Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

For the quarterly period ended March 31, 20202021

or

For the transition period from _______________ to ________________

Commission File Number 1-32414

W&T OFFSHORE, INC.

(Exact name of registrant as specified in its charter)

(713) 626-8525

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☑    No  ☐

Indicate by check mark whether the registrant has submitted electronically every interactive data file required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☑    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company.    Yes  ☐    No  ☑

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

As of June 19, 2020, April 30, 2021 there were 141,778,318142,304,770 shares outstanding of the registrant’s common stock, par value $0.00001.

Explanatory Note:

As previously disclosed in the Current Report on Form 8-K filed by W&T Offshore, Inc. (the “Company”) on May 5, 2020, the Company expected that the filing of this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (the “Quarterly Report”), originally due on May 11, 2020, would be delayed due to circumstances related to the outbreak of the coronavirus disease 2019 (“COVID-19”).

In particular, COVID-19 and related precautionary responses had caused the institution of work-from-home policies for our corporate offices which had limited our employees’ access to our facilities and disrupted our normal interactions and workflows among our accounting, financial and legal personnel and other staff and service providers involved in the completion of our quarterly review and preparation of the Quarterly Report. These restrictions had slowed the completion of our internal quarterly review, including evaluating the various impacts of COVID-19 on our financial statements, and our ability to prepare and complete the Quarterly Report in a timely manner.

The Company relied on Release No. 34-88465 issued by the Securities and Exchange Commission on March 25, 2020, pursuant to Section 36 of the Securities Exchange Act of 1934, as amended, to delay the filing of the Quarterly Report.

W&T OFFSHORE, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

Operations.  W&T Offshore, Inc. (with subsidiaries referred to herein as “W&T,” “we,” “us,” “our,” or the “Company”) is an independent oil and natural gas producer with substantially all of its operations offshore in the Gulf of Mexico.  The Company is active in the exploration, development and acquisition of oil and natural gas properties. Our interests in fields, leases, structures and equipment are primarily owned by the Company and its 100%-owned owned subsidiary, W & T Energy VI, LLC, and through our proportionately consolidated interest in Monza Energy LLC (“Monza”), as described in more detail in Note 4.

Interim Financial Statements.  The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim periods and the appropriate rules and regulations of the Securities and Exchange Commission (“SEC”).  Accordingly, the condensed consolidated financial statements do not include all of the information and footnote disclosures required by GAAP for complete financial statements for annual periods.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

Operating results for interim periods are not necessarily indicative of the results that may be expected for the entire year.  These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K10-K for the year ended December 31, 2019.2020.

Use of Estimates.  The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Recent Events.  The pandemic spread of the disease caused by a new strain of coronavirus (“COVID-19”) and other worldly events have significantly impacted the price of crude oil and the demand for crude oil beginning in March of 2020.  While crude oil prices have partially recovered in June 2020 from recent historical lows in April 2020, the perceived risks and volatility have increased in 2020 to date compared to recent years.  See Note 12, Subsequent Events, for additional information.  

Accounting StandardStandards Updates effective January 1, 2020 2021

Credit Losses -Simplifying the Accounting for Income Taxes. In June 2016, December 2019, the Financial Accounting Standards Board (“FASB”("FASB") issued Accounting Standards Update (“ASU”("ASU") No. 2016-13,2019-12, Financial Instruments – Credit LossesIncome Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"). ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 326) (“740 and by clarifying and amending existing guidance.  ASU 2016-13”)2019-12 is effective for annual and subsequently issued additional guidance on this topic.  The new guidance eliminatesinterim financial statement periods beginning after December 15, 2020.  Adoption of the probable recognition threshold and broadens the information to consider past events, current conditions and forecasted information in estimating credit losses. The amendment did not have a material impact on our financial statements and did not affect the opening balance of Retained Deficit.or disclosures.

Derivatives and Hedging - In August 2017, the FASB issued Accounting Standards Update No. 2017-12, Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”) and subsequently issued additional guidance on this topic.  The amendments in ASU 2017-12 require an entity to present the earnings effect of the hedging instrument in the same income statement line in which the earnings effect of the hedged item is reported.  This presentation enables users of financial statements to better understand the results and costs of an entity’s hedging program.  Also, relative to current GAAP, this approach simplifies the financial statement reporting for qualifying hedging relationships.  As we do not designate our commodity derivative instruments as qualifying hedging instruments, this amendment did not impact the presentation of the changes in fair values of our commodity derivative instruments on our financial statements.

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

Revenue Recognition.  We recognize revenue from the sale of crude oil, natural gas liquids (“NGLs”),NGLs, and natural gas when our performance obligations are satisfied.  Our contracts with customers are primarily short-term (less than 12 months).  Our responsibilities to deliver a unit of crude oil, NGL, and natural gas under these contracts represent separate, distinct performance obligations.  These performance obligations are satisfied at the point in time control of each unit is transferred to the customer.  Pricing is primarily determined utilizing a particular pricing or market index, plus or minus adjustments reflecting quality or location differentials.

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

Employee Retention Credit.  Under the Consolidated Appropriations Act, 2021 passed by the United States Congress and signed by the President on December 27, 2020, provisions of the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") were extended and modified making the Company eligible for a refundable employee retention credit subject to meeting certain criteria. The Company recognized a $2.1 million employee retention credit during the three months ended March 31, 2021 which is included as a credit to General and administrative expenses in the Condensed Consolidated Statement of Operations. 

Credit Risk and Allowance for Credit Losses.  Our revenue has been concentrated in certain major oil and gas companies.  For the three months ended March 31, 2021, and the year ended December 31, 20192020, approximately 67% and for the three months ended March 31, 2020, approximately 63% and 57%62%, respectively, of our revenue was from three3 major oil and gas companies and a substantial majority of our receivables were from sales with major oil and gas companies.  We also have receivables related to joint interest arrangements primarily with mid-size oil and gas companies with a substantial majority of the net receivable balance concentrated in less than ten companies.  A loss methodology is used to develop the allowance for credit losses on material receivables to estimate the net amount to be collected.  The loss methodology uses historical data, current market conditions and forecasts of future economic conditions.  Our maximum exposure at any time would be the receivable balance.  The receivables, Joint interest and other, net, reported on the Condensed Consolidated Balance Sheets are reduced for the allowance for credit losses.  The roll forward of the allowance for credit losses iswas $9.1 million as follows: of March 31, 2021 and December 31, 2020. 

Prepaid Expenses and Other Assets.  The amounts recorded are expected to be realized within one year and the major categories are presented in the following table (in thousands):

Oil and Natural Gas Properties and Other, Net – At Cost.  Oil and natural gas properties and equipment are recorded at cost using the full cost method.  There were no amounts excluded from amortization as of the dates presented in the following table (in thousands):

W&T OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Other Assets (long-term). The major categories are presented in the following table (in thousands):

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

Other Liabilities (long-term).  The major categories are presented in the following table (in thousands):

W&T OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The components of our long-term debt are presented in the following table (in thousands):

Credit Agreement

On October 18, 2018, we entered into the Sixth Amended and Restated Credit Agreement (as amended, the “Credit Agreement”), which matures on October 18, 2022.On January 6, 2021, we entered into a Waiver, Consent to Second Amendment to Intercreditor Agreement and Fifth Amendment to Sixth Amended and Restated Credit Agreement (the “Fifth Amendment”) which amended the Credit Agreement.  The primary terms and covenants associated with the Credit Agreement as of March 31, 2021, as amended are as follows, with capitalized terms defined under the Credit Agreement:

Availability under the Credit Agreement is subject to semi-annual redeterminations of our borrowing base and the next scheduled redetermination is in or around May and Novemberthe spring of each calendar year, and additional2021.  Additional redeterminations may be requested at the discretion of either the lenders or the Company.  The borrowing base is calculated by our lenders based on their evaluation of our proved reserves and their own internal criteria.  Any redetermination by our lenders to change our borrowing base will result in a similar change in the availability under the Credit Agreement. See Note 12, Subsequent Events, for revisions to certain terms of the Credit Agreement, including the borrowing base, Leverage Ratio and collateral, resulting from the Spring 2020 semi-annual redetermination.

The Credit Agreement is collateralized by a first priority lien on properties constituting at least 85%90% of the total proved reserves of the Company as set forth on reserve reports required to be delivered under the Credit Agreement and certain personal property.  As of March 31, 2021 and December 31, 2020, we had $4.4 million of letters of credit issued and outstanding under the Credit Agreement.  The annualized interest rate on borrowings outstanding for the three months ended March 31, 2020 2021was 4.5%3.1%, whic which excludes debt issuance costs, commitment fees and other fees.

W&T OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

9.75% Senior Second Lien Notes Due 2023

On October 18, 2018, we issued $625.0 million of 9.75% Senior Second Lien Notes due 2023 (the “Senior Second Lien Notes”), which were issued at par with an interest rate of 9.75% per annum and mature on November 1, 2023, and are governed under the terms of the Indenture of the Senior Second Lien Notes (the “Indenture”).  The estimated annual effective interest rate on the Senior Second Lien Notes is 10.4% 9.2%, wwhichich includes amortization of debt issuance costs.  Interest on the Senior Second Lien Notes is payable in arrears on May 1 and November 1 of each year.

During the three monthsyear ended MarchDecember 31, 2020, we acquired $27.5$72.5 million in principal of our outstanding Senior Second Lien Notes for $8.5$23.9 million and recorded a non-cash gain on purchase of debt of $18.5$47.5 million, which included a reduction of $0.4$1.1 million related to the write-off of unamortized debt issuance costs. The Company purchased additionalNo such transactions were completed during the three months ended March 31, 2021.  As a result of these purchases, $552.5 million in principal amount of Senior Second Lien Notes subsequent to remains issued and outstanding as of March 31, 2020 (refer to Note 12, Subsequent Events).2021 and December 31, 2020.

The Senior Second Lien Notes are secured by a second-prioritysecond-priority lien on all of our assets that are secured under the Credit Agreement.  The Senior Second Lien Notes contain covenants that limit or prohibit our ability and the ability of certain of our subsidiaries to: (i) make investments; (ii) incur additional indebtedness or issue certain types of preferred stock; (iii) create certain liens; (iv) sell assets; (v) enter into agreements that restrict dividends or other payments from the Company’s subsidiaries to the Company; (vi) consolidate, merge or transfer all or substantially all of the assets of the Company; (vii) engage in transactions with affiliates; (viii) pay dividends or make other distributions on capital stock or subordinated indebtedness; and (ix) create subsidiaries that would not be restricted by the covenants of the Indenture.  These covenants are subject to exceptions and qualifications set forth in the Indenture.  In addition, most of the above described covenants will terminate if both S&P Global Ratings, a division of S&P Global Inc., and Moody’s Investors Service, Inc. assign the Senior Second Lien Notes an investment grade rating and no default exists with respect to the Senior Second Lien Notes.

Covenants 

As of March 31, 20202021 and for all prior measurement periods, we were in compliance with all applicable covenants of the Credit Agreement and the Indenture.

Fair Value Measurements 

For information about fair value measurements of our long-term debt, refer to Note 3.

Derivative Financial Instruments

We measure the fair value of our open derivative financial instruments by applying the income approach, using models with inputs that are classified within Level 2 of the valuation hierarchy.  The inputs used for the fair value measurement of our open derivative financial instruments are the exercise price, the expiration date, the settlement date, notional quantities, the implied volatility, the discount curve with spreads and published commodity future prices.  Our open derivative financial instruments are reported in the Condensed Consolidated Balance Sheets using fair value.  See Note 6, Derivative Financial Instruments, for additional information on our derivative financial instruments.

The following table presents the fair value of our open derivative financial instruments (in thousands):

Long-Term Debt

We believe the carryingnet value of our debt under the Credit Agreement approximates fair value because the interest rates are variable and reflective of current market rates. The fair value of our Senior Second Lien Notes was measured using quoted prices, although the market is not a very active market.  The fair value of our long-term debt was classified as Level 2 within the valuation hierarchy.  See Note 2, Long-Term Debt for additional information on our long-term debt.

The following table presents the carryingnet value and fair value of our long-term debt (in thousands):

W&T OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In March 2018, W&T and two other initial members formed and initially funded Monza, which jointly participates with us in the exploration, drilling and development of certain drilling projects (the “Joint Venture Drilling Program”) in the Gulf of Mexico.  Subsequent to the initial closing, additional investors joined as members of Monza during 2018 and total commitments by all members, including W&T's commitment to fund its retained interest in Monza projects held outside of Monza, are $361.4 million.  Through March 31, 2020, nine wells have been completed.  As of March 31, 2020, one additional well was drilled to target depth, but not completed as of this date.  W&T contributed 88.94% of its working interest in certain identified undeveloped drilling projects to Monza and retained 11.06% of its working interest.  The Joint Venture Drilling Program is structured so that we initially receive an aggregate of 30.0% of the revenues less expenses, through both our direct ownership of our retained working interest in the Monza projects and our indirect interest through our interest in Monza, for contributing 20.0% of the estimated total well costs plus associated leases and providing access to available infrastructure at agreed-upon rates.  Any exceptions to this structure are approved by the Monza board. W&T is the operator for seven of the nine wells completed through March 31, 2020.  

The members of Monza are made up of third-partythird-party investors, W&T and an entity owned and controlled by Mr. Tracy W. Krohn, our Chairman and Chief Executive Officer.  The Krohn entity invested as a minority investor on the same terms and conditions as the third-partythird-party investors, and its investment is limited to 4.5% of total invested capital within Monza.  The entity affiliated with Mr. Krohn has made a capital commitment to Monza of $14.5 million.

Monza is an entity separate from any other entity with its own separate creditors who will be entitled, upon its liquidation, to be satisfied out of Monza’s assets prior to any value in Monza becoming available to holders of its equity.  The assets of Monza are not available to pay creditors of the Company and its affiliates.

Through March 31, 2021, nine wells have been completed.  In 2020,one well was drilled to target depth, which we expect to be completed in the second quarter of 2021.  W&T is the operator for seven of the nine wells completed through March 31, 2021.  

Through March 31, 2021, members of Monza made partner capital contributions,contributions, including our contributions of working interest in the drilling projects, to Monza totaling $289.3$302.4 million and received cash distributions totaling $45.9$71.5 million.  Our net contribution to Monza, reduced by distributions received, as of March 31, 20202021 was $57.1$53.0 million.  W&T is obligated to fund certain cost overruns to the extent they occur, subject to certain exceptions, for the Joint Venture Drilling Program wells above budgeted and contingency amounts, of which the total exposure cannot be estimated at this time.

Consolidation and Carrying Amounts

Our interest in Monza is considered to be a variable interest that we account for using proportional consolidation.  Through March 31, 2020,2021, there have been no events or changes that would cause a redetermination of the variable interest status.  We do not fully consolidate Monza because we are not considered the primary beneficiarybeneficiary of Monza.  As of March 31, 2020,2021, in the Condensed Consolidated Balance Sheet, we recorded $15.1$8.0 million, net, in Oil and natural gas properties and other, net $4.2, $4.1 million in Other assets $0.1, $0.2 million in AROAsset Retirement Obligations ("ARO") and $2.4$1.6 million, net, increase in working capital in connection with our proportional interest in Monza’s assets and liabilities.  As of December 31, 2019,2020, in the Condensed Consolidated Balance Sheet, we recorded $16.1$9.9 million, net, in Oil and natural gas properties and other, net $5.3, $1.8 million in Other assets $0.1, $0.2 million in ARO and $2.7$1.3 million, net, increase in working capital in connection with our proportional interest in Monza’s assets and liabilities.  Additionally, during the three months ended March 31, 20202021 and during the year ended December 31, 2019,2020, we called on Monza to provide cash to fund its portion of certain Joint Venture Drilling Program projects in advance of capital expenditure spending, and the unused balances as of March 31, 20202021 and December 31, 20192020 were $18.3$6.3 million and $5.3$7.3 million, respectively, which are included in the Condensed Consolidated Balance Sheet in Advances from joint interest partners.partners.  For the three months ended March 31, 2020,2021, in the Condensed Consolidated Statement of Operations, we recorded $3.3$2.5 million in Total revenues and $3.1$3.4 million in Operating costs and expenses in connection with our proportional interest in Monza’s operations.  For the three monthsyear ended MarchDecember 31, 2019,2020, in the Condensed Consolidated Statement of Operations, we recorded $1.6$8.4 million in Total revenues and, $0.9$12.1 million in Operating costs and expenses in connection with our proportional interest in Monza’s operations.

W&T OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Our asset retirement obligations (“ARO”)ARO represent the estimated present value of the amount incurred to plug, abandon and remediate our properties at the end of their productive lives.

A summary of the changes to our ARO is as follows (in thousands):

Our market risk exposure relates primarily to commodity prices and, from time to time, we use various derivative instruments to manage our exposure to this commodity price risk from sales of our crude oil and natural gas.  All of the present derivative counterparties are also lenders or affiliates of lenders participating in our Credit Agreement.  We are exposed to credit loss in the event of nonperformance by the derivative counterparties; however, we currently anticipate that each of our derivative counterparties will be able to fulfill their contractual obligations.  We are not required to provide additional collateral to the derivative counterparties and we do not require collateral from our derivative counterparties.

We have elected not to designate our commodity derivative contracts as hedging instruments; therefore, all current period changes in the fair value of derivative contracts wereare recognized currently in earnings during the periods presented.  The cash flows of all of our commodity derivative contracts are included in Net cash provided by operating activities on the Condensed Consolidated Statements of Cash Flows.

We entered into commodity contracts for crude oil and natural gas which related to a portion of our expected future production.  The crude oil contracts are based on West Texas Intermediate (“WTI”) crude oil prices and the natural gas contracts are based off the Henry Hub prices, both of which are quoted off the New York Mercantile Exchange (“NYMEX”).  The open contracts as of March 31, 20202021 are presented in the following tables:

W&T OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

The following amounts were recorded in the Condensed Consolidated Balance Sheets in the categories presented and include the fair value of open contracts, and closed contracts which had not yet settled (in thousands):

The amounts recorded on the Condensed Consolidated Balance Sheets are on a gross basis.  If these were recorded on a net settlement basis, it would not have resulted in any material differences in reported amounts.

Changes in the fair value and settlements of contracts are recorded on the Condensed Consolidated Statements of Operations as Derivative loss (gain). The impact of our commodity derivative contracts has on the condensed consolidated Statements of Operations were as follows (in thousands):

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

Cash receipts on commodity derivative contract settlements, net, are included within Net cash provided by operating activities on the Condensed Consolidated Statements of Cash Flows and were as follows (in thousands):

Our contract arrangements accounted for under the applicable GAAP for lease contracts consist of office leases, a land lease and various pipeline right-of-way contracts.  For these contracts, a right-of-use ("ROU") asset and lease liability was established based on our assumptions of the term, inflation rates and incremental borrowing rates. 

During the three months ended March 31, 2020, we terminated the existing office lease and executed a new lease on separate office space.  The remaining term of the current office lease extends to December 2020.  The term of the new office lease extends to February 2032.  When calculating the ROU asset and lease liability at the commencement of the new office lease, we have reduced future cash outflows by the lease incentive to be received.

The term of each pipeline right-of-way contract is 10 years with various effective dates, and each has an option to renew for up to another ten years.  It is expected renewals beyond 10 years can be obtained as renewals were granted to the previous lessees.  The land lease has an option to renew every five years extending to 2085.  The expected term of the rights-of way and land leases was estimated to approximate the life of the related reserves.   

We recorded ROU assets and lease liabilities using a discount rate of 9.75% for the office leases and 10.75% for the other leases due to their longer expected term. 

Amounts related to leases recorded within our Condensed Consolidated Balance Sheet are as follows (in thousands):

W&T OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Awards to Employees. In 2010, theThe W&T Offshore, Inc. Amended and Restated Incentive Compensation Plan (as amended from time to time, the “Plan”) was approved by our shareholders.  During 2019, 2018shareholders in 2010.  There were no RSUs granted during three months ended March 31, 2021 and 2017, the Companynone were granted restricted stock units (“RSUs”) under the Plan to certain of its employees.in 2020.  RSUs are a long-term compensation component, and are subject to satisfaction of certain predetermined performance criteria and adjustments at the end of the applicable performance period based on the results achieved.  In addition to share-based awards, the Company may grant to its employees cash-based incentive awards under the Plan, which may be used as short-term and long-term compensation components of the awards, and are subject to satisfaction of certain predetermined performance criteria.

As of March 31, 2020,2021, there were 10,874,04310,347,591 shares of common stock available for issuance in satisfaction of awards under the Plan.  The shares available for issuance are reduced on a one-for-oneone-for-one basis when RSUs are settled in shares of common stock, which shares of common stock are issued net of withholding tax through the withholding of shares.  The Company has the option following vesting to settle RSUs in stock or cash, or a combination of stock and cash. The Company expects to settle RSUs that vest in the future using shares of common stock.

RSUs currently outstanding relate to the 2019 and 2018 grants.  The 2019 and 2018 grants were subject to predetermined performance criteria applied against the applicable performance period.  All the RSUs currently outstanding are subject to employment-based criteria and vesting generally occurs in December of the second year after the grant.  SeeSubject to the table below for anticipated vesting by year.satisfaction of the service conditions, the outstanding RSUs issued to the eligible employees as of March 31, 2021, are eligible to vest in 2021.

We recognize compensation cost for share-based payments to employees over the period during which the recipient is required to provide service in exchange for the award.  Compensation cost is based on the fair value of the equity instrument on the date of grant.  The fair values for the RSUs granted during 2019, 2018 and 2017 were determined using the Company’s closing price on the grant date.  We also estimate forfeitures, resulting in the recognition of compensation cost only for those awards that are expected to actually vest.

All RSUs awarded are subject to forfeiture until vested and cannot be sold, transferred or otherwise disposed of during the restricted period.

A summary of activity related to RSUs during the three months ended March 31, 20202021 is as follows:

For the outstanding RSUs issued to the eligible employees as of March 31, 2020, vesting is expected to occur as follows (subject to forfeitures): 

W&T OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Awards to Non-Employee Directors.  Under the W&T Offshore, Inc. 2004 Directors Compensation Plan (as amended from time to time, the “Director Compensation Plan”), shares of restricted stock (“Restricted Shares”) have been granted to the Company’s non-employee directors.  Grants to non-employee directors were made during 2019, 20182020, and 2017.0 grants were made during the three months ended March 31, 2021.  During the second quarter of 2020, our shareholders approved increasing the shares available under the Director Compensation Plan by 500,000 shares.  As of March 31, 2020,2021, there were 82,620 473,244 shares of common stockstock available for issuance in satisfaction of awards under the Director Compensation Plan.  During the second quarter of 2020, our shareholders approved increasing the shares available by 500,000 shares.  During the second quarter of 2020, 109,376 Restricted Shares were granted to non-employee directors.  The shares available are reduced on a one-to-oneone-to-one basis when Restricted Shares are granted.

We recognize compensation cost for share-based payments to non-employee directors over the period during which the recipient is required to provide service in exchange for the award.  Compensation cost is based on the fair value of the equity instrument on the date of grant.  The fair values for the Restricted Shares granted were determined using the Company’s closing price on the grant date.  NoNaN forfeitures were estimated for the non-employee directors’ awards.

The Restricted Shares are subject to service conditions and vesting occurs at the end of specified service periods unless otherwise approved by the Board of Directors.  Restricted Shares cannot be sold, transferred or disposed of during the restricted period.  The holders of Restricted Shares generally have the same rights as a shareholder of the Company with respect to such Restricted Shares, including the right to vote and receive dividends or other distributions paid with respect to the Restricted Shares.

There was no activity related to Restricted Shares during the three months ended March 31, 2020.2021.

For the outstanding Restricted Shares issued to the non-employee directors as of March 31, 2020,2021, vesting is expected to occur as follows (subject to any forfeitures):

Share-Based Compensation.  Share-based compensation expense is recorded in the line General and administrative expenses in the Condensed Consolidated Statements of Operations. NaN share-based awards have been granted to date in 2021 under the Plan, and therefore, share-based compensation expense recorded during the three months ended March 31, 2021 related to prior periods' grants. The tax benefit related to compensation expense recognized under share-based payment arrangements was not meaningful and was minimal due to our income tax situation.  A summary of incentive compensation expense under share-based payment arrangements is as follows (in thousands):

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

Unrecognized Share-Based Compensation.  As of March 31, 2020,2021, unrecognized share-based compensation expense related to our awards of RSUs and Restricted Shares was $4.0was $0.9 million and $0.4 $0.1 million, respectively.  Unrecognized share-based compensation expense will be recognized through November 2021 for RSUs and April 2022 for Restricted Shares.

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

Cash-Based Incentive Compensation.  In addition to share-based compensation, short-term, cash-based incentive awards were granted under the Plan to substantially all eligible employees in 20192019.No cash-based incentive awards were granted in 2020, and 2018.therefore, 0 cash-based incentive compensation expense for 2020 was recorded.  The short-term, cash-based incentive awards, which are generally a short-term component of the Plan, are typically performance-based awards consisting of one or more business criteria or individual performance criteria and a targeted level or levels of performance with respect to each of such criteria.  In addition, thesethe 2019 cash-based incentive awards included an additional financial condition requiring Adjusted EBITDA less reported Interest Expense Incurred (terms as defined in the awards) for any fiscal quarter plus the three preceding quarters to exceed defined levels measured over defined time periods for each cash-based incentive award.  During 2018, long-term,On February 15, 2021, the Company received approval from the Compensation Committee of the Board of Directors for the payment of a discretionary cash awards were grantedbonus up to certain employeesthe amount of $7.6 million, subject to pre-defined performanceemployment-based criteria.  The Compensation Committee has not yet made any other decisions regarding the potential awarding of incentive compensation under the Plan in 2021.   Expense is recognized over the service period once the business criteria, individual performance criteria and financial condition are met. 

A summary of compensation expense related to share-based awards and cash-based awards is as follows (in thousands):

W&T OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Tax (Benefit) Expenseand Tax Rate.  Income tax (benefit) expense for the three months ended March 31, 2020 2021 and 20192020 was $6.5$(0.2) million and $0.2$6.5 million, respectively.  For the three months ended March 31, 2021, our effective tax rate differed from the statutory Federal tax rate primarily by the impact of state income taxes.  For the three months ended March 31, 2020, our effective tax rate primarily differed from the statutory Federal tax rate for adjustments recorded related to the enactment of the Coronavirus Aid, Relief and Economic SecurityCARES Act (“CARES Act”) on March 27, 2020.  The CARES Act modified certain income tax statutes, including changes related to the business interest expense limitation under Code Section 163(j)163(j).  For the three months ended March 31, 2019, immaterial deferred income tax expense was recorded due to dollar-for-dollar offsets by our valuation allowance.  Our effective tax rate was 21.4% for the three months ended March 31, 2021 and 9.0% for the three months ended March 31, 2020 and was not meaningful for the three months ended March 31, 2019.  2020.  

Valuation Allowance.Deferred tax assets are recorded related to net operating losses and temporary differences between the book and tax basis of assets and liabilities expected to produce tax deductions in future periods.  The realization of these assets depends on recognition of sufficient future taxable income in specific tax jurisdictions in which those temporary differences or net operating losses are deductible.   In assessing the need for a valuation allowance on our deferred tax assets, we consider whether it is more likely than not that some portion or all of them will not be realized.     

As of March 31, 2020 2021 and December 31, 2019, 2020, our valuation allowance was $47.8$22.0 million and $54.4$22.4 million, respectively, and relates primarily to state net operating losses and the disallowed interest expense limitation carryover. 

Income Taxes Receivable.  Receivable, Refunds and Payments.As of March 31, 2021 and December 31, 2020, we did not have any outstanding current income taxes receivable.As of March 31, 2020, and December 31, 2019, we had current income taxes receivable of $1.9 million, which relateswas received during the quarter ended June 30,2020.  The refund related primarily to a net operating loss (“NOL”) carryback claim for 2017 that was carried back to prior years. 

During the three months ended March 31, 2020 2021 and 2019,2020, we did not receive any income tax claimsrefunds or make any income tax payments of significance.

The tax years 20162017 through 20192020 remain open to examination by the tax jurisdictions to which we are subject.

The following table presents the calculation of basic and diluted (loss) earnings (loss) per common share (in thousands, except per share amounts):