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

Annual report pursuant to Section 13 and 15(d)

DERIVATIVE FINANCIAL INSTRUMENTS

DERIVATIVE FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2023

NOTE 4 — DERIVATIVE FINANCIAL INSTRUMENTS

The Company’s market risk exposure relates primarily to commodity prices. The Company attempts to mitigate a portion of its commodity price risk and stabilize cash flows associated with sales of oil and natural gas production through the use of oil and natural gas swaps, costless collars, sold calls and purchased puts. The Company is exposed to credit loss in the event of nonperformance by the derivative counterparties; however, the Company currently anticipates that the derivative counterparties will be able to fulfill their contractual obligations. The Company is not required to provide additional collateral to the derivative counterparties and does not require collateral from the derivative counterparties.

The Company has elected not to designate commodity derivative contracts for hedge accounting. Accordingly, commodity derivatives are recorded on the Consolidated Balance Sheets at fair value with settlements of such contracts, and changes in the unrealized fair value, recorded as Derivative (gain) loss on the Consolidated Statements of Operations in each period presented. The cash flows of all commodity derivative contracts are included in Net cash provided by operating activities on the Consolidated Statements of Cash Flows.

The Company’s natural gas contracts are based off the Henry Hub price which is quoted off NYMEX.

The following table reflects the contracted volumes and weighted average prices under the terms of the Company’s open natural gas derivative contracts as of December 31, 2023:



		Average
	Instrument	Daily	Total	Weighted		Weighted		Weighted
Period	Type	Volumes	Volumes	Strike Price		Put Price		Call Price
Jan 2024 - Dec 2024	calls	65,000	23,790,000	$	—	$	—	$	6.13
Jan 2025 - Mar 2025	calls	62,000	5,580,000	$	—	$	—	$	5.50
Jan 2024 - Dec 2024 ⁽¹⁾	swaps	65,576	24,000,000	$	2.46	$	—	$	—
Jan 2025 - Mar 2025 ⁽¹⁾	swaps	63,333	5,700,000	$	2.72	$	—	$	—
Apr 2025 - Dec 2025 ⁽¹⁾	puts	62,183	17,100,000	$	—	$	2.27	$	—
Jan 2026 - Dec 2026 ⁽¹⁾	puts	55,895	20,400,000	$	—	$	2.35	$	—
Jan 2027 - Dec 2027 ⁽¹⁾	puts	52,607	19,200,000	$	—	$	2.37	$	—
Jan 2028 - Apr 2028 ⁽¹⁾	puts	49,725	6,000,000	$	—	$	2.42	$	—

⁽¹⁾	These contracts were entered into by the Company’s wholly owned subsidiary, A-I LLC.

The fair value of the Company’s derivative financial instruments amounts was recorded in the Consolidated Balance Sheets as follows (in thousands):


	December 31,
	2023		2022
Prepaid expenses and other current assets	$	1,180	$	4,954
Other assets		10,068		23,236
Accrued liabilities		6,267		46,595
Other liabilities		2,756		43,061

Although the Company has master netting arrangements with its counterparties, the amounts recorded on the Consolidated Balance Sheets are on a gross basis.

Changes in the fair value and settlements of contracts are recorded on the Consolidated Statements of Operations as Derivative (gain) loss. The impact of commodity derivative contracts on the Consolidated Statements of Operations was as follows (in thousands):


	Year Ended December 31,
	2023		2022		2021
Realized loss	$	4,087	$	125,089	$	95,187
Unrealized (gain) loss		(58,846)		(39,556)		80,126
Derivative (gain) loss, net		(54,759)		85,533		175,313