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What changed in W&T OFFSHORE INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of W&T OFFSHORE INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+507 added−593 removedSource: 10-K (2024-03-06) vs 10-K (2023-03-08)

Top changes in W&T OFFSHORE INC's 2023 10-K

507 paragraphs added · 593 removed · 331 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

69 edited+52 added−98 removed26 unchanged
Biggest changeThe proposed rule would require registrants to include certain climate-related disclosures in their registration statements and periodic reports, including, but not limited to, information about the registrant’s governance of climate-related risks and relevant risk management processes; climate-related risks that are reasonably likely to have a material impact on the registrant’s business, results of operations, or financial condition and their actual and likely climate-related impacts on the registrant’s business strategy, model, and outlook; climate-related targets, goals and transition plan (if any); certain climate-related financial statement metrics in a note to their audited financial statements; Scope 1 and Scope 2 GHG emissions; and Scope 3 GHG emissions and intensity, if material, or if the registrant has set a GHG emissions reduction target, goal or plan that includes Scope 3 GHG emissions.
Biggest changeThe proposed rule would require registrants to include certain climate-related disclosures in their registration statements and periodic reports, including, but not limited to: ● climate-related risks and their actual or likely material impacts on the registrant’s business, strategy, and outlook; ● the registrant’s governance of climate-related risks and relevant risk management processes; ● the registrant’s GHG emissions, which, for accelerated and large accelerated filers and with respect to certain emissions, would be subject to assurance; ● certain climate-related financial statement metrics and related disclosures in a note to its audited financial statements; and ● information about climate-related targets and goals, and the registrant’s transition plan, if any.
The rates for such storage and transportation services are subject to FERC ratemaking authority, and FERC may apply cost-of-service principles or allow a pipeline to negotiate rates. Similarly, the natural gas pipeline industry is subject to state regulations, which may change from time to time.
The rates for such storage and transportation services are subject to the FERC ratemaking authority, and the FERC may apply cost-of-service principles or allow a pipeline to negotiate rates. Similarly, the natural gas pipeline industry is subject to state regulations, which may change from time to time.
One of the FERC’s principal goals in carrying out OCSLA’s mandate is to increase transparency in the OCS market, to provide producers and shippers assurance of open access service on pipelines located on the OCS, and to provide non-discriminatory rates and conditions of service on such pipelines.
One of the FERC’s principal goals in carrying out the OCSLA’s mandate is to increase transparency in the OCS market, to provide producers and shippers assurance of open access service on pipelines located on the OCS, and to provide non-discriminatory rates and conditions of service on such pipelines.
It is the responsibility of the reporting entity to determine which individual transactions should be reported based on the guidance of Order 704. Order 704 also requires market participants to indicate whether they report prices to any index publishers, and if so, whether their reporting complies with FERC’s policy statement on price reporting.
It is the responsibility of the reporting entity to determine which individual transactions should be reported based on the guidance of Order 704. Order 704 also requires market participants to indicate whether they report prices to any index publishers, and if so, whether their reporting complies with the FERC’s policy statement on price reporting.
We pride ourselves on providing an attractive compensation and benefits program that allows our employees to view working at W&T as more than where they work, but a place where they may grow and develop. Our ability to succeed depends on recruiting and retaining top talent in the industry.
Benefits and Compensation We pride ourselves on providing an attractive compensation and benefits program that allows our employees to view working at W&T as more than where they work, but a place where they may grow and develop. Our ability to succeed depends on recruiting and retaining top talent in the industry.
Other than as described above, our sales of liquids, which include crude oil, condensate and NGLs, are not currently regulated and are transacted at market prices. In a number of instances, however, the ability to transport and sell such products is dependent on pipelines whose rates, terms and conditions of service are subject to FERC jurisdiction.
Other than as described above, our sales of liquids, which include oil, condensate and NGLs, are not currently regulated and are transacted at market prices. In a number of instances, however, the ability to transport and sell such products is dependent on pipelines whose rates, terms and conditions of service are subject to FERC jurisdiction.
We compete with numerous entities, including major domestic and foreign oil companies, other independent oil and natural gas companies and individual producers and operators. Many of these competitors are large, well established companies that have financial and other resources substantially greater than ours and greater ability to provide the extensive regulatory financial assurances required for offshore properties.
We compete with numerous entities, including major domestic and foreign oil companies, other independent oil and natural gas companies and individual producers and operators. Many of these competitors are large, well-established companies that have financial and other resources substantially greater than ours and a greater ability to provide the extensive regulatory financial assurances required for offshore properties.
In general, interstate crude oil, condensate and NGL pipeline rates must be cost-based, although settlement rates agreed to by all shippers are permitted and market based rates may be permitted in certain circumstances. The FERC has established an indexing system for such transportation, which generally allows such pipelines to take an annual inflation-based rate increase.
In general, interstate oil, condensate and NGL pipeline rates must be cost-based, although settlement rates agreed to by all shippers are permitted and market-based rates may be permitted in certain circumstances. The FERC has established an indexing system for such transportation, which generally allows such pipelines to take an annual inflation-based rate increase.
In other instances, the ability to transport and sell such products is dependent on pipelines whose rates, terms and conditions of service are subject to regulation by state regulatory bodies under state statutes and regulations. As it relates to intrastate crude oil, condensate and NGL pipelines, state regulation is generally less rigorous than the federal regulation of interstate pipelines.
In other instances, the ability to transport and sell such products is dependent on pipelines whose rates, terms and conditions of service are subject to regulation by state regulatory bodies under state statutes and regulations. As it relates to intrastate oil, condensate and NGL pipelines, state regulation is generally less rigorous than the federal regulation of interstate pipelines.
We intend to execute the following elements of our business strategy in order to achieve our strategic goals: ● Exploiting existing and acquired properties to add additional reserves and production; ● Exploring for reserves on our extensive acreage holdings and in other areas of the Gulf of Mexico; ● Acquiring reserves with substantial upside potential and additional leasehold acreage complementary to our existing acreage position at attractive prices; ● Continuing to manage our balance sheet in a prudent manner and continuing our track record of financial flexibility in any commodity price environment; and ● Carry out our business strategy in a safe and socially responsible manner.
We intend to execute the following elements of our business strategy in order to achieve our strategic goals: ● Exploiting existing and acquired properties to add additional reserves and production; ● Exploring for reserves on our extensive acreage holdings and in other areas of the Gulf of Mexico; ● Acquiring reserves with substantial upside potential and additional leasehold acreage complementary to our existing acreage position at attractive prices; ● Continuing to manage our balance sheet in a prudent manner and continuing our track record of financial flexibility in any commodity price environment; and ● Carrying out our business strategy in a safe and socially responsible manner.
The price we receive from the sale of crude oil and NGLs is affected by the cost of transporting those products to market. Interstate transportation rates for crude oil, condensate, NGLs and other products are regulated by the FERC.
The price we receive from the sale of oil and NGLs is affected by the cost of transporting those products to market. Interstate transportation rates for oil, condensate, NGLs and other products are regulated by the FERC.
Given the commoditized nature of the products we produce and market and the location of our production in the Gulf of Mexico, we believe the loss of any of the customers above would not result in a material adverse effect on our ability to market future oil and natural gas, provided that replacement customers could be obtained in a relatively short period of time on terms, conditions, and pricing substantially similar to those currently existing.
Given the commoditized nature of the products we produce and market and the location of our production in the Gulf of Mexico, we believe the loss of any of the customers above would not result in a material adverse effect on our ability to market future oil and natural gas production, as we believe that replacement customers could be obtained in a relatively short period of time on terms, conditions, and pricing substantially similar to those currently existing.
Due to the cyclical nature of the oil and gas industry, fluctuating demand for oilfield goods and services can put pressure on the pricing structure within our industry. As commodity prices rise, the cost of oilfield goods and services generally also increase, while during periods of commodity price declines, decreases in oilfield costs typically lag behind commodity price decreases.
Due to the cyclical nature of the oil and gas industry, fluctuating demand for oilfield goods and services can put pressure on the pricing structure within our industry. As commodity prices rise, the cost of oilfield goods and services generally also increases, while during periods of commodity price declines, decreases in oilfield costs typically lag behind commodity price decreases.
These programs not only include base wages and incentives in support of our pay for performance culture, but also health and retirement benefits. We focus many programs on employee wellness. We believe these solutions help the overall health and wellness of our employees and help us successfully manage healthcare and prescription drug costs for our employee population. Diversity and Inclusion.
These programs not only include base wages and incentives in support of our pay for performance culture, but also health and retirement benefits. We focus many programs on employee wellness. We believe these solutions help the overall health and wellness of our employees and help us successfully manage healthcare and prescription drug costs for our employee population.
Notably, President Biden issued an executive order in January 2021 suspending new leasing activities for oil and gas exploration and production on federal lands and offshore waters pending review and reconsideration of federal oil and gas permitting and leasing practices.
In January 2021, President Biden issued an executive order suspending new leasing activities for oil and natural gas exploration and production on federal lands and offshore waters pending review and reconsideration of federal oil and natural gas permitting and leasing practices.
We recognize that a diverse workforce provides the best opportunity to obtain unique perspectives, experiences and ideas to help our business succeed, and we are committed to providing a diverse and inclusive workplace to attract and retain talented employees.
Diversity and Inclusion We recognize that a diverse workforce provides the best opportunity to obtain unique perspectives, experiences and ideas to help our business succeed, and we are committed to providing a diverse and inclusive workplace to attract and retain talented employees.
From recent graduates to experienced hires, we seek to attract and develop top talent to continue building a unique blend of cultures, backgrounds, skills and beliefs that mirrors the world we live in.
From recent graduates to experienced hires, we seek to attract and develop top talent to continue building a unique blend of cultures, backgrounds, skills and beliefs that mirror the world we live in.
We believe employees choose W&T in part due to our professional advancement opportunities, on the job training, engaging culture and competitive compensation and benefits. 12 Table of Contents As part of our compensation philosophy, we believe we must offer and maintain market competitive total rewards programs in order to attract and retain superior talent.
We believe employees choose W&T in part due to our professional advancement opportunities, on the job training, engaging culture and competitive compensation and benefits. As part of our compensation philosophy, we believe we must offer and maintain market competitive total rewards programs in order to attract and retain superior talent.
Pursuant to its obligations as a signatory to the Paris Agreement in November 2020, the United States has set a target to reduce its GHG emissions by 50-52% by the year 2030 as compared with 2005 levels and has agreed to provide periodic updates on its progress.
Pursuant to its obligations as a signatory to the Paris Agreement, the United States has set a target to reduce its GHG emissions by 50% to 52% by the year 2030 as compared with 2005 levels and has agreed to provide periodic updates on its progress.
The tables below present, by category of employee, the gender and ethnicity composition of our employees as of December 31, 2022: ​ ​ ​ ​ ​ ​ Category Female Male Exec/Sr.
The tables below present, by category of employee, the gender and ethnicity composition of our employees as of December 31, 2023: ​ ​ ​ ​ ​ ​ Category Female Male Exec/Sr.
We also face increasing indirect competition from alternative energy sources, including wind, solar, and electric power. We currently operate in the Gulf of Mexico and compete for the acquisition of oil and natural gas properties and lease sales primarily on the basis of price for such properties.
Competition The oil and natural gas industry is highly competitive. We also face increasing indirect competition from alternative energy sources, including wind, solar, and electric power. We currently operate in the Gulf of Mexico and compete for the acquisition of oil and natural gas properties and lease sales primarily on the basis of price for such properties.
The report includes recommendations in respect to offshore sector, including adjusting royalty rates to ensure that the full value of the tracts being leased are captured, strengthening financial assurance coverage amounts that are required by operators, establishing a “fitness to operate” criteria that companies would need to meet in respect of safety, environmental and financial responsibilities in order to operate on the OCS.
The report included recommendations in respect to the offshore sector, including adjusting royalty rates to ensure that the full value of leased tracts are captured, strengthening financial assurance coverage amounts that are required by operators, and establishing “fitness to operate” criteria that companies would need to meet in respect of safety, environmental and financial responsibilities in order to operate in the OCS.
At W&T Offshore, we use advanced seismic and geoscience tools to execute successful drilling projects. In managing our business, we are focused on optimizing production and increasing reserves in a profitable and prudent manner, while managing cash flows to meet our obligations and investment needs.
We use advanced seismic and geoscience tools to execute successful drilling projects. In managing our business, we are focused on optimizing production and increasing reserves in a profitable and prudent manner, while managing cash flows to meet our obligations and investment needs.
The Gulf of Mexico is an area where we have developed significant technical expertise and where high production rates associated with hydrocarbon deposits have historically provided us the best opportunity to achieve high rates of return on our invested capital particularly as we focus on optimizing costs. ● Maintain high quality conventional asset base with low decline.
The Gulf of Mexico is an area where we have developed significant technical expertise and where high production rates associated with hydrocarbon deposits have historically provided us the best opportunity to achieve high rates of return on our invested capital. ● Maintain high-quality conventional asset base with low decline.
In 2022, w e published our second annual ESG report highlighting our performance and initiatives across ESG categories for the period of 2019 to 2021, which is not incorporated into, and does not form a part of, this Form 10-K. Finally, ESG performance scores are a factor in determining compensation for all management-level employees.
In 2023, w e published our third annual ESG report highlighting our performance and initiatives across ESG categories for the period of 2020 to 2022, which is not incorporated into, and does not form a part of, this Form 10-K. Finally, ESG performance scores are a factor in determining compensation for all management-level employees.
Decommissioning and financial assurance requirements . The BOEM requires that lessees demonstrate financial strength and reliability according to its regulations and provide acceptable financial assurances to assure satisfaction of lease obligations, including decommissioning activities on the OCS.
The BOEM requires that lessees demonstrate financial strength and reliability according to its regulations and provide acceptable financial assurances to assure satisfaction of lease obligations, including decommissioning activities in the OCS.
In 2022, approximately 31% of our revenues were received from BP Products North America and approximately 13% from Chevron-Texaco, with no other customer comprising greater than 10% of our 2022 revenues.
In 2023, approximately 41% of our revenues were received from BP Products North America and approximately 13% from Chevron-Texaco, with no other customer comprising greater than 10% of our 2023 revenues.
As of December 31, 2022 we held working interests in 47 offshore producing fields in federal and state waters. Our acreage, well, production and reserves information is described in more detail under Part I Item 2, Properties, in this Form 10-K.
As of December 31, 2023 we held working interests in 53 offshore producing fields in federal and state waters. Our acreage, well, production and reserves information are described in more detail under Part I, Item 2. Properties, in this Form 10-K.
See Financial Statements and Supplementary Data under Part II, Item 8 in this Form 10-K for our financial information. Seasonality and Inflation Seasonality. Generally, the demand for and price of natural gas increases during the winter months and decreases during the summer months.
Financial Information We operate our business as a single segment. See Financial Statements and Supplementary Data under Part II, Item 8 in this Form 10-K for our financial information. Seasonality and Inflation Seasonality. Generally, the demand for and price of natural gas increases during the winter months and decreases during the summer months.
We currently carry multiple layers of insurance coverage in our Energy Package (defined as certain insurance policies relating to our oil and gas properties which include named windstorm coverage) covering our operating activities, with higher limits of coverage for higher valued properties and wells.
Our Energy Package (defined as certain insurance policies relating to our oil and natural gas properties, which include named windstorm coverage) contains multiple layers of insurance coverage for our operating activities, with higher limits of coverage for higher valued properties and wells.
As of December 31, 2022, we had 365 employees and employed an additional 302 individuals who are employees of third parties that primarily provide skilled labor in support of our field operations. This combined workforce conducts our business in Texas, Alabama, Louisiana and the Gulf of Mexico.
Human Capital Resources As of December 31, 2023, we had 395 employees and employed an additional 326 individuals who are employees of third parties that primarily provide skilled labor in support of our field operations. This combined workforce conducts our business in Texas, Alabama, Louisiana and the Gulf of Mexico.
As a result, there is no assurance that the less stringent regulatory approach pursued by the FERC, Congress and the states will continue. 5 Table of Contents While these federal and state regulations for the most part affect us only indirectly, they are intended to enhance competition in natural gas markets.
The natural gas industry historically has been very heavily regulated. As a result, there is no assurance that the less stringent regulatory approach pursued by the FERC, Congress and the states will continue. While these federal and state regulations for the most part affect us only indirectly, they are intended to enhance competition in natural gas markets.
With respect to coverage for named windstorms, we have a $162.5 million aggregate limit covering one of our higher valued properties, and $150.0 million for all other properties subject to a retention of $17.5 million on the conventional shelf properties and $12.5 million on the deepwater properties.
With respect to coverage for named windstorms, we have a $162.5 million aggregate limit covering one of our higher valued properties, and $150.0 million for all other properties subject to four region retentions ranging from $2.5 million to $12.5 million on the conventional shelf properties and $10.0 million on the deepwater properties.
We do not believe that the regulatory decisions or activities relating to interstate or intrastate crude oil, condensate or NGL pipelines will affect us in a way that materially differs from the way they affect other crude oil, condensate and NGL producers or marketers. Regulation of oil and natural gas exploration and production.
We do not believe that the regulatory decisions or activities relating to interstate or intrastate oil, condensate or NGL pipelines will affect us in a way that materially differs from the way they affect other oil, condensate and NGL producers or marketers. Climate Change.
Our general and excess liability policies, among others, are effective for one year beginning May 1, 2022 and provide for $300.0 million of coverage for bodily injury and property damage liability, including coverage for liability claims resulting from seepage, pollution or contamination.
Our general and excess liability policies, among others, provide for $300.0 million of coverage for bodily injury and property damage liability, including coverage for liability claims resulting from seepage, pollution or contamination.
As a result, numerous proposals have been made at the international, national, regional and state levels of government to monitor and limit existing emissions of GHG as well as to restrict or eliminate such future emissions.
Numerous proposals have been made at the international levels of government to monitor and limit emissions of GHG as well as to restrict or eliminate future emissions.
Continued inflationary pressures and increased commodity prices may also result in increases to the costs of our oilfield goods, services and personnel, which would in turn cause our capital expenditures and operating costs to rise.
Continued inflationary pressures and increased commodity prices may also result in increases to the costs of our oilfield goods, services and personnel, which would in turn cause our capital expenditures and operating costs to rise. The United States has experienced a rise in inflation since October 2021.
These laws, among other things, govern the issuance of permits to conduct exploration, drilling and production operations, the amounts and types of materials that may be released into the environment and the discharge and disposal of waste materials and, to the extent waste materials are transported and disposed of in onshore facilities, remediation of any releases of those waste materials from such facilities.
Environmental, Health and Safety Matters and Government Regulations Our operations are subject to complex and stringent federal, state and local laws and regulations that, among other things, govern the issuance of permits to conduct exploration, drilling and production operations, the amounts and types of materials that may be released into the environment and the discharge and disposal of waste materials and, to the extent waste materials are transported and disposed of in onshore facilities, remediation of any releases of those waste materials from such facilities.
In addition, the proposed rule would establish “Emissions Guidelines,” creating a Subpart OOOOc that would require states to develop plans to reduce methane emissions from existing sources that must be at least as effective as presumptive standards set by the EPA. In November 2022, the EPA issued a proposed rule supplementing the November 2021 proposed rule.
In addition, the final rule establishes “Emissions Guidelines,” creating a Subpart OOOOc that requires states to develop plans to reduce methane emissions from existing sources which must be at least as effective as presumptive standards set by the EPA.
Also, periodic storms during the winter often impede our ability to safely load, unload and transport personnel and equipment, which can delay production and sales of our oil and natural gas. 11 Table of Contents Inflation . The United States has experienced a rise in inflation since October 2021.
Also, periodic storms during the winter often impede our ability to safely load, unload and transport personnel and equipment, which can delay production and sales of our oil and natural gas. 9 Table of Contents Inflation .
Although incident reporting practices are subject to some subjectivity and vary by operator, we have historically had below average incident rates compared to the industry average for the Gulf of Mexico, and we strive to continue to excel at protecting our personnel.
Although incident reporting practices are subject to some subjectivity and vary by operator, we have historically had below average incident rates compared to the industry average for the Gulf of Mexico, and we strive to continue to excel at protecting our personnel. Our HSE&R group is comprised of a Vice President, Environmental, Safety and Regulatory Managers and 10 staff personnel.
The Energy Package is effective for one year beginning June 1, 2022 and limits for well control range from $30.0 million to $500.0 million depending on the risk profile and contractual requirements.
Under the Energy Package, the limits for well control range from $30.0 million to $500.0 million depending on the risk profile and contractual requirements.
Our existing portfolio of 154 structures (116 of which we operate) provides a key advantage when evaluating and developing prospect opportunities and serves to reduce capital expenditures and maximize our returns on capital expenditures. ● Preserve ample liquidity and maintain financial flexibility.
We grow in opportunistic ways as we manage our balance sheet prudently and reinvest free cash flow. Our existing portfolio of 169 structures (108 of which we operate) provides a key advantage when evaluating and developing prospect opportunities and serves to reduce capital expenditures and maximize our returns on capital expenditures. ● Preserve ample liquidity and maintain financial flexibility.
We strive to provide a work environment that attracts and retains the top talent in the industry, reflects our core values and demonstrates these values to the communities in which we operate.
We consider our employees to be our most valuable asset and believe that our success depends on our ability to attract, develop and retain our employees. We strive to provide a work environment that attracts and retains the top talent in the industry, reflects our core values and demonstrates these values to the communities in which we operate.
In 2007, the FERC issued rules (“Order 704”) requiring that any market participant, including a producer such as us, that engages in wholesale sales or purchases of natural gas that equal or exceed 2.2 million MMBtus during a calendar year must annually report such sales and purchases to the FERC to the extent such transactions utilize, contribute to, or may contribute to the formation of price indices.
The BOEM issued a final rule, effective August 2008, which implements a hotline, alternative dispute resolution procedures, and complaint procedures for resolving claims of having been denied open and nondiscriminatory access to pipelines in the OCS. 6 Table of Contents In 2007, the FERC issued rules (“Order 704”) requiring that any market participant, including a producer such as us, that engages in wholesale sales or purchases of natural gas that equal or exceed 2.2 million MMBtus during a calendar year must annually report such sales and purchases to the FERC to the extent such transactions utilize, contribute to, or may contribute to the formation of price indices.
Although we obtain insurance against some of these risks, we cannot insure against all possible losses. As a result, any damage or loss not covered by insurance could have a material adverse effect on our financial condition, results of operations and cash flow.
We believe that our coverage limits are sufficient and are consistent with our exposure; however, we cannot insure against all possible losses. As a result, any damage or loss not covered by insurance could have a material adverse effect on our financial condition, results of operations and cash flow. We re-evaluate the purchase of insurance, coverage limits and deductibles annually.
Although the proposed rule’s ultimate date of effectiveness and the final form and substance of these requirements is not yet known and the ultimate scope and impact on our business is uncertain, compliance with the proposed rule, if finalized, may result in increased legal, accounting and financial compliance costs, make some activities more difficult, time-consuming and costly, and place strain on our personnel, systems and resources. 8 Table of Contents At the international level, there exists numerous conventions and non-binding commitments of participating nations with goals of limiting their GHG emissions and fossil fuel subsidies.
Although the proposed rule’s ultimate date of effectiveness and the final form and substance of these requirements is not yet known and the ultimate scope and impact on our business is uncertain, compliance with the proposed rule, if finalized, may result in increased legal, accounting and financial compliance costs, make some activities more difficult, time-consuming and costly, and place strain on our personnel, systems and resources. 8 Table of Contents In addition to the regulations discussed above, the OCSLA authorizes the DOI to regulate activities authorized by the BOEM in the Central and Western Gulf of Mexico.
This Form 10-K and our other filings can also be obtained by contacting: Investor Relations, W&T Offshore, Inc., 5718 Westheimer Road, Suite 700, Houston, Texas 77057 or by calling (713) 297-8024. Information on our website is not a part of this Form 10-K. ​ ​ 13 Table of Contents
These reports are accessible on our website as soon as reasonably practicable after being filed with, or furnished to, the SEC. This Form 10-K and our other filings can also be obtained by contacting: Investor Relations, W&T Offshore, Inc., 5718 Westheimer Road, Suite 700, Houston, Texas 77057 or by calling (713) 297-8024.
COP26 concluded with the finalization of the Glasgow Climate Pact, which stated long-term global goals (including those in the Paris Agreement) to limit the increase in the global average temperature and emphasized reductions in GHG emissions.
These include the United Nations-sponsored Paris Agreement, which requires signatory countries to set voluntary, individually-determined reduction goals and the Glasgow Climate Pact, which stated long-term global goals (including those in the Paris Agreement) to limit the increase in the global average temperature and emphasized reductions in GHG emissions.
Our exploration and production operations are subject to various types of regulation at the federal, state and local levels.
Our exploration and production are subject to various types of regulation at the federal, state and local levels. These types of regulation include, but are not limited to, requiring permits for the drilling of wells, drilling bonds and reports concerning operations.
Our significant inside ownership ensures that executive management’s interests are highly aligned with those of our shareholders, thus incentivizing executive management to maximize value and mitigate risk in executing our business strategy, generating shareholder value. 2 Table of Contents Competition The oil and natural gas industry is highly competitive.
We continually monitor current and forecasted commodity prices to assess if changes to our plans are needed. Our significant inside ownership ensures that executive management’s interests are highly aligned with those of our shareholders, thus incentivizing executive management to maximize value and mitigate risk in executing our business strategy, generating shareholder value.
This task force is responsible for overseeing and managing our ESG reporting initiatives and suggesting areas of focus to our executive management. Executive management in turn reports on those activities to the Board of Directors. We strive to execute our business plan while simultaneously reducing our environmental footprint, including emissions, potential spills and other impacts.
Executive management in turn reports on those activities to the ESG Committee of our board of directors. We strive to execute our business plan while simultaneously reducing our environmental footprint, including emissions, potential spills and other impacts. With respect to social priorities, we maintain a company-wide diversity training program and focus on promoting diversity and inclusion.
With respect to social priorities, we maintain a company-wide diversity training program and focus on promoting diversity and inclusion. Relating to governance, our fundamental policy is to conduct our business with honesty and integrity in accordance with high legal and ethical standards.
Relating to governance, our fundamental policy is to conduct our business with honesty and integrity in accordance with high legal and ethical standards.
In November 2021, the EPA issued a proposed rule intended to reduce methane emissions from new and existing crude oil and natural gas sources.
In December 2023, the EPA announced new rules intended to reduce methane emissions from oil and natural gas sources.
The agency also reviews BOEM-mandated monitoring and reporting of air emission sources for compliance with approved plan emission limits. BSEE may initiate measures to control and bring into compliance those operations determined to be in violation of applicable regulations or plan conditions by issuing Incidents of Noncompliance (“INC”) or recommending further enforcement action against potential violators. Water Discharges .
The BSEE may compel measures to control and bring into compliance those operations determined to be in violation of applicable regulations or plan conditions by issuing Incidents of Noncompliance or recommending further enforcement action against potential violators. The threat of climate change also continues to attract considerable public, governmental and scientific attention in foreign countries.
Our Board of Directors reviews our material safety metrics on a quarterly basis. Safety and Environmental metrics are incorporated into employee evaluations when determining compensation. Benefits and Compensation .
The group works with field personnel to create and regularly review safety policies and procedures, in an effort to support continuous improvement of our SEMS. Our board of directors reviews our material safety metrics on a quarterly basis. Safety and Environmental metrics are incorporated into employee evaluations when determining compensation.
Under the OCSLA, the DOI is limited to regulating offshore emissions of criteria and their precursor – pollutants to the extent they significantly affect the air quality of any state. The BSEE conducts field inspections of emission sources installed on offshore platforms that have the potential to emit regulated air pollutants.
The EPA retains jurisdiction over all other parts of the OCS. Under the OCSLA, the DOI is limited to regulating offshore emissions of criteria pollutants and their precursor-pollutants to the extent they significantly affect the air quality of any state.
Our sales of natural gas are affected by the availability, terms and cost of transportation. The price and terms for access to pipeline transportation are subject to extensive regulation. The FERC has undertaken various initiatives to increase competition within the natural gas industry.
Financial Statements and Supplementary Data —Note 17 — Commitments for more information on decommissioning and financial assurance requirements. Regulation and transportation of natural gas. Our sales of natural gas are affected by the availability, terms and cost of transportation. The price and terms for access to pipeline transportation are subject to extensive regulation.
The EPA is expected to issue a proposed rule in April 2023 and a final rule by the end of 2023. 7 Table of Contents The threat of climate change continues to attract considerable public, governmental and scientific attention in the United States and in foreign countries.
The threat of climate change continues to attract considerable public, governmental and scientific attention in the United States.
Our 2022 total recordable incident rate for employees was 0.54, which is far below the industry average for the Gulf of Mexico from 2021 of 9.9.
To drive a culture of personnel safety in our operations, we operate under a comprehensive Safety and Environmental Management System (“SEMS”). Our 2023 total recordable incident rate for employees was 0.25, which is far below the industry average for the Gulf of Mexico from 2022 of 0.88.
With ultimate oversight by our Board of Directors, Environmental, Social & Governance (“ESG”) matters are an integral part of our day-to-day operations and are incorporated into the strategic decision-making process across our business. We have established a managerial ESG Task Force composed of cross-functional management-level employees in Operations, HSE&R, Legal, Human Resources, Investor Relations, and Finance.
By operating within our free cash flow, we are able to improve liquidity and optimize our balance sheet. ● Manage environmental, social, and governance matters. With ultimate oversight by our board of directors, Environmental, Social & Governance (“ESG”) matters are an integral part of our day-to-day operations and are incorporated into the strategic decision-making process across our business.
Our ability to acquire additional oil and natural gas properties, acquire additional leases and to discover reserves in the future will depend upon our ability to evaluate and select suitable properties, finance investments and consummate transactions in a highly competitive environment.
Our ability to acquire additional oil and natural gas properties, acquire additional leases and to discover reserves in the future will depend upon our ability to evaluate and select suitable properties, finance investments and consummate transactions in a highly competitive environment. 2 Table of Contents Oil and Natural Gas Marketing and Delivery Commitments The market for our oil, NGL and natural gas production depends on factors beyond our control, including the extent of domestic production and imports of oil, NGLs and natural gas; the proximity and capacity of natural gas pipelines and other transportation facilities; the demand for oil, NGLs and natural gas; the marketing of competitive fuels; and the effect of state and federal regulation.
We have insurance policies to cover some of our risk of loss associated with our operations, and we maintain the amount of insurance we believe is prudent. However, not all of our business activities can be insured at the levels we desire because of either limited market availability or unfavorable economics (limited coverage for the underlying cost).
No assurance can be given that we will be able to insure our business activities at the levels we desire because of either limited market availability or unfavorable economics (limited coverage for the underlying cost).
Additionally, on March 21, 2022, the SEC issued a proposed rule regarding the enhancement and standardization of mandatory climate-related disclosures.
The new rule is likely to increase costs and regulatory burdens on the oil and natural gas industry, especially for smaller operators and operators of older oil and natural gas wells. In March 2022, the SEC issued a proposed rule regarding the enhancement and standardization of mandatory climate-related disclosures.
Various state and local governments have also publicly committed to furthering the goals of the Paris Agreement. The impacts of these orders, pledges, agreements and any legislation or regulation promulgated to fulfill the United States’ commitments under the Paris Agreement, COP26, or other international conventions cannot be predicted at this time.
In addition, in November 2021, the United States signed the Global Methane Pledge, a pact that aims to reduce global methane emissions by at least 30% below 2020 levels by 2030.The impacts of these orders, pledges, agreements and any legislation or regulation promulgated to fulfill the United States’ commitments under the Paris Agreement, the Glasgow Climate Pact and the COP28 agreement, or other international conventions cannot be predicted at this time.
Our reports filed with the SEC are available free of charge to the general public through our website at www.wtoffshore.com. These reports are accessible on our website as soon as reasonably practicable after being filed with, or furnished to, the SEC.
Website Access to Company Reports We file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports and amendments to those reports with the SEC. Our reports filed with the SEC are available free of charge to the general public through our website at www.wtoffshore.com.
Oil and Natural Gas Marketing and Delivery Commitments We sell our crude oil, NGLs and natural gas to third-party customers. We are not dependent upon, or contractually limited to, any one customer or small group of customers.
The prices received for oil, NGL and natural gas sales are generally tied to monthly or daily indices as quoted in industry publications. We are not dependent upon, or contractually limited to, any one customer or small group of customers.
In addition, our oil and natural gas properties are located in the Gulf of Mexico, which makes us more vulnerable to tropical storms and hurricanes. These hazards can cause personal injury or loss of life, severe damage to and destruction of property and equipment, pollution or other environmental damage and the suspension of operations.
In general, our current insurance policies cover risks incident to the operation of oil and natural gas wells, including, but not limited to, personal injury or loss of life, severe damage to and destruction of property and equipment, pollution or other environmental damage and the suspension of operations. We do not carry business interruption insurance.
Health and Safety . Our highest priorities are the safety of all personnel and protection of the environment. To drive a culture of personnel safety in our operations, we operate under a comprehensive Safety and Environmental Management System (“SEMS”).
We are committed to the safety, health and wellness of our employees. Our highest priorities are the safety of all personnel and protection of the environment. We actively promote the highest standards of safety behavior and environmental awareness and strive to meet or exceed all applicable local and natural regulations.
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At W&T, we grow in opportunistic ways as we manage our balance sheet prudently and reinvest free cash flow.
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We have established a managerial ESG Task Force composed of cross-functional management-level employees in Operations, Health, Safety, Environmental and Regulatory (“HSE&R”), Legal, Human Resources and Finance. This task force is responsible for overseeing and managing our ESG reporting initiatives and suggesting areas of focus to our executive management.
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By operating within our free cash flow, we are able to reduce debt, thus optimizing the balance sheet and maintaining financial flexibility. We also intend to use a portion of the free cash flow we generate to reduce our outstanding debt to maintain flexibility for future opportunities. ● Management of environmental, social, and governance matters.
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The oil and natural gas industry also competes with other industries in supplying the energy and fuel requirements of industrial, commercial and individual consumers. We sell our oil, NGLs and natural gas to third-party customers. The terms of sale under the majority of existing contracts are short-term, usually one year or less in duration.
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We continually monitor current and forecasted commodity prices to assess if changes are needed to our plans.
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Insurance Coverage In accordance with industry practice, we maintain insurance coverage against some, but not all, of the operating risks to which our business is exposed.
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We do not have any agreements which obligate us to deliver a fixed volume of physical products to customers. Compliance with Government Regulations Various aspects of our oil and natural gas operations are subject to extensive and continually changing regulations as legislation affecting the oil and natural gas industry is under constant review for amendment or expansion.
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Future insurance coverage for the oil and natural gas industry could increase in cost and may include higher deductibles or retentions. In addition, some forms of insurance may become unavailable in the future or unavailable on terms that are economically acceptable.
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Numerous departments and agencies, both federal and state, are authorized by statute to issue, and have issued, rules and regulations binding upon the oil and natural gas industry and its individual members. BOEM and BSEE, both agencies under the U.S.
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The federal environmental laws and regulations applicable to us and our operations include, among others, the following: 3 Table of Contents ● The Resource Conservation and Recovery Act, as amended, regulates the generation, transportation, storage, treatment and disposal of non-hazardous and hazardous wastes and can require cleanup of hazardous waste disposal sites; ● The Comprehensive Environmental Response, Compensation, and Liability Act, as amended, (“CERCLA”) and comparable state laws impose liability, without regard to fault or the legality of the original conduct, on certain classes of persons that are considered to be responsible for the release of a “hazardous substance” into the environment; ● The Clean Air Act, as amended (the “CAA”), and comparable state and local requirements restrict the emission of air pollutants from many sources through the imposition of air emission standards, construction and operating permitting programs and other compliance requirements; ● The Clean Water Act, as amended, and analogous state laws, prohibit any discharge of pollutants, including spills and leaks of oil and other substances, into waters of the United States, except in compliance with permits issued by federal and state governmental agencies; ● The Oil Pollution Act of 1990, as amended (the “OPA”), holds owners and operators of offshore oil production or handling facilities, including the lessee or permittee of the area where an offshore facility is located, strictly liable for the costs of removing oil discharged into waters of the United States, including the OCS or adjoining shorelines, and for certain damages from such spills; ● The Endangered Species Act, as amended, restricts activities that may affect federally identified endangered and threatened species or their habitats; ● The Migratory Bird Treaty Act, as amended, implements various treaties and conventions between the United States and certain other nations for the protection of migratory birds; and ● The National Environmental Policy Act, as amended, requires careful evaluation of the environmental impacts of oil and natural gas production activities on federal lands.
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Department of the Interior (“DOI”), have adopted regulations pursuant to the Outer Continental Shelf Lands Act (“OCSLA”) that apply to our operations on federal leases in the Gulf of Mexico.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAmong other things, our articles of incorporation and bylaws: ● provide advance notice procedures with regard to stockholder nominations of candidates for election as directors or other stockholder proposals to be brought before meetings of our stockholders, which may preclude our stockholders from bringing certain matters before our stockholders at an annual or special meeting; ● provide our board of directors the ability to authorize issuance of preferred stock in one or more series, which makes it possible for our board of directors to issue, without stockholder approval, preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of us and which may have the effect of deterring hostile takeovers or delaying changes in control or management of us; ● provide that the authorized number of directors may be changed only by resolution of our board of directors; ● provide that, subject to the rights of holders of any series of preferred stock to elect directors or fill vacancies in respect of such directors as specified in the related preferred stock designation, all vacancies, including newly created directorships be filled by the affirmative vote of holders of a majority of directors then in office, even if less than a quorum, or by the sole remaining director, and will not be filled by our stockholders; ● no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; ● provide that, subject to the rights of the holders of any series of preferred stock to elect directors under specified circumstances, if any, any action required or permitted to be taken by our stockholders must be effected at a duly called annual or special meeting of our stockholders and may not be effected by any consent in writing in lieu of a meeting of such stockholders; ● provide that, subject to the rights of the holders of shares of any series of preferred stock, if any, to remove directors elected by such series of preferred stock pursuant to our articles of incorporation (including any preferred stock designation thereunder), directors may be removed from office at any time, only for cause and 32 Table of Contents by the holders of 60% of the voting power of all outstanding voting shares entitled to vote generally in the election of directors; ● provide that special meetings of our stockholders may only be called by the Chairman of our board of directors, our President, or our board of directors pursuant to a resolution adopted by a majority of the total number of directors that we would have if there were no vacancies, or at least 30% of the voting power of all outstanding shares entitled to vote generally at the special meeting; ● provide that the provisions of our articles of incorporation can only be amended or repealed by the affirmative vote of the holders of at least 66 2/3% in voting power of the outstanding shares of our common stock entitled to vote thereon, voting together as a single class; and ● provide that our bylaws can be altered or repealed only by our board of directors.
Biggest changeAmong other things, our articles of incorporation and bylaws: ● provide advance notice procedures with regard to stockholder nominations of candidates for election as directors or other stockholder proposals to be brought before meetings of our stockholders, which may preclude our stockholders from bringing certain matters before our stockholders at an annual or special meeting; ● provide our board of directors the ability to authorize issuance of preferred stock in one or more series, which makes it possible for our board of directors to issue, without stockholder approval, preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of us and which may have the effect of deterring hostile takeovers or delaying changes in control or management of us; ● provide that the authorized number of directors may be changed only by resolution of our board of directors; ● provide that, subject to the rights of holders of any series of preferred stock to elect directors or fill vacancies in respect of such directors as specified in the related preferred stock designation, all vacancies, including newly created directorships be filled by the affirmative vote of holders of a majority of directors then in office, even if less than a quorum, or by the sole remaining director, and will not be filled by our stockholders; ● no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; ● provide that, subject to the rights of the holders of shares of any series of preferred stock, if any, to remove directors elected by such series of preferred stock pursuant to our articles of incorporation (including any preferred stock designation thereunder), directors may be removed from office at any time, only for cause and by the holders of 60% of the voting power of all outstanding voting shares entitled to vote generally in the election of directors; ● provide that special meetings of our stockholders may be called by the Chairman of our board of directors, our President, by our Secretary upon the written request of a majority of the total number of directors of our board of directors, or at least 25% of the voting power of all outstanding shares entitled to vote generally at the special meeting; and ● provide that the provisions of our articles of incorporation can only be amended or repealed by the affirmative vote of the holders of at least a majority in voting power of the outstanding shares of our common stock entitled to vote thereon, voting together as a single class.
Under certain environmental laws, we could be exposed to strict, joint and several liability for cleanup costs and other damages relating to releases of hazardous materials or contamination, regardless of whether we were responsible for the release or contamination, and even if our operations were lawful at the time or in accordance with industry standards.
Under certain environmental laws, we could be exposed to strict, joint and several liability for cleanup costs and other damages relating to releases of hazardous materials or contamination, regardless of whether we were responsible for the release or contamination, and even if our operations were lawful or in accordance with industry standards at the time.
In addition, such changes in laws or regulations could increase costs of compliance and doing business for our customers and thereby decrease the demand for our services.
In addition, such changes in laws or regulations could increase the costs of compliance and doing business for our customers and thereby decrease the demand for our services.
Additionally, BOEM could in the future make new demands for additional financial assurances covering our obligations under our properties, which could exceed the Company’s capabilities to provide.
Additionally, the BOEM could in the future make new demands for additional financial assurances covering our obligations under our properties, which could exceed the Company’s capabilities to provide.
New laws and regulations, amendment of existing laws and regulations, reinterpretation of legal requirements or increased governmental enforcement could significantly increase our capital expenditures and operating costs or could result in delays, limitations or cancelations to our exploration and production activities, which could have an adverse effect on our financial condition, results of operations, or cash flows.
New laws and regulations, amendment of existing laws and regulations, reinterpretation of legal requirements or increased governmental enforcement could significantly increase our capital expenditures and operating costs or result in delays, limitations or cancelations to our exploration and production activities, which could have an adverse effect on our financial condition, results of operations, or cash flows.
Additionally, any failure by us to comply with applicable environmental laws and regulations may result in governmental authorities taking action against us that could adversely impact our operations and financial condition, including the: ● issuance of administrative, civil and criminal penalties; ● denial or revocation of permits or other authorizations; ● imposition of limitations on our operations; and ● performance of site investigatory, remedial or other corrective actions.
Any failure by us to comply with applicable environmental laws and regulations may result in governmental authorities taking action against us that could adversely impact our operations and financial condition, including the: ● issuance of administrative, civil and criminal penalties; ● denial or revocation of permits or other authorizations; ● imposition of limitations on our operations; and ● performance of site investigatory, remedial or other corrective actions.
The oil and gas assets of, and equity in, certain of our subsidiaries that own our Mobile Bay assets (the Borrower Subsidiaries, as defined in Financial Statements and Supplementary Data – Note 2 – Debt under Part II, Item 8 in this Form 10-K), are pledged on a first priority basis to secure our Term Loan.
The oil and natural gas assets of, and equity in, certain of our subsidiaries that own our Mobile Bay assets (the Borrower Subsidiaries, as defined in Financial Statements and Supplementary Data – Note 2 – Debt under Part II, Item 8 in this Form 10-K), are pledged on a first priority basis to secure our Term Loan.
Sustained low crude oil, NGLs and natural gas pricing may also significantly impact the projected rates of return of our projects without the assurance of significant reductions in costs of drilling and development. To the extent we drill additional wells in the deepwater and/or on the deep shelf, our drilling activities could become more expensive.
Sustained low oil, NGLs and natural gas pricing may also significantly impact the projected rates of return of our projects without the assurance of significant reductions in costs of drilling and development. To the extent we drill additional wells in the deepwater and/or on the deep shelf, our drilling activities could become more expensive.
Estimating future restoration and removal costs in the Gulf of Mexico is especially difficult because most of the removal obligations may be many years in the future, regulatory requirements are subject to change or such requirements may be interpreted more restrictively, and asset removal technologies are constantly evolving, which may result in additional or increased costs.
Estimating future restoration and removal costs in the Gulf of Mexico is especially difficult because most of the removal obligations may be many years in the future, regulatory requirements are subject to change or such requirements may be interpreted more restrictively, and asset removal technologies are constantly evolving, which may result in additional, increased or decreased costs.
Lower crude oil, NGLs and natural gas prices in the future would also adversely affect our cash flow and could result in reductions in our borrowing base and sources of alternate credit and affect our ability to satisfy the covenants and ratios required by the Credit Agreement and Indenture (as defined below).
Lower oil, NGLs and natural gas prices in the future would also adversely affect our cash flow and could result in reductions in our borrowing base and sources of alternate credit and affect our ability to satisfy the covenants and ratios required by the Credit Agreement and Indenture (as defined below).
Depressed oil, natural gas or NGL prices adversely affects our business, financial condition, cash flow, liquidity or results of operations and could affect our ability to fund future capital expenditures needed to find and replace reserves, meet our financial commitments and to implement our business strategy.
Depressed oil, NGL or natural gas prices adversely affect our business, financial condition, cash flow, liquidity or results of operations and could affect our ability to fund future capital expenditures needed to find and replace reserves, meet our financial commitments and to implement our business strategy.
If any of these third-party pipelines become partially or fully unavailable to transport crude oil and natural gas, or if the gas quality specification for the natural gas pipelines changes so as to restrict our ability to transport natural gas on those pipelines, our revenues could be adversely affected.
If any of these third-party pipelines become partially or fully unavailable to transport oil and natural gas, or if the gas quality specification for the natural gas pipelines changes so as to restrict our ability to transport natural gas on those pipelines, our revenues could be adversely affected.
Actual future production, crude oil and natural gas prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable oil and natural gas reserves will most likely vary from our estimates. Any significant variance could materially affect the estimated quantities and present value of our reserves.
Actual future production, oil and natural gas prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable oil and natural gas reserves will most likely vary from our estimates. Any significant variance could materially affect the estimated quantities and present value of our reserves.
Gulf Coast; ● technological advances affecting energy consumption and the availability and cost of alternative energy sources; ● the price, availability and acceptance of alternative fuels; ● speculation as to the future price of oil and the speculative trading of oil and natural gas futures contracts; ● cyberattacks on our information infrastructure or systems controlling offshore equipment; ● activities by non-governmental organizations to restrict the exploration and production of oil and natural gas so as to minimize or eliminate future emissions of carbon dioxide, methane gas and other GHG; ● the effect of energy conservation efforts; ● the availability of pipeline and other transportation alternatives and third party processing capacity; and ● geographic differences in pricing.
Gulf Coast; ● technological advances affecting energy consumption and the availability and cost of alternative energy sources; ● the price, availability and acceptance of alternative fuels; ● speculation as to the future price of oil and the speculative trading of oil and natural gas futures contracts; ● cyberattacks on our information infrastructure or systems controlling offshore equipment; ● activities by non-governmental organizations to restrict the exploration and production of oil and natural gas so as to minimize or eliminate future emissions of carbon dioxide, methane gas and other GHGs; ● the effect of energy conservation efforts; ● the availability of pipeline and other transportation alternatives and third-party processing capacity; and ● geographic differences in pricing.
In addition, the Company’s continuing efforts to research, establish, accomplish and accurately report on the implementation of our ESG strategy, including any specific ESG objectives, may also create additional operational risks and expenses and expose us to reputational, legal and other risks.
In addition, our continuing efforts to research, establish, accomplish and accurately report on the implementation of our ESG strategy, including any specific ESG objectives, may also create additional operational risks and expenses and expose us to reputational, legal and other risks.
See Financial Statements and Supplementary Data– Note 10 – Derivative Financial Instruments under Part II, Item 8 in this Form 10-K for additional information on our derivative contracts and transactions. We may enter into more derivative contracts in the future.
See Financial Statements and Supplementary Data– Note 4 – Derivative Financial Instruments under Part II, Item 8 in this Form 10-K for additional information on our derivative contracts and transactions. We may enter into more derivative contracts in the future.
While these commodity derivative positions are intended to reduce the effects of crude oil and natural gas price volatility, they may also limit future income if crude oil and natural gas prices were to rise substantially over the price established by such positions.
While these commodity derivative positions are intended to reduce the effects of oil and natural gas price volatility, they may also limit future income if oil and natural gas prices were to rise substantially over the price established by such positions.
The process also requires economic assumptions about matters such as crude oil and natural gas prices, operating expenses, capital expenditures, taxes and availability of funds. Therefore, estimates of oil and natural gas reserves are inherently imprecise.
The process also requires economic assumptions about matters such as oil and natural gas prices, operating expenses, capital expenditures, taxes and availability of funds. Therefore, estimates of oil and natural gas reserves are inherently imprecise.
The price we receive for our crude oil, NGLs and natural gas production directly affects our revenues, profitability, access to capital, ability to produce these commodities economically and future rate of growth.
The price we receive for our oil, NGLs and natural gas production directly affects our revenues, profitability, access to capital, ability to produce these commodities economically and future rate of growth.
Lower future crude oil, NGLs and natural gas prices may reduce our estimates of the proved reserve volumes that may be economically recovered, which would reduce the total volumes and future value of our proved reserves.
Lower future oil, NGLs and natural gas prices may reduce our estimates of the proved reserve volumes that may be economically recovered, which would reduce the total volumes and future value of our proved reserves.
Increasing attention to ESG matters, societal expectations for companies to address climate change and sustainability concerns, and investor, societal, and other stakeholder expectations regarding ESG and sustainability practices and related disclosures may result in increased costs, reduced demand for the oil and natural gas we produce, reduced profits, increased risks of governmental investigations and private party litigation, and negative impacts on our stock price and access to capital markets.
Increasing scrutiny related to ESG matters, societal expectations for companies to address climate change and sustainability concerns, and investor, societal, and other stakeholder expectations regarding ESG and sustainability practices and related disclosures may result in increased costs, reduced demand for the oil and natural gas we produce, reduced profits, increased risks of governmental investigations and private party litigation, and negative impacts on our stock price and access to capital markets.
Market and Competitive Risks Crude oil, natural gas and NGL prices can fluctuate widely due to a number of factors that are beyond our control.
Market and Competitive Risks Oil, NGL and natural gas prices can fluctuate widely due to a number of factors that are beyond our control.
Moreover, such transition continues to expose us to additional risks, including increased costs, diversion of management’s attention, disruptions to certain of our business operations and loss, damage to or unavailability of data or systems, each of which could have an adverse effect on our business and results of operations. 21 Table of Contents The loss of members of our senior management could adversely affect us.
Moreover, such transition continues to expose us to additional risks, including increased costs, diversion of management’s attention, disruptions to certain of our business operations and loss, damage to or unavailability of data or systems, each of which could have an adverse effect on our business and results of operations. 20 Table of Contents The loss of members of our senior management could adversely affect us.
Our ability to market our production depends substantially on the availability and capacity of gathering systems, pipelines and processing facilities, which in some cases are owned and operated by third parties. 15 Table of Contents We depend upon third-party pipelines that provide delivery options from our facilities.
Our ability to market our production depends substantially on the availability and capacity of gathering systems, pipelines and processing facilities, which in some cases are owned and operated by third parties. 13 Table of Contents We depend upon third-party pipelines that provide delivery options from our facilities.
Additionally, availability of borrowings and letters of credit under our Credit Agreement is determined by establishment of a borrowing base, which is periodically redetermined in lender’s sole discretion based on our lenders’ review of crude oil, NGLs and natural gas prices, our proved reserves and other criteria.
Additionally, availability of borrowings and letters of credit under our Credit Agreement is determined by establishment of a borrowing base, which is periodically redetermined in lender’s sole discretion based on our lender’s review of oil, NGLs and natural gas prices, our proved reserves and other criteria.
If the proceeds of the sale of the collateral securing the 11.75% Senior Second Lien Notes or any future indebtedness incurred under the Credit Agreement are not sufficient to repay all amounts due in respect of such debt, then claims against our remaining assets to repay any amounts still outstanding under our secured obligations would be unsecured and our ability to pay our other unsecured obligations and any distributions in respect of our capital stock would be significantly impaired.
If the proceeds of the sale of the collateral securing the 11.75% Notes or any future indebtedness incurred under the Credit Agreement are not sufficient to repay all amounts due in respect of such debt, then claims against our remaining assets to repay any amounts still outstanding under our secured obligations would be unsecured, and our ability to pay our other unsecured obligations and any distributions in respect of our capital stock would be significantly impaired.
Although such cost increases did not materially impact our 2022 financial condition or results of operations, and we currently do not expect them to materially impact our 2023 financial results or operations, there is no guarantee that we can increase selling prices, replace lost revenue, or reduce costs to fully mitigate the effect of inflation on our costs and business, which may adversely impact our sales margins and profitability. 17 Table of Contents We may not be in a position to control the timing of development efforts, associated costs or the rate of production of the reserves from our non-operated properties.
Although such cost increases did not materially impact our 2023 financial condition or results of operations, and we currently do not expect them to materially impact our 2024 financial results or operations, there is no guarantee that we can increase selling prices, replace lost revenue, or reduce costs to fully mitigate the effect of inflation on our costs and business, which may adversely impact our sales margins and profitability. 16 Table of Contents We may not be in a position to control the timing of development efforts, associated costs or the rate of production of the reserves from our non-operated properties.
Our leverage and debt service obligations could: ● increase our vulnerability to general adverse economic and industry conditions; ● limit our ability to fund future working capital requirements, capital expenditures and asset retirement obligations (“ARO”), to engage in future acquisitions or development activities, or to otherwise realize the value of our assets; ● limit our opportunities because of the need to dedicate a substantial portion of our cash flow from operations to payments of interest and principal on our debt obligations or to comply with any restrictive terms of our debt obligations; ● limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; ● limit or impair our ability to obtain additional financing or refinancing in the future or require us to seek alternative financing, which may be more restrictive or expensive; and ● place us at a competitive disadvantage compared to our competitors that have less debt. 22 Table of Contents Any of the above listed factors could have a material adverse effect on our business, financial condition, cash flows and results of operations.
Our leverage and debt service obligations could: ● increase our vulnerability to general adverse economic and industry conditions; ● limit our ability to fund future working capital requirements, capital expenditures and ARO, to engage in future acquisitions or development activities, or to otherwise realize the value of our assets; ● limit our opportunities because of the need to dedicate a substantial portion of our cash flow from operations to payments of interest and principal on our debt obligations or to comply with any restrictive terms of our debt obligations; ● limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; ● limit or impair our ability to obtain additional financing or refinancing in the future or require us to seek alternative financing, which may be more restrictive or expensive; and ● place us at a competitive disadvantage compared to our competitors that have less debt. 21 Table of Contents Any of the above listed factors could have a material adverse effect on our business, financial condition, cash flows and results of operations.
In addition, third-party platforms could be damaged or destroyed by tropical storms, hurricanes or other weather events, which could reduce or eliminate our ability to market our production. As of December 31, 2022, three fields, accounting for approximately 0.2 MMBoe (or 1.2%) of our 2022 production, are tied back to separate, third-party owned platforms.
In addition, third-party platforms could be damaged or destroyed by tropical storms, hurricanes or other weather events, which could reduce or eliminate our ability to market our production. As of December 31, 2023, three fields, accounting for approximately 0.2 MMBoe (or 1.4%) of our 2023 production, are tied back to separate, third-party owned platforms.
Moreover, governmental agencies under the Biden Administration are expected to continue to evaluate aspects of safety and operational performance in the United States Gulf of Mexico that could result in new, more restrictive requirements. 27 Table of Contents These regulatory actions, or any new rules, regulations, or legal or enforcement initiatives or controls that impose increased costs or more stringent operational standards could delay or disrupt our operations, result in increased supplemental bonding and costs and limit activities in certain areas, or cause us to incur penalties, fines, or shut-in production at one or more of our facilities or result in the suspension or cancellation of leases.
Moreover, governmental agencies under the Biden administration are expected to continue to evaluate aspects of safety and operational performance in the Gulf of Mexico that could result in new, more restrictive requirements. 25 Table of Contents These regulatory actions, or any new rules, regulations, or legal or enforcement initiatives that impose more stringent operational standards could delay or disrupt our operations; result in increased supplemental bonding and costs; and limit activities in certain areas or cause us to incur penalties or fines; shut-in production at one or more of our facilities; or result in the suspension or cancellation of leases.
These requirements may limit the number of potential bidders for certain collateral in any foreclosure and may delay any sale, either of which events may have an adverse effect on the sale price of the collateral. We may not be able to repurchase the 11.75% Senior Second Lien Notes upon a change of control.
These requirements may limit the number of potential bidders for certain collateral in any foreclosure and may delay any sale, either of which events may have an adverse effect on the sale price of the collateral. We may not be able to repurchase the 11.75% Notes upon a change of control.
Regulated matters include lease permit restrictions; limitations on our drilling activities in environmentally sensitive areas, such as marine habitats, and restrictions on the way we can discharge materials into the environment; bonds or other financial responsibility requirements to cover drilling contingencies and well decommissioning costs; the spacing of wells; operational reporting; reporting of natural gas sales for resale; and taxation.
Regulated matters include lease permit restrictions; limitations on our drilling activities in environmentally sensitive areas, such as marine habitats, and restrictions governing the discharge of materials into the environment; bonds or other financial responsibility requirements to cover drilling contingencies and well decommissioning costs; the spacing of wells; operational reporting; reporting of natural gas sales for resale; and taxation.
For example, stockholders and bondholders currently invested in fossil fuel energy companies such as ours but concerned about the potential effects of climate change may elect in the future to shift some or all of their investments into non-fossil fuel energy related sectors.
Further, stockholders and bondholders currently invested in fossil fuel energy companies such as ours but concerned about the potential effects of climate change may elect in the future to shift some or all of their investments into non-fossil fuel energy related sectors.
These factors and the volatility of the energy markets, which we expect to continue, make it extremely difficult to predict future commodity prices with any certainty. 14 Table of Contents If crude oil, NGLs and natural gas prices decrease from their current levels, we may be required to further reduce the estimated volumes and future value associated with our total proved reserves or record impairments to the carrying values of our oil and natural gas properties.
These factors and the volatility of the energy markets, which we expect to continue, make it extremely difficult to predict future commodity prices with any certainty. ​ 12 Table of Contents If oil, NGL and natural gas prices decrease from their current levels, we may be required to further reduce the estimated volumes and future value associated with our total proved reserves or record impairments to the carrying values of our oil and natural gas properties.
In order to manage our exposure to price risk in the marketing of our oil and natural gas, we have entered, and may continue to enter, into oil and natural gas price commodity derivative positions with respect to a portion of our expected future production.
Commodity derivative positions may limit our potential gains. In order to manage our exposure to price risk in the marketing of our oil and natural gas, we have entered, and may continue to enter, into oil and natural gas price commodity derivative positions with respect to a portion of our expected future production.
We have moved and are continuing to move certain services within the Company and are transitioning to new service providers and implementing agreements with such providers. Although the transition process is substantially complete and we no longer have a material relationship with AAIT, the transition process has disrupted, and may continue to disrupt, certain of our business operations.
We have moved and are continuing to move certain services internally and are transitioning certain other services to new service providers and implementing agreements with such providers. Although the transition process is substantially complete and we no longer have a material relationship with AAIT, the transition process has disrupted, and may continue to disrupt, certain of our business operations.
Additionally, regulatory agencies under the Biden Administration may issue new or amended rulemakings regarding deep water leasing, permitting or drilling that could result in more stringent or costly restrictions, delays or cancellations to our operations as well as those of similarly situated offshore energy companies on the OCS.
Regulatory agencies under the Biden administration may issue new or amended rulemakings regarding deepwater leasing, permitting or drilling that could result in more stringent or costly restrictions, delays or cancellations to our operations as well as those of similarly situated offshore energy companies on the OCS.
If we experience certain kinds of changes of control, we must give holders of the 11.75% Senior Second Lien Notes the opportunity to sell us their notes at 101% of their principal amount, plus accrued and unpaid interest.
If we experience certain kinds of changes of control, we must give holders of the 11.75% Notes the opportunity to sell us their notes at 101% of their principal amount, plus accrued and unpaid interest.
These and other developments in the financial sector could lead to some lenders and investors restricting 30 Table of Contents access to capital for or divesting from certain industries or companies, including the oil and natural gas sector, or requiring that borrowers take additional steps to reduce their GHG emissions.
These and other developments in the financial sector could lead to some lenders and investors restricting access to capital for or divesting from certain industries or companies, including the oil and natural gas sector, or requiring that borrowers take additional steps to reduce their GHG emissions.
The indenture governing our 11.75% Senior Second Lien Notes (the “Indenture”), our Credit Agreement and our Subsidiary Credit Agreement governing our indebtedness contain a number of significant restrictive covenants in addition to covenants restricting the incurrence of additional debt.
The indenture governing our 11.75% Notes (the “Indenture”), our Credit Agreement and our Subsidiary Credit Agreement governing our indebtedness contain a number of significant restrictive covenants in addition to covenants restricting the incurrence of additional debt.
Such circumstances or conflicts might adversely affect us or other holders of our common stock. In addition, our significant concentration of share ownership may adversely affect the trading price of our common stock because investors may perceive disadvantages in owning shares in companies with significant stockholder concentrations.
Such circumstances or conflicts might adversely affect us or other holders of our common stock. In addition, our significant concentration of share ownership and lender relationships may adversely affect the trading price of our common stock because investors may perceive disadvantages in owning shares in companies with significant stockholder concentrations or with such potential conflicts.
As a result, we may make significant increases or decreases to our estimated ARO in future periods. For example, because we operate in the Gulf of Mexico, platforms, facilities and equipment are subject to damage or destruction as a result of hurricanes.
As a result, we may make significant increases or decreases to our estimated ARO in future periods. For example, because we operate in the Gulf of Mexico, platforms, facilities and equipment are subject to damage or destruction as a result of hurricanes and other adverse weather conditions.
If we fail to comply with such future orders, BOEM could commence enforcement proceedings or take other remedial action, including assessing civil penalties, suspending operations or production, or initiating procedures to cancel leases, which, if upheld, would have a material adverse effect on our business, properties, results of operations and financial condition.
If we fail to comply with the proposed new rule and such future orders, the BOEM could commence enforcement proceedings or take other remedial action against us, including assessing civil penalties, suspending operations or production, or initiating procedures to cancel leases, which, if upheld, would have a material adverse effect on our business, properties, results of operations and financial condition.
Many of the largest U.S. banks have made “net zero” carbon emission commitments and have announced that they will be assessing financed emissions across their portfolios and are taking steps to quantify and reduce those emissions.
Many of the largest U.S. banks have made emission reduction commitments and have announced that they will be assessing financed emissions across their portfolios and are taking steps to quantify and reduce those emissions.
Further, we are incorporated in Texas. The Texas Business Organizations Code contains certain provisions that could make an acquisition by a third party more difficult. ​ Item 1B. Unresolved Staff Comments None ​
Further, we are incorporated in Texas. The Texas Business Organizations Code contains certain provisions that could make an acquisition by a third party more difficult. ITEM 1B. UNRESOLVED STAFF COMMENTS None 31 Table of Contents
Historically, oil, NGLs and natural gas prices have been volatile and subject to wide price fluctuations in response to domestic and global changes in supply and demand, economic and legal forces, events and uncertainties, and numerous other factors beyond our control, including: ● changes in global supply and demand for crude oil, NGLs and natural gas; ● events that impact global market demand (e.g. the reduced demand experienced during the COVID-19 pandemic); ● the actions of OPEC Plus; ● the price and quantity of imports of foreign crude oil, NGLs, natural gas and liquefied natural gas into the U.S.; ● acts of war, terrorism or political instability in oil producing countries (e.g. the invasion of Ukraine by Russia); ● domestic and foreign governmental regulations and taxes; ● U.S. federal, state and foreign government policies and regulations regarding current and future exploration and development of oil and gas; ● political conditions and events, including embargoes and moratoriums, affecting oil-producing activities; ● the level of domestic and global oil and natural gas exploration and production activities; ● the level of global crude oil, NGLs and natural gas inventories; ● adverse weather conditions and exceptional weather conditions, including severe weather events in the U.S.
Historically, oil, NGLs and natural gas prices have been volatile and subject to wide price fluctuations in response to domestic and global changes in supply and demand, economic and legal forces, events and uncertainties, and numerous other factors beyond our control, including: ● changes in global supply and demand for oil, NGLs and natural gas; ● events that impact global market demand, such as a pandemic or other world health event; ● the actions of OPEC+; ● the price and quantity of imports of foreign oil, NGLs, natural gas and liquefied natural gas into the U.S.; ● acts of war, terrorism or political instability in oil producing countries (e.g. the invasion of Ukraine by Russia); ● domestic and foreign governmental regulations and taxes; ● U.S. federal, state and foreign government policies and regulations regarding current and future exploration and development of oil and gas; ● political conditions and events, including embargoes and moratoriums, affecting oil-producing activities; ● the level of domestic and global oil and natural gas exploration and production activities; ● the level of global oil, NGLs and natural gas inventories; ● adverse weather conditions and exceptional weather conditions, including severe weather events in the U.S.
The source of funds for any repurchase required as a result of a change of control will be our available cash or cash generated from our oil and gas operations or other sources, including: ● borrowings under the Calculus Lending facility or other sources; ● sales of assets; or ● sales of equity.
The source of funds for any repurchase required as a result of a change of control will be our available cash or cash generated from our oil and gas operations or other sources, including: ● borrowings under the Credit Agreement or other sources; ● sales of assets; or ● sales of equity.
The exploration, development and production of oil and gas properties involves a variety of operating risks, including the risk of fire, explosions, blowouts, pipe failure, abnormally pressured formations and environmental hazards. Environmental hazards include oil spills, gas leaks, pipeline ruptures or discharges of toxic gases.
The exploration, development and production of oil and gas properties involves a variety of operating risks, including the risk of fire, explosions, blowouts, pipe failure, abnormally pressured formations and environmental hazards such as oil spills, gas leaks, pipeline ruptures or discharges.
From time to time, legislation has been proposed that would, if enacted into law, make significant changes to U.S. tax laws, including certain key U.S. federal income tax provisions currently available to oil and gas companies.
In recent years, legislation has been proposed that would, if enacted into law, make significant changes to U.S. tax laws, including certain key U.S. federal income tax provisions currently available to oil and gas companies.
Compliance with any added or more stringent Biden Administration regulatory requirements or enforcement initiatives and existing environmental and spill regulations, together with uncertainties or inconsistencies in decisions and rulings by governmental agencies and delays in the processing and approval of drilling permits and exploration, development, oil spill response and decommissioning plans and possible additional regulatory initiatives could result in difficult and more costly actions and adversely affect or delay new drilling and ongoing development efforts.
Compliance with any new or more stringent regulatory requirements or enforcement initiatives and existing environmental and spill regulations, together with uncertainties or inconsistencies in decisions by governmental agencies, delays in the processing and approval of drilling permits and exploration, development, oil spill response and decommissioning plans and possible additional regulatory initiatives, could adversely affect or delay new drilling and ongoing development efforts.
However, in such an event, we might not be able to pay the holders the required repurchase price for the notes they present to us because we might not have sufficient funds available at that time, or the terms of the Calculus Lending facility or other agreements we may enter into in the future may prevent us from applying funds to repurchase the 11.75% Senior Second Lien Notes.
However, in such an event, we might not be able to pay the holders the required repurchase price for the notes they present to us because we might not have sufficient funds available at that time, or the terms of our Credit Agreement or other agreements we may enter into in the future may prevent us from applying funds to repurchase the 11.75% Notes.
Beginning in August 2022 following the notification by our primary information technology service provider, AAIT, of its intention to cease providing services to us, we began the transition of information technology services and infrastructure to inside the Company or to other providers.
Beginning in August 2022, following the notification by our primary information technology service provider, All About IT (“AAIT”), of its intention to cease providing services to us, we began the transition of information technology services and infrastructure to us or to other providers.
Gulf Coast and adjacent waters on and beyond the OCS means that some or all of our properties could be affected by the same event should the Gulf of Mexico experience severe weather, including tropical storms and hurricanes; delays or decreases in production, the availability of equipment, facilities or services; changes in the status of pipelines that we depend on for transportation of our production to the marketplace; delays or decreases in the availability of capacity to transport, gather or process production; and changes in the regulatory environment.
Gulf Coast and adjacent waters on and beyond the OCS means that some or all of our properties could be affected by the same event should the Gulf of Mexico experience severe weather, including tropical storms and hurricanes; delays or decreases in production, the availability of equipment, facilities or services; changes in the status of pipelines that we depend on for transportation of our production to the marketplace; delays or decreases in the availability of capacity to transport, gather or process production; and changes in the regulatory environment. 17 Table of Contents For 2023, approximately 40% of our production and 19% of our total revenue was attributable to our Mobile Bay Properties.
The process of estimating oil and natural gas reserves is complex. It requires interpretations of available technical data and many assumptions, including assumptions relating to economic factors. Any significant inaccuracies in these interpretations or assumptions could materially affect the estimated quantities and the calculation of the present value of our reserves at December 31, 2022.
It requires interpretations of available technical data and many assumptions, including assumptions relating to economic factors. Any significant inaccuracies in these interpretations or assumptions could materially affect the estimated quantities and the calculation of the present value of our reserves at December 31, 2023.
In accordance with SEC requirements, we base the estimated discounted future net cash flows from our proved reserves on the 12-month unweighted first-day-of-the-month average price for each product and costs in effect on the date of the estimate.
In accordance with SEC requirements, we base the estimated discounted future net cash flows from our proved reserves on the 12-month unweighted first-day-of-the-month average price for each product and costs in effect on the date of the estimate. Actual future prices and costs may differ materially from those used in the present value estimate.
The passage of any legislation as a result of these proposals or any similar changes in U.S. federal income tax laws could eliminate or postpone certain tax deductions that currently are available with respect to oil and gas development or increase costs, and any such changes could have an adverse effect on our financial position, results of operations and cash flows.
The passage of any legislation as a result of these proposals or any similar changes in U.S. federal income tax laws could eliminate or postpone certain tax deductions that currently are available with respect to oil and gas development or increase costs, and any such changes could have an adverse effect on our financial position, results of operations and cash flows. 30 Table of Contents Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our financial condition and results of operations.
Many of these laws and regulations are subject to change and reinterpretation, and could result in claims, changes to our business practices, monetary penalties, increased cost of operations or other harm to our business. We are subject to a variety of federal, state and local laws, directives, rules and policies relating to data privacy and cybersecurity.
We are subject to laws, rules, regulations and policies regarding data privacy and security. Many of these laws and regulations are subject to change and reinterpretation, and could result in claims, changes to our business practices, monetary penalties, increased cost of operations or other harm to our business.
Our independent petroleum consultant estimates that 26.3% of our total proved reserves as of December 31, 2022 will be depleted within three years.
Our independent petroleum consultant estimates that 33.2% of our total proved reserves as of December 31, 2023 will be depleted within three years.
The estimated cost to plug and abandon a well or dismantle a platform can change dramatically if the host platform, from which the work was anticipated to be performed, is damaged or toppled rather than structurally intact. Accordingly, our estimate of future ARO will differ dramatically from our recorded estimate if we have a damaged platform.
The estimated cost to plug and abandon a well or dismantle a platform can change dramatically if the host platform from which the work was anticipated to be performed is damaged or toppled rather than structurally intact.
We have historically outsourced substantially all of our information technology infrastructure and the management and servicing of such infrastructure, which makes us more dependent upon third parties and exposed to related risks. We are in the process of transitioning substantially all of such infrastructure, which subjects us to increased costs and risks.
We have historically outsourced substantially all of our information technology infrastructure and the management and servicing of such infrastructure to a limited number of third parties, which makes us more dependent upon such third parties and exposed to related risks.
Further, if we do not adapt to or comply with investor or other stakeholder expectations and standards on ESG matters as they continue to evolve, or if we are perceived to have not responded appropriately or quickly enough to growing concern for ESG and sustainability issues, regardless of whether there is a regulatory or legal requirement to do so, we may suffer from reputational damage and our business, financial condition and/or stock price could be materially and adversely affected.
If we do not adapt to or comply with investor or other stakeholder expectations and standards on ESG matters as they continue to evolve, or if we are perceived to have not responded appropriately or quickly enough to growing concern for ESG and sustainability issues, regardless of whether there is a regulatory or legal requirement to do so, we may suffer from reputational damage and our business, financial condition and/or stock price could be materially and adversely affected. 29 Table of Contents Further, our operations, projects and growth opportunities require us to have strong relationships with various key stakeholders, including our shareholders, employees, suppliers, customers, local communities and others.
Accordingly, our operations are subject to a series of climate-related transition risks, including regulatory, political and litigation and financial risks associated with the production and processing of fossil fuels and emission of GHGs. See Part I, Item 1. “Business – Compliance with Environmental Regulations” for more discussion on the threat of climate change and restriction of GHG emissions.
Accordingly, our operations are subject to a series of climate-related transition risks, including regulatory, political and litigation and financial risks associated with the production and processing of fossil fuels and emission of GHGs. See Part I, Item 1 .
Additional changes in environmental laws, regulations, guidelines or enforcement interpretations, including relating to the emission of carbon dioxide and other greenhouse gases or climate change-related concerns, could require us to devote capital or other resources to comply with those laws and regulations. These changes could also subject us to additional costs and restrictions, including increased fuel costs.
Additional changes in environmental laws, regulations, guidelines or enforcement interpretations could require us to devote capital or other resources to comply with those laws and regulations. These changes could also subject us to additional costs and restrictions, including increased fuel costs.
Institutional lenders who provide financing to fossil-fuel energy companies also have become more attentive to sustainable lending practices that favor “clean” power sources, such as wind and solar, making those sources more attractive, and some of them may elect not to provide funding for fossil fuel energy companies.
Institutional lenders who provide financing to fossil-fuel energy companies also have become more attentive to sustainable lending practices, and some of them may elect not to provide funding for fossil fuel energy companies.
Deeper targets are more difficult to interpret with traditional seismic processing. Moreover, drilling costs and the risk of mechanical failure are significantly higher because of the additional depth and adverse conditions, such as high temperature and pressure.
Moreover, drilling costs and the risk of mechanical failure are significantly higher because of the additional depth and adverse conditions, such as high temperature and pressure.
Additionally, political, financial and litigation risks may result in us having to restrict, delay or cancel production activities, incur liability for infrastructure damages as a result of climatic changes, or impair the ability to continue to operate in an economic manner, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. 31 Table of Contents Certain U.S. federal income tax deductions currently available with respect to natural gas and oil exploration and development may be eliminated as a result of future legislation.
Additionally, political, financial and litigation risks may result in us having to restrict, delay or cancel production activities, incur liability for infrastructure damages as a result of climatic changes, or impair the ability to continue to operate in an economic manner, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
In addition, some forms of insurance may become unavailable in the future or unavailable on terms that we believe are economically acceptable. No assurance can be given that we will be able to maintain insurance in the future at rates that we consider reasonable, and we may elect to maintain minimal or no insurance coverage.
No assurance can be given that we will be able to maintain insurance in the future at rates that we consider reasonable, and we may elect to maintain minimal or no insurance coverage.
The threat of climate change continues to attract considerable attention in the United States and foreign countries. As a result, numerous proposals have been made and are likely to continue to be made at the international, national, regional and state levels of government to monitor and limit emissions of GHGs as well as to eliminate such future emissions.
Numerous proposals have been made and are likely to continue to be made at the international, national, regional and state levels of government to monitor and limit emissions of GHGs as well as to eliminate such future emissions.
We are subject to numerous laws and regulations that can adversely affect the cost, manner or feasibility of doing business. Our operations and facilities are subject to extensive federal, state and local laws and regulations relating to the exploration, development, production and transportation of crude oil and natural gas and operational safety.
Our operations and facilities are subject to extensive federal, state and local laws and regulations relating to the exploration, development, production and transportation of oil and natural gas and operational safety.
Estimates of our proved reserves depend on many assumptions that may turn out to be inaccurate. Any material inaccuracies in the estimates or underlying assumptions will materially affect the quantities of and present value of future net revenues from our proved reserves. Our actual recovery of reserves may substantially differ from our estimated proved reserves.
Any material inaccuracies in the estimates or underlying assumptions will materially affect the quantities of and present value of future net revenues from our proved reserves. Our actual recovery of reserves may substantially differ from our estimated proved reserves. The process of estimating oil and natural gas reserves is complex.
Operating Risks Relatively short production periods for our Gulf of Mexico properties based on proved reserves subject us to high reserve replacement needs and require significant capital expenditures to replace our proved reserves at a faster rate than companies whose proved reserves have longer production periods.
These increased fees, if approved, could adversely impact our revenues or increase our operating costs, either of which would adversely impact our operating profits, cash flows and reserves. 14 Table of Contents Operating Risks Relatively short production periods for our Gulf of Mexico properties based on proved reserves subject us to high reserve replacement needs and require significant capital expenditures to replace our proved reserves at a faster rate than companies whose proved reserves have longer production periods.
We have historically outsourced substantially all of our information technology infrastructure and the management and servicing of such infrastructure to a limited number of third-party service providers. As a result, we previously relied on third parties that we do not control to ensure that our technology needs are sufficiently met, and cyber risks are effectively managed.
As a result, we previously relied on a small number of third parties that we do not control to ensure that our technology needs are sufficiently met, and cyber risks are effectively managed.
We may be required to post cash collateral pursuant to our agreements with sureties under our existing or future bonding arrangements, which could have a material adverse effect on our liquidity and our ability to execute our capital expenditure plan, our ARO plan and comply with our existing debt instruments.
Finally, using available cash to fund the potential consequences of a change of control may impair our ability to obtain additional financing in the future, which could negatively impact our ability to conduct our business operations. 23 Table of Contents We may be required to post cash collateral pursuant to our agreements with sureties under our existing or future bonding arrangements, which could have a material adverse effect on our liquidity and our ability to execute our capital expenditure plan, our ARO plan and comply with our existing debt instruments.
BOEM requires that lessees demonstrate financial strength and reliability according to its regulations and provide acceptable financial assurances to assure satisfaction of lease obligations, including decommissioning activities on the OCS. As of December 31, 2022, we are in compliance with our financial assurance obligations to the BOEM and have no outstanding BOEM orders, requests or financial assurance obligations.
The BOEM requires that lessees demonstrate financial strength and reliability according to its regulations and provide acceptable financial assurances to assure satisfaction of lease obligations, including decommissioning activities in the OCS.
Our debt agreements contain restrictions that limit our abilities to incur certain additional debt or liens or engage in other transactions, which could limit growth and our ability to respond to changing conditions.
Any of the above risks could have a material adverse effect on our business, financial condition, cash flows and results of operations. Our debt agreements contain restrictions that limit our abilities to incur certain additional debt or liens or engage in other transactions, which could limit growth and our ability to respond to changing conditions.
Under these laws and regulations, we could be liable for personal injuries; property and natural resource damages; well site reclamation costs; and governmental sanctions, such as fines and penalties. We are unable to predict the ultimate cost of compliance with these requirements or their effect on our operations.
Under these laws and regulations, we could be liable for personal injuries, property and natural resource damages, well site reclamation costs, and governmental sanctions, such as fines and penalties. Failure to comply with these laws and regulations also may result in the suspension or termination of our operations and subject us to administrative, civil and criminal penalties.
In addition, our independent petroleum consultant may adjust estimates of proved reserves to reflect production history, drilling results, prevailing oil and natural gas prices and other factors, many of which are beyond our control.
In addition, our independent petroleum consultant may adjust estimates of proved reserves to reflect production history, drilling results, prevailing oil and natural gas prices and other factors, many of which are beyond our control. 18 Table of Contents You should not assume that the standardized measure or the present value of future net revenues from our proved oil and natural gas reserves is the current market value of our estimated oil and natural gas reserves.
Our operations are subject to U.S. federal, state and local and foreign environmental laws and regulations governing the protection of the environment and health and safety that impose limitations on the discharge of pollutants into the environment and establish standards for the treatment, storage, recycling and disposal of toxic and hazardous wastes.
Our operations are subject to U.S. federal, state, local and foreign environmental laws and regulations governing, among other things, the emission and discharge of pollutants into the environment, the generation, storage, handling, use and transportation of toxic and hazardous wastes and the health and safety of our employees.
In the past, tropical storms and hurricanes in the Gulf of Mexico have caused catastrophic losses and property damage. Well control insurance coverage becomes limited from time to time and the cost of such coverage becomes both more costly and more volatile.
Well control insurance coverage becomes limited from time to time and the cost of such coverage becomes both more costly and more volatile.
These data privacy and cybersecurity laws also are not uniform, which may complicate and increase our costs for compliance.
It is also possible that inquiries from governmental authorities regarding cybersecurity breaches increase in frequency and scope. These data privacy and cybersecurity laws also are not uniform, which may complicate and increase our costs for compliance.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOur proved reserves as of December 31, 2022, 2021 and 2020 are summarized below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ % of ​ ​ ​ ​ ​ Oil ​ NGLs ​ Natural ​ ​ ​ Total ​ PV-10 Classification of Proved Reserves (1) ​ (MMBbls) ​ (MMBbls) ​ Gas (Bcf) ​ MMBoe ​ Proved ​ (In millions) December 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Proved developed producing 23.7 16.1 499.2 123.0 75 % $ 2,280.8 Proved developed non-producing 7.4 1.5 76.8 21.8 13 % 457.6 Total proved developed 31.1 17.6 576.0 144.8 88 % 2,738.4 Proved undeveloped 9.5 1.3 58.6 20.5 12 % 390.2 Total proved 40.6 18.9 634.6 165.3 100 % $ 3,128.6 December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Proved developed producing 20.8 16.4 507.9 121.9 77 % $ 1,185.3 Proved developed non-producing 6.8 1.4 41.3 15.1 10 % 222.9 Total proved developed 27.6 17.8 549.2 137.0 87 % 1,408.2 Proved undeveloped 9.6 1.3 58.4 20.6 13 % 213.7 Total proved 37.2 19.1 607.6 157.6 100 % $ 1,621.9 December 31, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Proved developed producing 19.4 15.6 510.4 120.1 83 % $ 573.0 Proved developed non-producing 4.6 0.9 39.8 12.1 8 % 73.7 Total proved developed 24.0 16.5 550.2 132.2 91 % 646.7 Proved undeveloped 8.2 0.9 19.1 12.2 9 % 94.2 Total proved 32.2 17.4 569.3 144.4 100 % $ 740.9 ​ ​ ​ ​ ​ ​ ​ (1) In accordance with guidelines established by the SEC, our estimated proved reserves as of December 31, 2022 were determined to be economically producible under existing economic conditions, which requires the use of the SEC pricing.
Biggest changeOur proved reserves as of December 31, 2023, 2022 and 2021 are summarized below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Oil ​ NGLs ​ Natural ​ ​ ​ PV-10 ​ ​ (MMBbls) ​ (MMBbls) ​ Gas (Bcf) ​ MMBoe ​ (in millions) December 31, 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Proved developed producing 22.2 ​ 10.0 ​ 299.4 ​ 82.1 $ 750.1 Proved developed non-producing 5.2 ​ 2.7 ​ 80.0 ​ 21.2 204.1 Total proved developed 27.4 12.7 379.4 103.3 954.2 Proved undeveloped 9.6 ​ 1.0 ​ 54.6 ​ 19.7 126.7 Total proved 37.0 13.7 434.0 123.0 $ 1,080.9 December 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Proved developed producing 23.7 16.1 499.2 123.0 $ 2,280.8 Proved developed non-producing 7.4 1.5 76.8 21.8 457.6 Total proved developed 31.1 17.6 576.0 144.8 2,738.4 Proved undeveloped 9.5 1.3 58.6 20.5 390.2 Total proved 40.6 18.9 634.6 165.3 $ 3,128.6 December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Proved developed producing 20.8 16.4 507.9 121.9 $ 1,185.3 Proved developed non-producing 6.8 1.4 41.3 15.1 222.9 Total proved developed 27.6 17.8 549.2 137.0 1,408.2 Proved undeveloped 9.6 1.3 58.4 20.6 213.7 Total proved 37.2 19.1 607.6 157.6 $ 1,621.9 In accordance with guidelines established by the SEC, our estimated proved reserves as of December 31, 2023 were determined to be economically producible under existing economic conditions, which requires the use of SEC pricing.
The accuracy of the estimates of our reserves is a function of: ● the quality and quantity of available data and the engineering and geological interpretation of that data; ● estimates regarding the amount and timing of future operating costs, severance taxes, development costs and workovers, all of which may vary considerably from actual results; ● the accuracy of various mandated economic assumptions such as the future prices of crude oil, NGLs and natural gas; and ● the judgment of the persons preparing the estimates.
The accuracy of the estimates of our reserves is a function of: ● the quality and quantity of available data and the engineering and geological interpretation of that data; ● estimates regarding the amount and timing of future operating costs, severance taxes, development costs and workovers, all of which may vary considerably from actual results; ● the accuracy of various mandated economic assumptions such as the future prices of oil, NGLs and natural gas; and ● the judgment of the persons preparing the estimates.
If prices fall below the 2022 levels, absent significant proved reserve additions, this may reduce future estimated proved reserve volumes due to lower economic limits and economic return thresholds for undeveloped reserves, as well as impact our results of operations, cash flows, quarterly full cost impairment ceiling tests and volume-dependent depletion cost calculations.
If prices fall below the 2023 levels, absent significant proved reserve additions, this may reduce future estimated proved reserve volumes due to lower economic limits and economic return thresholds for undeveloped reserves, as well as impact our results of operations, cash flows, quarterly full cost impairment ceiling tests and volume-dependent depletion cost calculations.
In determining the estimated realized price for NGLs, a ratio was computed for each field of the NGLs realized price compared to the crude oil realized price. Then, this ratio was applied to the crude oil price using SEC guidance. Such prices were held constant throughout the estimated lives of the reserves.
In determining the estimated price for NGLs, a ratio was computed for each field of the NGL realized price compared to the oil realized price. This ratio was then applied to the oil price using SEC guidance. Such prices were held constant throughout the estimated lives of the reserves.
Future production and development costs are based on year-end costs with no escalations. ​ 35 Table of Contents Reconciliation of Standardized Measure to PV-10 Neither PV-10 nor PV-10 after ARO are financial measures defined under GAAP; therefore, the following table reconciles these amounts to the standardized measure of discounted future net cash flows, which is the most directly comparable GAAP financial measure.
Future production and development costs are based on year-end costs with no escalation. Reconciliation of Standardized Measure to PV-10 Neither PV-10 nor PV-10 after ARO are financial measures defined under GAAP; therefore, the following table reconciles these amounts to the standardized measure of discounted future net cash flows, which is the most directly comparable GAAP financial measure.
Our producing fields are located in federal and state waters in the Gulf of Mexico in water depths ranging from less than 10 feet up to 7,300 feet. The reservoirs in our offshore fields are generally characterized as having high porosity and permeability, with higher initial production rates relative to other domestic reservoirs.
Oil and Natural Gas Producing Activities Our producing fields are located in federal and state waters in the Gulf of Mexico in water depths ranging from less than 10 feet up to 7,300 feet. The reservoirs in our offshore fields are generally characterized as having high porosity and permeability, with higher initial production rates relative to other domestic reservoirs.
See Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 in this Form 10-K for additional information. Development of Proved Undeveloped Reserves Our PUDs were estimated by NSAI, our independent petroleum consultant. Future development costs associated with our PUDs at December 31, 2022 were estimated at $429.5 million.
See Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 in this Form 10-K for additional information. Proved Undeveloped Reserves Our PUDs were estimated by NSAI, our independent petroleum consultant. Future development costs associated with our PUDs at December 31, 2023 were estimated at $437.9 million.
Two sidetrack PUD locations, one each at Matterhorn and Virgo, will be delayed until an existing well is depleted and available to sidetrack. We also plan to recomplete and convert an existing producer at Matterhorn to water injection for improved recovery following depletion of the existing well.
Three sidetrack PUD locations, one each at Matterhorn, Ship Shoal 349 and Virgo, will be delayed until an existing well is depleted and available to sidetrack. We also plan to recomplete and convert an existing producer at Matterhorn to water injection for improved recovery following depletion of the existing well.
The lone exceptions are at the Mississippi Canyon 243 field (“Matterhorn”) and Viosca Knoll 823 (“Virgo”) deepwater fields where future development drilling has been planned as sidetracks of existing wellbores due to conductor slot limitations and rig availability.
The lone exceptions are at the Mississippi Canyon 243 field (“Matterhorn”), Ship Shoal 349 and Viosca Knoll 823 field (“Virgo”) where future development drilling has been planned as sidetracks of existing wellbores due to conductor slot limitations and rig availability.
The following table sets forth our drilling activity for completed wells on a gross basis: ​ ​ ​ ​ ​ ​ ​ ​ ​ Completed ​ 2022 2021 2020 Conventional shelf 1 — — Deepwater 1 — — Wells operated by W&T 1 — — ​ ​ ​ ​ ​ ​ 39 Table of Contents Development and Exploration The following table summarizes our development and exploration offshore wells completed over the past three years: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2022 2021 2020 Development Wells Completed: ​ ​ ​ ​ ​ ​ Gross wells — — — Net wells — — — Exploration Wells Completed: Gross wells 2 — — Net wells 0.6 — — ​ ​ ​ ​ ​ ​ During 2020, we drilled one well, which we completed in March 2022.
The following table sets forth our drilling activity for completed wells on a gross basis: ​ ​ ​ ​ ​ ​ ​ ​ ​ Completed ​ 2023 2022 2021 Conventional shelf — 1 — Deepwater — 1 — Wells operated by W&T — 1 — ​ The following table summarizes our development and exploration offshore wells completed over the past three years: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2023 2022 2021 Development wells completed: ​ ​ ​ ​ ​ ​ Gross wells — — — Net wells — — — Exploration wells completed: Gross wells — 2 — Net wells — 0.6 — ​ During 2022, we completed one well and abandoned one well in which we had a 25% working interest.
As of December 31, 2022, two of our fields located in the conventional shelf accounted for approximately 66.7% our proved reserves on an energy equivalent basis.
As of December 31, 2023, two of our fields located in the conventional shelf accounted for approximately 64.6% of our proved reserves on an energy equivalent basis.
The following table provides information for these fields: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Proved Reserves as of December 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Percent of ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total ​ ​ ​ ​ ​ ​ ​ ​ Oil ​ Company ​ ​ NGLs Natural Gas Equivalent Proved ​ ​ Oil (MMBbls) ​ (MMBbls) ​ (Bcf) ​ (MMBoe) ​ Reserves Mobile Bay Properties ​ 0.3 ​ 14.2 ​ 460.4 ​ 91.3 ​ 55.2 % Ship Shoal 349 (Mahogany) 12.7 1.4 29.3 19.0 11.5 % ​ ​ ​ ​ ​ ​ The Mobile Bay Properties (as defined below) and Ship Shoal 349 (Mahogany) (as defined below) field are two areas of operations of major significance, which we define as having year-end proved reserves of 10% or more of the Company’s total proved reserves on an energy equivalent basis.
The following table provides information for these fields: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Percent of ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total ​ ​ ​ ​ ​ ​ ​ ​ Oil ​ Company ​ Oil NGLs Natural Gas Equivalent Proved ​ ​ (MMBbls) ​ (MMBbls) ​ (Bcf) ​ (MMBoe) ​ Reserves Mobile Bay Properties ​ 0.2 ​ 10.1 ​ 320.4 ​ 63.7 ​ 51.8 % Ship Shoal 349 (Mahogany) ​ 11.7 ​ 1.0 ​ 18.7 ​ 15.8 ​ 12.8 % ​ The Mobile Bay Properties (as defined below) and Ship Shoal 349 field are two areas of operations of major significance, which we define as having year-end proved reserves of 10% or more of the Company’s total proved reserves on an energy equivalent basis.
During 2021, we participated in the drilling of an exploration well which was non-commercial. We had a 25% working interest in that well which was abandoned in 2022. Our success rate related to our development and exploration wells was 50% in 2022.
During 2021, we participated in the drilling of an exploration well which was non-commercial. Our success rate related to our development and exploration wells was 50% in 2022.
The following table presents our estimates as to the timing of converting our PUDs to proved developed reserves: ​ ​ ​ ​ ​ ​ ​ ​ Percentage of ​ ​ ​ ​ PUD Reserves ​ ​ Number of PUD ​ Scheduled to be Year Scheduled for Development ​ Locations ​ Developed 2023 1 14 % 2024 3 12 % 2025 2 20 % 2026 5 54 % Total 11 100 % ​ ​ ​ ​ ​ ​ We believe that we will be able to develop all but 2.5 MMBoe (approximately 12%) of the total 20.5 MMBoe classified as PUDs at December 31, 2022, within five years from the date such PUDs were initially recorded.
The following table presents our estimates as to the timing of converting our PUDs to proved developed reserves: ​ ​ ​ ​ ​ ​ ​ ​ Percentage of ​ ​ ​ ​ PUD Reserves ​ ​ Number of PUD ​ Scheduled to be Year Scheduled for Development ​ Locations ​ Developed 2024 1 14 % 2025 6 35 % 2026 ​ 4 ​ 48 % 2027 — — % 2028+ 1 3 % Total 12 100 % ​ As of December 31, 2023, we believe that we will be able to develop all but 3.1 MMBoe (approximately 16%) of the total 19.7 MMBoe classified as PUDs within five years from the date such PUDs were initially recorded.
There has been no drilling activity since 2019 at Ship Shoal 349. 34 Table of Contents The following table presents our produced oil, NGLs and natural gas volumes (net to our interests) from the Ship Shoal 349 field over the past three years: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2022 2021 2020 Net Sales: ​ ​ ​ Oil (MBbls) ​ 1,313 ​ 1,667 ​ 1,939 NGLs (MBbls) ​ 104 ​ 88 ​ 148 Natural gas (MMcf) ​ 1,827 ​ 2,565 ​ 3,015 Total oil equivalent (MBoe) ​ 1,722 ​ 2,182 ​ 2,590 Average realized sales prices: ​ ​ ​ Oil ($/Bbl) ​ $ 88.36 ​ $ 65.27 ​ $ 36.69 NGLs ($/Bbl) ​ 40.50 ​ 36.85 ​ 14.46 Natural gas ($/Mcf) ​ 7.15 ​ 4.00 ​ 1.92 Oil equivalent ($/Boe) ​ 71.03 ​ 56.05 ​ 30.54 Average production costs: (1) ​ ​ ​ Oil equivalent ($/Boe) ​ $ 7.63 ​ $ 6.60 ​ $ 4.98 ​ ​ ​ ​ ​ ​ (1) Includes lease operating expenses and gathering and transportation costs. ​ Proved Reserves Our proved reserves were estimated by Netherland, Sewell & Associates, Inc (“NSAI”), our independent petroleum consultant, and amounts provided in this Form 10-K are consistent with filings we make with other federal agencies.
The following table presents our produced oil, NGLs and natural gas volumes (net to our interests) from the Ship Shoal 349 field over the past three years: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2023 2022 2021 Net Sales: ​ ​ ​ Oil (MBbls) ​ 1,269 ​ 1,313 ​ 1,667 NGLs (MBbls) ​ 68 ​ 104 ​ 88 Natural gas (MMcf) ​ 1,709 ​ 1,827 ​ 2,565 Total oil equivalent (MBoe) ​ 1,622 ​ 1,722 ​ 2,182 Average realized sales prices: ​ ​ ​ ​ Oil ($/Bbl) ​ $ 70.86 ​ $ 88.36 ​ $ 65.27 NGLs ($/Bbl) ​ 28.17 ​ 40.50 ​ 36.85 Natural gas ($/Mcf) ​ 3.41 ​ 7.15 ​ 4.00 Oil equivalent ($/Boe) ​ 60.22 ​ 71.03 ​ 56.05 Average production costs: (1) ​ ​ ​ ​ Oil equivalent ($/Boe) ​ $ 7.61 ​ $ 7.63 ​ $ 6.60 ​ (1) Includes lease operating expenses, gathering and transportation costs and plugging and abandonment costs. 34 Table of Contents Proved Reserves Our proved reserves were estimated by Netherland, Sewell & Associates, Inc (“NSAI”), our independent petroleum consultant, and amounts provided in this Form 10-K are consistent with filings we make with other federal agencies.
Reserve Technologies Proved reserves are those quantities of oil and natural gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations, consistent with the definition in Rule 4-10(a)(24) of Regulation S-X .
He earned a Bachelor of Science degree in Petroleum Engineering from Texas A&M University in 1989 and a master’s degree in Business Administration from the University of Houston in 1999. 37 Table of Contents Reserve Technologies Proved reserves are those quantities of oil and natural gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations, consistent with the definition in Rule 4-10(a)(24) of Regulation S-X.
Based on the latest reserve report, these PUD locations are expected to be developed in 2024. 37 Table of Contents Qualifications of Technical Persons and Internal Controls over Reserves Estimation Process Our estimated proved reserve information as of December 31, 2022 included in this Form 10-K was prepared by our independent petroleum consultants, NSAI, in accordance with generally accepted petroleum engineering and evaluation principles and definitions and guidelines established by the SEC.
Qualifications of Technical Persons and Internal Controls over Reserves Estimation Process Our estimated proved reserve information as of December 31, 2023 included in this Form 10-K was prepared by our independent petroleum consultants, NSAI, in accordance with generally accepted petroleum engineering and evaluation principles and definitions and guidelines established by the SEC.
The following table presents the timing of expiration of our undeveloped leasehold acreage: ​ ​ ​ ​ ​ ​ ​ Undeveloped acreage ​ Net Percent of total Expire 2023 23,906 33% Expire 2024 17,122 23% Expire 2025 ​ 11,313 ​ 15% Expire 2026 ​ 5,760 ​ 8% Expire thereafter ​ 15,761 ​ 21% Total 73,862 100% ​ ​ ​ ​ ​ In making decisions regarding drilling and operations activity for 2023 and beyond, we give consideration to undeveloped leasehold that may expire in the near term in order that we might retain the opportunity to extend such acreage.
The following table presents the timing of expiration of our undeveloped leasehold acreage: ​ ​ ​ ​ ​ ​ ​ Undeveloped Acreage ​ Net Percent of Total 2024 17,122 34% 2025 8,813 17% 2026 ​ — ​ 0% 2027 ​ 15,760 ​ 30% Thereafter ​ 10,000 ​ 19% Total 51,695 100% ​ ​ ​ ​ ​ In making decisions regarding drilling and operations activity for 2024 and beyond, we give consideration to undeveloped leasehold interests that may expire in the near term in order that we might retain the opportunity to extend such acreage.
The extraction of NGLs in the processing of natural gas reduces the volume of natural gas available for sale. We report all natural gas production information net of the effect of any reduction in natural gas volumes resulting from the processing of NGLs. 38 Table of Contents Acreage The following table summarizes our leasehold at December 31, 2022.
The extraction of NGLs in the processing of natural gas reduces the volume of natural gas available for sale. We report all natural gas production information net of the effect of any reduction in natural gas volumes resulting from the processing of NGLs.
Approximately 83.8% of our net acreage is held by production. We have the right to propose future exploration and development projects on the majority of our acreage.
We have the right to propose future exploration and development projects on the majority of our acreage.
See Financial Statements and Supplementary Data– Note 19 – Supplemental Oil and Gas Disclosures under Part II, Item 8 in this Form 10-K for additional information. 36 Table of Contents Our estimates of proved reserves, PV-10 and the standardized measure as December 31, 2022 are calculated based upon SEC mandated 2022 unweighted average first-day-of-the-month crude oil and natural gas benchmark prices, and adjusting for quality, transportation fees, energy content and regional price differentials, which may or may not represent current prices.
Our estimates of proved reserves, PV-10 and the standardized measure as December 31, 2023 are calculated based upon SEC mandated 2023 unweighted average first-day-of-the-month oil and natural gas benchmark prices, and adjusting for quality, transportation fees, energy content and regional price differentials, which may or may not represent current prices.
The reconciliation of PV-10 and PV-10 after ARO to the standardized measure of discounted future net cash flows relating to our estimated proved oil and natural gas reserves is as follows (in millions): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2022 ​ 2021 ​ 2020 Present value of estimated future net revenues (PV-10) ​ $ 3,128.6 ​ $ 1,621.9 ​ $ 740.9 Present value of estimated ARO, discounted at 10% ​ (271.5) ​ (241.1) ​ (204.2) PV-10 after ARO ​ 2,857.1 ​ 1,380.8 ​ 536.7 Future income taxes, discounted at 10% ​ (594.1) ​ (224.8) ​ (43.0) Standardized measure ​ $ 2,263.0 ​ $ 1,156.0 ​ $ 493.7 ​ ​ ​ ​ ​ ​ Changes in Proved Reserves The following table discloses our estimated changes in proved reserves during the year ended December 31, 2022: ​ ​ ​ ​ ​ MMBoe Proved reserves at December 31, 2021 ​ 157.6 Reserves additions (reductions): ​ ​ Revisions (1) 16.3 Extensions and discoveries 0.0 Purchases of minerals in place 6.0 Production (14.6) Net reserve additions (reductions) ​ 7.7 Total proved reserves at December 31, 2022 165.3 ​ ​ ​ ​ ​ ​ (1) Net revisions of 16.3 MMBoe are primarily attributable to higher commodity prices. ​ See Development of Proved Undeveloped Reserves below for a table reconciling the change in proved undeveloped reserves during 2022.
Investors should not assume that PV-10, or PV-10 after ARO, of our proved oil and natural gas reserves shown above represent a current market value of our estimated oil and natural gas reserves. 35 Table of Contents The reconciliation of PV-10 and PV-10 after ARO to the standardized measure of discounted future net cash flows relating to our estimated proved oil and natural gas reserves is as follows (in millions): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2023 ​ 2022 ​ 2021 PV-10 ​ $ 1,080.9 ​ $ 3,128.6 ​ $ 1,621.9 ​ Future income taxes, discounted at 10% ​ (151.0) ​ (594.1) ​ (224.8) ​ PV-10 before ARO ​ 929.9 ​ 2,534.5 ​ 1,397.1 ​ Present value of estimated ARO, discounted at 10% ​ (246.7) ​ (271.5) ​ (241.1) ​ Standardized measure ​ $ 683.2 ​ $ 2,263.0 ​ $ 1,156.0 ​ ​ Changes in Proved Reserves The following table discloses our estimated changes in proved reserves during 2023: ​ ​ ​ ​ ​ MMBoe Proved reserves at December 31, 2022 ​ 165.3 Reserves additions (reductions): ​ ​ Revisions (1) (32.2) Purchases of minerals in place 2.6 Production (12.7) Net reserve additions (reductions) ​ (42.3) Total proved reserves at December 31, 2023 123.0 ​ (1) Net revisions are primarily attributable to lower commodity prices.
The following table presents our produced oil, NGLs and natural gas volumes (net to our interests) from the Mobile Bay Properties over the past three years: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2022 2021 2020 Net Sales: ​ ​ ​ Oil (MBbls) ​ 17 ​ 29 ​ 9 NGLs (MBbls) ​ 941 ​ 998 ​ 1,167 Natural gas (MMcf) ​ 30,052 ​ 32,940 ​ 34,793 Total oil equivalent (MBoe) ​ 5,967 ​ 6,516 ​ 6,975 Average realized sales prices: ​ ​ ​ Oil ($/Bbl) ​ $ 51.60 ​ $ 27.49 ​ $ 38.52 ​ NGLs ($/Bbl) ​ 35.45 ​ 30.84 ​ 10.34 ​ Natural gas ($/Mcf) ​ 7.45 ​ 3.92 ​ 2.08 ​ Oil equivalent ($/Boe) ​ 43.25 ​ 24.68 ​ 12.18 ​ Average production costs: (1) ​ ​ ​ ​ Oil equivalent ($/Boe) ​ $ 11.81 ​ $ 7.34 ​ $ 5.60 ​ ​ ​ ​ ​ ​ (1) Includes lease operating expenses and gathering and transportation costs. ​ Ship Shoal 349 Field (Mahogany) Ship Shoal 349 field is located off the coast of Louisiana, approximately 235 miles southeast of New Orleans, Louisiana.
As of December 31, 2023, 56 Norphlet wells have been drilled on the Mobile Bay Properties, 45 of which were successful and 27 of which are currently producing. 33 Table of Contents The following table presents our produced oil, NGLs and natural gas volumes (net to our interests) from the Mobile Bay Properties over the past three years: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2023 2022 2021 Net Sales: ​ ​ ​ Oil (MBbls) ​ 15 ​ 17 ​ 29 NGLs (MBbls) ​ 925 ​ 941 ​ 998 Natural gas (MMcf) ​ 24,826 ​ 30,052 ​ 32,940 Total oil equivalent (MBoe) ​ 5,078 ​ 5,967 ​ 6,516 Average realized sales prices: ​ ​ ​ ​ Oil ($/Bbl) ​ $ 41.12 ​ $ 51.60 ​ $ 27.49 NGLs ($/Bbl) ​ 22.53 ​ 35.45 ​ 30.84 Natural gas ($/Mcf) ​ 3.02 ​ 7.45 ​ 3.92 Oil equivalent ($/Boe) ​ 18.98 ​ 43.25 ​ 24.68 Average production costs: (1) ​ ​ ​ ​ Oil equivalent ($/Boe) ​ $ 17.39 ​ $ 11.81 ​ $ 7.34 ​ (1) Includes lease operating expenses, gathering and transportation costs and plugging and abandonment costs.
Capital Expenditures See Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Capital Expenditures under Part II, Item 7 in this Form 10-K for capital expenditure information. Productive Wells The following presents our ownership interest at December 31, 2022 in our productive oil and natural gas wells.
Capital Expenditures See Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Capital Expenditures under Part II, Item 7 in this Form 10-K for capital expenditure information. 39 Table of Contents Productive Wells Productive wells consist of producing wells and wells capable of production.
Drilling Activity The information presented below is based on the SEC’s criteria of completion or abandonment to determine wells drilled.
Drilling Activity The information presented below is based on the SEC’s criteria of completion or abandonment to determine wells drilled. Of the two gross (0.6 net) exploratory wells completed during 2022, one gross (0.3 net) well is currently producing.
This field is a sub-salt development with nine productive horizons below salt at depths up to 18,000 feet. As of December 31, 2022, 31 wells have been drilled and 26 were successful. Since acquiring an interest and subsequently taking over as operator, we have directly participated in drilling 17 wells with a 100% success rate.
As of December 31, 2023, 31 wells have been drilled and 26 were successful. Since acquiring an interest and subsequently taking over as operator, we have directly participated in drilling 17 wells with a 100% success rate. There has been no drilling activity since 2019 at Ship Shoal 349.
Applying this methodology, the West Texas Intermediate (“WTI”) crude oil average spot price of $94.14 per barrel and the Henry Hub natural gas average spot price of $6.36 per million British Thermal Unit were utilized as the referenced price and after adjusting for quality, transportation, fees, energy content and regional price differentials, the average adjusted product prices were $91.50 per barrel for oil, $41.92 per barrel for NGLs and $6.85 per Mcf for natural gas.
Applying this methodology, the WTI oil average spot price of $78.21 per barrel and the Henry Hub natural gas average spot price of $2.64 per MMBtu were utilized as the referenced price and, after adjusting for quality, transportation, fees, energy content and regional price differences, the adjusted average product prices were $74.79 per barrel for oil, $24.08 per barrel for NGLs and $2.74 per Mcf for natural gas.
The Mobile Bay Properties produce from the Jurassic age Norphlet eolian sandstone at an average depth of 21,000 feet total vertical depth. As of December 31, 2022, 56 Norphlet wells have been drilled on the Mobile Bay Properties, 45 of which were successful and 27 of which are currently producing.
The Mobile Bay Properties produce from the Jurassic age Norphlet eolian sandstone at an average depth of 21,000 feet total vertical depth.
The following table presents changes in our PUDs (in MMBoe): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2022 2021 2020 Proved undeveloped reserves, beginning of year 20.6 12.2 23.6 ​ ​ ​ ​ ​ ​ ​ Transfers to proved developed reserves — — — Revisions of previous estimates (0.1) 8.4 (11.4) Extensions and discoveries — — — Purchase of minerals in place — — — Sales of minerals in place — — — Proved undeveloped reserves, end of year 20.5 20.6 12.2 ​ ​ ​ ​ ​ ​ Activity related to PUDs – Net PUD revisions in 2022, 2021 and 2020 were primarily due to revisions to previous estimates that are based on both technical revisions and revisions due to changes in SEC pricing at our Ship Shoal 028 and Ship Shoal 349 fields.
The following table presents changes in our PUDs (in MMBoe): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2023 2022 2021 PUDs, beginning of year 20.5 20.6 12.2 Revisions of previous estimates (1.3) (0.1) 8.4 Purchase of minerals in place 0.5 — — PUDs, end of year 19.7 20.5 20.6 ​ ​ ​ ​ ​ 36 Table of Contents The revisions of previous estimates during 2023 were due to changes in SEC pricing.
The field area covers Ship Shoal federal OCS blocks 349 and 359, with a single production platform on Ship Shoal block 349 in 375 feet of water (the “Ship Shoal 349”). Phillips Petroleum Company discovered the Ship Shoal 349. We initially acquired a 25% working interest in the field from BP Amoco in 1999.
Ship Shoal 349 Field (Mahogany) Ship Shoal 349 field is located off the coast of Louisiana, approximately 235 miles southeast of New Orleans, Louisiana. The field area covers Ship Shoal federal OCS blocks 349 and 359, with a single production platform on Ship Shoal block 349 in 375 feet of water (the “Ship Shoal 349”).
He has also served in various engineering and strategic planning roles with both Kerr-McGee and with Conoco, Inc. He earned a Bachelor of Science degree in Petroleum Engineering from Texas A&M University in 1989 and a master’s degree in Business Administration from the University of Houston in 1999.
He has also served in various engineering and strategic planning roles with both Kerr-McGee and with Conoco, Inc.
Production increased in 2022 from 2021 primarily due to acquisitions offset by well maintenance events throughout the year. See Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations under Part II, Item 7 in this Form 10-K for additional information.
(2) Includes 6 gross (5.1 net) natural gas wells with multiple completions. Production Data See Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations under Part II, Item 7 in this Form 10-K for additional information. ​ ​
In early 2008, we acquired the remaining working interest from Apache Corporation and we now own a 100% working interest in this field except for an interest in one well owned by the Joint Venture Drilling Program. Cumulative field production through 2022 is approximately 61.4 MMBoe gross.
We own a 100% working interest in this field except for an interest in one well owned by Monza. Cumulative field production through 2023 is approximately 62.4 MMBoe gross. This field is a sub-salt development with nine productive horizons below salt at depths up to 18,000 feet.
Following are descriptions of these areas of operations: Mobile Bay Properties A-I LLC and all of its interests in certain oil and gas leasehold interests and associated wells and units located off the coast of Alabama, in state coastal and federal Gulf of Mexico waters approximately 70 miles south of Mobile, Alabama are referred to as the “Mobile Bay Properties.” In 2021, we consolidated the Fairway field into the Mobile Bay Properties in conjunction with the sale of the Mobile Bay Properties to the Subsidiary Borrowers as described in Financial Statements and Supplementary Data – Note 4 – Subsidiary Borrowers under Part II, Item 8 in this Form 10-K. 33 Table of Contents We acquired our initial 64.3% working interest, along with operatorship, in the Fairway field and associated Yellowhammer gas processing plant, from Shell Offshore, Inc. in August 2011 and acquired the remaining working interest of 35.7% in September 2014.
The following are descriptions of these areas of operations: Mobile Bay Properties Our interests in certain oil and gas leasehold interests and associated wells and units located off the coast of Alabama, in state coastal and federal Gulf of Mexico waters approximately 70 miles south of Mobile, Alabama, are referred to as the “Mobile Bay Properties.” Cumulative field production for the Mobile Bay Properties through 2023 is approximately 896.6 MMBoe gross.
Removed
In August 2019, we acquired varied operated working interests in the other Mobile Bay Properties ranging from 25% to 100% in nine producing fields from Exxon (effective January 1, 2019), and we became the operator of the fields in December 2019.
Added
See Proved Undeveloped Reserves below for a table reconciling the change in proved undeveloped reserves during 2023. See Financial Statements and Supplementary Data – Note 20 – Supplemental Oil and Gas Disclosures under Part II, Item 8 in this Form 10-K for additional information.
Removed
During September 2019 to December 2019, transitioning activities occurred to transfer operatorship of the Mobile Bay Properties from Exxon to W&T. During 2020, we completed the purchase of the remaining interest in two federal Mobile Bay fields from Chevron U.S.A. Inc. Cumulative field production for the combined Mobile Bay and Fairway properties through 2022 is approximately 854.7 MMBoe gross.
Added
The revisions in 2022 and 2021 were primarily due to technical revisions and revisions due to changes in SEC pricing at certain of our Ship Shoal fields.
Removed
In 2003, we acquired an additional 34% working interest through a transaction with ConocoPhillips that increased our working interest to approximately 59%, and we became the operator of the field in December 2004.
Added
Based on the latest reserve report, these PUD locations are expected to be developed in 2025 and 2035.
Removed
Investors should not assume that PV-10, or PV-10 after ARO, of our proved oil and natural gas reserves shown above represent a current market value of our estimated oil and natural gas reserves.
Added
Developed and Undeveloped Acreage The following table summarizes our developed and undeveloped acreage at December 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Developed Acreage ​ Undeveloped Acreage ​ Total Acreage ​ Gross Net Gross Net Gross Net Shelf 386,916 ​ 326,652 ​ 48,698 ​ 45,935 435,614 372,587 Deepwater 141,929 ​ 56,540 ​ 11,520 ​ 5,760 153,449 62,300 Alabama State Waters ​ 8,038 ​ 5,144 ​ — ​ — ​ 8,038 ​ 5,144 Total 536,883 388,336 60,218 51,695 597,101 440,031 ​ ​ ​ Our net acreage decreased 15,026 net acres (3%) from December 31, 2022 due to lease expirations offset by leases acquired in the September 2023 acquisition. 38 Table of Contents Approximately 88.3% of our net acreage is held by production.
Removed
Deepwater refers to acreage in over 500 feet of water: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Developed Acreage ​ Undeveloped Acreage ​ Total Acreage ​ Gross Net Gross Net Gross Net Shelf 389,978 321,261 67,604 62,342 457,582 383,603 Deepwater 141,929 56,540 17,280 11,520 159,209 68,060 Alabama State Waters ​ 8,037 ​ 5,144 ​ — ​ — ​ 8,037 ​ 5,144 Total 539,944 382,945 84,884 73,862 624,828 456,807 ​ ​ ​ ​ ​ Our net acreage increased 44,746 net acres (11%) from December 31, 2021 due to the addition of new leases and acquisitions occurring in 2022.
Added
Gross wells are the total number of productive wells in which we have a working interest, regardless of our percentage interest. A net well is not a physical well, but is a concept that reflects actual working interest we hold in a given well. Our wells may produce both oil and natural gas.
Removed
A net well represents our fractional working interest of a gross well in which we own less than all of the working interest: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Oil Wells (1) ​ Gas Wells (2) ​ Total Wells ​ Gross Net Gross Net Gross Net Operated 116.0 ​ 105.8 ​ 85.0 ​ 78.6 201.0 184.4 Non-operated 33.0 ​ 5.0 ​ 3.0 ​ 0.5 36.0 5.5 Total offshore wells 149.0 110.8 88.0 79.1 237.0 189.9 ​ ​ ​ ​ ​ ​ (1) Includes 8 gross (5.9 net) oil wells with multiple completions. ​ (2) Includes 2 gross (2.0 net) gas wells with multiple completions. ​ Production For the years 2022, 2021 and 2020, our net daily production averaged 40,067 Boe, 38,118 Boe, and 42,046 Boe, respectively.
Added
We classify a well as an oil well if the net equivalent production of oil was greater than natural gas for the well.
Removed
The following presents historical information about our produced oil, NGLs and natural gas volumes from all of our producing fields over the past three years: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2022 2021 2020 Net Sales: Oil (MBbls) 5,602 4,998 5,629 NGLs (MBbls) 1,554 1,450 1,696 Natural gas (MMcf) 44,808 44,790 48,384 Total oil equivalent (MBoe) 14,624 13,913 15,389 ​ ​ ​ 40 Table of Contents
Added
The following table sets forth information relating to the productive wells in which we owned a working interest as of December 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Oil Wells (1) ​ Gas Wells (2) ​ Total Wells ​ Gross Net Gross Net Gross Net Operated 110.0 ​ 101.3 ​ 86.0 ​ 76.8 196.0 178.1 Non-operated 33.0 ​ 5.8 ​ 12.0 ​ 5.4 45.0 11.2 Total 143.0 107.1 98.0 82.2 241.0 189.3 ​ ​ (1) Includes 10 gross (9.1 net) oil wells with multiple completions.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−16 removed0 unchanged
Biggest changeSee Financial Statements and Supplementary Data – Note 18 – Contingencies under Part II, Item 8 in this Form 10-K for additional information on the matters described above. ​ 41 Table of Contents Item 4. Mine Safety Disclosures Not applicable. ​ PART II
Biggest changeITEM 3. LEGAL PROCEEDINGS See Financial Statements and Supplementary Data – Note 19 – Contingencies under Part II, Item 8 in this Form 10-K for information on various legal proceedings to which we are party or our properties are subject. ​ ITEM 4. MINE SAFETY DISCLOSURES Not applicable. ​ 40 Table of Contents PART II
Removed
Item 3. Legal Proceedings Appeal with ONRR. In 2009 , W&T recognized allowable reductions of cash payments for royalties owed to the ONRR for transportation of their deepwater production through subsea pipeline systems owned by the Company.
Removed
In 2010 , the ONRR audited calculations and support related to this usage fee, and in 2010 , ONRR notified the Company that they had disallowed approximately $4.7 million of the reductions taken.
Removed
The Company recorded a reduction to other revenue in 2010 to reflect this disallowance with the offset to a liability reserve; however, the Company disagrees with the position taken by the ONRR.
Removed
W&T filed an appeal with the ONRR, which ultimately led to the Company posting a bond in the amount of $7.2 million and cash collateral of $6.9 million with the surety in order to appeal the Interior Board of Land Appeals decision.
Removed
The cash collateral held by the surety was subsequently returned to the Company during the first quarter of 2020 . The Company has continued to pursue its legal rights and, at present, the case is in front of the U.S. District Court for the Eastern District of Louisiana where both parties have filed cross-motions for summary judgment and opposition briefs.
Removed
W&T has filed a Reply in support of its Motion for Summary Judgment and the government has in turn filed its Reply brief. With briefing now completed, the Company is waiting for the district court’s ruling on the merits. In compliance with the ONRR’s request for W&T to post surety, the sum of the bond posted is currently $8.5 million.
Removed
Civil Penalty Assessments. In January 2021, W&T executed a Settlement Agreement with BSEE which resolved nine pending civil penalties issued by BSEE. The civil penalties pertained to Incidents of Non-Compliance (“INC”) issued by BSEE alleging regulatory non-compliance at separate offshore locations on various dates between July 2012 and January 2018, with the proposed civil penalty amounts totaling $7.7 million.
Removed
Under the Settlement Agreement, W&T will pay a total of $720,000 in three annual installments. The first, second and final installments were paid in March 2021, March 2022 and February 2023, respectively. In addition, W&T committed to implement a Safety Improvement Plan with various deliverables due, which have all been timely satisfied. AAIT Litigation.
Removed
In August 2022, the Company’s primary information technology service provider, All About IT, Inc. (“AAIT”), notified the Company of its intention to cease providing services to the Company by September 2, 2022. Following such notification, the Company began the process of moving certain of these services within the Company and transitioning the remaining services to new service providers.
Removed
On August 19, 2022, the Company filed in the District Court of Harris County, Texas a petition for a temporary restraining order, temporary injunction, and permanent injunction seeking, among other things, to restrain AAIT from ceasing to provide services to the Company until the transition process is complete.
Removed
On September 14, 2022, AAIT removed the matter to the United States District Court for the Southern District of Texas.
Removed
On September 16, 2022, the Company and AAIT mutually agreed to the terms of an agreed order of the court providing for a temporary injunction for a period of a minimum of 60 days from the date of the order and up to a maximum of 120 days at the Company’s option, during which AAIT would continue to provide information technology services to the Company and assist with the transition process.
Removed
By agreement of the parties, the agreed order also provided for the appointment of Hon. Gregg J. Costa (Ret.) as an independent adjudicator to assist in adjudicating ongoing disputes between the parties. As of December 31, 2022, the Company has substantially completed the transition process and the Company no longer has a material relationship with AAIT. Other Claims.
Removed
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.
Removed
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 including matters related to alleged royalty underpayments on certain federal-owned properties.
Removed
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, we believe 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.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

3 edited+2 added−3 removed0 unchanged
Biggest changeOur Board of Directors decides the timing and amounts of any dividends for the Company. Dividends are subject to periodic review of the Company’s performance, which includes the current economic environment and applicable debt agreement restrictions.
Biggest changeOther than this dividend, we did not declare or pay any cash dividends on our common stock during 2023 and 2022. The decision to pay additional dividends on our common stock is at the discretion of our board of directors and is subject to periodic review of our performance, which includes the current economic environment and applicable debt agreement restrictions.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is listed and principally traded on the NYSE under the symbol “WTI.” As of March 1, 2023, there were 180 registered holders of our common stock. Dividends During 2022 and 2021, no dividends were paid as dividend payments have been suspended.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is listed and principally traded on the NYSE under the symbol “WTI.” As of March 1, 2024, there were 134 registered holders of our common stock.
Stock Performance Graph The graph below shows the cumulative total shareholder return assuming the investment of $100 in our common stock and the reinvestment of all dividends thereafter.
Stock Performance Graph The graph below shows the cumulative total shareholder return assuming the investment of $100 in our common stock and the reinvestment of all dividends thereafter. The information contained in the graph below is furnished and not filed and is not incorporated by reference into any document that incorporates this Form 10-K by reference.
Removed
See Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources under Part II, Item 7 and Financial Statements and Supplementary Data – Note 2 –Debt under Part II, Item 8 in this Form 10-K for more information regarding covenants related to dividends in our debt agreements.
Added
Dividends On November 8, 2023, we announced that our board of directors approved the implementation of a quarterly cash dividend payable to holders of our common stock. The initial cash dividend of $0.01 per share of common stock, or $1.5 million, was paid on December 22, 2023, to shareholders of record at the close of business on November 28, 2023.
Removed
The information contained in the graph below is furnished and not filed, and is not incorporated by reference into any document that incorporates this Form 10-K by reference. 42 Table of Contents Issuer Purchases of Equity Securities For the year ended December 31, 2022, we did not purchase any of our equity securities.
Added
Issuer Purchases of Equity Securities None. Unregistered Sales of Equity Securities None. 41 Table of Contents ITEM 6. [RESERVED]
Removed
Sales of Unregistered Equity Securities We did not have any sales of unregistered equity securities during the fiscal year ended December 31, 2022 that we have not previously reported on a Quarterly Report on Form 10-Q or a Current Report on Form 8-K. ​ Item 6. [Reserved] ​

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

106 edited+47 added−83 removed33 unchanged
Biggest changeSee Financial Statements and Supplementary Data – Note 2 – Debt under Part II, Item 8 in this Form 10-K for additional information. 58 Table of Contents Below is consolidating balance sheet information reflecting the elimination of the accounts of our Unrestricted Subsidiaries from our Consolidated Balance Sheet as of December 31, 2022 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consolidated Balance Sheet ​ Eliminations of Unrestricted Subsidiaries ​ Consolidated Balance Sheet of restricted subsidiaries Assets ​ ​ ​ Current assets: ​ ​ ​ Cash and cash equivalents ​ $ 461,357 ​ $ (21,764) ​ $ 439,593 Restricted cash ​ ​ 4,417 ​ ​ — ​ ​ 4,417 Receivables: ​ ​ ​ Oil and natural gas sales ​ 66,146 ​ (37,344) ​ 28,802 Joint interest, net ​ 14,000 ​ 5,760 ​ 19,760 Total receivables ​ 80,146 ​ (31,584) ​ 48,562 Prepaid expenses and other assets ​ 24,343 ​ (417) ​ 23,926 Total current assets ​ 570,263 ​ (53,765) ​ 516,498 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Oil and natural gas properties and other, net ​ 735,215 ​ (280,649) ​ 454,566 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Restricted deposits for asset retirement obligations ​ 21,483 ​ — ​ 21,483 Deferred income taxes ​ 57,280 ​ — ​ 57,280 Other assets ​ 47,549 ​ (8,473) ​ 39,076 Total assets ​ $ 1,431,790 ​ $ (342,887) ​ $ 1,088,903 Liabilities and Shareholders’ Equity (Deficit) ​ ​ ​ Current liabilities: ​ ​ ​ Accounts payable ​ $ 68,339 ​ $ (27,387) ​ $ 40,952 Undistributed oil and natural gas proceeds ​ 41,934 ​ (7,930) ​ 34,004 Asset retirement obligations ​ 25,359 ​ — ​ 25,359 Accrued liabilities ​ 74,041 ​ (45,102) ​ 28,939 Current portion of long-term debt ​ ​ 582,249 ​ ​ (32,119) ​ ​ 550,130 Income tax payable ​ 412 ​ — ​ 412 Total current liabilities ​ 792,334 ​ (112,538) ​ 679,796 Long-term debt ​ ​ ​ Principal ​ 114,158 ​ (114,158) ​ — Unamortized debt issuance costs ​ (2,970) ​ 2,970 ​ — Long-term debt, net ​ 111,188 ​ (111,188) ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Asset retirement obligations, less current portion ​ 441,071 ​ (61,138) ​ 379,933 Other liabilities ​ 79,491 ​ (47,398) ​ 32,093 Deferred income taxes ​ 72 ​ — ​ 72 Common stock ​ 1 ​ — ​ 1 Shareholders' equity (deficit): ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional paid-in capital ​ 576,588 ​ — ​ 576,588 Retained deficit ​ (544,788) ​ (10,625) ​ (555,413) Treasury stock, at cost ​ (24,167) ​ — ​ (24,167) Total shareholders’ equity (deficit) ​ 7,634 ​ (10,625) ​ (2,991) Total liabilities and shareholders’ equity (deficit) ​ $ 1,431,790 ​ $ (342,887) ​ $ 1,088,903 ​ ​ ​ ​ ​ ​ ​ 59 Table of Contents Below is Consolidating Statement of Operations information reflecting the elimination of the accounts of our Unrestricted Subsidiaries from our Consolidated Statement of Operations for the year ended December 31, 2022 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consolidated ​ ​ Eliminations of Unrestricted Subsidiaries ​ ​ Consolidated restricted subsidiaries Revenues: ​ ​ ​ ​ ​ ​ ​ ​ ​ Oil ​ $ 524,274 ​ $ (899) ​ $ 523,375 NGLs ​ 56,964 ​ (33,367) ​ 23,597 Natural gas ​ 323,831 ​ (223,826) ​ 100,005 Other ​ 15,928 ​ (10,481) ​ 5,447 Total revenues ​ 920,997 ​ (268,573) ​ 652,424 Operating expenses: ​ ​ ​ Lease operating expenses ​ 224,414 ​ (52,760) ​ 171,654 Gathering, transportation and production taxes ​ ​ 35,128 ​ ​ (17,692) ​ ​ 17,436 Depreciation, depletion, amortization and accretion ​ 133,630 ​ (2,087) ​ 131,543 General and administrative expenses ​ 73,747 ​ (1,451) ​ 72,296 Total operating expenses ​ 466,919 ​ (73,990) ​ 392,929 Operating income ​ 454,078 ​ (194,583) ​ 259,495 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest expense, net ​ 69,441 ​ (14,721) ​ 54,720 Derivative loss (gain) ​ 85,533 ​ (141,736) ​ (56,203) Other expense, net ​ 14,295 ​ — ​ 14,295 Income before income taxes ​ 284,809 ​ (38,126) ​ 246,683 Income tax expense ​ 53,660 ​ — ​ 53,660 Net income ​ $ 231,149 ​ $ (38,126) ​ $ 193,023 ​ ​ ​ ​ ​ ​ The following table presents our produced oil, NGLs and natural gas volumes (net to our interests) from the Mobile Bay Properties for the periods indicated: ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ For the period from May 19, 2021 to December 31, 2021 Production Volumes: ​ 2022 ​ 2022 Oil (MBbls) 17 13 NGLs (MBbls) 941 603 Natural gas (MMcf) 30,052 20,417 Total oil equivalent (MBoe) 5,967 4,019 ​ ​ ​ ​ ​ ​ Reserves information for the Mobile Bay properties is described in more detail under Part I Item 2, Properties, in this Form 10-K. 60 Table of Contents Contractual Obligations At December 31, 2022, we did not have any financing leases.
Biggest changeSee Financial Statements and Supplementary Data – Note 2 – Debt under Part II, Item 8 in this Form 10-K for additional information. 54 Table of Contents Below is consolidating balance sheet information reflecting the elimination of the accounts of our Unrestricted Subsidiaries from our Consolidated Balance Sheet as of December 31, 2023 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consolidated ​ Elimination of Unrestricted Subsidiaries ​ Restricted Subsidiaries Assets ​ ​ ​ Current assets: ​ ​ ​ ​ Cash and cash equivalents ​ $ 173,338 ​ $ (600) ​ $ 172,738 Restricted cash ​ ​ 4,417 ​ ​ — ​ ​ 4,417 Receivables: ​ ​ ​ ​ Oil and natural gas sales ​ 52,080 ​ (19,171) ​ 32,909 Joint interest, net ​ 15,480 ​ 33,151 ​ 48,631 Other ​ ​ 2,218 ​ ​ — ​ ​ 2,218 Prepaid expenses and other current assets ​ 17,447 ​ (612) ​ 16,835 Total current assets ​ 264,980 ​ 12,768 ​ 277,748 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Oil and natural gas properties and other, net ​ 749,056 ​ (287,313) ​ 461,743 Restricted deposits for asset retirement obligations ​ 22,272 ​ — ​ 22,272 Deferred income taxes ​ 38,774 ​ — ​ 38,774 Other assets ​ 38,923 ​ (8,097) ​ 30,826 Total assets ​ $ 1,114,005 ​ $ (282,642) ​ $ 831,363 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities and Shareholders’ Equity (Deficit) ​ ​ ​ Current liabilities: ​ ​ ​ Accounts payable ​ $ 78,857 ​ $ (4,473) ​ $ 74,384 Accrued liabilities ​ 31,879 ​ (7,152) ​ 24,727 Undistributed oil and natural gas proceeds ​ 42,134 ​ (4,359) ​ 37,775 Advances from joint interest partners ​ 2,962 ​ — ​ 2,962 Income tax payable ​ ​ 99 ​ ​ — ​ ​ 99 Current portion of asset retirement obligation ​ ​ 31,553 ​ ​ (44) ​ ​ 31,509 Current portion of long-term debt, net ​ 29,368 ​ (28,872) ​ 496 Total current liabilities ​ 216,852 ​ (44,900) ​ 171,952 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Asset retirement obligations, less current portion ​ 467,262 ​ (67,771) ​ 399,491 Long-term debt, net ​ 361,236 ​ (82,317) ​ 278,919 Deferred income taxes ​ ​ 51 ​ ​ — ​ ​ 51 Other liabilities ​ 37,412 ​ (6,749) ​ 30,663 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Shareholders' equity (deficit): ​ ​ ​ ​ ​ ​ ​ ​ ​ Common stock ​ 1 ​ — ​ 1 Additional paid-in capital ​ 586,014 ​ — ​ 586,014 Retained deficit ​ (530,656) ​ (80,905) ​ (611,561) Treasury stock, at cost ​ (24,167) ​ — ​ (24,167) Total shareholders’ equity (deficit) ​ 31,192 ​ (80,905) ​ (49,713) Total liabilities and shareholders’ equity (deficit) ​ $ 1,114,005 ​ $ (282,642) ​ $ 831,363 ​ ​ ​ ​ 55 Table of Contents Information reflecting the elimination of the accounts of our Unrestricted Subsidiaries from our Consolidated Statement of Operations for the year ended December 31, 2023 is as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consolidated ​ Elimination of Unrestricted Subsidiaries ​ Restricted Subsidiaries Revenues: ​ ​ ​ ​ ​ ​ ​ ​ ​ Oil ​ $ 381,389 ​ $ (622) ​ $ 380,767 NGLs ​ 32,446 ​ (20,849) ​ 11,597 Natural gas ​ 110,158 ​ (74,900) ​ 35,258 Other ​ 8,663 ​ (4,506) ​ 4,157 Total revenues ​ 532,656 ​ (100,877) ​ 431,779 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating expenses: ​ ​ ​ Lease operating expenses ​ 257,676 ​ (79,824) ​ 177,852 Gathering, transportation and production taxes ​ ​ 26,250 ​ ​ (8,169) ​ ​ 18,081 Depreciation, depletion, and amortization ​ 114,677 ​ 3,383 ​ 118,060 Asset retirement obligations accretion ​ ​ 29,018 ​ ​ (5,980) ​ ​ 23,038 General and administrative expenses ​ 75,541 ​ (1,330) ​ 74,211 Total operating expenses ​ 503,162 ​ (91,920) ​ 411,242 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating income ​ 29,494 ​ (8,957) ​ 20,537 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest expense, net ​ 44,689 ​ (10,400) ​ 34,289 Derivative (gain) loss, net ​ (54,759) ​ 71,724 ​ 16,965 Other expense, net ​ 5,621 ​ — ​ 5,621 Income (loss) before income taxes ​ 33,943 ​ (70,281) ​ (36,338) Income tax expense ​ 18,345 ​ — ​ 18,345 Net income (loss) ​ $ 15,598 ​ $ (70,281) ​ $ (54,683) ​ Produced oil, NGLs and natural gas volumes (net to our interests) from the Mobile Bay Properties are as follows: ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, Production Volumes: ​ 2023 ​ 2022 Oil (MBbls) 15 17 NGLs (MBbls) 925 941 Natural gas (MMcf) 24,826 30,052 Total oil equivalent (MBoe) 5,078 5,967 ​ ​ ​ ​ ​ Reserves information for the Mobile Bay properties is described in more detail under Part I, Item 2.
Continued inflationary pressures and increased commodity prices may also result in increases to the costs of our oilfield goods, services and personnel, which would in turn cause our capital expenditures and operating costs to rise. The United States has experienced a rise in inflation since October 2021.
Continued inflationary pressures and increased commodity prices may also result in increases in the costs of our oilfield goods, services and personnel, which would in turn cause our capital expenditures and operating costs to rise. The United States has experienced a rise in inflation since October 2021.
The expense may not be reversed in future periods, even though higher oil, natural gas and NGL prices may subsequently increase the ceiling. We perform this ceiling test calculation each quarter. In accordance with the SEC rules and regulations, we utilize SEC Pricing when performing the ceiling test.
The expense may not be reversed in future periods, even though higher oil, NGL and natural gas prices may subsequently increase the ceiling. We perform this ceiling test calculation each quarter. In accordance with SEC rules and regulations, we utilize SEC pricing when performing the ceiling test.
We and other offshore Gulf of Mexico producers may, in the ordinary course of business, receive demands in the future for financial assurances from BOEM as BOEM continues to reevaluate its requirements for financial assurance.
We and other offshore Gulf of Mexico producers may, in the ordinary course of business, receive demands in the future for financial assurances from the BOEM as the BOEM continues to reevaluate its requirements for financial assurance.
Our realized sales prices received for our crude oil, NGLs and natural gas production are affected by many factors outside of our control, including changes in market supply and demand, which are impacted by weather conditions, pipeline capacity constraints, inventory storage levels, domestic production activities and political issues, and international geopolitical and economic events.
Our realized sales prices received for our oil, NGLs and natural gas production are affected by many factors outside of our control, including changes in market supply and demand, which are impacted by weather conditions, pipeline capacity constraints, inventory storage levels, domestic production activities and political issues, and international geopolitical and economic events.
Capital Expenditures The level of our investment in oil and natural gas properties changes from time to time depending on numerous factors including the prices of crude oil, NGLs and natural gas, acquisition opportunities, liquidity and financing options and the results of our exploration and development activities.
Capital Expenditures The level of our investment in oil and natural gas properties changes from time to time depending on numerous factors including the prices of oil, NGLs and natural gas, acquisition opportunities, liquidity and financing options and the results of our exploration and development activities.
Any costs in excess of the ceiling are recognized as a non-cash “Write-down of oil and natural gas properties” on the Consolidated Statements of Operations and an increase to “Accumulated depreciation, depletion and amortization” on the Company’s Consolidated Balance Sheets.
Any costs in excess of the ceiling are recognized as a non-cash “Write-down of oil and natural gas properties” on the Consolidated Statements of Operations and an increase to “Accumulated depreciation, depletion and amortization” on the Consolidated Balance Sheets.
Expenses for direct labor, materials, supplies, repair and third party costs comprise the most significant portion of our base lease operating expense.
Expenses for direct labor, materials, supplies, repair, third-party costs and insurance comprise the most significant portion of our base lease operating expense.
Authoritative guidance for accounting for uncertainty in income taxes requires that we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. When applicable, the Company recognizes interest and penalties related to uncertain tax positions in income tax expense.
Authoritative guidance for accounting for uncertainty in income taxes requires that we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. When applicable, we recognize interest and penalties related to uncertain tax positions in income tax expense.
General and administrative expenses (“G&A”) – G&A expense generally consists of costs incurred for overhead, including payroll and benefits for our corporate staff, costs of maintaining our headquarters, costs of managing our production operations, bad debt expense, equity based compensation expense, audit and other fees for professional services and legal compliance.
General and administrative expenses (“G&A”) – G&A expense generally consists of costs incurred for overhead, including payroll and benefits for our corporate staff, costs of maintaining our headquarters, costs of managing our production operations, bad debt expense, share-based compensation costs, audit and other fees for professional services and legal compliance.
At current pricing levels, we expect our cash flows to cover our liquidity requirements and we expect additional financing sources to be available if needed. If our liquidity becomes stressed from significant reductions in realized prices, we have flexibility in our capital expenditure budget to reduce investments.
At current pricing levels, we expect our cash flows to cover our liquidity requirements, and we expect additional financing sources to be available if needed. If our liquidity becomes stressed from significant or prolonged reductions in realized prices, we have flexibility in our capital expenditure budget to reduce investments.
The accuracy of our reserve estimates is a function of: ● the quality and quantity of available data and the engineering and geological interpretation of that data; ● estimates regarding the amount and timing of future operating costs, severance taxes, development costs and workovers, all of which may vary considerably from actual results; ● the accuracy of various mandated economic assumptions, such as the future prices of crude oil and natural gas; and ● the judgment of the persons preparing the estimates.
The accuracy of our reserve estimates is a function of: ​ ● the quality and quantity of available data and the engineering and geological interpretation of that data; ● estimates regarding the amount and timing of future operating costs, severance taxes, development costs and workovers, all of which may vary considerably from actual results; ● the accuracy of various mandated economic assumptions, such as the future prices of oil and natural gas; and ● the judgments of the persons preparing the estimates.
Under the full cost method, the Company’s capitalized costs are limited to a ceiling based on the present value of future net revenues from proved reserves, computed using a discount factor of 10 percent, plus the lower of cost or estimated fair value of unproved oil and natural gas properties not being amortized less the related tax effects.
Impairment of Oil and Natural Gas Properties Under the full cost method, our capitalized costs are limited to a ceiling based on the present value of future net revenues from proved reserves, computed using a discount factor of 10 percent, plus the lower of cost or estimated fair value of unproved oil and natural gas properties not being amortized less the related tax effects.
As a result of the derivative contracts we have on our anticipated natural gas production volumes through April 2028, we expect these activities to continue to impact net income (loss) based on fluctuations in market prices for natural gas. As of December 31, 2022, we do not have any open oil contracts.
As a result of the derivative contracts we have on our anticipated natural gas production volumes through April 2028, we expect these activities to continue to impact net income based on fluctuations in market prices for natural gas. As of December 31, 2023, we do not have any open oil contracts.
Results of Operations Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Revenues Our revenues are derived from the sale of our oil and natural gas production, as well as the sale of NGLs.
RESULTS OF OPERATIONS Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Revenues Our revenues are derived from the sale of our oil and natural gas production, as well as the sale of NGLs.
Proved oil and natural gas reserves are the estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future periods from known reservoirs under existing economic and operating conditions.
Proved oil and natural gas reserves are the estimated quantities of oil, NGL and natural gas which geological and engineering data demonstrate with reasonable certainty to be recoverable in future periods from known reservoirs under existing economic and operating conditions.
During 2022 and 2021, we revised our estimates of costs anticipated to be charged by service providers for plugging and abandonment projects and revised estimated to actual spending as invoices were processed and projects completed.
During 2023 and 2022, we revised our estimates of costs anticipated to be charged by service providers for plugging and abandonment projects and revised our estimates to actual spending as invoices were processed and projects were completed.
Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this Annual Report are incorporated by reference to Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Discussions of 2021 items and comparisons between 2022 and 2021 that are not included in the Form 10-K are incorporated by reference to Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2022.
The IRA also increases the minimum oil and gas royalty rate for new offshore leases from the current 12.50% to 16.67% and caps the royalty rate at 18.75% for 10 years. The 18.75% cap is commensurate with existing offshore royalty rate for leases in water depth exceeding 200 meters. This provision does not affect existing offshore leases.
The IRA also increases the minimum oil and gas royalty rate for new offshore leases from the current 12.50% to 16.67% and caps the royalty rate at 18.75% for 10 years. The 18.75% cap is commensurate with existing offshore royalty rate for leases in water depth exceeding 200 meters.
Our Company and others like us, are exposed to a number of risks by operating in the oil and gas industry in the Gulf of Mexico, which are described in Item 1A, Risk Factors, in this Form 10-K.
We and others like us, are exposed to a number of risks by operating in the oil and natural gas industry in the Gulf of Mexico, which are described in Item 1A. Risk Factors, in this Form 10-K.
A valuation allowance is established to reduce deferred tax assets if it is more likely than not that the related tax benefits will not be realized. 63 Table of Contents We apply significant judgment in evaluating its tax positions and estimating our provision for income taxes.
A valuation allowance is established to reduce deferred tax assets if it is more likely than not that the related tax benefits will not be realized. We apply significant judgment in evaluating tax positions and estimating our provision for income taxes.
Actual results may be significantly different from such estimates, which would affect the timing of when these expenses would be recognized as DD&A. See Oil and Natural Gas Reserve Quantities and Asset Retirement Obligations below for more information. 62 Table of Contents Impairment of Oil and Natural Gas Properties.
Actual results may be significantly different from such estimates, which would affect the timing of when these expenses would be recognized as DD&A. See Oil and Natural Gas Reserve Quantities and Asset Retirement Obligations below for more information.
As of December 31, 2022, we had approximately $438.0 million of bonds outstanding, with the majority related to plugging and abandonment obligations. The amounts are based on current market rates and conditions for these types of bonds and are subject to change. Excluded are potential increases in surety bond requirements which cannot be determined.
As of December 31, 2023, we had approximately $454.2 million of bonds outstanding, with the majority related to plugging and abandonment obligations. The amounts are based on current market rates and conditions for these types of bonds and are subject to change. Excluded are potential increases in surety bond requirements which cannot be determined.
Because these estimates depend on many assumptions, any or all of which may differ substantially from actual results, reserve estimates may be different from the quantities of oil and natural gas that are ultimately recovered. Asset retirement obligations . The Company has obligations associated with the retirement of its oil and natural gas wells and related infrastructure.
Because these estimates depend on many assumptions, any or all of which may differ substantially from actual results, reserve estimates may be different from the quantities of oil and natural gas that are ultimately recovered. Asset Retirement Obligations We have obligations associated with the retirement of our oil and natural gas wells and related infrastructure.
Debt Covenants – The Term Loan, Credit Agreement, and 9.75% Senior Second Lien Notes contain financial covenants calculated as of the last day of each fiscal quarter, which include thresholds on financial ratios, as defined in the respective Subsidiary Credit Agreement, the Credit Agreement and the indenture related to the 9.75% Senior Second Lien Notes.
Debt Covenants – The Term Loan, Credit Agreement and 11.75% Notes contain financial covenants calculated as of the last day of each fiscal quarter, which include thresholds on financial ratios, as defined in the respective Subsidiary Credit Agreement, the Credit Agreement and the indenture related to the 11.75% Notes.
Our preliminary capital expenditure budget for 2023 has been established in the range of $90.0 million to $110.0 million, which excludes acquisitions. In our view of the outlook for 2023, we believe this level of capital expenditure will enhance our liquidity capacity throughout 2023 and beyond while providing liquidity to make strategic acquisitions.
Our preliminary capital expenditure budget for 2024 has been established in the range of $35.0 million to $45.0 million, which excludes acquisitions. In our view of the outlook for 2024, we believe this level of capital expenditure will enhance our liquidity capacity throughout 2024 and beyond while providing liquidity to make strategic acquisitions.
Our oil, natural gas and NGL revenues do not include the effects of derivatives, which are reported in “Derivative loss (gain)” in our Consolidated Statements of Operations.
Our oil, NGL and natural gas revenues do not include the effects of derivatives, which are reported in Derivative (gain) loss, net in our Consolidated Statements of Operations.
The expense may not be reversed in future periods, even though higher oil, natural gas and NGL prices may subsequently increase the ceiling. The Company performs this ceiling test calculation each quarter. In accordance with the SEC rules and regulations, the Company utilizes SEC pricing when performing the ceiling test.
The expense may not be reversed in future periods, even though higher oil, NGL and natural gas prices may subsequently increase the ceiling. We perform this ceiling test calculation each quarter. In accordance with SEC rules and regulations, we utilize SEC pricing when performing the ceiling test.
Term Loan – As of December 31, 2022, we had $147.9 million of Term Loan principal outstanding. The Term Loan requires quarterly amortization payments, bears interest at a fixed rate of 7.0% per annum and will mature on May 19, 2028.
Term Loan – As of December 31, 2023, we had $114.2 million of Term Loan principal outstanding. The Term Loan requires quarterly amortization payments, bears interest at a fixed rate of 7.0% per annum and will mature on May 19, 2028.
In estimating the liability associated with its asset retirement obligations, the Company utilizes several assumptions, including a credit-adjusted risk-free interest rate, estimated costs of decommissioning services, estimated timing of when the work will be performed and a projected inflation rate.
In estimating the liability associated with our asset retirement obligations, we utilize several assumptions, including a credit-adjusted risk-free interest rate, estimated costs of decommissioning services, estimated timing of when the work will be performed and a projected inflation rate.
Additionally, we revise our estimates to account for the cost to comply with any new or revised regulations, including increases in work scope and cost changes from interpretation of work scope.
Additionally, we revise our estimates to account for the cost to comply with any new or revised regulations, including increases in work scope and cost changes from interpretation of work scope. See Part I, Item 1A.
We record adjustments to reflect actual taxes paid in the period that we complete our tax returns. The Company accounts for uncertainty in income taxes recognized in the financial statements in accordance with GAAP by prescribing a recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return.
We record adjustments to reflect actual taxes paid in the period that we complete our tax returns. 58 Table of Contents We account for uncertainty in income taxes recognized in the consolidated financial statements in accordance with GAAP by prescribing a recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return.
Additionally, other liabilities and commitments includes estimates of minimum quantities obligations for certain pipeline contracts which were assumed in conjunction with the purchase of an interest in the Heidelberg field. The above table excludes our obligations under joint interest arrangements related to commitments that have not yet been incurred.
Additionally, other liabilities and commitments include estimates of minimum quantities obligations for certain pipeline contracts which were assumed in conjunction with the purchase of an interest in the Heidelberg field. These amounts exclude our obligations under joint interest arrangements related to commitments that have not yet been incurred.
The methane emissions charge may increase our operating costs and adversely affect our business. 46 Table of Contents Impairment of Oil and Natural Gas Properties – Under the full cost method of accounting that we use for our oil and gas operations, our capitalized costs are limited to a ceiling based on the present value of future net revenues from proved reserves, computed using a discount factor of 10 percent, plus the lower of cost or estimated fair value of unproved oil and natural gas properties not being amortized less the related tax effects.
Impairment of Oil and Natural Gas Properties – Under the full cost method of accounting that we use for our oil and gas operations, our capitalized costs are limited to a ceiling based on the present value of future net revenues from proved reserves, computed using a discount factor of 10 percent, plus the lower of cost or estimated fair value of unproved oil and natural gas properties not being amortized less the related tax effects.
Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this Form 10-K, particularly in Part I, Item 1A Risk Factors . This section of this Annual Report generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021.
Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this Form 10-K, particularly in Part I, Item 1A. Risk Factors . This section primarily discusses 2023 and 2022 items and comparisons between 2023 and 2022.
In 2022 or 2021, we have not had to post collateral for sureties and we currently do not have any collateral posted for surety bonds.
In both 2023 and 2022, we have not had to post collateral for sureties, and we currently do not have any collateral posted for surety bonds.
Regulations – We are subject to a number of regulations from federal and state governmental entities, which are described under Part I, Item 1, Regulations in this Form 10-K.
Regulations – We are subject to a number of regulations from federal and state governmental entities, which are described under Part I, Item 1. Business ‒ Environmental, Health and Safety Matters and Government Regulations in this Form 10-K.
BOEM Matters – BOEM requires that lessees demonstrate financial strength and reliability according to its regulations or provide acceptable financial assurances to satisfy lease obligations, including decommissioning activities on the OCS. As of December 31, 2022, the Company is in compliance with its financial assurance obligations to BOEM and has no outstanding BOEM orders related to financial assurance obligations.
BOEM Matters – The BOEM requires that lessees demonstrate financial strength and reliability according to its regulations or provide acceptable financial assurances to satisfy lease obligations, including decommissioning activities on the OCS. As of December 31, 2023, we are in compliance with our financial assurance obligations to the BOEM and have no outstanding BOEM orders related to financial assurance obligations.
We measure margins using Adjusted EBITDA which we define net (loss) income (loss) before income tax expense (benefit), net interest expense, and depreciation, depletion, amortization and accretion, the unrealized commodity derivative gain or loss and the effects derivative premium payments, allowance for credit losses, write off of debt issuance costs, non-cash incentive compensation, non-recurring IT transition costs, release of restricted funds, non-ARO P&A costs, and other miscellaneous costs as a percent of revenue, which is not a financial measurement under GAAP.
We measure margins using an Adjusted EBITDA margin which we define as net income (loss) before income tax expense, net interest expense, depreciation, depletion, amortization and accretion, unrealized commodity derivative gain or loss and the effects of derivative premium payments, allowance for credit losses, non-cash incentive compensation, non-recurring costs related to IT services transition, non-ARO P&A costs, and other miscellaneous costs as a percent of revenue, which is not a financial measurement under GAAP.
These operating costs are comprised of several components including, direct or base lease operating expenses, insurance premiums, workover costs, facilities repairs and maintenance expenses, and hurricane repair expenses.
These operating costs are comprised of several components including direct or base lease operating expenses, insurance premiums, workover costs and facility maintenance expenses.
For more information on the BOEM and financial assurance obligations to that agency, see Business – Compliance with Government Regulations – Decommissioning and financial assurance requirements under Part I, Item 1 of this Form 10-K. 47 Table of Contents Surety Bond Collateral – In prior years, some of the sureties that provide us surety bonds used for supplemental financial assurance purposes have requested and received collateral from us, and may request additional collateral from us in the future, which could be significant and could impact our liquidity.
For more information on the BOEM and financial assurance obligations to that agency, see Business – Environmental, Health and Safety Matters and Government Regulations – Other Regulation of the Oil and Natural Gas Industry under Part I, Item 1 of this Form 10-K. 45 Table of Contents Surety Bond Collateral – In prior years, some of the sureties that provide us surety bonds used for supplemental financial assurance purposes have requested and received collateral from us and may request additional collateral from us in the future, which could be significant and could impact our liquidity.
See Financial Statements and Supplementary Data – Note 2 – Debt under Part II, Item 8 in this Form 10-K for additional information on our debt. Other expense (income), net – During the year ended December 31, 2022, other expense, net, was $14.3 million, compared to $6.2 million of other income, net, for 2021.
See Financial Statements and Supplementary Data – Note 2 – Debt under Part II, Item 8 in this Form 10-K for additional information on our debt. Other expense, net – During 2023, other expense, net, was $5.6 million, compared to $14.3 million for 2022.
The Company accrues a liability with respect to these obligations based on its estimate of the timing and amount to replace, remove or retire the associated assets.
We accrue a liability with respect to these obligations based on our estimate of the timing and amount to replace, remove or retire the associated assets.
Furthermore, the IRA imposes a methane emissions charge. The IRA amends the federal Clean Air Act to impose a fee on emissions of methane from sources required to report their greenhouse gas emissions to the EPA, including sources in the offshore and onshore oil and gas production, and onshore processing, transmission and compression, gathering, and boosting station source categories.
This provision does not affect existing offshore leases. 44 Table of Contents Furthermore, the IRA amends the federal Clean Air Act to impose a fee on emissions of methane from sources required to report their greenhouse gas emissions to the EPA, including sources in the offshore and onshore oil and gas production, and onshore processing, transmission and compression, gathering, and boosting station source categories.
As of December 31, 2022, we had $461.4 million of available cash and $50.0 million available under our Credit Agreement, based on a borrowing base of $50.0 million.
As of December 31, 2023, we had $173.3 million of available cash on hand and $50.0 million available under our Credit Agreement, based on a borrowing base of $50.0 million.
Under the Subsidiary Credit Agreement and related instruments, assets of the Aquasition Entities may not be available to mortgage or pledge as security to secure new indebtedness of the Company and its other subsidiaries.
Under the credit agreement the Aquasition Entities are party to (the “Subsidiary Credit Agreement”) and related instruments, assets of the Aquasition Entities may not be available to mortgage or pledge as security to secure new indebtedness of us and our other subsidiaries.
Our lease operating costs, which depend in part on the type of commodity produced, the level of workover activity and the geographical location of the properties, increased $49.8 million to $224.4 million in 2022 compared to $174.6 million in 2021.
Our lease operating costs, which depend in part on the type of commodity produced, the level of workover activity and the geographical location of the properties, increased $33.3 million to $257.7 million in 2023 compared to $224.4 million in 2022.
The Company used the net proceeds of $270.8 million from the issuance of the 11.75% Senior Second Lien Notes and cash on hand of $296.1 million to fund the redemption. See Financial Statements and Supplementary Data –Note 20 – Subsequent Events under Part II, Item 8 in this Form 10-K for additional information. Reaffirmation of Credit Agreement.
We used the net proceeds from the issuance of the 11.75% Notes and $296.1 million of cash on hand to fund the redemption. See Financial Statements and Supplementary Data –Note 2 – Debt under Part II, Item 8 in this Form 10-K for additional information.
We have outlined below certain accounting policies that are of particular importance to the presentation of our financial position and results of operations and require the application of significant judgment or estimates by our management. Revenue Recognition.
We have outlined below certain accounting policies that are of particular importance to the presentation of our financial position and results of operations and require the application of significant judgment or estimates by our management. Full Cost Accounting We account for our oil and natural gas operations using the full cost method of accounting.
We have funded such activities in the past with cash on hand, net cash provided by operating activities, sales of property, securities offerings and bank and other borrowings, and expect to continue to do so in the future. The primary sources of our liquidity are cash from operating activities and borrowings under our Credit Agreement.
We have funded such activities in the past with cash on hand, net cash provided by operating activities, sales of property, securities offerings and bank and other borrowings, and expect to continue to do so in the future. We expect to support our business requirements primarily with cash on hand and cash generated from operations.
If the Company incurs an amount different from the amount accrued for decommissioning obligations, the Company recognizes the difference as an adjustment to proved properties. Income taxes. Our provision for income taxes includes U.S. state and federal taxes.
If we incur an amount different from the amount accrued for decommissioning obligations, we recognize the difference as an adjustment to our oil and natural gas properties. Income Taxes Our provision for income taxes includes U.S. state and federal taxes.
Such uncertainties may include: ● ceiling test write-downs of the carrying value of our oil and gas properties; ● reductions in our proved reserves and the estimated value thereof; ● additional supplemental bonding and potential collateral requirements; ● reductions in our borrowing base under the Credit Agreement; and ● our ability to fund capital expenditures needed to replace produced reserves, which must be replaced on a long-term basis to provide cash to fund liquidity needs described above. 45 Table of Contents Rising Interest Rates and Inflation of Cost of Goods, Services and Personnel – Due to the cyclical nature of the oil and gas industry, fluctuating demand for oilfield goods and services can put pressure on the pricing structure within our industry.
Such uncertainties may include: ● ceiling test write-downs of the carrying value of our oil and gas properties; ● reductions in our proved reserves and the estimated value thereof; ● additional supplemental bonding and potential collateral requirements; ● reductions in our borrowing base under the Credit Agreement; and ● our ability to fund capital expenditures needed to replace produced reserves, which must be replaced on a long-term basis to provide cash to fund liquidity needs described above.
See Financial Statements and Supplementary Data – Note 2 – Debt under Part II, Item 8 in this Form 10-K for additional information. 57 Table of Contents The Subsidiary Borrowers On May 19, 2021, we formed A-I LLC and A-II LLC, both indirect, wholly-owned subsidiaries of W&T Offshore, Inc., through their parent, Aquasition Energy LLC (collectively, the Aquasition Entities”).
See Financial Statements and Supplementary Data – Note 17 – Commitments under Part II, Item 8 in this 10-K for additional information. ​ ​ THE SUBSIDIARY BORROWERS During 2021, we formed A-I LLC and A-II LLC, both indirect, wholly-owned subsidiaries, through their parent, Aquasition Energy LLC (collectively, the “Aquasition Entities”).
Financial Statements and Supplementary data — Note 1 — Summary of Significant Accounting Policies for further discussion. Accretion expense is the expensing of the changes in value of our asset retirement obligations as a result of the passage of time over the estimated productive life of the related assets as the discounted liabilities are accreted to their expected settlement values.
Asset retirement obligations accretion expense – Accretion expense is the expensing of the changes in value of our ARO as a result of the passage of time over the estimated productive life of the related assets as the discounted liabilities are accreted to their expected settlement values.
Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations is based on, and should be read in conjunction with Part I, Item 1 Business, Item 2 Properties , Item 1A Risk Factors and Item 7A Quantitative and Qualitative Disclosures About Market Risk and with Part II, Item 8 Financial Statements and Supplementary Data in this Form 10-K.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations is based on, and should be read in conjunction with Part I, Item 1. Business , Item 2. Properties , Item 1A. Risk Factors and Item 7A.
Business Overview W&T is an independent oil and natural gas producer, active in the exploration, development and acquisition of oil and natural gas properties in the Gulf of Mexico. As of December 31, 2022, we held working interests in 47 offshore producing fields in federal and state waters (45 producing fields and 2 capable of producing).
Business Overview We are an independent oil and natural gas producer, active in the exploration, development and acquisition of oil and natural gas properties in the Gulf of Mexico. As of December 31, 2023, we held working interests in 53 offshore producing fields in federal and state waters (which include 44 fields in federal waters and nine in state waters).
On a per Boe basis, lease operating expenses increased to $15.35 per Boe during 2022 compared to $12.55 per Boe during 2021. On a component basis, base lease operating expenses increased $35.1 million, workover expenses increased $8.2 million and facilities maintenance expenses increased $11.8 million. These increases were partially offset by a decrease of $5.4 million in hurricane repairs.
On a per Boe basis, lease operating expenses increased to $20.24 per Boe during 2023 compared to $15.35 per Boe during 2022. On a component basis, base lease operating expenses increased $15.2 million, workover expenses increased $9.7 million and facility maintenance expenses increased $8.7 million. These increases were partially offset by a decrease of $0.3 million in hurricane repairs.
As of December 31, 2022, the Company’s valuation allowance was $15.3 million. Liquidity and Capital Resources Liquidity Overview Our primary liquidity needs are to fund capital and operating expenditures and strategic acquisitions to allow us to replace our oil and natural gas reserves, repay and service outstanding borrowings, operate our properties and satisfy our AROs.
LIQUIDITY AND CAPITAL RESOURCES Liquidity Overview Our primary liquidity needs are to fund capital and operating expenditures and strategic acquisitions to allow us to replace our oil and natural gas reserves, repay and service outstanding borrowings, operate our properties and satisfy our ARO.
The charge will be based on the prior year’s emissions, and the first fee payment will be in 2025 based on 2024 data.
The charge will be based on the prior year’s emissions, and the first fee payment will be in 2025 based on 2024 data. The methane emissions charge may increase our operating costs and adversely affect our business.
On February 8, 2023, we redeemed all of the 9.75% Senior Second Lien Notes outstanding at a redemption price of 100.000%, plus accrued and unpaid interest to the redemption date.
The 11.75% Notes were issued at par and have a maturity date of February 1, 2026. In February 2023, we redeemed all of the 9.75% Notes outstanding at a redemption price of 100.000%, plus accrued and unpaid interest to the redemption date.
See Financial Statements and Supplementary Data – Note 10 – Derivative Financial Instruments under Part II, Item 8 in this Form 10-K for additional information about our derivative activities.
Risk Factors and Financial Statements and Supplementary Data – Note 8 – Asset Retirement Obligations under Part II, Item 8 in this Form 10-K for additional information regarding our ARO.
For instance, the IRA specifically directs the Department of the Interior (”DOI”) to accept the highest bids received for Lease Sale 257 which was vacated by US District Court for the District of Columbia in January 2022 and move forward with Lease Sales 259 and 261 in the Gulf of Mexico by March 31, 2023 and September 30, 2023, respectively, notwithstanding the June 30, 2022 expiration of the 2017-2022 Outer Continental Shelf Oil and Gas Leasing Program.
District Court for the District of Columbia in January 2022, and move forward with Lease Sales 259 and 261 in the Gulf of Mexico, notwithstanding the June 30, 2022 expiration of the 2017-2022 Outer Continental Shelf Oil and Gas Leasing Program. Lease Sale 259 was held in March 2023, and Lease Sale 261 was held in December 2023.
Our cash flows are materially impacted by the prices of commodities we produce (crude oil and natural gas, and the NGLs extracted from the natural gas).
Business Outlook Our cash flows are materially impacted by the prices of commodities we produce (oil, NGLs and natural gas). During 2023, commodity prices experienced significant declines from those experienced during 2022.
For 2022 and 2021, the annual effective tax rate was 18.8% and 16.3%, respectively, and the rates differed from the federal statutory rate of 21% primarily due to adjustments in the valuation allowance and the impact of state income taxes.
In 2023, the rate differed from the federal statutory rate of 21% primarily due to adjustments in the valuation allowance, compensation adjustments and the impact of state income taxes. In 2022, the rate differed from the federal statutory rate primarily due to adjustments in the valuation allowance and the impact of state income taxes.
The Company also holds prices and costs constant over the life of the reserves, even though actual prices and costs of oil and natural gas are often volatile and may change from period to period. We did not have any ceiling test impairments in 2022, 2021 or 2020. Oil and Natural Gas Reserve Quantities.
We also hold prices and costs constant over the life of the reserves, even though actual prices and costs of oil and natural gas are often volatile and may change from period to period.
Reserve quantities and the related estimates of future net cash flows affect our periodic calculations of DD&A and impairment assessment of our oil and natural gas properties.
We did not have any ceiling test impairments in 2023, 2022 or 2021. 57 Table of Contents Oil and Natural Gas Reserve Quantities Reserve quantities and the related estimates of future net cash flows affect our periodic calculations of DD&A and impairment assessment of our oil and natural gas properties.
In addition, the Federal Reserve has tightened monetary policy by approving a series of increases to the Federal Funds Rate and signaled that the Federal Reserve would continue to take necessary action to bring inflation down and to ensure price stability, including further rate increases, which could have the effects of raising the cost of capital and depressing economic growth, either or both of which could hurt our business.
Although the Federal Reserve has stated that they will begin reducing the benchmark rate in 2024, if inflation were to continue to rise, it is possible the Federal Reserve would continue to take action they deem necessary to bring inflation down and to ensure price stability, including further rate increases, which could have the effects of raising the cost of capital and depressing economic growth, either or both of which could negatively impact our business.
In addition, the prices of goods and services used in our business can vary and impact our cash flows. As a result, we cannot accurately predict future commodity prices, therefore, we cannot determine with any degree of certainty what effect increases or decreases in these prices will have on our drilling program, production volumes or revenues.
As a result, we cannot accurately predict future commodity prices, therefore, we cannot determine with any degree of certainty what effect increases or decreases in these prices will have on our drilling program, production volumes or revenues. The U.S. Energy Information Administration (“EIA”) published its latest Short-Term Energy Outlook in February 2024 .
The Term Loan is non-recourse to the Company and its subsidiaries other than the Subsidiary Borrowers (and the subsidiary that owns the equity of the Subsidiary Borrowers), and is not secured by any assets other than first lien security interests in the equity in the Borrowers and a first lien mortgage security interest and mortgages on certain assets of the Subsidiary Borrowers.
The Term Loan is non-recourse to us and our subsidiaries other than the Subsidiary Borrowers (and the subsidiary that owns the equity of the Subsidiary Borrowers) and is not secured by any assets other than first lien security interests in the equity in the Borrowers and a first lien mortgage security interest and mortgages on certain assets of the Subsidiary Borrowers. 11.75% Senior Second Lien Notes due 2026 – As of December 31, 2023, we had $275.0 million in aggregate principal amount of our 11.75% Notes issued and outstanding.
During the year ended December 31, 2021, the $175.3 million derivative loss recorded for crude oil and natural gas derivative contracts consisted of $92.6 million in realized losses on settled contracts and premium payments and $82.8 million of unrealized losses from the decrease in the fair value of open oil and natural gas contracts.
During 2022, the $85.5 million derivative loss recorded for oil and natural gas derivative contracts consisted of $125.1 million of premium payments and realized losses on settled contracts and $39.6 million of unrealized gain, net from the increase in fair value of open contracts.
These capitalized amounts include the internal costs directly related to acquisition, development and exploration activities, asset retirement costs, and capitalized interest.
Under this method, substantially all costs incurred in connection with the acquisition, development and exploration of oil and natural gas reserves are capitalized. These capitalized amounts include the internal costs directly related to acquisition, development and exploration activities, asset retirement costs, and capitalized interest.
Deferred Production – Our oil, NGLs and natural gas production is significantly affected by unplanned production downtime caused by events outside of our control and create uncertainties in our financial condition, cash flow and results of operations. Such events include third party downtime associated with non-operated properties and the transportation, gathering or processing of production and weather events.
Deferred Production – Our oil, NGLs and natural gas production is significantly affected by both planned and unplanned production downtime caused by events such as planned repairs and upgrades, third-party downtime associated with non-operated properties, the transportation, gathering or processing of production and weather events. For 2023, we estimate deferred production was approximately 2,541 MBoe.
At December 31, 2022, the Company’s ceiling test computation was based on SEC pricing of $91.50 per Bbl of oil, $41.92 per Bbl of NGLs and $6.85 per Mcf of natural gas.
At December 31, 2023, our ceiling test computation was based on SEC pricing of $78.21 per Bbl of oil and $2.64 per Mcf of natural gas.
We have historically increased our reserves and production through acquisitions, our drilling program, and other projects that optimize production on existing wells. Our production increased 5.1% in 2022 from the prior year. Our proved reserves increased by 7.7 MMBoe in 2022, primarily due to the significant increase in commodity prices in 2022 as compared to 2021.
Although we have historically increased our reserves and production through acquisitions, our drilling program, and other projects that optimize production on existing wells, our production decreased 13% in 2023 from the prior year.
Other Income and Expense The following table presents the components of other income and expense for the periods presented and corresponding changes: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ ​ 2022 2021 ​ Change ​ ​ (In thousands) Other income and expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ Derivative loss ​ $ 85,533 ​ $ 175,313 ​ $ (89,780) Interest expense, net 69,441 ​ 70,049 ​ (608) Other expense (income), net 14,295 ​ (6,165) ​ 20,460 Income tax expense (benefit) 53,660 ​ (8,057) ​ 61,717 ​ ​ ​ ​ ​ 51 Table of Contents Derivative loss – During the year ended December 31, 2022, the $85.5 million derivative loss recorded for crude oil and natural gas derivative contracts consists of $125.1 million of realized losses on settled contracts and premium payments and $39.6 million of unrealized gain, net from the increase in fair value of open contracts.
Other Income and Expense The following table presents the components of other income and expense for the periods presented and corresponding changes (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ ​ 2023 2022 ​ Change Derivative (gain) loss, net ​ $ (54,759) ​ $ 85,533 ​ $ (140,292) Interest expense, net ​ 44,689 ​ ​ 69,441 ​ (24,752) Other expense, net ​ 5,621 ​ ​ 14,295 ​ (8,674) Income tax expense ​ 18,345 ​ ​ 53,660 ​ (35,315) ​ Derivative (gain) loss – During 2023, the $54.8 million derivative gain consisted of $4.1 million of realized losses on settled contracts and $58.9 million of unrealized gain, net, from the increase in the fair value of the open contracts.
The following discussion and analysis includes forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those anticipated in these forward-looking statements.
Quantitative and Qualitative Disclosures About Market Risk and with Part 1I, Item 8. Financial Statements and Supplementary Data and other financial information appearing elsewhere in this 2023 Form 10-K. The following discussion and analysis includes forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those anticipated in these forward-looking statements.
We hedge a portion of our commodity price risk to mitigate the impact of price volatility on our business. See Financial Statements and Supplementary Data – Note 10 – Derivative Financial Instruments , under Part II, Item 8, of this Annual Report for additional information regarding our commodity derivative positions as of December 31, 2022.
See Financial Statements and Supplementary Data – Note 4 – Derivative Financial Instruments , under Part II, Item 8 of this Annual Report for additional information regarding our commodity derivative positions as of December 31, 2023. A prolonged period of weak commodity prices may create uncertainties in our financial condition and results of operations.
Operating Expenses The following table presents information regarding costs and expenses and selected average costs and expenses per Boe sold for the periods presented and corresponding changes: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2022 2021 ​ Change ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ Lease operating expenses ​ $ 224,414 ​ $ 174,582 ​ $ 49,832 Gathering, transportation and production taxes ​ ​ 35,128 ​ ​ 27,919 ​ ​ 7,209 Depreciation, depletion, amortization and accretion ​ 133,630 ​ ​ 113,447 ​ 20,183 General and administrative expenses ​ ​ 73,747 ​ ​ 52,400 ​ ​ 21,347 Total operating expenses ​ $ 466,919 ​ $ 368,348 ​ $ 98,571 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average per Boe ($/Boe): ​ ​ ​ Lease operating expenses ​ $ 15.35 ​ $ 12.55 ​ $ 2.80 Gathering, transportation and production taxes ​ 2.40 ​ ​ 2.00 ​ 0.40 DD&A ​ 9.14 ​ ​ 8.15 ​ 0.99 G&A expenses ​ 5.04 ​ ​ 3.77 ​ 1.27 Operating expenses ​ $ 31.93 ​ $ 26.47 ​ $ 5.46 ​ ​ ​ ​ ​ ​ Lease operating expenses – Lease operating expenses include the expense of operating and maintaining our wells, platforms and other infrastructure primarily in the Gulf of Mexico.
Operating Expenses The following table presents information regarding costs and expenses and selected average costs and expenses per Boe sold for the periods presented and corresponding changes (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ ​ 2023 2022 ​ Change Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ Lease operating expenses ​ $ 257,676 ​ $ 224,414 ​ $ 33,262 Gathering, transportation and production taxes ​ ​ 26,250 ​ ​ 35,128 ​ ​ (8,878) Depreciation, depletion and amortization ​ 114,677 ​ ​ 107,122 ​ 7,555 Asset retirement obligations accretion expense ​ 29,018 ​ ​ 26,508 ​ 2,510 General and administrative expenses ​ ​ 75,541 ​ ​ 73,747 ​ ​ 1,794 Total operating expenses ​ $ 503,162 ​ $ 466,919 ​ $ 36,243 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average per Boe ($/Boe): ​ ​ ​ Lease operating expenses ​ $ 20.24 ​ $ 15.35 ​ $ 4.89 Gathering, transportation and production taxes ​ 2.06 ​ 2.40 ​ (0.34) Depreciation, depletion and amortization ​ 9.01 ​ 7.33 ​ 1.68 Asset retirement obligations accretion expense ​ ​ 2.28 ​ ​ 1.81 ​ ​ 0.47 General and administrative expenses ​ 5.93 ​ 5.04 ​ 0.89 Total operating expenses ​ $ 39.52 ​ $ 31.93 ​ $ 7.59 ​ Lease operating expenses – Lease operating expenses include the expense of operating and maintaining our wells, platforms and other infrastructure primarily in the Gulf of Mexico.
The following table presents our sources of revenue as a percentage of total revenue: ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2022 2021 Oil 56.9 % ​ 59.1 % NGLs 6.2 % ​ 7.9 % Natural gas 35.2 % ​ 31.1 % Other 1.7 % ​ 1.9 % ​ ​ ​ ​ ​ ​ 48 Table of Contents The information below provides a discussion of, and an analysis of significant variance in, our oil, natural gas and NGL revenues, production volumes and average sales prices for the years ended December 31, 2022 and 2021 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ ​ 2022 2021 ​ ​ Change ​ ​ ​ ​ ​ ​ ​ ​ ​ Revenues: ​ ​ ​ ​ ​ ​ ​ ​ ​ Oil ​ $ 524,274 ​ $ 329,557 ​ $ 194,717 NGLs ​ 56,964 ​ 44,343 ​ 12,621 Natural gas ​ 323,831 ​ 173,749 ​ 150,082 Other ​ 15,928 ​ 10,361 ​ 5,567 Total revenues ​ $ 920,997 ​ $ 558,010 ​ $ 362,987 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Production Volumes: ​ ​ ​ Oil (MBbls) ​ 5,602 ​ 4,998 ​ 604 NGLs (MBbls) ​ 1,554 ​ 1,450 ​ 104 Natural gas (MMcf) ​ 44,808 ​ 44,790 ​ 18 Total oil equivalent (MBoe) ​ 14,624 ​ 13,913 ​ 711 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average daily equivalent sales (Boe/day) ​ ​ 40,067 ​ 38,118 ​ ​ 1,949 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average realized sales prices: ​ ​ ​ ​ ​ Oil ($/Bbl) ​ $ 93.59 ​ $ 65.94 ​ $ 27.65 NGLs ($/Bbl) ​ 36.66 ​ 30.59 ​ 6.07 Natural gas ($/Mcf) ​ 7.23 ​ 3.88 ​ 3.35 Oil equivalent ($/Boe) ​ 61.89 ​ 39.36 ​ ​ 22.53 Oil equivalent ($/Boe), including realized commodity derivatives (1) ​ ​ 59.15 ​ ​ 32.89 ​ 26.26 ​ ​ ​ ​ ​ ​ (1) Excludes the effects of premium amortization and write-offs. ​ Changes in average sales prices and sales volumes caused the following changes to our oil, NGL and natural gas revenues between the years ended December 31, 2022 and 2021 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Price Volume ​ Total Oil $ 154,890 ​ $ 39,827 ​ $ 194,717 NGLs 9,422 ​ 3,199 ​ 12,621 Natural gas 150,011 ​ ​ 71 ​ 150,082 ​ $ 314,323 ​ $ 43,097 ​ $ 357,420 ​ ​ ​ ​ ​ ​ Realized Prices on the Sale of Oil, NGLs and Natural Gas – Our average realized crude oil sales price differs from the WTI benchmark average crude price due primarily to premiums or discounts, crude oil quality adjustments, and volume weighting (collectively referred to as differentials).
The following table presents our sources of revenue as a percentage of total revenue: ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2023 2022 Oil 71.6 % ​ 56.9 % NGLs 6.1 % ​ 6.2 % Natural gas 20.7 % ​ 35.2 % Other 1.6 % ​ 1.7 % ​ ​ 46 Table of Contents The information below provides a discussion of, and an analysis of significant variance in, our oil, NGL and natural gas revenues, production volumes and average sales prices for 2023 and 2022 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ ​ 2023 2022 ​ ​ Change Revenues: ​ ​ ​ ​ ​ ​ ​ ​ Oil $ 381,389 ​ $ 524,274 ​ $ (142,885) NGLs 32,446 ​ 56,964 ​ (24,518) Natural gas 110,158 ​ 323,831 ​ (213,673) Other 8,663 ​ 15,928 ​ (7,265) Total revenues $ 532,656 ​ $ 920,997 ​ $ (388,341) ​ ​ ​ ​ ​ ​ ​ ​ ​ Production Volumes: ​ ​ Oil (MBbls) 5,050 ​ 5,602 ​ (552) NGLs (MBbls) 1,415 ​ 1,554 ​ (139) Natural gas (MMcf) 37,591 ​ 44,808 ​ (7,217) Total oil equivalent (MBoe) 12,730 ​ 14,624 ​ (1,894) ​ ​ ​ ​ ​ ​ ​ ​ ​ Average daily equivalent sales (Boe/day) ​ 34,877 ​ 40,067 ​ ​ (5,190) ​ ​ ​ ​ ​ ​ ​ ​ ​ Average realized sales prices: ​ ​ ​ ​ Oil ($/Bbl) $ 75.52 ​ $ 93.59 ​ $ (18.07) NGLs ($/Bbl) 22.93 ​ 36.66 ​ (13.73) Natural gas ($/Mcf) 2.93 ​ 7.23 ​ (4.30) Oil equivalent ($/Boe) 41.16 ​ 61.89 ​ ​ (20.73) Oil equivalent ($/Boe), including realized commodity derivatives ​ 40.84 ​ ​ 59.15 ​ (18.31) ​ Changes in average sales prices and sales volumes caused the following changes to our oil, NGL and natural gas revenues between 2023 and 2022 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Price Volume ​ Total Oil $ (91,250) ​ $ (51,635) ​ $ (142,885) NGLs (19,398) ​ ​ (5,120) ​ (24,518) Natural gas (161,513) ​ ​ (52,160) ​ (213,673) ​ $ (272,161) ​ $ (108,915) ​ $ (381,076) ​ Realized Prices on the Sale of Oil, NGLs and Natural Gas – Our average realized sales price for oil differs from the WTI average spot price primarily due to premiums or discounts, quality adjustments, location adjustments and volume weighting (collectively referred to as differentials).
Having been so designated, the Unrestricted Subsidiaries do not guarantee the 11.75% Senior Second Lien Notes and the liens on the assets sold to the Unrestricted Subsidiaries have been released under the Credit Agreement. The Unrestricted Subsidiaries are not bound by the covenants contained in the Credit Agreement or the Indenture.
Concurrently, we designated the Aquasition Entities as unrestricted subsidiaries under the Indenture (the “Unrestricted Subsidiaries”). Having been so designated, the Unrestricted Subsidiaries do not guarantee the 11.75% Notes. The Unrestricted Subsidiaries are not bound by the covenants contained in the indenture related to our 11.75% Notes.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeDuring the year ended December 31, 2022, our average realized oil price after the effect of derivatives increased 46.4% to $81.24 per Bbl from $55.50 per Bbl during the year-ended December 31, 2021.
Biggest changeThe following table summarizes the historical results of our hedging activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2023 ​ 2022 Oil ($/Bbl): ​ ​ ​ Average realized sales price, before the effects of derivative settlements ​ $ 75.52 ​ $ 93.59 Effects of realized commodity derivatives ​ — ​ (12.35) Average realized sales price, including realized commodity derivatives ​ $ 75.52 ​ $ 81.24 ​ ​ ​ ​ ​ ​ ​ Natural Gas ($/Mcf) ​ ​ Average realized sales price, before the effects of derivative settlements ​ $ 2.93 ​ $ 7.23 Effects of realized commodity derivatives ​ (0.11) ​ 0.65 Average realized sales price, including realized commodity derivatives ​ $ 2.82 ​ $ 7.88 ​ During 2023, our average realized natural gas price after the effect of derivatives decreased 64.2% during 2023 to $2.82 per Mcf from $7.88 per Mcf during 2022.
Our derivatives will not mitigate all of the commodity price risks of our forecasted sales of oil and natural gas production and, as a result, we will be subject to commodity price risks on our remaining forecasted production.
Our derivatives will not mitigate all of the commodity price risks of our forecasted sales of natural gas production and, as a result, we will be subject to commodity price risks on our remaining forecasted production.
We have attempted to mitigate commodity price risk and stabilize cash flows associated with our forecasted sales of oil and natural gas production through the use of swaps, costless collars, purchased calls, and purchased puts. These contracts will impact our earnings as the fair value of these derivatives changes.
We have attempted to mitigate commodity price risk and stabilize cash flows associated with our forecasted sales of natural gas production through the use of swaps, costless collars, purchased calls, and purchased puts.
The Credit Agreement has a variable interest rate which is primarily impacted by the rates for the Secured Overnight Financing Rate (“SOFR”) and the current margin is 6.0% per annum. We did not have any derivative contracts related to interest rates as of December 31, 2022. ​ 64 Table of Contents
Should we ever have amounts outstanding under our Credit Agreement, we would be subject to some interest rate risk exposure, as our Credit Agreement has a variable interest rate which is primarily impacted by the rates for the Secured Overnight Financing Rate, and the current margin is 6.0% per annum.
Oil, NGL, and natural gas prices can fluctuate significantly and have a direct impact on our revenues, earnings and cash flow. For example, assuming a 10% decline in our average realized oil, NGLs and natural gas sales prices in 2022 and assuming no other items had changed, our revenue would have decreased by approximately $106 million in 2022.
For example, assuming a 10% decline in our average realized oil, NGL and natural gas sales prices in 2023 and assuming no other items had changed, our revenue would have decreased by approximately $52.4 million in 2023. This amount would be representative of the effect on operating cash flows under these price change assumptions.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk We are exposed to market risks arising from fluctuating prices of crude oil, NGLs, natural gas and interest rates as discussed below. We have utilized derivative contracts to reduce the risk of fluctuations in commodity prices and expect to use these instruments in the future.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In the normal course of business, we are exposed to certain market risks that are inherent to the business of exploration and development of oil and natural gas. We may enter into derivative contracts to manage or reduce market risk, but we do not enter into derivative contracts for speculative purposes.
Removed
While derivative contracts are intended to reduce the effects of volatile oil prices, they may also limit income from favorable price movements. For additional details about our derivative contracts, refer to Financial Statements and Supplementary Data – Note 10 – Derivative Financial Instruments under Part II, Item 8 in this Form 10-K. Commodity price risk.
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We do not designate our derivative contracts as hedges for accounting purposes. Accordingly, the changes in the fair value of these derivative contracts are recognized currently in earnings. Commodity Price Risk Our major market risk exposure is the fluctuation of prices for oil, NGL and natural gas. These fluctuations have a direct impact on our revenues, earnings and cash flow.
Removed
If costs and expenses of operating our properties had increased by 10% in 2022, our income before income tax would have decreased by approximately $47 million in 2022. These amounts would be representative of the effect on operating cash flows under these price and cost change assumptions.
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Interest Rate Risk As of December 31, 2023, our interest rate risk exposure is mitigated as of result of fixed interest rates on all our long-term debt outstanding.
Removed
Our average natural gas price realizations after the effect of derivatives increased 159.2% during the year ended December 31, 2022 to $7.88 per Mcf from $3.04 per Mcf during the year-ended December 31, 2021. Interest rate risk. As of December 31, 2022, we had no debt outstanding on our Credit Agreement.
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We do not have any derivative contracts related to interest rates as of December 31, 2023. 59 Table of Contents

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