Quarterly report pursuant to Section 13 or 15(d)

Note 1 - Basis of Presentation

v3.20.1
Note 1 - Basis of Presentation
 3 Months Ended
Mar. 31, 2020
Notes to Financial Statements  
Business Description and Basis of Presentation [Text Block]
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, W & T Energy VI, LLC, and through our proportionately consolidated interest in Monza Energy LLC (“Monza”), as described in more detail in Note
4.
 
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
-K for the year ended
December 31, 2019.
 
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 worldly events have significantly impacted the price of crude oil and the demand for crude oil beginning in
March
of
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.  See Note
12,
Subsequent Events
, for additional information.  
 
Accounting Standard Updates effective
January 1, 2020 
 
Credit Losses - 
 In
June 2016,
the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No.
2016
-
13,
Financial Instruments – Credit Losses
(
Topic
326
) (“ASU
2016
-
13”
) and subsequently issued additional guidance on this topic.  The new guidance eliminates 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.
 
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.
 
Revenue Recognition
.
  We recognize revenue from the sale of crude oil, natural gas liquids (“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.
 
Credit Risk and Allowance for Credit Losses. 
 
 Our revenue has been concentrated in certain major oil and gas companies.  For the year ended
December 31, 2019
and for the
three
months ended
March 31, 2020,
approximately
63%
and
57%,
respectively, of our revenue was from
three
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
ten
companies.  A loss methodology is used to develop the allowance for credit losses on material receivables to estimate the net amount to be collected.  The loss methodology uses historical data, current market conditions and forecasts of future economic conditions.  Our maximum exposure at any time would be the receivable balance.  The receivables,
Joint interest and other, net
, reported on the Condensed Consolidated Balance Sheets are reduced for the allowance for credit losses.  The roll forward of the allowance for credit losses is as follows: 
 
 
Allowance for credit losses, December 31, 2019
   $
9,898
  
Additional provisions
    
36
  
Uncollectible accounts written off
    
—
  
Allowance for credit losses, March 31, 2020
   $
9,934
  
 
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):
 
 
   
March 31, 2020
    
December 31, 2019
  
Derivatives - current (1)
   $
64,039
     $
7,266
  
Unamortized bond/insurance premiums
    
4,478
      
4,357
  
Prepaid deposits related to royalties
    
7,555
      
7,980
  
Prepayment to vendors
    
1,825
      
10,202
  
Other
    
761
      
886
  
Prepaid expenses and other assets
   $
78,658
     $
30,691
  
 
 
(
1
)
Includes closed contracts which have
not
yet settled.
 
Oil and Natural Gas Properties and Other, Net
– At Cost.  
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):
 
 
   
March 31, 2020
    
December 31, 2019
  
Oil and natural gas properties and equipment, at cost
   $
8,546,778
     $
8,532,196
  
Furniture, fixtures and other
    
20,387
      
20,317
  
Total property and equipment
    
8,567,165
      
8,552,513
  
Less: Accumulated depreciation, depletion and amortization
    
7,837,121
      
7,803,715
  
Oil and natural gas properties and other, net
   $
730,044
     $
748,798
  
 
Other Assets (long-term).
The major categories are presented in the following table (in thousands):
 
 
   
March 31, 2020
    
December 31, 2019
  
Right-of-Use assets (Note 7)
   $
12,745
     $
7,936
  
Unamortized debt issuance costs
    
3,458
      
3,798
  
Investment in White Cap, LLC
    
2,917
      
2,590
  
Unamortized brokerage fee for Monza
    
2,881
      
3,423
  
Proportional consolidation of Monza's other assets (Note 4)
    
4,222
      
5,308
  
Derivative assets
    
2,847
      
2,653
  
Appeal bond deposits
    
—
      
6,925
  
Other
    
1,014
      
814
  
Total other assets (long-term)
   $
30,084
     $
33,447
  
 
Accrued Liabilities.  
The major categories are presented in the following table (in thousands):
 
 
   
March 31, 2020
    
December 31, 2019
  
Accrued interest
   $
24,497
     $
10,180
  
Accrued salaries/payroll taxes/benefits
    
2,715
      
2,377
  
Incentive compensation plans
    
1,069
      
9,794
  
Litigation accruals
    
3,673
      
3,673
  
Lease liability (Note 7)
    
2,472
      
2,716
  
Derivatives - current
    
—
      
1,785
  
Other
    
2
      
371
  
Total accrued liabilities
   $
34,428
     $
30,896
  
 
Other Liabilities (long-term).  
The major categories are presented in the following table (in thousands):
 
 
   
March 31, 2020
    
December 31, 2019
  
Dispute related to royalty deductions
   $
4,687
     $
4,687
  
Dispute related to royalty-in-kind
    
250
      
250
  
Derivatives    
1,245
      
—
  
Lease liability (Note 7)
    
9,581
      
4,419
  
Other
    
701
      
632
  
Total other liabilities (long-term)
   $
16,464
     $
9,988