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

Annual report pursuant to Section 13 and 15(d)

LEASES

LEASES

12 Months Ended

Dec. 31, 2022

NOTE 8 — LEASES

The Company has operating leases consisting of office leases, a land lease and various pipeline right-of-way contracts. For these contracts, a right-of-use (“ROU”) asset and lease liability was established based on the Company’s assumptions of the term, inflation rates and incremental borrowing rates. At inception, contracts are reviewed to determine whether the agreement contains a lease. To the extent an arrangement is determined to include a lease, it is classified as either an operating or a finance lease, which dictates the pattern of expense recognition in the income statement.

The amounts disclosed herein primarily represent costs associated with properties operated by the Company that are presented on a gross basis and do not reflect the Company’s net proportionate share of such amounts. A portion of these costs have been or will be billed to other working interest owners where applicable. The Company’s share of these costs is included in property and equipment, lease operating expense or general and administrative expense, as applicable. The components of lease costs were as follows (in thousands):


	December 31,
	2022		2021		2020
Operating lease costs, excluding short-term leases	$	1,579	$	1,743	$	3,060
Short-term lease cost ⁽¹⁾		2,957		5,926		1,633
Variable lease cost ⁽²⁾		647		—		—
Total lease cost	$	5,183	$	7,669	$	4,693

⁽¹⁾

^{Short-term lease costs are reported at gross amounts and primarily represent costs incurred for drilling rigs, most of which are short-term contracts not recognized as a right-of-use asset and lease liability on the balance sheet. The majority of such costs are recorded within}^{Oil and natural gas properties and other, net}^{, on the Consolidated Balance Sheet.}

⁽²⁾

^{Variable lease costs primarily represent differences between minimum lease payment obligations and actual operating charges incurred by the Company related to long-term operating leases.}

The present value of the fixed lease payments recorded as the Company’s right-of-use asset and liability, adjusted for initial direct costs and incentives are as follows (in thousands):


	December 31,
	2022		2021
ROU assets	$	10,364	$	10,602

Lease liability:
Accrued liabilities	$	1,628	$	1,115
Other liabilities		10,527		11,227
Total lease liability	$	12,155	$	12,342

The table below presents the weighted average remaining lease term and discount rate related to leases (in thousands):


	December 31,
	2022		2021		2020
Weighted average remaining lease term:	13.1 years		14.1 years		14.8 years
Weighted average discount rate:	10.1	%	10.1	%	10.2	%

The table below presents the supplemental cash flow information related to leases (in thousands):


	December 31,
	2022		2021		2020
Operating cash outflow from operating leases	$	1,224	$	425	$	1,825
Right-of-use assets obtained in exchange for new operating lease liabilities	$	—	$	—	$	5,142

Undiscounted future minimum payments as of December 31, 2022 are as follows (in thousands):


2023	$	1,628
2024		2,026
2025		1,514
2026		1,545
2027		1,576
Thereafter		14,242
Total lease payments		22,531
Present value adjustment		(10,376)
Total	$	12,155