In 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  the ONRR audited our calculations and support related to this usage fee, and in we were notified that the ONRR had disallowed approximately million of the reductions taken.  We recorded a reduction to other revenue in  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 On we filed an appeal with the IBLA under the Department of the Interior.  On the IBLA affirmed the decision of the ONRR requiring W&T to pay approximately million in additional royalties. We filed a motion for reconsideration of the IBLA decision on Based on a statutory deadline, we filed an appeal of the IBLA decision on in the U.S. District Court for the Eastern District of Louisiana.  We were required to post a bond in the amount of million and cash collateral of 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 quarter of   On the IBLA denied our motion for reconsideration.  On we filed our amended complaint, and the government has filed its Answer in the Administrative Record.  On 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 the Court ordered the government to file a complete privilege log.  In an Order dated 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 review.  Following review, the Court upheld the government’s assertion 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 anticipate that briefing will be complete in the Fall of

 

 

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 months for every gas processing plant that processed our gas. In the quarter of 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 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 -Q, we have 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  months ended  and were immaterial, we are able to determine the range of any additional royalties or, if and when assessed, whether such amounts would be material.

 

  During the months ended and we did pay any civil penalties to the Bureau of Safety and Environmental Enforcement ("BSEE") related to Incidents of Noncompliance (“INCs”) at various offshore locations.  We currently have open civil penalties issued by the BSEE from INCs, which have been settled as of the filing date of this Form -Q.  The INCs underlying these open civil penalties cite alleged non-compliance with various safety-related requirements and procedures occurring at separate offshore locations on various dates ranging from to The proposed civil penalties for these INCs total million.  As of and we have accrued approximately  million, which is our best estimate of the final settlements once all appeals have been exhausted.  Our position is that the proposed civil penalties are excessive given the specific facts and circumstances related to these INCs.  We are exploring the possibility of settling these civil penalties with the BSEE.

 

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 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 assurance about the outcome of pending legal and federal or state administrative proceedings and the effect such an outcome have on us, we believe that any ultimate liability resulting from the outcome of such proceedings, to the extent otherwise provided for or covered by insurance, will have a material adverse effect on our consolidated financial position, results of operations or liquidity.