|W&T OFFSHORE INC filed this Form 10-Q on 05/04/2017|
W&T OFFSHORE, INC. AND SUBSIDIARIES
Notification by ONRR of Fine for Non-compliance. In December 2013 and January 2014, we were notified by the Office of Natural Resources Revenue (“ONRR”) of an underpayment of royalties on certain Federal offshore oil and gas leases that cumulatively approximated $30,000 over several years, which represents 0.0045% of royalty payments paid by us during the same period of the underpayment. In March 2014, we received notice from the ONRR of a statutory fine of $2.3 million (subsequently reduced to approximately $1.1 million) relative to such underpayment. We believe the fine is excessive considering the circumstances and in relation to the amount of underpayment. A hearing on this matter was held with an Administrative Law Judge in August 2016. A decision on this case has been deferred and we are unable to estimate when a decision will be rendered. The ultimate resolution may result in a waiver of the fine, a reduction of the fine, or payment of the full amount plus interest covering several years. As no amount has been determined as more likely than any other within the range of possible resolutions, no amount was accrued as of March 31, 2017 or December 31, 2016.
Apache Lawsuit. On December 15, 2014, Apache Corporation (“Apache”) filed a lawsuit against W&T Offshore, Inc., alleging that W&T breached the joint operating agreement related to, among other things, the abandonment of deepwater wells in the Mississippi Canyon (“MC”) area of the Gulf of Mexico. On October 28, 2016, the jury made the following findings:
In November 2016 we filed a motion with the trial court requesting a judgment consistent with the jury’s finding that Apache acted in bad faith thereby causing W&T not to comply with the contract, which W&T asserted bars Apache from recovery for damages under applicable law, and if damages are not barred in their entirety, that any judgment for monetary damages should be offset by $17.0 million as determined by the jury. After Apache filed its opposing motion, a hearing was held by the trial court in December 2016. As of the filing date of this Quarterly Report on Form 10-Q (“Form 10-Q”), no judgment has been entered by the court.
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; 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 IBLA under the Department of the Interior. 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 are reviewing the decision with counsel to determine an appropriate course of action.