12.  Contingencies

Cameron Parish Louisiana Claim.  Since 2009, certain Cameron Parish landowners have filed suits in the 38th Judicial District Court, Cameron Parish, Louisiana against the Company and its Chief Executive Officer, Tracy W. Krohn, as well as several other defendants unrelated to us.  In their lawsuits, plaintiffs alleged that property they own has been contaminated or otherwise damaged by the defendants’ oil and gas exploration and production activities and they are seeking compensatory and punitive damages.  During 2012 and for the six months ended June 30, 2013, we settled claims with certain landowners and paid $11.3 million.     

Qui Tam Litigation.  On September 21, 2012, the Company was served with a complaint in a qui tam action filed under the federal False Claims Act by an employee of a Company contractor.  The lawsuit, United States ex rel. Comeaux v. W&T Offshore, Inc., et al.; CA No. 10-494, was filed in the United States District Court for the Eastern District of Louisiana, against the Company and three other working interest owners related to claims associated with three of the Company’s operated production platforms.  A qui tam action, also known as a “whistleblower” action, is a lawsuit brought by a private citizen seeking civil penalties or damages against a person or company on behalf of the government for alleged violations of law.  If the claims are successful, the person filing the suit may recover a percentage of the damages or penalty from the lawsuit as a reward for exposing a wrongdoing and recovering funds on behalf of the government. The complaint was originally filed in 2010 but kept under confidential seal in order for the federal government to decide if it wished to intervene and take over the prosecution of the qui tam action. The government declined to intervene in this suit and the complaint was unsealed and made public in June 2012, thereby giving the plaintiff the opportunity to pursue the claims on behalf of the government.  The plaintiff is pursuing the claim. 

The complaint alleges that environmental violations at three of the Company’s operated production platforms in the Gulf of Mexico violate the federal offshore lease provisions so that the Company, among other things, wrongfully retained benefits under the applicable leases.  The alleged environmental violations include allegations of discharges of relatively small amounts of oil into the Gulf of Mexico, the failure to report and record such discharges, and falsification of certain produced water samples and related reports required under federal law.  The events are alleged to have occurred in 2009.  These are largely the same underlying environmental allegations that resulted in the plea agreement described in the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.  The Company has filed a motion to dismiss the plaintiff’s claims.  The plaintiff dismissed his claims against the three other working interest owners after they filed motions to dismiss.  The plaintiff conceded that certain of his claims should be dismissed in his reply to the Company’s motion to dismiss.  By order dated August 6, 2013, the court granted the Company’s motion to dismiss plaintiff’s claims without prejudice and allowed plaintiff twenty days to amend his complaint to remedy the deficiencies in his claims.    The court will dismiss with prejudice if the plaintiff cannot or does not correct the deficiencies in his claims..

The Company intends to vigorously defend the claims made in this lawsuit.  While the Company has determined that the likelihood of an adverse outcome may be reasonably possible, the range of potential loss cannot yet be estimated, and accordingly, no accrual has been made.

Insurance Claims. During the fourth quarter of 2012, underwriters of W&T’s excess liability policies (“Excess Policies”) (Indemnity Insurance Company of North America, New York Marine & General Insurance Company, Navigators Insurance Company, XL Specialty Insurance Company and Liberty Mutual Insurance Co.) filed declaratory judgment actions in the United States District Court for the Southern District of Texas seeking a determination that our Excess Policies cover removal of wreck and debris claims arising from Hurricane Ike to the extent we have first exhausted the limits of our Energy Package (defined as certain insurance policies relating to our oil and gas properties) with only removal of wreck and debris claims.  The court consolidated the various suits filed by the underwriters. W&T has not yet filed any claim under such Excess Policies. As of June 30, 2013, we have spent $44.5 million and expect to incur an additional $2.6 million of costs for removal of wreck associated with platforms damaged by Hurricane Ike. In January 2013, we filed a motion for summary judgment seeking the court’s determination that such Excess Policies do not require us to exhaust the limits of our Energy Package policies with only removal of wreck and debris claims.  On July 31, 2013, the District Court ruled in favor of the underwriters, adopting their position that the Excess Policies cover removal of wreck and debris claims only to the extent the limits of our Energy Package policies have been exhausted with removal of wreck and debris claims.  We disagree with the Court’s ruling and intend to appeal the decision.  Removal of wreck costs are recorded in Oil and natural gas properties and equipment on the Balance Sheet.  If we are successful in our appeal, any recoveries from claims made on these Excess Policies related to this issue will be recorded as reductions in this line item, which will reduce the Company’s DD&A rate. 

Royalties.  In 2009, the Company recognized $5.3 million in allowable reductions of cash payments for royalties owed to the Office of Natural Resources Revenue (the “ONRR”) for transportation of their deepwater production through our subsea pipeline systems.  In 2010, the ONRR audited the calculations and support related to this usage fee, and in the third quarter of 2010, we were notified that the ONRR had disallowed approximately $4.7 million of the reductions taken.  We recorded a reduction to other revenue of $4.7 million in the third quarter of 2010 to reflect this disallowance; however, we disagree with the position taken by the ONRR and we are pursuing our claim to resolve the matter.

Other Claims.  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 may 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.  Although we can give no assurance about the outcome of pending legal and federal or state administrative proceedings and the effect such an outcome may have on us, management believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by insurance, will not have a material adverse effect on our consolidated financial position, results of operations or liquidity.

Contingent Liability Recorded.  Recognized expenses related to accrued and settled claims, complaints and fines were less than $ 0.1 million for the six months ended June 30, 2013 and $8.4 million for the six months ended June 30, 2012.  These expenses are reported in General and administrative expenses on the statement of income and reflect the items noted above and other various claims and complaints.  As of June 30, 2013 and December 31, 2012, we have recorded $0.0 million and $1.3 million, respectively, which are included in Accrued liabilities on the balance sheet, for the loss contingencies matters that include the events described above and other minor environmental and litigation matters which we are addressing in the normal course of business.