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

Quarterly report pursuant to Section 13 or 15(d)

Supplemental Guarantor Information

Supplemental Guarantor Information

9 Months Ended

Sep. 30, 2014

Supplemental Guarantor Information [Abstract]

Supplemental Guarantor Information

W&T OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

13. Supplemental Guarantor Information

Our payment obligations under the 8.50% Senior Notes and the Credit Agreement (see Note 5) are fully and unconditionally guaranteed by certain of our 100%-owned subsidiaries, including W & T Energy VI, LLC and W & T Energy VII, LLC (together, the “Guarantor Subsidiaries”). W & T Energy VII, LLC does not currently have any active operations or contain any assets. Guarantees of the 8.50% Senior Notes will be released under certain circumstances, including:

(1) in connection with any sale or other disposition of all or substantially all of the assets of a Guarantor Subsidiary (including by way of merger or consolidation) to a person that is not (either before or after giving effect to such transaction) the Company or a Restricted Subsidiary (as such term is defined in the indenture governing the 8.50% Senior Notes) of the Company, if the sale or other disposition does not violate the “Asset Sales” provisions of the indenture;

(2) in connection with any sale or other disposition of the capital stock of such Guarantor Subsidiary to a person that is not (either before or after giving effect to such transaction) the Company or a Restricted Subsidiary of the Company, if the sale or other disposition does not violate the “Asset Sales” provisions of the indenture and the Guarantor Subsidiary ceases to be a subsidiary of the Company as a result of such sales or disposition;

(3) if such Guarantor Subsidiary is a Restricted Subsidiary and the Company designates such Guarantor Subsidiary as an Unrestricted Subsidiary in accordance with the applicable provisions of the indenture;

(4) upon Legal Defeasance or Covenant Defeasance (as such terms are defined in the indenture) or upon satisfaction and discharge of the indenture;

(5) upon the liquidation or dissolution of such Guarantor Subsidiary, provided no event of default has occurred and is continuing; or

(6) at such time as such Guarantor Subsidiary is no longer required to be a Guarantor Subsidiary of the 8.50% Senior Notes as described in the indenture, provided no event of default has occurred and is continuing.

The following condensed consolidating financial information presents the financial condition, results of operations and cash flows of the Parent Company and the Guarantor Subsidiaries, together with consolidating adjustments necessary to present the Company’s results on a consolidated basis. Transfers of property, including related ARO and deferred income tax liabilities, were made from the Parent Company to the Guarantor Subsidiaries to assist the Parent Company to continue to qualify for a waiver of certain supplemental bonding requirements from the BOEM. See Note 11 for additional information. As these transfers were transactions between entities under common control, the prior period financial information has been retrospectively adjusted for comparability purposes, as prescribed under authoritative guidance. The condensed consolidating financial information for current and prior periods was adjusted as if all transfers occurred at the beginning of the period presented. Additionally, certain adjustments were made to re-designate certain items as intercompany or contributed capital from the Parent Company to the Guarantor Subsidiaries, which had no effect on either entity’s net property and equipment or total liabilities. None of the above adjustments had any effect on the consolidated results for the current or prior periods presented.

Condensed Consolidating Balance Sheet as of September 30, 2014

									Consolidated
	Parent			Guarantor					W&T
	Company			Subsidiaries		Eliminations			Offshore, Inc.
	(In thousands)
Assets
Current assets:
Cash and cash equivalents	$	17,220		$	—	$	—		$	17,220
Receivables:
Oil and natural gas sales		52,332			45,356		—			97,688
Joint interest and other		32,785			—		—			32,785
Income taxes		136,389			—		(136,269	)		120
Total receivables		221,506			45,356		(136,269	)		130,593
Prepaid expenses and other assets		29,364			3,191		—			32,555
Total current assets		268,090			48,547		(136,269	)		180,368
Property and equipment – at cost:
Oil and natural gas properties and equipment		5,970,031			1,895,671		—			7,865,702
Furniture, fixtures and other		22,128			—		—			22,128
Total property and equipment		5,992,159			1,895,671		—			7,887,830
Less accumulated depreciation, depletion and amortization		4,366,703			1,082,842		—			5,449,545
Net property and equipment		1,625,456			812,829		—			2,438,285
Restricted deposits for asset retirement obligations		15,382			—		—			15,382
Other assets		979,751			439,882		(1,401,644	)		17,989
Total assets	$	2,888,679		$	1,301,258	$	(1,537,913	)	$	2,652,024
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	153,928		$	5,693	$	—		$	159,621
Undistributed oil and natural gas proceeds		37,501			320		—			37,821
Asset retirement obligations		109,223			6,499		—			115,722
Accrued liabilities		39,313			135,986		(136,269	)		39,030
Total current liabilities		339,965			148,498		(136,269	)		352,194
Long-term debt, less current maturities		1,260,665			—		—			1,260,665
Asset retirement obligations, less current portion		175,135			113,145		—			288,280
Deferred income taxes		94,042			93,015		—			187,057
Other liabilities		468,678			—		(455,044	)		13,634
Shareholders’ equity:
Common stock		1			—		—			1
Additional paid-in capital		414,430			699,815		(699,815	)		414,430
Retained earnings		159,930			246,785		(246,785	)		159,930
Treasury stock, at cost		(24,167	)		—		—			(24,167	)
Total shareholders’ equity		550,194			946,600		(946,600	)		550,194
Total liabilities and shareholders’ equity	$	2,888,679		$	1,301,258	$	(1,537,913	)	$	2,652,024

Condensed Consolidating Balance Sheet as of December 31, 2013

									Consolidated
	Parent			Guarantor					W&T
	Company			Subsidiaries		Eliminations			Offshore, Inc.
	(In thousands)
Assets
Current assets:
Cash and cash equivalents	$	15,800		$	—	$	—		$	15,800
Receivables:
Oil and natural gas sales		61,373			35,379		—			96,752
Joint interest and other		27,984			—		—			27,984
Income taxes		95,611			—		(92,491	)		3,120
Total receivables		184,968			35,379		(92,491	)		127,856
Prepaid expenses and other assets		23,674			6,272		—			29,946
Total current assets		224,442			41,651		(92,491	)		173,602
Property and equipment – at cost:
Oil and natural gas properties and equipment		5,667,389			1,671,708		—			7,339,097
Furniture, fixtures and other		21,431			—		—			21,431
Total property and equipment		5,688,820			1,671,708		—			7,360,528
Less accumulated depreciation, depletion and amortization		4,166,359			918,345		—			5,084,704
Net property and equipment		1,522,461			753,363		—			2,275,824
Restricted deposits for asset retirement obligations		37,421			—		—			37,421
Other assets		951,203			479,820		(1,410,568	)		20,455
Total assets	$	2,735,527		$	1,274,834	$	(1,503,059	)	$	2,507,302
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	144,492		$	720	$	—		$	145,212
Undistributed oil and natural gas proceeds		41,735			372		—			42,107
Asset retirement obligations		65,329			12,456		—			77,785
Accrued liabilities		28,000			92,491		(92,491	)		28,000
Total current liabilities		279,556			106,039		(92,491	)		293,104
Long-term debt, less current maturities		1,205,421			—		—			1,205,421
Asset retirement obligations, less current portion		189,507			87,130		—			276,637
Deferred income taxes		79,424			98,718		—			178,142
Other liabilities		441,009			—		(427,621	)		13,388
Shareholders’ equity:
Common stock		1			—		—			1
Additional paid-in capital		403,564			784,104		(784,104	)		403,564
Retained earnings		161,212			198,843		(198,843	)		161,212
Treasury stock, at cost		(24,167	)		—		—			(24,167	)
Total shareholders’ equity		540,610			982,947		(982,947	)		540,610
Total liabilities and shareholders’ equity	$	2,735,527		$	1,274,834	$	(1,503,059	)	$	2,507,302

Condensed Consolidating Statement of Income for the Three Months Ended September 30, 2014

									Consolidated
	Parent			Guarantor					W&T
	Company			Subsidiaries			Eliminations		Offshore, Inc.
	(In thousands)
Revenues	$	155,109		$	79,412		$	—	$	234,521
Operating costs and expenses:
Lease operating expenses		46,698			25,034			—		71,732
Production taxes		1,794			—			—		1,794
Gathering and transportation		2,831			1,284			—		4,115
Depreciation, depletion, amortization and accretion		74,512			54,159			—		128,671
General and administrative expenses		12,083			8,924			—		21,007
Derivative (gain)		(13,781	)		—			—		(13,781	)
Total costs and expenses		124,137			89,401			—		213,538
Operating income (loss)		30,972			(9,989	)		—		20,983
Earnings of affiliates		(9,652	)		—			9,652		—
Interest expense:
Incurred		20,932			851			—		21,783
Capitalized		(1,340	)		(851	)		—		(2,191	)
Other income		197			—			—		197
Income (loss) before income tax expense		1,925			(9,989	)		9,652		1,588
Income tax expense (benefit)		1,241			(337	)		—		904
Net income (loss)	$	684		$	(9,652	)	$	9,652	$	684

Condensed Consolidating Statement of Income for the Nine Months Ended September 30, 2014

										Consolidated
	Parent			Guarantor						W&T
	Company			Subsidiaries			Eliminations			Offshore, Inc.
	(In thousands)
Revenues	$	461,167		$	290,864		$	—		$	752,031
Operating costs and expenses:
Lease operating expenses		126,423			62,693			—			189,116
Production taxes		5,628			—			—			5,628
Gathering and transportation		8,387			5,009			—			13,396
Depreciation, depletion, amortization and accretion		208,271			171,942			—			380,213
General and administrative expenses		34,165			30,112			—			64,277
Derivative loss		6,790			—			—			6,790
Total costs and expenses		389,664			269,756			—			659,420
Operating income		71,503			21,108			—			92,611
Earnings of affiliates		10,738			—			(10,738	)		—
Interest expense:
Incurred		63,078			1,625			—			64,703
Capitalized		(4,797	)		(1,625	)		—			(6,422	)
Other income		205			—			—			205
Income before income tax expense		24,165			21,108			(10,738	)		34,535
Income tax expense		2,455			10,370			—			12,825
Net income	$	21,710		$	10,738		$	(10,738	)	$	21,710

Condensed Consolidating Statement of Income for the Three Months Ended September 30, 2013

										Consolidated
	Parent			Guarantor						W&T
	Company			Subsidiaries			Eliminations			Offshore, Inc.
	(In thousands)
Revenues	$	161,927		$	82,628		$	—		$	244,555
Operating costs and expenses:
Lease operating expenses		51,028			16,318			—			67,346
Production taxes		1,807			—			—			1,807
Gathering and transportation		1,479			2,132			—			3,611
Depreciation, depletion, amortization and accretion		58,014			46,129			—			104,143
General and administrative expenses		11,337			8,687			—			20,024
Derivative loss		15,659			—			—			15,659
Total costs and expenses		139,324			73,266			—			212,590
Operating income		22,603			9,362			—			31,965
Earnings of affiliates		6,171			—			(6,171	)		—
Interest expense:
Incurred		20,611			762			—			21,373
Capitalized		(1,811	)		(762	)		—			(2,573	)
Other income		9,062			—			—			9,062
Income before income tax expense		19,036			9,362			(6,171	)		22,227
Income tax expense		4,842			3,191			—			8,033
Net income	$	14,194		$	6,171		$	(6,171	)	$	14,194

Condensed Consolidating Statement of Income for the Nine Months Ended September 30, 2013

										Consolidated
	Parent			Guarantor						W&T
	Company			Subsidiaries			Eliminations			Offshore, Inc.
	(In thousands)
Revenues	$	479,537		$	259,623		$	—		$	739,160
Operating costs and expenses:
Lease operating expenses		145,703			49,232			—			194,935
Production taxes		5,375			—			—			5,375
Gathering and transportation		6,590			6,073			—			12,663
Depreciation, depletion, amortization and accretion		176,922			135,989			—			312,911
General and administrative expenses		35,222			25,757			—			60,979
Derivative loss		6,186			—			—			6,186
Total costs and expenses		375,998			217,051			—			593,049
Operating income		103,539			42,572			—			146,111
Earnings of affiliates		27,812			—			(27,812	)		—
Interest expense:
Incurred		61,932			2,225			—			64,157
Capitalized		(5,312	)		(2,225	)		—			(7,537	)
Other income		9,075			—			—			9,075
Income before income tax expense		83,806			42,572			(27,812	)		98,566
Income tax expense		20,598			14,760			—			35,358
Net income	$	63,208		$	27,812		$	(27,812	)	$	63,208

Condensed Consolidating Statement of Cash Flows for the Nine Months Ended September 30, 2014

										Consolidated
	Parent			Guarantor						W&T
	Company			Subsidiaries			Eliminations			Offshore, Inc.
	(In thousands)
Operating activities:
Net income	$	21,710		$	10,738		$	(10,738	)	$	21,710
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion, amortization and accretion		208,271			171,942			—			380,213
Amortization of debt issuance costs and premium		537			—			—			537
Share-based compensation		11,398			—			—			11,398
Derivative loss		6,790			—			—			6,790
Cash payments on derivative settlements		(18,543	)		—			—			(18,543	)
Deferred income taxes		17,621			(4,796	)		—			12,825
Earnings of affiliates		(10,738	)		—			10,738			—
Changes in operating assets and liabilities:
Oil and natural gas receivables		9,041			(9,977	)		—			(936	)
Joint interest and other receivables		1,890			—			—			1,890
Income taxes		(12,283	)		15,167			—			2,884
Prepaid expenses and other assets		35,223			(41,419	)		27,424			21,228
Asset retirement obligations settlements		(28,492	)		(13,519	)		—			(42,011	)
Accounts payable, accrued liabilities and other		49,463			4,921			(27,424	)		26,960
Net cash provided by operating activities		291,888			133,057			—			424,945
Investing activities:
Acquisition of property interest in oil and natural gas properties		(18,152	)		(53,363	)		—			(71,515	)
Investment in oil and natural gas properties and equipment		(245,561	)		(138,392	)		—			(383,953	)
Net proceeds from sales of properties and equipment		—			—			—			—
Change in restricted cash		—			—			—			—
Investment in subsidiary		(58,698	)		—			58,698			—
Purchases of furniture, fixtures and other		(2,181	)		—			—			(2,181	)
Net cash used in investing activities		(324,592	)		(191,755	)		58,698			(457,649	)
Financing activities:
Borrowings of long-term debt – revolving bank credit facility		378,000			—			—			378,000
Repayments of long-term debt – revolving bank credit facility		(321,000	)		—			—			(321,000	)
Dividends to shareholders		(22,695	)		—			—			(22,695	)
Other		(181	)		—			—			(181	)
Investment from parent		—			58,698			(58,698	)		—
Net cash provided in financing activities		34,124			58,698			(58,698	)		34,124
Increase in cash and cash equivalents		1,420			—			—			1,420
Cash and cash equivalents, beginning of period		15,800			—			—			15,800
Cash and cash equivalents, end of period	$	17,220		$	—		$	—		$	17,220

Condensed Consolidating Statement of Cash Flows for the Nine Months Ended September 30, 2013

										Consolidated
	Parent			Guarantor						W&T
	Company			Subsidiaries			Eliminations			Offshore, Inc.
	(In thousands)
Operating activities:
Net income	$	63,208		$	27,812		$	(27,812	)	$	63,208
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion, amortization and accretion		176,922			135,989			—			312,911
Amortization of debt issuance costs and premium		1,366			—			—			1,366
Share-based compensation		8,457			—			—			8,457
Derivative gain		6,186			—			—			6,186
Cash payments on derivative settlements		(6,855	)		—			—			(6,855	)
Deferred income taxes		13,451			18,130			—			31,581
Earnings of affiliates		(27,812	)		—			27,812			—
Changes in operating assets and liabilities:
Oil and natural gas receivables		13,260			(749	)		—			12,511
Joint interest and other receivables		30,064			—			—			30,064
Income taxes		56,802			(3,369	)		—			53,433
Prepaid expenses and other assets		(6,823	)		(52,400	)		48,408			(10,815	)
Asset retirement obligations		(48,098	)		(11,090	)		—			(59,188	)
Accounts payable, accrued liabilities and other		58,051			23,331			(48,408	)		32,974
Net cash provided by operating activities		338,179			137,654			—			475,833
Investing activities:
Investment in oil and natural gas properties and equipment		(285,438	)		(137,654	)		—			(423,092	)
Net proceeds from sales of properties and equipment		21,011			—			—			21,011
Change in restricted cash		(16,459	)		—			—			(16,459	)
Purchases of furniture, fixtures and other		(1,327	)		—			—			(1,327	)
Net cash used in investing activities		(282,213	)		(137,654	)		—			(419,867	)
Financing activities:
Borrowings of long-term debt – revolving bank credit facility		335,000			—			—			335,000
Repayments of long-term debt – revolving bank credit facility		(368,000	)		—			—			(368,000	)
Dividends to shareholders		(19,570	)		—			—			(19,570	)
Other		(414	)		—			—			(414	)
Net cash used in financing activities		(52,984	)		—			—			(52,984	)
Increase in cash and cash equivalents		2,982			—			—			2,982
Cash and cash equivalents, beginning of period		12,245			—			—			12,245
Cash and cash equivalents, end of period	$	15,227		$	—		$	—		$	15,227