Unless we conduct successful development and exploration activities at sufficient levels or acquire properties containing proved reserves, our proved reserves will decline as those reserves are produced.reserves.  Producing oil and natural gas reserves are generally characterized by declining production rates that vary depending upon reservoir characteristics and other factors.  High production rates generally result in recovery of a relatively higher percentage of reserves during the initial few years of production.  All of our current production is from the Gulf of Mexico.  Proved reserves in the Gulf of Mexico generally have shorter reserve lives than proved reserves in many other producing regions of the United States in part due to the difference in rules related to booking proved undeveloped reserves between conventional and unconventional basins.  Our independent petroleum consultant estimates that 35%32% of our total proved reserves as of December 31, 2020 will be depleted within three years.  As a result, our need to replace proved reserves and production from new investments is relatively greater than that of producers who recover lower percentages of their proved reserves over a similar time period, such as those producers who have a larger portion of their proved reserves in areas other than the Gulf of Mexico.  WeHistorically, we have funded our capital expenditures and acquisitions with cash on hand, cash provided by operating activities, capital markets securities offerings and bank borrowings.  The capital markets we have historically accessed may be constrained because of our leverage and also because, in recent years, institutional investors who provide financing to fossil fuel energy companies have become more attentive to sustainability lending practices and some of them may elect not to provide funding for fossil fuel energy companies, and we may not be able to develop, find or acquire additional proved reserves in sufficient quantities to sustain our current production levels or to grow production beyond current levels.  In addition, due to the significant time requirements involved with exploration and development activities, particularly for wells in the deepwater or wells not located near existing infrastructure, actual oil and natural gas production from new wells may not occur, if at all, for a considerable period of time following the commencement of any particular project. 

Significant capital expenditures are required to replace our reserves.  If we are not able to obtain new oil and gas leases or replace reserves, we will not be able to sustain production at current levels, which may have a material adverse effect on our business, financial condition, or results of operations.

Our future success depends largely upon our ability to find, develop or acquire additional oil and natural gas reserves that are economically recoverable.  Unless we replace the reserves we produce through successful exploration, development or acquisition activities, our proved reserves and production will decline over time.  Our exploration, development and acquisition activities require substantial capital expenditures.  Historically, we have funded our capital expenditures and acquisitions with cash on hand, cash provided by operating activities, securities offerings and bank borrowings.  The capital markets we have historically accessed may be constrained because of our leverage and we believe our access to capital markets may be limited in the future.  Excluding acquisitions, our capital expenditures in 2019 were higher than the amount spent in 2018.  The higher end of our capital expenditure budget range for 2020 is substantially the same as the amount spent in 2019, excluding acquisitions.   Future cash flows are subject to a number of variables, such as the level of production from existing wells, the prices of oil, NGLs and natural gas, and our success in developing and producing new reserves.  Any reductions in our capital expenditures to stay within internally generated cash flow (which could be adversely affected if commodity prices decline) and cash on hand will make replacing depleted reserves more difficult. These limitations in the capital markets and our current capital budget may adversely affect our production levels.  We cannot be certain that financing for future capital expenditures will be available if needed, and to the extent required, on acceptable terms.  For additional financing risks, see “–Risks Relating to Our Industry, Our Business and Our Financial Condition.”

Additional deepwater drilling laws, regulations and other restrictions, delays in the processing and approval of drilling permits and exploration, development, oil spill-response and decommissioning plans, and other offshore-related developments in the Gulf of Mexico may have a material adverse effect on our business, financial condition, or results of operations.

In recent years, our drilling efforts have included deepwater projects in the Gulf of Mexico.  The BSEE and the BOEM have over time imposed new and more stringent permitting procedures, safety regulations and environmental regulations for wells in the deepwater of federal waters.  Compliance with these regulatory requirements, and together with uncertainties or inconsistencies in decisions and rulings by governmental agencies, have impacted the manner in which we have conducted our business in the past.  Examples of areas where these stringent regulations have affected operations include new or amended measures for obtaining approval of drilling permits, exploration plans, development plans, oil spill-response submissions and decommissioning plans.  These stringent regulations, and possible additional regulatory initiatives, could result in increased cost to our development efforts and ongoing business operations.

Moreover, the trend in the United States over the past decade has been for these governmental agencies to continue to evaluate and, as necessary, develop and implement new, more restrictive requirements, although in recent years under the Trump Administration, there have been actions seeking to mitigate certain of those more rigorous standards.  For example, in 2016, the BSEE under the Obama Administration published a final rule on well control that, among other things, imposed rigorous standards relating to the design, operation and maintenance of blow-out preventers, real-time monitoring of deepwater and high temperature, high pressure drilling activities, and enhanced reporting requirements.  Pursuant to certain executive orders issued by President Trump in 2017, however, the BSEE initiated a review of the well control rule and other offshore rules and initiatives to determine whether they are consistent with the stated policy of encouraging energy exploration and production, while ensuring that any such activity is safe and environmentally responsible.  One consequence of this review is that in May 2019, the BSEE published final revisions to the existing 2016 rule on well control that, among other things, eliminated the requirement for a BSEE-approved verification organization to oversee third parties which provide certifications of certain critical well control functions.  Another consequence of this BSEE review was an indefinite delay in implementation of NTL #2016-N01 that, if implemented, could result in significant increases in financial assurances for our operating on the OCS.  There exists the possibility that certain of these recent mitigatory actions under the Trump Administration could be withdrawn or revised in the future as a result of litigation or by a different presidential administration to impose or re-implement more stringent standards.  Moreover, due primarily to the threat of climate change arising from GHG emissions, certain candidates seeking the office of President of the United States in 2020 have pledged to take actions to ban new mineral leases on federal properties, including offshore leases on the OCS.  Additionally, litigation risks are also increasing, as a number of cities and other local governments have sought to bring suit against the largest oil and natural gas exploration and production companies in state or federal court, alleging, among other things, that such companies created public nuisances by producing fuels that contributed to global warming effects, such as rising sea levels, and therefore are responsible for roadway and infrastructure damages as a result, or alleging that the companies have been aware of the adverse effects of climate change for some time but defrauded their investors by failing to adequately disclose those impacts.

These regulatory actions, or any new rules, regulations, or legal initiatives or controls, whether under the Trump Administration or another administration, 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.  Also, if material spill incidents were to occur in the future, the United States could elect to issue directives to temporarily cease drilling activities and, in any event, may from time to time issue further safety and environmental laws and regulations regarding offshore oil and natural gas exploration and development, any of which could have a material adverse effect on our business.  We cannot predict with any certainty the full impact of any new laws or regulations on our drilling operations or on the cost or availability of insurance to cover some or all of the risks associated with such operations.

Losses and liabilities from uninsured or underinsured drilling and operating activities could have a material adverse effect on our financial condition and operations.

We are and could be exposed to uninsured losses in the future. 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.  The current policy limits for well control range from $30.0 million to $500.0 million depending on the risk profile and contractual requirements.  With respect to coverage for named windstorms, we have a $162.5 million aggregate limit covering all of our higher valued properties, and a $150.0 million aggregate limit for all of our other properties, subject to a retention of $30.0 million. Included within the $162.5 million aggregate limit is total loss only (“TLO”) coverage on our Mahogany platform, which has no retention.

The occurrence of a significant accident or other event not covered in whole or in part by our insurance could have a material adverse impact on our financial condition and operations.  Our insurance does not protect us against all operational risks.  We do not carry business interruption insurance.  In May and June 2019, we entered into our insurance policies covering well control and hurricane damage (described above) and for general liability and pollution.  These policies are effective for one year from their respective execution date.  These policies reduce, but in no way totally mitigate our risk as we are exposed to amounts for retention and co-insurance, limits on coverage and events that are not insured.  Renewal of these policies at a cost commensurate with current premiums is not assured.  We also have other smaller per-occurrence retention amounts for various other events.  In addition, pollutionPollution and environmental risks are generally not fully insurable, as gradual seepage and pollution are not covered under our policies.  Because third-party drilling contractors are used to drill our wells, we may not realize the full benefit of workmen’s compensation laws in dealing with their employees.

Currently OPA requires owners and operators of offshore oil production facilities to establish and maintain evidence of financial responsibilityhave ready access to $150.0 million that can be used to cover costs that could be incurred in responding to an oil spill.  We are currently required to demonstrate, on an annual basis, that we have ready access to $150.0 million that can be used to respond to an oil spill from our facilities on the OCS. If OPA is amended to increase the minimum level of financial responsibility, we may experience difficulty in providing financial assurances sufficient to comply with this requirement. We cannot predict at this time whether OPA will be amended, or whether the level of financial responsibility required for companies operating on the OCS will be increased. In any event, if an oil discharge or substantial threat of discharge were to occur, we may be liable for costs and damages, which costs and liabilities could be material to our results of operations and financial position.

For some risks, we have not obtained insurance as we believe the cost of available insurance is excessive relative to the risks presented. We reevaluate the purchase of insurance, policy limits and terms annually. Future insurance coverage for our industry could increase in cost and may take on further risksinclude higher deductibles or retentions. In addition, some forms of insurance may become unavailable in the future ifor unavailable on terms that we believe are economically acceptable. No assurance can be given that we will be able to maintain insurance in the cost is excessivefuture at rates that we consider reasonable, and we may elect to the risks.maintain minimal or no insurance coverage. The occurrence of a significant event not fully insured or indemnified against losses could have a material adverse effect on our financial condition and results of operations.  See Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Hurricane Remediation, Insurance Claims and Insurance Coverage under Part II, Item 7 in this Form 10-K for additional information on insurance coverage.

We conduct exploration, development and production operations on the deep shelf and in the deepwater of the Gulf of Mexico, which presents unique operating risks.

The deep shelf and the deepwater of the Gulf of Mexico are areas that have had less drilling activity due, in part, to their geological complexity, depth and higher cost to drill and ultimately develop.  There are additional risks associated with deep shelf and deepwater drilling that could result in substantial cost overruns and/or result in uneconomic projects or wells.  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.  For example, the drilling of deepwater wells requires specific types of rigs with significantly higher day rates as compared to the rigs used in shallower water, sophisticated sea floor production handling equipment, expensive state-of-the-art platforms and infrastructure investments.  Deepwater wells have greater mechanical risks because the wellhead equipment is installed on the sea floor.  In addition, due to the significant time requirements involved with exploration and development activities, particularly for wells in the deepwater or wells not located near existing infrastructure, actual oil and natural gas production from new wells may not occur, if at all, for a considerable period of time following the commencement of any particular project. Accordingly, we cannot provide assurance that our oil and natural gas exploration activities in the deep shelf, the deepwater and elsewhere will be commercially successful.

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.

As we carry out our drilling program, we may not serve as operator of all planned wells.  In that case, we have limited ability to exercise influence over the operations of some non-operated properties and their associated costs.  Our dependence on the operator and other working interest owners and our limited ability to influence operations and associated costs of properties operated by others could prevent the realization of anticipated results in drilling or acquisition activities.  

Our business involves many uncertainties and operating risks that can prevent us from realizing profits and can cause substantial losses.

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. Additionally, our offshore operations are subject to the additional hazards of marine operations, such as capsizing, collisions and adverse weather and sea conditions, including the effects of hurricanes. 

If we experience any of these problems, well bores, platforms, gathering systems and processing facilities could be affected, which could adversely affect our ability to conduct operations. If any of these industry operating risks occur, we could have substantial losses. Substantial losses may be caused by injury or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental damage, clean-up responsibilities, regulatory investigation and penalties, suspension of operations and production, repairs to resume operations and loss of reserves. Any of these industry operating risks could have a material adverse effect on our business, results of operations and financial condition.

The geographic concentration of our properties in the Gulf of Mexico subjects us to an increased risk of loss of revenues or curtailment of production from factors specifically affecting the Gulf of Mexico.

The geographic concentration of our properties along the U.S. 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.

Because a majority of our properties could experience the same conditions at the same time, these conditions could have a greater impact on our results of operations than they might have on other operators who have properties over a wider geographic area. 

Insurance for well control and hurricane damage may become significantly more expensive for less coverage and some losses currently covered by insurance may not be covered in the future.

In the past, 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.  In the past, we have been able to renew our policies each annual period, but our coverage has varied depending on the premiums charged, our assessment of the risks and our ability to absorb a portion of the risks.  The insurance market may further change dramatically in the future due to hurricane damage, major oil spills or other events.

In the future, our insurers may not continue to offer what we view as reasonable coverage, or our costs may increase substantially as a result of increased premiums.  There could be an increased risk of uninsured losses that may have been previously insured.  We are also exposed to the possibility that in the future we will be unable to buy insurance at any price or that if we do have claims, the insurance companies will not pay our claims.  The occurrence of any or all of these possibilities could have a material adverse effect on our financial condition and results of operations.

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.

Commodity derivative positions may limitThe 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 potential gains.reserves at December 31, 2020. 

In order to manageprepare our exposure to price risk in the marketingyear-end reserve estimates, our independent petroleum consultant projected our production rates and timing of our oildevelopment expenditures.  Our independent petroleum consultant also analyzed available geological, geophysical, production and natural gas,engineering data.  The extent, quality and as requiredreliability of this data can vary and may not be under our Credit Agreement, we periodically enter into oil and natural gas price commodity derivative positions with respect to a portion of our expected production.  During the fourth quarter of 2019, we entered into derivative contracts for natural gas, which expire in December 2022 and crude oil derivative contracts, which expire in December 2020.  During the fourth quarter of 2018, we entered into commodity derivative contracts for crude oil, which will expire in May 2020.  We may enter into more derivative contracts in the future.  While these commodity derivative positions are intended to reduce the effects of volatilecontrol.  The process also requires economic assumptions about matters such as crude oil and natural gas prices, they may also limitoperating expenses, capital expenditures, taxes and availability of funds.  Therefore, estimates of oil and natural gas reserves are inherently imprecise.

Actual future income ifproduction, crude oil and natural gas prices, were to rise substantially overrevenues, 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 price established by such positions.estimated quantities and present value of our reserves.  In addition, such transactionsour independent petroleum consultant may exposeadjust 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.

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.  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.

Prospects that we decide to drill may not yield oil or natural gas in commercial quantities or quantities sufficient to meet our targeted rates of return.

A prospect is an area in which we own an interest, could acquire an interest or have operating rights, and have what our geoscientists believe, based on available seismic and geological information, to be indications of economic accumulations of oil or natural gas.  Our prospects are in various stages of evaluation, ranging from a prospect that is ready to be drilled to a prospect that will require substantial seismic data processing and interpretation, which will not enable us to know conclusively prior to drilling whether oil or natural gas will be present or, if present, whether oil or natural gas will be present in commercial quantities. Sustained low crude oil, NGLs and natural gas pricing will also significantly impact the riskprojected 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.  In addition, the geological complexity of deepwater and deep shelf formations may make it more difficult for us to sustain our historical rates of drilling success. As a result, we can offer no assurance that we will find commercial quantities of oil and natural gas and, therefore, we can offer no assurance that we will achieve positive rates of return on our investments.

The COVID-19 pandemic has affected, and may continue to materially adversely affect, our industry, business, financial condition or results of operations.

The COVID-19 pandemic and related economic repercussions have created significant volatility, uncertainty, and turmoil in the oil and gas industry. The COVID-19 outbreak and the responsive actions to limit the spread of the virus have significantly reduced global economic activity, resulting in a decline in the demand for oil, natural gas, and other commodities. These economic consequences have been a primary cause of the significant supply-and-demand imbalance for oil. The current supply-and-demand imbalance and significantly lower oil pricing may continue to affect us, constraining our ability to store and move production to downstream markets, or affecting future decisions to delay or curtail development activity or temporarily shut-in production which could further reduce cash flow.

The extent of the impact of the COVID-19 pandemic and any other future pandemic on our business will depend on the nature, spread and duration of the disease, the responsive actions to contain its spread or address its effects, its effect on the demand for oil and natural gas, the timing and severity of the related consequences on commodity prices and the economy more generally, including any recession resulting from the pandemic, among other things.  Any extended period of depressed commodity prices or general economic disruption as a result of the pandemic would adversely affect our business, financial conditions and results of operations.  In addition, the COVID-19 pandemic has heightened the other risks and uncertainties described in this report.

Our operations could be adversely impacted by security breaches, including cybersecurity breaches, which could affect the systems, processes and data needed to run our business.

We rely on our information technology infrastructure and management information systems to operate and record aspects of our business.  Although we take measures to protect against cybersecurity risks, including unauthorized access to our confidential and proprietary information, our security measures may not be able to detect or prevent every attempted breach.  Similar to other companies, we have experienced cyber-attacks, although we have not suffered any material losses related to such attacks.  Security breaches include, among other things, illegal hacking, computer viruses, interference with treasury function, theft or acts of vandalism or terrorism.  A breach could result in an interruption in our operations, malfunction of our platform control devices, disabling of our communication links, unauthorized publication of our confidential business or proprietary information, unauthorized release of customer or employee data, violation of privacy or other laws and exposure to litigation. Any of these security breaches could have a material adverse effect on our consolidated financial position, results of operations and cash flows.

The loss of members of our senior management could adversely affect us.

To a large extent, we depend on the services of our senior management.  The loss of the services of any of our senior management could have a negative impact on our operations.  We do not maintain or plan to obtain for the benefit of the Company any insurance against the loss of any of these individuals.  See Executive Officers of the Registrant under Part I following Item 3 in certain circumstances, including instancesthis Form 10-K for more information regarding our senior management team.

Capital Risks

We have a significant amount of indebtedness and limited borrowing capacity under our current Credit Agreement, which may be reduced by our lenders.  Our leverage and debt service obligations may have a material adverse effect on our financial condition, results of operations and business prospects, and we may have difficulty paying our debts as they become due.

As of December 31, 2020, we had $632.5 million in which:principal of indebtedness outstanding and $4.4 million of letters of credit obligations outstanding, substantially all of which is secured. During 2020, we incurred $61.5 million in interest expense.  Our leverage and debt service obligations could:

Any of the above listed factors could have a material adverse effect on our business, financial condition, cash flows and results of operations. If new debt is added to our current debt levels, the related risks that we face could intensify. 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 lenders’ sole discretion based on our lenders’ review of crude oil, NGLs and natural gas prices, our proved reserves and other criteria. 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.

We cannot be certain that our cash flow will be sufficient to allow us to pay the principal and interest on our debt or otherwise meet our future obligations. In such scenarios, we may be required to refinance all or part of our existing debt, sell assets, reduce capital expenditures, obtain new financing or issue equity. However, we may not be able to accomplish any of these transactions on terms acceptable to us or such actions may not yield sufficient capital to meet our obligations.  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.

The Indenture and Credit Agreement governing our indebtedness contain a number of significant restrictive covenants in addition to covenants restricting the incurrence of additional debt.  These covenants limit our ability and the ability of our restricted subsidiaries, among other things, to:

See Financial StatementsOur Credit Agreement requires us, among other things, to maintain certain financial ratios and Supplementary Data– Note 10 – Derivative Financial Instruments satisfy certain financial condition tests or reduce our debt.  These restrictions may also limit our ability to obtain future financings, withstand a future downturn in our business or the economy in general, or otherwise conduct necessary corporate activities.  We may also be prevented from taking advantage of business opportunities that arise because of the limitations imposed on us from the restrictive covenants under Part II, Item 8our indentures governing our outstanding notes.

A breach of any covenant in this Form 10-K for additional informationthe agreements governing our debt would result in a default under such agreement after any applicable grace periods.  A default, if not waived, could result in acceleration of the debt outstanding under such agreement and in a default with respect to, and acceleration of, the debt outstanding under any other debt agreements.  The accelerated debt would become immediately due and payable.  If that should occur, we may not be able to make all of the required payments or borrow sufficient funds to refinance such accelerated debt.  Even if new financing were then available, it may not be on derivative transactions. terms that are acceptable to us.

Competition for oil and natural gas properties and prospects is intense; someIf we default on our secured debt, the value of the collateral securing our competitors have larger financial, technical and personnel resources thatsecured debt may give them an advantage in evaluating and obtaining properties and prospects.not be sufficient to ensure repayment of all of such debt.

We operate in a highly competitive environment for reviewing prospects, acquiring properties, marketingAll of our existing indebtedness under our Credit Agreement and our outstanding Second Lien Senior Notes is secured by liens on substantially all of our oil, NGLs and natural gas and NGL properties. In addition, we have certain rights to issue or incur additional or new secured debt, including up to $105.6 million as of January 6, 2021, available for borrowing under our Credit Agreement following the most recent redetermination, that would be secured by additional liens on the collateral and an issuance or incurrence of such additional secured debt would dilute the value of the collateral securing trained personnel.  Manyour outstanding secured debt.  If the proceeds of any sale of the collateral are not sufficient to repay all amounts due in respect of our competitors have financial resourcessecured 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. 

With respect to some of the collateral securing our debt, any collateral trustee’s security interest and ability to foreclose on the collateral will also be limited by the need to meet certain requirements, such as obtaining third party consents, paying court fees that allow them to obtain substantially greater technical expertise and personnel than we have.  We actively compete with other companies in our industry when acquiring new leases or oil and natural gas properties.  For example, new leases acquired from the BOEM are acquired through a “sealed bid” process and are generally awarded to the highest bidder.  Our competitors may be able to evaluate, bid forbased on the principal amount of the parity lien obligations and purchase a greater number of properties and prospects than our financial or personnel resources permit.  Our competitors may also be able to pay more for productive oil and natural gas properties and exploratory prospects than we are able or willing to pay or finance.  On the acquisition opportunities made available to us, we compete with other companies in our industry for such properties through a private bidding process, direct negotiations or some combination thereof.  Our competitors may have significantly more capital resources and less expensive sources of capital.  In addition, they may be able to generate acceptable rates of return from marginal prospects due to their lower costs of capital.making additional filings.  If we are unable to compete successfullyobtain these consents, pay such fees or make these filings, the security interests may be invalid, and the applicable holders and lenders will not be entitled to the collateral or any recovery with respect thereto.  These requirements may limit the number of potential bidders for certain collateral in these areasany foreclosure and may delay any sale, either of which events may have an adverse effect on the sale price of the collateral. 

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.

Pursuant to the terms of our agreements with various sureties under our existing bonding arrangements, or under any future bonding arrangements we may enter into, we may be required to post collateral at any time, on demand, at the surety’s sole discretion.  Additional collateral would likely be in the form of cash or letters of credit.  We cannot provide assurance that we will be able to satisfy collateral demands for current bonds or for future bonds.

If we are required to provide additional collateral, our future revenuesliquidity position will be negatively impacted, and growthwe may be diminishedrequired to seek alternative financing.  To the extent we are unable to secure adequate financing, we may be forced to reduce our capital expenditures in the current year or restricted.  future years, may be unable to execute our ARO plan or may be unable to comply with our existing debt instruments.

Legal and Regulatory Risks

The availabilityrecent election of propertiesPresident Biden and changes in U.S. Congress may result in significant legislative and regulatory changes that could adversely affect our results of operations, and our ability to implement our business strategy.

Recently elected President Biden has indicated that his administration will pursue regulatory initiatives, executive actions and legislation in support of his regulatory and political agenda, which includes the reduction in dependence on, and use of, fossil fuels and curtailment of hydraulic fracturing on federal lands in response to climate change and other environmental risks. Our operations in the Gulf of Mexico require permits from federal and state governmental agencies in order to perform drilling and completion activities and conduct other regulated activities. Under certain circumstances, U.S. federal agencies may refuse to approve new leases for acquisition depends largelyhydrocarbon exploration and development on the divesting practicesfederal lands and waters and may refuse to grant or delay approvals required for development of otherexisting leases on such lands and waters. See Part I, Item 1. “Business – Compliance with Environmental Regulations” for more discussion on orders and regulatory initiatives impacting the oil and natural gas companies, commodity prices, general economic conditions and other factors we cannot controlindustry that are being pursued under the Biden Administration. To the extent that our operations in federal waters are restricted, delayed for varying lengths of time or influence.  Additional requirements imposedcancelled, such developments could have a material adverse effect on us andour results of operations, our ability to finance such acquisitions may put us at a competitive disadvantage for acquiring properties.replace reserves and the ability to implement our business strategy.

We conduct exploration, developmentmay be unable to provide the financial assurancesin the amounts and productionunder the time periods required by the BOEM if the BOEM submits future demands to cover our decommissioning obligations.  If in the future the BOEM issues orders to provide additional financial assurances and we fail to comply with such future orders, the BOEM could elect to take actions that would materially adversely impact our operations and our properties, including commencing proceedings to suspend our operations or cancel our federal offshore leases.

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 deep shelfOCS.  As of the filing date of this Form 10-K, 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 under the Obama Administration had sought to implement more stringent and costly standards under the existing federal financial assurance requirements through issuance and implementation of NTL #2016-N01, but former President Trump’s Administration first paused, and then in 2020 rescinded, the implementation of this NTL while the BOEM issued a proposed rulemaking in October 2020 to amend its financial assurance program. The BOEM under the Biden Administration may in the future reconsider offshore financial assurance requirements, including the rescinded NTL #2016-N01 and the October 2020 proposed rule, and adopt and implement more stringent requirements.  Moreover, the BOEM could make demands for additional financial assurances covering our obligations under our properties, which could exceed the Company’s capabilities to provide.  If we fail to comply with such future orders, the 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.

We may be limited in our ability to maintain or recognize additional proved undeveloped reserves under current SEC guidance.

SEC rules require that, subject to limited exceptions, PUD reserves may only be booked if they relate to wells scheduled to be drilled within five years after the date of initial booking. This requirement may limit our ability to book additional PUD reserves as we pursue our drilling program. Moreover, we may be required to write down our PUD reserves if we do not drill those wells within the required five-year timeframe.

Additional deepwater ofdrilling laws, regulations and other restrictions, delays and other offshore-related developments in the Gulf of Mexico which presents unique operating risks.may have a material adverse effect on our business, financial condition, or results of operations.

ThePresident Biden and one or more of agencies under his administration has issued orders temporarily suspending leasing or permitting of oil and natural gas activities on federal lands and waters, including the OCS, and his administration is expected to pursue additional orders, legislation and regulatory initiatives regarding deep shelf and the deepwater of the Gulf of Mexico are areas that have had less drilling activity due, in part, to their geological complexity, depth and higher cost to drill and ultimately develop.  There are additional risks associated with deep shelf and deepwaterwater leasing, permitting or drilling that could result in substantial cost overruns and/more stringent or costly restrictions, delays or cancellations to our operations as well as those of similarly situated offshore energy companies on the OCS. The BSEE and the BOEM have over the past decade, primarily under the Obama Administration, imposed more stringent permitting procedures and regulatory safety and performance requirements with respect to new wells drilled in federal deepwater. While, in recent years under the Trump Administration, there have been actions by BSEE or BOEM seeking to mitigate or delay certain of those more rigorous standards, we expect that the Biden Administration may reconsider rules and regulatory initiatives implemented under the Trump Administration. Compliance with any added and more stringent regulatory requirements and with 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. Moreover, these 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. For example, under the Trump Administration, BSEE reviewed and delayed or revised certain offshore regulations implemented during the Obama Administration with respect to the imposition of rigorous standards relating to well control. In light of the statements made by President Biden, there exists a significant risk that these Obama-era regulations, or additional, more stringent regulations impacting our business, properties and results of operations could be reimplemented or adopted during the Biden Administration.

These regulatory actions, or any new rules, regulations, or legal 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 uneconomic projectsthe suspension or wells.  Deeper targets are more difficultcancellation of leases.  Also, if material spill incidents were to interpret with traditional seismic processing.  Moreover,occur in the future, the United States could elect to issue directives to temporarily cease drilling costsactivities and, the risk of mechanical failure are significantly higher because of the additional depthin any event, issue further safety and adverse conditions, such as high temperatureenvironmental laws and pressure.  For example, the drilling of deepwater wells requires specific types of rigs with significantly higher day rates, as compared to the rigs used in shallower water.  Deepwater wells have greater mechanical risks because the wellhead equipment is installed on the sea floor.  Deepwater development costs can be significantly higher than development costs for wells drilled on the conventional shelf because deepwater drilling requires larger installation equipment, sophisticated sea floor production handling equipment, expensive state-of-the-art platforms and infrastructure investments.  Deep shelf development can also be more expensive than conventional shelf projects because deep shelf development requires more drilling days and higher drilling and service costs due to extreme pressure and temperatures associated with greater depths.  Accordingly, we cannot provide assurance that ourregulations regarding offshore oil and natural gas exploration activities inand development, any of which could have a material adverse effect on our business.  We cannot predict with any certainty the deep shelf,full impact of any new laws or regulations on our drilling operations or on the deepwatercost or availability of insurance to cover some or all of the risks associated with such operations.  See Part I, Item 1. “Business – Compliance with Environmental Regulations” for more discussion on orders and elsewhere will be commercially successful.regulatory initiatives impacting the oil and natural gas industry that are being pursued under the Biden Administration.

Our estimates of future ARO may vary significantly from period to period and are especially significant because our operations are concentrated in the Gulf of Mexico.

We are required to record a liability for the present value of our ARO to plug and abandon inactive non-producing wells, to remove inactive or damaged platforms, and inactive or damaged facilities and equipment, collectively referred to as “idle iron,” and to restore the land or seabed at the end of oil and natural gas production operations.  In December 2018, BSEE issued an updated NTL reaffirming the obligations of offshore operators to timely decommission idle iron by means of abandonment and removal.  Pursuant to the idle iron NTL requirements, in September 2019, BSEE issued us letters, directing us to plug and abandon certain wells that the agency identified as no longer capable of production in paying quantities by specified timelines, with the earliest deadline being December 31, 2020.   In response, we are currently evaluating the list of wells proposed as idle iron by BSEE and currently anticipate that those wells determined to be idle iron will be decommissioned by the specified timelines or at times as otherwise determined by BSEE following further discussions with the agency.  While we have established AROs for well decommissioning, additional AROs, significant in amount, may be necessary to conduct plugging and abandonment of the wells designated by BSEE as idle iron, but we do not expect the costs to plug and abandon these wells will have a material effect on our financial condition, results of operations or cash flows.  Nevertheless, these decommissioning activities are typically considerably more expensive for offshore operations as compared to most land-based operations due to increased regulatory scrutiny and the logistical issues associated with working in waters of various depths, and there exists the possibility that increased liabilities beyond what we established as AROs may arise and the pace for completing these activities could be adversely affected by idle iron decommissioning activities being pursued by other offshore oil and gas lessees that may also have received similar BSEE directives, which could restrict the availability of equipment and experienced workforce necessary to accomplish this work. 

Moreover, BSEE under the Biden Administration could also reconsider its 2018 NTL or existing idle iron-related regulations and establish new, more stringent decommissioning requirements on an expedited basis.  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.  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.  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 additional requirements under the BOEM’s formerly issued NTL #2016-N01, if everit were re-issued and fully implemented, or in the event BOEM under the Biden Administration were to otherwise issue new, more stringent financial assurance guidance or requirements, would increase our operating costs and reduce the availability of surety bonds due to the increased demands for such bonds in a low-price commodity environment.  While the current implementation timeline has been extended indefinitely, except in certain circumstances where there was a substantial risk of nonperformance of the interest holder’s decommissioning liabilities, this timeline could change at the BOEM’s discretion and the BOEM may re-issue liability orders in the future, including if it determines there is a substantial risk of nonperformance of the interest holder’s decommissioning liabilities.  Under NTL #2016-N01, the BOEM has given broader interpretation authority to the BOEM’s district personnel, which increases the difficulty in complying with this NTL should it be fully implemented.  In addition, increased demand for salvage contractors and equipment could result in increased costs for decommissioning activities, including plugging and abandonment operations. These items have, and may further, increase our costs and may impact our liquidity adversely.

We may be obligated to pay costs related to other companies that have filed for bankruptcy or have indicated they are unable to pay their share of costs in joint ownership arrangements.

In our contractual arrangements of joint ownership of oil and natural gas interests with other companies, we are obligated to pay our share of operating, capital and decommissioning costs, and have the right to a share of revenues after royalties and certain other cash inflows.  If one of the companies in the arrangement is unable to pay its agreed upon share of costs, generally the other companies in the arrangement are obligated to pay the non-paying company’s obligations.  Under joint operating agreements among working interest owners, the non-paying company would typically lose the right to future revenues, which would be applied to the non-paying company’s share of operating, capital and decommissioning costs.  If future revenues are insufficient to defray these additional costs, especially in cases where the well has stopped producing and is being decommissioned, we could be obligated to pay certain costs of the defaulting party.  In addition, the liability to the U.S. Government for obligationsimposes strict joint and several liability under the OCSLA on the various lessees of lessees undera federal oil and gas leases,lease for lease obligations, including obligations for decommissioning costs, is generally joint and several among the various co-owners of the lease,activities, which means that any single ownerco-lessee may be liable to the U.S. Government for the full amount of all of the multiple lessees’ obligations under the lease.  In certain circumstances, we also could be liable for accrued decommissioning liabilities on federal oil and gas leases that we previously owned and assigned to an unrelated third party should the assignee to whom we assigned the leases or any future assignee of those leases is bankrupt or unable to payperform its decommissioning costs.obligations (including payment of costs incurred by unrelated parties in decommissioning such lease facilities).  For example, we have in the past received a demand for payment of decommissioning costs related to property interests that were sold several years prior.  These indirect obligations would affect our costs, operating profits and cash flows negatively and could be substantial.

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.

As we carry out our drilling program, we may not serve as operator of all planned wells.  In that case, we have limited ability to exercise influence over the operations of some non-operated properties and their associated costs.  Our dependence on the operator and other working interest owners and our limited ability to influence operations and associated costs of properties operated by others could prevent the realization of anticipated results in drilling or acquisition activities.  The success and timing of exploration and development activities on properties operated by others depend upon a number of factors that will be largely outside of our control, including:

Our business involves many uncertainties and operating risks that can prevent us from realizing profits and can cause substantial losses.

Our development activities may be unsuccessful for many reasons, including adverse weather conditions, cost overruns, equipment shortages, geological issues, technical difficulties and mechanical difficulties.  Moreover, the successful drilling of a natural gas or oil well does not assure us that we will realize a profit on our investment.  A variety of factors, both geological and market-related, can cause a well to become uneconomical or only marginally economical. In addition to their costs, unsuccessful wells hinder our efforts to replace reserves.

Our oil and natural gas exploration and production activities, including well stimulation and completion activities, involve a variety of operating risks, including:

If we experience any of these problems, well bores, platforms, gathering systems and processing facilities could be affected, which could adversely affect our ability to conduct operations. We could also incur substantial losses as a result of:

Offshore operations are also subject to a variety of operating risks related to the marine environment, such as capsizing, collisions and damage or loss from tropical storms, hurricanes or other adverse weather conditions.  These conditions can cause substantial damage to facilities and interrupt production.  Companies that incur environmental liabilities frequently also confront third-party claims for personal injury and property damage allegedly caused by hazardous substances or other pollutants released into the environment from a polluted site.  Despite the “petroleum exclusion” of Section 101(14) of CERCLA, which currently encompasses crude oil and natural gas, we may nonetheless handle hazardous substances within the meaning of CERCLA, or similar state statutes, in the course of our ordinary operations and, as a result, may have strict joint and several liability under CERCLA or similar state statues for all or part of the costs required to clean up sites at which these hazardous substances have been released into the environment.

Legislation has been proposed from time to time in Congress that would revoke or alter the current exclusion of exploration, development and production wastes from the RCRA definition of “hazardous wastes.”  A loss of the RCRA exclusion for drilling fluids, produced waters and related wastes could potentially subject such wastes to more stringent handling, disposal and cleanup requirements.  Other wastes handled at exploration and production sites or generated in the course of providing well services also may not fall within the RCRA oil and gas wastes exclusion.  Stricter standards for waste handling, disposal and cleanup may be imposed on the oil and natural gas industry in the future.  Additionally, NORM may contaminate minerals extraction and processing equipment used in the oil and natural gas industry.  We may have liability for releases of hazardous substances at our properties by prior owners, operators, other third parties, or at properties we have sold.  As a result, we could incur substantial liabilities that could reduce or eliminate funds available for exploration, development and acquisitions or result in the loss of property and equipment.

The geographic concentration of our properties in the Gulf of Mexico subjects us to an increased risk of loss of revenues or curtailment of production from factors specifically affecting the Gulf of Mexico.

The geographic concentration of our properties along the U.S. 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:

Because a majority of our properties could experience the same conditions at the same time, these conditions could have a greater impact on our results of operations than they might have on other operators who have properties over a wider geographic area.  For example, during 2019, net production of approximately 2.1 MMBoe was deferred during 2019 due to pipeline issues, maintenance and well issues.  During 2018, net production of approximately 1.6 MMBoe was deferred during 2018 due to pipeline issues, maintenance, well issues and other events; and during 2017, net production of approximately 1.7 MMBoe was deferred due to Hurricane Nate, pipeline issues and other events.

Properties that we acquire may not produce as projected and we may be unable to immediately identify liabilities associated with these properties or obtain protection from sellers of such properties.

Our business strategy includes growing by making acquisitions, which may include acquisitions of exploration and production companies, producing properties and undeveloped leasehold interests.  Our acquisition of oil and natural gas properties requires assessments of many factors that are inherently inexact and may be inaccurate, including the following:

Our assessment of the acquired properties will not reveal all existing or potential problems, nor will it permit us to become familiar enough with the properties to fully assess their capabilities and deficiencies.  In the course of our due diligence, we have historically not physically inspected every well, platform or pipeline.  Even if we had physically inspected each of these, our inspections may not have revealed structural and environmental problems, such as pipeline corrosion, well bore issues or groundwater contamination.  We may not be able to obtain contractual indemnities from the seller for liabilities associated with such risks.  We may be required to assume the risk of the physical condition of the properties in addition to the risk that the properties may not perform in accordance with our expectations.

We may encounter difficulties integrating the operations of newly acquired oil and natural gas properties or businesses.

Increasing our reserve base through acquisitions has historically been an important part of our business strategy.  We may encounter difficulties integrating the operations of newly acquired oil and natural gas properties or businesses, such as our recent acquisition of the Mobile Bay Properties.  In particular, we may face significant challenges in consolidating functions and integrating procedures, personnel and operations in an effective manner.  The failure to successfully integrate such properties or businesses into our business may adversely affect our business and results of operations.  Any acquisition we make may involve numerous risks, including:

Additionally, significant acquisitions can change the nature of our operations and business depending upon the character of the acquired properties, which may have substantially different operating and geological characteristics or be in different geographic locations than our existing properties.  To the extent that we acquire properties substantially different from the properties in our primary operating region or acquire properties that require different technical expertise, we may not be able to realize the economic benefits of these acquisitions as efficiently as with acquisitions within our primary operating region.  We may not be successful in addressing these risks or any other problems encountered in connection with any acquisition we may make.

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.

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, 2019.  See Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies – Oil and natural gas reserve quantities, under Part II, Item 7 for a discussion of the estimates and assumptions about our estimated oil and natural gas reserves information reported in Business under Part I, Item 1, Properties under Part I, Item 2 and Financial Statements and Supplementary Data – Note 20 – Supplemental Oil and Gas Disclosures under Part II, Item 8 in this Form 10-K.

In order to prepare our year-end reserve estimates, our independent petroleum consultant projected our production rates and timing of development expenditures.  Our independent petroleum consultant also analyzed available geological, geophysical, production and engineering data.  The extent, quality and reliability of this data can vary and may not be under our control.  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.

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.  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.

You should not assume that 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.  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.

Prospects that we decide to drill may not yield oil or natural gas in commercial quantities or quantities sufficient to meet our targeted rates of return.

A prospect is an area in which we own an interest, could acquire an interest or have operating rights, and have what our geoscientists believe, based on available seismic and geological information, to be indications of economic accumulations of oil or natural gas.  Our prospects are in various stages of evaluation, ranging from a prospect that is ready to be drilled to a prospect that will require substantial seismic data processing and interpretation.  There is no way to predict in advance of drilling and testing whether any particular prospect will yield oil or natural gas in sufficient quantities to recover drilling and completion costs or to be economically viable.  The use of seismic data and other technologies and the study of producing fields in the same area will not enable us to know conclusively prior to drilling whether oil or natural gas will be present or, if present, whether oil or natural gas will be present in commercial quantities.  We cannot assure that the analysis we perform using data from other wells, more fully explored prospects and/or producing fields will accurately predict the characteristics and potential reserves associated with our drilling prospects.  Sustained low crude oil, NGLs and natural gas pricing will 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.  In addition, the geological complexity of deepwater and deep shelf formations may make it more difficult for us to sustain our historical rates of drilling success. As a result, we can offer no assurance that we will find commercial quantities of oil and natural gas and, therefore, we can offer no assurance that we will achieve positive rates of return on our investments.

Market conditions or operational impediments may hinder our access to oil and natural gas markets or delay our production.

Market conditions or the unavailability of satisfactory oil and natural gas transportation arrangements may hinder our access to oil and natural gas markets or delay our production.  The availability of a ready market for our oil and natural gas production depends on a number of factors, including the demand for and supply of oil and natural gas and the proximity of reserves to pipelines and terminal facilities.  Our ability to market our production depends substantially on the availability and capacity of gathering systems, pipelines and processing facilities, which in most cases are owned and operated by third parties.  Our failure to obtain such services on acceptable terms could materially harm our business.  We may be required to shut in wells because of a reduction in demand for our production or because of inadequacy or unavailability of pipelines or gathering system capacity.  If that were to occur, then we would be unable to realize revenue from those wells until arrangements were made to deliver our production to market.  We have, in the past, been required to shut in wells when hurricanes have caused or threatened damage to pipelines and gathering stations.  For example, we shut in wells during 2017 from Hurricane Nate and in 2018 from Hurricane Michael for several days.

In some cases, our wells are tied back to platforms owned by third-parties who do not have an economic interest in our wells and we cannot be assured that such parties will continue to process our oil and natural gas.

Currently, a portion of our oil and natural gas is processed for sale on platforms owned by third-parties with no economic interest in our wells and no other processing facilities would be available to process such oil and natural gas without significant investment by us.  In addition, third-party platforms could be damaged or destroyed by hurricanes which could reduce or eliminate our ability to market our production.  As of December 31, 2019, six fields, accounting for approximately 0.9 MMBoe (or 6.2%) of our 2019 production, are tied back to separate, third-party owned platforms.  There can be no assurance that the owners of such platforms will continue to process our oil and natural gas production.  If any of these platform operators ceases to operate their processing equipment, we may be required to shut in the associated wells, construct additional facilities or assume additional liability to reestablish production.

If third-party pipelines connected to our facilities become partially or fully unavailable to transport our crude oil and natural gas or if the prices charged by these third-party pipelines increase, our revenues or costs could be adversely affected.

We depend upon third-party pipelines that provide delivery options from our facilities.  Because we do not own or operate these pipelines, their continued operation is not within our control.  These pipelines may become unavailable for a number of reasons, including testing, maintenance, capacity constraints, accidents, government regulation, weather-related events or other third-party actions.  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.  For example, in 2019 and 2018, various pipelines were shut down at various times causing production deferral of approximately 0.5 MMBoe and 0.4 MMBoe, respectively.

Certain third-party pipelines have submitted requests in the past to increase the fees they charge us to use these pipelines.  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.

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.  Future laws or regulations, any adverse change in the interpretation of existing laws and regulations or our failure to comply with such legal requirements may harm our business, results of operations and financial condition. We may be required to make large and unanticipated capital expenditures to comply with governmental regulations, such as:

Under these laws and regulations, we could be liable for:

Our operations could be significantly delayed or curtailed, and our cost of operations could significantly increase as a result of regulatory requirements or restrictions. 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.  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.  It is also possible that a portion of our oil and natural gas properties could be subject to eminent domain proceedings or other government takings for which we may not be adequately compensated.  See Business – Regulation under Part I, Item 1 in this Form 10-K for a more detailed explanation of regulations impacting our business.

Our operations may incur substantial liabilities to comply with environmental laws and regulations as well as legal requirements applicable to MPAs and endangered and threatened species.

Our oil and natural gas operations are subject to stringent federal, state and local laws and regulations relating to the release or disposal of materials into the environment or otherwise relating to environmental protection.  These laws and regulations:regulations require the acquisition of a permit or other approval before drilling or other regulated activity commences; restrict the types, quantities and concentration of substances that can be released into the environment in connection with drilling and production activities; limit or prohibit exploration or drilling activities on certain lands lying within wilderness, wetlands, MPAs and other protected areas or that may affect certain wildlife, including marine species and endangered and threatened species; and impose substantial liabilities for pollution resulting from our operations.

Failure to comply with these laws and regulations may result in:

Changes in environmental laws and regulations occur frequently, and any changes that result in more stringent or costly waste handling, storage, transport, disposal or cleanup requirements could require us to make significant expenditures to attain and maintain compliance and may otherwise have a material adverse effect on our industry in general and on our own results of operations, competitive position or financial condition.  Under these environmental laws and regulations, we could incur strict joint and several liability for the removal or remediation of previously released materials or property contamination, regardless of whether we were responsible for the release or contamination and regardless of whether our operations met previous standards in the industry at the time they were conducted.  Our permits require that we report any incidents that cause or could cause environmental damages.

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.  See Business – Environmental Regulations under Part I, Item 1 in this Form 10-K for a more detailed description of our environmental, marine species, and endangered and threatened species regulations.

The ONRR’s revised interpretations on determining appropriate allowances related to transportation and processing costs for natural gas could cause us to pay substantial amounts in back royalties and in future royalties.

The ONRR has publicly announced an “unbundling” initiative to revise the methodology employed by producers in determining the appropriate allowances for transportation and processing costs that are permitted to be deducted in determining royalties under federal oil and gas leases.  The ONRR’s initiative requires re-computing allowable transportation and processing costs using revised guidance from the ONRR going back 84 months for every gas processing plant for which we had gas processed.  In 2015, pursuant to the initiative, the Company received requests from the ONRR for additional data regarding the Company’s transportation and processing allowances on natural gas production that was processed through a specific processing plant.  The Company also received a preliminary determination notice from the ONRR asserting its preliminary determination that the Company’s allocationthreat of certain processing costs and plant fuel use at another processing plant were impermissibly allowed as deductions in the determination of royalties owed under federal oil and gas leases.  The Company has submitted responses covering certain plants and certain time periods and has not yet received responses as to the preliminary determination asserting the reasonableness of its revised allocation methodology of such costs.  These open ONRR unbundling reviews, and any further similar reviews, could ultimately result in an order for payment of additional royalties under the Company’s Federal oil and gas leases for current and prior periods.  Through December 31, 2019, we paid $3.1 million of additional royalties and expect to pay more in the future.  We are not able to determine the range of any additional royalties or if such amounts would be material.

Should we fail to comply with all applicable FERC, CFTC and FTC administered statutes, rules, regulations and orders, we could be subject to substantial penalties and fines.

Under the Energy Policy Act of 2005, FERC has civil penalty authority under the NGA and NGPA to impose penalties for current violations of up to $1.2 million per day for each violation and disgorgement of profits associated with any violation.  While our operations have not been regulated by FERC as a natural gas company under the NGA, FERC has adopted regulations that may subject certain of our otherwise non-FERC jurisdictional operations to FERC annual reporting and posting requirements.  We also must comply with the anti-market manipulation rules enforced by FERC.  Under the Commodity Exchange Act and regulations promulgated thereunder by the CFTC and under the Energy Independence and Security Act of 2007 and regulations promulgated thereunder by the FERC, the CFTC and FTC have adopted anti-market manipulation rules relating to the prices or futures of commodities.  Additional rules and legislation pertaining to those and other matters may be considered or adopted by Congress, the FERC, the CFTC or the FTC from time to time.  Failure to comply with those regulations in the future could subject us to civil penalty liability.  See Business – Regulation under Part I, Item 1 in this Form 10-K for further description of our regulations.

Our operations are subject to various risks thatclimate change could result in increasing operatingincreased costs limiting the areas in which oil and natural gas production may occur, and reducingreduced demand for the oil and natural gas that we produce.produce, which could have a material adverse effect on our business, results of operations, financial condition and cash flows.

ClimateThe threat of climate change continues to attract considerable public, governmentalattention in the United States and scientific attention.foreign countries. As a result, numerous proposals have been made and couldare likely to continue to be made at the international, national, regional and state levels of government to monitor and limit emissions of GHG.  These efforts have included considerationGHGs as well as to eliminate such future emissions. As a result, our operations are subject to a series of cap-and-trade programs, carbon taxes,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 and restriction of GHG reporting and tracking programs, and regulations that directly limit GHG emissions from certain sources.  At the federal level, the U.S. Congress has from time to time considered climate change legislation but no comprehensive climate change legislation has been adopted.  The EPA, however, has adopted regulations under the existing CAA to restrict emissions of GHG.  For example, the EPA imposes preconstruction and operating permit requirements on certain large stationary sources that are already potential sources of certain other significant pollutant emissions. The EPA also adopted rules requiring the monitoringadoption and reportingimplementation of any international, federal, regional or state legislation, executive actions, regulations or other regulatory initiatives that impose more stringent standards for GHG emissions on an annual basis from specified large GHG emission sourcesour operations or in the United States, including onshore and offshoreareas where we produce oil and natural gas production facilities.  Federal agencies have also begun directly regulating emissions of methane, a GHG, from oil and natural gas operations as described above.  Compliance with these rules could result in increased compliance costs on our operations.

State implementation of these revised air emission standards could result in stricter permitting requirements, delay, limit or prohibit our ability to obtain such permits, and result in increased expenditures for pollution control equipment, the costs of which could be significant.  At the international level, there exists the United Nations-sponsored “Paris Agreement,” which is a non-binding agreement for nations to limit their GHG emissions through individually determined reduction goals every five years after 2020, although the United States has announced its withdrawal from such agreement, effective November 4, 2020.

Governmental, scientific, and public concern over the threat of climate change arising from GHG emissions has resulted in federal political risks in the United States in the form of pledges made by certain candidates seeking the office of the President of the United States in 2020.  Critical declarations made by one or more presidential candidates include proposals to ban hydraulic fracturing of oil and natural gas wells and ban new leases for production of minerals on federal properties, including onshore lands and offshore waters.  Other actions to oil and natural gas production activities that could be pursued by presidential candidates may include more restrictive requirements for the establishment of pipeline infrastructure or the permitting of liquefied natural gas export facilities, as well as the rescission of the United States’ withdrawal from the Paris Agreement in November 2020.  Litigation risks are also increasing, as a number of cities, local governments and other plaintiffs have sought to bring suit against oil and natural gas exploration and production companies in state or federal court, alleging, among other things, that such companies created public nuisances by producingconsuming fossil fuels, that contributed to global warming effects, such as rising sea levels, and therefore are responsible for roadway and infrastructure damages as a result, or alleging that the companies have been aware of the adverse effects of climate change for some time but defrauded their investors by failing to adequately disclose those impacts.

There are also increasing financial risks for fossil fuel producers as stockholders and bondholders currently invested in fossil fuel energy companies 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.  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.  Additionally, the lending practices of institutional lenders have been the subject of intensive lobbying efforts in recent years, oftentimes public in nature, by environmental activists, proponents of the international Paris Agreement, and foreign citizenry concerned about climate change not to provide funding for fossil fuel producers.  Limitation of investments in and financings for fossil fuel energy companies could result in the restriction, delay or cancellation of drilling programs or development or production activities.

The adoption of legislation or regulatory programs to reduce or eliminate future emissions of GHG could require us to incur increased operating costs, such as costs to purchase and operate emissions control systems, to acquire emissions allowances or comply with new regulatory or reporting requirements.  Any such legislation or regulatory programs could also increase the cost of consuming, and thereby reduce demand for the oil and natural gas that we produce.  Consequently, legislation and regulatory programs to reduce or eliminate future emissions of GHG could have an adverse effect on our business, financial condition and results of operations. Additionally, political, financial and litigation risks may result in our restrictingus having to restrict, delay or cancelingcancel production activities, incurringincur liability for infrastructure damages as a result of climatic changes, or impairingimpair the ability to continue to operate in an economic manner.manner, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.  Increasing attention to climate change, increasing societal expectations on companies to address climate change, and potential customer use of substitutes to energy commodities may result in increased costs, reduced demand for oil and natural gas we produce, resulting in reduced profits, increased investigations and litigation, and negative impacts on our stock price and access to capital markets.  Moreover, the increased competitiveness of alternative energy sources (such as wind, solar geothermal, tidal and biofuels) could reduce demand for the oil and natural gas we produce, which would lead to a reduction in our revenues.  Finally, it should be noted that some scientists have concluded that increasing concentrations of GHG in the Earth’sEarth's atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, droughts, floods, rising sea levels and other climatic events.   Our offshore operations are particularly at risk from severe climatic events.  If any such climate effects were to occur, they could have an adverse effect on our business, financial condition and results of operations.  See – Our business involves many uncertainties and operating risks that can prevent us from realizing profits and can cause substantial losses. – under this Item 1A.

Derivatives legislation could have an adverse effect on our ability to use derivative instruments to reduce the effect of commodity price, interest rate and other risks associated with our business.

The Dodd-Frank Act, among other things, establishes federal oversight and regulation of the over-the-counter derivatives market and entities, such as us, that participate in that market.  The CFTC has finalized most of its regulations under the Dodd-Frank Act, but others remain to be finalized or implemented.  It is not possible to predict with certainty the full effects of the Dodd-Frank Act and CFTC rules or the timing of such effects.

The CFTC has designated certain types of swaps (thus far, only certain interest rate swaps and credit default swaps) for mandatory clearing and exchange trading, and may designate other types of swaps for mandatory clearing and exchange trading in the future.  To the extent we engage in such transactions or transactions that become subject to such rules in the future, we will be required to comply with or to take steps to qualify for an exemption to such requirements.  Although we are availing ourselves of the end-user exception to the mandatory clearing and exchange trading requirements for swaps designed to hedge our commercial risks, the application of the mandatory clearing and trade execution requirements to other market participants, such as swap dealers, may change the cost and availability of the swaps that we use for hedging.  If any of our swaps do not qualify for the commercial end-user exception, or if the cost of entering into uncleared swaps becomes prohibitive, we may be required to clear such transactions or execute them on a derivatives contract or swap facility market.  In addition, certain banking regulators and the CFTC have adopted final rules establishing minimum margin requirements for uncleared swaps.  Although we expect to qualify for the end-user exception from margin requirements for swaps to other market participants, such as swap dealers, these rules may change the cost and availability of the swaps we use for hedging.  If any of our swaps do not qualify for the commercial end-user exception, we could be required to post initial or variation margin, which would impact our liquidity and reduce our cash. This would in turn reduce our ability to execute hedges to reduce risk and protect cash flows.

The Dodd-Frank Act and any new regulations could significantly increase the cost of derivative contracts, materially alter the terms of derivative contracts, reduce the availability of derivatives to protect against risks we encounter and reduce our ability to monetize or restructure our existing commodity price contracts.  If we reduce our use of commodity price contracts as a result of the legislation and regulations, our results of operations may become more volatile and our cash flows may be less predictable, which could adversely affect our ability to plan for and fund capital expenditures and make cash distributions to our unitholders.  Further, to the extent our revenues are unhedged, they could be adversely affected if a consequence of the Dodd-Frank Act and implementing regulations is to lower commodity prices.

Our operations could be adversely impacted by security breaches, including cyber-security breaches, which could affect our production of oil and natural gas or could affect other parts of our business.

We rely on our information technology infrastructure and management information systems to operate and record aspects of our business.  Although we take measures to protect against cybersecurity risks, including unauthorized access to our confidential and proprietary information, our security measures may not be able to detect or prevent every attempted breach.  Similar to other companies, we have experienced cyber-attacks, although we have not suffered any material losses related to such attacks.  Security breaches include, among other things, illegal hacking, computer viruses, or acts of vandalism or terrorism.  A breach could result in an interruption in our operations, malfunction of our platform control devices, disabling of our communication links, unauthorized publication of our confidential business or proprietary information, unauthorized release of customer or employee data, violation of privacy or other laws and exposure to litigation. Any of these security breaches could have a material adverse effect on our consolidated financial position, results of operations and cash flows.

The loss of members of our senior management could adversely affect us.

To a large extent, we depend on the services of our senior management.  The loss of the services of any of our senior management, including Tracy W. Krohn, our Founder, Chairman of the Board, Chief Executive Officer and President; Janet Yang, our Executive Vice President and Chief Financial Officer; William J. Williford, our Executive Vice President and General Manager of Gulf of Mexico; Stephen L. Schroeder, our Senior Vice President and Chief Technical Officer; and Shahid A. Ghauri, our Vice President, General Counsel and Corporate Secretary, could have a negative impact on our operations.  We do not maintain or plan to obtain for the benefit of the Company any insurance against the loss of any of these individuals.  See Executive Officers of the Registrant under Part I following Item 3 in this Form 10-K for more information regarding our senior management team.

Counterparty credit risk may negatively impact the conversion of our accounts receivables to cash.

Substantially all of our accounts receivable result from crude oil, NGLs and natural gas sales or joint interest billings to third parties in the energy industry.  This concentration of customers and joint interest owners may impact our overall credit risk in that these entities may be similarly affected by any adverse changes in economic or other conditions.  In recent years, market conditions resulted in downgrades to credit ratings of some of our oil and gas customers and joint interest partners.  While we have not experienced collection issues from our customers, we have experienced collection issues from several of our joint interest partners.

ItemItem 1B. Unresolved Staff Comments

None.

ItemItem 2. Properties

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 highhigher initial production rates relative to other domestic reservoirs. AtAs of December 31, 2019,2020, three of our fields located in the following two areas of operationsconventional shelf accounted for approximately 67%82% our proved reserves determined using quantities of proved net reserves on an energy equivalent basis.  “Shelf” refers to acreage under 500 feet of water.  The following table provides information for these fields:

Our Fields

On December 31, 2019, we had twoThe Mobile Bay Properties, Ship Shoal 349 (Mahogany), and Fairway are three 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 calculated on an energy equivalent basis.  These areas are the Mobile Bay Properties, which are offshore Alabama but also include the associated gas treatment plant located onshoreEach area of operation of major significance is described in Alabama, and the Ship Shoal 349 field (Mahogany) located on the conventional shelf in the Gulf of Mexico.detail below.  Unless indicated otherwise, “drilling” or “drilled” in the descriptions below refers to when the drilling reached target depth, as this measurement usually has a higher correlation to changes in proved reserves compared to using the SEC’s definition for completion.  Following are descriptions of these areas of operations: 

Mobile Bay Properties

The recently acquired Mobile Bay Properties consist of interests located off the coast of Alabama, in state coastal and federal Gulf of Mexico waters approximately 70 miles south of Mobile, Alabama.  The field area includes 16 Alabama state water lease blocks and four Federal OCS lease blocks.  These properties include seven major platforms and 27 flowing wells, in up to 50 feet of water.  Exxon first discovered Norphlet gas play in 1978 with the first gas production from the Mary Ann Field in 1988.  We acquired varied operated working interests 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.  During 2020, we completed the purchase of the remaining interest in two federal Mobile Bay fields from Chevron U.S.A. Inc. ("Chevron").  Cumulative field production through 20192020 is approximately 576.6698.3 MMBoe gross.  The Mobile Bay Properties produce from the Jurassic age Norphlet eolian sandstone at an average depth of 21,000’ total vertical depth.  As of December 31, 2019,2020, 56 Norphlet wells have been drilled on the Mobile Bay Properties, 45 wells were successful and 27 wells are currently producing.  

We acquired the Mobile Bay Properties at the end ofin August 2019 and included the results of operations effective September 1, 2019 within our Consolidated Results of Operations.  During September 2019 to December 2019, transitioning activities occurred to transfer operatorship of the Mobile Bay Properties from Exxon to W&T.  Given(Given the limited history and the change in operatorship, production volumes, realized prices received and production costs are omitted.)

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. Phillips Petroleum Company discovered the field in 1993.  We initially acquired a 25% working interest in the field from BP Amoco in 1999.  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.  In early 2008, we acquired the remaining working interest from Apache Corporation (“Apache”) and we now own a 100% working interest in this field except for an interest in one well owned in the Joint Venture Drilling Program.  Cumulative field production through 20192020 is approximately 53.2approximately 56.6 MMBoe gross.  This field is a sub-salt development with nine productive horizons below salt at depths up to 18,000 feet.  As of December 31, 2019,2020, 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.  During 2018, one well was completed which had been drilled to target depth during 2017, and in addition, two wells were drilled and completed during 2018.  During 2019, one well was drilled, completed and producing in 2019, and significant workover activities were done to increase production.  There was no additional drilling activity during 2020 at Ship Shoal 349.

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:

Fairway Field

The Fairway Field is comprised of Mobile Bay Area blocks 113 (Alabama State Lease #0531) and 132 (Alabama State Lease #0532) located in 25 feet of water, approximately 35 miles south of Mobile, Alabama.  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. (“Shell”) in August 2011 and acquired the remaining working interest of 35.7% in September 2014.  Cumulative field production through 2020 is approximately 136.4 MMBoe gross.  The field was discovered in 1985 with Well 113 #1 (now called JA).  Development drilling began in 1990 and was completed in 1991 with the addition of four wells, each drilled from separate surface locations.  The five producing wells came on line in late 1991.  As of December 31, 2020, six wells have been drilled, one of which was a replacement well.  This field is a Norphlet sand dune trend development with one producing horizon at an approximate depth of 21,300 feet. 

The following table presents our produced oil, NGLs and natural gas volumes (net to our interests) from the Fairway field over the past three years:

 Proved Reserves

Our proved reserves were estimated by NSAI,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.  Our proved reserves as of December 31, 20192020 are summarized below and the mix by product was 24% oil, 16% NGLs and 60% natural gas determined using the energy-equivalent ratio noted below:

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):

Changes in Proved Reserves

Our total proved reserves at December 31, 20192020 were 157.4144.4 MMBoe compared to 84.0157.4 MMBoe at December 31, 2018,2019, representing an overall increasedecrease of 73.413.0 MMBoe. Increases from acquisitionsTotal proved reserves decreased by 27.7 MMBoe as a result of lower commodity prices and 15.4 MMBoe due to production.  Partially offsetting these decreases were 90.1increases in proved reserves of 26.2 MMBoe primarily from the Mobile Bay Properties; extensions and discoveries were 1.1 MMBoe; anddue to positive technical revisions (including increased well performance) were 7.0 MMBoe.  Partially offsetting these increases were decreases due, 3.6 MMBoe related to lower commodity prices of 10.0acquisitions, 0.2 MMBoe related to extensions and production of 14.8 MMBoe.discoveries. See Development of Proved Undeveloped Reserves below for a table reconciling the change in proved undeveloped reserves during 2019.2020.  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.

Our estimates of proved reserves, PV-10 and the standardized measure as of December 31, 20192020 are calculated based upon SEC mandated 20192020 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.  If prices fall below the 20192020 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.  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.

Qualifications of Technical Persons and Internal Controls over Reserves Estimation Process

Our estimated proved reserve information as of December 31, 20192020 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 scope and results of their procedures are summarized in a letter included as an exhibit to this Form 10-K.  The primary technical person at NSAI responsible for overseeing the preparation of the reserves estimates presented herein has been practicing consulting petroleum engineering at NSAI since 2013 and has over 14 years of prior industry experience.  NSAI has informed us that he meets or exceeds the education, training, and experience requirements set forth in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers and is proficient in the application of industry standard practices to engineering evaluations as well as the application of SEC and other industry definitions and guidelines.

We maintain an internal staff of reservoir engineers and geoscience professionals who work closely with our independent petroleum consultant to ensure the integrity, accuracy and timeliness of the data, methods and assumptions used in the preparation of the reserves estimates.  Additionally, our senior management reviews any significant changes to our proved reserves on a quarterly basis.  Our Director of Reservoir Engineering has over 30 years of oil and gas industry experience and has managed the preparation of public company reserve estimates the last 16 years.  He joined the Company in 2016 after spending the preceding 12 years as Director of Corporate Engineering for Freeport-McMoRan Oil & Gas.  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.

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.  The term “reasonable certainty” implies a high degree of confidence that the quantities of oil and/or natural gas actually recovered will equal or exceed the estimate.  To achieve reasonable certainty, our independent petroleum consultant employed technologies that have been demonstrated to yield results with consistency and repeatability.  The technologies and economic data used in the estimation of our proved reserves include, but are not limited to, well logs, geologic maps, seismic data, well test data, production data, historical price and cost information and property ownership interests.  The accuracy of the estimates of our reserves is a function of:

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.

Reporting of Natural Gas and Natural Gas Liquids

We produce NGLs as part of the processing of our natural gas.  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.  We convert barrels to Mcfe using an energy-equivalent ratio of six Mcf to one barrel of oil, condensate or NGLs.  This energy-equivalent ratio does not assume price equivalency, and the energy-equivalent prices for crude oil, NGLs and natural gas may differ substantially.

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, 20192020 were estimated at $242.0$94.2 million.

The following table presents changes in our PUDs (in MMBoe):

The following table presents our estimates as to the timing of converting our PUDs to proved developed reserves:

Activity related to PUD in 2020:

Activity related to PUDs in 2019:

Activity related to PUDs in 2018:

We believe that we will be able to develop all but 2.52.3 MMBoe (approximately 11%19%) of the total 23.612.2 MMBoe classified as PUDs at December 31, 2019,2020, within five years from the date such PUDs were initially recorded.  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.  TwoOne sidetrack PUD locations, onelocation at each at Matterhorn and Virgo, will be delayed until an existing well isare 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.  Based on the latest reserve report, these PUD locations are expected to be developed in 20212022 and 2022.2024.

Acreage

The following table summarizes our leasehold at December 31, 2019.2020. Deepwater refers to acreage in over 500 feet of water:

Approximately 69%74% 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.

Regarding the undeveloped leasehold, 1,152 net acres (1%) of the total 169,170132,439 net undeveloped acres could expire in 2020; 5,760 net acres (3%)none could expire in 2021; 7,210960 net acres (4%(1%) could expire in 2022; 66,93637,166 net acres (40%(28%) could expire in 2023; and 88,11280,293 net acres (52%(60%) could expire in 20242024; and 14,020 net acres (11%) could expire in 2025 and beyond.  In making decisions regarding drilling and operations activity for 2020 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.  

Our net acreage increased 153,120decreased 41,688 net acres (39%(8%) from December 31, 20182019 due to acquisitionslease expirations and lease purchases,relinquishments, partially offset by sales, lease expirations and relinquishments.

acquisitions.

Production

For the years 2020, 2019 2018 and 2017,2018, our net daily production averaged 42,046 Boe, 40,634 Boe, 36,510 Boe and 39,92136,510 Boe, respectively.  Production increased in 20192020 from 20182019 primarily due to the acquisition a full year of production at the Mobile Bay Properties, increases at Mahogany from drilling and workovers, and wells coming online at other fields, partially offset by natural production declines.properties.  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.

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:

See Selected Financial Data – Historical Reserve and Operating Information underPart II, Item 6 in this Form 10-K for additional historical operating data, including average realized sale prices and production costs.

Productive Wells

The following presents our ownership interest at December 31, 20192020 in our productive oil and natural gas wells. A net well represents our fractional working interest of a gross well in which we own less than all of the working interest:

Drilling Activity

The table below is based on the SEC’s criteria of completion or abandonment to determine wells drilled.

Development and Exploration Drilling

The following table summarizes our development and exploration offshore wells completed over the past three years:

 Our success rates related to our development and exploration wells drilled was 100% in both 2019 and 2018, with all wells drilled being productive and none were non-commercial (dry holes).  In 2017, we drilled one sub-sea well which had not been completed as of the filing date of this Form 10-K as we are evaluating various options on this well.  As such, we have not reflected the well in the table above.  Of the remaining wells in our 2017 drilling program, 80% of the wells drilled were productive and we had one exploration well drilled during 2017 that was deemed to be non-commercial and therefore not completed, of which we had a 39% working interest.

Recent Drilling Activity

During 2019, the following wells were completed: the Virgo A-13 exploration well; the South Timbalier 320 A-3 development well; the Mississippi Canyon 800 ("Gladden") SS002 exploration well; the Ship Shoal 028 041 development well; the East Cameron 321 B-8 ST1 development well; and the Mahogany A-6 ST1 development well.  All of these wells are in the Joint Venture Drilling Program except for the Mahogany A-6 ST1 well.   During the first two months of 2020, there waswe drilled one well, which we expect to be completed in the process of drilling, which is in the Joint Venture Drilling Program. 2021.

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.

ItemItem 3. Legal Proceedings

Apache Lawsuit.  On December 15, 2014, Apache filed a lawsuit against the Company, Apache Deepwater, L.L.C. vs. W&T Offshore, Inc., alleging that W&T breached the joint operating agreement related to, among other things, the abandonment of three deepwater wells in the Mississippi Canyon area of the Gulf of Mexico.  A trial court judgment was rendered from the U.S. District Court for the Southern District of Texas on May 31, 2017 directing the Company to pay Apache $49.5 million including prejudgment interest, attorney's fees and costs.  We unsuccessfully appealed that judgment through a process ending with the denial of a writ of certiorari to the United States Supreme Court.  A deposit of $49.5 million we made in June of 2017 with the registry of the court was distributed during 2019 pursuant to an agreement with Apache.  

Appeal with ONRR.  In 2009, we recognized allowable reductions of cash payments for royalties owed to the ONRR for transportation of their deepwater production through our subsea pipeline systems.  In 2010, the ONRR audited our calculations and support related to this usage fee, and in 2010, we were notified that the ONRR had disallowed approximately $4.7 million of the reductions taken.  We recorded a reduction to other revenue in 2010 to reflect this disallowance with the offset to a liability reserve; however, we disagree with the position taken by the ONRR.  We filed an appeal with the ONRR, which was denied in May 2014.  On June 17, 2014, we filed an appeal with the Interior Board of Land Appeals (“IBLA”) under the DOI.  On January 27, 2017, the IBLA affirmed the decision of the ONRR requiring W&T to pay approximately $4.7 million in additional royalties. We filed a motion for reconsideration of the IBLA decision on March 27, 2017.  Based on a statutory deadline, we filed an appeal of the IBLA decision on July 25, 2017 in the U.S. District Court for the Eastern District of Louisiana.  We were required to post a bond in the amount of $7.2 million and cash collateral of $6.9 million in order to appeal the IBLA decision.  On December 4, 2018, the IBLA denied our motion for reconsideration.  On February 4, 2019, we filed our first amended complaint, and the government has filed its Answer in the Administrative Record.  On July 9, 2019, we filed an Objection to the Administrative Record and Motion to Supplement the Administrative Record, asking the court to order the government to file a complete privilege log with the record.  Following a hearing on July 31, 2019, the Court ordered the government to file a complete privilege log.  In an Order dated December 18, 2019, the court ordered the government to produce certain contracts subject to a protective order and to produce the remaining documents in dispute to the court for in camera review.  WeUltimately, the court upheld the government’s assertion of privilege and the parties commenced briefing on the merits.  At this point, both parties have filed cross-motions for summary judgment and opposition briefs. 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, we are waiting for the results of that review.  Oncedistrict court’s ruling on the issues concerning the administrative record are resolved, the parties will file cross-motions for summary judgment.merits.   In January 2020, the cash collateral in the amount of $6.9 million securing the appeal bond in this matter was released to us.

Royalties-In-Kind (“RIK”). Under a programIn compliance with the ONRR’s request for W&T to increase the surety posted in the appeal, the penal sum of the Minerals Management Service (“MMS”) (a DOI agency and predecessor to the ONRR), royalties must be paid “in-kind” rather than in value from federal leases in the program.  The MMS added to the RIK program our lease at the East Cameron 373 field beginning in November 2001, where in some months we over delivered volumes of natural gas and under delivered volumes of natural gas in other months for royalties owed.  The MMS elected to terminate receiving royalties in-kind in October 2008, causing the imbalance to become fixed for accounting purposes.  The MMS ordered us to pay an amount based on its interpretation of the program and its calculations of amounts owed.  We disagreed with MMS’s interpretations and calculations and filed an appeal with the IBLA, of which the IBLA ruled in MMS’ favor.  We filed an appeal with the District Court of the Western District of Louisiana, who assigned the case to a magistrate to review and issue a ruling, and the District Court upheld the magistrate’s ruling on May 29, 2018.  We filed an appeal on July 24, 2018.  Part of the ruling was in favor of our position and part was in favor of MMS’ position.  We appealed the ruling to the U.S. Fifth Circuit Court of Appeals and the government filed a cross-appeal.  The Fifth Circuit issued its ruling on December 23, 2019, holding that, while the DOI has statutory authority to switch the method of royalty payment from volumes ("in-kind") to cash ("in value"), the "cashout" methodology that the DOI ordered W&T to implement was unenforceable because that methodology was a "substantive rule" that the DOI adopted in violation of the Administrative Procedure Act.  In addition, the Fifth Circuit held that the DOI's claim was unlawfully inflated because DOI improperly failed to give W&T credit for all royalty volumes delivered. The Fifth Circuit remanded the case to the district court to implement the court's decision on appeal.  Based on the combination of (i) the DOI's concessions concerning the scope of W&T's liability (e.g., that W&Tbond posted is only liable for its working interest share of the royalty volumes at issue), and (ii) the Fifth Circuit's ruling, we estimate that the value of the DOI's claim against W&T is no greater than $0.25currently $8.2 million.

Monetary Sanctions by Government Authorities (Notices of Proposed Civil Penalty Assessment).  During 20192020 and 2018,2019, we did not pay any civil penalties to the BSEEBureau of Safety and Environmental Enforcement (“BSEE”) related to Incidents of Noncompliance (“INCs”) at various offshore locations.  We currently haveIn January 2021, we executed a Settlement Agreement with BSEE which resolved nine openpending civil penalties issued by the BSEE from INCs, which have not been settled as of the filing date of this Form 10-K.BSEE. The INCs underlying these open civil penalties cite allegedpertained to INCs issued by BSEE alleging regulatory non-compliance with various safety-related requirements and procedures occurring at separate offshore locations on various dates ranging frombetween July 2012 toand January 2018.  The proposed civil penalties for these INCs total $7.7 million.  As of December 31, 2019 and December 31, 2018, we have accrued approximately $3.5 million, which is our estimate of the final settlements once all appeals have been exhausted.  We believewith the proposed civil penalties are excessive givenpenalty amounts totaling $7.7 million.  Under the specific facts and circumstances relatedSettlement Agreement, W&T will pay a total of $720,000 in three annual installments, with the first installment due in March 2021.  In addition, W&T committed to these INCs.implement a Safety Improvement Plan with various deliverables due over a period ending in 2022.