset purchase agreement with a third party to increase its ownership interest from 64.3% to 100% in the Mobile Bay blocks 113 and 132 located offshore Alabama (the “Fairway Field”) and the associated Yellowhammer gas processing plant (collectively, “Fairway”).  The Fairway Field is located in the state waters of Alabama and the Yellowhammer gas processing plant is located in the state of Alabama.  The effective date of the transaction was July 1, 2014.  The transaction included customary adjustments for the effective date, certain closing adjustments and our assumption of the related ARO.  The purchase price was finalized during the fourth quarter of 2014.  The acquisition was funded from borrowings under our revolving bank credit facility and cash on hand.

 

The following table presents the preliminary purchase price allocation, including estimated adjustments, for the increased ownership interest in Fairway (in thousands):  

The acquisition was recorded at fair value, which was determined using both the market and income approaches, and Level 3 inputs were used to determine fair value.  See Note 1 for a description of the Level 3 inputs.  No goodwill was recorded in connection with the acquisition of this additional working interest in Fairway.

Woodside Properties  

    On May 20, 2014, Energy VI entered into a purchase and sale agreement to acquire certain oil and natural gas property interests from Woodside Energy (USA) Inc. (“Woodside”).  The properties acquired from Woodside (the “Woodside Properties”) consisted of a 20% non-operated working interest in the producing Neptune field (deepwater Atwater Valley blocks 574, 575 and 618), along with an interest in the Neptune tension-leg platform, associated production facilities and various interests in 24 other deepwater lease blocks.  All of the Woodside Properties are located in the Gulf of Mexico.  The effective date of the transaction was November 1, 2013.  The transaction included customary adjustments for the effective date, certain closing adjustments and our assumption of the related ARO.  The acquisition was funded from borrowings under our revolving bank credit facility and cash on hand.

The following table presents the purchase price allocation, including estimated adjustments, for the acquisition of the Woodside Properties (in thousands):  

 

The acquisition was recorded at fair value, which was determined using both the market and income approaches, and Level 3 inputs were used to determine fair value.  See Note 1 for a description of the Level 3 inputs.  No goodwill was recorded in connection with the Woodside Properties acquisition.

2014 Acquisitions — Revenues, Net Income and Pro Forma Financial Information - Unaudited  

The increase in working interest ownership for Fairway was not included in our consolidated results until the property transfer date, which occurred in September 2014 and the incremental revenue and operating expenses were immaterial for 2014.  Unaudited pro forma information is not presented as the pro forma information is not materially different from the reported results for 2014 and 2013.  

The Woodside Properties were not included in our consolidated results until the property transfer date, which occurred on May 20 2014.  For the period of May 20, 2014 to December 31, 2014, the Woodside Properties accounted for $28.4 million of revenues, $5.5 million of direct operating expenses, $11.0 million of DD&A and $4.2 million of income taxes, resulting in $7.7 million of net income.  The net income attributable to the Woodside Properties does not reflect certain expenses, such as general and administrative expenses (“G&A”) and interest expense; therefore, this information is not intended to report results as if these operations were managed on a stand-alone basis.  In addition, the Woodside Properties are not recorded in a separate entity for tax purposes; therefore, income tax was estimated using the federal statutory tax rate.    

In accordance with the applicable accounting guidance, the unaudited pro forma financial information was computed as if the acquisition of the Woodside Properties had been completed on January 1, 2013.  The financial information was derived from W&T’s audited historical consolidated financial statements for annual periods, W&T’s unaudited historical condensed consolidated financial statements for interim periods, and the Woodside Properties’ unaudited historical financial statements for the annual and interim periods.

The pro forma adjustments were based on estimates by management and information believed to be directly related to the purchase of the Woodside Properties.  The pro forma financial information is not necessarily indicative of the results of operations had the purchase occurred on January 1, 2013.  Had we owned the Woodside Properties during the periods indicated, the results may have been substantially different.  For example, we may have operated the assets differently than Woodside; the realized sales prices for oil, natural gas liquids (“NGLs”) and natural gas may have been different; and the costs of operating the Woodside Properties may have been different.

The following table presents a summary of our pro forma financial information (in thousands, except earnings per share):

 

For the pro forma financial information, certain information was derived from our financial records, Woodside’s financial records and certain information was estimated.  

The following table presents incremental items included in the pro forma information reported above for the Woodside Properties (in thousands):

 

The sources of information and significant assumptions are described below:

 

The pro forma adjustments do not include adjustments related to any other acquisitions or divestitures.

 

2013 Acquisition

On October 17, 2013, W&T Offshore, Inc. entered into a purchase and sale agreement to acquire certain oil and natural gas property interests from Callon Petroleum Operating Company (“Callon”).  Pursuant to the purchase and sale agreement, transfers of certain properties that had no preferential rights were consummated on November 5, 2013 and transfers of certain properties subject to preferential rights, of which third-parties declined to exercise their preferential rights, were consummated on December 4, 2013.  The properties acquired from Callon (the “Callon Properties”) consist of a 15% working interest in the Medusa field (deepwater Mississippi Canyon blocks 582 and 583), interest in associated production facilities and various interests in other non-operated fields.  All of the Callon Properties are located in the Gulf of Mexico.  The effective date of the transaction was July 1, 2013.  The transaction included customary adjustments for the effective date, certain closing adjustments and we assumed the related ARO.  An upward net purchase price adjustment of $0.6 million was recorded during 2014.  The acquisition was funded from borrowings under our revolving bank credit facility and cash on hand.

The following table presents the purchase price allocation, including estimated adjustments, for the acquisition of the Callon Properties (in thousands):

 

 

The acquisition was recorded at fair value, which was determined using both the market and income approaches, and Level 3 inputs were used to determine fair value.  See Note 1 for a description of the Level 3 inputs.  No goodwill was recorded in connection with the acquisition of the Callon Properties.

2013 Acquisition — Revenues, Net Income and Pro Forma Financial Information — Unaudited

The Callon Properties were not included in our consolidated results until the respective property transfer dates, which occurred during the fourth quarter of 2013.  In 2014, the Callon Properties accounted for $32.5 million of revenue, $6.6 million of direct operating expenses, $16.4 million of DD&A and $3.3 million of income taxes, resulting in $6.2 million of net income.  In the fourth quarter of 2013, the Callon Properties accounted for $5.8 million of revenues, $1.3 million of direct operating expenses, $2.4 million of DD&A and $0.7 million of income taxes, resulting in $1.4 million of net income.  The net income attributable to these properties does not reflect certain expenses, such as G&A and interest expense; therefore, this information is not intended to report results as if these operations were managed on a stand-alone basis.  In addition, the Callon Properties are not recorded in a separate entity for tax purposes; therefore, income tax was estimated using the federal statutory tax rate.

The unaudited pro forma financial information presented below was computed as if the acquisition of the Callon Properties had been completed on January 1, 2012.  The financial information was derived from W&T’s audited historical consolidated financial statements, the Callon Properties’ audited historical financial statement, and the Callon Properties’ unaudited historical financial statement for the periods presented.

The pro forma adjustments were based on estimates by management and information believed to be directly related to the purchase of the Callon Properties.  The pro forma financial information is not necessarily indicative of the results of operations had the purchase occurred on January 1, 2012.  If the transaction had been in effect for the periods indicated, the results may have been substantially different.  For example, we may have operated the assets differently than Callon; the realized sales prices for oil, NGLs and natural gas may have been different; and the costs of operating the Callon Properties may have been different.    

The following table presents a summary of our pro forma financial information (in thousands except earnings per share):

 

 

For the pro forma financial information, certain information was derived from financial records and certain information was estimated.  The following table presents incremental items included in the pro forma information reported above for the Callon Properties (in thousands):

The sources of information and significant assumptions are described below:

The pro forma adjustments do not include adjustments related to any other acquisitions or divestitures.

2013 Divestitures

On July 11, 2013, we sold our non-operated working interest in two offshore fields located in the Gulf of Mexico; the Green Canyon 60 field and the Green Canyon 19 field.  The effective date was October 1, 2011 and we retained the deep rights in both fields.  Due to the length of time from the effective date, we paid $4.3 million to sell the properties as revenues exceeded operating expenses and the purchase price for the period between the effective date and the close date.  In connection with the sale, we reversed $15.6 million of our ARO.

On September 26, 2013, we sold our working interests in the West Delta area block 29 with an effective date of January 1, 2013.  The property is located in the Gulf of Mexico.  Including adjustments for the effective date, the net proceeds were $14.7 million, which includes a $1.7 million post-effective-date repayment that occurred during 2014.  The transaction was structured as a like-kind exchange under the Internal Revenue Service Code (“IRC”) Section 1031 and other applicable regulations, with funds held by a qualified intermediary until replacement purchases are made.  Replacement purchases were made in 2013, which were within the replacement periods as defined under the IRC.  In connection with this sale, we reversed $3.9 million of ARO.

2012 Acquisitions

On October 5, 2012, we acquired from Newfield Exploration Company and its subsidiary, Newfield Exploration Gulf Coast LLC (together, “Newfield”) certain oil and gas leasehold interests in the Gulf of Mexico (the “Newfield Properties”).  The Newfield Properties consist of leases covering 78 offshore blocks on approximately 416,000 gross acres (268,000 net acres) predominantly in the deepwater.  The effective date was July 1, 2012.  The transaction included customary adjustments for the effective date, certain closing adjustments and we assumed the related ARO.  The consideration and the purchase price allocation are set forth in the table below.  The purchase price was finalized during 2013.  A net purchase price increase of $0.2 million was recorded during 2013.  The acquisition was initially funded from borrowings under our revolving bank credit facility and cash on hand.  Subsequently in the same month, the amounts borrowed under our revolving bank credit facility were paid down with funds provided from the issuance of long-term debt in October 2012.  See Note 7 for information on long-term debt.

The following table presents the purchase price allocation, including adjustments, for the acquisition of the Newfield Properties (in thousands):

 

The acquisition was recorded at fair value, which was determined using both the market and income approaches, and Level 3 inputs were used to determine fair value.  See Note 1 for a description of the Level 3 inputs.  No goodwill was recorded for the Newfield Properties.

2012 Acquisitions — Revenue, Net Income and Pro Forma Financial Information — Unaudited

The Newfield Properties were not included in our consolidated results until the closing date of October 5, 2012.  In 2014, the Newfield Properties accounted for $121.1 million of revenue, $23.5 million of direct operating expenses, $60.5 million of DD&A and $13.0 million of income taxes, resulting in $24.1 million of net income.  In 2013, the Newfield Properties accounted for $127.1 million of revenue, $26.7 million of direct operating expenses, $57.6 million of DD&A and $15.0 million of income taxes, resulting in $27.8 million of net income.  In the fourth quarter of 2012, the Newfield Properties accounted for $29.6 million of revenue, $5.4 million of direct operating expenses, $11.9 million of DD&A and $4.3 million of income taxes, resulting in $8.0 million of net income.  The net income attributable to these properties does not reflect certain expenses, such as G&A expense and interest expense; therefore, this information is not intended to report results as if these operations were managed on a stand-alone basis.  In addition, the Newfield Properties are not recorded in a separate entity for tax purposes; therefore, income tax was estimated using the federal statutory tax rate.

Consistent with the computation of pro forma financial information presented in Item 8, Financial Statements and Supplementary Data, in the Annual Report on Form 10-K for the year end December 31, 2012, the unaudited pro forma financial information was computed as if the acquisition of the Newfield Properties had been completed on January 1, 2011.  The financial information was derived from W&T’s audited historical consolidated financial statements, the Newfield Properties’ audited historical financial statement for 2011 and the Newfield Properties’ unaudited historical financial statements for the 2012 interim period.

The pro forma adjustments were based on estimates by management and information believed to be directly related to the purchase of the Newfield Properties.  The pro forma financial information is not necessarily indicative of the results of operations had the purchase occurred on January 1, 2011.  If the transaction had been in effect for the periods indicated, the results may have been substantially different.  For example, we may have operated the assets differently than Newfield; the realized sales prices for oil, NGLs and natural gas may have been different; and the costs of operating the Newfield Properties may have been different.

The following table presents a summary of our pro forma financial information (in thousands except earnings per share):

 

For the pro forma financial information, certain information was derived from financial records and certain information was estimated.  The following table presents incremental items included in the pro forma information reported above for the Newfield Properties (in thousands):

 The sources of information and significant assumptions are described below:

(a) The adjustments are for the period from January 1, 2012 to October 5, 2012.

The pro forma adjustments do not included adjustments related to any other acquisitions or divestitures.

2012 Divestiture

On May 15, 2012, we sold our 40%, non-operated working interest in the South Timbalier 41 field located in the Gulf of Mexico for $30.5 million, net, with an effective date of April 1, 2012.  The transaction was structured as a like-kind exchange under the IRC Section 1031 and other applicable regulations, with funds held by a qualified intermediary until replacement purchases could be executed.  Replacement purchases were consummated during 2012, which were within the replacement periods as defined under the IRC.  In connection with this sale, we reversed $4.0 million of ARO.