W&T Offshore, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Supplemental Guarantor Information

Supplemental Guarantor Information

9 Months Ended

Sep. 30, 2018

Supplemental Guarantor Information [Abstract]

13. Supplemental Guarantor Information

On September 30, 2018, our payment obligations under the Prior Credit Agreement, the 1.5 Lien Term Loan, the Second Lien Term Loan, the Second Lien PIK Toggle Notes, the Third Lien PIK Toggle Notes and the Unsecured Senior Notes (collectively, the “Existing Notes”) were fully and unconditionally guaranteed by certain of our 100%-owned subsidiaries, including the Guarantor Subsidiaries. W & T Energy VII, LLC does not currently have any active operations or contain any assets. Subsequent to the 2018 Refinancing Transaction, the New Revolving Credit Agreement and the Senior Second Lien Notes are fully and unconditionally guaranteed by Guarantor Subsidiaries. Under the indentures governing the Existing Notes and the Senior Second Lien Notes, the guarantees of the Guarantor Subsidiaries can be released under certain circumstances, including:

(1)

in connection with any sale or other disposition of all or substantially all of the assets of a Guarantor Subsidiary (including by way of merger or consolidation) to a person that is not (either before or after giving effect to such transaction) the Company or a Restricted Subsidiary, if the sale or other disposition does not violate the Asset Sale provisions (as such capitalized terms are defined in the New Revolving Credit Agreement and Senior Second Lien Notes);

(2)

in connection with any sale or other disposition of the capital stock of such Guarantor Subsidiary to a person that is not (either before or after giving effect to such transaction) the Company or a Restricted Subsidiary of the Company, if the sale or other disposition does not violate the Asset Sale provisions of the New Revolving Credit Agreement and Senior Second Lien Notes and the Guarantor Subsidiary ceases to be a subsidiary of the Company as a result of such sales or disposition;

(3)

if such Guarantor Subsidiary is a Restricted Subsidiary and the Company designates such Guarantor Subsidiary as an Unrestricted Subsidiary in accordance with the applicable provisions of the New Revolving Credit Agreement and Senior Second Lien Notes;

(4)

upon Legal Defeasance or Covenant Defeasance (as such terms are defined in the applicable indenture) or upon satisfaction and discharge of the New Revolving Credit Agreement and Senior Second Lien Notes;

(5)

upon the liquidation or dissolution of such Guarantor Subsidiary, provided no event of default has occurred and is continuing; or

(6)

at such time as such Guarantor Subsidiary is no longer required to be a Guarantor Subsidiary as described in the New Revolving Credit Agreement and Senior Second Lien Notes, provided no event of default has occurred and is continuing.

The following condensed consolidating financial information presents the financial condition, results of operations and cash flows of the Parent Company and the Guarantor Subsidiaries, together with consolidating adjustments necessary to present the Company’s results on a consolidated basis. As a result of the JV Drilling Program, we recorded proportional consolidation adjustments, which are not considered a guarantor asset under our debt agreements and, accordingly, are reported as non-guarantor adjustments in the following tables. Due to the methodology of recording the ceiling-test write down in prior periods, consolidating adjustments are required to present the consolidated results appropriately. The 2018 Refinancing Transaction substantially changed our capital structure. See Note 12, Subsequent Events, for additional information.

Condensed Consolidating Balance Sheet as of September 30, 2018

	Parent Company			Guarantor Subsidiaries			Non-Guarantor Adjustments			Eliminations			Consolidated W&T Offshore, Inc.
	(In thousands)
Assets
Current assets:
Cash and cash equivalents	$	339,063		$	—		$	—		$	—		$	339,063
Receivables:
Oil and natural gas sales		7,946			40,972			564			—			49,482
Joint interest		16,493			—			—			—			16,493
Income taxes		199,203			—			—			(133,963	)		65,240
Total receivables		223,642			40,972			564			(133,963	)		131,215
Prepaid expenses and other assets		16,707			2,956			36			—			19,699
Total current assets		579,412			43,928			600			(133,963	)		489,977

Oil and natural gas properties and other, net		372,660			111,907			49,476			(11,262	)		522,781
Restricted deposits for asset retirement obligations		20,577			—			—			—			20,577
Other assets		637,886			589,084			(51,316	)		(1,106,640	)		69,014
Total assets	$	1,610,535		$	744,919		$	(1,240	)	$	(1,251,865	)	$	1,102,349
Liabilities and Shareholders’ Equity (Deficit)
Current liabilities:
Accounts payable	$	90,260		$	7,318		$	(2,076	)	$	—		$	95,502
Undistributed oil and natural gas proceeds		32,806			1,419			—			—			34,225
Advances from joint interest partners		31,012			-			—			—			31,012
Asset retirement obligations		19,479			10,728			—			—			30,207
Current maturities of long-term debt:
Principal		189,829			—			—			—			189,829
Carrying value adjustments		34,985			—			—			—			34,985
Current maturities of long-term debt - carrying value		224,814			—			—			—			224,814
Accrued liabilities		31,076			133,945			—			(133,963	)		31,058
Total current liabilities		429,447			153,410			(2,076	)		(133,963	)		446,818
Long-term debt:
Principal		713,365			—			—			—			713,365
Carrying value adjustments		45,758			—			—			—			45,758
Long term debt, less current portion - carrying value		759,123			—			—			—			759,123

Asset retirement obligations, less current portion		162,835			120,154			20			—			283,009
Other liabilities		708,461			—			—			(635,286	)		73,175
Shareholders’ equity (deficit):
Common stock		1			—			—			—			1
Additional paid-in capital		549,569			704,885			—			(704,885	)		549,569
Retained earnings (deficit)		(974,734	)		(233,530	)		816			222,269			(985,179	)
Treasury stock, at cost		(24,167	)		—			—			—			(24,167	)
Total shareholders’ equity (deficit)		(449,331	)		471,355			816			(482,616	)		(459,776	)
Total liabilities and shareholders’ equity (deficit)	$	1,610,535		$	744,919		$	(1,240	)	$	(1,251,865	)	$	1,102,349

Condensed Consolidating Balance Sheet as of December 31, 2017

	Parent Company			Guarantor Subsidiaries			Eliminations			Consolidated W&T Offshore, Inc.
	(In thousands)
Assets
Current assets:
Cash and cash equivalents	$	99,058		$	—		$	—		$	99,058
Receivables:
Oil and natural gas sales		5,665			39,778			—			45,443
Joint interest		19,754			—			—			19,754
Income taxes		128,835			—			(115,829	)		13,006
Total receivables		154,254			39,778			(115,829	)		78,203
Prepaid expenses and other assets		11,154			2,265			—			13,419
Total current assets		264,466			42,043			(115,829	)		190,680

Oil and natural gas properties and other, net		430,354			152,464			(3,802	)		579,016
Restricted deposits for asset retirement obligations		25,394			—			—			25,394
Income taxes receivable		52,097			—			—			52,097
Other assets		505,304			453,306			(898,217	)		60,393
Total assets	$	1,277,615		$	647,813		$	(1,017,848	)	$	907,580
Liabilities and Shareholders’ Deficit
Current liabilities:
Accounts payable	$	72,705		$	6,962		$	—		$	79,667
Undistributed oil and natural gas proceeds		18,762			1,367			—			20,129
Advances from joint interest partners		3,998			—			—			3,998
Asset retirement obligations		22,488			1,125			—			23,613
Current maturities of long-term debt - carrying value		22,925			—			—			22,925
Accrued liabilities		18,058			115,701			(115,829	)		17,930
Total current liabilities		158,936			125,155			(115,829	)		168,262
Long-term debt:
Principal		889,790			—			—			889,790
Carrying value adjustments		79,337			—			—			79,337
Long term debt, less current portion - carrying value		969,127			—			—			969,127

Asset retirement obligations, less current portion		152,883			123,950			—			276,833
Other liabilities		566,375			—			(499,509	)		66,866
Shareholders’ equity (deficit):
Common stock		1			—			—			1
Additional paid-in capital		545,820			704,885			(704,885	)		545,820
Retained earnings (deficit)		(1,091,360	)		(306,177	)		302,375			(1,095,162	)
Treasury stock, at cost		(24,167	)		—			—			(24,167	)
Total shareholders’ equity (deficit)		(569,706	)		398,708			(402,510	)		(573,508	)
Total liabilities and shareholders’ equity (deficit)	$	1,277,615		$	647,813		$	(1,017,848	)	$	907,580

Condensed Consolidating Statement of Operations for the Three Months Ended September 30, 2018

	Parent Company			Guarantor Subsidiaries		Non-Guarantor Adjustments		Eliminations			Consolidated W&T Offshore, Inc.
	(In thousands)

Revenues	$	79,740		$	71,964	$	1,755	$	—		$	153,459
Operating costs and expenses:
Lease operating expenses		22,188			15,182		60		—			37,430
Production taxes		432			—		—		—			432
Gathering and transportation		3,193			2,545		41		—			5,779
Depreciation, depletion, amortization and accretion		19,170			15,568		514		1,717			36,969
General and administrative expenses		8,812			7,083		95		—			15,990
Derivative gain		(288	)		—		—		—			(288	)
Total costs and expenses		53,507			40,378		710		1,717			96,312
Operating income		26,233			31,586		1,045		(1,717	)		57,147
Earnings of affiliates		25,977			—		—		(25,977	)		—
Interest expense		11,630			—		—		—			11,630
Other (income) expense, net		(912	)		—		27		—			(885	)
Income before income tax expense (benefit)		41,492			31,586		1,018		(27,694	)		46,402
Income tax expense (benefit)		(5,467	)		5,609		—		—			142
Net income	$	46,959		$	25,977	$	1,018	$	(27,694	)	$	46,260

Condensed Consolidating Statement of Operations for the Nine Months Ended September 30, 2018

	Parent Company			Guarantor Subsidiaries		Non-Gurantor Adjustments		Eliminations			Consolidated W&T Offshore, Inc.
	(In thousands)

Revenues	$	220,796		$	214,264	$	2,224	$	—		$	437,284
Operating costs and expenses:
Lease operating expenses		63,565			46,194		96		—			109,855
Production taxes		1,326			—		—		—			1,326
Gathering and transportation		8,730			6,983		51		—			15,764
Depreciation, depletion, amortization and accretion		58,544			48,125		678		7,460			114,807
General and administrative expenses		22,869			22,073		306		—			45,248
Derivative loss		5,931			—		—		—			5,931
Total costs and expenses		160,965			123,375		1,131		7,460			292,931
Operating income		59,831			90,889		1,093		(7,460	)		144,353
Earnings of affiliates		72,646			—		—		(72,646	)		—
Interest expense		35,100			—		—		—			35,100
Other (income) expense, net		(1,369	)		—		276		—			(1,093	)
Income before income tax expense (benefit)		98,746			90,889		817		(80,106	)		110,346
Income tax expense (benefit)		(17,880	)		18,243		—		—			363
Net income	$	116,626		$	72,646	$	817	$	(80,106	)	$	109,983

Condensed Consolidating Statement of Operations for the Three Months Ended September 30, 2017

									Consolidated
	Parent			Guarantor					W&T
	Company			Subsidiaries		Eliminations			Offshore, Inc.
	(In thousands)
Revenues	$	51,981		$	58,300	$	—		$	110,281
Operating costs and expenses:
Lease operating expenses		18,796			16,338		—			35,134
Production taxes		340			—		—			340
Gathering and transportation		1,804			2,304		—			4,108
Depreciation, depletion, amortization and accretion		18,804			16,855		830			36,489
General and administrative expenses		7,131			8,500		—			15,631
Derivative loss		2,879			—		—			2,879
Total costs and expenses		49,754			43,997		830			94,581
Operating income		2,227			14,303		(830	)		15,700
Earnings of affiliates		13,251			—		(13,251	)		—
Interest expense		11,554			—		—			11,554
Other income, net		(41	)		—		—			(41	)
Income before income tax expense		3,965			14,303		(14,081	)		4,187
Income tax expense		4,432			1,052		—			5,484
Net income (loss)	$	(467	)	$	13,251	$	(14,081	)	$	(1,297	)

Condensed Consolidating Statement of Operations for the Nine Months Ended September 30, 2017

									Consolidated
	Parent			Guarantor					W&T
	Company			Subsidiaries		Eliminations			Offshore, Inc.
	(In thousands)
Revenues	$	163,105		$	194,892	$	—		$	357,997
Operating costs and expenses:
Lease operating expenses		59,823			46,994		—			106,817
Production taxes		1,304			—		—			1,304
Gathering and transportation		6,948			8,687		—			15,635
Depreciation, depletion, amortization and accretion		59,391			55,103		2,349			116,843
General and administrative expenses		20,569			24,810		—			45,379
Derivative gain		(4,765	)		—		—			(4,765	)
Total costs and expenses		143,270			135,594		2,349			281,213
Operating income		19,835			59,298		(2,349	)		76,784
Earnings of affiliates		49,719			—		(49,719	)		—
Interest expense		34,284			—		—			34,284
Gain on exchange of debt		7,811			—		—			7,811
Other expense, net		5,073			—		—			5,073
Income before income tax expense (benefit)		38,008			59,298		(52,068	)		45,238
Income tax expense (benefit)		(20,658	)		9,579		—			(11,079	)
Net income	$	58,666		$	49,719	$	(52,068	)	$	56,317

Condensed Consolidating Statement of Cash Flows for the Nine Months Ended September 30, 2018


	Parent Company			Guarantor Subsidiaries			Non-Guarantor Adjustments			Eliminations			Consolidated W&T Offshore, Inc.
	(In thousands)
Operating activities:
Net income	$	116,626		$	72,646		$	817		$	(80,106	)	$	109,983
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion, amortization and accretion		58,544			48,125			678			7,460			114,807
Amortization of debt items and other items		1,796			—			—			—			1,796
Share-based compensation		3,808			—			—			—			3,808
Derivative loss		5,931			—			—			—			5,931
Cash receipts on derivative settlements, net		(3,091	)		—			—			—			(3,091	)
Deferred income taxes		363			—			—			—			363
Earnings of affiliates		(72,646	)		—			—			72,646			—
Changes in operating assets and liabilities:											—
Oil and natural gas receivables		(2,281	)		(1,194	)		(564	)		—			(4,039	)
Joint interest receivables		3,261			—			—			—			3,261
Income taxes		(18,382	)		18,243			—			—			(139	)
Prepaid expenses and other assets		(36,764	)		(116,777	)		9,297			135,777			(8,467	)
Asset retirement obligation settlements		(15,860	)		(6,904	)		—			—			(22,764	)
Cash advances from JV partners		27,014			—			—			—			27,014
Accounts payable, accrued liabilities and other		196,880			8,157			(2,871	)		(135,777	)		66,389
Net cash provided by operating activities		265,199			22,296			7,357			—			294,852
Investing activities:
Investment in oil and natural gas properties and equipment		(36,462	)		(14,547	)		(8,152	)		—			(59,161	)
Changes in operating assets and liabilities associated with investing activities		(13,307	)		(7,749	)		795			—			(20,261	)
Acquisition of property interest		(16,782	)		—			—			—			(16,782	)
Proceeds from sale of assets		50,474			—			—			—			50,474
Net cash used in investing activities		(16,077	)		(22,296	)		(7,357	)		—			(45,730	)
Financing activities:
Payment of interest on 1.5 Lien Term Loan		(6,171	)		—			—			—			(6,171	)
Payment of interest on 2nd Lien PIK Toggle Notes		(2,920	)		—			—			—			(2,920	)
Other		(26	)		—			—			—			(26	)
Net cash used in financing activities		(9,117	)		—			—			—			(9,117	)
Increase in cash and cash equivalents		240,005			—			—			—			240,005
Cash and cash equivalents, beginning of period		99,058			—			—			—			99,058
Cash and cash equivalents, end of period	$	339,063		$	—		$	—		$	—		$	339,063

Condensed Consolidating Statement of Cash Flows for the Nine Months Ended September 30, 2017

	Parent Company			Guarantor Subsidiaries			Eliminations			Consolidated W&T Offshore, Inc.
	(In thousands)
Operating activities:
Net income	$	58,666		$	49,719		$	(52,068	)	$	56,317
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, depletion, amortization and accretion		59,391			55,103			2,349			116,843
Gain on exchange of debt		(7,811	)		—			—			(7,811	)
Amortization of debt items		1,271			—			—			1,271
Share-based compensation		5,449			—			—			5,449
Derivative gain		(4,765	)		—			—			(4,765	)
Cash receipts on derivative settlements		3,924			—			—			3,924
Deferred income taxes		321			—			—			321
Earnings of affiliates		(49,719	)		—			49,719			—
Changes in operating assets and liabilities:
Oil and natural gas receivables		(2,694	)		6,600			—			3,906
Joint interest receivables		8			—			—			8
Insurance reimbursements		31,740			—			—			31,740
Income taxes		(9,259	)		9,579			—			320
Prepaid expenses and other assets		1,326			(95,523	)		96,391			2,194
Escrow deposit - Apache lawsuit		(49,500	)		—			—			(49,500	)
Asset retirement obligations		(41,381	)		(14,845	)		—			(56,226	)
Cash advances from JV partners		(786	)		—			—			(786	)
Accounts payable, accrued liabilities and other		127,387			(3,881	)		(96,391	)		27,115
Net cash provided by operating activities		123,568			6,752			—			130,320
Investing activities:
Investment in oil and natural gas properties and equipment		(68,831	)		(10,257	)		—			(79,088	)
Changes in operating assets and liabilities associated with investing activities		2,174			3,505			—			5,679
Purchases of furniture, fixtures and other		(905	)		—			—			(905	)
Net cash used in investing activities		(67,562	)		(6,752	)		—			(74,314	)
Financing activities:
Payment of interest on 1.5 Lien Term Loan		(6,170	)		—			—			(6,170	)
Payment of interest on 2nd Lien PIK Toggle Notes		(7,335	)		—			—			(7,335	)
Payment of interest on 3rd Lien PIK Toggle Notes		(6,201	)		—			—			(6,201	)
Other		(372	)		—			—			(372	)
Net cash used in financing activities		(20,078	)		—			—			(20,078	)
Increase in cash, cash equivalents and restricted cash		35,928			—			—			35,928
Cash and cash equivalents, beginning of period		70,236			—			—			70,236
Cash and cash equivalents, end of period	$	106,164		$	—		$	—		$	106,164