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

Quarterly report pursuant to Section 13 or 15(d)

Note 1 - Basis of Presentation

Note 1 - Basis of Presentation

6 Months Ended

Jun. 30, 2019

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

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

-K for the year ended

December 31, 2018.

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.

Leases.

February 2016,

Accounting Standards Update

2016

02,

Leases (

Topic

842

) (“ASU

2016

02”

) was issued requiring an entity to recognize a right-of-use (“ROU”) asset and lease liability for all leases. The classification of leases as either a finance or operating lease determines the recognition, measurement and presentation of expenses. ASU

2016

also requires certain quantitative and qualitative disclosures about leasing arrangements. Leases acquired to explore for or extract oil or natural gas resources, including the right to explore for those natural resources and rights to use the land in which those natural resources are contained, are

not

within the scope of this standard’s update. ASU

2016

was effective for us in the

first

quarter of

2019

and we adopted the new standard using a modified retrospective approach, with the date of initial application on

January 1, 2019.

Consequently, upon transition, we recognized an ROU asset and a lease liability with

retained earnings impact. See Note

for additional information.

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

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.

Reclassifications.

Certain reclassifications have been made to the prior period financial statements to conform to the current presentation as follows: In the Condensed Consolidated Statements of Operations, interest income was reclassified from

Other expense, net

Interest expense, net

, which did

not

change

Income (loss) before income tax (benefit) expense

. In the Condensed Consolidated Statements of Cash Flows, adjustments were made to certain line items within the

Net cash provided by operating activities

and

Net cash used in investing activities

sections, of which did

not

change the total amounts previous reported. The adjustments did

not

affect the Condensed Consolidated Balance Sheets.

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):

	June 30,		December 31,
	2019		2018
Derivative assets (1)	$	22,089	$	60,687
Deposit for acquisition		10,000		—
Unamortized bond/insurance premiums		7,108		5,197
Prepaid deposits related to royalties		8,824		8,872
Other		5,080		1,650
Prepaid expenses and other assets	$	53,101	$	76,406

(

)

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

amounts excluded from amortization as of the dates presented in the following table (in thousands):

	June 30,		December 31,
	2019		2018
Oil and natural gas properties and equipment	$	8,241,499	$	8,169,871
Furniture, fixtures and other		20,228		20,228
Total property and equipment		8,261,727		8,190,099
Less accumulated depreciation, depletion and amortization		7,737,215		7,674,678
Oil and natural gas properties and other, net	$	524,512	$	515,421

Other Assets (long-term).

The major categories are presented in the following table (in thousands):

	June 30,		December 31,
	2019		2018
Escrow deposit - Apache lawsuit	$	49,500	$	49,500
Derivative assets		—		21,275
Appeal bond deposits		6,925		6,925
Unamortized debt issuance costs		4,478		4,773
Investment in White Cap, LLC		2,633		2,586
Unamortized brokerage fee for Monza		3,268		2,277
Proportional consolidation of Monza's other assets (Note 4)		2,251		3,275
Other		4,522		936
Total other assets (long-term)	$	73,577	$	91,547

Accrued Liabilities.

The major categories are presented in the following table (in thousands):

	June 30,		December 31,
	2019		2018
Accrued interest	$	10,179	$	12,385
Accrued salaries/payroll taxes/benefits		2,627		2,320
Incentive compensation plans		1,514		10,817
Litigation accruals		3,673		3,673
Other		1,501		416
Total accrued liabilities	$	19,494	$	29,611

Other Liabilities (long-term).

The major categories are presented in the following table (in thousands):

	June 30,		December 31,
	2019		2018
Apache lawsuit	$	49,500	$	49,500
Uncertain tax positions including interest/penalties		—		11,523
Dispute related to royalty deductions		4,687		4,687
Dispute related to royalty-in-kind		2,197		2,135
Other		5,001		845
Total other liabilities (long-term)	$	61,385	$	68,690

Recent Accounting Developments.

June 2016,

the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update

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. ASU

2016

is effective for fiscal years beginning after

December 15, 2019

and early adoption is permitted for fiscal years beginning after

December 15, 2018.

We have

not

yet fully determined or quantified the effect ASU

2016

will have on our financial statements.

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

require an entity to present the earnings effect of the hedging instrument in the same income statement line in which the earning 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. ASU

2017

is effective for fiscal years beginning after

December 15, 2019

and interim periods within fiscal years beginning after

December 15, 2020.

Early adoption is permitted, including adoption in an interim period. As we do

not

designate our commodity derivative instruments as qualifying hedging instruments, our assessment is this amendment will

not

impact the presentation of the changes in fair values of our commodity derivative instruments on our financial statements.

The SEC issued Final Rule Release

No.

10532,

Disclosure Update and Simplification

, which revised Regulation S-

Rule

04,

Changes in Stockholders’ Equity and Noncontrolling Interests

. The new requirement for registrants is to include a reconciliation of changes in stockholders’ equity (deficit) in interim periods for each period that for which a statement of operations is required to be filed. The new requirement became effective for us for the quarter ended

March 31, 2019.